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ONTARIO by linxiaoqin


                     SUPERIOR COURT OF JUSTICE


                                 DINKY TOYS INC.
                                       – and –


Fisher-Price, J.:


[1] The applicant, Dinky Toys Inc. ("Dinky"), was a successful, indeed the only,
bidder in an auction process conducted by the respondent Teddy Play Income Fund
("Teddy") in order to sell itself to the highest bidder. An acquisition and support
agreement dated July 31, 2007 (the "Support Agreement") was entered into between
Dinky and Teddy. The respondent Crayola Creative Games Corp. ("Crayola") made
a subsequent higher offer for the units of Teddy, which the trustees of Teddy wish to
recommend acceptance of to Teddy's unitholders. The Applicant asserts that the
trustees of Teddy are not free to recommend acceptance of the Crayola offer, under
the terms of the Support Agreement. The Applicant seeks an order requiring Teddy
to enforce the standstill provisions of the confidentiality agreements between Teddy
and Crayola and between Teddy and the respondent Steiff Stuffed Products Limited
("Steiff"), which Dinky asserts have been breached by Crayola and Steiff, and
otherwise to perform its obligations under the Support Agreement to recommend
Dinky's offer to the unitholders of Teddy.

[2] The respondents oppose Dinky's application, denying that there have been any
such breaches by Crayola or Steiff and asserting that even if there were, Teddy has
waived them and was entitled to give such waiver under the Support Agreement.
Teddy takes the position that it is entitled to terminate the Support Agreement,
because Crayola's offer is a "Superior Proposal" within the meaning of the Support

[3] I have concluded that Dinky's application should be dismissed.

Summary of Relevant Facts
[4] All of the parties to this proceeding are toy manufacturers, although they occupy
different niches in the toy market. Teddy specializes in more expensive toys, all of
which it manufactures in its own domestic factory facilities, to its own original
designs. Its initial focus, as its name suggests, was on teddy bears and other stuffed
animal toys, all made using natural materials and with a high level of craftsmanship.
In recent years, it has diversified into toys and games that are intended to foster
creative play and are marketed to fond parents on the premise that such products
will help awaken the natural genius of their offspring. It is an income trust, the units
of which are listed on The Toronto Stock Exchange.

[5] In contrast, Dinky produces a wider range of toys at a lower price point, for the
mass market. All of its manufacturing is carried out under contract by suppliers in
low-wage countries, primarily in the Far East. It is a reporting issuer in Ontario and
elsewhere. The respondents Crayola and Steiff are smaller manufacturers catering
to a mid-price market, specializing in the areas that their names suggest, games in
the case of Crayola and dolls and stuffed animals in the case of Steiff. Both are
closely-held corporations and neither is a reporting issuer.

[6] Teddy received a number of approaches from potential buyers interested in its
business, or parts of it, during 2006, including Dinky and Steiff. None of these
expressions of interest resulted in anything more than preliminary discussions that
did not proceed further at that time. However, the trustees of Teddy, concerned by
the long-term risks that Teddy's business model made it vulnerable to lower-priced
competition, began in September, 2006 to consider strategic alternatives that might
maximize value for its unitholders, including a possible sale of the business. In
October, 2006 the trustees decided that it would be in the best interests of
unitholders to commence an auction process that would result, if possible, in a sale
transaction providing an advantageous outcome for unitholders.

[7] In order to implement an appropriate process to plan and carry out a sale of
Teddy, the trustees of Teddy appointed in February, 2007 a special committee of
five nonmanagement trustees.

