Stock Option Award Agreement for Canada

Stock Option Award Agreement Template for Canada

A Canadian Stock Option Award Agreement is a legally binding document that formalizes the grant of stock options to employees, consultants, or directors. It operates under Canadian federal and provincial securities laws, tax regulations (particularly the Income Tax Act), and corporate law. The agreement details the terms of the option grant, including the number of shares, exercise price, vesting schedule, and exercise conditions. It incorporates specific Canadian tax considerations, including the treatment of options under Section 7 of the Income Tax Act, and ensures compliance with provincial securities regulations and stock exchange requirements where applicable.

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What is a Stock Option Award Agreement?

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.

What sections should be included in a Stock Option Award Agreement?

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.

What sections are optional to include in a Stock Option Award Agreement?

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

What schedules should be included in a Stock Option Award Agreement?

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

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

Canada

Publisher

Genie AI

Document Type

Stock Agreement

Cost

Free to use
Relevant legal definitions
Clauses
Relevant Industries

Technology

Financial Services

Professional Services

Manufacturing

Healthcare

Biotechnology

Mining and Resources

Real Estate

Telecommunications

Retail

Energy

Entertainment and Media

Transportation and Logistics

Cannabis

Clean Technology

Relevant Teams

Legal

Human Resources

Finance

Executive Leadership

Board of Directors

Compensation

Corporate Governance

Equity Administration

Payroll

Employee Relations

Relevant Roles

Chief Executive Officer

Chief Financial Officer

Chief Technology Officer

Senior Vice President

Vice President

Director

Senior Manager

Software Engineer

Product Manager

Sales Executive

Research Scientist

Legal Counsel

Human Resources Manager

Financial Analyst

Business Development Manager

Operations Manager

Technical Lead

Project Manager

Senior Consultant

Board Member

Industries
Income Tax Act (Canada): Governs the tax treatment of stock options, including provisions under Section 7 that specifically deals with taxation of employee stock options, qualifying conditions for preferential tax treatment, and reporting requirements
Securities Act (Provincial): Regulates the issuance and trading of securities, including stock options. Each province has its own Securities Act, which needs to be considered based on the company's location and operations
Canada Business Corporations Act (CBCA): Federal legislation governing corporate matters including the authority to issue shares and options, corporate approvals required, and shareholder rights
Provincial Employment Standards Act: Relevant for considering stock options as part of employment compensation and their treatment upon termination of employment
TSX/TSXV Rules and Policies: For public companies listed on Canadian exchanges, these rules govern stock option plans and awards, including maximum terms, pricing, and shareholder approval requirements
Personal Information Protection and Electronic Documents Act (PIPEDA): Relevant for handling personal information of option holders and maintaining electronic records of stock option agreements
National Instrument 45-106 Prospectus Exemptions: Provides exemptions from prospectus requirements for certain stock option issuances, particularly relevant for private companies
Provincial Business Corporations Act: Provincial corporate law requirements that may apply depending on the province of incorporation
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