Two shareholders who never mailed back their election form

The situation

Three business days before the scheduled closing, Vartan called with a number: two shareholders out of eleven had still not returned their consideration election forms. The deal was a straightforward one on paper. A strategic acquirer, represented by Vartan's deal team, was buying a Renfrew auto-parts supplier for a price in the eight-to-fifteen-million-dollar range. Each of the eleven selling shareholders had been offered a choice under the purchase agreement: take their portion of the price in cash, or take it in acquirer shares, subject to overall proration limits built into the deal.

Nine shareholders had elected. Two had not: Lindita and Drita, sisters who had inherited their shares from a parent who had built part of the original business decades earlier. Neither worked in the company day to day. Lindita worked as an auto body technician at an unrelated shop, and Drita worked as an administrative assistant for a local trades company. Their shares were a modest slice of the company, worth a meaningful but not controlling amount, and neither had engaged much with the deal beyond signing what they were told to sign at the outset.

The purchase agreement, like most agreements of this kind, had a default provision: if a shareholder failed to make an election by the deadline, a default form of consideration would apply. On its face, that clause existed exactly so a handful of unresponsive holders could not hold up a closing. Vartan's instinct, and the instinct of most of his team, was to treat the clause as self-executing. Apply the default, close on schedule, move on. It was the fast option and the cheap option, and with the closing date fixed and other conditions already satisfied, nobody on the buy side wanted to reopen anything.

We were brought in that week to confirm the default mechanism was sound before the buyer relied on it. What we found was not a defect that would stop the closing. It was a gap in how the clause interacted with the disclosure the two sisters had actually been given, and it was the kind of gap that would not matter at all unless someone later asked a court to look at it. The kind of scrutiny that matters here does not have to come from litigation. It can come just as easily from a lender's counsel reviewing the file months later, or from due diligence on the acquirer's own next transaction, either of which can turn a small drafting gap into a documented weakness in how the company handles its own closings.

The gap nobody had noticed

The default-election clause said that any shareholder who did not submit a form by the deadline would be deemed to have elected the maximum permitted amount of shares, with cash making up any balance required by the proration formula. That language had been drafted, and negotiated, months earlier, when the deal was still being priced and the acquirer's share value looked stronger than it did the week of closing.

The problem was not the clause itself. Deemed-election mechanics like this are common, but they are enforceable because the purchase agreement creates them and the procedure in it is followed — the notice and deadline requirements have to be met to the letter. Fair notice to shareholders matters, but it does not save a default election that the agreement did not properly authorize. The problem was that the notice package actually mailed to shareholders, including Lindita and Drita, described the default outcome in a shorter, less precise sentence than the purchase agreement did. The notice said unresponsive holders would receive shares. It did not mention the cash top-up, the proration mechanic, or the fact that the share component could be affected by pricing set close to closing. For a shareholder who had elected shares deliberately, the gap would not matter. For a shareholder who had elected nothing, it mattered a great deal, because the outcome they would receive by default was not fully described in the document that was supposed to tell them what would happen if they did nothing.

That gap created a real, if narrow, risk. If the deal closed on the default terms as drafted, and Lindita or Drita later disputed the value or composition of what they received, they would have a credible argument that the notice they were given did not match what the agreement actually provided. A dispute over eleven shareholders' consideration on a deal this size might sound small next to the overall price, but a claim from even one shareholder, filed after closing, would have cost more in legal fees and management time than fixing the notice would cost that week, and it would have sat as an open item on the acquirer's books for as long as it took to resolve.

Vartan's first reaction was that the gap was theoretical. Nobody had complained. The deadline was days away. Fixing anything meant reopening contact with shareholders who had already been silent for weeks, which felt like inviting the exact delay everyone was trying to avoid. He wanted the fast, cheap path: apply the default as drafted, close, and deal with any complaint later if one came. We told him plainly that later was the wrong time to deal with it, because the fix available before closing was cheap and the fix available after closing was not.

