Protect the interests of the shareholders of a Canadian company with this Shareholder Agreement with Put Option.
- Scope of Agreement. The Shareholder Agreement establishes the obligations of the shareholders and the corporation to each other, and sets out any restrictions on share transfers or the issue of new shares.
- Right of First Refusal. The remaining shareholders have a right of first refusal to acquire the shares of a departing shareholder, before the shares can be offered to a third party.
- Put Option. A departing shareholder also has a buy-sell or 'put' option, which would require the remaining shareholders to purchase his/her shares. The put option is available only after the departing shareholder has been unsuccessful in finding a third party purchaser for a period of 6 months.
- Buy-sell options for both an assured buy-out and a mandatory or 'shotgun' buy-sell.
- Deceased Shareholder. If a shareholder dies, the surviving shareholders have the option to buy the deceased shareholder's shares, failing which they must be purchased by the corporation.
This Canada Shareholder Agreement with Put Option is provided in MS Word format, and is fully customizable.
SHAREHOLDER AGREEMENT THIS AGREEMENT made and effective the _____ day of ______________, ______. BETWEEN: SHAREHOLDER1 residing at the City of __________ in ______________________, (hereinafter called “Shareholder1”) OF THE FIRST PART AND SHAREHOLDER2, residing at the City of __________, in ______________________, (hereinafter called “Shareholder2”) OF THE SECOND PART AND SHAREHOLDER3, residing at the City of __________, in ______________________, (hereinafter called “Shareholder3”) OF THE THIRD PART AND CORPORATION, a body corporate, incorporated pursuant to the laws of ______________________, (hereinafter called the “Corporation”) OF THE FOURTH PART WHEREAS: A. The parties, except the Corporation, are each beneficial owners of Shares in the capital of the Corporation; and B. The parties have agreed to enter into this Agreement to establish certain of their respective rights and obligations in respect of the Corporation and its Shares. NOW THEREFORE THIS AGREEMENT WITNESSETH that for valuable consideration given by each party to each other party, the receipt and sufficiency of which is hereby acknowledged, it is agreed by and among the parties hereto as follows: ARTICLE ONE - INTERPRETATION 1.1 Definitions In this Agreement, unless there is something in the subject matter or context inconsistent therewith: (a) “Agreement” means this Agreement and the expression “paragraph” or “Article” followed by a number means and refers to the specified paragraph or Article of this Agreement; (b) “Person” means an individual, a corporation, a partnership, a trustee or an unincorporated organization; and words importing persons have a similar meaning; -2- (c) “Shareholders” means the parties hereto except the Corporation; and (d) “Shares” means shares in the capital of the Corporation now or hereafter issued and outstanding. 1.2 Extended Meanings Words importing the singular number include the plural and vice versa and words importing the masculine gender include the feminine and neuter genders. 1.3 Interpretation Not Affected by Headings The division of this Agreement into Articles and Sections and the insertion in this Agreement of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 1.4 Applicable Law This Agreement shall be interpreted in accordance with the laws of ______________________. 1.5 Time of Essence Time shall be of the essence in this Agreement. 1.6 Entire Agreement This Agreement constitutes the entire agreement between the parties and contains all of the representations, undertakings and agreements of the respective parties concerning the subject matter hereof. There are no verbal representations, undertakings or agreements between the parties of any kind concerning the subject matter hereof. ARTICLE TWO - ONGOING OBLIGATIONS 2.1 Ongoing Obligations Each Shareholder agrees with the other that during the currency of this Agreement: (a) except for the transfers of Shares between the Shareholders or to their respective heirs, executors, administrators, successors, or to his holding company, he will not sell, assign, give or otherwise dispose of, or charge, pledge or otherwise encumber any Shares beneficially owned by him nor any interest therein, save and except as permitted by this Agreement; (b) Shares now or hereafter owned by each Shareholder shall be held in trust by such Shareholder upon the conditions herein provided; (c) a copy of this Agreement, and any amendments and any notices given pursuant thereto are to be kept in the Minute Book of the Corporation; (d) subject to the unanimous agreement of the Shareholders, any Shares issued by the Corporation at a time subsequent to the date of this Agreement shall be issued to, and subscribed for, by the Shareholders in proportion to their shareholdings, immediately prior to such issue, and any such additional Shares shall be subject to the terms of this Agreement to the same extent as if they had been issued at the date of this Agreement; (e) no Shares of the Corporation shall be issued subsequent to the date of this Agreement without the written consent of all of the Shareholders; -3- (f) except with the unanimous consent in writing of the Shareholders the Corporation