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chairs

Jordan Dolgin Dolgin Professional Corporation

A. Paul Mahaffy, C.S.Bennett Best Burn LLP

Shevaun McGrath Goodmans LLP

April 25, 2017

BUSINESS LAW Practice Basics 2017

*CLE17-0040601-A-PUB*

DISCLAIMER: This work appears as part of The Law Society of Upper Canada’s initiatives in Continuing Professional Development (CPD). It provides information and various opinions to help legal professionals maintain and enhance their competence. It does not, however, represent or embody any official position of, or statement by, the Society, except where specifically indicated; nor does it attempt to set forth definitive practice standards or to provide legal advice. Precedents and other material contained herein should be used prudently, as nothing in the work relieves readers of their responsibility to assess the material in light of their own professional experience. No warranty is made with regards to this work. The Society can accept no responsibility for any errors or omissions, and expressly disclaims any such responsibility.

© 2017 All Rights Reserved

This compilation of collective works is copyrighted by The Law Society of Upper Canada. The individual documents remain the property of the original authors or their assignees.

The Law Society of Upper Canada 130 Queen Street West, Toronto, ON M5H 2N6Phone: 416-947-3315 or 1-800-668-7380 Ext. 3315Fax: 416-947-3991 E-mail: [email protected] www.lsuc.on.ca

Library and Archives Canada Cataloguing in Publication

Business Law Practice Basics 2017

ISBN 978-1-77094-581-4 (Hardcopy)ISBN 978-1-77094-582-1 (PDF)

1

Chairs: Jordan Dolgin Dolgin Professional Corporation

A. Paul Mahaffy, C.S. Bennett Best Burn LLP


April 25, 2017 9:00 a.m. to 12:30 p.m.

Total CPD Hours = 2 h 30 m Substantive + 1 h Professionalism

SKU CLE17-0040601

Donald Lamont Learning Centre The Law Society of Upper Canada

130 Queen Street West Toronto, Ontario

Agenda

9:00 a.m. – 9:10 a.m. Welcome and Opening Remarks

A. Paul Mahaffy, C.S., Bennett Best Burn LLP

BUSINESS LAW

Practice Basics 2017

2

9:10 a.m. – 9:35 a.m. Meeting with Your Client (25 m )

Darlene Tonelli, Inter Alia Law

9:35 a.m. – 10:05 a.m. Due Diligence (5 m )

Shevaun McGrath, Goodmans LLP 10:05 a.m. – 10:35 a.m. Letter of Intent

A. Paul Mahaffy, C.S., Bennett Best Burn LLP 10:35 a.m. – 10:50 a.m. Coffee and Networking Break 10:50 a.m. – 11:20 a.m. Purchase and Sale Agreement

Jordan Dolgin, Dolgin Professional Corporation

11:20 a.m. – 11:50 a.m. Closing the Transaction (5 m ) David Street, Lerners LLP

11:50 a.m. – 12:15 p.m. The Changing Role of Solicitors (25 m )

Jordan Dolgin, Dolgin Professional Corporation A. Paul Mahaffy, C.S., Bennett Best Burn LLP

Shevaun McGrath, Goodmans LLP

David Street, Lerners LLP Darlene Tonelli, Inter Alia Law

12: 15 p.m. – 12:30 p.m. Question and Answer Session 12:30 p.m. Program Ends

1

April 25, 2017

SKU CLE17-0040601

Table of Contents TAB 1 Meeting Your Client ............................................................. 1 - 1 to 1 - 4 Darlene Tonelli, Inter Alia Law TAB 2 Due Diligence ..................................................................... 2 - 1 to 2 - 42 Shevaun McGrath, Goodmans LLP TAB 3 Letters of Intent ................................................................. 3 - 1 to 3 - 25 A. Paul Mahaffy, C.S., Bennett Best Burn LLP TAB 4 Purchase and Sale Agreement Checklist ............................. 4 - 1 to 4 - 11 Jordan Dolgin, Dolgin Professional Corporation TAB 5 Closing The Transaction ..................................................... 5 - 1 to 5 - 32

David Street, Lerners LLP

BUSINESS LAW


TAB 1

Meeting Your Client

Darlene Tonelli Inter Alia Law

April 25, 2017

BUSINESS LAW


www.interalia-law.com

Meeting Your Client

LSUC Business Practice Basics – April 25, 2017

By Darlene Tonelli1

The following brief outline sets out a basic checklist of key considerations, practice tips and associated resources to assist in making that first meeting with a prospective client a success. These considerations are explained in more detail in the presentation associated with these materials.

These suggestions should be viewed solely as a guideline – additional considerations

will apply for specific practice areas. Both the Law Society of Upper Canada (“LSUC”) and LawPro offer specific resources on this topic, links for which are included in this paper.

Part I deals with the goals for the first meeting. Part II deals with meeting your LSUC obligations, and Part III addresses best practices in the case where you (or the client) decide not to work together after the first meeting.

I. GOALS FOR THE FIRST MEETING

A. Key Considerations & Practice Tips

1. Determine who your client is:

- Company – shareholder? Board? Officer? Employee? - Individual – sophisticated? - Financial status (pre-funding? Funded? Revenue-generating) - “Fit” – personality, client goals, client style

2. Identify the (real) scope of work:

- Task as identified by the client - Task as you see it, including: - Red / yellow flags - Specific legal issues raised by the industry the client is in - Potential statutory or compliance issues raised - Specialized expertise required? (tax, privacy, etc.) - Jurisdiction

1 Darlene Tonelli, B.A (Hons), LL.B (Toronto), called to the bar in Ontario (2003). Founder of Inter Alia

Law® (www.interalia-law.com).

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http://www.interalia-law.com/



3. Confirm whether the client is willing / able to pay for the work that you believe needs to be done.

- Retainer (if applicable) - Shortcuts requested by client - Signs of client sticker shock - Requests to limit quality/scope to meet budget

4. Determine if you are the right lawyer for this client:

- Ability to meet stated deadlines - Competence - “Fit” (see above) - Approach and proposed time quote satisfies client

B. Resources

- LawPro – PracticePro:

http://www.practicepro.ca/information/default.asp?ename=Retainers#Retainers

- LSUC Rules of Professional Conduct, Chapters 2 & 3: http://www.lsuc.on.ca/lawyer-conduct-rules/

- LSUC guidance on Joint Retainers: http://www.lsuc.on.ca/with.aspx?id=2147499258&langtype=1033

- Canadian Bar Association Practice Tools http://www.cba.org/Publications-Resources/Practice-Tools

II. MEETING YOUR LSUC OBLIGATIONS

A. Key Considerations & Practice Tips 1. Client Identification

- Review LSUC By-law 7.1 Part III and develop good internal processes for the

collection of the required information.

2. Conflicts

- Review LSUC Rule 3, Section 3.4 and develop good internal processes for checking conflicts on each new file (re-checking when new parties become averse in interest during your retainer).

- Explain to the client what you consider to be a conflict.

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http://www.practicepro.ca/information/default.asp?ename=Retainers#Retainers

http://www.lsuc.on.ca/lawyer-conduct-rules/

http://www.lsuc.on.ca/with.aspx?id=2147499258&langtype=1033

http://www.cba.org/Publications-Resources/Practice-Tools


3. Confidentiality

- Review LSUC Rule 3, Section 3.3. - Explain the scope of your confidentiality obligation to the client in the initial

meeting. - Ask the client not to provide confidential information before you confirm that

you have no conflict.

4. Privilege

- It may be appropriate, depending on the type of retainer the client is proposing, to explain how privilege can best be maintained in the solicitor/client relationship in this meeting.

5. Electronic Communications / Privacy

- In the initial meeting, secure the client’s consent to use electronic

communication, including brief discussion of some of the risks, and providing the option of in-person communication only for sensitive topics.

6. Engagement Letter

- Memorialize the topics above in your engagement letter with your client,

including details on the scope of services, fees, how you will take instructions and anticipated timeline for your responses to their calls/emails. B. Resources LSUC Practice Management Topics:

Client Identification and Verification: http://lsuc.on.ca/with.aspx?id=2147499242

Conflicts of Interest: http://www.lsuc.on.ca/ConflictOfInterest/

Engagement Letters: http://www.lsuc.on.ca/RetainerAgreementOrEngagementLetter/

III. HOW NOT TO RETAIN A CLIENT

A. Key Considerations & Practice Tips - Choose clients wisely - Trust your instincts - Can you fulfill your duty to act honourably and with integrity with this client and

their file? - If you decide not to proceed, complete a “non-engagement” letter, preferably

one that does not require their signature but in which they are asked to contact you if any of the information in the letter is unclear or inaccurate in their view.

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http://lsuc.on.ca/with.aspx?id=2147499242

http://www.lsuc.on.ca/ConflictOfInterest/

http://www.lsuc.on.ca/RetainerAgreementOrEngagementLetter/


- Keep good notes on all initial client meetings, including notes on how and why the person was referred to you or found you, and your own reasons on why you will not be moving forward.

- File all notes on clients “not engaged” in a single location rather than by name within your regular filing system.

B. Resources

LSUC Practice Management Topics:

Non-engagement letters: http://www.lsuc.on.ca/with.aspx?id=2147499307

Sample non-engagement letter: http://www.lsuc.on.ca/with.aspx?id=2147499308

IV. CONCLUSION

At the end of the day, the clients you choose will shape your work day, your income,

your reputation, and your life. Taking the extra time to choose clients who are a good fit for you and your practice

is one of the best ways to minimize liability and enhance satisfaction with your professional work. I hope that these tips are helpful to you. For more information, please contact me at Inter Alia Law®: Darlene Tonelli: [email protected] www.interalia-law.com Twitter: @inhouseallies LinkedIn: https://ca.linkedin.com/in/darlenetonelli Cell: (416) 302-8700

1 - 4


http://www.lsuc.on.ca/with.aspx?id=2147499307

http://www.lsuc.on.ca/with.aspx?id=2147499308

mailto:[email protected]


https://ca.linkedin.com/in/darlenetonelli

TAB 2

Due Diligence


April 25, 2017

BUSINESS LAW


goodmans.ca

DUE DILIGENCE CHECKLIST FOR ASSET PURCHASE TRANSACTION

This Due Diligence Checklist for an Asset Purchase Transaction is a precedent document and should

be used solely as a guide. Be sure to read the entire document and be sure that any subject matters

identified herein are applicable to the facts and circumstances of the transaction with which you are

dealing. This precedent Due Diligence Checklist will not be applicable to all transactions.

It is also important that you consider any other issues or facts which may be relevant to your

transaction and which may not be covered by this precedent. Be sure to speak with members of

other practice areas relevant to your transaction as soon as possible when conducting due diligence

on any target corporation or its business or assets. Be especially mindful of the interests of your

client, strategic and otherwise, when conducting due diligence.

© Goodmans LLP

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goodmans.ca

DUE DILIGENCE CHECKLIST1

DOCUMENT DELIVERY

In connection with the proposed acquisition of [substantially] all of the assets of (the “Vendor”) by (the “Purchaser”), we have developed the

following preliminary due diligence requisition list, in our capacity as counsel to the Purchaser. As we are provided with the requested information

and our knowledge with respect to the Purchased Business increases, additional requisitions may become necessary. We also rely on the Vendor and

its direct or indirect shareholders and their representatives to bring to our attention all information properly characterized as material, whether or not

specifically referenced in this list. If, with regard to any document or information, there is doubt as to its validity or significance, please provide us

with a description of the document or information so that we may assist in such determination. We would ask that you advise us of any new

information or amendments to existing information if, as and when it becomes available, and provide us with any available additional documentation

relating thereto.

If possible, it would be appreciated if you could cross-reference your responses and documentation to the item numbers referred to below.

Document Previously Provided Provided Herewith To Be Provided Inapplicable

1. Corporate Matters

1.1 Prepare corporate chart showing the ownership structure of the Vendor [and the

Subsidiaries], including jurisdiction of incorporation and percentage of

ownership. Obtain minute books of the Vendor [and each of its Subsidiaries].

1.2 Obtain and review certified copies of articles of incorporation or other charter

documents of the Vendor [and each of its Subsidiaries], including any

predecessor corporations, and all amendments thereto.

1.3 Obtain and review certified copies of the current by-laws of the Vendor [and

each of its Subsidiaries], including any predecessor corporations to determine

the particular corporate procedures to be followed to accomplish the transaction.

1.4 Prepare a list of jurisdictions in which the Vendor [and each of its Subsidiaries]

carry on business, maintain a registered office or hold property. Obtain copies of

the current registrations to carry on business in all applicable jurisdictions.

1 ANNOTATION: All confidential information provided by the Vendor to the Purchaser should be clearly identified as such.

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1.5 Review authorized and issued share capital, organization of the Vendor [and

each of its Subsidiaries] and minutes of meetings of the board of directors and

shareholders of the Vendor [and each of its Subsidiaries], and the predecessors

of each since incorporation. Confirm proper constitution of the current board of

directors of the Vendor [and each of its Subsidiaries].

1.6 Obtain and review any documentation relating to any [material] purchase or sale

by, or reorganization of, the Vendor [and each of its Subsidiaries] in the past

five years.

1.7 Review the minute books of the Vendor [and each of its Subsidiaries] for the

existence of any of the following:

(a) shareholder agreements;

(b) employee agreements;

(c) bonus plans, stock option plans and any other agreements or

undertakings relating to securities (including any warrants or options);

(d) employee retirement payments and profit-sharing plans;

(e) pension plans;

(f) fringe benefits plans (e.g. life insurance, medical insurance, etc.);

(g) union contracts;

(h) any material or long-term commitments;

(i) legal problems, regulatory problems and/or litigation; and

(j) other operating details of a material or unusual nature.

1.8 Prepare a list of any names, other than current names, under which the Vendor

[and (if applicable) each of its Subsidiaries] or their respective predecessors

have done business in the past.

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2. Corporate and Public Searches

2.1 Perform the following corporate and other searches against the Vendor [and

each of its Subsidiaries], and each of their predecessors (including related

searches in all jurisdictions in which the Vendor [or any of its Subsidiaries] or

any of their predecessors carries or carried on business, as the case may be):

(a) Securities Act (Ontario):

(i) material change reports and press releases; and

(ii) insider trading reports;

(b) Personal Property Security Act (Ontario);

(c) Executions Act (Ontario);

(d) Bank Act (Canada);

(e) Bankruptcy Act (Canada); and

(f) Bulk Sales Act (Ontario).

2.2 Perform searches of the public files of the Vendor [and each of its

Subsidiaries], and each of their predecessors, at Ontario Companies Branch and

The Toronto Stock Exchange, to the extent applicable.

2.3 Perform Info Globe searches in respect of the Vendor [and each of its

Subsidiaries].

3. Financial Information

3.1 Obtain copies of the financial statements of the Vendor [and each of its

Subsidiaries] for the past [five] fiscal years and copies of the quarterly

statements for the current fiscal year.

3.2 Obtain copies of any written recommendations, reports or letters to management

prepared by or initiated from the auditors/accountants of the Vendor [or any of

its Subsidiaries], or their financial officers, with respect to any aspect of their

system of accounting, financial reporting, internal financial controls or

recordkeeping.

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3.3 Obtain a list of all accounts payable and accounts receivable of the Vendor [and

each of its Subsidiaries] as at [insert appropriate date].

3.4 Obtain a list and sales figures of [all/the [ten] largest dollar volume] customers

and [all/the [ten] largest dollar volume] suppliers for the Vendor [and each of

the Subsidiaries].

3.5 Obtain all information pertaining to any provincial or federal tax audits of the

Vendor [or any of its Subsidiaries].

3.6 Obtain and review copies of any swap or hedging agreements.

3.7 Obtain and review copies of all strategic or business plans and market studies

prepared by or for the Vendor [and its Subsidiaries] within the last [three]

years.

3.8 With respect to the auditors of the Vendor, consider asking such auditors to

address or provide information pertaining to the following:

(a) Any recent, proposed or contemplated changes in the accounting

policies of the Vendor;

(b) The adequacy of the Vendor’s internal controls and accounting methods

and policies with respect to financial matters, including their internal

reporting systems, the recording of sales and expenses and other

matters; and

(c) The comments and opinions of the auditors with respect to the general

fairness of the accounting policies and the presentation of the financial

statements of the Vendor [and its Subsidiaries].

3.9 Obtain all information pertaining to transactions by the Vendor [or any of its

Subsidiaries] with any affiliated companies and the method of reflecting these

transactions in their financial statements.

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4. Contracts/Agreements

4.1 Obtain and review all agreements relating to banking, finance and other lines of

credit and material short-term or long-term borrowings of the Vendor [and each

of its Subsidiaries] (and of any other persons or companies whose obligations

have been guaranteed by the Vendor [or any of its Subsidiaries]), including

without limitation:

(a) Credit or Loan Agreements and the particulars of any security granted

in connection therewith;

(b) Capitalized leases, whether secured or unsecured;

(c) All letters of consent or waivers from any lending institution obtained in

the last [three] years in connection with any indebtedness whether or

not the debt is presently outstanding;

(d) Guarantees, security agreements, mortgages, conditional sales

agreements, trust deeds, financing leases, bonds, debentures, promissory

notes and indemnities; and

(e) Any correspondence with lenders regarding any default, acceleration or

termination of any obligation of the Vendor [or any of its

Subsidiaries].

4.2 Obtain and review copies of all contracts with customers to which the Vendor

[or any of its Subsidiaries] is a party [where the revenues in any year exceed

$ or the term is in excess of [one] year] (including any contracts or

commitments for the sale of products or services to any Governmental

Authority). Obtain and review any sales agency, distributorship or brokerage

agreements. Note any provisions pertaining to assignment or change of control.

4.3 Obtain and review copies of all contracts with suppliers to which the Vendor [or

any of its Subsidiaries] is a party [where the costs in any year exceed $ or

the term is in excess of [one] year].

4.4 Obtain and review copies of all documents evidencing the terms and conditions

of any [material] acquisition, reorganization, disposition or other major change

in the capital, assets or liabilities of the Vendor [or any of its Subsidiaries] in

the preceding [three] years.

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4.5 Obtain and review copies of all documents relating to any proposed [material]

acquisition, sale or lease of assets by the Vendor [or any of its Subsidiaries].

4.6 Obtain and review copies of any [material] equipment leases entered into within

the [three] preceding years or proposed to be entered into by the Vendor [or any

of its Subsidiaries].

4.7 Obtain and review copies of all [material] operating agreements or joint venture

agreements or contracts creating present or future rights in favour of third parties

affecting any [material] assets, operations or future financings of the Vendor [or

any of its Subsidiaries], [including all distribution, sales, agency,

development, and rights and options agreements.]

4.8 Obtain and review copies of any standard form agreements used by the Vendor

[or any of its Subsidiaries].

4.9 Obtain and review copies of all [material] lease agreements whereby machinery,

equipment, vehicles, etc. are leased from or to the Vendor [or any of its

Subsidiaries].

4.10 Obtain and review all non-competition agreements with third parties to which the

Vendor [or any of its Subsidiaries] is a Party.

4.11 Obtain and review copies of all other agreements which may be material or of

significance to the business or assets of the Vendor [or any of its Subsidiaries]

not otherwise identified herein.

4.12 Identify all contracts, agreements and other obligations to which the Vendor is a

party that will require the giving of notice to, or the receipt of consent from, a

third party in order for the Vendor to assign such contracts, agreements and other

obligations.

