Shareholder Agreements Contents Corporate Commercial Section 6

Transcription

Saskatchewan CPLED Program
Corporate Commercial Section 6
Shareholder Agreements
Contents
Introduction...........................................................................Corporate-6-1
Contents of a Unanimous Shareholders Agreement .............Corporate-6-1
Organizational Matters ...................................................Corporate-6-2
Control over Directors ....................................................Corporate-6-2
Power to Borrow and Give Security................................Corporate-6-4
Control over Type of Business in Which the
Corporation is Engaged ..................................................Corporate-6-5
Fundamental Change......................................................Corporate-6-5
Financial Assistance.........................................................Corporate-6-6
Financing.........................................................................Corporate-6-7
Share Issues and Transfers ..............................................Corporate-6-8
General “Buy-Sell” and “Shotgun” Provisions ..............Corporate-6-8
Pre-emptive Rights..........................................................Corporate-6-9
Right of First Refusal ......................................................Corporate-6-9
Mandatory Transfers ......................................................Corporate-6-9
Shotgun Provisions....................................................... Corporate-6-10
“Piggyback” Offers....................................................... Corporate-6-10
Other Provisions............................................................Corporate-6-11
Parties to the Unanimous Shareholders Agreement New Subscribers and Transferees .......................................Corporate-6-12
Amending a Unanimous Shareholders Agreement.............Corporate-6-12
Incorporating the Unanimous Shareholders Agreement
into the Bylaws or Articles ...................................................Corporate-6-13
Unanimous Shareholders Agreements under the
Business Corporations Act (Canada) .................................Corporate-6-14
No part of this material may be reproduced, in whole or in part
(in any manner), without the specific written permission of
Saskatchewan Legal Education Society Inc. (2008 © SKLESI).
Corporate–6–i
2008 © SKLESI
Precedents:
Notes on the Preparation of the Unanimous
Shareholders Agreement ...................................................Corporate-P-6-1
Shareholders’ Agreement ..................................................Corporate-P-6-2
Checklist for a Unanimous Shareholders Agreement......Corporate-P-6-17
Corporate–6–ii
2008 © SKLESI
Introduction
One of the common tasks of a solicitor is the preparation of
unanimous shareholders agreements (“USA”). These are
sometimes also known as “shareholder agreements” or “buy-sell
agreements”. These agreements are essential whether the client is
involved in a small or large business, or organized as a
corporation, partnership or joint venture (although the name, if
not the form, of the agreement may change).
A USA is essentially a constitutional document, setting out the
fundamental governing principals of a corporation, and, to some
extent, permitting shareholders to modify or supplement the
articles of incorporation, bylaws and certain other rules that
would otherwise be prescribed by The Business Corporations Act
(Saskatchewan), (“SBCA”). Shareholders can eliminate or
minimize the distinction in function between those responsible for
corporate management (the directors) and its owners (the
shareholders) by restricting in whole or in part the directors’
powers under the SBCA. Due to the broad wording of section
140(2) of the SBCA, the scope of a USA is virtually unlimited.
To ensure validity, all parties to a USA should obtain independent
legal advice concerning the terms and conditions of the proposed
agreement. Shareholders may not wish to incur the additional
cost, but this is essential to protecting their respective rights.
For informational purposes only, some notes on the preparation of
USA’s, a Checklist and a sample USA are included in the
precedents.
Contents of an Unanimous
Shareholders Agreement
Section 140(2) of the SBCA defines "unanimous shareholders
agreement" as:
An otherwise lawful written agreement among all the
shareholders of a corporation, or among all the
shareholders and a person who is not a shareholder, that
restricts, in whole or in part, the powers of the directors to
manage the business and affairs of the corporation is valid.
Corporate–6–1
2008 © SKLESI
While Section 140(2.1) of the SBCA provides:
Where a person who is the beneficial owner of all the
issued shares of a corporation makes a written declaration
that restricts in whole or in part the powers of the directors
to manage the business and affairs of a corporation, the
declaration is deemed to be a unanimous shareholder
agreement.
It is possible that an agreement among all the shareholders made
prior to incorporation or continuance under the SBCA is a
"unanimous shareholders agreement" for the purpose of the
SBCA, however, it is good practice to recommend the parties
ratify the agreement after incorporation.
Organizational Matters
USA’s may deal with organizational matters which are not
addressed in the corporation's articles or bylaws such as:
•
the identity of the directors;
•
the bank and location of bank accounts’
•
signing officers for banking;
•
selection of auditors or accountants; and
•
selection of a corporate solicitor.
Control Over Directors
Section 97 of the SBCA vests management of the business and
affairs of a corporation in the board of directors, "subject to any
unanimous shareholders agreement". In the absence of a USA, a
minority shareholder would have very little input into the day-today operation of the corporation.
USA’s often deal with the following ongoing financial and
operating concerns (which would otherwise be within the
discretion of the board of directors):
Corporate–6–2
•
diverting the "business" or assets of the corporation to any
other entity;
•
carrying on a new business or affiliation which was not
intended in the USA
•
entering into any non-arm’s length transaction;
2008 © SKLESI
•
entering into any agreement in excess of expenditure limits;
•
borrowing money;
•
encumbering assets;
•
paying dividends in excess of normal policy;
•
maintaining adequate internally generated working capital;
•
hiring or firing employees;
•
fixing remuneration to be paid; and
•
issuing treasury shares
There are two mechanisms under which a USA can give
shareholders control over the conduct of a corporation’s business:
•
It can vest in the shareholders some or all of the power to
manage the business and affairs of the corporation.
•
It can recognize that the directors will manage the
business and affairs of the corporation, but provide that
the directors and the corporation cannot take certain
actions specified in the USA (unless all or some specified
majority of the corporation's shareholders agree).
A corporation must have directors (section 97), but the directors
may be divested of all powers and liabilities pursuant to a USA
and by virtue of sections 97(1) and 140(4). Section 140(4) gives
a shareholder exercising what would otherwise be the directors’
power to manage the business and affairs of the corporation the
rights, duties and liabilities of a director.
If the power to manage a corporation’s business and affairs is
vested in the shareholders, there remains the problem of how
decisions will be effected. This must be included in the USA.
It is appropriate to include an indemnification provision in the
USA for directors, if their discretion is fettered. They are liable
for decisions made by the corporation but have little power to
affect how the decisions are made.
Section 140(4) provides that:
A shareholder who is a party to a unanimous shareholder
agreement has all the rights, powers and duties and incurs
all the liabilities of a director of the corporation to which
the agreement relates to the extent that the agreement
restricts the discretion or powers of the directors to
manage the business and affairs of the corporation, and
the directors are hereby relieved of their duties and
liabilities, including any liabilities under section 114, to the
same extent.
Corporate–6–3
2008 © SKLESI
This section could have the effect of imposing on shareholders (to
