Exam Prep Flashcards
Engagement Letter Example
Fuck Paul Soubry and Fat Lui. Low Life Assholes
1) Formalize the arrangement between the CBV and the client.
“This letter confirms that RLC has been retained by Matt Damon to provide the services set out below”
2) State the relevant facts.
“Purpose of this letter is to confirm our understanding of the following:
- You were married on May 1, 2018 and divorced May 2, 2019.
- you have asked us as independent experts in accounting, dispute analysis, and valuation.
- We understand that these services are to aid your legal counsel with ongoing legal proceedings.
3) Communicate the scope of analysis / deliverables.
“You would like us to prepare an income report pursuant to Federal Child Support Guidelines to determine income for support purposes and prepare a report to determine equalization payments and valuation of Mat Damon Co.”
4) Indicate any limitation in the CBV’s responsibility and liability.
“ Liability in connection with this agreement is limited to no more than then total amount of fees paid to us. We shall only be liable for our proportionate share of any loss or damage.”
5) Provide a legally enforceable arrangement between the contracting parties, with commercially acceptable terms and conditions.
“This letter is an agreement that s hall be governed by and interpreted in accordance with the laws of Ontario and Canada”
6) Indicate any particular arrangement concerning access to information.
“We will be available to commence our work upon confirmation of our engagement letter and receipt of all necessary information requested”.
7) Indicate the fees contemplated or the manner in which the fees and the disbursements will be calculated and billed.
“Our fee will be $70,000 and shall be billed for all applicable taxes. It is our standard practice to invoice for services monthly and at the end of the engagement.”
8) Ensure client accepts the terms set out:
“ if you agreement to the above terms for services, please sign a copy of this letter in the space provided below and return it to us.”
How are stock deals priced, what are things that impact the price and what are some challenges in price determination
1) How are stock deals priced?
- typically priced at the current trading price x number of shares.
2) What things impact price?
- Liquidity (restrictions on sale, trading volumes, concentration of shares (closely or wideley held), etc).
- Historical performance and potential for growth should be considered (ie value of Dahlin getting 20 points a year at an 18 year old is different than Gudas getting 18 points a year as a 40 year old.. im guessing you’d pay more for Dahlin than Gudas :P).
- Attractiveness is in the eyes of the beholder.
3) What are some challenges of valuing a stock price?
- stock volatility is a challenge, making the current stock price potentially unreliable
- Contingent payments must be carefully evaluated (consider the risk associated with eventual receipt of these amounts).
Things to consider when defining “Value” in a shareholders agreement
- Does the definition of value consider “highest price in an open and unrestricted market”?
- Does the definition of value consider special interest purchasers?
- is a minority shareholder discount applied?
- is a liquidity discount applied?
- does value refer to intrinsic value or book value?
- does financing impact value
- does value take into consideration life insurance policy proceeds
- do triggering events impact value (defaulting shareholder, fraud, death, etc)
What are the definitions of value?
Fair Market Value (highest price in an open and unrestricted market between two informed and prudent parties at an arms length and under no compulsion to act.. in terms of cash)
Net Book Value (assets - liabilities at accounting values ) - aka shareholder’s equity.
Adjusted Book Value (FMV of assets (tangible and intangible) - FMV of liabilities.
Statutory Rights of a Minority Shareholder
1) Right of access to corporate information
- shareholder lists
- financial statements
- articles,
- minutes
2) Right to participate in Management
- attend regular meetings
- vote at shareholders meetings
- requisition a meeting
- participate in director elections
- approve by-laws passed by directors
- approve special resolutions
- vote as a separate class
3) The Dissent Remedy
- when the majority resolves to effect a material change in business
4) Derivative Action
- Take legal action against directors if they are making decisions that benefit themselves personally but are not in the best interest of the company.
5) Oppression Remedy
- right to take personal action against company, directors, or majority shareholders if their actions are oppressive to minority shareholders.
6) Right to enforce CBCA
- Can apply for the courts to force the Company/directors/majority shareholders to comply with the Act.
7) Court Ordered Meetings
- court can order a meeting at anytime for investigation on matters such as fraud.
Things to look for in Loss Quantification Qs
1) Method: Contribution Margin (Revenues less variable costs) or Loss of Profits (impacts all costs of business)
2) Key Metrics: Compare historic metrics to those of the projections to determine if projections are reasonable.
3) Loss quantifications should be pre-tax.
4) future losses should be discounted to the loss date. If not discounted, the losses will be overstated.
5) Discretionary costs can be utilized for loss quantification (such as owner compensation).
6) Be sure to justify discount rate (experienced staff, stability of the industry, size of company, level of competition, etc).
7) use half years for discounting.