4.13 [Identify all contracts, agreements and other obligations to which any of the

Subsidiaries is a party that will require the giving of notice to, or the receipt

of consent from, a third party in order for the Vendor to assign such

contracts, agreements and other obligations.]

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goodmans.ca


5. Real Property and Environmental Matters

5.1 Obtain and review copies of the title documents for all real property owned by

the Vendor [or any of its Subsidiaries], if any, together with the reporting

letters and opinions of the solicitors with respect to the acquisition of such real

property. Include copies of any encumbrances on such properties and note the

following:

(a) Street address, legal description and site plan, including existing ingress

and egress;

(b) Topographical surveys and soil tests, and any other studies of any

environmental issues relating to the plant or the plant site;

(c) Zoning and building codes and description of current use; and

(d) Valuations and tax assessments.

5.2 Obtain and review copies of all documents purporting to create liens, mortgages,

security interests, pledges, charges or other encumbrances of a material nature on

the real property of the Vendor [and its Subsidiaries].

5.3 Obtain and review copies of any [material] real property leases entered into by

the Vendor [and its Subsidiaries] as tenants and copies of any registrations

relating thereto. Note the following:

(a) Name of other party, location, description and use;

(b) Date, term and termination and renewal rights;

(c) Rent per month (including percent rent agreements and other costs);

(d) Guarantees and any defaults or breaches; and

(e) Assignment and change of control provisions.


the Vendor [and its Subsidiaries] as landlords and copies of any registrations



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5.5 Obtain and review copies of any environmental audits (or similar reports relating

to environmental matters), if any, on all real property owned, leased or otherwise

occupied or utilized by the Vendor [or any of its Subsidiaries].

5.6 Obtain and review copies of all agreements, contracts, arrangements and

easements relating to the provision of services and utilities in respect of real

property owned, leased or otherwise occupied or utilized by the Vendor [or any

of its Subsidiaries].

5.7 Conduct real property searches in all relevant jurisdictions (and determine the

extent to which they should also be conducted for leased real property).

5.8 Make inquiries of municipalities and other governmental authorities re:

compliance with zoning by-laws, work orders, environmental orders, etc.

5.9 Identify any violations, notices or claims of violation of any law, code, rule,

regulation, ordinance, license or permit relating to building, zoning or

environmental matters.

5.10 Obtain a detailed description of each of the following environmental and safety

matters:

(a) All waste material, effluent or atmospheric or other discharge, whether

or not regulated, which is or has been generated by the business or

operations of the Vendor [and each of its Subsidiaries];

(b) All data in the control or possession of the Vendor [and each of its

Subsidiaries] relating to the effect of exposure to the products presently

or previously manufactured by the Vendor [and each of its

Subsidiaries] or any of their predecessors;

(c) Records relating to exposure by employees to any material, effluent or

atmospheric or other discharge;

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(d) Waste disposal practices of the Vendor [and each of its Subsidiaries]

and their predecessors, and copies of all agreements relating to such

practices;

(e) Persons who have conducted environmental assessments of the Vendor

[or any of its Subsidiaries], and copies of any preliminary or final

reports made by such persons;

(f) All documents relating to the indemnification given by previous owners

to the Vendor [or any of its Subsidiaries] and subsequent purchasers in

respect of any environmental or related matters; and

(g) Site history, possible contaminations, environmental audits and clean

up. Address UFI, PCB, Asbestos, radon, automobile tires and

underground storage tank issues.

6. Personal Property

6.1 Prepare a schedule of all machinery, equipment, vehicles and other tangible

personal property owned by the Vendor [and its Subsidiaries] showing date of

acquisition, condition, use, etc.


personal property leased by the Vendor [and its Subsidiaries] showing date of

acquisition, condition, use, etc. Obtain and review copies of all such leases and

note any provisions pertaining to assignment and/or change of control.

6.3 Prepare a list of security interests, liens and encumbrances on all personal

property owned or leased by the Vendor [and its Subsidiaries] in connection

with applicable searches in all relevant jurisdictions.

6.4 Prepare a list of inventory of the business of the Vendor [and each of its

Subsidiaries] as of the most recent available date and identify obsolete

inventory.

6.5 Prepare a schedule of all warehouses owned or operated by the Vendor [and its

Subsidiaries] and any other locations where assets of the Vendor [and each of

its Subsidiaries] are stored.

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goodmans.ca


7. Intellectual Property2

7.1 Prepare a list of any material trade-marks, copyrights, patents or other

intellectual property rights used in, or material to, the business and operations of

the Vendor [and each of its Subsidiaries] and particulars of any registrations

relating thereto. Identify the holder of the intellectual property rights.

7.2 Obtain copies of all registered trade-marks and copyrights and pending trade-

mark or copyright applications owned or on file with the Vendor [or any of its

Subsidiaries]. Identify the holder of the intellectual property rights.

7.3 Obtain copies of any intellectual property or license agreements whereby the

Vendor [or any of its Subsidiaries] license any intellectual property to or from

others (or grant rights to or are granted rights by others) and note any provisions

pertaining to assignment and/or change of control.

7.4 Obtain and review copies of all policies of the Vendor [and each of its

Subsidiaries] regarding the treatment or disclosure of intellectual property,

including all agreements concerning confidentiality and non-disclosure with

employees, contractors, visitors or other parties.

7.5 Obtain and review all research and development agreements and design

agreements including agreements with independent contractors who participated

in the development of any material product and any agreements pursuant to

which the Vendor [or any of its Subsidiaries] must provide development

services.

7.6 Prepare a schedule of any exclusive rights (product or geographical) granted to

or by the Vendor [or any of its Subsidiaries].

7.7 Obtain all information concerning any claim of trade-mark infringement or other

violation of an intellectual property right, or violation of any non-disclosure or

non-competition agreement asserted by or against the Vendor [or any of its

Subsidiaries] during the past [five] years.

7.8 Conduct any applicable intellectual property searches in all relevant jurisdictions.

2 ANNOTATION: If intellectual property is a significant component of the business being acquired, you may wish to include significantly more detailed intellectual property due

diligence requests.

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8. Governmental Authorizations

8.1 List all licenses, permits, approvals and other authorizations required of any

Governmental Authority for the Vendor [and each of its Subsidiaries] to

conduct their operations, carry on business or use their assets in accordance with

all applicable Laws.

8.2 Summarize all reporting requirements of the Vendor [and each of its

Subsidiaries] and review all filings made by them in the past [five] years to any

Governmental Authority.

8.3 Review the business and operations of the Vendor [and each of its Subsidiaries]

from a competition and antitrust law perspective. Confirm that there are no past

or present competition law claims or pending litigation and no proceedings or

consent decrees applicable to the Vendor [or any of its Subsidiaries] under any

competition or antitrust legislation in any jurisdiction where they carry on

business. Identify any agreements, written or oral, with any competitors of the

Vendor [or any of its Subsidiaries], including memberships in any industry

umbrella, advocacy or lobby group.

8.4 Determine whether the proposed transaction will require any approvals of or

notification to any Governmental Authority prior to the Closing, including

pursuant to the Bulk Sales Act (Ontario), Investment Canada Act (Canada) or the

Competition Act (Canada).

8.5 Obtain information concerning any contributions of the Vendor [or any of its

Subsidiaries] to political parties and their lobbying activities, registered or

otherwise, if any.

9. Litigation

9.1 Prepare a description (together with a copy of any judgment, decree or order of a

court or regulatory body or other Governmental Authority or any settlement of

any kind) of all prior material litigation or investigations by which the Vendor

[or any of its Subsidiaries] or any of their respective operations or assets

continue to or may be affected.

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9.2 Prepare a description of all other pending or threatened litigation or regulatory

proceedings to which any of the Vendor [or any of its Subsidiaries] is or may

be a party or by which they or their respective operations or assets are or may be

bound together with copies of all pleadings, correspondence or other documents

relating to such matters.

9.3 Obtain and review copies of all letters from counsel for the Vendor sent to the

auditors/accountants of the Vendor [or any of its Subsidiaries] in the last

[three] years with respect to any current, pending or threatened lawsuits or any

regulatory actions by or against the Vendor [or any of its Subsidiaries].

9.4 Assess the possibility of litigation in the following areas:

(a) Equal employment opportunities and affirmative action claims;

(b) Occupational health and safety matters;

(c) Improvement, management, sale or leasing of real property;

(d) Product liability and warranty;

(e) Personal injury;

(f) Intellectual property;

(g) Environmental, pollution control or hazardous or toxic substances; and

(h) Taxation (including any reassessments).

9.5 Assess the risk of improprieties potentially affecting the Vendor [or any of its

Subsidiaries] or their businesses, operations or assets, including:

(a) List all procedures established by the Vendor [and each of its

Subsidiaries] to safeguard against potential conflicts of interest and

improper payments (i.e. kickbacks, bribes, etc.) by its principal

directors, officers and employees; and

(b) Obtain a summary of purchases from, or loans or sales to, affiliates or

controlled or associated persons and investigate prices in relation to

market for the last [two] years.

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9.6 Obtain details with respect to:

(a) Any [material] correspondence between the Vendor [or any of its

Subsidiaries] and any Governmental Authority during the last [three]

years; and

(b) Any [material] customer or supplier complaints or disputes in the past

[two] years.

10. Employment, Health and Safety Matters3

10.1 Prepare a detailed organizational chart of the directors, officers and senior

employees of the Vendor [and each of its Subsidiaries].

10.2 Obtain and review copies of all existing employment, consultant or non-

competition agreements with key personnel of the Vendor [and each of its

Subsidiaries].

10.3 Obtain and review copies of any union contracts or collective bargaining

agreements applicable to the Vendor [and each of its Subsidiaries], if any.

10.4 Obtain copies of any existing bonus, share or stock option, share purchase and

other incentive plans, vacation plans or policies and other employee benefit

plans, post-retirement health plans, severance plans and a summary of other

severance obligations; and any pension, profit-sharing or welfare plans or health,

accident, life or other group insurance plans.

10.5 With respect to employee compensation,

(a) Identify any change of control arrangements (i.e. golden parachutes);

(b) Identify all employee shareholdings;

(c) Summarize recent employee compensation history and policies,

including salaries, bonuses and perquisites (i.e. cars, expense accounts,

memberships);

3 ANNOTATION: Any use, collection or dissemination of personal information should comply with the requirements of applicable privacy legislation.

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(d) Identify any special arrangements concerning expatriate employees,

either living in Canada or abroad;

(e) Review compensation policies and administrative issues (i.e.

geographic zones, pay plans, transfer policies, promotion policies, merit

review and salary increase policies, pay equity and affirmative action

plans, etc.); and

(f) Identify any unfunded supplemental benefit plans (i.e. death benefits,

disability income, etc.).

10.6 With respect to pension and other benefit plans,

(a) List and describe all defined benefit plans and other benefit programs

covering employees in all jurisdictions where the Vendor [or any of its

Subsidiaries] carries on the business;

(b) Summarize all plan descriptions, documents and amendments relating

thereto, all funding agreements and investment management

agreements, actuarial reports and valuations, collective bargaining

agreements, all information returns filed with provincial pension plan

commissions (or their equivalent in other jurisdictions), and any Annual

Report Form 5500 (for U.S. employees);

(c) List all retirees entitled to post-retirement benefits and the funding

status of each;

(d) List all inactive employees (i.e. Workers Compensation, maternal,

paternal or parental leave or disability) including length of inactivity

and return date or prognosis;

(e) List and describe all pension and other retirement plans and identify

registration documents with provincial pension plan commissions (or

their equivalent in other jurisdictions), trust documents and group

annuity policies, funding status, actuarial reports, funding method and

any unfunded pension liabilities, benefits for retired employees and any

individual unfunded pension arrangements; and

(f) Identify all other unfunded post-retirement benefits.

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10.7 Review termination and severance pay programs and any employment

agreements that contain notice or severance periods. In the absence of a formal

termination program, review past policies and practice of the Vendor [and each

of its Subsidiaries] with respect to termination and severance.

10.8 Identify the particulars of the indebtedness, if any, of the directors and senior

officers and their respective associates and affiliates to the Vendor [or any of its

Subsidiaries].

10.9 Identify the particulars of any agreements between the Vendor [or any of its

Subsidiaries] and any of their directors, officers or other insiders or their

respective associates and affiliates during the past [three] years.

10.10 Obtain and review copies of all employee separation agreements and non-

competition agreements for the Vendor [and each of its Subsidiaries].

10.11 Review employee handbooks, manuals and other personnel policies, together

with details of any outstanding deferred compensation arrangements, and

identify any oral personnel policies.


regulation, ordinance, license or permit relating to employee occupational health

and safety.

10.13 Obtain the names of any persons who have conducted occupational health and

safety assessments of the Vendor [or any of its Subsidiaries], and copies of any

preliminary or final reports made by such persons.

10.14 Obtain and review the policies of the Vendor [and each of its Subsidiaries] with

respect to the treatment of private, personal and confidential information.

11. Tax Matters

11.1 Identify all Tax liabilities of the Vendor [and each of its Subsidiaries] accrued

as of the Closing Date but not yet due and payable.

11.2 Identify due and unpaid Taxes, penalties, etc. of the Vendor [and each of its

Subsidiaries]. Review all notices from Governmental Authorities with respect

to unpaid Taxes and all related correspondence.

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11.3 Review copies of all federal, provincial, state and local tax returns and property

valuations prepared in the last [three] fiscal years. Review copies of all

documents in connection with any tax holidays, abatements or preferential

treatment.

11.4 Determine the fair market value and tax basis of each material asset to be

transferred to the Purchaser[, the tax basis of the U.S. and Canadian

Subsidiaries and the “earnings and profits” of both the U.S. and Canadian

Subsidiaries].

11.5 Identify all transfer Taxes that will have to be paid to any federal, provincial,

state or local Governmental Authority arising out of the transfer of the assets of

the Vendor.

12. Insurance

12.1 List and provide copies of:

(a) All [material] insurance policies (specifying the insurer, amount of

coverage, type of insurance, policy number, expiration date, annual

premium, pending claims and claims paid), including directors’ and

officers’ liability policies and bonding policies on employees; and

(b) The most recent inspection reports, if any, received from insurance

underwriters as to the condition of the assets or the conduct of the

operations of the business of the Vendor [and its Subsidiaries].

12.2 Prepare a schedule showing changes in amounts or types of insurance (by

various types of coverage) carried during the past [five] years, together with

copies of any available loss history reports for the Vendor [and each of its

Subsidiaries].

12.3 Obtain details of all insurance claims or related claims [over $ in amount] and

presently pending or settled during the past [three] years for the Vendor [and

each of its Subsidiaries].

12.4 Obtain details of any involuntary cancellations of policies, reductions of

coverage or rejections of applications for insurance during the past [five] years

for the Vendor [and each of its Subsidiaries].

6437625

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Tip Sheet for Doing Due Diligence

1. Why are you doing the diligence?

who is the client?

what is the nature of the transaction (e.g. share/asset purchase, public offering,

financing, etc.)?

are there any particular areas of concern (e.g. regulatory, pension/benefit, title

confirmation, etc.)?

are there areas that the client wants information on specifically, or perhaps areas that

the client has already reviewed and does not want time spent on?

*Keep the purpose of diligence in mind throughout the entire process!

2. What does the client want from the diligence?

only a list of identified issues.

full due diligence summary/report.

binder of agreement summaries.

does the client want a final product at the end of all diligence or a continuous rolling

update on issues as they arise in particular areas? If a continuous update is requested,

does the client want it done via conference call, memo, email, etc.?

3. How will you access the diligence documents?

has a non-disclosure or confidentiality agreement been entered into?

have you prepared a comprehensive due diligence request list? This is often an effective

method to coordinate the process.

how are the documents organized? (Is there a data room – online or physical? Is there an

index? Is there a time limitation for access? Can you take copies?)

if the diligence is being conducted on a public company, have you reviewed its public

disclosure?

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4. What are the practical preliminary considerations?

have you established a materiality threshold with the client to guide the review?

what is the overall timeframe, including in terms of initial feedback to the client, as well

as preliminary/interim and final reporting to the client?

has the diligence been allocated among the client’s different advisors (e.g. legal,

financial, accounting, actuarial, etc.)?

will specialty counsel be required (e.g. real property, environmental, tax, labour,

pensions, competition, intellectual property, etc.)?

should counsel be retained in other jurisdictions to assist with the diligence?

what searches need to be done? (e.g. PPSA, litigation, corporate searches, insolvency,

Bank Act, intellectual property, real property, etc.)? What jurisdictions need to be

searched? Who is the person to ask to assist with doing these searches?

has a client point person been appointed? Clients may prefer to deal with one person for

all diligence matters.

how will diligence results be communicated to those drafting the transaction documents

and closing checklist?

5. How will you conduct the diligence review?

keep a list of the documents you have reviewed.

keep a list of the documents you have requested and those that remain outstanding.

keep a list of any deficiencies in the materials that have been provided and the steps that

have been taken to rectify those deficiencies (e.g. agreements provided that are not fully

executed, missing schedules, etc.).

keep the client regularly updated, including prompt reporting of “red flag” issues and

seeking the client’s instructions as the process moves forward.

have you defined terms in your summaries?

have you proofread your summaries? Do they provide a comprehensive overview (and,

more importantly, highlight the material issues for consideration) for someone who has

not reviewed the full text of the agreement?

where the target entity is public, have you reviewed its public disclosure to confirm that

material agreements and transaction documents have been provided for review?

will there be a verbal due diligence session? Have you prepared questions and circulated

them prior to the session?

© Goodmans LLP

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Date: []

Reviewed By: []

PROJECT

[NAME OF PARTY]

File #

EMPLOYMENT AGREEMENT SUMMARY1

Section

Name of Document

Parties

Date

Commencement Date

Term

(including any renewal term)

Position

Compensation

Termination

Payment on Termination

Stock Option Plan

Vacation and Holiday

Sick Leave

Benefits

Conflict of Interest

1 This Employment Agreement Summary form is a precedent document and should be used solely as a guide. This

precedent will not be applicable to all transactions. It is also important that you consider any other issues or facts

which may be relevant to your transaction and which may not be covered by this precedent. Be especially mindful

of the interests of your client, strategic and otherwise, when conducting due diligence.

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Section

Non-Competition

Confidentiality and

Ownership of Proprietary

Property

Survival and Enforcement

of Obligations

Change of Control

Governing Law

Signed (Y/N)

All Pages (Y/N)

Comments (e.g. deficiencies)

© Goodmans LLP

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goodmans.ca

Date: []

Reviewed By: []

PROJECT

[NAME OF PARTY]

File #

DOCUMENT SUMMARY1

Section

Name of Document

Parties

Date

Subject of Document

Consideration

Term (including any

renewal term)

Change of Control

Restrictions on

Assignment

Indemnities

Required Consents

Termination Provisions

Summary of Other

Major Provisions

Governing Law

1 This Summary form is a precedent document and should be used solely as a guide. This precedent will not be

applicable to all transactions. It is also important that you consider any other issues or facts which may be relevant

to your transaction and which may not be covered by this precedent. Be especially mindful of the interests of your


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Section

Signed (Y/N)

All Pages (Y/N)


© Goodmans LLP

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Date: []

Reviewed By: []

PROJECT

[NAME OF PARTY]

File #

REAL PROPERTY LEASE SUMMARY 1

Section

Property

Name of Document

Landlord

Tenant

Suite

Rentable Area

Term

Commencement Date

Expiry date

Renewal options

Current Rent Basic

Additional

Last Month Rent Paid (Y/N)

Rental Increase

1 This Real Property Lease Summary form is a precedent document and should be used solely as a guide. This

precedent will not be applicable to all transactions. It is also important that you consider any other issues or facts

which may be relevant to your transaction and which may not be covered by this precedent. Be especially mindful

of the interests of your client, strategic and otherwise, when conducting due diligence.

