Exhibit 10.12

 

SHAREHOLDER RIGHTS PLAN AGREEMENT

 

DATED AS OF

 

JANUARY 9, 2014

 

BETWEEN

 

STELLAR BIOTECHNOLOGIES, INC.

 

AND

 

COMPUTERSHARE INVESTOR SERVICES INC.

 

 

 

 

TABLE OF CONTENTS

 

      Page         Article 1 INTERPRETATION 2       1.1 Certain Definitions 2  
1.2 Currency 15   1.3 Headings 15   1.4 Calculation of Number and Percentage of
Beneficial Ownership of Outstanding Voting Shares 15   1.5 Acting Jointly or in
Concert 16   1.6 Generally Accepted Accounting Principles 16         Article 2
THE RIGHTS 16       2.2 Initial Exercise Price; Exercise of Rights; Detachment
of Rights 17   2.3 Adjustments to Exercise Price; Number of Rights 20   2.4 Date
on Which Exercise Is Effective 25   2.5 Execution, Authentication, Delivery and
Dating of Rights Certificates 25   2.6 Registration, Transfer and Exchange 25  
2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates 26   2.8 Persons
Deemed Owners of Rights 27   2.9 Delivery and Cancellation of Certificates 27  
2.10 Agreement of Rights Holders 27   2.11 Rights Certificate Holder Not Deemed
a Shareholder 28         Article 3 ADJUSTMENTS TO THE RIGHTS 28       3.1
Flip-in Event 28         Article 4 THE RIGHTS AGENT 30       4.1 General 30  
4.2 Merger, Amalgamation or Consolidation or Change of Name of Rights Agent 31  
4.3 Duties of Rights Agent 32   4.4 Change of Rights Agent 34         Article 5
MISCELLANEOUS 34       5.1 Redemption and Waiver 34   5.2 Expiration 37   5.3
Issuance of New Rights Certificates 37   5.4 Supplements and Amendments 37   5.5
Fractional Rights and Fractional Shares 38   5.6 Rights of Action 39   5.7
Regulatory Approvals 39   5.8 Notice of Proposed Actions 39   5.9 Notices 40  
5.10 Costs of Enforcement 41   5.11 Successors 41   5.12 Benefits of this
Agreement 41   5.13 Governing Law 41   5.14 Severability 41   5.15 Effective
Date 41   5.16 Determinations and Actions by the Board of Directors 42   5.17
Compliance With Money Laundering Legislation 42   5.18 Privacy Provision 42  
5.19 Declaration as to Non-Canadian Holders 43   5.20 Time of the Essence 43  
5.21 Force Majeure 43   5.22 Execution in Counterparts 43

 

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SHAREHOLDER RIGHTS PLAN AGREEMENT

 

MEMORANDUM OF AGREEMENT, dated as of January 9, 2014 between Stellar
Biotechnologies, Inc. (the “Company”), a company continued under the laws of
British Columbia and Computershare Investor Services Inc., a corporation
existing under the laws of Canada (the “Rights Agent”);

 

WHEREAS the Board of Directors of the Company, in the exercise of its fiduciary
duties to the Company, has determined that it is advisable for the Company to
adopt a shareholder rights plan (the “Rights Plan”) to take effect on the
Effective Date (as hereinafter defined) to prevent, to the extent possible, a
creeping takeover of the Company and to ensure that any offer to acquire shares
of the Company is made to all shareholders and cannot be completed unless
shareholders holding at least 50% of the outstanding shares (other than the
offeror and related parties) are deposited or tendered in acceptance of the
offer, to ensure, to the extent possible, the fair treatment of all shareholders
in connection with any take-over bid for the securities of the Company, and to
ensure that the Board of Directors is provided with sufficient time to evaluate
unsolicited take-over bids and to explore and develop alternatives to maximize
shareholder value;

 

AND WHEREAS in order to implement the adoption of a shareholder rights plan as
established by this Agreement, the board of directors of the Company has:

 

(a)          authorized the issuance, effective at the close of business
(Vancouver time) on the Effective Date, of one Right (as hereinafter defined) in
respect of each Share (as hereinafter defined) outstanding at the close of
business (Vancouver time) on the Effective Date (the “Record Time”);

 

(b)          authorized the issuance of one Right in respect of each Voting
Share (as hereinafter defined) of the Company issued after the Record Time and
prior to the earlier of the Separation Time (as hereinafter defined) and the
Expiration Time (as hereinafter defined); and

 

(c)          authorized the issuance of Rights Certificates (as hereinafter
defined) to holders of Rights pursuant to the terms and subject to the
conditions set forth herein;

 

AND WHEREAS each Right entitles the holder thereof, after the Separation Time,
to purchase securities of the Company pursuant to the terms and subject to the
conditions set forth herein;

 

AND WHEREAS the Company desires to appoint the Rights Agent to act on behalf of
the Company and the holders of Rights, and the Rights Agent is willing to so
act, in connection with the issuance, transfer, exchange and replacement of
Rights Certificates, the exercise of Rights and other matters referred to
herein;

 

NOW THEREFORE, in consideration of the premises and the respective covenants and
agreements set forth herein, and subject to such covenants and agreements, the
parties hereby agree as follows:

 

 

 

 

Article 1

 

INTERPRETATION

 

1.1                       Certain Definitions

 

For purposes of this Agreement, the following terms have the meanings indicated:

 

(a)          “1934 Exchange Act” means the Securities Exchange Act of 1934 of
the United States, as amended, and the rules and regulations thereunder as now
in effect or as the same may from time to time be amended, re-enacted or
replaced;

 

(b)          “Acquiring Person” shall mean any Person who is the Beneficial
Owner of 20% or more of the outstanding Voting Shares; provided, however, that
the term “Acquiring Person” shall not include:

 

(i)          the Company or any Subsidiary of the Company;

 

(ii)         any Person who becomes the Beneficial Owner of 20% or more of the
outstanding Voting Shares as a result of one or any combination of:

 

(A)         a Voting Share Reduction;

 

(B)         Permitted Bid Acquisitions;

 

(C)         an Exempt Acquisition;

 

(D)         Pro Rata Acquisitions; or

 

(E)         a Convertible Security Acquisition;

 

provided, however, that if a Person becomes the Beneficial Owner of 20% or more
of the outstanding Voting Shares by reason of one or any combination of the
operation of Paragraphs (A), (B), (C), (D) or (E) above and such Person’s
Beneficial Ownership of Voting Shares thereafter increases by more than 1% of
the number of Voting Shares outstanding (other than pursuant to one or any
combination of a Voting Share Reduction, a Permitted Bid Acquisition, an Exempt
Acquisition, a Pro Rata Acquisition or a Convertible Security Acquisition), then
as of the date such Person becomes the Beneficial Owner of such additional
Voting Shares, such Person shall become an “Acquiring Person”;

 

(iii)        for a period of ten days after the Disqualification Date (as
defined below), any Person who becomes the Beneficial Owner of 20% or more of
the outstanding Voting Shares as a result of such Person becoming disqualified
from relying on Clause 1.1(g)(iii)(B) because such Person is making or has
announced a current intention to make a Take-over Bid, either alone or by acting
jointly or in concert with any other Person. For the purposes of this
definition, “Disqualification Date” means the first date of public announcement
that any Person is making or intends to make a Take-over Bid;

 

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(iv)        an underwriter or member of a banking or selling group that becomes
the Beneficial Owner of 20% or more of the Voting Shares in connection with a
distribution of securities of the Company pursuant to an underwriting agreement
with the Company; or

 

(v)         a Person (a “Grandfathered Person”) who is the Beneficial Owner of
20% or more of the outstanding Voting Shares determined as at the Record Time,
provided, however, that this exception shall not be, and shall cease to be,
applicable to a Grandfathered Person in the event that such Grandfathered Person
shall, after the Record Time, become the Beneficial Owner of any additional
Voting Shares that increases its Beneficial Ownership of Voting Shares by more
than 1% of the number of Voting Shares outstanding, other than through one or
any combination of a Permitted Bid Acquisition, an Exempt Acquisition, a Voting
Share Reduction, a Pro Rata Acquisition or a Convertible Security Acquisition;
and provided, further, that a Person shall cease to be a Grandfathered Person in
the event that such Person ceases to Beneficially Own 20% or more of the then
outstanding Voting Shares at any time after the Record Time;

 

(c)          “Affiliate”, when used to indicate a relationship with a specified
Person, shall mean a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such specified Person;

 

(d)          “Agreement” or “Shareholder Rights Plan Agreement” shall mean this
shareholder rights plan agreement dated as of January 9, 2014 between the
Company and the Rights Agent, as amended or supplemented from time to time;
“hereof”, “herein”, “hereto” and similar expressions mean and refer to this
Agreement as a whole and not to any particular part of this Agreement;

 

(e)          “annual cash dividend” shall mean cash dividends paid in any fiscal
year of the Company to the extent that such cash dividends do not exceed, in the
aggregate on a per share basis, in any fiscal year, the greatest of:

 

(i)          200% of the aggregate amount of cash dividends, on a per share
basis, declared payable by the Company on its Shares in its immediately
preceding fiscal year; and

 

(ii)         300% of the arithmetic mean of the aggregate amounts of the cash
dividends, on a per share basis, declared payable by the Company on its Shares
in its three immediately preceding fiscal years;

 

(f)          “Associate” shall mean, when used to indicate a relationship with a
specified Person, a spouse of that Person, any Person of the same or opposite
sex with whom that Person is living in a conjugal relationship outside marriage,
a child of that Person or a relative of that Person if that relative has the
same residence as that Person;

 

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(g)          A Person shall be deemed the “Beneficial Owner” of, and to have
“Beneficial Ownership” of, and to “Beneficially Own”,

 

(i)          any securities as to which such Person or any of such Person’s
Affiliates or Associates is the owner at law or in equity;

 

(ii)         any securities as to which such Person or any of such Person’s
Affiliates or Associates has the right to become the owner at law or in equity
(where such right is exercisable within a period of 60 days, whether or not on
condition or on the happening of any contingency) pursuant to any agreement,
arrangement, pledge or understanding, whether or not in writing, or upon the
exercise of any conversion, exchange or purchase right (other than the Rights)
attaching to a Convertible Security; other than pursuant to (x) customary
agreements between the Company and underwriters or between underwriters and/or
banking group members and/or selling group members with respect to a
distribution of securities by the Company, (y) pledges of securities in the
ordinary course of business), and (z) any agreement between the Company and any
Person or Persons relating to a plan of arrangement, amalgamation or other
statutory procedure which is subject to the approval of the holders of Voting
Shares;

 

(iii)        any securities which are Beneficially Owned within the meaning of
Clauses 1.1(g)(i) or (ii) by any other Person with which such Person is acting
jointly or in concert;

 

provided, however, that a Person shall not be deemed the “Beneficial Owner” of,
or to have “Beneficial Ownership” of, or to “Beneficially Own”, any security:

 

(A)         where such security has been deposited or tendered pursuant to any
Take-over Bid or where the holder of such security has agreed pursuant to a
Permitted Lock-Up Agreement to deposit or tender such security pursuant to a
Take-Over Bid, in each case made by such Person, made by any of such Person’s
Affiliates or Associates or made by any other Person acting jointly or in
concert with such Person, until such deposited or tendered security has been
taken up or paid for, whichever shall first occur;

 

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(B)         where such Person, any of such Person’s Affiliates or Associates or
any other Person referred to in Clause 1.1(g)(iii), holds such security provided
that (1) the ordinary business of any such Person (the “Investment Manager”)
includes the management of mutual funds or investment funds for others (which
others, for greater certainty, may include or be limited to one or more employee
benefit plans or pension plans and/or includes the acquisition or holding of
securities for a non-discretionary account of a Client (as defined below) by a
dealer or broker registered under applicable securities laws to the extent
required) and such security is held by the Investment Manager in the ordinary
course of such business and in the performance of such Investment Manager’s
duties for the account of any other Person or Persons (a “Client”); or (2) such
Person (the “Trust Company”) is licensed to carry on the business of a trust
company under applicable laws and, as such, acts as trustee or administrator or
in a similar capacity in relation to the estates of deceased or incompetent
Persons (each an “Estate Account”) or in relation to other accounts (each an
“Other Account”) and holds such security in the ordinary course of such duties
for such Estate Accounts or for such Other Accounts, or (3) such Person is a
pension plan or fund registered under the laws of Canada or any Province thereof
or the laws of the United States of America (a “Plan”) or is a Person
established by statute for purposes that include, and the ordinary business or
activity of such Person (the “Statutory Body”) includes, the management of
investment funds for employee benefit plans, pension plans, insurance plans of
various public bodies; or (4) such Person (the “Administrator”) is the
administrator or trustee of one or more Plans and holds such security for the
purposes of its activities as an Administrator; provided, in any of the above
cases, that the Investment Manager, the Trust Company, the Statutory Body, the
Administrator or the Plan, as the case may be, is not then making and has not
then announced an intention to make a Take-over Bid (other than an Offer to
Acquire Voting Shares or other securities by means of a distribution by the
Company or by means of ordinary market transactions (including prearranged
trades) executed through the facilities of a stock exchange or organized
over-the-counter market), alone or by acting jointly or in concert with any
other Person;

 

(C)         where such Person or any of such Person’s Affiliates or Associates
is (1) a Client of the same Investment Manager as another Person on whose
account the Investment Manager holds such security, (2) an Estate Account or an
Other Account of the same Trust Company as another Person on whose account the
Trust Company holds such security, or (3) a Plan with the same Administrator as
another Plan on whose account the Administrator holds such security;

 

(D)         where such Person is (1) a Client of an Investment Manager and such
security is owned at law or in equity by the Investment Manager, (2) an Estate
Account or an Other Account of a Trust Company and such security is owned at law
or in equity by the Trust Company or (3) a Plan and such security is owned at
law or in equity by the Administrator of the Plan; or

 

(E)         where such person is the registered holder of securities as a result
of carrying on the business of or acting as a nominee of a securities
depository.