[8] In the auction process devised and conducted by the special committee of Teddy
from March to June, 2007, 15 parties expressed interest, including Dinky, Crayola
and Steiff. All of them were required by the special committee to sign a
confidentiality agreement as a condition of obtaining access to Teddy's confidential
information. The confidentiality agreements signed by the prospective bidders were
all substantially the same. Most of the provisions of such confidentiality agreements
are not relevant for purposes of these proceedings, but the "standstill" provisions
agreed to by each of Dinky, Crayola and Steiff (which is defined as the "Recipient" of
confidential information of Teddy, which is defined as the "Fund", in the agreement)
should be set out in full:
"7. Standstill. During the period of 18 months from the date of this Agreement,
the Recipient shall not, directly or indirectly, without the prior written authorization
of the Fund:
(a)     acquire or agree to acquire or make any proposal or offer to acquire,
        directly or indirectly in any manner, any securities of the Fund or any
        material portion of the assets of any of them;
(b)     assist, advise or encourage any other persons to engage in any of the
        activities from which the Recipient is restricted by paragraph (a);
(c)     commence a take-over bid for any securities of the Fund or assist, advise
        or encourage others to do so;
(d)     effect, seek, offer or propose any amalgamation, merger, arrangement,
        business combination, reorganization, restructuring, liquidation or other
        extraordinary transaction with respect to the Fund (each of the foregoing
        being herein called an 'Extraordinary Transaction');
(e)     assist, advise or encourage any other person to effect, seek, offer or
        propose any Extraordinary Transaction;
(f)     solicit proxies from the security holders of the Fund or form, join or in any
        way participate in a group to so solicit;
(g)     act alone or in concert with others, directly or indirectly, to seek to control
        or influence the management, board of trustees or policies of the Fund; or
(h)     make any public announcement with respect to the foregoing.

Notwithstanding the foregoing, nothing in this Section 7 shall prevent the
Recipient from:
(i)     acquiring and voting up to 2% of the outstanding securities of any class of
        the Fund; or
(j)     at any time after either (i) the Fund approves or enters into, or announces
        the approval or entering into, of an agreement, transaction or series of
        related transactions with a person other than the Recipient, a person
        under common control with the Recipient or a person acting jointly or in
        concert with the foregoing (a 'Third Party') having as its object the
        acquisition of, directly or indirectly, not less than 20% of the outstanding
        units of the Fund or assets of the Fund representing not less than 20% of
        the net asset value or contribution to earnings of the Fund, or (ii) any Third
        Party has commenced or announced a take-over bid or tender or
        exchange offer for not less than 20% of the outstanding units of the Fund
        or other business combination transaction with the Fund, and the Fund, in
        a communication approved by its board of trustees, recommends
        acceptance thereof ((i) or (ii), a "Third Party Transaction"), making any
        proposal to the board of trustees of the Fund to acquire 20% or more of
        the outstanding units of the Fund or 20% or more of its assets, whether by
        means of a take-over bid or otherwise, on terms and conditions that could
        reasonably be anticipated to be more advantageous to the unitholders of
        the Fund than the terms and conditions of the Third Party Transaction."

[9] The special committee of Teddy devised and implemented a process, the details
of which are not relevant for present purposes, whereby prospective bidders were
required to submit their proposed offers for Teddy to the special committee on a
confidential basis within a specified period. The results of the process were most
disappointing to Teddy. By the expiry on June 30, 2007 of the specified time period,
only one acquisition proposal had been received, an offer by Dinky to purchase all of
the outstanding units of Teddy for $7.50 per unit, representing a premium of
approximately 12% over the current average market price for Teddy's units.

[10] Unknown to Teddy, two of the interested prospective bidders, Crayola and
Steiff, had tentative discussions between themselves after reviewing and considering
Teddy's confidential information, to which they had received access pursuant to the
terms of the confidentiality agreements that they had signed. Neither of them wanted
all of the assets of Teddy and each of them was reluctant to make the financial
commitment necessary to acquire all of Teddy. However, if they could act together,
their interests would be complementary, since Steiff wanted to acquire the stuffed
animal lines produced by Teddy, whereas Crayola was interested in its creative toy
product lines. Crayola and Steiff thought that they could not, under the terms of the
standstill provisions in their confidentiality agreements, enter into an agreement to
act jointly in attempting to acquire Teddy, but they discussed, and reached a
consensus on, the value they attributed to the business segments of Teddy that they
were interested in, the maximum price that it would make sense to pay for Teddy,
and how to structure the splitting up of Teddy's assets if they were later in a position
to acquire Teddy. Each of them indicated to the other that it would not submit an
individual offer for Teddy at that time and would wait and see what happened once
the first round of the auction process had been completed.

