Financing the Exercise of Rights of First Refusal

Most shareholders agreements allow shareholders to sell their shares, subject to certain rights granted to the other parties to the agreement. The recent Alberta case Zust Bachmeier International Air Cargo, Inc. v. Klapatiuk tested the limits of the right to sell in the context of the change of control of a closely held, private company in Alberta. The case also highlights the fine line between improperly avoiding rights of first refusal and working assiduously to respect and not trigger them.

In this case, all of the shareholders of the company were party to a unanimous shareholders agreement (USA). The USA contained a right of first refusal (ROFR) stating that, if a shareholder desired to sell "all or any of his shares pursuant to a bona fide cash offer," the remaining shareholders were entitled to buy those shares subject to the cash offer on the same terms. The USA also contained a buy/sell provision granting the usual ‘shotgun’ rights.