Forcing an Exit - Shotgun Clause

For the first time in the Toronto Raptor’s 24-year journey, the team made history by advancing to the NBA finals. In 1995, the vision of the founding members, John Bitove and Allan Slaight, was to establish a new mark for the city of Toronto by creating an organization with the ultimate goal of winning an NBA championship.

From a contract law perspective, the team had also previously made history by having one of the most public “shotgun” fights in the early days of the team’s history. Despite holding a shared dream of bringing home the championship and creating recognition for basketball as national Canadian sport, Bitove and Slaight had a falling out. In 1996, after just one season of the Raptors on the court, Bitove and his co-founder started to disagree on the venue for the team. Bitove wanted Raptors to have their own identity while Slaight wanted to partner up with Maple Leaf’s Sports & Entertainment (MLSE) and share the arena with the Toronto Maple Leafs. This prompted the co-founders to go back and take a look at their signed shareholders agreement to resolve the dispute.

What is a Shotgun Clause?

In the case of Bitove and the Raptors, the shareholder agreement included a “shotgun clause”. A shotgun clause is essentially a buy-sell agreement in the event of an irreconcilable disagreement, under which a shareholder may sell all of their shares, or completely buy out the disputing shareholders share.

This can be done when one shareholder gives notice to the other shareholder(s) that the shareholder is exercising the shotgun clause and offering a price for the shares. Once the other shareholder(s) are put on notice they have to either buy the instigator’s share at the stated price or sell their shares to the instigator at the stated price.

Should the Instigator “Highball”or “Lowball” a Shotgun Offer?

By invoking the shotgun clause, the ball is essentially in that shareholders court. The shareholder holding the shotgun may offer a price per share that is higher or lower than the current value (setting the price will depend on the valuation mechanism set out in the shareholders’ agreement, but of course, in a private company the price is almost always negotiable, although, depending on the number of shareholders and the existence of a right of first refusal clause - other shareholders may also have the option to buy the shares whenever shares are made available for sale) to buy out the remaining shares of the shareholder.

However, offering an overvalued price for the shares could come back to haunt the shareholder. This is because if the Instigator offers an overvalued price for the shares, the forced buyer might disagree (or possibly will not be able to afford) with the stated price, whereby the instigator is forced to buy the shareholder(s) shares at the overvalued price. It may be that the shareholder with the “deeper pockets” or greater desire to buy the shares will win, but it could be at significant cost.

Depending on the information that instigator has it may be beneficial to offer an undervalued shotgun offer. For example, if Slaight knew Bitove had insufficient funds to buy out Slaight at a price lower than the offered value of the shares. Slaight could use the shotgun clause to force Bitove to sell his shares at an undervalued price.

What Happened in this Case?

Slaight invoked the shotgun clause forcing Bitove to buy his remaining shares or sell Bitove’s shares to Slaight, and Bitove, unable or unwilling to turn the shotgun on Slaight, sold his remaining shares to Slaight at the price offered, making Slaight the new majority shareholder. In 1998, subsequently and almost immediately, Slaight sold all of his shares to MLSE..


  • A shot gun clause has two (2) sides and or outcomes, a forced buy or a forced sell
  • The timeframe to come up with money stated by the instigator is likely going to be short (ex. 30 to 60 days) to keep the pressure on
  • The shotgun mechanism might allow for a third party to buy in if one partner does not have sufficient funds to satisfy the shotgun clause

Written by Irbaz.