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Section

Right to Lease Additional

Space

Space Optioned to Other

Permitted Use

Exclusive Use

Termination Provisions (including any penalties for

early termination)

Right of First Refusal

Landlord’s Right to Transfer

or Mortgage

Change of Control (If consent

is required, specify contact

information)

Restrictions on Assignability

(If consent is required, specify

contact information)

Environmental Liability

Governing Law

Signed (Y/N)

All Pages (Y/N)


© Goodmans LLP

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DUE DILIGENCE CHECKLIST FOR SHARE PURCHASE TRANSACTION

This Due Diligence Checklist for a Share Purchase Transaction is a precedent document and should

be used solely as a guide. Be sure to read the entire document and be sure that any subject matters

identified herein are applicable to the facts and circumstances of the transaction with which you are

dealing. This precedent Due Diligence Checklist will not be applicable to all transactions.

It is also important that you consider any other issues or facts which may be relevant to your

transaction and which may not be covered by this precedent. Be sure to speak with members of

other practice areas relevant to your transaction as soon as possible when conducting due diligence

on any target corporation or its business or assets. Be especially mindful of the interests of your


© Goodmans LLP

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DUE DILIGENCE CHECKLIST1

DOCUMENT DELIVERY

In connection with the proposed acquisition of all of the shares of (the “Company”) by (the “Purchaser”) from (the “Vendor”), we have

developed the following preliminary due diligence requisition list, in our capacity as counsel to the Purchaser. As we are provided with the requested

information and our knowledge with respect to the Company increases, additional requisitions may become necessary. We also rely on the Vendor

and its direct or indirect shareholders and their representatives to bring to our attention all information properly characterized as material, whether or

not specifically referenced in this list. If, with regard to any document or information, there is doubt as to its validity or significance, please provide

us with a description of the document or information so that we may assist in such determination. We would ask that you advise us of any new

information or amendments to existing information if, as and when it becomes available, and provide us with any available additional documentation

relating thereto.

If possible, it would be appreciated if you could cross-reference your responses and documentation to the item numbers referred to below.


1. Corporate Matters

1.1 Prepare corporate chart showing the ownership structure of the Company [and

the Subsidiaries], including jurisdiction of incorporation and percentage of

ownership. Obtain minute books of the Company [and each of its

Subsidiaries].

1.2 Obtain and review certified copies of articles of incorporation or other charter

documents of the Company [and each of its Subsidiaries], including any

predecessor corporations, and all amendments thereto.

1.3 Obtain and review certified copies of the current by-laws of the Company [and

each of its Subsidiaries], including any predecessor corporations to determine

the particular corporate procedures to be followed to accomplish the transaction.

1.4 Prepare a list of jurisdictions in which the Company [and each of its

Subsidiaries] carry on business, maintain a registered office or hold property.

Obtain copies of the current registrations to carry on business in all applicable

jurisdictions.

1 ANNOTATION: All confidential information provided by the Vendor to the Purchaser should be clearly identified as such.

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1.5 Review authorized and issued share capital, organization of the Company [and

each of its Subsidiaries] and minutes of meetings of the board of directors and

shareholders of the Company [and each of its Subsidiaries], and the

predecessors of each since incorporation. Confirm proper constitution of the

current board of directors of the Company [and each of its Subsidiaries].

1.6 Obtain and review any documentation relating to any [material] purchase or sale

by, or reorganization of, the Company [and each of its Subsidiaries] in the past

five years.

1.7 Review the minute books of the Company [and each of its Subsidiaries] for the

existence of any of the following:

(a) shareholder agreements;

(b) employee agreements;

(c) bonus plans, stock option plans and any other agreements or

undertakings relating to securities (including any warrants or options);

(d) employee retirement payments and profit-sharing plans;

(e) pension plans;

(f) fringe benefits plans (e.g. life insurance, medical insurance, etc.);

(g) union contracts;

(h) any material or long-term commitments;

(i) legal problems, regulatory problems and/or litigation; and

(j) other operating details of a material or unusual nature.

1.8 Prepare a list of any names, other than current names, under which the Company

[and (if applicable) each of its Subsidiaries] or their respective predecessors

have done business in the past.

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2. Corporate and Public Searches

2.1 Perform the following corporate and other searches against the Company [and

each of its Subsidiaries], and each of their predecessors (including related

searches in all jurisdictions in which the Company [or any of its Subsidiaries]

or any of their predecessors carries or carried on business, as the case may be):

(a) Securities Act (Ontario):

(i) material change reports and press releases; and

(ii) insider trading reports;

(b) Personal Property Security Act (Ontario);

(c) Executions Act (Ontario);

(d) Bank Act (Canada);

(e) Bankruptcy Act (Canada); and

(f) Bulk Sales Act (Ontario).

2.2 Perform searches of the public files of the Company [and each of its

Subsidiaries], and each of their predecessors, at Ontario Companies Branch and

The Toronto Stock Exchange, to the extent applicable.

2.3 Perform Info Globe searches in respect of the Company [and each of its

Subsidiaries].

3. Financial Information

3.1 Obtain copies of the financial statements of the Company [and each of its

Subsidiaries] for the past [five] fiscal years and copies of the quarterly

statements for the current fiscal year.

3.2 Obtain copies of any written recommendations, reports or letters to management

prepared by or initiated from the auditors/accountants of the Company [or any of

its Subsidiaries], or their financial officers, with respect to any aspect of their

system of accounting, financial reporting, internal financial controls or

recordkeeping.

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3.3 Obtain a list of all accounts payable and accounts receivable of the Company

[and each of its Subsidiaries] as at [insert appropriate date].

3.4 Obtain a list and sales figures of [all/the [ten] largest dollar volume] customers

and [all/the [ten] largest dollar volume] suppliers for the Company [and each

of the Subsidiaries].

3.5 Obtain all information pertaining to any provincial or federal tax audits of the

Company [or any of its Subsidiaries].

3.6 Obtain and review copies of any swap or hedging agreements.

3.7 Obtain and review copies of all strategic or business plans and market studies

prepared by or for the Company [and its Subsidiaries] within the last [three]

years.

3.8 With respect to the auditors of the Company, consider asking such auditors to

address or provide information pertaining to the following:

(a) Any recent, proposed or contemplated changes in the accounting

policies of the Company;

(b) The adequacy of the Company’s internal controls and accounting

methods and policies with respect to financial matters, including their

internal reporting systems, the recording of sales and expenses and other

matters; and

(c) The comments and opinions of the auditors with respect to the general

fairness of the accounting policies and the presentation of the financial

statements of the Company [and its Subsidiaries].

3.9 Obtain all information pertaining to transactions by the Company [or any of its

Subsidiaries] with any affiliated companies and the method of reflecting these

transactions in their financial statements.

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4. Contracts/Agreements

4.1 Obtain and review all agreements relating to banking, finance and other lines of

credit and material short-term or long-term borrowings of the Company [and

each of its Subsidiaries] (and of any other persons or companies whose

obligations have been guaranteed by the Company [or any of its Subsidiaries]),

including without limitation:

(a) Credit or Loan Agreements and the particulars of any security granted

in connection therewith;

(b) Capitalized leases, whether secured or unsecured;

(c) All letters of consent or waivers from any lending institution obtained in

the last [three] years in connection with any indebtedness whether or

not the debt is presently outstanding;

(d) Guarantees, security agreements, mortgages, conditional sales

agreements, trust deeds, financing leases, bonds, debentures, promissory

notes and indemnities; and

(e) Any correspondence with lenders regarding any default, acceleration or

termination of any obligation of the Company [or any of its

Subsidiaries].

4.2 Obtain and review copies of all contracts with customers to which the Company

[or any of its Subsidiaries] is a party [where the revenues in any year exceed

$ or the term is in excess of [one] year] (including any contracts or

commitments for the sale of products or services to any Governmental

Authority). Obtain and review any sales agency, distributorship or brokerage

agreements. Note any provisions pertaining to assignment or change of control.

4.3 Obtain and review copies of all contracts with suppliers to which the Company

[or any of its Subsidiaries] is a party [where the costs in any year exceed $

or the term is in excess of [one] year].

4.4 Obtain and review copies of all documents evidencing the terms and conditions

of any [material] acquisition, reorganization, disposition or other major change

in the capital, assets or liabilities of the Company [or any of its Subsidiaries] in

the preceding [three] years.

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4.5 Obtain and review copies of all documents relating to any proposed [material]

acquisition, sale or lease of assets by the Company [or any of its Subsidiaries].

4.6 Obtain and review copies of any [material] equipment leases entered into within

the [three] preceding years or proposed to be entered into by the Company [or

any of its Subsidiaries].

4.7 Obtain and review copies of all [material] operating agreements or joint venture

agreements or contracts creating present or future rights in favour of third parties

affecting any [material] assets, operations or future financings of the Company

[or any of its Subsidiaries], [including all distribution, sales, agency,

development, and rights and options agreements.]

4.8 Obtain and review copies of any standard form agreements used by the Company

[or any of its Subsidiaries].

4.9 Obtain and review copies of all [material] lease agreements whereby machinery,

equipment, vehicles, etc. are leased from or to the Company [or any of its

Subsidiaries].

4.10 Obtain and review all non-competition agreements with third parties to which the

Company [or any of its Subsidiaries] is a Party.

4.11 Obtain and review copies of all other agreements which may be material or of

significance to the business or assets of the Company [or any of its

Subsidiaries] not otherwise identified herein.

4.12 Identify all contracts, agreements and other obligations to which the Company is

a party that will require the giving of notice to, or the receipt of consent from, a

third party in order for the Company to assign such contracts, agreements and

other obligations or in respect of the change in control of the Company.

4.13 [Identify all contracts, agreements and other obligations to which any of the

Subsidiaries is a party that will require the giving of notice to, or the receipt

of consent from, a third party in order for the Company to assign such

contracts, agreements and other obligations or in respect of the change in

control of the Company.]

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5. Real Property and Environmental Matters

5.1 Obtain and review copies of the title documents for all real property owned by

the Company [or any of its Subsidiaries], if any, together with the reporting

letters and opinions of the solicitors with respect to the acquisition of such real

property. Include copies of any encumbrances on such properties and note the

following:

(a) Street address, legal description and site plan, including existing ingress

and egress;

(b) Topographical surveys and soil tests, and any other studies of any

environmental issues relating to the plant or the plant site;

(c) Zoning and building codes and description of current use; and

(d) Valuations and tax assessments.

5.2 Obtain and review copies of all documents purporting to create liens, mortgages,

security interests, pledges, charges or other encumbrances of a material nature on

the real property of the Company [and its Subsidiaries].


the Company [and its Subsidiaries] as tenants and copies of any registrations








the Company [and its Subsidiaries] as landlords and copies of any registrations



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5.5 Obtain and review copies of any environmental audits (or similar reports relating

to environmental matters), if any, on all real property owned, leased or otherwise

occupied or utilized by the Company [or any of its Subsidiaries].

5.6 Obtain and review copies of all agreements, contracts, arrangements and

easements relating to the provision of services and utilities in respect of real

property owned, leased or otherwise occupied or utilized by the Company [or

any of its Subsidiaries].

5.7 Conduct real property searches in all relevant jurisdictions (and determine the

extent to which they should also be conducted for leased real property).

5.8 Make inquiries of municipalities and other governmental authorities re:

compliance with zoning by-laws, work orders, environmental orders, etc.


regulation, ordinance, license or permit relating to building, zoning or

environmental matters.

5.10 Obtain a detailed description of each of the following environmental and safety

matters:

(a) All waste material, effluent or atmospheric or other discharge, whether

or not regulated, which is or has been generated by the business or

operations of the Company [and each of its Subsidiaries];

(b) All data in the control or possession of the Company [and each of its

Subsidiaries] relating to the effect of exposure to the products presently

or previously manufactured by the Company [and each of its

Subsidiaries] or any of their predecessors;

(c) Records relating to exposure by employees to any material, effluent or

atmospheric or other discharge;

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(d) Waste disposal practices of the Company [and each of its

Subsidiaries] and their predecessors, and copies of all agreements

relating to such practices;

(e) Persons who have conducted environmental assessments of the

Company [or any of its Subsidiaries], and copies of any preliminary or

final reports made by such persons;

(f) All documents relating to the indemnification given by previous owners

to the Company [or any of its Subsidiaries] and subsequent purchasers

in respect of any environmental or related matters; and

(g) Site history, possible contaminations, environmental audits and clean

up. Address UFI, PCB, Asbestos, radon, automobile tires and

underground storage tank issues.

6. Personal Property


personal property owned by the Company [and its Subsidiaries] showing date

of acquisition, condition, use, etc.


personal property leased by the Company [and its Subsidiaries] showing date of

acquisition, condition, use, etc. Obtain and review copies of all such leases and

note any provisions pertaining to assignment and/or change of control.

6.3 Prepare a list of security interests, liens and encumbrances on all personal

property owned or leased by the Company [and its Subsidiaries] in connection

with applicable searches in all relevant jurisdictions.

6.4 Prepare a list of inventory of the business of the Company [and each of its

Subsidiaries] as of the most recent available date and identify obsolete

inventory.

6.5 Prepare a schedule of all warehouses owned or operated by the Company [and

its Subsidiaries] and any other locations where assets of the Company [and

each of its Subsidiaries] are stored.

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7. Intellectual Property2

7.1 Prepare a list of any material trade-marks, copyrights, patents or other

intellectual property rights used in, or material to, the business and operations of

the Company [and each of its Subsidiaries] and particulars of any registrations

relating thereto. Identify the holder of the intellectual property rights.

7.2 Obtain copies of all registered trade-marks and copyrights and pending trade-

mark or copyright applications owned or on file with the Company [or any of its

Subsidiaries]. Identify the holder of the intellectual property rights.

7.3 Obtain copies of any intellectual property or license agreements whereby the

Company [or any of its Subsidiaries] license any intellectual property to or

from others (or grant rights to or are granted rights by others) and note any

provisions pertaining to assignment and/or change of control.

7.4 Obtain and review copies of all policies of the Company [and each of its

Subsidiaries] regarding the treatment or disclosure of intellectual property,

including all agreements concerning confidentiality and non-disclosure with

employees, contractors, visitors or other parties.

7.5 Obtain and review all research and development agreements and design

agreements including agreements with independent contractors who participated

in the development of any material product and any agreements pursuant to

which the Company [or any of its Subsidiaries] must provide development

services.

7.6 Prepare a schedule of any exclusive rights (product or geographical) granted to

or by the Company [or any of its Subsidiaries].

7.7 Obtain all information concerning any claim of trade-mark infringement or other

violation of an intellectual property right, or violation of any non-disclosure or

non-competition agreement asserted by or against the Company [or any of its

Subsidiaries] during the past [five] years.

7.8 Conduct any applicable intellectual property searches in all relevant jurisdictions.

2 ANNOTATION: If intellectual property is a significant component of the business being acquired, you may wish to include significantly more detailed intellectual property due

diligence requests.

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8. Governmental Authorizations

8.1 List all licenses, permits, approvals and other authorizations required of any

Governmental Authority for the Company [and each of its Subsidiaries] to

conduct their operations, carry on business or use their assets in accordance with

all applicable Laws.

8.2 Summarize all reporting requirements of the Company [and each of its

Subsidiaries] and review all filings made by them in the past [five] years to any

Governmental Authority.

8.3 Review the business and operations of the Company [and each of its

Subsidiaries] from a competition and antitrust law perspective. Confirm that

there are no past or present competition law claims or pending litigation and no

proceedings or consent decrees applicable to the Company [or any of its

Subsidiaries] under any competition or antitrust legislation in any jurisdiction

where they carry on business. Identify any agreements, written or oral, with any

competitors of the Company [or any of its Subsidiaries], including

memberships in any industry umbrella, advocacy or lobby group.

8.4 Determine whether the proposed transaction will require any approvals of or

notification to any Governmental Authority prior to the Closing, including

pursuant to the Investment Canada Act (Canada) or the Competition Act

(Canada).

8.5 Obtain information concerning any contributions of the Company [or any of its

Subsidiaries] to political parties and their lobbying activities, registered or

otherwise, if any.

9. Litigation

9.1 Prepare a description (together with a copy of any judgment, decree or order of a

court or regulatory body or other Governmental Authority or any settlement of

any kind) of all prior material litigation or investigations by which the Company

[or any of its Subsidiaries] or any of their respective operations or assets

continue to or may be affected.

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9.2 Prepare a description of all other pending or threatened litigation or regulatory

proceedings to which any of the Company [or any of its Subsidiaries] is or may

be a party or by which they or their respective operations or assets are or may be

bound together with copies of all pleadings, correspondence or other documents

relating to such matters.

9.3 Obtain and review copies of all letters from counsel for the Company sent to the

auditors/accountants of the Company [or any of its Subsidiaries] in the last

[three] years with respect to any current, pending or threatened lawsuits or any

regulatory actions by or against the Company [or any of its Subsidiaries].

9.4 Assess the possibility of litigation in the following areas:

(a) Equal employment opportunities and affirmative action claims;

(b) Occupational health and safety matters;

(c) Improvement, management, sale or leasing of real property;

(d) Product liability and warranty;

(e) Personal injury;

(f) Intellectual property;

(g) Environmental, pollution control or hazardous or toxic substances; and

(h) Taxation (including any reassessments).

9.5 Assess the risk of improprieties potentially affecting the Company [or any of its

Subsidiaries] or their businesses, operations or assets, including:

(a) List all procedures established by the Company [and each of its

Subsidiaries] to safeguard against potential conflicts of interest and

improper payments (i.e. kickbacks, bribes, etc.) by its principal

directors, officers and employees; and

(b) Obtain a summary of purchases from, or loans or sales to, affiliates or

controlled or associated persons and investigate prices in relation to

market for the last [two] years.

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9.6 Obtain details with respect to:

(a) Any [material] correspondence between the Company [or any of its

Subsidiaries] and any Governmental Authority during the last [three]

years; and

(b) Any [material] customer or supplier complaints or disputes in the past

[two] years.

10. Employment, Health and Safety Matters3

10.1 Prepare a detailed organizational chart of the directors, officers and senior

employees of the Company [and each of its Subsidiaries].

10.2 Obtain and review copies of all existing employment, consultant or non-

competition agreements with key personnel of the Company [and each of its

Subsidiaries].

10.3 Obtain and review copies of any union contracts or collective bargaining

agreements applicable to the Company [and each of its Subsidiaries], if any.

10.4 Obtain copies of any existing bonus, share or stock option, share purchase and

other incentive plans, vacation plans or policies and other employee benefit

plans, post-retirement health plans, severance plans and a summary of other

severance obligations; and any pension, profit-sharing or welfare plans or health,

accident, life or other group insurance plans.

