Legal news and trends for Canadian in-house counsel and c-suite executives
Issue link: https://digital.canadianlawyermag.com/i/50879
By Ryan Filson, partner, and Stephen Doak, associate, WeirFoulds LLP The CEO advises you that a mutual non-disclosure agreement is in place, due diligence has commenced, and he wants a letter of intent. He sends you a draft letter of intent that contains all of the essential terms of the transaction and concludes with the statement: "This letter sets out the parties' preliminary agreement but shall be subject to a definitive agreement setting forth in full the terms of the transaction." Is the letter of intent: Merger and acquisition issues You act for Acquisitionco, a public company listed on the TSX that manufactures coating plants for photovoltaic solar cells. It wants to buy Targetco, a privately owned Business Corporations Act company located in Peterborough, Ont. Targetco engineers certain components of the production lines Acquisitionco uses in its plants. Since this would be a very significant transaction for Acquisitionco, it wants to "strike while the iron is hot." The CEO of Acquisitionco con- tacts you to get going on the deal. The letter of intent provides for Acquisitionco to pay a substantial break fee if it does not complete the transaction other than for certain defined cases of cause. After the letter of intent is signed, the CEO tells you he does not want to disclose the deal until it is closed. Do you tell him: The letter of intent provides that the parties shall "finalize a mutually acceptable structure either as a purchase of all of the shares of Targetco or as the purchase of assets and assumption of certain liabilities of Targetco." Acquisitionco would like to purchase assets. Among other reasons, Targetco owes a lot of money to former suppliers, some of whom are threatening to commence collections proceedings. Targetco has not paid such suppliers because it does not have the cash to do so, and because it has found alternative suppliers with cheaper products. Acquisitionco would prefer just to buy the assets that it wants and leave Targetco to deal with the debts owing to its former suppliers. Is there any issue with that? Acquisitionco confirms that it will proceed with a share purchase. When you advise Targetco's counsel about this, she advises you that years ago Targetco issued a small number of shares to employees who have since left the company and are so hostile to management that they refuse to co-operate in the sale of their shares. Furthermore, there is no agreement that provides for an effective drag-along right to require recalcitrant shareholders to sell. Acquisitionco is only interested in buying 100 per cent of Targetco and does not want any minority shareholders. What do you advise Acquisitionco? The closing date is approaching and counsel to the sellers has not sent you a draft of the legal opinion that you requested. You follow up with a junior associate who has been working on the deal on the other side and are told the lead counsel is unreachable and has left instructions for the associate to do whatever is necessary to close the deal. The associate confesses that he is not familiar with legal opinions but he has a copy of your opinion request and will put in on his firm's letterhead, sign it, and send it to you for closing. What do you do? INHOUSE FEBRUARY 2011 • 13 1 2 3 4 5 c) Something r up the b) Agr a) Hang to ee and in between. eport arrangement, lead the c) for Other to T As argetco, as to long b) shar ce it . r ely a) uncooperative the ates. can can eholders an sell Reconsider it on asset shar acquir shar their pur eholders to b) es. No. a) Y c) ef no b) a) Something Acquisitionco fect The since c) Not b) Binding. Possibly a) binding. else. cannot the transaction binding. letter ely r can of r emain intent on secr theet was non-disclosur the to signed. pursuant e agr eement non-disclosur because e e chase agr it is eement. of compulsory per least 90 since ther sell pr of their counsel close sale cent shar the to deal, e is ovisions no es. issued the the and Law way to for contained es shar accept Society ce in of the the of uncooperative OBCA opinion. Upper Canada.