Shareholder Agreements - The Law Society of Saskatchewan
Shareholder Agreements - The Law Society of Saskatchewan
Shareholder Agreements - The Law Society of Saskatchewan
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
Contents<br />
Introduction ........................................................................... Corporate-6-1<br />
Contents <strong>of</strong> a Unanimous <strong>Shareholder</strong>s Agreement.............. Corporate-6-1<br />
Organizational Matters.................................................... Corporate-6-2<br />
Control over Directors..................................................... Corporate-6-2<br />
Power to Borrow and Give Security ............................... Corporate-6-4<br />
Control over Type <strong>of</strong> Business in Which the<br />
Corporation is Engaged................................................... Corporate-6-5<br />
Fundamental Change....................................................... Corporate-6-5<br />
Financial Assistance........................................................ Corporate-6-6<br />
Financing......................................................................... Corporate-6-7<br />
Share Issues and Transfers .............................................. Corporate-6-8<br />
General “Buy-Sell” and “Shotgun” Provisions............... Corporate-6-8<br />
Pre-emptive Rights.......................................................... Corporate-6-9<br />
Right <strong>of</strong> First Refusal ...................................................... Corporate-6-9<br />
Mandatory Transfers ....................................................... Corporate-6-9<br />
Shotgun Provisions........................................................ Corporate-6-10<br />
“Piggyback” Offers ....................................................... Corporate-6-10<br />
Other Provisions............................................................ Corporate-6-11<br />
Parties to the Unanimous <strong>Shareholder</strong>s Agreement -<br />
New Subscribers and Transferees ....................................... Corporate-6-12<br />
Amending a Unanimous <strong>Shareholder</strong>s Agreement ............. Corporate-6-12<br />
Incorporating the Unanimous <strong>Shareholder</strong>s Agreement<br />
into the Bylaws or Articles.................................................. Corporate-6-13<br />
Unanimous <strong>Shareholder</strong>s <strong>Agreements</strong> under the<br />
Business Corporations Act (Canada)................................... Corporate-6-14<br />
No part <strong>of</strong> this material may be reproduced, in whole or in part<br />
(in any manner), without the specific written permission <strong>of</strong><br />
<strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong>. (2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong>.)<br />
Corporate–6–i
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
Precedents:<br />
Notes on the Preparation <strong>of</strong> the Unanimous<br />
<strong>Shareholder</strong>s Agreement.................................................... Corporate-P-6-1<br />
<strong>Shareholder</strong>s’ Agreement .................................................. Corporate-P-6-2<br />
Checklist for a Unanimous <strong>Shareholder</strong>s Agreement...... Corporate-P-6-17<br />
Corporate–6–ii<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
Introduction<br />
One <strong>of</strong> the common tasks <strong>of</strong> a solicitor is the preparation <strong>of</strong><br />
unanimous shareholders agreements (“USA”). <strong>The</strong>se are<br />
sometimes also known as “shareholder agreements” or “buy-sell<br />
agreements”. <strong>The</strong>se agreements are essential whether the client is<br />
involved in a small or large business, or organized as a<br />
corporation, partnership or joint venture (although the name, if<br />
not the form, <strong>of</strong> the agreement may change).<br />
A USA is essentially a constitutional document, setting out the<br />
fundamental governing principals <strong>of</strong> a corporation, and, to some<br />
extent, permitting shareholders to modify or supplement the<br />
articles <strong>of</strong> incorporation, bylaws and certain other rules that would<br />
otherwise be prescribed by <strong>The</strong> Business Corporations Act<br />
(<strong>Saskatchewan</strong>), (“SBCA”). <strong>Shareholder</strong>s can eliminate or<br />
minimize the distinction in function between those responsible for<br />
corporate management (the directors) and its owners (the<br />
shareholders) by restricting in whole or in part the directors’<br />
powers under the SBCA. Due to the broad wording <strong>of</strong> section<br />
140(2) <strong>of</strong> the SBCA, the scope <strong>of</strong> a USA is virtually unlimited.<br />
To ensure validity, all parties to a USA should obtain independent<br />
legal advice concerning the terms and conditions <strong>of</strong> the proposed<br />
agreement. <strong>Shareholder</strong>s may not wish to incur the additional<br />
cost, but this is essential to protecting their respective rights.<br />
For informational purposes only, some notes on the preparation <strong>of</strong><br />
USA’s, a Checklist and a sample USA are included in the<br />
precedents.<br />
Contents <strong>of</strong> an Unanimous<br />
<strong>Shareholder</strong>s Agreement<br />
Section 140(2) <strong>of</strong> the SBCA defines "unanimous shareholders<br />
agreement" as:<br />
An otherwise lawful written agreement among all the<br />
shareholders <strong>of</strong> a corporation, or among all the<br />
shareholders and a person who is not a shareholder, that<br />
restricts, in whole or in part, the powers <strong>of</strong> the directors to<br />
manage the business and affairs <strong>of</strong> the corporation is<br />
valid.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–6–1
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
While Section 140(2.1) <strong>of</strong> the SBCA provides:<br />
Where a person who is the beneficial owner <strong>of</strong> all the<br />
issued shares <strong>of</strong> a corporation makes a written<br />
declaration that restricts in whole or in part the powers <strong>of</strong><br />
the directors to manage the business and affairs <strong>of</strong> a<br />
corporation, the declaration is deemed to be a unanimous<br />
shareholder agreement.<br />
It is possible that an agreement among all the shareholders made<br />
prior to incorporation or continuance under the SBCA is a<br />
"unanimous shareholders agreement" for the purpose <strong>of</strong> the<br />
SBCA, however, it is good practice to recommend the parties<br />
ratify the agreement after incorporation.<br />
Organizational Matters<br />
USA’s may deal with organizational matters which are not<br />
addressed in the corporation's articles or bylaws such as:<br />
• the identity <strong>of</strong> the directors;<br />
• the bank and location <strong>of</strong> bank accounts’<br />
• signing <strong>of</strong>ficers for banking;<br />
• selection <strong>of</strong> auditors or accountants; and<br />
• selection <strong>of</strong> a corporate solicitor.<br />
Control Over Directors<br />
Section 97 <strong>of</strong> the SBCA vests management <strong>of</strong> the business and<br />
affairs <strong>of</strong> a corporation in the board <strong>of</strong> directors, "subject to any<br />
unanimous shareholders agreement". In the absence <strong>of</strong> a USA, a<br />
minority shareholder would have very little input into the day-today<br />
operation <strong>of</strong> the corporation.<br />
USA’s <strong>of</strong>ten deal with the following ongoing financial and<br />
operating concerns (which would otherwise be within the<br />
discretion <strong>of</strong> the board <strong>of</strong> directors):<br />
• diverting the "business" or assets <strong>of</strong> the corporation to any<br />
other entity;<br />
• carrying on a new business or affiliation which was not<br />
intended in the USA<br />
• entering into any non-arm’s length transaction;<br />
Corporate–6–2<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
• entering into any agreement in excess <strong>of</strong> expenditure limits;<br />
• borrowing money;<br />
• encumbering assets;<br />
• paying dividends in excess <strong>of</strong> normal policy;<br />
• maintaining adequate internally generated working capital;<br />
• hiring or firing employees;<br />
• fixing remuneration to be paid; and<br />
• issuing treasury shares<br />
<strong>The</strong>re are two mechanisms under which a USA can give<br />
shareholders control over the conduct <strong>of</strong> a corporation’s business:<br />
• It can vest in the shareholders some or all <strong>of</strong> the power to<br />
manage the business and affairs <strong>of</strong> the corporation.<br />
• It can recognize that the directors will manage the<br />
business and affairs <strong>of</strong> the corporation, but provide that<br />
the directors and the corporation cannot take certain<br />
actions specified in the USA (unless all or some specified<br />
majority <strong>of</strong> the corporation's shareholders agree).<br />
A corporation must have directors (section 97), but the directors<br />
may be divested <strong>of</strong> all powers and liabilities pursuant to a USA<br />
and by virtue <strong>of</strong> sections 97(1) and 140(4). Section 140(4) gives a<br />
shareholder exercising what would otherwise be the directors’<br />
power to manage the business and affairs <strong>of</strong> the corporation the<br />
rights, duties and liabilities <strong>of</strong> a director.<br />
If the power to manage a corporation’s business and affairs is<br />
vested in the shareholders, there remains the problem <strong>of</strong> how<br />
decisions will be effected. This must be included in the USA.<br />
It is appropriate to include an indemnification provision in the<br />
USA for directors, if their discretion is fettered. <strong>The</strong>y are liable<br />
for decisions made by the corporation but have little power to<br />
affect how the decisions are made.<br />
Section 140(4) provides that:<br />
A shareholder who is a party to a unanimous shareholder<br />
agreement has all the rights, powers and duties and incurs<br />
all the liabilities <strong>of</strong> a director <strong>of</strong> the corporation to which<br />
the agreement relates to the extent that the agreement<br />
restricts the discretion or powers <strong>of</strong> the directors to<br />
manage the business and affairs <strong>of</strong> the corporation, and<br />
the directors are hereby relieved <strong>of</strong> their duties and<br />
liabilities, including any liabilities under section 114, to<br />
the same extent.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–6–3
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
This section could have the effect <strong>of</strong> imposing on shareholders (to<br />
the extent that powers have been removed from the directors)<br />
those duties otherwise imposed or which could be imposed on<br />
directors <strong>of</strong> a corporation under other provincial laws (such as the<br />
Employment Standards Code, R.S.A. 2000, c. E-9 and Workers'<br />
Compensation Act, R.S.A. 2000, c. W-15).<br />
