Shareholders' Agreement (Canada) by OLL

SHAREHOLDERS' AGREEMENT

THIS AGREEMENT is made as of [Date].

BETWEEN:

[Corporation Legal Name] (the "Corporation")

— and —

[Shareholder 1 Legal Name], of [Shareholder 1 Address]

— and —

[Shareholder 2 Legal Name], of [Shareholder 2 Address]

(each a "Shareholder" and together the "Shareholders"; the Corporation and the Shareholders are together the "Parties")

WHEREAS the Shareholders own all of the issued and outstanding Shares of the Corporation, and the Parties wish to record their agreement as to the governance of the Corporation and their respective rights and obligations as Shareholders;

NOW THEREFORE in consideration of the mutual covenants below, the Parties agree as follows:

Interpretation

In this Agreement:

"Board" means the board of directors of the Corporation;

"Fair Market Value" means the value of a Share, determined under section 14;

"Offer Notice" has the meaning given in section 10.1;

"Permitted Transferee" means, in respect of a Shareholder who is an individual, [that Shareholder's spouse, child, or a trust for their benefit / a corporation Controlled by that Shareholder];

"Shareholder" means a holder of Shares who is a party to this Agreement, and "Shareholders" means all of them;

"Shares" means the issued and outstanding shares in the capital of the Corporation, of every class; and

"Triggering Event" has the meaning given in section 13.1.

The recitals and Schedules form part of this Agreement.

Purpose and Share Capital

The Corporation is incorporated under [the Canada Business Corporations Act / the Business Corporations Act of [Province]].

The authorized and issued share capital of the Corporation, and each Shareholder's holdings, are set out in Schedule A.

The Shareholders intend this Agreement to be [a unanimous shareholders agreement restricting the powers of the directors to manage or supervise the management of the Corporation's business and affairs, to the extent set out in section 5 / an agreement among Shareholders that does not restrict the directors' powers].

Insert the applicable citation: federal — Canada Business Corporations Act, R.S.C. 1985, c. C-44; Ontario — Business Corporations Act, R.S.O. 1990, c. B.16; British Columbia — Business Corporations Act, S.B.C. 2002, c. 57; Alberta — Business Corporations Act, R.S.A. 2000, c. B-9. Confirm the current citation before use, and confirm whether the Corporation is federally or provincially incorporated — that determines which statute's mechanics apply to section 2.3.

Whether an agreement among all the shareholders of a corporation operates as a statutory unanimous shareholder agreement — and, if so, exactly what powers and liabilities shift from the directors to the shareholders exercising them — depends on the specific mechanics required by the applicable corporate statute. See the header warning. This template does not assert that section 5 on its own satisfies those mechanics.

Term

This Agreement continues until the earlier of: (a) the Shareholders unanimously agree in writing to terminate it; (b) only one Shareholder remains a holder of Shares; or (c) the Corporation is dissolved, wound up, or amalgamates with another corporation, other than an amalgamation where the resulting corporation's shareholders enter into a new agreement on substantially the same terms.

Board of Directors

The Board consists of [Number] directors.

Each Shareholder holding at least [Number]% of the Shares is entitled to nominate [Number] director(s), and the other Shareholders will vote their Shares to elect the nominees.

The Board will meet at least [Number] times per year, on [Number] days' notice, at a time and place the directors agree on.

A quorum for a Board meeting is [Number] directors, including at least one director nominated by each Shareholder entitled to nominate a director under section 4.2.

Matters Requiring Shareholder Approval

In addition to any matter that requires shareholder approval under the Corporation's governing statute or articles, the following matters require the approval of Shareholders holding at least [Number]% of the Shares (or the unanimous approval of the Shareholders, if this Agreement is intended to operate as described in section 2.3):

amending the articles or by-laws of the Corporation;

issuing Shares or other securities, other than under section 8;

declaring or paying a dividend or other distribution, other than as set out in section 7;

incurring debt, or granting a security interest over the Corporation's assets, outside the ordinary course of business or above [Amount];

selling, leasing or encumbering all or substantially all of the Corporation's assets;

amalgamating, continuing under another statute, or winding up the Corporation;

hiring or terminating a senior officer, or setting senior officer compensation above [Amount];

amending this Agreement; and

any other matter the Shareholders designate in writing.

List (a)–(i) is a starting point, not an exhaustive or mandatory list. Add or remove matters to reflect what the Shareholders actually want to control, and confirm the required approval threshold against the Corporation's articles, which may set a different threshold for some of these matters.

Financial Information and Inspection

The Corporation will provide each Shareholder with annual financial statements within [Number] days after each fiscal year end, and [monthly / quarterly] financial statements within [Number] days after the end of each period.

Each Shareholder may inspect the Corporation's books and records on reasonable notice during normal business hours, for a purpose reasonably connected to that Shareholder's interest in the Corporation.

Dividend Policy

[The Board will declare and pay dividends in accordance with [describe policy] / Dividends are declared at the discretion of the Board, subject to section 5.1(c)].

A corporation is not required to pay dividends, and the Board's discretion to declare them is subject to the solvency test under the governing corporate statute. Confirm the applicable test before relying on any stated dividend policy.

