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CVE+A Husky Energy

Filed: 17 Nov 20, 5:01pm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16

Under the Securities Exchange Act of 1934

For the month of November 2020

Commission File Number: 001-04307

 

 

Husky Energy Inc.

(Exact name of registrant as specified in its charter)

 

 

707 – 8th Avenue S.W., Calgary, Alberta, Canada T2P 1H5

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ☐                Form 40-F  ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

On November 16, 2020, Husky Energy Inc. (“Husky”) filed a notice of special meeting of Husky securityholders, a joint management information circular, a letter of transmittal for Husky common shareholders, a letter of transmittal for Husky preferred shareholders, a form of proxy for Husky common shareholders, a form of proxy for Husky preferred shareholders, a form of proxy for Husky optionholders, a virtual shareholder meeting user guide and a certificate of abridgement, which are attached hereto as Exhibits A, B, C, D, E, F, G, H and I, respectively. All of the aforementioned materials were filed in connection with the special meeting of Husky securityholders to be held to consider a proposed plan of arrangement with Cenovus Energy Inc.

This report on Form 6-K shall be deemed to be incorporated by reference into Husky’s Registration Statements on Form F-10 (File No. 333-236603) and Form S-8 (File No. 333-187135) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

 

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  HUSKY ENERGY INC.
  BY: /s/ James D. Girgulis
   JAMES D. GIRGULIS
   SENIOR VICE PRESIDENT,
Date: November 17, 2020   GENERAL COUNSEL & SECRETARY


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Exhibit A

 

LOGO

NOTICE OF SPECIAL MEETING OF HUSKY SECURITYHOLDERS

NOTICE IS HEREBY GIVEN that a special meeting (the “Husky Meeting”) of the holders (“Husky Common Shareholders”) of common shares (“Husky Common Shares”) of Husky Energy Inc. (“Husky”), the holders (“Husky Optionholders”) of options to acquire Husky Common Shares (“Husky Options”) and the holders (“Husky Preferred Shareholders”) of cumulative redeemable preferred shares, series 1, 2, 3, 5 and 7 (collectively, the “Husky Preferred Shares”) of Husky will be held at 9:00 a.m. (Calgary time) on Tuesday, December 15, 2020 in a virtual-only format that will be conducted via live webcast accessible online at https://web.lumiagm.com/459526828 for the following purposes:

 

1.

to consider, pursuant to an interim order (the “Interim Order”) of the Court of Queen’s Bench of Alberta dated November 9, 2020, and, if deemed advisable, to approve, with or without variation, a special resolution of the Husky Common Shareholders, voting separately and together with the Husky Optionholders as a single class (the “Arrangement Resolution”), the full text of which is set forth in Appendix A to the accompanying joint management information circular dated November 9, 2020 (the “Information Circular”), to approve a plan of arrangement (the “Arrangement”) under section 193 of the Business Corporations Act (Alberta) (the “ABCA”) involving Husky, Husky Common Shareholders, Husky Optionholders, Husky Preferred Shareholders and Cenovus Energy Inc. (“Cenovus”), whereby, among other things, Cenovus will acquire all of the issued and outstanding Husky Common Shares, will exchange all of the issued and outstanding Husky Preferred Shares for preferred shares of Cenovus, and will exchange all of the outstanding Husky Options for replacement options to acquire common shares of Cenovus, all as more particularly described in the Information Circular;

 

2.

to consider, pursuant to the Interim Order, and, if deemed advisable, to approve, with or without variation, a special resolution of the Husky Preferred Shareholders, voting together as a single class (the “Preferred Shareholder Resolution”), the full text of which is set forth in Appendix B to the Information Circular, to approve the Arrangement; and

 

3.

to transact such further and other business as may properly be brought before the Husky Meeting or any adjournment(s) or postponement(s) thereof.

Specific details of the matters to be put before the Husky Meeting are set forth in the Information Circular.

The board of directors of Husky unanimously recommends that Husky Common Shareholders and Husky Optionholders vote FOR the Arrangement Resolution and that Husky Preferred Shareholders vote FOR the Preferred Shareholder Resolution.

It is a condition to the completion of the Arrangement that the Arrangement Resolution be approved by Husky Common Shareholders, and the Husky Common Shareholders and Husky Optionholders, voting together as a single class, at the Husky Meeting. Completion of the Arrangement is not conditional upon receiving the approval of the Preferred Shareholder Resolution by Husky Preferred Shareholders. If the Husky Preferred Shareholders do not approve the Preferred Shareholder Resolution or if more than 10% of Husky Preferred Shareholders dissent in respect of the Arrangement (unless waived by Cenovus), the Husky Preferred Shares will not be exchanged for preferred shares of Cenovus and will remain outstanding in a subsidiary of Cenovus following completion of the Arrangement and listed on the TSX.

The full text of the plan of arrangement (the “Plan of Arrangement”) implementing the Arrangement is attached as Appendix E to the Information Circular. The Interim Order is attached as Appendix F to the Information Circular.

Each Husky Common Share and each Husky Option entitled to be voted in respect of the Arrangement Resolution will entitle the holder to one vote at the Husky Meeting with respect to such resolution. The Arrangement Resolution must be approved by not less than 6623% of the votes cast by Husky Common Shareholders present in person (virtually) or represented by proxy at the Husky Meeting and not less than 6623% of the votes cast by Husky Common Shareholders and Husky Optionholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class.

Each Husky Preferred Share entitled to be voted in respect of the Preferred Shareholder Resolution will entitle the holder to one vote at the Husky Meeting with respect to such resolution. The Preferred Shareholder Resolution must be approved by not less than 6623% of the votes cast by Husky Preferred Shareholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class.

The record date (the “Husky Record Date”) for determination of Husky Common Shareholders, Husky Preferred Shareholders and Husky Optionholders entitled to receive notice of and to vote at the Husky Meeting is the close of business on November 9, 2020. Husky Common Shareholders, Husky Preferred Shareholders and Husky Optionholders whose names have been entered in the register of holders of Husky Common Shares, the register of holders of Husky Preferred Shares or the register of holders of Husky Options, as applicable, on the close of

 

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business on the Husky Record Date will be entitled to receive notice of and to vote at the Husky Meeting, provided that, to the extent that a Husky Common Shareholder or Husky Preferred Shareholder transfers the ownership of any Husky Common Shares or Husky Preferred Shares, as applicable, after the Husky Record Date and the transferee of those shares establishes ownership of such shares and demands, not later than 10 days before the Husky Meeting, to be included in the list of Husky Common Shareholders or Husky Preferred Shareholders, as applicable, eligible to vote at the Husky Meeting, such transferee will be entitled to vote those Husky Common Shares or Husky Preferred Shares, as applicable, at the Husky Meeting.

Due to the unprecedented public health impact of coronavirus disease 2019, also known as COVID-19, and in alignment with the recommendations of Canadian public health officials to cancel large public gatherings, the Husky Meeting will be held in a virtual-only format conducted via live webcast in order to help mitigate health and safety risks to the community, shareholders, employees and other stakeholders. Husky’s directors and management believe this format will provide Husky securityholders a safer opportunity to attend the Husky Meeting given ongoing restrictions on travel and public gatherings as well as health concerns. While Husky securityholders and duly appointed proxyholders will not be able to attend the Husky Meeting in person, regardless of geographic location and ownership, they will have an equal opportunity to participate at the Husky Meeting and vote on the applicable resolution.

Registered Husky Common Shareholders, Husky Optionholders and registered Husky Preferred Shareholders may attend the Husky Meeting in person (virtually) or may be represented by proxy. Husky Common Shareholders, Husky Optionholders and Husky Preferred Shareholders who are unable to attend the Husky Meeting or any adjournments or postponements thereof in person are requested to date, sign and return the accompanying form of proxy for use at the Husky Meeting or any adjournment or postponement thereof. To be effective, the applicable enclosed form of proxy must be dated, signed and deposited with Husky’s registrar and transfer agent, Computershare Trust Company of Canada: (i) by mail using the enclosed return envelope or one addressed to Computershare Trust Company of Canada, 8th Floor North Tower, 100 University Avenue, Toronto, Ontario, M5J 2Y1; (ii) by facsimile 1-866-249-7775; or (iii) through the internet at www.investorvote.com, no later than: (a) 9:00 a.m. (Calgary time) on December 11, 2020 or, if the Husky Meeting is adjourned or postponed, no later than 48 hours (excluding Saturdays, Sundays and statutory holidays in Alberta) before the beginning of any adjourned or postponed Husky Meeting. The time limit for the deposit of proxies may be waived or extended by the Chair of the Husky Meeting at his or her discretion without notice. To vote through the internet you will require your 15-digit control number found on your proxy form.

If a Husky Common Shareholder or a Husky Preferred Shareholder receives more than one form of proxy because such holder owns Husky Common Shares or Husky Preferred Shares registered in different names or addresses, each form of proxy should be completed and returned.

A proxyholder has discretion under the accompanying form of proxy in respect of amendments or variations to matters identified in this Notice and with respect to other matters which may properly come before the Husky Meeting, or any adjournment or postponement thereof. As of the date hereof, management of Husky knows of no amendments, variations or other matters to come before the Husky Meeting other than the matters set forth in this Notice. Husky Common Shareholders, Husky Optionholders and Husky Preferred Shareholders who are planning to return the form of proxy are encouraged to review the Information Circular carefully before submitting the proxy form.

It is the intention of the persons named in the applicable enclosed form of proxy, if not expressly directed to the contrary in such form of proxy, to vote in favour of the Arrangement Resolution and the Preferred Shareholder Resolution.

Pursuant to the Interim Order, registered holders of Husky Common Shares and registered holders of Husky Preferred Shares have been granted the right to dissent with respect to the Arrangement Resolution and the Preferred Shareholder Resolution, respectively, and, if the Arrangement becomes effective, to be paid the fair value of their Husky Common Shares or Husky Preferred Shares, respectively, in accordance with the provisions of section 191 of the ABCA, as modified by the Interim Order and the Plan of Arrangement. The right of a Husky Common Shareholder or a Husky Preferred Shareholder to dissent is more particularly described in the Information Circular and in the Interim Order and the text of section 191 of the ABCA, which are set forth in Appendices F and O, respectively, to the accompanying Information Circular. To exercise such right to dissent, a dissenting Husky Common Shareholder or a dissenting Husky Preferred Shareholder must send to Husky, c/o Osler, Hoskin & Harcourt LLP, Suite 2500, TC Energy Tower, 450 – 1st Street S.W., Calgary, Alberta, T2P 5H1, Attention: Tristram Mallett, a written objection to the Arrangement Resolution or Preferred Shareholder Resolution, as the case may be, which written objection must be received by 5:00 p.m. (Calgary time) on December 8, 2020 or the fifth business day immediately preceding the date of any adjournment or postponement of the Husky Meeting, as applicable. Notwithstanding the foregoing, registered Husky Preferred Shareholders who have validly exercised their right to dissent shall not be entitled to dissent nor to be paid the fair value of their Husky Preferred Shares in the event that the Husky Preferred Shares are not exchanged for preferred shares of Cenovus pursuant to the Arrangement.

Failure to strictly comply with the requirements set forth in section 191 of the ABCA, as modified by the Interim Order and the Plan of Arrangement, may result in the loss of any right of dissent. Persons who are beneficial owners of Husky Common Shares or Husky Preferred Shares registered in the name of a broker, dealer, bank, trust company or other nominee who wish to dissent should be aware that only the registered holders of such Husky Common Shares or Husky Preferred Shares are entitled to dissent. Accordingly, a beneficial owner of Husky Common Shares or Husky Preferred Shares desiring to exercise the right of dissent must make arrangements for the Husky Common Shares or Husky Preferred Shares beneficially owned by such holder to be registered in the

 

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holder’s name prior to the time the written objection to the Arrangement Resolution or the Preferred Shareholder Resolution, as applicable, is required to be received by Husky or, alternatively, make arrangements for the registered holder of such Husky Common Shares or Husky Preferred Shares to dissent on behalf of the beneficial holder. It is strongly recommended that any Husky Common Shareholders and Husky Preferred Shareholders wishing to dissent seek independent legal advice.

Dated at Calgary, Alberta, this 9th day of November, 2020.

 

BY ORDER OF THE BOARD OF DIRECTORS OF HUSKY ENERGY INC.

(signed) “James D. Girgulis

James D. Girgulis, Q.C.

Senior Vice President, General Counsel & Secretary

Husky Energy Inc.

 

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Exhibit B

LOGO


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These materials are important and require your immediate attention. They require securityholders of Husky Energy Inc. (“Husky”) and Cenovus Energy Inc. (“Cenovus”) to make important decisions. If you are in doubt as to how to make these decisions or require assistance with voting your securities of Husky or Cenovus, please contact your financial, legal, tax or other professional advisors. Shareholders of Cenovus may also contact Cenovus’s strategic shareholder advisor and proxy solicitation agent, Kingsdale Advisors by: (A) telephone at (i) 1-866-851-4179 (North American Toll-Free Number); or (ii) 1-416-867-2272 (collect calls outside North America); or (B) email at contactus@kingsdaleadvisors.com. No securities regulatory authority has expressed an opinion about, or passed upon the fairness or merits of the transaction described in this document, the securities being offered pursuant to such transaction or the adequacy of the information contained in this document and it is an offense to claim otherwise.


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TABLE OF CONTENTS

 

LETTER TO HUSKY SHAREHOLDERS AND OPTIONHOLDERS   i 
LETTER TO CENOVUS COMMON SHAREHOLDERS   v 
HUSKY Q&A   ix 
CENOVUS Q&A   xviii 
NOTICE OF SPECIAL MEETING OF HUSKY SECURITYHOLDERS   xxvi 
NOTICE OF SPECIAL MEETING OF CENOVUS SHAREHOLDERS   xxix 
NOTICE OF APPLICATION   xxxi 
GLOSSARY OF TERMS   1 
CONVENTIONS   14 
ABBREVIATIONS   15 
JOINT MANAGEMENT INFORMATION CIRCULAR   16 
FORWARD-LOOKING STATEMENTS   19 
ADVISORY REGARDING OIL AND GAS INFORMATION   25 
INFORMATION FOR BENEFICIAL HOLDERS   26 
SUMMARY   28 
THE ARRANGEMENT   49 

General

   49 

Background to the Arrangement

   49 

Reasons for the Arrangement

   54 

Attributes of the Combined Company

   59 

Husky Fairness Opinions

   61 

Cenovus Fairness Opinions

   63 

Recommendation of the Husky Board

   66 

Recommendation of the Cenovus Board

   66 
EFFECT OF THE ARRANGEMENT   67 

General

   67 

Husky Incentive Awards

   68 

Cenovus Incentive Awards

   69 

Board and Management

   69 

Details of the Arrangement

   69 

The Arrangement Agreement

   70 

Support Agreements

   79 

Standstill Agreements

   79 

Pre-Emptive Rights Agreement

   82 

Registration Rights Agreement

   82 

Description of the Cenovus Warrants

   83 
PROCEDURE FOR THE ARRANGEMENT TO BECOME EFFECTIVE   85 

Procedural Steps

   85 

Securityholder Approvals

   86 

Court Approval

   86 

Regulatory Approvals

   87 

Securities Law Matters

   90 

Procedure for Exchange of Husky Share Certificates or DRS Advices

   92 
INTERESTS OF CERTAIN PERSONS OR COMPANIES IN THE ARRANGEMENT   94 

Husky

   94 

Cenovus

   97 

Combined Company Appointments

   97 

LEGAL DEVELOPMENTS

   98 

DISSENT RIGHTS

   98 
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS   100 

Holders Resident in Canada

   100 

Holders Not Resident in Canada

   104 

Dissenting Non-Resident Holders

   105 
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS   106 

Certain U.S. Federal Income Tax Considerations for U.S. Holders Relating to the Arrangement

   108 

Certain U.S. Federal Income Tax Considerations for U.S. Holders of the Ownership, Exercise and Disposition of Cenovus Warrants

   109 

Passive Foreign Investment Company Status of Cenovus

   110 

Additional Considerations

   110 
OTHER TAX CONSIDERATIONS   111 
PRO FORMA INFORMATION CONCERNING THE COMBINED COMPANY   111 

Notice to Reader

   111 

General

   111 

Description of Share Capital of the Combined Company

   112 

Selected Pro Forma Financial Information

   115 

Selected Pro Forma Operational Information

   116 

Pro Forma Consolidated Capitalization

   117 

Dividends

   118 

Credit Ratings

   118 

Principal Holders of Cenovus Common Shares

   119 

Directors and Executive Officers after the Arrangement

   119 

Corporate Governance and Audit Committee

   120 

Conflicts of Interest

   120 

Statement of Proposed Executive Compensation

   120 

Indebtedness of Directors, Officers and Other Management

   120 

Auditors, Transfer Agent and Registrar

   120 

Material Contracts

   121 

Risk Factors

   121 
 


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APPENDICES

 

APPENDIX A

  

  

Arrangement Resolution

APPENDIX B

  

  

Preferred Shareholder Resolution

APPENDIX C

  

  

Share Issuance Resolution

APPENDIX D

  

  

Arrangement Agreement

APPENDIX E

  

  

Plan of Arrangement

APPENDIX F

  

  

Interim Order

APPENDIX G

  

  

Goldman Sachs Fairness Opinion

APPENDIX H

  

  

CIBC Common Shareholder Fairness Opinion

APPENDIX I

  

  

CIBC Preferred Shareholder Fairness Opinion

APPENDIX J

  

  

RBC Fairness Opinion

APPENDIX K

  

  

TD Fairness Opinion

APPENDIX L

  

  

Unaudited Consolidated Pro Forma Financial Statements of the Combined Company

APPENDIX M

  

  

Information Concerning Husky Energy Inc.

APPENDIX N

  

  

Information Concerning Cenovus Energy Inc.

APPENDIX O

  

  

Section 191 of the Business Corporation Act (Alberta)

APPENDIX P

  

  

Comparison of Shareholder Rights


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LOGO

LETTER TO HUSKY SHAREHOLDERS AND OPTIONHOLDERS

November 9, 2020

Dear Husky Shareholders and Husky Optionholders:

You are invited to attend a special meeting (the “Husky Meeting”) of the holders (the “Husky Common Shareholders”) of common shares (“Husky Common Shares”) of Husky Energy Inc. (“Husky”, “we”, “us”, or “our”), the holders (the “Husky Optionholders”) of options to acquire Husky Common Shares (the “Husky Options”) and the holders of preferred shares (“Husky Preferred Shares”) of Husky (the “Husky Preferred Shareholders” and together with the Husky Common Shareholders, the “Husky Shareholders”) to be held on Tuesday, December 15, 2020 at 9:00 a.m. (Calgary time) in a virtual-only format that will be conducted via live webcast accessible at https://web.lumiagm.com/459526828, password “husky2020” (case sensitive).

At the Husky Meeting, the Husky Shareholders and Husky Optionholders will be asked to consider and vote on special resolutions approving the plan of arrangement (the “Arrangement”) under section 193 of the Business Corporations Act (Alberta), involving the acquisition by Cenovus Energy Inc. (“Cenovus”) of all of the issued and outstanding Husky Common Shares and Husky Preferred Shares, as more particularly described in the joint management information circular of Cenovus and Husky dated November 9, 2020 (the “Information Circular”).

Please complete the enclosed form of proxy and submit it to Husky’s transfer agent and registrar, Computershare Trust Company of Canada, as soon as possible but not later than 9:00 a.m. (Calgary time) on December 11, 2020, or 48 hours (excluding Saturdays, Sundays and statutory holidays in the Province of Alberta) prior to the time of any adjournment or postponement of the Husky Meeting (the “Husky Proxy Deadline”). Registered Husky Common Shareholders and Husky Optionholders will be able to sign in to the Husky Meeting using the 15-digit control number provided with the meeting materials and password “husky2020” (case sensitive).

Beneficial Husky Common Shareholders (being Husky Common Shareholders who hold their Husky Common Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) can appoint themselves or a proxyholder to participate in the virtual Husky Meeting.

Registered Husky Common Shareholders and Husky Optionholders who appoint a proxyholder, and beneficial Husky Common Shareholders who appoint themselves or a proxyholder to participate in the virtual Husky Meeting, MUST also visit http://www.computershare.com/HuskyEnergy to register their or their proxyholder’s name and email address so that, after the Husky Proxy Deadline, Computershare can send via email a Username that will be required (with case-sensitive password “husky2020”) to log into the Husky Meeting.

If you do not follow both of these steps, you or your proxyholder will only be able to enter the meeting as a guest.

Registered Husky Shareholders should also complete and return the enclosed Letter of Transmittal which, when properly completed and returned together with the certificate(s) or DRS Advice(s) representing Husky Common Shares and/or Husky Preferred Shares, as the case may be, and all other required documents, will enable each Husky Shareholder to obtain the consideration that the Husky Shareholder is entitled to receive under the Arrangement.

The Arrangement Agreement

Husky and Cenovus agreed to combine their respective businesses and entered into an arrangement agreement dated October 24, 2020 (the “Arrangement Agreement”) which was unanimously approved by the respective boards of directors of Husky and Cenovus. Pursuant to the Arrangement Agreement and the accompanying Plan of Arrangement, Cenovus will acquire all of the issued and outstanding Husky Common Shares and, if approved by not less than 6623% of the votes cast by Husky Preferred Shareholders, voting together as a single class, and not more than 10% of Husky Preferred Shareholders dissent in respect of the Arrangement (unless waived by Cenovus), each series of Husky Preferred Shares will be exchanged for a series of First Preferred Shares of Cenovus (“Cenovus Preferred Shares”) having substantially identical terms as such series of Husky Preferred Shares. Husky Common Shareholders will exchange a portion of their Husky Common Shares for Cenovus Common Shares and the remaining portion of their Husky Common Shares for common share purchase warrants to acquire Cenovus Common Shares (“Cenovus Warrants”), such that, in aggregate, each Husky Common Shareholder will receive, in respect of each Husky Common Share, 0.7845 of a Cenovus Common Share and 0.0651 of a Cenovus Warrant (the “Consideration”). Each whole Cenovus Warrant will entitle the holder thereof to acquire one Cenovus Common Share upon payment in full of the exercise price of $6.54 per Cenovus Common Share at any time up to 60 months following completion of the Arrangement. In exchange for their Husky Options, each Husky Optionholder will receive an option to acquire such number of Cenovus Common Shares as is equal to that number of Husky Common Shares that were issuable upon exercise of such Husky Option, multiplied by 0.7845, with an exercise price per Cenovus Common Share equal to the exercise price per share of such Husky Option divided by 0.7845 and rounded up to the nearest whole cent (the “Cenovus Replacement Options”). Completion of the Arrangement is not conditional upon the approval of the Arrangement by the Husky Preferred Shareholders.

 

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Former Husky Common Shareholders are expected to own approximately 39% of the combined company immediately after completion of the Arrangement (or 41% on a partially-diluted basis assuming the exercise of all Cenovus Warrants issued pursuant to the Arrangement). Current Cenovus Common Shareholders are expected to own approximately 61% of the combined company immediately after completion of the Arrangement (or 59% on a partially-diluted basis assuming the exercise of all Cenovus Warrants issued pursuant to the Arrangement).

The Arrangement is currently anticipated to be completed in the first quarter of 2021, subject to satisfaction or waiver of all conditions precedent in the Arrangement Agreement, including receipt of all court and regulatory approvals. Upon completion of the transaction, the combined company will continue to operate as Cenovus and remain headquartered in Calgary, Alberta.

Benefits of the Arrangement

Creation of a Resilient Integrated Energy Company

Husky and Cenovus anticipate the combination will create a resilient integrated energy leader with a total enterprise value of approximately $23.6 billion (calculated as at the date of the announcement of the Arrangement) with a cost-and-market-advantaged asset portfolio, which can prioritize free funds flow generation, balance sheet strength and returns to shareholders.

The combined company will be the third largest Canadian-based oil and natural gas producer, with approximately 750,000 boe/d of low-cost oil and natural gas production. The anticipated annual sustaining capital requirements to support the combined company’s upstream production and downstream operations is approximately $2.4 billion, a reduction of more than $600 million per year compared to the two companies on a standalone basis. Furthermore, the combined company’s expanded portfolio is expected to enable more efficient, returns-focused capital allocation. With an estimated proved plus probable reserves life index of approximately 33 years, consisting mostly of low-cost reserves, the combination is expected to result in reduced re-investment risk to sustain production at current levels.

The combined company will also be the second largest Canadian-based refiner and upgrader, with total North American upgrading and refining capacity of approximately 660,000 bbls/d, which includes approximately 350,000 bbls/d of heavy oil conversion capacity. Together with Husky, the new Cenovus will have approximately 265,000 bbls/d of current takeaway capacity out of Alberta on existing major pipelines, and approximately 305,000 bbls/d of committed capacity on planned pipelines. In addition, it will have approximately 16 million barrels of crude oil storage capacity and crude-by-rail assets providing approximately 120,000 bbls/d takeaway optionality. Taken together, this results in processing capacity and egress out of Alberta for the majority of the combined company’s oil sands and heavy oil production, significantly reducing financial risks related to Western Canada Select pricing while maintaining healthy exposure to global commodity prices.

Annual Corporate and Operating Synergies and Improved Capital Allocation Opportunities

Further improving cost structure, an estimated $1.2 billion of incremental annual free funds flow, including approximately $600 million in annual corporate and operating synergies and approximately $600 million in annual sustaining capital allocation synergies, are achievable independent of commodity prices. These synergies are the product of Cenovus’s and Husky’s rigorous and disciplined evaluation process to identify the specific efficiencies that can be gained. The vast majority of the annual savings are expected to be achieved in the first year of combined operations, with the full amount of the annual run rate synergies anticipated within year two. Over the longer term, Cenovus and Husky anticipate additional cost savings and margin enhancements based on further physical integration, including connecting upstream assets with the upgrading complex at Lloydminster, Saskatchewan, storage and blending operations at Hardisty, Alberta and the large U.S. refining assets in PADD 2 and PADD 3. The integration of Cenovus’s upstream assets with Husky’s downstream and midstream portfolio is expected to also shorten the value chain and reduce condensate costs associated with heavy oil transportation over the longer term. These longer term anticipated synergies are not included in the estimated $1.2 billion annual synergies anticipated in the first two years of combined operations.

The approximately $600 million in annual corporate and operating cost synergies are expected through reductions to combined workforce and corporate overhead costs including streamlined IT systems and procurement savings through economies of scale. Immediate efficiencies are also expected by implementing best practices from each company, including applying Cenovus’s operating expertise to Husky’s oil sands assets, leveraging the increased portfolio’s scale in the Deep Basin, and pursuing commercial and contract-related efficiencies on midstream marketing and blending opportunities.

Enhanced Free Funds Flow Generation and Investment Grade Metrics

The resulting low funds flow volatility, breakeven price and corporate sustaining costs of the combined company supports an investment grade credit profile and a lower cost of capital through the commodity price cycle. Based on the assumptions contained in the Information Circular, the combined company is expected to have ample current liquidity with $8.5 billion in undrawn committed credit facilities and no bond maturities until 2022.

Furthermore, the estimated $1.2 billion of incremental annual free funds flow from identified near-term synergies is expected to accelerate balance sheet deleveraging. After achieving its balance sheet objectives, the combined company’s free funds flow profile is expected to enable sustainable growth in shareholder distributions and a returns-focused organic capital investment program with residual free funds flow. Following completion of the Arrangement, Cenovus and Husky anticipate approval by the board of directors of the combined company of a quarterly dividend of $0.0175 per share.

 

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Uncompromising Commitment to Safety and ESG Leadership

Cenovus’s and Husky’s commitments to world-class safety performance and environmental, social and governance (ESG) leadership will remain core to the combined company. This will include ambitious ESG targets, robust management systems and transparent performance reporting. The combined company will continue working to earn a position as a global energy supplier of choice by advancing clean technology and reducing emissions intensity. This includes maintaining the ambition established by each company of achieving net zero emissions by 2050. The combined company will also make it a priority to continue building upon the strong local community relationships already established by both Cenovus and Husky, with a focus on Indigenous economic reconciliation. Striking the right balance among environmental, economic and social considerations will continue to be central to the combined company’s strategy of creating long-term value and business resilience.

The targets that each of Cenovus and Husky released earlier this year for key ESG focus areas are the products of robust processes to ensure alignment with the companies’ business plans and strategies. The combined company will remain committed to pursuing ESG targets and will undertake a similarly thorough analysis within the context of the combined company’s business plan before setting meaningful targets for the combined portfolio. Once that work is complete in 2021 and approved by the combined company’s board of directors, the new targets and plans to achieve them will be disclosed. Leading safety practices, strong governance and advancing diversity and inclusion will remain central to the combined company’s ESG commitments.

For additional information with respect to these and other anticipated benefits of the Arrangement, see the sections in the Information Circular entitled “The Arrangement – Reasons for the Arrangement – Husky Board” and “The Arrangement – Attributes of the Combined Company”.

Board of Directors and Management

Following completion of the Arrangement, Alex J. Pourbaix, the current President & Chief Executive Officer of Cenovus, will serve as President & Chief Executive Officer of the combined company. Further, Jeffrey R. Hart, the current Chief Financial Officer of Husky, will serve as Executive Vice-President & Chief Financial Officer of the combined company, and Jonathan M. McKenzie, the current Executive Vice-President & Chief Financial Officer of Cenovus, will serve as Executive Vice-President & Chief Operating Officer of the combined company. Keith A. MacPhail, the current Chair of the board of directors of Cenovus (the “Cenovus Board”), will serve as Independent Board Chair of the combined company. The remainder of senior management will be selected from each of Cenovus and Husky and named prior to the completion of the Arrangement.

The board of directors of the combined company following completion of the Arrangement will consist of eight members of the current Cenovus Board, including Keith A. MacPhail (as Independent Board Chair) and Alex J. Pourbaix, with Keith M. Casey, Jane E. Kinney, Harold N. Kvisle, Richard J. Marcogliese, Claude Mongeau, and Rhonda I. Zygocki expected to continue as members of the combined company’s board of directors, and four members of the current board of directors of Husky (the “Husky Board”), with Canning K. N. Fok, Eva L. Kwok, Wayne E. Shaw and Frank J. Sixt being the members expected to join the combined company’s board of directors.

Shareholder and Optionholder Votes

The Arrangement must be approved by (i) not less than 6623% of the votes cast by Husky Common Shareholders present in person (virtually) or represented by proxy at the Husky Meeting and (ii) not less than 6623% of the votes cast by Husky Common Shareholders and Husky Optionholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class (the “Arrangement Resolution”). In addition to the approval of the Husky Common Shareholders and Husky Optionholders, completion of the Arrangement is subject to the approval by Cenovus Common Shareholders of an ordinary resolution approving, among other things, the issuance of such number of Cenovus Common Shares and Cenovus Warrants (the “Share Issuance Resolution”) as are required to be issued pursuant to and in connection with the Arrangement.

Completion is also subject to, among other things: (i) the approval of the Court of Queen’s Bench of Alberta; (ii) the approval of the listing of the Cenovus Common Shares and Cenovus Warrants to be issued pursuant to the Share Issuance Resolution, and the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants, on the Toronto Stock Exchange (the “TSX”) and the New York Stock Exchange; and (iii) the receipt of all other necessary regulatory approvals. If the Arrangement Resolution is not approved at the Husky Meeting, the Arrangement will not be completed. Similarly, if the Share Issuance Resolution is not approved at the Cenovus Meeting, the Arrangement will not be completed.

In addition, Husky will seek the approval of the Arrangement by not less than 6623% of the votes cast by Husky Preferred Shareholders (the “Preferred Shareholder Resolution”) present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class, to allow the Husky Preferred Shareholders to participate in the Arrangement by exchanging their Husky Preferred Shares, on a one-for-one basis, for Cenovus Preferred Shares, issuable in series, and having, on a series-by-series basis, substantially identical terms as the corresponding series of Husky Preferred Shares. Approval of the Preferred Shareholder Resolution is not required in order to complete the Arrangement. If the Husky Preferred Shareholders do not approve the Preferred Shareholder Resolution at the Husky Meeting (or if the Preferred Shareholder Resolution is approved and, unless otherwise determined by Cenovus in its sole discretion, holders of more than 10% of the Husky Preferred Shares have validly exercised, and not withdrawn, dissent and appraisal rights in connection with the Arrangement), and both the Share Issuance Resolution and the Arrangement Resolution are approved at their respective meetings, the Husky Preferred Shares will not be exchanged for Cenovus Preferred Shares pursuant to the Plan of Arrangement and will remain outstanding in a subsidiary of Cenovus following completion of the Arrangement and listed on the TSX. Subject to approval of the Preferred Shareholder Resolution, Cenovus has applied to list the Cenovus Preferred Shares to be issued in exchange for the Husky Preferred Shares on the TSX.

Support Agreements

The Arrangement has the support of Hutchison Whampoa Europe Investments S.à r.l. and L.F. Investments S.à r.l. (together, the “Supporting Husky Shareholders” and each a “Supporting Husky Shareholder”), major shareholders of Husky, which hold approximately 40.19% and

 

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29.32%, respectively, of the issued and outstanding Husky Common Shares. Each Supporting Husky Shareholder has entered into a separate hard lock-up agreement with Cenovus, pursuant to which such Supporting Husky Shareholder has irrevocably agreed to vote in favour of the Arrangement at the Husky Meeting, except in limited circumstances.

Fairness Opinions

Goldman Sachs Canada Inc. (“Goldman Sachs”) and CIBC World Markets Inc. (“CIBC Capital Markets”) acted as co-financial advisors to Husky and provided the Husky Board with their respective opinions (the “Husky Fairness Opinions”) to the effect that, as of October 24, 2020 and October 23, 2020, respectively, based upon and subject to the assumptions, qualifications and limitations set forth therein, the Consideration to be received by the Husky Common Shareholders was fair, from a financial point of view, to the Husky Common Shareholders. CIBC Capital Markets also provided the Husky Board with its opinion to the effect that, as of October 23, 2020, based upon and subject to the assumptions, qualifications and limitations set forth therein, the consideration to be received by the Husky Preferred Shareholders pursuant to the Arrangement was fair, from a financial point of view, to the Husky Preferred Shareholders. The full text of the written opinion of Goldman Sachs, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, is contained in Appendix G to the Information Circular. The full texts of the written opinions of CIBC Capital Markets are contained in Appendices H and I to the Information Circular. Each of Goldman Sachs and CIBC Capital Markets provided its opinion(s) solely for the information and assistance of the Husky Board in connection with its consideration of the transaction. Each Husky Fairness Opinion is not a recommendation as to how any Husky Shareholder should vote with respect to the transaction, or any other matter.

Recommendation

After consulting with Husky’s senior management and with its financial, legal, tax and other advisors, and after considering, among other things, the Husky Fairness Opinions, the Husky Board has unanimously: (i) determined that the Arrangement and the entry into the Arrangement Agreement are in the best interests of Husky; (ii) determined that the Arrangement is fair to Husky Common Shareholders and Husky Preferred Shareholders; (iii) approved the Arrangement Agreement and the transactions contemplated thereby; (iv) recommended that Husky Common Shareholders and Husky Optionholders vote in favour of the Arrangement Resolution; and (v) recommended that Husky Preferred Shareholders vote in favour of the Preferred Shareholder Resolution.

The Information Circular contains a detailed description of the Arrangement, as well as detailed information regarding Husky and Cenovus and certain pro forma and other information of the combined company after giving effect to the Arrangement. It also includes certain risk factors relating to Husky, Cenovus, the Arrangement and the combined company. Please give this material your careful consideration and, if you require assistance, consult your financial, legal, tax or other professional advisors.

Due to the unprecedented public health impact of coronavirus disease 2019, also known as COVID-19, and in alignment with the recommendations of Canadian public health officials to cancel large public gatherings, the Husky Meeting will be held in a virtual-only format conducted via live webcast online at https://web.lumiagm.com/459526828 and password “husky2020” (case sensitive). The virtual-only format for the Husky Meeting will help mitigate health and safety risks to the community, shareholders, employees and other stakeholders. At this website, Husky Shareholders and Husky Optionholders and duly appointed proxyholders will be able to hear the meeting live, submit questions and vote their securities on all items of business while the Husky Meeting is being held. While Husky Shareholders, Husky Optionholders and duly appointed proxyholders will not be able to attend the Husky Meeting in person, regardless of geographic location and ownership, they will have an equal opportunity to participate at the Husky Meeting and vote on the Arrangement Resolution or the Preferred Shareholder Resolution, as applicable. Detailed instructions about how to participate in the Husky Meeting can be found in the Notice of Special Meeting of Husky Securityholders and the Information Circular.

Your vote is important to Husky and we strongly encourage you to participate in the Husky Meeting or submit the applicable enclosed form of proxy or voting information form. If you have any questions about any of the information or require assistance in completing your form of proxy or voting instruction form for your Husky securities, as applicable, please contact your financial, legal, tax or other professional advisors.

On behalf of the board of directors of Husky, I would like to express our gratitude for the support our shareholders have demonstrated with respect to our decision to take the proposed Arrangement forward. We believe that this is a transformational opportunity for both Husky and Cenovus shareholders and will create a new, Canadian-headquartered, integrated energy leader that reflects our shared commitment to creating value and unlocking growth potential for shareholders.

We look forward to your participation at the Husky Meeting.

Yours sincerely,

(signed) “Robert J. Peabody

Robert J. Peabody

President & Chief Executive Officer

Husky Energy Inc.

 

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LOGO

LETTER TO CENOVUS COMMON SHAREHOLDERS

November 9, 2020

Dear Cenovus Common Shareholders:

You are invited to attend a special meeting (the “Cenovus Meeting”) of the holders (the “Cenovus Common Shareholders”) of common shares (“Cenovus Common Shares”) in the capital of Cenovus Energy Inc. (“Cenovus”, “we”, “us”, or “our”) to be held on Tuesday, December 15, 2020 at 1:00 p.m. (Calgary time) in a virtual-only format that will be conducted via live webcast accessible at https://web.lumiagm.com/418831959 and password “cenovus2020” (case sensitive).

Cenovus and Husky Energy Inc. (“Husky”) agreed to combine their respective businesses and entered into an arrangement agreement dated October 24, 2020 (the “Arrangement Agreement”) which was unanimously approved by the respective boards of directors of Cenovus and Husky. Pursuant to the Arrangement Agreement and the accompanying Plan of Arrangement (the “Arrangement”), Cenovus will acquire all of the issued and outstanding common shares in the capital of Husky (“Husky Common Shares”) and, if approved by the holders (“Husky Preferred Shareholders”) of preferred shares in the capital of Husky (“Husky Preferred Shares”), voting together as a single class, and not more than 10% of Husky Preferred Shareholders dissent in respect of the Arrangement (unless waived by Cenovus), each series of Husky Preferred Shares will be exchanged for a series of First Preferred Shares of Cenovus (“Cenovus Preferred Shares”) having substantially identical terms as such series of Husky Preferred Shares. Holders of Husky Common Shares (“Husky Common Shareholders”) will exchange a portion of their Husky Common Shares for Cenovus Common Shares and the remaining portion of their Husky Common Shares for common share purchase warrants to acquire Cenovus Common Shares (“Cenovus Warrants”), such that, in aggregate, each Husky Common Shareholder will receive, in respect of each Husky Common Share, 0.7845 of a Cenovus Common Share and 0.0651 of a Cenovus Warrant (the “Consideration”). Each whole Cenovus Warrant will entitle the holder thereof to acquire one Cenovus Common Share upon payment in full of the exercise price of $6.54 per Cenovus Common Share at any time up to 60 months following completion of the Arrangement. In exchange for their options to acquire Husky Common Shares (“Husky Options”), each holder of a Husky Option will receive an option to acquire such number of Cenovus Common Shares as is equal to that number of Husky Common Shares that were issuable upon exercise of such Husky Option, multiplied by 0.7845, with an exercise price per Cenovus Common Share equal to the exercise price per share of such Husky Option divided by 0.7845 and rounded up to the nearest whole cent (the “Cenovus Replacement Options”). Completion of the Arrangement is not conditional upon the approval of the Arrangement by the Husky Preferred Shareholders.

At the Cenovus Meeting, you will be asked to consider and vote on an ordinary resolution (the “Share Issuance Resolution”), the full text of which is set forth in Appendix C to the accompanying joint management information circular of Cenovus and Husky dated November 9, 2020 (the “Information Circular”). The Share Issuance Resolution contemplates approving: (i) the issuance of the Cenovus Common Shares and the Cenovus Warrants issuable pursuant to the Arrangement and the Cenovus Common Shares issuable upon exercise, from time to time, of Cenovus Warrants and Cenovus Replacement Options; and (ii) certain consequential amendments to Cenovus’s current shareholder rights plan to ensure that neither the consummation of the Arrangement nor any share purchase rights issued in connection with the Arrangement triggers such rights plan, all as more particularly described in the Information Circular.

Please complete the enclosed form of proxy and submit it to Cenovus’s transfer agent and registrar, Computershare Investor Services, Inc., as soon as possible but not later than 1:00 p.m. (Calgary time) on December 11, 2020, or 48 hours (excluding Saturdays, Sundays and statutory holidays in the Province of Alberta) prior to the time of any adjournment or postponement of the Cenovus Meeting (the “Cenovus Proxy Deadline”). Registered Cenovus Common Shareholders will be able to sign in to the Cenovus Meeting using the 15-digit control number provided with the meeting materials and password “cenovus2020” (case sensitive).

Beneficial Cenovus Common Shareholders (being Cenovus Common Shareholders who hold their Cenovus Common Shares through a broker, investment dealer, bank, trust company, custodian, nominee or other intermediary) can appoint themselves or a proxyholder to participate in the virtual Cenovus Meeting.

Registered Common Shareholders who appoint a proxyholder, and beneficial Cenovus Common Shareholders who appoint themselves or a proxyholder to participate in the virtual Cenovus Meeting, must also visit https://www.computershare.com/CenovusEnergy to register their or their proxyholder’s name and email address so that, after the Cenovus Proxy Deadline, Computershare can send via email a Username that will be required (with case-sensitive password “cenovus2020”) to log into the Cenovus Meeting.

If you do not follow both of these steps, you or your proxyholder will only be able to enter the meeting as a guest.

Current Cenovus Common Shareholders are expected to own approximately 61% of the combined company immediately after completion of the Arrangement (or 59% on a partially-diluted basis assuming the exercise of all Cenovus Warrants issued pursuant to the Arrangement). Former Husky Common Shareholders are expected to own approximately 39% of the combined company immediately after completion of the Arrangement (or 41% on a partially-diluted basis assuming the exercise of all Cenovus Warrants issued pursuant to the Arrangement).

 

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The Arrangement is currently anticipated to be completed in the first quarter of 2021, subject to satisfaction or waiver of all conditions precedent in the Arrangement Agreement, including receipt of all court and regulatory approvals. Upon completion of the transaction, the combined company will continue to operate as Cenovus and remain headquartered in Calgary, Alberta.

Creation of a Resilient Integrated Energy Company

Husky and Cenovus anticipate the combination will create a resilient integrated energy leader with a total enterprise value of approximately $23.6 billion (calculated as at the date of the announcement of the Arrangement) with a cost-and-market-advantaged asset portfolio, which can prioritize free funds flow generation, balance sheet strength and returns to shareholders.

The combined company will be the third largest Canadian-based oil and natural gas producer, with approximately 750,000 boe/d of low-cost oil and natural gas production. The anticipated annual sustaining capital requirements to support the combined company’s upstream production and downstream operations is approximately $2.4 billion, a reduction of more than $600 million per year compared to the two companies on a standalone basis. Furthermore, the combined company’s expanded portfolio is expected to enable more efficient, returns-focused capital allocation. With an estimated proved plus probable reserves life index of approximately 33 years, consisting mostly of low-cost reserves, the combination is expected to result in reduced re-investment risk to sustain production at current levels.

The combined company will also be the second largest Canadian-based refiner and upgrader, with total North American upgrading and refining capacity of approximately 660,000 bbls/d, which includes approximately 350,000 bbls/d of heavy oil conversion capacity. Together with Husky, the new Cenovus will have approximately 265,000 bbls/d of current takeaway capacity out of Alberta on existing major pipelines, and approximately 305,000 bbls/d of committed capacity on planned pipelines. In addition, it will have approximately 16 million barrels of crude oil storage capacity and crude-by-rail assets providing approximately 120,000 bbls/d takeaway optionality. Taken together, this results in processing capacity and egress out of Alberta for the majority of the combined company’s oil sands and heavy oil production, significantly reducing financial risks related to Western Canada Select pricing while maintaining healthy exposure to global commodity prices.

Annual Corporate and Operating Synergies and Improved Capital Allocation Opportunities

Further improving cost structure, an estimated $1.2 billion of incremental annual free funds flow, including approximately $600 million in annual corporate and operating synergies and approximately $600 million in annual sustaining capital allocation synergies, are achievable independent of commodity prices. These synergies are the product of Cenovus’s and Husky’s rigorous and disciplined evaluation process to identify the specific efficiencies that can be gained. The vast majority of the annual savings are expected to be achieved in the first year of combined operations, with the full amount of the annual run rate synergies anticipated within year two. Over the longer term, Cenovus and Husky anticipate additional cost savings and margin enhancements based on further physical integration, including connecting upstream assets with the upgrading complex at Lloydminster, Saskatchewan, storage and blending operations at Hardisty, Alberta and the large U.S. refining assets in PADD 2 and PADD 3. The integration of Cenovus’s upstream assets with Husky’s downstream and midstream portfolio is expected to also shorten the value chain and reduce condensate costs associated with heavy oil transportation over the longer term. These longer term anticipated synergies are not included in the estimated $1.2 billion annual synergies anticipated in the first two years of combined operations.

The approximately $600 million in annual corporate and operating cost synergies are expected through reductions to combined workforce and corporate overhead costs including streamlined IT systems and procurement savings through economies of scale. Immediate efficiencies are also expected by implementing best practices from each company, including applying Cenovus’s operating expertise to Husky’s oil sands assets, leveraging the increased portfolio’s scale in the Deep Basin, and pursuing commercial and contract-related efficiencies on midstream marketing and blending opportunities.

Enhanced Free Funds Flow Generation and Investment Grade Metrics

The resulting low funds flow volatility, breakeven price and corporate sustaining costs of the combined company supports an investment grade credit profile and a lower cost of capital through the commodity price cycle. Based on the assumptions contained in the Information Circular, the combined company is expected to have ample current liquidity with $8.5 billion in undrawn committed credit facilities and no bond maturities until 2022.

Furthermore, the estimated $1.2 billion of incremental annual free funds flow from identified near-term synergies is expected to accelerate balance sheet deleveraging. After achieving its balance sheet objectives, the combined company’s free funds flow profile is expected to enable sustainable growth in shareholder distributions and a returns-focused organic capital investment program with residual free funds flow. Following completion of the Arrangement, Cenovus and Husky anticipate approval by the board of directors of the combined company of a quarterly dividend of $0.0175 per share.

Uncompromising Commitment to Safety and ESG Leadership

Cenovus’s and Husky’s commitments to world-class safety performance and environmental, social and governance (ESG) leadership will remain core to the combined company. This will include ambitious ESG targets, robust management systems and transparent performance reporting. The combined company will continue working to earn a position as a global energy supplier of choice by advancing clean technology and reducing emissions intensity. This includes maintaining the ambition established by each company of achieving net zero emissions by 2050.

 

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The combined company will also make it a priority to continue building upon the strong local community relationships already established by both Cenovus and Husky, with a focus on Indigenous economic reconciliation. Striking the right balance among environmental, economic and social considerations will continue to be central to the combined company’s strategy of creating long-term value and business resilience.

The targets that each of Cenovus and Husky released earlier this year for key ESG focus areas are the products of robust processes to ensure alignment with the companies’ business plans and strategies. The combined company will remain committed to pursuing ESG targets and will undertake a similarly thorough analysis within the context of the combined company’s business plan before setting meaningful targets for the combined portfolio. Once that work is complete in 2021 and approved by the combined company’s board of directors, the new targets and plans to achieve them will be disclosed. Leading safety practices, strong governance and advancing diversity and inclusion will remain central to the combined company’s ESG commitments.

For additional information with respect to these and other anticipated benefits of the Arrangement, see the sections in the Information Circular entitled “The Arrangement – Reasons for the Arrangement – Cenovus Board” and “The Arrangement – Attributes of the Combined Company”.

Board of Directors and Management

Following completion of the Arrangement, Alex J. Pourbaix, the current President & Chief Executive Officer of Cenovus, will serve as President & Chief Executive Officer of the combined company. Further, Jeffrey R. Hart, the current Chief Financial Officer of Husky, will serve as Executive Vice-President & Chief Financial Officer of the combined company, and Jonathan M. McKenzie, the current Executive Vice-President & Chief Financial Officer of Cenovus, will serve as Executive Vice-President & Chief Operating Officer of the combined company. Keith A. MacPhail, the current Chair of the board of directors of Cenovus (the “Cenovus Board”), will serve as Independent Board Chair of the combined company. The remainder of senior management will be selected from each of Cenovus and Husky and named prior to the completion of the Arrangement.

The board of directors of the combined company following completion of the Arrangement will consist of eight members of the current Cenovus Board, including Keith A. MacPhail (as Independent Board Chair) and Alex J. Pourbaix, with Keith M. Casey, Jane E. Kinney, Harold N. Kvisle, Richard J. Marcogliese, Claude Mongeau, and Rhonda I. Zygocki expected to continue as members of the combined company’s board of directors, and four members of the current board of directors of Husky (the “Husky Board”), with Canning K. N. Fok, Eva L. Kwok, Wayne E. Shaw and Frank J. Sixt being the members expected to join the combined company’s board of directors.

Shareholder Votes

The Share Issuance Resolution must be approved by a simple majority of the votes cast by the Cenovus Common Shareholders present in person (virtually) or represented by proxy at the Cenovus Meeting. In addition to the approval of the Cenovus Common Shareholders, completion of the Arrangement is subject to, among other things: (i) the approval of the Arrangement by not less than 6623% of the votes cast by Husky Common Shareholders present in person (virtually) or represented by proxy at a special meeting (the “Husky Meeting”) of Husky Shareholders and holders of Husky Options (the “Husky Optionholders”) and not less than 6623% of the votes cast by Husky Common Shareholders and Husky Optionholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class (the “Arrangement Resolution”); (ii) the approval of the Court of Queen’s Bench of Alberta; (iii) the approval of the listing of the Cenovus Common Shares and Cenovus Warrants to be issued pursuant to the Plan of Arrangement and the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants on the Toronto Stock Exchange (the “TSX”) and the New York Stock Exchange; and (iv) the receipt of all other necessary regulatory approvals. If the Arrangement Resolution is not approved at the Husky Meeting, the Arrangement will not be completed. Similarly, if the Share Issuance Resolution is not approved at the Cenovus Meeting, the Arrangement will not be completed.

Provided that the Arrangement is approved by not less than 6623% of the votes cast by holders of Husky Preferred Shares (“Husky Preferred Shareholders”) present in person (virtually) or represented by proxy, voting together as a single class, at the Husky Meeting, each series of Husky Preferred Shares will be exchanged, on a one-for-one basis, for Cenovus Preferred Shares, issuable in series, and having, on a series-by-series basis, substantially identical terms as the corresponding series of Husky Preferred Shares. Completion of the Arrangement is not conditional upon the approval of the Arrangement by the Husky Preferred Shareholders. If the Husky Preferred Shareholders do not approve the Arrangement or more than 10% of Husky Preferred Shareholders dissent in respect of the Arrangement (unless waived by Cenovus), the Husky Preferred Shares will not be exchanged for Cenovus Preferred Shares pursuant to the Plan of Arrangement and will remain outstanding in a subsidiary of Cenovus following completion of the Arrangement and listed on the TSX.

Support Agreements

The Arrangement has the support of Hutchison Whampoa Europe Investments S.à r.l. and L.F. Investments S.à r.l. (together, the “Supporting Husky Shareholders” and each a “Supporting Husky Shareholder”), major shareholders of Husky, which hold approximately 40.19% and 29.32%, respectively, of the issued and outstanding Husky Common Shares. Each Supporting Husky Shareholder has entered into a separate hard lock-up agreement with Cenovus, pursuant to which such Supporting Husky Shareholder has irrevocably agreed to vote in favour of the Arrangement at the Husky Meeting, except in limited circumstances.

Fairness Opinions

RBC Capital Markets and TD Securities Inc. (“TD Securities”) acted as co-financial advisors to Cenovus and each of RBC Capital Markets and TD Securities has provided the Cenovus Board with its respective opinion (together, the “Cenovus Fairness Opinions”) to the effect that, as of

 

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October 24, 2020, subject to the assumptions made and limitations and qualifications included therein, the Consideration to be paid by Cenovus pursuant to the Arrangement is fair, from a financial point of view, to Cenovus.

Recommendation

After consulting with Cenovus’s senior management and with its financial, legal, tax and other advisors, and after considering, among other things, the Cenovus Fairness Opinions, the Cenovus Board has unanimously: (i) determined that the Arrangement and entry into the Arrangement Agreement are in the best interests of Cenovus; (ii) determined that the consideration to be paid by Cenovus pursuant to the Arrangement Agreement is fair, from a financial point of view, to Cenovus; (iii) approved the Arrangement Agreement and the transactions contemplated thereby; and (iv) recommended that Cenovus Common Shareholders vote in favour of the Share Issuance Resolution.

The Information Circular contains a detailed description of the Arrangement, as well as detailed information regarding Cenovus and Husky and certain pro forma and other information of the combined company after giving effect to the Arrangement. It also includes certain risk factors relating to Cenovus, Husky, the Arrangement and the combined company. Please give this material your careful consideration and, if you require assistance, consult your financial, legal, tax or other professional advisors or Cenovus’s strategic shareholder advisor and proxy solicitation agent, Kingsdale Advisors.

Due to the unprecedented public health impact of coronavirus disease 2019, also known as COVID-19, and in alignment with the recommendations of Canadian public health officials to cancel large public gatherings, the Cenovus Meeting will be held in a virtual-only format conducted via live webcast online at https://web.lumiagm.com/418831959 (password “cenovus2020” (case sensitive)). The virtual-only format for the Cenovus Meeting will help mitigate health and safety risks to the community, shareholders, employees and other stakeholders. At this website, Cenovus Common Shareholders and duly appointed proxyholders will be able to hear the meeting live, submit questions and vote their Cenovus Common Shares on all items of business while the Cenovus Meeting is being held. While Cenovus Common Shareholders and duly appointed proxyholders will not be able to attend the Cenovus Meeting in person, regardless of geographic location and ownership, they will have an equal opportunity to participate at the Cenovus Meeting and vote on the Share Issuance Resolution. Detailed instructions about how to participate in the Cenovus Meeting can be found in the Notice of Special Meeting of Cenovus Common Shareholders and the Information Circular.

Your vote is important to Cenovus and we strongly encourage you to participate in the Cenovus Meeting or submit the enclosed form of proxy or voting information form. If you have any questions about any of the information or require assistance in completing your form of proxy or voting instruction form for your Cenovus Common Shares, as applicable, please contact your financial, legal, tax or other professional advisors or our strategic shareholder advisor and proxy solicitation agent, Kingsdale Advisors, by telephone at 1-866-851-4179 (toll-free in North America) or at 1-416-867-2272 outside of North America, or by email at contactus@kingsdaleadvisors.com.

We look forward to your participation at the Cenovus Meeting.

Yours sincerely,

(signed) “Alex J. Pourbaix

Alex J. Pourbaix

President & Chief Executive Officer

Cenovus Energy Inc.

 

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HUSKY Q&A

HUSKY SHAREHOLDERS AND OPTIONHOLDERS – QUESTIONS AND ANSWERS

ABOUT THE ARRANGEMENT AND THE HUSKY MEETING

The following is intended to address certain key questions concerning the Arrangement and the Husky Meeting. The information contained below is of a summary nature and therefore is not complete and is qualified in its entirety by the more detailed information contained elsewhere in or incorporated by reference in this Information Circular, including the Appendices hereto, all of which are important and should be reviewed carefully. Capitalized terms used but not otherwise defined in this “Questions and Answers About the Arrangement and the Husky Meeting” have the meanings set forth under “Glossary of Terms”.

 

Q:

Why did I receive this Information Circular?

 

A:

You received this Information Circular because you are a Husky Shareholder or Husky Optionholder who will be asked at the Husky Meeting to approve the Arrangement involving Husky and Cenovus.

 

Q:

What is the Arrangement?

 

A:

On October 24, 2020, Husky and Cenovus agreed to the definitive terms of a transaction to combine the two companies pursuant to the terms and conditions of the Arrangement Agreement. Pursuant to the Arrangement Agreement, Cenovus has agreed to acquire all of the issued and outstanding Husky Common Shares under a court-approved Plan of Arrangement in accordance with the provisions of the ABCA. If completed, the Arrangement will result in Cenovus acquiring all of the Husky Common Shares. Pursuant to the Arrangement, a portion of the Husky Common Shares held by each Husky Common Shareholder will be exchanged for Cenovus Warrants and the remaining portion of the Husky Common Shares will be exchanged for Cenovus Common Shares such that, in aggregate, each Husky Common Shareholder will receive 0.7845 of a Cenovus Common Share and 0.0651 of a Cenovus Warrant in respect of each Husky Common Share held. Each whole Cenovus Warrant will entitle the holder thereof to acquire one Cenovus Common Share upon payment in full of the exercise price of $6.54 per Cenovus Common Share at any time up to 60 months following completion of the Arrangement. Pursuant to the Plan of Arrangement, all outstanding Husky Options will be exchanged for Cenovus Replacement Options. If the Arrangement is completed, Husky Optionholders will receive Cenovus Replacement Options to acquire such number of Cenovus Common Shares as is equal to that number of Husky Common Shares that were issuable upon exercise of a Husky Optionholder’s Husky Options immediately prior to the Effective Time, multiplied by 0.7845, with an exercise price per Cenovus Common Share equal to the exercise price per share of a Husky Option immediately prior to the Effective Time divided by 0.7845 and rounded up to the nearest whole cent.

Former Husky Common Shareholders are expected to own approximately 39% of the combined company immediately after completion of the Arrangement (or 41% on a partially-diluted basis assuming the exercise of all Cenovus Warrants issued pursuant to the Arrangement). Current Cenovus Common Shareholders are expected to own approximately 61% of the combined company immediately after completion of the Arrangement (or 59% on a partially-diluted basis assuming the exercise of all Cenovus Warrants issued pursuant to the Arrangement).

Additionally, if the Preferred Shareholder Resolution is approved at the Husky Meeting and the Preferred Share Condition is otherwise satisfied, the Husky Preferred Shareholders will exchange their Husky Preferred Shares for Cenovus Preferred Shares having substantially identical terms to each series of Husky Preferred Shares. See “Pro Forma Information Concerning the Combined Company – Description of Share Capital of the Combined Company – Cenovus Preferred Shares”.

 

Q:

Does this consideration reflect a premium for the Husky Common Shares?

 

A:

Yes. The Consideration, being the number of Cenovus Common Shares and Cenovus Warrants being offered to Husky Common Shareholders in respect of the Husky Common Shares, implies a premium for Husky Common Shareholders as of the date of the announcement of the Arrangement Agreement. On October 25, 2020, the date of the announcement of the transaction, the Consideration to be received by Husky Common Shareholders represented a 23% premium to the closing price of the Husky Common Shares on the TSX on October 23, 2020 (with an implied price of $3.90 per Husky Common Share and including the Cenovus Warrants).

 

Q:

Does the Husky Board support the Arrangement?

 

A:

Yes. Following review of a significant amount of information and consideration of a number of factors (including the interests of affected stakeholders) and after considering the Husky Fairness Opinions and following consultation with Husky’s senior management and with Husky’s legal, financial, tax and other advisors, the Husky Board has unanimously: (i) determined that the Arrangement and the entry into the Arrangement Agreement are in the best interests of Husky; (ii) determined that the Arrangement is fair to Husky Common Shareholders and Husky Preferred Shareholders; (iii) approved the Arrangement Agreement and the transactions contemplated thereby; (iv) recommended that Husky Common Shareholders and Husky Optionholders vote in favour of the Arrangement Resolution; and (v) recommended that Husky Preferred Shareholders vote in favour of the Preferred Shareholder Resolution.

 

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THE HUSKY BOARD UNANIMOUSLY RECOMMENDS THAT (I) HUSKY COMMON SHAREHOLDERS AND HUSKY OPTIONHOLDERS VOTE FOR THE ARRANGEMENT RESOLUTION AND (II) HUSKY PREFERRED SHAREHOLDERS VOTE FOR THE PREFERRED SHAREHOLDER RESOLUTION.

See “The Arrangement – Recommendation of the Husky Board” and “The Arrangement – Reasons for the Arrangement – Husky Board”. The full text of the Arrangement Resolution is set forth in Appendix A to this Information Circular and the full text of the Preferred Shareholder Resolution is set forth in Appendix B to this Information Circular.

 

Q:

What are the benefits of the Arrangement?

 

A:

Management of Husky and Cenovus anticipate that the business combination will create a resilient integrated energy leader that is expected to unlock value for Husky Common Shareholders and Cenovus Common Shareholders, including through achieving anticipated significant synergies. The following are some, but not all, of the expected long-term benefits of the Arrangement to Husky Shareholders:

Highly Complementary Integrated and Diversified Portfolio

The assets of the combined company will result in a more diversified geographic and product portfolio supporting stability of cash flow and opportunities for enhanced free funds flow. The combined company will unlock market opportunities by uniting high-quality and low-cost oil sands and heavy oil assets with extensive midstream and downstream infrastructure providing ability to optimize margin capture across the heavy oil value chain. The transaction will result in processing capacity and egress out of Alberta for the majority of the combined company’s oil sands and heavy oil production, positioning low exposure to Alberta oil pricing while maintaining healthy exposure to global commodity prices. Cash flow stability of the combined entity will be further underpinned by the global exposure of Husky’s offshore Asia Pacific natural gas production interests, which currently generate approximately $1 billion in annual free funds flow through sales largely under long-term contracts.

The combined company will be the third largest Canadian-based oil and natural gas producer, with approximately 750,000 boe/d of low-cost oil and natural gas production. It will be the second largest Canadian-based refiner and upgrader, with total North American upgrading and refining capacity of approximately 660,000 bbls/d, which includes approximately 350,000 bbls/d of heavy oil conversion capacity. The combined company will have approximately 265,000 bbls/d of current takeaway capacity out of Alberta on existing major pipelines and approximately 305,000 bbls/d of committed capacity on planned pipelines. In addition, it will have approximately 16 million barrels of crude oil storage capacity and crude-by-rail assets providing approximately 120,000 bbls/d takeaway optionality.

Annual Corporate and Operating Synergies and Improved Capital Allocation Opportunities

An estimated $1.2 billion of incremental annual free funds flow, including approximately $600 million in annual corporate and operating synergies and approximately $600 million in annual sustaining capital allocation synergies, are achievable independent of commodity prices. The approximately $600 million in annual corporate and operating cost synergies are expected through material reductions in combined workforce and corporate overhead costs, including streamlined IT systems and procurement savings through economies of scale. Immediate efficiencies are also expected by implementing best practices from each company, including applying Cenovus’s operating expertise to Husky’s oil sands assets, leveraging the increased portfolio’s scale in the Deep Basin and pursuing commercial and contract-related efficiencies on midstream marketing and blending opportunities. The vast majority of the annual savings are expected to be achieved in the first year of combined operations, with the full amount of the annual run rate synergies anticipated within year two.

Over the longer term, Cenovus and Husky anticipate additional cost savings and margin enhancements based on further physical integration, including connecting upstream assets with the upgrading complex at Lloydminster, Saskatchewan, storage and blending operations at Hardisty, Alberta and the large U.S. refining assets in PADD 2 and PADD 3. The integration of Cenovus’s upstream assets with Husky’s downstream and midstream portfolio is expected to also shorten the value chain and reduce condensate costs associated with heavy oil transportation over the longer term. These longer term anticipated synergies are not included in the estimated $1.2 billion annual synergies anticipated in the first two years of combined operations.

Enhanced Free Funds Flow Generation and Investment Grade Metrics

The combined company is expected to be free funds flow breakeven in 2021 at WTI prices of approximately US$36.00/bbl, and expects to reduce free funds flow breakeven to less than WTI US$33.00/bbl by 2023, which is lower than either company on a standalone basis. The combined company’s priority will be to maximize free funds flow by focusing investments on sustaining capital expenditures. Based on the assumptions contained in this Information Circular, free funds flow generation will position the combined company to achieve a Net Debt to Adjusted EBITDA target of less than 2.0 times by 2022, without the need for asset dispositions. With the combined company’s low free funds flow breakeven threshold, the combined company will offer an accelerated deleveraging capability relative to either company on a standalone basis.

 

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The resulting low funds flow volatility, breakeven price and corporate sustaining costs of the combined company supports an investment grade credit profile and a lower cost of capital through the commodity price cycle. Based on the assumptions contained in this Information Circular, the combined company is expected to have ample current liquidity with $8.5 billion in undrawn committed credit facilities and no bond maturities until 2022. Furthermore, the estimated $1.2 billion of incremental annual free funds flow from identified near-term synergies is expected to accelerate balance sheet deleveraging.

After achieving its balance sheet objectives, the combined company’s free funds flow profile is expected to enable sustainable growth in shareholder distributions and a returns-focused organic capital investment program with residual free funds flow. Following completion of the Arrangement, Cenovus and Husky anticipate approval by the board of directors of the combined company of a quarterly dividend of $0.0175 per share.

Increased Scale

The size of the combined company is expected to allow it to leverage increased economies of scale to better compete in an increasingly consolidated energy industry.

The combined company is expected to sustain production levels of approximately 750,000 boe/d. The anticipated annual sustaining capital requirements to support the combined company’s upstream production and downstream operations is approximately $2.4 billion, a reduction of more than $600 million per year compared to the two companies on a standalone basis. Furthermore, the combined company’s expanded portfolio is expected to enable more efficient, returns-focused capital allocation. With an estimated proved plus probable reserves life index of approximately 33 years, consisting mostly of low-cost reserves, the combination is expected to result in reduced re-investment risk to sustain production at current levels.

Uncompromising Commitment to Safety and ESG Leadership

Cenovus’s and Husky’s commitments to world-class safety performance and environmental, social and governance (ESG) leadership will remain core to the combined company. This will include ambitious ESG targets, robust management systems and transparent performance reporting. The combined company will continue working to earn a position as a global energy supplier of choice by advancing clean technology and reducing emissions intensity. This includes maintaining the ambition established by each company of achieving net zero emissions by 2050. The combined company will also make it a priority to continue building upon the strong local community relationships already established by both Cenovus and Husky, with a focus on Indigenous economic reconciliation. Striking the right balance among environmental, economic and social considerations will continue to be central to the combined company’s strategy of creating long-term value and business resilience.

The targets that each of Cenovus and Husky released earlier this year for key ESG focus areas are the products of robust processes to ensure alignment with the companies’ business plans and strategies. The combined company will remain committed to pursuing ESG targets and will undertake a similarly thorough analysis within the context of the combined company’s business plan before setting meaningful targets for the combined portfolio. Once that work is complete in 2021 and approved by the combined company’s board of directors, the new targets and plans to achieve them will be disclosed. Leading safety practices, strong governance and advancing diversity and inclusion will remain central to the combined company’s ESG commitments.

Strong Leadership Team

Management responsibilities within the combined company will be allocated among a proven management team reflecting the strengths of both organizations, with a track record of strong safety performance, operational excellence and cost and capital discipline, along with upstream, downstream and midstream expertise. Following completion of the Arrangement, Alex J. Pourbaix, the current President & Chief Executive Officer of Cenovus, will serve as President & Chief Executive Officer of the combined company. Further, Jeffrey R. Hart, the current Chief Financial Officer of Husky, will serve as Executive Vice-President & Chief Financial Officer of the combined company, and Jonathan M. McKenzie, the current Executive Vice-President & Chief Financial Officer of Cenovus, will serve as Executive Vice-President & Chief Operating Officer of the combined company. Keith A. MacPhail, the current Chair of the Cenovus Board, will serve as Independent Board Chair of the combined company. The remainder of senior management will be selected from each of Cenovus and Husky and named prior to the completion of the Arrangement.

The board of directors of the combined company following completion of the Arrangement will consist of eight members of the current Cenovus Board, including Keith A. MacPhail (as Independent Board Chair) and Alex J. Pourbaix, with Keith M. Casey, Jane E. Kinney, Harold N. Kvisle, Richard J. Marcogliese, Claude Mongeau, and Rhonda I. Zygocki expected to continue as members of the combined company’s board of directors, and four members of the current Husky Board, with Canning K. N. Fok, Eva L. Kwok, Wayne E. Shaw and Frank J. Sixt being the members expected to join the combined company’s board of directors.

See “The Arrangement – Reasons for the Arrangement”, “The Arrangement – Attributes of the Combined Company” and “Pro Forma Information Concerning the Combined Company – Directors and Executive Officers after the Arrangement”.

 

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Q:

Are there support agreements in place with any Husky Shareholders?

 

A:

Yes. The Arrangement has the support of Hutchison Whampoa Europe Investments S.à r.l. and L.F. Investments S.à r.l., the Supporting Husky Shareholders, which hold approximately 40.19% and 29.32%, respectively, of the issued and outstanding Husky Common Shares. Each of the Supporting Husky Shareholders has entered into a separate hard lock-up agreement with Cenovus, pursuant to which such Supporting Husky Shareholder has irrevocably agreed to vote in favour of the Arrangement at the Husky Meeting except in limited circumstances.

See “Effect of the Arrangement – Support Agreements”.

 

Q:

Is there a fairness opinion regarding the consideration to be received by Husky Shareholders?

 

A:

Yes. Goldman Sachs has provided the Husky Board with the Goldman Sachs Fairness Opinion, that, as of October 24, 2020, and, based upon and subject to the assumptions, qualifications and limitations set forth therein, the Consideration to be paid to the Husky Common Shareholders pursuant to the Arrangement was fair, from a financial point of view, to the Husky Common Shareholders. Further, CIBC Capital Markets has provided the Husky Board with: (a) the CIBC Common Shareholder Fairness Opinion to the effect that, as of October 23, 2020 and subject to the assumptions, qualifications and limitations set forth therein, in the opinion of CIBC Capital Markets, the Consideration to be received by the Husky Common Shareholders pursuant to the Arrangement is fair, from a financial point of view, to the Husky Common Shareholders; and (b) the CIBC Preferred Shareholder Fairness Opinion to the effect that, as of October 23, 2020 and subject to the assumptions, limitations and qualifications set forth therein, in the opinion of CIBC Capital Markets, the consideration to be received by Husky Preferred Shareholders pursuant to the Arrangement is fair, from a financial point of view, to the Husky Preferred Shareholders.

See “The Arrangement – Husky Fairness Opinions” and “The Arrangement – Reasons for the Arrangement – Husky Board”.

 

Q:

Why is the Husky Meeting being held?

 

A:

The Husky Meeting is being held for the purposes of obtaining the Husky securityholder approvals contemplated by the Arrangement Agreement and the Interim Order. Pursuant to the Interim Order, the Arrangement Resolution must be approved by (i) not less than 6623% of the votes cast by Husky Common Shareholders present in person (virtually) or represented by proxy at the Husky Meeting and (ii) not less than 6623% of the votes cast by Husky Common Shareholders and Husky Optionholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class, and the Preferred Shareholder Resolution must be approved by not less than 6623% of the votes cast by Husky Preferred Shareholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class.

Approval of the Preferred Shareholder Resolution is not required in order to complete the Arrangement. If the Husky Preferred Shareholders do not approve the Preferred Shareholder Resolution at the Husky Meeting (or if the Preferred Shareholder Resolution is approved and the Preferred Share Condition is not otherwise satisfied), and both the Share Issuance Resolution and the Arrangement Resolution are approved at their respective meetings, the Husky Preferred Shares will not be exchanged for Cenovus Preferred Shares pursuant to the Plan of Arrangement and will remain outstanding in a subsidiary of Cenovus following completion of the Arrangement and listed on the TSX.

The full text of the Arrangement Resolution is set forth in Appendix A to this Information Circular. The full text of the Preferred Shareholder Resolution is set forth in Appendix B to this Information Circular.

 

Q:

When and where is the Husky Meeting being held?

 

A:

There is no physical location for the Husky Meeting. The Husky Meeting will be held on Tuesday, December 15, 2020 at 9:00 a.m. (Calgary time) in a virtual-only format that will be conducted via live webcast accessible at https://web.lumiagm.com/459526828 and password “husky2020” (case sensitive). Such format will be conducted to address public health measures arising from the COVID-19 pandemic in order to limit and mitigate risks to the health and safety of the Husky Shareholders, Husky Optionholders and Husky’s employees, directors and other stakeholders.

 

Q:

How do I access the virtual Husky Meeting?

 

A:

Registered Husky Shareholders, Husky Optionholders and duly appointed proxyholders can access and vote at the Husky Meeting as follows:

 

  

Go to https://web.lumiagm.com/459526828 in a web browser on a smartphone, tablet or computer at least 30 to 60 minutes prior to the start of the Husky Meeting. The latest versions of Chrome, Safari, Microsoft Edge or Firefox will be needed. Please ensure the browser being used is compatible by logging in early. You should allow ample time to check into the virtual Husky Meeting to check compatibility and complete the related procedures.

 

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Select “I have a Control Number/Username” and enter your 15-digit Control Number (your Control Number is located on your form of proxy) and the password: “husky2020” (case sensitive).

Guests, including non-registered Husky securityholders who have not duly appointed themselves as proxyholders, can log in to the Husky Meeting as set out below. Guests can listen to the Husky Meeting but are not able to vote.

 

  

Go to https://web.lumiagm.com/459526828 in a web browser on a smartphone, tablet or computer at least 30 to 60 minutes prior to the start of the Husky Meeting. The latest versions of Chrome, Safari, Microsoft Edge or Firefox will be needed. Please ensure the browser being used is compatible by logging in early. You should allow ample time to check into the virtual Husky Meeting to check compatibility and complete the related procedures.

 

  

Select “I am a guest” and then complete the online form.

See “General Proxy Matters – Husky – How to Participate at the Husky Meeting”. For information on how a non-registered (beneficial) Husky Shareholder can participate in the Husky Meeting and vote its Husky Shares, see the question below “How can a non-registered Husky Shareholder vote?

 

Q:

Who is entitled to vote at the Husky Meeting?

 

A:

Only Husky Shareholders and Husky Optionholders of record at the close of business on November 9, 2020, being the Husky Record Date, will be entitled to receive notice of and vote on the applicable resolution at the Husky Meeting, or any adjournment or postponement thereof. Husky Common Shareholders and Husky Optionholders will be entitled to one vote on the Arrangement Resolution at the Husky Meeting for each Husky Common Share and each Husky Option held, as applicable, and Husky Preferred Shareholders will be entitled to one vote on the Preferred Shareholder Resolution at the Husky Meeting for each Husky Preferred Share held.

 

Q:

How do I vote?

If your Husky Shares are registered in your name or if you are a Husky Optionholder, there are two ways you may vote. You may vote at the Husky Meeting, or you may complete, sign and return the applicable enclosed form of proxy appointing the named persons or some other person you choose, who need not be a Husky Shareholder or Husky Optionholder, to represent you as proxyholder and vote your securities at the Husky Meeting. Registered Husky securityholders may vote on the applicable resolution at the Husky Meeting by completing a ballot online during the Husky Meeting, as further described below under “How can a registered Husky Shareholder or a Husky Optionholder vote during the Husky Meeting?