[11] Having received only one offer, the proposal from Dinky, the special committee
of Teddy considered whether it would be best to abandon the auction process and
reconsider if other alternatives should be pursued. The majority of the special
committee believed that time was not on Teddy's side and that the unitholders of
Teddy should have the opportunity to accept an offer which, if not particularly
generous, would at least provide some premium over the market price for the units.
[12] The special committee endeavoured to negotiate a higher price from Dinky, but
Dinky held firm. Although Dinky was not aware that it was the only bidder, it guessed
that other likely bidders like Crayola and Steiff would be reluctant to bid for all of
Teddy. Furthermore, it thought that it could always sweeten its offer later if a better
offer materialized from another party.

[13] The special committee recommended to the full board of trustees of Teddy that
acceptance of the Dinky offer should be recommended to unitholders and that a
support agreement on customary terms should be negotiated with Dinky. The board
of trustees of Teddy accepted the recommendations of the special committee.

[14] The special committee therefore proceeded to negotiate the Support Agreement
with Dinky. The Support Agreement contained all of the customary provisions in
such agreements. Teddy agreed to waive the standstill in Dinky's confidentiality
agreement, in order to permit the Dinky offer to be made. Dinky agreed to make the
offer at the agreed price of $7.50 per unit. Teddy agreed to send a trustees' circular
to unitholders recommending acceptance of the Dinky offer. The Support Agreement
contemplated a subsequent acquisition transaction for Dinky to acquire the
remaining units if at least two-thirds of the outstanding units were tendered under the

[15] The critical provisions of the Support Agreement for the purposes of this
proceeding are set out in Section 5.6 of the Support Agreement:

"Covenants Regarding Non-Solicitation, Acquisition Proposals and
Superior Proposals
(a)       On and after the date hereof until this Agreement is terminated, the Fund
          shall not, directly or indirectly, through any officer, trustee, employee,
          advisor, representative, agent or otherwise:
    (i) make, solicit, initiate, knowingly encourage inquiries with respect to, or
          submissions of proposals or offers that would constitute, or otherwise
          facilitate (including by way of furnishing information, or entering into any
          form of written or oral agreement, arrangement or understanding) an
          Acquisition Proposal;
    (ii) participate in any discussions or negotiations regarding any Acquisition
    (iii) withdraw, modify, change or qualify the recommendation by the trustees of
           the Fund of the Dinky offer in a manner adverse to Dinky; or
      (iv) approve or recommend any Acquisition Proposal or enter into any
           agreement related to any Acquisition Proposal made by a third party after
           the date hereof.

(b)       The Fund shall immediately cease to provide any other party with access
          to information concerning the Fund and, to the extent it is entitled to do so
          under the applicable confidentiality agreements, request within 15
          business days from the date hereof the return or destruction of all
          confidential information provided to any third party that has entered into a
          confidentiality agreement with the Fund relating to a potential Acquisition
          Proposal and shall use all reasonable efforts to ensure that such requests
          are honoured.

(c)       The Fund shall immediately cease, and will instruct its financial advisors
          and other representatives and agents to cease, and cause to be
          terminated any existing discussions or negotiations with any parties (other
          than Dinky) with respect to any potential Acquisition Proposal. The Fund
          agrees not to release or permit the release of any third party from or waive
          or forbear in the enforcement of any confidentiality or standstill agreement
          with such third party, except to allow such third party to propose to the
          trustees of the Fund an Unsolicited Acquisition Proposal that, in the view
          of such trustees, after receipt of advice from the Fund's financial advisors
          and legal counsel, would be reasonably likely, if consummated in
          accordance with its terms, to result in a Superior Proposal.

(d)       The Fund shall as promptly as practicable (and in any event within 24
          hours following receipt of the same) at first orally and then in writing, notify
          Dinky of any Acquisition Proposal or any request for non-public information
          relating to the Fund in connection with such Acquisition Proposal or for
          access to the properties, books or records of the Fund by any person that
          informs the Fund that it is considering making, or has made, an Acquisition
          Proposal, and shall provide Dinky with a copy of (i) any written notice from
          any person informing it that such person is considering making, or has
          made, an Acquisition Proposal, and (ii) any Acquisition Proposal (or any
          amendment thereto), in each case forthwith after it is received by the