Pre-emptive Rights

Before the Corporation issues new Shares, other than [to a Permitted Transferee / under an employee incentive plan approved under section 5 / as consideration for an acquisition approved under section 5], it will first offer each existing Shareholder the right to subscribe for a proportionate share of the new issuance, on the same terms, by written notice specifying the price and terms and a period of not less than [Number] days to accept.

Restrictions on Transfer of Shares

A Shareholder may not sell, assign, transfer, pledge, encumber or otherwise dispose of any Shares, or any interest in them, except as permitted by this Agreement.

Any purported transfer in violation of this Agreement is void, and the Corporation will not register it.

Section 9.1 does not apply to a transfer to a Permitted Transferee, provided the Permitted Transferee first agrees in writing to be bound by this Agreement.

Right of First Refusal

A Shareholder who wishes to transfer Shares to a third party, other than under section 9.3, must first give the other Shareholders written notice setting out the number of Shares, the price, and the material terms of the proposed transfer (the "Offer Notice").

The other Shareholders may elect, within [Number] days of the Offer Notice, to purchase the offered Shares, in proportion to their existing holdings or as they otherwise agree, on the terms in the Offer Notice.

If the other Shareholders do not elect to purchase all of the offered Shares within the period in section 10.2, the selling Shareholder may transfer the remaining Shares to the third party named in the Offer Notice, on terms no more favourable to that third party than those in the Offer Notice, within [Number] days after that period expires. If not completed within that time, the Shares are again subject to this section 10.

Shotgun (Buy-Sell) Provision

A Shareholder (the "Offeror") may give the other Shareholders (the "Offerees") written notice offering to buy all, and not less than all, of the Offerees' Shares at a specified price per Share (the "Shotgun Notice").

Within [Number] days of receiving a Shotgun Notice, each Offeree must elect, by written notice to the Offeror, either to: (a) sell all of that Offeree's Shares to the Offeror at the price in the Shotgun Notice; or (b) buy all of the Offeror's Shares at the same price per Share.

An Offeree who does not respond within the period in section 11.2 is deemed to have elected to sell under section 11.2(a).

If Offerees holding Shares elect different options under section 11.2, [describe how this is resolved — for example, the option chosen by Offerees holding a majority of the Offerees' Shares governs as to all Offerees].

Include this section if the Shareholders want a shotgun mechanism. It works best with a small number of Shareholders who can each plausibly fund a buyout, and poorly where the Shareholders have unequal financial resources — see the drafting note below. Delete this section if not wanted.

A shotgun clause can produce an unfair result where the Shareholders have unequal ability to finance a purchase — the Shareholder with less capital may be forced to sell at an undervalue rather than risk being unable to fund a buy-out election. Confirm the Shareholders understand this risk before including section 11.

Tag-Along and Drag-Along Rights

Tag-along. If a Shareholder proposes to transfer Shares representing more than [Number]% of the outstanding Shares to a third party, other than under section 9.3, each other Shareholder may elect to include a proportionate number of its own Shares in the sale, on the same price and terms.

Drag-along. If Shareholders holding at least [Number]% of the outstanding Shares (the "Dragging Shareholders") agree to sell their Shares to a bona fide third party, the Dragging Shareholders may require the other Shareholders to sell all of their Shares to the same purchaser, on the same price and terms, on [Number] days' written notice.

Include this section where a majority Shareholder might sell to a third party. Delete if not wanted.

Mandatory Transfer on Death, Disability, Bankruptcy or Termination

On the death, permanent disability, or bankruptcy of a Shareholder, or — for a Shareholder who is also employed by the Corporation — the termination of that Shareholder's employment (each a "Triggering Event"), that Shareholder, or their estate, committee or trustee, will sell, and the Corporation or the remaining Shareholders (as they agree, or as set out in Schedule B) will purchase, all of that Shareholder's Shares, at the Fair Market Value determined under section 14.

The purchase price under section 13.1 will be paid [in a lump sum within [Number] days of the determination of Fair Market Value / in [Number] equal instalments over [Number] months, with interest at [Rate]% per annum on the unpaid balance].

A Shareholder whose employment with the Corporation ends for cause may be required to sell their Shares at a discount to Fair Market Value, if the Shareholders agree to a "bad leaver" provision, set out in Schedule B.

Consider whether the Corporation should maintain life and disability insurance on each Shareholder who is an individual, to fund the purchase price on death or disability. Confirm the chosen interest rate complies with applicable federal disclosure requirements for annual interest rates before use.

A bad-leaver discount is a significant departure from Fair Market Value and is more likely to be scrutinized by a court, particularly if the definition of "cause" or the size of the discount is one-sided. This template does not take a position on whether any particular discount is enforceable.

Valuation

Fair Market Value of a Share is determined by [agreement between the parties to the transfer / an independent business valuator agreed on by the Shareholders or, failing agreement, appointed by [named appointing body] / the formula in Schedule B].

The valuator's determination is final and binding on the Shareholders, absent manifest error.