Section 140(4) <strong>of</strong> the SBCA not only imposes on shareholders all<br />
duties and liabilities otherwise the responsibility <strong>of</strong> directors (to<br />
the extent that the USA provides). It also grants to a shareholder<br />
all the rights and powers <strong>of</strong> those directors. In light <strong>of</strong> sections<br />
113, 114 and 118 <strong>of</strong> the SBCA, it is important that a shareholder<br />
<strong>of</strong> the corporation wishing to dissent from any action taken by<br />
other shareholders <strong>of</strong> the corporation, do so, and take such steps<br />
as are necessary to record that he or she did not consent to the<br />
resolution or action in question.<br />
Section 104 <strong>of</strong> the SBCA provides that directors can be removed<br />
by ordinary resolution <strong>of</strong> shareholders, but a USA may vary this<br />
requirement.<br />
Power to Borrow and Give Security<br />
Particular provisions <strong>of</strong> the SBCA give directors the power to<br />
borrow and give security (subject to the USA):<br />
97(1) Subject to any unanimous shareholder agreement,<br />
the directors <strong>of</strong> a corporation shall:<br />
(a) exercise the powers <strong>of</strong> the corporation directly or<br />
indirectly through the employees and agents <strong>of</strong> the<br />
corporation; and<br />
(b) direct the management <strong>of</strong> the business and affairs<br />
<strong>of</strong> the corporation.<br />
98(1) Unless the articles, bylaws or a unanimous<br />
shareholder agreement otherwise provide, the directors<br />
may, by resolution make, amend, or repeal any bylaws<br />
that regulate the business or affairs <strong>of</strong> the corporation.<br />
16(1) It is not necessary for a bylaw to be passed in order<br />
to confer any particular power on the corporation or its<br />
directors.<br />
183(1) Unless the articles or bylaws <strong>of</strong>, or a<br />
unanimous shareholder agreement relating to, a<br />
corporation otherwise provides, the articles <strong>of</strong> a<br />
corporation are deemed to state that the directors <strong>of</strong> a<br />
corporation may, without authorization <strong>of</strong> the shareholders:<br />
(a) borrow money upon the credit <strong>of</strong> the corporation;<br />
Corporate–6–4<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
(b) issue, reissue, sell or pledge debt obligations <strong>of</strong><br />
the corporation;<br />
(c) subject to section 42, give a guarantee on behalf<br />
<strong>of</strong> the corporation to secure performance <strong>of</strong> an<br />
obligation <strong>of</strong> any person; and<br />
(d) mortgage, hypothecate, pledge or otherwise<br />
create a security interest in all or any property <strong>of</strong><br />
the corporation, owned or subsequently acquired,<br />
to secure any debt obligation <strong>of</strong> the corporation.<br />
183(1.1) Notwithstanding subsection 110(3) and clause<br />
116(a), unless the articles or bylaws <strong>of</strong>, or a unanimous<br />
shareholder agreement relating to, a corporation<br />
otherwise provide, the directors may, by resolution,<br />
delegate the powers mentioned in subsection (1) to a<br />
director, a committee <strong>of</strong> directors or an <strong>of</strong>ficer.<br />
Control over Type <strong>of</strong> Business in Which the<br />
Corporation is Engaged<br />
<strong>Shareholder</strong>s may wish to restrict the business <strong>of</strong> the corporation.<br />
Section 6 <strong>of</strong> the SBCA permits the articles to set out any restrictions<br />
on the business that a corporation may carry on. However, section<br />
97 provides that the directors must manage the business and affairs<br />
<strong>of</strong> the corporation subject to any USA. <strong>The</strong>refore, a USA may<br />
restrict the conduct <strong>of</strong> the business either by vesting the power to<br />
manage the business in the shareholders or by requiring a specified<br />
level <strong>of</strong> shareholder approval to certain business decisions.<br />
An amendment to the articles to add, change or remove a restriction<br />
on the business that the corporation may carry on gives rise to a right<br />
<strong>of</strong> dissent and appraisal under section 184 <strong>of</strong> the SBCA.<br />
If the restriction is included in the articles or in any USA, there<br />
will not be ultra vires problems, but in certain circumstances, this<br />
would permit certain actions to be set aside by the shareholders<br />
(see sections 15 to 18 <strong>of</strong> the SBCA).<br />
Fundamental Change<br />
<strong>The</strong> SBCA requires shareholder approval <strong>of</strong> certain "fundamental<br />
changes". Fundamental changes include:<br />
• amalgamation;<br />
• reorganization;<br />
• winding-up or dissolution <strong>of</strong> the corporation;<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–6–5
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
• amendment <strong>of</strong> the constating documents; and<br />
• continuance <strong>of</strong> the corporation to another jurisdiction.<br />
Most corporate law statutes do not call for shareholder approval<br />
<strong>of</strong> the making <strong>of</strong> a general assignment for the benefit <strong>of</strong> creditors,<br />
a voluntary assignment in bankruptcy or the appointment <strong>of</strong> a<br />
trustee in bankruptcy. In some corporations, these actions are<br />
considered "fundamental changes" calling for shareholder<br />
approval.<br />
A higher level <strong>of</strong> shareholder approval in respect <strong>of</strong> any or all<br />
such fundamental changes than that called for by the "special<br />
resolution" provisions <strong>of</strong> the SBCA or articles, or additional<br />
matters to be defined as “fundamental change” may be included in<br />
the USA.<br />
A USA should also address the question <strong>of</strong> bylaw amendments.<br />
Bylaws can be important when disputes arise, as they contain<br />
rules respecting the giving <strong>of</strong> notice <strong>of</strong> meetings, the quorum for<br />
meetings, and may confer a second or casting vote in the case <strong>of</strong> a<br />
"deadlocked" board or shareholder meeting.<br />
A covenant not to commence proceedings for the liquidation,<br />
winding-up or dissolution may be important in the context <strong>of</strong><br />
enforcing any buy-sell provisions. Conversely, an agreement to<br />
commence liquidation proceedings on the failure to settle a<br />
dispute or the failure to agree on who is to buy out whom can also<br />
prove valuable.<br />
A USA can entitle a shareholder to demand dissolution on the<br />
occurrence <strong>of</strong> a specified event (SBCA, s. 207(1)).<br />
Financial Assistance<br />
Section 42 permits a corporation to give financial assistance to<br />
any shareholder, director, <strong>of</strong>ficer or employee <strong>of</strong> the corporation<br />
or an affiliate <strong>of</strong> the corporation or an associate <strong>of</strong> any <strong>of</strong> those<br />
persons, or to any person for the purpose <strong>of</strong>, or in connection<br />
with, a purchase <strong>of</strong> a share issued by the corporation or an<br />
affiliate <strong>of</strong> the corporation, provided disclosure <strong>of</strong> the financial<br />
assistance given is disclosed in accordance with sections 42(3) or<br />
42(4) as the case may require. A USA may vary these<br />
provisions.<br />
Corporate–6–6<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
Financing<br />
<strong>The</strong> conditions which apply to shareholder financing should also<br />
be included in the USA. <strong>The</strong> timing and amount <strong>of</strong> shareholder<br />
advances and terms for repayment <strong>of</strong> advances should be included<br />
in the agreement.<br />
<strong>Shareholder</strong>s <strong>of</strong>ten have ongoing plans calling for the provision <strong>of</strong><br />
additional capital, either by way <strong>of</strong> debt or equity. It is important<br />
to identify the extent to which:<br />
• additional capital will be needed;<br />
• it is to come from the shareholders; and<br />
• other lenders are to provide it.<br />
<strong>The</strong> USA may function as a loan or financing agreement. If<br />
additional funds are to come from a third-party lender, the USA<br />
will <strong>of</strong>ten address the question <strong>of</strong> whether the shareholders will<br />
provide joint or several guarantees <strong>of</strong> the obligations <strong>of</strong> the<br />
corporation to third parties. If shareholders are to give<br />
guarantees, the USA should provide that each shareholder has a<br />
right <strong>of</strong> contribution from other shareholders for losses in excess<br />
<strong>of</strong> the proportionate share <strong>of</strong> the liabilities.<br />
If the shareholders themselves will be responsible for providing the<br />
necessary additional financing, the USA should contain a covenant to<br />
subscribe for additional shares or to lend additional monies to the<br />
corporation, and would state the security granted (if any), the interest<br />
rate payable (if any), timing for repayment, as well as ensuring that if<br />
necessary, such loans are subordinated to those made by other<br />
creditors. In many cases, repayment terms for shareholder loans are<br />
left flexible (repayable at such time or times as the directors may<br />
determine), and <strong>of</strong>ten little or no corporate security is granted.<br />
Interest may or may not be charged on such shareholder loans – there<br />
is less <strong>of</strong> a rule <strong>of</strong> thumb regarding interest.<br />
A shareholder who will hold less than all shares will normally be<br />
reluctant to give a joint and several guarantee <strong>of</strong> all the obligations <strong>of</strong><br />
the corporation to the bank. It may be possible to negotiate for<br />
“several” as opposed to “joint” liability which would not exceed the<br />
shareholders’ advances and equity in the corporation. This will be<br />
dependent moreso on the strength <strong>of</strong> the corporation, both from a<br />
financial standpoint, and the quality <strong>of</strong> its relationship with its bank,<br />
for regardless <strong>of</strong> what the shareholders may agree, it will be the bank<br />
that will make this determination.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–6–7
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
Share Issue and Transfers<br />
Section 25(1) <strong>of</strong> the SBCA recognizes that the articles, bylaws or a<br />
USA can regulate the timing <strong>of</strong> share issues and the conditions or<br />
restrictions applying to the sale <strong>of</strong> shares.<br />
Section 28 permits the articles to provide for a pre-emptive right<br />
on the issue <strong>of</strong> shares. It restricts the scope <strong>of</strong> pre-emptive rights<br />
conferred by the articles if shares are to be issued for nonmonetary<br />
consideration, as a share dividend, or pursuant to<br />
conversion rights or options.<br />
<strong>The</strong> articles or a USA can set out restrictions on share transfers<br />
