When the share purchase plan's own formula became the argument

The situation

By the time Hagop called us, the practice's three shareholders had already gone through two rounds of trying to sort this out themselves, and both had ended the same way: everyone agreeing to think it over and nobody calling back. Hagop was the founding optometrist and majority shareholder of a practice near Mount Forest, built over close to fifteen years into a business worth somewhere in the eight-figure range on paper, though most of that value sat in goodwill and equipment rather than cash on hand. Two other people held minority stakes through an employee share purchase plan set up years earlier: Phuong, an optometrist who had bought in early and helped grow the second location, and Hieu, an actuary and Hagop's brother-in-law, who held non-voting shares as a permitted family investor under the professional corporation's ownership rules rather than as a clinical partner.

Phuong had decided to leave, for reasons that had nothing to do with the business itself, and under the terms of the share purchase plan her shares were required to be sold back to the company or to the remaining shareholders on her departure. That part was not in dispute. What was in dispute was what her shares were actually worth under the plan's formula, which tied the buyback price to a multiple of average earnings over a trailing period, adjusted for certain deductions the plan described only in general terms.

The first informal attempt at a number, worked out over coffee between Hagop and Phuong, fell apart within a week when Hagop ran the numbers past Hieu, who thought the deductions had been applied wrong and produced a figure nearly forty percent lower. The second attempt, with all three shareholders in a room and a spreadsheet between them, ended in a similar place: three people with three different readings of the same formula, none of them actually wrong on the plain wording of the document, because the plain wording did not settle the question they were fighting about.

Hagop called us not because the relationship had turned hostile, it had not, but because he could see that another round of the same conversation was not going to produce a different result. He was also conscious that Phuong still worked at the practice for a few more weeks while all of this played out, and he wanted the dispute handled in a way that let her leave on reasonable terms rather than souring fifteen years of working together over a disagreement about how to read a formula none of them had written.

The legal problem

The share purchase plan had been drafted, years earlier, by a lawyer who was no longer involved, and it showed the kind of gaps that only become visible once a formula actually has to be applied to a real, contested number. It defined the buyback price as a multiple of 'average annual earnings' over the three years before a shareholder's departure, less 'reasonable deductions for extraordinary items.' Nobody had ever had to decide what counted as extraordinary, because nobody had left before.

The practice had, in fact, had two genuinely unusual years within that three-year window: one where a major piece of diagnostic equipment was replaced early and expensed all at once rather than depreciated over time, and one where a temporary staffing shortage had inflated locum costs well above what the practice normally spent. Hagop's original number treated both of these as extraordinary and stripped them out, which raised the average earnings figure and, with it, Phuong's payout. Hieu's revised number treated neither as extraordinary, on the reasoning that equipment replacement and staffing costs were simply part of running a clinic, which produced the lower figure.

Both readings were defensible. That was the actual problem: the plan gave the shareholders a formula but not a decision-making process for the judgment calls the formula required, and nothing in the document said whose judgment controlled if the shareholders disagreed. There was also a secondary issue buried in the plan's timing provisions, which set a payment schedule the practice's own cash position likely could not support if the higher number prevailed, since the practice did not have several hundred thousand dollars in accessible reserves and would have needed to borrow or spread payments over time either way.

What Hagop needed from us was not a ruling on which reading of 'extraordinary' was correct in the abstract, since a court would likely have found genuine ambiguity on either side. He needed a defensible position to negotiate from, an honest account of where the practice's cash actually stood, and a way to reach a number the remaining shareholders could actually pay without threatening the practice's operations.

There was one more complication worth naming plainly. Hieu, as the actuary in the group and the shareholder least emotionally attached to the outcome, kept pushing for the lower reading on technical grounds that were individually reasonable, but the cumulative effect of always resolving ambiguity in the practice's favour was a pattern Phuong was entitled to notice and object to. A negotiating position that is defensible on any single point can still look, taken as a whole, like it was built backward from the answer Hagop and Hieu wanted. We flagged that risk early, because a number that looked fair only on paper was not going to hold up in a room with someone who felt she was being nickeled down on every disputed line.

