The Advisor Stock Option Agreement is a crucial document used by Canadian companies to attract and retain high-quality advisors by offering equity compensation in the form of stock options. This agreement becomes necessary when a company wishes to align an advisor's interests with its long-term success by providing them with the opportunity to acquire ownership in the company. The document must comply with Canadian securities laws, tax regulations, and corporate governance requirements, including provincial securities commission rules and the Income Tax Act. It typically includes detailed provisions about the option grant, vesting conditions, exercise procedures, and implications of various termination scenarios. This agreement is particularly important for startups and growing companies that may want to conserve cash while still offering competitive compensation to their advisors.
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1. Parties: Identification of the Company and the Advisor, including full legal names and addresses
2. Background: Context of the agreement, including the advisor's role and the company's desire to grant stock options
3. Definitions: Key terms used throughout the agreement, including 'Option Shares', 'Exercise Price', 'Vesting Date', etc.
4. Grant of Option: Details of the stock option grant, including number of shares, exercise price, and grant date
5. Vesting Schedule: Timeline and conditions for when options become available for exercise
6. Exercise of Option: Procedures and requirements for exercising the options, including payment methods and notice requirements
7. Term and Expiration: Duration of the option grant and circumstances leading to expiration
8. Advisor Status: Clarification of the advisor's status as an independent contractor and not an employee
9. Securities Law Compliance: Acknowledgments and procedures ensuring compliance with applicable securities laws
10. Tax Matters: Tax implications and responsibilities for both parties
11. Transferability Restrictions: Limitations on the advisor's ability to transfer or assign the options
12. Termination Provisions: Effects of termination of the advisory relationship on the options
13. General Provisions: Standard legal provisions including notices, amendments, governing law, and entire agreement
1. Change of Control Provisions: Special provisions for what happens to options in case of company sale or merger
2. Special Vesting Arrangements: Used when there are performance-based or milestone-based vesting conditions
3. Board Service Requirements: When options are tied to service on advisory board or similar body
4. Shareholder Rights: Description of rights (if any) before exercise of options
5. Confidentiality Provisions: When additional confidentiality terms specific to the option grant are needed
6. Dispute Resolution: Special procedures for handling disputes, such as arbitration requirements
7. International Tax Provisions: When advisor is subject to tax laws in multiple jurisdictions
1. Schedule A - Option Grant Details: Specific details of the option grant including number of shares, exercise price, and grant date
2. Schedule B - Vesting Schedule: Detailed breakdown of the vesting timeline and any specific conditions
3. Schedule C - Exercise Notice Form: Template form for advisor to use when exercising options
4. Schedule D - Shareholders' Agreement: Copy or summary of relevant provisions from the company's shareholders' agreement
5. Schedule E - Tax Election Forms: Required tax forms including Section 85(1) election forms if applicable
6. Appendix 1 - Advisory Services Description: Description of advisory services triggering the option grant
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