10.5 With respect to employee compensation,

(a) Identify any change of control arrangements (i.e. golden parachutes);

(b) Identify all employee shareholdings;

(c) Summarize recent employee compensation history and policies,

including salaries, bonuses and perquisites (i.e. cars, expense accounts,

memberships);

3 ANNOTATION: Any use, collection or dissemination of personal information should comply with the requirements of applicable privacy legislation.

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(d) Identify any special arrangements concerning expatriate employees,

either living in Canada or abroad;

(e) Review compensation policies and administrative issues (i.e.

geographic zones, pay plans, transfer policies, promotion policies, merit

review and salary increase policies, pay equity and affirmative action

plans, etc.); and

(f) Identify any unfunded supplemental benefit plans (i.e. death benefits,

disability income, etc.).

10.6 With respect to pension and other benefit plans,

(a) List and describe all defined benefit plans and other benefit programs

covering employees in all jurisdictions where the Company [or any of

its Subsidiaries] carries on the business;

(b) Summarize all plan descriptions, documents and amendments relating

thereto, all funding agreements and investment management

agreements, actuarial reports and valuations, collective bargaining

agreements, all information returns filed with provincial pension plan

commissions (or their equivalent in other jurisdictions), and any Annual

Report Form 5500 (for U.S. employees);

(c) List all retirees entitled to post-retirement benefits and the funding

status of each;

(d) List all inactive employees (i.e. Workers Compensation, maternal,

paternal or parental leave or disability) including length of inactivity

and return date or prognosis;

(e) List and describe all pension and other retirement plans and identify

registration documents with provincial pension plan commissions (or

their equivalent in other jurisdictions), trust documents and group

annuity policies, funding status, actuarial reports, funding method and

any unfunded pension liabilities, benefits for retired employees and any

individual unfunded pension arrangements; and

(f) Identify all other unfunded post-retirement benefits.

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10.7 Review termination and severance pay programs and any employment

agreements that contain notice or severance periods. In the absence of a formal

termination program, review past policies and practice of the Company [and

each of its Subsidiaries] with respect to termination and severance.

10.8 Identify the particulars of the indebtedness, if any, of the directors and senior

officers and their respective associates and affiliates to the Company [or any of

its Subsidiaries].

10.9 Identify the particulars of any agreements between the Company [or any of its

Subsidiaries] and any of their directors, officers or other insiders or their

respective associates and affiliates during the past [three] years.

10.10 Obtain and review copies of all employee separation agreements and non-

competition agreements for the Company [and each of its Subsidiaries].

10.11 Review employee handbooks, manuals and other personnel policies, together

with details of any outstanding deferred compensation arrangements, and

identify any oral personnel policies.


regulation, ordinance, license or permit relating to employee occupational health

and safety.

10.13 Obtain the names of any persons who have conducted occupational health and

safety assessments of the Company [or any of its Subsidiaries], and copies of

any preliminary or final reports made by such persons.

10.14 Obtain and review the policies of the Company [and each of its Subsidiaries]

with respect to the treatment of private, personal and confidential information.

11. Tax Matters

11.1 Identify all Tax liabilities of the Company [and each of its Subsidiaries]

accrued as of the Closing Date but not yet due and payable.

11.2 Identify due and unpaid Taxes, penalties, etc. of the Company [and each of its

Subsidiaries]. Review all notices from Governmental Authorities with respect

to unpaid Taxes and all related correspondence.

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11.3 Review copies of all federal, provincial, state and local tax returns and property

valuations prepared in the last [three] fiscal years. Review copies of all

documents in connection with any tax holidays, abatements or preferential

treatment.

12. Insurance

12.1 List and provide copies of:

(a) All [material] insurance policies (specifying the insurer, amount of

coverage, type of insurance, policy number, expiration date, annual

premium, pending claims and claims paid), including directors’ and

officers’ liability policies and bonding policies on employees; and

(b) The most recent inspection reports, if any, received from insurance

underwriters as to the condition of the assets or the conduct of the

operations of the business of the Company [and its Subsidiaries].

12.2 Prepare a schedule showing changes in amounts or types of insurance (by

various types of coverage) carried during the past [five] years, together with

copies of any available loss history reports for the Company [and each of its

Subsidiaries].

12.3 Obtain details of all insurance claims or related claims [over $ in amount] and

presently pending or settled during the past [three] years for the Company [and

each of its Subsidiaries].

12.4 Obtain details of any involuntary cancellations of policies, reductions of

coverage or rejections of applications for insurance during the past [five] years

for the Company [and each of its Subsidiaries].

6437628

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TAB 3

Letters of Intent

A. Paul Mahaffy, C.S. Bennett Best Burn LLP

April 25, 2017

BUSINESS LAW


Letters of Intent

©2017 A. Paul Mahaffy. All Rights Reserved.

Adapted from the Letters of Intent chapter in the author’s

Business Transactions Guide published by Carswell.

Introduction

Once the seller of a business and prospective buyer have arrived at a stage in their

discussions over the purchase and sale of the business where they feel that they have the

basis of a deal, they may then decide to confirm in writing what they have agreed upon.

They will likely set out the basic terms of their proposed purchase and sale in a

preliminary document variously described as a letter of intent, term sheet, memorandum

of understanding, or heads of agreement.

Whatever such a document is called, and for the purposes of this paper it will be referred

to as a letter of intent, the terms set out in it will eventually be repeated and expanded

upon in a definitive purchase and sale agreement, if the parties get that far in their

negotiations. The definitive agreement is ordinarily intended to replace the letter of

intent.

However, the letter of intent can become quite a detailed and comprehensive document.

Some letters of intent are not legally binding at all. Others are fully binding, although

they are often so loaded with various conditions that the obligations which they set out

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may be difficult to enforce.

The “hybrid” form of letter of intent, part of which is non-binding and part of which is

binding, is becoming more commonplace in practice. The non-binding part usually

contains the principal business terms of the deal. The binding part usually sets out the

rights of the parties and the process to be followed up to the signing of the definitive

purchase and sale agreement, or to the termination of the deal in the absence of such a

signing.

The letter of intent provisions discussed below may be used either in binding or non-

binding formats, although the expense reimbursement, deposit, exclusivity and

confidentiality provisions are almost always made binding. The provisions discussed

below can take on many possible variations, and should not be taken as reflecting a “best

practice” or as favouring one party over the other.

Some letters of intent are considerably more detailed than others, even though they may

all cover the same basic terms. Though some may simply refer to such other “standard”

terms and conditions as are used in “generally comparable transactions”, others may be

quite specific, sometimes attaching certain portions of the definitive agreements as

schedules to the letter of intent. They may actually prescribe specific definitive

agreements to be produced, which may include, in addition to the purchase and sale

agreement, a shareholder agreement, employment and consulting agreements, non-

competition agreements, option agreements, and possibly many more.

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Where the proposed deal presents any concern which is particularly important to either

party, such concern should be specifically addressed in the letter of intent. By addressing

its concerns at this stage of the deal continuum, each party will have an opportunity to

determine early on, before both parties have incurred considerable time and expense,

whether the other party takes a strongly opposite position as to how such concern might

be resolved. In other words, the “deal killers” should be identified and resolved in the

letter of intent.

The comprehensiveness of the letter of intent depends to some extent upon the relative

bargaining power of the parties involved, the importance of the deal to each party, and

how quickly each of the parties wants or needs the deal to be closed. Whether the

business being sold is profitable or unprofitable, whether the seller has “deep pockets” or

is selling off assets to stave off bankruptcy, or whether the prospective buyer needs to add

the business to its existing product lines to match its closest competitor, can all affect the

level of detail found in the letter of intent.

Shares vs. Assets

If the business to be sold is carried on in the form of a company, one of the issues to be

decided at the outset is whether the deal should be structured as a sale of shares or a sale

of assets. Buyers generally prefer to acquire a company by buying its assets, not shares.

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In a share sale, the buyer acquires the company as a whole, with all of its liabilities as

well as its assets, including those liabilities which may be unknown at the time of closing.

In an asset sale, the buyer acquires only those assets, and assumes only those liabilities,

of the company which are identified in the purchase agreement.

Avoiding the obligation to take on undisclosed or hidden liabilities, and the potential

risks such liabilities might entail, is often the main reason why a buyer will insist that the

purchase be structured as an asset sale. A failing business will usually be sold by way of

assets, not shares.

A seller, by contrast, generally prefers a share sale as a way of shifting any residual

liabilities of the company on to the buyer. However, the seller may still be subject to

certain residual liabilities for a certain period of time after the deal closes through its

indemnification of the buyer in the purchase agreement.

Avoiding the risk of unknown liabilities is not the only reason a buyer might have for

preferring an asset sale. There are certain tax advantages to a buyer in an asset sale as

well, especially when the assets being purchased have a fair market value in excess of the

tax cost of such assets recorded on the company’s books. The purchase price may be

allocated by buyer and seller amongst the various purchased assets to provide the buyer

with a higher cost base for such assets, thereby enabling the buyer to claim after closing

larger capital cost allowances on such assets. 1

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From a tax perspective, the seller usually prefers a share sale, especially if the seller is an

individual and the lifetime capital gains exemption2 is still available to him. While the

exemption is afforded to individuals with respect to the sale of shares of a “qualified

small business corporation”, any gains on the sale of assets by the company would not

qualify for the exemption.

Even without using the exemption, the capital gains tax liability to the seller on a share

sale is likely to be less than such liability to the company on an asset sale, given that the

company will likely have to include in its income any “recaptured” capital cost allowance

when the purchase price for any depreciable assets exceeds the undepreciated capital cost

of such assets as recorded on the books of the company.3 However, a seller may prefer an

asset sale over a share sale if the company has considerable loss “carryforwards” which it

can use to reduce the income earned on the sale.4

Deciding between a sale of assets and a sale of shares affects the actual purchase price

which a buyer is prepared to pay and a seller is prepared to receive. For example, a buyer

in a share sale will want to discount the price because of the risks of contingent liabilities,

but a seller may be prepared to accept such a discount for the share sale if it’s roughly

equal to the seller’s available capital gains exemption.

The Non-Binding Provisions

In the non-binding part of the letter of intent, the parties acknowledge that they are not

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legally bound by these provisions but intend to proceed to negotiate and execute a

definitive purchase and sale agreement which may contain many of these provisions. The

words used in these provisions often suggest a less than binding obligation, such as

“may” and “would”, or “possible” and “proposed”, in contrast to the wording used in the

binding provisions, such as “shall” and “agree”.

Identity of the Parties

All of the parties expected to eventually sign the purchase and sale agreement should be

made a party to the letter of intent. If the parties signing the letter of intent will not, or

may not, be the parties signing the purchase and sale agreement and the other definitive

agreements for closing, the letter of intent should allow for substitute parties.

Many letters of intent provide for other members of a party’s corporate group to acquire

the shares or assets involved, often to achieve the most tax-effective structure. Sometimes

a special purpose entity will be incorporated by the buyer to carry out the acquisition, or a

seller will incorporate a new company to hold only the assets and liabilities desired by the

buyer and proceed to sell the shares of such new company to the buyer.

Either way, the other party may insist that the covenants and indemnities to be contained

in the purchase and sale agreement and the other definitive agreements should be given

by, or at least guaranteed by, the original party signing the letter of intent.

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In other circumstances, it may be intended that certain parties be bound only by a few,

selected provisions, such as the confidentiality or exclusivity provisions, or have their

liability restricted to only a few warranties. Other parties may be intended to guarantee

only certain financial obligations. However restricted the role certain parties may play in

the deal, those who are intended to be liable for any part of it should be made parties to

the letter of intent.

Included and Excluded Assets

If the parties agree that the deal is to be an asset sale, the main assets desired by the

prospective buyer, especially the “jewels in the crown”, should be specifically set out in

the letter of intent as included assets. Those which the buyer wants to reject should be

specifically set out as excluded assets.

However, many letters of intent identify the assets being sold as simply all of the assets

used in the purchased business, and thereby lead to the conveyance to the buyer of many

things which aren’t necessary for carrying on the business. Stale accounts receivable,

unmarketable inventory, obsolete technology, malfunctioning equipment, personal use

vehicles and undesirable leasehold premises are all examples of the kinds of assets which

may be used in the purchased business but are often specifically excluded from the deal.

If the parties decide that the deal should be structured as a share sale instead of an asset

sale, the assets desired by the prospective buyer might first be transferred to a newly

3 - 7

incorporated company, the shares of which are then made the subject of the share sale.

Alternatively, the assets which the prospective buyer wants to exclude might be

transferred to another company before the shares of the transferring company are to be

sold to the buyer. Either way, those assets to be transferred should be itemized in the

letter of intent, and the proper completion of such transfer made a condition to the closing

of the share sale.

Included and Excluded Liabilities

Just as the assets being included or excluded from the sale should be itemized in the letter

of intent, those liabilities of the purchased business which are to be assumed by the

prospective buyer should also be set out. Any material liabilities which have been

incurred outside of the ordinary course of business, particularly those which represent

long-term commitments, should be identified as being either included or excluded.

Identifying such liabilities early on in the deal process serves to address what mortgages,

security interests, leases and other charges will be “permitted encumbrances” when the

purchase and sale agreement is eventually prepared, or alternatively will have to be

discharged on or before closing. Knowing well in advance what liabilities will have to be

paid off before closing should accelerate arrangements with the financial institutions or

other third parties involved and reduce the need for closing on the basis of an undertaking

by the seller to obtain the required discharges.

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In the letter of intent for an asset sale, it may be desirable to identify whether provision

will be made for the payment of the company’s trade creditors in general immediately

after the sale, or otherwise address how any bulk sales legislation, if applicable, might be

complied with on closing.5 If compliance with such legislation is to be waived and an

indemnity of the seller in favour of the prospective buyer is to be given instead, the letter

of intent should clearly set this out.

Purchase Price, Payment Holdbacks and Security

The amount of the purchase price, whether it is to be paid in one lump sum or in a

number of installments, and whether security for the unpaid installments is to be given,

should be set out in the letter of intent. Furthermore, whether the purchase price is to be

adjusted following a post-closing audit, and whether it is to be calculated upon reference

to post-closing earnings of the purchased business, should also be set out.

The applicable formula to be used in any such adjustment needs to be specified. For

example, the letter of intent may provide that the purchase price is to be adjusted to

reflect the financial position of the company indicated in audited financial statements

prepared as of the closing date. Adjustments are often provided for in the event that the

receivables or inventory, or the net book value, or perhaps the earnings for the latest

period, fall outside of an agreed upon range.

If any part of the purchase price is to be paid to a third party to be held in escrow pending

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determination of certain conditions, such escrow requirements should be identified in the

letter of intent. For example, the letter of intent may provide that funds are to be held by

an escrow agent for a specified time as security for any undisclosed liabilities and

breaches of representations, warranties and covenants, with the cost of such escrow being

shared by the parties equally.

Representations and Warranties

While many letters of intent simply describe the representations and warranties applying

to the deal as those which are generally used in comparable transactions, mention should

be made of those representations and warranties which either party is particularly

concerned about or feels may be too contentious to defer until the purchase and sale

agreement is being prepared.

If the prospective buyer is likely to want the seller to make certain representations and

warranties which the seller will not be in a position to give on closing, the limitations or

qualifications which the seller will need in order to make such representations and

warranties should be described in the letter of intent.

For example, if the business being purchased consists almost entirely of intellectual

property, the representations and warranties regarding intellectual property ownership

and non-infringement might be settled at the time the letter of intent is being prepared

and made a schedule to it. Also, if the seller knows at that time that certain

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representations and warranties will have to be restricted to the actual knowledge of

certain people, or made subject to materiality thresholds, those people or thresholds

should be specified.

Indemnities and Survival Periods

Since the remedy for a false representation is ordinarily provided by way of a claim under

the indemnity sections of the purchase and sale agreement, the basic scope of such

indemnities and any general limitations of liability should be addressed in the letter of

intent.

The length of time after closing or “survival period” during which an indemnity claim

can be made for a misrepresentation, and whether the liability under the indemnities is

unlimited or is to be capped at a specified dollar amount, should be clearly described in

the letter of intent. It may also be desirable to even set out any minimums or deductible

levels for an indemnity claim.

Joint and Several Liability and Guarantors

If liability under the non-binding provisions of the letter of intent is intended to be jointly

instead of just separately or “severally” imposed upon any parties when incorporated in

the purchase and sale agreement, the letter of intent should state so.

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Furthermore, if one of the parties expects a third party to guarantee the performance of

the other party’s obligations under the transaction, the letter of intent should clearly refer

to the guarantee and, as mentioned above, provide for signature by the guarantor.

Employees

While employee issues aren’t ordinarily mentioned in a letter of intent for the purchase

and sale of shares, except perhaps for certain employment or consulting contracts which

may be conditions of closing, a letter of intent for the sale of assets should describe how

the employees of the business are to be treated in light of the sale, given that the

prospective buyer may have various liabilities as a successor employer under applicable

employment legislation.6

If it is foreseeable that any employees are to be terminated, the letter of intent should

address the extent to which each party is to be responsible for compensating the

employees terminated. The obligations of the business for employee compensation are

usually coupled with an indemnity from the seller in favour of the prospective buyer, and

can be subject to a survival period and monetary cap in the same way as other

indemnities referenced in the letter of intent.

Often a letter of intent for an asset sale simply provides that the seller shall terminate all

of the employees, and that the seller shall be responsible for all severance costs

associated with those employees who are not re-hired by the buyer upon closing.

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Non-Competition and Non-Solicitation Covenants

The prospective buyer is likely to insist that the seller covenant not to compete with the

buyer, or not to solicit the employees and customers of the purchased business, after the

deal closes. If the seller intends to retire, providing such covenants should not pose a

problem. However, problems will arise if the seller intends to retain a related business or

is reasonably expected to establish a new business similar to the purchased business.

Since such covenants are usually more contentious than other matters which are

discussed between the parties during the preparation of the purchase and sale agreement,

the letter of intent should at least describe how long such covenants should remain with

the seller and in which geographical areas they should apply.

These covenants are in contrast to the covenant of the prospective buyer not to solicit the

employees and customers of the business which ordinarily appears in the letter of intent

as a binding provision, as discussed below.

Conditions of Closing

Because the numerous conditions for closing the sale of a business are set out in

considerable detail in the purchase and sale agreement, they are usually glossed over in

the letter of intent unless they are expected to be quite difficult and time consuming to

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satisfy, or are of such specific importance to one of the parties who wouldn’t consider

doing the deal unless such conditions are first satisfied.

These stated conditions often relate, as with the identification of the included assets, to

the “jewels in the crown” of the purchased business. They might cover the re-issuance of

an essential government permit, or the receipt of a favourable environmental report, or

the extension of the term of a crucial customer contract. Or they might just require the

execution of employment contracts with certain key executives currently employed in the

business, or require the consent of a landlord to waive the “non-assignment” or “change

of control” prohibitions found in a premises lease which is for a particularly valuable

location at below market rental. Such essential conditions, therefore, should be included

in the letter of intent.

The Binding Provisions

In the binding part of the letter of intent, the parties acknowledge that they are legally

bound by these provisions even though they intend to proceed to negotiate and execute a

definitive purchase and sale agreement which may expand upon many of these provisions

and which will generally replace them. The words used in these provisions, such as

“shall” and “agree”, suggest binding obligations. This part should clearly indicate if

liability is being imposed jointly and not just severally on any of the parties.

