CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
supplied by the target to the buyer and its coun- sel via an electronic dataroom. Common factors affecting the scope of due dili - gence include the nature of the target’s industry, the jurisdiction where assets are located, wheth - er the target competes with the buyer, and the access to sensitive information the target is will- ing to grant. 5.4 Standstills or Exclusivity Most letters of intent and acquisition agree - ments include exclusivity obligations on the target. Acquirors will usually want to know that the target has ceased all negotiations and is not shopping their deal to third parties. Most targets will want a standstill arrangement in place with the acquiror. For the acquisition of a reporting issuer, it is com - mon for exclusivity obligations to contain “fiduci - ary out” clause allowing the target to terminate the agreement and accept a superior proposal if doing so would be consistent with the target board’s fiduciary duties. The acquiror would typi - cally have a right to match the superior proposal or would be entitled to be paid a break fee (as described in 6.7 Types of Deal Security Meas- ures ) if the agreement is terminated. “superior proposal” will typically need to satisfy specific negotiated conditions, including that: • it is for all the target’s shares (or in some cases substantially all assets); • it is reasonably capable of being completed without undue delay with regard to all finan - cial, legal, regulatory and other aspects of the competing transaction; • it is not subject to any financing condition; and
• the target board make a determination that it is a more favourable transaction. The existence of “hard” lock-up agreements (ie, the shareholder is not permitted to withdraw and tender its shares to, or vote in favour of, any other competing transaction) with target shareholders holding a significant percentage of shares could render an offer incapable of being “superior proposal” because it is not reasonably The documentation used to set out the terms of a deal is determined by the nature of a transac- tion. If the transaction is a takeover bid, the acqui - ror must publicly file a takeover bid circular that describes the terms of its offer and includes other required disclosure. If the terms of the takeover bid subsequently change, further notices must be filed. For friendly takeover bids, the acquiror would typically enter into a support agreement with the target prior to launching the bid setting out the process of the bid, conditions and cer- tain deal protections. capable of being completed. 5.5 Definitive Agreements If the transaction is a plan of arrangement or oth- er negotiated business combination, the acqui - ror and the target would enter into an arrange- ment or combination agreement. The agreement would set out the process of the transaction (including shareholder, court and other approv- als), conditions and certain deal protections.
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