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*CLE17-0090801-A-PUB*
chair
Rory Cattanach Wildeboer Dellelce LLP
September 25, 2017
ESSENTIALS OF THE Privately Held Company 2017
Prac�ce Gems
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
Practice Gems: Essentials of the Privately Held Company 2017
ISBN 978-1-77094-010-0 (Hardcopy)ISBN 978-1-77094-011-7 (PDF)
1
Final June 27, 2017
Chair: Rory Cattanach, Wildeboer Dellelce LLP
September 25, 2017 1:00 p.m. to 4:00 p.m.
Total CPD Hours = 2 h 30 m Substantive + 30 m Professionalism
The Law Society of Upper Canada Donald Lamont Learning Centre
130 Queen Street West Toronto, ON
SKU CLE17-00908
Agenda 1:00 p.m. – 1:05 p.m. Welcome and Opening Remarks Rory Cattanach, Wildeboer Dellelce LLP
1:05 p.m. – 1:25 p.m. Share Structures and Capitalization
David Dunlop, McMillan LLP
1:25 p.m. – 1:45 p.m. Directors’ and Officers’ Liability: Organizing for the Best
Results
Simon Bieber, Wardle Daley Bernstein Bieber LLP
PRACTICE GEMS: ESSENTIALS OF THE
PRIVATELY HELD COMPANY 2017
2
1:45 p.m. – 2:05 p.m. The Top 5 Tax Issues for Private Companies before and after Incorporation
James Fraser, Fraser Tax Law Professional Corporation
2:05 p.m. – 2:20 p.m. Corporate Property Ownership and Ontario’s New
Record-Keeping Requirements
Arielle Kieran, Dentons Canada LLP 2:20 p.m. – 2:25 p.m. Question and Answer Session 2:25 p.m. – 2:40 p.m. Networking Break 2:40 p.m. – 3:10 p.m. Professionalism Issues When Advising the Privately Held
Company (30 m )
Rory Cattanach, Wildeboer Dellelce LLP (Moderator) Panelists: Emily Fan, Lerners LLP Vaughn MacLellan, DLA Piper (Canada) LLP
3:10 p.m. – 3:30 p.m. Exiting the Private Corporation or Ousting a Shareholder Without Losing Your Shirt
Diane Brooks, Blaney McMurtry LLP 3:30 p.m. – 3:50 p.m. Succession Planning for Private Companies: Planning for Change
Maxwell Spearn, Miller Thomson LLP
September 25, 2017
SKU CLE17-00908
Table of Contents
TAB 1 Corporate Property Ownership and Ontario’s New Record-Keeping Requirements…………………………………………………………………….1 – 1 to 1 – 5
Corporate Property and Ownership and Ontario’s New Record-Keeping Requirements ……………………………………………………...……………1 – 1 to 1 –3
Record of Ownership – Single Property……………..……………….1 – 4 to 1 – 4
Record of Ownership Interests……………………………………………1 – 5 to 1 – 5
Arielle Kieran, Dentons Canada LLP
TAB 2 Exiting the Private Corporation or Ousting a Shareholder without Losing your Shirt – A Case Study……………………………………………….2 – 1 to – 2 – 13
Diane Brooks, Blaney McMurtry LLP
PRACTICE GEMS: ESSENTIALS OF THE
PRIVATELY HELD COMPANY 2017
TAB 1
Corporate Property Ownership and Ontario’s New
Record-Keeping Requirements
Arielle Kieran, Dentons Canada LLP
September 25, 2017
Practice Gems: Essentials of the
Privately Held Company 2017
Corporate Property Ownership and Ontario’s New Record-Keeping Requirements If your clients own, lease, or otherwise deal with real property in Ontario, you should consider the
effect of reporting requirements that came into force on December 10, 2016. The recently enacted
Forfeited Corporate Property Act, 2015 (“FCPA”), which amends the Business Corporations Act (Ontario)
(“OBCA”) and the Corporations Act (Ontario), requires corporations to maintain a register of their
“ownership interests in land” in Ontario. The requirement is set out in an amendment to Section 140.1 of
the OBCA as follows:
Register of interests in land in Ontario 140.1 (1) A corporation shall prepare and maintain at its registered office a register of its ownership interests in land in Ontario. Same (2) The register shall,
(a) identify each property; and
(b) show the date the corporation acquired the property and, if applicable, the date the corporation disposed of it.