If your Husky Shares are not registered in your name, but are held in the name of a nominee (usually a bank, trust company, securities broker or other financial institution), you should have received a Voting Instruction Form from your nominee. Please note that Husky has limited access to the names of its non-registered shareholders. If you attend the Husky Meeting, Husky may have no record of your shareholdings or of your entitlement to vote unless your nominee has appointed you as proxyholder. Therefore, if you wish to vote at the Husky Meeting, insert your own name in the space provided on the Voting Instruction Form and return the same by following the instructions provided thereon. Do not otherwise complete the Voting Instruction Form as your vote will be taken at the Husky Meeting. If you do not intend to attend the Husky Meeting, follow the instructions on the Voting Instruction Form to vote by telephone or internet or complete, sign and mail the Voting Instruction Form in the postage prepaid envelope provided. Your completed Voting Instruction Form must be submitted on or before the deadline specified on the form.

 

Q:

What if I acquire ownership of Husky Shares after the Husky Record Date?

 

A:

If a Husky Shareholder transfers Husky Shares after the Husky Record Date and the transferee of those Husky Shares, having produced properly endorsed certificates evidencing such Husky Shares or having otherwise established that the transferee owns such Husky Shares, demands, at least 10 days before the Husky Meeting, that the transferee’s name be included in the list of Husky Common Shareholders or Husky Preferred Shareholders, as applicable, entitled to vote at the Husky Meeting, such transferee shall be entitled to vote such Husky Common Shares or Husky Preferred Shares, as applicable, on the applicable resolution at the Husky Meeting.

See “General Proxy Matters – Husky”.

 

Q:

Who is soliciting my proxy?

 

A:

Management of Husky is soliciting your proxy. Solicitation of proxies is done primarily by mail and electronic means. The costs of preparing and distributing the Information Circular and meeting materials will be borne by Husky and Cenovus, as applicable.

 

Q:

When do I have to vote my Husky Shares or Husky Options by?

 

A:

Proxies must be received in each case no later than the Husky Proxy Deadline, being 9:00 a.m. (Calgary time) on December 11, 2020, or, if the Husky Meeting is adjourned or postponed, 48 hours (excluding Saturdays, Sundays and statutory holidays in the Province of

 

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Alberta) before the beginning of any adjourned or postponed Husky Meeting. The time limit for deposit of proxies may be waived or extended by the Chair of the Husky Meeting at his or her discretion, without notice.

 

Q:

Can I appoint someone other than the individuals named in the enclosed proxy to vote my Husky securities?

 

A:

Yes, you have the right to appoint another person of your choice, who need not be a Husky Shareholder or Husky Optionholder, to attend and vote on your behalf at the Husky Meeting. If you wish to appoint a person other than those named in the enclosed proxy or Voting Instruction Form, insert the name of your chosen proxyholder in the space provided.

NOTE: It is important for you to ensure that any other person you appoint will attend the Husky Meeting and is aware that his or her appointment has been made to vote your securities.

The following applies to securityholders who wish to appoint as their proxyholders individuals other than those named in the proxy or Voting Instruction Form. This includes non-registered Husky Shareholders who wish to appoint themselves as proxyholders to attend, participate in or vote at the Husky Meeting.

Securityholders who wish to appoint as their proxyholders individuals other than those named in the proxy or Voting Instruction Form to attend and participate in the Husky Meeting and vote their securities MUST submit their proxies or Voting Instruction Forms, as applicable, appointing such individuals as proxyholders AND register such proxyholders online, as described below. Registering your proxyholder is an additional step to be completed AFTER you have submitted your proxy or Voting Instruction Form. Failure to register the proxyholder will result in the proxyholder not receiving a Username that is required to vote at the Husky Meeting.

Step 1: Submit your proxy or Voting Instruction Form: To appoint someone other than the individuals named in the proxy or Voting Instruction Form as proxyholder, insert that person’s name in the blank space provided in the proxy or Voting Instruction Form (if permitted) and follow the instructions for submitting such proxy or Voting Instruction Form. This must be completed before registering such proxyholder, which is an additional step to be completed once you have submitted your proxy or Voting Instruction Form.

If you are a non-registered Husky Shareholder and wish to vote at the Husky Meeting, you must insert your own name in the space provided on the Voting Instruction Form sent to you by your intermediary, follow all of the applicable instructions provided by your intermediary AND register yourself as your proxyholder, as described below in Step 2. By doing so, you are instructing your intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided by your intermediary. Please also see further instructions below under the heading “How can a non-registered Husky Shareholder vote during the Husky Meeting?

If you are a non-registered Husky Shareholder located in the United States and wish to vote at the Husky Meeting or, if permitted, appoint a third party as your proxyholder, in addition to the steps described below under “How can a non-registered Husky Shareholder vote during the Husky Meeting?”, you must obtain a valid legal proxy from your intermediary. Follow the instructions from your intermediary included with the legal proxy form sent to you or contact your intermediary to request a legal proxy form if you have not received one. After obtaining a valid legal proxy from your intermediary, you must then submit such legal proxy to Computershare. Requests for registration from non-registered Husky Shareholders located in the United States that wish to vote at the Husky Meeting or, if permitted, appoint third parties as their proxyholders must be sent by e-mail or by courier to: uslegalproxy@computershare.com (if by e-mail); or Computershare Trust Company of Canada, Attention: Proxy Department, 8th Floor, 100 University Avenue, Toronto, ON M5J 2Y1, Canada (if by courier), and in both cases, must be labeled “Legal Proxy” and received no later than the Husky Proxy Deadline.

Step 2: Register your proxyholder: To register a third-party proxyholder, you must visit http://www.computershare.com/HuskyEnergy by the Husky Proxy Deadline and provide Computershare with the required proxyholder contact information so that Computershare may provide the proxyholder with a Username via email. Without a Username, proxyholders will not be able to vote at the Husky Meeting but will be able to participate as guests.

 

Q:

Should I send my form of proxy or Voting Instruction Form now?

 

A:

Yes. Once you have carefully read and considered the information in this Information Circular, you need to complete and submit the applicable enclosed form of proxy or Voting Instruction Form, as applicable. You are encouraged to vote well in advance of Husky Proxy Deadline to ensure that your Husky securities are voted at the Husky Meeting.

 

Q:

Can I revoke my vote after I have voted by proxy?

 

A:

Yes. In addition to revocation in any other manner permitted by law, a Husky Shareholder or Husky Optionholder may revoke a proxy: (a) by accessing the Husky Meeting by following the instructions under the heading “How to Participate at the Husky Meeting” in this Information Circular and voting their Husky securities during the designated time; (b) by instrument in writing executed by the

 

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Husky Shareholder or the Husky Optionholder, as applicable, or such Husky Shareholder’s attorney authorized in writing or if the Husky Shareholder is a corporation, under its corporate seal or by an officer or attorney thereof, duly authorized, indicating the capacity under which such officer or attorney is signing and deposited with Computershare, the transfer agent of Husky, at the office designated in the Notice of Special Meeting of Husky Securityholders not later than 5:00 p.m. (Calgary time) on the Business Day preceding the day of the Husky Meeting (or any adjournment or postponement thereof); or (c) by a duly executed and deposited proxy as provided herein bearing a later date or time than the date or time of the proxy being revoked.

 

Q:

How can a registered Husky Shareholder or a Husky Optionholder vote during the Husky Meeting?

 

A:

Registered Husky Shareholders or Husky Optionholders can vote in one of the following ways:

 

During the Virtual Husky Meeting

  

If you are a registered Husky Shareholder or a Husky Optionholder, you can attend the Husky Meeting by going to https://web.lumiagm.com/459526828 in a web browser on a smartphone, tablet or computer, selecting “I have a Control Number/Username” and entering your 15-digit Control Number (your Control Number is located on your form of proxy) and the password: “husky2020” (case sensitive). Follow the instructions to access the Husky Meeting and vote when prompted.

 

See “General Proxy Matters – Husky – How to Participate at the Husky Meeting”.

Internet

  

Go to http://www.investorvote.com. Enter the 15-digit Control Number printed on the form of proxy and follow the instructions on screen.

Fax

  

1-866-249-7775 (North America toll-free)

 

1-416-263-9524 (Direct dial)

Mail

  

Enter voting instructions, sign the form of proxy and send your completed form of proxy or Voting Instruction Form to Husky’s registrar and transfer agent in the envelope provided, or to Computershare Trust Company of Canada, 8th Floor, 100 University Avenue, Toronto, Ontario, M5J 2Y1.

Phone

  

Call 1-866-732-8683 and follow the instructions. You will need to enter your 15-digit Control Number printed on the form of proxy, and follow the interactive voice recording instructions to submit your vote.

 

Q:

How can a non-registered Husky Shareholder vote during the Husky Meeting?

 

A:

Non-registered (beneficial) holders of Husky Shares can vote in one of the following ways:

 

During the Virtual Husky Meeting

  

If you are a non-registered Husky Shareholder, you can attend and vote at the Husky Meeting by filling in your name in the blank space provided on the Voting Instruction Form and appointing yourself as proxy and sending in the completed Voting Instruction Form to the address specified on the Voting Instruction Form in advance of the Husky Meeting.

 

You must also visit http://www.computershare.com/HuskyEnergy to register your name and email address so that after the Husky Proxy Deadline, Computershare can send you, via email, a Username that will be required (with case-sensitive password “husky2020”) to log into the Husky Meeting.

 

You can then attend the Husky Meeting by going to https://web.lumiagm.com/459526828 in a web browser, on a smartphone, tablet or computer, selecting “I have a Control Number/Username”, entering the Username that you received in an email from Computershare, password “husky2020” (case sensitive), and then follow the instructions to access the Husky Meeting and vote when prompted.

 

Non-registered Husky Shareholders who have not duly appointed themselves as proxy will not be able to vote online at the virtual Husky Meeting. You will be able to join a live webcast of the Husky Meeting by going to https://web.lumiagm.com/459526828, clicking on “I am a guest” and filling in the form.

 

See “General Proxy Matters – Husky – How to Participate at the Husky Meeting”.

Internet

  

Go to https://www.proxyvote.com, enter the 16-digit Control Number printed on the Voting Instruction Form and follow the instructions on screen.

Mail

  

Enter voting instructions, sign the Voting Instruction Form and send the completed Voting Instruction Form to the address specified on the Voting Instruction Form.

 

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Phone

  

Call 1-800-474-7493 or 1-800-474-7501 (French) and follow the instructions. You will need to enter your 16-digit Control Number printed on the Voting Instruction Form, and follow the interactive voice recording instructions to submit your vote.

 

Q:

Will my securities intermediary vote my Husky Shares for me?

 

A:

A broker or other securities intermediary will vote your Husky Shares only if you provide instructions to such intermediary on how to vote. If you fail to provide proper instructions, the Husky Shares will not be voted on your behalf at the Husky Meeting. If you do not wish to appoint yourself as proxy, as a non-registered (beneficial) Husky Shareholder, you should instruct your intermediary/ies to vote your Husky Shares on your behalf by following the directions on the Voting Instruction Form provided by such intermediary. Unless your intermediary/ies give(s) you its proxy to vote at the Husky Meeting, you cannot vote those Husky Shares owned by you at the Husky Meeting.

 

Q:

Which form of proxy should I complete, sign and return?

 

A:

Accompanying this Information Circular is a form of proxy or Voting Instruction Form for use by Husky Common Shareholders, Husky Optionholders or Husky Preferred Shareholders, as applicable. If you hold Husky Common Shares, please complete, sign and return the form of proxy or Voting Instruction Form, as applicable, for Husky Common Shareholders. If you hold Husky Options, please complete, sign and return the form of proxy for Husky Optionholders. If you hold Husky Preferred Shares, please complete, sign and return the form of proxy or Voting Instruction Form, as applicable, for Husky Preferred Shareholders.

 

Q:

What other approvals are required for the Arrangement to be completed?

 

A:

In addition to the Husky securityholder approvals, in order for the Arrangement to be completed: (a) the Share Issuance Resolution must be approved by a simple majority of the votes cast by Cenovus Common Shareholders present in person (virtually) or represented by proxy at the Cenovus Meeting; and (b) other court and regulatory approvals must be obtained, including: (i) the approval of the TSX and the NYSE, in respect of the issuance and listing of the Cenovus Common Shares and the Cenovus Warrants to be issued to Husky Common Shareholders pursuant to the Arrangement, the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants; and (ii) the Key Regulatory Approvals.

See “Procedure for the Arrangement to Become Effective”.

 

Q:

When will the Arrangement become effective?

 

A:

The Arrangement will become effective at the time the Articles of Arrangement are filed with the Registrar, which is expected to occur during the first quarter of 2021, provided that all required approvals are obtained. However, completion of the Arrangement is subject to a number of conditions and it is possible that factors outside the control of Husky and/or Cenovus could result in the Arrangement being completed at a later time, or not at all. Subject to certain limitations, each Party may terminate the Arrangement Agreement if it is not consummated by May 31, 2021; or by August 31, 2021 if the Key Regulatory Approvals have not been received by May 31, 2021.

See “Timing”.

 

Q:

What will happen to my Husky Options and Husky PSUs in connection with the Arrangement?

 

A:

Pursuant to the Plan of Arrangement, each Husky Option outstanding immediately prior to the Effective Time (whether vested or unvested) will be transferred to Cenovus. In exchange, Cenovus will grant a Cenovus Replacement Option to acquire such number of Cenovus Common Shares as is equal to that number of Husky Common Shares that were issuable upon exercise of such Husky Option immediately prior to the Effective Time, multiplied by 0.7845, with an exercise price per Cenovus Common Share equal to the exercise price per share of such Husky Option immediately prior to the Effective Time divided by 0.7845 and rounded up to the nearest whole cent (provided that, if the foregoing calculation results in a holder of Cenovus Replacement Options being entitled to acquire a fraction of a Cenovus Common Share, then the number of Cenovus Common Shares subject to such Cenovus Replacement Options will be rounded down to the next lower whole number of Cenovus Common Shares). All Husky Options will concurrently be cancelled and terminated.

All other terms and conditions of a Cenovus Replacement Option, including the term to expiry, vesting conditions and the conditions to exercise, will be the same as the Husky Option for which it was exchanged. Any document, certificate or option agreement previously evidencing the Husky Option will thereafter be deemed to evidence the Cenovus Replacement Option. Accordingly, no certificates evidencing any Cenovus Replacement Option will be issued pursuant to the Arrangement. A Husky Optionholder will cease to be a holder of Husky Options and will have no rights as a Husky Optionholder other than the right to receive the number of Cenovus Replacement Options issuable to such Husky Optionholder as provided in the Arrangement Agreement.

 

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Completion of the Arrangement will result in the acceleration of the vesting of the Husky PSUs effective immediately prior to the Effective Time. In accordance with their terms, the Husky PSUs will be settled in cash following the Effective Time based on the weighted average trading price of the Husky Common Shares on the TSX for the five trading days immediately preceding the Effective Date.

See “Effect of the Arrangement – Husky Incentive Awards”.

 

Q:

How do I receive the Cenovus securities that I am entitled to under the Arrangement?

Registered Husky Shareholders must complete and return the enclosed Letter of Transmittal which, when properly completed and returned together with the certificate(s) or DRS Advice(s) representing Husky Common Shares and/or Husky Preferred Shares, as the case may be, and all other required documents, will enable each Husky Shareholder to obtain the consideration that the Husky Shareholder is entitled to receive under the Arrangement. See “Procedure for the Arrangement to Become Effective – Procedure for Exchange of Husky Share Certificates or DRS Advices”.

Husky Shareholders who do not hold their Husky Shares in their own name should instruct their broker or other intermediary to complete the applicable Letter of Transmittal regarding the Arrangement with respect to such holder’s Husky Shares in order to receive the consideration issuable pursuant to the Arrangement in exchange for such holder’s Husky Shares.

 

Q:

What will happen if the Arrangement Resolution is not approved or the Arrangement is not completed for any reason?

 

A:

If the Arrangement Resolution is not approved or the Arrangement is not completed for any reason, the Arrangement Agreement may be terminated by one or both of the Parties. Pursuant to the terms of the Arrangement Agreement, Husky and Cenovus have agreed that neither Party will solicit, initiate, encourage or otherwise facilitate any discussions concerning any other business combination or sale of material assets. The Husky Board or the Cenovus Board may respond to unsolicited Superior Proposals subject to certain requirements and notification to the Other Party who has the right to match any Superior Proposals within a five Business Day match period. The Arrangement Agreement provides for a termination amount of $150 million payable by Husky, in consideration for the disposition of Cenovus’s rights under the Arrangement Agreement, if the Arrangement is not completed in certain circumstances and $240 million payable by Cenovus, in consideration for the disposition of Husky’s rights under the Arrangement Agreement, if the Arrangement is not completed in certain circumstances.

See “Effect of the Arrangement – The Arrangement Agreement – Termination”.

 

Q:

What are the Canadian federal income tax consequences of the Arrangement?

 

A:

For a summary of certain of the material Canadian federal income tax consequences of the Arrangement applicable to Husky Shareholders, see “Certain Canadian Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice. Husky Shareholders should consult their own tax advisors as to the Canadian and other tax consequences of the Arrangement to them with respect to their particular circumstances.

 

Q:

What are the U.S. federal income tax consequences of the Arrangement?

 

A:

For a summary of certain of the material U.S. federal income tax consequences of the Arrangement applicable to a U.S. Holder, see “Certain United States Federal Income Tax Considerations”. Such summary is not intended to be legal or tax advice. Husky Shareholders should consult their own tax advisors as to the U.S. and other tax consequences of the Arrangement to them with respect to their particular circumstances.

 

Q:

Are Husky Shareholders entitled to Dissent Rights?

 

A:

Registered Husky Shareholders may, upon compliance with certain conditions and in certain circumstances, exercise Dissent Rights. However, failure to strictly comply with the requirements set forth in section 191 of the ABCA, as modified by the Interim Order and the Plan of Arrangement, may result in the loss of any right of dissent. It is strongly recommended that any Husky Shareholders wishing to dissent seek independent legal advice.

See “Dissent Rights”.

 

Q:

Who should I contact if I have questions?

 

A:

If you have any questions about the Arrangement or the matters described in this Information Circular, please contact your professional advisors.

 

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CENOVUS Q&A

CENOVUS COMMON SHAREHOLDERS – QUESTIONS AND ANSWERS

ABOUT THE ARRANGEMENT AND THE CENOVUS MEETING

The following is intended to address certain key questions concerning the Arrangement and the Cenovus Meeting. The information contained below is of a summary nature and therefore is not complete and is qualified in its entirety by the more detailed information contained elsewhere in or incorporated by reference in this Information Circular, including the Appendices hereto, all of which are important and should be reviewed carefully. Capitalized terms used but not otherwise defined in this “Question and Answers About the Arrangement and the Cenovus Meeting” have the meanings set forth under “Glossary of Terms”.

 

Q:

Why did I receive this Information Circular?

 

A:

You received this Information Circular because you are a Cenovus Common Shareholder and Cenovus Common Shareholders will be asked at the Cenovus Meeting to approve the Share Issuance Resolution.

 

Q:

What is the Arrangement?

 

A:

On October 24, 2020, Husky and Cenovus agreed to the definitive terms of a transaction to combine the two companies pursuant to the terms and conditions of the Arrangement Agreement. Pursuant to the Arrangement Agreement, Cenovus has agreed to acquire all of the issued and outstanding Husky Common Shares under a court-approved Plan of Arrangement in accordance with the provisions of the ABCA. If completed, the Arrangement will result in Cenovus acquiring all of the Husky Common Shares. Pursuant to the Arrangement, a portion of the Husky Common Shares held by each Husky Common Shareholder will be exchanged for Cenovus Warrants and the remaining portion of the Husky Common Shares will be exchanged for Cenovus Common Shares such that, in aggregate, each Husky Common Shareholder will receive 0.7845 of a Cenovus Common Share and 0.0651 of a Cenovus Warrant in respect of each Husky Common Share held. Each whole Cenovus Warrant will entitle the holder thereof to acquire one Cenovus Common Share upon payment in full of the exercise price of $6.54 per Cenovus Common Share at any time up to 60 months following completion of the Arrangement. Pursuant to the Plan of Arrangement, all outstanding Husky Options will be exchanged for Cenovus Replacement Options. If the Arrangement is completed, Husky Optionholders will receive Cenovus Replacement Options to acquire such number of Cenovus Common Shares as is equal to that number of Husky Common Shares that were issuable upon exercise of a Husky Optionholder’s Husky Options immediately prior to the Effective Time, multiplied by 0.7845, with an exercise price per Cenovus Common Share equal to the exercise price per share of a Husky Option immediately prior to the Effective Time divided by 0.7845 and rounded up to the nearest whole cent.

Current Cenovus Common Shareholders are expected to own approximately 61% of the combined company immediately after completion of the Arrangement (or 59% on a partially-diluted basis assuming the exercise of all Cenovus Warrants issued pursuant to the Arrangement). Former Husky Common Shareholders are expected to own approximately 39% of the combined company immediately after completion of the Arrangement (or 41% on a partially-diluted basis assuming the exercise of all Cenovus Warrants issued pursuant to the Arrangement).

Additionally, if the Preferred Shareholder Resolution is approved at the Husky Meeting and the Preferred Share Condition is otherwise satisfied, the Husky Preferred Shareholders will exchange their Husky Preferred Shares for Cenovus Preferred Shares having substantially identical terms to each series of Husky Preferred Shares. See “Pro Forma Information Concerning the Combined Company – Description of Share Capital of the Combined Company – Cenovus Preferred Shares”.

Cenovus has agreed that it will enter into a Pre-Emptive Rights Agreement and Registration Rights Agreement upon request from a Cenovus Common Shareholder that holds more than 5% of the outstanding Cenovus Common Shares immediately upon completion of the Arrangement, provided that such Cenovus Common Shareholder was not party to a registration rights agreement or similar agreement in effect on the Agreement Date. See “Effect of the Arrangement – Pre-Emptive Rights Agreement” and “Effect of the Arrangement – Registration Rights Agreement”.

 

Q:

Does the Cenovus Board support the Arrangement?

 

A:

Yes. Following review of a significant amount of information and consideration of a number of factors (including the interests of affected stakeholders) and after considering the Cenovus Fairness Opinions and following consultation with Cenovus’s senior management and with Cenovus’s legal, financial, tax and other advisors, the Cenovus Board has unanimously: (i) determined that the Arrangement and the entry into the Arrangement Agreement are in the best interests of Cenovus; (ii) determined that the consideration to be paid by Cenovus pursuant to the Arrangement Agreement is fair, from a financial point of view, to Cenovus; (iii) approved the Arrangement Agreement and the transactions contemplated thereby; and (iv) recommended that Cenovus Common Shareholders vote in favour of the Share Issuance Resolution.

THE CENOVUS BOARD UNANIMOUSLY RECOMMENDS THAT CENOVUS COMMON SHAREHOLDERS VOTE FOR THE SHARE ISSUANCE RESOLUTION.

See “The Arrangement – Recommendation of the Cenovus Board” and “The Arrangement – Reasons for the Arrangement – Cenovus Board”. The full text of the Share Issuance Resolution is set forth in Appendix C to this Information Circular.

 

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Q:

What are the benefits of the Arrangement?

 

A:

Management of Cenovus and Husky anticipate that the business combination will create a resilient integrated energy leader that is expected to unlock value for Cenovus Common Shareholders and Husky Common Shareholders, including through achieving anticipated significant synergies. The following are some, but not all, of the expected long-term benefits of the Arrangement to Cenovus Common Shareholders:

Highly Complementary Integrated and Diversified Portfolio

The assets of the combined company will result in a more diversified geographic and product portfolio supporting stability of cash flow and opportunities for enhanced free funds flow. The combined company will unlock market opportunities by uniting high-quality and low-cost oil sands and heavy oil assets with extensive midstream and downstream infrastructure providing ability to optimize margin capture across the heavy oil value chain. Taken together, this results in processing capacity and egress out of Alberta for the majority of the combined company’s oil sands and heavy oil production, positioning low exposure to Alberta oil pricing while maintaining healthy exposure to global commodity prices. Cash flow stability of the combined entity will be further underpinned by the global exposure of Husky’s offshore Asia Pacific natural gas production interests, which currently generate approximately $1 billion in annual free funds flow through sales largely under long-term contracts.

The combined company will be the third largest Canadian-based oil and natural gas producer, with approximately 750,000 boe/d of low-cost oil and natural gas production. It will be the second largest Canadian-based refiner and upgrader, with total North American upgrading and refining capacity of approximately 660,000 bbls/d, which includes approximately 350,000 bbls/d of heavy oil conversion capacity. The combined company will have approximately 265,000 bbls/d of current takeaway capacity out of Alberta on existing major pipelines and approximately 305,000 bbls/d of committed capacity on planned pipelines. In addition, it will have approximately 16 million barrels of crude oil storage capacity and crude-by-rail assets providing approximately 120,000 bbls/d takeaway optionality.

Annual Corporate and Operating Synergies and Improved Capital Allocation Opportunities

An estimated $1.2 billion of incremental annual free funds flow, including approximately $600 million in annual corporate and operating synergies and approximately $600 million in annual sustaining capital allocation synergies, are achievable independent of commodity prices. The approximately $600 million in annual corporate and operating cost synergies are expected through material reductions in combined workforce and corporate overhead costs, including streamlined IT systems and procurement savings through economies of scale. Immediate efficiencies are also expected by implementing best practices from each company, including applying Cenovus’s operating expertise to Husky’s oil sands assets, leveraging the increased portfolio’s scale in the Deep Basin and pursuing commercial and contract-related efficiencies on midstream marketing and blending opportunities. The vast majority of the annual savings are expected to be achieved in the first year of combined operations, with the full amount of the annual run rate synergies anticipated within year two.

Over the longer term, Cenovus and Husky anticipate additional cost savings and margin enhancements based on further physical integration, including connecting upstream assets with the upgrading complex at Lloydminster, Saskatchewan, storage and blending operations at Hardisty, Alberta and the large U.S. refining assets in PADD 2 and PADD 3. The integration of Cenovus’s upstream assets with Husky’s downstream and midstream portfolio is expected to also shorten the value chain and reduce condensate costs associated with heavy oil transportation over the longer term. These longer term anticipated synergies are not included in the estimated $1.2 billion annual synergies anticipated in the first two years of combined operations.

Enhanced Free Funds Flow Generation and Investment Grade Metrics

The combined company is expected to be free funds flow breakeven in 2021 at WTI prices of approximately US$36.00/bbl, and expects to reduce free funds flow breakeven to less than WTI US$33.00/bbl by 2023, which is lower than either company on a standalone basis. The combined company’s priority will be to maximize free funds flow by focusing investments on sustaining capital expenditures. Based on the assumptions contained in this Information Circular, free funds flow generation will position the combined company to achieve a Net Debt to Adjusted EBITDA target of less than 2.0 times by 2022, without the need for asset dispositions. With the combined company’s low free funds flow breakeven threshold, the combined company will offer an accelerated deleveraging capability relative to either company on a standalone basis.

The resulting low funds flow volatility, breakeven price and corporate sustaining costs of the combined company supports an investment grade credit profile and a lower cost of capital through the commodity price cycle. Based on the assumptions contained in this Information Circular, the combined company is expected to have ample current liquidity with $8.5 billion in undrawn committed credit facilities and no bond maturities until 2022. Furthermore, the estimated $1.2 billion of incremental annual free funds flow from identified near-term synergies is expected to accelerate balance sheet deleveraging.

 

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After achieving its balance sheet objectives, the combined company’s free funds flow profile is expected to enable sustainable growth in shareholder distributions and a returns-focused organic capital investment program with residual free funds flow. Following completion of the Arrangement, Cenovus and Husky anticipate approval by the board of directors of the combined company of a quarterly dividend of $0.0175 per share.

Increased Scale

The size of the combined company is expected to allow it to leverage increased economies of scale to better compete in an increasingly consolidated energy industry.

The combined company is expected to sustain production levels of approximately 750,000 boe/d. The anticipated annual sustaining capital requirements to support the combined company’s upstream production and downstream operations is approximately $2.4 billion, a reduction of more than $600 million per year compared to the two companies on a standalone basis. Furthermore, the combined company’s expanded portfolio is expected to enable more efficient, returns-focused capital allocation. With an estimated proved plus probable reserves life index of approximately 33 years, consisting mostly of low-cost reserves, the combination is expected to result in reduced re-investment risk to sustain production at current levels.

Uncompromising Commitment to Safety and ESG Leadership

Cenovus’s and Husky’s commitments to world-class safety performance and environmental, social and governance (ESG) leadership will remain core to the combined company. This will include ambitious ESG targets, robust management systems and transparent performance reporting. The combined company will continue working to earn a position as a global energy supplier of choice by advancing clean technology and reducing emissions intensity. This includes maintaining the ambition established by each company of achieving net zero emissions by 2050. The combined company will also make it a priority to continue building upon the strong local community relationships already established by both Cenovus and Husky, with a focus on Indigenous economic reconciliation. Striking the right balance among environmental, economic and social considerations will continue to be central to the combined company’s strategy of creating long-term value and business resilience.

The targets that each of Cenovus and Husky released earlier this year for key ESG focus areas are the products of robust processes to ensure alignment with the companies’ business plans and strategies. The combined company will remain committed to pursuing ESG targets and will undertake a similarly thorough analysis within the context of the combined company’s business plan before setting meaningful targets for the combined portfolio. Once that work is complete in 2021 and approved by the combined company’s board of directors, the new targets and plans to achieve them will be disclosed. Leading safety practices, strong governance and advancing diversity and inclusion will remain central to the combined company’s ESG commitments.

Strong Leadership Team

Management responsibilities within the combined company will be allocated among a proven management team reflecting the strengths of both organizations, with a track record of strong safety performance, operational excellence and cost and capital discipline, along with upstream, downstream and midstream expertise. Following completion of the Arrangement, Alex J. Pourbaix, the current President & Chief Executive Officer of Cenovus, will serve as President & Chief Executive Officer of the combined company. Further, Jeffrey R. Hart, the current Chief Financial Officer of Husky, will serve as Executive Vice-President & Chief Financial Officer of the combined company, and Jonathan M. McKenzie, the current Executive Vice-President & Chief Financial Officer of Cenovus, will serve as Executive Vice-President & Chief Operating Officer of the combined company. Keith A. MacPhail, the current Chair of the Cenovus Board, will serve as Independent Board Chair of the combined company. The remainder of senior management will be selected from each of Cenovus and Husky and named prior to the completion of the Arrangement.

The board of directors of the combined company following completion of the Arrangement will consist of eight members of the current Cenovus Board, including Keith A. MacPhail (as Independent Board Chair) and Alex J. Pourbaix, with Keith M. Casey, Jane E. Kinney, Harold N. Kvisle, Richard J. Marcogliese, Claude Mongeau, and Rhonda I. Zygocki expected to continue as members of the combined company’s board of directors, and four members of the current Husky Board, with Canning K. N. Fok, Eva L. Kwok, Wayne E. Shaw and Frank J. Sixt being the members expected to join the combined company’s board of directors.

See “The Arrangement – Reasons for the Arrangement”, “The Arrangement – Attributes of the Combined Company” and “Pro Forma Information Concerning the Combined Company – Directors and Officers after the Arrangement”.

 

Q:

Is there a fairness opinion regarding the consideration to be paid by Cenovus to Husky Shareholders?

 

A:

Yes. The Cenovus Board has received the Cenovus Fairness Opinions that, as of the dates thereof, the Consideration to be paid by Cenovus pursuant to the Arrangement is fair, from a financial point of view, to Cenovus.

See “The Arrangement – Cenovus Fairness Opinions” and “The Arrangement – Reasons for the Arrangement – Cenovus Board”.

 

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Q:

Why is the Cenovus Meeting being held?

 

A:

The Cenovus Common Shares to be issued to Husky Shareholders under the Arrangement will constitute greater than 25% of the issued and outstanding Cenovus Common Shares (on a non-diluted basis) immediately prior to the Arrangement. Pursuant to the applicable rules of the TSX, the issuance of the Cenovus Common Shares under the Arrangement requires the approval of a simple majority of the votes cast by the Cenovus Common Shareholders present in person (virtually) or represented by proxy at the Cenovus Meeting. Management of Cenovus is soliciting proxies of the Cenovus Common Shareholders to vote in favour for the Share Issuance Resolution.

 

Q:

What are Cenovus Common Shareholders being asked to vote on?

 

A:

Cenovus Common Shareholders will be asked to vote on the Share Issuance Resolution, the full text of which is set forth in Appendix C to this Information Circular. If approved, the Share Issuance Resolution will authorize the issuance of (i) the number of Cenovus Common Shares and Cenovus Warrants that would allow Cenovus to meet its obligations under the Arrangement Agreement to issue Cenovus Common Shares for a portion of the Husky Common Shares held by each Husky Common Shareholder and Cenovus Warrants for the remaining portion of Husky Common Shares held by each Husky Common Shareholder, such that, in the aggregate, each Husky Common Shareholder will receive consideration of 0.7845 of a Cenovus Common Share and 0.0651 of a Cenovus Warrant in respect of each Husky Common Share, and (ii) such number of Cenovus Common Shares issuable upon exercise, from time to time, of Cenovus Warrants and Cenovus Replacement Options. Based on the 1,005,121,738 Husky Common Shares and the 19,222,040 Husky Options outstanding on the Agreement Date, and assuming that no additional Husky Common Shares and no additional Husky Options are issued before the Effective Time, Cenovus would issue (A) 788,518,003 Cenovus Common Shares and 65,433,425 Cenovus Warrants to Husky Common Shareholders, in exchange for Husky Common Shares acquired by Cenovus pursuant to the Arrangement, (B) 65,433,425 Cenovus Common Shares issuable upon exercise of the Cenovus Warrants, and (C) 15,079,690 Cenovus Common Shares issuable upon exercise of 19,222,040 Cenovus Replacement Options granted by Cenovus to Husky Optionholders in accordance with the Arrangement. The number of Cenovus Common Shares, Cenovus Warrants and Cenovus Replacement Options that will be issued pursuant to the Plan of Arrangement and approved by the Share Issuance Resolution will depend on the number of Husky Common Shares and Husky Options outstanding immediately prior to the Effective Time.

Additionally, under the Share Issuance Resolution, the Cenovus Common Shareholders will be asked to approve certain consequential amendments to the Cenovus Rights Plan to ensure that neither the consummation of the Arrangement nor any share purchase rights issued in connection with the Arrangement triggers such rights plan, all as more particularly described in this Information Circular.

 

Q:

When and where is the Cenovus Meeting being held?

 

A:

There is no physical location for the Cenovus Meeting. The Cenovus Meeting will be held on Tuesday, December 15, 2020 at 1:00 p.m. (Calgary time) in a virtual-only format that will be conducted via live webcast accessible at https://web.lumiagm.com/418831959 and password “cenovus2020” (case sensitive). Such format will be conducted to address public health measures arising from the COVID-19 pandemic in order to limit and mitigate risks to the health and safety of the Cenovus Common Shareholders and Cenovus’s employees, directors and other stakeholders.

 

Q:

How do I access the virtual Cenovus Meeting?

 

A:

Registered Cenovus Common Shareholders and duly appointed proxyholders can access and vote at the Cenovus Meeting as follows:

 

  

Go to https://web.lumiagm.com/418831959 in a web browser on a smartphone, tablet or computer at least 30 to 60 minutes prior to the start of the Cenovus Meeting. The latest versions of Chrome, Safari, Microsoft Edge or Firefox will be needed. Please ensure the browser being used is compatible by logging in early. You should allow ample time to check into the virtual Cenovus Meeting to check compatibility and complete the related procedures.

 

  

Select “I have a Control Number/Username” and enter your 15-digit Control Number (your Control Number is located on your form of proxy) and the password: “cenovus2020” (case sensitive).

Guests, including non-registered Cenovus Common Shareholders who have not duly appointed themselves as proxyholders, can log in to the Cenovus Meeting as set out below. Guests can listen to the Cenovus Meeting but are not able to vote.

 

  

Go to https://web.lumiagm.com/418831959 in a web browser on a smartphone, tablet or computer at least 30 to 60 minutes prior to the start of the Cenovus Meeting. The latest versions of Chrome, Safari, Microsoft Edge or Firefox will be needed. Please ensure the browser being used is compatible by logging in early. You should allow ample time to check into the virtual Cenovus Meeting to check compatibility and complete the related procedures.

 

  

Select “I am a guest” and then complete the online form.

 

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See “General Proxy Matter – Cenovus – How to Participate at the Cenovus Meeting”. For information on how a non-registered (beneficial) Cenovus Common Shareholder can participate in the Cenovus Meeting and vote its Cenovus Common Shares, see the question below “How can a non-registered Cenovus Common Shareholder vote?

 

Q:

Who is entitled to vote at the Cenovus Meeting?

 

A:

Only Cenovus Common Shareholders of record at the close of business on November 9, 2020, being the Cenovus Record Date, will be entitled to receive notice of and vote at the Cenovus Meeting, or any adjournment or postponement thereof. Cenovus Common Shareholders will be entitled to one vote at the Cenovus Meeting for each Cenovus Common Share held.

 

Q:

What if I acquire ownership of Cenovus Common Shares after the Cenovus Record Date?

 

A:

A person who acquires ownership of Cenovus Common Shares after the Cenovus Record Date will not be entitled to vote such Cenovus Common Shares at the Cenovus Meeting. Only persons owning Cenovus Common Shares as of the Cenovus Record Date, or their duly appointed proxyholders, are entitled to vote at the Cenovus Meeting.

 

Q:

How do I vote?

 

A:

If your Cenovus Common Shares are registered in your name there are two ways you may vote. You may vote at the Cenovus Meeting, or you may complete, sign and return the applicable enclosed form of proxy appointing the named persons or some other person you choose, who need not be a Cenovus Common Shareholder, to represent you as proxyholder and vote your securities at the Cenovus Meeting. Registered Cenovus Common Shareholders may vote on the Share Issuance Resolution at the Cenovus Meeting by completing a ballot online during the Cenovus Meeting, as further described below under “How can a registered Cenovus Common Shareholder vote during the Cenovus Meeting?

If your Cenovus Common Shares are not registered in your name, but are held in the name of a nominee (usually a bank, trust company, securities broker or other financial institution), you should have received a Voting Instruction Form from your nominee. Please note that Cenovus has limited access to the names of its non-registered shareholders. If you attend the Cenovus Meeting, Cenovus may have no record of your shareholdings or of your entitlement to vote unless your nominee has appointed you as proxyholder. Therefore, if you wish to vote at the Cenovus Meeting, insert your own name in the space provided on the Voting Instruction Form and return the same by following the instructions provided thereon. Do not otherwise complete the Voting Instruction Form as your vote will be taken at the Cenovus Meeting. If you do not intend to attend the Cenovus Meeting, follow the instructions on the Voting Instruction Form to vote by telephone or internet or complete, sign and mail the Voting Instruction Form in the postage prepaid envelope provided. Your completed Voting Instruction Form must be submitted on or before the deadline specified on the form.

 

Q:

Who is soliciting my proxy?

 

A:

Management of Cenovus is soliciting your proxy and has engaged Kingsdale Advisors to act as strategic shareholder advisor and proxy solicitation agent with respect to the matters to be considered at the Cenovus Meeting and the Husky Meeting. Solicitation of proxies is done primarily by mail and electronic means. The costs of preparing and distributing the Information Circular and meeting materials will be borne by Husky and Cenovus, as applicable, and the solicitation costs of Kingsdale Advisors will be borne by Cenovus.

 

Q:

When do I have to vote my Cenovus Common Shares by?

 

A:

Proxies must be received no later than the Cenovus Proxy Deadline, being 1:00 p.m. (Calgary time) on December 11, 2020, or, if the Cenovus Meeting is adjourned or postponed, 48 hours (excluding Saturdays, Sundays and statutory holidays in the Province of Alberta) before the beginning of any adjourned or postponed Cenovus Meeting. The time limit for deposit of proxies may be waived or extended by the Chair of the Cenovus Meeting at his or her discretion, without notice.

 

Q:

Can I appoint someone other than the individuals named in the enclosed proxy to vote my Cenovus Common Shares?

 

A:

Yes, you have the right to appoint another person of your choice, who need not be a Cenovus Common Shareholder, to attend and vote on your behalf at the Cenovus Meeting. If you wish to appoint a person other than those named in the enclosed proxy or Voting Instruction Form, insert the name of your chosen proxyholder in the space provided.

NOTE: It is important for you to ensure that any other person you appoint will attend the Cenovus Meeting and is aware that his or her appointment has been made to vote your securities.

The following applies to Cenovus Common Shareholders who wish to appoint as their proxyholders individuals other than those named in the proxy or Voting Instruction Form. This includes non-registered Cenovus Common Shareholders who wish to appoint themselves as proxyholders to attend, participate in or vote at the Cenovus Meeting.

 

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Cenovus Common Shareholders who wish to appoint as their proxyholders individuals other than those named in the proxy or Voting Instruction Form to attend and participate in the Cenovus Meeting and vote their securities MUST submit their proxies or Voting Instruction Forms, as applicable, appointing such individuals as proxyholders AND register such proxyholders online, as described below. Registering your proxyholder is an additional step to be completed AFTER you have submitted your proxy or Voting Instruction Form. Failure to register the proxyholder will result in the proxyholder not receiving a Username that is required to vote at the Cenovus Meeting.

Step 1: Submit your proxy or Voting Instruction Form: To appoint someone other than the individuals named in the proxy or Voting Instruction Form as proxyholder, insert that person’s name in the blank space provided in the proxy or Voting Instruction Form (if permitted) and follow the instructions for submitting such proxy or Voting Instruction Form. This must be completed before registering such proxyholder, which is an additional step to be completed once you have submitted your proxy or Voting Instruction Form.

If you are a non-registered Cenovus Common Shareholders and wish to vote at the Cenovus Meeting, you must insert your own name in the space provided on the Voting Instruction Form sent to you by your intermediary, follow all of the applicable instructions provided by your intermediary AND register yourself as your proxyholder, as described below in Step 2. By doing so, you are instructing your intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided by your intermediary. Please also see further instructions below under the heading “How can a non-registered Cenovus Common Shareholder vote during the Cenovus Meeting?

If you are a non-registered Cenovus Common Shareholder located in the United States and wish to vote at the Cenovus Meeting or, if permitted, appoint a third party as your proxyholder, in addition to the steps described below under “How can a non-registered Cenovus Common Shareholder vote during the Cenovus Meeting?”, you must obtain a valid legal proxy from your intermediary. Follow the instructions from your intermediary included with the legal proxy form sent to you or contact your intermediary to request a legal proxy form if you have not received one. After obtaining a valid legal proxy from your intermediary, you must then submit such legal proxy to Computershare. Requests for registration from non-registered Cenovus Common Shareholders located in the United States that wish to vote at the Cenovus Meeting or, if permitted, appoint third parties as their proxyholders must be sent by e-mail or by courier to: uslegalproxy@computershare.com (if by e-mail); or Computershare Investor Services, Inc., Attention: Proxy Department, 8th Floor, 100 University Avenue, Toronto, ON M5J 2Y1, Canada (if by courier), and in both cases, must be labeled “Legal Proxy” and received no later than the Cenovus Proxy Deadline.

Step 2: Register your proxyholder: To register a third-party proxyholder, you must visit https://www.computershare.com/CenovusEnergy by the Cenovus Proxy Deadline and provide Computershare with the required proxyholder contact information so that Computershare may provide the proxyholder with a Username via email. Without a Username, proxyholders will not be able to vote at the Cenovus Meeting but will be able to participate as guests.

 

Q:

Should I send my form of proxy or Voting Instruction Form now?

 

A:

Yes. Once you have carefully read and considered the information in this Information Circular, you need to complete and submit the enclosed form of proxy or Voting Instruction Form, as applicable. You are encouraged to vote well in advance of the Cenovus Proxy Deadline to ensure that your Cenovus Common Shares are voted at the Cenovus Meeting.

 

Q:

Can I revoke my vote after I have voted by proxy?

 

A:

Yes. In addition to revocation in any other manner permitted by law, a Cenovus Common Shareholder may revoke a proxy: (a) by accessing the Cenovus Meeting by following the instructions under the heading “How to Participate at the Cenovus Meeting” in this Information Circular and voting their Cenovus Common Shares during the designated time; (b) by instrument in writing executed by the Cenovus Common Shareholder or such Cenovus Common Shareholder’s attorney authorized in writing or if the Cenovus Common Shareholder is a corporation, under its corporate seal or by an officer or attorney thereof, duly authorized, indicating the capacity under which such officer or attorney is signing and deposited with Computershare, the transfer agent of Cenovus, at the office designated in the Notice of Special Meeting of Cenovus Common Shareholders not later than 5:00 p.m. (Calgary time) on the Business Day preceding the day of the Cenovus Meeting (or any adjournment or postponement thereof); or (c) by a duly executed and deposited proxy as provided herein bearing a later date or time than the date or time of the proxy being revoked.

 

Q:

How can a registered Cenovus Common Shareholder vote during the Cenovus Meeting?

 

A:

Registered Cenovus Common Shareholders can vote in one of the following ways:

 

During the Virtual Cenovus Meeting

  

If you are a registered Cenovus Common Shareholder, you can attend the Cenovus Meeting by going to https://web.lumiagm.com/418831959 in a web browser on a smartphone, tablet or computer, selecting “I have a Control Number/Username” and entering your 15-digit Control Number (your Control Number is located on your form of proxy) and the password: “cenovus2020” (case sensitive). Follow the instructions to access the Cenovus Meeting and vote when prompted.

 

See “General Proxy Matter – Cenovus – How to Participate at the Cenovus Meeting”.

 

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Internet

  

Go to https://www.investorvote.com. Enter the 15-digit Control Number printed on the form of proxy and follow the instructions on screen.

Fax

  

1-866-249-7775 (North America toll-free)

 

1-416-263-9524 (Direct dial)

Mail

  

Enter voting instructions, sign the form of proxy and send your completed form of proxy or Voting Instruction Form to Cenovus’s registrar and transfer agent in the envelope provided, or to Computershare Investor Services, Inc., 8th Floor, 100 University Avenue, Toronto, Ontario, M5J 2Y1.

Phone

  

Call 1-866-732-8683 and follow the instructions. You will need to enter your 15-digit Control Number printed on the form of proxy, and follow the interactive voice recording instructions to submit your vote.

Questions

  

Call Cenovus’s strategic shareholder advisor and proxy solicitation agent Kingsdale Advisors, toll-free in North America at 1-866-851-4179 or at 1-416-867-2272 outside of North America, or by email at contactus@kingsdaleadvisors.com.

 

Q:

How can a non-registered Cenovus Common Shareholder vote during the Cenovus Meeting?

 

A:

Non-registered (beneficial) holders of Cenovus Common Shares can vote in one of the following ways:

 

During the Virtual Cenovus Meeting

  

If you are a non-registered Cenovus Common Shareholder, you can attend and vote at the Cenovus Meeting by filling in your name in the blank space provided on the Voting Instruction Form and appointing yourself as proxy and sending in your completed Voting Instruction Form to the address specified on the Voting Instruction Form in advance of the Cenovus Meeting.

 

You must also visit https://www.computershare.com/CenovusEnergy to register your name and email address so that after the Cenovus Proxy Deadline, Computershare can send you via email a Username that will be required (with case-sensitive password “cenovus2020”) to log into the Cenovus Meeting.

 

You can then attend the Cenovus Meeting by going to https://web.lumiagm.com/418831959 in a web browser on a smartphone, tablet or computer, selecting “I have a Control Number/Username”, entering the Username that you received in an email from Computershare, password “cenovus2020” (case sensitive), and then follow the instructions to access the Cenovus Meeting and vote when prompted.

 

Non-registered Cenovus Common Shareholders who have not duly appointed themselves as proxy will not be able to vote online at the virtual Cenovus Meeting. You will be able to join a live webcast of the Cenovus Meeting by going to https://web.lumiagm.com/418831959, clicking on “I am a guest” and filling in the form.

 

See “General Proxy Matter – Cenovus – How to Participate at the Cenovus Meeting”.

Internet

  

Go to https://www.proxyvote.com, enter the 16-digit Control Number printed on the Voting Instruction Form and follow the instructions on screen.

Mail

  

Enter voting instructions, sign the Voting Instruction Form and send your completed Voting Instruction Form to the address specified on the Voting Instruction Form.

Phone

  

Call 1-800-474-7493 or 1-800-474-7501 (French) and follow the instructions. You will need to enter your 16-digit Control Number printed on the Voting Instruction Form, and follow the interactive voice recording instructions to submit your vote.

Questions

  

Call Cenovus’s strategic shareholder advisor and proxy solicitation agent Kingsdale Advisors, toll-free in North America at 1-866-851-4179 or at 1-416-867-2272 outside of North America, or by email at contactus@kingsdaleadvisors.com.

 

Q:

Will my securities intermediary vote my Cenovus Common Shares for me?

 

A:

A broker or other securities intermediary will vote your Cenovus Common Shares only if you provide instructions to such intermediary on how to vote. If you fail to provide proper instructions, the Cenovus Common Shares will not be voted on your behalf at the Cenovus Meeting. If you do not wish to appoint yourself as proxy, as a non-registered (beneficial) Cenovus Common Shareholder, you should instruct your intermediary/ies to vote your Cenovus Common Shares on your behalf by following the directions on the Voting Instruction Form provided by such intermediary. Unless your intermediary/ies give(s) you its proxy to vote at the Cenovus Meeting, you cannot vote those Cenovus Common Shares owned by you at the Cenovus Meeting.

 

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Q:

Which form of proxy should I complete, sign and return?

 

A:

Accompanying this Information Circular is a form of proxy or Voting Instruction Form for use by Cenovus Common Shareholders. If you hold Cenovus Common Shares, please complete, sign and return the form of proxy or Voting Instruction Form, as applicable.

 

Q:

What other approvals are required for the Arrangement to be completed?

 

A:

In addition to the Cenovus Common Shareholder approval, in order for the Arrangement to be completed: (a) the Arrangement Resolution must be approved by not less than 6623% of the votes cast by Husky Common Shareholders present in person (virtually) or represented by proxy at the Husky Meeting and not less than 6623% of the votes cast by Husky Common Shareholders and Husky Optionholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class; and (b) other court and regulatory approvals must be obtained, including: (i) the approval of the TSX and the NYSE in respect of the issuance and listing of the Cenovus Common Shares and the Cenovus Warrants to be issued to Husky Common Shareholders pursuant to the Arrangement and the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants; and (ii) the Key Regulatory Approvals.

See “Procedure for the Arrangement to Become Effective”.

 

Q:

When will the Arrangement become effective?

 

A:

The Arrangement will become effective at the time the Articles of Arrangement are filed with the Registrar, which is expected to occur during the first quarter of 2021, provided that all required approvals are obtained. However, completion of the Arrangement is subject to a number of conditions and it is possible that factors outside the control of Cenovus and/or Husky could result in the Arrangement being completed at a later time, or not at all. Subject to certain limitations, each Party may terminate the Arrangement Agreement if it is not consummated by May 31, 2021; or by August 31, 2021 if the Key Regulatory Approvals have not been received by May 31, 2021.

See “Timing”.

 

Q:

What will happen to my Cenovus Options, Cenovus PSUs, and Cenovus RSUs, in connection with the Arrangement?

 

A:

Completion of the Arrangement will result in the acceleration of the vesting of the Cenovus Options, Cenovus PSUs and Cenovus RSUs held by non-executive officers of Cenovus. The payout of such Cenovus Options, Cenovus PSUs and Cenovus RSUs will be determined in accordance with the terms of the applicable Cenovus Incentive Plan, without the making of any adjustments (including as a consequence of the Arrangement) or other determinations pursuant to the terms of the Cenovus Incentive Plans or any Cenovus Incentives granted thereunder.

See “Effect of the Arrangement – Cenovus Incentive Awards”.

 

Q:

What will happen if the Share Issuance Resolution is not approved or the Arrangement is not completed for any reason?

 

A:

If the Share Issuance Resolution is not approved or the Arrangement is not completed for any reason, the Arrangement Agreement may be terminated by one or both of the Parties. Pursuant to the terms of the Arrangement Agreement, Husky and Cenovus have agreed that neither Party will solicit, initiate, encourage or otherwise facilitate any discussions concerning any other business combination or sale of material assets. The Husky Board or the Cenovus Board may respond to unsolicited Superior Proposals subject to certain requirements and notification to the Other Party who has the right to match any Superior Proposals within a five Business Day match period. The Arrangement Agreement provides for a termination amount of $150 million payable by Husky, in consideration for the disposition of Cenovus’s rights under the Arrangement Agreement, if the Arrangement is not completed in certain circumstances and $240 million payable by Cenovus, in consideration for the disposition of Husky’s rights under the Arrangement Agreement, if the Arrangement is not completed in certain circumstances.

See “Effect of the Arrangement – The Arrangement Agreement – Termination”.

 

Q:

Are Cenovus Common Shareholders entitled to Dissent Rights?

 

A:

No. Cenovus Common Shareholders are not entitled to Dissent Rights in connection with the Arrangement.

 

Q:

Who should I contact if I have questions?

 

A:

If you have any questions about the Arrangement or the matters described in this Information Circular, please contact your professional advisors. If you need additional copies of this Information Circular or you have questions or need assistance completing your form of proxy or Voting Instruction Form, please contact Cenovus’s strategic shareholder advisor and proxy solicitation agent, Kingsdale Advisors by telephone, toll free in North America at 1-866-851-4179 or at 1-416-867-2272 outside of North America, or by email at contactus@kingsdaleadvisors.com.

 

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LOGO

NOTICE OF SPECIAL MEETING OF HUSKY SECURITYHOLDERS

NOTICE IS HEREBY GIVEN that a special meeting (the “Husky Meeting”) of the holders (“Husky Common Shareholders”) of common shares (“Husky Common Shares”) of Husky Energy Inc. (“Husky”), the holders (“Husky Optionholders”) of options to acquire Husky Common Shares (“Husky Options”) and the holders (“Husky Preferred Shareholders”) of cumulative redeemable preferred shares, series 1, 2, 3, 5 and 7 (collectively, the “Husky Preferred Shares”) of Husky will be held at 9:00 a.m. (Calgary time) on Tuesday, December 15, 2020 in a virtual-only format that will be conducted via live webcast accessible online at https://web.lumiagm.com/459526828 for the following purposes:

 

1.

to consider, pursuant to an interim order (the “Interim Order”) of the Court of Queen’s Bench of Alberta dated November 9, 2020, and, if deemed advisable, to approve, with or without variation, a special resolution of the Husky Common Shareholders, voting separately and together with the Husky Optionholders as a single class (the “Arrangement Resolution”), the full text of which is set forth in Appendix A to the accompanying joint management information circular dated November 9, 2020 (the “Information Circular”), to approve a plan of arrangement (the “Arrangement”) under section 193 of the Business Corporations Act (Alberta) (the “ABCA”) involving Husky, Husky Common Shareholders, Husky Optionholders, Husky Preferred Shareholders and Cenovus Energy Inc. (“Cenovus”), whereby, among other things, Cenovus will acquire all of the issued and outstanding Husky Common Shares, will exchange all of the issued and outstanding Husky Preferred Shares for preferred shares of Cenovus, and will exchange all of the outstanding Husky Options for replacement options to acquire common shares of Cenovus, all as more particularly described in the Information Circular;

 

2.

to consider, pursuant to the Interim Order, and, if deemed advisable, to approve, with or without variation, a special resolution of the Husky Preferred Shareholders, voting together as a single class (the “Preferred Shareholder Resolution”), the full text of which is set forth in Appendix B to the Information Circular, to approve the Arrangement; and

 

3.

to transact such further and other business as may properly be brought before the Husky Meeting or any adjournment(s) or postponement(s) thereof.

Specific details of the matters to be put before the Husky Meeting are set forth in the Information Circular.

The board of directors of Husky unanimously recommends that Husky Common Shareholders and Husky Optionholders vote FOR the Arrangement Resolution and that Husky Preferred Shareholders vote FOR the Preferred Shareholder Resolution.

It is a condition to the completion of the Arrangement that the Arrangement Resolution be approved by Husky Common Shareholders, and the Husky Common Shareholders and Husky Optionholders, voting together as a single class, at the Husky Meeting. Completion of the Arrangement is not conditional upon receiving the approval of the Preferred Shareholder Resolution by Husky Preferred Shareholders. If the Husky Preferred Shareholders do not approve the Preferred Shareholder Resolution or if more than 10% of Husky Preferred Shareholders dissent in respect of the Arrangement (unless waived by Cenovus), the Husky Preferred Shares will not be exchanged for preferred shares of Cenovus and will remain outstanding in a subsidiary of Cenovus following completion of the Arrangement and listed on the TSX.

The full text of the plan of arrangement (the “Plan of Arrangement”) implementing the Arrangement is attached as Appendix E to the Information Circular. The Interim Order is attached as Appendix F to the Information Circular.

Each Husky Common Share and each Husky Option entitled to be voted in respect of the Arrangement Resolution will entitle the holder to one vote at the Husky Meeting with respect to such resolution. The Arrangement Resolution must be approved by not less than 6623% of the votes cast by Husky Common Shareholders present in person (virtually) or represented by proxy at the Husky Meeting and not less than 6623% of the votes cast by Husky Common Shareholders and Husky Optionholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class.

Each Husky Preferred Share entitled to be voted in respect of the Preferred Shareholder Resolution will entitle the holder to one vote at the Husky Meeting with respect to such resolution. The Preferred Shareholder Resolution must be approved by not less than 6623% of the votes cast by Husky Preferred Shareholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class.

The record date (the “Husky Record Date”) for determination of Husky Common Shareholders, Husky Preferred Shareholders and Husky Optionholders entitled to receive notice of and to vote at the Husky Meeting is the close of business on November 9, 2020. Husky Common Shareholders, Husky Preferred Shareholders and Husky Optionholders whose names have been entered in the register of holders of Husky Common Shares, the register of holders of Husky Preferred Shares or the register of holders of Husky Options, as applicable, on the close of

 

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business on the Husky Record Date will be entitled to receive notice of and to vote at the Husky Meeting, provided that, to the extent that a Husky Common Shareholder or Husky Preferred Shareholder transfers the ownership of any Husky Common Shares or Husky Preferred Shares, as applicable, after the Husky Record Date and the transferee of those shares establishes ownership of such shares and demands, not later than 10 days before the Husky Meeting, to be included in the list of Husky Common Shareholders or Husky Preferred Shareholders, as applicable, eligible to vote at the Husky Meeting, such transferee will be entitled to vote those Husky Common Shares or Husky Preferred Shares, as applicable, at the Husky Meeting.

Due to the unprecedented public health impact of coronavirus disease 2019, also known as COVID-19, and in alignment with the recommendations of Canadian public health officials to cancel large public gatherings, the Husky Meeting will be held in a virtual-only format conducted via live webcast in order to help mitigate health and safety risks to the community, shareholders, employees and other stakeholders. Husky’s directors and management believe this format will provide Husky securityholders a safer opportunity to attend the Husky Meeting given ongoing restrictions on travel and public gatherings as well as health concerns. While Husky securityholders and duly appointed proxyholders will not be able to attend the Husky Meeting in person, regardless of geographic location and ownership, they will have an equal opportunity to participate at the Husky Meeting and vote on the applicable resolution.

Registered Husky Common Shareholders, Husky Optionholders and registered Husky Preferred Shareholders may attend the Husky Meeting in person (virtually) or may be represented by proxy. Husky Common Shareholders, Husky Optionholders and Husky Preferred Shareholders who are unable to attend the Husky Meeting or any adjournments or postponements thereof in person are requested to date, sign and return the accompanying form of proxy for use at the Husky Meeting or any adjournment or postponement thereof. To be effective, the applicable enclosed form of proxy must be dated, signed and deposited with Husky’s registrar and transfer agent, Computershare Trust Company of Canada: (i) by mail using the enclosed return envelope or one addressed to Computershare Trust Company of Canada, 8th Floor North Tower, 100 University Avenue, Toronto, Ontario, M5J 2Y1; (ii) by facsimile 1-866-249-7775; or (iii) through the internet at www.investorvote.com, no later than: (a) 9:00 a.m. (Calgary time) on December 11, 2020 or, if the Husky Meeting is adjourned or postponed, no later than 48 hours (excluding Saturdays, Sundays and statutory holidays in Alberta) before the beginning of any adjourned or postponed Husky Meeting. The time limit for the deposit of proxies may be waived or extended by the Chair of the Husky Meeting at his or her discretion without notice. To vote through the internet you will require your 15-digit control number found on your proxy form.

If a Husky Common Shareholder or a Husky Preferred Shareholder receives more than one form of proxy because such holder owns Husky Common Shares or Husky Preferred Shares registered in different names or addresses, each form of proxy should be completed and returned.

A proxyholder has discretion under the accompanying form of proxy in respect of amendments or variations to matters identified in this Notice and with respect to other matters which may properly come before the Husky Meeting, or any adjournment or postponement thereof. As of the date hereof, management of Husky knows of no amendments, variations or other matters to come before the Husky Meeting other than the matters set forth in this Notice. Husky Common Shareholders, Husky Optionholders and Husky Preferred Shareholders who are planning to return the form of proxy are encouraged to review the Information Circular carefully before submitting the proxy form.

It is the intention of the persons named in the applicable enclosed form of proxy, if not expressly directed to the contrary in such form of proxy, to vote in favour of the Arrangement Resolution and the Preferred Shareholder Resolution.

Pursuant to the Interim Order, registered holders of Husky Common Shares and registered holders of Husky Preferred Shares have been granted the right to dissent with respect to the Arrangement Resolution and the Preferred Shareholder Resolution, respectively, and, if the Arrangement becomes effective, to be paid the fair value of their Husky Common Shares or Husky Preferred Shares, respectively, in accordance with the provisions of section 191 of the ABCA, as modified by the Interim Order and the Plan of Arrangement. The right of a Husky Common Shareholder or a Husky Preferred Shareholder to dissent is more particularly described in the Information Circular and in the Interim Order and the text of section 191 of the ABCA, which are set forth in Appendices F and O, respectively, to the accompanying Information Circular. To exercise such right to dissent, a dissenting Husky Common Shareholder or a dissenting Husky Preferred Shareholder must send to Husky, c/o Osler, Hoskin & Harcourt LLP, Suite 2500, TC Energy Tower, 450 – 1st Street S.W., Calgary, Alberta, T2P 5H1, Attention: Tristram Mallett, a written objection to the Arrangement Resolution or Preferred Shareholder Resolution, as the case may be, which written objection must be received by 5:00 p.m. (Calgary time) on December 8, 2020 or the fifth business day immediately preceding the date of any adjournment or postponement of the Husky Meeting, as applicable. Notwithstanding the foregoing, registered Husky Preferred Shareholders who have validly exercised their right to dissent shall not be entitled to dissent nor to be paid the fair value of their Husky Preferred Shares in the event that the Husky Preferred Shares are not exchanged for preferred shares of Cenovus pursuant to the Arrangement.

Failure to strictly comply with the requirements set forth in section 191 of the ABCA, as modified by the Interim Order and the Plan of Arrangement, may result in the loss of any right of dissent. Persons who are beneficial owners of Husky Common Shares or Husky Preferred Shares registered in the name of a broker, dealer, bank, trust company or other nominee who wish to dissent should be aware that only the registered holders of such Husky Common Shares or Husky Preferred Shares are entitled to dissent. Accordingly, a beneficial owner of Husky Common Shares or Husky Preferred Shares desiring to exercise the right of dissent must make arrangements for the Husky Common Shares or Husky Preferred Shares beneficially owned by such holder to be registered in the

 

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holder’s name prior to the time the written objection to the Arrangement Resolution or the Preferred Shareholder Resolution, as applicable, is required to be received by Husky or, alternatively, make arrangements for the registered holder of such Husky Common Shares or Husky Preferred Shares to dissent on behalf of the beneficial holder. It is strongly recommended that any Husky Common Shareholders and Husky Preferred Shareholders wishing to dissent seek independent legal advice.

Dated at Calgary, Alberta, this 9th day of November, 2020.

 

BY ORDER OF THE BOARD OF DIRECTORS OF HUSKY ENERGY INC.

(signed) “James D. Girgulis

James D. Girgulis, Q.C.

Senior Vice President, General Counsel & Secretary

Husky Energy Inc.

 

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LOGO

NOTICE OF SPECIAL MEETING OF CENOVUS SHAREHOLDERS

NOTICE IS HEREBY GIVEN that a special meeting (the “Cenovus Meeting”) of the holders (“Cenovus Common Shareholders”) of common shares (“Cenovus Common Shares”) of Cenovus Energy Inc. (“Cenovus”) will be held at 1:00 p.m. (Calgary time) on Tuesday, December 15, 2020 in a virtual-only format that will be conducted via live webcast accessible online at https://web.lumiagm.com/418831959 for the following purposes:

 

1.

to consider and, if deemed advisable, to approve, with or without variation, an ordinary resolution, the full text of which is set forth in Appendix C to the accompanying joint management information circular dated November 9, 2020 (the “Information Circular”), to approve and authorize:

 

 (a)

the issuance of (i) such number of Cenovus Common Shares and common share purchase warrants (“Cenovus Warrants”) to allow Cenovus to meet its obligations under the Arrangement Agreement (as defined below) to issue Cenovus Common Shares for a portion of the common shares (“Husky Common Shares”) in the capital of Husky Energy Inc. (“Husky”) held by each holder of Husky Common Shares (“Husky Common Shareholder”) and Cenovus Warrants for the remaining portion of Husky Common Shares held by each such Husky Common Shareholder, such that, in the aggregate, each Husky Common Shareholder will receive consideration of 0.7845 of a Cenovus Common Share and 0.0651 of a Cenovus Warrant in respect of each Husky Common Share, and (ii) such number of Cenovus Common Shares issuable upon exercise, from time to time, of (A) Cenovus Warrants, and (B) replacement options to purchase Cenovus Common Shares granted by Cenovus in consideration for the outstanding options to purchase common shares in the capital of Husky (the “Share Issuance Resolution”) pursuant to a plan of arrangement under section 193 of the Business Corporations Act (Alberta) involving Husky, the holders of common shares of Husky, the holders of preferred shares of Husky, the holders of options of Husky, and Cenovus, pursuant to the terms of an arrangement agreement dated October 24, 2020 (the “Arrangement Agreement”) between Cenovus and Husky, all as more particularly described in the Information Circular; and

 

 (b)

amendments to the Amended and Restated Shareholder Rights Plan Agreement dated as of April 25, 2018 between Cenovus and Computershare Investor Services, Inc. (the “Cenovus SRP Agreement”), as described and set forth in the Information Circular and such further amendments as the board of directors of Cenovus (the “Cenovus Board”) may determine to be reasonably necessary to ensure that an acquisition by any person of Cenovus Common Shares or of rights to acquire Cenovus Common Shares pursuant to (i) the Arrangement, (ii) the Cenovus Warrants, including the exercise thereof, or (iii) any exercise of pre-emptive rights, including pursuant to any follow-on offering, under any Pre-Emptive Rights Agreement (as defined in the Information Circular) does not and will not result in the occurrence of a “Flip-In Event” or the “Separation Time” (as those terms are defined in the Cenovus SRP Agreement); and

 

2.

to transact such further and other business as may properly be brought before the Cenovus Meeting or any adjournment(s) or postponement(s) thereof.

Specific details of the matters to be put before the Cenovus Meeting are set forth in the Information Circular.

The Cenovus Board unanimously recommends that Cenovus Common Shareholders vote FOR the Share Issuance Resolution. It is a condition to the completion of the Arrangement that the Share Issuance Resolution be approved at the Cenovus Meeting. If the Share Issuance Resolution is not approved by the Cenovus Common Shareholders, the Arrangement cannot be completed.

Each Cenovus Common Share entitled to be voted in respect of the Share Issuance Resolution will entitle the holder to one vote at the Cenovus Meeting. The Share Issuance Resolution must be approved by a simple majority of the votes cast by Cenovus Common Shareholders present in person (virtually) or represented by proxy at the Cenovus Meeting.

The record date (the “Cenovus Record Date”) for determination of Cenovus Common Shareholders entitled to receive notice of and to vote at the Cenovus Meeting is the close of business on November 9, 2020. Cenovus Common Shareholders whose names have been entered in the register of holders of Cenovus Common Shares at the close of business on the Cenovus Record Date will be entitled to receive notice of and to vote at the Cenovus Meeting.

Due to the unprecedented public health impact of coronavirus disease 2019, also known as COVID-19, and in alignment with the recommendations of Canadian public health officials to cancel large public gatherings, the Cenovus Meeting will be held in a virtual-only format conducted via live webcast in order to help mitigate health and safety risks to the community, shareholders, employees and other stakeholders. Cenovus’s directors and management believe this format will provide Cenovus Common Shareholders a safer opportunity to attend the Cenovus Meeting given ongoing restrictions on travel and public gatherings as well as health concerns. While Cenovus Common Shareholders and duly appointed proxyholders will not be able to attend the Cenovus Meeting in person, regardless of geographic location and ownership, they will have an equal opportunity to participate at the Cenovus Meeting and vote on the Share Issuance Resolution. The vast majority of our shareholders vote by proxy in advance of the meeting and all shareholders are encouraged to vote by proxy ahead of the Cenovus Meeting.

 

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Registered Cenovus Common Shareholders may attend the Cenovus Meeting in person (virtually) or may be represented by proxy. Cenovus Common Shareholders who are unable to attend the Cenovus Meeting or any adjournments or postponements thereof in person are requested to date, sign and return the accompanying form of proxy for use at the Cenovus Meeting or any adjournment or postponement thereof. To be effective, the enclosed form of proxy must be dated, signed and deposited with Cenovus’s registrar and transfer agent, Computershare Investor Services, Inc.: (i) by mail using the enclosed return envelope or one addressed to Computershare Investor Services, Inc., 8th Floor North Tower, 100 University Avenue, Toronto, Ontario, M5J 2Y1; (ii) by facsimile 1-866-249-7775; or (iii) through the internet at www.investorvote.com, no later than 1:00 p.m. (Calgary time) on December 11, 2020 or, if the Cenovus Meeting is adjourned or postponed, no later than 48 hours (excluding Saturdays, Sundays and statutory holidays in Alberta) before the beginning of any adjourned or postponed Cenovus Meeting. The time limit for the deposit of proxies may be waived or extended by the Chair of the Cenovus Meeting at his or her discretion without notice. To vote through the internet you will require your 15-digit control number found on your proxy form.

If a Cenovus Common Shareholder receives more than one form of proxy because such holder owns Cenovus Common Shares registered in different names or addresses, each form of proxy should be completed and returned.

A proxyholder has discretion under the accompanying form of proxy in respect of amendments or variations to matters identified in this Notice and with respect to other matters which may properly come before the Cenovus Meeting, or any adjournment or postponement thereof. As of the date hereof, management of Cenovus knows of no amendments, variations or other matters to come before the Cenovus Meeting other than the matters set forth in this Notice. Cenovus Common Shareholders who are planning to return the form of proxy are encouraged to review the Information Circular carefully before submitting the proxy form.

It is the intention of the persons named in the enclosed form of proxy, if not expressly directed to the contrary in such form of proxy, to vote in favour of the Share Issuance Resolution.

Dated at Calgary, Alberta, this 9th day of November, 2020.

 

BY ORDER OF THE BOARD OF DIRECTORS OF CENOVUS ENERGY INC.

(signed) “Gary F. Molnar

Gary F. Molnar

Corporate Secretary

Cenovus Energy Inc.

 

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Court File No. 2001-13754

IN THE COURT OF QUEEN’S BENCH OF ALBERTA

JUDICIAL CENTRE OF CALGARY

IN THE MATTER OF SECTION 193 OF THE BUSINESS CORPORATIONS ACT,

R.S.A. 2000, c. B-9, AS AMENDED

AND IN THE MATTER OF A PROPOSED ARRANGEMENT INVOLVING HUSKY ENERGY INC., THE HOLDERS OF COMMON SHARES OF HUSKY ENERGY INC., THE HOLDERS OF CUMULATIVE REDEEMABLE PREFERRED SHARES, SERIES 1, 2, 3, 5 AND 7 OF HUSKY ENERGY INC., THE HOLDERS OF OPTIONS TO PURCHASE COMMON SHARES OF HUSKY ENERGY INC. AND CENOVUS ENERGY INC.

NOTICE OF APPLICATION

NOTICE IS HEREBY GIVEN that an originating application (the “Application”) has been filed with the Court of Queen’s Bench of Alberta, Judicial Centre of Calgary (the “Court”) on behalf of Husky Energy Inc. (“Husky”) with respect to a proposed arrangement (the “Arrangement”) under section 193 of the Business Corporations Act, R.S.A. 2000, c. B-9, as amended (the “ABCA”), involving Husky, the holders of common shares of Husky (the “Husky Common Shareholders”), the holders of cumulative redeemable preferred shares, series 1, 2, 3, 5 and 7 of Husky (the “Husky Preferred Shareholders”), the holders of options to purchase common shares of Husky (the “Husky Optionholders”) and Cenovus Energy Inc. (“Cenovus”), which Arrangement is described in greater detail in the joint management information circular of Husky and Cenovus dated November 9, 2020 accompanying this Notice of Application. At the hearing of the Application, Husky intends to seek:

 

1.

a declaration that the terms and conditions of the Arrangement, and the procedures relating thereto, are fair to the Husky Common Shareholders, Husky Optionholders, Husky Preferred Shareholders if the Preferred Share Condition, as defined in the Arrangement, is met and other affected persons, both from a substantive and procedural perspective;

 

2.

an order approving the Arrangement pursuant to the provisions of section 193 of the ABCA and pursuant to the terms and conditions of the Arrangement Agreement;

 

3.

a declaration that the Arrangement will, upon the filing of Articles of Arrangement under the ABCA and the issuance of the proof of filing of Articles of Arrangement under the ABCA, be effective under the ABCA in accordance with its terms and will be binding on and after the Effective Date, as defined in the Arrangement; and

 

4.

such other and further orders, declarations or directions as the Court may deem just,

(collectively, the “Final Order”).

AND NOTICE IS FURTHER GIVEN that the said Application is directed to be heard before a Justice of the Court, at the Calgary Courts Centre, 601 – 5th Street, S.W., Calgary, Alberta, Canada, or via video conference if necessary, on December 16, 2020 at 3:00 p.m. (Calgary time) or as soon thereafter as counsel may be heard. Any Husky Common Shareholder, Husky Preferred Shareholder, Husky Optionholder or other interested party desiring to support or oppose the Application may appear at the time of the hearing in person (virtually) or by counsel for that purpose provided such Husky Common Shareholder, Husky Preferred Shareholder, Husky Optionholder or other interested party files with the Court and serves upon Husky on or before 5:00 p.m. (Calgary time) on December 8, 2020, a notice of intention to appear (the “Notice of Intention to Appear”) setting out such Husky Common Shareholder’s, Husky Preferred Shareholder’s, Husky Optionholder’s or interested party’s address for service and indicating whether such Husky Common Shareholder, Husky Preferred Shareholder, Husky Optionholder or interested party intends to support or oppose the Application or make submissions, together with a summary of the position such person intends to advocate before the Court, and any evidence or materials which are to be presented to the Court. Service on Husky is to be effected by delivery to its solicitors at the address set forth below.