will not: (i) make any changes in its constating documents; (ii) institute any proceedings for the reorganization, dissolution or winding-up of the Corporation; (iii) borrow funds or incur any debt or obligation which would result in the aggregate indebtedness of the Corporation (other than amounts due to Shareholders) being in excess of $_______________ at any one time; (iv) guarantee the indebtedness of any other person; (v) dispose of or acquire any assets or shares in any other corporation; (vi) enter into any agreement involving an expenditure in excess of ______________ Dollars ($__________) or the term of which, including any renewal period, exceeds ____ months/years; (vii) change the compensation of any director, officer or employee; or (viii) retain funds in the Corporation which in the opinion of the directors are available for distribution to the Shareholders and which are in excess of the Corporation’s working capital requirements; (g) in addition to paragraph 2.1(f) hereof, the following shall not be undertaken without the unanimous approval of the Shareholders: (i) any loans by the Corporation or any of its subsidiaries to any Shareholders or to any affiliate; (ii) any transactions out of the ordinary course of business; (iii) any contract between the Corporation and a Shareholder or an affiliate; (iv) a waiver of the appointment of an auditor of the Corporation; (v) any change in the authorized signing officers in respect of any bank or other financial institution; (vi) any employment contracts made between the Corporation and any other party hereto; (vii) any other matter which could have, in the opinion of any director, a substantial impact on the profitability of the Corporation; (viii) any removal of officers, senior employees and agents; (h) as long as a Shareholder is a registered or beneficial owner of Shares in the Corporation, the other Shareholders shall vote or cause to be voted (whether by way of vote or written consent) the Shares owned or held by them so as to ensure that each Shareholders or his nominee is elected and remains a director of the Corporation, it being acknowledged, however, that notwithstanding -4- this paragraph 2.1(h) the total number of directors shall not be limited by the number of shareholders and the Shareholders may nominate and elect persons to hold office as directors who are not shareholders; and (i) all the share certificates representing the issued shares of the Corporation shall be endorsed as follows: “This Certificate is issued and held by the party to whom it is issued subject to the terms of an agreement made between the shareholders of the Corporation and as such is not freely transferable.” 2.2 Disability of Shareholder Notwithstanding paragraph 2.1(f)(vii) hereof, should a Shareholder that is an employee of the Corporation become disabled and as a result of such disability unable to carry out the terms of his employment with the Corporation for a period of four (4) consecutive calendar weeks, all salary, wages and benefit otherwise payable by the Corporation to that Shareholder and employee would cease until such time as the Shareholder and employee was able to resume his duties and responsibilities as an employee of the Corporation. 2.3 Joint Contribution by Shareholders Each Shareholder agrees that in the event that any Shareholder (the “Lending Shareholder”) advances or pays money to or on behalf of the Corporation, as a shareholder’s loan or otherwise, the Lending Shareholder shall be indemnified by and have the right to contribution from and against each other Shareholder (the “Non-Lending Shareholder”) for that portion of monies so paid by the Lending Shareholder which the number of voting shares in the capital of the Corporation beneficially then owned by such Non-Lending Shareholder bears to all the then issued and outstanding voting shares of the Corporation to a maximum indemnity, however, of $____________. The Non-Lending Shareholder agrees to and does hereby subordinate and postpone all of its rights and remedies against the Corporation for amounts, if any, owing by the Corporation to the Non-Lending Shareholder to the rights and remedies of the Lending Shareholder until such time as the Non-Lending Shareholder has indemnified the Lending Shareholder as required by this Agreement. Each Shareholder further agrees that within thirty (30) days of written demand being made by a Lending Shareholder upon a Non-Lending Shareholder for contribution and indemnity as required by this Agreement, the Non-Lending Shareholder shall pay to the Lending Shareholder such amount as necessary to a maximum of $____________ to reimburse the Lending Shareholder for all advances or money paid to or on behalf of the Corporation, as a shareholders’ loan or otherwise, to the extent of the portion of the advances or monies so paid by the Lending Shareholder which the number of voting shares in the capital of the Corporation beneficially then and by such Lending Shareholder bears to all the then outstanding voting shares in the capital of the Corporation. If the Non-Lending Shareholder fails to so pay and reimburse the Lending Shareholder as required hereby, all rights or privileges accruing and attributable to any shares in the capital of the Corporation held by the Non-Lending Shareholder shall cease to so accrue or attribute, specifically including any right to notice or attend at a meeting of shareholders and any voting rights, until such time as the Non-Lending Shareholder has paid and reimbursed the Lending Shareholder as required herein. 