(section 6(2)), subject to transfer or pre-emptive rights which are<br />
included in the articles, an amendment to the articles to "add,<br />
remove or change prejudicially" transfer or pre-emptive rights<br />
gives rise to a right <strong>of</strong> dissent and appraisal (sections 170 and<br />
184).<br />
Division XV <strong>of</strong> the SBCA gives a right <strong>of</strong> compulsory acquisition<br />
on a takeover bid. This is not restricted to "distributing<br />
corporations". A purchaser <strong>of</strong> 90 percent <strong>of</strong> the shares can force<br />
the acquisition <strong>of</strong> the remaining shares <strong>of</strong> a non-distributing<br />
corporation. However, the USA may provide for a higher<br />
percentage.<br />
Corporate repurchases are governed by section 32 <strong>of</strong> the SBCA.<br />
General “Buy-Sell” and “Shotgun” Provisions<br />
Often the most used provisions <strong>of</strong> a USA are the share transfer (or<br />
restrictions on share transfer) provisions. <strong>The</strong>se can include many<br />
forms:<br />
• granting shareholders a pre-emptive right to acquire<br />
shares the corporation is issuing from treasury;<br />
• providing shareholders a right <strong>of</strong> first refusal to acquire<br />
shares being sold by an existing shareholder;<br />
• mandatory transfer provisions, forcing a shareholder to<br />
sell his or her shares on the occurrence <strong>of</strong> certain<br />
triggering events;<br />
• shot-gun clauses; and<br />
• other more complex share transfer rights including puts,<br />
calls, bring-along and tag-along rights.<br />
Each <strong>of</strong> these are discussed in more detail below.<br />
Corporate–6–8<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
Pre-emptive Rights<br />
It is <strong>of</strong>ten a surprise that absent some pre-emptive rights in a USA,<br />
shareholders do not possess a right to purchase treasury shares<br />
being issued by the corporation. Generally, USA’s provide that<br />
shareholders have a pro rata pre-emptive right to acquire new<br />
shares being issued by the corporation from treasury, thus giving<br />
shareholders the right to preserve their relative proportion <strong>of</strong> equity<br />
in the corporation. In the event that not all shareholders exercise<br />
their pre-emptive rights, some USA’s allow shareholders to take up<br />
excess shares prior to such shares being <strong>of</strong>fered to third parties.<br />
Right <strong>of</strong> First Refusal<br />
Many USA's provide that no shareholder may sell his or her shares<br />
without first <strong>of</strong>fering them to existing shareholders and/or the<br />
corporation on a pro rata basis. <strong>The</strong> general rule is that shares will<br />
only be sold to outsiders if the existing shareholders (or the<br />
corporation) are unwilling to purchase the shares <strong>of</strong> the <strong>of</strong>feror.<br />
<strong>The</strong>se provisions represent an attempt to balance the control <strong>of</strong><br />
ownership desired in closely-held corporations with the desire to<br />
provide some market or liquidity to shareholders <strong>of</strong> such<br />
corporations. However, in general, for the vast majority <strong>of</strong> private<br />
corporations, there is very little, if any, market for these shares.<br />
Mandatory Transfers<br />
Often USAs will provide for a forced or automatic sale <strong>of</strong> a<br />
shareholder’s shares in the event one <strong>of</strong> a number <strong>of</strong> listed events<br />
occur. Among the more common events include the death, disability<br />
or bankruptcy <strong>of</strong> a shareholder, the institution <strong>of</strong> matrimonial<br />
proceedings by a shareholder or the spouse <strong>of</strong> a shareholder, the<br />
finding <strong>of</strong> mental incompetency <strong>of</strong> a shareholder, or the cessation <strong>of</strong><br />
employment <strong>of</strong> a shareholder by with the corporation. Mandatory<br />
share transfers may also be triggered by a default by a shareholder in<br />
his or her obligations under the USA, such as complying with cash<br />
calls, guaranteeing debt <strong>of</strong> the corporation, or others.<br />
<strong>The</strong>se clauses <strong>of</strong>ten go into considerable detail regarding the<br />
procedure and terms for the purchase and sale <strong>of</strong> shares in these<br />
instances, and terms such as share price and payment terms may<br />
differ depending on which event triggered the mandatory sale.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–6–9
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
Shotgun Provisions<br />
Many parties see a "shotgun" buy-sell as a useful means <strong>of</strong><br />
creating liquidity and resolving disputes. A "shotgun" is simply a<br />
device under which one shareholder (the "<strong>of</strong>fering party") <strong>of</strong>fers<br />
to purchase the interest <strong>of</strong> the other or others (the "notified<br />
party"). <strong>The</strong> notified party must either sell his or her interest to<br />
the <strong>of</strong>fering party at the stipulated price or purchase the interest <strong>of</strong><br />
the <strong>of</strong>fering party at the stipulated price. As the party receiving<br />
the notice is put to the election <strong>of</strong> either selling his or her shares to<br />
the <strong>of</strong>fering party or buying the <strong>of</strong>fering party’s shares at the<br />
stipulated price, the price is generally fair. <strong>The</strong> <strong>of</strong>fering party<br />
cannot set the price too high, as he or she may have to purchase<br />
the notice party’s shares at that price.<br />
Shotgun clauses generally work best when there are only two<br />
shareholders, and there is relative economic equality between<br />
them. <strong>Shareholder</strong>s tend to like them because <strong>of</strong> their finality in<br />
resolving disputes. However shareholders should always be<br />
cautioned about their inclusion, as a shotgun clause (or the threat<br />
<strong>of</strong> its use) can be used as a bullying tool, especially where there is<br />
an economic disparity between the parties. Shotgun clauses can<br />
theoretically exist in USA’s with more than two shareholders,<br />
however they are not <strong>of</strong>ten used in such circumstances as they<br />
generally become too complex in operation.<br />
Examples <strong>of</strong> shotgun provisions are found in O'Brien's Forms and<br />
in Ward's Canadian Corporation Precedents.<br />
“Piggyback” Offers<br />
Another alternative is to allow a shareholder to "piggyback" on<br />
the sale <strong>of</strong> an interest. A buy-sell agreement may contain a right<br />
<strong>of</strong> first refusal in respect <strong>of</strong> bona fide arm’s length cash <strong>of</strong>fers, but<br />
prohibit the sale <strong>of</strong> an interest to an outsider unless all<br />
shareholders (including those who have declined to exercise the<br />
right <strong>of</strong> purchase arising under the right <strong>of</strong> first refusal) have the<br />
opportunity to sell their interests to the outside purchaser for the<br />
same cash consideration. <strong>The</strong>se are <strong>of</strong>ten known as bring-along<br />
or tag-along rights.<br />
Corporate–6–10<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
Other Provisions:<br />
Liquidation<br />
A USA can provide for a forced winding up <strong>of</strong> the corporation if<br />
one <strong>of</strong> the shareholders <strong>of</strong>fers the sale <strong>of</strong> his or her shares, but the<br />
other shareholders cannot purchase the shares within a reasonable<br />
period <strong>of</strong> time.<br />
Trustees and Attorneys<br />
It may be appropriate to appoint a trustee to hold share certificates<br />
and to appoint an attorney for the purpose <strong>of</strong> transferring shares.<br />
Trustees will require a written appointment, which clearly<br />
identifies the circumstances and the advice on which they may<br />
rely on delivering and releasing share certificates, with<br />
appropriate trustee indemnification provisions.<br />
Voting Trusts or Pooling <strong>Agreements</strong><br />
<strong>Shareholder</strong>s may wish to lodge their shares with an individual<br />
authorized and directed to vote the shares in such manner as will<br />
give effect to the terms <strong>of</strong> the agreement. Trustees holding the<br />
pooled shares will likely require the normal trustee protection<br />
provisions and appropriate indemnities allowing them to clearly<br />
identify the source <strong>of</strong> their instructions and to rely on the advice<br />
<strong>of</strong> certain individuals. <strong>The</strong> agreement should specifically deal<br />
with the question <strong>of</strong> share registration, the payment <strong>of</strong> dividends<br />
and voting.<br />
Confidential Information, Non-Competition <strong>Agreements</strong> and<br />
Non-Solicitation <strong>of</strong> Accounts <strong>Agreements</strong><br />
A USA may incorporate non-competition or non-solicitation<br />
agreements entered into by employee shareholders. If<br />
shareholders are going to be employed by the corporation,<br />
reasonable non-competition and non-disclosure agreements<br />
should be part <strong>of</strong> the employment agreement.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–6–11
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
Parties to the Unanimous<br />
<strong>Shareholder</strong>s Agreement – New<br />
Subscribers and Transferees<br />
Generally, a non-party to an agreement cannot be bound by the<br />
agreement. However, section 140(3) <strong>of</strong> the SBCA deems subsequent<br />
subscribers or purchasers <strong>of</strong> shares <strong>of</strong> a corporation to be parties to<br />
an existing USA, and ostensibly imposes the rights and obligations <strong>of</strong><br />
the USA on those subscribers or purchasers, whether or not they had<br />
actual knowledge <strong>of</strong> the USA at the time they acquired the shares in<br />
the corporation.<br />
Corporations whose shares are governed by a USA are to have a<br />
legend endorsed on their share certificates. A typical USA legend<br />
on a share certificate would read as follows:<br />
Shares evidenced by this certificate are subject to the<br />
terms and conditions <strong>of</strong> a (unanimous) shareholder<br />
agreement made the * day <strong>of</strong> * , 20 *, and may not be<br />
transferred or encumbered except in accordance with the<br />
provisions <strong>of</strong> that agreement.<br />
Purchasers who acquire shares <strong>of</strong> a corporation without<br />
knowledge <strong>of</strong> a USA may be entitled to rescind their purchase, or<br />
to compel the corporation to re-purchase the shares bought at their<br />
fair market value. By affixing the legend on all share certificates<br />
<strong>of</strong> a corporation subject to a USA, the risk <strong>of</strong> an argument that a<br />
purchaser <strong>of</strong> shares has no notice <strong>of</strong> the terms <strong>of</strong> a USA is<br />
minimized.<br />
Amending a Unanimous<br />
<strong>Shareholder</strong>s Agreement<br />