 

(h)          “Board of Directors” shall mean the board of directors of the
Company or any duly constituted and empowered committee thereof;

 

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(i)          “Business Day” shall mean any day other than a Saturday, Sunday or
a day on which banking institutions in Vancouver, British Columbia are
authorized or obligated by law to close;

 

(j)          “Business Corporations Act” shall mean the British Columbia
Business Corporations Act, S.B.C. 2002, c.57, as amended, and the regulations
made thereunder and any comparable or successor laws or regulations thereto;

 

(k)          “Canadian Dollar Equivalent” of any amount which is expressed in
United States dollars shall mean on any day the Canadian dollar equivalent of
such amount determined by reference to the U.S.- Canadian Exchange Rate in
effect on such date;

 

(l)          “close of business” on any given date shall mean the time on such
date (or, if such date is not a Business Day, the time on the next succeeding
Business Day) at which the transfer office of the transfer agent for the Shares
(or, after the Separation Time, the principal transfer office of the Rights
Agent) is closed to the public in the city in which such transfer agent or
rights agent has an office for the purposes of this Agreement;

 

(m)         “Competing Permitted Bid” shall mean a Take-over Bid that:

 

(i)          is made after a Permitted Bid or another Competing Permitted Bid
has been made and prior to the expiry, termination or withdrawal of such
Permitted Bid or Competing Permitted Bid;

 

(ii)         satisfies all of the provisions of a Permitted Bid other than the
condition set forth in Clause (iii) of the definition of a Permitted Bid; and

 

(iii)        contains, and the take-up and payment for securities tendered or
deposited is subject to, an irrevocable and unqualified provision that no Voting
Shares will be taken up or paid for pursuant to the Take-over Bid prior to the
close of business on the date that is no earlier than the later of (A) 35 days
after the date of the Take-over Bid constituting the Competing Permitted Bid;
and (B) 60 days following the date on which the earliest Permitted Bid or
Competing Permitted Bid which preceded the Competing Permitting Bid was made;

 

(n)          “controlled”: a body corporate is “controlled” by another Person or
two or more Persons acting jointly or in concert if:

 

(i)          securities entitled to vote in the election of directors carrying
more than 50% of the votes for the election of directors are held, directly or
indirectly, by or on behalf of the other Person or two or more Persons acting
jointly or in concert; and

 

(ii)         the votes carried by such securities are entitled, if exercised, to
elect a majority of the board of directors of such body corporate;

 

and “controls”, “controlling” and “under common control with” shall be
interpreted accordingly;

 

6

 

 

(o)          “Convertible Security” shall mean a security convertible,
exercisable or exchangeable into a Voting Share and a “Convertible Security
Acquisition” shall mean an acquisition by a Person of Voting Shares upon the
exercise, conversion or exchange of a Convertible Security received by a Person
pursuant to a Permitted Bid Acquisition, an Exempt Acquisition or a Pro Rata
Acquisition;

 

(p)          “Co-Rights Agents” shall have the meaning ascribed thereto in
Subsection 4.1(a);

 

(q)          “Disposition Date” shall have the meaning ascribed thereto in
Subsection 5.1(d);

 

(r)          “Dividend Reinvestment Acquisition” shall mean an acquisition of
Voting Shares of any class pursuant to a Distribution Reinvestment Plan;

 

(s)          “Dividend Reinvestment Plan” shall mean a regular dividend
reinvestment or other plan of the Company made available by the Company to
holders of its securities where such plan permits the holder to direct that some
or all of:

 

(i)          dividends paid in respect of shares of any class of the Company;

 

(ii)         proceeds of redemption of shares of the Company;

 

(iii)        interest paid on evidences of indebtedness of the Company; or

 

(iv)        optional cash payments;

 

be applied to the purchase from the Company of Shares;

 

(t)          “early warning requirements” shall have the meaning ascribed
thereto under National Instrument 62-103 The Early Warning System promulgated
under the Securities Act;

 

(u)          “Effective Date” shall mean February 14, 2014;

 

(v)         “Election to Exercise” shall have the meaning ascribed thereto in
Clause 2.2(d)(ii);

 

(w)         “Exempt Acquisition” shall mean an acquisition by a Person of Voting
Shares and/or Convertible Securities (i) in respect of which the Board of
Directors has waived the application of Section 3.1 pursuant to the provisions
of Subsection 5.1(b), (c) or (d); (ii) pursuant to a distribution of Voting
Shares and/or Convertible Securities made by the Company: (A) to the public
pursuant to a prospectus, provided that such Person does not thereby become the
Beneficial Owner of a greater percentage of Voting Shares so offered than the
percentage of Voting Shares Beneficially Owned by such Person immediately prior
to such distribution; or (B) pursuant to a private placement provided that: (x)
all necessary stock exchange approvals for such private placement have been
obtained and such private placement complies with the terms and conditions of
such approvals; and (y) such Person does not thereby become the Beneficial Owner
of Voting Shares equal in number to more than 25% of the Voting Shares
outstanding immediately prior to the private placement and, in making this
determination, the securities to be issued to such Person on the private
placement shall be deemed to be held by such Person but shall not be included in
the aggregate number of Voting Shares outstanding immediately prior to the
private placement; or (iii) pursuant to an amalgamation, merger, arrangement or
other statutory procedure requiring shareholder approval;

 

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(x)          “Exercise Price” shall mean, as of any date, the price at which a
holder may purchase the securities issuable upon exercise of one whole Right
which, until adjustment thereof in accordance with the terms hereof, shall be:

 

(i)          until the Separation Time, an amount equal to three times the
Market Price, from time to time, per Share; and

 

(ii)         from and after the Separation Time, an amount equal to three times
the Market Price, as at the Separation Time, per Share;

 

(y)          “Expansion Factor” shall have the meaning ascribed thereto in
Clause 2.3(a)(x);

 

(z)          “Expiration Time” shall have the meaning ascribed thereto in Clause
5.15(a);

 

(aa)        “Flip-in Event” shall mean a transaction in or pursuant to which any
Person becomes an Acquiring Person;

 

(bb)       “holder” shall have the meaning ascribed thereto in Section 2.8;

 

(cc)        “Independent Shareholders” shall mean holders of Voting Shares,
other than:

 

(i)          any Acquiring Person;

 

(ii)         any Offeror, other than a Person referred to in Clause 1.1(g)(B);

 

(iii)        any Affiliate or Associate of such Acquiring Person or Offeror;

 

(iv)        any Person acting jointly or in concert with such Acquiring Person
or Offeror; and

 

(v)         any employee benefit plan, deferred profit sharing plan, stock
participation plan and any other similar plan or trust for the benefit of
employees of the Company or a Subsidiary of the Company, unless the
beneficiaries of the plan or trust direct the manner in which the Voting Shares
are to be voted or direct whether the Voting Shares are to be tendered to a
Take-over Bid;

 

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(dd)       “Market Price” per share of any securities on any date of
determination shall mean the average of the daily closing prices per share of
such securities (determined as described below) on each of the 20 consecutive
Trading Days through and including the Trading Day immediately preceding such
date; provided, however, that if an event of a type analogous to any of the
events described in Section 2.3 hereof shall have caused the closing prices used
to determine the Market Price on any Trading Days not to be fully comparable
with the closing price on such date of determination or, if the date of
determination is not a Trading Day, on the immediately preceding Trading Day,
each such closing price so used shall be appropriately adjusted in a manner
analogous to the applicable adjustment provided for in Section 2.3 hereof in
order to make it fully comparable with the closing price on such date of
determination or, if the date of determination is not a Trading Day, on the
immediately preceding Trading Day. The closing price per share of any securities
on any date shall be:

 

(i)          the closing board lot sale price or, in case no such sale takes
place on such date, the average of the closing bid and asked prices for each of
such securities as reported by the principal Canadian stock exchange on which
such securities are listed or admitted to trading;

 

(ii)         if for any reason none of such prices is available on such day or
the securities are not listed or admitted to trading on a Canadian stock
exchange, the last sale price or, in case no such sale takes place on such date,
the average of the high bid and low asked prices for each of such securities in
the Canadian over-the-counter market, as quoted by any reporting system then in
use; or

 

(iii)        if for any reason none of such prices is available on such day or
the securities are not listed or admitted to trading on a Canadian stock
exchange or quoted by any such reporting system, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the securities selected in good faith by the Board of Directors;

 

provided, however, that if for any reason none of such prices is available on
such day, the closing price per share of such securities on such date means the
fair value per share of such securities on such date as determined by a
nationally or internationally recognized investment dealer or investment banker
with respect to the fair value per share of such securities. The Market Price
shall be expressed in Canadian dollars and, if initially determined in respect
of any day forming part of the 20 consecutive Trading Day period in question in
United States dollars, such amount shall be translated into Canadian dollars on
such date at the Canadian Dollar Equivalent thereof;

 

(ee)        “Meeting Deadline Date” is the date six months after the Effective
Date or if such date is not a Business Day then the next Business Day following
such date.

 

(ff)         “Nominee” shall have the meaning ascribed thereto in Subsection
2.2(c);

 

(gg)       “Offer to Acquire” shall include:

 

(i)          an offer to purchase or a solicitation of an offer to sell or a
public announcement of an intention to make such an offer or solicitation; and

 

(ii)         an acceptance of an offer to sell, whether or not such offer to
sell has been solicited;

 

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or any combination thereof, and the Person accepting an offer to sell shall be
deemed to be making an Offer to Acquire to the Person that made the offer to
sell;

 

(hh)       “Offeror” shall mean a Person who has made a public announcement of a
current intention to make or who is making a Take-over Bid but only so long as
the Take-over Bid so announced or made has not been withdrawn or terminated or
has not expired;

 

(ii)         “Permitted Bid” shall mean a Take-over Bid made by an Offeror by
way of take-over bid circular which also complies with the following additional
provisions:

 

(i)           the Take-over Bid is made to all holders of Voting Shares on the
books of the Company, other than the Offeror;

 

(ii)         no Voting Shares are taken up or paid for pursuant to the Take-over
Bid unless more than 50% of the Voting Shares held by Independent Shareholders
shall have been deposited or tendered pursuant to the Take-over Bid and not
withdrawn;

 

(iii)        the Take-over Bid contains, and the take-up and payment for
securities tendered or deposited is subject to, an irrevocable and unqualified
provision that no Voting Shares will be taken up or paid for pursuant to the
Take-over Bid prior to the close of business on the date which is not less than
60 days following the date of the Take-over Bid;

 

(iv)        the Take-over Bid contains an irrevocable and unqualified provision
that unless the Take-over Bid is withdrawn, Voting Shares may be deposited
pursuant to such Take-over Bid at any time during the period of time between the
date of the Take- over Bid and the date on which Voting Shares may be taken up
and paid for and that any Voting Shares deposited pursuant to the Take-over Bid
may be withdrawn until taken up and paid for; and

 

(v)         the Take-over Bid contains an irrevocable and unqualified provision
that if, on the date on which Voting Shares may be taken up and paid for, more
than 50% of the Voting Shares held by Independent Shareholders shall have been
deposited pursuant to the Take-over Bid and not withdrawn, the Offeror will make
a public announcement of that fact and the Take-over Bid will remain open for
deposits and tenders of Voting Shares for not less than ten Business Days from
the date of such public announcement;

 

For purposes of this Agreement, (A) should a Take-over Bid which qualified as a
Permitted Bid cease to be a Permitted Bid because it ceases to meet any or all
of the requirements mentioned above prior to the time it expires (after giving
effect to any extension) or is withdrawn, any acquisition of Voting Shares made
pursuant to such Take-over Bid shall not be a Permitted Bid Acquisition and (B)
the term “Permitted Bid” shall include a Competing Permitted Bid.

