Any shareholder who wants to exercise a "shotgun" clause must aim for the bullseye and hope that the master (notary or lawyer) follows the rules of the game and has read this case law.
The implementation of mechanisms provided for in a shareholders' agreement often turns into a feast for lawyers as it provides enough ammunition to fuel a long legal battle between shareholders.
Thus, two brothers sign a shareholders' agreement containing a "shotgun" clause. This clause allows each of them to offer to buy the shares of the other shareholder according to the terms set out in the offer to purchase. The shareholder who receives such an offer must refuse it and acquire the shares of the offeror, on the terms of the offer or, failing that, sell his shares to the shareholder who initiated the "shotgun" clause.
One of the brothers, brother "A", initiates the "shotgun" clause and offers to buy the shares of brother "B". Before the prescribed 30-day period expires, brother "B" refuses the offer and exercises his right to acquire the shares of "A". However, in the meantime, "A" withdraws his offer and refuses to sell. "B" therefore puts "A" on notice to sign the share sale agreement, but "A" refuses because the proposed share sale agreement does not reflect the terms of the offer.
"B" turns to the Court*, two years go by, and a few days before the hearing, he submits a new proposed share sale agreement that is consistent with the initial offer. The judges conclude that the "shotgun" clause is "in the nature of an expropriation". The proposed share sale agreement was required to be "substantially" consistent with the offer. Also, the process used by "B" is not acceptable, as it "leads to the recognition of the right to negotiate the terms of the offer." The production of new proposed share sale agreements, two years after the action, is not acceptable.
Any shareholder who wants to exercise a "shotgun" clause must aim for the bullseye and hope that the master (notary or lawyer) respects the rules of the game and has read this case law.
* C.A. Québec 200-09-005621-062