AND NOTICE IS FURTHER GIVEN that, at the hearing and subject to the foregoing, Husky Common Shareholders, Husky Preferred Shareholders, Husky Optionholders and any other interested persons will be entitled to make representations as to, and the Court will be requested to consider, the fairness of the Arrangement. If you do not attend, either in person (virtually) or by counsel, at that time, the Court may approve or refuse to approve the Arrangement as presented, or may approve it subject to such terms and conditions as the Court may deem fit, without any further notice.

AND NOTICE IS FURTHER GIVEN that the Court, by the interim order (the “Interim Order”) of the Court dated November 9, 2020, has given directions as to the calling and holding of a special meeting of the Husky Common Shareholders, Husky Preferred Shareholders and Husky Optionholders for the purposes of such Husky Common Shareholders, Husky Preferred Shareholders and Husky Optionholders voting upon applicable special resolutions to approve the Arrangement and, in particular, has directed that registered Husky Common Shareholders and registered Husky Preferred Shareholders have the right to dissent under the provisions of section 191 of the ABCA, as modified by the terms of the Interim Order, in respect of the Arrangement.

 

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AND NOTICE IS FURTHER GIVEN that the Final Order approving the Arrangement will, if granted, constitute as the basis for an exemption from the registration requirements of the United States Securities Act of 1933, as amended, pursuant to Section 3(a)(10) thereof with respect to (i) the issuance of common shares and common share purchase warrants in the capital of Cenovus issuable to Husky Common Shareholders, (ii) the issuance of preferred shares in the capital of Cenovus issuable to Husky Preferred Shareholders, and (iii) the issuance of options to purchase common shares in the capital of Cenovus issuable to Husky Optionholders, all pursuant to the Arrangement.

AND NOTICE IS FURTHER GIVEN that further notice in respect of these proceedings will only be given to those persons who have filed a Notice of Intention to Appear.

AND NOTICE IS FURTHER GIVEN that a copy of the said Application and other documents in the proceedings will be furnished to any Husky Common Shareholder, Husky Preferred Shareholder, Husky Optionholder or other interested party requesting the same by the under-mentioned solicitors for Husky upon written request delivered to such solicitors as follows:

Solicitors for Husky:

Osler, Hoskin & Harcourt LLP

Suite 2500, TC Energy Tower

450 – 1st Street S.W.

Calgary, Alberta T2P 5H1

Facsimile Number: (403) 260-7024

Attention: Tristram Mallett

DATED at the City of Calgary, in the Province of Alberta, this 9th day of November, 2020.

 

BY ORDER OF THE BOARD OF DIRECTORS OF HUSKY ENERGY INC.

 

(signed) “James D. Girgulis

 

James D. Girgulis, Q.C.

Senior Vice President, General Counsel & Secretary

Husky Energy Inc.

 

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GLOSSARY OF TERMS

The following is a glossary of certain terms used in this Information Circular including the Summary and Appendices M and N. Terms and abbreviations used in the Appendices to this Information Circular other than Appendices M and N are defined separately and the terms and abbreviations defined below are not used therein, except where otherwise indicated.

ABCA” means the Business Corporations Act (Alberta), RSA 2000, c B-9, as amended;

Acquisition Proposal” means, other than the transactions contemplated by the Arrangement Agreement and except as disclosed in writing by Husky to Cenovus and other than any transaction involving only a Party and one or more of its wholly-owned subsidiaries, any proposal, expression of interest, inquiry or offer from, or public announcement of an intention by, any Person, or group of Persons “acting jointly or in concert” within the meaning of NI 62-104, whether or not in writing and whether or not delivered to a Party’s shareholders and whether or not subject to due diligence or other conditions, or whether in one transaction or a series of transactions, that relates to, or may reasonably be expected to relate to: (a) any direct or indirect sale, issuance or acquisition of shares or other securities (or securities convertible or exercisable for shares or other securities) of a Party that, when taken together with the shares and other securities of such Party held by the proposed acquiror and any Person acting jointly or in concert with such acquiror, represent 20% or more of any class of equity or voting securities of such Party or rights or interests therein and thereto; (b) any direct or indirect acquisition or purchase of 20% or more of the assets (or any joint venture, lease, long-term supply agreement or other arrangement having the same economic effect as an acquisition or purchase) of a Party and its subsidiaries taken as a whole (and, for greater certainty, assets shall include shares of subsidiaries owned by a Party); (c) an amalgamation, arrangement, share exchange, merger, business combination, joint venture, consolidation, recapitalization, liquidation, dissolution, winding-up, reorganization or other similar transaction involving a Party or its subsidiaries that collectively own assets to which 20% or more of such Party’s revenues or earnings on a consolidated basis are attributable; (d) any take-over bid, issuer bid, exchange offer or similar transaction involving a Party or its subsidiaries that, if consummated, would result in a Person or group of Persons acting jointly or in concert with such Person acquiring beneficial ownership of 20% or more of any class of equity or voting securities of such Party; or (e) any transaction that would reasonably be expected to materially reduce the benefits to the Other Party of the Arrangement or impede, interfere with, prevent or delay the transactions contemplated by the Arrangement Agreement or the Arrangement;

Adjusted EBITDA” has the meaning given to it under the heading “Joint Management Information Circular – Supplemental Disclosure – Non-GAAP Measures”;

affiliate” means any Person that is affiliated with another Person in accordance with the meaning of the Securities Act;

Agreement Date” means October 24, 2020;

allowable capital loss” has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Taxation of Capital Gains and Losses”;

Applicable Canadian Securities Laws” means, collectively, the securities acts or similar statutes of each of the provinces and territories of Canada and the respective rules and regulations under such laws, together with applicable published national, multilateral and local policy statements, instruments, notices and blanket orders of the provinces and territories of Canada and all rules, by-laws and regulations governing the TSX;

Applicable Laws” means, in any context that refers to one or more Persons or its or their respective businesses, activities, properties, assets, undertakings or securities, the Laws that apply to such Person or Persons or its or their respective businesses, activities, properties, assets, undertakings or securities and emanate from a Governmental Authority having jurisdiction over the Person or Persons or its or their respective businesses, activities, properties, assets, undertakings or securities and, for greater certainty, includes Applicable Canadian Securities Laws and Applicable U.S. Securities Laws;

Applicable Securities Laws” means, collectively, Applicable Canadian Securities Laws and Applicable U.S. Securities Laws;

Applicable U.S. Securities Laws” means federal and state securities legislation of the United States and all rules, regulations and orders promulgated thereunder, and all rules, by-laws and regulations governing the NYSE;

ARC” has the meaning given to it under the heading “Procedure for the Arrangement to Become Effective – Regulatory Approvals – Competition Act Approval”;

Arrangement” means the arrangement, pursuant to section 193 of the ABCA, on the terms set out in the Plan of Arrangement, as supplemented, modified or amended in accordance with the Plan of Arrangement or made at the direction of the Court in the Final Order;

Arrangement Agreement” means the arrangement agreement dated October 24, 2020 between Husky and Cenovus, with respect to the Arrangement, as supplemented, modified or amended, a copy of which is attached as Appendix D to this Information Circular;

Arrangement Resolution” means the special resolution in respect of the Arrangement to be considered by the Husky Common Shareholders and the Husky Optionholders at the Husky Meeting, the full text of which is set forth in Appendix A to this Information Circular;

 

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Articles of Arrangement” means the articles of arrangement in respect of the Arrangement required under section 193(10) of the ABCA to be filed with the Registrar after the Final Order has been granted and all other conditions precedent to the Arrangement have been satisfied or waived, to give effect to the Arrangement;

“Asia Pacific” means offshore China and Indonesia;

associate” has the meaning ascribed thereto in the Securities Act;

Atlantic” means offshore the east coast of Canada;

Beneficial Holders” means Shareholders who do not hold their Shares in their own name;

Bennett Jones” means Bennett Jones LLP, legal counsel to Cenovus;

Broadridge” means Broadridge Financial Solutions, Inc.;

Business Day” means, with respect to any action to be taken, any day, other than a Saturday, Sunday or a statutory holiday in the Province of Alberta;

Canada Transportation Act” means the Canada Transportation Act, SC 1996, c-10, as amended;

Canadian Securities Regulators” means the securities commission or similar regulatory authority in each of the provinces and territories of Canada;

Canadian Warrant Prospectus” has the meaning given to it under the heading “Effect of the Arrangement – Description of the Cenovus Warrants – Cenovus Warrant Indenture”;

CBCA” means the Canada Business Corporations Act, RSC 1985, c C-44, as amended;

CDS” means CDS Clearing and Depository Services Inc.;

Cenovus” means Cenovus Energy Inc., a corporation existing under the CBCA;

Cenovus AGM Circular” means the management information circular of Cenovus dated March 2, 2020 in connection with the annual meeting of Cenovus Common Shareholders held on April 29, 2020;

Cenovus AIF” means the annual information form of Cenovus dated February 11, 2020 for the year ended December 31, 2019;

Cenovus Annual Financial Statements” means the audited consolidated financial statements of Cenovus as at December 31, 2019 and 2018 and for the years ended December 31, 2019 and 2018, together with the notes thereto and the auditor’s report thereon;

Cenovus Annual MD&A” means management’s discussion and analysis of the financial and operating results of Cenovus for the year ended December 31, 2019;

Cenovus Board” means the board of directors of Cenovus;

Cenovus Board Recommendation” has the meaning given to it under the heading “The Arrangement – Recommendation of the Cenovus Board”;

Cenovus Common Shareholders” means the holders of Cenovus Common Shares;

Cenovus Common Shares” means common shares in the capital of Cenovus;

Cenovus Director DSU Plan” means the deferred share unit plan for directors of Cenovus providing for the grant of Cenovus Director DSUs to non-employee directors of Cenovus, adopted with effect from November 30, 2009, as amended and restated in its entirety effective January 1, 2018, July 25, 2018 and December 9, 2019;

Cenovus Director DSUs” means the deferred share units granted under the Cenovus Director DSU Plan entitling the holders thereof to receive a cash payment equivalent to the value of Cenovus Common Shares underlying such Cenovus Director DSUs upon ceasing to be a director or employee of Cenovus (or its affiliates) in accordance with the provisions of the Cenovus Director DSU Plan;

 

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Cenovus Disposition Event” has the meaning given to it under the heading “Effect of the Arrangement – The Arrangement Agreement – Termination Amount Payable by Husky”;

Cenovus DSU Plans” means, together, the Cenovus Director DSU Plan and the Cenovus Employee DSU Plan, and “Cenovus DSU Plan” means either one of them;

Cenovus DSUs” means, together, Cenovus Director DSUs and Cenovus Employee DSUs;

Cenovus Employee DSU Plan” means the deferred share unit plan for employees of Cenovus providing for the grant of Cenovus Employee DSUs to employees of Cenovus and related corporations, adopted with effect from November 30, 2009, as amended effective October 25, 2016 and December 9, 2019;

Cenovus Employee DSUs” means the deferred share units granted under the Cenovus Employee DSU Plan entitling the holders thereof to receive a cash payment equivalent to the value of Cenovus Common Shares underlying such Cenovus Employee DSUs upon ceasing to be employed by Cenovus (or its affiliates) in accordance with the provisions of the Cenovus Employee DSU Plan;

Cenovus Fairness Opinions” means, collectively, the RBC Fairness Opinion and the TD Fairness Opinion;

Cenovus Incentive Plans” means, collectively, the Cenovus DSU Plans, the Cenovus Option Plan, the Cenovus PSU Plan and the Cenovus RSU Plan;

Cenovus Incentives” means, collectively, the Cenovus DSUs, the Cenovus Options, the Cenovus PSUs and the Cenovus RSUs;

Cenovus Interim Financial Statements” means the interim consolidated financial statements (unaudited) of Cenovus as at September 30, 2020 and for the three and nine months ended September 30, 2020, together with notes thereto;

Cenovus Interim MD&A” means management’s discussion and analysis of the financial and operating results of Cenovus for the three and nine months ended September 30, 2020;

Cenovus First Preferred Shares” means the First Preferred Shares in the capital of Cenovus;

Cenovus Group” means Cenovus and its subsidiaries and their respective partnership interests, as the context requires;

Cenovus Meeting” means the special meeting of Cenovus Common Shareholders to be called to permit the Cenovus Common Shareholders to consider the Share Issuance Resolution and related matters, and any adjournment(s) or postponement(s) thereof;

Cenovus Option Plan” means the amended and restated employee stock option plan of Cenovus providing for the grant of Cenovus Options to employees of Cenovus or its subsidiaries made as of November 30, 2009, and amended as of February 10, 2010 and December 7, 2010 and amended and restated as of January 1, 2018;

Cenovus Options” means the stock options of Cenovus granted under the Cenovus Option Plan entitling the holders thereof to acquire Cenovus Common Shares upon payment of an exercise price, or surrender the stock options for a cash payment, in accordance with the provisions of the Cenovus Option Plan;

Cenovus Preferred Shares” means, collectively, Cenovus Series 1 Preferred Shares, Cenovus Series 2 Preferred Shares, Cenovus Series 3 Preferred Shares, Cenovus Series 4 Preferred Shares, Cenovus Series 5 Preferred Shares, Cenovus Series 6 Preferred Shares, Cenovus Series 7 Preferred Shares and Cenovus Series 8 Preferred Shares;

Cenovus Proxy Deadline” means 1:00 p.m. (Calgary time) on December 11, 2020, or 48 hours (excluding Saturdays, Sundays and statutory holidays in the Province of Alberta) prior to the time of any adjournment or postponement of the Cenovus Meeting;

Cenovus PSU Plan” means the performance share unit plan for employees of Cenovus providing for the grant of Cenovus PSUs to employees of Cenovus or its affiliates adopted with effect from February 10, 2010 and amended and restated effective January 1, 2018, as amended;

Cenovus PSUs” means the performance share units granted under the Cenovus PSU Plan entitling the holders thereof to receive a cash payment or Cenovus Common Shares (or a combination thereof), as determined by Cenovus, upon vesting in accordance with the provisions of the Cenovus PSU Plan;

Cenovus Record Date” means November 9, 2020;

Cenovus Replacement Options” means the replacement options to purchase Cenovus Common Shares granted by Cenovus in consideration for the Husky Options pursuant to the Plan of Arrangement;

 

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Cenovus Reserves Reports” means the reports prepared by McDaniel for the year ended December 31, 2019 and by GLJ for the year ended December 31, 2019 with respect to Cenovus’s reserves pursuant to NI 51-101;

Cenovus Rights Plan” has the meaning given to it under the heading “Matters to be Considered at the Cenovus Meeting”;

Cenovus RSU Plan” means the restricted share unit plan for employees of Cenovus providing for the grant of Cenovus RSUs to certain employees of Cenovus or its affiliates adopted with effect from December 7, 2010 and amended and restated effective January 1, 2018 as amended;

Cenovus RSUs” means the restricted share units granted under the Cenovus RSU Plan entitling the holders to receive a cash payment or Cenovus Common Shares (or a combination thereof), as determined by Cenovus, upon vesting of such Cenovus RSUs in accordance with the provisions of the Cenovus RSU Plan;

Cenovus Second Preferred Shares” means the Second Preferred Shares in the capital of Cenovus;

Cenovus Series 1 Preferred Shares” means First Preferred Shares, Series 1, in the capital of Cenovus, to be issued pursuant to the Plan of Arrangement (if the Preferred Share Condition is met) in exchange for Husky Series 1 Preferred Shares outstanding immediately prior to the Effective Time, such shares having substantially identical terms to the Husky Series 1 Preferred Shares except that the issuer thereof shall be Cenovus and they will be convertible into Cenovus Series 2 Preferred Shares instead of Husky Series 2 Preferred Shares;

Cenovus Series 2 Preferred Shares” means First Preferred Shares, Series 2, in the capital of Cenovus, to be issued pursuant to the Plan of Arrangement (if the Preferred Share Condition is met) in exchange for Husky Series 2 Preferred Shares outstanding immediately prior to the Effective Time, such shares having substantially identical terms to the Husky Series 2 Preferred Shares except that the issuer thereof shall be Cenovus and they will be convertible into Cenovus Series 1 Preferred Shares instead of Husky Series 1 Preferred Shares;

Cenovus Series 3 Preferred Shares” means First Preferred Shares, Series 3, in the capital of Cenovus, to be issued pursuant to the Plan of Arrangement (if the Preferred Share Condition is met) in exchange for Husky Series 3 Preferred Shares outstanding immediately prior to the Effective Time, such shares having substantially identical terms to the Husky Series 3 Preferred Shares except that the issuer thereof shall be Cenovus and they will be convertible into Cenovus Series 4 Preferred Shares instead of Husky Series 4 Preferred Shares;

Cenovus Series 4 Preferred Shares” means First Preferred Shares, Series 4, in the capital of Cenovus, to be issued from time to time upon conversion of Cenovus Series 3 Preferred Shares in accordance with their terms, such shares having substantially identical terms to the Husky Series 4 Preferred Shares except that the issuer thereof shall be Cenovus and they will be convertible into Cenovus Series 3 Preferred Shares instead of Husky Series 3 Preferred Shares;

Cenovus Series 5 Preferred Shares” means First Preferred Shares, Series 5, in the capital of Cenovus, to be issued pursuant to the Plan of Arrangement (if the Preferred Share Condition is met) in exchange for Husky Series 5 Preferred Shares outstanding immediately prior to the Effective Time, such shares having substantially identical terms to the Husky Series 5 Preferred Shares except that the issuer thereof shall be Cenovus and they will be convertible into Cenovus Series 6 Preferred Shares instead of Husky Series 6 Preferred Shares;

Cenovus Series 6 Preferred Shares” means First Preferred Shares, Series 6, in the capital of Cenovus, to be issued from time to time upon conversion of Cenovus Series 5 Preferred Shares in accordance with their terms, such shares having substantially identical terms to the Husky Series 6 Preferred Shares except that the issuer thereof shall be Cenovus and they will be convertible into Cenovus Series 5 Preferred Shares instead of Husky Series 5 Preferred Shares;

Cenovus Series 7 Preferred Shares” means First Preferred Shares, Series 7, in the capital of Cenovus, to be issued pursuant to the Plan of Arrangement (if the Preferred Share Condition is met) in exchange for Husky Series 7 Preferred Shares outstanding immediately prior to the Effective Time, such shares having substantially identical terms to the Husky Series 7 Preferred Shares except that the issuer thereof shall be Cenovus and they will be convertible into Cenovus Series 8 Preferred Shares instead of Husky Series 8 Preferred Shares;

Cenovus Series 8 Preferred Shares” means First Preferred Shares, Series 8, in the capital of Cenovus, to be issued from time to time upon conversion of Cenovus Series 7 Preferred Shares in accordance with their terms, such shares having substantially identical terms to the Husky Series 8 Preferred Shares except that the issuer thereof shall be Cenovus and they will be convertible into Cenovus Series 7 Preferred Shares instead of Husky Series 7 Preferred Shares;

Cenovus Shares” means collectively, the Cenovus Common Shares and the Cenovus Preferred Shares;

Cenovus SRP Agreement” means the Amended and Restated Shareholder Rights Plan Agreement dated as of April 25, 2018 between Cenovus and Computershare Investor Services, Inc., as rights agent, and, where the context dictates, as such agreement will be amended after giving effect to the approval of the Share Issuance Resolution at the Cenovus Meeting;

Cenovus Termination Amount” means $150 million;

 

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Cenovus Warrant Agent” has the meaning given to it under the heading “Effect of the Arrangement – Description of the Cenovus Warrants”;

Cenovus Warrantholder” means a holder of Cenovus Warrants;

Cenovus Warrant Indenture” means the warrant indenture to be entered into between the Cenovus Warrant Agent and Cenovus dated as of the Effective Date, governing the creation and issue of the Cenovus Warrants, as further described herein under the heading “Effect of the Arrangement – Description of the Cenovus Warrants – Cenovus Warrant Indenture”;

Cenovus Warrants” means common share purchase warrants of Cenovus to be issued by Cenovus to Husky Common Shareholders pursuant to the Plan of Arrangement, with each whole common share purchase warrant entitling the holder thereof to acquire one Cenovus Common Share at an exercise price of $6.54 per Cenovus Common Share for a period of 60 months from the Effective Date;

Cenovus Warrant Shares” has the meaning given to it under the heading “Effect of the Arrangement – Description of the Cenovus Warrants – Cenovus Warrant Indenture”;

Cenovus Warrants Portion” means the fraction obtained when (i) the fair market value of 0.0651 of a Cenovus Warrant, is divided by (ii) the fair market value of the Consideration, in each case determined immediately prior to the Effective Time;

Certificate” means the certificate or other proof of filing to be issued by the Registrar pursuant to section 193(11) or section 193(12) of the ABCA in respect of the Articles of Arrangement;

CIBC Capital Markets” means CIBC World Markets Inc., financial advisor to Husky;

CIBC Common Shareholder Fairness Opinion” means the written opinion of CIBC Capital Markets to the Husky Board dated October 23, 2020, a copy of which is attached as Appendix H to this Information Circular;

CIBC Preferred Shareholder Fairness Opinion” means the written opinion of CIBC Capital Markets to the Husky Board dated October 23, 2020, a copy of which is attached as Appendix I to this Information Circular;

COGE Handbook” means the Canadian Oil and Gas Evaluation Handbook, as amended from time to time maintained by the Society of Petroleum Evaluation Engineers (Calgary Chapter);

Combination Transaction” has the meaning given to it under the heading “Effect of the Arrangement – Standstill Agreements – Transfer Restrictions”;

Combined Company Board” has the meaning given to it under the heading “Pro Forma Information Concerning the Combined Company Directors and Executive Officers after the Arrangement – Board of Directors”;

Commissioner” means the Commissioner of Competition appointed under the Competition Act or any Person authorized to exercise the powers and perform the duties of the Commissioner of Competition and includes the Commissioner’s representatives where the context requires;

Competition Act” means the Competition Act, RSC 1985, c C-34, as amended;

Competition Act Approval” means the occurrence of one or more of the following, in respect of the transactions contemplated by the Arrangement Agreement: (a) the Commissioner shall have issued an ARC; or (b) both (i) the Commissioner shall have issued a No Action Letter to Cenovus, on terms and conditions satisfactory to Cenovus and Husky, each acting reasonably, and (ii) either the waiting period has expired or been terminated by the Commissioner under sections 123(1) or 123(2), respectively, of the Competition Act, or the obligation to provide a pre-merger notification in accordance with Part IX of the Competition Act has been waived by the Commissioner under section 113(c) thereof;

Computershare” means Computershare Trust Company of Canada or Computershare Investor Services, Inc., as the context requires, in their respective capacities as registrar and transfer agent of Husky and Cenovus, respectively;

Confidentiality Agreement” means the confidentiality agreement between Cenovus and Husky dated August 24, 2020;

Consideration” means the number of Cenovus Common Shares and Cenovus Warrants to be issued to each Husky Common Shareholder (other than Dissenting Shareholders) pursuant to the Plan of Arrangement, certain Husky Common Shares being exchanged exclusively for Cenovus Common Shares and the remaining Husky Common Shares being exchanged exclusively for Cenovus Warrants, such that, in aggregate, each Husky Common Shareholder (other than Dissenting Shareholders) will receive 0.7845 of a Cenovus Common Share and 0.0651 of a Cenovus Warrant in respect of each Husky Common Share held;

 

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Continuing Designees” has the meaning given to it under the heading “Effect of the Arrangement – Standstill Agreements – Termination”;

Control Shares” has the meaning given to it under the heading “Joint Information Circular – Information for United States Securityholders”;

Convention” means the Canada-United States Income Tax Convention (1980), as amended;

Converted Preferred Shares has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Holding and Disposing of Cenovus Shares and Cenovus Warrants – Conversion of Cenovus Preferred Shares”;

Convertible Preferred Shares has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Holding and Disposing of Cenovus Shares and Cenovus Warrants – Conversion of Cenovus Preferred Shares”;

COP Registration Rights Agreement” has the meaning given to it under the heading “Effect of the Arrangement – Registration Rights Agreement”;

Court” means the Court of Queen’s Bench of Alberta;

CRA” means the Canada Revenue Agency, or any successor agency thereto;

CTA Approval” means that the Minister has been notified of the transactions contemplated by the Arrangement Agreement pursuant to section 53.1 of the Canada Transportation Act and either: (i) the Minister has given written notice to Cenovus that he is of the opinion that the transactions contemplated by the Arrangement Agreement do not raise issues with respect to the public interest as it relates to national transportation; or (ii) if the Minister of Transport is of the opinion that the transactions contemplated by the Arrangement Agreement raise issues with respect to the public interest as it relates to national transportation, the Governor-in-Council has approved the transactions contemplated by the Arrangement Agreement;

DBRS” means DBRS Limited;

Demand Registration” has the meaning given to it under the heading “Effect of the Arrangement – Registration Rights Agreement”;

Demand Registration Right” has the meaning given to it under the heading “Effect of the Arrangement – Registration Rights Agreement”;

Depositary” means Computershare, or such other Person that may be appointed by the Parties in connection with the Arrangement for the purpose of receiving deposits of certificates formerly representing Husky Common Shares and Husky Preferred Shares;

Dissent Rights” means, collectively, the rights of registered Husky Common Shareholders and, if the Preferred Share Condition is satisfied prior to the Effective Time, registered Husky Preferred Shareholders to dissent in respect of the Arrangement Resolution and the Preferred Shareholder Resolution, respectively, and to be paid the fair value of the Husky Common Shares or Husky Preferred Shares in respect of which the holder dissents, all in accordance with the provisions of section 191 of the ABCA, as modified by the Interim Order and the Plan of Arrangement;

Dissenting Shareholders” means any registered Husky Common Shareholder or, if the Preferred Share Condition is satisfied prior to the Effective Time, any registered Husky Preferred Shareholder, as applicable, who has duly and validly exercised its Dissent Rights with respect to the Arrangement Resolution or the Preferred Shareholder Resolution, as applicable, pursuant to the Plan of Arrangement and the Interim Order, and has not withdrawn or been deemed to have been withdrawn such exercise of Dissent Rights;

Distribution” has the meaning given to it under the heading “Effect of the Arrangement – Registration Rights Agreement”;

DOJ” means the U.S. Department of Justice, Antitrust Division;

DPSP” has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations –Holders Resident in Canada – Eligibility for Investment”;

DRS Advice” means a Direct Registration System (DRS) advice;

EDGAR” means the Electronic Data Gathering, Analysis and Retrieval System;

Effective Date” means the date the Arrangement becomes effective in accordance with the ABCA;

Effective Time” means the time on the Effective Date when the Arrangement becomes effective in accordance with the ABCA;

Employment Agreements” has the meaning given to it under the heading “Interests of Certain Persons of Companies in the Arrangement – Husky – Severance”;

 

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Encana” means Encana Corporation, now Ovintiv Inc.;

Encumbrance” means, any mortgage, pledge, assignment, charge, lien, security interest, adverse interest in property, other third party interest or encumbrance of any kind whether contingent or absolute, and any agreement, option, right or privilege (whether by Law, contract or otherwise) capable of becoming any of the foregoing;

Excess Shares” has the meaning given to it under the heading “Effect of the Arrangement – Standstill Agreements – Voting Restrictions”;

Final Order” means the order of the Court approving the Arrangement pursuant to section 193(9)(a) of the ABCA, as such order may be affirmed, amended or modified by any court of competent jurisdiction;

Fitch” means Fitch Ratings Inc.;

Foreign Investment Clearance” means: (i) Cenovus or the Supporting Husky Shareholders shall not have received notice from a Governmental Authority under either section 25.2(1) or section 25.3(2) of the Investment Canada Act in respect of the transactions contemplated by the Arrangement Agreement, or if Cenovus or the Supporting Husky Shareholders, as applicable, has received such a notice, Cenovus or the Supporting Husky Shareholders, as applicable, shall have subsequently received one of the following notices, as applicable: (a) under section 25.2(4)(a) of the Investment Canada Act indicating that no order for the review of the transactions contemplated by the Arrangement Agreement will be made under section 25.3(1) of the Investment Canada Act; (b) under section 25.3(6)(b) of the Investment Canada Act indicating that no further action will be taken in respect of the transactions contemplated by the Arrangement Agreement; or (c) under section 25.4(1) of the Investment Canada Act indicating that the Governor in Council authorizes the completion of the transactions contemplated by the Arrangement Agreement; and (ii) if a filing is required or prudent (as determined by a Party) in respect of the transactions contemplated by the Arrangement Agreement pursuant to any other Applicable Laws governing foreign investments in any jurisdiction (“foreign investment laws”), the Parties, their affiliates and any other Person required to make a filing in connection with the transactions contemplated by the Arrangement Agreement under foreign investment laws, as applicable, shall have made such filing in accordance with such foreign investment laws and any waiting period or review period shall have expired or been terminated and any consents, waivers, filings or approvals required to complete the transactions contemplated by the Arrangement Agreement under such foreign investment laws shall have been obtained on terms and conditions satisfactory to Cenovus and Husky, each acting reasonably;

foreign investment laws” has the meaning ascribed thereto in the definition of “Foreign Investment Clearance”;

forward-looking statements” has the meaning given to it under the heading “Forward-Looking Statements”;

FTC” means the U.S. Federal Trade Commission;

GLJ” means GLJ Petroleum Consultants Ltd.;

Goldman Sachs” means Goldman Sachs Canada Inc., financial advisor to Husky;

Goldman Sachs Fairness Opinion” means the written opinion of Goldman Sachs to the Husky Board dated October 24, 2020, a copy of which is attached as Appendix G to this Information Circular;

Governmental Authority” means any: (a) domestic or foreign federal, territorial, provincial, state, regional, municipal or local governmental, regulatory or administrative authority, department, court, agency, commission, board or tribunal, arbitral body, bureau, ministry, agency or instrumentality or official, including any political subdivision thereof; (b) quasi-governmental or private body exercising regulatory, expropriation or taxing authority under or for the account of any of the foregoing; or (c) any stock exchange;

Holder” has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations”;

HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (United States), as amended;

HSR Approval” means, in respect of the transactions contemplated by the Arrangement Agreement, that all applicable waiting periods under the HSR Act have expired or been terminated including any extension thereof;

Husky” means Husky Energy Inc., a corporation existing under the ABCA;

Husky AGM Circular” means the management information circular of Husky dated March 24, 2020 in connection with the annual meeting of Husky Common Shareholders held on April 29, 2020;

Husky AIF” means the annual information form of Husky dated February 27, 2020 for the year ended December 31, 2019;

Husky Annual Financial Statements” means the audited consolidated financial statements of Husky as at December 31, 2019 and 2018 and for the years ended December 31, 2019 and 2018, together with the notes thereto and the auditor’s report thereon;

 

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Husky Annual MD&A” means management’s discussion and analysis of the financial and operating results of Husky for the year ended December 31, 2019;

Husky Board” means the board of directors of Husky;

Husky Board Recommendation” has the meaning given to it under the heading “The Arrangement – Recommendation of the Husky Board”;

Husky Common Shareholder Letter of Transmittal” means the shareholder letter of transmittal forwarded to Husky Common Shareholders pursuant to which Husky Common Shareholders are required to deliver certificates or DRS Advices representing Husky Common Shares to the Depositary;

Husky Common Shareholders” means the holders of Husky Common Shares;

Husky Common Shares” means common shares in the capital of Husky;

Husky DCF Analysis” has the meaning given to it under the heading “The Arrangement – Cenovus Fairness Opinions – RBC Fairness Opinion”;

Husky Disposition Event” has the meaning given to it under the heading “Effect of the Arrangement – The Arrangement Agreement – Termination Amount Payable by Cenovus”;

Husky DSU Plan” means the share accumulation plan of Husky providing for the grant of Husky DSUs to directors of Husky effective April 20, 2015;

Husky DSUs” means the deferred share units granted under the Husky DSU Plan and outstanding immediately prior to the Effective Time entitling the holders thereof to receive, at the option of the holder, a cash payment equivalent to the fair market value of Husky Common Shares underlying such Husky DSUs or Husky Common Shares purchased on the open market upon ceasing to be a member of the Husky Board in accordance with the provisions of the Husky DSU Plan;

Husky Fairness Opinions” means collectively, the Goldman Sachs Fairness Opinion, the CIBC Common Shareholder Fairness Opinion and the CIBC Preferred Shareholder Fairness Opinion;

Husky Group” means Husky and its subsidiaries and their respective partnership interests, as the context requires;

Husky Incentive Awards” means, collectively, Husky PSUs, Husky DSUs and Husky Options;

Husky Interim Financial Statements” means the interim unaudited financial statements of Husky at September 30, 2020 and for the three and nine months ended September 30, 2020, together with the notes thereto;

Husky Interim MD&A” means management’s discussion and analysis of the financial and operating results of Husky for the three and nine months ended September 30, 2020 and 2019;

Husky Meeting” means the special meeting of Husky Common Shareholders, Husky Preferred Shareholders and Husky Optionholders to be called and held in accordance with the Arrangement Agreement and the Interim Order to permit the Husky Common Shareholders and the Husky Optionholders to consider the Arrangement Resolution and to permit the Husky Preferred Shareholders to consider the Preferred Shareholder Resolution, respectively, and related matters, and any adjournment(s) or postponement(s) thereof;

Husky Optionholders” means the holders of Husky Options;

Husky Option Plan” means the incentive stock option plan of Husky providing for the grant of Husky Options to officers or employees of Husky and its subsidiaries dated effective November 16, 2018;

Husky Options” means the stock options of Husky granted under the Husky Option Plan and outstanding immediately prior to the Effective Time entitling the holders thereof to acquire Husky Common Shares upon payment of an exercise price or surrender the stock options for a cash payment in accordance with the provisions of the Husky Option Plan;

Husky Preferred Shareholder Letter of Transmittal” means the letter of transmittal forwarded to Husky Preferred Shareholders pursuant to which Husky Preferred Shareholders are required to deliver certificates representing Husky Preferred Shares to the Depositary;

Husky Preferred Shareholders” means, collectively, the holders of Husky Series 1 Preferred Shares, Husky Series 2 Preferred Shares, Husky Series 3 Preferred Shares, Husky Series 5 Preferred Shares and Husky Series 7 Preferred Shares;

 

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Husky Preferred Shares” means, collectively, Husky Series 1 Preferred Shares, Husky Series 2 Preferred Shares, Husky Series 3 Preferred Shares, Husky Series 4 Preferred Shares, Husky Series 5 Preferred Shares, Husky Series 6 Preferred Shares, Husky Series 7 Preferred Shares and Husky Series 8 Preferred Shares;

Husky Proxy Deadline” means 9:00 a.m. (Calgary time) on December 11, 2020, or 48 hours (excluding Saturdays, Sundays and statutory holidays in the Province of Alberta) prior to the time of any adjournment or postponement of the Husky Meeting;

Husky PSU Plan” means the performance share unit plan of Husky providing for the grant of Husky PSUs to employees or officers of Husky and its affiliates established on February 22, 2010 and amended and restated on February 28, 2017;

Husky PSUs” means the performance awards granted under the Husky PSU Plan and outstanding immediately prior to the Effective Time entitling the holders thereof to receive a cash payment upon vesting of such Husky PSUs in accordance with the provisions of the Husky PSU Plan;

Husky Record Date” means November 9, 2020;

Husky Reserves Disclosure” means disclosure relating to the engineering evaluation of crude oil, NGLs and natural gas interests of Husky: (i) prepared internally in accordance with the regulations and guidelines of the Financial Accounting Standards Board in the United States and the SEC contained in Husky’s Form 40-F for the year ended December 31, 2019, filed; and (ii) prepared in accordance with NI 51-101 contained in the Husky AIF, including the Sproule Audit Opinion;

Husky Series 1 Preferred Shares” means Cumulative Redeemable Preferred Shares, Series 1, in the capital of Husky;

Husky Series 2 Preferred Shares” means Cumulative Redeemable Preferred Shares, Series 2, in the capital of Husky;

Husky Series 3 Preferred Shares” means Cumulative Redeemable Preferred Shares, Series 3, in the capital of Husky;

Husky Series 4 Preferred Shares” means Cumulative Redeemable Preferred Shares, Series 4, in the capital of Husky;

Husky Series 5 Preferred Shares” means Cumulative Redeemable Preferred Shares, Series 5, in the capital of Husky;

Husky Series 6 Preferred Shares” means Cumulative Redeemable Preferred Shares, Series 6, in the capital of Husky;

Husky Series 7 Preferred Shares” means Cumulative Redeemable Preferred Shares, Series 7, in the capital of Husky;

Husky Series 8 Preferred Shares” means Cumulative Redeemable Preferred Shares, Series 8, in the capital of Husky;

Husky Shareholders” means collectively, the Husky Common Shareholders and the Husky Preferred Shareholders;

Husky Shares” means collectively, the Husky Common Shares and the Husky Preferred Shares;

Husky Termination Amount” means $240 million;

HWEI” has the meaning given to it under the heading “Pro Forma Information Concerning the Combined Company – Principal Holders of Cenovus Common Shares”;

ICA Minister” has the meaning given to it under the heading “Procedure for the Arrangement to Become Effective – Regulatory Approvals Foreign Investment Clearance – Investment Canada Act”;

IFRS” means accounting principles generally accepted in Canada applicable to public companies at the relevant time and which incorporates International Financial Reporting Standards as adopted by the Canadian Accounting Standards Boards;

Initial Confidentiality Agreement” has the meaning given to it under the heading “Background to the Arrangement”;

Information Circular” means this joint management information circular dated November 9, 2020, together with all Appendices hereto, distributed to the Husky Common Shareholders, the Husky Preferred Shareholders, and the Cenovus Common Shareholders in connection with the Husky Meeting and the Cenovus Meeting, as the case may be;

Integrated Corridor” means an integrated Canada-U.S. upstream and downstream corridor;

 

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Interim Order” means the interim order of the Court concerning the Arrangement dated November 9, 2020 under section 193(4) of the ABCA, containing declarations and directions with respect to the Arrangement and the holding of the Husky Meeting, as such order may be affirmed, amended or modified by any court of competent jurisdiction, a copy of which order is attached as Appendix F to this Information Circular;

Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, including any successor provisions and transition rules, whether or not codified;

In the Money Amount” has the meaning given to it under the heading “Effect of the Arrangement – Husky Incentive Awards – Husky Options”;

Investment Canada Act” means the Investment Canada Act, RSC 1985, c 28 (1st Supp), as amended;

IRS” means the Internal Revenue Service;

Key Regulatory Approvals” means the Competition Act Approval, the HSR Approval, the CTA Approval and the Foreign Investment Clearance;

Kingsdale Advisors” means Kingsdale Advisors, Cenovus’s strategic shareholder advisor and proxy solicitation agent;

Laws” means all laws (including, for greater certainty, common law), all statutes, regulations, bylaws, statutory rules, orders, ordinances, protocols, codes, guidelines, notices and directions enacted by a Governmental Authority (including all Applicable Canadian Securities Laws and all Applicable U.S. Securities Laws) and the terms and conditions of any grant of approval, permission, judgment, decision, ruling, award, authority or license of any Governmental Authority or self-regulatory authority;

Letters of Transmittal” means collectively, the Husky Common Shareholder Letter of Transmittal and the Husky Preferred Shareholder Letter of Transmittal and “Letter of Transmittal” means either one of them;

LFI” has the meaning given to it under the heading “Pro Forma Information Concerning the Combined Company – Principal Holders of Cenovus Common Shares”;

Listed Preferred Shares” has the meaning given to it under the heading “Procedure for the Arrangement to Become Effective – Regulatory Approvals – Stock Exchange Listings”;

Matching Period” has the meaning given to it under the heading “Effect of the Arrangement – The Arrangement Agreement – Covenants of the Parties Regarding Non-Solicitation; Right to Accept a Superior Proposal”;

Material Adverse Change” or “Material Adverse Effect” means, with respect to either Party, any fact or state of facts, circumstance, change, effect, occurrence or event that individually is or in the aggregate are, or would individually or in the aggregate reasonably be expected to be, material and adverse to the business, operations, results of operations, assets, properties, capitalization, liabilities, obligations (whether absolute, accrued, conditional or otherwise) or condition (financial or otherwise) of the Party and its subsidiaries, taken as a whole, except to the extent of any fact or state of facts, circumstance, change, effect, occurrence or event resulting from or arising in connection with: (a) any change, development or condition generally affecting the industries, businesses or segments thereof, in which such Party and its respective subsidiaries operate; (b) any change, development or condition in or relating to global, national or regional political conditions (including strikes, lockouts, riots, blockades or facility takeover for emergency purposes) or in general economic, business, banking, regulatory, currency exchange, interest rate, rates of inflation or market conditions or in national or global financial or capital markets; (c) any change, development or condition resulting from any act of terrorism or any outbreak of hostilities or declared or undeclared war, or any escalation or worsening of such acts of terrorism, hostilities or war; (d) any adoption, proposal, implementation or change in Law or in any interpretation, application or non-application of any Laws by any Governmental Authority (including, for greater certainty, any change to the Tax Act or other applicable taxing legislation or to tax rates); (e) any change in applicable generally accepted accounting principles, including IFRS, or changes in regulatory accounting requirements applicable to the oil and gas and oil sands exploration, development and production businesses, the petrochemicals industry and the business of refining, marketing and distributing petroleum products; (f) any climatic, earthquake or other natural event or condition (including weather conditions and any natural disaster); (g) any epidemic, pandemic, disease outbreak (including COVID-19), other health crisis or public health event; (h) any decline in the market price for crude oil, natural gas or related hydrocarbons on a current or forward basis; (i) any actions taken (or omitted to be taken) at the written request of the Other Party; (j) any action taken by the Party or any of its subsidiaries that is required pursuant to the Arrangement Agreement (excluding any obligation to act in the ordinary course of business, but, for greater certainty, including any steps taken pursuant to Sections 3.3 and 3.6 of the Arrangement Agreement); (k) any matter which has been filed by the Party since January 1, 2020 and prior to the Agreement Date with any securities commission or similar regulatory authority in compliance, or intended compliance, with Applicable Canadian Securities Laws or Applicable U.S. Securities Laws, which is available for public viewing on the Party’s profile on SEDAR at www.sedar.com and on the Party’s profile on EDGAR at www.sec.gov/edgar/shtml; (l) the execution, announcement, pendency or performance of the Arrangement Agreement or consummation of the Arrangement; (m) the failure of the Party to meet any internal, published, public or analyst projections, forecasts, guidance or estimates, including without limitation of revenues, earnings or cash flows (it being understood that the causes underlying such failure may be taken into account in determining whether a Material Adverse Effect has

 

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occurred); or (n) any change in the market price or trading volume of any securities of the Party (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 Effect has occurred); provided, however, that (i) with respect to clauses (a) through and including (g), such matter does not have a materially disproportionate effect on the business, operations, results of operations, assets, properties, capitalization, liabilities, obligations (whether absolute, accrued, conditional or otherwise) or condition (financial or otherwise) of such Party and its subsidiaries, taken as a whole, relative to other comparable companies and entities operating in the oil and gas industry (in which case the incremental disproportionate effect may be taken into account in determining whether there has been, or is reasonably expected to be, a Material Adverse Effect), and (ii) unless expressly provided in any particular section of the Arrangement Agreement, references in certain sections of the Arrangement Agreement to dollar amounts are not intended to be, and shall not be deemed to be, illustrative or interpretive for purposes of determining whether a “Material Adverse Effect” has occurred;

material change” has the meaning ascribed thereto in the Securities Act;

McCarthy Tétrault” means McCarthy Tétrault LLP, tax counsel to Husky;

McDaniel” means McDaniel & Associates Consultants Ltd.;

Meetings” means, collectively, the Husky Meeting and the Cenovus Meeting, and “Meeting” means either of them;

MI 61-101” means Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions;

Minister” means the Minister of Transport under the Canada Transportation Act;

misrepresentation” has the meaning ascribed thereto in the Securities Act;

Moody’s” means Moody’s Investors Service;

NI 51-101” means National Instrument 51-101Standards of Disclosure for Oil and Gas Activities;

NI 62-104” means National Instrument 62-104Take-Over Bids and Issuer Bids;

No Action Letter” means a written confirmation from the Commissioner that he does not, at that time, intend to make an application under section 92 of the Competition Act;

Non-Resident Dissenter has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations – Holders Not Resident in Canada – Dissenting Non-Resident Holders”;

Non-Resident Holder” has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations – Holders Not Resident in Canada”;

NYSE” means the New York Stock Exchange;

Order” means all judicial, arbitral, administrative, ministerial, departmental or regulatory judgments, injunctions, orders, decisions, rulings, determinations, awards, or decrees of any Governmental Authority (in each case, whether temporary, preliminary or permanent);

Osler, Hoskin & Harcourt” means Osler, Hoskin & Harcourt LLP, legal counsel to Husky;

Other Party” means: (i) with respect to Cenovus, Husky; and (ii) with respect to Husky, Cenovus;

Outside Date” means May 31, 2021; provided that if the Key Regulatory Approvals have not been received by May 31, 2021, the Outside Date shall be August 31, 2021, or such later date as may be agreed to in writing by the Parties;

Parties” means Cenovus and Husky, and “Party” means either of them;

Person” includes any individual, firm, partnership, joint venture, venture capital fund, association, trust, trustee, executor, administrator, legal personal representative, estate group, body corporate, corporation, unincorporated association or organization, Governmental Authority, syndicate or other entity, whether or not having legal status;

PFIC” has the meaning given to it under the heading “Certain United States Federal Income Tax Considerations – Certain U.S. Federal Income Tax Considerations for U.S. Holders Relating to the Arrangement – Tax Considerations Relating to the Arrangement if Husky is Classified as a PFIC”;

Piggy-Back Registration Right” has the meaning given to it under the heading “Effect of the Arrangement – Registration Rights Agreement”;

 

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Plan” or “Plan of Arrangement” means the plan of arrangement in the form attached as Appendix D to this Information Circular, as the same may be amended or supplemented from time to time in accordance with the terms of the Arrangement Agreement, the Plan of Arrangement or at the direction of the Court in the Final Order;

Pre-Emptive Right” has the meaning given to it under the heading “Effect of the Arrangement – Pre-Emptive Rights Agreement”;

Pre-Emptive Rights Agreements” means the pre-emptive rights agreements that may be entered into on or following the Effective Date between certain Cenovus Common Shareholders and Cenovus, as described under the heading “Effect of the Arrangement – Pre-Emptive Rights Agreement”;

Pre-Emptive Rights Holder” has the meaning given to it under the heading “Effect of the Arrangement – Pre-Emptive Rights Agreement”;

Preferred Share Condition” means: (i) the Husky Preferred Shareholders have approved the Preferred Shareholder Resolution by 6623% of the votes cast on the Preferred Shareholder Resolution by Husky Preferred Shareholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class; and (ii) unless otherwise determined by Cenovus in its sole discretion, holders of not more than 10% of the Husky Preferred Shares have validly exercised, and not withdrawn, Dissent Rights;

Preferred Shareholder Resolution” means the special resolution in respect of the Arrangement to be considered by the Husky Preferred Shareholders at the Husky Meeting, the full text of which is set forth in Appendix B to this Information Circular;

Pro Forma Financial Statements” has the meaning given to it under the heading “Pro Forma Information Concerning the Combined Company – Selected Pro Forma Financial Information”;

Proposed Amendments has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations”;

Qualified Individual” has the meaning given to it under the heading “Effect of the Arrangement – Standstill Agreements – Termination”;

RBC Capital Markets” means RBC Dominion Securities Inc., a member company of RBC Capital Markets, financial advisor to Cenovus;

RBC Fairness Opinion” means the opinion of RBC Capital Markets to the Cenovus Board dated October 24, 2020, a copy of which is attached as Appendix J to this Information Circular;

RDSP” has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations –Holders Resident in Canada – Eligibility for Investment”;

Receiving Party” has the meaning given to it under the heading “Effect of the Arrangement – The Arrangement Agreement – Covenants of the Parties Regarding Non-Solicitation; Right to Accept a Superior Proposal”;

Registered Plans” has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Eligibility for Investment”;

Registrable Securities” has the meaning given to it under the heading “Effect of the Arrangement – Registration Rights Agreement”;

Registrar” means the Registrar of Corporations for the Province of Alberta appointed under section 263 of the ABCA;

Registration Rights Agreements” means the registration rights agreements that may be entered into on or following the Effective Date between certain Cenovus Common Shareholders and Cenovus, as described under the heading “Effect of the Arrangement – Registration Rights Agreement”;

Registration Rights Holder” has the meaning given to it under the heading “Effect of the Arrangement – Registration Rights Agreement”;

Registration Statement” has the meaning given to it under the heading “Effect of the Arrangement – Registration Rights Agreement”;

Representatives” means, with respect to each Party, its respective subsidiaries and its and their officers, directors, employees, financial advisors, related parties, legal counsel, accountants, advisors and all other representatives and agents;

Resident Dissenter” has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Dissenting Resident Holders of Husky Shares”;

Resident Holder has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada”;

 

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Resident Holder’s Dissent Shares” has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Dissenting Resident Holders of Husky Shares”;

RESP has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations –Holders Resident in Canada – Eligibility for Investment”;

Responding Party” has the meaning given to it under the heading “Effect of the Arrangement – The Arrangement Agreement – Covenants of the Parties Regarding Non-Solicitation; Right to Accept a Superior Proposal”;

Restricted Shares” has the meaning given to it under the heading “Joint Information Circular – Information for United States Securityholders”;

RRIF has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations –Holders Resident in Canada – Eligibility for Investment”;

RRSP” has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations –Holders Resident in Canada – Eligibility for Investment”;

S&P” means S&P Global Ratings;

SEC” means the United States Securities and Exchange Commission;

Securities Act” means the Securities Act, RSA 2000, c S-4, as amended;

SEDAR” means the System for Electronic Document Analysis and Retrieval;

Share Consideration Common Shares” has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Exchange of Husky Shares under the Arrangement – Husky Common Shares Exchanged for Cenovus Common Shares and Cenovus Warrants”;

Shareholders” means Husky Common Shareholders, Husky Preferred Shareholders and/or Cenovus Common Shareholders, as the context requires;

Share Issuance Resolution” means the ordinary resolution to be considered by the Cenovus Common Shareholders at the Cenovus Meeting, the full text of which is set forth in Appendix C to this Information Circular;

Shares” means the Husky Common Shares, the Husky Preferred Shares and/or the Cenovus Common Shares, as the context requires;

Sproule” means Sproule Associates Limited;

Sproule Audit Opinion” means the audit opinion of Sproule as of December 31, 2019, included in the Husky AIF relating to the audit of Husky’s crude oil, natural gas and NGLs reserves estimates prepared in accordance with generally accepted oil and gas engineering and evaluation practices in the Canada and as set out in the COGE Handbook;

Standstill Agreements” means the standstill agreements entered into between the Supporting Husky Shareholders and Cenovus on the Agreement Date, and effective as of the Effective Date, which set out certain matters pertaining to the Cenovus Common Shares held by the Supporting Husky Shareholders following completion of the Arrangement;

subsidiary” has the meaning ascribed thereto in the Securities Act;

Superior Proposal” means an unsolicited bona fide written Acquisition Proposal: (a) that complies with all Applicable Canadian Securities Laws and Applicable U.S. Securities Laws; (b) that is not subject to a financing condition, due diligence condition and/or access condition; (c) to acquire not less than all of the applicable Party’s outstanding common shares or not less than substantially all of the assets, properties, permits, rights or other privileges (whether contractual or otherwise) of the applicable Party and its subsidiaries and partnership interests; (d) that the applicable Party’s board of directors and any relevant committee thereof has determined in good faith (after receipt of advice from its professional financial advisors and external legal counsel) is reasonably capable of being consummated without undue delay, taking into account all legal, financial, regulatory and other aspects of such Acquisition Proposal and the Person making such Acquisition Proposal; and (e) that the applicable Party’s board of directors and/or any relevant committee thereof determines in good faith, after consultation with its professional financial advisors, would be, if consummated in accordance with its terms, more favourable to the holders of its common shares than the Arrangement;

Supplementary Information Request” has the meaning given to it under the heading “Procedure for the Arrangement to Become Effective – Regulatory Approvals – Competition Act Approval”;

 

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Support Agreements” means the support agreements entered into between the Supporting Husky Shareholders and Cenovus on the Agreement Date;

Supporting Husky Shareholders” means Hutchison Whampoa Europe Investments S.à r.l. and L.F. Investments S.à r.l., and “Supporting Husky Shareholder” means either of them;

Tax Act” means the Income Tax Act (Canada), RSC 1985, c 1 (5th Supp), including the regulations thereto, as amended from time to time;

taxable capital gain” has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Taxation of Capital Gains and Losses”;

TD Fairness Opinion” means the opinion of TD Securities to the Cenovus Board dated October 24, 2020, a copy of which is attached as Appendix K to this Information Circular;

TD Securities” means TD Securities Inc., financial advisor to Cenovus;

TFSA has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations –Holders Resident in Canada – Eligibility for Investment”;

Transfer” has the meaning given to it under the heading “Effect of the Arrangement – Standstill Agreements – Transfer Restrictions”;

Tribunal” has the meaning given to it under the heading “Procedure for the Arrangement to Become Effective – Regulatory Approvals – Competition Act Approval”;

TSX” means the Toronto Stock Exchange;

United States” or “U.S.” means the United States of America, its territories and possessions, any State of the United States, and the District of Columbia;

U.S. Exchange Act” means the United States Securities Exchange Act of 1934, as amended;

U.S. Holder” has the meaning given to it under the heading “Certain United States Federal Income Tax Considerations”;

U.S. Securities Act” means the United States Securities Act of 1933, as amended;

Voting Instruction Form” means the voting instruction form provided by Broadridge to Beneficial Holders; and

Warrant Consideration Common Shares” has the meaning given to it under the heading “Certain Canadian Federal Income Tax Considerations – Holders Resident in Canada – Exchange of Husky Shares under the Arrangement – Husky Common Shares Exchanged for Cenovus Common Shares and Cenovus Warrants”.

Words importing the singular include the plural and vice versa and words importing any gender include all genders.

CONVENTIONS

Certain terms used herein are defined in the “Glossary of Terms”. Unless otherwise indicated, references herein to “$” or “dollars” are to Canadian dollars and references herein to “US$” or “U.S. dollars” are to United States dollars. All financial information in Appendices L, M and N to this Information Circular has been presented in Canadian dollars in accordance with IFRS.

 

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ABBREVIATIONS

The following are abbreviations and definitions used in this Information Circular (including Appendices M and N, respectively):

 

bbl

    

barrel

bbls

    

barrels

bbls/d

    

barrels per day

Bcf

    

billion cubic feet

boe

    

barrels of oil equivalent

boe/d

    

barrels of oil equivalent per day

mcf

    

thousand cubic feet

mcfe

    

thousand cubic feet equivalent

MMbbls

    

million barrels

MMboe

    

million barrels of oil equivalent

mmcf/d

    

million cubic feet per day

NGL

    

natural gas liquids

PADD

    

Petroleum Administration for Defense District

WCS

    

Western Canadian Select

WTI

    

West Texas Intermediate

 

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JOINT MANAGEMENT INFORMATION CIRCULAR

Introduction

This Information Circular is furnished in connection with the solicitation of proxies by the management of Husky and Cenovus for use at the Husky Meeting and the Cenovus Meeting, and at any adjournment(s) or postponement(s) thereof. No person has been authorized to give any information or make any representation in connection with the Arrangement and the issuance of Cenovus Shares or Cenovus Warrants in connection with the Arrangement, or any other matters to be considered at the Husky Meeting and Cenovus Meeting other than those contained in this Information Circular, and if given or made, any such information or representation must not be relied upon as having been authorized.

The information concerning Husky contained and incorporated by reference in this Information Circular, including but not limited to the information in Appendix M to this Information Circular, has been provided by Husky. Although Cenovus has no knowledge that would indicate that any of such information is untrue or incomplete, Cenovus does not assume any responsibility for the accuracy or completeness of such information or the failure by Husky to disclose events which may have occurred or may affect the completeness or accuracy of such information but which are unknown to Cenovus.

The information concerning Cenovus contained and incorporated by reference in this Information Circular, including but not limited to the information in Appendix N to this Information Circular, has been provided by Cenovus. Although Husky has no knowledge that would indicate that any of such information is untrue or incomplete, Husky does not assume any responsibility for the accuracy or completeness of such information or the failure by Cenovus to disclose events which may have occurred or may affect the completeness or accuracy of such information but which are unknown to Husky.

This Information Circular does not constitute an offer to sell or a solicitation of an offer to purchase any securities or the solicitation of a proxy by any person in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such an offer or solicitation of an offer or a proxy solicitation. Neither the delivery of this Information Circular nor any distribution of the securities referred to in this Information Circular will, under any circumstances, create an implication that there has been no change in the information set forth herein since the date as of which such information is given in this Information Circular.

Information contained in or otherwise accessed through Husky’s website or Cenovus’s website, or any website, other than those documents incorporated by reference herein and filed on SEDAR, does not constitute part of this Information Circular.

All summaries of, and references to, the Arrangement Agreement, the Arrangement, the Plan of Arrangement and the Cenovus SRP Agreement in this Information Circular are qualified in their entirety by reference to the complete text of the Arrangement Agreement and the Plan of Arrangement, copies of which are attached as Appendices D and E, respectively, to this Information Circular and the Cenovus SRP Agreement, a copy of which has been made available on SEDAR at www.sedar.com. You are urged to carefully read the full text of the Arrangement Agreement, the Plan of Arrangement and the Cenovus SRP Agreement.

All capitalized terms used in this Information Circular (including Appendices M and N hereto) but not otherwise defined herein have the meanings set forth herein under “Glossary of Terms”. The terms and abbreviations used in the Appendices to this Information Circular, other than in Appendices M and N, are defined separately therein. Information contained in this Information Circular is given as of November 9, 2020, unless otherwise specifically stated. Details of the Arrangement are set forth under the headings “The Arrangement” and “Effect of the Arrangement”. For details of the matters to be considered by the Husky Shareholders and the Husky Optionholders at the Husky Meeting and the Cenovus Common Shareholders at the Cenovus Meeting, see “Matters to be Considered at the Husky Meeting” and “Matters to be Considered at the Cenovus Meeting”, respectively.

Supplemental Disclosure – Non-GAAP Measures

This Information Circular and certain documents incorporated by reference herein make reference to certain non-GAAP financial measures to assist in assessing Husky’s and Cenovus’s respective financial performance, such as Adjusted EBITDA, Net Debt, Net Debt to Adjusted EBITDA, free funds flow, netback and sustaining capital. These financial measures do not have a standardized meaning as prescribed by IFRS and are therefore considered non-GAAP measures. These measures may not be comparable to similar measures presented by other issuers. These measures have been described and presented in order to provide shareholders, potential investors and analysts with additional measures for analyzing the transaction and the combined company’s ability to generate funds to finance its operations and information regarding its liquidity. Such information should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. For additional information regarding these non-GAAP measures, see the advisories in the Husky Annual MD&A, the Husky Interim MD&A, the Cenovus Annual MD&A and the Cenovus Interim MD&A, as applicable, each of which is incorporated by reference herein.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) is a non-GAAP measure defined as net earnings before finance costs, interest income, income tax expense, depreciation, depletion and amortization, exploration & evaluation write-down, goodwill impairments, asset impairments and reversals, unrealized gains (losses) on risk management, foreign exchange gains (losses), revaluation gain, re-measurement of contingent payment, gains (losses) on divestiture of assets, and other income (loss), net, calculated on a trailing 12-month basis.

 

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Net Debt is a non-GAAP measure defined as short-term borrowings, and the current and long-term portions of long-term debt, net of cash and cash equivalents and short-term investments.

Net Debt to Adjusted EBITDA is a non-GAAP measure defined as Net Debt divided by Adjusted EBITDA.

Adjusted funds flow is a non-GAAP measure commonly used in the oil and gas industry to assist in measuring a company’s ability to finance its capital programs and meet its financial obligations. Adjusted funds flow is defined as cash from (used in) operating activities excluding net change in other assets and liabilities and net change in non-cash working capital. Non-cash working capital is composed of accounts receivable, inventories (excluding non-cash inventory write-downs and reversals), income tax receivable, accounts payable and income tax payable. Net change in other assets and liabilities is composed of site restoration costs and pension funding.

Free funds flow is a non-GAAP measure defined as adjusted funds flow less capital investment.

Netback is a non-GAAP measure commonly used in the oil and gas industry to assist in measuring operating performance on a per-unit basis. Cenovus’s and Husky’s netback calculation is aligned with the definition found in the COGE Handbook. Netbacks reflect the margin on a per-barrel of oil equivalent basis. Netback is defined as gross sales less royalties, transportation and blending, operating expenses and production and mineral taxes divided by sales volumes. Netbacks do not reflect non-cash write-downs or reversals of product inventory until it is realized when the product is sold. The sales price, transportation and blending costs, and sales volumes exclude the impact of purchased condensate. Condensate is blended with the heavy oil to transport it to market.

Sustaining capital is the additional development capital that is required by the business to maintain production and operations at existing levels. Development capital includes the cost to drill, complete, equip and tie in wells to existing infrastructure. Sustaining capital does not have any standardized meaning and therefore should not be used to make comparisons to similar measures presented by other issuers.

Information for United States Securityholders

The Cenovus Shares and Cenovus Warrants issuable to Husky Shareholders in exchange for their Husky Shares and the Cenovus Replacement Options issuable to Husky Optionholders pursuant to the Arrangement have not been and will not be registered under the U.S. Securities Act or any state securities laws, and will be issued in reliance upon the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) thereof and exemptions under applicable state securities laws. Section 3(a)(10) of the U.S. Securities Act exempts the issuance of any security issued in exchange for one or more bona fide outstanding securities from the registration requirements of the U.S. Securities Act where the terms and conditions of such issuance and exchange have been approved by a court of competent jurisdiction, after a hearing upon the fairness of the terms and conditions of such issuance and exchange at which all persons to whom the securities will be issued have the right to appear and receive timely notice thereof. The solicitation of proxies for the Husky Meeting and the Cenovus Meeting by means of this Information Circular is not subject to the requirements of Section 14(a) of the U.S. Exchange Act. Accordingly, the solicitations and transactions contemplated in this Information Circular are being made in the United States for securities of a Canadian issuer in accordance with Canadian corporate and securities laws, and this Information Circular has been prepared solely in accordance with disclosure requirements applicable in Canada. Securityholders in the United States should be aware that such requirements are different from those of the United States applicable to registration statements under the U.S. Securities Act and proxy statements under the U.S. Exchange Act.

The Cenovus Shares and Cenovus Warrants issuable to Husky Shareholders and the Cenovus Replacement Options issuable to Husky Optionholders pursuant to the Arrangement will be, following completion of the Arrangement, freely tradable under the U.S. Securities Act, except for (i) any Cenovus Shares, Cenovus Warrants and Cenovus Replacement Options received in the Arrangement by persons who will be “affiliates” (within the meaning of Rule 144 under the U.S. Securities Act) of Cenovus on the date of sale or were affiliates of Cenovus within 90 days before the date of sale (“Restricted Shares”), and (ii) any Cenovus Shares, Cenovus Warrants and Cenovus Replacement Options that after the date of sale are held by persons who are then (or were within the preceding 90 days) affiliates of Cenovus (“Control Shares”). Persons who may be deemed to be “affiliates” of an issuer include individuals or entities that control, are controlled by, or are under common control with, the issuer, whether through the ownership of voting securities, by contract, or otherwise, and generally include executive officers and directors of the issuer as well as principal shareholders of the issuer. Any resale of such Cenovus Shares, Cenovus Warrants or Cenovus Replacement Options by such an affiliate (or former affiliate) will be subject to the registration requirements of the U.S. Securities Act, absent an exemption or exclusion therefrom. Subject to certain limitations, persons holding Restricted Shares or Control Shares may generally resell those shares outside the United States without registration under the U.S. Securities Act pursuant to Regulation S under the U.S. Securities Act. If available, such persons may also resell such shares pursuant to Rule 144 under the U.S. Securities Act. In addition, Section 3(a)(10) of the U.S. Securities Act does not exempt the issuance of securities upon the exercise of securities previously issued pursuant to Section 3(a)(10) of the U.S. Securities Act. As a result, any Cenovus Common Shares issuable upon exercise of Cenovus Warrants or Cenovus Replacement Options may not be issued in reliance upon Section 3(a)(10) of the U.S. Securities Act and the exercise of Cenovus Warrants and Cenovus Replacement Options may be subject to the registration requirements of the U.S. Securities Act, absent an exemption or exclusion therefrom. Prior to the Effective Time, Cenovus will file a Canadian Warrant Prospectus qualifying the issuance of Cenovus Warrant Shares and a registration statement on Form F-10 with the SEC registering the Cenovus Warrant Shares under the U.S. Securities Act and will use its best efforts to cause there to be a Canadian Warrant Prospectus and an effective registration statement under the U.S. Securities Act for as long as any Cenovus Warrants are outstanding. On or as promptly as practicable following the Effective Date, Cenovus will cause there to be a registration statement on Form S-8 to be filed with the SEC which will register the issuance of the Cenovus Common Shares issuable upon exercise of Cenovus Replacement Options. See “Procedure for the Arrangement to Become Effective – Securities Law Matters – United States”.

 

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Information concerning the assets and operations of Husky and Cenovus contained or incorporated by reference herein has been prepared in accordance with Canadian standards and is not comparable in all respects to similar information for United States companies. In particular, data on oil and gas reserves included or incorporated by reference in this Information Circular has been prepared in accordance with Canadian disclosure standards, which are not comparable in all respects to United States disclosure standards. The financial statements of Husky and Cenovus incorporated by reference in this Information Circular have been prepared in accordance with IFRS, which differs from United States generally accepted accounting principles in certain material respects and thus are not directly comparable to financial statements of United States companies.

The Cenovus Common Shares are listed on the NYSE and registered pursuant to Section 12 of the U.S. Exchange Act. Therefore, Cenovus is required to file reports with the SEC, including annual reports on Form 40-F. Cenovus has filed with the SEC an annual report on Form 40-F for the fiscal year ended December 31, 2019. Cenovus’s Form 40-F for the fiscal year ended December 31, 2019 does not include a reconciliation of Cenovus’s financial statements to United States generally accepted accounting principles. Cenovus’s filings with the SEC may be viewed for free at the SEC’s website at www.sec.gov.

Husky Shareholders subject to United States federal income taxation should be aware that the description of tax consequences to them of the Arrangement under certain United States federal income tax laws provided in this Information Circular is a summary only. They are advised to consult their tax advisors to determine the particular tax consequences to them of participating in the Arrangement and the ownership and disposition of Cenovus Shares and the ownership, exercise and disposition of Cenovus Warrants and Cenovus Replacement Options acquired pursuant to the Arrangement.

The enforcement by Husky Shareholders, Husky Optionholders, Cenovus Common Shareholders, holders of Cenovus Preferred Shares, holders of Cenovus Warrants and holders of Cenovus Replacement Options of civil liabilities under United States federal securities laws may be affected adversely by the fact that Cenovus and Husky are organized under the laws of Canada and Alberta, Canada, respectively, that some or all of their officers and directors are residents of countries other than the United States, that some of the experts named in this Information Circular are residents of countries other than the United States, and that a substantial portion of the assets of Cenovus, Husky and such persons are located outside the United States. As a result, it may be difficult or impossible for Husky Shareholders, Husky Optionholders, Cenovus Common Shareholders, holders of Cenovus Preferred Shares, holders of Cenovus Warrants and holders of Cenovus Replacement Options in the United States to effect service of process within the United States upon Cenovus and Husky, as applicable, and their respective directors or officers, or to realize against them upon judgments of courts of the United States predicated upon civil liabilities under the federal securities laws of the United States or the securities laws of any state within the United States. In addition, Husky Shareholders, Husky Optionholders, Cenovus Common Shareholders, holders of Cenovus Preferred Shares, holders of Cenovus Warrants and holders of Cenovus Replacement Options in the United States should not assume that the courts of Canada: (a) would enforce judgments of United States courts obtained in actions against such persons predicated upon civil liabilities under the federal securities laws of the United States or the securities laws of any state within the United States; or (b) would enforce, in original actions, liabilities against such persons predicated upon civil liabilities under the federal securities laws of the United States or the securities laws of any state within the United States.

No broker, dealer, salesperson or other person has been authorized to give any information or make any representation other than those contained in this Information Circular and, if given or made, such information or representation must not be relied upon as having been authorized by Cenovus or Husky.

THE CENOVUS COMMON SHARES, CENOVUS PREFERRED SHARES, CENOVUS WARRANTS AND CENOVUS REPLACEMENT OPTIONS ISSUABLE TO HUSKY SHAREHOLDERS AND HUSKY OPTIONHOLDERS PURSUANT TO THE PLAN OF ARRANGEMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR THE SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS THE SEC OR THE SECURITIES REGULATORY AUTHORITY OF ANY STATE PASSED ON THE ADEQUACY OR ACCURACY OF THIS INFORMATION CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.

Currency

Except as otherwise indicated, all dollar amounts in this Information Circular are expressed in Canadian dollars. The following table sets forth: (i) the rates of exchange for Canadian dollars, expressed in United States dollars, in effect at the end of each of the periods indicated; and (ii) the high, low and average exchange rates during each such period, based on the daily average exchange rate, published on the Bank of Canada’s website as being in effect on each trading day.

 

   Nine Months Ended
September 30
   Year Ended December 31 
   2020   2019   2019   2018   2017 

Rate at end of Period

  US$0.7497   US$0.7551   US$0.7699   US$0.7330   US$0.7971 

Average rate during Period

  US$0.7391   US$0.7524   US$0.7537   US$0.7721   US$0.7708 

High

  US$0.7710   US$0.7670   US$0.7699   US$0.8138   US$0.8245 

Low

  US$0.6898   US$0.7353   US$0.7353   US$0.7330   US$0.7276 

On November 9, 2020, the Bank of Canada exchange rate for $1.00 Canadian dollar was $0.7710 United States dollars.

 

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FORWARD-LOOKING STATEMENTS

Certain statements contained in this Information Circular (including in Appendices M and N, respectively, to this Information Circular) and in the documents incorporated by reference herein constitute forward-looking information and forward-looking statements (collectively referred to as “forward-looking statements”) within the meaning of Applicable Canadian Securities Laws and Applicable U.S. Securities Laws, including the U.S. Private Securities Litigation Reform Act of 1995, about Cenovus’s and Husky’s current expectations, estimates and projections about the future, based on certain assumptions made in light of experiences and perceptions of historical trends. Although Cenovus and Husky believe that expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. These statements relate to future events or future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions or the negative thereof.

This Information Circular (including Appendices M and N, respectively, to this Information Circular) contains forward-looking statements pertaining to the following:

 

  

the expectations regarding whether the Arrangement will be completed, the principal steps of the Arrangement, including whether the conditions to completion of the Arrangement will be satisfied, and the anticipated timing for the Effective Date;

 

  

the perceived benefits of the Arrangement and expected attributes of the combined company resulting from the Arrangement, including anticipated corporate, operational and other synergies and the timing thereof, anticipated savings and the sustainability and timing thereof, and the plans and strategies to achieve such benefits and synergies;

 

  

the ability to successfully integrate the businesses of Cenovus and Husky;

 

  

attributes of the combined company resulting from the Arrangement, including: its corporate structure; its enterprise value; its relative size; its diversified portfolio; the strength of its balance sheet; its anticipated production, refining, upgrading, storage and transportation capabilities and levels; its anticipated margins and reductions to free funds flow break-even at WTI, excluding one-time transaction related costs; expected free funds flow; anticipated free funds flow generation and stability; its reinvestment risk; its improved position to pursue value maximization; planned capital allocation and capital investment program and the efficiency thereof; required sustaining capital; expected exposure to WCS oil prices, Alberta and global commodity prices and anticipated sensitivity to commodity price fluctuations; deleveraging capability; anticipated reserves and reserves life index; takeaway and marketing optionality; anticipated priorities; anticipated market access; financial position; liquidity; resiliency; debt levels; its expected ability to leverage its increased scale; and its expected ability to implement necessary operating expertise and the integration of its assets to optimize margin capture;

 

  

the attributes of the combined company’s reserves and assets, including the declines, longevity, free funds flow generation and associated costs of such reserves and assets;

 

  

the anticipated effect of the transaction on the competitiveness of the combined company and its profitability, liquidity and cost structure;

 

  

the expected credit profile and credit ratings of the combined company;

 

  

the anticipated immediate efficiencies of the combined company to be achieved by implementing best practices of the combined company, including applying Cenovus’s operating expertise to Husky’s oil sands assets, leveraging the increased portfolio’s scale in the Deep Basin, and pursuing commercial and contract-related efficiencies on midstream marketing and blending opportunities;

 

  

the expectations of the combined company’s dividends, including anticipated and future payments thereof, rate payable including any increases thereto and ability to pay, subject to board approval of the combined company;

 

  

the expected returns to shareholders of the combined company, including through share buy backs and sustainable dividend increases;

 

  

the anticipated physical integration of the combined company’s assets, including the connection of upstream assets with upgrading, storage, refining and blending operations to shorten the value chain and reduce costs;

 

  

the anticipated safety and reliability of the operations of the combined company;

 

  

the expected benefits of the midstream gathering, upgrading, refining and transportation network and assets, including high netback international offshore natural gas assets, and associated agreements to be acquired and assumed by Cenovus and the integration, quality and efficiencies thereof;

 

  

the combined company’s cost of capital, capital allocation and anticipated capital investment and expenditures;

 

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expected pro forma financial and operational projections for 2021 and future years and plans and strategies to realize such projections;

 

  

the expected development and growth of the combined company’s business and plans and strategies to realize such expectations;

 

  

the combined company’s Net Debt to Adjusted EBITDA ratio;

 

  

the combined company’s committed credit facilities and draws thereon, excluding letters of credit;

 

  

the planned commitments to ESG leadership and initiatives of the combined company, including to clean technology, emission intensity reductions, Indigenous engagement and economic reconciliation, environmental stewardship, safety performance, diversity and inclusion, achieving net zero emissions by 2050, strategies to achieve such initiatives and disclosure of future ESG initiatives;

 

  

the expectations of future production and the timing, stability and growth thereof;

 

  

the structure and effect of the Arrangement on Husky and Cenovus;

 

  

the expected issuance, terms of, and, if applicable, registration and listing of Cenovus Common Shares, Cenovus Warrants, Cenovus Replacement Options and Cenovus Preferred Shares, if applicable, to Husky Shareholders and Husky Optionholders;

 

  

the expectations regarding future equity, market capitalization and enterprise value;

 

  

the timing, administration and conduct of the Meetings and the timing of the Final Order;

 

  

Cenovus’s and Husky’s anticipated abilities to obtain the required approvals, including securityholder, stock exchange, Court, regulatory and third-party approvals, for the Arrangement, including the Key Regulatory Approvals, and the timing of such approvals;

 

  

the satisfaction of conditions for listing of the Cenovus Common Shares and Cenovus Warrants issuable pursuant to the Arrangement and the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants and the Cenovus Replacement Options, on the TSX and the NYSE, and the timing thereof, and the satisfaction of conditions for listing of the Cenovus Preferred Shares issuable pursuant to the Arrangement on the TSX;

 

  

the anticipated filing, receipt and timing of the Canadian Warrant Prospectus with the Canadian Securities Regulators to qualify the Cenovus Warrant Shares for distribution in accordance with Applicable Canadian Securities Laws and the anticipated filing, effectiveness, and timing of the required registration statements with the SEC to register the Cenovus Warrant Shares and the Cenovus Common Shares issuable upon exercise of the Cenovus Replacement Options for distribution under Applicable U.S. Securities Laws;

 

  

the ability to enforce of civil liabilities under U.S. securities laws against Cenovus, Husky or its officers or directors and the ability to effect service of process or realize judgments against Cenovus or Husky;

 

  

the expectations regarding receipt of required approvals of the Arrangement Resolution and the Share Issuance Resolution and, if applicable, the Preferred Shareholder Resolution and the results of obtaining such approvals;

 

  

the anticipated application for and filing of the Final Order and Articles of Arrangement with the Registrar under the ABCA, the content and timing of such application, the considerations of the Court in granting the Final Order and the effect of the Final Order;

 

  

the expectation that there will be no significant events occurring outside of the normal course of business of Cenovus, Husky and the combined company, as applicable;

 

  

the expected expenses associated with the Arrangement;

 

  

the expectations regarding the exercise of Cenovus Warrants and Cenovus Replacement Options issued under the Arrangement;

 

  

the effect of the Arrangement on Cenovus’s share capital, including the total issued and outstanding Cenovus Common Shares and anticipated percentages of Cenovus Common Shares that former Husky Common Shareholders and current Cenovus Common Shareholders will hold in the combined company, both on a non-diluted and partially-diluted basis;

 

  

Cenovus Common Shareholders who are expected to beneficially hold or control Cenovus Common Shares carrying at least 10% of the voting rights and entitlements of such Cenovus Common Shareholders following the Arrangement;

 

  

the composition and compensation of the Cenovus Board and Cenovus management upon the Arrangement becoming effective, the reconstitution of board committees and expected meetings, policies and mandates thereof;

 

  

the delisting of the Husky Shares from the TSX and the anticipated timing thereof;

 

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the expected amendment of the Cenovus SRP Agreement;

 

  

the anticipated treatment and entitlements of Cenovus Common Shareholders and Husky Shareholders under securities and tax Laws;

 

  

the expected timing, cost, participants and terms of Husky’s and Cenovus’s retention programs, severance and other entitlements payable by the combined company pursuant to the Employment Agreements and such other obligations to directors and executive officers of Husky pursuant to the Arrangement Agreement;

 

  

the effect of the Arrangement on the vesting, settlement and payout of Cenovus Options, Cenovus PSUs, Cenovus RSUs, Husky PSUs and Husky DSUs;

 

  

the treatment of the Arrangement under government regulatory regimes;

 

  

the expectation that the combined company will deliver industry leading returns;

 

  

the sufficiency of budgeted capital expenditures in carrying out planned activities;

 

  

pro forma information, including pro forma financial and operational information pertaining to Cenovus after giving effect to the Arrangement; and

 

  

business plans, business prospects and performance, growth potential, financial strength, market profile, revenues, working capital, costs, capital expenditures, investment valuations, income, margins, access to capital, shareholder return and overall strategies and assessments of future plans and operations of the combined company.