 

(jj)         “Permitted Bid Acquisition” shall mean an acquisition of Voting
Shares made pursuant to a Permitted Bid or a Competing Permitted Bid;

 

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(kk)        “Permitted Lock-Up Agreement” shall mean an agreement between a
Person and one or more holders of Voting Shares pursuant to which such holders
(each a “Locked-Up Person”) agree to deposit or tender Voting Shares to a
Take-Over Bid (the “Lock-Up Bid”) made or to be made by such Person or any of
such Person’s Affiliates or Associates or any other Person with which such
Person is acting jointly or in concert, provided that:

 

(i)          the terms of such agreement are publicly disclosed and a copy of
such agreement is made available to the public (including the Company) not later
than the date of the Lock-Up Bid or, if the Lock-Up Bid has been made prior to
the date on which such agreement is entered into, not later than the first
business day following the date of such agreement;

 

(ii)         the agreement permits a Locked-Up Person to terminate its
obligation to deposit or tender Voting Shares to or not to withdraw such Voting
Shares from the Lock-Up Bid, and to terminate any obligation with respect to the
voting of such Voting Shares, in order to tender or deposit the Voting Shares to
another Take-over Bid or to support another transaction:

 

(A)         where the price or value of the consideration per Voting Share
offered under such other Take-over Bid or transaction:

 

(I)         is greater than the price or value of the consideration per Voting
Share at which the Locked-Up Person has agreed to deposit or tender Voting
Shares to the Lock-Up Bid; or

 

(II)       exceeds by as much as or more than a specified amount (the “Specified
Amount”) the price or value of the consideration per Voting Share at which the
Locked-Up Person has agreed to deposit or tender Voting Shares to the Lock-Up
Bid, provided that such Specified Amount is not greater than 7% of the price or
value of the consideration per Voting Share at which the Locked-Up Person has
agreed to deposit or tender Voting Shares to the Lock-Up Bid; and

 

(B)         if the number of Voting Shares offered to be purchased under the
Lock-Up Bid is less than 100% of the Voting Shares held by Independent
Shareholders, where the number of Voting Shares to be purchased under such other
Take-over Bid or transaction at a price or value per Voting Share that is not
less than the price or value per Voting Share offered under the Lock-Up Bid:

 

(I)         is greater than the number of Voting Shares that the Offeror has
offered to purchase under the Lock-Up Bid; or

 

(II)       exceeds by as much as or more than a specified number (the “Specified
Number”) the number of Voting Shares that the Offeror has offered to purchase
under the Lock-Up Bid, provided that the Specified Number is not greater than 7%
of the number of Voting Shares offered to purchased under the Lock-Up Bid,

 

11

 

 

and, for greater clarity, the agreement may contain a right of first refusal or
require a period of delay to give such Person an opportunity to match a higher
price in another Take-over Bid or transaction or other similar limitation on a
Locked-up Person’s right to withdraw Voting Shares from the agreement, so long
as the limitation does not preclude the exercise by the Locked-up Person of the
right to withdraw Voting Shares during the period of the other Take-over Bid or
transaction; and

 

(iii)        no “break-up” fees, “top-up” fees, penalties, expenses or other
amounts that exceed in aggregate the greater of:

 

(A)         2.5% of the price or value of the consideration payable under the
Lock-Up Bid to a Locked-Up Person; and

 

(B)         50% of the amount by which the price or value of the consideration
received by a Locked-Up Person under another Take-over Bid or transaction
exceeds the price or value of the consideration that the Locked-Up Person would
have received under the Lock-Up Bid,

 

shall be payable by such Locked-Up Person pursuant to the agreement if the
Locked-Up Person fails to deposit or tender Voting Shares to the Lock-Up Bid,
withdraws Voting Shares previously tendered thereto or supports another
transaction;

 

(ll)         “Person” shall include an individual, body corporate, firm,
partnership, syndicate or other form of unincorporated association, trust,
trustee, executor, administrator, legal personal representative, group,
unincorporated organization, a government and its agencies or instrumentalities,
or other entity whether or not having legal personality;

 

(mm)      “Pro Rata Acquisition” shall mean an acquisition by a Person of Voting
Shares pursuant to:

 

(i)          a Dividend Reinvestment Acquisition;

 

(ii)         a stock dividend, stock split or other event in respect of
securities of the Company of one or more particular classes or series pursuant
to which such Person becomes the Beneficial Owner of Voting Shares on the same
pro rata basis as all other holders of securities of the particular class,
classes or series; or

 

(iii)        the acquisition or the exercise by the Person of rights to purchase
Voting Shares issued by the Company to all holders of securities of the Company
(other than holders resident in any jurisdiction where such issuance is
restricted or impractical as a result of applicable law) of one or more
particular classes or series pursuant to a rights offering or pursuant to a
prospectus, provided that such rights are acquired directly from the Company and
not from any other Person and the Person does not thereby acquire a greater
percentage of such Voting Shares than the Person’s percentage of Voting Shares
Beneficially Owned immediately prior to such acquisition;

 

12

 

 

(nn)       “Record Time” has the meaning set forth in the recitals hereto;

 

(oo)       “Redemption Price” shall have the meaning attributed thereto in
Subsection 5.1(a);

 

(pp)       “Right” shall mean a right to purchase a Share of the Company, upon
the terms and subject to the conditions set forth in this Agreement;

 

(qq)       “Rights Certificate” shall mean a certificate representing the Rights
after the Separation Time, which shall be substantially in the form attached
hereto as Attachment 1;

 

(rr)         “Rights Register” shall have the meaning ascribed thereto in
Subsection 2.6(a);

 

(ss)        “Securities Act” shall mean the Securities Act (British Columbia),
as amended, and the regulations thereunder, and any comparable or successor laws
or regulations thereto;

 

(tt)         “Separation Time” shall mean, subject to Subsection 5.1(d), the
close of business on the tenth Trading Day after the earlier of:

 

(i)          the Share Acquisition Date;

 

(ii)         the date of the commencement of or first public announcement of the
intent of any Person (other than the Company or any Subsidiary of the Company)
to commence a Take-over Bid (other than a Permitted Bid or a Competing Permitted
Bid); and

 

(iii)        the date on which a Permitted Bid or Competing Permitted Bid ceases
to qualify as such;

 

or such later time as may be determined by the Board of Directors, provided
that, if any Take-over Bid referred to in clause (ii) above expires, is not
made, is cancelled, terminated or otherwise withdrawn prior to the Separation
Time, such Take-over Bid shall be deemed, for the purposes of this definition,
never to have been commenced, made or announced and further provided that if the
Board of Directors determines, pursuant to Section 5.1, to waive the application
of Section 3.1 to a Flip-In Event, then the Separation Time in respect of such
Flip-In Event shall be deemed never to have occurred and further provided that
if the foregoing results in the Separation Time being prior to the Record Time,
the Separation Time shall be the Record Time;

 

13

 

 

(uu)       “Share Acquisition Date” shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to early warning requirements under
applicable securities laws) by the Company or an Acquiring Person of facts
indicating that a Person has become an Acquiring Person;

 

(vv)       “Shares” shall mean the common shares in the capital of the Company
as presently constituted, as such shares may be subdivided, consolidated,
reclassified or otherwise changed from time to time;

 

(ww)      “Subsidiary”: a Person is a Subsidiary of another Person if:

 

(i)          it is controlled by:

 

(A)         that other; or

 

(B)         that other and one or more Persons each of which is controlled by
that other; or

 

(C)         two or more Persons each of which is controlled by that other; or

 

(ii)         it is a Subsidiary of a Person that is that other’s Subsidiary;

 

(xx)        “Take-over Bid” shall mean an Offer to Acquire Voting Shares or
Convertible Securities, if, assuming that the Voting Shares or Convertible
Securities subject to the Offer to Acquire are acquired and are Beneficially
Owned at the date of such Offer to Acquire by the Person making such Offer to
Acquire, the Voting Shares Beneficially Owned by the Person making the Offer to
Acquire would constitute in the aggregate 20% or more of the outstanding Voting
Shares at the date of the Offer to Acquire;

 

(yy)       “Termination Time” shall mean the time at which the right to exercise
Rights shall terminate pursuant to Section 5.1(g);

 

(zz)         “Trading Day”, when used with respect to any securities, shall mean
a day on which the principal Canadian stock exchange on which such securities
are listed or admitted to trading is open for the transaction of business or, if
the securities are not listed or admitted to trading on any Canadian stock
exchange, a Business Day;

 

(aaa)     “U.S. – Canadian Exchange Rate” on any date shall mean:

 

(i)          if on such date the Bank of Canada sets an average noon spot rate
of exchange for the conversion of one United States dollar into Canadian
dollars, such rate; and

 

(ii)         in any other case, the rate for such date for the conversion of one
United States dollar into Canadian dollars which is calculated in the manner
which shall be determined by the Board of Directors from time to time acting in
good faith;

 

14

 

 

(bbb)     “Voting Share Reduction” shall mean an acquisition or redemption by
the Company of Voting Shares which, by reducing the number of Voting Shares
outstanding, increases the percentage of outstanding Voting Shares Beneficially
Owned by any Person to 20% or more of the Voting Shares then outstanding; and

 

(ccc)      “Voting Shares” shall mean the Shares and any other shares in the
capital of the Company entitled to vote generally in the election of all
directors of the Company.

 

1.2                       Currency

 

All sums of money which are referred to in this Agreement are expressed in
lawful money of Canada, unless otherwise specified.

 

1.3                       Headings

 

The division of this Agreement into Articles, Sections, Subsections, Clauses,
Paragraphs, Subparagraphs or other portions hereof and the insertion of
headings, subheadings and a table of contents are for convenience of reference
only and shall not affect the construction or interpretation of this Agreement.

 

1.4                       Calculation of Number and Percentage of Beneficial
Ownership of Outstanding Voting Shares

 

(a)          For purposes of this Agreement, in determining the percentage of
outstanding Voting Shares with respect to which a Person is or is deemed to be
the Beneficial Owner, all unissued Voting Shares of which such person is deemed
to be the Beneficial Owner shall be deemed to be outstanding.

 

(b)          For purposes of this Agreement, the percentage of Voting Shares
Beneficially Owned by any Person shall be and be deemed to be the product
(expressed as a percentage) determined by the formula:

 

100 x A/B

 

where:

 

A          =          the number of votes for the election of all directors of
the Company generally attaching to the Voting Shares Beneficially Owned by such
Person; and

 

B          =          the number of votes for the election of all directors of
the Company generally attaching to all outstanding Voting Shares.

 

The percentage of outstanding Voting Shares represented by any particular group
of Voting Shares acquired or held by any Person shall be determined in like
manner mutatis mutandis.

 

15

 

 

1.5                       Acting Jointly or in Concert

 

For purposes of this Agreement a Person is acting jointly or in concert with
every Person who is a party to an agreement, commitment, arrangement or
understanding, whether formal or informal or written or unwritten, with the
first Person to acquire or Offer to Acquire any Voting Shares or Convertible
Securities (other than (x) customary agreements with and between underwriters
and/or banking group members and/or selling group members with respect to a
distribution of securities by the Company, (y) pledges of securities in the
ordinary course of business, and (z) Permitted Lock-Up Agreements).

 

1.6                       Generally Accepted Accounting Principles

 

Wherever in this Agreement reference is made to generally accepted accounting
principles, such reference shall be deemed to be the recommendations at the
relevant time of the Canadian Institute of Chartered Accountants, or any
successor institute, applicable on a consolidated basis (unless otherwise
specifically provided herein to be applicable on an unconsolidated basis) and
which incorporates International Financial Reporting Standards as adopted by the
Canadian Accounting Standards Board for periods beginning on or after January 1,
2011, as at the date on which a calculation is made or required to be made in
accordance with generally accepted accounting principles. Where the character or
amount of any asset or liability or item of revenue or expense is required to be
determined, or any consolidation or other accounting computation is required to
be made for the purpose of this Agreement or any document, such determination or
calculation shall, to the extent applicable and except as otherwise specified
herein or as otherwise agreed in writing by the parties, be made in accordance
with such generally accepted accounting principles applied on a consistent
basis.

 

Article 2

 

THE RIGHTS

 

2.1                       Issue of Rights: Legend on Common Share Certificates

 

(a)          One Right shall be issued on the Effective Date in respect of each
Common Share outstanding at the Record Time and one Right shall be issued in
respect of each Common Share issued after the Record Time and prior to the
earlier of the Separation Time and the Expiration Time.

 

(b)          Certificates representing Shares which are issued after the Record
Time but prior to the earlier of the Separation Time and the Expiration Time,
shall also evidence one Right for each Share represented thereby until the
earlier of the Separation Time or the Expiration Time and shall have impressed
on, printed on, written on or otherwise affixed to them the following legend:

 

16

 

 

Until the earlier of the Separation Time or the Expiration Time (as both terms
are defined in the Shareholder Rights Agreement referred to below), this
certificate also evidences and entitles the holder hereof to certain Rights as
set forth in the Shareholder Rights Plan Agreement dated as of January 9, 2014,
as may be amended or supplemented from time to time (the “Shareholder Rights
Agreement”), between Stellar Biotechnologies, Inc. (the “Company”) and
Computershare Investor Services Inc., as Rights Agent, the terms of which are
incorporated herein by reference and a copy of which is on file at the principal
executive offices of the Company. Under certain circumstances set out in the
Shareholder Rights Agreement, the rights may be amended or redeemed, may expire
or may become void (if, in certain cases they are “Beneficially Owned” by an
“Acquiring Person” as such terms are defined in the Shareholder Rights
Agreement, whether currently held by or on behalf of such Person or a subsequent
holder) or may be evidenced by separate certificates and no longer evidenced by
this certificate. The Company will mail or arrange for the mailing of a copy of
the Shareholder Rights Agreement to the holder of this certificate without
charge as soon as practicable after the receipt of a written request therefor.

 

Certificates representing Shares that are issued and outstanding at the Record
Time shall also evidence one Right for each Share represented thereby
notwithstanding the absence of the foregoing legend, until the earlier of the
Separation Time and the Expiration Time.

 

2.2                       Initial Exercise Price; Exercise of Rights; Detachment
of Rights

 

(a)          Subject to adjustment as herein set forth, each Right will entitle
the holder thereof, from and after the Separation Time and prior to the
Expiration Time, to purchase one Share for the Exercise Price as at the Business
Day immediately preceding the day of exercise of the Right (which Exercise Price
and number of Shares are subject to adjustment as set forth below).
Notwithstanding any other provision of this Agreement, any Rights held by the
Company or any of its Subsidiaries shall be void.