the extent that powers have been removed from the directors)
those duties otherwise imposed or which could be imposed on
directors of a corporation under other provincial laws (such as the
Employment Standards Code, R.S.A. 2000, c. E-9 and Workers'
Compensation Act, R.S.A. 2000, c. W-15).
Section 140(4) of the SBCA not only imposes on shareholders all
duties and liabilities otherwise the responsibility of directors (to
the extent that the USA provides). It also grants to a shareholder
all the rights and powers of those directors. In light of sections
113, 114 and 118 of the SBCA, it is important that a shareholder
of the corporation wishing to dissent from any action taken by
other shareholders of the corporation, do so, and take such steps
as are necessary to record that he or she did not consent to the
resolution or action in question.
Section 104 of the SBCA provides that directors can be removed
by ordinary resolution of shareholders, but a USA may vary this
requirement.
Power to Borrow and Give Security
Particular provisions of the SBCA give directors the power to
borrow and give security (subject to the USA):
97(1) Subject to any unanimous shareholder agreement,
the directors of a corporation shall:
(a) exercise the powers of the corporation directly or
indirectly through the employees and agents of the
corporation; and
(b) direct the management of the business and affairs
of the corporation.
98(1) Unless the articles, bylaws or a unanimous
shareholder agreement otherwise provide, the directors
may, by resolution make, amend, or repeal any bylaws
that regulate the business or affairs of the corporation.
16(1) It is not necessary for a bylaw to be passed in order
to confer any particular power on the corporation or its
directors.
183(1)
Unless the articles or bylaws of, or a unanimous
shareholder agreement relating to, a corporation otherwise
provides, the articles of a corporation are deemed to state
that the directors of a corporation may, without
authorization of the shareholders:
(a) borrow money upon the credit of the corporation;
Corporate–6–4
2008 © SKLESI
(b) issue, reissue, sell or pledge debt obligations of the
corporation;
(c) subject to section 42, give a guarantee on behalf of
the corporation to secure performance of an
obligation of any person; and
(d) mortgage, hypothecate, pledge or otherwise create
a security interest in all or any property of the
corporation, owned or subsequently acquired, to
secure any debt obligation of the corporation.
183(1.1) Notwithstanding subsection 110(3) and clause
116(a), unless the articles or bylaws of, or a unanimous
shareholder agreement relating to, a corporation
otherwise provide, the directors may, by resolution,
delegate the powers mentioned in subsection (1) to a
director, a committee of directors or an officer.
Control over Type of Business in Which the
Corporation is Engaged
Shareholders may wish to restrict the business of the corporation.
Section 6 of the SBCA permits the articles to set out any restrictions
on the business that a corporation may carry on. However, section
97 provides that the directors must manage the business and affairs
of the corporation subject to any USA. Therefore, a USA may
restrict the conduct of the business either by vesting the power to
manage the business in the shareholders or by requiring a specified
level of shareholder approval to certain business decisions.
An amendment to the articles to add, change or remove a restriction
on the business that the corporation may carry on gives rise to a right
of dissent and appraisal under section 184 of the SBCA.
If the restriction is included in the articles or in any USA, there
will not be ultra vires problems, but in certain circumstances, this
would permit certain actions to be set aside by the shareholders
(see sections 15 to 18 of the SBCA).
Fundamental Change
The SBCA requires shareholder approval of certain "fundamental
changes". Fundamental changes include:
•
amalgamation;
•
reorganization;
•
winding-up or dissolution of the corporation;
Corporate–6–5
2008 © SKLESI
•
amendment of the constating documents; and
•
continuance of the corporation to another jurisdiction.
Most corporate law statutes do not call for shareholder approval
of the making of a general assignment for the benefit of creditors,
a voluntary assignment in bankruptcy or the appointment of a
trustee in bankruptcy. In some corporations, these actions are
considered "fundamental changes" calling for shareholder
approval.
A higher level of shareholder approval in respect of any or all such
fundamental changes than that called for by the "special
resolution" provisions of the SBCA or articles, or additional
matters to be defined as “fundamental change” may be included
in the USA.
A USA should also address the question of bylaw amendments.
Bylaws can be important when disputes arise, as they contain rules
respecting the giving of notice of meetings, the quorum for
meetings, and may confer a second or casting vote in the case of a
"deadlocked" board or shareholder meeting.
A covenant not to commence proceedings for the liquidation,
winding-up or dissolution may be important in the context of
enforcing any buy-sell provisions. Conversely, an agreement to
commence liquidation proceedings on the failure to settle a
dispute or the failure to agree on who is to buy out whom can also
prove valuable.
A USA can entitle a shareholder to demand dissolution on the
occurrence of a specified event (SBCA, s. 207(1)).
Financial Assistance
Section 42 permits a corporation to give financial assistance to any
shareholder, director, officer or employee of the corporation or an
affiliate of the corporation or an associate of any of those persons,
or to any person for the purpose of, or in connection with, a
purchase of a share issued by the corporation or an affiliate of the
corporation, provided disclosure of the financial assistance given is
disclosed in accordance with sections 42(3) or 42(4) as the case
may require. A USA may vary these provisions.
Corporate–6–6
2008 © SKLESI
Financing
The conditions which apply to shareholder financing should also
be included in the USA. The timing and amount of shareholder
advances and terms for repayment of advances should be included
in the agreement.
Shareholders often have ongoing plans calling for the provision of
additional capital, either by way of debt or equity. It is important
to identify the extent to which:
•
additional capital will be needed;
•
it is to come from the shareholders; and
•
other lenders are to provide it.
The USA may function as a loan or financing agreement. If
additional funds are to come from a third-party lender, the USA
will often address the question of whether the shareholders will
provide joint or several guarantees of the obligations of the
corporation to third parties. If shareholders are to give
guarantees, the USA should provide that each shareholder has a
right of contribution from other shareholders for losses in excess of
the proportionate share of the liabilities.
If the shareholders themselves will be responsible for providing the
necessary additional financing, the USA should contain a covenant
to subscribe for additional shares or to lend additional monies to the
corporation, and would state the security granted (if any), the interest
rate payable (if any), timing for repayment, as well as ensuring that if
necessary, such loans are subordinated to those made by other
creditors. In many cases, repayment terms for shareholder loans are
left flexible (repayable at such time or times as the directors may
determine), and often little or no corporate security is granted.
Interest may or may not be charged on such shareholder loans –
there is less of a rule of thumb regarding interest.
A shareholder who will hold less than all shares will normally be
reluctant to give a joint and several guarantee of all the obligations of
the corporation to the bank. It may be possible to negotiate for
“several” as opposed to “joint” liability which would not exceed the
shareholders’ advances and equity in the corporation. This will be
dependent moreso on the strength of the corporation, both from a
financial standpoint, and the quality of its relationship with its bank,
for regardless of what the shareholders may agree, it will be the bank
that will make this determination.
Corporate–6–7
2008 © SKLESI
Share Issue and Transfers
