The recent battle for Prime Restaurants Inc. (PRI) between Cara
Operations Limited (Cara) and Fairfax Financial Holdings Limited
(Fairfax) settled, which allowed PRI to sign a new acquisition
agreement with Fairfax. Before the parties had agreed to settle,
PRI asked the court to determine whether the Fairfax proposal was
in fact a "superior proposal" to the Cara offer. At this
point, the prospect of litigation and its outcome raised some
Cara's position was that the Fairfax proposal treated some
PRI shareholders differently than other shareholders because
certain senior executives of PRI would reinvest a portion of the
proceeds they receive in PRI after closing. To fit within the
definition of "superior proposal" in the acquisition
agreement between PRI and Cara (and thus entitle PRI to terminate
the agreement upon payment of a break-fee), the Fairfax offer would
have had to be made to all shareholders of PRI on the same terms
and conditions. Cara informed PRI that in the event PRI terminated
its agreement with Cara and entered into an acquisition agreement
with Fairfax, Cara would consider PRI to be in breach of its
agreement and would pursue all remedies available to it.
This raises several interesting legal and strategic questions
that M&A lawyers may want to consider going forward:
Why did PRI agree to the requirement in the definition of
superior proposal that any other proposed offer for the shares of
PRI be made to all shareholders on the same terms and conditions?
Some would say that this is unusual as it could preclude any
private equity acquisition where management retains an ownership
Even if the court had ruled in favour of Cara, would it not
have been destined to have its offer voted down by the PRI
shareholders unless Cara chose to match or exceed the Fairfax
proposal? It is difficult to see how Cara's lower offer would
have been approved by PRI shareholders unless either Fairfax walked
away or a court enjoined Fairfax from proceeding with its
If PRI had entered into an agreement with Fairfax, and Cara
sued PRI for breach of contract, would Cara have been entitled to
specific performance as a remedy? Further, the acquisition
agreement contained a provision stating that the termination fees
represented a genuine pre-estimate of damages. Would this provision
have precluded the availability of specific performance?
Further to the previous point, if the court had concluded that
the remedy for breach of contract was damages, would the court have
construed the $1 million termination fee as a cap on those
If Cara's offer did go to a shareholder vote, would Fairfax
have just sat back quietly to see how the situation between Cara
and PRI played out? Or would Fairfax have taken action to let
shareholders know that it would be prepared to make an offer
regardless of the outcome? This would undoubtedly depend on the
terms and conditions of any standstill provision contained in the
confidentiality agreement between PRI and Fairfax (the terms of
which were not publicly available). The agreement between PRI and
Cara would likely have precluded PRI from waiving any standstill
provision in respect of actions proposed to be taken by
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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