 

(b)          Until the Separation Time,

 

(i)          the Rights shall not be exercisable and no Right may be exercised;
and

 

(ii)         each Right will be evidenced by the certificate for the associated
Voting Share registered in the name of the holder thereof (which certificate
shall also be deemed to represent a Rights Certificate) and will be transferable
only together with, and will be transferred by a transfer of, such associated
Voting Share.

 

(c)          From and after the Separation Time and prior to the Expiration
Time:

 

(i)           the Rights shall be exercisable; and

 

(ii)         the registration and transfer of Rights shall be separate from and
independent of Voting Shares.

 

17

 

 

Promptly following the Separation Time, the Company will prepare or cause to be
prepared and the Rights Agent will mail to each holder of record of Voting
Shares as of the Separation Time and, in respect of each Convertible Security
converted into Voting Shares after the Separation Time and prior to the
Expiration Time, promptly after such conversion, the Company will prepare or
cause to be prepared and the Rights Agent will mail to the holder so converting
(other than in either case an Acquiring Person and any Transferee whose rights
are or become null and void pursuant to Section 3.1(b) and, in respect of any
Rights Beneficially Owned by such Acquiring Person or Transferee which are not
held of record by such Acquiring Person or Transferee, the holder of record of
such Rights (a “Nominee”)), at such holder’s address as shown by the records of
the Company (the Company hereby agreeing to furnish copies of such records to
the Rights Agent for this purpose):

 

(x)          a Rights Certificate appropriately completed, representing the
number of Rights held by such holder at the Separation Time or at the time of
conversion, as applicable, and having such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any law, rule or regulation
or judicial or administrative order made pursuant thereto or with any rule or
regulation of any self-regulatory organization, stock exchange or quotation
system on which the Rights may from time to time be listed or traded, or to
conform to usage; and

 

(y)          disclosure statement describing the Rights,

 

provided that a Nominee shall be sent the materials provided for in (x) and (y)
only in respect of all Shares held of record by it which are not Beneficially
Owned by an Acquiring Person. In order for the Company to determine whether any
Person is holding Shares which are Beneficially Owned by another Person, the
Company may require such first Person to furnish such information and
documentation as the Company deems necessary.

 

(d)          Rights may be exercised, in whole or in part, on any Business Day
after the Separation Time and prior to the Expiration Time by submitting to the
Rights Agent at its office in Vancouver, Canada or any other office of the
Rights Agent in cities designated from time to time for that purpose by the
Company with the approval of the Rights Agent:

 

(i)           the Rights Certificate evidencing such Rights;

 

(ii)         an election to exercise such Rights (an “Election to Exercise”)
substantially in the form attached to the Rights Certificate appropriately
completed and duly executed by the holder or such holder’s executors or
administrators or other personal representatives or such holder’s or their legal
attorney duly appointed by an instrument in writing in form and executed in a
manner satisfactory to the Rights Agent; and

 

18

 

 

(iii)        payment by certified cheque, banker’s draft, money order or wire
transfer payable to the order of the Rights Agent, of a sum equal to the
Exercise Price multiplied by the number of Rights being exercised and a sum
sufficient to cover any transfer tax or charge which may be payable in respect
of any transfer involved in the transfer or delivery of Rights Certificates or
the issuance or delivery of certificates for Shares in a name other than that of
the holder of the Rights being exercised.

 

(e)          Upon receipt of a Rights Certificate, together with a completed
Election to Exercise executed in accordance with Clause 2.2(d)(ii), which does
not indicate that such Right is null and void as provided by Subsection 3.1(b),
and payment as set forth in Clause 2.2(d)(iii), the Rights Agent (unless
otherwise instructed by the Company in the event that the Company is of the
opinion that the Rights cannot be exercised in accordance with this Agreement)
will thereupon as soon as practicable:

 

(i)          requisition from the transfer agent certificates representing the
number of such Shares to be purchased (the Company hereby irrevocably
authorizing its transfer agent to comply with all such requisitions);

 

(ii)         when appropriate, requisition from the Company the amount of cash
to be paid in lieu of issuing fractional Shares;

 

(iii)        after receipt of the certificates referred to in Clause 2.2(e)(i),
deliver the same to or upon the order of the registered holder of such Rights
Certificates, registered in such name or names as may be designated by such
holder;

 

(iv)        when appropriate, after receipt, deliver the cash referred to in
Clause 2.2(e)(ii) to or to the order of the registered holder of such Rights
Certificate; and

 

(v)         remit to the Company all payments received on the exercise of
Rights.

 

(f)          In case the holder of any Rights shall exercise less than all the
Rights evidenced by such holder’s Rights Certificate, a new Rights Certificate
evidencing the Rights remaining unexercised (subject to the provisions of
Subsection 5.5(a)) will be issued by the Rights Agent to such holder or to such
holder’s duly authorized assigns.

 

(g)          The Company covenants and agrees that it will:

 

(i)          take all such action as may be necessary and within its power to
ensure that all Shares delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such Shares (subject to payment of the Exercise
Price), be duly and validly authorized, executed, issued and delivered as fully
paid and non-assessable;

 

(ii)         take all such action as may be necessary and within its power to
comply with the requirements of the British Columbia Business Corporations Act,
the Securities Act and the securities laws or comparable legislation of each of
the provinces of Canada, and any other applicable law, rule or regulation, in
connection with the issuance and delivery of the Rights Certificates and the
issuance of any Shares upon exercise of Rights;

 

19

 

 

(iii)        use reasonable efforts to cause all Shares issued upon exercise of
Rights to be listed on the stock exchanges and markets on which such Shares were
traded immediately prior to the Separation Time;

 

(iv)        pay when due and payable, if applicable, any and all federal,
provincial and municipal transfer taxes and charges (not including any income or
capital taxes of the holder or exercising holder or any liability of the Company
to withhold tax) which may be payable in respect of the original issuance or
delivery of the Rights Certificates, or certificates for Shares to be issued
upon exercise of any Rights, provided that the Company shall not be required to
pay any transfer tax or charge which may be payable in respect of any transfer
involved in the transfer or delivery of Rights Certificates or the issuance or
delivery of certificates for Shares in a name other than that of the holder of
the Rights being transferred or exercised; and

 

(v)         after the Separation Time, except as permitted by Sections 5.1 and
5.4, not take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.

 

2.3                       Adjustments to Exercise Price; Number of Rights

 

The Exercise Price, the number and kind of securities subject to purchase upon
exercise of each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 2.3.

 

(a)          In the event the Company shall at any time after the Record Time
and prior to the Expiration Time:

 

(i)          declare or pay a dividend on Shares payable in Shares or
Convertible Securities in respect thereof other than pursuant to any Dividend
Reinvestment Plan;

 

(ii)         subdivide or change the then outstanding Shares into a greater
number of Shares;

 

(iii)        consolidate or change the then outstanding Shares into a smaller
number of Shares; or

 

(iv)        issue any Shares (or Convertible Securities in respect thereof) in
respect of, in lieu of or in exchange for existing Shares except as otherwise
provided in this Section 2.3,

 

then the Exercise Price and the number of Rights outstanding (or, if the payment
or effective date therefor shall occur after the Separation Time, the securities
purchasable upon exercise of Rights) shall be adjusted as of the payment or
effective date in the manner set forth below.

 

20

 

 

If the Exercise Price and number of Rights outstanding are to be adjusted:

 

(x)          the Exercise Price in effect after such adjustment will be equal to
the Exercise Price in effect immediately prior to such adjustment divided by the
number of Shares (or other capital stock) (the “Expansion Factor”) that a holder
of one Share immediately prior to such distribution, subdivision, change,
consolidation or issuance would hold thereafter as a result thereof; and

 

(y)         each Right held prior to such adjustment will become that number of
Rights equal to the Expansion Factor,

 

and the adjusted number of Rights will be deemed to be distributed among the
Shares with respect to which the original Rights were associated (if they remain
outstanding) and the Shares issued in respect of such dividend, subdivision,
change, consolidation or issuance, so that each such Share (or other capital
stock) will have exactly one Right associated with it.

 

For greater certainty, if the securities purchasable upon exercise of Rights are
to be adjusted, the securities purchasable upon exercise of each Right after
such adjustment will be the securities that a holder of the securities
purchasable upon exercise of one Right immediately prior to such dividend,
subdivision, change, consolidation or issuance would hold thereafter as a result
of such dividend, subdivision, change, consolidation or issuance.

 

If, after the Record Time and prior to the Expiration Time, the Company shall
issue any shares of capital stock other than Shares in a transaction of a type
described in Clause 2.3(a)(i) or (iv), such shares of capital stock shall be
treated herein as nearly equivalent to Shares as may be practicable and
appropriate under the circumstances and the Company and the Rights Agent agree
to amend this Agreement in order to effect such treatment.

 

If an event occurs which would require an adjustment under both this Section 2.3
and Section 3.1, the adjustment provided for in this Section 2.3 shall be in
addition to, and shall be made prior to, any adjustment required under Section
3.1.

 

In the event the Company shall at any time after the Record Time and prior to
the Separation Time issue any Shares otherwise than in a transaction referred to
in this Subsection 2.3(a), each such Share so issued shall automatically have
one new Right associated with it, which Right shall be evidenced by the
certificate representing such associated Share.

 

(b)          In the event the Company shall at any time after the Record Time
and prior to the Separation Time fix a record date for the issuance of rights,
options or warrants to all holders of Shares entitling them (for a period
expiring within 45 calendar days after such record date) to subscribe for or
purchase Shares (or Convertible Securities in respect of Shares) at a price per
Share (or, in the case of a Convertible Security, having a conversion, exchange
or exercise price per share, including the price required to be paid to purchase
such Convertible Security) less than the Market Price per Share on such record
date, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction:

 

21

 

 

(i)          the numerator of which shall be the number of Shares outstanding on
such record date plus the number of Shares that the aggregate offering price of
the total number of Shares so to be offered (and/or the aggregate initial
conversion, exchange or exercise price of the Convertible Securities, including
the price required to be paid to purchase such Convertible Securities) would
purchase at such Market Price per Share; and

 

(ii)         the denominator of which shall be the number of Shares outstanding
on such record date plus the number of additional Shares to be offered for
subscription or purchase (or into which the Convertible Securities so to be
offered are initially convertible, exchangeable or exercisable).

 

In case such subscription price may be paid by delivery of consideration, part
or all of which may be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of Directors,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of Rights. Such
adjustment shall be made successively whenever such a record date is fixed, and
in the event that such rights, options or warrants are not so issued, or if
issued, are not exercised prior to the expiration thereof, the Exercise Price
shall be readjusted to the Exercise Price which would then be in effect if such
record date had not been fixed, or to the Exercise Price which would be in
effect based upon the number of Shares (or securities convertible into, or
exchangeable or exercisable for Shares) actually issued upon the exercise of
such rights, options or warrants, as the case may be.

 

For purposes of this Agreement, the granting of the right to purchase Shares
(whether from treasury or otherwise) pursuant to any Dividend Reinvestment Plan
or any employee benefit plan, stock option plan or any similar plan shall be
deemed not to constitute an issue of rights, options or warrants by the Company;
provided, however, that, in the case of any Dividend Reinvestment Plan or share
purchase plan, the right to purchase Shares is at a price per Share of not less
than 90% of the current market price per share (determined as provided in such
plans) of the Shares.

 

(c)          In the event the Company shall at any time after the Record Time
and prior to the Separation Time fix a record date for the making of a
distribution to all holders of Shares (including any such distribution made in
connection with a merger or amalgamation) of evidences of indebtedness, cash
(other than an annual cash dividend or a dividend paid in Common Shares, but
including any dividend payable in securities other than Common Shares), assets
or rights, options or warrants (excluding rights, options or warrants expiring
within 45 calendar days after such record date) to purchase Shares or
Convertible Securities in respect of Shares, the Exercise Price in effect after
such record date shall be equal to the Exercise Price in effect immediately
prior to such record date less the fair market value (as determined in good
faith by the Board of Directors) of the portion of the evidences of
indebtedness, cash, assets, rights, options or warrants so to be distributed
applicable to the securities purchasable upon exercise of one Right.

 

22

 

 

(d)          Notwithstanding anything herein to the contrary, no adjustment in
the Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least one per cent in the Exercise Price; provided,
however, that any adjustments which by reason of this Subsection 2.3(d) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under Section 2.3 shall be made to the
nearest cent or to the nearest ten-thousandth of a Share. Any adjustment
required by Section 2.3 shall be made as of:

 

(i)          the payment or effective date for the applicable dividend,
subdivision, change, combination or issuance, in the case of an adjustment made
pursuant to Subsection 2.3(a); or

 

(ii)         the record date for the applicable dividend or distribution, in the
case of an adjustment made pursuant to Subsection 2.3(b) or (c), subject to
readjustment to reverse the same if such dividend or distribution shall not be
made.

 

(e)          In the event the Company shall at any time after the Record Time
and prior to the Separation Time issue any shares (other than Shares), or
rights, options or warrants to subscribe for or purchase any such shares, or
securities convertible into or exchangeable for any such shares, in a
transaction referred to in Clause 2.3(a)(i) or (iv) or Subsections 2.3(b) or
(c), if the Board of Directors acting in good faith determines that the
adjustments contemplated by Subsections 2.3(a), (b) and (c) in connection with
such transaction will not appropriately protect the interests of the holders of
Rights, the Board of Directors may determine what other adjustments to the
Exercise Price, number of Rights and/or securities purchasable upon exercise of
Rights would be appropriate and, notwithstanding Subsections 2.3(a), (b) and
(c), such adjustments, rather than the adjustments contemplated by Subsections
2.3(a), (b) and (c), shall be made. Subject to Subsection 5.4(b) and (c), the
Company and the Rights Agent may, with the prior approval of the holders of the
Shares amend this Agreement as appropriate to provide for such adjustments.

