The Stock Option Award Agreement is a crucial document used by Canadian companies to grant equity compensation to their employees, directors, or consultants. It forms part of the company's equity compensation strategy and must comply with Canadian federal and provincial requirements, including securities laws, tax regulations (particularly the Income Tax Act), and corporate legislation. The agreement typically follows from an established Stock Option Plan and requires proper corporate approvals before implementation. It's commonly used by both private and public companies as a tool for attracting and retaining talent, aligning interests with shareholders, and providing tax-efficient compensation. The document must address specific Canadian regulatory requirements, including securities law exemptions, tax treatment of options, and, for public companies, stock exchange rules.
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1. Parties: Identification of the company granting the options and the option recipient (employee/consultant/director)
2. Background: Context of the agreement, reference to the stock option plan, and corporate approvals obtained
3. Definitions: Key terms used throughout the agreement including Exercise Price, Expiry Date, Option Shares, Vesting Schedule, etc.
4. Grant of Option: Specific details of the option grant including number of shares, exercise price, and grant date
5. Vesting of Option: Vesting schedule and conditions for the options to become exercisable
6. Exercise of Option: Process and requirements for exercising the options, including payment methods and notice requirements
7. Term and Expiry: Duration of the option and circumstances leading to expiration
8. Termination of Employment: Treatment of options upon various types of employment termination
9. Compliance with Laws: Requirements for compliance with securities laws, tax laws, and other applicable regulations
10. Non-Transferability: Restrictions on transfer or assignment of the options
11. Rights as Shareholder: Clarification that option holder has no rights as shareholder until exercise
12. Adjustments: Provisions for adjustments in case of corporate reorganizations or capital changes
13. General Provisions: Standard legal provisions including notices, amendments, governing law, etc.
1. Change of Control: Specific provisions for treatment of options in case of company sale or merger - include for public companies or where specifically negotiated
2. Tax Withholding: Detailed tax withholding procedures - include if company will facilitate tax payments
3. Clawback Provisions: Provisions for recouping options or proceeds in case of misconduct - include for executive agreements or if required by company policy
4. Non-Competition and Non-Solicitation: Restrictive covenants tied to the option grant - include if part of overall compensation strategy
5. International Provisions: Special provisions for non-Canadian residents - include if granting options to international recipients
6. Electronic Exercise Provisions: Procedures for electronic exercise of options - include if company offers online exercise platform
7. Shareholder Agreement Compliance: Reference to and compliance with existing shareholder agreement - include for private companies
1. Schedule A - Notice of Exercise: Form to be completed by option holder when exercising options
2. Schedule B - Vesting Schedule: Detailed breakdown of vesting dates and conditions
3. Schedule C - Option Plan Terms: Summary or extract of relevant stock option plan provisions
4. Schedule D - Tax Election Forms: Required tax forms including Section 7 election forms if applicable
5. Schedule E - Accredited Investor Certificate: Required for compliance with securities laws exemptions
6. Schedule F - Consent to Electronic Delivery: Authorization for electronic communications and documents
7. Appendix 1 - Calculation of Exercise Price: Methodology for determining exercise price if based on formula
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