The Equity Participation Agreement is a crucial document used in Canadian business transactions when a party seeks to acquire or increase their ownership stake in a company. This agreement is particularly relevant for private companies raising capital, implementing employee ownership programs, or structuring strategic investments. The document must comply with Canadian federal and provincial securities laws, including the Canada Business Corporations Act and applicable provincial Securities Acts. It typically includes detailed provisions regarding share valuation, voting rights, board representation, transfer restrictions, and exit mechanisms. The agreement is essential for protecting both the company's and investors' interests while ensuring transparent governance and compliance with Canadian regulatory requirements. It serves as the foundation for the ongoing relationship between the company and its shareholders.
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1. Parties: Identification of all parties to the agreement, including the company, existing shareholders, and new investor(s)
2. Background: Context of the transaction, including company status and purpose of the equity participation
3. Definitions: Defined terms used throughout the agreement
4. Subscription and Purchase: Details of the equity participation, including number of shares, price, and class of shares
5. Payment Terms: Terms and method of payment for the shares
6. Closing Conditions: Conditions precedent to the completion of the equity participation
7. Representations and Warranties: Statements of fact and assurances from both the company and the investor
8. Covenants: Ongoing obligations of the parties
9. Share Rights: Description of the rights attached to the shares being issued
10. Transfer Restrictions: Limitations on the transfer of shares and any applicable right of first refusal
11. Confidentiality: Provisions regarding the treatment of confidential information
12. Termination: Circumstances under which the agreement can be terminated
13. General Provisions: Standard legal provisions including governing law, notices, and amendments
1. Management Rights: Used when the investor is to have specific management or board participation rights
2. Anti-dilution Protection: Include when investors require protection against future dilutive share issuances
3. Tag-Along Rights: Include when minority shareholders need the right to join in sale of majority shares
4. Drag-Along Rights: Include when majority shareholders need the right to force minority shareholders to join in a sale
5. Pre-emptive Rights: Include when existing shareholders should have the right to maintain their percentage ownership in future share issuances
6. Information Rights: Used when investors require specific rights to company information and financial statements
7. Registration Rights: Include for potential future public offerings, particularly relevant for US investors
8. Employee Share Ownership Provisions: Include when the agreement involves employee equity participation
9. Dividend Rights: Include when specific dividend rights or preferences need to be established
1. Schedule A - Share Capital: Detailed breakdown of the company's share capital structure pre and post-investment
2. Schedule B - Disclosure Schedule: Exceptions to representations and warranties
3. Schedule C - Shareholders' Rights and Restrictions: Detailed terms of shareholder rights and restrictions
4. Schedule D - Form of Directors' Resolution: Form of resolution approving the share issuance
5. Schedule E - Corporate Information: Details of corporate structure, subsidiaries, and material contracts
6. Schedule F - Financial Statements: Recent financial statements of the company
7. Schedule G - Closing Documents: List of documents required for closing
8. Appendix 1 - Share Certificate Form: Form of share certificate to be issued
9. Appendix 2 - Shareholders' Resolution: Form of shareholders' resolution approving the transaction
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