Supporting documents (3) The corporation shall cause to be kept with the register a copy of any deeds, transfers or similar documents that contain any of the following with respect to each property listed in the register:
1. The municipal address, if any.
2. The registry or land titles division and the property identifier number.
3. The legal description.
4. The assessment roll number, if any.
The Purpose of this Legislation is to Prevent and Manage Escheats
When a corporation that dissolves does not dispose of its property, that property is forfeited to
and vests in the Crown.1 This process is referred to as an “escheat”. Escheats can be problematic for the
Crown, particularly if the land is environmentally contaminated or subject to tax and utility arrears. In order
to manage the issues that tend to arise when corporate real property escheats, several statutes have
been introduced and amended to place additional obligations on corporate owners. For example, the
1 Business Corporations Act (Ontario), R.S.O. 1990, c. B.16 at s. 244(1).
1 - 1
FCPA introduces personal liability for directors and officers of dissolved corporations where the province
incurs costs associated with environmental remediation required to render forfeited property saleable.2
When the FCPA amendments were introduced as part of the Budget Measures Act, 2015, the
Minister of Finance stated that they would “improve the management of corporate land forfeited to the
province”.3 On the same day, the Ministry of Finance published a press release4 that identified the
following five objectives of the FCPA:
Mitigate risks to Ontario taxpayers that may arise when corporate property forfeits to and
becomes Crown property when a company is dissolved;
Reduce the number of corporate properties that forfeit to the Crown;
Increase corporate accountability for costs associated with forfeited corporate property;
Increase transparency and certainty in the management and disposition of forfeited corporate
property; and
Return forfeited property to productive use as quickly and efficiently as possible.
The Language Used to Create These Obligations is Ambiguous, but the Ministry has confirmed
that only Fee Simple Interests are captured
Now that corporations are required to keep a register of their ownership interests in land, we need
to understand what qualifies as an “ownership interest in land”. The term is not defined in the FCPA or the
OBCA. As many practitioners noted when the legislation was first published, an “ownership interest” could
ostensibly include a leasehold interest, an easement, a mortgage interest, a beneficial interest, or a
statutory right.
On April 3, 2017, Brenda Linington and Marta Zoladek of the Ministry of the Attorney General,
Civil Law Division gave a presentation titled “Top 10 Things Real Estate Practitioners Need to Know
2 Forfeited Corporate Property Act, 2015, SO 2015 C.38, Sched 7 at sections 30-31. For more information, see http://www.dentons.com/en/insights/articles/2016/december/5/corporate-dissolution-will-not-protect-former-directors-and-officers-from-environmental-liabilities
3 See http://www.ontla.on.ca/web/house-proceedings/house_detail.do?Date=2015-11-18&Parl=41&Sess=1&locale =en#para683 4 See https://news.ontario.ca/mof/en/2015/11/amendments-and-proposals-in-the-budget-measures-act-2015.html
1 - 2
about the Forfeited Corporate Property Act, 2015” as part of the 14th Annual Real Estate Law Summit. In
that presentation, Linington and Zoladek clarified that the requirement applies to “fee simple or co-
ownership interests only” and accordingly confirmed that leases, easements, mortgage interests, and
other ownership interests are not captured by the legislation.
Practical Advice for Real Estate, Leasing and Corporate Lawyers
Corporations that are incorporated on or after December 10, 2016 must comply with the
requirements in Section 140.1 immediately, and corporations incorporated before that date have until
December 18, 2018 to comply. Lawyers should reach out to all corporate clients and notify them of the
new corporate record keeping requirements as soon as possible. Many corporations are likely to require
assistance with creating their registers. Lawyers may need to complete Teraview name searches as well
as subsearches of adjacent and subject land, and may assist in obtaining roll numbers.