Additionally, statements relating to “reserves” are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and can be profitably produced in the future.

The reports of PricewaterhouseCoopers LLP and KPMG LLP included or incorporated by reference in this Information Circular refer exclusively to the historical financial statements described therein and do not extend to the prospective financial information included in this Information Circular and should not be read to do so.

Developing forward-looking statements involves reliance on a number of assumptions and consideration of certain risks and uncertainties, some of which are specific to Cenovus, Husky and the combined company and others that apply to the industry generally. These forward-looking statements are based on certain expectations and assumptions, including expectations and assumptions respecting:

 

  

the perceived benefits of the Arrangement and expected attributes of the combined company resulting from the Arrangement are based upon a number of factors, including the terms and conditions of the Arrangement Agreement and current industry, economic and market conditions (see “The Arrangement – Reasons for the Arrangement”, “The Arrangement – Attributes of the Combined Company”, “The Arrangement – Recommendation of the Husky Board” and “The Arrangement – Recommendation of the Cenovus Board”);

 

  

the completion of certain steps in, and timing of, the Arrangement and the Effective Date of the Arrangement are based upon the terms of the Arrangement Agreement and advice received from counsel to Husky and Cenovus relating to timing expectations (see “Effect of the Arrangement”);

 

  

the listing of the Cenovus Common Shares and the Cenovus Warrants issuable pursuant to the Arrangement and the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants and the Cenovus Replacement Options on the TSX and the NYSE, respectively, the listing of the Cenovus Preferred Shares issuable pursuant to the Arrangement on the TSX and the delisting of the Husky Shares from the TSX are based on receiving approval from, and fulfilling all of the requirements of, the TSX and the NYSE, as applicable;

 

  

the treatment of Husky Shareholders under tax Laws is subject to the statements under “Certain Canadian Federal Income Tax Considerations” and “Certain United States Federal Income Tax Considerations”;

 

  

the effects of the Arrangement on Husky and Cenovus are based on Husky management’s current expectations regarding the intentions of Cenovus and Cenovus management’s current expectations regarding the intentions of Husky;

 

  

the satisfaction of the conditions to closing of the Arrangement in a timely manner and completion of the Arrangement on the expected terms;

 

  

the expected adherence to the terms of the Arrangement Agreement and agreements related to the Arrangement Agreement, including the Support Agreements, Standstill Agreements, Pre-Emptive Rights Agreements and Registration Rights Agreements, and the expected timing and termination of such agreements;

 

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the ability of Cenovus and Husky to obtain the Key Regulatory Approvals and the timing thereof;

 

  

the ability of management of the combined company to successfully integrate the businesses of Husky and Cenovus;

 

  

access to sufficient capital to pursue any development plans associated with full ownership of Husky;

 

  

the combined company’s ability to issue securities;

 

  

the impact the transaction may have on the current credit ratings of Cenovus and Husky, and the credit ratings of the combined company following closing;

 

  

variation in forecast commodity prices, light-heavy crude oil price differentials and other assumptions used to develop the forward-looking statements or identified in the 2020 guidance of Cenovus and Husky;

 

  

the potential further ramp down for forecast production volumes based on business and market conditions;

 

  

the projected capital investment levels, the flexibility of capital spending plans and associated sources of funding;

 

  

the achievement of further cost reductions and sustainability thereof;

 

  

applicable royalty regimes, including expected royalty rates;

 

  

future improvements in availability of product transportation capacity;

 

  

the ability of underlying pricing fundamentals to support the continuation of crude-by-rail programs;

 

  

changes in transportation costs following suspension of crude-by-rail programs;

 

  

increases to the combined company’s share price and market capitalization over the long term;

 

  

the opportunity for the combined company to pay dividends, and the approval and declaration of such dividends by the board of directors of the combined company;

 

  

opportunities to repurchase shares for cancellation at prices acceptable to the combined company;

 

  

cash flows, cash balances on hand and access to credit and demand facilities being sufficient to fund capital investments;

 

  

foreign exchange rates, including with respect to the combined company’s US$ debt and refining capital and operating expenses;

 

  

realization of expected capacity to store within oil sands reservoirs barrels not yet produced, including that the combined company will be able to time production and sales of its inventory at later dates when demand has increased, pipeline and/or storage capacity has improved and crude oil differentials have narrowed;

 

  

the WTI-WCS differential in Alberta remaining largely tied to the extent to which voluntary economically driven supply cuts are made, the potential start-up of Enbridge Inc.’s Line 3 Replacement Program, the completion of the Trans Mountain Expansion and Keystone XL projects, and the level of crude-by-rail activity and capacity;

 

  

the ability of the combined company’s refining capacity, dynamic storage, existing pipeline commitments and financial hedge transactions to partially mitigate a portion of the combined company’s WCS crude oil volumes against wider differentials;

 

  

estimates of quantities of oil, bitumen, natural gas and NGLs from properties and other sources not currently classified as proved;

 

  

accounting estimates and judgments;

 

  

the future use and development of technology and associated expected future results; the combined company’s ability to obtain necessary regulatory and partner approvals;

 

  

the successful and timely implementation of capital projects or stages thereof; the ability to generate sufficient cash flow to meet current and future obligations;

 

  

the combined company’s ability to reach net zero emissions by 2050;

 

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the estimated abandonment and reclamation costs, including associated levies and regulations applicable thereto;

 

  

the combined company’s ability to obtain and retain qualified staff and equipment in a timely and cost-efficient manner;

 

  

the combined company’s ability to carry out transactions on the desired terms and within the expected timelines;

 

  

forecast inflation and other assumptions inherent in the current guidance of Cenovus and Husky;

 

  

the expected impacts of the contingent payment to an affiliate of ConocoPhillips Company by Cenovus in connection with the purchase of certain oil sands and natural gas assets as announced in a press release of Cenovus dated March 29, 2017 available on SEDAR;

 

  

alignment of realized WCS prices and WCS prices used to calculate the contingent payment to an affiliate of ConocoPhillips Company by Cenovus;

 

  

the combined company’s ability to access and implement all technology necessary to efficiently and effectively operate its assets; and

 

  

other risks, uncertainties and assumptions described from time to time in the filings made by Cenovus and Husky with securities regulatory authorities.

The forward-looking statements in this Information Circular also include financial outlooks and other forward-looking metrics (including production, financial and oil and gas related metrics) relating to Cenovus, Husky, the combined company and the transaction, including: the expectations of Cenovus and Husky regarding the impact of the transaction on free funds flow, adjusted funds flow, free funds flow breakeven at WTI, Net Debt to Adjusted EBITDA, Adjusted EBITDA, deleveraging capability, the projected capital expenditures of the combined company, sustaining capital, undrawn committed credit facilities, general and administrative costs, expenses per boe and operating costs.

The forecast for the combined company reaching a Net Debt to Adjusted EBITDA ratio of less than 2.0 times in 2022 included in this Information Circular is based on August 20, 2020 forward strip commodity pricing, set out in the table below:

 

        Year         

  

WTI

  

WTI-WCS
differential

  

Chicago 3-2-1
Crack

  

$/US$ exchange
rate

2021

  US$45.00  US$14.75/bbl  US$10.15/bbl  $0.75/US$

2022

  US$46.00  US$15.00/bbl  US$11.50/bbl  $0.75/US$

2023

  US$47.00  US$13.50/bbl  US$13.50/bbl  $0.75/US$

By their very nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements.

Husky and Cenovus believe the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this Information Circular and in the documents incorporated by reference herein should not be unduly relied upon. These statements speak only as of the date of this Information Circular.

The risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements include:

 

  

Cenovus and Husky may fail to realize, or may fail to realize in the expected timeframes, the anticipated benefits and synergies resulting from the Arrangement;

 

  

the failure to integrate Cenovus’s and Husky’s respective businesses or the failure to access or implement some or all of the technology necessary to efficiently and effectively operate the assets and achieve expected future results;

 

  

the conditions to completion of the Arrangement, including receiving all Key Regulatory Approvals, Court approval, securityholder approvals, TSX and NYSE approval, as applicable, for the listing of the Cenovus Common Shares, Cenovus Warrants and the Cenovus Preferred Shares issuable pursuant to the Arrangement and the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants, may not be satisfied or waived and may result in the Arrangement not being completed in a timely manner or at all;

 

  

the timing of the Meetings and the Final Order and the anticipated Effective Date may be changed or delayed or may not occur at all;

 

  

interloper risk, including actions taken by government entities or others seeking to prevent or alter the terms of the transaction or competing offers for Cenovus or Husky which arise as a result of or in connection with the proposed Arrangement;

 

  

the accuracy of the pro forma financial and operational information of the combined company after the transaction;

 

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the impacts of a changing risk profile and possible subjection to a credit rating review, which may result in a downgrade or negative outlook being assigned to the combined company;

 

  

the potential exposure to political, economic or social instability in certain jurisdictions in which the combined company will operate;

 

  

Cenovus and Husky will incur significant costs relating to the Arrangement, regardless of whether the Arrangement is completed or not completed;

 

  

the Arrangement Agreement could be terminated by either Party under certain circumstances, including as a result of the occurrence of a change, event, circumstance or development that would reasonably be likely to have (individually or in the aggregate) a Material Adverse Effect on the Other Party;

 

  

if the Arrangement is not completed, either Party may be required to pay a termination amount to the Other Party in certain circumstances;

 

  

if the Arrangement is not completed, Husky Shareholders will not realize the anticipated benefits of the Arrangement and Husky’s future business and operations could be adversely affected;

 

  

if the Arrangement is not completed, Cenovus Common Shareholders will not realize the anticipated benefits of the Arrangement and Cenovus’s future business and operations could be adversely affected;

 

  

dilution and share price volatility, including a material decrease in the trading price of Cenovus Common Shares may occur which could result in a failure of the Arrangement on the basis of a Material Adverse Effect or could be sustained following the Effective Date;

 

  

litigation relating to the Arrangement may be commenced which may prevent, delay or give rise to significant costs or liabilities on the part of Cenovus or Husky;

 

  

changes in income or other tax Laws or actions taken by taxing authorities could have adverse implications on Cenovus, Husky or their respective securityholders;

 

  

the Parties may discover previously undisclosed liabilities following the Effective Date;

 

  

the focus of management’s time and attention on the Arrangement may detract from other aspects of the respective businesses of Cenovus and Husky;

 

  

the loss of key employees and the risk that the combined company may not be able to retain key employees of Cenovus or Husky following completion of the Arrangement in a timely manner or at all;

 

  

the combined company being unable to access the necessary sources of debt and equity capital on acceptable terms or at all;

 

  

the combined company’s ability to finance growth and sustaining capital expenditures;

 

  

the ability of the combined company to utilize and apply, or carry forward, tax losses and other tax attributes in the future;

 

  

the combined company’s operations near communities may cause such communities to regard its operations as being detrimental to them;

 

  

the combined company’s failure to reach net zero emissions in the expected timeframe;

 

  

a lack of adequate and cost effective product transportation including sufficient pipeline, crude-by-rail, marine or alternate transportation, including to address any gaps caused by constraints in the pipeline system or storage capacity;

 

  

changes in the regulatory framework in any of the locations in which Cenovus or Husky operate, including changes to the regulatory approval process and land-use designations, royalty, tax, environmental, greenhouse gas, carbon, climate change and other laws or regulations, or changes to the interpretation of such laws and regulations, as adopted or proposed, the negative impact thereof and the costs associated with compliance;

 

  

discrepancies between actual and estimated production for the combined company;

 

  

increased costs, delays, suspensions and technical challenges associated with the construction of capital projects;

 

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risk of loss and increased cost due to acts of war, terrorism, sabotage, civil disturbances, fires, explosions, blow-outs, equipment failures, transportation incidents, extreme weather events, technological changes and resource shortages, related to climate change or similar events;

 

  

the global economic climate;

 

  

competition, and the effects of competition and pricing pressures;

 

  

industry overcapacity;

 

  

the speculative nature of the oil and gas industry, including risks and uncertainties involving the geology and geophysics of oil and gas exploration and production;

 

  

operational risks in exploring for, developing and producing crude oil, natural gas and NGLs;

 

  

a resurgence in cases of COVID-19, which has occurred in certain locations and the possibility of which in other locations remains high and creates ongoing uncertainty that could result in restrictions to contain the virus being re-imposed or imposed on a more strict basis, including restrictions on movement and businesses;

 

  

the extent to which COVID-19 impacts the global economy and harms commodity prices;

 

  

the extent to which COVID-19 and fluctuations in commodity prices associated with COVID-19 impacts Husky, Cenovus or the combined company, their results of operations and financial condition, all of which will depend on future developments that are highly uncertain and difficult to predict, including, but not limited to the duration and spread of the pandemic, its severity, the actions taken to contain COVID-19 or treat its impact and how quickly economic activity normalizes; and

 

  

the success of Husky, Cenovus or the combined company’s COVID-19 workplace policies.

With regard to the forward-looking statements in Husky’s and Cenovus’s documents incorporated by reference herein, please refer to the forward-looking statements advisories in such documents in respect of the forward-looking statements contained therein, the assumptions upon which they are based and the risk factors in respect of such forward-looking statements.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Events or circumstances could cause the actual results to differ materially from those estimated or projected and expressed in, or implied by, the forward-looking statements. The forward-looking statements contained in this Information Circular and in the documents incorporated by reference herein are expressly qualified by this cautionary statement. Except as required by Law, neither Husky nor Cenovus undertakes any obligation to publicly update or revise any forward-looking statements.

Readers should also carefully consider the matters discussed under the headings “Risk Factors”, “Certain Canadian Federal Income Tax Considerations”, “Certain United States Federal Income Tax Considerations” and other risks described elsewhere in this Information Circular and in the documents incorporated by reference herein as they may cause the actual results to differ materially from the forward-looking statements, including Appendices M and N, the Husky AIF, the Cenovus AIF, the Husky Annual MD&A, the Cenovus Annual MD&A, the Husky Interim MD&A and the Cenovus Interim MD&A, each of which is incorporated by reference herein. Additional information on these and other factors that could affect the operations or financial results of Husky or Cenovus are included in documents on file with Applicable Canadian Securities Administrators and may be accessed on Husky’s and Cenovus’s respective issuer profiles through the SEDAR website (www.sedar.com). Such documents, unless expressly incorporated by reference herein, do not form part of this Information Circular.

ADVISORY REGARDING OIL AND GAS INFORMATION

The reserves information contained in this Information Circular has been prepared in accordance with NI 51-101. Listed below are cautionary statements that are specifically required by NI 51-101:

 

  

The terms “boe” and “mcfe” may be misleading, particularly if used in isolation. A boe conversion rate of six thousand cubic feet of natural gas per barrel of oil (6 mcf:1 bbl) and an mcfe conversion rate of one barrel of oil per six thousand cubic feet of natural gas (1 bbl:6 mcf) are each based on an energy equivalency conversion method primarily applicable at the burner tip and do not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from an energy equivalency of 6:1, utilizing a conversion ratio of 6:1 may be misleading as an indication of value.

 

  

The estimates of reserves of Cenovus were prepared effective December 31, 2019 by independent qualified reserves evaluators, based on the COGE Handbook and in compliance with the requirements of NI 51-101. Estimates are presented using an average of three independent qualified reserves evaluator January 1, 2020 price forecasts.

 

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The estimates of reserves of Husky were prepared effective December 31, 2019 by internal qualified reserves evaluators in accordance with the COGE Handbook, were audited and reviewed by Sproule, an independent qualified reserves auditor, and represent the company’s working interest share. Historical Husky production volumes provided are gross, which represents Husky’s working interest share before deduction of royalties.

 

  

This information circular contains certain pro forma reserves and production information for Cenovus after giving effect to the Arrangement for the year ended December 31, 2019 as set forth in “Pro Forma Information Concerning the Combined Company”. The pro forma reserves information presented in this Information Circular is based on the Cenovus Reserves Reports and the Husky Reserves Disclosure, which are presented for informational purposes only. The pro forma reserves information presented herein is based on the estimates of reserves of Cenovus and Husky, respectively, prepared effective December 31, 2019 in accordance with NI 51-101. Cenovus and Husky did not construct a consolidated reserves report of the combined assets of Cenovus and Husky, and did not engage an independent reserves evaluator to produce such a report in accordance with NI 51-101. Cenovus and Husky employ different methodologies to estimate their reserves information which differences include, but are not limited to, assumptions regarding forecast prices and costs. As a result, the actual reserves of the combined company, if calculated as of December 31, 2019 by an independent reserves evaluator in accordance with NI 51-101, may differ from the reserves information presented in this Information Circular for a number of reasons, and such differences may be material. The reserves information should be read in conjunction with the Cenovus AIF and Husky AIF, each of which is incorporated by reference in this Information Circular. See Appendix M – “Information Concerning Husky Energy Inc.” and Appendix N – “Information Concerning Cenovus Energy Inc.”.

 

  

Readers are cautioned that the term proved plus probable reserves life index may be misleading, particularly if used in isolation. Cenovus calculates “proved plus probable reserves life index”, as presented in this Information Circular, as Total Proved Plus Probable Reserves as at December 31, 2019 divided by Average Daily Production for the year ended December 31, 2019. This measure is used for consistency with other oil and gas companies and does not reflect the actual life of the reserves.

 

  

The SEC definitions of proved and probable reserves are different from the definitions contained in NI 51-101; therefore, proved and probable reserves disclosed herein may not be comparable to U.S. standards. The SEC requires U.S. oil and gas reporting companies, in their filings with the SEC, to disclose only proved reserves after the deduction of royalties and production due to others, but permits the optional disclosure of probable and possible reserves.

INFORMATION FOR BENEFICIAL HOLDERS

The information set forth in this section is of significant importance to many shareholders, as a substantial number of such shareholders do not hold Husky Shares or Cenovus Common Shares in their own name. Beneficial Holders should note that only proxies deposited by shareholders whose names appear on the records of the registrar and transfer agent for Husky or Cenovus, as applicable, as the registered holders of shares can be recognized and acted upon at the Meetings, as applicable. If shares are listed in an account statement provided to a shareholder by a broker, then, in almost all cases, those shares will not be registered in a holder’s name on the records of Husky or Cenovus. Such shares will most likely be registered in the name of the holder’s broker or an agent of the broker. In Canada, the vast majority of such shares are registered under the name of CDS & Co. (the registration name for CDS, which acts as nominee for many Canadian brokerage firms). Shares held by brokers or their nominees can only be voted (for or against resolutions) upon instructions of the Beneficial Holder. Without specific instructions, brokers/nominees are prohibited from voting shares for their clients. Beneficial Holders should therefore ensure that instructions regarding the voting of their shares are properly communicated to the appropriate Person or that the shares are duly registered in their name well in advance of the applicable Meeting.

Applicable regulatory policies require intermediaries/brokers to seek voting instructions from Beneficial Holders in advance of shareholder meetings. Every intermediary/broker has its own mailing procedures and provides its own return instructions which should be carefully followed by Beneficial Holders in order to ensure that their shares are voted at the applicable Meeting. Often, the form of proxy supplied to a Beneficial Holder by its broker is identical to that provided to a registered shareholder. However, its purpose is limited to instructing the registered shareholder on how to vote on behalf of the Beneficial Holder. The majority of brokers now delegate responsibility for obtaining instructions from clients to Broadridge. Broadridge typically mails a scannable Voting Instruction Form in lieu of the applicable form of proxy. The Beneficial Holder is requested to complete and return the Voting Instruction Form by mail or facsimile. Alternatively, the Beneficial Holder can call a toll-free telephone number or access the internet to vote the shares held by the Beneficial Holder. Broadridge then tabulates the results of all instructions received and provides appropriate instructions respecting the voting of shares to be represented at the applicable Meeting. A Beneficial Holder receiving a form of proxy or Voting Instruction Form from its broker or other intermediary (or an agent or nominee of such broker or other intermediary) cannot use that form to vote shares directly at the applicable Meeting. Voting instructions must be communicated to the broker, intermediary, agent or nominee (in accordance with the instructions provided by it or on its behalf) well in advance of the applicable Meeting in order to have the shares to which such instructions relate voted at the applicable Meeting.

If you are a Beneficial Holder and wish to vote at the applicable Meeting, you must insert your own name in the space provided on the Voting Instruction Form sent to you by your intermediary, follow all of the applicable instructions provided by your intermediary AND register yourself as your proxyholder, as described below in Step 2. By doing so, you are instructing your intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided by your intermediary. Please also see further instructions on accessing and voting at the applicable virtual Meetings under the heading “General Proxy Matters – Husky – How to Participate at the Husky Meeting” and “General Proxy Matters – Cenovus – How to Participate at the Cenovus Meeting”.

 

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Registering your proxyholder is an additional step to be completed AFTER you have submitted the Voting Instruction Form. Failure to register the proxyholder will result in the proxyholder not receiving a Username that is required to vote at the applicable Meeting.

Step 1: Submit the Voting Instruction Form: To appoint someone other than the individuals named in the Voting Instruction Form as proxyholder, insert that person’s name in the blank space provided in the Voting Instruction Form (if permitted) and follow the instructions for submitting such Voting Instruction Form. This must be completed before registering such proxyholder, which is an additional step to be completed once you have submitted the Voting Instruction Form.

If you are a Beneficial Holder located in the United States and wish to vote at the applicable Meeting or, if permitted, appoint a third party as your proxyholder, you must additionally obtain a valid legal proxy from your intermediary. Follow the instructions from your intermediary included with the legal proxy form sent to you or contact your intermediary to request a legal proxy form if you have not received one. After obtaining a valid legal proxy from your intermediary, you must then submit such legal proxy to Computershare. Requests for registration from non-registered Husky Shareholders or non-registered Cenovus Common Shareholders located in the United States that wish to vote at the applicable Meeting or, if permitted, appoint third parties as their proxyholders must be sent by e-mail or by courier to:

 

  

in the case of a beneficial Husky Shareholder: uslegalproxy@computershare.com (if by e-mail); or Computershare Trust Company of Canada, Attention: Proxy Department, 8th Floor, 100 University Avenue, Toronto, ON M5J 2Y1, Canada (if by courier), and in both cases, must be labeled “Legal Proxy” and received no later than the Husky Proxy Deadline; or

 

  

in the case of a beneficial Cenovus Common Shareholder: uslegalproxy@computershare.com (if by e-mail); or Computershare Investor Services, Inc., Attention: Proxy Department, 8th Floor, 100 University Avenue, Toronto, ON M5J 2Y1, Canada (if by courier), and in both cases, must be labeled “Legal Proxy” and received no later than the Cenovus Proxy Deadline.

Step 2: Register your proxyholder: To register a third-party proxyholder, you must:

 

  

in the case of a beneficial Husky Shareholder: visit http://www.computershare.com/HuskyEnergy by the Husky Proxy Deadline and provide Computershare with the required proxyholder contact information so that Computershare may provide the proxyholder with a Username via email; or

 

  

in the case of a beneficial Cenovus Common Shareholder: visit https://www.computershare.com/CenovusEnergy by the Cenovus Proxy Deadline and provide Computershare with the required proxyholder contact information so that Computershare may provide the proxyholder with a Username via email.

WITHOUT A USERNAME, PROXYHOLDERS WILL NOT BE ABLE TO VOTE AT THE APPLICABLE MEETING BUT WILL BE ABLE TO PARTICIPATE AS GUESTS.

Husky Shareholders who do not hold their Husky Shares in their own name should also instruct their broker or other intermediary to complete the Husky Common Shareholder Letter of Transmittal or Husky Preferred Shareholder Letter of Transmittal, as applicable, regarding the Arrangement with respect to such holder’s Husky Shares in order to receive the consideration issuable pursuant to the Arrangement in exchange for such holder’s Husky Shares.

 

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SUMMARY

This Summary is qualified in its entirety by the more detailed information appearing elsewhere in this Information Circular, including the Appendices hereto. Terms with initial capital letters in this Summary are defined in the Glossary of Terms set out elsewhere in this Information Circular.

The Arrangement

On October 24, 2020, Husky and Cenovus agreed to the definitive terms of a transaction to combine the two companies pursuant to the terms and conditions of the Arrangement Agreement. Pursuant to the Arrangement Agreement, Cenovus has agreed to acquire all of the issued and outstanding Husky Common Shares under a court-approved Plan of Arrangement in accordance with the provisions of the ABCA. If completed, the Arrangement will result in Cenovus acquiring all of the Husky Common Shares. Pursuant to the Arrangement, a portion of the Husky Common Shares held by each Husky Common Shareholder will be exchanged for Cenovus Warrants and the remaining portion of the Husky Common Shares will be exchanged for Cenovus Common Shares, such that, in aggregate, each Husky Common Shareholder will receive 0.7845 of a Cenovus Common Share and 0.0651 of a Cenovus Warrant in respect of each Husky Common Share held. Each whole Cenovus Warrant will entitle the holder thereof to acquire one Cenovus Common Share upon payment in full of the exercise price of $6.54 per Cenovus Common Share at any time up to 60 months following completion of the Arrangement. Pursuant to the Plan of Arrangement, all outstanding Husky Options will be exchanged for Cenovus Replacement Options. If the Arrangement is completed, Husky Optionholders will receive Cenovus Replacement Options to acquire such number of Cenovus Common Shares as is equal to that number of Husky Common Shares that were issuable upon exercise of a Husky Optionholder’s Husky Options immediately prior to the Effective Time, multiplied by 0.7845, with an exercise price per Cenovus Common Share equal to the exercise price per share of a Husky Option immediately prior to the Effective Time divided by 0.7845 and rounded up to the nearest whole cent.

Additionally, if the Preferred Shareholder Resolution is approved at the Husky Meeting and the Preferred Share Condition is otherwise satisfied, the Husky Preferred Shareholders will exchange their Husky Preferred Shares for Cenovus Preferred Shares having substantially identical terms to each series of Husky Preferred Shares. See “Pro Forma Information Concerning the Combined Company – Description of Share Capital of the Combined Company – Cenovus Preferred Shares”.

Former Husky Common Shareholders are expected to own approximately 39% of the combined company immediately after completion of the Arrangement (or 41% on a partially-diluted basis assuming the exercise of all Cenovus Warrants issued pursuant to the Arrangement). Current Cenovus Common Shareholders are expected to own approximately 61% of the combined company immediately after completion of the Arrangement (or 59% on a partially-diluted basis assuming the exercise of all Cenovus Warrants issued pursuant to the Arrangement).

Following completion of the Arrangement, Alex J. Pourbaix, the current President & Chief Executive Officer of Cenovus, will serve as President & Chief Executive Officer of the combined company. Further, Jeffrey R. Hart, the current Chief Financial Officer of Husky, will serve as Executive Vice-President & Chief Financial Officer of the combined company, and Jonathan M. McKenzie, the current Executive Vice-President & Chief Financial Officer of Cenovus, will serve as Executive Vice-President & Chief Operating Officer of the combined company. Keith A. MacPhail, the current Chair of the Cenovus Board, will serve as Independent Board Chair of the combined company. The remainder of senior management will be selected from each of Cenovus and Husky and named prior to the completion of the Arrangement.

The board of directors of the combined company following completion of the Arrangement will consist of eight members of the current Cenovus Board, including Keith A. MacPhail (as Independent Board Chair) and Alex J. Pourbaix, with Keith M. Casey, Jane E. Kinney, Harold N. Kvisle, Richard J. Marcogliese, Claude Mongeau, and Rhonda I. Zygocki expected to continue as members of the combined company’s board of directors, and four members of the current Husky Board, with Canning K. N. Fok, Eva L. Kwok, Wayne E. Shaw and Frank J. Sixt being the members expected to join the combined company’s board of directors.

See “Effect of the Arrangement”.

Husky Energy Inc.

Husky is a Canadian based, publicly held international integrated energy company headquartered in Calgary, Alberta and governed by the ABCA.

Husky’s business is organized under two business segments: (i) an integrated Canada-U.S. upstream and downstream corridor (the “Integrated Corridor”); and (ii) production located offshore the east coast of Canada (“Atlantic”) and offshore China and Indonesia (“Asia Pacific” and, collectively with Atlantic, “Offshore”).



 

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Husky Shares

Husky is a reporting issuer or the equivalent under the securities laws of each of the provinces of Canada. The Husky Common Shares and the Husky Series 1 Preferred Shares, Husky Series 2 Preferred Shares, Husky Series 3 Preferred Shares, Husky Series 5 Preferred Shares and Husky Series 7 Preferred Shares are each listed and posted for trading on the TSX under the symbols “HSE”, “HSE.PR.A”, “HSE.PR.B”, “HSE.PR.C”, “HSE.PR.E” and “HSE.PR.G”, respectively.

Pursuant to the Arrangement, all of the Husky Common Shares will be acquired by Cenovus and all of the Husky Preferred Shares will be exchanged by Cenovus for the Cenovus Preferred Shares. Following completion of the Arrangement, it is anticipated that the Husky Common Shares will be delisted from the TSX. If the Preferred Share Condition is satisfied and the Husky Preferred Shares are exchanged for Cenovus Preferred Shares, it is anticipated that the Listed Preferred Shares will be delisted from the TSX.

The head, principal and registered office of Husky is located at 707 – 8th Avenue S.W., Calgary, Alberta T2P 1H5.

See Appendix M – Information Concerning Husky Energy Inc.”.

Cenovus Energy Inc.

Cenovus is an integrated oil and natural gas company headquartered in Calgary, Alberta and governed by the CBCA. Cenovus is in the business of developing, producing and marketing crude oil, natural gas and NGLs in Canada, and also conducts marketing activities and owns refining interests in the United States. All of Cenovus’s oil and natural gas reserves and production are located in Canada, within the provinces of Alberta and British Columbia.

Cenovus is a reporting issuer or the equivalent under the securities laws of each of the provinces and territories of Canada. The Cenovus Common Shares are listed and posted for trading on the TSX and NYSE under the symbol “CVE”.

The head, principal and registered office of Cenovus is located at 4100, 225 – 6th Avenue S.W., Calgary, Alberta, Canada T2P 1N2.

See Appendix N – Information Concerning Cenovus Energy Inc..

The Husky Meeting

The Husky Meeting will be held at 9:00 a.m. (Calgary time) on December 15, 2020, in a virtual-only format that will be conducted via live webcast accessible at https://web.lumiagm.com/459526828, for the purposes set forth in the accompanying applicable notice of meeting. The business of the Husky Meeting will be for Husky Common Shareholders and Husky Optionholders to consider and vote on the Arrangement Resolution and for Husky Preferred Shareholders to consider and vote on the Preferred Shareholder Resolution. See “The Arrangement”, “Effect of the Arrangement” and “Matters to be Considered at the Husky Meeting”.

The Husky Record Date for determining Husky Common Shareholders, Husky Preferred Shareholders and Husky Optionholders entitled to receive notice of, and to vote at, the Husky Meeting is the close of business on November 9, 2020. Only Husky Shareholders and Husky Optionholders of record as at the Husky Record Date are entitled to receive notice of the Husky Meeting. Husky Shareholders and Husky Optionholders of record will be entitled to vote those Husky Common Shares, Husky Preferred Shares or Husky Options, as applicable, included in the list of Husky Common Shareholders, Husky Preferred Shareholders or Husky Optionholders, as applicable, prepared as at the Husky Record Date. If a Husky Shareholder transfers Husky Shares after the Husky Record Date and the transferee of those Husky Shares, having produced properly endorsed certificates evidencing such Husky Shares or having otherwise established that the transferee owns such Husky Shares, demands, at least 10 days before the Husky Meeting, that the transferee’s name be included in the list of Husky Common Shareholders or Husky Preferred Shareholders, as applicable, entitled to vote at the Husky Meeting, such transferee shall be entitled to vote such Husky Common Shares or Husky Preferred Shares, as applicable, on the applicable resolution at the Husky Meeting. See “General Proxy Matters – Husky”.

The Cenovus Meeting

The Cenovus Meeting will be held at 1:00 p.m. (Calgary time) on December 15, 2020, in a virtual-only format that will be conducted via live webcast accessible at https://web.lumiagm.com/418831959, for the purposes set forth in the accompanying applicable notice of meeting. The business of the Cenovus Meeting will be to consider and vote on the Share Issuance Resolution. See “Matters to be Considered at the Cenovus Meeting”.

The Cenovus Record Date for determining Cenovus Common Shareholders entitled to receive notice of, and to vote at, the Cenovus Meeting is the close of business on November 9, 2020. Only Cenovus Common Shareholders of record as at the Cenovus Record Date are entitled to receive notice of the Cenovus Meeting. Cenovus Common Shareholders of record will be entitled to vote those Cenovus



 

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Common Shares included in the list of Cenovus Common Shareholders prepared as at the Cenovus Record Date. See “General Proxy Matters – Cenovus”.

See “The Arrangement – Details of the Arrangement”.

Background to the Arrangement

The terms of the Arrangement are the result of arm’s length negotiations between representatives of Husky, each Supporting Husky Shareholder and Cenovus, and their respective financial and legal advisors. The Information Circular contains a summary of the events leading up to the negotiation of the Arrangement Agreement and the meetings, negotiations, discussions and actions by the Parties, their respective boards of directors and senior management teams and the Supporting Husky Shareholders that preceded the execution and public announcement of the Arrangement Agreement. See “The Arrangement – Background to the Arrangement”.

Arrangement Agreement

The obligations of Husky and Cenovus to complete the Arrangement are subject to the satisfaction or waiver of certain conditions set out in the Arrangement Agreement. These conditions include, among others, approval of the Arrangement Resolution by the Husky Common Shareholders, and the Husky Common Shareholders and Husky Optionholders, voting together as a single class; approval of the Share Issuance Resolution by the Cenovus Common Shareholders; conditional approval or approval of the TSX and the NYSE, respectively, for the listing of the Cenovus Common Shares and the Cenovus Warrants issuable pursuant to the Arrangement and the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants and conditional approval of the TSX for the listing of the Cenovus Preferred Shares issuable pursuant to the Arrangement (if applicable); Court approval and receipt of all Key Regulatory Approvals. Upon all the conditions being satisfied or waived, Husky is required to file the Articles of Arrangement with the Registrar in order to give effect to the Arrangement.

Approval of the Preferred Shareholder Resolution is not required in order to complete the Arrangement. If the Husky Preferred Shareholders do not approve the Preferred Shareholder Resolution at the Husky Meeting (or if the Preferred Shareholder Resolution is approved and the Preferred Share Condition is not otherwise satisfied), and both the Share Issuance Resolution and the Arrangement Resolution are approved at their respective meetings, the Husky Preferred Shares will not be exchanged for Cenovus Preferred Shares pursuant to the Plan of Arrangement and will remain outstanding in a subsidiary of Cenovus following completion of the Arrangement and listed on the TSX.

In addition to certain covenants, representations and warranties made by each of Husky and Cenovus in the Arrangement Agreement, each Party has provided certain non-solicitation covenants, subject to the right of the Husky Board and the Cenovus Board to, prior to obtaining the approval of the Husky Common Shareholders of the Arrangement Resolution (in the case of Husky) or prior to obtaining the approval of the Cenovus Common Shareholders of the Share Issuance Resolution (in the case of Cenovus), as applicable, respond to an Acquisition Proposal that constitutes or would reasonably be excepted to constitute or lead to a Superior Proposal, and the right of Cenovus to match any such Superior Proposal within five Business Days.

In the event of the termination of the Arrangement Agreement as a result of a Cenovus Disposition Event, including where: (a) the Husky Board (or any committee thereof) has withdrawn, modified, qualified or changed its recommendations or determinations with respect to the Arrangement in a manner adverse to Cenovus and the Arrangement Agreement is terminated by Cenovus; or (b) Husky enters into a definitive agreement with respect to a Superior Proposal and the Arrangement Agreement is terminated by Husky, Husky has agreed to pay to Cenovus a termination amount in the amount of $150 million in consideration for the disposition of Cenovus’s rights under the Arrangement Agreement. In the event of the termination of the Arrangement Agreement as a result of a Husky Disposition Event, including where: (a) the Cenovus Board has withdrawn, modified, qualified or changed its recommendations or determinations with respect to the Arrangement in a manner adverse to Husky and the Arrangement Agreement is terminated by Husky; or (b) Cenovus enters into a definitive agreement with respect to a Superior Proposal and the Arrangement Agreement is terminated by Cenovus, Cenovus has agreed to pay to Husky a termination amount in the amount of $240 million in consideration for the disposition of Husky’s rights under the Arrangement Agreement.

The Arrangement Agreement may be terminated by mutual written consent of Cenovus and Husky and by either Party in certain circumstances as more particularly set forth in the Arrangement Agreement. Subject to certain limitations, either Party may also terminate the Arrangement Agreement if the Arrangement is not consummated by May 31, 2021; or by August 31, 2021 if the Key Regulatory Approvals have not been received by May 31, 2021.

The above is a summary of certain terms of the Arrangement Agreement and is qualified in its entirety by the full text of the Arrangement Agreement, which is attached as Appendix D to this Information Circular, and to the more detailed summary contained elsewhere in this Information Circular.

See “Effect of the Arrangement – The Arrangement Agreement” and Appendix D for a copy of the Arrangement Agreement.



 

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Reasons for the Arrangement

Husky Board

In determining that the Arrangement is in the best interests of Husky and that the Arrangement is fair to the Husky Shareholders, and in recommending to Husky Shareholders and Husky Optionholders that they approve the Arrangement, the Husky Board considered and relied upon a number of factors, including, among others, the following:

Highly Complementary Integrated and Diversified Portfolio

The assets of the combined company will result in a more diversified geographic and product portfolio supporting stability of cash flow and opportunities for enhanced free funds flow. The combined company will unlock market opportunities by uniting high-quality and low-cost oil sands and heavy oil assets with extensive midstream and downstream infrastructure providing ability to optimize margin capture across the heavy oil value chain. The transaction will result in processing capacity and egress out of Alberta for the majority of the combined company’s oil sands and heavy oil production, positioning low exposure to Alberta oil pricing while maintaining healthy exposure to global commodity prices. Cash flow stability of the combined entity will be further underpinned by the global exposure of Husky’s offshore Asia Pacific natural gas production interests, which currently generate approximately $1 billion in annual free funds flow through sales largely under long-term contracts.

The combined company will be the third largest Canadian-based oil and natural gas producer, with approximately 750,000 boe/d of low-cost oil and natural gas production. It will be the second largest Canadian-based refiner and upgrader, with total North American upgrading and refining capacity of approximately 660,000 bbls/d, which includes approximately 350,000 bbls/d of heavy oil conversion capacity. The combined company will have approximately 265,000 bbls/d of current takeaway capacity out of Alberta on existing major pipelines and approximately 305,000 bbls/d of committed capacity on planned pipelines. In addition, it will have approximately 16 million barrels of crude oil storage capacity and crude-by-rail assets providing approximately 120,000 bbls/d takeaway optionality.

Annual Corporate and Operating Synergies and Improved Capital Allocation Opportunities

An estimated $1.2 billion of incremental annual free funds flow, including approximately $600 million in annual corporate and operating synergies and approximately $600 million in annual sustaining capital allocation synergies, are achievable independent of commodity prices. The approximately $600 million in annual corporate and operating cost synergies are expected through material reductions in combined workforce and corporate overhead costs, including streamlined IT systems and procurement savings through economies of scale. Immediate efficiencies are also expected by implementing best practices from each company, including applying Cenovus’s operating expertise to Husky’s oil sands assets, leveraging the increased portfolio’s scale in the Deep Basin and pursuing commercial and contract-related efficiencies on midstream marketing and blending opportunities. The vast majority of the annual savings are expected to be achieved in the first year of combined operations, with the full amount of the annual run rate synergies anticipated within year two. Over the longer term, Cenovus and Husky anticipate additional cost savings and margin enhancements based on further physical integration, including connecting upstream assets with the upgrading complex at Lloydminster, Saskatchewan, storage and blending operations at Hardisty, Alberta and the large U.S. refining assets in PADD 2 and PADD 3. The integration of Cenovus’s upstream assets with Husky’s downstream and midstream portfolio is expected to also shorten the value chain and reduce condensate costs associated with heavy oil transportation over the longer term. These longer term anticipated synergies are not included in the estimated $1.2 billion annual synergies anticipated in the first two years of combined operations.

Enhanced Free Funds Flow Generation and Investment Grade Metrics

The combined company is expected to be free funds flow breakeven in 2021 at WTI prices of approximately US$36.00/bbl, and expects to reduce free funds flow breakeven to less than WTI US$33.00/bbl by 2023, which is lower than either company on a standalone basis. The combined company’s priority will be to maximize free funds flow by focusing investments on sustaining capital expenditures. Based on the assumptions contained in this Information Circular, free funds flow generation will position the combined company to achieve a Net Debt to Adjusted EBITDA target of less than 2.0 times by 2022, without the need for asset dispositions. With the combined company’s low free funds flow breakeven threshold, the combined company will offer an accelerated deleveraging capability relative to either company on a standalone basis.

The resulting low funds flow volatility, breakeven price and corporate sustaining costs of the combined company supports an investment grade credit profile and a lower cost of capital through the commodity price cycle. Based on the assumptions contained in this Information Circular, the combined company is expected to have ample current liquidity with $8.5 billion in undrawn committed credit facilities and no bond maturities until 2022. Furthermore, the estimated $1.2 billion of incremental annual free funds flow from identified near-term synergies is expected to accelerate balance sheet deleveraging.

After achieving its balance sheet objectives, the combined company’s free funds flow profile is expected to enable sustainable growth in shareholder distributions and a returns-focused organic capital investment program with residual free funds flow. Following completion of the Arrangement, Cenovus and Husky anticipate approval by the board of directors of the combined company of a quarterly dividend of $0.0175 per share.



 

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Increased Scale

The size of the combined company is expected to allow it to leverage increased economies of scale to better compete in an increasingly consolidated energy industry.

The combined company is expected to sustain production levels of approximately 750,000 boe/d. The anticipated annual sustaining capital requirements to support the combined company’s upstream production and downstream operations is approximately $2.4 billion, a reduction of more than $600 million per year compared to the two companies on a standalone basis. Furthermore, the combined company’s expanded portfolio is expected to enable more efficient, returns-focused capital allocation. With an estimated proved plus probable reserves life index of approximately 33 years, consisting mostly of low-cost reserves, the combination is expected to result in reduced re-investment risk to sustain production at current levels.

Uncompromising Commitment to Safety and ESG Leadership

Cenovus’s and Husky’s commitments to world-class safety performance and environmental, social and governance (ESG) leadership will remain core to the combined company. This will include ambitious ESG targets, robust management systems and transparent performance reporting. The combined company will continue working to earn a position as a global energy supplier of choice by advancing clean technology and reducing emissions intensity. This includes maintaining the ambition established by each company of achieving net zero emissions by 2050. The combined company will also make it a priority to continue building upon the strong local community relationships already established by both Cenovus and Husky, with a focus on Indigenous economic reconciliation. Striking the right balance among environmental, economic and social considerations will continue to be central to the combined company’s strategy of creating long-term value and business resilience.

The targets that each of Cenovus and Husky released earlier this year for key ESG focus areas are the products of robust processes to ensure alignment with the companies’ business plans and strategies. Leading safety practices, strong governance and advancing diversity and inclusion will remain central to the combined company’s ESG commitments.

Consideration of Alternatives

The Husky Board carefully considered current industry, economic and market conditions and outlooks, including prevailing commodity prices and their expectations of the future prospects of the businesses in which Husky and Cenovus operate, as well as the impact of the Arrangement on affected stakeholders. In light of the risks and potential benefits associated with Husky continuing to execute its business and strategic plan as a standalone entity, as opposed to the Arrangement or other potential transactions which may offer increased stakeholder value, the Husky Board determined that the combined company will be better positioned to pursue a value maximizing strategy as a result of the anticipated benefits of the Arrangement.

Strong Leadership Team

Management responsibilities within the combined company will be allocated among a proven management team reflecting the strengths of both organizations, with a track record of strong safety performance, operational excellence and cost and capital discipline, along with upstream, downstream and midstream expertise. Following completion of the Arrangement, Alex J. Pourbaix, the current President & Chief Executive Officer of Cenovus, will serve as President & Chief Executive Officer of the combined company. Further, Jeffrey R. Hart, the current Chief Financial Officer of Husky, will serve as Executive Vice-President & Chief Financial Officer of the combined company, and Jonathan M. McKenzie, the current Executive Vice-President & Chief Financial Officer of Cenovus, will serve as Executive Vice-President & Chief Operating Officer of the combined company. Keith A. MacPhail, the current Chair of the Cenovus Board, will serve as Independent Board Chair of the combined company. The remainder of senior management will be selected from each of Cenovus and Husky and named prior to the completion of the Arrangement.

Premium

The Consideration, being the number of Cenovus Common Shares and Cenovus Warrants being offered to Husky Common Shareholders in respect of the Husky Common Shares, implies a premium for Husky Common Shareholders as of the date of the announcement of the Arrangement Agreement. On October 25, 2020, the date of the announcement of the transaction, the Consideration to be received by Husky Common Shareholders represented a premium of 21% to the five-day volume weighted average price of the Husky Common Shares on the TSX on October 23, 2020 (excluding the Cenovus Warrants) and a premium of approximately 23% to the closing price of the Husky Common Shares on the TSX on October 23, 2020 (with an implied price of $3.90 per Husky Common Share and including the Cenovus Warrants).

Significant Shareholder Support

In considering the Arrangement, the Husky Board was aware of the views of a number of its largest shareholders which were supportive of Husky engaging in M&A activity. The Arrangement is supported by Hutchison Whampoa Europe Investments S.à r.l. and L.F.



 

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Investments S.à r.l., the Supporting Husky Shareholders, which hold approximately 40.19% and 29.32%, respectively, of the issued and outstanding Husky Common Shares. Each Supporting Husky Shareholder has entered into a separate hard lock-up agreement with Cenovus, pursuant to which such Supporting Husky Shareholder has irrevocably agreed to vote in favour of the Arrangement at the Husky Meeting, except in limited circumstances. See “Effect of the Arrangement – Support Agreements”.

Husky Fairness Opinions

The Husky Board considered the Goldman Sachs Fairness Opinion and the CIBC Common Shareholder Fairness Opinion, each to the effect that, as of October 24, 2020 and October 23, 2020, respectively, and based upon and subject to the assumptions, limitations and qualifications set forth therein, the Consideration to be received by Husky Common Shareholders was fair, from a financial point of view, to the Husky Common Shareholders, taking into account the independence of Goldman Sachs and CIBC Capital Markets, as applicable, and the compensation payable to Goldman Sachs and CIBC Capital Markets, as applicable, upon completion of the Arrangement.

The Husky Board also considered the CIBC Preferred Shareholder Fairness Opinion to the effect that, as of October 23, 2020, and based upon and subject to the assumptions, limitations and qualifications set forth therein, the consideration to be received by Husky Preferred Shareholders pursuant to the Arrangement was fair, from a financial point of view, to the Husky Preferred Shareholders, taking into account the independence of CIBC Capital Markets and the compensation payable to CIBC Capital Markets upon completion of the Arrangement.

Tax Considerations

The Arrangement is structured in a way so that Husky Shareholders will generally be entitled to an automatic tax deferral for Canadian federal income tax purposes for the portion of their Husky Common Shares or for their Husky Preferred Shares, as applicable, which are exchanged for Cenovus Common Shares or Cenovus Preferred Shares, as the case may be, pursuant to the Arrangement. Husky Shareholders who do not wish to benefit from the tax deferral are also entitled to elect out of such treatment on their tax returns. See the discussion under the section “Certain Canadian Federal Income Tax Considerations” for further information.

Termination Protections

The appropriateness of the ability of Husky to terminate the Arrangement Agreement and receive the Husky Termination Amount payable from Cenovus to Husky, as consideration for the disposition by Husky of its rights under the Arrangement Agreement, in certain circumstances, including in the event that: (a) the Cenovus Board fails to unanimously recommend that Cenovus Common Shareholders vote in favour of the Share Issuance Resolution and the Arrangement Agreement is terminated by Husky; (b) Cenovus accepts a Superior Proposal; or (c) the Arrangement Agreement is terminated because the Cenovus Common Shareholders do not approve the Share Issuance Resolution where prior to such termination an Acquisition Proposal (or an intention to make an Acquisition Proposal) for Cenovus has been announced, proposed, disclosed, offered or made and, within 12 months following the date of such termination, the Cenovus Board recommends an Acquisition Proposal, the Cenovus Board enters into a definitive agreement in respect of any Acquisition proposal, or Cenovus consummates any transaction in respect of an Acquisition Proposal.

Definitive Agreement Terms and Conditions

The fact that the Arrangement Agreement was the result of a comprehensive negotiation process with Cenovus and includes terms and conditions that are reasonable in the judgment of the Husky Board. The Husky Board also believes that the “deal protection” provisions in the Arrangement Agreement are reasonable in the circumstances and were negotiated at length with Cenovus in conjunction with the consideration of the other terms and conditions of the Arrangement, including the Consideration and related premium to the trading price of Husky Common Shares.

Equal Treatment of Husky Common Shareholders

The fact that the terms of the Arrangement do not provide any Husky Common Shareholder with a “collateral benefit” within the meaning of MI 61-101 and provide all Husky Shareholders with identical consideration for their Husky Common Shares.

The information and factors described above and considered by the Husky Board in reaching its determinations and making its approvals are not intended to be exhaustive but include material factors considered by the Husky Board. In view of the wide variety of factors considered in connection with its evaluation of the Arrangement and the complexity of these matters, the Husky Board did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In addition, individual members of the Husky Board may have given different weight to different factors.

See “The Arrangement – Reasons for the Arrangement – Husky Board” and “The Arrangement – Recommendation of the Husky Board”.



 

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Cenovus Board

In determining that the Arrangement is in the best interests of Cenovus and that the consideration to be paid by Cenovus pursuant to the Arrangement is fair, from a financial point of view, to Cenovus, and in recommending to Cenovus Common Shareholders that they approve the Share Issuance Resolution, the Cenovus Board considered and relied upon a number of factors, including, among others, the following:

Highly Complementary Integrated and Diversified Portfolio

The assets of the combined company will result in a more diversified geographic and product portfolio supporting stability of cash flow and opportunities for enhanced free funds flow. The combined company will unlock market opportunities by uniting high-quality and low-cost oil sands and heavy oil assets with extensive midstream and downstream infrastructure providing ability to optimize margin capture across the heavy oil value chain. The transaction will result in processing capacity and egress out of Alberta for the majority of the combined company’s oil sands and heavy oil production, positioning low exposure to Alberta oil pricing while maintaining healthy exposure to global commodity prices. Cash flow stability of the combined entity will be further underpinned by the global exposure of Husky’s offshore Asia Pacific natural gas production interests, which currently generate approximately $1 billion in annual free funds flow through sales largely under long-term contracts.

The combined company will be the third largest Canadian-based oil and natural gas producer, with approximately 750,000 boe/d of low-cost oil and natural gas production. It will be the second largest Canadian-based refiner and upgrader, with total North American upgrading and refining capacity of approximately 660,000 bbls/d, which includes approximately 350,000 bbls/d of heavy oil conversion capacity. The combined company will have approximately 265,000 bbls/d of current takeaway capacity out of Alberta on existing major pipelines and approximately 305,000 bbls/d of committed capacity on planned pipelines. In addition, it will have approximately 16 million barrels of crude oil storage capacity and crude-by-rail assets providing approximately 120,000 bbls/d takeaway optionality.

Annual Corporate and Operating Synergies and Improved Capital Allocation Opportunities

An estimated $1.2 billion of incremental annual free funds flow, including approximately $600 million in annual corporate and operating synergies and approximately $600 million in annual sustaining capital allocation synergies, are achievable independent of commodity prices. The approximately $600 million in annual corporate and operating cost synergies are expected through material reductions in combined workforce and corporate overhead costs, including streamlined IT systems and procurement savings through economies of scale. Immediate efficiencies are also expected by implementing best practices from each company, including applying Cenovus’s operating expertise to Husky’s oil sands assets, leveraging the increased portfolio’s scale in the Deep Basin and pursuing commercial and contract-related efficiencies on midstream marketing and blending opportunities. The vast majority of the annual savings are expected to be achieved in the first year of combined operations, with the full amount of the annual run rate synergies anticipated within year two. Over the longer term, Cenovus and Husky anticipate additional cost savings and margin enhancements based on further physical integration, including through connecting upstream assets with the upgrading complex at Lloydminster, Saskatchewan, storage and blending operations at Hardisty, Alberta and the large U.S. refining assets in PADD 2 and PADD 3. The integration of Cenovus’s upstream assets with Husky’s downstream and midstream portfolio is expected to also shorten the value chain and reduce condensate costs associated with heavy oil transportation over the longer term. These longer term anticipated synergies are not included in the estimated $1.2 billion annual synergies anticipated in the first two years of combined operations.

Enhanced Free Funds Flow Generation and Investment Grade Metrics

The combined company is expected to be free funds flow breakeven in 2021 at WTI prices of approximately US$36.00/bbl, and expects to reduce free funds flow breakeven to less than WTI US$33.00/bbl by 2023, which is lower than either company on a standalone basis. The combined company’s priority will be to maximize free funds flow by focusing investments on sustaining capital expenditures. Based on the assumptions contained in this Information Circular, free funds flow generation will position the combined company to achieve a Net Debt to Adjusted EBITDA target of less than 2.0 times by 2022, without the need for asset dispositions. With the combined company’s low free funds flow breakeven threshold, the combined company will offer an accelerated deleveraging capability relative to either company on a standalone basis.

The resulting low funds flow volatility, breakeven price and corporate sustaining costs of the combined company supports an investment grade credit profile and a lower cost of capital through the commodity price cycle. Based on the assumptions contained in this Information Circular, the combined company is expected to have ample current liquidity with $8.5 billion in undrawn committed credit facilities and no bond maturities until 2022. Furthermore, the estimated $1.2 billion of incremental annual free funds flow from identified near-term synergies is expected to accelerate balance sheet deleveraging.

After achieving its balance sheet objectives, the combined company’s free funds flow profile is expected to enable sustainable growth in shareholder distributions and a returns-focused organic capital investment program with residual free funds flow. Following completion of the Arrangement, Cenovus and Husky anticipate approval by the board of directors of the combined company of a quarterly dividend of $0.0175 per share.



 

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Increased Scale

The size of the combined company is expected to allow it to leverage increased economies of scale to better compete in an increasingly consolidated energy industry.

The combined company is expected to sustain production levels of approximately 750,000 boe/d. The anticipated annual sustaining capital requirements to support the combined company’s upstream production and downstream operations is approximately $2.4 billion, a reduction of more than $600 million per year compared to the two companies on a standalone basis. Furthermore, the combined company’s expanded portfolio is expected to enable more efficient, returns-focused capital allocation. With an estimated proved plus probable reserves life index of approximately 33 years, consisting mostly of low-cost reserves, the combination is expected to result in reduced re-investment risk to sustain production at current levels.

Uncompromising Commitment to Safety and ESG Leadership

Cenovus’s and Husky’s commitments to world-class safety performance and environmental, social and governance (ESG) leadership will remain core to the combined company. This will include ambitious ESG targets, robust management systems and transparent performance reporting. The combined company will continue working to earn a position as a global energy supplier of choice by advancing clean technology and reducing emissions intensity. This includes maintaining the ambition established by each company of achieving net zero emissions by 2050. The combined company will also make it a priority to continue building upon the strong local community relationships already established by both Cenovus and Husky, with a focus on Indigenous economic reconciliation. Striking the right balance among environmental, economic and social considerations will continue to be central to the combined company’s strategy of creating long-term value and business resilience.

The targets that each of Cenovus and Husky released earlier this year for key ESG focus areas are the products of robust processes to ensure alignment with the companies’ business plans and strategies. Leading safety practices, strong governance and advancing diversity and inclusion will remain central to the combined company’s ESG commitments.

Consideration of Alternatives

The Cenovus Board carefully considered current industry, economic and market conditions and outlooks, including prevailing commodity prices and their expectations of the future prospects of the businesses in which Cenovus and Husky operate, as well as the impact of the Arrangement on affected stakeholders. In light of the risks and potential benefits associated with Cenovus continuing to execute its business and strategic plan as a standalone entity, as opposed to the Arrangement or other potential transactions which may offer increased stakeholder value, the Cenovus Board determined that the combined company will be better positioned to pursue a value maximizing strategy as a result of the anticipated benefits of the Arrangement.

Strong Leadership Team

Management responsibilities within the combined company will be allocated among a proven management team reflecting the strengths of both organizations, with a track record of strong safety performance, operational excellence and cost and capital discipline, along with upstream, downstream and midstream expertise. Following completion of the Arrangement, Alex J. Pourbaix, the current President & Chief Executive Officer of Cenovus, will serve as President & Chief Executive Officer of the combined company. Further, Jeffrey R. Hart, the current Chief Financial Officer of Husky, will serve as Executive Vice-President & Chief Financial Officer of the combined company, and Jonathan M. McKenzie, the current Executive Vice-President & Chief Financial Officer of Cenovus, will serve as Executive Vice-President & Chief Operating Officer of the combined company. Keith A. MacPhail, the current Chair of the Cenovus Board, will serve as Independent Board Chair of the combined company. The remainder of senior management will be selected from each of Cenovus and Husky and named prior to the completion of the Arrangement.

Cenovus Fairness Opinions

The Cenovus Board considered the RBC Fairness Opinion to the effect that, as of October 24, 2020, and based upon and subject to the assumptions, limitations and qualifications set forth therein, the Consideration to be paid by Cenovus was fair, from a financial point of view, to Cenovus, taking into account the independence of RBC Capital Markets and the compensation payable to RBC Capital Markets upon completion of the Arrangement. The Cenovus Board considered the TD Fairness Opinion to the effect that, as of October 24, 2020, and based upon and subject to the assumptions, limitations and qualifications set forth therein, the Consideration to be paid by Cenovus was fair, from a financial point of view, to Cenovus, taking into account the independence of TD Securities and the compensation payable to TD Securities upon completion of the Arrangement.

Significant Husky Shareholder Support

The Arrangement is supported by Hutchison Whampoa Europe Investments S.à r.l. and L.F. Investments S.à r.l., the Supporting Husky Shareholders, which hold approximately 40.19% and 29.32%, respectively, of the issued and outstanding Husky Common Shares. Each



 

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Supporting Husky Shareholder has entered into a separate hard lock-up agreement with Cenovus, pursuant to which such Supporting Husky Shareholder has irrevocably agreed to vote in favour of the Arrangement at the Husky Meeting, except in limited circumstances. See “Effect of the Arrangement – Support Agreements”.

Tax Considerations

The Arrangement will not result in a taxable event for Cenovus Common Shareholders.

Termination Protections

The appropriateness of Cenovus’s ability to terminate the Arrangement Agreement and receive the Cenovus Termination Amount payable from Husky to Cenovus, as consideration for the disposition by Cenovus of its rights under the Arrangement Agreement, in certain circumstances, including in the event that: (a) the Husky Board fails to unanimously recommend that Husky Shareholders and Husky Optionholders vote in favour of the Arrangement and the Arrangement Agreement is terminated by Cenovus; (b) Husky accepts a Superior Proposal; or (c) the Arrangement Agreement is terminated because the Husky Common Shareholders and Husky Optionholders do not approve the Arrangement Resolution where prior to such termination an Acquisition Proposal (or an intention to make an Acquisition Proposal) for Husky has been announced, proposed, disclosed, offered or made and, within 12 months following the date of such termination, the Husky Board recommends an Acquisition Proposal, the Husky Board enters into a definitive agreement in respect of any Acquisition proposal, or Husky consummates any transaction in respect of an Acquisition Proposal.

The information and factors described above and considered by the Cenovus Board in reaching its determinations and making its approvals are not intended to be exhaustive but include material factors considered by the Cenovus Board. In view of the wide variety of factors considered in connection with its evaluation of the Arrangement and the complexity of these matters, the Cenovus Board did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In addition, individual members of the Cenovus Board may have given different weight to different factors.

See “The Arrangement – Reasons for the Arrangement – Cenovus Board” and “The Arrangement – Recommendation of the Cenovus Board”.

Attributes of the Combined Company

Husky and Cenovus anticipate the combination will create a resilient integrated energy leader with a total enterprise value of approximately $23.6 billion (calculated as at the date of the announcement of the Arrangement) with a cost-and-market-advantaged asset portfolio, which can prioritize free funds flow generation, balance sheet strength and returns to shareholders.

The combined company is expected to sustain production levels of approximately 750,000 boe/d. The anticipated annual sustaining capital requirements to support the combined company’s upstream production and downstream operations is approximately $2.4 billion, a reduction of more than $600 million per year compared to the two companies on a standalone basis. Furthermore, the combined company’s expanded portfolio is expected to enable more efficient, returns-focused capital allocation. With an estimated proved plus probable reserves life index of approximately 33 years, consisting mostly of low-cost reserves, the combination is expected to result in reduced re-investment risk to sustain production at current levels.

The Combined Company will be an Industry-Leading Integrated Canadian Energy Company

The combined company will be the third largest Canadian-based oil and natural gas producer, with approximately 750,000 boe/d of low-cost oil and natural gas production, and is expected to generate an estimated $1.2 billion of incremental annual free funds flow. The combined company will benefit from an integrated business model and will be the second largest Canadian-based refiner and upgrader, with total North American upgrading and refining capacity of approximately 660,000 bbls/d, which includes approximately 350,000 bbls/d of heavy oil conversion capacity. The combined company will have approximately 265,000 bbls/d of current takeaway capacity out of Alberta on existing major pipelines and approximately 305,000 bbls/d of committed capacity on planned pipelines. In addition, it will have approximately 16 million barrels of crude oil storage capacity and crude-by-rail assets providing approximately 120,000 bbls/d takeaway optionality.

The Combined Company will have an Enhanced Free Funds Flow and Earnings Profile

Further improving cost structure, Husky’s and Cenovus’s complementary operations provide the opportunity to unlock an estimated $1.2 billion of annual free funds flow, including approximately $600 million in annual corporate and operating synergies and approximately $600 million in annual sustaining capital allocation synergies, which are achievable independent of commodity prices.

These synergies are the product of Cenovus’s and Husky’s rigorous and disciplined evaluation process to identify the specific efficiencies that can be gained.



 

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The vast majority of the annual savings are expected to be achieved in the first year of combined operations, with the full amount of the annual run rate synergies anticipated within year two. Over the longer term, Cenovus and Husky anticipate additional cost savings and margin enhancements based on opportunities for further physical integration of the upstream and downstream heavy oil assets, including through strategically located upstream assets with integration to the upgrading complex at Lloydminster, Saskatchewan, large U.S. refining assets in PADD 2 and PADD 3, and storage and blending operations at Hardisty, Alberta. The integration of Cenovus’s upstream assets with Husky’s downstream and midstream portfolio is expected to also shorten the value chain and reduce condensate costs associated with heavy oil transportation over the longer term. These longer term anticipated synergies are not included in the estimated $1.2 billion annual synergies anticipated in the first two years of combined operations.

The Combined Company will have a Strong Balance Sheet and Lower Financial Risk

The combined company is anticipated to have the ability to sustain its operations with less capital expenditures and lower risk than either Husky or Cenovus could individually. The combined company’s sustaining capital requirement is expected to be reduced by approximately $600 million from the approximately $3.0 billion per year combined the companies anticipated investing as standalone entities to approximately $2.4 billion per year to sustain production levels and downstream capacity at current levels.

The combined company is expected to be free funds flow breakeven in 2021 at WTI prices of approximately US$36.00/bbl, and expects to reduce free funds flow breakeven to less than WTI US$33.00/bbl by 2023, which is lower than either company on a standalone basis.

The combined company’s priority will be to maximize free funds flow by focusing investments on sustaining capital expenditures. Based on the assumptions contained in this Information Circular, free funds flow generation will position the combined company to achieve a Net Debt to Adjusted EBITDA target of less than 2.0 times by 2022, without the need for asset dispositions.

With the combined company’s low free funds flow breakeven threshold, the combined company will offer an accelerated deleveraging capability relative to either company on a standalone basis.

The Combined Company will have a Low-Cost, Low-Decline Upstream Portfolio, which Allows it to Prioritize Free Funds Flow Generation, Balance Sheet Strength and Returns to Shareholders

The funds flow profile of the combined company is expected to support an investment grade credit profile, a lower cost of capital through the commodity price cycle, and an acceleration of reduction in leverage. The combined company’s capital priorities following completion of the Arrangement are expected to include:

 

  

maintaining safe and reliable operations;

 

  

paying a quarterly dividend, which, subject to the Cenovus Board’s approval, is anticipated to initially be set at $0.0175 per share following completion of the Arrangement;

 

  

maintaining balance sheet strength, with a targeted Net Debt to Adjusted EBITDA ratio of less than 2.0 times at low cycle commodity prices;

 

  

providing incremental return of capital to shareholders through share buybacks or sustainable increases in dividends; and

 

  

reinvesting in the business with a disciplined focus on full cycle earnings and returns.

In support of these capital priorities, in addition to expected cash on hand, the combined company is expected to have access to $8.5 billion in undrawn committed credit facilities and no bond maturities until 2022.

The Combined Company will Result in Integration for Greater Margin Capture, Improved Market Access and Reduced Volatility

Following completion of the Arrangement, the combined company will have an attractive combination of long-life and cash flow generating assets with future development potential. The combined company’s highly complementary integrated portfolio will be anchored by four free funds flow generating businesses:

 

  

Thermal Oil assets, with stable, low-decline and low-cost oil production;

 

  

an extensive Midstream and Downstream network, including the Lloydminster upgrading and refining hub and approximately 230,000 bbls/d of heavy processing capacity in PADD 2, allowing the combined company to capture the full value chain margin and providing marketing optionality;



 

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high netback Asia Pacific assets, generating approximately $1 billion in annual free funds flow through long-term gas supply contracts and low-cost production; and

 

  

attractive short-cycle development opportunities including Deep Basin oil and gas, liquids-rich Montney.

The combined company is anticipated to have strong cash flow from current crude oil, natural gas and NGLs production of approximately 750,000 boe/d (based on average daily production of Cenovus and Husky for the quarter ended September 30, 2020) and North American throughput refining capacity of approximately 650,000 bbls/d (based on the nameplate combined refining capacity of Cenovus and Husky for the quarter ended September 30, 2020). Additionally, the combined company’s integrated asset portfolio of downstream and midstream assets will, among other things, limit its exposure to WCS to WTI differentials, thereby reducing volatility and risk.

The Combined Company will be Committed to Safety and ESG Leadership

Cenovus’s and Husky’s commitments to world-class safety performance and environmental, social and governance (ESG) leadership will remain core to the combined company. This will include ambitious ESG targets, robust management systems and transparent performance reporting. The combined company will continue working to earn a position as a global energy supplier of choice by advancing clean technology and reducing emissions intensity. This includes maintaining the ambition established by each company of achieving net zero emissions by 2050. The combined company will also make it a priority to continue building upon the strong local community relationships already established by both Cenovus and Husky, with a focus on Indigenous economic reconciliation. Striking the right balance among environmental, economic and social considerations will continue to be central to the combined company’s strategy of creating long-term value and business resilience.

The targets that each of Cenovus and Husky released earlier this year for key ESG focus areas are the products of robust processes to ensure alignment with the companies’ business plans and strategies. The combined company will remain committed to pursuing ESG targets and will undertake a similarly thorough analysis within the context of the combined company’s business plan before setting meaningful targets for the combined portfolio. Once that work is complete in 2021 and approved by the combined company’s board of directors, the new targets and plans to achieve them will be disclosed. Leading safety practices, strong governance and advancing diversity and inclusion will remain central to the combined company’s ESG commitments.

See “The Arrangement – Attributes of the Combined Company” and “Pro Forma Information Concerning the Combined Company”.

Husky Fairness Opinions

Goldman Sachs and CIBC Capital Markets were each retained by Husky to provide financial advisory services in connection with a potential transaction involving Cenovus. In connection with its mandate, Goldman Sachs has provided the Husky Board with the Goldman Sachs Fairness Opinion, that, as of October 24, 2020, and, based upon and subject to the assumptions, qualifications and limitations set forth therein, the Consideration to be paid to the Husky Common Shareholders pursuant to the Arrangement was fair, from a financial point of view, to the Husky Common Shareholders. Further, CIBC Capital Markets has provided the Husky Board with: (a) the CIBC Common Shareholder Fairness Opinion to the effect that, as of October 23, 2020 and subject to the assumptions, qualifications and limitations set forth therein, in the opinion of CIBC Capital Markets, the Consideration to be received by the Husky Common Shareholders pursuant to the Arrangement is fair, from a financial point of view, to the Husky Common Shareholders; and (b) the CIBC Preferred Shareholder Fairness Opinion to the effect that, as of October 23, 2020 and subject to the assumptions, limitations and qualifications set forth therein, in the opinion of CIBC Capital Markets, the consideration to be received by Husky Preferred Shareholders pursuant to the Arrangement is fair, from a financial point of view, to the Husky Preferred Shareholders.

The full text of the Goldman Sachs Fairness Opinion, which sets forth, among other things, assumptions made, procedures followed, information reviewed, matters considered and limitations on the scope of the review undertaken in rendering such fairness opinion, is attached as Appendix G. The full texts of the CIBC Common Shareholder Fairness Opinion and the CIBC Preferred Shareholder Fairness Opinion are attached as Appendices H and I, respectively. The Husky Fairness Opinions address only the fairness, from a financial point of view, as of October 24, 2020 (in the case of the Goldman Sachs Fairness Opinion) and as of October 23, 2020 (in the case of the CIBC Common Shareholder Fairness Opinion and the CIBC Preferred Shareholder Fairness Opinion), of the consideration to be received by the Husky Shareholders pursuant to the Arrangement and do not address any other aspect of the Arrangement or any related transaction, including any legal, tax or regulatory aspects of the Arrangement to Husky or the Husky Shareholders. Goldman Sachs and CIBC Capital Markets provided the applicable Husky Fairness Opinions to the Husky Board for its exclusive use only in considering the Arrangement. The Husky Fairness Opinions may not be relied upon by any other Person. The Husky Fairness Opinions do not address the relative merits of the Arrangement as compared to other business strategies or transactions that might be available to Husky or Husky’s underlying business decision to effect the Arrangement. The Husky Fairness Opinions do not constitute a recommendation to any Husky Shareholder as to how such Husky Shareholder should act or vote with respect to the Arrangement or any other matter.



 

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This summary of the Husky Fairness Opinions is qualified in its entirety by the full text of such opinions.

See “The Arrangement – Husky Fairness Opinions”. For the full texts of the Husky Fairness Opinions, see Appendix G – “Goldman Sachs Fairness Opinion”, Appendix H – “CIBC Common Shareholder Fairness Opinion” and Appendix I – “CIBC Preferred Shareholder Fairness Opinion”.

Cenovus Fairness Opinions

RBC Capital Markets and TD Securities were each retained by Cenovus to provide financial advisory services in connection with a potential transaction involving Husky. In connection with its mandate, RBC Capital Markets provided the RBC Fairness Opinion that, as of October 24, 2020, and, subject to certain assumptions, qualifications and limitations, in the opinion of RBC Capital Markets, the Consideration to be paid by Cenovus pursuant to the Arrangement is fair, from a financial point of view, to Cenovus. Further, TD Securities provided the TD Fairness Opinion that, as of October 24, 2020, and, subject to certain assumptions, qualifications and limitations, in the opinion of TD Securities, the Consideration to be paid by Cenovus pursuant to the Arrangement is fair, from a financial point of view, to Cenovus.

The full texts of the RBC Fairness Opinion and the TD Fairness Opinion which set forth, among other things, assumptions made, information reviewed, matters considered and limitations on the scope of the review undertaken in rendering such Cenovus Fairness Opinions, are attached as Appendices J and K, respectively. The Cenovus Fairness Opinions address only the fairness, from a financial point of view, as of October 24, 2020, of the Consideration to be paid by Cenovus pursuant to the Arrangement and do not address any other aspect of the Arrangement or any related transaction, including any legal, tax or regulatory aspects of the Arrangement to Cenovus or the Cenovus Common Shareholders. RBC Capital Markets and TD Securities provided the Cenovus Fairness Opinions to the Cenovus Board for its exclusive use only in considering the Arrangement. The Cenovus Fairness Opinions may not be relied upon by any other Person. The Cenovus Fairness Opinions do not address the relative merits of the Arrangement as compared to other business strategies or transactions that might be available to Cenovus or Cenovus’s underlying business decision to effect the Arrangement. The Cenovus Fairness Opinions do not constitute a recommendation to any Cenovus Common Shareholder as to how such Cenovus Common Shareholder should act or vote with respect to the Share Issuance Resolution.

