Still entitled to exercise share purchase option

When Richard P. Sambrook was approached in early 1992 about an employment opportunity with Altamira, he put on hold his plan to start a new job in Vancouver. Mr. Sambrook was put in touch with Altamira’s CEO, Mr. Meade, through a bank executive. Although he had already accepted a position as chief executive officer with a government agency based in Vancouver, he agreed to meet with Mr. Meade in April 1992. During those meetings, Mr. Meade indicated that he was looking for a senior manager with CEO potential. As a result of these discussions, Mr. Sambrook was offered a position with Altamira as a senior manager.

To entice Mr. Sambrook to accept Altamira’s offer, he was given the option to purchase $500,000 to $1 million common share equity in Altamira. Mr. Meade also informed him that interest-free loans were available to senior managers, with terms of repayment including 25 per cent of any bonus received and 50 per cent of dividends paid. A letter of agreement was drawn up and signed by Mr. Sambrook. The letter laid out the terms of the option to purchase, including the price, which was to be at a favourable discount to the current market value of shares. The option to purchase was to occur within six months of the commencement of his employment.

On June 15, 1992, Mr. Sambrook began his employment with Altamira. He was introduced to the other senior managers for the first time. However, the other senior managers did not respond favourably when Mr. Meade described Mr. Sambrook to them as having the potential to become the next CEO. That day Mr. Sambrook was handed a memo which valuated Altamira shares at $42.68 per share. It was agreed that Mr. Sambrook’s share price would be $21 per share and that he would get $1 million in shares. Mr. Meade reiterated that it would take him some time to get all the shares together.

The option to purchase did not get exercised in the first six months as Mr. Meade was having a difficulty getting shares. In December Mr. Meade requested an extension of time to produce the shares for purchase. Mr. Sambrook agreed. By April 1993 the option to purchase had still not been exercised as Mr. Meade had been unable to gather the necessary shares. Over this time, the other senior managers expressed their unhappiness with the share purchase agreement that Mr. Sambrook had negotiated.

On April 25, 1993, Mr. Sambrook’s employment with Altamira was terminated. The reason given for the termination was chemistry. Although the business had been very successful and Mr. Sambrook’s performance was not an issue, the other senior managers were not happy with Mr. Sambrook’s employment and felt that they should have been consulted when he was hired. It was acknowledge by Mr. Meade at the time of Mr. Sambrook’s termination that there was still an outstanding issue with respect to the share purchase. Subsequent discussions were held with respect to the share purchase but an agreement could not be reached.

Mr. Sambrook eventually brought an action in the Ontario Superior Court of Justice to resolve the issue. The Court held that there was an agreement between Mr. Sambrook and Altamira whereby Mr. Sambrook would have the right to purchase $1 million in Altamira shares at a cost of half the market value as at the commencement of Mr. Sambrook’s employment. Mr. Sambrook was to be provided with an interest-free shareholder loan to purchase the shares. Altamira did not fulfill its obligations under this agreement prior to or after Mr. Sambrook’s termination.

Having found that Altamira breached its contractual obligations, the Court assessed damages at $6,833,327 based on the value that the shares would have held as at the date of Mr. Sambrook’s termination.

For more information:

Sambrook v. Altamira Management Ltd., Ontario Superior Court of Justice, Docket No. 97-CV-13454, July 5/01.

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