Deadlock

If the Shareholders or the Board are unable to agree on a matter requiring their approval, and that disagreement continues for [Number] days after either side gives written notice of a deadlock, the Shareholders will refer the matter to [mediation under section 19 / a shotgun procedure under section 11, applied to the deadlocked matter / an independent chairperson with a casting vote, appointed as set out in Schedule B].

Include this section where Shareholders hold, or could come to hold, equal voting power. Delete if one Shareholder or group will always control a majority.

Non-Competition and Non-Solicitation

During the time a Shareholder holds Shares, and for [Number] months after that Shareholder ceases to hold Shares, that Shareholder will not [carry on, engage in, or hold a financial interest in, any business that competes with the Corporation's business, within [Geographic Area] / solicit any client, customer, supplier or employee of the Corporation with whom that Shareholder had material contact].

This is a restrictive covenant between the Corporation's owners, not an employee non-compete — the Employment Standards Act prohibition on employee non-competition agreements does not apply to it. It remains subject to the common-law restraint-of-trade doctrine, and a court may decline to enforce a restriction broader than reasonably necessary to protect the Corporation's legitimate business interests. This template does not take a position on whether any particular scope is enforceable — confirm with counsel before relying on it.

Confidentiality

Each Shareholder will keep confidential all non-public information relating to the Corporation's business, finances, clients, suppliers and operations that it receives in its capacity as a Shareholder, and will not disclose it to a third party or use it other than in connection with its investment in the Corporation, except with the consent of the Board or as required by law.

Section 17.1 continues to apply after a Shareholder ceases to hold Shares.

Representations and Warranties

Each Shareholder represents and warrants that it owns its Shares free and clear of any encumbrance not disclosed in Schedule A, and has the authority to enter into and perform this Agreement.

Dispute Resolution

The Parties will attempt in good faith to resolve any dispute arising out of this Agreement by negotiation, within [Number] days of written notice of the dispute.

If negotiation does not resolve the dispute, the Parties will refer it to mediation in [City, Province] before a single mediator agreed between them.

Include for binding arbitration instead of the courts: Any dispute not resolved under sections 19.1 and 19.2 will be finally resolved by arbitration before a single arbitrator seated in [City, Province], under [Arbitration Rules]. The award is final and binding.

Include this section if a staged process is wanted. Otherwise delete and rely on section 20.1.

Arbitration is governed by provincial arbitration legislation. Confirm the applicable statute and any mandatory requirements for the chosen seat before including section 19.3.

General

This Agreement is governed by the laws of the Province of [Province] and the federal laws of Canada applicable in that province. The Parties attorn to the exclusive jurisdiction of the courts of that province.

Insert one of the common-law provinces or territories. This template is not drafted for Quebec.

Sections 13 and 14 (to the extent any amount remains owing or unresolved), 16 (Non-Competition and Non-Solicitation) and 17 (Confidentiality) survive a Shareholder ceasing to hold Shares for any reason, and survive termination of this Agreement.

Each Shareholder will vote its Shares, and execute any further documents, reasonably necessary to give effect to this Agreement, including to elect directors nominated under section 4.2 and to approve matters properly approved under section 5.

This Agreement, together with its Schedules, is the entire agreement between the Parties and supersedes all prior discussions and agreements relating to its subject matter.

No amendment is effective unless in writing and signed by [all Shareholders / Shareholders holding at least [Number]% of the Shares] and the Corporation.

A Shareholder may not assign any right under this Agreement except in connection with a transfer of Shares permitted by this Agreement, and any transferee must first agree in writing to be bound by this Agreement.

Notices under this Agreement must be in writing and sent to the address set out above, or to any other address a Party notifies in writing. Notice is deemed received on delivery if delivered personally, on the next business day if sent by email before 5:00 p.m. local time in the recipient's jurisdiction, and [Number] business days after mailing if sent by prepaid mail.

A failure or delay in exercising a right is not a waiver of that right.

If any provision is held unenforceable, it is severed and the remainder continues in force.

This Agreement may be executed in counterparts and delivered electronically, each of which is an original and all of which together form one agreement.

Check the surviving-section list against the final numbering after optional clauses are deleted.

IN WITNESS WHEREOF the Parties have executed this Agreement as of the date first written above.

Schedule A — Share Capital and Shareholdings

Schedule B — Buyout, Valuation and Deadlock Mechanics

Complete the parts that apply, consistent with the choices made in sections 13, 14 and 15. Delete any part that does not apply.

Part 1 — Valuation formula (if section 14.1 uses a formula)

[Set out the agreed formula — for example, a multiple of trailing average earnings, book value, or fair market value of the Corporation's assets less liabilities, allocated by shareholding.]

A valuation formula fixed at the outset can become unfair to one side as the Corporation's business changes over time. Revisit the formula periodically, or provide for an independent valuator to apply it.

Part 2 — Bad leaver discount (if section 13.3 applies)

"Cause" for this purpose means: [define].

The discount to Fair Market Value on a bad-leaver event is: [Number]%.

Part 3 — Deadlock chairperson (if section 15.1 uses this option)

The independent chairperson is appointed by: [named appointing body or process].