Lawyers should also be mindful of the fact that this register must be kept at the corporation’s
registered address in Ontario. While many of our clients have traditionally preferred to use our law firm’s
address when first incorporating, we would now suggest that law firms avoid this practice so that they are
not obligated to maintain the ownership register at their offices. During the transition period, lawyers
should review all current and historical corporate client files to determine whether the law firm’s address
has been used as the corporation’s registered address, and contact clients to update this information
wherever possible.
Sample Registers of Ownership Interests
To assist with the creation of registers for your clients, we have included two sample registers
with this package. The first will accommodate details regarding a single property, and is likely to be
preferred by smaller corporations with limited real estate holdings. It can be printed multiple times and
completed with respect to each property. The second, which consists of a larger ownership chart, is likely
to be more useful to clients with extensive holdings.
1 - 3
Record of Ownership Interest
123123 ONTARIO INC.
PART 1: PROPERTY IDENTIFIERS
Primary Owner: 123123 ONTARIO INC.
Municipal Address: ____________________________________________________________________
City: _______________________ Province: ______________________ Postal Code: __ __ __ __ __ __
Land Registry Office: ____________________________________________________ LRO # ________
Property Identification Numbers: Include all PINs. If additional space is required, attach Schedule.
__ __ __ __ __ - __ __ __ __ (LT) __ __ __ __ __ - __ __ __ __ (LT)
__ __ __ __ __ - __ __ __ __ (LT) __ __ __ __ __ - __ __ __ __ (LT)
__ __ __ __ __ - __ __ __ __ (LT) __ __ __ __ __ - __ __ __ __ (LT)
Legal Description: _____________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
PART 2: ADDITIONAL PROPERTY DETAILS
Percentage ownership: _________ % Co-owners, if any: ______________________________________
Beneficial owner, if any: ________________________________________________________________
Date Acquired: __________________________________ Date Sold: ____________________________
Assessment Roll Numbers: Include all ARNs. If additional space is required, attach Schedule.
____________________________________________________________________________________
____________________________________________________________________________________
Please attach copies of all Transfers/Deeds relating to the acquisition and/or disposition
of this Property to this sheet
1 - 4
Record of Ownership Interests
123123 ONTARIO INC.
Municipal
Address
Property
Identification
Number(s)
Land
Registry
Office
Percentage
Ownership
Date
Acquired
Date Sold Legal Description Assessment Roll
Number(s)
Transfer/
Deed
Located
at Tab
123 Main Street
Toronto, Ontario
A1A 1A1
12345-0001(LT)
12345-0002(LT)
Toronto (#80) 100% June 1, 1990 N/A – Currently
owned by 123123
Ontario Inc.
PT LT 1, CON 2 AS IN
123123 S&E PTS 4 & 5,
66R123123; SUBJECT TO
AN EASEMENT IN GROSS
OVER PT 1, 66R321321
AS IN AT123123; CITY OF
TORONTO
10.01.010.100.010
00.0000
11.01.010.100.010
00.0000
1
1 - 5
TAB 2
Exiting the Private Corporation or Ousting a Shareholder
without Losing your Shirt
Diane Brooks, Blaney McMurtry LLP
September 25, 2017
Practice Gems: Essentials of the
Privately Held Company 2017
1
Exiting the Private Corporation or Ousting a Shareholder without
Losing your Shirt
A CASE STUDY
Of
LUCY’S DIAMONDS INC.
Diane Brooks
Blaney McMurtry LLP
Prepared for Practice Gems: Essentials of the Privately Held Company 2017
September 25, 2017
2 - 1
2
Case Study – Lucy’s Diamonds Inc.
Part A. John, Paul, Ringo and George– The Creation of the Corporation and the Early
Years
John is a savvy businessman and had the best idea ever for a new business. To raise capital, he
solicited his friends, Paul, Ringo and George to provide seed capital. Each of John, Paul, Ringo
and George received 25 common voting shares in the capital of the newly incorporated OBCA
company, Lucy’s Diamonds Inc. and each of them were elected as directors of the Corporation.
