Negotiating an acquisition can be an intensive process for both
buyers and sellers. For both parties, deal certainty is important
when the right transaction is on the table. However for the target,
the key is striking the appropriate balance between achieving deal
certainty and ensuring that its board of directors maintains the
ability properly discharge its fiduciary duties if a superior
proposal is received.
A force-the-vote provision is a clause that requires the
target's board of directors to submit the proposed transaction
to a vote of its shareholders. The provision protects the
transaction since forcing a shareholder vote prohibits the approval
of a third party offer until the target's shareholders have
voted on the proposed transaction. The process so triggered
requires the target to prepare a proxy circular for approval of the
transaction and obtain all the required regulatory approvals or
consents before the vote can be held. This may take a considerable
amount of time and consequently deter potential third party
acquirors. This process may also make the target's shareholders
more inclined to vote for the deal that is on the table rather than
wait around for the mere prospect of a more favourable
Although typically more popular in the US, force-the-vote
provisions have also been included in Canadian acquisition
"Hard" vs "soft" provisions
Force-the-vote provisions can be drafted any number of ways. On
one end of the spectrum, a "soft" provision permits a
target to terminate the acquisition agreement if an alternative,
unsolicited but superior offer comes along and the board determines
that it must consider that offer in order to properly discharge its
fiduciary duties. In all other circumstances, a vote on the
proposed transaction must be held.
On the other end of the spectrum, the "hard" provision
is unqualified and requires a vote of the target's shareholders
regardless of whether there is a superior offer. The target is not
permitted to terminate the acquisition agreement as a result of the
superior proposal, but the target's board may change or
withdraw its recommendation to its shareholders. In these
circumstances, the buyer is generally afforded the right to
terminate the agreement in advance of the meeting.
In evaluating whether or not the inclusion of a force-the-vote
provision in an acquisition agreement is appropriate, a
target's board of directors should assess whether such a
provision is in the best interests of its shareholders, taking into
consideration the circumstances, merits and risks of a proposed
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In Ontario Securities Commission v. Tiffin, the Ontario Court of Justice clarified the limits of the definition of "securities" under s.1(1) of the Securities Act, as it relates to promissory notes. The defendant in the case was charged with trading in securities without being registered and while prohibited, and without filing a prospectus.
The OSC has issued a press release advising stakeholders that Ontario securities law may apply to any use of distributed ledger technologies, such as blockchain, as part of financial products or service offerings.
The use of electronic signatures is becoming increasingly commonplace in commercial transactions, as individuals and businesses capitalize on the administrative efficiency afforded by today’s digital world.
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