2.4 Each Shareholder agrees with the other Shareholders that if any Shareholder pays, advances or otherwise lends money or money’s worth to, for or on behalf of the Corporation, such Shareholder shall be entitled to security and documentation for such payment, advance or loan in a form mutually acceptable to such Shareholder and the directors of the Corporation and all such payments, advances or loans shall bear interest at a rate set out in such security and documentation. -5- 2.5 The Shareholders further agree that the obligations and rights of the Shareholders as described and contemplated by paragraphs 2.2, 2.3 and 2.4 hereof shall survive the termination of this Agreement and shall survive notwithstanding that a party may cease to be a Shareholder and specifically shall survive in the event of any default by a Shareholder of its obligations under this Agreement and notwithstanding the exercise of any rights by a Non-Defaulting Shareholder pursuant to the terms and provisions of Article Seven hereof. 2.6 Transfer to Holding Company It is acknowledged and agreed by the parties that any Shareholder may transfer all but not less than all of the Shares of the Corporation beneficially owned by him to: (a) a “holding company” provided that effective control of such holding company is retained at all times by the transferring Shareholder through the ownership of not less than Fifty-One (51%) percent of the issued and outstanding voting shares of such holding company; and provided further, that such holding company executes a counterpart to this Agreement thereby becoming a party to this Agreement and the provisions hereof apply mutatis mutandis; or (b) a trust, the beneficiaries of which are members of the transferring Shareholder’s immediate family, providing that legal ownership and voting control of the Shares remains with the Shareholder. 2.7 Transfer of Control If any Shareholder who after the effective date hereof incorporates a “holding company” for the purpose, inter alia, of holding its Shares in the Corporation, and thereafter at any time transfers control of its holding company, in any manner whatsoever, such an event shall be deemed to be a disposition of Shares to which Article Three shall apply providing that the price at which such Shares are offered pursuant to paragraph 3.2 shall be the fair market value thereof as agreed by the parties or alternatively as determined by an independent valuator agreed to by the parties. ARTICLE THREE - RIGHT OF FIRST REFUSAL 3.1 Right of First Refusal If any Shareholder wishes to sell or otherwise dispose of any or all of the Shares owned by him to any person not a party to this Agreement, he shall first offer such shares to the other Shareholders in accordance with the terms of this Article. 3.2 Transfer Notice The Shareholder desiring to transfer its Shares (the “Transferor”) shall give written notice (a “Transfer Notice”) to the other Shareholders of his desire or intention to transfer, sell or otherwise dispose of any or all the Shares then registered in his name or beneficially owned by him (the “Offered Shares”) which Transfer Notice shall set out: (a) the number of the Offered Shares registered in his name or beneficially owned by him; (b) an offer to sell the Offered Shares to the other Shareholders, provided however that if the offer hereunder arises as a result of the Transferor receiving a bona fide offer to purchase his Shares from a third party (“Third Party Agreement”), the Transferor shall offer to sell the Offered Shares upon the same terms and conditions as contained in the Third Party Agreement (a copy of which shall accompany the Transfer Notice) provided that if the consideration or any part thereof payable under the Third Party Agreement for the purchase of the Offered Shares is other than cash consideration (hereinafter “Non-Cash Consideration”) then for the purposes of the offer to -6- sell the Offered Shares contained in the Transfer Notice, the Transfer Notice shall set out the nature of such consideration and the Transferor’s bona fide estimate of the value of such consideration which, providing they are in agreement with such estimate, the Corporation or the other Shareholders, as the case may be, agree to pay as the cash equivalent of, and in lieu of, the Non-Cash Consideration payable under the Third Party Agreement (in the event the other Shareholders and the Transferor are unable to agree on an estimate value for such Non-Cash Consideration the estimate shall be determined by arbitration as provided in Article Four); (c) the terms and conditions of the offer; (d) the place in __________, __________ and time for closing of the sale of the Offered Shares to the other Shareholders if they elect to purchase such Shares pursuant to the provisions of this Agreement, such place to be at the head office of the Corporation, and such time shall be during normal business hours and not less than ninety (90) days from the date of the Transfer Notice. 