Document:

exv10w2

Exhibit 10.2

Execution Version

COMMON UNIT

REGISTRATION RIGHTS AGREEMENT

BY AND AMONG

PAA NATURAL GAS STORAGE, L.P.

AND.

THE PURCHASERS PARTY HERETO

DATED AS OF [•], 2011

 

 

REGISTRATION RIGHTS AGREEMENT

     THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into as of
[•], 2011, by and among PAA NATURAL GAS STORAGE, L.P., a Delaware limited partnership
(“PNG”) and the purchasers listed on Schedule 1 hereto (each a “Purchaser” and
collectively, the “Purchasers”).

     This Agreement is made in connection with the Closing of the issuance and sale of common units
(“Purchased Units”) representing limited partnership interests in PNG (“Common
Units”) pursuant to that certain Common Unit Purchase Agreement, dated as of December 23, 2010,
by and among PNG and the Purchasers (the “Purchase Agreement”). PNG has agreed to provide
the registration and other rights set forth in this Agreement for the benefit of the Purchasers of
the Purchased Units pursuant to the Purchase Agreement. In consideration of the mutual covenants
and agreements set forth herein and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by each party hereto, the parties hereby agree as
follows:

ARTICLE I.

DEFINITIONS

     Definitions. Capitalized terms used herein without definition shall have the meanings
given to them in the Purchase Agreement. The terms set forth below are used herein as so defined:

     “Effectiveness Period” has the meaning specified therefore in Section 2.01(a) of this
Agreement.

     “Holder” means the record holder of any Registrable Securities.

     “Losses” has the meaning specified therefor in Section 2.08(a) of this Agreement.

     “Managing Underwriter” means, with respect to any Underwritten Offering, the book
running lead manager of such Underwritten Offering.

     “Purchase Agreement” has the meaning specified therefor in the Recital of this
Agreement.

     “Purchasers” has the meaning specified therefor in the introductory paragraph of this
Agreement.

     “Registrable Securities” means the Purchased Units until such time as such securities
cease to be Registrable Securities pursuant to Section 1.01 hereof.

     “Registration Expenses” has the meaning specified therefor in Section 2.07(a) of this
Agreement.

     “Selling Expenses” has the meaning specified therefor in Section 2.07(a) of this
Agreement.

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     “Selling Holder” means a Holder who is selling Registrable Securities pursuant to a
registration statement.

     “Shelf Registration” has the meaning specified therefor in Section 2.01(a) of this
Agreement.

     “Shelf Registration Statement” has the meaning specified therefor in Section 2.01(a)
of this Agreement.

     “Underwritten Offering” means an offering (including an offering pursuant to a Shelf
Registration Statement) in which Common Units are sold to an underwriter on a firm commitment basis
for reoffering to the public or an offering that is a “bought deal” with one or more investment
banks.

     Section 1.01 Registrable Securities. Any Registrable Security will cease to be a
Registrable Security at the earliest of the following: when (a) a registration statement covering
such Registrable Security becomes or has been declared effective by the Commission and such
Registrable Security has been sold or disposed of pursuant to such effective registration
statement; (b) such Registrable Security has been disposed of pursuant to any section of Rule 144
under the Securities Act (or any similar provision then in force under the Securities Act); (c)
such Registrable Security is held by PNG or one of its subsidiaries; (d) when such Registrable
Security has been sold in a private transaction in which the transferor’s rights under this
Agreement are not assigned to the transferee of such securities pursuant to the terms of this
Agreement; or (e) the Effectiveness Period expires.

     Section 1.02 Aggregation of Stock. All securities held or acquired by Affiliated
Persons (including Affiliated funds) shall be aggregated together for purposes of determining the
availability of any rights under this Agreement.

ARTICLE II.

REGISTRATION RIGHTS

     Section 2.01 Shelf Registration.