Cenovus Common Shareholders are urged to read the Cenovus Fairness Opinions carefully and in their entirety. This summary of the Cenovus Fairness Opinions is qualified in its entirety by the full text of such opinions.

See “The Arrangement – Cenovus Fairness Opinion”. For the full texts of the Cenovus Fairness Opinions, see Appendix J – “RBC Fairness Opinion” and Appendix K – “TD Fairness Opinion”.

Recommendation of the Husky Board

After considering, among other things, the Husky Fairness Opinions, the Husky Board unanimously: (a) determined that the Arrangement and the entry into the Arrangement Agreement are in the best interests of Husky and that the Arrangement is fair to the Husky Common Shareholders and the Husky Preferred Shareholders; and (b) recommends that the Husky Common Shareholders and the Husky Optionholders vote in favour of the Arrangement Resolution and that the Husky Preferred Shareholders vote in favour of the Preferred Shareholder Resolution.

See “The Arrangement – Recommendation of the Husky Board”.

Recommendation of the Cenovus Board

After considering, among other things, the Cenovus Fairness Opinions, the Cenovus Board unanimously: (a) determined that the Arrangement and the entry into the Arrangement Agreement are in the best interests of Cenovus and that the consideration to be paid by Cenovus pursuant to the Arrangement is fair, from a financial point of view, to Cenovus; and (b) recommends that the Cenovus Common Shareholders vote in favour of the Share Issuance Resolution.

See “The Arrangement – Recommendation of the Cenovus Board”.

Support Agreements

On October 24, 2020, each Supporting Husky Shareholder entered into a separate hard lock-up agreement with Cenovus pursuant to which such Supporting Husky Shareholder has agreed, among other things, to vote, or cause to be voted, all of the Husky Common Shares beneficially owned, controlled or directed or subsequently acquired by such Supporting Husky Shareholder for and in favour of the Arrangement Resolution and against any resolution, transaction or other action that is inconsistent with, or could reasonably be likely



 

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to, impede, interfere with, delay, postpone, or adversely affect in any material respect the Arrangement or any of the other matters and transactions contemplated by the Arrangement Agreement. The Support Agreements are only terminable in limited circumstances.

See “Effect of the Arrangement – Support Agreements”.

Standstill Agreements

On October 24, 2020, each Supporting Husky Shareholder entered into a separate Standstill Agreement with Cenovus, with effect as of the Effective Date. Each Standstill Agreement sets forth certain restrictions and obligations in connection with such Supporting Husky Shareholder’s shareholdings in Cenovus following completion of the transactions contemplated by the Arrangement Agreement, including but not limited to the following:

 

  

subject to certain exceptions, without the prior written consent of Cenovus, such Supporting Husky Shareholder agrees that it will not acquire, agree to acquire or make any proposal or offer to acquire voting or equity securities of Cenovus or any of its subsidiaries (other than Cenovus Warrants), securities convertible into, or exercisable or exchangeable for, voting or equity securities of Cenovus or any of its subsidiaries (other than Cenovus Warrants) or any assets of Cenovus or any of its subsidiaries;

 

  

for a period of 18 months following the Effective Date, such Supporting Husky Shareholder will not Transfer or cause the Transfer of any Cenovus Common Shares, except as otherwise permitted by the Standstill Agreement;

 

  

without the prior written consent of Cenovus, such Supporting Husky Shareholder will not Transfer or cause the Transfer of, either alone or in the aggregate with its affiliates, any other Supporting Husky Shareholder or its affiliates, any Cenovus Common Shares or Cenovus Warrants to any Person, if such Transfer would, to the knowledge of the Supporting Husky Shareholder, result in such Person, together with any Persons acting jointly or in concert with such Person, beneficially owning, or controlling or directing, 20% or more of the then-outstanding Cenovus Common Shares, except (a) Transfers effected through an underwritten public offering (including an underwritten public offering undertaken pursuant to the applicable Registration Rights Agreement); (b) Transfers effected as a result of the consummation of a Combination Transaction which has been approved by a resolution of the Cenovus Common Shareholders, or made to an offeror in relation to a take-over bid as set out in the Standstill Agreement; or (c) Transfers to an affiliate as permitted by the Standstill Agreement; and

 

  

the Supporting Husky Shareholders are subject to voting restrictions with respect to Cenovus Board matters and Combination Transactions.

Unless earlier terminated in accordance with their terms, the Standstill Agreements will terminate on the date that is 60 months following the Effective Date.

See “Effect of the Arrangement – Standstill Agreements”.

Pre-Emptive Rights Agreement

Pursuant to the Arrangement Agreement, Cenovus has agreed that, if requested in writing on or prior to the Effective Date by a beneficial holder of more than 5% of the outstanding Cenovus Common Shares immediately after the consummation of the Arrangement that was not party to a registration rights agreement or similar agreement that was in full force and effect as at the Agreement Date, Cenovus will cause to be executed and delivered a Pre-Emptive Rights Agreement.

The Pre-Emptive Rights Agreement will, upon its execution and delivery, entitle a beneficial holder holding more than 5% of the outstanding Cenovus Common Shares immediately after the consummation of the Arrangement who is party to a Pre-Emptive Rights Agreement to, upon the proposed issuance or sale by Cenovus of Cenovus Common Shares or other convertible securities of Cenovus, purchase such number of additional Cenovus Common Shares or other convertible securities of Cenovus on the same terms and conditions that such securities are being issued or sold by Cenovus, including at the same price per security and otherwise be on economic terms and conditions no less favourable, individually or in the aggregate, to the Pre-Emptive Rights Holder than the terms and conditions are to any purchaser in such offering, in order to allow the Pre-Emptive Rights Holder to maintain its pro rata share of the then-outstanding Cenovus Common Shares that such Pre-Emptive Rights Holder holds at the applicable time.

These rights are available to each Pre-Emptive Rights Holder for a term beginning on the Effective Date and ceasing on the earlier of the date which is 60 months following the Effective Date, the date the holder ceases to, directly or indirectly, beneficially own in aggregate more than 5% of the then-outstanding Cenovus Common Shares, or the date on which the Pre-Emptive Rights Agreement is terminated by agreement of the parties, or the date on which the Standstill Agreements are terminated.

See “Effect of the Arrangement – Pre-Emptive Rights Agreement”.



 

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Registration Rights Agreement

Pursuant to the Arrangement Agreement, Cenovus has agreed that, if requested in writing on or prior to the Effective Date by a beneficial holder of more than 5% of the outstanding Cenovus Common Shares immediately after the consummation of the Arrangement that was not party to a registration rights agreement or similar agreement that was in full force and effect as at the Agreement Date, Cenovus will cause to be executed and delivered a Registration Rights Agreement.

The Registration Rights Agreement will, upon its execution and delivery, provide beneficial holders holding more than 5% of the outstanding Cenovus Common Shares immediately after the consummation of the Arrangement who are party to a Registration Rights Agreement with Demand Registration Rights and Piggy-Back Registration Rights, requiring Cenovus to qualify the distribution of Registrable Securities upon request of any such holder.

These rights are available to each such holder for a term beginning on the Effective Date and ceasing on the earlier of the date which is 60 months following the Effective Date, the date the holder ceases to, directly or indirectly, beneficially own in aggregate more than 5% of the then-outstanding Cenovus Common Shares, or the date on which the Registration Rights Agreement is terminated by agreement of the parties, or the date on which the Standstill Agreements are terminated.

See “Effect of the Arrangement – Registration Rights Agreement”.

Procedure for the Arrangement to become Effective

Procedural Steps

The Arrangement is proposed to be carried out pursuant to section 193 of the ABCA. The following procedural steps must be taken in order for the Arrangement to become effective:

 

 (a)

the Arrangement Resolution must be approved by the Husky Common Shareholders at the Husky Meeting in the manner set forth in the Interim Order;

 

 (b)

the Share Issuance Resolution must be approved by the Cenovus Common Shareholders at the Cenovus Meeting;

 

 (c)

the Court must grant the Final Order approving the Arrangement;

 

 (d)

all conditions precedent to the Arrangement, as set forth in the Arrangement Agreement, including receipt of the Key Regulatory Approvals, must be satisfied or waived by the appropriate Party; and

 

 (e)

the Final Order, the Articles of Arrangement and related documents, in the form prescribed by the ABCA, must be filed with the Registrar.

There is no assurance that the conditions set out in the Arrangement Agreement will be satisfied or waived on a timely basis or at all.

Approval of the Preferred Shareholder Resolution is not required in order to complete the Arrangement. If the Husky Preferred Shareholders do not approve the Preferred Shareholder Resolution at the Husky Meeting (or if the Preferred Shareholder Resolution is approved and the Preferred Share Condition is not otherwise satisfied), and both the Share Issuance Resolution and the Arrangement Resolution are approved at their respective meetings, the Husky Preferred Shares will not be exchanged for Cenovus Preferred Shares pursuant to the Plan of Arrangement and will remain outstanding in a subsidiary of Cenovus following completion of the Arrangement and listed on the TSX.

Upon the conditions precedent set forth in the Arrangement Agreement being satisfied or waived, Husky intends to file a copy of the Final Order and the Articles of Arrangement with the Registrar under the ABCA, together with such other materials as may be required by the Registrar, in order to give effect to the Arrangement.

See “Procedure for the Arrangement to become Effective – Procedural Steps”.

Securityholder Approvals

Arrangement Resolution

Pursuant to the Interim Order, the Arrangement Resolution must, subject to further order of the Court, be approved by (i) not less than 6623% of the votes cast by Husky Common Shareholders present in person (virtually) or represented by proxy at the Husky Meeting and



 

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(ii) not less than 6623% of the votes cast by Husky Common Shareholders and Husky Optionholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class. If the Arrangement Resolution is not approved by the Husky Common Shareholders and the Husky Optionholders, the Arrangement cannot be completed.

It is the intention of the persons named in the enclosed form of proxy, if not expressly directed to the contrary in such form of proxy, to vote such proxy in favour of the Arrangement Resolution set forth in Appendix A to this Information Circular.

Notwithstanding the foregoing, the Arrangement Resolution proposed for consideration by the Husky Common Shareholders and Husky Optionholders authorizes the Husky Board, without further notice to or approval of Husky Common Shareholders or the Husky Optionholders, to the extent permitted by the Arrangement Agreement and the Interim Order, to amend the Arrangement Agreement or the Plan of Arrangement and to not proceed with the Arrangement. See Appendix A to this Information Circular for the full text of the Arrangement Resolution.

Preferred Shareholder Resolution

Pursuant to the Interim Order, the Preferred Shareholder Resolution must be approved by not less than 6623% of the votes cast by the Husky Preferred Shareholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class. It is not a condition to completion of the Arrangement that the Preferred Shareholder Resolution be approved. If the Preferred Shareholder Resolution is not approved by Husky Preferred Shareholders (or if the Preferred Shareholder Resolution is approved and the Preferred Share Condition is not otherwise satisfied), the Husky Preferred Shares will not be exchanged for Cenovus Preferred Shares pursuant to the Plan of Arrangement and will remain outstanding in a subsidiary of Cenovus following completion of the Arrangement and listed on the TSX.

It is the intention of the persons named in the enclosed form of proxy, if not expressly directed to the contrary in such form of proxy, to vote such proxy in favour of the Preferred Shareholder Resolution set forth in Appendix B to this Information Circular.

Notwithstanding the foregoing, the Preferred Shareholder Resolution proposed for consideration by the Husky Preferred Shareholders authorizes the Husky Board, without further notice to or approval of Husky Preferred Shareholders, to the extent permitted by the Arrangement Agreement and the Interim Order, to amend the Arrangement Agreement or the Plan of Arrangement and to not proceed with the Arrangement. See Appendix B to this Information Circular for the full text of the Preferred Shareholder Resolution.

Share Issuance Resolution

In accordance with the applicable rules of the TSX, the Share Issuance Resolution must be approved by a simple majority of the votes cast by the Cenovus Common Shareholders present in person (virtually) or represented by proxy at the Cenovus Meeting. If the Share Issuance Resolution is not approved by Cenovus Common Shareholders, the Arrangement cannot be completed.

It is the intention of the persons named in the enclosed form of proxy, if not expressly directed to the contrary in such form of proxy, to vote such proxy in favour of the Share Issuance Resolution set forth in Appendix C to this Information Circular.

Notwithstanding the foregoing, the Share Issuance Resolution proposed for consideration by the Cenovus Common Shareholders authorizes the Cenovus Board, without further notice to or approval of Cenovus Common Shareholders, to the extent permitted by the Arrangement Agreement or the Plan of Arrangement, to amend the Arrangement Agreement or the Plan of Arrangement and to not proceed with the Arrangement.

See “Procedure for the Arrangement to become Effective – Securityholder Approvals”.

Court Approval

On November 9, 2020, Husky obtained the Interim Order providing for the calling and holding of the Husky Meeting and other procedural matters. The Interim Order is attached as Appendix F to this Information Circular. The ABCA provides that the Arrangement requires final Court approval. Subject to the terms of the Arrangement Agreement, if the Arrangement Resolution is approved at the Husky Meeting and the Share Issuance Resolution is approved at the Cenovus Meeting, Husky will make an application to the Court for the Final Order at the Calgary Courts Centre, 601 – 5th Street, S.W., Calgary, Alberta, Canada, or via video conference if necessary, on December 16, 2020 at 3:00 p.m. (Calgary time) or as soon thereafter as counsel may be heard. The Notice of Application for the Final Order accompanies this Information Circular. At the application the Court will be requested to consider the fairness of the Arrangement.

Any Husky Shareholder, or other interested party desiring to support or oppose the Application with respect to the Arrangement, may appear at the hearing in person (virtually) or by counsel for that purpose, subject to filing with the Court and serving on Husky on or before 5:00 p.m. (Calgary time) on December 8, 2020, a notice of intention to appear setting out their address for service and indicating whether they intend to support or oppose the Application or make submissions, together with any evidence or materials which are to be



 

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presented to the Court. Service of such notice on Husky is required to be effected by service upon the solicitors for Husky: Osler, Hoskin & Harcourt LLP, Suite 2500, TC Energy Tower, 450 – 1st Street S.W., Calgary, Alberta, T2P 5H1, Attention: Tristram Mallett.

See “Procedure for the Arrangement to become Effective – Court Approval”.

Regulatory Approvals

The Arrangement Agreement provides that receipt of all Key Regulatory Approvals, including Competition Act Approval, the HSR Approval, the CTA Approval and the Foreign Investment Clearance, is a condition precedent to the Arrangement becoming effective.

It is also a condition to the completion of the Arrangement that the TSX shall have conditionally approved and the NYSE shall have approved the listing of the Cenovus Common Shares and Cenovus Warrants to be issued to Husky Common Shareholders pursuant to the Arrangement and the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants, and that the TSX shall have conditionally approved the listing of the Cenovus Preferred Shares to be issued to Husky Preferred Shareholders pursuant to the Arrangement. The TSX has conditionally approved the listing of the Cenovus Common Shares and the Cenovus Warrants to be issued to Husky Common Shareholders pursuant to the Arrangement, the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants and Cenovus Replacement Options, and the Cenovus Preferred Shares to be issued to the Husky Preferred Shareholders pursuant to the Arrangement. Listing is subject to Cenovus fulfilling all of the listing requirements of the TSX. The NYSE has authorized the listing of the Cenovus Common Shares and the Cenovus Warrants to be issued pursuant to the Arrangement and the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants and Cenovus Replacement Options, subject to shareholder approval of the Arrangement and that the Cenovus Warrants will meet the distribution standards of the applicable rules of the NYSE upon listing. Listing will be subject to Cenovus fulfilling all of the listing requirements of the NYSE.

See “Procedure for the Arrangement to become Effective – Regulatory Approvals”.

Dissent Rights

Pursuant to the Interim Order, Dissenting Shareholders are entitled, in addition to any other right such Dissenting Shareholder may have, to dissent and to be paid by Cenovus the fair value of the Husky Common Shares or Husky Preferred Shares, as the case may be, held by such Dissenting Shareholder in respect of which such Dissenting Shareholder dissents, determined as of the close of business on the last Business Day before the day on which the Arrangement Resolution or Preferred Shareholder Resolution, as the case may be, from which such Dissenting Shareholder’s dissent was adopted and provided the Arrangement is completed in respect of such Husky Shareholders. A Dissenting Shareholder must provide a written objection to the Arrangement Resolution or Preferred Shareholder Resolution, as the case may be, by the fifth Business Day preceding the Husky Meeting.

A Dissenting Shareholder may dissent only with respect to all of the Husky Common Shares or Husky Preferred Shares, respectively, held by such Dissenting Shareholder, or on behalf of any one beneficial owner and registered in the Dissenting Shareholder’s name. Only registered Husky Shareholders may dissent. Persons who are beneficial owners of Husky Shares registered in the name of a broker, dealer, bank, trust company or other nominee (including CDS) who wish to dissent should be aware that they may only do so through the registered owner of such Husky Shares. A registered Husky Shareholder, such as a broker or CDS, who holds Husky Shares as nominee for beneficial holders, some of whom wish to dissent, must exercise the Dissent Right on behalf of such beneficial owners with respect to all of the Husky Common Shares or Husky Preferred Shares held for such beneficial owners. In such case, the written objection to the Arrangement Resolution or Preferred Shareholder Resolution, as the case may be, should set forth the number of Husky Common Shares and/or Husky Preferred Shares covered by it.

Unless otherwise waived, it is a condition to the completion of the Arrangement that holders of not more than 10% of the issued and outstanding Husky Common Shares shall have properly exercised Dissent Rights in respect of the Arrangement that have not been withdrawn as of the Effective Date. Further, unless otherwise determined by Cenovus in its sole discretion, if holders of more than 10% of the Husky Preferred Shares have validly exercised, and not withdrawn, Dissent Rights, the Husky Preferred Shares will not be exchanged for Cenovus Preferred Shares pursuant to the Plan of Arrangement and will remain outstanding in a subsidiary of Cenovus following completion of the Arrangement and listed on the TSX.

Notwithstanding the foregoing, registered Husky Preferred Shareholders who have validly exercised Dissent Rights shall not be entitled to dissent nor to be paid the fair value of their Husky Preferred Shares in the event that the Husky Preferred Shares are not exchanged for Cenovus Preferred Shares pursuant to the Arrangement.

See “Dissent Rights”.

Summary of Canadian Federal Income Tax Considerations

This Information Circular contains a summary of certain Canadian federal income tax considerations generally applicable to certain Husky Shareholders who, under the Arrangement, dispose of Husky Shares. See the discussion under the section entitled “Certain Canadian Federal Income Tax Considerations”.



 

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Husky Shareholders should consult their own tax advisors for advice with respect to the Canadian income tax consequences to them in respect of the Arrangement.

Summary of Certain United States Federal Income Tax Considerations

This Information Circular contains a summary of certain U.S. federal income tax considerations generally applicable to certain U.S. Holders that transfer one or more Husky Common Shares pursuant to the Arrangement. See the discussion under the section entitled “Certain United States Federal Income Tax Considerations”. U.S. Holders are urged to consult their own tax advisors regarding the specific tax consequences of the Arrangement to them.

Other Tax Considerations

This Information Circular discusses certain Canadian and United States federal income tax considerations applicable to certain Husky Shareholders. Tax consequences to Husky Shareholders who are resident in jurisdictions other than Canada or the United States are not discussed and such Husky Shareholders should consult their tax advisors with respect to the tax implications of the Arrangement, including any associated filing requirements, in such jurisdictions and with respect to the tax implications in such jurisdictions of owning Cenovus Shares and Cenovus Warrants after the Arrangement. All Husky Shareholders should consult their tax advisors regarding the provincial, state, local and territorial tax consequences of the Arrangement and of holding Cenovus Shares and Cenovus Warrants.

This Information Circular does not discuss any tax considerations applicable to Husky Optionholders or holders of other Husky Incentive Awards. Such persons should consult their own tax advisors regarding the consequences of the Arrangement to them in their particular circumstances.

Timing

If the Meetings are held as scheduled and are not adjourned or postponed and the necessary conditions for completion of the Arrangement are satisfied or waived, Husky will apply for the Final Order approving the Arrangement. If the Final Order is obtained on December 16, 2020 in form and substance satisfactory to Husky and Cenovus, the Effective Date will occur once all other conditions set forth in the Arrangement Agreement are satisfied or waived. Husky and Cenovus expect the Effective Date will occur in the first quarter of 2021. It is not possible, however, to state with certainty when, or if, the Effective Date will occur.

The Arrangement will become effective upon the filing with the Registrar of the Articles of Arrangement and a copy of the Final Order, together with such other materials as may be required by the Registrar.

The Effective Date could be delayed or may not occur for a number of reasons, including an objection before the Court at the hearing of the application for the Final Order or delays in receiving all Key Regulatory Approvals.

See “Timing”.

Selected Unaudited Pro Forma Financial and Operational Information for the Combined Company

The following is a summary of selected unaudited pro forma consolidated financial information of the combined company after giving effect to the completion of the Arrangement for the dates and periods indicated. The pro forma adjustments are based upon available information and certain assumptions that Cenovus believes are reasonable under the circumstances. The unaudited pro forma consolidated financial information set forth below and the unaudited pro forma consolidated financial statements of Cenovus attached to this Information Circular as Appendix L – “Unaudited Consolidated Pro Forma Financial Statements of the Combined Company” are presented for illustrative purposes only and are not necessarily indicative of either the financial position or the results of operations that would have occurred as at or for such dates or periods had the Arrangement been effective as of January 1, 2019 or September 30, 2020, as applicable, of the financial position or results of operations for the combined company in future years if the Arrangement is completed. The actual adjustments will differ from those reflected in such unaudited pro forma consolidated financial statements and such differences may be material.

The following is a summary only and must be read in conjunction with the unaudited pro forma consolidated financial statements of Cenovus for the year ended December 31, 2019 and the nine month period ended September 30, 2020, including the notes thereto, set forth in Appendix L to this Information Circular. Reference should also be made to: (a) the Husky Annual Financial Statements; (b) the Husky Interim Financial Statements; (c) the Cenovus Annual Financial Statements; and (d) the Cenovus Interim Financial Statements, each of which is incorporated by reference herein. See “Pro Forma Information Concerning the Combined Company” and Appendix L – “Unaudited Consolidated Pro Forma Financial Statements of the Combined Company”.



 

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($ millions)

      Pro Forma for the
Nine Months ended
September 30, 2020

($ millions)
       Pro Forma for the
Year Ended
December 31, 2019

($ millions)
 

Revenues

        

Gross Sales

     20,065      41,903 

Less Royalties

     349      1,495 
     19,716      40,408 

Expenses

        

Purchased Product

     9,569      19,390 

Transportation and Blending

     4,470      7,252 

Operating

     3,362      5,105 

Inventory Write-Downs

     956      64 

Production and Mineral Taxes

     -      1 

(Gain) Loss on Risk Management

     67      122 

Depreciation, Depletion and Amortization

     3,949      4,064 

Exploration Expense

     102      274 

General and Administrative

     673      1,059 

Onerous Contract Provisions

     -      (5

Finance Costs

     642      830 

Interest Income

     (26     (86

Foreign Exchange (Gain) Loss, Net

     271      (624

Remeasurement of Contingent Payment

     (97     164 

Research Costs

     8      20 

Transaction Costs

     -      100 

Share of Equity Investment Income

     1      (59

(Gain) Loss on Divestiture of Assets

     (17     (10

Other (Income) Loss, Net

     (150     (595

Earnings (Loss) Before Income Tax

     (4,064     3,342 

Income Tax Expense (Recovery)

     (727     (608

Net Earnings (Loss)

     (3,337     3,950 

The following is a summary of selected pro forma reserves and operational information for the combined company after giving effect to the completion of the Arrangement, for the dates and periods indicated. Important information concerning the oil and natural gas properties and operations of Cenovus and Husky is contained elsewhere in this Information Circular and in the Cenovus AIF and the Husky AIF, respectively, each of which is incorporated by reference herein. Readers are encouraged to carefully review such information and those documents as the information set forth in the table below is a summary only and is qualified in its entirety by the more detailed information contained elsewhere in this Information Circular and in those documents incorporated by reference in this Information Circular. See “Pro Forma Information Concerning the Combined Company” and “Advisory Regarding Oil and Gas Information”.



 

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      Pro Forma
Combined Company(1)
 

Average Daily Production(3)

    

(for the year ended December 31, 2019)

    

Bitumen and Heavy Crude Oil (bbls/d)

     513,257 

Light and Medium Oil (bbls/d)

     29,811 

NGLs (bbls/d)

     44,362 

Conventional Natural Gas (mmcf/d)

     925 

Total (boe/d)

     741,680 

Average Daily Production(3)

    

(for the nine months ended September 30, 2020)

    

Bitumen and Heavy Crude Oil (bbls/d)

     521,068 

Light and Medium Oil (bbls/d)

     32,585 

NGLs (bbls/d)

     41,901 

Conventional Natural Gas (mmcf/d)

     878 

Total (boe/d)

     741,264 

Total Proved Reserves(2)(3)

    

(as at December 31, 2019, forecast prices and costs)

    

Bitumen and Heavy Crude Oil (MMbbls)

     5,816 

Light and Medium Oil (MMbbls)

     112 

NGLs (MMbbls)

     139 

Conventional Natural Gas (Bcf)

     2,794 

Total (MMboe)

     6,534 

Total Proved Plus Probable Reserves(2)(3)

    

(as at December 31, 2019, forecast prices and costs)

    

Bitumen and Heavy Crude Oil (MMbbls)

     7,851 

Light and Medium Oil (MMbbls)

     212 

NGLs (MMbbls)

     226 

Conventional Natural Gas (Bcf)

     4,128 

Total (MMboe)

     8,976 

Notes:

 

(1)

The numbers in this column were calculated by adding the numbers in the columns for each of Cenovus and Husky. Boe estimates and tables may not sum due to rounding.

 

(2)

Pro forma reserves presented are based on the Cenovus Reserves Reports and the Husky Reserves Disclosure. With respect to the pro forma reserves information presented in the table above, Cenovus and Husky did not construct a consolidated reserves report of the combined assets of Cenovus and Husky, and did not engage an independent reserves evaluator to produce such a report in accordance with NI 51-101. Cenovus and Husky employ different methodologies to estimate their reserves information which differences include, but are not limited to, assumptions regarding forecast prices and costs. As a result, the actual reserves of the combined company, if calculated as of December 31, 2019, may differ from the reserves presented in the table above for a number of reasons, and such difference may be material.

 

(3)

Reserves volumes and production volumes are reported on a before-royalties basis.

Impact on Credit Ratings

In connection with its evaluation of the Arrangement, Cenovus considered potential impacts on its credit ratings and the anticipated credit ratings of Cenovus on a combined basis with Husky. Following announcement of the Arrangement on October 25, 2020, credit rating agencies took the following actions.



 

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On October 25, 2020, DBRS placed Cenovus’s Issuer Rating and Senior Unsecured Debt rating of “BBB (low)” under review with Positive Implications. DBRS expects that Cenovus’s credit ratings are likely to be one notch higher if the Arrangement is completed as contemplated.

On October 25, 2020, S&P affirmed its “BBB-” long-term issuer credit and senior unsecured debt ratings on Cenovus. S&P’s outlook remains negative pending completion of the Arrangement.

On October 26, 2020, Moody’s placed the ratings of Cenovus on review for upgrade. Should the Arrangement close in line with the expected conditions and structure, Moody’s expects it is likely that the combined company’s senior unsecured debt would be assigned a “Baa3” rating with a “Negative” outlook.

On October 26, 2020, Fitch affirmed Cenovus’s “BB+” credit ratings and revised its Rating Outlook to “Positive” from “Negative”.

See Appendix N – “Information Concerning Cenovus Energy Inc.”.

Risk Factors

Husky Shareholders voting in favour of the Arrangement Resolution and Cenovus Common Shareholders voting in favour of the Share Issuance Resolution, as the case may be, will be choosing to combine the businesses of Husky and Cenovus and, in the case of Husky Shareholders, to invest in Cenovus Shares, as applicable. The completion of the Arrangement and investment in Cenovus Shares involves risks.

An investment in Cenovus Shares is subject to certain risks, which are generally associated with an investment in shares of an integrated energy company. The following is a list of certain additional risk factors associated with the Arrangement and the investment in Cenovus Shares which Husky Shareholders and Cenovus Common Shareholders should carefully consider before approving the Arrangement Resolution, the Preferred Shareholder Resolution and the Share Issuance Resolution, as applicable:

 

  

the conditions precedent to completion of the Arrangement, including receipt of all Key Regulatory Approvals, Court approval, and TSX and NYSE approval may not be satisfied or waived by the Outside Date, which may result in the Arrangement not being completed;

 

  

Cenovus and Husky may fail to realize the anticipated benefits of the Arrangement;

 

  

risks related to the integration of Husky’s and Cenovus’s existing businesses, including that Shareholders may be exposed to additional business risks not previously applicable to their investment, as the business mix of the combined company will be different than that of Husky and Cenovus;

 

  

risks related to Husky’s international operations, including that the combined company may be exposed to uncertain political, economic and other risks that may affect the combined company’s business and result of operations as currently contemplated;

 

  

the market price of the Husky Common Shares and/or the Cenovus Common Shares may be subject to material fluctuations if the Arrangement Agreement is delayed or is not completed;

 

  

the Arrangement Agreement could be terminated by either Party under certain circumstances;

 

  

Husky and Cenovus will incur significant costs relating to the Arrangement, regardless of whether the Arrangement is completed or not completed;

 

  

if the Arrangement is not completed, Husky Shareholders and Cenovus Common Shareholders will not realize the benefits of the Arrangement and Husky’s and Cenovus’s future business and operations could be adversely affected;

 

  

Husky and Cenovus are restricted from taking certain actions while the Arrangement is pending;

 

  

the Consideration to be received by the Husky Common Shareholders is fixed and will not be adjusted in the event of any change in either Husky’s or Cenovus’s respective share prices;

 

  

a substantial delay in obtaining satisfactory approvals or the imposition of unfavourable terms or conditions in the regulatory approvals could adversely affect the business, financial condition or results of operations of Cenovus, Husky or the combined company upon completion of the Arrangement;



 

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if the Preferred Share Condition is not met, it is possible that the market price of the Husky Preferred Shares could be adversely affected;

 

  

Husky Shareholders have the right to exercise Dissent Rights and, if there are a significant number of Dissenting Shareholders, a substantial cash payment may be required to be made to such Husky Shareholders that could have an adverse effect on Cenovus’s financial condition and cash resources if the Arrangement is completed;

 

  

there may be undisclosed liabilities that Cenovus or Husky failed to discover or was unable to quantify in its respective due diligence of the Other Party;

 

  

Cenovus Common Shareholders will experience dilution;

 

  

there is no assurance that listing of the Cenovus Common Shares and Cenovus Warrants issuable pursuant to and in connection with the Arrangement on the TSX and the NYSE, respectively, and Cenovus Preferred Shares issuable pursuant to the Arrangement on the TSX will occur in a timely manner or at all;

 

  

holders of Cenovus Warrants will have no rights with respect to Cenovus Common Shares until they exercise the Cenovus Warrants and, upon that exercise, other holders of Cenovus Common Shares could suffer substantial dilution;

 

  

the pro forma financial information provided may not be an accurate depiction of the financial condition or results of operations of the combined company, as it relies on a number of adjustments and assumptions that may not be accurate;

 

  

credit ratings of the combined company will be subject to ongoing evaluation and may be downgraded or there may be adverse conditions in the credit markets, which may impede the combined company’s access to the debt markets or raise its borrowing rates;

 

  

changes in income or other tax laws or actions taken by taxing authorities could have adverse implications on Cenovus, Husky or their respective securityholders;

 

  

risks relating to the income tax consequences of the Arrangement and the taxation of the combined company;

 

  

future dividends on Cenovus’s Common Shares may not be approved by the Cenovus Board;

 

  

Cenovus and Husky directors and officers, who were involved with negotiating the terms of the Arrangement Agreement, may have interests in the Arrangement that differ from those of Cenovus Common Shareholders and Husky Common Shareholders;

 

  

as a result of the Arrangement, Cenovus and Husky may become the targets of litigation or other legal claims including securities class actions or derivative lawsuits;

 

  

risks relating to the ongoing COVID-19 pandemic, including facility shutdowns, reduced cash flows and commodity prices, storage constraints, workforce disruption and access to capital; and

 

  

the timing of the Meetings, the Final Order and the anticipated Effective Date may be changed or delayed.

The risk factors listed above are an abbreviated list of risk facts summarized elsewhere in this Information Circular, the Husky AIF, the Husky Annual MD&A, the Husky Interim MD&A, the Cenovus AIF, the Cenovus Annual MD&A and the Cenovus Interim MD&A, each of which are incorporated by reference herein. See “Risk Factors”. Husky Shareholders and Cenovus Common Shareholders should carefully consider all such risk factors.



 

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THE ARRANGEMENT

General

Husky and Cenovus entered into the Arrangement Agreement on October 24, 2020. A copy of the Arrangement Agreement is attached as Appendix D to this Information Circular. The Arrangement Agreement provides for the implementation of the Plan of Arrangement (a copy of which is attached as Appendix E to this Information Circular) pursuant to which, among other things, Cenovus will acquire all of the issued and outstanding Husky Common Shares and Husky Preferred Shares will be exchanged for Cenovus Preferred Shares.

Assuming satisfaction or waiver of all conditions to completion of the Arrangement, pursuant to the Arrangement, a portion of the Husky Common Shares held by each Husky Common Shareholder will be exchanged for Cenovus Common Shares and the remaining portion of Husky Common Shares will be exchanged for Cenovus Warrants, such that, in aggregate, each Husky Common Shareholder will receive 0.7845 of a Cenovus Common Share and 0.0651 of a Cenovus Warrant in respect of each Husky Common Share held. Each whole Cenovus Warrant issued under the Arrangement will entitle the holder thereof to acquire one Cenovus Common Share upon payment in full of the exercise price of $6.54 per Cenovus Common Share at any time up to 60 months following completion of the Arrangement. Pursuant to the Plan of Arrangement, all outstanding Husky Options will be exchanged for Cenovus Replacement Options. If the Arrangement is completed, Husky Optionholders will receive Cenovus Replacement Options to acquire such number of Cenovus Common Shares as is equal to that number of Husky Common Shares that were issuable upon exercise of a Husky Optionholder’s Husky Options immediately prior to the Effective Time, multiplied by 0.7845, with an exercise price per Cenovus Common Share equal to the exercise price per share of a Husky Option immediately prior to the Effective Time divided by 0.7845 and rounded up to the nearest whole cent.

Former Husky Common Shareholders are expected to own approximately 39% of the combined company immediately after completion of the Arrangement (or 41% on a partially-diluted basis assuming the exercise of all Cenovus Warrants issued pursuant to the Arrangement). Current Cenovus Common Shareholders are expected to own approximately 61% of the combined company immediately after completion of the Arrangement (or 59% on a partially-diluted basis assuming the exercise of all Cenovus Warrants issued pursuant to the Arrangement).

Additionally, if the Preferred Shareholder Resolution is approved at the Husky Meeting and the Preferred Share Condition is otherwise satisfied, the Husky Preferred Shareholders will exchange their Husky Preferred Shares for Cenovus Preferred Shares having substantially identical terms to each series of Husky Preferred Shares.

Following completion of the Arrangement, Alex J. Pourbaix, the current President & Chief Executive Officer of Cenovus, will serve as President & Chief Executive Officer of the combined company. Further, Jeffrey R. Hart, the current Chief Financial Officer of Husky, will serve as Executive Vice-President & Chief Financial Officer of the combined company, and Jonathan M. McKenzie, the current Executive Vice-President & Chief Financial Officer of Cenovus, will serve as Executive Vice-President & Chief Operating Officer of the combined company. Keith A. MacPhail, the current Chair of the Cenovus Board, will serve as Independent Board Chair of the combined company. The remainder of senior management will be selected from each of Cenovus and Husky and named prior to the completion of the Arrangement.

The board of directors of the combined company following completion of the Arrangement will consist of eight members of the current Cenovus Board, including Keith A. MacPhail (as Independent Board Chair) and Alex J. Pourbaix, with Keith M. Casey, Jane E. Kinney, Harold N. Kvisle, Richard J. Marcogliese, Claude Mongeau, and Rhonda I. Zygocki expected to continue as members of the combined company’s board of directors, and four members of the current Husky Board, with Canning K. N. Fok, Eva L. Kwok, Wayne E. Shaw and Frank J. Sixt being the members expected to join the combined company’s board of directors.

It is anticipated that, on completion of the Arrangement, the head and registered office of the combined company will continue to be Cenovus’s registered and head office, which is located at 4100, 225 – 6th Avenue S.W., Calgary, Alberta, Canada T2P 1N2.

Background to the Arrangement

The terms of the Arrangement are the result of arm’s length negotiations between representatives of Cenovus, the Supporting Husky Shareholders and Husky and their respective financial and legal advisors. The following is a summary of the events leading up to the negotiation of the Arrangement Agreement and the key meetings, negotiations, discussions and actions by and between the parties that preceded the execution and public announcement of the Arrangement Agreement.

Management of Cenovus and the Cenovus Board regularly evaluate Cenovus’s business plan and strategy and, in such context, review and discuss the strategic objectives, alternatives and opportunities available to Cenovus as part of their respective ongoing responsibility to enhance the value of Cenovus. In that regard, Cenovus has from time to time considered and assessed strategic transactions with various industry participants and other opportunities to better realize the potential of Cenovus’s asset portfolio, support and grow Cenovus’s overall position in the industry and enhance shareholder value.

Similarly, in the ordinary course of business, the Husky Board and executive management continually evaluate potential acquisitions of businesses, joint ventures, business combinations and other commercial transactions that may be available to support Husky’s corporate strategy and enhance shareholder value.

 

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In early March 2020, Robert J. Peabody, President & Chief Executive Officer of Husky, contacted Jonathan M. McKenzie, Executive Vice-President & Chief Financial Officer of Cenovus, and raised the possibility of a potential business combination of Cenovus and Husky. This discussion was preliminary in nature and specific details of any proposed transaction, such as the consideration or structure of a business combination, were not discussed. Thereafter, Mr. McKenzie engaged in discussions with a number of other members of Cenovus’s senior management regarding the possibility of a business combination between Husky and Cenovus, and Cenovus’s senior management determined that further engagement with Mr. Peabody and an analysis of the benefits of a potential transaction was warranted.

Mr. Peabody also informed his senior management team of his discussion with Mr. McKenzie and instructed them to begin a review of the operational and financial condition of Cenovus in order to assess the merits of a business combination. Mr. Peabody informed Frank J. Sixt, a director of Husky and representative of Hutchison Whampoa Europe Investments S.à r.l., a Supporting Husky Shareholder, of such discussions with Mr. McKenzie. Mr. Sixt was supportive of Husky’s management continuing a review of the industrial logic of a potential business combination with Cenovus.

Through March 2020, as preliminary discussions between Mr. Peabody and Mr. McKenzie continued, Cenovus senior management determined that it was appropriate to seek financial and legal advice. On March 17, 2020, Cenovus engaged its external legal advisor, Bennett Jones, in order to understand and identify potential legal matters involved in a transaction with Husky. Effective March 16, 2020, Cenovus engaged RBC Capital Markets and TD Securities to provide financial advisory services in connection with a potential transaction involving Husky. Similarly, Husky engaged Goldman Sachs and CIBC Capital Markets as financial advisors and Osler, Hoskin & Harcourt as external legal counsel to evaluate a business combination with Cenovus.

Preliminary due diligence investigations of each Party based on publicly available information commenced during this time. RBC Capital Markets and TD Securities prepared an analysis of Cenovus’s business plan under different scenarios, conducted a financial review of Husky and similarly situated market participants and provided a capital markets perspective on Cenovus, Husky and other market participants in order to assist Cenovus’s management and the Cenovus Board in connection with evaluating a potential transaction.

As internal discussions among Cenovus senior management progressed, the magnitude of potential perceived synergies between Cenovus and Husky became increasingly apparent. Accordingly, Mr. McKenzie engaged in another conversation with Mr. Peabody on March 22, 2020 to further discuss, on a preliminary basis, the industrial logic and potential benefits of a business combination between the two companies. Subsequent to that conversation, the Parties determined that they should begin negotiating a confidentiality agreement pursuant to which they would permit each other to access certain confidential information that would be relevant to each Party’s evaluation of a potential business combination.

On March 23, 2020, members of senior management of each of Cenovus and Husky met to further discuss the impacts that a potential business combination could have on each company, including the potential synergies that could be realized from such a transaction. During this meeting, Cenovus and Husky had preliminary discussions as to the financial and other parameters of a potential business combination of the two companies and to determine a high-level process to continue reviewing the industrial logic of a business combination.

Following this meeting, Cenovus management, together with its legal and financial advisors, discussed potential structuring alternatives, governance matters and other transaction parameters in connection with a business combination between Cenovus and Husky. Following such discussions, it was determined that Cenovus management would propose non-binding preliminary transaction parameters to Husky in order to further gauge Husky’s interest in a combination.

On March 26, 2020, Cenovus delivered to Husky a draft document setting out preliminary transaction parameters for Husky’s consideration, which included a proposed structure for the business combination and high-level thoughts on proposed governance matters relating to a combined company. Cenovus delivered this document on a preliminary basis in order to determine whether the parties’ interests were aligned on the type of business combination that had previously been discussed and no purchase price or exchange ratio was proposed.

On April 1, 2020, at a special meeting of the Cenovus Board held for the purposes of further evaluating and considering the impact of the COVID-19 pandemic on Cenovus’s business plans, capital spending budget and dividend, Mr. McKenzie provided an update to the Cenovus Board of his discussions with Mr. Peabody, discussions that had taken place between senior management of each of Cenovus and Husky, reviewed the potential for a business combination between the parties and provided senior management’s initial evaluations of such a combination. The Cenovus Board discussed general transaction principles with senior management, including in respect of governance matters, and the Cenovus Board held an in-camera session to review and consider the discussions that had taken place between the Parties to date. It was the consensus of the Cenovus Board that work on a potential combination with Husky should continue with the objective of determining whether there was strong enough mutual interest between the Parties to warrant a more comprehensive due diligence review and further negotiation of potential transaction terms, and directed that senior management of Cenovus should provide ongoing updates to the Cenovus Board when appropriate.

Husky management, together with Osler, Hoskin & Harcourt, Goldman Sachs and CIBC Capital Markets, reviewed the preliminary transaction parameters provided by Cenovus on March 26, 2020 and prepared a revised draft addressing the potential transaction structure and proposed governance, which was delivered to Cenovus on April 3, 2020.

On April 7, 2020, Mr. McKenzie and Mr. Peabody discussed the need to conclude negotiations of, and execute, a mutual confidentiality agreement in order for the parties to commence detailed due diligence investigations of the respective Parties and further explore the potential

 

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benefits and synergies that could result from a business combination, including by identifying any regulatory, legal or financial impediments to such a combination. Following such discussions, the Parties concluded negotiations of, and executed, a mutual confidentiality agreement on April 13, 2020 (the “Initial Confidentiality Agreement”). Following execution, each of Cenovus and Husky exchanged initial due diligence requests.

Throughout April, May and June, 2020, each of Cenovus’s and Husky’s management and their respective legal and financial advisors undertook comprehensive reciprocal due diligence investigations of the information that was made available by each of the Parties, which included a review of certain confidential non-public information of the other Party through virtual data rooms, in-person management presentations, written question and answer responses and discussions regarding a proposed business plan for a combined company. Several meetings were held in April and early May to discuss, among other things, the industrial logic of a potential combination of Cenovus and Husky, consider various transaction structures and further evaluate potential governance alternatives for a combined company. During this time, the Cenovus Board and senior management were provided with various memoranda from Bennett Jones outlining various transaction structures and alternatives, as well as the duties and responsibilities of the Cenovus Board in connection with evaluating any potential combination transaction.

During this time, representatives from Cenovus’s senior management team, RBC Capital Markets and TD Securities met regularly to discuss Cenovus’s current business prospects, financial outlook and growth prospects, as well as the financial analysis that the financial advisors were preparing in connection with Cenovus’s then existing business plan under various scenarios. Husky management and Mr. Sixt undertook a similar process with Goldman Sachs and CIBC Capital Markets.

On May 15, 2020, Mr. Alex J. Pourbaix, President & Chief Executive Officer of Cenovus, provided an update to the Cenovus Board of the discussions that had taken place with Mr. Peabody and Mr. Sixt since April and his view that the transaction continued to merit further exploration.

On May 31, 2020, Mr. Sixt delivered to Mr. McKenzie an email setting out certain thoughts as to the method of determination of an appropriate exchange ratio for the business combination and on governance arrangements in the event the transaction was to proceed to completion. Cenovus reviewed this communication with Bennett Jones, RBC Capital Markets and TD Securities and developed a response during the first week of June. This response was delivered on June 8, 2020 and described the foundational commercial and governance principles on which Cenovus believed a combination could be established should the Parties continue to evaluate a potential transaction.

Cenovus and its advisors completed their initial phase of due diligence on June 7, 2020 in advance of a meeting of the Cenovus Board scheduled for June 16, 2020. Prior to the commencement of such meeting of the Cenovus Board, on June 16, 2020, Mr. Sixt communicated to Mr. McKenzie that the evaluation of a transaction between Cenovus and Husky was no longer a priority for Husky and the belief that consideration of a business combination no longer merited further evaluation with any urgency. Notwithstanding this communication, the Cenovus Board met on June 16, 2020 and was provided an update from management on the status of discussions with Husky, the results of due diligence investigations and its evaluation of the merits of a potential combination with Husky. At this meeting, RBC Capital Markets and TD Securities provided their preliminary analysis of a potential combination with Husky as well as a discussion of potential alternatives, including continuing as a standalone entity, market conditions, performance of each of Husky and Cenovus relative to its peers, and the expected market impacts of a transaction between Husky and Cenovus. Such presentation included, among other things, a review of: (i) information concerning the business, operations, assets, financial condition, operating results and prospects of Cenovus and Husky; (ii) historical trading information; (iii) industry forecasts regarding the prices and price trends of oil, natural gas and NGLs; (iv) current and prospective industry, economic and market conditions and trends affecting the various entities; (v) the expected benefits of the various proposals for Cenovus and its stakeholders, including the benefits of not undertaking a transaction with Husky and remaining as a standalone entity; (vi) the risks associated with the completion and non-completion of the various scenarios; and (vii) other alternatives available to Cenovus that may be available that could enhance value for Cenovus’s stakeholders.

Management of Cenovus continued to consider the transaction and conduct its ongoing diligence investigations of Husky. Each Party continued to respond to diligence questions received from the other notwithstanding, since June 16, 2020, no material progress had been made on establishing the principal terms on which a combination of Husky and Cenovus could move forward.

On June 30, 2020, Mr. Pourbaix updated the Cenovus Board and advised them of the then-current status of discussions with Husky. On July 20, 2020, Mr. McKenzie informed Mr. Sixt by email that it was unlikely for Cenovus to be engaged in any material discussions in respect of a combination with Husky in the near term and that it remained focused on the execution of its own business plan. On July 21, 2020, Cenovus provided formal written notice to Husky that it had decided not to proceed with a transaction since, at such time: (i) there had been no agreement in respect of any material terms (indicative or otherwise) of a transaction; (ii) there remained significant outstanding diligence materials that were required for Cenovus’s review and other further examinations necessary in order to determine the viability of any transaction; and (iii) Cenovus did not anticipate dedicating any significant resources to the assessment of a potential transaction and, accordingly, the Parties ceased all discussions at such time. On July 22, 2020, at a regularly scheduled meeting of the Cenovus Board, Cenovus management provided an update indicating that all discussions in respect of a transaction between Cenovus and Husky had ceased.

On August 13, 2020, Mr. Sixt informed Mr. McKenzie and Mr. Pourbaix, of a desire to re-engage in discussions between Husky and Cenovus and continue the review of the industrial logic of a potential business combination. On August 14, 2020, Mr. Pourbaix updated the Cenovus Board with this information and the determination of Cenovus management that it would be willing to re-commence discussions with Husky.

 

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On August 14, 2020, members of senior management of both Parties held a conference call to discuss the renewed interest of the Supporting Husky Shareholders in discussing a business combination transaction and the need to develop plans to complete the necessary work to get to a position where both Parties could make a decision as to whether to proceed with a transaction. During the week of August 17, 2020, the Parties continued discussions on the development of work plans and exchanged due diligence requests.

On August 24, 2020, the Parties executed the Confidentiality Agreement and began preparing responses to due diligence request lists which outlined, from each Party’s perspective, the remaining priority and confirmatory due diligence to be completed in order to advance negotiations.

On August 25, 2020, Mr. McKenzie delivered to Mr. Sixt certain non-binding indicative terms for a proposed transaction, which included proposed terms as between Cenovus and Husky, as well as proposed terms as between Cenovus and each of the Supporting Husky Shareholders. Later that day, Mr. McKenzie and Mr. Sixt discussed the indicative terms proposed by Cenovus and Mr. Sixt stated that he would deliver a formal reply to the proposed indicative terms by the end of the week.

During the week of August 24, 2020, the Parties continued to progress work on a business plan for a combined entity and to identify synergies of a business combination and the potential synergies between Husky and Cenovus continued to be identified. As these discussions progressed, the magnitude of potential synergies between Husky and Cenovus became increasingly evident.

On August 27, 2020, Mr. Sixt delivered to Mr. McKenzie a written letter to explain the key priorities and objectives of each of the Supporting Husky Shareholders in completing a business combination with Cenovus and, on August 28, 2020 delivered to Mr. McKenzie, alternative indicative terms for a transaction.

In early September, the Parties engaged each of DBRS, Fitch, Moody’s and S&P to complete a ratings assessment or evaluation of the credit profile and expected credit rating of the combined company. Members from both Parties, including Mr. Pourbaix, Mr. McKenzie, Mr. Peabody and Jeffrey R. Hart, Husky’s Chief Financial Officer, met virtually with each of the rating agencies to overview the transaction rationale as well as the forecast operating and financial profile of the combined company. Additional information was shared with each of the agencies in follow up conversations and email correspondence through September and October to support the ratings determinations and announcements made by each of the respective agencies following announcement of the transaction.

During the month of September and through until October 14, 2020, the Parties continued with their respective due diligence reviews, in-person management presentations and consultations with their respective financial and legal advisors to further assess the operational and financial status of the other Party, and continued discussions on a possible transaction structure. Discussions also continued on the proposed indicative terms of a business combination, including the exchange ratio, consideration mix and post-closing pro forma ownership of Cenovus, governance related transaction terms, voting, transfer and other standstill restrictions applicable to each of the Supporting Husky Shareholders in respect of the Cenovus Common Shares each would receive under the transaction and the duration of those restrictions. On each of September 2, 28 and 30, 2020, Mr. Pourbaix provided an update to the Cenovus Board on the status of these discussions and material terms that were under consideration by the Parties at such time. Various non-binding draft term sheets were exchanged between and among Husky, each Supporting Husky Shareholder and Cenovus during this period and further discussions took place in respect of such proposals with each Party (and each of the Supporting Husky Shareholders) and their respective legal and financial advisors. On October 10, 2020, the Parties determined that their respective legal advisors should commence drafting and negotiation of definitive agreements. Cenovus and its financial advisors were thereafter provided Husky’s preliminary financial results for the three and nine months ended September 30, 2020 for the purposes of incorporating such results into the Cenovus Board’s and management’s evaluation of the proposed combination and for review and consideration by RBC Capital Markets and TD Securities in connection with the preparation of their respective fairness opinions. Similarly, Husky and its financial advisors were provided with Cenovus’s preliminary financial results for the three and nine months ended September 30, 2020.

On October 12, 2020, the Husky Board received, from Husky’s management and Osler, Hoskin & Harcourt, Goldman Sachs and CIBC Capital Markets, various written materials on the proposed business combination with Cenovus. Those materials included, among other things, (i) a transaction overview; (ii) information pertaining to the business, operations, assets, financial condition, operating results and prospects of Husky and Cenovus; (iii) industry forecasts regarding the price trends of oil and natural gas; (iv) current and prospective industry, economic and market conditions and trends; (v) the strategic rationale for the business combination; (vi) key financial and operational metrics; (vii) a summary of transaction synergies; (viii) financial and operational forecasts of each company and as a combined company; (ix) a summary of the proposed governance of the proposed combined company; (x) ESG considerations for the proposed combined company; and (xi) the risks and the mitigation of those risks of a business combination. Osler, Hoskin & Harcourt provided the Husky Board with a memorandum on their duties and responsibilities in the context of a potential merger transaction. Goldman Sachs and CIBC Capital Markets provided the Husky Board with a capital markets overview relative to the proposed transaction that included, among other things, information pertaining to (i) the relative trading of the two companies’ shares compared to peer companies; (ii) street research forecasts compared to management forecasts for each of Husky and Cenovus; (iii) the potential market, shareholder and other stakeholder implications of a transaction with Cenovus; (iv) market positioning of the combined company relative to industry peers; and (v) financial analysis of the Cenovus Warrants to be issued under the Arrangement.

On October 15, 2020, the Husky Board held information sessions with management and Husky’s financial and legal advisors during which management of Husky and Husky’s financial advisors presented and discussed in more detail the written information provided to the directors on October 12, 2020. Management also discussed the due diligence process that was conducted in respect of the financial and operational status of Cenovus and an indicative timeline for completion of the business combination. Goldman Sachs and CIBC Capital Markets presented the transaction financial and operational metrics in more detail and highlighted the proposed governance structure of the combined company and the voting and transfer restrictions agreed to by the Supporting Husky Shareholders. Osler, Hoskin & Harcourt advised the directors of their duties and responsibilities pertaining to their review of the proposed transaction.

 

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On October 15, 2020, the Cenovus Board met and was provided an update from management on the status of discussions with Husky, a transaction overview (including details and analysis of the proposed forms of consideration payable by Cenovus in connection with the transaction), the results of due diligence investigations and its evaluation of the merits of a potential combination with Husky. At this meeting, RBC Capital Markets and TD Securities provided an analysis of a potential combination with Husky as well as a discussion of potential alternatives, market conditions, recent merger transactions, performance of each of Husky and Cenovus relative to its peers, and the potential market, shareholder and other stakeholder implications of a transaction with Husky. Bennett Jones provided a summary of the foundational terms which had been established between the Parties, the Cenovus Board was advised of the expected regulatory approvals that would need to be obtained in connection with the proposed combination and the timeline for completing such a transaction, and Bennett Jones further advised the Cenovus Board with respect to its duties and responsibilities in the context of the potential transaction. The materials presented by management, Bennett Jones, RBC Capital Markets and TD Securities at this meeting also included, among other things, (i) information pertaining to the business, operations, assets, financial condition, operating results and prospects of Cenovus and Husky, including information relating to the preliminary financial results of each of Cenovus and Husky for the three and nine months ended September 30, 2020; (ii) industry forecasts regarding the price trends of oil, natural gas and NGLs; (iii) current and prospective industry, economic and market conditions and trends; (iv) the strategic rationale for the business combination; (v) key financial and operational metrics; (vi) a summary of transaction synergies; (vii) financial and operational forecasts of each company and as a combined company; (viii) a summary of the proposed governance of the proposed combined company; (ix) ESG considerations for the proposed combined company; (x) the potential market, shareholder and other stakeholder implications of a transaction with Husky; (xi) employment considerations; and (xii) the risks and the mitigation of those risks of a business combination. After due consideration of a number of strategic, financial, operational and other factors, including the ability of the Cenovus Board to consider and respond to Acquisition Proposals on the specific terms and conditions set forth in the Arrangement Agreement, and to accept a Superior Proposal in certain circumstances, the Cenovus Board provided guidance on several of the outstanding items for negotiation and directed management to continue to negotiate with Husky and develop definitive agreements to implement a combination transaction on the basis of the foundational terms which had been established.

From October 15 through to October 24, 2020, the Parties, in consultation with their respective legal and financial advisors, exchanged drafts of the definitive agreements necessary to implement the proposed transaction and continued to negotiate outstanding key terms in the Arrangement Agreement, the Support Agreements and the Standstill Agreements.

On October 23, 2020, the Husky Board met and received an update from management on the structure of the proposed business combination and management’s recommendation to proceed with the transaction. Goldman Sachs provided the Husky Board with its detailed financial analysis and advice to the Husky Board in respect of the proposed Arrangement and delivered their verbal opinion to the Husky Board, subsequently confirmed by delivery of a written opinion dated October 24, 2020, that, as of the date thereof and based upon and subject to the factors and assumptions set forth therein, the Consideration to be paid to the Husky Common Shareholders under the Arrangement was fair, from a financial point of view, to the Husky Common Shareholders. CIBC Capital Markets provided the Husky Board with its detailed financial analysis and advice to the Husky Board in respect of the proposed Arrangement and delivered their verbal opinions that, as of the date thereof and based upon and subject to various assumptions, qualifications and limitations, they were of the opinion that the consideration to be received by the Husky Shareholders under the Arrangement is fair, from a financial point of view, to the Husky Shareholders. The financial analysis provided by each of Goldman Sachs and CIBC Capital Markets included, among other things, information pertaining to (i) share price performance and trading liquidity of the shares of each of Husky and Cenovus; (ii) a comparison to peer company financial performance; (iii) commodity and foreign exchange pricing scenarios; (iv) a Husky standalone analysis; (v) an overview of the capital structure and liquidity of the proposed combined company; and (v) financial projections for the proposed combined company that were prepared by management of Husky and approved for the use of the financial advisors by Husky. In assessing the fairness opinions from each of Goldman Sachs and CIBC Capital Markets, the Husky Board considered and assessed the independence of each of Goldman Sachs and CIBC Capital Markets, taking into account that a substantial portion of the fees payable to each of them for their services is contingent upon completion of the Arrangement. Osler, Hoskin & Harcourt reviewed again for the Husky Board its fiduciary duties and responsibilities pertaining to their review of the proposed transaction, those stakeholders primarily impacted by the Arrangement and those matters that could be considered in their deliberations on approval of the transaction. Osler, Hoskin & Harcourt also provided a detailed review of the terms and conditions of the Arrangement Agreement. Following these discussions and after the Husky Board carefully evaluated the terms of the Arrangement Agreement, and considered, among other things, the Cenovus Termination Amount, the verbal fairness opinions of Goldman Sachs and CIBC Capital Markets, the impact of the proposed transaction on the various stakeholders of Husky and all of the materials presented to them, the Husky Board unanimously: (i) determined that the Arrangement and the entry into the Arrangement Agreement are in the best interests of Husky; (ii) determined that the consideration to be received by the Husky Shareholders pursuant to the Arrangement is fair to the Husky Shareholders; (iii) approved the Arrangement Agreement; (iv) recommended that Husky Common Shareholders and Husky Optionholders vote in favour of the Arrangement Resolution; and (v) recommended that Husky Preferred Shareholders vote in favour of the Preferred Shareholder Resolution.

On October 24, 2020, the Cenovus Board met with senior management, Bennett Jones, RBC Capital Markets and TD Securities to review and consider the specific transaction terms that had been negotiated, the merits to Cenovus of entering into such a transaction and the proposed final terms of the definitive transaction documents and the approval of the Arrangement. At this meeting, the Cenovus Board received the results of Cenovus’s final due diligence investigations, an update on the negotiations with Husky and senior management advised the Cenovus Board on the resolution of the final matters under negotiation. In addition, each of Bennett Jones, RBC Capital Markets and TD Securities updated the Cenovus Board with the material developments with respect to each of the matters discussed at the October 15, 2020 meeting of the Cenovus Board, including further considerations of the stakeholders that would be impacted by a transaction. Bennett Jones further reviewed for the Cenovus Board its fiduciary duties and responsibilities in connection with the Cenovus Board’s evaluation of the Arrangement and reviewed in detail the substantively finalized terms and conditions of each of the definitive transaction documents, including, without limitation, the Arrangement Agreement. Each of RBC Capital Markets and TD Securities provided the Cenovus Board with its detailed financial analysis and

 

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advice to the Cenovus Board in respect of the proposed Arrangement and delivered its verbal opinion that, as of the date thereof and based upon and subject to various assumptions, qualifications and limitations, it was of the opinion that the Consideration to be paid by Cenovus pursuant to the Arrangement was fair, from a financial point of view, to Cenovus. The Cenovus Board then reviewed the negotiation process with management and Bennett Jones and discussed the proposed final terms of definitive transaction documents, including, without limitation, the Arrangement Agreement, as well as the verbal fairness opinions delivered by RBC Capital Markets and TD Securities. In connection with its review of the fairness opinions delivered by RBC Capital Markets and TD Securities, the Cenovus Board considered whether there were any relationships or arrangements between the financial advisors and Cenovus that may be relevant to any perception of lack of independence and the compensation arrangement between the financial advisors and Cenovus taking into account that a substantial portion of the fees payable to each of them for their services is contingent upon completion of the Arrangement. Following these discussions and after receiving the advice and analysis provided by Bennett Jones, RBC Capital Markets and TD Securities, and after the Cenovus Board carefully evaluated the proposed final terms of definitive transaction documents, including, without limitation, the Arrangement Agreement, including the ability of the Cenovus Board to consider and respond to Acquisition Proposals on the specific terms and conditions set forth in the Arrangement Agreement, and to accept a Superior Proposal in certain circumstances, and considered, among other things, the Husky Termination Amount, the verbal fairness opinions of RBC Capital Markets and TD Securities, the impact of the proposed transaction on the various stakeholders of Cenovus and all of the materials presented to them, the Cenovus Board unanimously: (i) determined that the Arrangement and the entry into the Arrangement Agreement are in the best interests of Cenovus; (ii) determined that the consideration to be paid by Cenovus pursuant to the Arrangement is fair, from a financial point of view, to Cenovus; (iii) approved the Arrangement Agreement, the Support Agreements and the Standstill Agreements and the transactions contemplated thereby; and (iv) recommended that Cenovus Common Shareholders vote in favour of the Share Issuance Resolution.

On October 24, 2020, the Arrangement Agreement, the Support Agreements and the Standstill Agreements were executed and delivered. Thereafter, a joint news release of Husky and Cenovus announcing the proposed Arrangement was disseminated in the morning of October 25, 2020.

On November 4 and November 5, 2020, respectively, the Cenovus Board and the Husky Board each approved the contents and mailing of this Information Circular to Husky Common Shareholders, Husky Preferred Shareholders, Husky Optionholders and Cenovus Common Shareholders, and respectively ratified their recommendations to Husky Shareholders, Husky Optionholders and Cenovus Common Shareholders with respect to the Arrangement.

On November 9, 2020, the Court granted the Interim Order which is attached as Appendix F to this Information Circular.

Reasons for the Arrangement

Husky Board    

In determining that the Arrangement is in the best interests of Husky and that the Arrangement is fair to the Husky Shareholders, and in recommending to Husky Shareholders and Husky Optionholders that they approve the Arrangement, the Husky Board considered and relied upon a number of factors, including, among others, the following:

Highly Complementary Integrated and Diversified Portfolio

The assets of the combined company will result in a more diversified geographic and product portfolio supporting stability of cash flow and opportunities for enhanced free funds flow. The combined company will unlock market opportunities by uniting high-quality and low-cost oil sands and heavy oil assets with extensive midstream and downstream infrastructure providing ability to optimize margin capture across the heavy oil value chain. The transaction will result in processing capacity and egress out of Alberta for the majority of the combined company’s oil sands and heavy oil production, positioning low exposure to Alberta oil pricing while maintaining healthy exposure to global commodity prices. Cash flow stability of the combined entity will be further underpinned by the global exposure of Husky’s offshore Asia Pacific natural gas production interests, which currently generate approximately $1 billion in annual free funds flow through sales largely under long-term contracts.

The combined company will be the third largest Canadian-based oil and natural gas producer, with approximately 750,000 boe/d of low-cost oil and natural gas production. It will be the second largest Canadian-based refiner and upgrader, with total North American upgrading and refining capacity of approximately 660,000 bbls/d, which includes approximately 350,000 bbls/d of heavy oil conversion capacity. The combined company will have approximately 265,000 bbls/d of current takeaway capacity out of Alberta on existing major pipelines and approximately 305,000 bbls/d of committed capacity on planned pipelines. In addition, it will have approximately 16 million barrels of crude oil storage capacity and crude-by-rail assets providing approximately 120,000 bbls/d takeaway optionality.

Annual Corporate and Operating Synergies and Improved Capital Allocation Opportunities

An estimated $1.2 billion of incremental annual free funds flow, including approximately $600 million in annual corporate and operating synergies and approximately $600 million in annual sustaining capital allocation synergies, are achievable independent of commodity prices. The approximately $600 million in annual corporate and operating cost synergies are expected through material reductions in combined workforce and corporate overhead costs, including streamlined IT systems and procurement savings through economies of scale. Immediate

 

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efficiencies are also expected by implementing best practices from each company, including applying Cenovus’s operating expertise to Husky’s oil sands assets, leveraging the increased portfolio’s scale in the Deep Basin and pursuing commercial and contract-related efficiencies on midstream marketing and blending opportunities. The vast majority of the annual savings are expected to be achieved in the first year of combined operations, with the full amount of the annual run rate synergies anticipated within year two. Over the longer term, Cenovus and Husky anticipate additional cost savings and margin enhancements based on further physical integration, including connecting upstream assets with the upgrading complex at Lloydminster, Saskatchewan, storage and blending operations at Hardisty, Alberta and the large U.S. refining assets in PADD 2 and PADD 3. The integration of Cenovus’s upstream assets with Husky’s downstream and midstream portfolio is expected to also shorten the value chain and reduce condensate costs associated with heavy oil transportation over the longer term. These longer term anticipated synergies are not included in the estimated $1.2 billion annual synergies anticipated in the first two years of combined operations.

Enhanced Free Funds Flow Generation and Investment Grade Metrics

The combined company is expected to be free funds flow breakeven in 2021 at WTI prices of approximately US$36.00/bbl, and expects to reduce free funds flow breakeven to less than WTI US$33.00/bbl by 2023, which is lower than either company on a standalone basis. The combined company’s priority will be to maximize free funds flow by focusing investments on sustaining capital expenditures. Based on the assumptions contained in this Information Circular, free funds flow generation will position the combined company to achieve a Net Debt to Adjusted EBITDA target of less than 2.0 times by 2022, without the need for asset dispositions. With the combined company’s low free funds flow breakeven threshold, the combined company will offer an accelerated deleveraging capability relative to either company on a standalone basis.

The resulting low funds flow volatility, breakeven price and corporate sustaining costs of the combined company supports an investment grade credit profile and a lower cost of capital through the commodity price cycle. Based on the assumptions contained in this Information Circular, the combined company is expected to have ample current liquidity with $8.5 billion in undrawn committed credit facilities and no bond maturities until 2022. Furthermore, the estimated $1.2 billion of incremental annual free funds flow from identified near-term synergies is expected to accelerate balance sheet deleveraging.

After achieving its balance sheet objectives, the combined company’s free funds flow profile is expected to enable sustainable growth in shareholder distributions and a returns-focused organic capital investment program with residual free funds flow. Following completion of the Arrangement, Cenovus and Husky anticipate approval by the board of directors of the combined company of a quarterly dividend of $0.0175 per share.

Increased Scale

The size of the combined company is expected to allow it to leverage increased economies of scale to better compete in an increasingly consolidated energy industry.

The combined company is expected to sustain production levels of approximately 750,000 boe/d. The anticipated annual sustaining capital requirements to support the combined company’s upstream production and downstream operations is approximately $2.4 billion, a reduction of more than $600 million per year compared to the two companies on a standalone basis. Furthermore, the combined company’s expanded portfolio is expected to enable more efficient, returns-focused capital allocation. With an estimated proved plus probable reserves life index of approximately 33 years, consisting mostly of low-cost reserves, the combination is expected to result in reduced re-investment risk to sustain production at current levels.

Uncompromising Commitment to Safety and ESG Leadership

Cenovus’s and Husky’s commitments to world-class safety performance and environmental, social and governance (ESG) leadership will remain core to the combined company. This will include ambitious ESG targets, robust management systems and transparent performance reporting. The combined company will continue working to earn a position as a global energy supplier of choice by advancing clean technology and reducing emissions intensity. This includes maintaining the ambition established by each company of achieving net zero emissions by 2050. The combined company will also make it a priority to continue building upon the strong local community relationships already established by both Cenovus and Husky, with a focus on Indigenous economic reconciliation. Striking the right balance among environmental, economic and social considerations will continue to be central to the combined company’s strategy of creating long-term value and business resilience.

The targets that each of Cenovus and Husky released earlier this year for key ESG focus areas are the products of robust processes to ensure alignment with the companies’ business plans and strategies. Leading safety practices, strong governance and advancing diversity and inclusion will remain central to the combined company’s ESG commitments.

Consideration of Alternatives

The Husky Board carefully considered current industry, economic and market conditions and outlooks, including prevailing commodity prices and their expectations of the future prospects of the businesses in which Husky and Cenovus operate, as well as the impact of the Arrangement on affected stakeholders. In light of the risks and potential benefits associated with Husky continuing to execute its business and strategic plan as a standalone entity, as opposed to the Arrangement or other potential transactions which may offer increased stakeholder value, the Husky Board determined that the combined company will be better positioned to pursue a value maximizing strategy as a result of the anticipated benefits of the Arrangement.

 

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Strong Leadership Team

Management responsibilities within the combined company will be allocated among a proven management team reflecting the strengths of both organizations, with a track record of strong safety performance, operational excellence and cost and capital discipline, along with upstream, downstream and midstream expertise. Following completion of the Arrangement, Alex J. Pourbaix, the current President & Chief Executive Officer of Cenovus, will serve as President & Chief Executive Officer of the combined company. Further, Jeffrey R. Hart, the current Chief Financial Officer of Husky, will serve as Executive Vice-President & Chief Financial Officer of the combined company, and Jonathan M. McKenzie, the current Executive Vice-President & Chief Financial Officer of Cenovus, will serve as Executive Vice-President & Chief Operating Officer of the combined company. Keith A. MacPhail, the current Chair of the Cenovus Board, will serve as Independent Board Chair of the combined company. The remainder of senior management will be selected from each of Cenovus and Husky and named prior to the completion of the Arrangement.

Premium

The Consideration, being the number of Cenovus Common Shares and Cenovus Warrants being offered to Husky Common Shareholders in respect of the Husky Common Shares, implies a premium for Husky Common Shareholders as of the date of the announcement of the Arrangement Agreement. On October 25, 2020, the date of the announcement of the transaction, the Consideration to be received by Husky Common Shareholders represented a premium of 21% to the five-day volume weighted average price of the Husky Common Shares on the TSX on October 23, 2020 (excluding the Cenovus Warrants) and a premium of approximately 23% to the closing price of the Husky Common Shares on the TSX on October 23, 2020 (with an implied price of $3.90 per Husky Common Share and including the Cenovus Warrants).

Significant Shareholder Support

In considering the Arrangement, the Husky Board was aware of the views of a number of its largest shareholders which were supportive of Husky engaging in M&A activity. The Arrangement is supported by Hutchison Whampoa Europe Investments S.à r.l. and L.F. Investments S.à r.l., the Supporting Husky Shareholders, which hold approximately 40.19% and 29.32%, respectively, of the issued and outstanding Husky Common Shares. Each Supporting Husky Shareholder has entered into a separate hard lock-up agreement with Cenovus, pursuant to which such Supporting Husky Shareholder has irrevocably agreed to vote in favour of the Arrangement at the Husky Meeting, except in limited circumstances. See “Effect of the Arrangement – Support Agreements”.

Husky Fairness Opinions

The Husky Board considered the Goldman Sachs Fairness Opinion and the CIBC Common Shareholder Fairness Opinion, each to the effect that, as of October 24, 2020 and October 23, 2020, respectively, and based upon and subject to the assumptions, limitations and qualifications set forth therein, the Consideration to be received by Husky Common Shareholders was fair, from a financial point of view, to the Husky Common Shareholders, taking into account the independence of Goldman Sachs and CIBC Capital Markets, as applicable, and the compensation payable to Goldman Sachs and CIBC Capital Markets, as applicable, upon completion of the Arrangement.

The Husky Board also considered the CIBC Preferred Shareholder Fairness Opinion to the effect that, as of October 23, 2020, and based upon and subject to the assumptions, limitations and qualifications set forth therein, the consideration to be received by Husky Preferred Shareholders pursuant to the Arrangement was fair, from a financial point of view, to the Husky Preferred Shareholders, taking into account the independence of CIBC Capital Markets and the compensation payable to CIBC Capital Markets upon completion of the Arrangement.

Tax Considerations

The Arrangement is structured in a way so that Husky Shareholders will generally be entitled to an automatic tax deferral for Canadian federal income tax purposes for the portion of their Husky Common Shares or for their Husky Preferred Shares, as applicable, which are exchanged for Cenovus Common Shares or Cenovus Preferred Shares, as the case may be, pursuant to the Arrangement. Husky Shareholders who do not wish to benefit from the tax deferral are also entitled to elect out of such treatment on their tax returns. See the discussion under the section “Certain Canadian Federal Income Tax Considerations” for further information.

Termination Protections

The appropriateness of the ability of Husky to terminate the Arrangement Agreement and receive the Husky Termination Amount payable from Cenovus to Husky, as consideration for the disposition by Husky of its rights under the Arrangement Agreement, in certain circumstances, including in the event that: (a) the Cenovus Board fails to unanimously recommend that Cenovus Common Shareholders vote in favour of the Share Issuance Resolution and the Arrangement Agreement is terminated by Husky; (b) Cenovus accepts a Superior Proposal; or (c) the Arrangement Agreement is terminated because the Cenovus Common Shareholders do not approve the Share Issuance Resolution where prior to such termination an Acquisition Proposal (or an intention to make an Acquisition Proposal) for Cenovus has been announced, proposed, disclosed, offered or made and, within 12 months following the date of such termination, the Cenovus Board recommends an Acquisition Proposal, the Cenovus Board enters into a definitive agreement in respect of any Acquisition proposal, or Cenovus consummates any transaction in respect of an Acquisition Proposal.

 

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Definitive Agreement Terms and Conditions

The fact that the Arrangement Agreement was the result of a comprehensive negotiation process with Cenovus and includes terms and conditions that are reasonable in the judgment of the Husky Board. The Husky Board also believes that the “deal protection” provisions in the Arrangement Agreement are reasonable in the circumstances and were negotiated at length with Cenovus in conjunction with the consideration of the other terms and conditions of the Arrangement, including the Consideration and related premium to the trading price of Husky Common Shares.

Equal Treatment of Husky Common Shareholders

The fact that the terms of the Arrangement do not provide any Husky Common Shareholder with a “collateral benefit” within the meaning of MI 61-101 and provide all Husky Shareholders with identical consideration for their Husky Common Shares.