Section 25(1) of the SBCA recognizes that the articles, bylaws or a
USA can regulate the timing of share issues and the conditions or
restrictions applying to the sale of shares.
Section 28 permits the articles to provide for a pre-emptive right
on the issue of shares. It restricts the scope of pre-emptive rights
conferred by the articles if shares are to be issued for nonmonetary consideration, as a share dividend, or pursuant to
conversion rights or options.
The articles or a USA can set out restrictions on share transfers
(section 6(2)), subject to transfer or pre-emptive rights which are
included in the articles, an amendment to the articles to "add,
remove or change prejudicially" transfer or pre-emptive rights
gives rise to a right of dissent and appraisal (sections 170 and
184).
Division XV of the SBCA gives a right of compulsory acquisition
on a takeover bid. This is not restricted to "distributing
corporations". A purchaser of 90 percent of the shares can force
the acquisition of the remaining shares of a non-distributing
corporation. However, the USA may provide for a higher
percentage.
Corporate repurchases are governed by section 32 of the SBCA.
General “Buy-Sell” and “Shotgun” Provisions
Often the most used provisions of a USA are the share transfer (or
restrictions on share transfer) provisions. These can include many
forms:
•
granting shareholders a pre-emptive right to acquire
shares the corporation is issuing from treasury;
•
providing shareholders a right of first refusal to acquire
shares being sold by an existing shareholder;
•
mandatory transfer provisions, forcing a shareholder to
sell his or her shares on the occurrence of certain
triggering events;
•
shot-gun clauses; and
•
other more complex share transfer rights including puts,
calls, bring-along and tag-along rights.
Each of these are discussed in more detail below.
Corporate–6–8
2008 © SKLESI
Pre-emptive Rights
It is often a surprise that absent some pre-emtive rights in a USA,
shareholders do not possess a right to purchase treasury shares
being issued by the corporation. Generally, USA’s provide that
shareholders have a pro rata pre-emptive right to acquire new
shares being issued by the corporation from treasury, thus giving
shareholders the right to preserve their relative proportion of equity
in the corporation. In the event that not all shareholders exercise
their pre-emptive rights, some USA’s allow shareholders to take up
excess shares prior to such shares being offered to third parties.
Right of First Refusal
Many USA's provide that no shareholder may sell his or her shares
without first offering them to existing shareholders and/or the
corporation on a pro rata basis. The general rule is that shares will
only be sold to outsiders if the existing shareholders (or the
corporation) are unwilling to purchase the shares of the offeror.
These provisions represent an attempt to balance the control of
ownership desired in closely-held corporations with the desire to
provide some market or liquidity to shareholders of such
corporations. However, in general, for the vast majority of private
corporations, there is very little, if any, market for these shares.
Mandatory Transfers
Often USAs will provide for a forced or automatic sale of a
shareholder’s shares in the event one of a number of listed events
occur. Among the more common events include the death, disability
or bankruptcy of a shareholder, the institution of matrimonial
proceedings by a shareholder or the spouse of a shareholder, the
finding of mental incompetency of a shareholder, or the cessation of
employment of a shareholder by with the corporation. Mandatory
share transfers may also be triggered by a default by a shareholder in
his or her obligations under the USA, such as complying with cash
calls, guaranteeing debt of the corporation, or others.
These clauses often go into considerable detail regarding the
procedure and terms for the purchase and sale of shares in these
instances, and terms such as share price and payment terms may
differ depending on which event triggered the mandatory sale.
Corporate–6–9
2008 © SKLESI
Shotgun Provisions
Many parties see a "shotgun" buy-sell as a useful means of
creating liquidity and resolving disputes. A "shotgun" is simply a
device under which one shareholder (the "offering party") offers
to purchase the interest of the other or others (the "notified
party"). The notified party must either sell his or her interest to
the offering party at the stipulated price or purchase the interest of
the offering party at the stipulated price. As the party receiving
the notice is put to the election of either selling his or her shares to
the offering party or buying the offering party’s shares at the
stipulated price, the price is generally fair. The offering party
cannot set the price too high, as he or she may have to purchase
the notice party’s shares at that price.
Shotgun clauses generally work best when there are only two
shareholders, and there is relative economic equality between
them. Shareholders tend to like them because of their finality in
resolving disputes. However shareholders should always be
cautioned about their inclusion, as a shotgun clause (or the threat
of its use) can be used as a bullying tool, especially where there is
an economic disparity between the parties. Shotgun clauses can
theoretically exist in USA’s with more than two shareholders,
however they are not often used in such circumstances as they
generally become too complex in operation.
Examples of shotgun provisions are found in O'Brien's Forms and
in Ward's Canadian Corporation Precedents.
“Piggyback” Offers
Another alternative is to allow a shareholder to "piggyback" on
the sale of an interest. A buy-sell agreement may contain a right
of first refusal in respect of bona fide arm’s length cash offers, but
prohibit the sale of an interest to an outsider unless all
shareholders (including those who have declined to exercise the
right of purchase arising under the right of first refusal) have the
opportunity to sell their interests to the outside purchaser for the
same cash consideration. These are often known as bring-along
or tag-along rights.
Corporate–6–10
2008 © SKLESI
Other Provisions:
Liquidation
A USA can provide for a forced winding up of the corporation if
one of the shareholders offers the sale of his or her shares, but the
other shareholders cannot purchase the shares within a reasonable
period of time.
Trustees and Attorneys
It may be appropriate to appoint a trustee to hold share
certificates and to appoint an attorney for the purpose of
transferring shares. Trustees will require a written appointment,
which clearly identifies the circumstances and the advice on which
they may rely on delivering and releasing share certificates, with
appropriate trustee indemnification provisions.
Voting Trusts or Pooling Agreements
Shareholders may wish to lodge their shares with an individual
authorized and directed to vote the shares in such manner as will
give effect to the terms of the agreement. Trustees holding the
pooled shares will likely require the normal trustee protection
provisions and appropriate indemnities allowing them to clearly
identify the source of their instructions and to rely on the advice of
certain individuals. The agreement should specifically deal with
the question of share registration, the payment of dividends and
voting.
Confidential Information, Non-Competition Agreements and
Non-Solicitation of Accounts Agreements
A USA may incorporate non-competition or non-solicitation
agreements entered into by employee shareholders. If
shareholders are going to be employed by the corporation,
reasonable non-competition and non-disclosure agreements
should be part of the employment agreement.
Corporate–6–11
2008 © SKLESI
Parties to the Unanimous
Shareholders Agreement – New
Subscribers and Transferees
Generally, a non-party to an agreement cannot be bound by the
agreement. However, section 140(3) of the SBCA deems subsequent
subscribers or purchasers of shares of a corporation to be parties to
an existing USA, and ostensibly imposes the rights and obligations of
the USA on those subscribers or purchasers, whether or not they had
actual knowledge of the USA at the time they acquired the shares in
the corporation.
Corporations whose shares are governed by a USA are to have a
legend endorsed on their share certificates. A typical USA legend
on a share certificate would read as follows:
