The Equity Compensation Agreement serves as a fundamental instrument for companies operating in Canada to attract, retain, and motivate key personnel by offering them ownership interests in the organization. This document is typically used when a company wants to grant equity-based compensation as part of its overall compensation strategy, whether for new hires, existing employees, or as part of a broader incentive program. The agreement must comply with Canadian securities regulations, including provincial securities laws, federal and provincial tax legislation, and corporate law requirements. It outlines crucial details such as vesting schedules, exercise prices, termination provisions, and transfer restrictions. The document is particularly important for start-ups, growth-stage companies, and established corporations that use equity compensation as a key component of their compensation packages.
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1. Parties: Identifies the company and the recipient of the equity compensation
2. Background: Explains the context of the agreement and the company's equity compensation program
3. Definitions: Defines key terms used throughout the agreement including types of shares, vesting periods, cause, good reason, etc.
4. Grant of Equity: Details the specific type and amount of equity being granted
5. Vesting Terms: Outlines the vesting schedule and conditions for the equity to vest
6. Exercise or Settlement: Describes the process and conditions for exercising options or settling other equity awards
7. Purchase Price and Payment: Specifies the exercise price (if applicable) and acceptable payment methods
8. Restrictions on Transfer: Details limitations on transferring or selling the equity
9. Termination Provisions: Explains what happens to the equity in various termination scenarios
10. Tax Matters: Addresses tax implications and responsibilities
11. Representations and Warranties: Standard representations from both parties regarding authority and compliance
12. Compliance with Laws: Ensures adherence to applicable securities and other laws
13. General Provisions: Standard boilerplate provisions including notices, amendments, governing law
1. Change in Control Provisions: Include when specific provisions for company sale or merger are desired
2. Shareholder Rights: Include when recipients receive immediate shareholder rights
3. Lock-up Agreement: Include for pre-IPO companies or when transfer restrictions are particularly important
4. Clawback Provisions: Include when the company wants right to recoup equity in certain circumstances
5. Non-Competition and Non-Solicitation: Include when additional restrictive covenants are desired
6. Tag-Along Rights: Include for private companies where minority shareholder protection is important
7. Drag-Along Rights: Include when company wants to ensure ability to force sale participation
8. International Tax Provisions: Include for recipients subject to tax in multiple jurisdictions
1. Schedule A - Vesting Schedule: Detailed breakdown of vesting dates and quantities
2. Schedule B - Notice of Exercise Form: Template form for exercising options
3. Schedule C - Surrender Form: Template form for surrendering equity awards
4. Schedule D - Spousal Consent: Required consent from spouse in certain jurisdictions
5. Appendix 1 - Share Terms: Detailed terms of the shares or options being granted
6. Appendix 2 - Tax Election Forms: Relevant tax election forms including Section 85(1) election forms
7. Appendix 3 - Shareholders' Agreement: Copy or summary of relevant shareholders' agreement provisions
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