(e)        If the Fund receives a written request for non-public information relating to
           the Fund in connection with an Unsolicited Acquisition Proposal or for
           access to the properties, books and records of the Fund from a person
           who shall have made or indicates in writing that it has a serious intention
           of making an Acquisition Proposal and the trustees of the Fund determine
           in good faith, after consultation with financial advisors and legal counsel,
           that such proposal would be reasonably likely, if consummated in
           accordance with its terms, to result in a Superior Proposal, then the Fund:
      (i) may, notwithstanding Section 5.6(a)(i) or Section 5.6(a)(iv) but subject to
           compliance with Section 5.6(d) and entering into (and providing Dinky with a
           copy of) a confidentiality agreement with such person on substantially the
           same terms as Dinky's confidentiality agreement and containing a standstill
           provision substantially similar to that contained in Dinky's confidentiality
           agreement, provide such person with access to such information and
           engage in discussions or negotiations with such person; and
      (ii) will provide Dinky with a list of or copies of the information and access to
           similar information as that provided to such person, except to the extent
           such information was already provided or made available to Dinky.
(f)           Notwithstanding Section 5.6(a), if the Fund receives an Unsolicited
              Acquisition Proposal, the Fund may accept, approve, recommend or enter
              into any agreement in respect of such Acquisition Proposal and terminate
              this Agreement if:
      (i)     such Acquisition Proposal constitutes a Superior Proposal;
      (ii)    the Fund has given written notice to Dinky that there is a Superior Proposal
              together with all documentation related to and detailing the Superior
              Proposal and its intention to withdraw, withhold, qualify or modify in a
              manner adverse to Dinky its approval or recommendation of the Dinky offer;
      (iii)   the Fund has complied with Section 5.6(g);
      (iv)    five clear business days shall have elapsed from the later of (i) the date
              Dinky received the notice and documentation referred to in Section 5.6(f)(ii)
              and (ii) the date Dinky was provided with a copy of such Acquisition
              Proposal; and
      (v)     the Fund has provided evidence satisfactory to Dinky, acting reasonably,
              that irrevocable and unconditional directions have been given by the Fund
              to a recognized financial institution to pay Dinky the termination fee provided
              for in Section 9.2 of this Agreement.

(g)           Dinky may, but is not required to, during the five business day period
              provided for in Section 5.6(f)(iv), offer in writing to amend the terms of its
              offer and, if it does so, then the trustees of the Fund shall review any such
              offer in good faith, in consultation with financial and outside legal advisors
              and, if the trustees determine that the Unsolicited Acquisition Proposal
              would thereby cease to be a Superior Proposal, it will cause the Fund to
              enter into an amendment to this Agreement reflecting the offer by Dinky to
              amend the terms of its offer.

(h)           If Dinky does not offer to amend the terms of its offer or if Dinky does so
              offer but the trustees continue to believe that the Unsolicited Acquisition
              Proposal would nonetheless remain a Superior Proposal and therefore
              rejects Dinky's offer to amend, the Fund may terminate this Agreement."

[16] In considering Section 5.6 of the Support Agreement, it is necessary to refer to
the following definitions in the Support Agreement:

"'Acquisition Proposal' means any proposal or offer made by any person other
than Dinky (or any affiliate of or person acting jointly or in concert with Dinky or
any affiliate of Dinky) with respect to the acquisition, directly or indirectly, of
assets, securities or ownership interests of or in the Fund representing 20% or
more of the assets of the Fund, in a single transaction or a series of transactions
or of equity interests representing a 20% or greater economic interest in the
Fund, in a single transaction or a series of transactions pursuant to any merger,
amalgamation, tender offer, share exchange, business combination, liquidation,
dissolution, recapitalization, take-over or non-exempt issuer bid, amendment to
the declaration of trust, redemption of units, extraordinary distribution, sale,
lease, exchange, mortgage, pledge, transfer, purchase or issuance as
consideration or similar transaction or series of transactions involving the Fund or
any other transaction the consummation of which would reasonably be expected
to impede, interfere with, prevent or materially delay the transactions
contemplated hereby.