Shares evidenced by this certificate are subject to the
terms and conditions of a (unanimous) shareholder
agreement made the * day of * , 20 *, and may not be
transferred or encumbered except in accordance with the
provisions of that agreement.
Purchasers who acquire shares of a corporation without
knowledge of a USA may be entitled to rescind their purchase, or
to compel the corporation to re-purchase the shares bought at
their fair market value. By affixing the legend on all share
certificates of a corporation subject to a USA, the risk of an
argument that a purchaser of shares has no notice of the terms of
a USA is minimized.
Amending a Unanimous
Shareholders Agreement
One of the main features of any corporation is that of "majority
rule". Flexibility should be built into the USA to allow the parties
the opportunity to adapt the USA as the business progresses.
Corporate–6–12
2008 © SKLESI
Incorporating the
Unanimous Shareholders Agreement
into the Bylaws or Articles
The SBCA contemplates that many of the terms of a USA can be
incorporated into the articles or the bylaws. The mechanism for
amending each of these documents differs.
Flexibility is desirable in corporations with three or more
shareholders. Provisions requiring unanimous consent or granting
a “veto” may prevent the corporation from doing business. In
preparing these documents it is important to determine whether
or not any future change to a provision gives rise to a right of
dissent and appraisal pursuant to section 184 and whether this is a
desirable result.
Action by directors is taken by resolution passed by majority vote
at a meeting or by resolution signed by all directors. Action by
shareholders is taken by ordinary or special resolution, that is, by
a bare majority or a two-thirds majority vote at a meeting of
shareholders or by resolution signed by all shareholders entitled to
vote on the resolution. Bylaws may give the chairperson of a
meeting (or some other person) a second or casting vote in the
case of an equality of votes cast on a resolution. Section 6(3) of
the SBCA permits the articles or a USA to require a greater
number of votes of directors or shareholders than are required by
the SBCA to effect any action.
In a simple situation with two shareholders, each owning 50
percent of the shares, a "deadlock" or effective veto can be given if
both are elected directors and if neither has a casting vote under
the terms of the bylaws. The bylaws and articles cannot be
changed unless the parties agree. This situation can cause
significant problems in the business.
A minority shareholder can be given a veto by ensuring that the
shareholder has board representation, by requiring some higher
majority than a bare majority to pass ordinary resolutions of
directors, and by requiring some majority in excess of one-half
and two-thirds to pass ordinary and special resolutions of
shareholders. These provisions can be inserted into the articles or
the USA.
Corporate–6–13
2008 © SKLESI
Bylaws are normally amended by ordinary resolution of directors
and shareholders (SBCA, section 98); and the articles are
normally amended by a two-third majority vote of shareholders
(section 167 and 2(1)(ff)). Provisions of the articles or bylaws can
be more entrenched by requiring some higher majority to effect
an amendment or repeal, as contemplated by section 6(3).
Unanimous Shareholders Agreements
under the
Business Corporations Act (Canada)
Section 146 of the Business Corporations Act (Canada)
(“CBCA”) authorizes the use of USA’s. This provision is not as
detailed as the SBCA provisions, and is, in some ways, more
limiting. The CBCA effectively requires the USA to restrict, in
whole or in part, the powers of the directors or it will not be
considered a USA under the CBCA.
If the corporation is governed by the CBCA, it is important to
familiarize yourself with this section and note any differences from
section 140 of the SBCA.
Corporate–6–14
2008 © SKLESI
NOTES ON UNANIMOUS SHAREHOLDERS AGREEMENTS
Under the Business Corporations Act (Saskatchewan) a Unanimous Shareholders
Agreement may affect:
(a)
the pre-emptive rights of existing shareholders to acquire shares from the
treasury of the corporation (section 25(1));
(b)
the ability of personal representatives of a shareholder to deal with the shares
of that shareholder (section 50(2));
(c)
the amendment of the bylaws by the directors (section 98(1));
(d)
the borrowing of money, the pledging of debt obligations, the giving of
guarantees, the mortgaging or creation of security interests in the property of
the corporation (section 183(1));
(e)
the disclosure of a material interest in the contracts of the corporation by
officers or directors (section 115(9));
(f)
the designation of the officers of the corporation, the specifications of their
duties, and the delegation to those officers of the power to manage the
business and the affairs of the corporation (section 116);
(g)
the remuneration of officers, directors and employees of the corporation
(section 120);
(h)
the contents of financial statements (section 149(1)(c)); and
(i)
the entitlement of shareholders to demand dissolution of the corporation
(section 207(1)(b)(i)).
Corporate–P–6–1
2008 © SKLESI
SHAREHOLDERS' AGREEMENT
Disclaimer: This agreement is intended as a teaching vehicle for use only in the Saskatchewan CPLED
Program. Certain key provisions have been omitted and other provisions are inconsistent. This document is not
intended to be used as a precedent.
THIS AGREEMENT made
, 2005;
BETWEEN:
JUSTIN SMITH ("JS"),
- andANNE CLARKE ("AC"),
- and BRENT TAYLOR ("BT"),
- and DIGITAL WIDGETS INC. ("the Corporation"),
The Shareholders and the Corporation entered into this Agreement to provide for the
operation of the Corporation;
The authorized capital of the Corporation consists of an unlimited number of Class
"A" Common voting shares, of which 300 are issued; and an unlimited number of
Class "B" Preferred non-voting shares, of which 0 are issued;
All of the issued shares of the corporation are owned by the Shareholders as
follows:
Shareholder
Class “A” Common Voting
Shares
JS
100
AC
100
BT
100
Class “B” Preferred NonVoting Shares
The parties agree as follows:
2008 © SKLESI
ARTICLE ONE - INTERPRETATION
1.01
1.02
Definitions
(a)
"Agreement" means this agreement and all written schedules and
amendments made between the Shareholders and the Corporation;
(b)
"The Act" means The Business Corporations Act, as amended, reenacted or replaced;
(c)
"Business Day" means a day other than a Saturday, Sunday or a
statutory holiday in Saskatchewan;
(d)
"Shares" means the shares of the Corporation that the Shareholders
own; and
(e)
"Shareholders" means JS, AC and BT and any other person who may
become parties to this Agreement and "Shareholder" means any one
of these persons, individually.
Sections and Headings
The insertion of sections and headings are for convenience of reference only and
shall not affect the construction or interpretation of this Agreement.
1.03
Unanimous Shareholders Agreement
The discretion and powers of the directors to manage the affairs of the Corporation
are restricted by this Agreement where it specifies that any matter requires action by
or approval of the Shareholders.
ARTICLE TWO - MANAGEMENT
2.01
Directors
The board of directors of the Corporation shall consist of [ ] directors and [ ] and [ ]
shall be the directors of the Corporation, unless all of the Shareholders elect or
appoint another person to be a director or consent in writing to another person being
elected or appointed and a copy of the consent is filed with the Corporation.
2.02
Auditor
The Shareholders shall appoint the auditor of the Corporation annually. The
directors shall fix the remuneration of the auditor.
OR
2008 © SKLESI
[2.02 Dispensing with Auditor
The Shareholders shall in each financial year of the Corporation resolve not to
appoint an auditor of the Corporation pursuant to the provisions of The Business
Corporations Act.]
2.03
Approval of Matters
None of the following actions:
(a)
changing the articles or bylaws of the Corporation;
(b)
changing the authorized or issued capital of the Corporation;
(c)
entering into any agreement or making any offer or granting any right
capable of becoming an agreement to allot or issue any shares of the
Corporation;
(d)
taking any action which may lead to or result in a material change in
the nature of the business of the Corporation;