The information and factors described above and considered by the Husky Board in reaching its determinations and making its approvals are not intended to be exhaustive but include material factors considered by the Husky Board. In view of the wide variety of factors considered in connection with its evaluation of the Arrangement and the complexity of these matters, the Husky Board did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In addition, individual members of the Husky Board may have given different weight to different factors.

See “The Arrangement – Recommendation of the Husky Board”.

Cenovus Board

In determining that the Arrangement is in the best interests of Cenovus and that the consideration to be paid by Cenovus pursuant to the Arrangement is fair, from a financial point of view, to Cenovus, and in recommending to Cenovus Common Shareholders that they approve the Share Issuance Resolution, the Cenovus Board considered and relied upon a number of factors, including, among others, the following:

Highly Complementary Integrated and Diversified Portfolio

The assets of the combined company will result in a more diversified geographic and product portfolio supporting stability of cash flow and opportunities for enhanced free funds flow. The combined company will unlock market opportunities by uniting high-quality and low-cost oil sands and heavy oil assets with extensive midstream and downstream infrastructure providing ability to optimize margin capture across the heavy oil value chain. The transaction will result in processing capacity and egress out of Alberta for the majority of the combined company’s oil sands and heavy oil production, positioning low exposure to Alberta oil pricing while maintaining healthy exposure to global commodity prices. Cash flow stability of the combined entity will be further underpinned by the global exposure of Husky’s offshore Asia Pacific natural gas production interests, which currently generate approximately $1 billion in annual free funds flow through sales largely under long-term contracts.

The combined company will be the third largest Canadian-based oil and natural gas producer, with approximately 750,000 boe/d of low-cost oil and natural gas production. It will be the second largest Canadian-based refiner and upgrader, with total North American upgrading and refining capacity of approximately 660,000 bbls/d, which includes approximately 350,000 bbls/d of heavy oil conversion capacity. The combined company will have approximately 265,000 bbls/d of current takeaway capacity out of Alberta on existing major pipelines and approximately 305,000 bbls/d of committed capacity on planned pipelines. In addition, it will have approximately 16 million barrels of crude oil storage capacity and crude-by-rail assets providing approximately 120,000 bbls/d takeaway optionality.

Annual Corporate and Operating Synergies and Improved Capital Allocation Opportunities

An estimated $1.2 billion of incremental annual free funds flow, including approximately $600 million in annual corporate and operating synergies and approximately $600 million in annual sustaining capital allocation synergies, are achievable independent of commodity prices. The approximately $600 million in annual corporate and operating cost synergies are expected through material reductions in combined workforce and corporate overhead costs, including streamlined IT systems and procurement savings through economies of scale. Immediate efficiencies are also expected by implementing best practices from each company, including applying Cenovus’s operating expertise to Husky’s oil sands assets, leveraging the increased portfolio’s scale in the Deep Basin and pursuing commercial and contract-related efficiencies on midstream marketing and blending opportunities. The vast majority of the annual savings are expected to be achieved in the first year of combined operations, with the full amount of the annual run rate synergies anticipated within year two. Over the longer term, Cenovus and Husky anticipate additional cost savings and margin enhancements based on further physical integration, including through connecting upstream assets with the upgrading complex at Lloydminster, Saskatchewan, storage and blending operations at Hardisty, Alberta and the large U.S. refining assets in PADD 2 and PADD 3. The integration of Cenovus’s upstream assets with Husky’s downstream and midstream portfolio is expected to also shorten the value chain and reduce condensate costs associated with heavy oil transportation over the longer term. These longer term anticipated synergies are not included in the estimated $1.2 billion annual synergies anticipated in the first two years of combined operations.

 

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Enhanced Free Funds Flow Generation and Investment Grade Metrics

The combined company is expected to be free funds flow breakeven in 2021 at WTI prices of approximately US$36.00/bbl, and expects to reduce free funds flow breakeven to less than WTI US$33.00/bbl by 2023, which is lower than either company on a standalone basis. The combined company’s priority will be to maximize free funds flow by focusing investments on sustaining capital expenditures. Based on the assumptions contained in this Information Circular, free funds flow generation will position the combined company to achieve a Net Debt to Adjusted EBITDA target of less than 2.0 times by 2022, without the need for asset dispositions. With the combined company’s low free funds flow breakeven threshold, the combined company will offer an accelerated deleveraging capability relative to either company on a standalone basis.

The resulting low funds flow volatility, breakeven price and corporate sustaining costs of the combined company supports an investment grade credit profile and a lower cost of capital through the commodity price cycle. Based on the assumptions contained in this Information Circular, the combined company is expected to have ample current liquidity with $8.5 billion in undrawn committed credit facilities and no bond maturities until 2022. Furthermore, the estimated $1.2 billion of incremental annual free funds flow from identified near-term synergies is expected to accelerate balance sheet deleveraging.

After achieving its balance sheet objectives, the combined company’s free funds flow profile is expected to enable sustainable growth in shareholder distributions and a returns-focused organic capital investment program with residual free funds flow. Following completion of the Arrangement, Cenovus and Husky anticipate approval by the board of directors of the combined company of a quarterly dividend of $0.0175 per share.

Increased Scale

The size of the combined company is expected to allow it to leverage increased economies of scale to better compete in an increasingly consolidated energy industry.

The combined company is expected to sustain production levels of approximately 750,000 boe/d. The anticipated annual sustaining capital requirements to support the combined company’s upstream production and downstream operations is approximately $2.4 billion, a reduction of more than $600 million per year compared to the two companies on a standalone basis. Furthermore, the combined company’s expanded portfolio is expected to enable more efficient, returns-focused capital allocation. With an estimated proved plus probable reserves life index of approximately 33 years, consisting mostly of low-cost reserves, the combination is expected to result in reduced re-investment risk to sustain production at current levels.

Uncompromising Commitment to Safety and ESG Leadership

Cenovus’s and Husky’s commitments to world-class safety performance and environmental, social and governance (ESG) leadership will remain core to the combined company. This will include ambitious ESG targets, robust management systems and transparent performance reporting. The combined company will continue working to earn a position as a global energy supplier of choice by advancing clean technology and reducing emissions intensity. This includes maintaining the ambition established by each company of achieving net zero emissions by 2050. The combined company will also make it a priority to continue building upon the strong local community relationships already established by both Cenovus and Husky, with a focus on Indigenous economic reconciliation. Striking the right balance among environmental, economic and social considerations will continue to be central to the combined company’s strategy of creating long-term value and business resilience.

The targets that each of Cenovus and Husky released earlier this year for key ESG focus areas are the products of robust processes to ensure alignment with the companies’ business plans and strategies. Leading safety practices, strong governance and advancing diversity and inclusion will remain central to the combined company’s ESG commitments.

Consideration of Alternatives

The Cenovus Board carefully considered current industry, economic and market conditions and outlooks, including prevailing commodity prices and their expectations of the future prospects of the businesses in which Cenovus and Husky operate, as well as the impact of the Arrangement on affected stakeholders. In light of the risks and potential benefits associated with Cenovus continuing to execute its business and strategic plan as a standalone entity, as opposed to the Arrangement or other potential transactions which may offer increased stakeholder value, the Cenovus Board determined that the combined company will be better positioned to pursue a value maximizing strategy as a result of the anticipated benefits of the Arrangement.

Strong Leadership Team

Management responsibilities within the combined company will be allocated among a proven management team reflecting the strengths of both organizations, with a track record of strong safety performance, operational excellence and cost and capital discipline, along with upstream, downstream and midstream expertise. Following completion of the Arrangement, Alex J. Pourbaix, the current President & Chief Executive Officer of Cenovus, will serve as President & Chief Executive Officer of the combined company. Further, Jeffrey R. Hart, the current Chief Financial Officer of Husky, will serve as Executive Vice-President & Chief Financial Officer of the combined company, and Jonathan M.

 

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McKenzie, the current Executive Vice-President & Chief Financial Officer of Cenovus, will serve as Executive Vice-President & Chief Operating Officer of the combined company. Keith A. MacPhail, the current Chair of the Cenovus Board, will serve as Independent Board Chair of the combined company. The remainder of senior management will be selected from each of Cenovus and Husky and named prior to the completion of the Arrangement.

Cenovus Fairness Opinions

The Cenovus Board considered the RBC Fairness Opinion to the effect that, as of October 24, 2020, and based upon and subject to the assumptions, limitations and qualifications set forth therein, the Consideration to be paid by Cenovus was fair, from a financial point of view, to Cenovus, taking into account the independence of RBC Capital Markets and the compensation payable to RBC Capital Markets upon completion of the Arrangement. The Cenovus Board considered the TD Fairness Opinion to the effect that, as of October 24, 2020, and based upon and subject to the assumptions, limitations and qualifications set forth therein, the Consideration to be paid by Cenovus was fair, from a financial point of view, to Cenovus, taking into account the independence of TD Securities and the compensation payable to TD Securities upon completion of the Arrangement.

Significant Husky Shareholder Support

The Arrangement is supported by Hutchison Whampoa Europe Investments S.à r.l. and L.F. Investments S.à r.l., the Supporting Husky Shareholders, which hold approximately 40.19% and 29.32%, respectively, of the issued and outstanding Husky Common Shares. Each Supporting Husky Shareholder has entered into a separate hard lock-up agreement with Cenovus, pursuant to which such Supporting Husky Shareholder has irrevocably agreed to vote in favour of the Arrangement at the Husky Meeting, except in limited circumstances. See “Effect of the Arrangement – Support Agreements”.

Tax Considerations

The Arrangement will not result in a taxable event for Cenovus Common Shareholders.

Termination Protections

The appropriateness of Cenovus’s ability to terminate the Arrangement Agreement and receive the Cenovus Termination Amount payable from Husky to Cenovus, as consideration for the disposition by Cenovus of its rights under the Arrangement Agreement, in certain circumstances, including in the event that: (a) the Husky Board fails to unanimously recommend that Husky Shareholders and Husky Optionholders vote in favour of the Arrangement and the Arrangement Agreement is terminated by Cenovus; (b) Husky accepts a Superior Proposal; or (c) the Arrangement Agreement is terminated because the Husky Common Shareholders and Husky Optionholders do not approve the Arrangement Resolution where prior to such termination an Acquisition Proposal (or an intention to make an Acquisition Proposal) for Husky has been announced, proposed, disclosed, offered or made and, within 12 months following the date of such termination, the Husky Board recommends an Acquisition Proposal, the Husky Board enters into a definitive agreement in respect of any Acquisition proposal, or Husky consummates any transaction in respect of an Acquisition Proposal.

The information and factors described above and considered by the Cenovus Board in reaching its determinations and making its approvals are not intended to be exhaustive but include material factors considered by the Cenovus Board. In view of the wide variety of factors considered in connection with its evaluation of the Arrangement and the complexity of these matters, the Cenovus Board did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In addition, individual members of the Cenovus Board may have given different weight to different factors.

See “The Arrangement – Recommendation of the Cenovus Board”.

Attributes of the Combined Company

Husky and Cenovus anticipate the combination will create a resilient integrated energy leader with a total enterprise value of approximately $23.6 billion (calculated as at the date of the announcement of the Arrangement) with a cost-and-market-advantaged asset portfolio, which can prioritize free funds flow generation, balance sheet strength and returns to shareholders.

The combined company is expected to sustain production levels of approximately 750,000 boe/d. The anticipated annual sustaining capital requirements to support the combined company’s upstream production and downstream operations is approximately $2.4 billion, a reduction of more than $600 million per year compared to the two companies on a standalone basis. Furthermore, the combined company’s expanded portfolio is expected to enable more efficient, returns-focused capital allocation. With an estimated proved plus probable reserves life index of approximately 33 years, consisting mostly of low-cost reserves, the combination is expected to result in reduced re-investment risk to sustain production at current levels.

The Combined Company will be an Industry-Leading Integrated Canadian Energy Company

The combined company will be the third largest Canadian-based oil and natural gas producer, with approximately 750,000 boe/d of low-cost oil and natural gas production, and is expected to generate an estimated $1.2 billion of incremental annual free funds flow. The combined company

 

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will benefit from an integrated business model and will be the second largest Canadian-based refiner and upgrader, with total North American upgrading and refining capacity of approximately 660,000 bbls/d, which includes approximately 350,000 bbls/d of heavy oil conversion capacity. The combined company will have approximately 265,000 bbls/d of current takeaway capacity out of Alberta on existing major pipelines and approximately 305,000 bbls/d of committed capacity on planned pipelines. In addition, it will have approximately 16 million barrels of crude oil storage capacity and crude-by-rail assets providing approximately 120,000 bbls/d takeaway optionality.

The Combined Company will have an Enhanced Free Funds Flow and Earnings Profile

Further improving cost structure, Husky’s and Cenovus’s complementary operations provide the opportunity to unlock an estimated $1.2 billion of annual free funds flow, including approximately $600 million in annual corporate and operating synergies and approximately $600 million in annual sustaining capital allocation synergies, which are achievable independent of commodity prices.

These synergies are the product of Cenovus’s and Husky’s rigorous and disciplined evaluation process to identify the specific efficiencies that can be gained.

The vast majority of the annual savings are expected to be achieved in the first year of combined operations, with the full amount of the annual run rate synergies anticipated within year two. Over the longer term, Cenovus and Husky anticipate additional cost savings and margin enhancements based on opportunities for further physical integration of the upstream and downstream heavy oil assets, including through strategically located upstream assets with integration to the upgrading complex at Lloydminster, Saskatchewan, large U.S. refining assets in PADD 2 and PADD 3, and storage and blending operations at Hardisty, Alberta. The integration of Cenovus’s upstream assets with Husky’s downstream and midstream portfolio is expected to also shorten the value chain and reduce condensate costs associated with heavy oil transportation over the longer term. These longer term anticipated synergies are not included in the estimated $1.2 billion annual synergies anticipated in the first two years of combined operations.

The Combined Company will have a Strong Balance Sheet and Lower Financial Risk

The combined company is anticipated to have the ability to sustain its operations with less capital expenditures and lower risk than either Husky or Cenovus could individually. The combined company’s sustaining capital requirement is expected to be reduced by approximately $600 million from the approximately $3.0 billion per year combined the companies anticipated investing as standalone entities to approximately $2.4 billion per year to sustain production levels and downstream capacity at current levels.

The combined company is expected to be free funds flow breakeven in 2021 at WTI prices of approximately US$36.00/bbl, and expects to reduce free funds flow breakeven to less than WTI US$33.00/bbl by 2023, which is lower than either company on a standalone basis.

The combined company’s priority will be to maximize free funds flow by focusing investments on sustaining capital expenditures. Based on the assumptions contained in this Information Circular, free funds flow generation will position the combined company to achieve a Net Debt to Adjusted EBITDA target of less than 2.0 times by 2022, without the need for asset dispositions.

With the combined company’s low free funds flow breakeven threshold, the combined company will offer an accelerated deleveraging capability relative to either company on a standalone basis.

The Combined Company will have a Low-Cost, Low-Decline Upstream Portfolio, which Allows it to Prioritize Free Funds Flow Generation, Balance Sheet Strength and Returns to Shareholders

The funds flow profile of the combined company is expected to support an investment grade credit profile, a lower cost of capital through the commodity price cycle, and an acceleration of reduction in leverage. The combined company’s capital priorities following completion of the Arrangement are expected to include:

 

  

maintaining safe and reliable operations;

 

  

paying a quarterly dividend, which, subject to the Cenovus Board’s approval, is anticipated to initially be set at $0.0175 per share following completion of the Arrangement;

 

  

maintaining balance sheet strength, with a targeted Net Debt to Adjusted EBITDA ratio of less than 2.0 times at low cycle commodity prices;

 

  

providing incremental return of capital to shareholders through share buybacks or sustainable increases in dividends; and

 

  

reinvesting in the business with a disciplined focus on full cycle earnings and returns.

In support of these capital priorities, in addition to expected cash on hand, the combined company is expected to have access to $8.5 billion in undrawn committed credit facilities and no bond maturities until 2022.

 

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The Combined Company will Result in Integration for Greater Margin Capture, Improved Market Access and Reduced Volatility

Following completion of the Arrangement, the combined company will have an attractive combination of long-life and cash flow generating assets with future development potential. The combined company’s highly complementary integrated portfolio will be anchored by four free funds flow generating businesses:

 

  

Thermal Oil assets, with stable, low-decline and low-cost oil production;

 

  

an extensive Midstream and Downstream network, including the Lloydminster upgrading and refining hub and approximately 230,000 bbls/d of heavy processing capacity in PADD 2, allowing the combined company to capture the full value chain margin and providing marketing optionality;

 

  

high netback Asia Pacific assets, generating approximately $1 billion in annual free funds flow through long-term gas supply contracts and low-cost production; and

 

  

attractive short-cycle development opportunities including Deep Basin oil and gas, liquids-rich Montney.

The combined company is anticipated to have strong cash flow from current crude oil, natural gas and NGLs production of approximately 750,000 boe/d (based on average daily production of Cenovus and Husky for the quarter ended September 30, 2020) and North American throughput refining capacity of approximately 650,000 bbls/d (based on the nameplate combined refining capacity of Cenovus and Husky for the quarter ended September 30, 2020). Additionally, the combined company’s integrated asset portfolio of downstream and midstream assets will, among other things, limit its exposure to WCS to WTI differentials, thereby reducing volatility and risk.

The Combined Company will be Committed to Safety and ESG Leadership

Cenovus’s and Husky’s commitments to world-class safety performance and environmental, social and governance (ESG) leadership will remain core to the combined company. This will include ambitious ESG targets, robust management systems and transparent performance reporting. The combined company will continue working to earn a position as a global energy supplier of choice by advancing clean technology and reducing emissions intensity. This includes maintaining the ambition established by each company of achieving net zero emissions by 2050. The combined company will also make it a priority to continue building upon the strong local community relationships already established by both Cenovus and Husky, with a focus on Indigenous economic reconciliation. Striking the right balance among environmental, economic and social considerations will continue to be central to the combined company’s strategy of creating long-term value and business resilience.

The targets that each of Cenovus and Husky released earlier this year for key ESG focus areas are the products of robust processes to ensure alignment with the companies’ business plans and strategies. The combined company will remain committed to pursuing ESG targets and will undertake a similarly thorough analysis within the context of the combined company’s business plan before setting meaningful targets for the combined portfolio. Once that work is complete in 2021 and approved by the combined company’s board of directors, the new targets and plans to achieve them will be disclosed. Leading safety practices, strong governance and advancing diversity and inclusion will remain central to the combined company’s ESG commitments.

See “Pro Forma Information Concerning the Combined Company”.

Husky Fairness Opinions

Goldman Sachs Fairness Opinion

Husky retained Goldman Sachs pursuant to an engagement letter dated October 23, 2020 to provide financial advisory services in connection with a potential transaction involving Cenovus. Husky maintains regular contact with Goldman Sachs regarding a variety of strategic opportunities and financial assessments. As part of its engagement, Goldman Sachs was requested to provide the Husky Board with its opinion as to the fairness to the Husky Common Shareholders, from a financial point of view, of the Consideration to be received by them pursuant to the Arrangement.

Goldman Sachs rendered its opinion to the Husky Board that, as of October 24, 2020 and based upon and subject to the factors and assumptions set forth therein, the Consideration to be paid to the Husky Common Shareholders pursuant to the Arrangement Agreement was fair from a financial point of view to such holders.

The full text of the Goldman Sachs Fairness Opinion, setting out the assumptions made, procedures followed, matters considered and limitations and qualifications on the scope of review undertaken in connection with the Goldman Sachs Fairness Opinion, is attached as Appendix G – “Goldman Sachs Fairness Opinion” to this Information Circular. This summary is qualified in its entirety by reference to the full text of the Goldman Sachs Fairness Opinion.

Details regarding the qualifications, credentials and independence of Goldman Sachs, and the assumptions, qualifications and limitations applicable to the Goldman Sachs Fairness Opinion, are respectively set forth in the Goldman Sachs Fairness Opinion.

 

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The Goldman Sachs Fairness Opinion is not a recommendation as to how the Husky Common Shareholders should vote on the Arrangement Resolution or any other matter. The Goldman Sachs Fairness Opinion was one of a number of factors taken into consideration by the Husky Board in making its unanimous determinations that the Arrangement is in the best interests of Husky and is fair to the Husky Common Shareholders and to recommend that Husky Common Shareholders vote in favour of the Arrangement Resolution. In evaluating the Arrangement, the Husky Board considered, among other things, the advice and financial analyses provided by Goldman Sachs referred to above, in addition to the Goldman Sachs Fairness Opinion. In assessing the Goldman Sachs Fairness Opinion, the Husky Board considered and assessed the independence of Goldman Sachs, taking into account that a substantial portion of the fees payable to Goldman Sachs for its services are contingent upon the completion of the Arrangement.

In considering the fairness of the Consideration to be received by Husky Common Shareholders under the Arrangement from a financial point of view to the Husky Common Shareholders, Goldman Sachs considered and relied upon, among other things, the following: (a) the Arrangement Agreement; (b) annual reports on Form 40-F of Husky and Cenovus for the five years ended December 31, 2019; (c) certain interim reports to Husky Shareholders and Cenovus Common Shareholders; certain other communications from Husky and Cenovus to their respective shareholders; (d) certain publicly available research analyst reports for Husky and Cenovus; (e) certain internal financial analyses and forecasts for Cenovus prepared by its management; and (f) certain internal financial analyses and forecasts for Husky and certain financial analyses and forecasts for Cenovus on a standalone basis and on a pro forma basis giving effect to the Arrangement, in each case as prepared by management of Husky and approved for Goldman Sachs’ use by Husky, including certain operating synergies projected by the managements of Husky and Cenovus to result from the Arrangement, as approved for Goldman Sachs’ use by Husky. Goldman Sachs also held discussions with members of the senior managements of Husky and Cenovus regarding their assessment of the strategic rationale for, and the potential benefits of, the Arrangement and the past and current business operations, financial condition and future prospects of Husky and Cenovus; reviewed the reported price and trading activity for the Husky Common Shares and Cenovus Common Shares; compared certain financial and stock market information for Husky and Cenovus with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in North America and performed such other studies and analyses, and considered such other factors, as Goldman Sachs deemed appropriate. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgement after considering the results of all of its analyses.

Pursuant to the terms of its engagement letter, Goldman Sachs is to be paid a fee for its services in connection with the Arrangement, the principal portion of which is contingent upon the consummation of the Arrangement. Husky has also agreed to reimburse Goldman Sachs for certain out-of-pocket expenses arising, and to indemnify Goldman Sachs against certain liabilities that may arise, in connection with its engagement.

Goldman Sachs and its employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of Husky, Cenovus, any of their respective affiliates and third parties, including ConocoPhillips Company, a significant shareholder of Cenovus, the Supporting Husky Shareholders and their respective affiliates and, as applicable, portfolio companies, or any currency or commodity that may be involved in the Arrangement. Goldman Sachs has provided certain financial advisory and/or underwriting services to Husky and/or its affiliates from time to time for which its Investment Banking Division has received, and may receive, compensation, including having acted as a joint bookrunner with respect to the public offering of Husky’s 4.400% Notes due 2029 (aggregate principal amount US$750,000,000) in March 2019; and as a co-manager with respect to the public offering of Husky’s 3.500% Notes due 2028 (aggregate principal amount $1,250,000,000) in August 2020. Goldman Sachs has also provided certain financial advisory and/or underwriting services to ConocoPhillips Company and/or its affiliates from time to time for which its Investment Banking Division has received, and may receive, compensation, including having acted as a dealer with respect to ConocoPhillips Company’s commercial paper program since December 2010; and as financial adviser to ConocoPhillips Company with respect to its pending acquisition of Concho Resources Inc. announced in October 2020. Goldman Sachs has also provided certain financial advisory and/or underwriting services to CK Hutchison Holdings Limited (“CKH”), the indirect parent of Hutchison Whampoa Europe Investments S.à r.l., and/or its affiliates from time to time for which its Investment Banking Division has received, and may receive, compensation, including having acted as a joint bookrunner with respect to the public offering of CKH’s Subordinated Guaranteed Perpetual Capital Securities (aggregate principal amount €500,000,000) in December 2018; as a joint book runner and joint lead manager with respect to the dual-tranche public offering of CKH’s 3.250% Senior Unsecured Notes due April 2024 and 3.625% Senior Unsecured Notes due April 2029 (aggregate principal amount US$1,500,000,000) in April 2019; as financial advisor to Hutchison Telecommunications, a subsidiary of CKH, in connection with the acquisition of the 24% stake in Hutchison Telephone Co Ltd that Hutchison Telecommunications did not already own in May 2019; as financial advisor to A.S. Watson & Company Ltd., a subsidiary of CKH, in connection with the formation of a joint venture to form PARK ‘n SHOP in July 2019; as a joint book runner and joint lead manager with respect to the dual-tranche public offering of CKH’s 2.750% Senior Notes due September 2029 and 3.375% Senior Notes Due September 2049 (aggregate principal amount US$1,250,000,000) in September 2019; as an underwriter with respect to a public offering of 666,786,450 ordinary shares of Hutchison China MediTech Ltd., a subsidiary of CKH (“HCMTL”), in September 2019; as a joint book runner to CK Hutchison Group Telecom Finance S.A., a subsidiary of CKH, with respect to the multi-tranche public offering of (i) 0.375% Series A Notes due October 2023, (ii) 0.75% Series B Notes due April 2026, (iii) 1.125% Series C Notes due October 2028, (iv) 1.5% Series D Notes due October 2031, (v) 2.000% Series E Notes due October 2027, (vi) 2.625% Series F Notes due October 2034 (aggregate principal amount €4,250,000,000 and £800,000,000) in October 2019; and as a book runner with respect to the public offering of 4,733,663 American Depository Shares of HCMTL in January 2020. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to Husky, Cenovus, ConocoPhillips Company, the Supporting Husky Shareholders, and their respective affiliates and, as applicable, portfolio companies, for which its Investment Banking Division may receive compensation. Affiliates of Goldman Sachs also may have co-invested with the Supporting Husky Shareholders and their respective affiliates from time to time and may

 

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have invested in limited partnership or equivalent units of the Supporting Husky Shareholders and their affiliates from time to time and may do so in the future.

The above summary of the Goldman Sachs Fairness Opinion is qualified in its entirety by reference to the full text of the Goldman Sachs Fairness Opinion as set out in Appendix G – “Goldman Sachs Fairness Opinion”. The Goldman Sachs Fairness Opinion was provided solely for the information and assistance of the Husky Board (solely in its capacity as such) in connection with the Husky Board’s consideration of the Arrangement and does not constitute a recommendation as to how the Husky Common Shareholders should vote in respect of the Arrangement Resolution or any other matter. Goldman Sachs expresses no view as to, and the Goldman Sachs Fairness Opinion does not address, the underlying business decision of Husky to engage in the Arrangement, or the relative merits of the Transaction as compared to any strategic alternatives that may be available to Husky; nor does it address any legal, regulatory, tax or accounting matters.

CIBC Common Shareholder Fairness Opinion and CIBC Preferred Shareholder Fairness Opinion

The Husky Board retained CIBC Capital Markets pursuant to an engagement letter dated October 23, 2020 to provide financial advisory services in connection with a potential transaction involving Cenovus. Husky maintains regular contact with CIBC Capital Markets regarding a variety of strategic opportunities and financial assessments. As part of its engagement, CIBC Capital Markets was requested to provide the Husky Board with its opinions as to the fairness of the consideration to be received by the Husky Common Shareholders and the Husky Preferred Shareholders, respectively, from a financial point of view, pursuant to the Arrangement.

The CIBC Common Shareholder Fairness Opinion states that, based upon and subject to the assumptions, limitations, and qualifications set forth therein, CIBC Capital Markets is of the opinion that, as of October 23, 2020, the Consideration to be received by Husky Common Shareholders pursuant to the Arrangement is fair, from a financial point of view, to the Husky Common Shareholders. The CIBC Preferred Shareholder Fairness Opinion states that, based upon and subject to the assumptions, limitations, and qualifications set forth therein, CIBC Capital Markets is of the opinion that, as of October 23, 2020, the consideration to be received by Husky Preferred Shareholders pursuant to the Arrangement is fair, from a financial point of view, to the Husky Preferred Shareholders.

The full text of the CIBC Common Shareholder Fairness Opinion and the CIBC Preferred Shareholder Fairness Opinion are attached as Appendix H – “CIBC Common Shareholder Fairness Opinion” and Appendix I – “CIBC Preferred Shareholder Fairness Opinion”, respectively, to this Information Circular.

The CIBC Common Shareholder Fairness Opinion is not a recommendation as to whether the Husky Common Shareholders should vote in favour of the Arrangement Resolution. The CIBC Common Shareholder Fairness Opinion was one of a number of factors taken into consideration by the Husky Board in making its unanimous determinations that the Arrangement is in the best interests of Husky and is fair to the Husky Common Shareholders and to recommend that Husky Common Shareholders vote in favour of the Arrangement Resolution. The CIBC Preferred Shareholder Fairness Opinion is not a recommendation as to whether the Husky Preferred Shareholders should vote in favour of the Preferred Shareholder Resolution. The CIBC Preferred Shareholder Fairness Opinion was one of a number of factors taken into consideration by the Husky Board in making its unanimous determinations that the Arrangement is in the best interests of Husky and is fair to the Husky Preferred Shareholders and to recommend that Husky Preferred Shareholders vote in favour of the Preferred Shareholder Resolution. In evaluating the Arrangement, the Husky Board considered, among other things, the advice and financial analyses provided by CIBC Capital Markets referred to above, in addition to the CIBC Common Shareholder Fairness Opinion and the CIBC Preferred Shareholder Fairness Opinion. In assessing the CIBC Common Shareholder Fairness Opinion and the CIBC Preferred Shareholder Fairness Opinion, the Husky Board considered and assessed the independence of CIBC Capital Markets, taking into account that a substantial portion of the fees payable to CIBC Capital Markets for its services are contingent upon the completion of the Arrangement.

Pursuant to the terms of its engagement letter, CIBC Capital Markets will be paid a fee for rendering each of the CIBC Common Shareholder Fairness Opinion and the CIBC Preferred Shareholder Fairness Opinion. CIBC Capital Markets will also receive certain fees for advisory services, a substantial portion of which is contingent upon the completion of the Arrangement. Husky has also agreed to reimburse CIBC Capital Markets for certain out-of-pocket expenses and to indemnify CIBC Capital Markets against certain liabilities that may be incurred in connection with its engagement.

The Husky Board urges the Husky Common Shareholders to read the CIBC Common Shareholder Fairness Opinion in its entirety. Any summary of the CIBC Common Shareholder Fairness Opinion herein is qualified in its entirety by reference to the full text of the CIBC Common Shareholder Fairness Opinion as set out in Appendix H – “CIBC Common Shareholder Fairness Opinion”. The Husky Board urges the Husky Preferred Shareholders to read the CIBC Preferred Shareholder Fairness Opinion in its entirety. Any summary of the CIBC Preferred Shareholder Fairness Opinion herein is qualified in its entirety by reference to the full text of the CIBC Preferred Shareholder Fairness Opinion as set out in Appendix I – “CIBC Preferred Shareholder Fairness Opinion”.

Cenovus Fairness Opinions

RBC Fairness Opinion

The Cenovus Board retained RBC Capital Markets pursuant to an engagement letter effective March 16, 2020 to provide financial advisory services in connection with a potential transaction involving Husky. Cenovus maintains regular contact with RBC Capital Markets regarding a variety of strategic opportunities. As part of its engagement, RBC Capital Markets was requested to provide the Cenovus Board with its opinion as to the fairness to Cenovus, from a financial point of view, of the Consideration to be paid by Cenovus pursuant to the Arrangement.

 

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The RBC Fairness Opinion states that, on the basis of the particular assumptions, limitations, and qualifications set forth therein, RBC Capital Markets is of the opinion that, as of October 24, 2020, the Consideration to be paid by Cenovus pursuant to the Arrangement is fair, from a financial point of view, to Cenovus.

The full text of the RBC Fairness Opinion, setting out the assumptions made, matters considered and limitations and qualifications on the scope of review undertaken in connection with the RBC Fairness Opinion, is attached as Appendix J – “RBC Fairness Opinion” to this Information Circular. This summary is qualified in its entirety by reference to the full text of the RBC Fairness Opinion.

Details regarding the qualifications, credentials and independence of RBC Capital Markets, and the assumptions, qualifications and limitations applicable to the RBC Fairness Opinion, are set forth under the headings “Credentials of RBC Capital Markets”, “Relationship With Interested Parties”, “Scope of Review” and “Assumptions and Limitations” in the RBC Fairness Opinion.

The RBC Fairness Opinion is not a recommendation as to whether the Cenovus Common Shareholders should vote in favour of the Share Issuance Resolution. The RBC Fairness Opinion was one of a number of factors taken into consideration by the Cenovus Board in making its unanimous determinations that the Arrangement is in the best interests of Cenovus, and to recommend that Cenovus Common Shareholders vote in favour of the Share Issuance Resolution. In evaluating the Arrangement, the Cenovus Board considered, among other things, the advice and financial analyses provided by RBC Capital Markets referred to above, in addition to the RBC Fairness Opinion. In assessing the RBC Fairness Opinion, the Cenovus Board considered and assessed the independence of RBC Capital Markets, taking into account that a substantial portion of the fees payable to RBC Capital Markets for its services are contingent upon the completion of the Arrangement.

In considering the fairness, from a financial point of view to Cenovus, of the Consideration to be paid pursuant to the Arrangement, RBC Capital Markets principally considered and relied upon the following approaches: (a) a comparison of the Consideration to a discounted cash flow analysis of Husky (the “Husky DCF Analysis”) under a variety of sensitivity analyses, each on a per share basis; (b) a comparison of the exchange ratio implied by the Consideration to the exchange ratios implied by dividing the values per Husky Common Share implied by the Husky DCF Analysis by the values per Cenovus Common Share implied by a discounted cash flow analysis of Cenovus, in each case, under a variety of sensitivity analyses; (c) a comparison of selected financial multiples, to the extent publicly available, of selected precedent transactions to the multiples implied by the Consideration; and (d) an analysis of the pro forma impact of the Arrangement on Cenovus. In arriving at its conclusion as to the fairness of the Consideration to be paid pursuant to the Arrangement, RBC Capital Markets considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, RBC Capital Markets made its determination as to fairness on the basis of its experience and professional judgement after considering the results of all of its analyses.

Pursuant to the terms of its engagement letter, RBC Capital Markets is to be paid a fee for its services as financial advisor, including fees for providing the RBC Fairness Opinion, a substantial portion of which is contingent upon the completion of the Arrangement. Cenovus has also agreed to reimburse RBC Capital Markets for certain out-of-pocket expenses and to indemnify RBC Capital Markets against certain liabilities that may be incurred in connection with its engagement.

Royal Bank of Canada, controlling shareholder of RBC Capital Markets, is currently a member of the lending syndicates that provide credit facilities to each of Cenovus and Husky (in the ordinary course of its business and unrelated to the Arrangement). Additionally, RBC Capital Markets and its affiliates have, from time to time, acted as: (a) lead or co-lead arranger, bookrunner and administrative agent and lender in connection with certain credit facilities made available to Cenovus; and (b) an underwriter, dealer, agent or bookrunning manager in connection with the offering of debt securities of each of Cenovus and Husky. Neither RBC Capital Markets nor any of its affiliates or associates is an insider, associate or affiliate (as such terms are defined in Applicable Canadian Securities Laws) of Cenovus or Husky or any of their respective associates or affiliates. RBC Capital Markets has advised Cenovus that, as at the date of the RBC Fairness Opinion, RBC Capital Markets and its affiliates beneficially owned 6,023,636 Cenovus Common Shares.

The Cenovus Board urges the Cenovus Common Shareholders to read the RBC Fairness Opinion in its entirety. The above summary of the RBC Fairness Opinion is qualified in its entirety by reference to the full text of the RBC Fairness Opinion as set out in Appendix J – “RBC Fairness Opinion”. The RBC Fairness Opinion was provided solely for the use of the Cenovus Board (solely in its capacity as such) in connection with the Cenovus Board’s evaluation of the Arrangement and may not be relied upon by any Cenovus Common Shareholders or any other person. The RBC Fairness Opinion is not intended to and does not constitute a recommendation as to how the Cenovus Common Shareholders should vote in respect of the Share Issuance Resolution. RBC Capital Markets expresses no view as to, and the RBC Fairness Opinion does not address, any other aspect or implication of the Arrangement or the underlying business decision of the Cenovus Board to effect the Arrangement, the relative merits of the Arrangement as compared to any alternative business strategies that might be available for Cenovus or the effect of any other transaction in which Cenovus might engage.

TD Fairness Opinion

The Cenovus Board also retained TD Securities pursuant to an engagement agreement effective March 16, 2020 to provide financial advisory services to Cenovus in connection with the Arrangement. Cenovus maintains regular contact with TD Securities regarding a variety of strategic opportunities and financial assessments. As part of its engagement, TD Securities was asked to prepare and deliver to the Cenovus Board an opinion regarding the fairness, from a financial point of view, to Cenovus of the Consideration to be paid by Cenovus to Husky Common Shareholders pursuant to the Arrangement.

 

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The TD Fairness Opinion states that, on the basis of the particular assumptions, qualifications and limitations set forth therein, TD Securities is of the opinion that, as of October 24, 2020, the Consideration to be paid by Cenovus pursuant to the Arrangement is fair, from a financial point of view, to Cenovus.

The full text of the TD Fairness Opinion, setting out the assumptions made, matters considered and limitations and qualifications on the scope of review undertaken in connection with the TD Fairness Opinion, is attached as Appendix K – “TD Fairness Opinion” to this Information Circular. This summary is qualified in its entirety by reference to the full text of the TD Fairness Opinion.

Details regarding the qualifications, credentials and independence of TD Securities, and the assumptions, qualifications and limitations applicable to the TD Fairness Opinion, are set forth under the heading “Assumptions and Limitations” in the TD Fairness Opinion.

The TD Fairness Opinion is not a recommendation as to whether the Cenovus Common Shareholders should vote in favour of the Share Issuance Resolution. The TD Fairness Opinion was one of a number of factors taken into consideration by the Cenovus Board in making its unanimous determinations that the Arrangement is in the best interests of Cenovus, and to recommend that Cenovus Common Shareholders vote in favour of the Share Issuance Resolution. In evaluating the Arrangement, the Cenovus Board considered, among other things, the advice and financial analyses provided by TD Securities referred to above, in addition to the TD Fairness Opinion. In assessing the TD Fairness Opinion, the Cenovus Board considered and assessed the independence of TD Securities, taking into account that a substantial portion of the fees payable to TD Securities for its services are contingent upon the completion of the Arrangement.

In considering the fairness, from a financial point of view, to Cenovus of the Consideration to be paid pursuant to the Arrangement, TD Securities considered the Arrangement from the perspective of Cenovus generally and did not consider the specific circumstances of Cenovus Common Shareholders or any particular Cenovus Common Shareholder, including with regard to income tax considerations. TD Securities expresses no opinion with respect to future trading prices of securities of Cenovus or Husky. The TD Fairness Opinion is rendered as of October 24, 2020 on the basis of securities markets, economic and general business and financial conditions prevailing on that date and the condition and prospects, financial and otherwise, of Cenovus, Husky and their respective subsidiaries and affiliates as they were reflected in the information that was provided to TD Securities. The TD Fairness Opinion does not address the relative merits of the Arrangement as compared to other transactions or business strategies that might be available to Cenovus, nor does it address the underlying business decision to implement the Arrangement or any other term or aspect of the Arrangement or the Arrangement Agreement or any other agreements entered into or amended in connection with the Arrangement. Any changes therein may affect the TD Fairness Opinion and, although TD Securities reserves the right to change, withdraw or supplement the TD Fairness Opinion in such event, it disclaims any undertaking or obligation to advise any person of any such change that may come to its attention, or to change, withdraw or supplement the TD Fairness Opinion after such date.

Pursuant to the terms of its engagement letter, TD Securities is to be paid a fee for its services, a portion of which is payable on delivery of the TD Fairness Opinion, and a portion of which is contingent on the successful completion of the Arrangement or certain other events. Cenovus has also agreed to reimburse TD Securities for its reasonable out-of-pocket expenses and to indemnify TD Securities in certain circumstances in connection with the engagement agreement.

TD Securities and its affiliates have not been engaged to provide any financial advisory services, have not acted as lead or co-lead manager on any offering of securities of Cenovus, Husky, or any of their respective associates or affiliates, and have not had a material financial interest in any transaction involving Cenovus, Husky, or any of their respective associates or affiliates during the 24 months preceding the date on which TD Securities was first contacted by Cenovus in respect of the Arrangement, other than services provided under TD Securities’ engagement agreement with Cenovus and as described herein. TD Securities has acted in the following capacities for Cenovus: (a) joint bookrunner in connection with Cenovus’s US$1.0 billion senior note offering in July 2020; (b) financial advisor to Cenovus on its sale of Western Canadian upstream assets in 2018; (c) co-lead arranger and joint bookrunner on Cenovus’s core $4.5 billion revolving credit facilities; and (d) co-lead arranger and joint bookrunner on Cenovus’s $1.1 billion liquidity facility. TD Securities has acted in the following capacities for Husky: (a) co-manager on Husky’s $1.25 billion senior note offering in August 2020; (b) co-manager on Husky’s US$750 million senior note offering in March 2019; (c) financial advisor to Husky on its sale of Prince George refinery in October 2019; (d) financial advisor to Husky on its strategic review of its Canadian retail and commercial fuels business; (e) financial advisor to Husky on its unsolicited bid of MEG Energy Corp. in 2018; (f) co-syndication agent and documentation agent on Husky’s $4.0 billion revolving credit facilities; and (g) syndication lender to Husky Midstream Limited Partnership in connection with its $1.22 billion revolving credit facilities. Neither TD Securities nor any of its affiliates or associates is an insider, associate or affiliate (as such terms are defined in Applicable Canadian Securities Laws) of Cenovus or Husky or any of their respective associates or affiliates. TD Securities has advised Cenovus that, as at the date of the TD Fairness Opinion, neither TD Securities nor any of its affiliates beneficially owned any Cenovus Common Shares. The Toronto-Dominion Bank, the parent company of TD Securities, directly or indirectly through one or more affiliates, provides banking services and other financing services to entities related to Cenovus and Husky in the normal course of business.

The Cenovus Board urges the Cenovus Common Shareholders to read the TD Fairness Opinion in its entirety. The above summary of the TD Fairness Opinion is qualified in its entirety by reference to the full text of the TD Fairness Opinion as set out in Appendix K – “TD Fairness Opinion”. The TD Fairness Opinion was provided solely for the use of the Cenovus Board (solely in its capacity as such) in connection with the Cenovus Board’s evaluation of the Arrangement and may not be relied upon by the Cenovus Common Shareholders or any other person. The TD Fairness Opinion is not intended to and does not constitute a recommendation as to how the Cenovus Common Shareholders should vote in respect of the Share Issuance Resolution. TD Securities expresses no view as to, and the TD Fairness Opinion does not address, any other aspect or implication of the Arrangement or the underlying business decision of the Cenovus Board to effect the Arrangement, the relative merits of the Arrangement as compared to any alternative business strategies that might be available for Cenovus or the effect of any other transaction in which Cenovus might engage.

 

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Recommendation of the Husky Board

At a meeting of the Husky Board held on October 23, 2020 prior to Husky entering into the Arrangement Agreement, the Husky Board considered: (a) the Arrangement on the terms and conditions as provided in the Arrangement Agreement, (b) the verbal opinion of Goldman Sachs to the Husky Board, subsequently confirmed by delivery of a written opinion dated October 24, 2020, that, as of the date of such written opinion and based upon and subject to the factors and assumptions set forth therein, that the Consideration to be paid to the Husky Common Shareholders pursuant to the Arrangement was fair, from a financial point of view, to the Husky Common Shareholders, and (c) the verbal opinions of CIBC Capital Markets to the Husky Board, subsequently confirmed by delivery of written opinions dated October 23, 2020, that, based upon and subject to the assumptions, qualifications and limitations set forth therein, the consideration to be received by the Husky Common Shareholders and the Husky Preferred Shareholders, respectively, pursuant to the Arrangement is fair, from a financial point of view, to the Husky Common Shareholders and the Husky Preferred Shareholders, respectively. After considering the terms of the proposed arrangement, the Husky Fairness Opinions, the advice from its financial advisors and legal counsel and such other factors as were deemed appropriate, the members of the Husky Board unanimously: (i) determined that the Arrangement and the entry into the Arrangement Agreement are in the best interests of Husky; (ii) determined that the Arrangement is fair to the Husky Shareholders; (iii) approved the Arrangement Agreement and the transactions contemplated thereby; (iv) recommended that Husky Common Shareholders and Husky Optionholders vote in favour of the Arrangement Resolution; and (v) recommended that Husky Preferred Shareholders vote in favour of the Preferred Shareholder Resolution (collectively, the “Husky Board Recommendation”).

The Husky Board unanimously recommends that the Husky Common Shareholders and the Husky Optionholders vote FOR the Arrangement Resolution and that the Husky Preferred Shareholders vote FOR the Preferred Shareholder Resolution.

In coming to its conclusion and recommendations the Husky Board considered, among others, the following factors:

 

 (a)

the purpose and anticipated benefits of the Arrangement as outlined elsewhere in this Information Circular including under “Reasons for the Arrangement – Husky Board” and “Attributes of the Combined Company” above;

 

 (b)

information concerning the financial condition, results of operations, business plans and prospects of Husky, and the resulting potential for the enhancement of the business efficiency, management effectiveness and financial results of the combined company;

 

 (c)

the alternatives available to Husky; and

 

 (d)

the advice and assistance of Goldman Sachs and CIBC Capital Markets in evaluating the Arrangement. See “Goldman Sachs Fairness Opinion” at Appendix G to this Information Circular, “CIBC Common Shareholder Fairness Opinion” at Appendix H to this Information Circular and “CIBC Preferred Shareholder Fairness Opinion” at Appendix I to this Information Circular.

The foregoing discussion of the information and factors considered and given weight by the Husky Board is not intended to be exhaustive. In addition, in reaching the determination to approve and recommend the Arrangement, the Husky Board did not assign any relative or specific weights to the foregoing factors which were considered, and individual directors may have given differing weights to different factors.

The Husky Board realized that there are risks associated with the Arrangement, including that some of the potential benefits set forth above may not be realized or that there may be significant costs associated with realizing such benefits. The Husky Board believes that the factors in favour of the Arrangement outweigh the risks and potential disadvantages, although there can be no assurance in this regard. See “Risk Factors”.

Notwithstanding the recommendation of the Husky Board that Husky Common Shareholders and Husky Optionholders vote in favour of the Arrangement Resolution and that the Husky Preferred Shareholders vote in favour of the Preferred Shareholder Resolution, Husky Common Shareholders, Husky Optionholders and Husky Preferred Shareholders should make their own decisions whether to vote their Husky Common Shares, Husky Options or Husky Preferred Shares, as applicable, in favour of the Arrangement Resolution and Preferred Shareholder Resolution and, if appropriate, should consult their own legal, tax, financial or other professional advisors in making that decision.

Recommendation of the Cenovus Board

At a meeting of the Cenovus Board held on October 24, 2020 prior to Cenovus entering into the Arrangement Agreement, the Cenovus Board considered the Arrangement on the terms and conditions as provided in the Arrangement Agreement, and the verbal fairness opinions of RBC Capital Markets and TD Securities that the Consideration to be paid by Cenovus pursuant to the Arrangement is fair, from a financial point of view, to Cenovus. After considering the terms of the proposed arrangement, the Cenovus Fairness Opinions, the advice from its financial advisors and legal counsel and such other factors as were deemed appropriate, the members of the Cenovus Board unanimously: (i) determined that the Arrangement and entry into the Arrangement Agreement are in the best interests of Cenovus; (ii) determined that the consideration to be paid by Cenovus pursuant to the Arrangement Agreement is fair, from a financial point of view, to Cenovus; (iii) approved the Arrangement Agreement and the transactions contemplated thereby; and (iv) recommended that Cenovus Common Shareholders vote in favour of the Share Issuance Resolution (collectively, the “Cenovus Board Recommendation”).

 

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The Cenovus Board unanimously recommends that the Cenovus Common Shareholders vote FOR the Share Issuance Resolution.

In coming to its conclusion and recommendations the Cenovus Board consulted with and received advice from legal counsel and considered, among others, the following factors:

 

 (a)

the purpose and anticipated benefits of, and the inherent risks of proceeding, or not, with the Arrangement as outlined elsewhere in this Information Circular including under “Reasons for the Arrangement – Cenovus Board” and “Attributes of the Combined Company” above;

 

 (b)

information concerning the financial condition, results of operations, business plans and prospects of Cenovus, and the resulting potential for the enhancement of the business efficiency, management effectiveness and financial results of the combined company;

 

 (c)

the alternatives reasonably available to Cenovus, including continuing to operate as a standalone entity; and

 

 (d)

the advice and assistance of RBC Capital Markets and TD Securities in evaluating the Arrangement. See “RBC Fairness Opinion” at Appendix J to this Information Circular and “TD Fairness Opinion” at Appendix K to this Information Circular.

In addition, under the Arrangement Agreement, until the time that the Share Issuance Resolution is approved by Cenovus Common Shareholders, the Cenovus Board has retained the ability to consider and respond to Acquisition Proposals on the specific terms and conditions set forth in the Arrangement Agreement, and to accept a Superior Proposal in certain circumstances.

The foregoing discussion of the information and factors considered and given weight by the Cenovus Board is not intended to be exhaustive. In addition, in reaching the determination to approve and recommend the Arrangement, the Cenovus Board did not assign any relative or specific weights to the foregoing factors which were considered, and individual directors may have given differing weights to different factors.

The Cenovus Board realized that there are risks associated with the Arrangement, including that some of the potential benefits set forth above may not be realized or that there may be significant costs associated with realizing such benefits. The Cenovus Board believes that the factors in favour of the Arrangement outweigh the risks and potential disadvantages, although there can be no assurance in this regard. See “Risk Factors”.

Notwithstanding the recommendation of the Cenovus Board that Cenovus Common Shareholders vote in favour of the Share Issuance Resolution, Cenovus Common Shareholders should make their own decision whether to vote their Cenovus Common Shares in favour of the Share Issuance Resolution and, if appropriate, should consult their own legal, tax, financial or other professional advisors in making that decision.

EFFECT OF THE ARRANGEMENT

General

The Arrangement will result in the issuance of:

 

  

to each Husky Common Shareholder (excluding Dissenting Shareholders), Cenovus Common Shares for a portion of the Husky Common Shares held by such Husky Common Shareholder and of Cenovus Warrants for the remaining portion of Husky Common Shares held by such Husky Common Shareholder, such that, in aggregate, each Husky Common Shareholder will be issued 0.7845 of a Cenovus Common Share and 0.0651 of a Cenovus Warrant in respect of each Husky Common Share held (each whole Cenovus Warrant will entitle the holder thereof to acquire one Cenovus Common Share upon payment in full of the exercise price of $6.54 per Cenovus Common Share at any time up to 60 months following completion of the Arrangement);

 

  

to each Husky Preferred Shareholder (excluding Dissenting Shareholders), if the Preferred Share Condition is satisfied, one Cenovus Preferred Share of a series having substantially identical terms in exchange for each Husky Preferred Share of a corresponding series to each Husky Preferred Shareholder (excluding Dissenting Shareholders); and

 

  

to each Husky Optionholder, Cenovus Replacement Options providing each Husky Optionholder with an option to acquire such number of Cenovus Common Shares as is equal to that number of Husky Common Shares that were issuable upon exercise of such Husky Option immediately prior to the Effective Time, multiplied by 0.7845, with an exercise price per Cenovus Common Share equal to the exercise price per share of such Husky Option immediately prior to the Effective Time divided by 0.7845 and rounded up to the nearest whole cent (provided that, if the foregoing calculation results in a holder of Cenovus Replacement Options being entitled to acquire a fraction of a Cenovus Common Share, then the number of Cenovus Common Shares subject to such Cenovus Replacement Options shall be rounded down to the next lower whole number of Cenovus Common Shares).

As at November 9, 2020, there were 1,005,121,738 Husky Common Shares and 1,228,869,903 Cenovus Common Shares outstanding (in each case, on a non-diluted basis). Upon completion of the Arrangement, assuming there are no Dissenting Shareholders and that no Husky Common

 

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Shares or Cenovus Common Shares are issued pursuant to any outstanding Husky Options or Cenovus Options, as applicable, or entitlements or other rights to acquire Husky Common Shares or Cenovus Common Shares between the Agreement Date and the Effective Date, there will be approximately 2,017,387,906 Cenovus Common Shares issued and outstanding, of which existing holders of Husky Common Shares and Cenovus Common Shares will collectively own approximately 39% and 61% of the combined company on a non-diluted basis, respectively. If the Cenovus Warrants are exercised in full following completion of the Arrangement, current holders of Cenovus Common Shares are expected to own approximately 59% of the combined company, and Husky Common Shareholders are expected to own approximately 41% of the combined company, on a partially-diluted basis.

No fractional Cenovus Common Shares or Cenovus Warrants will be issued under the Arrangement. In lieu of any fractional Cenovus Common Shares or Cenovus Warrants, as applicable, a Husky Common Shareholder otherwise entitled to a fractional interest in a Cenovus Common Share or Cenovus Warrant will receive the next lower whole number of Cenovus Common Shares or Cenovus Warrants, as applicable. In calculating such fractional interests, all Husky Common Shares registered in the name of or beneficially held by such Husky Common Shareholder, or its nominee(s), will be aggregated. Under the Plan of Arrangement, the Husky Preferred Shares will be exchanged for Cenovus Preferred Shares on a one-for-one basis.

The Plan of Arrangement provides that, subject to applicable Laws, any certificate formerly representing Husky Common Shares and provided that the Husky Preferred Shares are exchanged for Cenovus Preferred Shares pursuant to the Arrangement, any certificate formerly representing Husky Preferred Shares not deposited together with all other documents as required by the Plan of Arrangement and the applicable Letter of Transmittal on or before the last Business Day prior to the third anniversary of the Effective Date, and any right or claim by or interest of any kind or nature, including the rights to receive certificates representing Cenovus Common Shares and Cenovus Warrants (in the case of former Husky Common Shareholders) or Cenovus Preferred Shares (in the case of former Husky Preferred Shareholders) to which such holder is entitled pursuant to the Arrangement, shall terminate and be deemed to be surrendered and forfeited to Cenovus for no consideration, together with all entitlements to dividends, distributions and interest thereon.

Husky Incentive Awards

Husky Options

Pursuant to the Plan of Arrangement, each Husky Option outstanding immediately prior to the Effective Time (whether vested or unvested) will be transferred to Cenovus and, as sole consideration therefor, Cenovus will grant a Cenovus Replacement Option to acquire such number of Cenovus Common Shares as is equal to that number of Husky Common Shares that were issuable upon exercise of such Husky Option immediately prior to the Effective Time, multiplied by 0.7845, with an exercise price per Cenovus Common Share equal to the exercise price per share of such Husky Option immediately prior to the Effective Time divided by 0.7845 and rounded up to the nearest whole cent (provided that, if the foregoing calculation results in a holder of Cenovus Replacement Options being entitled to acquire a fraction of a Cenovus Common Share, then the number of Cenovus Common Shares subject to such Cenovus Replacement Options will be rounded down to the next lower whole number of Cenovus Common Shares), and all Husky Options will concurrently be cancelled and terminated. For greater certainty, a holder of Husky Options will receive no additional consideration for the exchange of such Husky Options other than the Cenovus Replacement Options and all other terms and conditions of a Cenovus Replacement Option, including the term to expiry, vesting, conditions to and manner of exercise, will be the same as the Husky Option for which it was exchanged.

Notwithstanding the foregoing, if it is determined in good faith that: (a) the excess of the aggregate of the fair market value of the Cenovus Common Shares subject to a Cenovus Replacement Option, determined immediately after the effective time of the exchange of Husky Options for Cenovus Replacement Options pursuant to the Plan of Arrangement, over the aggregate option exercise price for such Cenovus Common Shares pursuant to such Cenovus Replacement Option (such excess referred to as the “In the Money Amount” of the Cenovus Replacement Option) would otherwise exceed (b) the excess of the aggregate fair market value of the Husky Common Shares subject to the Husky Option in exchange for which the Cenovus Replacement Option was granted, determined immediately prior to the effective time of the exchange of Husky Options for Cenovus Replacement Options pursuant to the Plan of Arrangement, over the aggregate option exercise price for the Husky Common Shares pursuant to such Husky Option (such excess referred to as the “In the Money Amount” of the Husky Option), the previous provisions will be modified so that the In the Money Amount of the Cenovus Replacement Option does not exceed the In the Money Amount of the Husky Option in accordance with subsection 7(1.4) of the Tax Act, but only to the extent necessary and in a manner that does not otherwise (except to the extent necessary to comply with subsection 7(1.4) of the Tax Act) adversely affect the holder of the Cenovus Replacement Option.

Any document, certificate or option agreement previously evidencing one or more Husky Options will thereafter evidence and be deemed to evidence Cenovus Replacement Options. Accordingly, no certificate evidencing one or more Cenovus Replacement Options will be issued pursuant to the Arrangement.

See “Effect of the Arrangement – Details of the Arrangement”.

Husky PSUs

Completion of the Arrangement will result in the acceleration of the vesting of the Husky PSUs effective immediately prior to the Effective Time. In accordance with their terms, the Husky PSUs will be settled in cash following the Effective Time based on the weighted average

 

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trading price of the Husky Common Shares on the TSX for the five trading days immediately preceding the Effective Date. The payout of such Husky PSUs will be determined in accordance with the terms of the Husky PSU Plan, without the making of any adjustments or other determinations pursuant to the terms of the Husky PSU Plan or any Husky PSUs granted thereunder.

Husky DSUs

If a holder of Husky DSUs ceases to be a member of the Husky Board (and does not remain an employee of Husky or an affiliate of Husky or a member of the board of directors of any affiliate of Husky) in connection with the Arrangement, then the Husky DSUs held by such holder will be settled and redeemed in accordance with the terms of the Husky DSU Plan, without the making of any adjustments or other determinations pursuant to the terms of the Husky DSU Plan or any Husky DSUs granted thereunder.

Cenovus Incentive Awards

Cenovus Incentives

Completion of the Arrangement will result in the acceleration of the vesting of the Cenovus Options, Cenovus PSUs and Cenovus RSUs held by non-executive officers of Cenovus. In accordance with their terms, the Cenovus PSUs and the Cenovus RSUs may be settled, at the discretion of Cenovus, in Cenovus Common Shares, cash, or a combination of Cenovus Common Shares and cash, following the Effective Time based on the thirty-day volume weighted average trading price of the Cenovus Common Shares on the TSX prior to the Effective Date. The payout of such Cenovus Options, Cenovus PSUs and Cenovus RSUs will be determined in accordance with the terms of the applicable Cenovus Incentive Plan, without the making of any adjustments (including as a consequence of the Arrangement) or other determinations pursuant to the terms of the Cenovus Incentive Plans or any Cenovus Incentives granted thereunder.

If a holder of Cenovus DSUs is terminated as a director or employee of Cenovus, as applicable, in connection with the Arrangement, then the Cenovus DSUs held by such holder will be settled and redeemed in accordance with the terms of the applicable Cenovus DSU Plan, without the making of any adjustments or other determinations pursuant to the terms of the applicable Cenovus DSU Plan or any Cenovus DSUs granted thereunder. In accordance with their terms, the Cenovus DSUs for non-continuing directors or employees will be settled in cash following the Effective Time on the applicable redemption date based on the five-day volume weighted average trading price of the Cenovus Common Shares on the TSX prior to such redemption date.

Board and Management

Following completion of the Arrangement, Alex J. Pourbaix, the current President & Chief Executive Officer of Cenovus, will serve as President & Chief Executive Officer of the combined company. Further, Jeffrey R. Hart, the current Chief Financial Officer of Husky, will serve as Executive Vice-President & Chief Financial Officer of the combined company, and Jonathan M. McKenzie, the current Executive Vice-President & Chief Financial Officer of Cenovus, will serve as Executive Vice-President & Chief Operating Officer of the combined company. Keith A. MacPhail, the current Chair of the Cenovus Board, will serve as Independent Board Chair of the combined company. The remainder of senior management will be selected from each of Cenovus and Husky and named prior to the completion of the Arrangement.

The board of directors of the combined company following completion of the Arrangement will consist of eight members of the current Cenovus Board, including Keith A. MacPhail (as Independent Board Chair) and Alex J. Pourbaix, with Keith M. Casey, Jane E. Kinney, Harold N. Kvisle, Richard J. Marcogliese, Claude Mongeau, and Rhonda I. Zygocki expected to continue as members of the combined company’s board of directors, and four members of the current Husky Board, with Canning K. N. Fok, Eva L. Kwok, Wayne E. Shaw and Frank J. Sixt being the members expected to join the combined company’s board of directors.

Details of the Arrangement

The following is a summary only of the Plan of Arrangement and reference should be made to the full text of the Arrangement Agreement and the Plan of Arrangement set forth in Appendices D and E to this Information Circular, respectively.

Pursuant to the Plan of Arrangement, commencing at the Effective Time, each of the following are deemed to occur consecutively in two minute intervals in the following order without any further act or formality:

 

  

Dissenting Shareholders: Husky Common Shares held by Dissenting Shareholders and, if the Preferred Share Condition is satisfied prior to the Effective Time, Husky Preferred Shares held by Dissenting Shareholders shall be deemed to have been transferred to, and acquired by, Cenovus (free and clear of any Encumbrances), and: (i) such Dissenting Shareholders shall cease to be the holders of the Husky Common Shares or Husky Preferred Shares, as applicable, so transferred and to have any rights as Husky Common Shareholders or Husky Preferred Shareholders, as applicable, other than the right to be paid fair value for such Husky Common Shares or Husky Preferred Shares, as applicable, in accordance with the Plan of Arrangement; (ii) such Dissenting Shareholders’ names shall be removed from the register of Husky Common Shareholders and Husky Preferred Shareholders, as applicable; and (iii) Cenovus shall become the transferee (free and clear of all Encumbrances) of the Husky Common Shares or the Husky Preferred Shares, as applicable, so transferred and shall be added to the applicable register or registers of Husky Common Shares or Husky Preferred Shares, as applicable, maintained by or on behalf of Husky;

 

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Acquisition of Husky Preferred Shares by Cenovus: Provided that the Preferred Share Condition is satisfied prior to the Effective Time, each outstanding Husky Preferred Share held by a Husky Preferred Shareholder (other than a Dissenting Shareholder and Cenovus) will be deemed to be, simultaneously transferred to, and acquired by, Cenovus (free and clear of any Encumbrances), in sole consideration for the issuance by Cenovus to the Husky Preferred Shareholder of one Cenovus Preferred Share of the corresponding series so transferred;

 

  

Acquisition of Husky Common Shares by Cenovus: Each Husky Common Shareholder (other than a Dissenting Shareholder and Cenovus) will be deemed to have transferred to Cenovus (free and clear of any Encumbrances):

 

  

that number of Husky Common Shares equal to the number of Husky Common Shares held by such Husky Common Shareholder immediately prior to the Effective Time, less the number of Husky Common Shares transferred to Cenovus pursuant to the paragraph immediately below, in sole consideration for that number of Cenovus Common Shares obtained by multiplying the number of Husky Common Shares held by such Husky Common Shareholder immediately prior to the Effective Time, by 0.7845; and

 

  

that number of Husky Common Shares obtained by multiplying the number of Husky Common Shares held by such Husky Common Shareholder immediately prior to the Effective Time, by the Cenovus Warrants Portion, in sole consideration for that number of Cenovus Warrants obtained by multiplying the number of Husky Common Shares held by such Husky Common Shareholder immediately prior to the Effective Time, by 0.0651.

 

  

Exchange of Husky Options for Cenovus Replacement Options:

 

  

each Husky Option outstanding immediately prior to the Effective Time (whether vested or unvested) shall be transferred to Cenovus and, as sole consideration therefor, Cenovus will grant a Cenovus Replacement Option: (a) to acquire such number of Cenovus Common Shares as is equal to that number of Husky Common Shares that were issuable upon exercise of such Husky Option immediately prior to the Effective Time, multiplied by 0.7845, and (b) with an exercise price per Cenovus Common Share equal to the exercise price per share of such Husky Option immediately prior to the Effective Time divided by 0.7845 and rounded up to the nearest whole cent (provided that, if the foregoing calculation results in a holder of Cenovus Replacement Options being entitled to acquire a fraction of a Cenovus Common Share, then the number of Cenovus Common Shares subject to such Cenovus Replacement Options shall be rounded down to the next lower whole number of Cenovus Common Shares), and all Husky Options shall concurrently be cancelled and terminated; and

 

  

for greater certainty, a holder of Husky Options will receive no consideration for the exchange of such Husky Options other than the Cenovus Replacement Options;

 

  

all other terms and conditions of a Cenovus Replacement Option, including the term to expiry, vesting conditions and conditions to exercise, will be the same as the Husky Option for which it was exchanged;

 

  

any document, certificate or option agreement previously evidencing one or more Husky Options will thereafter be deemed to evidence such Cenovus Replacement Options and no certificate evidencing one or more Cenovus Replacement Options will be issued pursuant to the Arrangement;

 

  

such holder of Husky Options shall cease to be a holder of the Husky Options so transferred and to have any rights as a holder of Husky Options other than the right to receive the number of Cenovus Replacement Options issuable to such holder on the basis set forth in the Plan of Arrangement; and

 

  

such holder’s name will be removed from the register or account of Husky Optionholders maintained by or on behalf of Husky as it relates to the Husky Options so transferred; and

 

  

Notwithstanding the foregoing, if it is determined in good faith that: (a) the In the Money Amount of the Cenovus Replacement Option would otherwise exceed (b) the In the Money Amount of the Husky Option, the previous provisions shall be modified so that the In the Money Amount of the Cenovus Replacement Option does not exceed the In the Money Amount of the Husky Option in accordance with subsection 7(1.4) of the Tax Act, but only to the extent necessary and in a manner that does not otherwise (except to the extent necessary to comply with subsection 7(1.4) of the Tax Act) adversely affect the holder of the Cenovus Replacement Option.

The Arrangement Agreement

General

The Arrangement will be effected pursuant to the Arrangement Agreement which provides for the implementation of the Plan of Arrangement. The Arrangement Agreement contains covenants, representations and warranties of and from each of Husky and Cenovus and various conditions precedent, both mutual and with respect to Husky and Cenovus individually.

 

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Unless all conditions are satisfied or waived by the Party for whose benefit such conditions exist, to the extent they may be capable of waiver, the Arrangement will not proceed. There is no assurance that the conditions will be satisfied or waived on a timely basis, or at all.

The following is a summary of certain provisions of the Arrangement Agreement and is qualified in its entirety by the full text of the Arrangement Agreement, set forth in Appendix D to this Information Circular. Husky Shareholders and Cenovus Common Shareholders are urged to read the Arrangement Agreement in its entirety.

Representations and Warranties and Covenants Relating to the Conduct of Business of the Parties

The Arrangement Agreement contains certain customary representations and warranties of each of Husky and Cenovus relating to, among other things, their respective organization, capitalization, operations, compliance with laws and regulations and other matters, including their authority to enter into the Arrangement Agreement and to consummate the Arrangement. For the complete text of the applicable provisions, see Article 4, Article 5, Schedule “E” and Schedule “F” of the Arrangement Agreement.

In addition, pursuant to the Arrangement Agreement, each of the Parties has covenanted, among other things, until the earlier of the Effective Time or the termination of the Arrangement Agreement, to use all reasonable commercial efforts to maintain and preserve their respective businesses and refrain from taking certain actions outside the ordinary course. For the complete text of the applicable provisions, see Sections 3.1 and 3.2 of the Arrangement Agreement.

Mutual Conditions

The respective obligations of Cenovus and Husky to complete the Arrangement are subject to the satisfaction of the following conditions, any of which may be waived by the mutual consent of Cenovus and Husky, without prejudice to their right to rely on any other of such conditions:

 

 (a)

the Interim Order shall have been granted in form and substance satisfactory to each of Cenovus and Husky, acting reasonably, and such order shall not have been set aside or modified in a manner unacceptable to Cenovus or Husky, each acting reasonably, on appeal or otherwise;

 

 (b)

the Arrangement Resolution shall have been approved by the Husky Common Shareholders and the Husky Optionholders at the Husky Meeting, in accordance with the Interim Order;

 

 (c)

the Share Issuance Resolution shall have been approved by the Cenovus Common Shareholders at the Cenovus Meeting;

 

 (d)

the Final Order shall have been granted on terms consistent with the Arrangement Agreement, and such order shall not have been set aside or modified in a manner unacceptable to Cenovus or Husky, acting reasonably, on appeal or otherwise;

 

 (e)

(i) the TSX shall have conditionally approved the issuance and the listing and posting for trading on the TSX of: (A) the Cenovus Common Shares, the Cenovus Warrants and, if the Preferred Share Condition is satisfied prior to the Effective Time, the Cenovus Preferred Shares to be issued pursuant to the Arrangement; and (B) the Cenovus Common Shares issuable upon exercise of Cenovus Warrants; and (ii) the NYSE shall have approved the issuance of: (A) the Cenovus Common Shares and the Cenovus Warrants to be issued pursuant to the Arrangement; and (B) the Cenovus Common Shares issuable upon exercise of Cenovus Warrants, subject, in each case, to official notice of issuance, in each case subject only to customary conditions reasonably expected to be satisfied;

 

 (f)

the Key Regulatory Approvals shall have been obtained, and each such Key Regulatory Approval shall be in full force and effect; and

 

 (g)

no Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Order or Law which is then in effect and has the effect of making the Arrangement illegal or otherwise preventing or prohibiting consummation of the Arrangement.

The foregoing conditions are for the mutual benefit of the Parties and may be asserted by either Party regardless of the circumstances and may be waived by the mutual written consent of the Parties, in whole or in part, at any time and from time to time without prejudice to any other rights that the Parties may have, including the right of the Parties to rely on any other of such conditions.

Conditions to the Obligations of Cenovus

The obligation of Cenovus to complete the Arrangement and take the other actions required to be taken by Cenovus on or before the Effective Date is subject to the satisfaction or waiver of the following conditions:

 

 (a)

Husky shall have fulfilled and complied with in all material respects each of its covenants in the Arrangement Agreement to be performed, fulfilled or complied with on or before the Effective Time, and Husky shall have provided to Cenovus a certificate of two executive officers certifying compliance with such covenants dated the Effective Date;

 

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 (b)

(i) the representations and warranties of Husky with respect to its capitalization shall be true and correct in all respects as of the Agreement Date and as of the Effective Date as if made on and as of such date (except to the extent such representations and warranties speak of an earlier date, the accuracy of which shall be determined as of such earlier date), except for such failures to be true and correct that are de minimis; (ii) certain fundamental representations and warranties of Husky set forth in the Arrangement Agreement shall be true and correct in all material respects as of the Agreement Date and the Effective Date as if made on and as of such date; and (iii) all other representations and warranties of Husky set forth in the Arrangement Agreement shall be true and correct as of the Effective Date as if made on and as of such date (except to the extent such representations and warranties speak as of an earlier date, the accuracy of which shall be determined as of that specified date), except where any failure or failures of any such representations and warranties to be so true and correct would not result in, or would not reasonably be expected to result in, a Material Adverse Change in respect of the Husky Group (taken as a whole) (and, for this purpose, any reference to “material”, “Material Adverse Effect” or any other concept of materiality shall be ignored), and Husky shall have provided to Cenovus a certificate of two executive officers certifying such accuracy on the Effective Date;

 

 (c)

all third-party consents, waivers, authorizations, orders and approvals required, whether under applicable Law, from Governmental Authorities or parties to contracts of the members of the Husky Group, or otherwise, in connection with the consummation of the Arrangement (including regulatory approvals other than the Key Regulatory Approvals) shall have been provided or obtained on terms and conditions acceptable to Cenovus, acting reasonably, at or before the Effective Time, except where the failure to provide or obtain such would not, individually or in the aggregate, have a Material Adverse Effect on the Husky Group (taken as a whole) or prevent the completion of the transactions contemplated by the Arrangement Agreement;

 

 (d)

between the Agreement Date and the Effective Time, there shall not have occurred any changes, events, circumstances or developments that would reasonably be likely to have (individually or in the aggregate) a Material Adverse Effect on Husky; and

 

 (e)

the aggregate number of Husky Common Shares held, directly or indirectly, by the Husky Common Shareholders who have properly exercised and not withdrawn Dissent Rights in connection with the Arrangement shall not exceed 10% of the outstanding Husky Common Shares.

The foregoing conditions are for the exclusive benefit of Cenovus and may be asserted by Cenovus regardless of the circumstances or may be waived by Cenovus in its sole discretion, in whole or in part, at any time and from time to time without prejudice to any other rights which Cenovus may have, including the right of Cenovus to rely on any other of such conditions.

Conditions to the Obligations of Husky

The obligation of Husky to complete the Arrangement and to take the other actions required to be taken by Husky on or before the Effective Date is subject to the satisfaction or waiver of the following conditions:

 

 (a)

Cenovus shall have fulfilled and complied with in all material respects each of its covenants in the Arrangement Agreement to be performed, fulfilled, or complied with on or before the Effective Time, and Cenovus shall have provided to Husky a certificate of two executive officers certifying compliance with such covenants dated the Effective Date;

 

 (b)

(i) the representations and warranties of Cenovus with respect to its capitalization shall be true and correct in all respects as of the Agreement Date and as of the Effective Date as if made on and as of such date (except to the extent such representations and warranties speak of an earlier date, the accuracy of which shall be determined as of such earlier date), except for such failures to be true and correct that are de minimis; (ii) certain fundamental representations and warranties of Cenovus set forth in the Arrangement Agreement shall be true and correct in all material respects as of the Agreement Date and the Effective Date as if made on and as of such date; and (iii) all other representations and warranties of Cenovus set forth in the Arrangement Agreement shall be true and correct as of the Effective Date as if made on and as of such date (except to the extent such representations and warranties speak as of an earlier date, the accuracy of which shall be determined as of that specified date), except where any failure or failures of any such representations and warranties to be so true and correct would not result in, or would not reasonably be expected to result in, a Material Adverse Change in respect of the Cenovus Group (taken as a whole) (and, for this purpose, any reference to “material”, “Material Adverse Effect” or any other concept of materiality shall be ignored), and Cenovus shall have provided to Husky a certificate of two executive officers certifying such accuracy on the Effective Date;

 

 (c)

between the Agreement Date and the Effective Time, there shall not have occurred any changes, events, circumstances or developments that would reasonably be likely to have (individually or in the aggregate) a Material Adverse Effect on Cenovus; and

 

 (d)

on the Effective Date, the composition of the Cenovus Board shall be as set forth in the Arrangement Agreement.

 

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The foregoing conditions are for the exclusive benefit of Husky and may be asserted by Husky regardless of the circumstances or may be waived by Husky in its sole discretion, in whole or in part, at any time and from time to time without prejudice to any other rights which Husky may have, including the right of Husky to rely on any other of such conditions.