'Superior Proposal' means any bona fide written Unsolicited Acquisition
Proposal made by any person, in the good faith determination of the trustees of
the Fund, after consultation with its financial advisors and with legal counsel:
(a)    that is reasonably capable of being completed without undue delay having
       regard to financial, legal, regulatory and other matters;
(b)    in respect of which adequate arrangements have been made to ensure
       that the required funds will be available to effect payment in full of the
       consideration; and
(c)    that would, if consummated in accordance with its terms (but not assuming
       away the risks addressed in clauses (a) and (b) above), result in a
       transaction more favorable to the unitholders of the Fund from a financial
       point of view than the Dinky offer; provided, however, that for purposes of this definition,
       the references in the definition of Acquisition Proposal to '20% or more' or '20% or
       greater' shall be deemed to be references to '100%'.

'Unsolicitated Acquisition Proposal' means any Acquisition Proposal proposed
to the trustees of the Fund which was not procured in contravention of the
Fund's obligations under Section 5.6(a)(i) or the first sentence of Section 5.6(c)."

[17] As is usual, the Support Agreement provided for a "break fee" payable to Dinky
if the trustees of Teddy decided to accept a Superior Proposal (it is referred to in
Section 5.6(f)(v), quoted above). No party to this proceeding has suggested that the
amount of the break fee provided for in the Support Agreement was excessive or
unusual in the relation to the size of the transaction.

[18] The Dinky offer for Teddy and Teddy's agreement to support the offer were
publicly announced on July 31, 2007 by both Teddy and Dinky.

[19] When Dinky's offer was publicly announced, Crayola and Steiff were thereby
released from certain of the standstill provisions of their confidentiality agreements
with Teddy, pursuant to paragraph (j) of those provisions. Crayola and Steiff
renewed their discussions, believing that Dinky's offer price was sufficiently low that
there was scope to make a higher offer, if they could agree on an approach to
splitting Teddy's business if the offer was successful. Since they had laid all of the
groundwork for such an agreement in their prior discussions, Crayola and Steiff
quickly reached a formal agreement on August 7, 2007 that Crayola would make a
competing bid for Teddy at a price of $9.75 per unit. If the offer was successful,
Crayola would sell Steiff the stuffed toy assets of Teddy that Steiff was interested in,
at a price and on terms set out in detail in their agreement.

[20] Crayola lost no time in presenting its proposed offer for all of the units of Teddy
at a price of $9.75 per unit to the trustees of Teddy on August 8, 2007. It requested,
as a condition of making the offer, that Teddy waive in writing any past, present or
future breaches of Crayola's confidentiality agreement with Teddy, whether such
breaches might be committed by Crayola alone or jointly or in concert with any other
parties, and, to the extent that any such breach was committed jointly or in concert
with other parties who had also entered into confidentiality agreements with Teddy,
that such waiver would also extend for the benefit of such other parties if their
conduct had similarly breached their confidentiality agreements. Because the
Crayola offer was significantly better for unitholders of Teddy than the Dinky offer,
the trustees of Teddy agreed to provide the requested waiver to Crayola.
[21] The trustees of Teddy notified Dinky of Crayola's competing bid in accordance
with the Support Agreement. They quickly concluded, after consolidation with Tonka
World Markets Inc. ("Tonka") and Teddy's legal advisors, that the proposed Crayola
offer constituted a "Superior Proposal" within the meaning of the Support Agreement
and advised Dinky accordingly on August 20, 2007, in accordance with the
provisions of the Support Agreement previously quoted in these reasons.

[22] Dinky was immediately suspicious that the Crayola offer was being made on the
basis of an undisclosed agreement between Crayola and some other interested
party, Steiff being one of the most likely suspects in Dinky's mind. Dinky did not
believe that Crayola, acting alone, would have the financial capability or desire to
acquire all of Teddy. Dinky also reasoned that, if its suspicions were correct,
Crayola, and probably at least one other party as well, probably breached their
obligations under their confidentiality agreements with Teddy and that Teddy must
have acquiesced in those breaches. Accordingly, rather than improving its offer to
compete with the Crayola bid, Dinky launched this application.