 

(f)          Each Right originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of Shares purchasable from
time to time hereunder upon exercise of a Right immediately prior to such issue,
all subject to further adjustment as provided herein.

 

(g)          Irrespective of any adjustment or change in the Exercise Price or
the number of Shares issuable upon the exercise of the Rights, the Rights
Certificates theretofore and thereafter issued may continue to express the
Exercise Price per Share and the number of Shares which were expressed in the
initial Rights Certificates issued hereunder.

 

23

 

 

(h)          In any case in which this Section 2.3 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of Shares and other securities of the Company, if any, issuable upon
such exercise over and above the number of Shares and other securities of the
Company, if any, issuable upon such exercise on the basis of the Exercise Price
in effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder an appropriate instrument evidencing such holder’s right
to receive such additional shares (fractional or otherwise) or other securities
upon the occurrence of the event requiring such adjustment.

 

(i)          Notwithstanding anything contained in this Section 2.3 to the
contrary, the Company shall be entitled to make such reductions in the Exercise
Price, in addition to those adjustments expressly required by this Section 2.3,
as and to the extent that in their good faith judgment the Board of Directors
shall determine to be advisable, in order that any:

 

(i)          consolidation or subdivision of Shares;

 

(ii)         issuance (wholly or in part for cash) of Shares or securities that
by their terms are convertible into or exchangeable for Shares;

 

(iii)        stock dividends; or

 

(iv)        issuance of rights, options or warrants referred to in this Section
2.3,

 

hereafter made by the Company to holders of its Shares, subject to applicable
taxation laws, shall not be taxable to such shareholders or shall subject such
shareholders to a lesser amount of tax.

 

(j)          Whenever an adjustment to the Exercise Price is made pursuant to
this Section 2.3, the Company shall:

 

(i)          promptly prepare a certificate setting forth such adjustment and a
brief statement of the facts accounting for such adjustment; and

 

(ii)         promptly file with the Rights Agent and with each transfer agent
for the Shares a copy of such certificate and mail a brief summary thereof to
each holder of Rights who requests a copy;

 

Failure to file such certificate or to cause such notice to be given as
aforesaid, or any defect therein, shall not affect the validity of any such
adjustment or change.

 

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2.4Date on Which Exercise Is Effective

 

Each Person in whose name any certificate for Shares or other securities, if
applicable, is issued upon the exercise of Rights shall for all purposes be
deemed to have become the absolute holder of record of the Shares or other
securities, if applicable, represented thereon, and such certificate shall be
dated the date upon which the Rights Certificate evidencing such Rights was duly
surrendered in accordance with Subsection 2.2(d) (together with a duly completed
Election to Exercise) and payment of the Exercise Price for such Rights (and any
applicable transfer taxes and other governmental charges payable by the
exercising holder hereunder) was made; provided, however, that if the date of
such surrender and payment is a date upon which the Share transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such Shares on, and such certificate shall be dated, the next succeeding
Business Day on which the Share transfer books of the Company are open.

 

2.5 Execution, Authentication, Delivery and Dating of Rights Certificates

 

(a)          The Rights Certificates shall be executed on behalf of the Company
by any of its Chairman of the Board, President, Chief Executive Officer and
Chief Financial Officer. The signature of any of these officers on the Rights
Certificates may be manual or facsimile. Rights Certificates bearing the manual
or facsimile signatures of individuals who were at any time the proper officers
of the Company shall bind the Company, notwithstanding that such individuals or
any of them have ceased to hold such offices either before or after the
countersignature and delivery of such Rights Certificates.

 

(b)          Promptly after the Company learns of the Separation Time, the
Company will notify the Rights Agent of such Separation Time and will deliver
Rights Certificates executed by the Company to the Rights Agent for
countersignature, and the Rights Agent shall countersign (manually or by
facsimile signature in a manner satisfactory to the Company) and send such
Rights Certificates to the holders of the Rights pursuant to Subsection 2.2(c)
hereof. No Rights Certificate shall be valid for any purpose until countersigned
by the Rights Agent as aforesaid.

 

(c)          Each Rights Certificate shall be dated the date of countersignature
thereof.

 

2.6Registration, Transfer and Exchange

 

(a)          The Company will cause to be kept a register (the “Rights
Register”) in which, subject to such reasonable regulations as it may prescribe,
the Company will provide for the registration and transfer of Rights. The Rights
Agent, at its office in the City of Vancouver, is hereby appointed registrar for
the Rights (the “Rights Registrar”) for the purpose of maintaining the Rights
Register for the Company and registering Rights and transfers of Rights as
herein provided and the Rights Agent hereby accepts such appointment. In the
event that the Rights Agent shall cease to be the Rights Registrar, the Rights
Agent will have the right to examine the Rights Register at all reasonable
times.

 

After the Separation Time and prior to the Expiration Time, upon surrender for
registration of transfer or exchange of any Rights Certificate, and subject to
the provisions of Subsection 2.6(c), the Company will execute, and the Rights
Agent will countersign and deliver, in the name of the holder or the designated
transferee or transferees, as required pursuant to the holder’s instructions,
one or more new Rights Certificates evidencing the same aggregate number of
Rights as did the Rights Certificates so surrendered.

 

25

 

  

(b)          All Rights issued upon any registration of transfer or exchange of
Rights Certificates shall be the valid obligations of the Company, and such
Rights shall be entitled to the same benefits under this Agreement as the Rights
surrendered upon such registration of transfer or exchange.

 

(c)          Every Rights Certificate surrendered for registration of transfer
or exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company or the Rights Agent, as the case
may be, duly executed by the holder thereof or such holder’s attorney duly
authorized in writing. As a condition to the issuance of any new Rights
Certificate under this Section 2.6, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the reasonable fees and
expenses of the Rights Agent) connected therewith.

 

2.7Mutilated, Destroyed, Lost and Stolen Rights Certificates

 

(a)          If any mutilated Rights Certificate is surrendered to the Rights
Agent prior to the Expiration Time, the Company shall execute and the Rights
Agent shall countersign and deliver in exchange therefor a new Rights
Certificate evidencing the same number of Rights as did the Rights Certificate
so surrendered.

 

(b)          If there shall be delivered to the Company and the Rights Agent
prior to the Expiration Time:

 

(i)          evidence to their reasonable satisfaction of the destruction, loss
or theft of any Rights Certificate; and

 

(ii)         such Security and indemnity as may be reasonably required by them
to save each of them and any of their agents harmless,

 

then, in the absence of notice to the Company or the Rights Agent that such
Rights Certificate has been acquired by a bona fide purchaser, the Company shall
execute and upon the Company’s request the Rights Agent shall countersign and
deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new
Rights Certificate evidencing the same number of Rights as did the Rights
Certificate so destroyed, lost or stolen.

 

(c)          As a condition to the issuance of any new Rights Certificate under
this Section 2.7, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the reasonable fees and expenses of
the Rights Agent) connected therewith.

 

(d)          Every new Rights Certificate issued pursuant to this Section 2.7 in
lieu of any destroyed, lost or stolen Rights Certificate shall evidence the
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Rights Certificate shall be at any time enforceable by anyone, and shall
be entitled to all the benefits of this Agreement equally and proportionately
with any and all other Rights duly issued hereunder.

 

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2.8Persons Deemed Owners of Rights

 

The Company, the Rights Agent and any agent of the Company or the Rights Agent
may deem and treat the Person in whose name a Rights Certificate (or, prior to
the Separation Time, the associated Share certificate) is registered as the
absolute owner thereof and of the Rights evidenced thereby for all purposes
whatsoever. As used in this Agreement, unless the context otherwise requires,
the term “holder” of any Right shall mean the registered holder of such Right
(or, prior to the Separation Time, of the associated Share).

 

2.9Delivery and Cancellation of Certificates

 

All Rights Certificates surrendered upon exercise or for redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Rights Agent, be delivered to the Rights Agent and, in any case, shall
be promptly cancelled by the Rights Agent. The Company may at any time deliver
to the Rights Agent for cancellation any Rights Certificates previously
countersigned and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Rights Certificates so delivered shall be promptly
cancelled by the Rights Agent. No Rights Certificate shall be countersigned in
lieu of or in exchange for any Rights Certificates cancelled as provided in this
Section 2.9, except as expressly permitted by this Agreement. The Rights Agent
shall, subject to applicable laws, destroy all cancelled Rights Certificates and
deliver a certificate of destruction to the Company.

 

2.10Agreement of Rights Holders

 

Every holder of Rights, by accepting the same, consents and agrees with the
Company and the Rights Agent and with every other holder of Rights:

 

(a)          to be bound by and subject to the provisions of this Agreement, as
amended from time to time in accordance with the terms hereof, in respect of all
Rights held;

 

(b)          that prior to the Separation Time, each Right will be transferable
only together with, and will be transferred by a transfer of, the associated
Voting Share certificate representing such Right;

 

(c)          that after the Separation Time, the Rights Certificates will be
transferable only on the Rights Register as provided herein;

 

(d)          that prior to due presentment of a Rights Certificate (or, prior to
the Separation Time, the associated Voting Share certificate) for registration
of transfer, the Company, the Rights Agent and any agent of the Company or the
Rights Agent may deem and treat the Person in whose name the Rights Certificate
(or, prior to the Separation Time, the associated Voting Share certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on such Rights
Certificate or the associated Voting Share certificate made by anyone other than
the Company or the Rights Agent) for all purposes whatsoever, and neither the
Company nor the Rights Agent shall be affected by any notice to the contrary;

 

27

 

  

(e)          that such holder of Rights has waived his right to receive any
fractional Rights or any fractional shares or other securities upon exercise of
a Right (except as provided herein);

 

(f)          that, subject to the provisions of Section 5.4, without the
approval of any holder of Rights or Voting Shares and upon the sole authority of
the Board of Directors, acting in good faith, this Agreement may be supplemented
or amended from time to time pursuant to and as provided herein; and

 

(g)          that notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or any other Person as a result of its inability to perform any of
its obligations under this Agreement by reason of preliminary or permanent
injunctions or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulations or executive order promulgated or
enacted by any governmental authority prohibiting or otherwise restraining
performance of such obligation.

 

2.11Rights Certificate Holder Not Deemed a Shareholder

 

No holder, as such, of any Rights or Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose whatsoever the holder of
any Share or any other share or security of the Company which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything
contained herein or in any Rights Certificate be construed or deemed or confer
upon the holder of any Right or Rights Certificate, as such, any right, title,
benefit or privilege of a holder of Shares or any other shares or securities of
the Company or any right to vote at any meeting of shareholders of the Company
whether for the election of directors or otherwise or upon any matter submitted
to holders of Shares or any other shares of the Company at any meeting thereof,
or to give or withhold consent to any action of the Company, or to receive
notice of any meeting or other action affecting any holder of Shares or any
other shares of the Company except as expressly provided herein, or to receive
dividends, distributions or subscription rights, or otherwise, until the Right
or Rights evidenced by Rights Certificates shall have been duly exercised in
accordance with the terms and provisions hereof.

 

Article 3

ADJUSTMENTS TO THE RIGHTS

 

3.1Flip-in Event

 

(a)          Subject to Subsection 3.1(b) and Section 5.1, in the event that
prior to the Expiration Time a Flip-in Event shall occur, each Right shall
constitute, effective at the close of business on the tenth Trading Day after
the Share Acquisition Date, the right to purchase from the Company, upon
exercise thereof in accordance with the terms hereof, that number of Shares
having an aggregate Market Price on the date of consummation or occurrence of
such Flip-in Event equal to twice the Exercise Price for an amount in cash equal
to the Exercise Price (such right to be appropriately adjusted in a manner
analogous to the applicable adjustment provided for in Section 2.3 in the event
that after such consummation or occurrence, an event of a type analogous to any
of the events described in Section 2.3 shall have occurred).

 

28

 

  

(b)          Notwithstanding anything in this Agreement to the contrary, upon
the occurrence of any Flip-in Event, any Rights that are or were Beneficially
Owned on or after the earlier of the Separation Time or the Share Acquisition
Date by:

 

(i)          an Acquiring Person (or any Affiliate or Associate of an Acquiring
Person or any other Person acting jointly or in concert with an Acquiring Person
or any Affiliate or Associate of such other Person); or

 

(ii)         a transferee or other successor in title, directly or indirectly,
(a “Transferee”) of Rights held by an Acquiring Person (or any Affiliate or
Associate of an Acquiring Person or any other Person acting jointly or in
concert with an Acquiring Person or any Affiliate or Associate of such other
Person), where such Transferee becomes a transferee concurrently with or
subsequent to the Acquiring Person becoming such in a transfer that the Board of
Directors acting in good faith has determined is part of a plan, arrangement or
scheme of an Acquiring Person (or any Affiliate or Associate of an Acquiring
Person or any other Person acting jointly or in concert with an Acquiring Person
or any Affiliate or Associate of such other Person), that has the purpose or
effect of avoiding Clause 3.1(b)(i),

 

shall become null and void without any further action, and any holder of such
Rights (including any Transferee) shall thereafter have no right to exercise
such Rights under any provision of this Agreement and further shall thereafter
not have any other rights whatsoever with respect to such Rights, whether under
any provision of this Agreement or otherwise. The holder of any Rights
represented by a Rights Certificate which is submitted to the Rights Agent upon
exercise or for registration or transfer or exchange which does not contain the
necessary certifications set forth in the Rights Certificate establishing that
such Rights are not null and void under this Clause 3.1(b) shall be deemed to be
an Acquiring Person for the purposes of this Clause 3.1 and such Rights shall
become null and void.