John was elected by the directors as the President and Secretary of the company, while Paul,
Ringo and George were each elected as Vice- Presidents. The day to day activities of the
Corporation were managed by John, who sought little advice from his fellow directors and
officers. The shareholders did not have a shareholders agreement. With 4 equal each shareholder
having an equal number of votes, and each of them being a director of the Corporation, all
shareholder matters and all director matters requiring a vote, required 3 of them to agree. Paul,
Ringo and George thought John was a great manager and were content to let him run the
business and all votes were unanimous.
Over the years, the business grew and became quite successful and the value of the shares
increased. John ran the show and Paul, Ringo and George were happy to remain passive
shareholders and directors. George then decided he wanted to move in a different direction and
asked the Corporation to redeem his shares. The shareholders had not agreed in advance of how
to handle this situation and had no prescribed methodology to value the shares. George of course,
thought the shares were worth more than the 3 shareholders did. Ultimately, George was forced
to take less than he thought the shares were worth, but needed the money to invest in another
business.
I.
Discussion on valuation, potential methodology
(i) agree upon the amount annually
(ii) formula
(iii) valuation
(iv) arbitration
See Appendix A for examples of valuation language
See also: http://www.bizstats.com/reports/valuation-rule-thumb.php
For “rule of thumb” valuation by business categories. (Note: According
to this report, law practices are valued at 90–100% of annuals revenues)
2 - 2
3
Part B. The Lender/Shareholder
With George gone, the business continued to thrive, however soon more operating capital was
required. John found an investor, Brian Epstein, who was willing to lend the Corporation
money, but for tax reasons, wanted to invest by way of equity, through his private holding
company, Epstein Ltd., instead. The Corporation issued Epstein Ltd. preferred non voting
shares, redeemable in 3 years, with monthly dividends which equivalated to an interest rate of
10%. However, as a way to protect its investment, Mazursky Ltd wanted voting shares in
addition to its preferred shares. Desperate for his investment, John caused the Corporation to
issue Mazursky Ltd 25 common shares and Epstein Ltd. elected Brian Epstein, as its nominee on
the board of directors.
Now, the Corporation was back to having 4 equal shareholders and 4 directors.
At this point, having learned their lesson after George’s departure, the shareholders entered into a
shareholders agreement providing for the following terms and conditions:
The day to day operations of the company would be overseen by the President.
The shareholders would agree annually on the share valuation based on the Corporation’s
performance for the previous year.
No shares could be redeemed or sold for a period of 2 years. After 2 years, a majority of
the shareholders could cause the Corporation to call any shareholder’s shares for 120% of
their value, or any shareholder could put their shares to the Corporation for 80% of their
value.
Shares could not be transferred without the consent of a majority of the shareholders.
Discussion on Oppression Remedy - Could George have used the oppression
remedy to challenge the valuation? \
Unlikely if the valuation method was remotely reasonable.
See Re BCE Inc., 2008 SCC 69
See also Appendix B for excerpt of the provisions of the Business
Corporations Act relating to oppression.
Who is entitled to use the oppression remedy? The Supreme Court set out a 2
step process. Has the party’s reasonable expectations been breached and if so,
does the conduct complained of amount to oppression, unfair prejudice or
unfair disregard?
2 - 3
4
John continued to operate the company on a day to day basis. The other shareholders put
minimal time into the business, but enjoyed the ownership aspects of the company. Monthly
management fees were paid to each of them for their minimal time. John took a salary and
management fees and was awarded annual bonuses. The business continued to thrive and the
shareholders voted annually on the share valuation.
Part C. Removing another Shareholder
Two years after the shareholders agreement was signed, Ringo was starting to irritate John. Paul
and Brian, who thought John could do no wrong, sided with John and they caused the company
to call Ringo’s shares. Ringo was not happy, but had no choice but to sell his shares back to the
company for 120% of their value.