          (a) Shelf Registration. Within 60 (sixty) days of becoming eligible to file a
registration statement on Form S-3, PNG shall prepare and file a registration statement under the
Securities Act to permit the public resale of Registrable Securities then outstanding from time to
time as permitted by Rule 415 of the Securities Act (the “Shelf Registration Statement”).
PNG shall use its commercially reasonable efforts to cause the Shelf Registration Statement to
become effective no later than 120 (one-hundred twenty) days after the date of filing (the
“Shelf Registration”). The Shelf Registration Statement filed pursuant to this Section
2.01(a) shall be on such appropriate registration form of the Commission as shall be selected by
PNG; provided, however, that if a prospectus supplement will be used in connection with the
marketing of an Underwritten Offering from the Shelf Registration Statement and the Managing
Underwriter at any time shall notify PNG in writing that, in the sole judgment of such Managing
Underwriter, inclusion of detailed information to be used in such prospectus supplement is of
material importance to the success of the Underwritten Offering of such Registrable Securities, PNG
shall use its commercially reasonable efforts to include such information in the prospectus. PNG
will

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use its commercially reasonable efforts to cause the Shelf Registration Statement filed
pursuant to this Section 2.01(a) to be continuously effective under the Securities Act until the
earliest date on which any of the following occurs: (a) all Registrable Securities covered by the
Shelf Registration Statement have been sold by the Purchasers and distributed in the manner set
forth and as contemplated in the Shelf Registration Statement or (b) the later of (i) two (2) years
from the Closing Date or (ii) the date on which the Purchasers can sell the Registrable Securities
pursuant to any section of Rule 144 under the Securities Act (or any similar provision then in
force under the Securities Act) without affiliate-related restriction (the “Effectiveness
Period”). The Shelf Registration Statement when it becomes or is declared effective (including
the documents incorporated therein by reference) will comply as to form in all material respects
with all applicable requirements of the Securities Act and the Exchange Act and will not contain an
untrue statement of a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading (and, in the case of any prospectus
contained in such Shelf Registration Statement, in the light of the circumstances under which such
statement were made).

          (b) Delay Rights. Notwithstanding anything to the contrary contained herein, PNG may,
upon written notice to any Selling Holder whose Registrable Securities are included in the Shelf
Registration Statement, suspend such Selling Holder’s use of any prospectus which is a part of such
Shelf Registration Statement (in which event the Selling Holder shall discontinue sales of the
Registrable Securities pursuant to the Shelf Registration Statement) if (i) PNG is pursuing an
acquisition, merger, reorganization, disposition or other similar transaction and PNG determines in
good faith that PNG’s ability to pursue or consummate such a transaction would be materially
adversely affected by any required disclosure of such transaction in the Shelf Registration
Statement or (ii) PNG has experienced some other material non-public event the disclosure of which
at such time, in the good faith judgment of PNG, would materially adversely affect PNG. Upon the
public disclosure of such information or the termination of the conditions described above, PNG
shall provide prompt notice to the Selling Holders whose Registrable Securities are included in the
Shelf Registration Statement, and shall promptly terminate any suspension of sales it has put into
effect and shall take such other actions to permit registered sales of Registrable Securities as
contemplated in this Agreement.

     Section 2.02 Piggyback Rights.

          (a) Underwritten Offering Piggyback Rights. If at any time during the Effectiveness
Period PNG proposes to file (i) a prospectus supplement to an effective shelf registration
statement, other than a Shelf Registration Statement contemplated by Section 2.01, or (ii) a
registration statement, other than a Shelf Registration Statement, in either case, for the sale of
Common Units in an Underwritten Offering for its own account, then, as soon as practicable but not
less than three (3) Business Days prior to the filing of (A) any preliminary prospectus supplement
relating to such Underwritten Offering pursuant to Rule 424(b) of the Securities Act or (B) the
prospectus supplement relating to such Underwritten Offering pursuant to Rule 424(b) of the
Securities Act (if no preliminary prospectus supplement is used), PNG shall give notice of such
proposed Underwritten Offering to each Holder that then owns more than $25 million in aggregate
principal amount of Purchased Units based on the Purchase Price and such notice shall offer the
Holders the opportunity to include in such Underwritten Offering such number of Registrable
Securities (the “Included Registrable Securities”) as each such Holder