[23] Dinky argues that the discussions between Crayola and Steiff, prior to the
announcement of Dinky's offer, contravened one or more of paragraphs (a), (b), (c),
(d) and (e) of the standstill provisions of their confidentiality agreements with Teddy.
Dinky suggests that the speed with which Crayola and Steiff subsequently reached a
formal agreement that Crayola would make a competing bid at an agreed price and
that, if it were successful, Crayola and Steiff would subsequently split up the assets
of Teddy on agreed terms, indicates that their earlier discussions must have
represented at least a tacit agreement as to the basis upon which they would
proceed if the opportunity arose.

[24] Crayola and Steiff, of course, deny this. They say that their discussions at that
time amounted to nothing more than mutual sharing of information based on a
acknowledgment that each of them was interested in some of the assets of Teddy,
but not all of them, a fact which was already known to each of them, and
communicating their intentions that neither would make a bid as part of the formal
auction process initiated by Teddy.

[25] Dinky also puts forward the novel argument that the tacit agreement by Crayola
and Steiff that neither of them would make a bid as part of the formal auction
process by Teddy violated the standstill provisions. Dinky argues that the standstill
provisions should be interpreted in a purposive manner, in accordance with the
intention of Teddy to encourage bidders to come forward, so as to prevent them from
acting in concert to hold back from making a bid, as Crayola and Steiff did. However
creative this argument by Dinky may be, I have great difficulty in interpreting the
language of the standstill provisions, which seems to prohibit only positive acts on
the part of recipients of confidential information, as precluding a passive or negative
act such as deciding not to make a bid and letting another potential bidder know of
this decision.

[26] Dinky is on much stronger ground, in my opinion, when it relies upon the
conduct by Crayola and Steiff after the announcement of Dinky's bid as a breach of
their confidentiality agreements with Teddy (ignoring, for the moment, the effect of
the waiver given by Teddy to Crayola). As Dinky points out, the release of the
standstill in paragraph (j) merely allows another prospective bidder, such as Crayola,
to make a superior offer of its own. It is not a complete release from the standstill
provisions. Dinky argues that Crayola and Steiff clearly breached certain of their
standstill obligations that remained in effect, by agreeing that, if Crayola's competing
offer were successful, Crayola and Steiff would subsequently split up the assets of
Teddy. Dinky suggests that this constituted Steiff agreeing to acquire assets of
Crayola, contrary to paragraph (a), and assisting and encouraging a bid by Crayola,
contrary to paragraph (b). Dinky argues that it also constituted Crayola and Steiff
together seeking or proposing an Extraordinary Transaction, contrary to paragraph
(d), namely the division of Teddy's assets subsequent to a successful bid by
Crayola. Dinky again urges that the standstill provisions should be read in a
purposive manner, having regard to Teddy's presumed intention to create and
encourage a bidding war between prospective acquirors, by precluding them from
entering into side deals that would limit the number of bids and therefore make it less
likely that the best possible price for Teddy would be achieved.

[27] Crayola and Steiff respond that the terms of the standstill provisions should be
given their natural and ordinary meanings. They argue that Steiff did nothing to
"assist, advise or encourage" Crayola to make a bid for Teddy; it merely agreed that
if Crayola decided to do so at a certain price, Steiff would be prepared to purchase
certain of Teddy's assets after the transaction was completed. Steiff provided no
financial assistance, expertise or other help to Crayola in formulating or making its
offer. Likewise, Crayola and Steiff argue that for purposes of the standstill provisions,
an acquisition referred to in paragraph (a) or an Extraordinary Transaction referred
to in paragraph (d) can only be intended to refer to a transaction that is part of, or an
alternative to, a change of control transaction in respect of Teddy. They should not
apply to an asset sale that would occur only after a change of control transaction had
been completed, when all of the outstanding units of Teddy had been acquired and
the confidentiality agreements would have ceased to have any purpose or effect.

[28] Dinky also points to the broad waiver requested by Crayola from Teddy as a
condition of making its offer as evidencing a "consciousness of guilt" that Crayola
and Steiff had violated the terms of their confidentiality agreements. Crayola
responds that the waiver was merely requested out of an abundance of caution,
based upon advice from Crayola's legal counsel, and nothing should be read into it.

