The Cross Purchase Agreement is essential for privately held companies in Canada seeking to maintain control over ownership succession and transfer. It is typically implemented when a company has multiple shareholders who want to ensure orderly transition of ownership upon specific events such as death, disability, retirement, or voluntary departure of a shareholder. The agreement operates under Canadian federal and provincial law, providing a structured mechanism for remaining shareholders to purchase the shares of departing shareholders at a predetermined price or using an agreed valuation method. It often includes provisions for funding these purchases through life insurance policies or other means, and must comply with both federal and provincial regulatory requirements. The document typically includes detailed sections on triggering events, valuation methods, payment terms, and transfer restrictions, making it a comprehensive tool for business succession planning and shareholder protection.
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1. Parties: Identifies all shareholders participating in the cross purchase agreement
2. Background: Explains the purpose of the agreement and current ownership structure
3. Definitions: Defines key terms used throughout the agreement
4. Purchase Obligation: Details the obligation of remaining shareholders to purchase shares upon triggering events
5. Triggering Events: Specifies events that activate the purchase obligation (death, disability, retirement, etc.)
6. Purchase Price: Establishes the methodology for determining share value
7. Payment Terms: Specifies the timing and method of payment for purchased shares
8. Funding Mechanism: Details how purchases will be funded (e.g., life insurance, installment payments)
9. Transfer Restrictions: Outlines limitations on share transfers outside the agreement
10. Representations and Warranties: Standard declarations by all parties regarding their authority and share ownership
11. Term and Termination: Specifies duration of agreement and termination conditions
12. General Provisions: Standard legal provisions including notices, amendments, governing law
1. Tag-Along Rights: Optional provision giving minority shareholders the right to join in sale of shares by majority shareholders
2. Drag-Along Rights: Optional provision allowing majority shareholders to force minority shareholders to join in a sale
3. Dispute Resolution: Detailed procedures for resolving disputes, including mediation and arbitration provisions
4. Non-Competition: Restrictions on competing business activities after selling shares
5. Right of First Refusal: Additional procedures for share sales to third parties
6. Insurance Trustee: Provisions for appointment and duties of insurance trustee if life insurance funding is used
7. Special Tax Provisions: Additional tax planning considerations for specific jurisdictions or circumstances
1. Schedule A - Current Shareholdings: List of current shareholders and their shareholdings
2. Schedule B - Valuation Formula: Detailed methodology for calculating share value
3. Schedule C - Insurance Policies: Details of life insurance policies funding the agreement
4. Schedule D - Share Certificate Legend: Required text to be printed on share certificates
5. Appendix 1 - Consent of Spouses: Required spousal consents if applicable
6. Appendix 2 - Purchase Price Certificate: Template for documenting agreed purchase price
7. Appendix 3 - Transfer Notice: Template for notice of intent to transfer shares
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