8) Pre-judgement interested is calculated between Statement of Claim date and Trial date. Do not get confused with termination dates, agreement dates, or something else.
9) Pre-judgement tax calculated after all losses determined, using I = Principle x Rate x Time or I = Prt.
If time is in days, divide final answer by 365.
Fairness Opinion Definition:
Fairness opinions are generally statements by an independent financial advisor that a proposed transaction is fair, from a financial point of view, to the security holders (or to a special group of security holders) of a company. Fairness opinions normally take the form of a letter issued to a company’s full board of directors, or to a special, independent committee of a board of directors.
Fairness opinions are primarily used to assist the board in making reasonable business judgments and to provide them protection under the business judgment rule, should their decisions be challenged later in litigation. The board can use fairness opinions to show that a given transaction was carried out in good faith and in the interest of all the shareholders (or of the relevant class of shareholders).
Fairness Opinion Structure
General info (to whom the fairness opinion is being made for, the effective date of the opinion)
Proposed transaction
Purpose of the fairness opinion
Statement of independence
Statement non-contingent fees
Statement of work done and assumptions used
Conclusion
Challanges of determining Fairness
- Deals are negotiated based upon relative strengths and desires of the negotiators.
- There may be a range of outcomes at which a deal can be “fair”, that is, some deals are “more fair” than others.
- Fairness is normally judged from the viewpoint of one side only in a deal (i.e., the other side has to concern itself with fairness from its viewpoint).
- Because an actual transaction is occurring, any relevant synergies should be considered when appropriate.
- Some deals are very fair, while some deals are not fair and others are “close calls”. The valuator may be called upon to make significant judgments for deals and to inform the board of directors of the relatively weak terms of a deal that may be approved.
- A fairness opinion is no guarantee for a board of directors or a company’s security holders that the proposed deal is the best possible deal.
What is Dissent Remedy and what events can trigger it?
Dissent Remedy provides a minority shareholder the right to have all of his/her shares (and no less than all) repurchased at FMV if the company is making a fundamental change to the business. This prevents minority shareholders from being “locked in” if the company takes a direction that was not contemplated when they made their investment.
Triggering events include:
1) When the corporation resolves to amend its articles of incorporation to add, change, or remove any provisions restricting or constraining the issue, transfer, or ownership of that class.
2) Where the corporation resolves to amend its articles of incorporation in a manner that would change the corporation’s share structure or the characteristics of any class of shares in a manner that would adversely affect the holder of any class of shares.
3) Where the corporation resolves to amalgamate with another corporation, a dissent remedy arises. (However, this right of dissent does not apply to an amalgamation of a holding corporation and one or more of its subsidiaries or to the amalgamation of two subsidiaries of the same holding company).
4) Where the corporation proposes the sale, lease or exchange of all or substantially all of its property under subsection 189(3), a dissent remedy arises.
What is section 176 under CBCA?
Provision in CBCA that allows ANY share class to vote on corporate resolutions to change the share structure of a corporation, whether or not that share class has voting rights.
Purpose of Reorganizations
Primary concept of the corporate rollover provisions is to defer capital gains/losses or non-capital profit/loss realizations and thereby defer tax liability.
SECTION 85
USED FOR TRANSFERS TO A CORPORATION
One of the primary purposes of Section 85 is to facilitate the transfer of assets of an unincorporated business to a Canadian corporation. This may afford the business the opportunity to take advantage of the small business rate of tax as well as the shareholder to access the lifetime capital gains exemption upon a subsequent disposition of the business. Exchange MUST include shares in the corporation (does not have to be all shares but at least a portion does).
- To consolidate business operations within one corporation for loss utilization, tax planning purposes and other business reasons.
- To establish holding companies to achieve income splitting and estate planning objectives by involving family members in the ownership of the shares.
- To spin off assets of one corporation to another corporation. This could be done with redundant assets, thus alleviating the immediate tax consequences. This technique is often referred to as the “purification” of a corporation so that it qualifies as a small business corporation, the shares of which are eligible for the $800,000 capital gains exemption on future dispositions.
- To minimize or defer the taxes payable by a vendor for both arm’s length acquisitions and divestitures of businesses or shares.
SECTION 86
USED FOR SHARE CAPITAL REORGANIZATION
Provides for the tax-free exchange of shares under specific circumstances and is commonly used to effect an estate freeze.
Parents of corp exchange commons for prefs with a redemption price that is equal to FMV at that time. New common shares are then issued to incoming shareholders, who will get the upside of any grow in value past the redemption value of the pref shares.
SECTION 87
USED TO COMPLETE M&A ON TAX-FREE BASIS
1) assets and liabilities of each company entering into the amalgamation must flow through to the amalgamated company.