(e)
entering into any agreement other than in the ordinary course of the
Corporation's business;
(f)
borrowing any money, giving any security or making or incurring any
single capital expenditure in excess of $10,000 or any capital
expenditures in excess of $100,000 in any financial year of the
Corporation;
(g)
taking any steps to wind-up or terminate the corporate existence of the
Corporation;
(h)
selling, leasing, exchanging or disposing of all or any substantial part
of the undertaking, property or assets of the Corporation;
(i)
making, directly or indirectly, loans or advances to, or giving security
for or guaranteeing the debts of, any person;
(j)
declaring or paying any dividend;
(k)
taking, holding, subscribing for or agreeing to purchase or acquire
shares in the capital of any corporate body;
(l)
entering into a partnership or any arrangement for the sharing of
profits, union of interests, joint venture or reciprocal concession with
any person; and
(m)
entering into an amalgamation, merger or consolidation with any other
corporate body
2008 © SKLESI
shall be taken by the Corporation unless:
(A)
in the case of an action that by law requires the approval of the
directors only:
(1)
all of the directors at a properly constituted meeting of directors
give their approval to such action by resolution; or
(2)
all of the directors consent in writing to the action; and
(B)
in the case of an action that by law requires the approval of the
Shareholders;
(1)
the action is approved by a resolution passed by a majority of not
less than 80 per cent of the votes cast by the Shareholders who
voted in respect thereof at a properly constituted meeting; or
(2)
all of the Shareholders consent in writing to the action.
ARTICLE THREE - DEALING WITH SHARES
3.01
Transfer of Shares
Except as provided for in this Article Three, Shareholders can only sell, transfer,
dispose of or encumber their Shares if they first obtain the written consent of all the
other Shareholders to such disposition or encumbrance.
3.02
Endorsement of Certificates
Share certificates shall state the following:
"The shares represented by this certificate are subject to all the terms and
conditions of an agreement dated, 20* , and filed at the registered office of
the Corporation."
3.03
Issue of Additional Shares
If any additional shares are to be issued from treasury, the Corporation shall first offer
such shares to the Shareholders by giving them notice of the Corporation's intention
to issue additional shares and the number and class to be issued. The Shareholders
shall have the right to purchase the offered shares pro rata based upon the number of
Shares beneficially owned by each Shareholder at the date notice is given of the offer.
The Shareholders shall have 20 Business Days from the date of the notice to take up
and pay for all or any of the offered shares. The shares that have not been taken up
and paid for within the 20 Business Days may be offered and issued to such persons
as the directors in their discretion determine, provided that such persons agree to be
bound by and to become parties to this Agreement.
3.04
2008 © SKLESI
Sale of Shares - Right of First Refusal
(a)
Any Shareholder (the "Offeror") who wants to sell all or any Shares
shall give notice of such proposed sale ("Notice") to the Corporation
and to the other Shareholders and shall set out in the Notice the
number of Shares that are offered for sale ("Offered Shares") and the
terms and the price for the Offered Shares ("Purchase Price").
(b)
Upon the Notice being given, the other Shareholders (the "Offerees" and
individually, an "Offeree") shall have the right to purchase all, but not
less than all, of the Offered Shares for the Purchase Price. The Offerees
shall be entitled to purchase the Offered Shares pro rata based upon the
number of Shares beneficially owned by the Offerees or to purchase in
such other proportion as the Offerees may agree in writing.
(c)
Within 10 Business Days of receiving the Notice, each Offeree who
desires to purchase all of the Offered Shares that such Offeree is
entitled to purchase according to Section 3.04(b) shall give notice to the
Offeror, to the Corporation and to the other Offerees. If any Offeree
does not give such notice, the Offered Shares that such Offeree had
been entitled to purchase ("Rejected Shares") may instead be
purchased by the Offerees who did give notice, pro rata based upon the
number of Shares beneficially owned by such Offerees or in such other
proportion as the Offerees may agree in writing, and within 5 Business
Days of the expiry of the 10 Business Day period specified in this
Section, each Offeree who desires to purchase all of the Rejected
Shares that such Offeree is entitled to purchase according to this
Section shall give an additional notice to the Offeror, to the Corporation
and to the other Offerees. If any Offeree entitled to give this additional
notice does not do so, the Rejected Shares that such Offeree had been
entitled to purchase may instead be purchased by the Offerees who did
give notice, and so on from time to time until the Offerees are willing to
purchase all of the Offered Shares or until they are not willing to
purchase any more. If the Offerees are willing to purchase all, but not
less than all, of the Offered Shares, the transaction of purchase and sale
shall be completed in accordance with the terms of the Notice.
(d)
If the Offeror makes default in transferring the Offered Shares to the
Offerees according to the terms of the Notice, the Secretary of the
Corporation is authorized and directed to receive the purchase money
and enter the names of the Offerees in the registers of the Corporation
as the holders of the Shares. The purchase money shall be held in
trust by the Corporation on behalf of the Offeror and shall not be mixed
with the Corporation's assets. The receipt by the Secretary of the
Corporation for the purchase money shall be a good discharge to the
Offerees and, after their names have been entered in the registers of
2008 © SKLESI
the Corporation, the validity of the proceedings shall not be questioned
by any person. Once the shares are registered to the Offerees, the
Offeror ceases to have any right to the Offered Shares except the right
to receive the Purchase Price received by the Secretary of the
Corporation.
(e)
If the Offerees do not give notice according to Section 3.04(c) that they
are willing to purchase all of the Offered Shares, the rights of the
Offerees to purchase the Offered Shares shall end and the Offeror may
sell the Offered Shares to any person within four months after the expiry
of the 10 Business Day period or 5 Business Day period specified in
Section 3.04(c), for a price not less than the Purchase Price and on
other terms no more favourable to such person than those set forth in
the Notice, provided that the person to whom the Shares are to be sold
agrees prior to such transaction to be bound by and to become a party
to this Agreement in place of the Offeror. If the Offered Shares are not
sold within the four month period, the rights of the Offerees pursuant to
this Section 3.04 shall again take effect and so on from time to time.
OR
[3.04 Sale of Shares – Shotgun
(a)
Any Shareholder ("Offeror") has the right at any time to give notice
("Notice") to the other Shareholders (the "Offerees" and individually, an
"Offeree") and to the Corporation. The Notice shall contain the
following:
i.
an offer by the Offeror to purchase all of the Shares beneficially
owned by the Offerees ("Offer to Purchase");
ii.
an offer by the Offeror to sell all of the Shares beneficially
owned by the Offeror to the Offerees pro rata based upon the
number of Shares beneficially owned by the Offerees ("Offer to
Sell"); and
iii.
the price to be paid for each Share pursuant to the Offer to
Purchase and the Offer to Sell, which shall be the same for both
offers ("Purchase Price").
(b)
Within 10 Business Days of Notice being given, each Offeree is
entitled to accept either the Offer to Purchase or the Offer to Sell by
giving notice of such acceptance to the Offeror, to the other Offerees
and to the Corporation.
(c)
If the Offerees accept the Offer to Purchase, the Offerees shall sell and
the Offeror shall purchase all of the Shares beneficially owned by each
Offeree at the Purchase Price and the transaction of purchase and
sale shall be completed within 20 Business Days of the expiry of the 10