One <strong>of</strong> the main features <strong>of</strong> any corporation is that <strong>of</strong> "majority<br />
rule". Flexibility should be built into the USA to allow the parties<br />
the opportunity to adapt the USA as the business progresses.<br />
Corporate–6–12<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
Incorporating the<br />
Unanimous <strong>Shareholder</strong>s Agreement<br />
into the Bylaws or Articles<br />
<strong>The</strong> SBCA contemplates that many <strong>of</strong> the terms <strong>of</strong> a USA can be<br />
incorporated into the articles or the bylaws. <strong>The</strong> mechanism for<br />
amending each <strong>of</strong> these documents differs.<br />
Flexibility is desirable in corporations with three or more<br />
shareholders. Provisions requiring unanimous consent or granting<br />
a “veto” may prevent the corporation from doing business. In<br />
preparing these documents it is important to determine whether or<br />
not any future change to a provision gives rise to a right <strong>of</strong> dissent<br />
and appraisal pursuant to section 184 and whether this is a<br />
desirable result.<br />
Action by directors is taken by resolution passed by majority vote<br />
at a meeting or by resolution signed by all directors. Action by<br />
shareholders is taken by ordinary or special resolution, that is, by<br />
a bare majority or a two-thirds majority vote at a meeting <strong>of</strong><br />
shareholders or by resolution signed by all shareholders entitled to<br />
vote on the resolution. Bylaws may give the chairperson <strong>of</strong> a<br />
meeting (or some other person) a second or casting vote in the<br />
case <strong>of</strong> an equality <strong>of</strong> votes cast on a resolution. Section 6(3) <strong>of</strong><br />
the SBCA permits the articles or a USA to require a greater<br />
number <strong>of</strong> votes <strong>of</strong> directors or shareholders than are required by<br />
the SBCA to effect any action.<br />
In a simple situation with two shareholders, each owning 50<br />
percent <strong>of</strong> the shares, a "deadlock" or effective veto can be given<br />
if both are elected directors and if neither has a casting vote under<br />
the terms <strong>of</strong> the bylaws. <strong>The</strong> bylaws and articles cannot be<br />
changed unless the parties agree. This situation can cause<br />
significant problems in the business.<br />
A minority shareholder can be given a veto by ensuring that the<br />
shareholder has board representation, by requiring some higher<br />
majority than a bare majority to pass ordinary resolutions <strong>of</strong><br />
directors, and by requiring some majority in excess <strong>of</strong> one-half<br />
and two-thirds to pass ordinary and special resolutions <strong>of</strong><br />
shareholders. <strong>The</strong>se provisions can be inserted into the articles or<br />
the USA.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–6–13
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
Bylaws are normally amended by ordinary resolution <strong>of</strong> directors<br />
and shareholders (SBCA, section 98); and the articles are normally<br />
amended by a two-third majority vote <strong>of</strong> shareholders (section<br />
167 and 2(1)(ff)). Provisions <strong>of</strong> the articles or bylaws can be<br />
more entrenched by requiring some higher majority to effect an<br />
amendment or repeal, as contemplated by section 6(3).<br />
Unanimous <strong>Shareholder</strong>s <strong>Agreements</strong><br />
under the<br />
Business Corporations Act (Canada)<br />
Section 146 <strong>of</strong> the Business Corporations Act (Canada) (“CBCA”)<br />
authorizes the use <strong>of</strong> USA’s. This provision is not as detailed as<br />
the SBCA provisions, and is, in some ways, more limiting. <strong>The</strong><br />
CBCA effectively requires the USA to restrict, in whole or in part,<br />
the powers <strong>of</strong> the directors or it will not be considered a USA<br />
under the CBCA.<br />
If the corporation is governed by the CBCA, it is important to<br />
familiarize yourself with this section and note any differences<br />
from section 140 <strong>of</strong> the SBCA.<br />
Corporate–6–14<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
NOTES ON UNANIMOUS SHAREHOLDERS AGREEMENTS<br />
Under the Business Corporations Act (<strong>Saskatchewan</strong>) a Unanimous <strong>Shareholder</strong>s<br />
Agreement may affect:<br />
(a)<br />
(b)<br />
the pre-emptive rights <strong>of</strong> existing shareholders to acquire shares from the<br />
treasury <strong>of</strong> the corporation (section 25(1));<br />
the ability <strong>of</strong> personal representatives <strong>of</strong> a shareholder to deal with the shares<br />
<strong>of</strong> that shareholder (section 50(2));<br />
(c) the amendment <strong>of</strong> the bylaws by the directors (section 98(1));<br />
(d)<br />
(e)<br />
(f)<br />
(g)<br />
(h)<br />
(i)<br />
the borrowing <strong>of</strong> money, the pledging <strong>of</strong> debt obligations, the giving <strong>of</strong><br />
guarantees, the mortgaging or creation <strong>of</strong> security interests in the property <strong>of</strong><br />
the corporation (section 183(1));<br />
the disclosure <strong>of</strong> a material interest in the contracts <strong>of</strong> the corporation by<br />
<strong>of</strong>ficers or directors (section 115(9));<br />
the designation <strong>of</strong> the <strong>of</strong>ficers <strong>of</strong> the corporation, the specifications <strong>of</strong> their<br />
duties, and the delegation to those <strong>of</strong>ficers <strong>of</strong> the power to manage the<br />
business and the affairs <strong>of</strong> the corporation (section 116);<br />
the remuneration <strong>of</strong> <strong>of</strong>ficers, directors and employees <strong>of</strong> the corporation<br />
(section 120);<br />
the contents <strong>of</strong> financial statements (section 149(1)(c)); and<br />
the entitlement <strong>of</strong> shareholders to demand dissolution <strong>of</strong> the corporation<br />
(section 207(1)(b)(i)).<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–P–6–1
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
SHAREHOLDERS' AGREEMENT<br />
Disclaimer: This agreement is intended as a teaching vehicle for use only in the <strong>Saskatchewan</strong> CPLED<br />
Program. Certain key provisions have been omitted and other provisions are inconsistent. This document is not<br />
intended to be used as a precedent.<br />
THIS AGREEMENT made , 2005;<br />
BETWEEN:<br />
JUSTIN SMITH ("JS"),<br />
- and-<br />
ANNE CLARKE ("AC"),<br />
- and -<br />
BRENT TAYLOR ("BT"),<br />
- and -<br />
DIGITAL WIDGETS INC. ("the Corporation"),<br />
<strong>The</strong> <strong>Shareholder</strong>s and the Corporation entered into this Agreement to provide for the<br />
operation <strong>of</strong> the Corporation;<br />
<strong>The</strong> authorized capital <strong>of</strong> the Corporation consists <strong>of</strong> an unlimited number <strong>of</strong> Class<br />
"A" Common voting shares, <strong>of</strong> which 300 are issued; and an unlimited number <strong>of</strong><br />
Class "B" Preferred non-voting shares, <strong>of</strong> which 0 are issued;<br />
All <strong>of</strong> the issued shares <strong>of</strong> the corporation are owned by the <strong>Shareholder</strong>s as<br />
follows:<br />
<strong>Shareholder</strong><br />
Class “A” Common Voting<br />
Shares<br />
JS 100<br />
AC 100<br />
BT 100<br />
Class “B” Preferred Non-<br />
Voting Shares<br />
<strong>The</strong> parties agree as follows:<br />
Corporate–P–6–2<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
1.01 Definitions<br />
ARTICLE ONE - INTERPRETATION<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
"Agreement" means this agreement and all written schedules and<br />
amendments made between the <strong>Shareholder</strong>s and the Corporation;<br />
"<strong>The</strong> Act" means <strong>The</strong> Business Corporations Act, as amended, reenacted<br />
or replaced;<br />
"Business Day" means a day other than a Saturday, Sunday or a<br />
statutory holiday in <strong>Saskatchewan</strong>;<br />
"Shares" means the shares <strong>of</strong> the Corporation that the <strong>Shareholder</strong>s<br />
own; and<br />
"<strong>Shareholder</strong>s" means JS, AC and BT and any other person who may<br />
become parties to this Agreement and "<strong>Shareholder</strong>" means any one<br />
<strong>of</strong> these persons, individually.<br />
1.02 Sections and Headings<br />
<strong>The</strong> insertion <strong>of</strong> sections and headings are for convenience <strong>of</strong> reference only and<br />
shall not affect the construction or interpretation <strong>of</strong> this Agreement.<br />
1.03 Unanimous <strong>Shareholder</strong>s Agreement<br />
<strong>The</strong> discretion and powers <strong>of</strong> the directors to manage the affairs <strong>of</strong> the Corporation<br />
are restricted by this Agreement where it specifies that any matter requires action by<br />
or approval <strong>of</strong> the <strong>Shareholder</strong>s.<br />
2.01 Directors<br />
ARTICLE TWO - MANAGEMENT<br />
<strong>The</strong> board <strong>of</strong> directors <strong>of</strong> the Corporation shall consist <strong>of</strong> [ ] directors and [ ] and [ ]<br />
shall be the directors <strong>of</strong> the Corporation, unless all <strong>of</strong> the <strong>Shareholder</strong>s elect or<br />
appoint another person to be a director or consent in writing to another person being<br />
elected or appointed and a copy <strong>of</strong> the consent is filed with the Corporation.<br />
2.02 Auditor<br />
<strong>The</strong> <strong>Shareholder</strong>s shall appoint the auditor <strong>of</strong> the Corporation annually. <strong>The</strong><br />
directors shall fix the remuneration <strong>of</strong> the auditor.<br />
OR<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–P–6–3
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
[2.02 Dispensing with Auditor<br />
<strong>The</strong> <strong>Shareholder</strong>s shall in each financial year <strong>of</strong> the Corporation resolve not to<br />
appoint an auditor <strong>of</strong> the Corporation pursuant to the provisions <strong>of</strong> <strong>The</strong> Business<br />
Corporations Act.]<br />
2.03 Approval <strong>of</strong> Matters<br />
None <strong>of</strong> the following actions:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
(g)<br />
(h)<br />
(i)<br />
(j)<br />
(k)<br />
(l)<br />
(m)<br />
changing the articles or bylaws <strong>of</strong> the Corporation;<br />
changing the authorized or issued capital <strong>of</strong> the Corporation;<br />
entering into any agreement or making any <strong>of</strong>fer or granting any right<br />
capable <strong>of</strong> becoming an agreement to allot or issue any shares <strong>of</strong> the<br />
Corporation;<br />
taking any action which may lead to or result in a material change in<br />
the nature <strong>of</strong> the business <strong>of</strong> the Corporation;<br />
entering into any agreement other than in the ordinary course <strong>of</strong> the<br />