 

(c)          From and after the Separation Time, the Company shall do all such
acts and things as shall be necessary and within its power to ensure compliance
with the provisions of this Section 3.1, including without limitation, all such
acts and things as may be required to satisfy the requirements of the British
Columbia Business Corporations Act, the Securities Act and the securities laws
or comparable legislation of each of the provinces of Canada in respect of the
issue of Shares upon the exercise of Rights in accordance with this Agreement.

 

(d)          Any Rights Certificate that represents Rights Beneficially Owned by
a Person described in either Clause 3.1(b)(i) or (ii) or transferred to any
nominee of any such Person, and any Rights Certificate issued upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain the following legend:

 

29

 

  

“The Rights represented by this Rights Certificate were issued to a Person who
was an Acquiring Person or an Affiliate or an Associate of an Acquiring Person
(as such terms are defined in the Shareholder Rights Agreement) or a Person who
was acting jointly or in concert with an Acquiring Person or an Affiliate or
Associate of such Person. This Rights Certificate and the Rights represented
hereby are void or shall become void in the circumstances specified in
Subsection 3.1(b) of the Shareholder Rights Agreement.”

 

provided, however, that the Rights Agent shall not be under any responsibility
to ascertain the existence of facts that would require the imposition of such
legend but shall impose such legend only if instructed to do so by the Company
in writing or if a holder fails to certify upon transfer or exchange in the
space provided on the Rights Certificate that such holder is not a Person
described in such legend and provided further that the fact that such legend
does not appear on a certificate is not determinative of whether any Rights
represented thereby are void under this Section.

 

Article 4

THE RIGHTS AGENT

 

4.1General

 

(a)          The Company hereby appoints the Rights Agent to act as agent for
the Company in accordance with the terms and conditions hereof, and the Rights
Agent hereby accepts such appointment. The Company may from time to time appoint
such co-Rights Agents (“Co-Rights Agents”) as it may deem necessary or
desirable. In the event the Company appoints one or more Co-Rights Agents, the
respective duties of the Rights Agent and Co-Rights Agents shall be as the
Company may determine with the approval of the Rights Agent and the Co-Rights
Agent. The Company agrees to pay to the Rights Agent reasonable compensation for
all services rendered by it hereunder and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and other disbursements
incurred in the administration and execution of this Agreement and the exercise
and performance of its duties hereunder (including the fees and disbursements of
any expert or advisor retained by the Rights Agent). The Company also agrees to
indemnify the Rights Agent, and its officers, directors, employees and agents
for, and to hold it and them harmless against, any loss, liability or expense,
incurred without gross negligence, bad faith or wilful misconduct on the part of
the Rights Agent or such persons, for anything done or omitted by the Rights
Agent or such persons in connection with the acceptance and administration of
this Agreement, including legal costs and expenses, which right to
indemnification will survive the termination of this Agreement and the
resignation or removal of the Rights Agent.

 

30

 

 

(b)          The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any certificate for
Shares, Rights Certificate, certificate for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons.

 

(c)          The Company shall inform the Rights Agent in a reasonably timely
manner of events which may materially affect the administration of this
Agreement by the Rights Agent and, at any time upon request, shall provide to
the Rights Agent an incumbency certificate certifying the then current officers
of the Company.

 

(d)          No provision contained in this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur financial liability in
the performance of any of its duties or in the exercise of any of its rights or
powers.

 

4.2Merger, Amalgamation or Consolidation or Change of Name of Rights Agent

 

(a)          Any Company into which the Rights Agent may be merged or
amalgamated or with which it may be consolidated, or any Company resulting from
any merger, amalgamation, statutory arrangement or consolidation to which the
Rights Agent is a party, or any Company succeeding to the shareholder or
stockholder services business of the Rights Agent, will be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto, provided that such
Company would be eligible for appointment as a successor Rights Agent under the
provisions of Section 4.4 hereof. In case at the time such successor Rights
Agent succeeds to the agency created by this Agreement any of the Rights
Certificates have been countersigned but not delivered, any successor Rights
Agent may adopt the countersignature of the predecessor Rights Agent and deliver
such Rights Certificates so countersigned; and in case at that time any of the
Rights have not been countersigned, any successor Rights Agent may countersign
such Rights Certificates in the name of the predecessor Rights Agent or in the
name of the successor Rights Agent; and in all such cases such Rights
Certificates will have the full force provided in the Rights Certificates and in
this Agreement.

 

(b)          In case at any time the name of the Rights Agent is changed and at
such time any of the Rights Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, the Rights Agent
may countersign such Rights Certificates either in its prior name or in its
changed name; and in all such cases such Rights Certificates shall have the full
force provided in the Rights Certificates and in this Agreement.

 

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4.3Duties of Rights Agent

 

The Rights Agent undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions, all of which the Company and the
holders of certificates for Shares and the holders of Rights Certificates, by
their acceptance thereof, shall be bound:

 

(a)          the Rights Agent may retain and consult with legal counsel (who may
be legal counsel for the Company) and the opinion of such counsel will be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion and the
Rights Agent may also consult with such other experts as the Rights Agent may
reasonably consider necessary or appropriate to properly carry out the duties
and obligations imposed under this Agreement (at the expense of the Company) and
the Rights Agent shall be entitled to act and rely in good faith on the advice
of any such expert;

 

(b)          whenever in the performance of its duties under this Agreement, the
Rights Agent deems it necessary or desirable that any fact or matter be proved
or established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by a Person believed by the Rights Agent to be the
Chairman of the Board, President, Chief Executive Officer or Chief Financial
Officer of the Company and delivered to the Rights Agent; and such certificate
will be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate;

 

(c)          the Rights Agent will be liable hereunder only for its own gross
negligence, bad faith or willful misconduct;

 

(d)          the Rights Agent will not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
certificates for Shares, or the Rights Certificates (except its countersignature
thereof) or be required to verify the same, but all such statements and recitals
are and will be deemed to have been made by the Company only;

 

(e)          Notwithstanding any other provision of this Agreement, and whether
such losses or damages are foreseeable or unforeseeable, the Rights Agent shall
not be liable under any circumstances whatsoever for any (a) breach by any other
party of securities law or other rule of any securities regulatory authority,
(b) lost profits or (c) special, indirect, incidental, consequential, exemplary,
aggravated or punitive losses or damages;

 

(f)          Notwithstanding any other provision of this Agreement, any
liability of the Rights Agent shall be limited, in the aggregate, to the amount
of fees paid by the Company to the Rights Agent under this Agreement in the
twelve (12) months immediately prior to the Rights Agent receiving the first
notice of the claim;

 

32

 

  

(g)          the Rights Agent will not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due authorization, execution and delivery hereof by the Rights Agent) or in
respect of the validity or execution of any certificate for a Share or Rights
Certificate (except its countersignature thereof); nor will it be responsible
for any breach by the Company of any covenant or condition contained in this
Agreement or in any Rights Certificate; nor will it be responsible for any
change in the exercisability of the Rights (including the Rights becoming void
pursuant to Subsection 3.1(b) hereof) or any adjustment required under the
provisions of Section 2.3 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights after
receipt of the certificate contemplated by Section 2.3 describing any such
adjustment); nor will it by any act hereunder be deemed to make any
representation or warranty as to the authorization of any Shares to be issued
pursuant to this Agreement or any Rights or as to whether any Shares will, when
issued, be duly and validly authorized, executed, issued and delivered and fully
paid and non-assessable;

 

(h)          the Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement;

 

(i)          the Rights Agent is hereby authorized and directed to accept
instructions in writing with respect to the performance of its duties hereunder
from any individual believed by the Rights Agent to be the Chairman of the
Board, President, Chief Executive Officer or Chief Financial Officer of the
Company, and to apply to such individuals for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or
suffered by it in good faith in accordance with instructions of any such
individual. It is understood that instructions to the Rights Agent shall, except
where circumstances make it impractical or the Rights Agent otherwise agrees, be
given in writing and, where not in writing, such instructions shall be confirmed
in writing as soon as practicable after the giving of such instructions;

 

(j)          the Rights Agent and any shareholder or stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in Shares, Rights
or other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity; and

 

(k)          the Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent will not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.

 

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4.4Change of Rights Agent

 

The Rights Agent may resign and be discharged from its duties under this
Agreement upon 60 days notice (or such lesser notice as is acceptable to the
Company) in writing mailed to the Company and to each transfer agent of Shares
by registered or certified mail and to the holders of Rights in accordance with
Section 5.9. The Company may remove the Rights Agent upon 30 days notice in
writing, mailed to the Rights Agent and to each transfer agent of the Shares by
registered or certified mail and to the holders of Rights in accordance with
Section 5.9. If the Rights Agent should resign or be removed or otherwise become
incapable of acting, the Company will appoint a successor to the Rights Agent.
If the Company fails to make such appointment within a period of 30 days after
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent, then by prior written
notice to the Company the resigning Rights Agent or the holder of any Rights
(which holder shall, with such notice, submit such holder’s Rights Certificate,
if any, for inspection by the Company), may apply, at the Company’s expense, to
any court of competent jurisdiction for the appointment of a new Rights Agent.
Any successor Rights Agent, whether appointed by the Company or by such a court,
shall be a Company incorporated under the laws of Canada or a province thereof
authorized to carry on the business of a trust company in the Province of
British Columbia. After appointment, the successor Rights Agent will be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall, upon payment in full of any outstanding amounts
owing by the Company to the Rights Agent under this Agreement, deliver and
transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company will file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Shares, and mail a
notice thereof in writing to the holders of the Rights in accordance with
Section 5.9. Failure to give any notice provided for in this Section 4.4,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of any successor
Rights Agent, as the case may be.

 

Article 5

MISCELLANEOUS

 

5.1Redemption and Waiver

 

(a)          The Board of Directors acting in good faith may, with the prior
approval of the holders of Voting Shares or of the holders of Rights given in
accordance with Section 5.1(i) or (j), as the case may be, at any time prior to
the occurrence of a Flip-in Event as to which the application of Section 3.1 has
not been waived pursuant to the provisions of this Section 5.1, elect to redeem
all but not less than all of the then outstanding Rights at a redemption price
of $0.00001 per Right appropriately adjusted in a manner analogous to the
applicable adjustment provided for in Section 2.3 in the event that an event of
the type analogous to any of the events described in Section 2.3 shall have
occurred (such redemption price being herein referred to as the “Redemption
Price”).

 

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(b)          The Board of Directors acting in good faith may, with the prior
approval of the holders of Voting Shares given in accordance with Section
5.1(i), determine, at any time prior to the occurrence of a Flip-in Event as to
which the application of Section 3.1 has not been waived pursuant to this
Section 5.1, if such Flip-in Event would occur by reason of an acquisition of
Voting Shares otherwise than pursuant to a Take-over Bid made by means of a
take-over bid circular to all holders of record of Voting Shares and otherwise
than in the circumstances set forth in Subsection 5.1(d), to waive the
application of Section 3.1 to such Flip-in Event. In the event that the Board of
Directors proposes such a waiver, the Board of Directors shall extend the
Separation Time to a date subsequent to and not more than ten Business Days
following the meeting of shareholders called to approve such waiver.

 

(c)          The Board of Directors acting in good faith may, until the
occurrence of a Flip-in Event and upon prior written notice delivered to the
Rights Agent, determine to waive the application of Section 3.1 to such
particular Flip-in Event, provided that the Flip-in Event would occur by reason
of a Take-over Bid made by way of take-over bid circular sent to all holders of
Voting Shares (which for greater certainty shall not include the circumstances
described in Subsection 5.1(d)); provided that if the Board of Directors waives
the application of Section 3.1 to a particular Flip-in Event pursuant to this
Subsection 5.1(c), the Board of Directors shall be deemed to have waived the
application of Section 3.1 to any other Flip-in Event subsequently occurring by
reason of any Take-over Bid which is made by means of a take-over bid circular
to all holders of Voting Shares prior to the expiry of any Take-over Bid in
respect of which a waiver is, or is deemed to have been, granted under this
Subsection 5.1(c).

 

(d)          Notwithstanding the provisions of Subsections 5.1(b) and (c)
hereof, the Board of Directors may waive the application of Section 3.1 in
respect of the occurrence of any Flip-in Event if the Board of Directors has
determined within ten Trading Days following a Stock Acquisition Date that a
Person became an Acquiring Person by inadvertence and without any intention to
become, or knowledge that it would become, an Acquiring Person under this
Agreement, and in the event such waiver is granted by the Board of Directors,
such Stock Acquisition Date shall be deemed not to have occurred. Any such
waiver pursuant to this Subsection 5.1(d) must be on the condition that such
Person, within 14 days after the foregoing determination by the Board of
Directors or such earlier or later date as the Board of Directors may determine
(the “Disposition Date”), has reduced its Beneficial Ownership of Voting Shares
such that the Person is no longer an Acquiring Person. If the Person remains an
Acquiring Person at the close of business on the Disposition Date, the
Disposition Date shall be deemed to be the date of occurrence of a further Stock
Acquisition Date and Section 3.1 shall apply thereto.