3.3 Participation The Shareholders receiving the Transfer Notice shall have the right to purchase the Offered Shares; (a) in the same proportion as their individual holdings of Shares of the Corporation bears to the total Shares of the Corporation held by all of the Shareholders other than the Transferor (“Proportionate Share”); or (b) in the number or proportion as agreed among themselves (“Agreed Proportion”). 3.4 Fractional Interests If the allocation of the Offered Shares would result in a Shareholder being entitled to purchase a specific number of the Offered Shares plus a fractional interest of an Offered Share then, failing agreement otherwise by the Shareholders, all such fractional interests shall be allocated to the Shareholder having the larger fractional interest. 3.5 Purchase Notice Subject to paragraph 3.3 the Shareholders to whom the Transfer Notice is given shall have the right during the thirty (30) day period from the date of the Transfer Notice, to elect to purchase the Offered Shares of the Transferor referred to in the applicable Transfer Notice in accordance with such Transfer Notice and upon such terms hereinafter contained by giving written notice (the “Purchase Notice”) to the Transferor stating that it elects to purchase the Offered Shares. 3.6 Refusal to Purchase If any Shareholder other than the Transferor fails or refuses to give a Purchase Notice within the thirty (30) day period, then such party shall be deemed to have refused to purchase the Offered Shares, and any party who has given a Purchase Notice shall have a further fifteen (15) day period following the date of such deemed refusal in which to amend its Purchase Notice to state that it elects to purchase, in addition to its own Proportionate Share or its Agreed Proportion, whichever is applicable, of the party deemed to have refused to purchase the Offered Shares, provided however that the Transferor shall not be obligated to sell less than all of the Offered Shares. If the acquiring Shareholders are unable to acquire, for any reason, all, but not less than all, of the Offered Shares, the Transferor shall have the right for a period of sixty (60) days from the date of the expiration of the rights of the acquiring Shareholders hereunder to proceed with the sale of the Offered Shares to a third party on terms and conditions no less favourable than those set out in the Transfer Notice. -7- 3.7 Condition Precedent Notwithstanding anything herein contained to the contrary, it shall be a condition precedent to the sale, transfer, assignment or disposition by a Transferor of Shares beneficially owned by it or of any interest therein that the person to whom such Shares or any interest therein are sold, transferred, assigned or disposed, agrees in writing to be bound by the provisions of this Agreement; such agreement to be evidenced by that person, firm or corporation executing, and delivering copies to each of the Shareholders a counterpart of this Agreement. 3.8 Confidentiality of Information The Shareholders (other than the Transferor), shall keep the terms of any Third Party Agreement confidential and shall not divulge same save and except to: (a) their respective legal counsel; (b) banks and other financial institutions as may be required for purposes of obtaining financing to permit such Shareholders to purchase the Offered Shares. 3.9 Payment Unless otherwise unanimously agreed, the purchase price payable for any Shares transferred under this Article Three shall be payable in cash, by certified cheque or bank draft on closing. 3.10 Closing Conditions On closing, the Transferor shall: (a) execute and deliver to the purchasing Shareholder such instruments as the purchasing Shareholder’s legal advisor may reasonably require to give effect to the sale. Each party to the closing shall bear its own expense in connection with the execution and delivery of such documents; (b) transfer to the purchasing Shareholder all the Shares to be purchased by such purchasing party free and clear of all liens, charges or encumbrances whatsoever; (c) deliver to the purchasing Shareholder its valid and enforceable warranty in favour of such purchasing Shareholder that the Transferor is the beneficial owner of the Shares, that such Shares are owned by it free and clear of any and all liens, charges, encumbrances or claims of any kind whatsoever, that it is validly and properly empowered and authorized to sell its beneficial interest in such Shares to such purchasing Shareholder, which warranties shall survive the completion of the acquisition and sale of the Shares; (d) deliver to the purchasing Shareholder share certificates or share transfers, duly endorsed for transfer representing all Shares of the Transferor to be sold to the purchasing Shareholder free and clear of all indebtedness or encumbrances; (e) at the purchasing Shareholder’s request, deliver such evidence as the purchasing Shareholder’s legal advisor may require evidencing the capacity and due authorization of any Person purporting to act on behalf of the Transferor in selling Shares to such purchasing Shareholder as herein contemplated; (f) at the purchasing Shareholder’s request, deliver the resignation of the Transferor’s nominees as directors and/or officers of the Corporation, such resignations to be effective upon completion of -8- closing along with a release of all claims and demands of the Corporation in a form satisfactory to the counsel for the purchasing shareholder; (g) except in the case of a transfer