What we did

1. Compared the notice language against the agreement clause, word for word. We laid the shareholder notice and the purchase agreement's default-election provision side by side and confirmed the discrepancy was real, not a matter of interpretation. The notice omitted the cash top-up and the pricing mechanic entirely, which meant a shareholder relying only on the notice would not know what they were about to receive.
2. Explained the actual exposure to Vartan in dollar terms. Rather than argue in the abstract, we estimated what a dispute over two shareholders' allocations could plausibly cost in legal fees and delay if it surfaced after closing, and set that against the cost of a same-week fix. The comparison was not close, and it shifted the conversation from 'is this necessary' to 'how do we do this fast.'
3. Drafted a short supplemental notice to the two shareholders. The notice restated, in plain, non-legal terms, exactly what would happen if no election was received by the deadline: the default share-and-cash split, how the proration formula would apply to their specific holding, and a worked example showing roughly what each of them would receive under that default. It gave them one final short window, five business days, to elect something different if they wanted to.
4. Delivered the notice with a direct, low-pressure phone call, not mail alone. With only days left before the deadline, a letter sitting unopened in a mailbox would have solved nothing, so we had the transaction coordinator call both sisters directly, walk through the notice in plain language, confirm they understood what would happen if they did nothing, and answer their questions on the spot. We documented the substance of each call in writing that same day, creating a record of what was actually communicated and when.
5. Obtained written acknowledgment from both sisters before the deadline passed. Lindita confirmed by email that she understood the default treatment and was content to receive it now that it had been clearly explained to her. Drita, once she understood what silence would cost her, submitted a late election for cash instead. We advised the acquirer to accept the late election rather than insist on the technical deadline, given the modest dollar amount involved and the goodwill it preserved with a family that had just sold the business its parent built.
6. Amended the closing certificate to reflect the corrected record. We updated the closing documents so the paper record showed, for every one of the eleven shareholders, either an informed election on file or informed, documented silence, rather than a default applied on the strength of a notice that had not actually told two of them what it meant. That distinction matters if a closing certificate is ever tested later, by a lender, an auditor, or a court.
7. Confirmed the fix did not disturb the closing date. Because the correction ran in parallel with the other closing conditions, rather than as a separate step added onto the end of the process, the transaction closed on the date originally scheduled. Vartan's team never had to explain a delay to its own board or to the seller's counsel, which was the outcome that mattered most to him going in.

The outcome

The deal closed on schedule. Nine shareholders received the consideration they had chosen weeks earlier, Drita received cash after her late election was accepted, and Lindita received the default share-and-cash split, this time with full knowledge of what that split actually meant. No shareholder disputed their allocation, before closing or after, and the closing certificate the acquirer's board relied on reflected a record that could actually withstand scrutiny if anyone asked about it later.

The fix cost the acquirer a few additional days of coordinator and legal time in the week of closing, and nothing in the purchase price or the deal structure changed. Set against the alternative, a post-closing claim from a shareholder who could credibly say she had not been told what silence would cost her, the additional time was close to nothing. A claim like that, even a modest one on a deal this size, would typically have taken months to resolve and would have consumed far more legal time than the few days spent fixing the notice before closing, quite apart from what it would have done to the acquirer's relationship with the family that had just sold to it.

There was a second, quieter benefit. Because the correction happened before closing rather than after, the acquirer never had to disclose a post-closing shareholder dispute to its own lenders or, on a deal of this size, to anyone reviewing its acquisition history down the line. A clean closing record is worth something on its own, independent of whatever a dispute might eventually have cost to resolve.

Vartan, who had pushed for the fast and cheap route at the outset, later said the case changed how his team wrote shareholder notices on smaller deals generally: default-election language now gets checked against the actual notice sent, not just against the agreement it supports, before any closing where holders go quiet. He also said, without much prompting, that the phone call to the two sisters had probably done more good than the paperwork itself, because it turned an abstract legal fix into something both women understood was being done for their benefit, not against it.

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