 

(e)          The Board of Directors, shall, without further formality, be deemed
to have elected to redeem the Rights at the Redemption Price on the date that a
Person which has made a Permitted Bid, a Competing Permitted Bid or a Take-Over
Bid in respect of which the Board of Directors has waived, or is deemed to have
waived, pursuant to Subsection 5.1(c) the application of Section 3.1, takes up
and pays for Voting Shares in connection with such Permitted Bid, Competing
Permitted Bid or Take-over bid, as the case may be.

 

35

 

 

(f)          Where a Take-over Bid that is not a Permitted Bid Acquisition is
withdrawn or otherwise terminated after the Separation Time has occurred and
prior to the occurrence of a Flip-in Event, the Board of Directors may elect to
redeem all the outstanding Rights at the Redemption Price. Upon the Rights being
redeemed pursuant to this Subsection 5.1(f), all the provisions of this
Agreement shall continue to apply as if the Separation Time had not occurred and
Rights Certificates representing the number of Rights held by each holder of
record of Shares as of the Separation Time had not been mailed to each such
holder and for all purposes of this Agreement the Separation Time shall be
deemed not to have occurred.

 

(g)          If the Board of Directors elects or is deemed to have elected to
redeem the Rights, and, in circumstances in which Subsection 5.1(a) is
applicable, such redemption is approved by the holders of Voting Shares or the
holders of Rights in accordance with Subsection 5.1(i) or (j), as the case may
be, the right to exercise the Rights, will thereupon, without further action and
without notice, terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price.

 

(h)          Within 10 Business Days after the Board of Directors elects or is
deemed to elect, to redeem the Rights or if Subsection 5.1(a) is applicable
within 10 Business Days after the holders of Shares of the holders of Rights
have approved a redemption of Rights in accordance with Section 5.1(i) or (j),
as the case may be, the Company shall give notice of redemption to the holders
of the then outstanding Rights by mailing such notice to each such holder at his
last address as it appears upon the registry books of the Rights Agent or, prior
to the Separation Time, on the registry books of the transfer agent for the
Voting Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made. The Company may not redeem, acquire or purchase for value any
Rights at any time in any manner other than specifically set forth in this
Section 5.1 or in connection with the purchase of Shares prior to the Separation
Time.

 

(i)          If a redemption of Rights pursuant to Subsection 5.1(a) or a waiver
of a Flip-in Event pursuant to Section 5.1(b) is proposed at any time prior to
the Separation Time, such redemption or waiver shall be submitted for approval
to the holders of Voting Shares. Such approval shall be deemed to have been
given if the redemption or waiver is approved by the affirmative vote of a
majority of the votes cast by Independent Shareholders represented in person or
by proxy at a meeting of such holders duly held in accordance with applicable
laws.

 

(j)          If a redemption of Rights pursuant to Subsection 5.1(a) is proposed
at any time after the Separation Time, such redemption shall be submitted for
approval to the holders of Rights. Such approval shall be deemed to have been
given if the redemption is approved by holders of Rights by a majority of the
votes cast by the holders of Rights represented in person or by proxy at and
entitled to vote at a meeting of such holders. For the purposes hereof, each
outstanding Right (other than Rights which are Beneficially Owned by any Person
referred to in clauses (i) to (v) inclusive of the definition of Independent
Shareholders) shall be entitled to one vote, and the procedures for the calling,
holding and conduct of the meeting shall be those, as nearly as may be, which
are provided in the Company’s by-laws and the British Columbia Business
Corporations Act with respect to meetings of shareholders of the Company.

 

36

 

 

5.2Expiration

 

No Person shall have any rights whatsoever pursuant to this Agreement or in
respect of any Right after the Expiration Time, except the Rights Agent as
specified in Section 4.1 of this Agreement.

 

5.3Issuance of New Rights Certificates

 

Notwithstanding any of the provisions of this Agreement or the Rights to the
contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by the Board of Directors to
reflect any adjustment or change in the number or kind or class of securities
purchasable upon exercise of Rights made in accordance with the provisions of
this Agreement.

 

5.4Supplements and Amendments

 

(a)          The Company may make amendments to this Agreement to correct any
clerical or typographical error or which are required to maintain the validity
of this Agreement as a result of any change in any applicable legislation or
regulations or rules thereunder. The Company may, prior to the date of the
shareholders’ meeting to be held prior to the Meeting Deadline Date referred to
in Section 5.15(b), supplement, amend, vary, rescind or delete any of the
provisions of this Agreement and the Rights without the approval of any holders
of Rights or Voting Shares in order to make any changes which the Board of
Directors acting in good faith may deem necessary or desirable. Notwithstanding
anything in this Section 5.4 to the contrary, no such supplement or amendment
shall be made to the provisions of Article 4 except with the written concurrence
of the Rights Agent to such supplement or amendment.

 

(b)          Subject to Subsection 5.4(a) and the prior approval of the Toronto
Stock Exchange (if required), the Company may, with the prior approval of the
holders of Voting Shares obtained as set forth below, at any time before the
Separation Time, supplement, amend, vary, rescind or delete any of the
provisions of this Agreement and the Rights (whether or not such action would
materially adversely affect the interests of the holders of Rights generally).
Such consent shall be deemed to have been given if the action requiring such
approval is authorized by the affirmative vote of a majority of the votes cast
by Independent Shareholders present or represented at and entitled to be voted
at a meeting of the holders of Voting Shares duly called and held in compliance
with applicable laws and the articles and by-laws of the Company.

 

(c)          Subject to Subsection 5.4(a), the Company may, with the prior
approval of the holders of Rights, at any time on or after the Separation Time,
supplement, amend, vary, rescind or delete any of the provisions of this
Agreement and the Rights (whether or not such action would materially adversely
affect the interests of the holders of Rights generally), provided that no such
amendment, variation or deletion shall be made to the provisions of Article 4
except with the written concurrence of the Rights Agent thereto.

 

37

 

 

(d)          Any approval of the holders of Rights shall be deemed to have been
given if the action requiring such approval is authorized by the affirmative
votes of the holders of Rights present or represented at and entitled to be
voted at a meeting of the holders of Rights and representing a majority of the
votes cast in respect thereof. For the purposes hereof, each outstanding Right
(other than Rights which are void pursuant to the provisions hereof) shall be
entitled to one vote, and the procedures for the calling, holding and conduct of
the meeting shall be those, as nearly as may be, which are provided in the
Company’s by-laws with respect to meetings of shareholders of the Company.

 

(e)          Any amendments made by the Company to this Agreement pursuant to
Subsection 5.4(a) which are required to maintain the validity of this Agreement
as a result of any change in any applicable legislation or regulations or rules
thereunder shall:

 

(i)          if made before the Separation Time, be submitted to the
shareholders of the Company at the next meeting of shareholders and the
shareholders may, by the majority referred to in Subsection 5.4(b), confirm or
reject such amendment;

 

(ii)         if made after the Separation Time, be submitted to the holders of
Rights at a meeting to be called for on a date not later than immediately
following the next meeting of shareholders of the Company and the holders of
Rights may, by resolution passed by the majority referred to in Subsection
5.4(d), confirm or reject such amendment.

 

Any such amendment shall be effective from the date of the resolution of the
Board of Directors adopting such amendment, until it is confirmed or rejected or
until it ceases to be effective (as described in the next sentence) and, where
such amendment is confirmed, it continues in effect in the form so confirmed. If
such amendment is rejected by the shareholders or the holders of Rights or is
not submitted to the shareholders or holders of Rights as required, then such
amendment shall cease to be effective from and after the termination of the
meeting (or any adjournment of such meeting) at which it was rejected or to
which it should have been but was not submitted or from and after the date of
the meeting of holders of Rights that should have been but was not held, and no
subsequent resolution of the Board of Directors to amend this Agreement to
substantially the same effect shall be effective until confirmed by the
shareholders or holders of Rights as the case may be.

 

5.5Fractional Rights and Fractional Shares

 

(a)          The Company shall not be required to issue fractions of Rights or
to distribute Rights Certificates which evidence fractional Rights. After the
Separation Time, in lieu of issuing fractional Rights, the Company shall pay to
the holders of record of the Rights Certificates (provided the Rights
represented by such Rights Certificates are not void pursuant to the provisions
of Subsection 3.1(b), at the time such fractional Rights would otherwise be
issuable), an amount in cash equal to the fraction of the Market Price of one
whole Right that the fraction of a Right that would otherwise be issuable is of
one whole Right.

 

38

 

 

(b)          The Company shall not be required to issue fractions of Shares upon
exercise of Rights or to distribute certificates which evidence fractional
Shares. In lieu of issuing fractional Shares, the Company shall pay to the
registered holders of Rights Certificates, at the time such Rights are exercised
as herein provided, an amount in cash equal to the fraction of the Market Price
of one Share that the fraction of a Share that would otherwise be issuable upon
the exercise of such Right is of one whole Share at the date of such exercise.

 

5.6Rights of Action

 

Subject to the terms of this Agreement, all rights of action in respect of this
Agreement, other than rights of action vested solely in the Rights Agent, are
vested in the respective holders of the Rights. Any holder of Rights, without
the consent of the Rights Agent or of the holder of any other Rights, may, on
such holder’s own behalf and for such holder’s own benefit and the benefit of
other holders of Rights enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce such holder’s right to exercise
such holder’s Rights, or Rights to which such holder is entitled, in the manner
provided in such holder’s Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any Person subject to, this
Agreement.

 

5.7Regulatory Approvals

 

Any obligation of the Company or action or event contemplated by this Agreement
shall be subject to the receipt of any requisite approval or consent from any
governmental or regulatory authority, including without limiting the generality
of the foregoing, any necessary approvals of The Toronto Stock Exchange, or any
other applicable stock exchange or market.

 

5.8Notice of Proposed Actions

 

In case the Company shall propose after the Separation Time and prior to the
Expiration Time to effect the liquidation, dissolution or winding up of the
Company or the sale of all or substantially all of the Company’s assets, then,
in each such case, the Company shall give to each holder of a Right, in
accordance with Section 5.9 hereof, a notice of such proposed action, which
shall specify the date on which such Flip-in Event, liquidation, dissolution, or
winding up is to take place, and such notice shall be so given at least 20
Business Days prior to the date of taking of such proposed action by the
Company.

 

39

 

 

5.9Notices

 

(a)          Notices or demands authorized or required by this Agreement to be
given or made by the Rights Agent or by the holder of any Rights to or on the
Company shall be sufficiently given or made if delivered, sent by registered or
certified mail, postage prepaid (until another address is filed in writing with
the Rights Agent), or sent by facsimile or other form of recorded electronic
communication, charges prepaid and confirmed in writing, as follows:

 

Stellar Biotechnologies, Inc.
332 East Scott Street
Port Hueneme, California
93041 U.S.A.

 

Attention:          President and CEO

Facsimile:           (805) 488-2889

 

(b)          Notices or demands authorized or required by this Agreement to be
given or made by the Company or by the holder of any Rights to or on the Rights
Agent shall be sufficiently given or made if delivered, sent by registered or
certified mail, postage prepaid (until another address is filed in writing with
the Company), or sent by facsimile or other form of recorded electronic
communication, charges prepaid and confirmed in writing, as follows:

 

Computershare Investor Services Inc.
3rd Floor
510 Burrard Street
Vancouver, BC V6C 3B9

Attention:          General Manager, Client Services
Facsimile:           (604) 661-9401

 

(c)          Notices or demands authorized or required by this Agreement to be
given or made by the Company or the Rights Agent to or on the holder of any
Rights shall be sufficiently given or made if delivered or sent by first class
mail, postage prepaid, addressed to such holder at the address of such holder as
it appears upon the register of the Rights Agent or, prior to the Separation
Time, on the register of the Company for its Shares. Any notice which is mailed
or sent in the manner herein provided shall be deemed given, whether or not the
holder receives the notice.

 

(d)          Any notice given or made in accordance with this Section 5.9 shall
be deemed to have been given and to have been received on the day of delivery,
if so delivered, on the third Business Day (excluding each day during which
there exists any general interruption of postal service due to strike, lockout
or other cause) following the mailing thereof, if so mailed, and on the day of
telegraphing, telecopying or sending of the same by other means of recorded
electronic communication (provided such sending is during the normal business
hours of the addressee on a Business Day and if not, on the first Business Day
thereafter). Each of the Company and the Rights Agent may from time to time
change its address for notice by notice to the other given in the manner
aforesaid.

 

40

 

 

5.10Costs of Enforcement

 

The Company agrees that if the Company fails to fulfil any of its obligations
pursuant to this Agreement, then the Company will reimburse the holder of any
Rights for the costs and expenses (including legal fees) incurred by such
holder, on a solicitor and his own client basis, to enforce his rights pursuant
to any Rights or this Agreement.

 

5.11Successors

 

All the covenants and provisions of this Agreement by or for the benefit of the
Company or the Rights Agent shall bind and enure to the benefit of their
respective successors and assigns hereunder.

 

5.12Benefits of this Agreement

 

Nothing in this Agreement shall be construed to give to any Person other than
the Company, the Rights Agent and the holders of the Rights any legal or
equitable right, remedy or claim under this Agreement; further, this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent and
the holders of the Rights.

 

5.13Governing Law

 

This Agreement and each Right issued hereunder shall be deemed to be a contract
made under the laws of the Province of British Columbia and for all purposes
shall be governed by and construed in accordance with the laws of such Province
applicable to contracts to be made and performed entirely within such Province.