Business Day period specified in Section 3.04(b). The transaction shall
2008 © SKLESI
be completed at the Corporation's registered office where the Offerees
shall deliver the Shares with good, free and clear title and shall receive
payment by certified cheque from the Offeror.
(d)
If the Offerees accept the Offer to Sell, the Offerees shall purchase pro
rata, based upon the number of Shares beneficially owned by the
Offerees, and the Offeror shall sell all of the Shares beneficially owned
by the Offeror at the Purchase Price and the transaction of purchase
and sale shall be completed within 20 Business Days of the expiry of
the 10 Business Day period specified in Section 3.04(b). The
transaction shall be completed at the Corporation's registered office
where the Offeror shall deliver the Shares with good, free and clear
title and shall receive payment by certified cheque from the Offerees.
(e)
If any Offeree does not accept either the Offer to Purchase or the Offer
to Sell within the 10 Business Day period specified in Section 3.04(b),
that Offeree shall be deemed to have accepted the Offer to Purchase
of the Offeror and to have given notice of such acceptance pursuant to
the provisions of Section 3.04(b) on the last Business Day upon which
such notice may have been given.
(f)
If one Offeree accepts or is deemed to have accepted the Offer to
Purchase pursuant to the provisions of Section 3.04(c) or Section
3.04(e), respectively, ("Selling Offeree") and another Offeree accepts
the Offer to Sell of the Offeror pursuant to the provisions of Section
3.04(b) ("Purchasing Offeree"), the Purchasing Offeree shall be entitled
to purchase the Shares beneficially owned by the Offeror and the
Shares beneficially owned by the Selling Offeree by giving notice of the
exercise of that right to the Offeror, the Selling Offeree and to the
Corporation within 10 Business Days of the expiry of the 10 Business
Day period specified in Section 3.04(b) and, if the Purchasing Offeree
gives notice pursuant to the provisions of Section 3.04(f), the Offeror
and the Selling Offeree shall sell the Shares beneficially owned by them
to the Purchasing Offeree and such transaction of purchase and sale
shall be completed within 20 Business Days of the date upon which the
Corporation was given such notice by the Purchasing Offeree. The
transaction shall be completed at the Corporation's registered office
where the Offeror and the Selling Offeree shall deliver the Shares with
good, free and clear title and shall receive payment by certified cheque
from the Purchasing Offeree.
(g)
If the Purchasing Offeree fails to give notice under Section 3.04(f)
within the 10 Business Day period, the Purchasing Offeree shall be
deemed to have accepted the Offer to Purchase, and not accepted the
Offer to Sell, and the provisions of Section 3.04(c) shall apply to both
Offerees except that the transaction of purchase and sale shall be
completed with 15 Business Days of the expiry of the 10 Business Day
period specified in Section 3.04(f).
2008 © SKLESI
3.05
(h)
If any Shareholder obliged to sell under Section 3.04 ("Selling
Shareholder") makes default in transferring all or any of the Shares to
a Shareholder obliged to purchase under Section 3.04 ("Purchasing
Shareholder"), the Secretary of the Corporation is directed to receive
the purchase money and enter the name of the Purchasing
Shareholder in the registers of the Corporation as the holder of the
Shares. The purchase money shall be held in trust by the Corporation
on behalf of the Selling Shareholder and shall not be mixed with the
Corporation's assets. The receipt by the Secretary for the purchase
money shall be a good discharge to the Purchasing Shareholder and,
after the name has been entered in the registers of the Corporation,
the validity of the proceedings shall not be questioned by any person.
On the registration, the Selling Shareholder ceases to have any right to
the Shares except the right to receive the Purchase Price received by
the Secretary of the Corporation.
(i)
Two of the Shareholders may jointly give a Notice to another
Shareholder under Section 3.04(a) and, in such event, the further
provisions of Section 3.04 shall apply except that any Shares
purchased by them under Section 3.04 shall be pro rata based upon
the number of Shares beneficially owned by the Shareholders who
gave the Notice.
(j)
Two of the Shareholders may jointly accept the Offer to Sell under
Section 3.04(b) and, in such event, the further provisions of Section
3.04 shall apply except that the number of Shares to be purchased by
each of them under Section 3.04 may be set out in the notice given by
them under Section 3.04(b) and Section 3.04(i) provided that the
aggregate of such numbers equals the number of Shares beneficially
owned by the Offeror.]
Insolvency of a Shareholder
(a)
If any Shareholder makes as assignment for the benefit of creditors or
is the subject of any proceedings under any bankruptcy or insolvency
law (the "Offeror"), the other Shareholders (the "Offerees" and
individually, an "Offeree") shall have the right to purchase all, but not
less than all, of the Shares beneficially owned by the Offeror ("Offered
Shares").
(b)
The Offerees shall be entitled to purchase the Offered Shares pro rata
based upon the number of Shares beneficially owned by the Offerees
or to purchase in such other proportion as the Offerees agree in
writing, at the price to be determined according to the provisions of
Section 3.05(c).
2008 © SKLESI
(c)
The price of the Offered Shares shall be the fair value of such Shares
as determined by an accountant, in accordance with generally
accepted accounting principles, at the end of the fiscal quarter of the
Corporation immediately preceding the fiscal quarter in which the event
referred to in Section 3.05(a) occurred. Such determination shall be in
writing and shall be given to all of the Shareholders and to the
Corporation within 20 Business Days of the date of the event referred
to in Section 3.05(a) or as soon thereafter as possible.
(d)
For the purpose of determining such fair value, the accountant may
appoint, at the expense of the Corporation, an independent appraiser
to assist the accountant. The report of the accountant, when delivered
to the Shareholders and to the Corporation, shall be conclusive and
binding upon all parties.
(e)
Within 10 Business Days of having been given the accountant's report
of the fair value of the Offered Shares, each Offeree who desires to
purchase all of the Offered Shares that such Offeree is entitled to
purchase according to Section 3.05(b) shall give notice to the Offeror,
to the Corporation and to the other Offerees. If any Offeree does not
give such notice, the Offered Shares that such Offeree had been
entitled to purchase ("Rejected Shares") may instead be purchased by
the Offerees who did give such notice, pro rata based upon the
number of Shares beneficially owned by such Offerees as between
themselves or in such other proportion as these Offerees agree in
writing. Within 5 Business Days of the expiry of the 10 Business Day
period specified in Section 3.05(e), each Offeree who desires to
purchase all of the Rejected Shares that such Offeree is entitled to
purchase according to Section 3.05(e) shall give an additional notice to
the Offeror, to the Corporation and to the other Offerees. If any Offeree
entitled to give the additional notice does not do so, the Rejected
Shares that such Offeree had been entitled to purchase may instead
be purchased by the Offerees who did give such notice, and so on
from time to time until the Offerees are willing to purchase all of the
Offered Shares or until they are not willing to purchase any more. If the
Offerees are willing to purchase all, but not less than all, of the Offered
Shares, the transaction of purchase and sale shall be completed within
20 Business Days of the expiry of the 10 Business Day period or 5
Business Day period specified in Section 3.05(e). The transaction shall
be completed at the Corporation's registered office where the Offeror
shall deliver the Shares with good, free and clear title and shall receive
payment by certified cheque from the Offeree.
2008 © SKLESI
3.06
(f)
If the Offeror defaults in transferring the Offered Shares to the Offerees
as provided for in Section 3.05, the Secretary of the Corporation is
authorized and directed to receive the purchase money and enter the
names of the Offerees in the registers of the Corporation as the