to a third party pursuant to a Third Party Agreement as defined in sub-paragraph 3.2(b), receive all amounts, monies or other obligations due to it from the Corporation; (h) grant the Corporation the right to set-off against the purchase price payable for the purchase of Shares any monies owing by the Transferor to the Corporation provided that if the transfer of Shares is to the remaining Shareholders, the Transferor and the remaining Shareholders agree that the purchase price shall be applied firstly to satisfying any obligations of the Transferor to the Corporation; and (i) satisfy and pay in full all debts and obligations owing to the Corporation in the event of a transfer to a third party pursuant to a Third Party Agreement as defined in sub-paragraph 3.2(b). ARTICLE FOUR - DEATH 4.1 Sale to Corporation In the event of a Shareholder’s death, his executor, trustee or personal representative, as the case may be, (hereinafter collectively called the “Executor”), shall be obligated to sell all of his Shares to the surviving Shareholders, however, if the surviving Shareholders decide not to purchase the deceased Shareholder’s Shares or do not purchase all of the deceased Shareholder’s Shares, the Corporation shall be obligated to purchase the said Shares not purchased as aforesaid by the surviving Shareholders in accordance with this Article, any such purchase and sale to close within sixty (60) days after the receipt by the Corporation of any insurance proceeds referred to in paragraph 4.3 or the appointment of a personal representative of the deceased Shareholder, whichever is the later, in accordance with the terms and conditions set out in paragraph 3.10. 4.2 Participation The Shareholders purchasing the deceased Shareholder’s Shares shall have the right to purchase the Offered Shares: (a) in the same proportion as their individual holdings of Shares of the Corporation bears to the total Shares of the Corporation held by all of the Shareholders other than the deceased Shareholder (“Proportionate Share”); or (b) in the number or proportion as agreed among themselves (“Agreed Proportion”). 4.3 Fractional Interests If the allocation of the deceased Shareholder’s Shares would result in a Shareholder being entitled to purchase a specific number of Shares plus a fractional interest of a Share then, failing agreement otherwise by the Shareholders, all such fractional interests shall be allocated to the Shareholder having the larger fractional interest. 4.4 Purchase Notice Subject to Section 4.2 the Shareholders other than the deceased Shareholder, shall have the right during the thirty (30) day period from the date of receiving notice from the Executor in accordance with paragraph 4.1 hereof, to elect to purchase its Proportionate Share or its Agreed Proportion, whichever is applicable, of the deceased Shareholder’s Shares upon the terms hereinafter contained by giving written -9- notice (the “Purchase Notice”) to the Executor stating that it elects to purchase its Proportionate Share or its Agreed Proportion of the deceased Shareholder’s Shares. 4.5 Refusal to Purchase If any Shareholder, fails or refuses to give a Purchase Notice within the thirty (30) day period, then such party shall be deemed to have refused to purchase the Offered Shares, and any party who has given a Purchase Notice shall have a further fifteen (15) day period following the date of such deemed refusal in which to amend its Purchase Notice to state that it elects to purchase, in addition to its own Proportionate Share or its Agreed Proportion, whichever is applicable, of the party deemed to have refused to purchase the deceased Shareholder’s Shares, provided however that the Executor shall not be obligated to sell less than all of the deceased Shareholder’s Shares. If the acquiring Shareholders are unable to acquire, for any reason, all, but not less than all, of the deceased Shareholder’s Shares, the Corporation shall be obligated to purchase the remainder of the deceased Shareholder’s Shares not so acquired. 4.6 Price The value of the Shares for the purpose of this Article Four shall be determined in accordance with the following terms, and shall be the price to be paid for the Shares, and is hereinafter referred to as the “Purchase Price”: (a) within one hundred and twenty (120) days after each fiscal year end of the Corporation, the Shareholders hereby agree to sign a joint declaration of the minimum value of one Class “A” Common Share and such other share of any other issued and outstanding classes of shares in the capital stock of the Corporation as of its fiscal year end and such declared value shall be the purchase price per share during the current fiscal year for any sale made pursuant to this Article herein provided that the parties may at any time sign a further joint declaration of minimum value; (b) the joint declaration of value shall be in the following or similar form and shall be signed by each of the parties hereto: JOINT DECLARATION OF VALUE For the purpose of the purchase of shares under the Shareholders Agreement made as of the ____ day of _________, ______ among the Shareholders and the Corporation the minimum value per share of the issued Class “A” Voting Shares of the Corporation for the twelve (12) month period following the ____ day
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