Covenants of the Parties Regarding Non-Solicitation; Right to Accept a Superior Proposal

Under the Arrangement Agreement, each Party has agreed to certain non-solicitation covenants as follows:

 

 (a)

Each Party shall, and shall cause its respective subsidiaries and its and their Representatives, as applicable, to: (i) immediately cease and cause to be terminated all existing solicitations, encouragements, discussions or negotiations (including through any of the Representatives of such Party), if any, with any third parties (other than the Other Party), initiated before the Agreement Date with respect to any Person that has made, indicated any interest in making or may reasonably be expected to make, an Acquisition Proposal; (ii) as and from the Agreement Date until termination of the Arrangement Agreement, immediately discontinue providing access to and disclosure of any of its confidential information and not allow or establish further access to any of its confidential information, or any data room, virtual or otherwise, to any Person (other than the Other Party or its Representatives) who has entered into a confidentiality agreement with the Party relating to an Acquisition Proposal; (iii) pursuant to and in accordance with each applicable confidentiality agreement relating to an Acquisition Proposal, promptly request the return or destruction of all information provided to any third parties that have entered into a confidentiality agreement with such Party and the destruction of all material including or incorporating or otherwise reflecting such confidential information regarding such Party or any of its subsidiaries, and shall use reasonable commercial efforts to cause such requests to be honoured; and (iv) not release, waive, terminate or otherwise forbear in the enforcement of, amend or modify, or enter into or participate in any discussions, negotiations or agreements to release, waive or otherwise forbear or amend or modify, any rights or other benefits under any confidentiality agreements to which such Party or any of its subsidiaries is a party, including any “standstill provisions” thereunder; except, in respect of (ii) and (iii) above. Each Party undertakes to enforce all standstill, non-disclosure, non-disturbance, non-solicitation and similar covenants or agreements that it has entered into with third parties prior to the Agreement Date.

 

 (b)

Neither Party shall, directly or indirectly, do, nor authorize or permit any of its Representatives to do, any of the following:

 

 (i)

solicit, assist, initiate or knowingly facilitate or encourage or take any action to solicit, assist, initiate or knowingly facilitate or encourage any Acquisition Proposal, or engage in any communication regarding the making of any proposal or offer that constitutes or may constitute or may reasonably be expected to lead to an Acquisition Proposal, including by way of furnishing information or access to properties, facilities or books and records;

 

 (ii)

withdraw, amend, modify or qualify, or propose to withdraw, amend, modify or qualify, in any manner adverse to the Other Party, the Husky Board Recommendation (or any related recommendation by any committee of the Husky Board) or the Cenovus Board Recommendation (or any related recommendation by any committee of the Cenovus Board), as applicable;

 

 (iii)

make any public announcement or take any other action inconsistent with the Husky Board Recommendation or Cenovus Board Recommendation, as applicable;

 

 (iv)

enter into or otherwise engage or participate in any negotiations or any discussions regarding any inquiry, proposal or offer that constitutes or may constitute or may reasonably be expected to lead to an Acquisition Proposal, or furnish or provide access to any information with respect to such Party’s securities, business, properties, operations or conditions (financial or otherwise) in connection with or in furtherance of an Acquisition Proposal, or otherwise cooperate in any way with, or assist or knowingly participate in, facilitate or encourage, any effort or attempt of any other Person to do or seek to do any of the foregoing;

 

 (v)

accept, recommend, approve, agree to, endorse or propose publicly to accept, recommend, approve, agree to or endorse, or, for a period in excess of two Business Days, take no position or a neutral position with respect to, a publicly announced or publicly proposed, Acquisition Proposal; or

 

 (vi)

accept, approve, endorse or enter into (other than a confidentiality agreement permitted by and in accordance with clause (vii) below) or publicly propose to accept, approve, endorse or enter into any agreement, understanding or arrangement (including any letter of intent or agreement in principle) in respect of or in any way related to any Acquisition Proposal or providing for the payment of any break, termination or other fees or expenses to any Person if Cenovus or Husky, as applicable, completes the transactions contemplated by the Arrangement Agreement;

except that notwithstanding any other provisions of clause (a)(ii) or (b) above, each Party and its Representatives may:

 

 (vii)

at any time prior to obtaining the approval of the Husky Common Shareholders and the Husky Optionholders of the Arrangement Resolution (in the case of Husky) or at any time prior to obtaining the approval of the Cenovus

 

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Common Shareholders of the Share Issuance Resolution (in the case of Cenovus), enter into, or participate in, any discussions or negotiations with an arm’s length third party who (without any solicitation, initiation or encouragement, directly or indirectly, after the Agreement Date, by such Party or any of its Representatives) seeks to initiate such discussions or negotiations and, subject to execution of a confidentiality and standstill agreement with terms at least as restrictive to such Party as the Confidentiality Agreement (on the condition that such confidentiality agreement shall provide for the disclosure thereof, along with the information provided thereunder, to the Other Party), may furnish to such third party information concerning such Party and its business, affairs, properties and assets (on the condition that such third party is not furnished with greater access or information than the Other Party), in each case if, and only to the extent that:

 

 (A)

the third party has first made a written bona fide Acquisition Proposal, which did not result from a breach of Section 7.1 of the Arrangement Agreement (Covenants Regarding Non-Solicitation), and in respect of which the Husky Board or the Cenovus Board, as applicable, determines in good faith, after consultation with its external legal and independent financial advisors, constitutes, or would reasonably be expected to constitute or lead to, a Superior Proposal;

 

 (B)

prior to furnishing such information to or entering into or participating in any such negotiations or initiating any discussions with such third party, the Party promptly provides written notice to the Other Party to the effect that it is furnishing information to or entering into or participating in discussions or negotiations with such Person or entity and provides to the Other Party the confidentiality and standstill agreement entered into with such Person or entity in accordance with this clause (vii) and the information required to be provided under clauses (c) and (d) below; and

 

 (C)

the Receiving Party has been, and would be after entering into or participating in any such discussions or negotiations, in compliance with all of its obligations under Section 7.1 of the Arrangement Agreement (Covenants Regarding Non-Solicitation);

 

 (viii)

comply with Division 3 of NI 62-104 and similar provisions under Applicable Canadian Securities Laws relating to the provision of directors’ circulars and make appropriate disclosure with respect thereto to its securityholders; and

 

 (ix)

at any time prior to obtaining the approval of the Husky Common Shareholders and the Husky Optionholders of the Arrangement Resolution (in the case of Husky) or at any time prior to obtaining the approval of the Cenovus Common Shareholders of the Share Issuance Resolution (in the case of Cenovus), withdraw the Husky Board Recommendation (or any recommendation by any committee of the Husky Board) or the Cenovus Board Recommendation (or any recommendation by any committee of the Cenovus Board), as applicable, and accept, recommend, approve or enter into an agreement to implement a Superior Proposal from a third party but only if prior to such acceptance, recommendation, approval or implementation: (A) the board of directors of such Party shall have concluded in good faith, after considering all proposals to adjust the terms and conditions of the Arrangement Agreement as contemplated by clause (d) below and after receiving the advice of its financial advisors and external legal counsel, as reflected in minutes of the board of directors of such Party, that such Superior Proposal is in the best interests of the Party and the taking of such action is necessary for the board of directors of such Party to act in a manner consistent with its fiduciary duties under Applicable Law; (B) such Party complies with its obligations set out in clause (d) below; and (C) if such Party is entering into an agreement to implement a Superior Proposal, such Party terminates the Arrangement Agreement in accordance with Section 9.1(g) (Termination by Husky upon entering into a Superior Proposal) or Section 9.1(h) (Termination by Cenovus upon entering into a Superior Proposal) of the Arrangement Agreement, as applicable, and concurrently therewith pays the Cenovus Termination Amount or the Husky Termination Amount, as applicable.

 

 (c)

If, after the Agreement Date, a Party or any of its subsidiaries (the “Receiving Party”) is in receipt of an Acquisition Proposal or any request (which request may be reasonably considered to be in furtherance of, or in relation to, an Acquisition Proposal) for non-public information relating to the Receiving Party or its properties, facilities, books or records the Receiving Party shall promptly (and in any event within 24 hours of receipt by the Receiving Party) notify the Other Party (“Responding Party”) (at first orally and then in writing) of any Acquisition Proposal (or any amendment thereto) or any amendments to the foregoing received by the Receiving Party. Such notice shall include a copy of any written Acquisition Proposal (and any amendment thereto) or any such request (which request may be reasonably considered to be in furtherance of, or in relation to, an Acquisition Proposal) for non-public information relating to the Receiving Party or its properties, facilities, books or records received by the Receiving Party or, if no written Acquisition Proposal has been received, a description of the material terms and conditions of, and the identity of the Person making any inquiry, proposal or offer or request (to the extent then known by the Receiving Party). The Receiving Party shall also provide such further and other details of the Acquisition Proposal, request or any amendment thereto as the Responding Party may reasonably request (to the extent then known by the Receiving Party). The Receiving Party shall keep the Responding Party fully informed of the status, including any change to material terms, of any Acquisition Proposal, request or any amendment thereto, shall respond promptly to all reasonable inquiries by the Responding Party with respect thereto, and shall provide to

 

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the Responding Party copies of all correspondence and other written material sent to or provided to the Receiving Party by any Person in connection with such inquiry, proposal, offer or request or sent or provided by the Receiving Party to any Person in connection with such inquiry, proposal, offer or request.

 

 (d)

Following receipt of a Superior Proposal, the Receiving Party shall give the Responding Party, orally and in writing, at least five Business Days advance notice of any decision by its board of directors to accept, recommend, approve or enter into an agreement to implement a Superior Proposal, which notice shall:

 

 (i)

confirm that the board of directors of the Receiving Party has determined that such Acquisition Proposal constitutes a Superior Proposal;

 

 (ii)

identify the third party making the Superior Proposal;

 

 (iii)

if the Receiving Party is proposing to enter into an agreement to implement such Superior Proposal, confirm that the entering into of a definitive agreement to implement such Superior Proposal is not subject to any financing condition, due diligence or access condition; and

 

 (iv)

if the Receiving Party is proposing to enter into an agreement to implement such Superior Proposal, confirm that a definitive agreement to implement such Superior Proposal has been settled between the Receiving Party and such third party in all material respects (including in respect of the value and financial terms and the value ascribed to any non-cash consideration offered under such Acquisition Proposal), and the Receiving Party will concurrently provide a true and complete copy thereof, together with all supporting materials, including any financing documents supplied to the Receiving Party in connection therewith, and will thereafter promptly provide any amendments thereto, to the Responding Party.

During the five Business Day period commencing on the delivery of such notice (such period, the “Matching Period”), the Receiving Party 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 change, withdraw, withhold, amend, modify or qualify, or propose publicly to change, withdraw, withhold, amend, modify or qualify the Husky Board Recommendation or the Cenovus Board Recommendation, as applicable. During the Matching Period, the Responding Party shall have the opportunity (but not the obligation) to offer to amend the Arrangement Agreement and the Arrangement in order for such Acquisition Proposal to cease to be a Superior Proposal. In addition, during the Matching Period, or such longer period as the Receiving Party may approve in writing for such purpose: (i) the board of directors of the Receiving Party shall review any offer made by the Responding Party to amend the Arrangement Agreement and the Arrangement in good faith in order to determine whether such proposal would, upon acceptance, result in the Acquisition Proposal previously constituting a Superior Proposal ceasing to be a Superior Proposal; and (ii) the Receiving Party shall negotiate in good faith with the Responding Party to make such amendments to the terms of the Arrangement Agreement and the Arrangement as would enable the Responding Party to proceed with the transactions contemplated by the Arrangement Agreement on such amended terms. If the board of directors of the Receiving Party determines that such Acquisition Proposal would cease to be a Superior Proposal: (x) the Receiving Party shall promptly so advise the Responding Party, and the Receiving Party and the Responding Party shall amend the Arrangement Agreement to reflect such offer made by the Responding Party, and shall take and cause to be taken all such actions as are necessary to give effect to the foregoing; and (y) the board of directors of the Receiving Party shall not accept, recommend, approve or enter into any agreement to implement such Acquisition Proposal and shall not release the party making the Acquisition Proposal from any standstill provisions and shall not change, withdraw, withhold, amend, modify or qualify, or publicly propose to change, withdraw, withhold, amend, modify or qualify the Husky Board Recommendation or the Cenovus Board Recommendation, as applicable. The Receiving Party acknowledges that each successive material modification of any Superior Proposal that results in an increase in the consideration (or the value thereof) to be received by the Receiving Party’s shareholders or other material terms or conditions shall constitute a new Superior Proposal for purposes of the requirement under this clause (d) to initiate a new Matching Period.

 

 (e)

The Cenovus Board or the Husky Board shall promptly and in any event within 24 hours after the determination in (i) or (ii) below, reaffirm the Husky Board Recommendation or Cenovus Board Recommendation, as applicable, by news release after any Acquisition Proposal is publicly announced or made if: (i) the board of directors of the Receiving Party determines that such Acquisition Proposal does not constitute a Superior Proposal in accordance with Section 7.1 of the Arrangement Agreement (Covenants Regarding Non-Solicitation); or (ii) the board of directors of the Receiving Party determines that an amendment to the terms of the Arrangement Agreement has been agreed that results in the Acquisition Proposal not being a Superior Proposal. The Receiving Party shall provide the Responding Party and its external legal counsel with a reasonable opportunity to review the form and content of any such news release and shall make all reasonable amendments to such news release as requested by the Responding Party and its counsel.

 

 (f)

Each of Cenovus and Husky agree that all information that may be provided to it by the Other Party with respect to any Superior Proposal pursuant to Section 7.1 of the Arrangement Agreement (Covenants Regarding Non-Solicitation) shall be

 

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treated as if it were “Confidential Information” as that term is defined in the Confidentiality Agreement, and such information shall not be disclosed or used except in accordance with the Confidentiality Agreement or in order to enforce its rights under the Arrangement Agreement in legal proceedings.

 

 (g)

Each Party shall ensure that its Representatives are aware of the provisions of Section 7.1 of the Arrangement Agreement (Covenants Regarding Non-Solicitation). Each Party shall be responsible for any breach of Section 7.1 of the Arrangement Agreement (Covenants Regarding Non-Solicitation) by its Representatives.

Termination Amount Payable by Husky

Pursuant to the Arrangement Agreement, if at any time after the execution and delivery of the Arrangement Agreement and prior to the termination of the Arrangement Agreement:

 

 (a)

the Husky Board (or any committee thereof): (i) fails to make the Husky Board Recommendation; (ii) changes, withdraws, withholds, amends, modifies or qualifies, or proposes publicly to change, withdraw, withhold, amend, modify or qualify, the Husky Board Recommendation in a manner adverse to Cenovus (it being understood that the taking of a neutral position or no position with respect to an announced Acquisition Proposal beyond the earlier of a period of two Business Days following such announcement or the date which is the day prior to the date proxies in respect of the Husky Meeting must be deposited shall be considered an adverse modification to such recommendation); (iii) fails to reaffirm publicly the Husky Board Recommendation: (A) in the manner and within the time period set out in clause (e) under the heading “Covenants of the Parties Regarding Non-Solicitation; Right to Accept a Superior Proposal” above; or (B) within five Business Days after having been requested to do so by Cenovus; or (iv) resolves to do any of the foregoing, and the Arrangement Agreement is terminated by Cenovus upon the occurrence of a Cenovus Disposition Event;

 

 (b)

Husky breaches any of its obligations under Section 7.1 of the Arrangement Agreement (Covenants Regarding Non-Solicitation) in any material respect, and the Arrangement Agreement is terminated by Cenovus upon the occurrence of a Cenovus Disposition Event;

 

 (c)

the Husky Board (or any committee thereof): (i) accepts, recommends, approves, agrees to, endorses or enters into, or proposes publicly to accept, recommend, approve, agree to, endorse or enter into, an agreement, understanding or letter of intent to implement an Acquisition Proposal; or (ii) fails to recommend unequivocally against acceptance of an Acquisition Proposal, and the Arrangement Agreement is terminated by Cenovus upon the occurrence of a Cenovus Disposition Event;

 

 (d)

the Arrangement Agreement is terminated by Husky or Cenovus where the Husky Common Shareholders and the Husky Optionholders fail to approve the Arrangement Resolution at the Husky Meeting in accordance with the Interim Order, and prior to such termination an Acquisition Proposal (or an intention to make an Acquisition Proposal) for Husky has been publicly announced, proposed, disclosed, offered or made by any Person (other than Cenovus or its affiliates) and, within 12 months following the date of such termination:

 

 (i)

the Husky Board recommends any Acquisition Proposal which is subsequently consummated at any time thereafter (whether or not within such 12-month period);

 

 (ii)

Husky enters into a binding definitive agreement in respect of any Acquisition Proposal which is subsequently consummated at any time thereafter (whether or not within such 12-month period); or

 

 (iii)

any Acquisition Proposal is consummated with Husky; or

 

 (e)

Husky enters into a definitive agreement with respect to a Superior Proposal pursuant to clause (b)(ix) under the heading “—Covenants of the Parties Regarding Non-Solicitation; Right to Accept a Superior Proposal” above and terminates the Agreement pursuant to Section 9.1(g) of the Arrangement Agreement (Termination by Husky upon entering into a Superior Proposal),

(each of the above, if not timely cured, if applicable, or waived by Cenovus, being (upon expiration of the applicable cure period) hereinafter referred to as a “Cenovus Disposition Event”), Husky shall pay to Cenovus the Cenovus Termination Amount in the amount of $150 million, in consideration for the disposition of Cenovus’s rights under the Arrangement Agreement, in immediately available funds, to an account designated by Cenovus, as follows:

 

   (i)

if the Cenovus Termination Amount is payable pursuant to (a), (b) or (c) above, the Cenovus Termination Amount shall be payable within two Business Days following the occurrence of such Cenovus Disposition Event;

 

  (ii)

if the Cenovus Termination Amount is payable pursuant to (d) above, the Cenovus Termination Amount shall be payable upon the consummation of the Acquisition Proposal referred to above; or

 

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 (iii)

if the Cenovus Termination Amount is payable pursuant to (e) above, the Cenovus Termination Amount shall be payable concurrently with the termination of the Arrangement Agreement.

Husky shall only be obligated to pay one Cenovus Termination Amount pursuant to the Arrangement Agreement.

Termination Amount Payable by Cenovus

Pursuant to the Arrangement Agreement, if at any time after the execution and delivery of the Arrangement Agreement and prior to the termination of the Arrangement Agreement:

 

 (a)

the Cenovus Board (or any committee thereof): (i) fails to make the Cenovus Board Recommendation; (ii) changes, withdraws, withholds, amends, modifies or qualifies, or proposes publicly to change, withdraw, withhold, amend, modify or qualify, the Cenovus Board Recommendation in a manner adverse to Husky (it being understood that the taking of a neutral position or no position with respect to an announced Acquisition Proposal beyond the earlier of a period of two Business Days following such announcement or the date which is the day prior to the date proxies in respect of the Cenovus Meeting must be deposited shall be considered an adverse modification to such recommendation); (iii) fails to reaffirm publicly the Cenovus Board Recommendation: (A) in the manner and within the time period set out in clause (e) under the heading “Covenants of the Parties Regarding Non-Solicitation; Right to Accept a Superior Proposal” above; or (B) within five Business Days after having been requested to do so by Husky; or (iv) resolves to do any of the foregoing, and the Arrangement Agreement is terminated by Husky upon the occurrence of a Husky Disposition Event;

 

 (b)

Cenovus breaches any of its obligations under Section 7.1 of the Arrangement Agreement (Covenants Regarding Non-Solicitation) in any material respect, and the Arrangement Agreement is terminated by Husky upon the occurrence of a Husky Disposition Event;

 

 (c)

the Cenovus Board (or any committee thereof): (i) accepts, recommends, approves, agrees to, endorses or enters into, or proposes publicly to accept, recommend, approve, agree to, endorse or enter into, an agreement, understanding or letter of intent to implement an Acquisition Proposal; or (ii) fails to recommend unequivocally against acceptance of an Acquisition Proposal, and the Arrangement Agreement is terminated by Husky upon the occurrence of a Husky Disposition Event;

 

 (d)

the Arrangement Agreement is terminated by Husky or Cenovus where the Cenovus Common Shareholders fail to approve the Share Issuance Resolution by the requisite vote at the Cenovus Meeting, and prior to such termination an Acquisition Proposal (or an intention to make an Acquisition Proposal) for Cenovus has been publicly announced, proposed, disclosed, offered or made by any Person (other than Husky or its affiliates) and, within 12 months following the date of such termination:

 

 (i)

the Cenovus Board recommends any Acquisition Proposal which is subsequently consummated at any time thereafter (whether or not within such 12-month period);

 

 (ii)

Cenovus enters into a binding definitive agreement in respect of any Acquisition Proposal which is subsequently consummated at any time thereafter (whether or not within such 12-month period); or

 

 (iii)

any Acquisition Proposal is consummated with Cenovus; or

 

 (e)

Cenovus enters into a definitive agreement with respect to a Superior Proposal pursuant to clause (b)(ix) under the heading “—Covenants of the Parties Regarding Non-Solicitation; Right to Accept a Superior Proposal” above and terminates the Agreement pursuant to Section 9.1(h) of the Arrangement Agreement (Termination by Cenovus upon entering into a Superior Proposal),

(each of the above, if not timely cured, if applicable, or waived by Cenovus, being (upon expiration of the applicable cure period) hereinafter referred to as a “Husky Disposition Event”), Cenovus shall pay to Husky the Husky Termination Amount in the amount of $240 million, in consideration for the disposition of Husky’s rights under the Arrangement Agreement, in immediately available funds, to an account designated by Husky, as follows:

 

   (i)

if the Husky Termination Amount is payable pursuant to (a), (b) or (c) above, the Husky Termination Amount shall be payable within two Business Days after the occurrence of such Husky Disposition Event;

 

  (ii)

if the Husky Termination Amount is payable pursuant to (d) above, the Husky Termination Amount shall be payable upon the consummation of the Acquisition Proposal referred to above; or

 

 (iii)

if the Husky Termination Amount is payable pursuant to (e) above, the Husky Termination Amount shall be payable concurrently with the termination of the Arrangement Agreement.

Cenovus shall only be obligated to pay one Husky Termination Amount pursuant to the Arrangement Agreement.

 

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Termination

Cenovus and Husky have agreed that the Arrangement Agreement may be terminated at any time prior to the Effective Date:

 

 (a)

by mutual written agreement of the Parties;

 

 (b)

by either Party if:

 

 (i)

the Husky Common Shareholders and the Husky Optionholders fail to approve the Arrangement Resolution by the requisite vote at the Husky Meeting in accordance with the Interim Order;

 

 (ii)

the Cenovus Common Shareholders fail to approve the Share Issuance Resolution by the requisite vote at the Cenovus Meeting;

 

 (iii)

a change in Law is enacted, made, enforced or amended that makes the consummation of the Arrangement illegal or otherwise prohibits or enjoins the Parties from completing the Arrangement, and such Law has, if applicable, become final; and non-appealable, on the condition that: (A) the Party seeking to terminate the Arrangement Agreement has used its reasonable commercial efforts to, as applicable, appeal or overturn such Law or otherwise have it lifted or rendered non-applicable in respect of the Arrangement; and (B) the enactment, making, enforcement or amendment of such Law was not primarily due to the failure of such Party to perform any of its covenants or agreements under the Arrangement Agreement; or

 

 (iv)

the Effective Time shall not have occurred on or prior to the Outside Date, except that the right to terminate the Arrangement Agreement under this clause (iv) shall not be available to a Party whose failure to fulfill any of its obligations has been the cause of, or resulted in, the failure of the Effective Time to occur by such date;

 

 (c)

by either Party if any of the mutual conditions or the conditions for its benefit has not been satisfied or waived by the Outside Date or such condition is incapable of being satisfied by the Outside Date; provided that the Party seeking termination is in compliance with its obligations as provided in Section 6.4(b) of the Arrangement Agreement (Notice and Cure Provisions), if applicable, and on the condition that the failure to satisfy the particular condition precedent being relied upon as a basis for termination of the Arrangement Agreement did not occur as a result of a breach by the Party seeking to rely on the condition precedent of any of its covenants or obligations under the Arrangement Agreement;

 

 (d)

by Husky if, following the Husky Meeting, an Acquisition Proposal in respect of Cenovus is consummated or approved by the Cenovus Common Shareholders at a meeting at which the Husky Common Shareholders are not entitled to vote;

 

 (e)

by Cenovus upon the occurrence of a Cenovus Disposition Event;

 

 (f)

by Husky upon the occurrence of a Husky Disposition Event;

 

 (g)

by Husky, prior to approval of the Arrangement Resolution, if Husky enters into, or the Husky Board authorizes Husky to enter into, a definitive agreement with respect to a Superior Proposal, provided that: (i) Husky has previously paid or concurrently pays to Cenovus the Cenovus Termination Amount; and (ii) Husky has complied with its obligations as described under the heading “Covenants of the Parties Regarding Non-Solicitation; Right to Accept a Superior Proposal” above; or

 

 (h)

by Cenovus, prior to approval of the Share Issuance Resolution, if Cenovus enters into, or the Cenovus Board authorizes Cenovus to enter into, a definitive agreement with respect to a Superior Proposal, provided that: (i) Cenovus has previously paid or concurrently pays to Husky the Husky Termination Amount; and (ii) Cenovus has complied with its obligations as described under the heading “Covenants of the Parties Regarding Non-Solicitation; Right to Accept a Superior Proposal” above.

Under the provisions of the Arrangement Agreement, in the event of the termination of the Arrangement Agreement in the circumstances set out above, the Arrangement Agreement will forthwith become void and neither Party will have any liability or further obligation to the Other Party thereunder, except with respect to: (a) certain indemnification obligations set forth in the Arrangement Agreement; (b) the payment of certain fees pursuant to the Arrangement Agreement, including those outlined above under the heading “Termination Amount Payable by Husky” above and the termination amounts outlined under the heading “Termination Amount Payable by Cenovus”, where applicable; and (c) the general provisions of the Arrangement Agreement. No termination shall relieve either Party from liability for any fraud, or wilful or intentional breach of any provision of the Arrangement Agreement prior to its termination and no termination of the Arrangement Agreement shall affect the obligations of the Parties pursuant to the Confidentiality Agreement, except to the extent specified therein.

Quantum of Termination Amount

Each of Cenovus and Husky acknowledges that the payment of the Husky Termination Amount or the Cenovus Termination Amount, as applicable, is a payment in consideration for the disposition of the Other Party’s rights under the Arrangement Agreement and agrees that such

 

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amount represents a genuine pre-estimate of the damages that Cenovus or Husky (as applicable) will suffer or incur as a result of the event giving rise to the disposition of rights under the Arrangement Agreement and the resultant termination of the Arrangement Agreement and is not a penalty. Each of Cenovus and Husky irrevocably waives any right it may have to raise as a defence that any such amounts payable by it are excessive or punitive. For greater certainty, Cenovus and Husky agree that receipt of the Husky Termination Amount or the Cenovus Termination Amount, as applicable, is the sole monetary remedy of Cenovus or Husky (as applicable) in such circumstances, except that such limitation shall not apply in the event of fraud, or wilful or intentional breach of the Arrangement Agreement, by the Party that has made, or is required to make a payment of the Husky Termination Amount or the Cenovus Termination Amount (as applicable), and, in such circumstances, the non-breaching Party may pursue an action against the breaching Party for damages. In circumstances where the Cenovus Termination Amount or the Husky Termination Amount, as applicable, is not payable, Cenovus or Husky (as applicable) shall not be precluded from pursuing an action against the Other Party for damages for a breach under the Arrangement Agreement or from seeking and obtaining injunctive relief to restrain any breach or threatened breach of the covenants or agreements of the Other Party set out in the Arrangement Agreement or the Confidentiality Agreement.

Support Agreements

The following is a summary of certain provisions of the Support Agreements and is qualified in its entirety by the full text of the form of such agreement, set forth in Schedule “G” to Appendix D to this Information Circular. Husky Shareholders and Cenovus Common Shareholders are urged to read the form of the Support Agreements in its entirety.

On October 24, 2020, Hutchison Whampoa Europe Investments S.à r.l. and L.F. Investments S.à r.l., which hold approximately 40.19% and 29.32%, respectively, of the Husky Common Shares, each entered into a separate hard lock-up agreement with Cenovus pursuant to which such Supporting Husky Shareholder has agreed, among other things, to vote, or cause to be voted, all of the Husky Common Shares, Husky Preferred Shares or any other securities of Husky having voting rights in respect of the Arrangement beneficially owned, controlled or directed or subsequently acquired by such Supporting Husky Shareholder: (a) for and in favour of the Arrangement Resolution or the Preferred Shareholder Resolution, if applicable and to deliver valid proxies or voting instruction forms in respect of the same at least 15 days prior to the Husky Meeting; (b) against any other business combination, arrangement, amalgamation, merger, consolidation, reorganization, recapitalization, liquidation, material asset sale or similar transaction involving Husky, or any issue of securities by Husky, or any resolution to approve, ratify or adopt any of the foregoing; and (c) against any resolution, transaction or other action that is inconsistent with, or could reasonably be likely to impede, interfere with, delay, postpone, or adversely affect in any material respect, the Arrangement or any of the other matters and transactions contemplated by the Arrangement Agreement, including against any Acquisition Proposal in respect of Husky. Additionally, each Supporting Husky Shareholder has agreed to a number of negative covenants in furtherance of the consummation of the Arrangement, as particularized in Section 2 (Shareholder Covenants) of such Supporting Husky Shareholder’s respective Support Agreement, and agreed to make commercially reasonable efforts to obtain all Key Regulatory Approvals, as particularized in Section 3 (Regulatory Cooperation) of such Supporting Shareholder’s respective Support Agreement.

Each of the Support Agreements shall terminate on the earliest of: (a) the mutual written consent of Cenovus and the applicable Supporting Husky Shareholder; (b) the time (if any) at which the Arrangement Agreement is terminated: (i) by mutual written agreement of the Parties; (ii) by Cenovus in accordance with the terms of the Arrangement Agreement; or (iii) by Husky in accordance with those provisions of Section 9.1 (Termination) of the Arrangement Agreement described in paragraphs (b)(ii), (b)(iii), (c) or (f) under the heading “The Arrangement Agreement – Termination” above; (c) completion of an Acquisition Proposal in respect of Cenovus; (d) approval by the requisite majority of Cenovus Common Shareholders of an Acquisition Proposal in respect of Cenovus, completion of which requires, pursuant to Applicable Laws, approval by the Cenovus Common Shareholders; (e) the Effective Time; and (f) the Outside Date.

Standstill Agreements

The following is a summary of certain provisions of the Standstill Agreements and is qualified in its entirety by the full text of the form of such agreement, set forth in Schedule “J” to Appendix D to this Information Circular. Husky Shareholders and Cenovus Common Shareholders are urged to read the form of the Standstill Agreement in its entirety.

On October 24, 2020, Hutchison Whampoa Europe Investments S.à r.l. and L.F. Investments S.à r.l. each entered into a separate Standstill Agreement with Cenovus, with effect as of the Effective Date. Each Standstill Agreement sets forth certain restrictions and obligations in connection with such Supporting Husky Shareholder’s shareholdings in Cenovus following completion of the transactions contemplated by the Arrangement Agreement.

Transfer Restrictions

Pursuant to their respective Standstill Agreements, subject to certain exceptions, for a period of 18 months following the Effective Date, a Supporting Husky Shareholder will not Transfer (as defined below) any Cenovus Common Shares, except: (i) pursuant to any take-over bid for the voting or equity securities of Cenovus or any acquisition of all or substantially all of the assets of Cenovus and its subsidiaries on a consolidated basis, or any arrangement, amalgamation, merger or other similar business combination transaction involving Cenovus (a “Combination Transaction”) that has been approved by the Cenovus Board or recommended by the Cenovus Board for approval by the shareholders of Cenovus; or (ii) in regard to a Transfer to an affiliate of such Supporting Husky Shareholder, provided that such affiliate agrees to be bound by and become a party to the Standstill Agreement as a “Supporting Husky Shareholder” (and such Supporting Husky Shareholder

 

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agrees to cause such affiliate to become a party to such Supporting Husky Shareholder’s Standstill Agreement) and, concurrent with the completion of such Transfer: (a) executes and delivers a joinder or similar document in order to effect the foregoing; and (b) such Supporting Husky Shareholder, or its affiliate, shall promptly (and in any event within two Business Days) notify Cenovus if it engages in any of the transactions referred to in clause (ii); or (iii) on a change of control of such Supporting Husky Shareholder, each of which may be effected without the prior consent of Cenovus.

Without the prior consent of Cenovus (which consent may, in the sole discretion of Cenovus, be withheld or given subject to such conditions as Cenovus may in its sole discretion determine), no Supporting Husky Shareholder may Transfer, either alone or in the aggregate with its affiliates, the other Supporting Husky Shareholder or its affiliates, and whether in a single transaction or a series of related transactions, any Cenovus Common Shares or Cenovus Warrants to any Person, that would, to the knowledge of the Supporting Husky Shareholder (after reasonable inquiry), result in such Person, together with any Persons acting jointly or in concert with such Person, beneficially owning, or controlling or directing, 20% or more of the then-outstanding Cenovus Common Shares (including those Cenovus Common Shares and Cenovus Warrants proposed to be Transferred) and assuming for this purpose full exercise of all Cenovus Warrants that would, after the proposed Transfer, be beneficially owned or controlled or directed by such Person and any Person acting jointly or in concert therewith; provided that the foregoing shall not apply to:

 

 (a)

Transfers effected through an underwritten public offering (including an underwritten public offering undertaken pursuant to the Supporting Husky Shareholder’s Registration Rights Agreement);

 

 (b)

Transfers effected as a result of the consummation of a Combination Transaction which has been approved by a resolution of Cenovus Common Shareholders, or made to an offeror in relation to a take-over bid where the offeror pursuant to such take-over bid is proposing to acquire such Cenovus Common Shares from the Supporting Husky Shareholder or the other Supporting Husky Shareholder or both in connection with an identical offer made to all holders of Cenovus Common Shares (in terms of price, timing, proportion of securities sought to be acquired and conditions); or

 

 (c)

Transfers made to an affiliate as permitted under the terms of the applicable Standstill Agreement.

If any Supporting Husky Shareholder or any of its affiliates or a representative acting on behalf of the Supporting Husky Shareholder or its affiliates proposes to Transfer or cause the Transfer of any Cenovus Common Shares or Cenovus Warrants in circumstances as described above except that the reference therein to “20%” is instead read as a reference to “10%”, then such Supporting Husky Shareholder shall give Cenovus advance written notice of the proposed Transfer and, if reasonably practicable, consult with Cenovus with respect to such Transfer, not less than 24 hours prior to the earlier of (i) entering into any agreement or binding obligation in respect thereof or (ii) effecting such Transfer, and shall, unless otherwise prohibited by confidentiality or similar restrictions (in respect of which a Supporting Husky Shareholder has used its commercially reasonable efforts to seek a waiver or consent thereof), provide Cenovus with the identity of the proposed transferee and the terms on which the Transfer is proposed to be completed.

For purposes of the Standstill Agreement, a “Transfer” is defined to include any sale, exchange, disposition, assignment, gift, bequest, mortgage, charge, pledge, encumbrance, grant of security interest or other arrangement by which possession, legal title or beneficial ownership passes from one Person to another, or to the same Person in a different capacity, whether or not voluntary and whether or not for value and whether directly or indirectly in any manner whatsoever, and includes any agreement to effect any of the foregoing and, in the case of Cenovus Common Shares includes a transaction (other than a change of control transaction whereby a Person or group of Persons acting jointly or in concert acquires, directly or indirectly, control of at least a majority of the equity of the applicable Supporting Husky Shareholder) involving the Transfer of the ownership interests in the applicable Supporting Husky Shareholder or an Affiliate of such Supporting Husky Shareholder which holds any legal title or beneficial ownership in Cenovus Common Shares which is designed to otherwise circumvent the restrictions on transfer contained in the Standstill Agreement.

Voting Restrictions

Pursuant to their respective Standstill Agreements, each Supporting Husky Shareholder covenants and agrees that it and its affiliates shall: (a) vote or cause to be voted all Cenovus Common Shares that it beneficially owns, or over which it or any of its affiliates has control or direction, in favour of; or (b) abstain from voting in respect of all Cenovus Common Shares that it beneficially owns, or over which it or any of its affiliates has control or direction, in respect of, the election, as directors of Cenovus, of all nominees of the Cenovus Board or Cenovus management at any annual or other meeting of Cenovus Common Shareholders at which members of the Cenovus Board are proposed to be elected (and, for greater certainty, not withhold any vote in respect of, or vote against, any of the foregoing); and not knowingly take any action that is adverse to the nomination, appointment or election of any Cenovus Board-supported nominee or Cenovus Board-proposed nominee to the Cenovus Board and vote or cause to be voted all Cenovus Common Shares that it beneficially owns, or over which it or any of its affiliates has control or direction, against any such matter or proposal.

In connection with a Combination Transaction, each Supporting Husky Shareholder covenants and agrees that it shall, and shall cause its affiliates to, vote its pro-rata share of all Excess Shares (as defined below) that it beneficially owns, or over which it or any of its affiliates has control or direction, in accordance with the Cenovus Board’s recommendation in respect to such Combination Transaction. “Excess Shares” means, at the applicable time, such number of Cenovus Common Shares held by the Supporting Husky Shareholders, in aggregate, which are in excess of the number that is 19.9% of the then-outstanding Cenovus Common Shares. As applicable, each Supporting Husky Shareholder will

 

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deposit or tender, or not deposit or tender, its pro-rata share of all Excess Shares that it beneficially owns, or over which it or any of its affiliates has control or direction, to or under any Combination Transaction, in accordance with the Cenovus Board’s recommendation in respect of the Combination Transaction.

Prohibited Activities

Subject to certain exceptions, without the prior written consent of Cenovus (which consent may, in the sole discretion of Cenovus, be withheld or given subject to such conditions as Cenovus may in its sole discretion determine), no Supporting Husky Shareholder or its affiliates, will, directly or indirectly, do any of the following or cause such to occur:

 

 (a)

acquire, agree to acquire or make any proposal or offer to acquire any (i) voting or equity securities (including Cenovus Common Shares) of Cenovus or any of its subsidiaries (other than Cenovus Warrants); (ii) securities convertible into, or exercisable or exchangeable for, voting or equity securities (including Cenovus Common Shares) of Cenovus or any of its subsidiaries (other than Cenovus Warrants); or (iii) assets of Cenovus or any of its subsidiaries, except (A) pursuant to a stock dividend or dividend-in-kind paid by Cenovus to all holders of Cenovus Common Shares, including pursuant to any dividend reinvestment plan of Cenovus, (B) pursuant to an exercise of Cenovus Warrants or pre-emptive rights in accordance with the Pre-Emptive Rights Agreement, or (C) pursuant to a Transfer permitted under the terms of the applicable Standstill Agreement;

 

 (b)

engage in any discussion or negotiations, conclude any understanding or enter into (or propose or offer to enter into), directly or indirectly, any agreement with respect to any Combination Transaction;

 

 (c)

engage in, participate in, or in any way knowingly initiate, directly or indirectly and whether alone or jointly or in concert with another Person, any “solicitation” (as such term is defined in the CBCA) of proxies or consents with respect to the voting of any securities of Cenovus or knowingly initiate, propose or otherwise “solicit” (as such term is defined in the CBCA) securityholders of Cenovus to vote any securities of Cenovus on any matter;

 

 (d)

except as required by the Standstill Agreements, grant any power of attorney over any securities of Cenovus, or deposit any securities of Cenovus in any voting agreement, voting trust, voting pool or similar arrangement or subject any securities of Cenovus to any arrangement or agreement with respect to the voting of any such securities, or grant any proxy with respect to any securities of Cenovus (other than to the named Cenovus management proxies);

 

 (e)

seek, alone or in concert with others, to requisition or call a meeting of shareholders of Cenovus;

 

 (f)

submit any shareholder proposal pursuant to sections 103(5) or 137 of the CBCA;

 

 (g)

seek or cause any Person or Governmental Authority to issue a cease trade order in respect of, or otherwise interfere with the operation of any shareholder rights plan or similar arrangement of Cenovus;

 

 (h)

other than as required by Applicable Law or the rules of the TSX or NYSE, publicly disclose any plan, intention or proposal with respect to the foregoing; and

 

 (i)

enter into discussions, agreements or understandings with any Person with respect to the foregoing, or knowingly advise, induce, assist (including providing financial assistance) or encourage any Person to take any of the prohibited actions outlined above.

These restrictions shall cease to apply on the earlier of: (i) the execution and delivery by Cenovus of a definitive agreement to implement a transaction or series of transactions pursuant to which a Person agrees to acquire beneficial ownership of, or control or direction over, more than 50% of the outstanding voting securities of Cenovus (measured on a fully-diluted basis) or a majority of the consolidated assets of Cenovus and its subsidiaries; (ii) a Person or group of related Persons acting jointly or in concert acquire beneficial ownership of, or control or direction over, at least 20% of the outstanding voting securities of Cenovus; and (iii) a Person or group of related Persons acting jointly or in concert publicly commence a formal take-over bid for more than 20% of the outstanding voting securities of Cenovus.

Termination

The Standstill Agreements shall each terminate at 11:59 p.m. (Calgary time) on the date that is 60 months following the Effective Date, unless any of the following events occur which cause earlier termination:

 

 (a)

upon the termination of the Arrangement Agreement, other than as a result of the completion of the Arrangement;

 

 (b)

the date on which the Standstill Agreement or the other Standstill Agreement is terminated by the written agreement of the parties thereto;

 

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 (c)

provided that the restrictions set out above under the heading “Transfer Restrictions” have been complied with under each Standstill Agreement, the date on which the Supporting Husky Shareholders, together with their affiliates, cease to beneficially own, or control or direct, in aggregate, at least 10% of the then-outstanding Cenovus Common Shares; or

 

 (d)

any Qualified Individual (as defined below) duly nominated in accordance with the Standstill Agreement is not appointed to the Cenovus Board in accordance with the Standstill Agreements.

For purposes of the Standstill Agreements, a “Qualified Individual” means an individual who may be proposed for nomination or appointment by the then Continuing Designees to the Cenovus Board and is: (i) reasonably acceptable to the Nominating and Corporate Governance Committee (or its successor committee) of the Cenovus Board (it being understood that an individual who is not prohibited from acting as director pursuant to the CBCA, Applicable Securities Laws and the rules of any recognized stock exchange on which the Cenovus Common Shares are listed for trading shall be deemed to be reasonably acceptable); (ii) in the event that less than one-quarter of the Continuing Designees (as defined below) are Canadian (including any other individual who is a Qualified Individual), a Canadian; and (iii) in the event that the designated number of directors determined in accordance with the Standstill Agreement equals or exceeds four and none of the Continuing Designees is an independent (as determined under Applicable Securities Laws) director, an independent (as determined under Applicable Securities Laws) director. The designated number of directors determined in accordance with the Standstill Agreements that may be proposed for nomination or appointment by the Continuing Designees is determined with reference to the proportionate share ownership of the combined company by Husky Common Shareholders and, following the first annual general meeting of Cenovus following completion of the Arrangement, is determined with reference to the proportionate share ownership of the Supporting Husky Shareholders in the combined company. Cenovus is not required under the terms of the Standstill Agreements to appoint or nominate to the Cenovus Board any Qualified Individual. For purposes of the Standstill Agreements, “Continuing Designees” means the remaining individuals of: (i) as of the Effective Date, the four directors of the Cenovus Board as determined by Husky prior to the Effective Date, who shall include one independent (as determined under Applicable Securities Laws) director; and (ii) at any time after the Effective Date: (A) each of the individuals described in clause (i) insofar as he or she continues to be a Cenovus Board member, or the successor designee of such individual; and (B) any additional Qualified Individual nominated and appointed to the Cenovus Board pursuant to the applicable provisions of the Standstill Agreement.

Pre-Emptive Rights Agreement

The following is a summary of certain provisions of the Pre-Emptive Rights Agreement and is qualified in its entirety by the full text of the form of such agreement, set forth in Schedule “K” to Appendix D to this Information Circular. Husky Shareholders and Cenovus Common Shareholders are urged to read the form of the Pre-Emptive Rights Agreement in its entirety.

Pursuant to the Arrangement Agreement, Cenovus has agreed that, if requested in writing on or prior to the Effective Date by a beneficial holder of more than 5% of the outstanding Cenovus Common Shares immediately after the consummation of the Arrangement that was not party to a registration rights agreement or similar agreement that was in full force and effect as at the Agreement Date, Cenovus will cause to be executed and delivered a Pre-Emptive Rights Agreement between Cenovus and such beneficial holder.

The Pre-Emptive Rights Agreement will, upon its execution and delivery, provide a beneficial holder holding more than 5% of the outstanding Cenovus Common Shares immediately after the consummation of the Arrangement who is party to a Pre-Emptive Rights Agreement (a “Pre-Emptive Rights Holder”) with the right but not the obligation to, upon the proposed issuance or sale by Cenovus of Cenovus Common Shares or other convertible securities of Cenovus, purchase such number of additional Cenovus Common Shares or other convertible securities of Cenovus on the same terms and conditions that such securities are being issued or sold by Cenovus, including at the same price per security and otherwise be on economic terms and conditions that are no less favourable, individually or in the aggregate, to the Pre-Emptive Rights Holder than the terms and conditions are to any purchaser in such offering of securities, in order to allow the Pre-Emptive Rights Holder to maintain its pro rata share of the then-outstanding Cenovus Common Shares that such Pre-Emptive Rights Holder holds immediately prior to such offering of securities (a “Pre-Emptive Right”). The Pre-Emptive Right does not apply to securities issued or sold in enumerated circumstances such as securities issued or sold for the purposes of director, officer, employee or consultant incentive plans, employee share ownership programs or similar plans or programs, in each case, that have been approved by the Cenovus Board, or in connection with dividend reinvestment plans, the satisfaction of existing instruments, the conversion of convertible securities and any corporate transaction such as a merger, amalgamation or take-over bid, or share or asset purchase, or similar transactions, where securities are used to fund all or a portion of the applicable transaction price.

A Pre-Emptive Rights Agreement will continue in force until the earliest of: (a) 11:59 p.m. (Calgary time) on the date that is 60 months following the Effective Date; (b) the date on which the Pre-Emptive Rights Agreement is terminated by written agreement of the parties thereto; (c) the first date on which a Pre-Emptive Rights Holder ceases to, directly or indirectly, beneficially own, in aggregate, more than 5% of the then-outstanding Cenovus Common Shares; or (d) the date on which the Standstill Agreements are terminated.

Registration Rights Agreement

The following is a summary of certain provisions of the Registration Rights Agreement and is qualified in its entirety by the full text of the form of such agreement, set forth in Schedule “L” to Appendix D to this Information Circular. Husky Shareholders and Cenovus Common Shareholders are urged to read the form of the Registration Rights Agreement in its entirety.

 

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Pursuant to the Arrangement Agreement, Cenovus has agreed that, if requested in writing on or prior to the Effective Date by a beneficial holder holding more than 5% of the outstanding Cenovus Common Shares immediately after the consummation of the Arrangement that was not party to a registration rights agreement or similar agreement that was in full force and effect as at the Agreement Date, Cenovus will cause to be executed and delivered a Registration Rights Agreement between Cenovus and such beneficial holder.

The Registration Rights Agreement will, upon its execution and delivery, provide a beneficial holder holding more than 5% of the outstanding Cenovus Common Shares immediately after the consummation of the Arrangement that is party to a Registration Rights Agreement (and its permitted transferee, if applicable) (each a “Registration Rights Holder”) with the right (the “Demand Registration Right”) to require Cenovus to qualify the distribution of (a) the Cenovus Common Shares beneficially owned by the Registration Rights Holder as of the date of the Registration Rights Agreement; (b) any Cenovus Common Shares acquired by a Registration Rights Holder pursuant to an exercise of Cenovus Warrants distributed to the Registration Rights Holder pursuant to the Arrangement; (c) any Cenovus Common Shares that may be acquired by a Registration Rights Holder pursuant to a Pre-Emptive Rights Agreement or any Cenovus Common Shares that may be acquired by a Registration Rights Holder pursuant to an exercise of certain convertible securities of Cenovus; (d) any Cenovus Common Shares or other securities of Cenovus issued as a dividend, distribution, exchange, share split, recapitalization, or other corporate event in respect of such Cenovus Common Shares or Cenovus Warrants; and (e) any Cenovus Warrants, if and only if, such number of Cenovus Warrants is less than or equal to the number of securities under (a)-(d) above proposed to be included in such distribution (collectively, the “Registrable Securities”), by filing a prospectus supplement offering all or part of the Registrable Securities (a “Demand Registration”).

During the term of the Registration Rights Agreement, Cenovus must maintain a short-form base shelf prospectus filed with Canadian Securities Regulators and a registration statement on Form F-10 or such successor form or such other form as Cenovus shall be eligible to use to register the Registrable Securities (the “Registration Statement”) containing a base shelf prospectus filed with the SEC qualifying the Registrable Securities for distribution under Applicable Canadian Securities Laws and Applicable U.S. Securities Laws. The Registration Rights Holders may not make more than three requests for a Demand Registration in any one 365 day period, with the first 365 day period commencing on the date of the Registration Rights Agreement.

In addition, if Cenovus proposes to file a prospectus supplement in Canada and/or with the SEC in order to permit the issuance of Cenovus Common Shares pursuant to a public offering or the sale of Cenovus Common Shares pursuant to a demand made under a Registration Rights Agreement or that certain registration rights agreement dated as of May 17, 2017 between Cenovus and ConocoPhillips Company (the “COP Registration Rights Agreement”), the Registration Rights Agreement will provide the Registration Rights Holders with the right (the “Piggy-Back Registration Right”), among others, to require Cenovus to include Registrable Securities held by the Registration Rights Holder, in the proposed distribution (a “Distribution”). Cenovus must use commercially reasonable efforts to cause to be included in the Distribution all of the Registrable Securities the Registration Rights Holders request to be sold pursuant to the Piggy-Back Registration Right; provided, however, that if the managing underwriter advises Cenovus that the total number of Cenovus Common Shares to be included in such Distribution exceeds the number that can be sold in such offering without being likely to have an adverse effect on the price, timing or distribution of the offering and sale of such securities, the Cenovus Common Shares to be included in the Distribution will be first allocated (i) in the case of a Distribution by Cenovus, to Cenovus, (ii) in the case of a Distribution initiated pursuant to either (A) a demand made under the COP Registration Rights Agreement; or (B) a Demand Registration, to the person making such demand thereunder.

The Piggy-Back Registration Right and Demand Registration Right will be subject to various conditions and limitations, and Cenovus is entitled to defer any distribution in certain circumstances, including during a blackout period under Cenovus’s Policy on Disclosure, Confidentiality and Employee Trading, for a limited period.

The Registration Rights Agreement includes provisions providing for each of Cenovus and the Registration Rights Holders to indemnify and hold harmless each other against all losses, claims, actions, damages, liabilities and expenses arising out of or based upon the applicable party’s inclusion of a misrepresentation or omission in disclosure furnished by such party for inclusion in the Registration Statement related to a Distribution, for breaches of Applicable Canadian Securities Laws or Applicable U.S. Securities Laws and for other losses or claims caused by such party. Subject to certain exceptions, all expenses incurred in connection with a registration pursuant to a Demand Distribution or a Distribution for which the Piggy-Back Registration Right is exercised (excluding underwriters’ discounts and commissions, if any, and applicable transfer taxes, if any, in respect of Registrable Securities being distributed, which shall be borne by the selling Registration Rights Holder and Cenovus in proportion to their respective amounts of Cenovus Common Shares sold in any such offering) shall be borne by Cenovus.

These rights are available to the Registration Rights Holders for a term beginning on the date of the Registration Agreement and ceasing on the earlier of: (a) 11:59 p.m. (Calgary time) on the date that is 60 months following the Effective Date, (b) the date the Registration Rights Holder ceases to beneficially own, directly or indirectly, in the aggregate, more than 5% of the then-outstanding Cenovus Common Shares, (c) the date on which the Registration Rights Agreement is terminated by the written agreement of the parties; or (d) the date on which the Standstill Agreements are terminated.

Description of the Cenovus Warrants

Pursuant to the Arrangement, a portion of the Husky Common Shares held by each Husky Common Shareholder will be exchanged for Cenovus Common Shares and the remaining portion of Husky Common Shares will be exchanged for Cenovus Warrants, such that, in aggregate, each Husky Common Shareholder will receive, in respect of each Husky Common Share held immediately prior to the Effective Time, 0.7845 of a

 

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Cenovus Common Shares and 0.0651 of a Cenovus Warrant. Each whole Cenovus Warrant is exercisable for one Cenovus Common Share for a period of 60 months from the Effective Date, with an exercise price of $6.54 per Cenovus Common Share, subject to adjustment in accordance with the terms of the Cenovus Warrant Indenture.

Cenovus has applied to the TSX and the NYSE to list the Cenovus Warrants and the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants, which listings are subject to the approval of the TSX and the NYSE and satisfaction of any listing conditions required by the TSX and the NYSE, respectively.

The Cenovus Warrants will be created and issued pursuant to the terms of the Cenovus Warrant Indenture to be entered into between Cenovus and Computershare Trust Company of Canada, as warrant agent under the Cenovus Warrant Indenture (as may be substituted in accordance with the terms of the Cenovus Warrant Indenture, the “Cenovus Warrant Agent”), in form and substance acceptable to Cenovus and Husky, each acting reasonably. Prior to the Effective Date, Cenovus may name any other warrant agent with respect to the Cenovus Warrants.

Delivery of Cenovus Warrants

On the Effective Date, Cenovus will deliver a direction to the Cenovus Warrant Agent to issue all of the Cenovus Warrants to be issued and distributed under the Plan of Arrangement.

Any Cenovus Warrants issued in certificated form will be evidenced by a warrant certificate in the form attached to the Cenovus Warrant Indenture. All Cenovus Warrants issued in the name of CDS, Depository Trust Company, or their respective nominees, may be in either a certificated or uncertificated form, such uncertificated form being evidenced by a book-entry position on the register of Cenovus Warrantholders to be maintained by the Cenovus Warrant Agent.

No fractional Cenovus Warrants will be issued. A Husky Common Shareholder otherwise entitled to a fractional interest in a Cenovus Warrant shall receive the next lower whole number of Cenovus Warrants in lieu of any fractional Cenovus Warrants. In calculating fractional interests, all Husky Common Shares registered in the name of or beneficially held by such Husky Common Shareholder or its nominee(s) shall be aggregated.

Cenovus Warrant Indenture

The following is a summary of certain provisions of the Cenovus Warrant Indenture and is qualified in its entirety by the full text of the Cenovus Warrant Indenture, which will be made available under Cenovus’s profile on SEDAR at www.sedar.com. Husky Shareholders and Cenovus Common Shareholders are urged to read the Cenovus Warrant Indenture in its entirety. The Cenovus Warrant Indenture will be filed with the securities regulatory authorities in each of the provinces and territories of Canada and with the SEC.

Each whole Cenovus Warrant will entitle the holder thereof to purchase one Cenovus Common Share upon payment of $6.54 per Cenovus Common Share, subject to adjustment in accordance with the terms of the Cenovus Warrant Indenture, for a period of 60 months from the Effective Date, after which time the Cenovus Warrants will expire and become null and void.

The Cenovus Warrant Indenture will provide for customary adjustments to the number of Cenovus Common Shares issuable upon exercise of the Cenovus Warrants and/or to the exercise price in effect for the Cenovus Warrants upon the occurrence of certain events, including: (a) subdivision, redivision or change of Cenovus Common Shares into a greater number of Cenovus Common Shares; (b) reduction, combination or consolidation of the outstanding Cenovus Common Shares into a smaller number of Cenovus Common Shares; (c) the issuance of Cenovus Common Shares or securities exchangeable for, or convertible into, Cenovus Common Shares at no additional cost to the holders of all or substantially all of the issued and outstanding Cenovus Common Shares by way of a stock dividend or other distribution (other than an issuance or distribution of a dividend paid in the ordinary course); (d) the issuance to all or substantially all of the holders of Cenovus Common Shares of rights, options or warrants under which such holders are entitled, during a period expiring not more than 45 days after the record date for such issuance, to subscribe for or purchase Cenovus Common Shares, or securities exchangeable for or convertible into Cenovus Common Shares, at a price per Cenovus Common Share to the holder (or at an exchange or conversion price per Cenovus Common Share) of less than 95% of the current market price for Cenovus Common Shares on such record date; and (e) the distribution to all or substantially all of the holders of Cenovus Common Shares of evidences of indebtedness or cash, securities or any property or other assets (other than an issuance or distribution of a dividend paid in the ordinary course).

The Cenovus Warrant Indenture will also provide for adjustment in the class and/or number of securities issuable upon exercise of the Cenovus Warrants and/or to the exercise price for the Cenovus Warrants upon the occurrence of the following additional events: (a) the reclassification of the Cenovus Common Shares; (b) the consolidation, amalgamation, arrangement or merger of Cenovus with or into another entity (other than an amalgamation of Cenovus and Husky in connection with the Arrangement); or (c) the sale or conveyance of the property and assets of Cenovus as an entirety or substantially as an entirety to any other entity.

Cenovus will also covenant in the Cenovus Warrant Indenture that, so long as any Cenovus Warrant remains outstanding, Cenovus will give notice to holders of Cenovus Warrants of certain stated events, including events that would result in an adjustment to the exercise price for the Cenovus Warrants or the number of Cenovus Common Shares issuable upon exercise of the Cenovus Warrants, at least 10 Business Days prior to the record date of such event.

 

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No fractional Cenovus Warrants will be issued. A Husky Common Shareholder otherwise entitled to a fractional interest in a Cenovus Warrant shall receive the next lower whole number of Cenovus Warrants in lieu of any fractional Cenovus Warrants. In calculating fractional interests, all Husky Common Shares registered in the name of or beneficially held by such Husky Common Shareholder or its nominee(s) shall be aggregated.

Cenovus Warrants will not have voting or any other rights of Cenovus Common Shares.

The Cenovus Warrant Indenture will provide that, from time to time, Cenovus and the Cenovus Warrant Agent may amend or supplement the Cenovus Warrant Indenture for certain purposes, without the consent of the Cenovus Warrantholders, including curing defects or inconsistencies or making any change that does not prejudice the rights of any holder. Any amendment or supplement to the Cenovus Warrant Indenture that would prejudice the rights of the Cenovus Warrantholders may only be made by “extraordinary resolution”, which will be defined in the Cenovus Warrant Indenture as a resolution either: (a) passed at a meeting of the registered Cenovus Warrantholders at which there are registered Cenovus Warrantholders present in person or represented by proxy representing of at least 25% of the aggregate number of the then outstanding Cenovus Warrants (unless such meeting is adjourned to a prescribed later date due to the lack of quorum, in which case the requirement for a quorum at such adjourned meeting shall not apply) and passed by the affirmative vote of the registered Cenovus Warrantholders representing not less than 6623% of the aggregate number of all the then outstanding Cenovus Warrants represented at the meeting and voted upon such resolution; or (b) adopted by an instrument in writing signed by registered Cenovus Warrantholders representing not less than 6623% of the aggregate number of all the then outstanding Cenovus Warrants.

The Cenovus Warrant Indenture will provide that the Cenovus Warrant Agent may, at any time and from time to time, and shall (a) on receipt of a written request of Cenovus or of a written request signed in one or more counterparts by registered Cenovus Warrantholders entitled to acquire in the aggregate not less than 25% of the aggregate number of Cenovus Common Shares which could be acquired pursuant to all Cenovus Warrants then outstanding and unexercised, and (b) upon receiving sufficient funds to cover any costs and expenses and/or being indemnified to its reasonable satisfaction by Cenovus or by the registered Cenovus Warrantholders signing such Cenovus Warrantholders’ request against the cost which may be incurred in connection with the calling and holding of such meeting, convene a meeting of the registered Cenovus Warrantholders.

Pursuant to the Arrangement Agreement, prior to the Effective Time: (a) Cenovus shall have filed a short form prospectus or a short form base shelf prospectus and accompanying prospectus supplement with respect to such short form base shelf prospectus, in each case with the Alberta Securities Commission (each, a “Canadian Warrant Prospectus”), qualifying the issuance of Cenovus Common Shares upon exercise of Cenovus Warrants (the “Cenovus Warrant Shares”); (b) Cenovus shall have obtained a final receipt from the Alberta Securities Commission, in its capacity as principal regulator, representing the deemed receipt of each of the securities commissions or similar regulatory authorities in each of the provinces and territories of Canada for such short form prospectus or short form base shelf prospectus, as applicable; and (c) Cenovus shall have filed a registration statement on Form F-10 with the SEC and, if such Form F-10 contains a short form base shelf prospectus, an accompanying prospectus supplement for the registration of Cenovus Warrant Shares issuable upon exercise of Cenovus Warrants under the U.S. Securities Act and such registration statement on Form F-10 shall have become effective. Cenovus shall use its best efforts to cause there to be: (i) if required by Applicable Canadian Securities Laws, a Canadian Warrant Prospectus qualifying the issuance of the Cenovus Warrant Shares upon exercise of Cenovus Warrants; and (ii) an effective registration statement registering the issuance of the Cenovus Warrant Shares under the U.S. Securities Act, in each case, for so long as any Cenovus Warrants are outstanding. As well, Cenovus shall, on or as promptly as practicable following the Effective Date, cause there to be a registration statement on Form S-8 filed with the SEC which registers the issuance of the Cenovus Common Shares upon exercise of the Cenovus Replacement Options.

PROCEDURE FOR THE ARRANGEMENT TO BECOME EFFECTIVE

Procedural Steps

The Arrangement is proposed to be carried out pursuant to section 193 of the ABCA. The following procedural steps must be taken in order for the Arrangement to become effective:

 

 (a)

the Arrangement Resolution must be approved by not less than 6623% of the votes cast by Husky Common Shareholders present in person (virtually) or represented by proxy at the Husky Meeting and not less than 6623% of the votes cast by Husky Common Shareholders and Husky Optionholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class, in the manner set forth in the Interim Order;

 

 (b)

the Share Issuance Resolution must be approved by a simple majority of the votes cast by the Cenovus Common Shareholders present in person (virtually) or represented by proxy at the Cenovus Meeting;

 

 (c)

the Court must grant the Final Order approving the Arrangement;

 

 (d)

all conditions precedent to the Arrangement, as set forth in the Arrangement Agreement, including receipt of the Key Regulatory Approvals, must be satisfied or waived by the appropriate Party; and

 

 (e)

the Final Order, the Articles of Arrangement and related documents, in the form prescribed by the ABCA, must be filed with the Registrar.

 

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There is no assurance that the conditions set out in the Arrangement Agreement will be satisfied or waived on a timely basis or at all.

Upon the conditions precedent set forth in the Arrangement Agreement being satisfied or waived, Husky intends to file a copy of the Final Order and the Articles of Arrangement with the Registrar under the ABCA, together with such other materials as may be required by the Registrar, in order to give effect to the Arrangement.

Securityholder Approvals

Arrangement Resolution

Pursuant to the Interim Order, the Arrangement Resolution must, subject to further order of the Court, be approved by (i) not less than 6623% of the votes cast by Husky Common Shareholders present in person (virtually) or represented by proxy at the Husky Meeting and (ii) not less than 6623% of the votes cast by Husky Common Shareholders and Husky Optionholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class. If the Arrangement Resolution is not approved by the Husky Common Shareholders and the Husky Optionholders, the Arrangement cannot be completed.

It is the intention of the persons named in the enclosed form of proxy, if not expressly directed to the contrary in such form of proxy, to vote such proxy in favour of the Arrangement Resolution set forth in Appendix A to this Information Circular.

Notwithstanding the foregoing, the Arrangement Resolution proposed for consideration by the Husky Common Shareholders and Husky Optionholders authorizes the Husky Board, without further notice to or approval of Husky Common Shareholders or the Husky Optionholders, to the extent permitted by the Arrangement Agreement and the Interim Order, to amend the Arrangement Agreement or the Plan of Arrangement and to not proceed with the Arrangement. See Appendix A to this Information Circular for the full text of the Arrangement Resolution.

Preferred Shareholder Resolution

Pursuant to the Interim Order, the Preferred Shareholder Resolution must be approved by not less than 6623% of the votes cast by the Husky Preferred Shareholders present in person (virtually) or represented by proxy at the Husky Meeting, voting together as a single class. It is not a condition to completion of the Arrangement that the Preferred Shareholder Resolution be approved. If the Preferred Shareholder Resolution is not approved by Husky Preferred Shareholders (or if the Preferred Shareholder Resolution is approved and the Preferred Share Condition is not otherwise satisfied), the Husky Preferred Shares will not be exchanged for Cenovus Preferred Shares pursuant to the Plan of Arrangement and will remain outstanding in a subsidiary of Cenovus following completion of the Arrangement and listed on the TSX.

It is the intention of the persons named in the enclosed form of proxy, if not expressly directed to the contrary in such form of proxy, to vote such proxy in favour of the Preferred Shareholder Resolution set forth in Appendix B to this Information Circular.

Notwithstanding the foregoing, the Preferred Shareholder Resolution proposed for consideration by the Husky Preferred Shareholders authorizes the Husky Board, without further notice to or approval of Husky Preferred Shareholders, to the extent permitted by the Arrangement Agreement and the Interim Order, to amend the Arrangement Agreement or the Plan of Arrangement and to not proceed with the Arrangement. See Appendix B to this Information Circular for the full text of the Preferred Shareholder Resolution.

Share Issuance Resolution

In accordance with the applicable rules of the TSX, the Share Issuance Resolution must be approved by a simple majority of the votes cast by the Cenovus Common Shareholders present in person (virtually) or represented by proxy at the Cenovus Meeting. If the Share Issuance Resolution is not approved by Cenovus Common Shareholders, the Arrangement cannot be completed.

It is the intention of the persons named in the enclosed form of proxy, if not expressly directed to the contrary in such form of proxy, to vote such proxy in favour of the Share Issuance Resolution set forth in Appendix C to this Information Circular.

Notwithstanding the foregoing, the Share Issuance Resolution proposed for consideration by the Cenovus Common Shareholders authorizes the Cenovus Board, without further notice to or approval of Cenovus Common Shareholders, to the extent permitted by the Arrangement Agreement or the Plan of Arrangement, to amend the Arrangement Agreement or the Plan of Arrangement and to not proceed with the Arrangement.

Court Approval

Interim Order

On November 9, 2020, Husky obtained the Interim Order providing for the calling and holding of the Husky Meeting and other procedural matters. The Interim Order is attached as Appendix F to this Information Circular.

 

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Final Order

The ABCA provides that the Arrangement requires final Court approval. Subject to the terms of the Arrangement Agreement, if the Arrangement Resolution is approved at the Husky Meeting and the Share Issuance Resolution is approved at the Cenovus Meeting, Husky will make an application to the Court for the Final Order at the Calgary Courts Centre, 601 – 5th Street, S.W., Calgary, Alberta, Canada, or via video conference if necessary, on December 16, 2020 at 3:00 p.m. (Calgary time) or as soon thereafter as counsel may be heard. The Notice of Application for the Final Order accompanies this Information Circular. At the application the Court will be requested to consider the fairness of the Arrangement.

Any Husky Shareholder, or other interested party desiring to support or oppose the application with respect to the Arrangement, may appear at the hearing in person (virtually) or by counsel for that purpose, subject to filing with the Court and serving on Husky on or before 5:00 p.m. (Calgary time) on December 8, 2020, a notice of intention to appear setting out their address for service and indicating whether they intend to support or oppose the application or make submissions, together with any evidence or materials which are to be presented to the Court. Service of such notice on Husky is required to be effected by service upon the solicitors for Husky: Osler, Hoskin & Harcourt LLP, Suite 2500, TC Energy Tower, 450 – 1st Street S.W., Calgary, Alberta, T2P 5H1, Attention: Tristram Mallett.

The Cenovus Common Shares and Cenovus Warrants issuable to Husky Common Shareholders in exchange for their Husky Common Shares and the Cenovus Preferred Shares issuable to Husky Preferred Shareholders and the Cenovus Replacement Options issued to Husky Optionholders pursuant to the Arrangement have not been and will not be registered under the U.S. Securities Act or any state securities laws, and will be issued in reliance upon the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) thereof and exemptions under applicable state securities laws. The Court has been advised that the Final Order, if granted, will constitute the basis for an exemption from the registration requirements of the U.S. Securities Act, pursuant to Section 3(a)(10) thereof, with respect to the issuance of the Cenovus Common Shares and Cenovus Warrants issuable to Husky Common Shareholders and the Cenovus Preferred Shares issuable to Husky Preferred Shareholders and the Cenovus Replacement Options issued to Husky Optionholders pursuant to the Arrangement.

Husky has been advised by its counsel that the Court has broad discretion under the ABCA when making orders with respect to the Arrangement and that the Court, in hearing the application for the Final Order, will consider, among other things, the fairness of the Arrangement to the Husky Shareholders and any other interested party as the Court determines appropriate. The Court may approve the Arrangement either as proposed or as amended in any manner the Court may direct, subject to compliance with such terms and conditions, if any, as the Court may determine appropriate. Either Cenovus or Husky may, subject to the terms of the Arrangement Agreement, determine not to proceed with the Arrangement in the event that any amendment ordered by the Court is not satisfactory to such Party.

Regulatory Approvals

The Arrangement Agreement provides that receipt of all Key Regulatory Approvals including, without limitation, Competition Act Approval, HSR Approval, the CTA Approval, the Foreign Investment Clearance and receipt of conditional approval of the TSX and authorization for listing by the NYSE, as applicable, for listing of the Cenovus Common Shares, the Cenovus Warrants, the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants, and Cenovus Preferred Shares issuable pursuant to the Arrangement, is a condition precedent to the Arrangement becoming effective. See “Effect of the Arrangement – The Arrangement Agreement – Mutual Conditions”.

Competition Act Approval

The Arrangement is a “notifiable transaction” for the purposes of Part IX of the Competition Act. When a transaction is a notifiable transaction under the Competition Act, a pre-merger notification must be provided to the Commissioner under Part IX of the Competition Act and the transaction may not be completed until either the expiry or termination of the applicable waiting period under sections 123(1) or 123(2) of the Competition Act, or the Commissioner has waived the obligation to provide the pre-merger notification pursuant to section 113(c) of the Competition Act. Where a pre-merger notification is made, the waiting period is 30 calendar days after the day on which the parties to the transaction submit the pre-merger notification, provided that, before the expiry of this period, the Commissioner has not notified the parties that he requires additional information that is relevant to the Commissioner’s assessment of the transaction (a “Supplementary Information Request”). If the Commissioner provides the Parties with a Supplementary Information Request, the Parties waiting period extends to a date that is 30 calendar days after compliance with such Supplementary Information Request, provided that there is no order in effect prohibiting completion at the relevant time.

The Commissioner may, upon application by the parties to a proposed transaction, issue an advance ruling certificate (“ARC”) under section 102 of the Competition Act where he is satisfied that he would not have sufficient grounds on which to apply to the Competition Tribunal (the “Tribunal”) for an order under section 92 of the Competition Act. Further, if the transaction to which the ARC relates is substantially completed within one year after the ARC is issued, the Commissioner cannot seek an order of the Tribunal under section 92 of the Competition Act in respect of the transaction solely on the basis of information that is the same or substantially the same as the information on the basis of which the ARC was issued. Where the Commissioner declines to issue an ARC he may instead issue a No Action Letter confirming that he does not, at that time, intend to make an application under section 92 of the Competition Act.

Other than in circumstances where an ARC has been issued, the Commissioner may apply to the Tribunal for a remedial order under section 92 of the Competition Act if he is of the view that the transaction is likely to prevent or lessen competition substantially. The Commissioner may

 

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also apply to the Tribunal under section 104 of the Competition Act for an injunction to prevent closing of the transaction pending the Tribunal’s determination of the Commissioner’s application for a remedial order. On application by the Commissioner under section 92 of the Competition Act, the Tribunal may, where it finds that the merger prevents or lessens, or is likely to prevent or lessen, competition substantially, order that the merger not proceed or, if completed, order its dissolution or the disposition of assets or shares involved in such merger; in addition to, or in lieu thereof, with the consent of the person against whom the order is directed and the Commissioner, the Tribunal may order a person to take any other action. The Tribunal is prohibited from issuing a remedial order where it finds that the transaction is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that is likely to result from the transaction and that the gains in efficiency would not likely be attained if the order were made.

Completion of the Arrangement is subject to the condition that either: (a) the Commissioner shall have issued an ARC; or (b) both (i) the Commissioner shall have issued a No Action Letter to Cenovus, on terms and conditions satisfactory to Cenovus and Husky, each acting reasonably, and (ii) either the waiting period has expired or been terminated by the Commissioner under sections 123(1) or 123(2), respectively, of the Competition Act, or the obligation to provide a pre-merger notification in accordance with Part IX of the Competition Act has been waived by the Commissioner under Section 113(c) thereof.

On November 2, 2020, Husky and Cenovus jointly requested that the Commissioner issue an ARC under section 102 of the Competition Act or, alternatively, a No Action Letter and a waiver of the obligation to notify pursuant to section 113(c) of the Competition Act in respect of the Arrangement.

HSR Approval

Each of Cenovus and Husky caused to be filed a Premerger Notification and Report Form under the HSR Act with the FTC and the DOJ in connection with the transactions contemplated by the Arrangement Agreement on November 2, 2020. Consequently, the required waiting period under the HSR Act with respect to the transactions contemplated by the Arrangement Agreement will expire at 11:59 p.m., Eastern Time, on December 2, 2020, unless early termination of the waiting period is granted or the waiting period is extended. Under the HSR Act, the required waiting period with respect to transactions contemplated by the Arrangement Agreement will expire at 11:59 p.m., Eastern time, on the 30th calendar day, so long as such calendar day is not a weekend or U.S. federal holiday, in which case the waiting period shall expire at 11:59 p.m. Eastern time on the next business day, unless earlier terminated by the FTC and DOJ, or Cenovus and Husky, as applicable, receives a Request for Additional Information and Documentary Material prior to that time. If within the 30 calendar-day waiting period either the FTC or the DOJ issues a Request for Additional Information and Documentary Material from Cenovus and Husky, the waiting period with respect to the transactions contemplated by the Arrangement Agreement would be extended for an additional period of 30 calendar days following the date of Cenovus and Husky’s substantial compliance with that request, unless Cenovus and Husky otherwise agree with the FTC or the DOJ to extend that 30 calendar-day period. The FTC or the DOJ may terminate the additional 30 calendar-day waiting period before its expiration. In practice, complying with a Request for Additional Information and Documentary Material can take a significant period of time.

In addition, prior to acquiring their Cenovus Common Shares, Husky Common Shareholders who as a result of the Arrangement will hold Cenovus Common Shares with a value in excess of US$94 million may, unless exempt, be subject to the filing and waiting period requirements of the HSR Act. This would require each such Husky Common Shareholder, as well as Cenovus, to file a Premerger Notification and Report Form with the FTC and the DOJ and to observe an initial 30 calendar-day waiting period. Therefore, compliance with the HSR procedures could delay the acquisition of Cenovus Common Shares by affected Husky Common Shareholders and/or the Effective Date of the Arrangement. Any Husky Common Shareholder that believes that it may have a filing and waiting obligation under the HSR Act in connection with this transaction should contact Cenovus at its head office at 4100, 225 – 6th Avenue S.W., Calgary, Alberta, Canada T2P 1N2 and consult its own legal counsel.