Corporation's business;<br />
borrowing any money, giving any security or making or incurring any<br />
single capital expenditure in excess <strong>of</strong> $10,000 or any capital<br />
expenditures in excess <strong>of</strong> $100,000 in any financial year <strong>of</strong> the<br />
Corporation;<br />
taking any steps to wind-up or terminate the corporate existence <strong>of</strong> the<br />
Corporation;<br />
selling, leasing, exchanging or disposing <strong>of</strong> all or any substantial part<br />
<strong>of</strong> the undertaking, property or assets <strong>of</strong> the Corporation;<br />
making, directly or indirectly, loans or advances to, or giving security<br />
for or guaranteeing the debts <strong>of</strong>, any person;<br />
declaring or paying any dividend;<br />
taking, holding, subscribing for or agreeing to purchase or acquire<br />
shares in the capital <strong>of</strong> any corporate body;<br />
entering into a partnership or any arrangement for the sharing <strong>of</strong><br />
pr<strong>of</strong>its, union <strong>of</strong> interests, joint venture or reciprocal concession with<br />
any person; and<br />
entering into an amalgamation, merger or consolidation with any other<br />
corporate body<br />
Corporate–P–6–4<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
shall be taken by the Corporation unless:<br />
(A)<br />
(B)<br />
in the case <strong>of</strong> an action that by law requires the approval <strong>of</strong> the<br />
directors only:<br />
(1) all <strong>of</strong> the directors at a properly constituted meeting <strong>of</strong> directors<br />
give their approval to such action by resolution; or<br />
(2) all <strong>of</strong> the directors consent in writing to the action; and<br />
in the case <strong>of</strong> an action that by law requires the approval <strong>of</strong> the<br />
<strong>Shareholder</strong>s;<br />
(1) the action is approved by a resolution passed by a majority <strong>of</strong> not<br />
less than 80 per cent <strong>of</strong> the votes cast by the <strong>Shareholder</strong>s who<br />
voted in respect there<strong>of</strong> at a properly constituted meeting; or<br />
(2) all <strong>of</strong> the <strong>Shareholder</strong>s consent in writing to the action.<br />
3.01 Transfer <strong>of</strong> Shares<br />
ARTICLE THREE - DEALING WITH SHARES<br />
Except as provided for in this Article Three, <strong>Shareholder</strong>s can only sell, transfer,<br />
dispose <strong>of</strong> or encumber their Shares if they first obtain the written consent <strong>of</strong> all the<br />
other <strong>Shareholder</strong>s to such disposition or encumbrance.<br />
3.02 Endorsement <strong>of</strong> Certificates<br />
Share certificates shall state the following:<br />
"<strong>The</strong> shares represented by this certificate are subject to all the terms and<br />
conditions <strong>of</strong> an agreement dated, 20* , and filed at the registered <strong>of</strong>fice <strong>of</strong><br />
the Corporation."<br />
3.03 Issue <strong>of</strong> Additional Shares<br />
If any additional shares are to be issued from treasury, the Corporation shall first <strong>of</strong>fer<br />
such shares to the <strong>Shareholder</strong>s by giving them notice <strong>of</strong> the Corporation's intention<br />
to issue additional shares and the number and class to be issued. <strong>The</strong> <strong>Shareholder</strong>s<br />
shall have the right to purchase the <strong>of</strong>fered shares pro rata based upon the number <strong>of</strong><br />
Shares beneficially owned by each <strong>Shareholder</strong> at the date notice is given <strong>of</strong> the <strong>of</strong>fer.<br />
<strong>The</strong> <strong>Shareholder</strong>s shall have 20 Business Days from the date <strong>of</strong> the notice to take up<br />
and pay for all or any <strong>of</strong> the <strong>of</strong>fered shares. <strong>The</strong> shares that have not been taken up<br />
and paid for within the 20 Business Days may be <strong>of</strong>fered and issued to such persons<br />
as the directors in their discretion determine, provided that such persons agree to be<br />
bound by and to become parties to this Agreement.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–P–6–5
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
3.04 Sale <strong>of</strong> Shares - Right <strong>of</strong> First Refusal<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
Any <strong>Shareholder</strong> (the "Offeror") who wants to sell all or any Shares<br />
shall give notice <strong>of</strong> such proposed sale ("Notice") to the Corporation<br />
and to the other <strong>Shareholder</strong>s and shall set out in the Notice the<br />
number <strong>of</strong> Shares that are <strong>of</strong>fered for sale ("Offered Shares") and the<br />
terms and the price for the Offered Shares ("Purchase Price").<br />
Upon the Notice being given, the other <strong>Shareholder</strong>s (the "Offerees" and<br />
individually, an "Offeree") shall have the right to purchase all, but not<br />
less than all, <strong>of</strong> the Offered Shares for the Purchase Price. <strong>The</strong> Offerees<br />
shall be entitled to purchase the Offered Shares pro rata based upon the<br />
number <strong>of</strong> Shares beneficially owned by the Offerees or to purchase in<br />
such other proportion as the Offerees may agree in writing.<br />
Within 10 Business Days <strong>of</strong> receiving the Notice, each Offeree who<br />
desires to purchase all <strong>of</strong> the Offered Shares that such Offeree is<br />
entitled to purchase according to Section 3.04(b) shall give notice to the<br />
Offeror, to the Corporation and to the other Offerees. If any Offeree<br />
does not give such notice, the Offered Shares that such Offeree had<br />
been entitled to purchase ("Rejected Shares") may instead be<br />
purchased by the Offerees who did give notice, pro rata based upon the<br />
number <strong>of</strong> Shares beneficially owned by such Offerees or in such other<br />
proportion as the Offerees may agree in writing, and within 5 Business<br />
Days <strong>of</strong> the expiry <strong>of</strong> the 10 Business Day period specified in this<br />
Section, each Offeree who desires to purchase all <strong>of</strong> the Rejected<br />
Shares that such Offeree is entitled to purchase according to this<br />
Section shall give an additional notice to the Offeror, to the Corporation<br />
and to the other Offerees. If any Offeree entitled to give this additional<br />
notice does not do so, the Rejected Shares that such Offeree had been<br />
entitled to purchase may instead be purchased by the Offerees who did<br />
give notice, and so on from time to time until the Offerees are willing to<br />
purchase all <strong>of</strong> the Offered Shares or until they are not willing to<br />
purchase any more. If the Offerees are willing to purchase all, but not<br />
less than all, <strong>of</strong> the Offered Shares, the transaction <strong>of</strong> purchase and sale<br />
shall be completed in accordance with the terms <strong>of</strong> the Notice.<br />
If the Offeror makes default in transferring the Offered Shares to the<br />
Offerees according to the terms <strong>of</strong> the Notice, the Secretary <strong>of</strong> the<br />
Corporation is authorized and directed to receive the purchase money<br />
and enter the names <strong>of</strong> the Offerees in the registers <strong>of</strong> the Corporation<br />
as the holders <strong>of</strong> the Shares. <strong>The</strong> purchase money shall be held in<br />
trust by the Corporation on behalf <strong>of</strong> the Offeror and shall not be mixed<br />
with the Corporation's assets. <strong>The</strong> receipt by the Secretary <strong>of</strong> the<br />
Corporation for the purchase money shall be a good discharge to the<br />
Offerees and, after their names have been entered in the registers <strong>of</strong><br />
Corporate–P–6–6<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
the Corporation, the validity <strong>of</strong> the proceedings shall not be questioned<br />
by any person. Once the shares are registered to the Offerees, the<br />
Offeror ceases to have any right to the Offered Shares except the right<br />
to receive the Purchase Price received by the Secretary <strong>of</strong> the<br />
Corporation.<br />
(e)<br />
If the Offerees do not give notice according to Section 3.04(c) that they<br />
are willing to purchase all <strong>of</strong> the Offered Shares, the rights <strong>of</strong> the<br />
Offerees to purchase the Offered Shares shall end and the Offeror may<br />
sell the Offered Shares to any person within four months after the expiry<br />
<strong>of</strong> the 10 Business Day period or 5 Business Day period specified in<br />
Section 3.04(c), for a price not less than the Purchase Price and on<br />
other terms no more favourable to such person than those set forth in<br />
the Notice, provided that the person to whom the Shares are to be sold<br />
agrees prior to such transaction to be bound by and to become a party<br />
to this Agreement in place <strong>of</strong> the Offeror. If the Offered Shares are not<br />
sold within the four month period, the rights <strong>of</strong> the Offerees pursuant to<br />
this Section 3.04 shall again take effect and so on from time to time.<br />
OR<br />
[3.04 Sale <strong>of</strong> Shares – Shotgun<br />
(a)<br />
(b)<br />
(c)<br />
Any <strong>Shareholder</strong> ("Offeror") has the right at any time to give notice<br />
("Notice") to the other <strong>Shareholder</strong>s (the "Offerees" and individually, an<br />
"Offeree") and to the Corporation. <strong>The</strong> Notice shall contain the<br />
following:<br />
i. an <strong>of</strong>fer by the Offeror to purchase all <strong>of</strong> the Shares beneficially<br />
owned by the Offerees ("Offer to Purchase");<br />
ii. an <strong>of</strong>fer by the Offeror to sell all <strong>of</strong> the Shares beneficially<br />
owned by the Offeror to the Offerees pro rata based upon the<br />
number <strong>of</strong> Shares beneficially owned by the Offerees ("Offer to<br />
Sell"); and<br />
iii.<br />
the price to be paid for each Share pursuant to the Offer to<br />
Purchase and the Offer to Sell, which shall be the same for both<br />
<strong>of</strong>fers ("Purchase Price").<br />
Within 10 Business Days <strong>of</strong> Notice being given, each Offeree is<br />
entitled to accept either the Offer to Purchase or the Offer to Sell by<br />
giving notice <strong>of</strong> such acceptance to the Offeror, to the other Offerees<br />
and to the Corporation.<br />
If the Offerees accept the Offer to Purchase, the Offerees shall sell and<br />
the Offeror shall purchase all <strong>of</strong> the Shares beneficially owned by each<br />
Offeree at the Purchase Price and the transaction <strong>of</strong> purchase and<br />
sale shall be completed within 20 Business Days <strong>of</strong> the expiry <strong>of</strong> the 10<br />
Business Day period specified in Section 3.04(b). <strong>The</strong> transaction shall<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–P–6–7
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