holders of the Shares. The purchase money shall be held in trust by
the Corporation on behalf of the Offeror and shall not be mixed with the
Corporation's assets. The receipt by the Secretary for the purchase
money shall be a good discharge to the Offerees and, after their
names have been entered in the registers of the Corporation, the
validity of the proceedings shall not be questioned by any person. On
such registration, the Offeror ceases to have any right to the Offered
Shares except the right to receive the Purchase Price received by the
Secretary.
(g)
If the Offerees do not give notice under Section 3.05(e) that they are
willing to purchase all of the Offered Shares, the rights of the Offerees
to purchase the Offered Shares shall end and the Offeror may sell the
Offered Shares to any person within four months after the expiry of the
10 Business Day period or 5 Business Day period specified in Section
3.05(e), for a price not less than the price that would have been
payable by the Offerees and on terms no more favourable to such
person than those that would have been applicable had the Offerees
agreed to purchase the Offered Shares under Section 3.05, provided
that the person to whom the Shares are to be sold agrees prior to such
transaction to be bound by and to become a party to this Agreement in
place of the Offeror. If the Offered Shares are not sold within the four
month period on such terms, the rights of the Offerees pursuant to this
Section 3.05 shall again take effect and so on from time to time.
Termination of Employment
If either JS, AC or BT ceases to be an employee of the Corporation, voluntarily or
otherwise, except by reason of death, the other Shareholders shall have the right to
purchase all, but not less than all, of the Shares beneficially owned by such
Shareholder, in the proportions and for the price and upon the terms and conditions
determined in accordance with Section 3.05.
3.07
Disability
If any of the Shareholders is incapacitated from performing such Shareholder's
duties as an employee of the Corporation for a period of six consecutive months by
reason of illness or mental or physical disability, or if such Shareholder shall be
incapacitated at different times for six months in any 24 month period, then in either
case the incapacitated party shall cease to be an employee of the Corporation.
3.08
2008 © SKLESI
Death of an Individual Shareholder
If any Shareholder dies, the surviving Shareholders shall purchase, and the personal
representative of the deceased Shareholder shall sell, all, but not less than all, of the
Shares beneficially owned by the deceased Shareholder immediately prior to death,
in the proportions and for the price and upon the terms and conditions determined in
accordance with Section 3.05.
ARTICLE FOUR – GENERAL
4.01
Non-Competition
(a)
None of the Shareholders will, without the prior written consent of the
other Shareholders, at any time while a Shareholder of the Corporation
and for a period of three years after ceasing to be a Shareholder of the
Corporation, either individually or in partnership or jointly or in
conjunction with any person as principal, agent, employee, shareholder
(other than a holding of shares listed on a Canadian or United States
stock exchange that does not exceed 5 per cent of the outstanding
shares so listed) or in any other manner whatsoever carry on or be
engaged in or be concerned with or interested in or advise, lend money
to, guarantee the debts or obligations of or permit such Shareholder's
name or any part thereof to be used or employed by any person
engaged in or concerned with or interested in any business similar to
or competitive with the business carried on by the Corporation within
the Province of Saskatchewan or, if such Shareholder has ceased to
be a Shareholder of the Corporation, any business similar to or
competitive with the business carried on by the Corporation at the time
such Shareholder ceased to be a Shareholder of the Corporation.
[(a)
None of the Shareholders will carry on any business similar to or
competitive with the business carried on by the Corporation for a
period of three years after ceasing to be a Shareholder of the
Corporation without the prior written consent of the other Shareholders.
"Carry on business" means:
OR
—
either individually or
—
in partnership or
—
jointly or
2008 © SKLESI
—
in conjunction with any person as principal, agent,
employee, shareholder (other than a holding of shares
listed on a Canadian or United States stock exchange
that does not exceed 5 per cent of the outstanding
shares so listed) or
—
in any other manner whatsoever to
—
carry on or
—
be engaged in or
—
be concerned with or
—
interested in or
—
advise or
—
lend money to or
—
guarantee the debts or obligations of or
—
permit his/her name or part of his/her name to be
used or employed by any person engaged in or
—
concerned with or
—
interested in
any business similar to or competitive with the business carried on by
the Corporation within the Provinceof Saskatchewan.]
(b)
4.02
Each of the Shareholders confirms that all the restrictions in Section
4.01(a) are reasonable and valid and all defences to the strict
enforcement of this non-competition section are waived by each
Shareholder.
Insurance
(a)
The Corporation shall, if reasonably obtainable, acquire and maintain
insurance on the life of each of JS, AC and BT [or the Shareholders] in
amounts reasonably satisfactory to fulfil the purchase obligations
contained in this Section.
(b)
Additional insurance shall, if reasonably obtainable, be acquired by the
Corporation on the life of each of JS, AC and BT [or the Shareholders]
in such amounts as may be specified by notice to the Corporation by
all of such Shareholders.
(c)
The Corporation shall maintain in good standing at all times the
insurance policies on the lives of these [or the] Shareholders and shall
not deal in any manner with these policies or in any way encumber
these policies.
(d)
4.03
2008 © SKLESI
If upon the death of any Shareholder the Corporation receives the
proceeds of any insurance held by the Corporation on the life of the
deceased Shareholder and, under this Agreement, the other
Shareholders are or have been required to purchase the Shares
beneficially owned by the deceased Shareholder immediately prior to
such Shareholder's death, the directors of the Corporation and the
representatives of the deceased Shareholder shall agree upon a
procedure whereby either the Corporation fulfils such obligation to
purchase by using the proceeds of insurance or, the proceeds are
distributed or otherwise dealt with so as to enable the surviving
Shareholders to fulfil the obligation to purchase.
Benefit of the Agreement
This Agreement shall enure to the benefit of and be binding upon the respective
heirs, executors, administrators, successors and assigns of the parties.
4.04
Entire Agreement
This Agreement constitutes the entire agreement between the parties and cancels
and supersedes any prior understandings and agreements between the parties.
There are no representations, warranties, terms, conditions, undertakings or
collateral agreements, express, implied or statutory, between the parties other than
expressly set forth in this Agreement.
4.05
Amendments and Waivers
All amendments to this Agreement shall be valid or binding if they are in writing and
executed by all the parties. Any waiver of any breach of any provision of this
Agreement shall be effective or binding if it is in writing and signed by the party
giving the waiver and, unless otherwise provided in the written waiver, shall be
limited to the specific breach waived.
4.06
Assignment
Except as may be expressly provided in this Agreement, none of the parties may
assign their respective rights or obligations under this Agreement without the prior
written consent of all of the other parties.
4.07
Termination
This Agreement shall terminate upon:
(a)
the written agreement of all of the Shareholders;
2008 © SKLESI
4.08
(b)
the dissolution or bankruptcy of the Corporation or the making by the
Corporation of an assignment under the provisions of the Bankruptcy
and Insolvency Act; or
(c)
one Shareholder becoming the beneficial owner of all of the Shares.
Severability
If any provision of this Agreement is found to be invalid or unenforceable in whole or
in part, such invalidity or unenforceability shall attach only to such provision or part