The FTC and the DOJ may scrutinize the legality under the U.S. federal antitrust laws of proposed transactions, such as the transactions contemplated by the Arrangement Agreement. At any time before or after completion of the transactions contemplated by the Arrangement Agreement, if the FTC or the DOJ believes that the transactions contemplated by the Arrangement Agreement would violate the U.S. federal antitrust laws by substantially lessening competition in any line of commerce affecting U.S. consumers, the FTC or the DOJ could take any action under the U.S. federal antitrust laws that it considers necessary in the public interest, including seeking to enjoin the transactions contemplated by the Arrangement Agreement or ordering the divestiture of substantial assets of Cenovus, Husky, or any of their respective subsidiaries or affiliates. Under certain circumstances, U.S. state attorneys general and private parties as well as state attorneys general also may bring legal actions under the U.S. federal antitrust laws seeking similar relief or seeking conditions to the completion of the transactions contemplated by the Arrangement Agreement. While Cenovus and Husky believe that the consummation of the transactions contemplated by the Arrangement Agreement will not violate any U.S. federal antitrust laws, there can be no assurance that a challenge to the transactions contemplated by the Arrangement Agreement on antitrust grounds will not be made or, if a challenge is made, what the result will be.

CTA Approval

Section 53.1(1) of the Canada Transportation Act provides that every person who is required to file a pre-merger notification with the Commissioner under section 114(1) of the Competition Act of a transaction that involves a transportation undertaking shall, at the same time as the Commissioner is notified and, in any event, not later than the date by which the person is required to notify the Commissioner, give notice of the proposed transaction to the Minister. Transactions that are subject to notification under the Canada Transportation Act cannot be completed until the requirements noted below have been satisfied.

 

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While the Canada Transportation Act may not apply to the transactions contemplated by the Arrangement Agreement, as a precaution Husky and Cenovus agreed to file a notice under section 53.1(1) of the Canada Transportation Act with the Minister. Under the Canada Transportation Act, the Minister is required to inform the Parties within 42 days of the receipt of the Parties’ notification whether, in the Minister’s opinion, the transactions contemplated by the Arrangement Agreement raise issues with respect to the public interest as it relates to national transportation. At any time during or at the end of the 42 day period, the Minister may notify the Parties that the transactions contemplated by the Arrangement Agreement do not raise issues with respect to the public interest as it relates to national transportation, in which case the consummation of the transactions would no longer be prohibited under the Canada Transportation Act. Alternatively, if the Minister determines that the transactions contemplated by the Arrangement Agreement raise issues with respect to the public interest as it relates to national transportation, the Parties cannot complete the transactions until they are approved by the Governor in Council. If this approval is required, the Minister may direct the Canada Transportation Agency or another person to examine the public interest issues and to report to the Minister of Transport within 150 days (or within any longer period that the Minister allows); within this same period, the Commissioner must report to the Minister and the Parties on any concerns regarding potential prevention or lessening of competition that may occur as a result of the transaction. The Minister will then make a recommendation to the Governor in Council as to whether to approve the proposed transaction. The Governor in Council has the authority to approve the transaction either conditionally or unconditionally.

On November 2, 2020, Cenovus and Husky notified the Minister of the transactions contemplated by the Arrangement Agreement.

Foreign Investment Clearance

Investment Canada Act

The acquisition by the Supporting Husky Shareholders of securities of Cenovus pursuant to the Arrangement is not an acquisition of control of Cenovus and is therefore not subject to any pre-closing net benefit review under the Investment Canada Act. Notwithstanding the forgoing, the responsible Minister under the Investment Canada Act (the “ICA Minister”) may, in the ICA Minister’s discretion, review the acquisition by the Supporting Husky Shareholders of securities of Cenovus pursuant to the Arrangement on grounds that the investment could be injurious to national security. Completion of the transactions contemplated by the Arrangement Agreement is subject to the condition that Cenovus and the Supporting Husky Shareholders shall not have received a notice or order under the national security provisions of the Investment Canada Act from the ICA Minister, or if the ICA Minister has issued such notice or order, Cenovus or the Supporting Husky Shareholders shall have received a subsequent notice under the Investment Canada Act indicating that: (i) no order for the review of the transactions contemplated by the Arrangement Agreement will be made; (ii) no further action will be taken in respect of the transactions contemplated by the Arrangement Agreement; or (iii) the Governor in Council authorizes the completion of the transactions contemplated by the Arrangement Agreement.

Cenovus and Husky do not believe that the transactions contemplated by the Arrangement Agreement will be the subject of a discretionary national security review by the ICA Minister; however, there is no assurance that the transactions contemplated by the Arrangement Agreement will not trigger such a review, that any such review will be completed on a timely basis or that the foregoing condition to the completion of the Arrangement, if applicable, will be satisfied.

Other Foreign Investment Laws

Completion of the transactions contemplated by the Arrangement Agreement is subject to the requirement that, if a filing is required or prudent (as determined by a Party) in respect of the transactions contemplated by the Arrangement Agreement pursuant to any foreign investment laws, that the Parties, their affiliates and any other Person required to make a filing in connection with the transactions contemplated by the Arrangement Agreement under foreign investment laws, as applicable, shall have made such filing in accordance with such foreign investment laws and any waiting period or review period shall have expired or been terminated and any consents, waivers, filings or approvals required to complete the transactions contemplated by the Arrangement Agreement under such foreign investment laws shall have been obtained on terms and conditions satisfactory to Cenovus and Husky, each acting reasonably.

At this time, the Parties do not believe that a filing is required in respect of the transactions contemplated by the Arrangement Agreement pursuant to any foreign investment laws, and no Party has made a determination that a filing in respect of the transactions contemplated by the Arrangement Agreement is prudent. However, there can be no assurance that a Party will not make a determination that a filing in respect of the transactions contemplated by the Arrangement Agreement is prudent.

Commercially Reasonable Efforts

Under the Arrangement Agreement, the Parties agreed to use their commercially reasonable efforts to obtain the Key Regulatory Approvals as soon as practicable, but in any event no later than three Business Days prior to the Outside Date. However, in connection with obtaining Key Regulatory Approvals, Cenovus will not be required to divest or hold separate, or take any action or behavioural remedy, (i) in respect of any material business or assets of either the Cenovus Group or the Husky Group, in each case taken as a whole, or (ii) that would reasonably be expected to materially reduce the benefits of the Arrangement, in each case which may be required by any Governmental Authority to secure such Key Regulatory Approval; and provided that Cenovus will consult with Husky in good faith in respect of any such proposed divestiture, hold separate, action or behavioural remedy and consider in good faith the comments of Husky in respect thereof.

 

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Stock Exchange Listings

Husky is a reporting issuer under the securities laws of each province of Canada. The Husky Common Shares and the Husky Series 1 Preferred Shares, Husky Series 2 Preferred Shares, Husky Series 3 Preferred Shares, Husky Series 5 Preferred Shares and Husky Series 7 Preferred Shares (collectively, the “Listed Preferred Shares”) are each listed and posted for trading on the TSX under the symbols “HSE”, “HSE.PR.A”, “HSE.PR.B”, “HSE.PR.C”, “HSE.PR.E” and “HSE.PR.G”, respectively.

On October 23, 2020, the last trading day on which the Husky Common Shares traded prior to the announcement of the Arrangement, the closing price of the Husky Common Shares on the TSX was $3.17. On November 6, 2020, the last trading day on which the Husky Common Shares traded prior to the date of this Information Circular, the closing price of the Husky Common Shares on the TSX was $3.67.

Cenovus is a reporting issuer under the securities laws of each province and territory of Canada. The Cenovus Common Shares are listed and posted for trading on the TSX and the NYSE under the symbol “CVE”.

On October 23, 2020, the last trading day on which the Cenovus Common Shares traded prior to announcement of the Arrangement, the closing price of the Cenovus Common Shares on the TSX and the NYSE was $4.88 and US$3.71, respectively. On November 6, 2020, the last trading day on which the Cenovus Common Shares traded prior to the date of this Information Circular, the closing price of the Cenovus Common Shares on the TSX and NYSE was $4.67 and US$3.58, respectively.

Following completion of the Arrangement, it is anticipated that the Husky Common Shares will be delisted from the TSX. If the Preferred Share Condition is satisfied and the Husky Preferred Shares are exchanged for Cenovus Preferred Shares, it is anticipated that the Listed Preferred Shares will be delisted from the TSX.

For information with respect to the trading history of the Cenovus Common Shares, the Husky Common Shares and the Listed Preferred Shares, see “Information Concerning Cenovus Energy Inc. – Market for Securities and Information Concerning Husky Energy Inc. – Market for Securities”, in Appendix N and Appendix M to this Information Circular, respectively.

It is a condition to the completion of the Arrangement that the TSX shall have conditionally approved and the NYSE shall have approved the listing of the Cenovus Common Shares and the Cenovus Warrants to be issued to Husky Common Shareholders pursuant to the Arrangement and the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants, and, if the Preferred Share Condition is satisfied prior to the Effective Time, that the TSX shall have conditionally approved the listing of the Cenovus Preferred Shares to be issued to Husky Preferred Shareholders pursuant to the Arrangement.

The TSX has conditionally approved the listing of the Cenovus Common Shares and the Cenovus Warrants to be issued to Husky Common Shareholders pursuant to the Arrangement, the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants and Cenovus Replacement Options, and the Cenovus Preferred Shares to be issued to the Husky Preferred Shareholders pursuant to the Arrangement. Listing is subject to Cenovus fulfilling all of the listing requirements of the TSX. Cenovus has requested reservation from the TSX for the following trading symbols for the Cenovus Preferred Shares to be exchanged for Husky Preferred Shares (and Cenovus Preferred Shares issuable upon conversion of any series of Cenovus Preferred Shares, as applicable) if the Preferred Share Condition is satisfied: “CVE.PR.A” in respect of the Cenovus Series 1 Preferred Shares; “CVE.PR.B” in respect of the Cenovus Series 2 Preferred Shares; “CVE.PR.C” in respect of the Cenovus Series 3 Preferred Shares; “CVE.PR.D” in respect of the Cenovus Series 4 Preferred Shares; “CVE.PR.E” in respect of the Cenovus Series 5 Preferred Shares; “CVE.PR.F” in respect of the Cenovus Series 6 Preferred Shares; “CVE.PR.G” in respect of the Cenovus Series 7 Preferred Shares; and “CVE.PR.H” in respect of the Cenovus Series 8 Preferred Shares. Cenovus has also requested reservation of “CVE.WT” on the TSX and “CVE.WS” on the NYSE as the trading symbol for the Cenovus Warrants to be issued pursuant to the Arrangement. The NYSE has authorized the listing of the Cenovus Common Shares and the Cenovus Warrants to be issued pursuant to the Arrangement and the Cenovus Common Shares issuable upon exercise of the Cenovus Warrants and Cenovus Replacement Options, subject to shareholder approval of the Arrangement and that the Cenovus Warrants will meet the distribution standards of the applicable rules of the NYSE upon listing. Listing will be subject to Cenovus fulfilling all of the listing requirements of the NYSE.

Securities Law Matters

Canada

General

The Cenovus Common Shares and the Cenovus Warrants to be issued to Husky Common Shareholders and, if the Preferred Share Condition is satisfied, the Cenovus Preferred Shares to be issued to Husky Preferred Shareholders pursuant to the Arrangement, will be issued in reliance on exemptions from the prospectus requirements of Applicable Canadian Securities Laws, will generally be “freely tradable” and the resale of such Cenovus Common Shares will be exempt from the prospectus requirements (and not subject to any “restricted period” or “hold period”) under Applicable Canadian Securities Laws if the following conditions are met: (a) the trade is not a control distribution (as defined in Applicable Canadian Securities Laws); (b) no unusual effort is made to prepare the market or to create a demand for the securities that are the subject of the trade; (c) no extraordinary commission or consideration is paid to a person or company in respect of the trade; and (d) if the selling shareholder is an insider or an officer of Cenovus, the selling shareholder has no reasonable grounds to believe that Cenovus is in default of securities legislation. Husky Shareholders are urged to consult their legal advisors to determine the applicability to them of the resale restrictions prescribed by Applicable Canadian Securities Laws.

 

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MI 61-101

Each of Husky and Cenovus is subject to the provisions of MI 61-101. MI 61-101 governs transactions that raise the potential for conflicts of interest, including insider bids, issuer bids, business combinations and related party transactions to ensure equality of treatment among securityholders, generally by requiring enhanced disclosure, minority securityholder approval, and, in certain instances, independent valuations and approval and oversight of certain transactions by a special committee of independent directors.

As described in this Information Circular, all Husky Common Shares will be exchanged for Cenovus Common Shares and Cenovus Warrants under the terms of the Plan of Arrangement. Unless certain exceptions apply, the Arrangement would be considered a “business combination” in respect of Husky pursuant to MI 61-101 since the interest of a holder of a Husky Common Share (being an “equity security” of Husky within the meaning of MI 61-101) may be terminated without the holder’s consent. Accordingly, unless no related party of Husky is entitled to receive a “collateral benefit” (as defined in MI 61-101) in connection with the Arrangement, the transaction would be considered a “business combination” and subject to minority approval requirements at the Husky Meeting.

If “minority approval” is required, MI 61-101 would require that, in addition to the approval of the Arrangement Resolution by not less than 6623% of the votes cast by the Husky Common Shareholders and not less than 6623% of the votes cast by Husky Common Shareholders and Husky Optionholders, voting together as a single class, and the approval of the Preferred Shareholder Resolution by not less than 6623% of the votes cast by the Husky Preferred Shareholders, voting together as a single class, in each case present in person (virtually) or represented by proxy at the Husky Meeting, the Arrangement would also require the approval of a simple majority of the votes cast by Husky Common Shareholders, Husky Optionholders and Husky Preferred Shareholders, as applicable, excluding votes cast in respect of Husky Common Shares, Husky Options or Husky Preferred Shares held by “related parties” who receive a “collateral benefit” (as such terms are defined in MI 61-101) as a consequence of the transaction.

However, the minority approval requirements of MI 61-101 do not apply to certain transactions in which (i) a related party beneficially owns, or exercises control or direction over, less than 1% of the issuer’s outstanding equity securities or (ii) an independent committee of directors has determined, acting in good faith, that the value of the benefits received by a related party, net of any offsetting costs to the related party, is less than 5% of the value the related party expects to receive pursuant to the terms of the transaction, provided the independent committee’s determination is disclosed in the disclosure document for the transaction.

As disclosed in this Information Circular, certain current executive officers of Husky will receive compensation in the form of severance payments and payments resulting from accelerated vesting of the Husky Incentive Awards upon completion of the Arrangement. Husky has considered whether any of these payments or other benefits to be received by the officers of Husky would constitute a “collateral benefit” for purposes of MI 61-101 such that the Arrangement would therefore constitute a “business combination” under MI 61-101. See “Interests of Certain Persons or Companies in the Arrangement – Husky”.

Husky has determined that none of these payments or other benefits is a “collateral benefit” for the purposes of MI 61-101 since: (i) the benefit is not conferred for the purpose, in whole or in part, of increasing the value of the consideration paid to the related party for their Husky Shares; (ii) the benefit is not, by its terms, conditional on the related party supporting the Arrangement in any manner; (iii) full particulars of the benefit have been disclosed in this Information Circular; and (iv) each of the related parties receiving the benefit exercised control or direction over, or beneficially owned, less than 1% of the outstanding Husky Common Shares at the date on which the proposed Arrangement was agreed to.

Accordingly, the Arrangement is not considered to be a “business combination” in respect of Husky, and as a result, no “minority approval” is required for the Arrangement Resolution or the Preferred Shareholder Resolution. In addition, since the Arrangement does not constitute a business combination, no formal valuation is required for the Arrangement under MI 61-101.

United States

The Cenovus Common Shares and Cenovus Warrants issuable to Husky Common Shareholders in exchange for their Husky Common Shares, the Cenovus Replacement Options issuable to Husky Optionholders in exchange for their Husky Options and, in the event the Preferred Share Condition is satisfied prior to the Effective Time, the Cenovus Preferred Shares to be issued to Husky Preferred Shareholders in exchange for their Husky Preferred Shares pursuant to the Arrangement, have not been and will not be registered under the U.S. Securities Act or any state securities laws, and will be issued in reliance upon the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) thereof and exemptions under applicable state securities laws. Section 3(a)(10) of the U.S. Securities Act exempts the issuance of securities issued in exchange for one or more bona fide outstanding securities from the general requirement of registration where the terms and conditions of such issuance and exchange have been approved by a court of competent jurisdiction that is expressly authorized by law to grant such approval, after a hearing upon the fairness of the terms and conditions of such issuance and exchange at which all persons to whom it is proposed to issue the securities have the right to appear and receive timely notice thereof. The Court is authorized to conduct a hearing at which the fairness of the terms and conditions of the Arrangement will be considered. The Court granted the Interim Order on November 9, 2020 and, subject to the approval of the Arrangement Resolution by Husky Common Shareholders and Husky Optionholders and the Share Issuance Resolution by Cenovus Common Shareholders and satisfaction of certain other conditions, including receipt of Key Regulatory Approvals, a final hearing on the Arrangement is expected to be held on December 16, 2020 by the Court. All Husky Shareholders and Husky Optionholders are entitled to appear and be heard at this hearing, provided they satisfy the applicable conditions set forth in the Interim Order. See “Procedure for the Arrangement to Become Effective – Court Approval”. The Final Order of the Court will, if granted, constitute the basis for the exemption from the registration requirements of the U.S. Securities Act with respect to the Cenovus Common Shares, Cenovus Preferred Shares, Cenovus Warrants, and Cenovus Replacement Options issuable in connection with the Arrangement.

 

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The Cenovus Common Shares and Cenovus Warrants issuable to Husky Common Shareholders, the Cenovus Preferred Shares issuable to Husky Preferred Shareholders and the Cenovus Replacement Options issuable to Husky Optionholders pursuant to the Arrangement will be, following completion of the Arrangement, freely tradeable under the U.S. Securities Act, except for: (i) Restricted Shares; and (ii) Control Shares. Persons who may be deemed to be “affiliates” of an issuer include individuals or entities that control, are controlled by, or are under common control with, the issuer, whether through the ownership of voting securities, by contract, or otherwise, and generally include executive officers and directors of the issuer as well as principal shareholders of the issuer. Any resale of such Cenovus Shares, Cenovus Warrants or Cenovus Replacement Options by such an affiliate (or former affiliate) will be subject to the registration requirements of the U.S. Securities Act, absent an exemption or exclusion therefrom. Subject to certain limitations, persons holding Restricted Shares or Control Shares may generally resell those shares outside the United States without registration under the U.S. Securities Act pursuant to Regulation S under the U.S. Securities Act. If available, such persons may also resell such shares pursuant to Rule 144 under the U.S. Securities Act. In addition, Section 3(a)(10) of the U.S. Securities Act does not exempt the issuance of securities upon the exercise of securities previously issued pursuant to Section 3(a)(10) of the U.S. Securities Act. As a result, any Cenovus Common Shares issuable upon exercise of Cenovus Warrants or Cenovus Replacement Options may not be issued in reliance upon Section 3(a)(10) of the U.S. Securities Act and the exercise of Cenovus Warrants and Cenovus Replacement Options may be subject to the registration requirements of the U.S. Securities Act, absent an exemption or exclusion therefrom. Prior to the Effective Time, Cenovus will file a Canadian Warrant Prospectus qualifying the issuance of Cenovus Warrant Shares and a registration statement on Form F-10 with the SEC registering the Cenovus Warrant Shares under the U.S. Securities Act and will use its best efforts to cause there to be a Canadian Warrant Prospectus and an effective registration statement under the U.S. Securities Act for as long as any Cenovus Warrants are outstanding. On or as promptly as practicable following the Effective Date, Cenovus will cause there to be a registration statement on Form S-8 to be filed with the SEC which registers the issuance of the Cenovus Common Shares issuable upon exercise of Cenovus Replacement Options.

The foregoing discussion is only a general overview of certain provisions of United States federal securities laws applicable to the resale of Cenovus Common Shares, Cenovus Warrants, Cenovus Preferred Shares or Cenovus Replacement Options received upon completion of the Arrangement. All holders of such securities are urged to consult with counsel to ensure that the resale of their securities complies with applicable securities legislation.

Procedure for Exchange of Husky Share Certificates or DRS Advices

Registered Husky Common Shareholders and Husky Preferred Shareholders (other than Dissenting Shareholders) must duly complete and return a Husky Common Shareholder Letter of Transmittal or Husky Preferred Shareholder Letter of Transmittal, respectively, together with the certificate(s) or DRS Advice(s), as applicable, representing their Husky Common Shares and/or Husky Preferred Shares, as the case may be, and all other required documents to the Depositary at one of the offices specified in the Letters of Transmittal. In the event that the Arrangement is not completed, such certificates or DRS Advices will be promptly returned to Husky Shareholders who provided such certificates or DRS Advices to the Depositary.

Enclosed with this Information Circular is a Husky Common Shareholder Letter of Transmittal and/or Husky Preferred Shareholder Letter of Transmittal which, when properly completed and returned together with the certificate(s) or DRS Advice(s) representing Husky Common Shares and/or Husky Preferred Shares, as the case may be, and all other required documents, will enable each Husky Shareholder to obtain the consideration that the Husky Shareholder is entitled to receive under the Arrangement.

The Husky Common Shareholder Letter of Transmittal contains complete instructions on how to exchange your Husky Common Shares. The Husky Preferred Shareholder Letter of Transmittal contains complete instructions on how to exchange your Husky Preferred Shares.

From and after the Effective Time, certificates or DRS Advices formerly representing Husky Shares shall represent only the right to receive the consideration to which the former Husky Shareholders are entitled under the Arrangement, or as to those held by Dissenting Shareholders, other than those Dissenting Shareholders deemed to have participated in the Arrangement pursuant to the Plan of Arrangement, to receive the fair value of the Husky Shares represented by such certificates or DRS Advices. As soon as practicable following the later of the Effective Date and the date of deposit by a former holder of Husky Shares acquired by Cenovus under the Arrangement of a duly completed Letter of Transmittal, and the certificates or DRS Advices representing such Husky Shares and all other required documents, the Depositary shall either: (a) forward by first class mail to such former holder at the address specified in the Husky Common Shareholder Letter of Transmittal or Husky Preferred Shareholder Letter of Transmittal; or (b) if requested by such Husky Shareholder in the Husky Common Shareholder Letter of Transmittal or Husky Preferred Shareholder Letter of Transmittal, as applicable, make available or cause to be made available at the Depositary for pickup by such Husky Shareholder, DRS Advices representing the number of Cenovus Common Shares, Cenovus Warrants and/or Cenovus Preferred Shares issued to such Husky Shareholder under the Arrangement.

No fractional Cenovus Common Shares or Cenovus Warrants will be issued under the Arrangement. In lieu of any fractional Cenovus Common Shares or Cenovus Warrants, as applicable, a Husky Common Shareholder otherwise entitled to a fractional interest in a Cenovus Common Share or Cenovus Warrant will receive the next lower whole number of Cenovus Common Shares or Cenovus Warrants, as applicable. In calculating such fractional interests, all Husky Common Shares registered in the name of or beneficially held by such Husky Common Shareholder, or its nominee(s), will be aggregated. Under the Plan of Arrangement, the Husky Preferred Shares will be exchanged for Cenovus Preferred Shares on a one-for-one basis.

Subject to any Applicable Laws relating to unclaimed personal property, any certificate formerly representing Husky Common Shares or, if the Preferred Share Condition is satisfied prior to the Effective Time, Husky Preferred Shares, as applicable, that is not deposited,

 

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together with all other documents required under the Plan of Arrangement, on or before the last Business Day before the third anniversary of the Effective Date, and any right or claim by or interest of any kind or nature, including the right of a former Husky Common Shareholder or, if the Preferred Share Condition is satisfied prior to the Effective Time, former Husky Preferred Shareholder to receive certificates representing Cenovus Common Shares and Cenovus Warrants (in the case of former Husky Common Shareholders) or Cenovus Preferred Shares (in the case of former Husky Preferred Shareholders) to which such holder is entitled pursuant to the Arrangement, shall terminate and be deemed to be surrendered and forfeited to Cenovus for no consideration, together with all entitlements to dividends, distributions and interest thereon. In such case, such Cenovus Common Shares, Cenovus Warrants and Cenovus Preferred Shares shall be returned to Cenovus for cancellation.

If any certificate which immediately prior to the Effective Time represented an interest in one or more outstanding Husky Common Shares has been lost, stolen or destroyed, upon satisfying such reasonable requirements as may be imposed by Cenovus and the Depositary in relation to the issuance of replacement share certificates, the Depositary will issue and deliver in exchange for such lost, stolen or destroyed certificate the consideration to which the holder is entitled pursuant to the Arrangement (and any dividends or distributions with respect thereto) as determined in accordance with the Arrangement, deliverable in accordance with such holder’s Husky Common Shareholder Letter of Transmittal. The Person who is entitled to receive such consideration shall, as a condition precedent to the receipt thereof, give a bond satisfactory to each of Cenovus, Husky and their respective transfer agents in such form as is satisfactory to Cenovus, Husky and their respective transfer agent, or shall otherwise indemnify Cenovus, Husky and their respective transfer agents, to the reasonable satisfaction of such parties, against any claim that may be made against any of them with respect to the certificate alleged to have been lost, stolen or destroyed. Alternatively, Husky Common Shareholders whose Husky Common Shares have been lost, stolen or destroyed may participate in Computershare’s blanket bond program with Aviva Insurance Company of Canada by completing Box E of the Letter of Transmittal and submitting the applicable certified cheque or money order payable to Computershare Investor Services, Inc.

Husky Shareholders whose Husky Shares are registered in the name of a broker, dealer, bank, trust company or other nominee must contact their nominee to deposit their Husky Shares.

The use of mail to transmit certificates representing Husky Shares or the Letters of Transmittal is at each registered holder’s risk. Husky recommends that such certificates and documents be delivered by hand to the Depositary and a receipt therefor be obtained or that registered mail be used and appropriate insurance be obtained.

If a Husky Common Shareholder Letter of Transmittal or a Husky Preferred Shareholder Letter of Transmittal is executed by a person other than the registered holder of the Husky Common Shares or Husky Preferred Shares, as applicable, being exchanged or if the DRS Advice(s) or Cenovus Warrant(s) to be issued in exchange therefor are to be issued to a person other than the registered owner(s) or sent to an address other than the address of the registered holder(s) as shown on the register of Husky Common Shareholders or Husky Preferred Shareholders, as the case may be, maintained by the applicable registrar and transfer agent, the signature on the Husky Common Shareholder Letter of Transmittal or Husky Preferred Shareholder Letter of Transmittal, as the case may be, must be medallion guaranteed by an Eligible Institution (as defined in the applicable Letter of Transmittal). If the Husky Common Shareholder Letter of Transmittal or the Husky Preferred Shareholder Letter of Transmittal is executed by a person other than the registered owner(s) of the Husky Common Shares or Husky Preferred Shares, as the case may be, and in certain other circumstances as set forth in the applicable Letter of Transmittal, then the certificate(s) or DRS Advice(s) representing the Husky Common Shares or Husky Preferred Shares, as the case may be, must be endorsed or be accompanied by an appropriate transfer power of attorney duly and properly completed by the registered owner(s). The signature(s) on the endorsement panel or the transfer power of attorney must correspond exactly to the name(s) of the registered owner(s) as registered or as appearing on the certificate(s) must be medallion guaranteed by an Eligible Institution.

All questions as to validity, form, eligibility (including timely receipt), and acceptance of any Husky Common Shares or Husky Preferred Shares exchanged pursuant to the Arrangement will be determined by Cenovus in its sole discretion. Depositing Husky Common Shareholders or Husky Preferred Shareholders, as the case may be, agree that such determination shall be final and binding. Cenovus reserves the absolute right to reject any and all deposits which it determines not to be in proper form or which may be unlawful for it to accept under the laws of any jurisdiction. Cenovus reserves the absolute right to waive any defect or irregularity in the exchange of Husky Common Shares or Husky Preferred Shares. There shall be no duty or obligation on Cenovus, the Depositary or any other person to give notice of any defect or irregularity in any deposit of Husky Common Shares or Husky Preferred Shares and no liability shall be incurred by any of them for failure to give such notice.

Notwithstanding the provisions of this Information Circular, the Letters of Transmittal, DRS Advices representing Cenovus Common Shares, Cenovus Warrants and/or Cenovus Preferred Shares representing the consideration to be received pursuant to the Arrangement will not be mailed if Cenovus determines that delivery thereof by mail may be delayed. Persons entitled to DRS Advices which are not mailed for such reason may take delivery thereof at the office of the Depositary in which the deposited certificates or DRS Advices representing Husky Common Shares or Husky Preferred Shares, as the case may be, were originally deposited until such time that it is determined that the delivery by mail will no longer be delayed.

Husky Shareholders are encouraged to deliver a validly completed and duly executed Letter of Transmittal, as applicable, together with the relevant security certificate(s) or DRS Advice(s), as applicable, to the Depositary as soon as possible.

None of Husky, Cenovus or the Depositary are liable for failure to notify Husky Shareholders, nor do they have any obligation to notify Husky Shareholders, who make a deficient deposit with the Depositary.

 

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INTERESTS OF CERTAIN PERSONS OR COMPANIES IN THE ARRANGEMENT

Except as described below, management of Husky and Cenovus are not aware of any material interest direct or indirect, by way of beneficial ownership or otherwise of any director or executive officer of Husky and Cenovus, respectively, or anyone who has held office as such since the beginning of Husky’s and Cenovus’s, respectively, last financial year or of any associate or affiliate of any of the foregoing in the Arrangement.

Husky

Husky Shares

As at November 9, 2020, the directors and executive officers of Husky and their associates beneficially owned, controlled or directed, directly or indirectly, an aggregate of 1,096,887 Husky Common Shares, representing approximately 0.1% of the outstanding Husky Common Shares and 26,000 Husky Preferred Shares, representing less than 0.1% of the outstanding Husky Preferred Shares. All of the Husky Common Shares and Husky Preferred Shares held by such directors and executive officers of Husky and their associates will be treated in the same fashion under the Arrangement as Husky Common Shares and Husky Preferred Shares held by any other Husky Shareholder. If the Arrangement is completed, the directors and executive officers of Husky and their associates will receive in exchange for such Husky Common Shares an aggregate of approximately 860,502 Cenovus Common Shares and approximately 71,407 Cenovus Warrants and will receive in exchange for such Husky Preferred Shares an aggregate of 26,000 Cenovus Preferred Shares. The Husky Common Shares and Husky Preferred Shares held by each director and executive officer of Husky are set out in the table below under “Summary of Interests of Husky Directors and Husky Executive Officers in the Arrangement”.

Husky Incentive Awards

As at November 9, 2020, the directors and executive officers of Husky held an aggregate of 3,234,411 Husky Options, representing approximately 17.0% of the outstanding Husky Options, 2,125,730 Husky PSUs and 427,484 Husky DSUs. All Husky Options will be exchanged for Cenovus Replacement Options exercisable for Cenovus Common Shares in accordance with the terms of the Plan of Arrangement. As completion of the Arrangement will be considered a “change of control” under the terms of the Husky PSU Plan, all outstanding Husky PSUs will vest immediately prior to the Effective Time and will be settled in cash following the Effective Time in accordance with their terms. Husky DSUs held by resigning directors of Husky will vest and be settled in cash as soon as practicable following their resignation in accordance the terms of the Husky DSU Plan.

See “Effect of the Arrangement – Details of the Arrangement” and “Effect of the Arrangement – Husky Incentive Awards”.

The Husky Incentive Awards held by each individual director and executive officer are set out in the table below under “Summary of Interests of Husky Directors and Husky Executive Officers in the Arrangement”.

Severance

Husky has entered into employment agreements with each of its executive officers (collectively, the “Employment Agreements”).

The terms of the Employment Agreements provide that in the event of the termination of any such executive officer by Husky without just cause or by the executive officer following a change of control, the executive officer will be entitled to receive a retiring allowance consisting of a lump sum cash amount equal to two times the executive officer’s base annual salary plus the continuation of all group benefits for a period of 24 months following the termination of employment, or at Husky’s option, in lieu of such continued coverage, an additional cash payment equal to 15% of two times the executive officer’s base annual salary. In the event any such executive officer terminates his or her Employment Agreement upon a change of control, the executive officer has agreed, at Husky’s option, to continue his or her employment for a period of up to six months following such termination at his or her existing compensation package, to assist Husky in an orderly transition of management.

The estimated severance which would be received by each individual executive officer pursuant to the Employment Agreements, assuming that each such executive officer of Husky is terminated by Husky without just cause or such executive officer resigns following completion of the Arrangement, is set out in the table below under “Summary of Interests of Husky Directors and Husky Executive Officers in the Arrangement”.

Husky Retention Program

Husky has established an employee retention program with respect to certain critical employees to, among other things, ensure that Husky retains key personnel to complete the Arrangement, successfully integrate the businesses of Husky and Cenovus, and achieve the anticipated synergies and other benefits intended to be realized as a result of the Arrangement.

The aggregate cost of the retention program is estimated to be approximately $20 million. Subject to closing of the transaction, payments under the retention program are expected to be made to participants between six and 12 months following the Effective Date based on the criteria approved by Husky’s Compensation Committee. Neither Mr. Peabody nor Mr. Hart is eligible to participate in such program. Husky’s other executive officers will be eligible to participate in the retention program if they meet the criteria of the retention program.

 

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Participants that are terminated with cause or that voluntarily resign (other than in the event of retirement) prior to the time that payments are to be made will not be entitled to receive any benefit under the retention program.

Continuing Insurance Coverage for Directors and Officers of Husky

Pursuant to the Arrangement Agreement, Cenovus has agreed that it will maintain or cause to be maintained in effect for six years from the Effective Time, policies of directors’ and officers’ liability insurance providing coverage comparable to the coverage provided by the directors’ and officers’ policies obtained by Husky that are in effect immediately prior to the Effective Time and providing coverage in respect of claims arising from facts or events that occurred on or prior to the Effective Time and which will cover all claims made prior to the Effective Date or within six years of the Effective Date. Prior to the Effective Time, Husky may, in the alternative, purchase run off directors’ and officers’ liability insurance for the benefit of its officers and directors having a coverage period of up to six years from the Effective Time.

Cenovus has also agreed, pursuant to the Arrangement Agreement, that all rights to indemnification, expense reimbursement or exculpation now existing in favour of present and former officers and directors of Husky shall survive completion of the Arrangement and, after the Effective Time, Husky and any successor to Husky will not take any action to terminate or adversely affect, and will fulfill its obligations pursuant to, expense advancement and exculpation arrangements and indemnities provided or available to or in favour of past and present officers and directors of Husky pursuant to the provisions of the articles, by-laws or other constating documents of Husky, applicable corporate legislation and any written indemnity agreements (and each of them), which have been entered into between Husky and its past or current officers or directors effective on or prior to the Agreement Date.

Summary of Interests of Husky Directors and Husky Executive Officers in the Arrangement

 

Name and Position

  Number of
Husky
Common
Shares
Owned or
Controlled
  Number of
Cenovus
Common Shares
Issuable
Pursuant to the
Arrangement in
Exchange for
Husky Common
Shares Owned
or Controlled
  Number of
Cenovus
Warrants
Issuable
Pursuant to the
Arrangement in
Exchange for
Husky Common
Shares Owned or
Controlled
  Number of
Husky Incentive
Awards held(1)
  Number of
Cenovus
Replacement
Options
Issuable
Pursuant to the
Arrangement
in Exchange
for Husky
Options held
  Estimated
Cash
Payment for
Outstanding
Husky PSUs
and Husky
DSUs held
($)(2)
  Estimated
Severance
Payments
Robert J. Peabody
President & Chief Executive Officer, Director(4)
  314,509  246,732  20,474  1,671,690 Husky
Options

1,137,120 Husky
PSUs

  1,311,440  4,173,230  3,252,000
Jeffrey R. Hart
Chief Financial Officer
  7,740  6,072  503  497,370 Husky
Options

386,902 Husky
PSUs

  390,186  1,419,930  Nil(5)
Robert M. Hinkel
Chief Operating Officer, Offshore
  42,912  33,664  2,793  388,611 Husky
Options

223,494 Husky
PSUs

  304,865  820,223  1,566,148(6)
Andrew Dahlin
Executive Vice President, Downstream and Midstream
  10,452  8,199  680  356,260 Husky
Options

223,494 Husky
PSUs

  279,485  820,223  1,150,000
James D. Girgulis, Q.C.
Senior Vice President, General Counsel & Secretary
  -  -  -  320,480 Husky
Options

154,720 Husky
PSUs

  251,416  567,822  970,000

Victor T. K. Li

Co-Chair of the Husky Board and Director(7)

  -  -  -  -  -  -  -

Canning K. N. Fok

Co-Chair of the Husky Board and Director

  255,365  200,333  16,624  -  -  -  -
Stephen E. Bradley
Director
  30,000  23,535  1,953  21,667 Husky
DSUs
  -  79,518  -

Asim Ghosh

Director

  198,840  155,989  12,944  -  -  -  -

 

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Name and Position

  Number of
Husky
Common
Shares
Owned or
Controlled
  Number of
Cenovus
Common Shares
Issuable
Pursuant to the
Arrangement in
Exchange for
Husky Common
Shares Owned
or Controlled
  Number of
Cenovus
Warrants
Issuable
Pursuant to the
Arrangement in
Exchange for
Husky Common
Shares Owned or
Controlled
  Number of
Husky Incentive
Awards held(1)
  Number of
Cenovus
Replacement
Options
Issuable
Pursuant to the
Arrangement
in Exchange
for Husky
Options held
  Estimated
Cash
Payment for
Outstanding
Husky PSUs
and Husky
DSUs held
($)(2)
  Estimated
Severance
Payments
Martin J. G. Glynn
Director
  473  371  30  44,602 Husky
DSUs
  -  163,689  -

Poh Chan Koh

Director

  -  -  -  -  -  -  -

Eva L. Kwok

Director

  10,215  8,013  664  140,782 Husky
DSUs
  -  516,670  -
Stanley T. L. Kwok
Director
  20,606  16,165  1,341  21,667 Husky
DSUs
  -  79,518  -
Frederick S. H. Ma
Director
  10,214  8,012  664  21,667 Husky
DSUs
  -  79,518  -
George C. Magnus
Director
  34,973  27,436  2,276  64,841 Husky
DSUs
  -  237,966  -

Neil D. McGee

Director

  74,055  58,096  4,820  -  -  -  -

Colin S. Russel

Director

  -  -  -  39,058 Husky
DSUs
  -  143,343  -

Wayne E. Shaw

Director

  16,343  12,821  1,063  54,664 Husky
DSUs
  -  200,617  -

Frank J. Sixt

Director

  70,190  55,064  4,569  -  -  -  -

Notes:

 

(1)

Husky DSUs held by directors will continue to accrue dividend equivalents in accordance with their terms. As part of their regular annual compensation, Husky DSUs will also continue to be credited to the account of certain directors in quarterly installments on or about the last Business Day of each fiscal quarter until the date when such individuals cease to be a director of Husky.

 

(2)

Value of Husky DSUs and Husky PSUs has been determined by multiplying the aggregate number of Husky PSUs and Husky DSUs by the closing trading price of Husky Common Shares on November 6, 2020 of $3.67. Pursuant to the Husky PSU Plan and the provisions of the Arrangement Agreement, the fair market value used to determine actual cash payments in settlement of vested Husky PSUs as a result of the Arrangement will equal the weighted average trading price of the Husky Common Shares on the TSX for the five trading days immediately preceding the Effective Date. Pursuant to the Husky DSU Plan and the provisions of the Arrangement Agreement, Husky DSUs shall be settled as soon as practicable following the termination of a director’s service. Such Husky DSUs will be settled in cash based on the weighted average price per share at which board lots of Husky Common Shares traded on the day prior to the Effective Date.

 

(3)

Assumes that each executive officer of Husky is terminated without just cause or the executive officer resigns following completion of the Arrangement, triggering payments under the Employment Agreements as described under the heading “Interests of Directors and Executive Officers in the Arrangement – Severance”.

 

(4)

Robert J. Peabody also holds 26,000 Husky Series 3 Preferred Shares. Pursuant to the Arrangement Agreement, 26,000 Cenovus Series 3 Preferred Shares are issuable in exchange for such Husky Series 3 Preferred Shares.

 

(5)

Jeffrey R. Hart will be the Executive Vice-President and Chief Financial Officer of the combined company. Mr. Hart is not entitled to a severance payment under his employment agreement in connection with the completion of the Arrangement.

 

(6)

Equal to US$1,207,500, converted into Canadian dollars using the Bank of Canada exchange rate of $0.7710 United States dollars = $1.00 Canadian dollar as of November 9, 2020.

 

(7)

See “Pro Forma Information Concerning the Combined Company – Principal Holders of Cenovus Common Shares” and “General Proxy Matters – Husky – Voting Securities of Husky and Principal Holders thereof”.

 

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Cenovus Shares

As at November 9, 2020, Husky did not beneficially own, control or direct, directly or indirectly, any Cenovus Shares. The directors and officers of Husky, as a group, beneficially owned, controlled or directed, directly or indirectly less than 1% of the issued and outstanding Cenovus Shares.

Cenovus

Cenovus Shares and Cenovus Incentive Awards

As at November 9, 2020, the directors and executive officers of Cenovus and their associates, as a group, beneficially owned, directly or indirectly, or exercised control or direction over, an aggregate of 2,731,623 Cenovus Common Shares, representing less than 0.25% of the outstanding Cenovus Common Shares.

As at November 9, 2020, the directors and executive officers of Cenovus, as a group, beneficially owned, directly or indirectly, or exercised control or direction over, an aggregate of 12,509,124 Cenovus Options, 2,351,982 Cenovus PSUs, 192,903 Cenovus RSUs, 210,216 Cenovus Employee DSUs and 646,653 Cenovus Director DSUs. Cenovus may grant additional Cenovus Options, Cenovus PSUs, Cenovus RSUs, Cenovus Employee DSUs and Cenovus Director DSUs between the Agreement Date and completion of the Arrangement. The Cenovus Incentive Awards held by each individual director and named executive officers as at March 2, 2020 are set forth in the Cenovus AGM Circular which is incorporated by reference in this Information Circular.

Cenovus Director DSUs

Susan F. Dabarno, Steven F. Leer and M. George Lewis are expected to resign from the Cenovus Board immediately following the Effective Time. See “The Arrangement – Effect of the Arrangement – Board and Management”. The Cenovus Director DSUs held by such directors at the Effective Time will be settled and redeemed in accordance with the terms of the Cenovus Director DSU Plan. Based on the five-day volume weighted average price of the Cenovus Common Shares on the TSX prior to November 9, 2020, the aggregate value of Cenovus Director DSUs held by such directors as of November 9, 2020 is approximately $925,000.

Cenovus Retention Program

Cenovus has established an employee retention program with respect to certain critical employees to, among other things, ensure that Cenovus retains key personnel to complete the Arrangement, successfully integrate the businesses of Cenovus and Husky, and achieve the anticipated synergies and other benefits intended to be realized as a result of the Arrangement.

The aggregate cost of the retention program is estimated to be approximately $13 million. Subject to closing of the transaction, payments under the retention program are expected to be made to participants between six and 12 months following the Effective Date based on the criteria approved by Cenovus’s Human Resources and Compensation Committee. Neither of Messrs. Pourbaix nor McKenzie are eligible to participate in such program. Each of Messrs. Chhina, Reid, and Zieglgansberger will be eligible to participate in the retention program and may receive cash payments of up to $650,000, $520,000 and $610,000, respectively, if they meet all of the criteria of the retention program. Other executive officers will also be eligible to participate in the retention program and may receive payments in the aggregate of up to $1,848,000, if they meet all of the criteria of the retention program.

Participants that are terminated with cause or that voluntarily resign (other than in the event of retirement) prior to the time that payments are to be made will not be entitled to receive any benefit under the retention program.

Husky Shares

As at November 9, 2020, Cenovus did not beneficially own, control or direct, directly or indirectly, any Husky Shares. The directors and officers of Cenovus, as a group, beneficially owned, controlled or directed, directly or indirectly less than 1% of the issued and outstanding Husky Shares.

Combined Company Appointments

Following completion of the Arrangement, Alex J. Pourbaix, the current President & Chief Executive Officer of Cenovus, will serve as President & Chief Executive Officer of the combined company. Further, Jeffrey R. Hart, the current Chief Financial Officer of Husky, will serve as Executive Vice-President & Chief Financial Officer of the combined company, and Jonathan M. McKenzie, the current Executive Vice-President & Chief Financial Officer of Cenovus, will serve as Executive Vice-President & Chief Operating Officer of the combined company. Keith A. MacPhail, the current Chair of the Cenovus Board, will serve as Independent Board Chair of the combined company. The remainder of senior management will be selected from each of Cenovus and Husky and named prior to the completion of the Arrangement.

The board of directors of the combined company following completion of the Arrangement will consist of eight members of the current Cenovus Board, including Keith A. MacPhail (as Independent Board Chair) and Alex J. Pourbaix, with Keith M. Casey, Jane E. Kinney, Harold

 

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N. Kvisle, Richard J. Marcogliese, Claude Mongeau, and Rhonda I. Zygocki expected to continue as members of the combined company’s board of directors, and four members of the current Husky Board, with Canning K. N. Fok, Eva L. Kwok, Wayne E. Shaw and Frank J. Sixt being the members expected to join the combined company’s board of directors.

LEGAL DEVELOPMENTS

Section 193 of the ABCA provides that, where it is impracticable for a corporation to effect an arrangement under any other provision of the ABCA, a corporation may apply to the Court for an order approving the arrangement proposed by such corporation. Pursuant to this section of the ABCA, such an application will be made by Husky for approval of the Arrangement. Husky has been advised by its counsel, Osler, Hoskin & Harcourt, that the Court has broad discretion under the ABCA when making orders with respect to plans of arrangement and that the Court will consider, among other things, the fairness and reasonableness of the Arrangement, both from a substantive and a procedural point of view. The Court may approve the Arrangement either as proposed or as amended in any manner the Court may direct, subject to compliance with such terms and conditions, if any, as the Court thinks fit. Depending upon the nature of any required amendments, Husky may determine not to proceed with the Arrangement.

There have been a number of judicial decisions considering section 193 of the ABCA and applications to various arrangements. There have been recent judicial decisions which may apply in this instance, particularly with respect to the role of fairness opinions in a transaction of the nature of a plan of arrangement. Husky Shareholders should consult their legal advisors with respect to the legal rights available to them in relation to the Arrangement.

DISSENT RIGHTS

The following description of the right to dissent to which registered Husky Shareholders are entitled is not a comprehensive statement of the procedures to be followed by a Dissenting Shareholder who seeks payment of the fair value of such Dissenting Shareholder’s Husky Common Shares or Husky Preferred Shares, as applicable, and is qualified in its entirety by reference to the full text of the Plan of Arrangement, Interim Order and the text of section 191 of the ABCA, which are attached to this Information Circular as Appendices E, F and O, respectively. A Dissenting Shareholder who intends to exercise the right to dissent should carefully consider and comply with the provisions of the ABCA, as modified by the Plan of Arrangement and by the Interim Order. Failure to adhere to the procedures established therein may result in the loss of all rights thereunder.

Accordingly, each Dissenting Shareholder who might desire to exercise Dissent Rights should consult his or her own legal advisor.

A Court hearing the application for the Final Order has the discretion to alter the Dissent Rights described herein based on the evidence presented at such hearing. Subject to certain tests as described below, pursuant to the Interim Order, Dissenting Shareholders are entitled, in addition to any other right such Dissenting Shareholder may have, to dissent and to be paid by Cenovus the fair value of the Husky Common Shares or Husky Preferred Shares, as applicable, held by such Dissenting Shareholder in respect of which such Dissenting Shareholder dissents, determined as of the close of business on the last Business Day before the day on which the Arrangement Resolution or Preferred Shareholder Resolution, as the case may be, from which such Dissenting Shareholder’s dissent was adopted and provided the Arrangement is completed in respect of such Husky Shareholders. A Dissenting Shareholder may dissent only with respect to all of the Husky Common Shares or Husky Preferred Shares, as the case may be, held by such Dissenting Shareholder, or on behalf of any one beneficial owner and registered in the Dissenting Shareholder’s name. Only registered Husky Shareholders may dissent. Persons who are beneficial owners of Husky Shares registered in the name of a broker, dealer, bank, trust company or other nominee (including CDS) who wish to dissent, should be aware that they may only do so through the registered owner of such Husky Shares. A registered Husky Shareholder, such as a broker or CDS, who holds Husky Shares as nominee for beneficial holders, some of whom wish to dissent, must exercise the Dissent Right on behalf of such beneficial owners with respect to all of the Husky Common Shares or Husky Preferred Shares held for such beneficial owners. In such case, the written objection to the Arrangement Resolution or Preferred Shareholder Resolution, as the case may be, should set forth the number of Husky Common Shares and/or Husky Preferred Shares covered by it.

Dissenting Shareholders must provide a written objection to the Arrangement Resolution or Preferred Shareholder Resolution, as the case may be, so that it is received by Husky c/o Osler, Hoskin & Harcourt LLP, Suite 2500, TC Energy Tower, 450 – 1st Street SW, Calgary, Alberta T2P 5H1, Attention: Tristram Mallett, by 5:00 p.m. (Calgary time) on December 8, 2020 being the fifth Business Day immediately preceding the date of the Husky Meeting, or the fifth Business Day immediately preceding the date of any adjournment or postponement of the Husky Meeting, as applicable. No Husky Common Shareholder or Husky Preferred Shareholder who has voted in favour of the Arrangement Resolution or Preferred Shareholder Resolution, respectively, shall be entitled to dissent with respect to the Arrangement.

Either Husky (which for purposes hereof shall include any successor to Husky) or a Dissenting Shareholder, as the case may be, may apply to the Court, after the approval of the Arrangement Resolution or the Preferred Shareholder Resolution, as the case may be, to fix the fair value of such Dissenting Shareholder’s Husky Common Shares or Husky Preferred Shares, as applicable, which fair value shall be determined as of the close of business, in respect of the Husky Common Shares, on the day before the Arrangement Resolution was adopted and, in respect of the Husky Preferred Shares, on the day before the Preferred Shareholder Resolution was adopted. If such an application is made to the Court by either Husky or a Dissenting Shareholder, as the case may be, Cenovus must, unless the Court orders otherwise, send to each Dissenting Shareholder, a written offer to pay such Dissenting Shareholder an amount considered by the Cenovus Board to be the fair value of the Husky Common Shares or Husky Preferred Shares held by such Dissenting Shareholder. The offer, unless the Court orders otherwise, must be sent to each Dissenting Shareholder, as the case may be, at least 10 days before the date on which the application is returnable, if Husky is the

 

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applicant, or within 10 days after Husky is served a copy of the application, if a Dissenting Shareholder is the applicant. Every offer will be made on the same terms to each Dissenting Shareholder and contain or be accompanied with a statement showing how the fair value was determined.

A Dissenting Shareholder may make an agreement with Cenovus for the purchase of such holder’s Husky Common Shares or Husky Preferred Shares, as the case may be, in the amount of the offer made by Cenovus, or otherwise, at any time before the Court pronounces an order fixing the fair value of the Husky Common Shares or Husky Preferred Shares, as the case may be.

A Dissenting Shareholder will not be required to give security for costs in respect of an application and, except in special circumstances, will not be required to pay the costs of the application or appraisal. On the application, the Court will make an order fixing the fair value of the Husky Common Shares or Husky Preferred Shares of all Dissenting Shareholders, as the case may be, who are parties to the application, giving judgment in that amount against Cenovus and in favour of each of those Dissenting Shareholders, and fixing the time within which Cenovus must pay the amount payable to each Dissenting Shareholder calculated from the date on which such Dissenting Shareholder ceases to have any rights as a Husky Common Shareholder or Husky Preferred Shareholder, as the case may be, until the date of payment.

On the Arrangement becoming effective in respect of the Husky Common Shares or Husky Preferred Shares, as the case may be, the Husky Common Shares or Husky Preferred Shares held by the Dissenting Shareholder and in respect of which Dissent Rights have been validly exercised shall be deemed to have been transferred to, and acquired by, Cenovus (free and clear of all encumbrances), and:

 

 (a)

the Dissenting Shareholder shall cease to be the holder of such Husky Common Shares or Husky Preferred Shares, as applicable, so transferred to Cenovus and to have any rights as a Husky Common Shareholder or Husky Preferred Shareholder, as applicable, other than the right to be paid the fair value for such Dissenting Shareholder’s Husky Common Shares or Husky Preferred Shares, as applicable;

 

 (b)

such Dissenting Shareholder’s name shall be removed from the applicable register or registers of holders of Husky Common Shares or Husky Preferred Shares, as applicable, maintained by or on behalf of Husky as it relates to the Husky Common Shares or the Husky Preferred Shares, as applicable, so transferred; and

 

 (c)

Cenovus shall become the transferee (free and clear of all Encumbrances) of the Husky Common Shares or the Husky Preferred Shares, as applicable, so transferred and shall be added to the applicable register or registers of Husky Common Shares or Husky Preferred Shares, as applicable, maintained by or on behalf of Husky.

A Dissenting Shareholder who has duly exercised their Dissent Rights in respect of Husky Common Shares or Husky Preferred Shares, as applicable, shall be deemed to have transferred the Husky Common Shares and the Husky Preferred Shares, as applicable, held by them and in respect of which Dissent Rights have been validly exercised to Cenovus (free and clear of all Encumbrances) for cancellation without any further act or formality at the Effective Time, and

 

 (a)

if such Dissenting Shareholder is ultimately entitled to be paid fair value for such Husky Common Shares or Husky Preferred Shares, as applicable, then such Dissenting Shareholder: (i) shall be deemed not to have participated in the Arrangement (other than to transfer its Husky Common Shares or Husky Preferred Shares, as applicable, to Cenovus); (ii) shall be paid by Cenovus the fair value of such Husky Common Shares or Husky Preferred Shares, as applicable, which fair value shall be determined as of the close of business, in respect of the Husky Common Shares, on the last Business Day before the Arrangement Resolution was adopted and, in respect of the Husky Preferred Shares, on the last Business Day before the Preferred Shareholder Resolution was adopted; and (iii) will not be entitled to any other payment or consideration, including any payment that would be payable under the Arrangement had such holders not exercised their Dissent Rights in respect of such Husky Common Shares or Husky Preferred Shares, as applicable; or

 

 (b)

if such Dissenting Shareholder is ultimately not entitled, for any reason, to be paid fair value for such Husky Common Shares or Husky Preferred Shares, as applicable, such Dissenting Shareholder shall be deemed to have participated in the Arrangement, commencing at the Effective Time, on the same basis as a Husky Common Shareholder or Husky Preferred Shareholder, as applicable, notwithstanding the provisions of section 191 of the ABCA, and such holder shall receive Cenovus Common Shares and Cenovus Warrants for such holder’s Husky Common Shares or Cenovus Preferred Shares for such holder’s Husky Preferred Shares, as applicable, on the basis set forth in the Plan of Arrangement, as applicable.

Cenovus shall not make a payment to a Dissenting Shareholder under section 191 of the ABCA, as modified by the Interim Order and the Plan of Arrangement, if there are reasonable grounds for believing that Cenovus is or would after the payment be unable to pay its liabilities as they become due, or that the realizable value of its assets of Cenovus would thereby be less than the aggregate of its liabilities. In such event, Cenovus shall notify each Dissenting Shareholder that it is unable lawfully to pay such Dissenting Shareholder for his or her Husky Common Share or Husky Preferred Shares, as applicable, in which case the Dissenting Shareholder may, by written notice to Cenovus within 30 days after receipt of such notice, withdraw such holder’s written objection, in which case the holder shall be deemed to have participated in the Arrangement as a Husky Common Shareholder or Husky Preferred Shareholder, as the case may be. If the Dissenting Shareholder does not withdraw such holder’s written objection, such Dissenting Shareholder retains status as a claimant against Cenovus to be paid as soon as Cenovus is lawfully entitled to do so or, in a liquidation, to be ranked subordinate to the rights of creditors of Cenovus but in priority to its shareholders.

 

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The above summary does not purport to provide a comprehensive statement of the procedures to be followed by a Dissenting Shareholders who seek payment of the fair value of their Husky Common Shares or Husky Preferred Shares, as the case may be. Section 191 of the ABCA, other than as amended by the Arrangement and the Interim Order, requires adherence to the procedures established therein and failure to do so may result in the loss of all rights thereunder. Accordingly, Dissenting Shareholders who might desire to exercise the right to dissent and appraisal should carefully consider and comply with the provisions of section 191 of the ABCA, the full text of which is set out in Appendix O to this Information Circular and consult their own legal advisor.

Unless otherwise waived, it is a condition to the completion of the Arrangement that holders of not more than 10% of the issued and outstanding Husky Common Shares shall have properly exercised Dissent Rights in respect of the Arrangement that have not been withdrawn as of the Effective Date. Further, unless otherwise determined by Cenovus in its sole discretion, if holders of more than 10% of the Husky Preferred Shares have validly exercised, and not withdrawn, Dissent Rights, the Husky Preferred Shares will not be exchanged for Cenovus Preferred Shares pursuant to the Plan of Arrangement and will remain outstanding in a subsidiary of Cenovus following completion of the Arrangement and listed on the TSX.

Notwithstanding the foregoing, registered Husky Preferred Shareholders who have validly exercised Dissent Rights shall not be entitled to dissent nor to be paid the fair value of their Husky Preferred Shares in the event that the Husky Preferred Shares are not exchanged for Cenovus Preferred Shares pursuant to the Arrangement.

CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

In the opinion of McCarthy Tétrault, tax counsel to Husky, the following is a summary of the principal Canadian federal income tax considerations generally applicable under the Tax Act to a beneficial owner of Husky Shares who disposes of or exchanges, or is deemed to have disposed of or exchanged, a Husky Share pursuant to the Arrangement and who, for purposes of the Tax Act and at all relevant times, (1) deals at arm’s length with and is not affiliated with Husky or Cenovus, and (2) holds all Husky Shares, and will hold all Cenovus Shares and Cenovus Warrants acquired under the Arrangement, as capital property (each, a “Holder”). Generally, the Husky Shares, the Cenovus Shares and Cenovus Warrants, as applicable, will be considered to be capital property to a holder thereof provided the holder does not use or hold such securities in the course of carrying on a business and has not acquired such securities in one or more transactions considered to be an adventure or concern in the nature of trade. This summary does not address all issues relevant to Holders who acquired their Husky Common Shares on the exercise of options or pursuant to other employee equity compensation plans. Such Holders should consult their own tax advisors.

This summary is based on the current provisions of the Tax Act, and on McCarthy Tétrault’s understanding of the current administrative policies of the CRA published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”) and assumes that all Proposed Amendments will be enacted in the form proposed. However, no assurances can be given that the Proposed Amendments will be enacted as proposed, or at all. This summary does not otherwise take into account or anticipate any changes in law or administrative policy whether by legislative, regulation, administrative or judicial action nor does it take into account tax legislation or considerations of any province, territory or foreign jurisdiction, which may differ from those discussed herein.

This summary is not applicable to (i) a Holder that is a “specified financial institution”, (ii) a Holder an interest in which is a “tax shelter investment”, (iii) a Holder that is, for purposes of certain rules (referred to as the mark-to-market rules) applicable to securities held by financial institutions, a “financial institution”, (iv) a Holder that reports its “Canadian tax results” in a currency other than Canadian currency, (v) a Holder that has entered into, or will enter into, with respect to its Husky Shares, Cenovus Shares or Cenovus Warrants, as the case may be, a “derivative forward agreement”, or (vi) a Holder who, immediately following the Arrangement, will, either alone or together with persons with whom such Holder does not deal at arm’s length, beneficially own Cenovus Common Shares which have a fair market value in excess of 50% of the fair market value of all outstanding Cenovus Common Shares, each as defined in the Tax Act. Such Holders should consult their own tax advisors.

Additional considerations, not discussed herein, may be applicable to a Holder that is a corporation resident in Canada and is, or becomes, controlled by a non-resident person or a group of non-resident persons not dealing with each other at arm’s length for the purposes of the “foreign affiliate dumping” rules in section 212.3 of the Tax Act. Such Holders should consult their own tax advisors.

This summary is not exhaustive of all possible Canadian federal income tax considerations applicable to a Holder in respect of the transactions described herein. The income or other tax consequences will vary depending on the particular circumstances of the Holder. Accordingly, this summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice or representations to any particular Holder. This summary does not discuss any non-Canadian income or other tax consequences of the Arrangement. Holders resident or subject to taxation in a jurisdiction other than Canada should be aware that the Arrangement may have tax consequences both in Canada and in such other jurisdiction. Such consequences are not described in this summary. Holders should consult their own legal and tax advisors for advice with respect to the tax consequences of the transactions described in this Information Circular based on their particular circumstances.

Holders Resident in Canada

This portion of the summary is generally applicable to a Holder who, at all relevant times, for purposes of the Tax Act and any applicable income tax convention, is, or is deemed to be, resident in Canada (a “Resident Holder”). Certain Resident Holders may be entitled to make or

 

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may have already made the irrevocable election permitted by subsection 39(4) of the Tax Act, the effect of which may be to deem to be capital property any Husky Shares and Cenovus Shares (and all other “Canadian securities”, as defined in the Tax Act) owned by such Resident Holder in the taxation year in which the election is made and in all subsequent taxation years. Resident Holders whose Husky Shares or Cenovus Shares might not otherwise be considered to be capital property should consult their own tax advisors concerning this election.

Exchange of Husky Shares under the Arrangement

Husky Common Shares Exchanged for Cenovus Common Shares and Cenovus Warrants

A Resident Holder of Husky Common Shares who disposes of Husky Common Shares under the Arrangement and receives both Cenovus Warrants and Cenovus Common Shares will be considered to have disposed of a portion of the Resident Holder’s Husky Common Shares (the “Warrant Consideration Common Shares”) for Cenovus Warrants; and to have disposed of the remaining portion of the Resident Holder’s Husky Common Shares (the “Share Consideration Common Shares”) for Cenovus Common Shares.

For Warrant Consideration Common Shares that are disposed of in exchange for Cenovus Warrants, the Resident Holder will recognize a capital gain (or capital loss) equal to the amount, if any, by which the fair market value of the Cenovus Warrants received, net of any reasonable costs associated with the exchange, exceeds (or is less than) the aggregate adjusted cost base of such Warrant Consideration Common Shares to the Resident Holder, determined immediately before the exchange. For a description of the tax treatment of capital gains and capital losses, see “Holders Resident in CanadaTaxation of Capital Gains and Losses” below. The cost of the Cenovus Warrants acquired by the Resident Holder in the Arrangement will be equal to the fair market value of the Resident Holder’s Warrant Consideration Common Shares that are exchanged for the Cenovus Warrants.

For Share Consideration Common Shares that are exchanged for Cenovus Common Shares, the Resident Holder will be deemed to have disposed of such Share Consideration Common Shares under a tax-deferred share-for-share exchange pursuant to section 85.1 of the Tax Act, unless the Resident Holder chooses to recognize a capital gain (or capital loss) as described in paragraph (b) below, such that:

 

 (a)

Where a Resident Holder does not choose to recognize a capital gain (or capital loss) on the exchange, the Resident Holder will be deemed to have disposed of the Resident Holder’s Share Consideration Common Shares for proceeds of disposition equal to the aggregate adjusted cost base of those Share Consideration Common Shares to the Resident Holder, determined immediately before the exchange, and the Resident Holder will be deemed to have acquired the Cenovus Common Shares at an aggregate cost equal to such adjusted cost base of the Share Consideration Common Shares. This cost will be averaged with the adjusted cost base of all other Cenovus Common Shares held by the Resident Holder as capital property for the purposes of determining the adjusted cost base of each Cenovus Common Share held by the Resident Holder as capital property.

 

 (b)

A Resident Holder may choose to recognize a capital gain (or capital loss) in respect of the exchange of the Resident Holder’s Share Consideration Common Shares for Cenovus Common Shares by including the capital gain (or capital loss) in computing the Resident Holder’s income for the taxation year in which the Arrangement takes place. In such circumstances, the Resident Holder will recognize a capital gain (or capital loss) equal to the amount, if any, by which the fair market value of the Cenovus Common Shares received, net of any reasonable costs associated with the exchange, exceeds (or is less than) the aggregate of the adjusted cost base of such Share Consideration Common Shares to the Resident Holder, determined immediately before the exchange. For a description of the tax treatment of capital gains and capital losses, see “Holders Resident in Canada – Taxation of Capital Gains and Losses” below. The cost of the Cenovus Common Shares acquired on the exchange will be equal to the fair market value thereof at the time of the exchange. This cost will be averaged with the adjusted cost of all other Cenovus Common Shares held by the Resident Holder as capital property for the purpose of determining the adjusted cost base of each Cenovus Common Share held by the Resident Holder as capital property.

Husky Preferred Shares Exchanged for Cenovus Preferred Shares

For Husky Preferred Shares that are exchanged for Cenovus Preferred Shares pursuant to the Arrangement, the Resident Holder will be deemed to have disposed of such Husky Preferred Shares under a tax-deferred share-for-share exchange pursuant to section 85.1 of the Tax Act, unless the Resident Holder chooses to recognize a capital gain (or capital loss) as described in paragraph (b) below, such that:

 

 (a)

Where a Resident Holder does not choose to recognize a capital gain (or capital loss) on the exchange, the Resident Holder will be deemed to have disposed of the Resident Holder’s Husky Preferred Shares of a particular series for proceeds of disposition equal to the aggregate adjusted cost base of those Husky Preferred Shares to the Resident Holder, determined immediately before the exchange, and the Resident Holder will be deemed to have acquired the Cenovus Preferred Shares of the applicable series at an aggregate cost equal to such adjusted cost base of the Husky Preferred Shares.

 

 (b)

A Resident Holder may choose to recognize a capital gain (or capital loss) in respect of the exchange of the Resident Holder’s Husky Preferred Shares of a particular series for Cenovus Preferred Shares of a particular series by including the capital gain (or capital loss) in computing the Resident Holder’s income for the taxation year in which the Arrangement takes place. In such circumstances, the Resident Holder will recognize a capital gain (or capital loss) equal to the amount, if

 

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any, by which the fair market value of such Cenovus Preferred Shares received, net of any reasonable costs associated with the exchange, exceeds (or is less than) the aggregate of the adjusted cost base of such Husky Preferred Shares to the Resident Holder, determined immediately before the exchange. For a description of the tax treatment of capital gains and capital losses, see “Holders Resident in Canada – Taxation of Capital Gains and Losses” below. The cost of the Cenovus Preferred Shares acquired on the exchange will be equal to the fair market value of the Husky Preferred Shares so exchanged at the time of the exchange.

Dissenting Resident Holders of Husky Shares

A Resident Holder (a “Resident Dissenter”) that validly exercises Dissent Rights will be deemed under the Arrangement to have transferred such Resident Holder’s Husky Common Shares or Husky Preferred Shares, as applicable, (the “Resident Holder’s Dissent Shares”) to Cenovus, and will be entitled to be paid the fair value for the Resident Holder’s Dissent Shares. The Resident Dissenter will realize a capital gain (or a capital loss) equal to the amount by which the payment (other than any interest) exceeds (or is exceeded by) the aggregate of the Resident Dissenter’s adjusted cost base of the Resident Holder’s Dissent Shares determined immediately before the Effective Time and any reasonable costs of disposition. For a description of the tax treatment of capital gains and capital losses, see “Holders Resident in Canada – Taxation of Capital Gains and Losses” below. A Resident Dissenter must include in computing its income any interest awarded to it by a court.

Holding and Disposing of Cenovus Shares and Cenovus Warrants

Dividends Received on Cenovus Shares

A Resident Holder will be required to include in computing its income for a taxation year any dividends received (or deemed to be received) on the Cenovus Common Shares or Cenovus Preferred Shares, as the case may be. In the case of a Resident Holder that is an individual (other than certain trusts), such dividends will be subject to the gross-up and dividend tax credit rules applicable to taxable dividends received from taxable Canadian corporations, including the enhanced gross-up and dividend tax credit applicable to any dividends designated by Cenovus as eligible dividends in accordance with the provisions of the Tax Act.

Taxable dividends received by a Resident Holder that is an individual or a trust may increase such Resident Holder’s liability for alternative minimum tax.

A dividend received (or deemed to be received) by a Resident Holder that is a corporation will generally be deductible in computing the corporation’s taxable income. In certain circumstances, however, a taxable dividend received (or deemed to be received) by a Resident Holder that is a corporation may be deemed to be a gain from the disposition of capital property or proceeds of disposition potentially giving rise to a capital gain. Resident Holders that are corporations should consult their own tax advisors having regard to their own particular circumstances.

A Resident Holder that is a “private corporation”, as defined in the Tax Act, or any other corporation controlled, whether because of a beneficial interest in one or more trusts or otherwise, by or for the benefit of an individual (other than a trust) or a related group of individuals (other than trusts), will generally be liable to pay a refundable tax under Part IV of the Tax Act on dividends received (or deemed to be received) on the Cenovus Common Shares or Cenovus Preferred Shares, as the case may be, to the extent such dividends are deductible in computing the Resident Holder’s taxable income for the taxation year.

The Cenovus Preferred Shares will be “taxable preferred shares” as defined in the Tax Act. The terms of the Cenovus Preferred Shares require Cenovus to make the necessary election under Part VI.1 of the Tax Act so that Resident Holders that are corporations will not be subject to tax under Part IV.1 of the Tax Act on dividends received (or deemed to be received) on the Cenovus Preferred Shares.

Expiry of Cenovus Warrants

In the event of the expiry of an unexercised Cenovus Warrant, a Resident Holder will be considered to have disposed of such Cenovus Warrant for nil proceeds and will accordingly realize a capital loss equal to the Resident Holder’s adjusted cost base of such Cenovus Warrant immediately before that time. For a description of the tax treatment of capital gains and capital losses, see “Holders Resident in Canada - Taxation of Capital Gains and Losses” below.

Exercise of Cenovus Warrants

No gain or loss will be realized by a Resident Holder on the exercise of a Cenovus Warrant to acquire additional Cenovus Common Shares. When a Cenovus Warrant is exercised, the Resident Holder’s cost of the Cenovus Common Share so acquired will be equal to the adjusted cost base of the Cenovus Warrant to the Resident Holder, immediately before that time, plus the amount paid on the exercise of the Cenovus Warrant. For the purpose of computing the adjusted cost base of each Cenovus Common Share acquired on the exercise of Cenovus Warrants, the cost of such Cenovus Common Share must be averaged with the adjusted cost base to such Resident Holder of all other Cenovus Common Shares held as capital property immediately before the exercise of the Cenovus Warrant.

 

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Disposition of Cenovus Shares or Cenovus Warrants

Generally, on a disposition or deemed disposition of a Cenovus Common Share, Cenovus Preferred Share or Cenovus Warrant, a Resident Holder will realize a capital gain (or capital loss) equal to the amount, if any, by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base to the Resident Holder of the Cenovus Common Share, the Cenovus Preferred Share or the Cenovus Warrant, as the case may be, immediately before the disposition or deemed disposition. The adjusted cost base to the Resident Holder of a Cenovus Common Share, Cenovus Warrant or Cenovus Preferred Share will be determined by averaging the cost of such Cenovus Common Shares, Cenovus Warrants or Cenovus Preferred Shares with the adjusted cost base of all other Cenovus Common Shares, Cenovus Warrants or Cenovus Preferred Shares of the same series, as the case may be, held by the Resident Holder as capital property at that time. See “Holders Resident in Canada – Taxation of Capital Gains and Losses” below for a general discussion of the treatment of capital gains and capital losses under the Tax Act.

Conversion of Cenovus Preferred Shares

The conversion of Cenovus Preferred Shares of a particular series (the “Convertible Preferred Shares”) into another series of Cenovus Preferred Shares (the “Converted Preferred Shares”) pursuant to the exercise of the conversion privilege applicable thereto will not constitute a disposition of property for purposes of the Tax Act and, accordingly, will not give rise to a capital gain or capital loss. The cost to a Resident Holder of a Converted Preferred Share of a particular series received on a conversion will be deemed to be equal to the Resident Holder’s adjusted cost base to such Resident Holder of the Convertible Preferred Share of the series from which such Converted Preferred Share was converted immediately before conversion. The adjusted cost base of all Cenovus Preferred Shares of a particular series held by the Resident Holder will be determined in accordance with the cost averaging rules in the Tax Act.

Redemption of Cenovus Preferred Shares

If Cenovus redeems Cenovus Preferred Shares, or otherwise acquires or cancels Cenovus Preferred Shares (other than by a purchase by Cenovus of the shares in the open market in the manner in which shares are normally purchased by any member of the public in the open market), a Resident Holder will be deemed to have received a dividend equal to the amount, if any, paid by Cenovus in excess of the paid-up capital (as determined for purposes of the Tax Act) of such series of Cenovus Preferred Shares at such time. The paid-up capital of the Cenovus Preferred Shares of a particular series issued pursuant to the Arrangement will be limited to the fair market value of the Husky Preferred Shares, as at the Effective Time, received in exchange for the issuance of such Cenovus Preferred Shares. As a result, the paid-up capital of the Cenovus Preferred Shares may be substantially lower than the stated redemption amount of the Cenovus Preferred Shares. The Canadian federal income tax treatment of any such deemed dividend is generally discussed above under the heading “Holders Resident in Canada – Dividends Received on Cenovus Shares”.

Generally, the difference between the amount paid by Cenovus and the amount of the deemed dividend will be treated as proceeds of disposition for purposes of computing the capital gain or capital loss arising on the disposition of such shares. See “Holders Resident in Canada – Disposition of Cenovus Shares or Cenovus Warrants” above and “Holders Resident in Canada – Taxation of Capital Gains and Losses” below. In the case of a Resident Holder that is a corporation, it is possible that in certain circumstances all or part of any such deemed dividend may be treated as proceeds of disposition and not as a dividend.

Taxation of Capital Gains and Losses

Generally, a Resident Holder is required to include in computing its income for a taxation year one-half of the amount of any capital gain (a “taxable capital gain”) realized in the year. Subject to and in accordance with the provisions of the Tax Act, a Resident Holder is required to deduct one-half of the amount of any capital loss (an “allowable capital loss”) realized in a taxation year from taxable capital gains realized by the Resident Holder in the year and allowable capital losses in excess of taxable capital gains for the year may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years.

The amount of any capital loss realized by a Resident Holder that is a corporation on the disposition of a Husky Common Share, Husky Preferred Share, Cenovus Common Share or Cenovus Preferred Share may be reduced by the amount of any dividends received (or deemed to be received) by the Resident Holder on such share (or on a share for which such share was exchanged) to the extent and under the circumstances prescribed by the Tax Act. Similar rules may apply where Husky Common Shares, Husky Preferred Shares, Cenovus Common Shares or Cenovus Preferred Shares are owned by a partnership or trust of which a corporation, trust or partnership is a member or beneficiary. Such Resident Holders should consult their own advisors.

Additional Refundable Tax

A Resident Holder that is throughout the taxation year a “Canadian-controlled