Confidentiality and Non-Disclosure

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In addition to any confidentiality agreement which the parties signed at the outset of the

deal, the duty of confidentiality which each party owes to the other should be reinforced

by affirming in the letter of intent the continuing application of that agreement to the

deal, or setting out any exceptions to that agreement which may have become necessary.

The letter of intent should also provide that the confidentiality agreement and the duties

prescribed under it are to survive the failure of the deal to close. Reiterating these duties

of non-disclosure and confidentiality also serves to reinforce the duty of exclusivity,

discussed below, which is likely to be imposed by the prospective buyer upon the seller

who might otherwise be tempted to “shop” the letter of intent around in the hope of a

better offer from other possible buyers.

There will often be a “private and confidential” notice on the top of the first page of the

letter of intent to reinforce its confidential nature. Furthermore, the letter of intent may

provide that if any disclosure to a third party with respect to the deal is felt desirable or

necessary, the parties should agree to cooperate with each other in the preparation of the

announcement or disclosure to be made.

Access for Inspection and Phased Disclosure

To facilitate the prospective buyer’s due diligence investigations, the letter of intent may

give the buyer access to the seller’s place or places of business during regular business

3 - 15

hours upon written notice to look at the seller’s books and records, and interview certain

employees, relating to the business.

Alternatively, in an effort to reduce disruption to the ongoing operations of the business

and maintain confidentiality, the letter of intent may specifically provide for the

establishment of a “data room”, possibly located away from the seller’s place of business,

which contains copies of all of the relevant minute books, accounting and tax records,

contracts, and other materials. The prospective buyer’s access may be restricted to that

room only. Electronic copies of the materials may be accessible instead through a secure

server on the Internet and not at any physical location.

The extent and timing of permitted access and due diligence disclosure often depend

upon the amount of trust and comfort the parties share with each other. If they are direct

competitors in the same market, the seller may insist that the letter of intent provide for

access to and disclosure of sensitive financial and customer information only upon the

signing of the purchase and sale agreement. The parties may use the letter of intent to set

out a phased disclosure schedule, itemizing when particular categories of documents will

be made available for inspection, or when certain customers, suppliers or employees may

be interviewed.

If it is expected that signing of the purchase and sale agreement and closing will occur at

the same time, such access and disclosure may not be given by the seller until a relatively

short time before the expected closing date.

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Expenses, Deposits and Break Fees

The process for buying and selling a business generally involves considerable time and

professional fees being spent by the parties during the due diligence and document

preparation stages without any assurance that the deal will actually close. Most letters of

intent state that the parties will be responsible for their own fees and expenses. Yet both

parties incur not only out-of-pocket expenses but, more significantly, an “opportunity

cost” of pursuing the deal instead of using their resources to pursue alternative business

opportunities which could prove to be even more financially beneficial.

This notion of opportunity cost may be particularly relevant to the seller who is an

individual. Depending upon his own finances, health and personal goals, he may feel he

is under considerable pressure to select a buyer and complete the sale of the business

within a relatively short time frame. Facing the possibility of a protracted deal failing to

close and then having to start all over again with all of the attendant additional expenses

may strongly influence his desire for some cost protection.

But both parties will be making a considerable investment in attempting to close the deal,

and will therefore explore the possibility of recovering their investment from the other

should the other prevent the deal from closing. The letter of intent will often set out one

or more of a number of possible mechanisms to enable a party to recover its investment

from the other. Which party receives such a right of recovery in the letter of intent often

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depends on the bargaining power of the parties and how anxious each party is to close.

For example, the seller may insist that the prospective buyer advance a fixed amount on

signing of the letter of intent which is to be held by the seller or seller’s lawyer as a

deposit and applied on closing to the purchase price owing, or be forfeited by the buyer

should the buyer fail to close.

Alternatively, the prospective buyer may be required to pay the seller’s professional fees

and other expenses incurred in respect of the deal, up to a prescribed amount, in the event

the buyer fails to close. Or, the seller may be required to pay the prospective buyer’s fees

and expenses, again up to a stated maximum amount, should the seller fail to close. These

obligations of one party to pay the fees and expenses incurred by the other are sometimes

called “break fees”, although the party entitled to be reimbursed runs the risk of being

unable to collect from the other.

In addition to addressing the fees and expenses directly incurred by one party for its own

benefit, there are often fees and expenses incurred by one party for the benefit of the

other party, or for the benefit of both parties, such as the cost of environmental audits,

property surveys, mechanical inspection reports, or government approvals to the deal.

Such costs should be identified and allocated amongst the parties in the letter of intent.

Consulting Agreements

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Many of the agreements with third parties which the seller or prospective buyer may

enter into as part of the due diligence process create more than just cost issues which

should be addressed in the letter of intent. These agreements, sometimes referred to as

consulting agreements, involve the retention by either the seller or buyer of certain

consultants to conduct various studies and carry on certain analyses for due diligence and

business valuation purposes. They might involve environmental reports, technology

audits, insurance adequacy reports, mechanical fitness inspection reports, property

surveys, furniture and equipment valuations, and so on.

The letter of intent should address not only who pays for these reports and related

services as suggested above, and whether the payment by one party or the other should be

contingent on the closing of the deal, but also who owns the work product created by the

consultant, or who has the copyright in the delivered report, should the deal close or fail

to close.

If completion of the deal is to be conditional upon delivery of satisfactory reports, the

letter of intent should try to define what is meant by satisfactory, who decides and how

much discretion can be exercised. If satisfactory is to mean that no additional cost is to be

incurred in order to achieve a recommended standard, it’s preferable to state this in the

letter of intent.

Conduct of the Business up to Closing

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Depending upon the amount of time expected to elapse between the signing of the letter

of intent and the signing of the purchase and sale agreement, the letter of intent may

generally require that the seller operate the business in this interim period in the same

manner in which it has operated the business before, but may leave it to the purchase and

sale agreement to more comprehensively set out the specific rules for running the

business up to closing.

However, if the purchase and sale agreement is likely to be signed at the closing along

with all of the other definitive agreements, a practice which occurs more frequently than

not, the letter of intent may provide more specific guidance to the seller for the pre-

closing period. A list of “major decisions” requiring the prior consent of the prospective

buyer, such as material capital expenditures, long term contracts, the hiring or firing of

key officers, a significant raising of compensation levels, the declaration of dividends, or

borrowing for more than ordinary operations, might be agreed upon and either set out in

the letter of intent or attached as a schedule to it.

Non-Solicitation of Employees and Customers

In an effort to deter the prospective buyer from using the access afforded during the due

diligence period to become familiar with the employees and customers of the purchased

business and then subsequently entice them away should the deal fail to proceed, the

seller should insist that the letter of intent prohibit the buyer from soliciting those

employees and customers.

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This non-solicitation provision usually survives the termination of the letter of intent

unless it is replaced by a similar provision in the purchase and sale agreement.

Sometimes this provision is made reciprocal, thereby preventing a seller from soliciting

any of the buyer’s employees who may be involved in carrying out some of the due

diligence.

Exclusive Dealing

Often called a “lock-up” or “no-shop” provision, a duty is usually imposed in a letter of

intent upon a seller to refrain from talking to any other parties about possibly investing in

the seller or buying a significant portion of the seller’s assets for a certain period of time

after the letter of intent has been signed. This is designed to protect the “opportunity cost”

mentioned above of both parties and to motivate them to focus their time and resources

on closing the deal. The length of time covered by the exclusivity provision can be hotly

debated, but is intended to reflect the amount of time which the parties anticipate is

reasonably required in order for the deal to be completed.

However, in its attempts to get the highest possible purchase price, the seller may want to

encourage other parties to submit offers and effectively create an auction. The seller

might be able to avoid giving outright exclusivity to the prospective buyer by substituting

in the letter of intent a “go-shop” provision with a right of first refusal in favour of the

buyer. The seller would then be permitted to solicit other offers, yet the buyer would have

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the right to buy the business on the same or better terms which may be offered to the

seller by a third party.

Negotiation in Good Faith

Given that the seller and the prospective buyer may not be under an implied duty to

negotiate with each other in good faith7, the letter of intent should state that they will

exercise good faith during the preparation of the purchase and sale agreement.8 However,

the buyer is likely to insist that this duty should terminate in the event that the buyer

comes to the conclusion that the due diligence results are unsatisfactory and thereby

wishes to terminate the letter of intent, as discussed below.

Termination and Survival

The binding provisions of a letter of intent may usually be terminated if the due diligence

investigations prove to be unsatisfactory to the buyer, or if the purchase and sale

agreement is not executed by the parties by a certain deadline. Some letters of intent also

provide for termination if a crucial report or necessary third party consent, or up-to-date

financial statements, are not obtained by a prescribed date. These termination dates are

often called “drop-dead” dates.

A letter of intent usually provides that termination will not relieve any party from liability

for breach of any of the binding provisions prior to termination, and usually provides that

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at least some of the binding provisions survive termination and continue to be

enforceable. The non-disclosure and confidentiality provisions, along with the non-

solicitation and expense provisions, are generally stated to survive the termination, but

are usually superseded by comparable provisions in the purchase and sale agreement once

that agreement is signed.

However, the exclusive dealing and negotiation in good faith provisions are ordinarily

applicable for only a specified period of time and do not survive termination.

Governing Law

Far from being an innocuous “boilerplate” provision, the law chosen to govern a

transaction can have substantial cost significance to the party whose own local law is not

chosen, and therefore should be addressed early on in the discussions and inserted as a

principal term in the letter of intent.

Although the law chosen is often the law of the place where the business is primarily

conducted, a buyer located in a different jurisdiction may want to use for the deal the

documents (and the law firm) it has used in previous deals in its own home jurisdiction

and with which it is already quite comfortable.

Should the seller accede to a prospective buyer’s request to have the law of the buyer’s

jurisdiction, if different, designated as the governing law, the parties will then have to

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customize the buyer’s forms to reflect the specific laws applicable to the various assets of

the purchased business. More significantly, the seller will then be faced with the cost of

retaining counsel in the buyer’s jurisdiction to assist with document reviews and

rendering of a legal opinion regarding the enforceability of the documents under the laws

of that jurisdiction.

________________________________________________________________________

© 2017 A. Paul Mahaffy. All rights reserved. A. Paul Mahaffy practises business law

with Bennett Best Burn LLP of Toronto, with particular emphasis on purchase and sale

transactions, business succession, private company governance, technology transfers,

joint ventures and financing. He can be reached by e-mail at [email protected], and

his recent publications can be viewed online at http://paulmahaffy.com.

1 Section 68 of the Income Tax Act R.S.C. 1985, c.1 (5th Supp.) (the “ITA”) allows the buyer and seller to

elect what amount of the overall purchase price is to be allocated to specific classes of the assets being

purchased. In an effort to minimize their respective tax liabilities resulting from the deal, the buyer and

seller will attempt to allocate the purchase price amongst the various asset categories, while recognizing

that a high value allocated to a particular category may be advantageous to one party and disadvantageous

to the other. While the seller may be concerned about the tax implications of such values for the year of the

sale, the buyer may be more concerned about the tax implications for those years following the sale and the

extent of various deductions then available. For example, a high value allocated to depreciable property

may provide the buyer with greater deductions for capital cost allowance in subsequent years, but may

trigger a recapture of capital cost allowance for the seller in the year of the sale. The buyer may prefer to

allocate high values to inventory, whereas the seller may prefer to allocate high values to non-depreciable

capital property. Although the Canada Revenue Agency may be entitled to reallocate the purchase price

among all of the purchased assets pursuant to section 68 if it deems the allocations made by the parties to

be unreasonable, the allocations negotiated between arm’s length parties are generally upheld. A special

election is available to the buyer and seller under section 22 of the ITA regarding accounts receivable. They

may jointly elect what value is to be allocated to the seller’s accounts receivable in order to reduce the

amount of tax which might otherwise be paid by the seller if the face amount of the receivables was taken

into the seller’s income. A purchase price allocation to receivables which is for less than their face value

creates a loss for the seller which can be deducted from the seller’s income, but which is included in the

buyer’s income. 2 Subsection 110.6(2.1) of the ITA. The lifetime capital gains exemption is available only to individuals

resident in Canada, and shelters from tax a maximum of $835,716 for 2017 (and thereafter indexed to

inflation) in capital gains arising from the disposition of the shares of a qualified small business

corporation, or QSBC. It is not available to the company upon the sale of any of the company’s assets, nor

is it available upon the redemption by the company of the company’s shares. If the seller has already used

his $100,000 ordinary capital gains exemption (before it was eliminated in 1994), he will only have a

$735,716 capital gains exemption available. His maximum entitlement in any one year can also be limited

if he has a cumulative net investment loss balance or has previously deducted allowable business

investment losses. 3 Subsections 13(1) and 39(1) of the ITA. 4 Subsection 111(1) of the ITA.

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mailto:[email protected],

5 For example, subsection 4 (1) of the Ontario Bulk Sales Act (Ontario), R.S.O. 1990, c. B.14., requires a

seller in a bulk sale to provide the buyer with a sworn statement listing the amount of the seller’s debts to

each of the seller’s secured and unsecured creditors. Upon delivery of the sworn statement, the buyer may

then elect under subsection 8 (1) to pay the sale proceeds to the seller if the seller has also sworn that all of

the creditors have been paid in full or if the seller has made provision for payment of all of the creditors

immediately after the closing except for those creditors waiving their rights to immediate payment. 6 For example, subsection 9(1) of the Ontario Employment Standards Act, 2000, S.O. 2000, c.41 and

subsection 69(2) of the Ontario Labour Relations Act, 1995, S.O.1995, c. 1, Sched. A, impose certain

obligations of the seller towards employees upon the purchaser of a business as a successor employer. 7 See, for example, SCM Insurance Services Inc. v. Medisys Corporate Health LP, 2014 ONSC 2632, Oz

Optics Limited v. Timbercon, Inc., 2010 ONSC 310, Peel Condominium Corp. No. 505 v. Cam-Valley

Homes Ltd., (2001) 53 O.R. (3d) (C.A.), and Martel Building Ltd. v. Canada, [2000] 2 S.C.R. 860. 8 See Bhasin v. Hrynew, 2014 SCC 71, for the law governing the duty of good faith in contract

performance.

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TAB 4

Purchase and Sale Agreement Checklist

Jordan Dolgin

Dolgin Professional Corporation

April 25, 2017

BUSINESS LAW


LAW SOCIETY OF UPPER CANADA PRESENTATION

BUSINESS LAW PRACTICE BASICS – APRIL 25, 2017

Purchase and Sale Agreement Checklist

By Jordan Dolgin, Founder, Dolgin Professional Corporation The following is intended to be a useful (although non-exhaustive) checklist and practice guide to aid legal counsel in the preparation of purchase and sale agreements for both share sale and asset sale transactions based in Ontario. For a more detailed read on the utility of checklists generally, please consider The Checklist Manifesto: How to Get Things Right, written by Atul Gawande © 2009, 2010 published by Picador/Henry Holt and Company.

**********

A: Pre-Drafting Preparations

Who is your client?

If acting for multiple vendors, consider contribution/indemnity agreement if they have joint &

several liability.

Who is giving you instructions (some/all clients).

Ensure all clients are properly advised before closing (especially “silent” spouses in family owned

businesses).

With multiple vendors, will there be a single “vendor representative” who has authority to make

post-closing decision on behalf of all vendors and, if so:

o What is their scope of authority?

o What are the rules to replace him/her?

o Will he/she be indemnified by the other sellers or be released from any claims?

o Will he/she be entitled to be reimbursed for expenses?

Review all shareholder agreements and confirm if all vendors are required to sell (i.e., is there any

drag-along provision).

Who are the parties (including any guarantors) and confirm proper names/addresses.

Identify any option holders and determine process to exercise same.

What is being sold (i.e., shares, assets, shareholder loans/security, etc.).

What is level of complexity and scope of client instructions re drafting (i.e., “play to middle” and

inside vs. outside sale).

Understand price vs. valuation and interplay between price and “bells and whistles”.

Understand what is “market”?

80/20 Rule … what is different about this deal?

Watch for special considerations and key deal points to be negotiated.

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2

Due diligence is ongoing so remember to consider updating the purchase agreement to reflect

new developments as they arise.

Consider client communications and private email addresses outside corporate servers.

Retention of prior drafts to document negotiations and your advice to client re same.

Consider using MS WORD “comment box” feature to document your advice.

Early identification of all 3rd party approvals/issues … especially contractual consents of customers

upon assignment/change of control.

Early identification of client’s accountant and seek tax/accounting input early on and throughout

to closing.

Discuss/document with client scope of LEGAL due diligence you are undertaking (i.e., limited or

full).

Early review of minute book to identify deficiencies/title issue.

Undertake public searches early on to identify potential skeletons/encumbrances, etc.

Discuss potential skeletons with clients so you aren’t blindsided later.

Confirm any vendor personal guarantees, loans or corporate owned insurance policies, if

applicable.

Have the parties sign a suitable NDA? If not, consider same and whether any non-solicitation

provisions are applicable to be included.

Is there a signed LOI? If not, consider same.

Understand key LOI provisions such as expenses, deposit, exclusivity, confidentiality and

termination.

Identify all key ancillary agreements (i.e., promissory note, restrictive covenants agreement,

general security agreement, escrow agreement, employment/consulting agreement, etc.).

Draft closing agenda in tandem with purchase agreement to stay organized and identify issues

early on.

Understand that, functionally, the purchase agreement sections effect 3 separate outcomes:

o Computation of Purchase Price.

o Payment of Purchase Price.

o Retention of Purchase Price.

Asset Purchase Considerations:

o Will HST apply and vendor indemnity for same?

o Identify all asset encumbrances/title issues.

o Distinguish between assets owned and leased and how both are addressed in the deal.

o Consider treatment of employees.

o Consider treatment of leased premises/equipment and vendor releases re same.

o Consider any special asset conveyances (i.e., registered IP, motor vehicles).

o Consider all statutory/contractual shareholder approvals and dissent/appraisal rights re

same. Consider vendor “branding” issues and corporate name changes post-closing.

o Consider vendor shareholder guarantees of deal obligations?

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3

B: Definitions and Interpretation

Definitions are essential (not just boilerplate) and should be approached very carefully.

Will definitions be in a separate section or in the body of the agreement? This is a matter of style.

Client’s accountant to review all tax/ accounting definitions (especially those relating to taxes,

financial statements, GAAP and working capital adjustment matters).

Ensure LOI is “replaced” in entire contracts clause.

Consider governing law re opinions and engagement of foreign counsel, if applicable.

Consider venue of disputes and waiver of jury trials, if applicable.

Consider definition of “knowledge”.

Consider definition of “materiality” or “material adverse effect”.

Consider arbitration/dispute resolution mechanism.

Use definitions generously for any concepts that are repeated more than once in the agreement.

Watch assignment clauses as they may add value to buyers or affect vendors vis-à-vis future

purchasers/assignees.

Consider if statutory provisions or ancillary agreements need to specifically contemplate post-

closing amendments, etc. (i.e., “as amended”) or take effect only in their current form at closing.

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4

C: Determination of Purchase Price

One of the most essential sections.

Needs to be reviewed by client’s accountants for tax implications.

How is price determined – fixed or variable/formula; earn-out or reverse earn-out?