[29] On this issue, I have concluded that the interpretation of the standstill provisions
put forward by Crayola and Steiff is unduly narrow and technical. It appears to me
that Crayola was "assisted" to make its offer for Teddy by knowing that it had a firm
agreement with Steiff pursuant to which it could dispose of unwanted assets of
Teddy subsequent to a successful completion of its bid, on a reasonable
interpretation of "assist" in its context in the standstill provisions. Similarly, the
agreement between Crayola and Steiff clearly gave Steiff the opportunity to acquire
a material portion of the assets of Teddy and the fact that this would only occur
subsequent to the completion of a successful offer by Crayola does not make it any
the less an agreement to acquire the assets.
[30] Therefore, if Dinky is correct that the agreement entered into between Crayola
and Steiff breached the remaining standstill provisions of their confidentiality
agreements with Teddy, the question becomes whether Teddy was entitled to waive
those breaches, as it purported to do in order to receive Crayola's offer.

[31] This issue turns on the proper construction of the second sentence of Section
5.6(c) of the Support Agreement. Teddy's position is that the waiver it provided to
Crayola clearly falls within the exception set out in such sentence, since if it had not
provided such waiver, Crayola would not have been prepared to propose its offer for
Teddy, an offer which the trustees of Teddy ultimately determined was a Superior

[32] Dinky responds that if the exception is interpreted so as to permit a waiver as
broad as that requested by Crayola and given by Teddy, it renders meaningless
Teddy's agreement "not to release or permit the release of any third party from or
waive or forbear in the enforcement of any confidentiality or standstill agreement with
such third party". In particular, Teddy could purport to release parties from their
standstill obligations even though they were not making an acquisition proposal,
which is exactly what the waiver requested by Crayola purported to do, with the
obvious purpose of attempting to shield Steiff as well as itself.

[33] Teddy replies to this that the exception in Section 5.6(c) would not be necessary
merely to enable another potential bidder to present an acquisition proposal, since
the prospective bidder would already be free to do so as a result of the operation of
paragraph (j) of the standstill provisions in Teddy's form of confidentiality agreement,
once Dinky's offer had been made and the Support Agreement entered into.
Therefore, Teddy submits, the exception must be interpreted in a manner which
gives effect to the "fiduciary out" provisions of Section 5.6 of the Support Agreement
and enables the trustees to waive subsisting confidentiality or standstill obligations, if
that is the only way to satisfy their fiduciary duties by facilitating the making of an
acquisition proposal which they reasonably believe will result in a Superior Proposal.
Teddy submits that this case is exactly such a situation, where it was necessary for
the trustees to accommodate Crayola's concerns that there might be technical
breaches of confidentiality agreements in order to obtain a better offer for the benefit
of the unitholders of Teddy.

[34] Although this issue is not without difficulty, I hold that in the circumstances,
Teddy was entitled pursuant to the exception in Section 5.6(c) of the Support
Agreement to grant the waiver requested by Crayola, for the reasons given by Teddy
in its submissions.

[35] Dinky further argues that Crayola's offer did not qualify as a "Superior Proposal"
within the meaning of the Support Agreement, because it was not "bona fide", being
based upon an agreement between Crayola and Steiff that was in breach of their
confidentiality agreements with Teddy. Dinky supports this argument by reference to
Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 85 O.R.
(3d) 254 (C.A.), affirming (2007), 29 B.L.R. (4th) 292 (Ont. S.C.J.), in particular the
analysis of the application judge at p. 309 B.L.R., para. 37. However, both the facts
and the contractual language at issue in that decision are sufficiently different from
those before me that I do not find the decision to be of much assistance in resolving
this point.

[36] In my view, the requirement that a Superior Proposal be "bona fide" is intended
to ensure that the party putting forward the proposal intends in good faith to
complete it in accordance with its terms, if it is successful, and reasonably believes
that it has the capability to do so. In other words, the proposal cannot be merely a
tactical manoeuvre for some ulterior purpose, which the purported bidder does not
intend to go through with. In this sense, the Crayola offer is clearly bona fide. There
is no doubt that Crayola wants to buy the units of Teddy, if its offer is accepted by
unitholders, and intends to complete such acquisition if it is successful.

[37] In the result, Dinky's application is dismissed. I find that the trustees of Teddy
are entitled to terminate the Support Agreement and to recommend to unitholders
acceptance of the Crayola offer.

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