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may request in writing (a “Piggyback Offering”); provided, however, that PNG shall not
be required to offer such opportunity to Holders if (aa) the Holders do not offer a minimum of
$25 million of Registrable Securities, in the aggregate (determined by multiplying the number of
Registrable Securities held by the participating Holders by the average of the closing price on the
NYSE for Common Units for the ten (10) trading days preceding the date of such notice) or (bb) PNG
has been advised by the Managing Underwriter that the inclusion of Registrable Securities for sale
for the benefit of the Holders will have an adverse effect on the price, timing or distribution of
the Common Units, in which case the amount of Registrable Securities to be offered for the accounts
of participating Holders shall be determined based on the provisions of Section 2.02(b) of this
Agreement. Each Holder shall keep any information relating to any such Underwritten Offering
confidential and shall not disseminate or in any way disclose such information. Each Holder shall
then have twelve (12) hours from the date of such notice to request inclusion of its Registrable
Securities in the Piggyback Offering. If no request for inclusion from a Holder is received within
the specified time, such Holder shall have no further right to participate in such Piggyback
Offering. If, at any time after giving written notice of its intention to undertake an
Underwritten Offering and prior to the closing of such Underwritten Offering, PNG shall determine
for any reason not to undertake or to delay such Underwritten Offering, PNG shall give written
notice of such determination to the Selling Holders and, (x) in the case of a determination not to
undertake such Underwritten Offering, shall be relieved of its obligation to sell any Included
Registrable Securities in connection with such terminated Underwritten Offering, and (y) in the
case of a determination to delay such Underwritten Offering, shall be permitted to delay offering
any Included Registrable Securities for the same period as the delay of the Underwritten Offering.
Any Selling Holder shall have the right to withdraw such Selling Holder’s request for inclusion of
such Selling Holder’s Registrable Securities in such Underwritten Offering by giving written notice
to PNG of such withdrawal at least one (1) Business Day prior to the time of pricing of such
Underwritten Offering. Each Holder’s rights under this Section 2.02(a) shall terminate when such
Holder holds less than $25 million of Registrable Securities. Notwithstanding the foregoing, any
Holder may deliver written notice (an “Opt-Out Notice”) to PNG requesting that such Holder
not receive notice from PNG of any proposed Underwritten Offering; provided, however, that such
Holder may later revoke any such Opt-Out Notice in writing. The Holders listed on Schedule 2.02(a)
shall be deemed to have delivered an Opt-Out Notice as of the date hereof.

          (b) Priority of Piggyback Rights. In connection with an Underwritten Offering
contemplated by Section 2.02(a), if the Managing Underwriter or Underwriters of such Underwritten
Offering advises PNG that the total amount of Common Units that the Selling Holders and any other
Persons intend to include in such Underwritten Offering exceeds the number that can be sold in such
Underwritten Offering without being likely to have an adverse effect on the price, timing or
distribution of the Common Units offered or the market for the Common Units, then the Common Units
to be included in such Underwritten Offering shall include the number of Common Units that such
Managing Underwriter or Underwriters advises PNG can be sold without having such adverse effect,
with such number to be allocated (i) first to PNG, (ii) second pro rata among the Selling Holders
and any other Persons who have been or are granted registration rights on or after the date of this
Agreement who have requested participation in the Underwritten Offering (the “Other
Holders”) based, for each such Selling Holder or Other Holder, on the percentage derived by
dividing (A) the number of Common Units proposed to be sold by such Selling Holder(s) and such
Other Holders in such Underwritten

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Offering; by (B) the aggregate number of Common Units proposed to be sold by all Selling
Holders and all Other Holders in the Underwritten Offering.

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     Section 2.03 Underwritten Offering.

          (a) Shelf Registration. In the event that a Selling Holder elects to dispose of
Registrable Securities under the Shelf Registration Statement pursuant to an Underwritten Offering,
PNG shall enter into an underwriting agreement in customary form with the Managing Underwriter or
Underwriters, which shall include, among other provisions, indemnities to the effect and to the
extent provided in Section 2.08, and shall take all such other reasonable actions as are requested
by the Managing Underwriter in order to expedite or facilitate the registration and disposition of
the Registrable Securities; provided, however, the participation of PNG management in connection
with an Underwritten Offering for the benefit of Selling Holders shall consist of not more than
sixteen hours of teleconferences for the benefit of each Purchaser annually; and provided further,
that these marketing obligations are not transferable to any other Holders other than Affiliates of
the Purchasers, notwithstanding the provisions of Section 2.10 hereof.