Consider exclusion for SREDs and other pre-closing tax refunds. Will these be characterized as

“additional purchase price”?

How is price allocated among vendors/multiple share classes/loans/asset categories?

Modality of payment:

o Cash/currency.

o Property.

o Private company shares (consider new shareholder agreement considerations and share

class issues; ITA rollovers).

o Public company shares (consider escrow/hold periods/ITA rollovers).

Consider price adjustments:

o Working Capital.

o Accounts Receivable (and consider vendor assignment re same).

o Indemnity provisions.

o Avoid risk of potential double counting as between formal price adjustments and

indemnity provisions (see below).

Special earn-out considerations:

o Based on sales or earnings?

o Currency issues.

o Calculation rules/audit rights?

o Procedures for reporting/payment.

o Vendor control over decision making affecting earn-out?

o Security for earn-out if a material component of the overall price?

Special Working Capital Considerations:

o What is agreed target?

o What is adjustment process/timeline?

o Who bears costs of post-closing financial statements?

o How is estimated closing price determined?

o Are adjustments both up and down?

o How are adjustments settled (i.e., return of closing cash or adjustment to deferred

consideration)?

o Careful review of definition of “Current Assets” and “Current Liabilities” with client’s

accountant to ensure any GAAP deviations are addressed.

o Ensure that the parties properly document any agreed methodology so target figures vs.

actuals figures represent a fair “apples to apples” comparison.

o Dispute resolution via independent accountant not arbitrator/court.

o Statistically, disputes over working capital are as least as frequent as indemnity claims so

it is important to be very careful in this area of the agreement.

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5

Are all vendors receiving same form of consideration? Need to discuss with all clients and review

shareholder agreement considerations re same.

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6

D: Payment Terms and Security

What is mode of payment?

What is payment currency?

Has a deposit been paid? If so, who is holding this and how/when is it refundable (or not) if the

deal does not close.

When is the price paid – i.e., at closing or deferred or contingent (i.e., earn-out/reverse earn-out)?

If price is deferred, is it paid via escrow or promissory note?

Will there be interest on deferred consideration? Deductibility of interest (check with

accountants).

Impact of price adjustments on payments (i.e., applied to closing cash or deferred consideration).

Public/private share consideration:

o Is a tax rollover available?

o Need to negotiate proper class of shares.

o Need to negotiate new shareholder agreement with purchaser.

Will there be security on deferred consideration?

Common Forms of Security:

o Personal/corporate guarantee.

o Share Pledge (and will quantum of shares pledged decline as payments are made?).

o General Security Agreement (GSA).

o Bank Letter of Credit (rare and generally expensive).

o Escrow of funds (who holds?).

o Collateral mortgage over real property.

Special Escrow Agreement Considerations”

o Who holds?

o Who bears escrow agent fees/costs?

o Rights of counsel to act as escrow agent and additionally continue to advise his/her clients

… need to address potential conflicts issues.

o How/when are funds released – i.e., automatically or mutual written acknowledgement

of parties? What is the best mechanism for your client to avoid opportunistic behaviour

by the other party?

o Who gets interest on escrowed funds?

Special Promissory Note Considerations:

o Computation/timing of interest payments.

o Default interest.

o Timing of payments – time based or subject to contingencies?

o Express rights of set off against deal indemnities.

o Prepayment rights.

o Rights to defer payments based on lender covenants under existing/ongoing buyer credit

facilities.

o Mechanics for payment of multiple vendors.

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7

o Usual events of default and will full acceleration apply.

o Special events of default (i.e., principal death; change of control/sale; termination of

vendor employment, etc.).

o Insurance policy funding in the event of acceleration due to death?

o Assignability by vendors?

o Governing law … same as purchase agreement or different?

Special GSA Considerations:

o Will there be any subordination/postponement by secured party in favour of debtor’s

operating lender to facilitate future credit to target?

o What obligations are secured (i.e., just promissory note or ALL deal obligations)?

o What is the scope of collateral offered as security (i.e., security interest in all personal

property of debtor … or just certain asset categories)?

o Consider special documentation for security interests in any registered intellectual

property (e.g., collateral assignments registered with CIPO/USPTA).

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8

E: Representations and Warranties

Buyer reps usually short unless buyer is paying in its own shares (in which case the vendor is

equally a buyer and the purchase agreement reps should reflect this).

Key risk allocation section.

Who is in the best position to bear risk of vendor skeletons?

Consider if “specialty” counsel needed in certain areas (i.e., real estate, tax, environmental,

pension benefits, union matters, etc.).

In share sales, distinguish between vendor reps and business reps.

Joint and Several liability of multiple vendors … consider any limitations for silent or institutional

shareholders. Check existing shareholder agreements.

Consider contribution agreement among multiple vendors who have joint/several liability.

Consider knowledge and materiality qualifiers … especially in light of indemnity provisions and

any “de minimus” provisions (see below).

Start with broad based “standard” R/W and pare back for irrelevant issues and strengthen for

key issues based on target’s business and special due diligence considerations (e.g., are

IP/environmental issues relevant to the target or not?).

Nature of deal also impacts scope of R/W – i.e., “inside” purchaser may give rise to more limited

R/W vs. “outside” purchaser (i.e., stranger) who needs fuller R/W.

Consider survivability in light of different categories of R/W (i.e., title reps, business reps, tax reps,

environmental reps, etc.).

Consider issues with reps on obsolete inventories.

Watch survivability of R/W vs. covenants (especially in light of ancillary agreements such as non-

competition provisions).

Seek accountant input on all tax, accounting and financial statement related reps.

Consider interaction between tax reps and tax indemnities (see below).

Consider impact of buyer’s due diligence investigations on scope of R/W.

Avoid generic “no knowledge” reps. Be specific.

Consider ongoing due diligence and augment R/W as you go to reflect new information.

Watch backdoor price adjustments (e.g., “collectability of accounts receivables).

Special Considerations re Disclosure Schedules:

o Guide client on process and prepare early.

o Need to review carefully against specific requirements of reps/warranties.

o Remember that schedules function as seller’s “insurance policy”.

o Need ALL vendors and accountants to review carefully.

o Liberal disclosure is best (assuming buyer will accept risk allocation of reps qualified by

disclosure schedules and not force sellers to retain risk via separate indemnities – see

below).

o Consider vendor’s right to update disclosure schedules between signing the purchase

agreement and closing.

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9

F: Closing Conditions

How “firm” is the deal … really?

Legal relevance of conditions – i.e., will the deal close concurrently with signing the purchase

agreement or thereafter and subject to a true “interim period”?

If the deal closes after signing the purchase agreement, the closing conditions take on special

importance and need to be carefully reviewed with the client – i.e., what must happen before

they are prepared to close?

Conditions need to be tailored to the deal.

Consider suitability of special conditions such as:

o Purchaser’s satisfaction with its due diligence investigations.

o Release of personal guarantees.

o Release of premises/equipment lessor obligations (in asset deals).

o Repayment of shareholder loans.

o Assignment of corporate owned life insurance policies.

o Financing of purchase price.

o Environmental audit.

o Legal opinions.

o 3rd party approvals (especially lenders, landlords, equipment lessors, customers and

suppliers).

o Material adverse changes.

o Opportunity to communicate with employees/customers/suppliers before closing.

o Closing deliverables and ancillary agreements (such as restrictive covenants and

employment/consulting agreements).

o Resignations of directors/officers.

o Releases by vendors, directors and officers (what carve-outs need to apply to these

releases?).

Consider who has ability to waive conditions (i.e., unilateral or mutual).

Consider rights of termination if conditions are not satisfied.

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G: Indemnities and Other Covenants

Carefully consider scope of buyer and seller indemnities such as:

o Breach of reps/warranties in purchase agreement AND ancillary agreements.

o Breach of covenants in purchase agreement AND ancillary agreements.

o Breach of assumed liabilities/non-payment of HST (asset sales).

o Payment of pre-closing taxes (net of pre-closing tax refunds if any).

o Special items raised in vendor’s disclosure schedules (i.e., existing litigation).

o Pre-closing product/service warranty claims (asset sales).

o Closing vendor “Transaction Expenses” for lawyers, accountants, brokers, etc. (i.e., who

bears costs for same).

Consider both Direct vs. Third Party Claims.

Watch definition of “Claims”.

Consider suitable notice and procedural provisions/issues.

Consider suitable indemnity limitations:

o Duration of R/W survival provisions.

o De minimus or basket amounts.

o Overall cap for R/W based on overall deal price paid net of adjustments.

o Individual vendor cap based on proceeds received by each vendor net of adjustments.

o Tax and insurance recoveries.

o Exclusions for fraud/consequential damages.

Consider express buyer set-off rights against deferred purchase price (or other post-closing

payments under ancillary agreements such as employment/consulting agreements).

Consider impact of indemnity payments on purchase price (for tax purposes).

Consider “exclusive/sole remedies” provision.

Watch to ensure indemnity provisions don’t include items covered off in the working capital

and/or other price adjustments.

Special Covenants:

o Restrictive Covenants and confidentiality.

o Interim period control provisions.

o Preparation/filing of change of control tax returns and who bears cost of same.

o No Shop/Exclusivity.

o Access to info.

o Employee terminations before/after closing and who bears cost of same.

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H: Miscellaneous

Review any broker commission entitlements and “fairness” of timing of same.

Consider flow of funds:

o Use of lawyer’s trust account.

o Possible CRA withholdings for optionee income amounts, etc.

o Payments directly to 3rd party creditors to obtain discharges of encumbrances.

Reps on privacy compliance given format/scope of buyer’s due diligence.

Consider securities law provisions.

Consider Competition Act/Investment Canada Act approval and notice provisions (pre or post

closing).

Retention of insurance coverage by target post-closing.

Consider industry specific legislation re licenses/permits, etc.

Approval process for press releases.

Execution by fax/PDF signatures.

WSIB/RST clearance or purchaser certificates (in asset deals).

Discuss upfront tax issues with accountant such as:

o Need for pre-closing reorganizations to strip out non-core assets (e.g., land) or purify the

target for capital gains exemption purposes.

o Vendor residency and s.116 ITA withholding tax risk.

o CCPC status at closing.

o Eligibility for capital gains exemption.

o Allocation of price to assets in asset sale.

o Availability of HST exemption.

o Agreed corporate tax rate to apply to excluded SRED amounts.

o Repayment of shareholder loans and debt forgiveness rules.

o Accrual of pre-closing bonuses and payment of same post-closing (and implications for

closing releases).

o Taxation of employee option exercises.

o Known areas of tax risk (e.g., associated companies and use of small business

deduction).

O:\DPC Presentations\BUSINESS LAW PRACTICE BASICS 2017.docx

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TAB 5

Closing The Transaction

David Street Lerners LLP

April 25, 2017

BUSINESS LAW




David R. Street Lerners LLP

Tuesday, April 25, 2017

The Law Society of Upper Canada

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Closing The Transaction ...................................................................................................3 Part I Preparing For Closing ....................................................................................3

A. Traditional Closing or Virtual Closing ................................................3 B. The Closing Room For A Traditional Closing ....................................3 C. Execution of Documents .....................................................................4 D. Document Folders ...............................................................................6 E. Virtual Deal Rooms .............................................................................7

Part II Closing Agendas ...........................................................................................8

A. When To Prepare And How To Use ....................................................8 B. Layout and Certain Content .................................................................8 C. Closing Agenda Examples ................................................................10

Part III Closing .......................................................................................................11 A. Dealing With Delays .........................................................................11 B. Traditional Closings vs. Virtual Closings .........................................12 C. Closing Opinions ...............................................................................14 D. Some Logistical Matters ....................................................................15 E. Annotating The Closing Agenda .......................................................16 F. Terminating The Closing Escrow ......................................................17

Part IV Post-Closing Matters .................................................................................17 A. Filings ................................................................................................17

B. Reporting ...........................................................................................18 C. Form and Content of Record Books ..................................................19 D. Notification of Claim Periods ............................................................20 E. Document Retention and E-Discovery ..............................................21

Conclusion .............................................................................................................23

Schedule “A” ....................................................................................................................24 Sample Closing Agenda .........................................................................................24

Schedule “B”.....................................................................................................................31 Reference Material .................................................................................................31

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The confidentiality agreement and the letter of intent have been completed. The

due diligence is finished and the purchase and sale agreement has been executed. All that

remains is to close the transaction. This paper discusses in four parts the various steps

you will go through in order to close most if not all commercial purchase and sale

transactions. Part I looks at what needs to be done to prepare for the closing during the

days immediately before the closing, Part II looks at that most important tool the closing

agenda, Part III looks at the closing on the actual day of closing and Part IV looks at what

needs to be done in the days after closing.

Part I Preparing For Closing

A. Traditional Closing or Virtual Closing

A decision needs to be made early on whether you will have a traditional closing

at which everyone attends and signs together at one location or a virtual closing with the

parties exchanging scanned or digital copies of signed counterparts of the documents.

Virtual or electronic closings have become the norm and traditional closings are now the

exception.

B. The Closing Room For A Traditional Closing

In the case of a traditional purchase and sale transaction that is to close in person

the closing will usually take place at the offices of counsel to the purchaser. A room that

is large enough to accommodate all of the documents that will be part of the closing and

all of the clients, lenders, lawyers and other persons who may attend on closing must be

available through-out the time required for the closing. For document intensive

transactions this means that the room must be available for several days or more. There

may be a pre-closing which takes place a day to two before closing at which all the

documents for the closing are assembled and reviewed by counsel for all parties so that

they are complete and only need to be executed and perhaps dated and then ‘delivered’

on the day of closing. Even in the absence of a pre-closing it is helpful to have the room

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available prior to the day of closing so that the documents can be assembled and laid out

ready for final review by counsel from the other parties and ultimately execution by the

parties. The closing itself may extend into a second day if there are matters that cannot be

completed on the day of closing. It may also not be possible for the closing documents to

be divided among counsel on the day of closing because there may be extensive

photocopying of exhibits and other items which remain to be completed. Through-out

this time it is important that the closing room remain available, that it be used only by

persons involved in the transaction and that all items coming into and going out of the

closing room be controlled.

C. Execution of Documents

It is best to know well ahead of time who will be signing on behalf of the various

entities. This is true whether you are having a virtual closing or a traditional closing. It

allows the name and title of the persons signing to be entered on the signature block

while the documents are being drafted. I prefer this to a blank line with the words

‘Authorized Signing Officer’ typed underneath with nothing more. Specific names and

titles allow counsel to know the persons they have to make sure will be available on the

closing date or to make alternative arrangements, such as having signature pages signed

in advance, if they won’t be available on closing. It’s also helpful if there are authorizing

resolutions and officer certificates so that those documents can refer to the names or at

least the titles of the persons signing.

During the drafting of closing documents it is helpful if the pagination is done so

that signature blocks are not on pages with substantive provisions. It is now quite

common for signature pages to be executed before the document content is finalized. If

there are no substantive provisions on the signature page this should avoid the confusion

and uncertainty, or the need to obtain replacement signature pages, if signature pages

don’t match the pagination of the latest version of the document. The use of signature

pages executed in advance has become very common and they are almost always used

with virtual closings. There are two important precautions for this practice which should

be noted. First, be careful that the signature page is attached to the correct document. This

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seems obvious but it is a mistake that can easily be made if there are a number of

different signature pages being attached to a number of different documents. It is

exacerbated in part by my suggestion that there not be any substantive provisions on the

signature page. One solution I’ve seen used for this problem is to have the short title of

the document appear somewhere on the signature page, usually as a header or a footer.

This title should be the same title the document has on the closing agenda. Second, and

perhaps more importantly, you need to make sure that your client has approved the final

version of the document to which you’re attaching the signature page. This is especially

important for documents that have gone through a number of revisions and different

versions. For example, it may not be sufficient to have sent a blacklined version of the

latest draft to your client and to assume that they’ve read and approved the changes, if

you haven’t heard from them. If the changes are significant, controversial or could have

potentially serious adverse consequences for your client you need to be sure they’ve

approved of the changes before you attach the signature page.

Solutions for attaching signatures to electronic documents are offered by

companies such as DocuSign, Adobe EchoSign and e-SignLive. They each allow you to

send a document to a recipient by e-mail and have them sign in a number of different

ways and then track the document so that you can see who has signed and who hasn't. I'm

aware that a number of technology companies and companies doing business on-line use

their services and on a few deals some parties have submitted their signature pages using

these products but acceptance seems slow in the legal community. A number of real

estate agents are now using these products and clients I’ve talked to who have signed in

that way speak favourably of the experience.

There are a number of steps to the current practice. An e-mail with the signatures

pages as an attachment is sent to the person signing who must print the pages, sign them,

scan them and then e-mail them back as an attachment. It means the person signing has to

have access to a computer, a printer, a scanner and the internet. Whereas with an

electronic signature product all the person needs is a smart phone with cellular service as

the signing can be done through an app on their phone.

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All of the products rely on the Electronic Commerce Act, 2000 which does require

that a party consent to the use of an electronic signature. Sections 3(1) and (2) provide:

(1) Nothing in this Act requires a person who uses, provides or accepts

information or a document to use, provide or accept it in an electronic

form without the person’s consent.

(2) Consent for the purposes of subsection (1) may be inferred from a

person’s conduct if they are reasonable grounds to believe that the consent

is genuine and relevant to the information or document.

D. Document Folders

Prior to closing it is helpful to have a separate folder for each document that will

be listed on the pre-closing, closing and post-closing portions of the closing agenda.

These can be physical folders or electronic folders but most lawyers seem to use a

combination of both. The folder should have a label that contains a short description or

name of the document which matches the description of the document on the closing

agenda. The folder or its label should be numbered with the number of the document on

the closing agenda. It is a good idea to write this number in pencil because as the closing

agenda evolves leading up to closing, items are often added, deleted or moved around

with the result that the number of the item on the agenda changes and you will need to

change the number on the file folder.

It is also helpful to have a unique identifier on each document that tells you where

you can find the document on your computer system. For firms using a document

management system (DMS), the DMS assigns a unique number to each document and

that number can be added somewhere in the document so that it is unobtrusive, often this

is at the bottom of the first page or the last page of the document. Firms or sole

practitioners not using a DMS can print on the document the path that will show them

where on their hard drive the document is located. These identifiers facilitate quick

access to the electronic version of the document to make last minute changes that may be

required.

If you do use a document ID number or a path name to locate a document, it is not

a good idea to have that information appear on the page which contains the signature

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block. As discussed above, the signature page will often be signed before the document is

in final form, and the document ID number or path on the signature page may not be the

correct one for the final version of the document. This could lead you to retrieve the

wrong version and make the changes to that version instead of the latest version, or at

least to be confused as to the correct version.

It is also useful to put the document ID number on the closing agenda with the

description of the document. A number can be added in a way that is fairly unobtrusive

but if you’re using a lengthy document path name it will be more distracting for others

using the closing agenda but for whom the path name is not relevant.

E. Virtual Deal Rooms

There are efforts to develop software which creates a virtual deal room. This is an

advance on virtual data rooms which have been around for a number of years and were

developed to facilitate due diligence. With a virtual data room, documents to be reviewed

as part of due diligence are uploaded by one party and then other parties can be given

access to those documents through a secure internet portal in an easy and secure manner.