be completed at the Corporation's registered <strong>of</strong>fice where the Offerees<br />
shall deliver the Shares with good, free and clear title and shall receive<br />
payment by certified cheque from the Offeror.<br />
(d)<br />
(e)<br />
(f)<br />
(g)<br />
If the Offerees accept the Offer to Sell, the Offerees shall purchase pro<br />
rata, based upon the number <strong>of</strong> Shares beneficially owned by the<br />
Offerees, and the Offeror shall sell all <strong>of</strong> the Shares beneficially owned<br />
by the Offeror at the Purchase Price and the transaction <strong>of</strong> purchase<br />
and sale shall be completed within 20 Business Days <strong>of</strong> the expiry <strong>of</strong><br />
the 10 Business Day period specified in Section 3.04(b). <strong>The</strong><br />
transaction shall be completed at the Corporation's registered <strong>of</strong>fice<br />
where the Offeror shall deliver the Shares with good, free and clear<br />
title and shall receive payment by certified cheque from the Offerees.<br />
If any Offeree does not accept either the Offer to Purchase or the Offer<br />
to Sell within the 10 Business Day period specified in Section 3.04(b),<br />
that Offeree shall be deemed to have accepted the Offer to Purchase<br />
<strong>of</strong> the Offeror and to have given notice <strong>of</strong> such acceptance pursuant to<br />
the provisions <strong>of</strong> Section 3.04(b) on the last Business Day upon which<br />
such notice may have been given.<br />
If one Offeree accepts or is deemed to have accepted the Offer to<br />
Purchase pursuant to the provisions <strong>of</strong> Section 3.04(c) or Section<br />
3.04(e), respectively, ("Selling Offeree") and another Offeree accepts<br />
the Offer to Sell <strong>of</strong> the Offeror pursuant to the provisions <strong>of</strong> Section<br />
3.04(b) ("Purchasing Offeree"), the Purchasing Offeree shall be entitled<br />
to purchase the Shares beneficially owned by the Offeror and the<br />
Shares beneficially owned by the Selling Offeree by giving notice <strong>of</strong> the<br />
exercise <strong>of</strong> that right to the Offeror, the Selling Offeree and to the<br />
Corporation within 10 Business Days <strong>of</strong> the expiry <strong>of</strong> the 10 Business<br />
Day period specified in Section 3.04(b) and, if the Purchasing Offeree<br />
gives notice pursuant to the provisions <strong>of</strong> Section 3.04(f), the Offeror<br />
and the Selling Offeree shall sell the Shares beneficially owned by them<br />
to the Purchasing Offeree and such transaction <strong>of</strong> purchase and sale<br />
shall be completed within 20 Business Days <strong>of</strong> the date upon which the<br />
Corporation was given such notice by the Purchasing Offeree. <strong>The</strong><br />
transaction shall be completed at the Corporation's registered <strong>of</strong>fice<br />
where the Offeror and the Selling Offeree shall deliver the Shares with<br />
good, free and clear title and shall receive payment by certified cheque<br />
from the Purchasing Offeree.<br />
If the Purchasing Offeree fails to give notice under Section 3.04(f)<br />
within the 10 Business Day period, the Purchasing Offeree shall be<br />
deemed to have accepted the Offer to Purchase, and not accepted the<br />
Offer to Sell, and the provisions <strong>of</strong> Section 3.04(c) shall apply to both<br />
Offerees except that the transaction <strong>of</strong> purchase and sale shall be<br />
completed with 15 Business Days <strong>of</strong> the expiry <strong>of</strong> the 10 Business Day<br />
period specified in Section 3.04(f).<br />
Corporate–P–6–8<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
(h)<br />
(i)<br />
(j)<br />
If any <strong>Shareholder</strong> obliged to sell under Section 3.04 ("Selling<br />
<strong>Shareholder</strong>") makes default in transferring all or any <strong>of</strong> the Shares to<br />
a <strong>Shareholder</strong> obliged to purchase under Section 3.04 ("Purchasing<br />
<strong>Shareholder</strong>"), the Secretary <strong>of</strong> the Corporation is directed to receive<br />
the purchase money and enter the name <strong>of</strong> the Purchasing<br />
<strong>Shareholder</strong> in the registers <strong>of</strong> the Corporation as the holder <strong>of</strong> the<br />
Shares. <strong>The</strong> purchase money shall be held in trust by the Corporation<br />
on behalf <strong>of</strong> the Selling <strong>Shareholder</strong> and shall not be mixed with the<br />
Corporation's assets. <strong>The</strong> receipt by the Secretary for the purchase<br />
money shall be a good discharge to the Purchasing <strong>Shareholder</strong> and,<br />
after the name has been entered in the registers <strong>of</strong> the Corporation,<br />
the validity <strong>of</strong> the proceedings shall not be questioned by any person.<br />
On the registration, the Selling <strong>Shareholder</strong> ceases to have any right to<br />
the Shares except the right to receive the Purchase Price received by<br />
the Secretary <strong>of</strong> the Corporation.<br />
Two <strong>of</strong> the <strong>Shareholder</strong>s may jointly give a Notice to another<br />
<strong>Shareholder</strong> under Section 3.04(a) and, in such event, the further<br />
provisions <strong>of</strong> Section 3.04 shall apply except that any Shares<br />
purchased by them under Section 3.04 shall be pro rata based upon<br />
the number <strong>of</strong> Shares beneficially owned by the <strong>Shareholder</strong>s who<br />
gave the Notice.<br />
Two <strong>of</strong> the <strong>Shareholder</strong>s may jointly accept the Offer to Sell under<br />
Section 3.04(b) and, in such event, the further provisions <strong>of</strong> Section<br />
3.04 shall apply except that the number <strong>of</strong> Shares to be purchased by<br />
each <strong>of</strong> them under Section 3.04 may be set out in the notice given by<br />
them under Section 3.04(b) and Section 3.04(i) provided that the<br />
aggregate <strong>of</strong> such numbers equals the number <strong>of</strong> Shares beneficially<br />
owned by the Offeror.]<br />
3.05 Insolvency <strong>of</strong> a <strong>Shareholder</strong><br />
(a)<br />
(b)<br />
If any <strong>Shareholder</strong> makes as assignment for the benefit <strong>of</strong> creditors or<br />
is the subject <strong>of</strong> any proceedings under any bankruptcy or insolvency<br />
law (the "Offeror"), the other <strong>Shareholder</strong>s (the "Offerees" and<br />
individually, an "Offeree") shall have the right to purchase all, but not<br />
less than all, <strong>of</strong> the Shares beneficially owned by the Offeror ("Offered<br />
Shares").<br />
<strong>The</strong> Offerees shall be entitled to purchase the Offered Shares pro rata<br />
based upon the number <strong>of</strong> Shares beneficially owned by the Offerees<br />
or to purchase in such other proportion as the Offerees agree in<br />
writing, at the price to be determined according to the provisions <strong>of</strong><br />
Section 3.05(c).<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–P–6–9
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
(c)<br />
(d)<br />
(e)<br />
<strong>The</strong> price <strong>of</strong> the Offered Shares shall be the fair value <strong>of</strong> such Shares<br />
as determined by an accountant, in accordance with generally<br />
accepted accounting principles, at the end <strong>of</strong> the fiscal quarter <strong>of</strong> the<br />
Corporation immediately preceding the fiscal quarter in which the event<br />
referred to in Section 3.05(a) occurred. Such determination shall be in<br />
writing and shall be given to all <strong>of</strong> the <strong>Shareholder</strong>s and to the<br />
Corporation within 20 Business Days <strong>of</strong> the date <strong>of</strong> the event referred<br />
to in Section 3.05(a) or as soon thereafter as possible.<br />
For the purpose <strong>of</strong> determining such fair value, the accountant may<br />
appoint, at the expense <strong>of</strong> the Corporation, an independent appraiser<br />
to assist the accountant. <strong>The</strong> report <strong>of</strong> the accountant, when delivered<br />
to the <strong>Shareholder</strong>s and to the Corporation, shall be conclusive and<br />
binding upon all parties.<br />
Within 10 Business Days <strong>of</strong> having been given the accountant's report<br />
<strong>of</strong> the fair value <strong>of</strong> the Offered Shares, each Offeree who desires to<br />
purchase all <strong>of</strong> the Offered Shares that such Offeree is entitled to<br />
purchase according to Section 3.05(b) shall give notice to the Offeror,<br />
to the Corporation and to the other Offerees. If any Offeree does not<br />
give such notice, the Offered Shares that such Offeree had been<br />
entitled to purchase ("Rejected Shares") may instead be purchased by<br />
the Offerees who did give such notice, pro rata based upon the<br />
number <strong>of</strong> Shares beneficially owned by such Offerees as between<br />
themselves or in such other proportion as these Offerees agree in<br />
writing. Within 5 Business Days <strong>of</strong> the expiry <strong>of</strong> the 10 Business Day<br />
period specified in Section 3.05(e), each Offeree who desires to<br />
purchase all <strong>of</strong> the Rejected Shares that such Offeree is entitled to<br />
purchase according to Section 3.05(e) shall give an additional notice to<br />
the Offeror, to the Corporation and to the other Offerees. If any Offeree<br />
entitled to give the additional notice does not do so, the Rejected<br />
Shares that such Offeree had been entitled to purchase may instead<br />
be purchased by the Offerees who did give such notice, and so on<br />
from time to time until the Offerees are willing to purchase all <strong>of</strong> the<br />
Offered Shares or until they are not willing to purchase any more. If the<br />
Offerees are willing to purchase all, but not less than all, <strong>of</strong> the Offered<br />
Shares, the transaction <strong>of</strong> purchase and sale shall be completed within<br />
20 Business Days <strong>of</strong> the expiry <strong>of</strong> the 10 Business Day period or 5<br />
Business Day period specified in Section 3.05(e). <strong>The</strong> transaction shall<br />
be completed at the Corporation's registered <strong>of</strong>fice where the Offeror<br />
shall deliver the Shares with good, free and clear title and shall receive<br />
payment by certified cheque from the Offeree.<br />
Corporate–P–6–10<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
(f)<br />
(g)<br />
If the Offeror defaults in transferring the Offered Shares to the Offerees<br />
as provided for in Section 3.05, the Secretary <strong>of</strong> the Corporation is<br />
authorized and directed to receive the purchase money and enter the<br />
names <strong>of</strong> the Offerees in the registers <strong>of</strong> the Corporation as the<br />
holders <strong>of</strong> the Shares. <strong>The</strong> purchase money shall be held in trust by<br />
the Corporation on behalf <strong>of</strong> the Offeror and shall not be mixed with the<br />
Corporation's assets. <strong>The</strong> receipt by the Secretary for the purchase<br />
money shall be a good discharge to the Offerees and, after their<br />