Part D. Is John Misbehaving
With Ringo gone, the remaining shareholders each had 25 common shares each and Epstein Ltd.
continued to hold its preferred shares (having continued to inject capital by way of preferred
shares, on the same terms and conditions as the original, with redemption rights after 3 years and
with monthly dividends equating to 10% interest). With only 3 shareholders and directors, two
shareholders and two directors could carry any vote. Brian and John were great pals and Brian
was happy with the returns that he was making on his money.
Soon however, chinks in the armour began to show through. This was John’s big idea and he
treated the Corporation as if it were his own. While the company was making money, John took
risks without consulting his fellow shareholders or directors and made some bad investments.
Discussion – What issues arise as a result of a lender also being a shareholder?
Discussion: Could Ringo have challenged the call on his shares?
Unless Ringo can argue that (a) he had no opportunity for independent legal
advice before he signed it or (b) that in setting the annual value of the shares,
he was oppressed, there is little he can do.
2 - 4
5
Brian, worried about his investment in the Corporation began to take a more active role in the
day to day activities and asked John a lot of questions. John’s reaction was to be more secretive
and was angered by Brian questioning his management. John felt he was acting in the
Corporation’s best interests.
As Brian did more and more digging, he discovered that John was not drawing his bonus as he
felt the Corporation needed the cash flow. Instead, he was submitting his personal expenses
through the Corporation and deducting the amounts from what was owed to him.
Brian became more and more disenchanted with John’s management. He complained profusely
to Paul, who, knowing that Brian was the money man, was sympathetic to Brian’s concerns.
They called a shareholders’ meeting to confront John.
Brian and Paul combined now hold the majority vote as shareholders and as directors. While the
shareholders agreement prohibited them from removing John as a director (John as a shareholder
is entitled to name a nominee to the board of directors), Brian and Paul called a directors’
meeting and removed John as President of the Corporation and appointed Brian as President. As
the shareholders agreement provided that the President run the day to day business of the
Corporation, Brian was now in charge.
Discussion – Why this is inappropriate?
Discussion - Is Brian acting in the best interests of the Corporation or he is
merely protecting his investment in the Corporation to ensure that he gets paid
back what he has put into the Corporation through his preferred shares. What
are the duties of a lender who is also a shareholder and a director.
Discussion - Could John have a claim against the Corporation for
constructive dismissal?
2 - 5
6
.
Discussion - Could Brian and Paul have used the oppression remedy or the
derivative action remedy under the OBCA to challenge John’s actions, or can
John challenge Paul and Brian’s actions in removing him as President.
Oppression Remedy vs Derivative Action
(see Appendix C for excerpts of the provisions of the OBCA relating to
derivative action)
See Rea v. Wildeboer, 2015 ONCA 373, 2015 CarswellOnt 7602
The Ontario Court of Appeal has recently clarified the dividing line between
oppression remedy and derivative action remedy:
Oppression remedy is a personal remedy by a complainant against the
corporation or the board of directors;
Derivative action remedy is a remedy by a complainant on behalf of the
corporation for wrongful acts done TO the corporation itself – the conduct is
alleged to have affected the corporation and all shareholders equally.
Discussion - As lawyer to the Corporation, how does the lawyer
handle the representation of the Corporation? Who does the lawyer take
instructions from?
2 - 6
7
APPENDIX A
VALUATION METHODS
(1) “Book Value” shall be calculated as total equity, plus retained earnings, as determined in
accordance with GAAP by reference to the annual audited financial statements of the
Corporation.
(2) “Fair Market Value” means the price determined in an open and unrestricted market
between informed prudent parties, acting at arm’s length and under no compulsion to act,
expressed in terms of money; (problematic)
(3) Fair Market Value of the Shares
(a) As soon as practicable after the occurrence of a Valuation Event, the Vendor and the
Purchaser shall use all reasonable best efforts to reach agreement as to the Fair Market Value of
the Shares and upon agreement being reached, written confirmation signed by both of the
Vendor and the Purchaser shall be forwarded to the Accountants. In the event that the Vendor
and the Purchaser are unable to agree upon the Fair Market Value of the Shares within a period
of thirty (30) days from the Valuation Event, then within five (5) days after the end of such thirty
(30) day period each of the Vendor and the Purchaser shall deliver written notice (the “Best Price
Notice”) setting out their own separate determination of the Fair Market Value of the Shares.
