Legal news and trends for Canadian in-house counsel and c-suite executives
Issue link: https://digital.canadianlawyermag.com/i/52834
By Ryan Filson, Partner, David Schulze, Associate and Christopher Bitonti, Associate Chewy and Parker need outside financing to complete the proposed purchase and have lined up a potential loan to Pit-bull Marketing for the purchase price. Pit-bull Marketing also has an existing operating loan from Big Bank. The new lender is aware of the existing loan and is willing to take a second-ranking general security interest in the assets of Pit-bull Marketing. Chewy wants to save every penny possible, and thinks there is no need to involve Big Bank or incur the additional costs of dealing with their lawyers. Is he right? During the course of your due diligence, you discover that last year Raining Cats and Dogs did an e-mail marketing campaign which stated their dog booties would "make your dog run faster, jump higher and be more active, guaranteed." A competitor of Raining Cats and Dogs complained to the Competition Bureau, which has opened a file and is investigating the matter. Chewy and Parker are worried about potential liability. What, if anything, should you tell them? M&A pet shop talk Chewy and Parker are the principals of Pit-bull Marketing Inc., an Ontario- based marketing company that spe- cializes in marketing dog rainwear, a lucrative niche industry. Chewy and Parker have determined there is more profit to be made in selling dog rainwear and want to expand their company by acquiring Raining Cats and Dogs Ltd., an Ontario-based com- pany that retails dog rainwear. You are the new in-house counsel for Pit-bull Marketing. The parties have signed a non-binding letter of intent to proceed with the purchase of 100 per cent of the shares of Raining Cats and Dogs in an all-cash deal. You learn that Raining Cats and Dogs is a franchise of Petwear Co., a national pet clothing franchisor. Raining Cats and Dogs' counsel has informed you that Petwear Co. will not consent to the deal unless Pit-bull Marketing enters into a new franchise agreement. Petwear Co. also requires payment of an upfront fee of $20,000 before it will provide a copy of the agreement. As a franchisor, is Petwear Co. entitled to require these conditions? Chewy and Parker are comfortable with the indemnities and holdback that you and Raining Cats and Dogs' counsel have negotiated and have decided to proceed with the share deal. You have arranged for outside counsel, Bulldog & Bulldog LLP, to assist with the transaction. On the closing date, a senior partner at the firm insists that you not wire funds or proceed with closing until you get a Section 116 clearance certificate for Gidget Rolo, a 25 per cent shareholder of Raining Cats and Dogs who lives in Florida. He says without the certificate Pit-bull Marketing would have to remit part of the purchase price to the Canada Revenue Agency on account of Rolo's tax liability on the sale. Rolo is on a meditation retreat and cannot be reached. What do you tell your external counsel? Another last-minute issue has arisen. An articling student at Bulldog & Bulldog reviewed the minute books of Raining Cats and Dogs and can't find Gidget Rolo's share certificate. It appears the certificate is being held by Hunter Willy, to whom Rolo pledged the shares as collateral for a payday loan. Rolo claims that she repaid the loan, but Willy says she hasn't paid a fee due on her late repayment and won't give up the share certificate. Raining Cats and Dogs' counsel asserts that Willy is charging too high of a fee and has no proper claim to the shares. He suggests having Rolo sign an affidavit of loss and reissuing the certificate to get the deal closed. Chewy and Parker say this sounds like a good idea. What do you tell them? INHOUSE FEBRUARY 2012 • 15 1 2 b) c) 3 4 b) Y 5 b) No way a) OK a) Y ou do not need to r eport. ou must r eport to the Canada Revenue Agency b) No a) Y es won' Don' t follow thr Cats and Dogs to cover any potential liability ough with any investigations. Request a holdback of the pur shar es. Consider buying the assets of Raining Cats and Dogs instead of the t worry about it — it will work out. The Competition Bur a) chase price and indemnity fr . eau pr om Raining obably b) No a) Y es .