What we did

1. Reviewed the share purchase plan against three years of the practice's actual financial statements, rather than relying on the shareholders' competing summaries, to establish exactly which figures the formula's deductions could plausibly apply to and which were genuinely ambiguous under the document's wording as written. That grounding mattered because two of the three prior conversations had been arguments about impressions of the numbers rather than the numbers themselves.
2. Built a defensible middle position on the extraordinary-items question, treating the equipment replacement as a legitimate deduction, since a one-time capital expense skewed a single year's earnings in a way the formula's language was plainly meant to smooth out, while treating the staffing costs as ordinary, since locum coverage was a recurring cost of running the clinic rather than a genuine anomaly.
3. Presented that position to Phuong's own advisor with the underlying financial statements attached, so the reasoning was transparent rather than asserted, which shifted the conversation from three competing spreadsheets to a single shared set of numbers everyone could check. Showing the work, rather than just stating a conclusion, was what had been missing from both earlier informal attempts, where each side had arrived with a number but no way to see how the other had reached theirs.
4. Absorbed a mid-negotiation change in position when Phuong's advisor, having initially accepted our treatment of the equipment costs, came back three weeks later arguing the staffing shortage should also be deducted as extraordinary after all, a shift that reopened a point we thought was settled and required us to reassess whether our earlier concession on the equipment costs still made sense as a package, and whether Phuong's advisor was testing our resolve rather than raising a genuinely new argument.
5. Re-examined the staffing-cost year in more detail once the dispute reopened, pulling the actual locum invoices and comparing that year's coverage costs against the two adjoining years, to test whether the shortfall really was unusual or whether Phuong's advisor had a point that we had underestimated it the first time through. The invoices showed a genuinely atypical spike, which meant her renewed argument carried more weight than we had initially credited.
6. Proposed a structured compromise on the disputed figure rather than continuing to argue the formula's wording, splitting the difference on the staffing-cost treatment by applying half the deduction Phuong sought, which landed on a price neither side's original number matched but both could accept as reasonable given the genuine ambiguity underneath it. Splitting a specific, documented disagreement was a very different proposal from simply asking either side to give ground for the sake of moving on.
7. Restructured the payment timeline to match what the practice could actually fund, spreading the buyback over eighteen months with a portion secured against the practice's assets, rather than the lump-sum schedule the original plan technically called for, which the practice could not have met without disruptive borrowing. Agreeing on a price that the practice could not actually pay on the plan's original schedule would have just traded one dispute for another.
8. Documented the resolution as an amendment to the share purchase plan itself, not just a one-off settlement, so that the next time a shareholder departed, the practice would have an actual definition of 'extraordinary items' to apply instead of repeating the same dispute from scratch. That amendment turned a costly one-time negotiation into a standing answer for whoever left the practice next.

The outcome

Phuong's shares were bought back at a price roughly in the middle of the two original figures, reflecting the compromise on the staffing-cost deduction, paid out over eighteen months rather than as a single lump sum. Nobody got the number they originally thought they deserved. Hagop and Hieu paid more than Hieu's initial reading would have produced, and more than the equipment-only treatment alone would have cost them once the staffing dispute reopened; Phuong accepted less than her own initial figure and less than the full staffing deduction she had argued for.

The eighteen-month payment structure meant Phuong carried some of the practice's cash-flow risk with her after she left, since a portion of what she was owed depended on the practice continuing to perform reasonably well over that period rather than being paid out immediately and in full. That was a real concession from her side, and one she accepted only because the alternative, a formal dispute over the plan's wording, would have cost more in time and legal fees than the gap between the two numbers was worth.

The more durable result was the amendment to the plan itself. Hagop and Hieu now have language defining extraordinary items with specific examples rather than a general phrase, so if either of them eventually leaves the practice under the same plan, the next negotiation will start from a shared definition instead of three people reading the same three words differently.

Phuong left the practice on the date originally planned, and by Hagop's account the working relationship stayed civil through her final weeks, which he credited to the dispute being handled through documented numbers rather than through the same three people continuing to argue across a lunch table. None of the three shareholders described the outcome as a win. Hagop still thinks the practice paid slightly more than the equipment-only reading would have produced; Phuong still thinks she accepted slightly less than the staffing costs fully justified. Both of those things can be true at once, which is roughly what a negotiated compromise is supposed to look like.

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