(b) In the event that the Vendor and the Purchaser are unable to agree upon the Fair Market
Value of the Shares within the thirty (30) day period contemplated in section 12.2(a), then the
Fair Market Value of the Shares shall be determined by an independent qualified appraiser
jointly appointed by the Vendor and the Purchaser, and who shall provide to each of the Vendor,
the Purchaser and to the Accountants a written report setting forth a determination of the Fair
Market Value of the Shares within thirty (30) days of appointment.
(c) In the event that the Vendor and the Purchaser do not agree upon the Fair Market Value
of the Common Shares within the period contemplated in section 12.2(b) and cannot mutually
agree upon an independent qualified appraiser within seventy-five (75) days from the Valuation
Event, then either of the Vendor or the Purchaser shall be entitled, on written notice given to the
other, to apply to a judge of the Ontario Superior Court for selection of two (2) independent
qualified appraisers from among the names of independent qualified appraisers submitted by
each of the Vendor and the Purchaser (not to exceed three (3) names each). Each independent
qualified appraiser so selected shall deliver to each of the Vendor, the Purchaser and to the
Accountants a written report setting forth the determination of the Fair Market Value of the
Shares within thirty (30) days of being so selected, and for the purposes hereof the Fair Market
Value of the Shares shall be the simple average of the two valuations of such appraisers.
(d) If necessary, in preparing any of the valuations contemplated in this section, an
independent qualified appraiser shall be entitled to engage the services of such additional
2 - 7
8
professional valuators or appraisers as such independent qualified appraiser, in his absolute and
unfettered discretion, considers necessary or desirable to perform valuations or appraisals of one
or more of the assets of the Corporation. Each of the Shareholders and the Corporation shall in
all respects co-operate with any independent qualified appraiser in the determination of the Fair
Market Value of the Shares. In particular, each of the Parties shall make available to the
independent qualified appraiser all such documents and information with respect to the affairs of
the Corporation or its Subsidiaries as such independent qualified appraiser may reasonably
require to make his determination. If an independent qualified appraiser specifies a range of
values for the Fair Market Value of the Shares, the Fair Market Value of the Shares determined
by such independent qualified appraiser shall be the mid-point of such range.
(e) The costs of all such appraisals shall be borne by the Party whose determination of the
Fair Market Value of the Shares as set forth in its Best Price Notice was furthest from the Fair
Market Value of the Shares, as finally determined.
(f) In completing such appraisals, all such independent qualified appraisers shall be acting as
experts and not as arbitrators and all such determinations shall be final and binding upon the
parties hereto and no appeal shall lie therefrom.
(4) CALCULATION OF VALUE PER SHARE
(a) “Fair Market Value of the Shares” means the highest cash price in terms of money which
would be obtained as at the Valuation Date if all of the Shareholders sold all of their respective
Shares in an open and unrestricted market (recognizing that the Shares may be securities of a
Corporation which cannot offer its securities to the public) without compulsion, to a willing and
knowledgeable purchaser acting at arms length and wherein determining such amount: (i) no
distinction is made between the various classes of Common Shares; (ii) no diminution or
accretion in value is attributed to any majority or minority interest; (iii) the value of any
insurance on the life of the Principals and the proceeds of such insurance shall be excluded; and
(iv) the fair market value of all intangible and unrecorded assets is included, all as determined in
accordance with generally accepted valuation principles. All other terms or phrases appearing in
title case shall have the meanings ascribed thereto respectively in the Agreement to which this
Schedule is attached and in Article 9 thereof.
(b) “Value Per Share” means the amount obtained when the Fair Market Value of the Shares
is divided by the number of Shares issued and outstanding on the Valuation Date.
