Law Times

Law Times • augusT 10/17, 2009 FOCUS PAGE 13 'You need to think big picture down the road' Continued from page 9 view, the confi dentiality and standstill language nevertheless served diff erent purposes, espe- cially given that the latter pro- vision allows for much stronger protection against an unfriend- ly takeover. "In this case, I have concluded that the standstill and the non-disclosure provi- sions are properly interpreted as separate clauses, providing dif- ferent protections for diff erent terms . . . After the standstill provision falls away, Certicom is left with longer-term protec- tion that, among other things, entails the need for proof of dis- closure and proof of use of con- fi dential information . . . After the standstill provision had ex- pired, it was open to RIM to mount a hostile bid, provided that it had not received, and used, any confi dential informa- tion in assessing the bid." Adding to RIM's woes was its admittance that it had in fact used the disclosed informa- tion in order to decide whether to attempt a takeover. As a re- sult, Cumming ruled it had an unfair advantage in its bid versus other potential buyers for Certi- com. "If not enjoined, RIM will be playing by a diff erent set of rules," he wrote. Th e lesson, then, is that the courts — at least in these two cases — appear to be interpret- ing confi dentiality agreements more stringently in order to lev- el the playing fi eld for securities markets, according to Whyte Nowak. "I think it goes to the integrity of commercial nego- tiations," she says. Meanwhile, for Goodmans' May, the cases will likely make non-disclosure clauses a more contentious issue between com- panies, especially given that in the past, buyers tended to believe that it was the stand- still provisions they had to pay most attention to when decid- ing whether they could launch a hostile bid. "Th e early conclu- sion is you've got to be careful in drafting your confi dential- ity agreements," he says, noting that one option might be for a buyer to insist that the stand- still clause will be paramount to Options in bankruptcy Continued from page 9 fi nal price to hinge on future revenue results. More typical is tying it to selling a specifi c asset, Trachuk notes. Options for paying the sellers who realize the contingent value right include stock or cash. Th ey might get a proportionate share of the sale of an asset or an ad- ditional cash payment per share depending on the results of the contingency at hand. In other cases, the deal might guarantee the value of the company's stock and later pay out additional cash should the shares fetch a higher price over time. But as Trachuk points out, in- cluding a contingent value right in a sale does involve legal issues companies need to consider. "You have to make sure these things are structured so that they're not a security," he says, noting that to do otherwise would require expensive and time-consuming disclosure issues. At the same time, companies might want to issue the contin- gent value right as a trust. In that way, the parties will appoint a trustee who makes sure the pro- cess protects the seller's rights, Trachuk says. Other issues to consider in- clude the tax treatment of the contingent value right. Th e goal, Trachuk notes, is to ensure the deferral of taxes on any capital gain from the provision until the seller realizes it. In that way, the holder of a contingent value right doesn't have to pay tax on it before making any money. A fi nal consideration is ac- counting. Do you, for example, record the contingent value right as a liability on the closing date of the transaction or when the seller fi nally realizes it? For buy- ers, accounting questions are im- portant since their goal usually is to see the transaction valued at a higher price for tax purposes, Trachuk says. Moreau_Shareholders Agreement (LT 1-3x4).indd 1 So far, the idea of including contingent value rights is some- thing lawyers in Trachuk's group have for the most part been thinking about as a way of facili- tating deals that might not oth- erwise happen due to uncertain- ty in the markets. In particular, they've been looking at them as an option in bankruptcy cases. "We've looked at diff erent structures," he says. But, he adds, "We just haven't seen that many deals." LT Untitled-2 1 the non-disclosure ones. But as May points out, whether the other party would concede to such a request would depend on the leverage between the two companies. Potential targets, of course, will be eager to leave the wording as it nor- mally has been so that they can turn to that language in order to fend off a hostile bid, he adds. In the end, May says poten- tial buyers can minimize their risk by documenting their ac- tivities so that they can later prove they didn't use any confi - dential information in assessing their takeover plans. But overall, lawyers say the two cases point to the need for companies to consider future scenarios when signing agreements in situations that may be friendly now but might not be so later on. "You need to think big pic- ture down the road," Whyte Nowak says. 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Prices subject to change without notice, to applicable taxes and shipping & handling. www.lawtimesnews.com 8/5/09 10:52:00 AM LT0420 Aird & Berlis LLP Edited by Lisa E. Moreau Income Tax Act Business Corporations Act Frye v. Frye Estate Canada Business Corporations Act N R W e ' R r E e E V a E O y C a n P Y a P p d R i A D m a I D n FREE Samples Available & o D a F n G E L D

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