Virtual deal rooms have attempted to develop this concept further so that parties can track

the completion of tasks and print status reports which show for example, which

documents have been drafted, and which are still outstanding. Participants can add their

comments to draft documents until everyone agrees that the document is in final form.

Signature pages can also be attached by the appropriate party once a document is in final

form. In this way once the deal is closed the software can in theory produce the record

books on a CD or other electronic media as determined by the individual participants. To

date I believe these products have met with only limited success and haven’t established

themselves as a useful must have product. If they can increase the efficiency and reduce

the costs of completing commercial transactions, their use may become more widespread.

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Part II Closing Agendas

A. When To Prepare And How To Use

Closing agendas are an invaluable tool and should be prepared and circulated long

before the actual closing date. They are equally useful for traditional closings and virtual

closings. The first draft should be circulated with the first draft of the main transaction

document or soon thereafter and is usually prepared by the purchaser’s or borrower’s

counsel. It brings together in one place a list of all the documents that will be needed for

the closing and is a succinct way of communicating that information to all the parties

involved. It is most relevant to the lawyers and their staff but it is also an important tool

for communicating to clients everything that needs to be done. During the time leading

up to the closing while documents are being prepared and distributed it is important that

the person in charge of the closing agenda keep it up to date and distribute frequently

blacklined copies of the revised agenda so that all parties can see the latest changes. It

will change frequently and will need constant updating usually at least with every new

turn of the main transaction document. Leading up to closing the lawyers for all sides

usually organize their files and subfiles in accordance with the closing agenda.

Sometimes there is a final version of the closing agenda circulated after closing to

take account of changes made during closing. After closing the annotated closing agenda

usually forms the basis of the table of contents or index for the record books or document

books for the transaction.

B. Layout and Certain Content

While there are many variations, a useful and efficient closing agenda should

contain the following items.

The initial page should describe the transaction and the time and place for closing,

or indicate that it will be a virtual closing if that’s the case, and list the parties involved

and their counsel. It’s helpful to give each of the parties a short form designation so that

the short form can be used in subsequent references that will appear in the closing

agenda. Leading up to closing there are often many revised drafts of the closing agenda

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which are circulated. It is critical to have a date or version number prominently displayed

on the first page so that everyone knows which version of the closing agenda they’re

looking at and makes use of the most recent version.

The closing agenda should include some form of escrow clause which indicates

that all documents including payments are delivered in escrow and shall be held in

escrow until all documents and payments have been delivered, all closing conditions have

been satisfied and all parties have agreed to terminate the escrow.

If it's to be a traditional closing there should be a paragraph dealing with

deliveries indicating that all documents are to be originally executed documents unless

otherwise indicated, and setting out how many original executed copies of each document

will be delivered at closing.

Once you’re beyond these preliminary items, you are into the heart of the closing

agenda which is the list of documents. There will typically be three or four columns. The

first column will be the number assigned to the item on the closing agenda. The second

column, which is sometimes combined with the first, will contain a brief description of

the actual item or document. The third column will have a heading such as “Responsible

Party” or “Responsibility” which is for the name of the law firm or party responsible for

providing that item. The final column will usually have a heading such as “Status” or

something similar and is intended to indicate whether an item has been completed, and if

not, provide a brief explanation of its current status. Where a document on the closing

agenda is referred to in the main transaction document it is helpful to include a reference

to that section on the closing agenda.

The list of documents portion of the closing agenda will often have one or more

sub-headings such as “Pre-Closing Matters”, “Closing Matters” and “Post-Closing

Matters”. While strictly speaking pre-closing and post-closing matters are not closing

matters and could be omitted from a closing agenda, it is customary practice to include

them so that all parties know what items need to be completed prior to closing and what

items need to be followed-up on as post-closing matters. If a new corporation is to be

used as the purchaser in a transaction, then the incorporation and organization of that

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corporation can be listed in the pre-closing documents section of the closing agenda, or

may be set out in a separate internal closing agenda. Typical post-closing matters may

include obtaining discharges for mortgages or security interests, the filing of Notice of

Change forms to report changes in officers and directors, filings with Canada Revenue

Agency with respect to certain tax elections and the registration or filing of assignments

for matters such as leases, trade-marks and patents.

Closing agendas in complicated transactions can go on for many pages. If a

transaction has two or more distinct parts it may be desirable to have a separate closing

agenda for each part. An example would be a situation where a purchaser has arranged

financing for an acquisition but the financing doesn’t involve the purchased business. In

that case it may be more efficient to have an internal closing agenda for the financing and

the usual external closing agenda for the purchase. An internal agenda is one that

involves one side only and isn't circulated to everyone in the main transaction.

C. Closing Agenda Examples

Where can you find examples of closing agendas? If you’re in a large firm this

won’t be a problem, they will have many examples from previous deals for you to draw

upon. If you’re on your own, or in a smaller firm then finding a suitable example can be

more difficult. In Schedule “A” I’ve attached a sample closing agenda prepared in

accordance with the suggestions made in this paper. Schedule “B” lists reference

materials for business purchase and sale transactions. Several of them provide examples

and other information for closing agendas. I caution you however that once you get

beyond style and layout the content for the closing agenda will vary with every

transaction. There is no single precedent that could be applicable to many transactions.

Each one will vary depending mainly on the content of the purchase and sale agreement

and other key transaction documents.

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Part III Closing

A. Dealing With Delays

It is common with complicated purchase and sale transactions that they can’t be

completed on the date first agreed to by the parties. The reasons are numerous but two of

the most common are problems with arrangements for financing which are the usually the

purchaser’s problem, and problems with obtaining a third party consent or approval

which are usually the vendor’s problem. Generally, I believe you should be cooperative

when faced with a request for an extension of the closing date. Lawyers need to

remember however that the decision whether to agree to a request for an extension is not

one the lawyer should make without first seeking and obtaining instructions from his or

her client. Your client will want to know the reason the delay is being sought, and you

should make sure you have obtained that information from the lawyer for the party

requesting the delay, before approaching your client with the request. If you’re requesting

the extension because an approval hasn’t been obtained from a lender, a landlord, a

government regulatory body or some other third party, then try to get an indication as to

when a decision will be forthcoming, and request an extension based on that information.

It is better to be realistic and forthright about the length of the extension you need rather

than place your client in the position of requesting a second or third extension because

the initial extension wasn’t long enough. If the length of the extension can’t be

determined it may be better to extend until a fixed number of days after the decision

being sought is released, likely with some kind of outside date when the deal will

terminate if there is no decision by that date.

Agreements to extend should be recorded in writing either by an amendment to

the definitive transaction agreement, or by an exchange of letters or e-mails between

lawyers. The amendment should deal with any other changes which may have been

agreed as a result of the extension such as an increased deposit or some form of

compensation for the party granting the extension.

Specific closing dates are less crucial with virtual closings. Client availability is

not an issue. If not all of the documentation is in final form or not all signatures have

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been obtained it is far easier to obtain agreement to extend the closing for a day or two

with a virtual closing.

B. Traditional Closings vs. Virtual Closings

The fundamental requirements for a closing which include having all the

necessary documents signed by the required parties, satisfying all the closing conditions

and arranging for the closing funds to be available have not changed. However, the long

established tradition of an traditional closing where the signing officers attend at a law

firm, sit around a board room table, sign the documents one by one, deliver certified

cheques or bank drafts, shake hands and leave has become much less frequent.

Traditional closing has been replaced by virtual closings.

In a traditional closing the requisite copies of each item on the closing agenda are

laid out around a table in the order they are listed on the closing agenda. Often there

would be last minute changes to one or more of the documents. Once it is clear that all

outstanding issues have been settled the clients move around the table signing documents

as they go. When the lawyers are satisfied that all the documents are duly executed, the

closing conditions are satisfied and the certified cheques or bank drafts are in the correct

amounts, the transaction closes. The clients shake hands and leave. The lawyers divide up

the documents so that they each have a full set to take back to their offices to be bound

into a record book.

In place of this traditional closing, clients and lawyers are remaining in their

offices and closings are taking place virtually. For closing purposes, either faxed copies

of signature pages, or now more commonly, signature pages in PDF are sent as an

attachment to an e-mail, are being used. Certified cheques and bank drafts are replaced

with wire transfers, direct deposits or other forms of electronic transfer. As with the

traditional closing, everything is held in escrow until everyone involved is satisfied that

the documents are in final form, have been signed by the parties and the funds have been

transferred in accordance with the documentation. The transaction is eventually

confirmed to be closed either by a conference call or an exchange of e-mails or a

combination of both.

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The use of e-mail for transmitting documents and the widespread use of scanners

to convert pages with original signatures into electronic documents that can be

transmitted by e-mail have made virtual closings feasible. As clients have become more

accustomed to transacting business in this way it has become the norm. It is no longer

necessary to get a group of senior executives with signing authority together at the

appropriate time and in one room.

Electronic closings are much less disruptive to the regular activities of senior

executives. The need to wait around at a closing while lawyers argue over last minute

changes, and then wait some more while those changes are reflected in revised

documents, is eliminated. Transactions can close when they’re ready to close and not at a

time when everyone needs to be available. I believe this is a significant benefit to both

clients and lawyers. In moving to virtual closings lawyers are responding to the demands

of their clients and have adopted the technologies and procedures to do so.

Clients may be under the impression that virtual closings are cheaper. They may

be correct in terms of executive time; however, I’m not sure they are cheaper in terms of

lawyers’ time. Assembling the record books following a virtual closing can be a time

consuming task. There are a lot of e-mail trails to follow. Occasionally, rather than

having each law firm assembling their own record books on an virtual closing, one firm,

and typically it’s the purchaser’s lawyers, takes on that responsibility and distributes the

requisite number of copies to all the participant law firms. This will not always be the

case and when it’s not there is a risk that not everyone will end up with the same set of

closing documents. If one firm is taking on this task consider requesting an undertaking

that the record books will be delivered within a certain amount of time because if

possible you will want to have it before you send your invoice. If you receive a record

book prepared by another firm, don’t assume it has been done correctly. You need to

review it carefully and raise any concerns you have as soon as possible with the other

side. You need to make sure that signature pages have been attached to the correct

version of documents, that all schedules and other attachments are complete and that

nothing has been omitted.

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Sole practitioners and lawyers in small firms will often delegate the production of

the record books to their assistant. In larger firms the task invariably falls to the most

junior lawyer on the team. In either case if this person wasn’t involved in all aspects of

the transaction from start to finish, it is easy to make mistakes. At the very least, if the

task is to be delegated, someone who was intimately involved with the transaction and

the closing should prepare the table of contents or index for the record book so nothing

gets left out.

The procedures for virtual closings will continue to evolve. Closings at the

registry office for real estate transactions disappeared in Ontario with the implementation

of electronic land registration through Teraview. Traditional closings for commercial

transactions may also disappear.

C. Closing Opinions

Closing opinions are deserving of their own continuing professional development

program. I want to highlight only a few aspects of closing opinions and not get into a

discussion of their form and content. For that I refer you to Wilfred Estey’s book Legal

Opinions in Commercial Transactions which is referred to in Schedule “B” to my paper.

The third edition was published in September of 2013 but is still the definitive Canadian

work on the topic. There are, however, parts of it which are now out of date including for

example the references to the Bulk Sales Act which was repealed on March 22, 2017.

The closing opinion is usually one of the last documents to be settled for a

closing. You should, however, determine at a much earlier time whether there is to be an

opinion. While opinions continue to be requested for financing transactions in almost all

cases there has been a move away from opinions in M&A transactions. In the 2016 ABA

Canadian Private Target M&A Deal Points Study (referred to in Schedule “B”) a legal

opinion was required in only 34% of the transactions examined and this figure has been

declining from 40% in the 2014 study and 55% in the 2010 study. In a similar study of

U.S. transactions in 2015, a legal opinion was required in only 11% of the transactions

examined which is down from 19% in the 2013 U.S. study and 27% in the 2011 U.S.

study.

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If an opinion is to be required it is helpful if the form is specified and attached as

a schedule to the main transaction document such as a share or asset purchase agreement.

Estey notes that the golden rule for opinions is that a lawyer should never request

an opinion that the lawyer wouldn’t be prepared to give in similar circumstances. Don’t

attempt to hide behind or use as a negotiating strategy “It is my firm policy not to give

that type of opinion” or indicate that to give such an opinion your firm’s “opinion

committee” would have to be consulted. Instead be prepared to address the issues

underlying your concerns in the particular circumstances in which the opinion is being

sought.

Estey has an interesting discussion of the “duly executed and delivered” opinion

in the context of a virtual closing. H reviews what steps need to be taken by an opinion

giver to be satisfied that the closing documents have been duly executed. He looks at both

manual execution and electronic execution and notes that communication of acceptance,

evidenced by a signature, communicated by e-mail has received judicial approval and is

also supported in Ontario by the Electronic Commerce Act, 2000. As far as dealing with

the delivery requirements in a virtual closing he notes that it is really no different than

with a traditional closing. The closing documents are delivered in escrow until all

conditions precedent to closing are satisfied. Once the transaction closes and the escrow

is terminated then all the documents are derived by the lawyers on behalf of their clients.

TOROG, an abbreviation for the Toronto Opinion Group, a group of lawyers from

mostly Toronto firms have attempted to establish standard language for addressing

certain opinion issues. Their material is available online as noted in Schedule “B”.

D. Some Logistical Matters

The following matters are most applicable to the traditional closing but also have

to be dealt with, perhaps in a modified manner, in a virtual closing.

1. Check that the copies tabled for execution are the final versions of all documents.

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2. Make sure you have the required number of copies of each of the documents to be

signed or taken away.

3. Certain items should have only one original such as promissory notes, share

certificates and stock transfer powers of attorney so make sure the copies of those

documents aren’t made until after the originals have been fully executed.

4. Items such as share certificates must be copied or scanned on both sides because

they often have endorsements on the back.

5. Make sure that the parties signing have signed all the required copies in all the

required places. This process is actually easier with virtual closings since all signatures

are provided ahead of the closing and can be examined carefully.

6. If funds are to be tabled as part of the closing, make sure that arrangements are in

place to have certified cheques or bank drafts available. If funds are being transferred by

wire transfer or direct deposit, make sure that you know how confirmation of completion

of the transfer is to be provided. It is often helpful to have the name and contact

information for a responsible person at the transmitting bank and the receiving bank.

Under the rules of the Canadian Payments Associations payments in excess of $25

million must be made through the Large Value Transfer System which is an electronic

wire system.

7. A closing set for early in the day will allow time for wire transmissions to go

through and be confirmed.

E. Annotating The Closing Agenda

During the closing you should be continuously annotating your copy of the

closing agenda with information such as the items that have been fully executed, the

items which have been partially executed, and the items which are still outstanding,

perhaps with an explanation as to why an item has not yet been completed, or is no longer

needed. There may also be last minute additions to the closing agenda as a result of

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undertakings provided on closing or the provision of alternative items for items not

available at closing. Items may also be deleted if no longer required.

Frequently at a closing, there are a number of last minute changes to the content

of particular documents, or the availability of certain items. It is common practice to

record these changes by way of notations on the closing agenda so that there is a clear

record of the items which were changed, altered, omitted, or which were last minute

additions to the closing documents. As the closing proceeds, final executed versions of

documents can be filed in the appropriate folder and the item can be checked off on the

closing agenda as completed. At any time the closing agenda will show what’s been

completed and what remains outstanding. The closing agenda becomes a closing

checklist.

F. Terminating The Closing Escrow

As previously discussed, a closing agenda should contain a provision that all

items tendered at the closing are tendered in escrow and remain in escrow, until all

parties and their counsel agree that all documents may be released from escrow and the

transaction formally closed.

Ending the escrow doesn’t mean that everything that needs to be done has been

done, but rather that the items outstanding are sufficiently minor or have been covered by

various undertakings, that the transaction can proceed to close, and these items will be

completed as post-closing matters. This applies whether it’s a virtual closing or a

traditional closing.

Part IV Post-Closing Matters

A. Filings

There are invariably items included on the closing agenda which are to be dealt

with as post-closing matters. For example, there may be Canada Revenue Agency forms

that need to be completed and filed. If there is intellectual property involved there may be

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assignments of trade-marks or patents that have to be filed. There are often various types

of discharges that need to be obtained and registered. As counsel you need to determine

who is taking responsibility to see that they are filed within the permitted time and don’t

fall between the cracks. In some cases it may be appropriate for the client’s accountants

to look after filing of CRA forms but if that’s the case, counsel needs to make sure that

both the accountant and the client understand that those filings will be done by the

accountant. Other items such as Notices of Change to report changes in officers and

directors, articles of amendment to change the name of a corporation or assignments of

trade-marks and patents are the obligation of counsel and need to be dealt with as soon as

practical after closing.

Financing Change Statements are often among the post-closing registrations

which need to be done. A recent amendment to the Personal Property Registration Act is

helpful in this regard. New subsection 46(6.1) which came into force on March 22, 2017

allows debtors to agree in writing to waive receipt of copies of PPSA registrations. You

may want to suggest to your clients who are lenders or lessors that they include waiver

language in their documents so that they or their counsel don’t have to send out copies of

registrations, amendments, renewals and discharges to any debtor who has waived such

requirement.

There may be other items further in the future, such as post-closing adjustments

that can’t take place until the closing financial statements are completed. These items

may need to be entered into your tickler or reminder system so as not to be overlooked.

B. Reporting

Lawyers often put off reporting a completed transaction. There are many reasons

for this. The transaction may have occupied much of their time for a considerable period,

to the neglect of other matters, and they are anxious to start dealing with those other

matters. Reporting is also tedious and time consuming. On the other hand, reporting in

some form is essential and the best time to do it is shortly after a transaction is completed

when it’s still fresh in your mind. It’s difficult for someone who wasn’t involved in a

transaction to assemble the record book and draft the report after the fact.

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A decision needs to be made on whether the record books will consist only of a

complete set of the closing documents or will also be accompanied by a reporting letter

which summarizes the transaction, comments upon the key documents and notes matters

to be completed after closing. The larger and more complicated the transaction the less

likely it will include a detailed reporting letter as it would be complicated, time

consuming and expensive to prepare.

For smaller transactions with a limited number of documents, a reporting letter is

helpful and can be bound in the record book with a full set of the closing documents.

You also want to complete the record book and the reporting as soon as possible

so that you can send out your invoice and it can include your work on assembling the

record books and doing the reporting.

C. Form and Content of Record Books

The traditional record book consists of one or more bound volumes containing a

detailed table of contents or index, which usually follows closely the listing of documents

in the closing agenda, and then a complete set of the closing documents with each

document separated by a tab. The person assembling these books needs to make sure that

they do indeed contain complete copies of all of the documents with all of the required

schedules attached. If possible they should also include items that may have been

completed as post-closing matters such as notices of change, articles of amendment and

registered assignments of trade-marks and patents.

In most instances record books are now provided in electronic format such as a

CD or memory stick which contains an electronic copy, usually in PDF, of each of the

documents which are part of the closing and post-closing documents. In smaller

transactions with fewer documents it’s possible to scan all of the closing documents as

one document and send it to the client as an attachment to an e-mail.

For ease of storage and retrieval virtual record books are extremely helpful

although some lawyers and clients may prefer hard copy, bound record books. Whether

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to produce the record books on a CD or some other electronic format is something you

should discuss with your client and allow them to decide whether they want an electronic

version, a hard copy or perhaps both.