2. Immediately following the occurrence of a Valuation Event, the Corporation shall
instruct the Accountants to prepare and deliver to the Vendor and Purchaser under the sale
transaction contemplated in Articles 6, 8, 9 or 10, within a period of forty-five (45) days from the
date of its appointment by the Corporation, a draft report setting forth the Accountant's estimate
as to the Fair Market Value of the Shares and the basis upon which such estimate has been
calculated (the "Accountant's Report").
2 - 8
9
3. If the estimate of the Fair Market Value of the Shares set forth in the Accountant's Report
is acceptable to the Vendor and the Purchaser and agreed to in writing within a period of thirty
(30) days following delivery of the draft Accountant's Report to the Vendor and the Purchaser,
the Accountants shall deliver the Accountant's Report in final form and it shall become the Fair
Market Value of the Shares for the purposes of this Schedule A.
4. If the statement of the Fair Market Value of the Shares set forth in the Accountant's
Report is unacceptable to the Vendor or the Purchaser, they shall negotiate expeditiously and in
good faith during such thirty (30) day period to arrive at a mutually agreeable Fair Market Value
of the Shares. If such agreement is reached the Vendor and the Purchaser shall notify the
Accountants of the amount so determined and agreed upon and such amount shall become the
Fair Market Value of the Shares for the purposes of this Schedule.
5. If the Vendor and the Purchaser are unable to agree as to the Fair Market Value of the
Shares within such thirty (30) day period, the Vendor and Purchaser shall immediately jointly
agree upon an independent, qualified business or realty valuator (the "Valuator") for a final
determination as to the Fair Market Value of the Shares. If the Vendor and the Purchaser are
unable to agree upon a Valuator within fifteen (15) days after the expiry of such thirty (30) days
period, the Valuator shall be selected by the Accountants by lot from among the names of
independent qualified business valuators submitted by each of the Vendor and the Purchaser
(not to exceed three (3) names each).
6. The Valuator so selected shall determine the Fair Market Value of the Shares as quickly
as practicable after the date of its selection. The Valuator may also have regard to any
representations which either the Vendor or the Purchaser wish to make. The Valuator shall
deliver its report concerning the Fair Market Value of the Shares to the Vendor, the Purchaser
and the Accountants (“Valuator’s Report) and such report shall be conclusive and binding on the
Vendor and the Purchaser. The Fair Market Value of the Shares so determined shall become the
Fair Market Value of the Shares for the purposes of this Schedule. In determining the Fair
Market Value of the Shares, the Valuator shall also be considered an expert and shall not be
construed as acting as an arbitrator.
7. The costs and expenses of the Accountants incurred in connection with the preparation of
the Accountant’s Report shall be paid shared equally by the Vendor and the Purchaser. The costs
and expenses of the Valuator incurred in connection with the preparation of the Valuator’s
Report shall be shared equally by the Vendor and the Purchaser, unless the Fair Market Value of
the Shares, as calculated by the Valuator, differs by less than 20% from the Fair Market Value of
the Shares as determined by the Accountants, in which case the party requesting the Valuator
shall pay the costs and expenses of the Valuator incurred in connection with the preparation of
the Valuator’s Report.
8. Immediately after a final determination of the Fair Market Value of the Shares in
accordance with the foregoing, the Accountants shall sent to the Corporation and each of the
Vendor and the Purchaser a report setting out the Value Per Share.
2 - 9
10
APPENDIX B
OPPRESSION REMEDY
(Business Corporations Act, Ontario)
Oppression remedy
248. (1) A complainant and, in the case of an offering Corporation, the Commission may apply
to the court for an order under this section. 1994, c. 27, s. 71 (33).
Idem
(2) Where, upon an application under subsection (1), the court is satisfied that in respect of a
Corporation or any of its affiliates,
(a) any act or omission of the Corporation or any of its affiliates effects or threatens to
effect a result;
(b) the business or affairs of the Corporation or any of its affiliates are, have been or are
threatened to be carried on or conducted in a manner; or
(c) the powers of the directors of the Corporation or any of its affiliates are, have been or
are threatened to be exercised in a manner,
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security
holder, creditor, director or officer of the Corporation, the court may make an order to rectify the
matters complained of. R.S.O. 1990, c. B.16, s. 248 (2).