names have been entered in the registers <strong>of</strong> the Corporation, the<br />
validity <strong>of</strong> the proceedings shall not be questioned by any person. On<br />
such registration, the Offeror ceases to have any right to the Offered<br />
Shares except the right to receive the Purchase Price received by the<br />
Secretary.<br />
If the Offerees do not give notice under Section 3.05(e) that they are<br />
willing to purchase all <strong>of</strong> the Offered Shares, the rights <strong>of</strong> the Offerees<br />
to purchase the Offered Shares shall end and the Offeror may sell the<br />
Offered Shares to any person within four months after the expiry <strong>of</strong> the<br />
10 Business Day period or 5 Business Day period specified in Section<br />
3.05(e), for a price not less than the price that would have been<br />
payable by the Offerees and on terms no more favourable to such<br />
person than those that would have been applicable had the Offerees<br />
agreed to purchase the Offered Shares under Section 3.05, provided<br />
that the person to whom the Shares are to be sold agrees prior to such<br />
transaction to be bound by and to become a party to this Agreement in<br />
place <strong>of</strong> the Offeror. If the Offered Shares are not sold within the four<br />
month period on such terms, the rights <strong>of</strong> the Offerees pursuant to this<br />
Section 3.05 shall again take effect and so on from time to time.<br />
3.06 Termination <strong>of</strong> Employment<br />
If either JS, AC or BT ceases to be an employee <strong>of</strong> the Corporation, voluntarily or<br />
otherwise, except by reason <strong>of</strong> death, the other <strong>Shareholder</strong>s shall have the right to<br />
purchase all, but not less than all, <strong>of</strong> the Shares beneficially owned by such<br />
<strong>Shareholder</strong>, in the proportions and for the price and upon the terms and conditions<br />
determined in accordance with Section 3.05.<br />
3.07 Disability<br />
If any <strong>of</strong> the <strong>Shareholder</strong>s is incapacitated from performing such <strong>Shareholder</strong>'s<br />
duties as an employee <strong>of</strong> the Corporation for a period <strong>of</strong> six consecutive months by<br />
reason <strong>of</strong> illness or mental or physical disability, or if such <strong>Shareholder</strong> shall be<br />
incapacitated at different times for six months in any 24 month period, then in either<br />
case the incapacitated party shall cease to be an employee <strong>of</strong> the Corporation.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–P–6–11
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
3.08 Death <strong>of</strong> an Individual <strong>Shareholder</strong><br />
If any <strong>Shareholder</strong> dies, the surviving <strong>Shareholder</strong>s shall purchase, and the personal<br />
representative <strong>of</strong> the deceased <strong>Shareholder</strong> shall sell, all, but not less than all, <strong>of</strong> the<br />
Shares beneficially owned by the deceased <strong>Shareholder</strong> immediately prior to death,<br />
in the proportions and for the price and upon the terms and conditions determined in<br />
accordance with Section 3.05.<br />
4.01 Non-Competition<br />
ARTICLE FOUR – GENERAL<br />
(a)<br />
None <strong>of</strong> the <strong>Shareholder</strong>s will, without the prior written consent <strong>of</strong> the<br />
other <strong>Shareholder</strong>s, at any time while a <strong>Shareholder</strong> <strong>of</strong> the Corporation<br />
and for a period <strong>of</strong> three years after ceasing to be a <strong>Shareholder</strong> <strong>of</strong> the<br />
Corporation, either individually or in partnership or jointly or in<br />
conjunction with any person as principal, agent, employee, shareholder<br />
(other than a holding <strong>of</strong> shares listed on a Canadian or United States<br />
stock exchange that does not exceed 5 per cent <strong>of</strong> the outstanding<br />
shares so listed) or in any other manner whatsoever carry on or be<br />
engaged in or be concerned with or interested in or advise, lend money<br />
to, guarantee the debts or obligations <strong>of</strong> or permit such <strong>Shareholder</strong>'s<br />
name or any part there<strong>of</strong> to be used or employed by any person<br />
engaged in or concerned with or interested in any business similar to<br />
or competitive with the business carried on by the Corporation within<br />
the Province <strong>of</strong> <strong>Saskatchewan</strong> or, if such <strong>Shareholder</strong> has ceased to<br />
be a <strong>Shareholder</strong> <strong>of</strong> the Corporation, any business similar to or<br />
competitive with the business carried on by the Corporation at the time<br />
such <strong>Shareholder</strong> ceased to be a <strong>Shareholder</strong> <strong>of</strong> the Corporation.<br />
OR<br />
[(a)<br />
None <strong>of</strong> the <strong>Shareholder</strong>s will carry on any business similar to or<br />
competitive with the business carried on by the Corporation for a<br />
period <strong>of</strong> three years after ceasing to be a <strong>Shareholder</strong> <strong>of</strong> the<br />
Corporation without the prior written consent <strong>of</strong> the other <strong>Shareholder</strong>s.<br />
"Carry on business" means:<br />
— either individually or<br />
— in partnership or<br />
— jointly or<br />
Corporate–P–6–12<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
— in conjunction with any person as principal, agent,<br />
employee, shareholder (other than a holding <strong>of</strong> shares<br />
listed on a Canadian or United States stock exchange<br />
that does not exceed 5 per cent <strong>of</strong> the outstanding<br />
shares so listed) or<br />
— in any other manner whatsoever to<br />
— carry on or<br />
— be engaged in or<br />
— be concerned with or<br />
— interested in or<br />
— advise or<br />
— lend money to or<br />
— guarantee the debts or obligations <strong>of</strong> or<br />
— permit his/her name or part <strong>of</strong> his/her name to be<br />
used or employed by any person engaged in or<br />
— concerned with or<br />
— interested in<br />
any business similar to or competitive with the business carried on by<br />
the Corporation within the Province<strong>of</strong> <strong>Saskatchewan</strong>.]<br />
(b)<br />
Each <strong>of</strong> the <strong>Shareholder</strong>s confirms that all the restrictions in Section<br />
4.01(a) are reasonable and valid and all defences to the strict<br />
enforcement <strong>of</strong> this non-competition section are waived by each<br />
<strong>Shareholder</strong>.<br />
4.02 Insurance<br />
(a)<br />
(b)<br />
(c)<br />
<strong>The</strong> Corporation shall, if reasonably obtainable, acquire and maintain<br />
insurance on the life <strong>of</strong> each <strong>of</strong> JS, AC and BT [or the <strong>Shareholder</strong>s] in<br />
amounts reasonably satisfactory to fulfil the purchase obligations<br />
contained in this Section.<br />
Additional insurance shall, if reasonably obtainable, be acquired by the<br />
Corporation on the life <strong>of</strong> each <strong>of</strong> JS, AC and BT [or the <strong>Shareholder</strong>s]<br />
in such amounts as may be specified by notice to the Corporation by<br />
all <strong>of</strong> such <strong>Shareholder</strong>s.<br />
<strong>The</strong> Corporation shall maintain in good standing at all times the<br />
insurance policies on the lives <strong>of</strong> these [or the] <strong>Shareholder</strong>s and shall<br />
not deal in any manner with these policies or in any way encumber<br />
these policies.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–P–6–13
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
(d)<br />
If upon the death <strong>of</strong> any <strong>Shareholder</strong> the Corporation receives the<br />
proceeds <strong>of</strong> any insurance held by the Corporation on the life <strong>of</strong> the<br />
deceased <strong>Shareholder</strong> and, under this Agreement, the other<br />
<strong>Shareholder</strong>s are or have been required to purchase the Shares<br />
beneficially owned by the deceased <strong>Shareholder</strong> immediately prior to<br />
such <strong>Shareholder</strong>'s death, the directors <strong>of</strong> the Corporation and the<br />
representatives <strong>of</strong> the deceased <strong>Shareholder</strong> shall agree upon a<br />
procedure whereby either the Corporation fulfils such obligation to<br />
purchase by using the proceeds <strong>of</strong> insurance or, the proceeds are<br />
distributed or otherwise dealt with so as to enable the surviving<br />
<strong>Shareholder</strong>s to fulfil the obligation to purchase.<br />
4.03 Benefit <strong>of</strong> the Agreement<br />
This Agreement shall enure to the benefit <strong>of</strong> and be binding upon the respective<br />
heirs, executors, administrators, successors and assigns <strong>of</strong> the parties.<br />
4.04 Entire Agreement<br />
This Agreement constitutes the entire agreement between the parties and cancels<br />
and supersedes any prior understandings and agreements between the parties.<br />
<strong>The</strong>re are no representations, warranties, terms, conditions, undertakings or<br />
collateral agreements, express, implied or statutory, between the parties other than<br />
expressly set forth in this Agreement.<br />
4.05 Amendments and Waivers<br />
All amendments to this Agreement shall be valid or binding if they are in writing and<br />
executed by all the parties. Any waiver <strong>of</strong> any breach <strong>of</strong> any provision <strong>of</strong> this<br />
Agreement shall be effective or binding if it is in writing and signed by the party<br />
giving the waiver and, unless otherwise provided in the written waiver, shall be<br />
limited to the specific breach waived.<br />
4.06 Assignment<br />
Except as may be expressly provided in this Agreement, none <strong>of</strong> the parties may<br />
assign their respective rights or obligations under this Agreement without the prior<br />
written consent <strong>of</strong> all <strong>of</strong> the other parties.<br />
4.07 Termination<br />
This Agreement shall terminate upon:<br />
(a)<br />
the written agreement <strong>of</strong> all <strong>of</strong> the <strong>Shareholder</strong>s;<br />
Corporate–P–6–14<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
(b)<br />
(c)<br />
the dissolution or bankruptcy <strong>of</strong> the Corporation or the making by the<br />
Corporation <strong>of</strong> an assignment under the provisions <strong>of</strong> the Bankruptcy<br />
and Insolvency Act; or<br />
one <strong>Shareholder</strong> becoming the beneficial owner <strong>of</strong> all <strong>of</strong> the Shares.<br />
4.08 Severability<br />
If any provision <strong>of</strong> this Agreement is found to be invalid or unenforceable in whole or<br />
in part, such invalidity or unenforceability shall attach only to such provision or part<br />
there<strong>of</strong> and the remaining part <strong>of</strong> such provision and all other provisions <strong>of</strong> the<br />
Agreement shall continue in full force and effect.<br />