If you and/or your client opt for the electronic version you still have to decide

what to do with the documents with original signatures. This is particularly important for

those documents which have only one original such as promissory notes and share

certificates.

Another issue with record books, whether in hard copy or electronic version, is

whether some of the documents contain sensitive personal information that needs to be

removed. The most common example is information relating to the remuneration of

employees. This is an issue that needs to be discussed with the client before the records

books are finalized and distributed.

D. Notification of Claim Periods

Most, if not all, asset or share purchase agreements contain extensive provisions

for a party to be indemnified if it suffers a loss resulting from a breach of a warranty or

representation contained in the agreement. Usually those provisions have some form of

contractual limitation period within which a claim must be brought or it can’t be made.

Sometimes part of the purchase price will be placed in escrow, or held back, for a period

of time to secure payment of any such claims should they arise. I believe most lawyers

are of the view that after a deal closes they have no ongoing obligation to warn their

clients when those limitation periods are about to expire, probably on the theory that it’s

in the agreement and the client should read the agreement. For unsophisticated clients or

clients not familiar with purchase and sale agreements however, they usually appreciate

being warned of such expiration dates, and may even expect it, so you have to make a

decision about what you intend to do. It is good practice in a reporting letter or in a post-

closing letter to your client to set out those dates and indicate that you will not be

monitoring them unless requested to do so by the client in writing. Other lawyers accept

it as their responsibility or choose to do so because it gives them an opportunity to remain

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in touch with their client. If you choose the latter you need to make sure that the dates are

entered into your reminder system.

E. Document Retention and E-Discovery

Once the record books are completed, it’s a good time to review and organize

your own internal files and documents so that they are properly organized, indexed and

filed for future ease of reference and retrieval.

As part of that process you should review the documents and consider whether

there is anything that should be added to your collection of precedents for future use. In

doing so you should consider whether there is personal information within the meaning

of the Personal Information Protection and Electronic Documents Act which should be

removed along with other information that identifies the client or that could result in a

breach of client confidentiality.

A key issue is what to do with all the superseded drafts you have accumulated

leading up to the closing. I think practice on this issue varies widely. Some lawyers

discard all documents other than the executed copies. Others retain all prior drafts in case

it becomes necessary to review the course of negotiations and recreate how a particular

document was revised over time. Litigation lawyers may advise against keeping prior

drafts. One of the concerns is that prior drafts often contain hand written notations and

comments that can be harmful, but they may also be helpful. Even if you purge all

physical copies of drafts from your files with drafts being circulated almost exclusively

by e-mail there is no way to purge all of the electronic copies of drafts that have been

circulated. The most you can do is to destroy your hard copies of drafts that have hand

written notes.

In March of 2011 the Law Society released its 30 page Guide to Retention and

Destruction of Closed Client Files (the “Guide”). It suggests “a lawyer should retain draft

copies of documents where the draft copies document the history of the matter or confirm

client instructions and where the lawyer reasonably believes that these factors might

become an issue in the future”. I commend the Guide to you. It sets a high standard and

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reading it can be unsettling as you realize all the things you haven’t been doing when you

close a file. On the other hand it’s very useful on many points. It includes a sample file

retention policy for sole practitioners and small firms and another one for medium and

large firms who are more likely to have a large number of lawyers working on the same

matter using document management and e-mail management systems to electronically

store documents and e-mails. There is also a short summary of the law on which

documents belong to the lawyer and which ones belong to the client.

Maintaining hard copies of countless drafts can become expensive as files become

thick and may eventually have to be sent to off-site storage. If you’re not going to keep

the hard copies of drafts with hand written notations then the only hard copies you need

to keep are the signed copies. There is usually no reason to keep more than one copy of a

document. The prior drafts can be kept in electronic form provided you have adequate

computer back-up systems in place.

Regardless of what you decide to keep, there is also an issue of how long you’re

going to keep it. Clients seem to expect their lawyers to retain everything and may call

you years after a transaction has been completed looking for documents. The Guide

suggests 15 years after the file is closed based on the ultimate 15 year limitation period

contained in the Limitations Act, 2002. You should have a formal retention policy and it’s

a good idea to advise clients of your retention policy either in your retainer agreement or

alternatively in a post-closing letter sent to the client, or in both places. The Guide

contains suggested clauses for inclusion in a retainer agreement and in a final report to

the client.

The situation for document retention can also change abruptly if litigation is

threatened or commenced. As I’m sure you’re all aware electronically stored information

is discoverable. Principle 3 of Second Edition of the Sedona Canada Principles

Addressing Electronic Discovery says: “As soon as litigation is reasonably anticipated,

parties must consider their obligation to take reasonable and good faith steps to preserve

potentially relevant electronically stored information.” In those circumstances, the

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destruction of documents or electronic records can have serious consequences for you

and your client.

Conclusion

Traditional closings are now the exception. Virtual closings are the norm.

Whether you have a virtual closing or a traditional closing the closing agenda is an

invaluable tool to keep you organized leading up to closing, during closing and following

closing. Remember that your work is not done when the closing is completed. There are

usually a number of post-closing matters that need to be completed including various

registrations, production of record books, reporting to your client and sending your

invoice. Lastly, it's important to establish and adhere to an appropriate policy for

document retention so that you know what you're going to purge from your files, what

you're going to keep and how long you're going to keep it.

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Schedule “A”

Sample Closing Agenda

DRAFT: April 10, 2017

Purchase of Business and Related Product Inventory

from

Endcaps Industries Inc.

by

Hubcaps L.P.

By Its General Partner

Hubcaps G.P. Inc.

Closing Agenda

Closing Date: April [ ], 2017

Time: 10:00 a.m.

Place: Electronic

[Lerners LLP 2400 – 130 Adelaide Street West

Toronto, ON M5H 3P5]

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PARTIES

Parties and Counsel Represented By:

Endcaps Industries Inc (“Endcaps”) Hubcaps L.P. (“Purchaser”)

Hubcaps G.P. Inc. (“Hubcaps GP”)

River & Capital LLP (“Ven-Lawyers”)

Counsel to Endcaps

Lerners LLP (“Lerners”)

Counsel to the Hubcaps entities

David R. Street

Lender Bank of Canada (“Lender Bank”)

Lender Bank Lawyers, Counsel to Lender Bank (“Lender Lawyers”)

DEFINED TERMS

Unless otherwise defined herein or the context otherwise requires, all capitalized terms used in this closing

agenda shall have the same meaning as ascribed to such terms in the asset purchase agreement dated March 10, 2016

(the “Asset Purchase Agreement”) between Purchaser, Hubcaps GP and Endcaps.

ESCROW

All deliveries of documents and payments called for herein shall be made and held in escrow until all such

deliveries and payments have been completed and all parties have agreed to terminate the escrow. All deliveries and

payments shall be deemed to have been made in the order necessary to complete the transactions contemplated by

the Asset Purchase Agreement. Agreement by those present at the Closing, either in person or by electronic means,

that all such deliveries and payments have been completed or, alternatively, termination of the Closing meeting

without written notice by any party present at the meeting to the effect that all such deliveries and payments have

not been completed, shall be conclusive evidence that they have been completed.

DELIVERY OF DOCUMENTS

All documents are to be originally executed documents, unless otherwise specified as certified copies or

photocopies. Photocopies only of documents requiring filing with regulatory authorities will be delivered to the

parties at Closing. Unless otherwise noted herein, four original executed copies of each document will be delivered

at Closing.

ORGANIZATION AND HEADINGS

The documents and steps listed herein have been placed in the order in which they appear solely for

descriptive purposes. The order is not intended to indicate that such documents become effective or that such steps

are to be taken in such order. Documents shall be delivered, payment shall be made and other steps shall be taken in

the order which gives effect to the intentions of the parties evidenced by the various agreements referred to herein.

This closing agenda has been prepared for the convenience of the parties only and shall not be regarded as amending

or modifying in any respect any of the agreements or other documents involved in any of the transactions dealt with

herein.

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Document Responsibility for

Drafting / Obtaining

Delivery Status /

Comments

Background Documents

1. Articles of incorporation and by-laws of Hubcaps GP Lerners Complete

2. Copy of an executed copy of the Hubcaps limited partnership

agreement dated April 4, 2015 (the “Hubcaps LPA”) to

which is scheduled the form of subscription agreement,

accredited investor certificate and a copy of the Hubcaps

limited partnership filing under the Business Names Act

(Ontario)

Lerners Complete

3. Photocopy of subordination agreement between dated June

10, 2016

Lerners Complete

Pre-Closing Documents/Items

4. Executed copy of letter of intent dated January 30, 2017

between Endcaps and Purchaser (the “LOI”)

Purchaser/Endcaps Complete

5. Asset purchase and sale agreement between Endcaps and

Purchaser, dated March 10, 2017 (“Asset Purchase

Agreement”)

Lerners Complete

6. First Amending Letter extending Closing Date to March 31,

2017

Lerners Complete

7. Second Amending Letter extending Closing Date to April 25,

2017

Lerners Complete

8. Evidence of approval by Lender Bank of the transactions

contemplated by the Asset Purchase Agreement

Lender Lawyers

9. Delivery of Purchaser’s unaudited balance sheet pursuant to

section 4.5 of the Asset Purchase Agreement

Lerners

10. Delivery of Seller’s unaudited balance sheet Ven-Lawyers

11. Sale of inventory to Endcaps evidenced by Bill of Sale

pursuant to s.7.2(b) of the Asset Purchase Agreement

Ven-Lawyers

12. Evidence of payment of [$]by Hubcaps for inventory Ven-Lawyers

13. Receipt for [$] signed by Ven-Lawyers

14. Transfer of domain names from Endcaps to Hubcaps Endcaps Three

outstanding

15. Determine if Endcaps PPSA registration charges inventory

being purchased by Hubcaps

Ven-Lawyers Complete

Due Diligence – 10 Days Prior to Closing

16. Completion of due diligence and pre-closing planning

matters

ALL

17. Transferred Inventory Valuation Certificate executed by

Endcaps as to the purchase price for the purchased assets

pursuant to section 2.3 of the Asset Purchase Agreement

Lerners/Ven-Lawyers

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Delivery Status /

Comments

Qualification of the Parties - Searches

18. Certificates of status (or equivalent) for each of:

Endcaps and Hubcaps GP

Lerners/Ven-Lawyers

19. Bankruptcy searches in appropriate jurisdictions against each

of: Endcaps, Purchaser and Hubcaps GP

Lerners/Ven-Lawyers Complete

20. Ontario personal property security search against Endcaps,

together with all required documentation discharging any

liens against the Endcaps/Purchased Assets


21. Summary of real property search results against each of the

properties relating to the Assumed Leases

Complete

22. Search results regarding intellectual property (“IP”) in all

jurisdictions registered in favour of Endcaps


Closing Documents

Third Party Notices and Consents

23. Landlord consents consenting to and attaching each of the:

Assumption by Endcaps of the Lease Agreement, dated

between ; and

Assumption by Endcaps of the Industrial Lease, dated ,

between ;

Ven-Lawyers In progress

24. Landlord lien waivers in a form acceptable to the Lender

Bank for each of the leases:

Lender Lawyers / Ven-

Lawyers

Draft Circulated

25. Delivery of Third Party Consents listed in Sellers Disclosure

Schedule 4.3 (with the exception of the Assumed Leases)

Waived by Purchaser

Ven-Lawyers Waived

Amendment, Discharge and/or Release of PPSA/UCC Registrations

26. Transfer of UCC Financing Statement Ven-Lawyers

27. UCC Registrations to be discharged:

(a) UCC Financing Statement

(b) UCC Financing Statement

Ven-Lawyers

28. Release Letter signed by Bank of Nova Scotia relating to

Bank Act Security registration no. 01188695 (expires

2017/12) against Endcaps

Ven-Lawyers

29. PPSA Registrations to be discharged

No. 20140512 1403 1462 2933 relating to inventory,

equipment, accounts, other, debtor is Endcaps Industries Inc.,

Ven-Lawyers

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Delivery Status /

Comments

creditor is Inc.

No. 20140814 1004 1462 3002 relating to inventory,

equipment, accounts, other, debtor is Endcaps Industries Inc.,

creditor is

Officer’s Certificates & Resolutions

30. Purchaser bring-down certificate Lerners In process

31. Endcaps bring-down certificate Ven-Lawyers

32. Certificate of an officer of Hubcaps GP on behalf of

Purchaser, attaching:

Limited Partnership Agreement and amendments thereto;

Incumbency; and

Resolutions of its directors regarding the purchase and sale

transaction, the Purchase Agreement, and Ancillary

Agreements to which it is a party,

Lerners In process

33. Certificate of an officer of Endcaps attaching:

Articles and Bylaws;

Incumbency; and

Resolutions of its directors regarding the purchase and sale

transaction

Ven-Lawyers

Payment for Acquired Assets

34. Statement of adjustments contemplated by section 6.23 of the

Asset Purchase Agreement

Lerners

35. Joint Purchase Price allocation certificate between Purchaser

and Endcaps

Lerners

Related Agreements and Ancillary Matters

36. Transition Services and Call/Put Agreement between

Endcaps and Purchaser

Lerners Draft circulated

37. Product Supply Agreement between Endcaps and Purchaser Lerners Draft circulated

38. Guarantee and Postponement of Claims by Endcaps in favour

of the Purchaser

Lerners Draft circulated

39. General conveyance by Endcaps in favour of Purchaser Lerners In process

40. Assumption Agreement re assumption by Purchaser of

Assumed Liabilities

Lerners In process

41. (a) Assignment by Endcaps of Patent No. 4,722,073 –

Curved Block Devices to Purchaser & (b) Power of Attorney

Document

Ven-Lawyers Settled

42. (a) Assignment by Endcaps of US Transferred Trademarks in

registerable form to Purchaser & (b) Power of Attorney

Document

Ven-Lawyers Settled

43. Assignment by Endcaps of the following Trademarks in

registerable form to Purchaser:

Lerners Settled

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Delivery Status /

Comments

Canadian Trademarks

European Trademarks

44. Undertaking by Endcaps to transfer domain names to

Hubcaps after closing

Lerners In process

Employment Matters

45. Offer of employment to all Distribution Business Employees

and Endcaps Employees by Purchaser

Purchaser

46. Offer of group medical plan coverage to above noted

employees that provides immediate eligibility following

Closing Date

Purchaser

Tax Issues

47. Tax clearance certificate for Endcaps Ven-Lawyers

48. Evidence of payment of Transfer Taxes (if applicable) by

Endcaps and/or Purchaser

Endcaps/Purchaser

49. Evidence of payment of G.S.T. and other sales tax by

Purchaser

Purchaser

50. Purchase Exemption Certificate provided by Purchaser to

Endcaps for any Acquired Assets that Purchaser is claiming

an exemption from provincial sales taxes

Purchaser

51. List of trade creditors provided by Endcaps pursuant to bulk

transfer law

Endcaps/Archon

52. Undertaking of Endcaps to:

Pay any and all taxing authorities amounts outstanding

pursuant to “tax or bulk sales laws”;

Pay each such creditor in the ordinary course of business; and

On the 5-month anniversary of Closing provide a Certificate

to Purchaser stating that all amounts outstanding to such

creditors at Closing have been paid in full or are being

disputed in good faith.

Endcaps/Ven-Lawyers

Opinions

53. Opinion of Lerners re Purchaser and Hubcaps GP Lerners

54. Opinions of Ven-Lawyers re Endcaps Ven-Lawyers

F. Post-Closing Materials

55. Transfer of domain names from Endcaps to Hubcaps Ven-Lawyers

56. Registration of Canadian Transferred Trademarks in

Purchaser’s name

Lerners

57. Registration of US Transferred Patent and Transferred

Trademarks in Purchaser’s name

Arranged by Lerners

58. Registration of Transferred Trademarks in other jurisdictions

in Purchaser’s name

Arranged by Lerners

59. Delivery of the Transferred Records to Purchaser by Endcaps Sellers

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Delivery Status /

Comments

60. Pursuant to s. 6.16 of the Asset Purchase Agreement

Endcaps, and its affiliates and subsidiaries will discontinue

use of the Names

Ven-Lawyers Due within 60

days of Closing

61. Articles of Amendment filed by Endcaps to change its name

to a name that does not contain referenced to “Endcaps” or

any variation of the foregoing

Ven-Lawyers Due within 60

days of Closing

62. Certificate provided by Endcaps to Purchaser that all

amounts outstanding to creditors disclosed pursuant to bulk

sale transfer laws at Closing have been paid in full or are

being disputed in good faith

Endcaps/Ven-Lawyers Due 5 months

from Closing

63. Completion of transactions contemplated by the Supply and

Transition Services Agreement

Purchaser, Ven-Lawyers,

Lerners

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Schedule “B”

Reference Material

1. Title 9 Sale Of A Business by Jennifer E. Babe in Volume Two of Commercial

Transactions in Canadian Forms & Precedents from LexusNexis Canada a loose

leaf service. It is also sold as a bound book with CD. The 11th edition was

published December 13, 2016.

2. Buying & Selling A Business: Key Issues in Planning & Execution chaired by

Gary R. Shiff on February 28, 2007 Law Society Of Upper Canada.

3. Buying and Selling A Business chaired by J. Glen Eddie of Torkin Manes LLP on

March 18, 2014 Law Society of Upper Canada.

4. Buying or Selling a Business chaired by Ryan Done on March 8, 2017 Law

Society of Upper Canada.

5. Buying and Selling a Business: A Comprehensive Guide chaired by Vivene

Salmon and Anna Keller on March 27, 2017 Ontario Bar Association.

6. Closing the Deal: A Transactional Lawyer’s Toolkit present by Jennifer Babe and

Kathleen Butterfield as part of Anatomy Of A Deal in the CBA Skilled Lawyer

Series 2016 on May 3, 2016 Canadian Bar Association.

7. Your First Acquisition Transaction, a Young Lawyers Division program of

Ontario Bar Association, April 27, 2012 chaired by Dean Psarras of McMillan

LLP and Andrew Bozzato of Stikeman Elliott LLP. The paper by (Ricco) A.S.

Bhasin of Torys LLP called “The Closing Agenda and Ancillary Documentation”

includes a sample closing agenda. There are also some Power Point slides from

the presentation by Eric Reither of Norton Rose Canada LLP called “Closing The

Deal” with helpful tips.

8. The M&A Process: A Practical Guide for the Business Lawyer by the Business

Law Committee on Negotiated Acquisitions, 2005, of the American Bar

Association.

9. Legal Opinions in Commercial Transactions Third Edition, Wilfred M. Estey,

September 2013, Lexis Nexis Canada Inc.

10. Drafting Opinions for Commercial Transaction, Ontario Bar Association

programs from November 23, 2005 and October 30, 2007.

11. TOROG (Toronto Opinion Group). Settled TOROG opinion language and memos

are posted on SLAW website at www.slaw.ca/torogmemos/.

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12. Canadian Private Target Mergers & Acquisitions Deal Points Study for

Transactions Signed in 2014 and 2015 Canadian 2016 Deal Points Study a

project of the M&A Market Trends Subcommittee of the Mergers and

Acquisitions Committee of the Business Law Section of the American Bar

Association.

13. Enhancing your Practice Efficiency with E-Signatures an article by Yuri Ellezer

in the March/April 2017 of Law Practice at page 50 a publication of the American

Bar Association.

4442348.1

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