 

5.14Severability

 

If any term or provision hereof or the application thereof to any circumstance
shall, in any jurisdiction and to any extent, be invalid or unenforceable, such
term or provision shall be ineffective only as to such jurisdiction and to the
extent of such invalidity or unenforceability in such jurisdiction without
invalidating or rendering unenforceable or ineffective the remaining terms and
provisions hereof in such jurisdiction or the application of such term or
provision in any other jurisdiction or to circumstances other than those as to
which it is specifically held invalid or unenforceable.

 

5.15Effective Date

 

(a)          Subject to Section 5.15(b), this Agreement:

 

(i)          shall be effective and in full force and effect in accordance with
its terms from and after the Effective Date, and shall constitute the entire
agreement between the parties pertaining to the subject matter hereof, as of
such time on the Effective Date; and

 

41

 

 

(ii)         shall expire and be of no further force or effect from and after
the earlier of (the “Expiration Time”): (i) the Termination Time, and (ii) the
time at which the annual meeting of shareholders of the Company held in 2017
terminates.

 

(b)          Notwithstanding Section 5.15(a), if this Agreement is not confirmed
by a resolution passed by a majority of the votes cast by Independent
Shareholders who vote in respect of approval of this Agreement and the Rights
Plan at a meeting of shareholders to be held not later than the Meeting Deadline
Date, then this Plan and all outstanding Rights shall terminate and be null and
void and of no further force and effect from and after the Close of Business on
the Meeting Deadline Date.

 

5.16Determinations and Actions by the Board of Directors

 

All actions, calculations and determinations (including all omissions with
respect to the foregoing) which are done or made or approved by the Board of
Directors in connection herewith, in good faith, shall not subject the Board of
Directors or any director of the Company to any liability to the holders of the
Rights.

 

5.17Compliance With Money Laundering Legislation

 

The Rights Agent shall retain the right not to act and shall not be liable for
refusing to act if, due to a lack of information or for any other reason
whatsoever, the Rights Agent reasonably determines that such an act might cause
it to be in non-compliance with any applicable anti-money laundering or
anti-terrorist legislation, regulation or guideline. Further, should the Rights
Agent reasonably determine at any time that its acting under this Agreement has
resulted in it being in non-compliance with any applicable anti-money laundering
or anti-terrorist legislation, regulation or guideline, then it shall have the
right to resign on 10 days’ written notice to the Company, provided: (i) that
the Rights Agent’s written notice shall describe the circumstances of such
non-compliance; and (ii) that if such circumstances are rectified to the Rights
Agent’s satisfaction within such 10-day period, then such resignation shall not
be effective.

 

5.18Privacy Provision

 

The parties acknowledge that federal and/or provincial legislation that
addresses the protection of individual’s personal information (collectively,
“Privacy Laws”) may apply to obligations and activities under this Agreement.
Despite any other provision of this Agreement, neither party will take or direct
any action that would contravene, or cause the other to contravene, applicable
Privacy Laws. The Company will, prior to transferring or causing to be
transferred personal information to the Rights Agent, obtain and retain required
consents of the relevant individuals to the collection, use and disclosure of
their personal information, or will have determined that such consents either
have previously been given upon which the parties can rely or are not required
under applicable Privacy Laws.

 

42

 

 

5.19Declaration as to Non-Canadian Holders

 

If in the opinion of the Board of Directors (who may rely upon the advice of
counsel) any action or event contemplated by this Agreement would require
compliance by the Company with the securities laws or comparable legislation of
a jurisdiction outside Canada or the United States, the Board of Directors
acting in good faith shall take such actions as it may deem appropriate to
ensure such compliance. In no event shall the Company or the Rights Agent be
required to issue or deliver Rights or securities issuable on exercise of Rights
to persons who are citizens, residents or nationals of any jurisdiction other
than Canada or the United States, in which such issue or delivery would be
unlawful without registration of the relevant Persons or securities for such
purposes.

 

5.20Time of the Essence

 

Time shall be of the essence in this Agreement.

 

5.21Force Majeure

 

No party shall be liable to the other, or held in breach of this Agreement, if
prevented, hindered, or delayed in the performance or observance of any
provision contained herein by reason of act of God, riots, terrorism, acts of
war, epidemics, governmental action or judicial order, earthquakes, or any other
similar causes (including, but not limited to, mechanical, electronic or
communication interruptions, disruptions or failures). Performance times under
this Agreement shall be extended for a period of time equivalent to the time
lost because of delay that is excusable under this Section.

 

5.22Execution in Counterparts

 

This Agreement may be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute one and the same instrument.

 

[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

43

 

  

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of January 9, 2014.

 

STELLAR BIOTECHNOLOGIES, INC.

 

Per: /s/ Frank R. Oakes     Frank R. Oakes, President/CEO         Per: /s/ Kathi
Niffenegger     Kathi Niffenegger, Chief Financial Officer         COMPUTERSHARE
INVESTOR SERVICES INC.       Per: [tsig1.jpg]      Authorized Signatory        
Per: [tsig2.jpg]      Authorized Signatory  

 

44

 

  

ATTACHMENT 1

 

STELLAR BIOTECHNOLOGIES, INC.

 

SHAREHOLDER RIGHTS AGREEMENT (as defined below)

 

[Form of Rights Certificate]

 

Certificate No. Rights

 

THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AND
AMENDMENT OR TERMINATION ON THE TERMS SET FORTH IN THE SHAREHOLDER RIGHTS
AGREEMENT (AS DEFINED BELOW). UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN
SUBSECTION 3.1(b) OF THE SHAREHOLDER RIGHTS AGREEMENT (AS DEFINED BELOW)),
RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR CERTAIN RELATED PARTIES, OR
TRANSFEREES OF AN ACQUIRING PERSON OR CERTAIN RELATED PARTIES, MAY BECOME VOID.

 

Rights Certificate

 

This certifies that , or registered assigns, is the registered holder of the
number of Rights set forth above, each of which entitles the registered holder
thereof, subject to the terms, provisions and conditions of the Shareholder
Rights Plan Agreement, dated as of January 9, 2014 as the same may be amended or
supplemented from time to time (the “Shareholder Rights Agreement”), between
Stellar Biotechnologies, Inc., a Company continued under the British Columbia
Business Corporations Act, (the “Company”) and Computershare Investor Services
Inc., a trust company incorporated under the laws of Canada (the “Rights Agent”)
(which term shall include any successor Rights Agent under the Shareholder
Rights Agreement), to purchase from the Company at any time after the Separation
Time (as such term is defined in the Shareholder Rights Agreement) and prior to
the Expiration Time (as such term is defined in the Shareholder Rights
Agreement), one fully paid common share of the Company (a “Share”) at the
Exercise Price referred to below, upon presentation and surrender of this Rights
Certificate with the Form of Election to Exercise (in the form provided
hereinafter) duly executed and submitted to the Rights Agent at its principal
office in any of the cities of Vancouver and Toronto. Until adjustment thereof
in certain events as provided in the Shareholder Rights Agreement, the Exercise
Price shall be:

 

(a)          until the Separation Time, an amount equal to three times the
Market Price (as such term is defined in the Shareholder Rights Agreement), from
time to time, per Share; and

 

(b)          from and after the Separation Time, an amount equal to three times
the Market Price, as at the Separation Time, per Share.

 

In certain circumstances described in the Shareholder Rights Agreement, each
Right evidenced hereby may entitle the registered holder thereof to purchase or
receive assets, debt securities or shares of the Company other than Shares, or
more or less than one Share, all as provided in the Shareholder Rights
Agreement.

 

 

 

 

This Rights Certificate is subject to all of the terms and provisions of the
Shareholder Rights Agreement, which terms and provisions are incorporated herein
by reference and made a part hereof and to which Shareholder Rights Agreement
reference is hereby made for a full description of the rights, limitations of
rights, obligations, duties and immunities thereunder of the Rights Agent, the
Company and the holders of the Rights Certificates. Copies of the Shareholder
Rights Agreement are on file at the registered office of the Company and are
available upon request.

 

This Rights Certificate, with or without other Rights Certificates, upon
surrender at any of the offices of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing an aggregate number of Rights equal to the aggregate
number of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered. If this Rights Certificate shall be exercised in part, the
registered holder shall be entitled to receive, upon surrender hereof, another
Rights Certificate or Rights Certificates for the number of whole Rights not
exercised.

 

Subject to the provisions of the Shareholder Rights Agreement, the Rights
evidenced by this Rights Certificate may be, and under certain circumstances are
required to be, redeemed by the Company at a redemption price of $0.00001 per
Right.

 

No fractional Shares will be issued upon the exercise of any Right or Rights
evidenced hereby, but in lieu thereof a cash payment will be made, as provided
in the Shareholder Rights Agreement.

 

No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Shares or of any
other securities which may at any time be issuable upon the exercise hereof, nor
shall anything contained in the Shareholder Rights Agreement or herein be
construed to confer upon the holder hereof, as such, any of the Rights of a
shareholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting shareholders (except as provided in the Shareholder
Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Rights evidenced by this Rights Certificate shall have been exercised
as provided in the Shareholder Rights Agreement.

 

2

 

 

This Rights Certificate shall not be valid or obligatory for any purpose until
it shall have been countersigned by the Rights Agent.

 

WITNESS the facsimile signature of the proper officer of the Company and its
corporate seal.

 

Date:           STELLAR BIOTECHNOLOGIES, INC.       Per:       Authorized
Signatory         Per:       Authorized Signatory         Countersigned:      
COMPUTERSHARE INVESTOR SERVICES INC.       Per:       Authorized Signatory  

 

3

 

  

FORM OF ASSIGNMENT

 

(To be executed by the registered holder if such holder desires to transfer the
Rights Certificate.)

 

FOR VALUE RECEIVED _____________________________________________ hereby sells,
assigns and transfers unto
____________________________________________________________________________________________________

 

 

(Please print name and address of transferee.)

 

the Rights represented by this Rights Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
__________________________________________________________________________________,
as attorney, to transfer the within Rights on the books of the Company, with
full power of substitution.

 

Dated:             Signature                       (Please print name of
Signatory)

 

Signature Guaranteed: (Signature must correspond to name as written upon the
face of this Rights Certificate in every particular, without alteration or
enlargement or any change whatsoever.)

 

Signature must be guaranteed by a Canadian chartered bank or trust company, a
member firm of a recognized stock exchange in Canada, a registered national
securities exchange in the United States, a member of the Investment Dealers
Association of Canada or National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in Canada or
the United States or a member of the Securities Transfer Association Medallion
(Stamp) Program. 

 

 

 

CERTIFICATE

(To be completed if true.)

 

The undersigned party transferring Rights hereunder, hereby represents, for the
benefit of all holders of Rights and Shares, that the Rights evidenced by this
Rights Certificate are not, and, to the knowledge of the undersigned, have never
been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate
thereof or a Person acting jointly or in concert with any of the foregoing.
Capitalized terms shall have the meaning ascribed thereto in the Shareholder
Rights Agreement.

 

      Signature           (Please print name of Signatory)

 

 

(To be attached to each Rights Certificate.)

 

4

 

 

FORM OF ELECTION TO EXERCISE

 

(To be executed by the registered holder if such holder desires to exercise the
Rights Certificate.)

 

TO:    

 

The undersigned hereby irrevocably elects to exercise _____________________
whole Rights represented by the attached Rights Certificate to purchase the
Shares or other securities, if applicable, issuable upon the exercise of such
Rights and requests that certificates for such securities be issued in the name
of:

 

  (Name)   (Address)   (City and Province)   Social Insurance Number or other
taxpayer identification number.

 

Dated:             Signature                       (Please print name of
Signatory)

 

If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:

 

  (Name)   (Address)   (City and Province)   Social Insurance Number or other
taxpayer identification number.

 

Dated:             Signature                       (Please print name of
Signatory)

 

Signature Guaranteed: (Signature must correspond to name as written upon the
face of this Rights Certificate in every particular, without alteration or
enlargement or any change whatsoever.)

 

Signature must be guaranteed by a Canadian chartered bank or trust company, a
member firm of a recognized stock exchange in Canada a registered national
securities exchange in the United States, a member of the Investment Dealers
Association of Canada or National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in Canada or
the United States or a member of the Securities Transfer Association Medallion
(Stamp) Program.

 

5

 

 

CERTIFICATE

(To be completed if true.)

 

The undersigned party exercising Rights hereunder, hereby represents, for the
benefit of all holders of Rights and Shares, that the Rights evidenced by this
Rights Certificate are not, and, to the knowledge of the undersigned, have never
been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate
thereof or a Person acting jointly or in concert with any of the foregoing.
Capitalized terms shall have the meaning ascribed thereto in the Shareholder
Rights Agreement.

 

      Signature           (Please print name of Signatory)

 

 

(To be attached to each Rights Certificate.)

 

6

 

 

NOTICE

 

In the event the certification set forth above in the Forms of Assignment and
Election to Exercise is not completed, the Company will deem the Beneficial
Owner of the Rights evidenced by this Rights Certificate to be an Acquiring
Person or an Affiliate or Associate thereof (as defined in the Shareholder
Rights Agreement). No Rights Certificates shall be issued in exchange for a
Rights Certificate owned or deemed to have been owned by an Acquiring Person or
an Affiliate or Associate thereof, or by a Person acting jointly or in concert
with an Acquiring Person or an Affiliate or Associate thereof.

 

7