4.09 Notices<br />
Any communication to be given in connection with this Agreement shall be in writing<br />
and may be by personal delivery or by registered mail addressed to the recipient as<br />
follows:<br />
TO JS:<br />
TO AC:<br />
TO BT:<br />
TO THE<br />
CORPORATION:<br />
or to any address or individual that one party may designate to the others. Any<br />
communication given by personal delivery shall be deemed to have been given on<br />
the day <strong>of</strong> actual delivery and, if given by registered mail, on the second Business<br />
Day following the deposit in the mail. If the party giving any communication knows or<br />
ought reasonably to know <strong>of</strong> any difficulties with the postal system which might affect<br />
the delivery <strong>of</strong> mail, any such communication shall not be mailed but shall be given<br />
by personal delivery.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–P–6–15
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
4.10 Governing <strong>Law</strong><br />
This Agreement shall be governed by and construed in accordance with the laws <strong>of</strong><br />
the Province <strong>of</strong> <strong>Saskatchewan</strong> and the applicable laws <strong>of</strong> Canada.<br />
IN WITNESS WHEREOF the parties have executed this Agreement.<br />
SIGNED, SEALED AND DELIVERED<br />
in the presence <strong>of</strong>:<br />
______________________________ ) _____________________________<br />
Witness ) JUSTIN SMITH<br />
_______________________________ ) _____________________________<br />
Witness ) ANNE CLARKE<br />
_______________________________ ) _____________________________<br />
Witness ) BRENT TAYLOR<br />
DIGITAL WIDGETS INC.<br />
Per:<br />
Per:<br />
____________________________________<br />
President<br />
c/s<br />
____________________________________<br />
Secretary<br />
Corporate–P–6–16<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
CHECKLIST FOR A UNANIMOUS SHAREHOLDERS AGREEMENT (“USA”)<br />
1. PARTIES<br />
Should the corporation be a party - any positive obligations under the USA Other<br />
possible parties: recipient <strong>of</strong> powers to manage; principals <strong>of</strong> shareholder holding<br />
companies.<br />
2. RECITALS<br />
Identify corporation by name, date and jurisdiction <strong>of</strong> incorporation;<br />
Reasons behind inclusion <strong>of</strong> certain persons as parties;<br />
Purpose for which USA has been entered into;<br />
<strong>Shareholder</strong>s to agree upon respective rights and obligations and rules governing<br />
management and conduct <strong>of</strong> corporation.<br />
3. IMPLEMENTATION OF USA<br />
Agreement to vote to implement the USA and remove any director who does not<br />
comply with USA;<br />
Conflict provision – USA prevails over Articles and Bylaws.<br />
4. FINANCING<br />
<strong>Shareholder</strong>s' general intention as to source <strong>of</strong> funds;<br />
Obligation <strong>of</strong> shareholders to provide shareholder loans and terms and conditions<br />
relating thereto - interest, security, repayment;<br />
Obligation <strong>of</strong> shareholders to provide guarantees and on what basis - joint and<br />
several or several only;<br />
Mutual indemnification to ensure right <strong>of</strong> contribution if loss <strong>of</strong> shareholder is in<br />
excess <strong>of</strong> proportionate share;<br />
Subordination <strong>of</strong> shareholder loans;<br />
Policy relating to payment <strong>of</strong> dividends.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–P–6–17
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
5. DEFAULT<br />
Results <strong>of</strong> failure <strong>of</strong> shareholder to advance monies or provide guarantees;<br />
Right to acquire all or only a portion <strong>of</strong> defaulting shareholder's shares and/or<br />
shareholder loans;<br />
Release <strong>of</strong> defaulting shareholder's outstanding guarantee;<br />
Provide that contractual rights are additional to other rights at law or in equity.<br />
6. DIRECTORS AND OFFICERS<br />
Fixed number <strong>of</strong> directors or not<br />
Composition <strong>of</strong> Board - current directors and right <strong>of</strong> shareholders or groups <strong>of</strong><br />
shareholders to nominate directors;<br />
Quorum requirement - tie to composition <strong>of</strong> Board;<br />
Proportion <strong>of</strong> votes required to decide matters before directors - vary numbers<br />
according to nature <strong>of</strong> issue<br />
Desirability <strong>of</strong> casting vote provision<br />
Manner <strong>of</strong> filling vacancies on Board;<br />
Remuneration <strong>of</strong> directors, <strong>of</strong>ficers and employees if power removed from directors;<br />
Method <strong>of</strong> removal <strong>of</strong> director; for <strong>of</strong>ficers and employees who are shareholders -<br />
outline function, extent <strong>of</strong> time to be devoted to business, remuneration and other<br />
terms and conditions <strong>of</strong> employment;<br />
Whether limitations on powers <strong>of</strong> directors to borrow should be imposed;<br />
Description <strong>of</strong> <strong>of</strong>fices and duties <strong>of</strong> <strong>of</strong>ficers - if not specified in Bylaws;<br />
Any special conflict <strong>of</strong> interest provisions contrary to Act.<br />
Corporate–P–6–18<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
7. SHAREHOLDERS<br />
<strong>Shareholder</strong>s' meetings - if outside <strong>Saskatchewan</strong>, requires unanimous consent;<br />
Quorum for decision <strong>of</strong> shareholders - to be determined by number and/or<br />
shareholdings or any special class requirements;<br />
Casting vote provision - is it desirable<br />
Telephone meeting - is this desired<br />
8. CONDUCT OF BUSINESS OF CORPORATION<br />
Unanimous consent <strong>of</strong> shareholders - under what circumstances: for example:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
(e)<br />
(f)<br />
(g)<br />
(h)<br />
(i)<br />
(j)<br />
(k)<br />
Changing the articles or bylaws <strong>of</strong> the corporation.<br />
Changing the authorized or issued capital (shares) <strong>of</strong> the corporation.<br />
Entering into any agreement or making any <strong>of</strong>fer or granting any right<br />
capable <strong>of</strong> becoming an agreement to allot or issue any shares <strong>of</strong> the<br />
corporation.<br />
Taking any action which may lead to or result in a material change in<br />
the nature <strong>of</strong> the business <strong>of</strong> the corporation.<br />
Entering into any agreement other than in the ordinary course <strong>of</strong> the<br />
corporation's business.<br />
Borrowing any money, giving any security on behalf <strong>of</strong> the corporation,<br />
or incurring any single expenditure in excess <strong>of</strong> $________ in any<br />
financial year <strong>of</strong> the corporation.<br />
Taking any steps to wind up or terminate the corporate existence <strong>of</strong> the<br />
corporation.<br />
Selling, leasing, exchanging or disposing <strong>of</strong> all or a substantial part <strong>of</strong><br />
the property or assets <strong>of</strong> the corporation.<br />
Making, directly or indirectly, loans or advances to, or giving security<br />
for or guaranteeing the debts <strong>of</strong> any person.<br />
Declaring or paying any dividend.<br />
Taking, holding, subscribing for or agreeing to purchase or acquire<br />
shares <strong>of</strong> another corporation.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–P–6–19
Corporate Commercial Section 6<br />
<strong>Shareholder</strong> <strong>Agreements</strong><br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong><br />
(l)<br />
(m)<br />
(n)<br />
(o)<br />
Entering into a partnership or arrangement for the sharing <strong>of</strong> pr<strong>of</strong>its,<br />
interest, joint venture or other type <strong>of</strong> reciprocal agreement with any<br />
person.<br />
Amalgamating, merging, or consolidating with any other corporate body.<br />
Signing authority on cheques.<br />
Binding the corporation to contracts;<br />
Limitations on business carried on by corporation;<br />
Other matters requiring the approval <strong>of</strong> the shareholders by less than a unanimous vote;<br />
Any matter requiring prior notification to shareholders by directors or which must be<br />
referred by directors to shareholders for approval.<br />
9. ALLOTMENT OF ADDITIONAL SHARES<br />
Issuance <strong>of</strong> further shares - unanimity <strong>of</strong> shareholders or not All classes or certain<br />
ones only<br />
Procedure for giving notice <strong>of</strong> proposed issue;<br />
Procedure for subscription by shareholders;<br />
Address over-subscription and under-subscription.<br />
10. RIGHT OF FIRST REFUSAL<br />
Consider whether right <strong>of</strong> first refusal is desirable;<br />
Consider including shotgun buy/sell if shareholder finds third party willing to purchase<br />
all shares <strong>of</strong> corporation.<br />
11. SHARES AND ADVANCES<br />
General prohibition on the transfer, assignment or pledge without unanimous<br />
consent <strong>of</strong> all shareholders except in accordance with USA;<br />
Define change <strong>of</strong> control <strong>of</strong> corporate shareholder, if desired;<br />
Right <strong>of</strong> shareholder to assign interest in outstanding shareholder loans/whether<br />
permitted.<br />
Corporate–P–6–20<br />
<strong>Saskatchewan</strong> CPLED Program
Corporate Commercial Section 6<br />
2009 © <strong>The</strong> <strong>Law</strong> <strong>Society</strong> <strong>of</strong> <strong>Saskatchewan</strong> <strong>Shareholder</strong> <strong>Agreements</strong><br />
12. TRANSFER BY OPERATION OF LAW<br />
Define "disposition" for purposes <strong>of</strong> this article (e.g., petitioning into bankruptcy,<br />
seizure <strong>of</strong> shares, judgment <strong>of</strong> incompetency);<br />
Outline method <strong>of</strong> determination <strong>of</strong> purchase price and related procedural matters -<br />
option period, acceptance, closing, over-acceptance, under-acceptance.<br />
13. BUY/SELL ON DEATH<br />
Consider present provisions <strong>of</strong> Income Tax Act - corporate owned life insurance or<br />
criss-cross insurance amongst shareholders - and without insurance;<br />
Consider whether individual shareholders or corporate shareholders - will affect<br />
structuring <strong>of</strong> buy/sell provisions;<br />
Consider whether corporate repurchase or criss-cross buy/sell is desirable and all<br />
related procedural matters - closing, purchase price, effect <strong>of</strong> delays in payment <strong>of</strong><br />
purchase price, interest, repurchase rights.<br />
14. GENERAL PROVISIONS<br />
Duration <strong>of</strong> agreement;<br />
Endorsement <strong>of</strong> share certificate;<br />
Arbitration provision;<br />
Mutual indemnification provision;<br />
Time <strong>of</strong> the essence;<br />
Non-waiver provision;<br />
Notice provision;<br />
Enurement provision;<br />
Execution in counterpart;<br />
Non-competition clause.<br />
<strong>Saskatchewan</strong> CPLED Program<br />
Corporate–P–6–21