A Stock Option Cancellation Agreement is utilized when a company and option holder(s) mutually agree to terminate previously granted stock options, typically in scenarios such as corporate restructuring, employee departures, or strategic changes in equity compensation plans. This document, governed by Canadian federal and provincial laws, formally documents the cancellation process, any consideration provided, and ensures compliance with relevant corporate, securities, and tax regulations. It includes crucial details such as the number of options being cancelled, original grant dates, exercise prices, and any compensation being provided for the cancellation. The agreement is particularly important in Canadian jurisdictions where proper documentation of equity-based compensation changes is required for corporate governance, securities compliance, and tax purposes. It provides legal certainty and protection for both the company and option holders by clearly defining the terms of cancellation and including appropriate releases.
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1. Parties: Identification of the company and the option holder(s)
2. Background: Details of the original option grant, including date, number of options, exercise price, and reference to the original option agreement
3. Definitions: Key terms used throughout the agreement including 'Options', 'Option Plan', 'Cancellation Date', and 'Cancellation Payment' (if applicable)
4. Cancellation of Options: Core provision stating the mutual agreement to cancel the options and the effective date
5. Consideration: Details of any payment or other consideration provided for the cancellation
6. Tax Matters: Acknowledgment of tax implications and responsibilities
7. Release: Mutual release of claims relating to the cancelled options
8. Representations and Warranties: Standard representations including authority to enter agreement, no encumbrances on options
9. General Provisions: Standard boilerplate including governing law, entire agreement, amendments, counterparts
1. Survival: Section specifying which provisions survive termination - include when there are ongoing obligations
2. Confidentiality: Include when the parties wish to keep the cancellation terms confidential
3. Board and Regulatory Approval: Required for public companies or when corporate/regulatory approval is pending
4. Return of Documents: Include when physical option certificates were issued
5. Non-Disparagement: Include when the cancellation is part of a separation or settlement
6. Independent Legal Advice: Include when there's significant consideration or complex terms
1. Schedule A - Option Details: Detailed list of options being cancelled, including grant dates, vesting schedules, and exercise prices
2. Schedule B - Calculation of Consideration: If payment is being made, detailed calculation of the cancellation payment
3. Schedule C - Tax Elections: Any required tax forms or elections
4. Appendix 1 - Original Option Agreement: Copy of the original option agreement being cancelled
5. Appendix 2 - Board Resolution: Copy of board resolution approving the cancellation (if applicable)
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