CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
Plans of arrangement offer flexibility on consid - eration, so long as the arrangement overall is fair and reasonable. In private M&A, particularly in industries with high valuation uncertainty, tools commonly used to bridge value gaps between parties include holdbacks and earn-outs. • With “holdback” , an acquiror will hold on to some of the purchase price until after clos- ing in order to satisfy indemnity or breach of warranty claims. This holdback amount may be provided to an escrow agent, particularly in cases where the seller has concerns about the creditworthiness of an acquiror. • With an “earn-out” , part of the purchase price will remain subject to performance require - ments or other milestones that must be satis- fied after closing and may also be used to set off indemnity or breach of warranty claims. The most common criterion is financial per - formance. Sellers may also provide some or all of the financing, or reinvest proceeds in the purchaser, to facilitate the closing. 6.4 Common Conditions for a Takeover Offer Common conditions for takeover bids include: • There is no shareholder rights plan in effect or the rights plan will be waived. • Regulatory approvals (including, under the Competition Act and the ICA) and third-party approvals or consents have been obtained. • There has not been a material adverse change. • There is no existing, pending or threatened litigation involving the target that would lead to a material adverse effect.
• There are no laws that would prevent the bid- der from taking up or paying for the securi- ties subject to the bid and there are no laws in effect or proposed that would have an adverse effect on the target. Takeover bids cannot be subject to a financing condition as discussed in 6.6 Requirement to Obtain Financing . 6.5 Minimum Acceptance Conditions All bids, even partial bids, must provide for a mandatory minimum tender condition that more than 50% of securities owned by security hold- ers other than the bidder be tendered to the bid. This minimum tender requirement must be met before the bidder may acquire any of the securi - ties subject to the bid. Bids for all of the outstanding shares may include a higher minimum tender condition to ensure that the bidder, through a second-step business combination, can obtain the remain- ing shares that are not deposited. This condition will usually require a deposit of at least 66⅔% of the outstanding shares and sufficient shares to obtain approval of a majority of the minority shareholders for the second-step transaction. Canadian securities regulations allow securities that were obtained under a lock-up to be voted as part of the majority of the minority vote if the locked-up security holder is treated identically to all others under the offer. If a bidder is only seeking control, it may include a minimum tender requirement of, for example, 51% of the outstanding shares instead. Parties may apply to Canadian securities regulators to waive or vary the minimum tender condition, although regulators will only allow such a waiver in rare cases.
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