thereof and the remaining part of such provision and all other provisions of the
Agreement shall continue in full force and effect.
4.09
Notices
Any communication to be given in connection with this Agreement shall be in writing
and may be by personal delivery or by registered mail addressed to the recipient as
follows:
TO JS:
TO AC:
TO BT:
TO THE
CORPORATION:
or to any address or individual that one party may designate to the others. Any
communication given by personal delivery shall be deemed to have been given on
the day of actual delivery and, if given by registered mail, on the second Business
Day following the deposit in the mail. If the party giving any communication knows or
ought reasonably to know of any difficulties with the postal system which might affect
the delivery of mail, any such communication shall not be mailed but shall be given
by personal delivery.
4.10
2008 © SKLESI
Governing Law
This Agreement shall be governed by and construed in accordance with the laws of
the Province of Saskatchewan and the applicable laws of Canada.
IN WITNESS WHEREOF the parties have executed this Agreement.
SIGNED, SEALED AND DELIVERED
in the presence of:
______________________________
Witness
)
)
_____________________________
JUSTIN SMITH
_______________________________ )
Witness
)
_____________________________
ANNE CLARKE
_______________________________ )
Witness
)
_____________________________
BRENT TAYLOR
DIGITAL WIDGETS INC.
Per:
____________________________________
President
c/s
Per:
____________________________________
Secretary
2008 © SKLESI
CHECKLIST FOR A UNANIMOUS SHAREHOLDERS AGREEMENT (“USA”)
1.
PARTIES
Should the corporation be a party - any positive obligations under the USA? Other
possible parties: recipient of powers to manage; principals of shareholder holding
companies.
2.
RECITALS
Identify corporation by name, date and jurisdiction of incorporation;
Reasons behind inclusion of certain persons as parties;
Purpose for which USA has been entered into;
Shareholders to agree upon respective rights and obligations and rules governing
management and conduct of corporation.
3.
IMPLEMENTATION OF USA
Agreement to vote to implement the USA and remove any director who does not
comply with USA;
Conflict provision – USA prevails over Articles and Bylaws.
4.
FINANCING
Shareholders' general intention as to source of funds;
Obligation of shareholders to provide shareholder loans and terms and conditions
relating thereto - interest, security, repayment;
Obligation of shareholders to provide guarantees and on what basis - joint and
several or several only;
Mutual indemnification to ensure right of contribution if loss of shareholder is in
excess of proportionate share;
Subordination of shareholder loans;
Policy relating to payment of dividends.
5.
2008 © SKLESI
DEFAULT
Results of failure of shareholder to advance monies or provide guarantees;
Right to acquire all or only a portion of defaulting shareholder's shares and/or
shareholder loans;
Release of defaulting shareholder's outstanding guarantee;
Provide that contractual rights are additional to other rights at law or in equity.
6.
DIRECTORS AND OFFICERS
Fixed number of directors or not?
Composition of Board - current directors and right of shareholders or groups of
shareholders to nominate directors;
Quorum requirement - tie to composition of Board;
Proportion of votes required to decide matters before directors - vary numbers
according to nature of issue?
Desirability of casting vote provision?
Manner of filling vacancies on Board;
Remuneration of directors, officers and employees if power removed from directors;
Method of removal of director; for officers and employees who are shareholders outline function, extent of time to be devoted to business, remuneration and other
terms and conditions of employment;
Whether limitations on powers of directors to borrow should be imposed;
Description of offices and duties of officers - if not specified in Bylaws;
Any special conflict of interest provisions contrary to Act.
2008 © SKLESI
7.
SHAREHOLDERS
Shareholders' meetings - if outside Saskatchewan, requires unanimous consent;
Quorum for decision of shareholders - to be determined by number and/or
shareholdings or any special class requirements;
Casting vote provision - is it desirable?
Telephone meeting - is this desired?
8.
CONDUCT OF BUSINESS OF CORPORATION
Unanimous consent of shareholders - under what circumstances: for example:
(a)
Changing the articles or bylaws of the corporation.
(b)
Changing the authorized or issued capital (shares) of the corporation.
(c)
Entering into any agreement or making any offer or granting any right
capable of becoming an agreement to allot or issue any shares of the
corporation.
(d)
Taking any action which may lead to or result in a material change in
the nature of the business of the corporation.
(e)
Entering into any agreement other than in the ordinary course of the
corporation's business.
(f)
Borrowing any money, giving any security on behalf of the corporation,
or incurring any single expenditure in excess of $________ in any
financial year of the corporation.
(g)
Taking any steps to wind up or terminate the corporate existence of the
corporation.
(h)
Selling, leasing, exchanging or disposing of all or a substantial part of
the property or assets of the corporation.
(i)
Making, directly or indirectly, loans or advances to, or giving security
for or guaranteeing the debts of any person.
(j)
Declaring or paying any dividend.
(k)
Taking, holding, subscribing for or agreeing to purchase or acquire
shares of another corporation.
2008 © SKLESI
(l)
Entering into a partnership or arrangement for the sharing of profits,
interest, joint venture or other type of reciprocal agreement with any
person.
(m)
Amalgamating, merging, or consolidating with any other corporate body.
(n)
Signing authority on cheques.
(o)
Binding the corporation to contracts;
Limitations on business carried on by corporation;
Other matters requiring the approval of the shareholders by less than a unanimous vote;
Any matter requiring prior notification to shareholders by directors or which must be
referred by directors to shareholders for approval.
9.
ALLOTMENT OF ADDITIONAL SHARES
Issuance of further shares - unanimity of shareholders or not? All classes or certain
ones only?
Procedure for giving notice of proposed issue;
Procedure for subscription by shareholders;
Address over-subscription and under-subscription.
10.
RIGHT OF FIRST REFUSAL
Consider whether right of first refusal is desirable;
Consider including shotgun buy/sell if shareholder finds third party willing to purchase
all shares of corporation.
11.
SHARES AND ADVANCES
General prohibition on the transfer, assignment or pledge without unanimous
consent of all shareholders except in accordance with USA;
Define change of control of corporate shareholder, if desired;
Right of shareholder to assign interest in outstanding shareholder loans/whether
permitted.
2008 © SKLESI
12.
TRANSFER BY OPERATION OF LAW
Define "disposition" for purposes of this article (e.g., petitioning into bankruptcy,
seizure of shares, judgment of incompetency);
Outline method of determination of purchase price and related procedural matters option period, acceptance, closing, over-acceptance, under-acceptance.
13.
BUY/SELL ON DEATH
Consider present provisions of Income Tax Act - corporate owned life insurance or
criss-cross insurance amongst shareholders - and without insurance;
Consider whether individual shareholders or corporate shareholders - will affect
structuring of buy/sell provisions;
Consider whether corporate repurchase or criss-cross buy/sell is desirable and all
related procedural matters - closing, purchase price, effect of delays in payment of
purchase price, interest, repurchase rights.
14.
GENERAL PROVISIONS
Duration of agreement;
Endorsement of share certificate;
Arbitration provision;
Mutual indemnification provision;
Time of the essence;
Non-waiver provision;
Notice provision;
Enurement provision;
Execution in counterpart;
Non-competition clause.

Shareholder Agreements Contents Corporate Commercial Section 6

Transcription

Similar documents

CMKM DIAMONDS, INC.

Eloxite Corporation

FOL-1-FORMA 2 - Service Alberta

Document 6438099

Sutura, Inc.

Challenger 2/3 Level 0 Control

Compared to cold-tip thermometers

preview

Notice of Annual Meeting of Shareholders

SHAREHOLDERS AGREEMENT CHECKLIST FOR DISCUSSION PURPOSES