Court order
(3) In connection with an application under this section, the court may make any interim or final
order it thinks fit including, without limiting the generality of the foregoing,
(a) an order restraining the conduct complained of;
(b) an order appointing a receiver or receiver-manager;
(c) an order to regulate a Corporation’s affairs by amending the articles or by-laws or
creating or amending a unanimous shareholder agreement;
(d) an order directing an issue or exchange of securities;
(e) an order appointing directors in place of or in addition to all or any of the directors
then in office;
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(f) an order directing a Corporation, subject to subsection (6), or any other person, to
purchase securities of a security holder;
(g) an order directing a Corporation, subject to subsection (6), or any other person, to pay
to a security holder any part of the money paid by the security holder for securities;
(h) an order varying or setting aside a transaction or contract to which a Corporation is a
party and compensating the Corporation or any other party to the transaction or contract;
(i) an order requiring a Corporation, within a time specified by the court, to produce to
the court or an interested person financial statements in the form required by section 154
or an accounting in such other form as the court may determine;
(j) an order compensating an aggrieved person;
(k) an order directing rectification of the registers or other records of a Corporation under
section 250;
(l) an order winding up the Corporation under section 207;
(m) an order directing an investigation under Part XIII be made; and
(n) an order requiring the trial of any issue. R.S.O. 1990, c. B.16, s. 248 (3).
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APPENDIX 3
DERIVATIVE ACTION
(Business Corporations Act, Ontario)
Derivative actions
246. (1) Subject to subsection (2), a complainant may apply to the court for leave to bring
an action in the name and on behalf of a Corporation or any of its subsidiaries, or
intervene in an action to which any such body corporate is a party, for the purpose of
prosecuting, defending or discontinuing the action on behalf of the body corporate.
R.S.O. 1990, c. B.16, s. 246 (1).
Idem
(2) No action may be brought and no intervention in an action may be made under
subsection (1) unless the complainant has given fourteen days’ notice to the directors of
the Corporation or its subsidiary of the complainant’s intention to apply to the court
under subsection (1) and the court is satisfied that,
(a) the directors of the Corporation or its subsidiary will not bring, diligently
prosecute or defend or discontinue the action;
(b) the complainant is acting in good faith; and
(c) it appears to be in the interests of the Corporation or its subsidiary that the
action be brought, prosecuted, defended or discontinued. R.S.O. 1990, c. B.16, s.
246 (2).
Notice not required
(2.1) A complainant is not required to give the notice referred to in subsection (2) if all of
the directors of the Corporation or its subsidiary are defendants in the action. 2006, c. 34,
Sched. B, s. 38.
Application
(3) Where a complainant on an application made without notice can establish to the
satisfaction of the court that it is not expedient to give notice as required under subsection
(2), the court may make such interim order as it thinks fit pending the complainant giving
notice as required. R.S.O. 1990, c. B.16, s. 246 (3).
Interim order
(4) Where a complainant on an application can establish to the satisfaction of the court
that an interim order for relief should be made, the court may make such order as it thinks
fit. R.S.O. 1990, c. B.16, s. 246 (4).
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Court order
247. In connection with an action brought or intervened in under section 246, the court
may at any time make any order it thinks fit including, without limiting the generality of
the foregoing,
(a) an order authorizing the complainant or any other person to control the
conduct of the action;
(b) an order giving directions for the conduct of the action;
(c) an order directing that any amount adjudged payable by a defendant in the
action shall be paid, in whole or in part, directly to former and present security
holders of the Corporation or its subsidiary instead of to the Corporation or its
subsidiary; and
(d) an order requiring the Corporation or its subsidiary to pay reasonable legal
fees and any other costs reasonably incurred by the complainant in connection
with the action. R.S.O. 1990, c. B.16, s. 247.
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