          (b) General Procedures. In connection with any Underwritten Offering under this
Agreement, PNG shall be entitled to select the Managing Underwriter or Underwriters. In connection
with an Underwritten Offering contemplated by this Agreement in which a Selling Holder
participates, each Selling Holder and PNG shall be obligated to enter into an underwriting
agreement with the Managing Underwriter or Underwriters which contains such representations,
covenants, indemnities and other rights and obligations as are customary in underwriting agreements
for firm commitment offerings of equity securities. No Selling Holder may participate in an
Underwritten Offering unless such Selling Holder agrees to sell its Registrable Securities on the
basis provided in such underwriting agreement and completes and executes all questionnaires, powers
of attorney, indemnities and other documents reasonably required under the terms of such
underwriting agreement. Each Selling Holder may, at its option, require that any or all of the
representations and warranties by, and the other agreements on the part of, PNG to and for the
benefit of such underwriters also be made to and for such Selling Holder’s benefit and that any or
all of the conditions precedent to the obligations of such underwriters under such underwriting
agreement also be conditions precedent to its obligations. No Selling Holder shall be required to
make any representations or warranties to or agreements with PNG or the underwriters other than
representations, warranties or agreements regarding such Selling Holder and its ownership of the
securities being registered on its behalf and its intended method of distribution and any other
representation required by law. If any Selling Holder disapproves of the terms of an Underwritten
Offering, such Selling Holder may elect to withdraw therefrom by notice to PNG and the Managing
Underwriter; provided, however, that such withdrawal must be made at least one (1) Business Day
prior to the time of pricing of such Underwritten Offering to be effective. No such withdrawal or
abandonment shall affect PNG’s obligation to pay Registration Expenses.

     Section 2.04 Registration Procedures. In connection with its obligations under this
Article II, PNG will, as expeditiously as possible:

          (a) prepare and file with the Commission such amendments and supplements to the Shelf
Registration Statement and the prospectus used in connection therewith as may be necessary to keep
the Shelf Registration Statement effective for the Effectiveness Period and as

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may be necessary to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by the Shelf Registration Statement;

          (b) furnish to each Selling Holder (i) as far in advance as reasonably practicable before
filing the Shelf Registration Statement or any supplement or amendment thereto, upon request,
copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits
and each document incorporated by reference therein to the extent then required by the rules and
regulations of the Commission), and provide each such Selling Holder the opportunity to object to
any information pertaining to such Selling Holder and its plan of distribution that is contained
therein and make the corrections reasonably requested by such Selling Holder with respect to such
information prior to filing the Shelf Registration Statement or supplement or amendment thereto,
and (ii) an electronic copy of the Shelf Registration Statement and the prospectus included therein
and any supplements and amendments thereto as such Selling Holder may reasonably request in order
to facilitate the public sale or other disposition of the Registrable Securities covered by such
Shelf Registration Statement or other registration statement;

          (c) if applicable, use its commercially reasonable efforts to register or qualify the
Registrable Securities covered by the Shelf Registration Statement under the securities or “blue
sky” laws of such jurisdictions as the Selling Holders or, in the case of an Underwritten Offering,
the Managing Underwriter, shall reasonably request; provided, however, that PNG will not be
required to qualify generally to transact business in any jurisdiction where it is not then
required to so qualify or to take any action which would subject it to general service of process
in any such jurisdiction where it is not then so subject;

          (d) promptly notify each Selling Holder and each underwriter, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of (i) the filing of the
Shelf Registration Statement or any prospectus or prospectus supplement to be used in connection
therewith, or any amendment or supplement thereto, and, with respect to such Shelf Registration
Statement, when the same has become effective; and (ii) the receipt of any written comments from
the Commission with respect to any filing referred to in clause (i) and any written request by the
Commission for amendments or supplements to the Shelf Registration Statement or any prospectus or
prospectus supplement thereto;

          (e) immediately notify each Selling Holder and each underwriter, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of (i) the happening of any
event as a result of which the prospectus or prospectus supplement contained in the Shelf
Registration Statement, as then in effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing; (ii) the issuance or threat
of issuance by the Commission of any stop order suspending the effectiveness of the Shelf
Registration Statement, or the initiation of any proceedings for that purpose; or (iii) the receipt
by PNG of any notification with respect to the suspension of the qualification of any Registrable
Securities for sale under the applicable securities or blue sky laws of any jurisdiction.
Following the provision of such notice, PNG agrees to as promptly as practicable amend or
supplement the prospectus or prospectus supplement or take other appropriate action so that the
prospectus or prospectus supplement does not include an untrue statement of a material fact or

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omit to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then existing and to take such
other action as is necessary to remove a stop order, suspension, threat thereof or proceedings
related thereto;

          (f) upon request and subject to appropriate confidentiality obligations, furnish to each
Selling Holder copies of any and all transmittal letters or other correspondence with the
Commission or any other governmental agency or self-regulatory body or other body having
jurisdiction (including any domestic or foreign securities exchange) relating to such offering of
Registrable Securities;

          (g) in the case of an Underwritten Offering, furnish upon request, (i) an opinion of counsel
for PNG dated the date of the closing under the underwriting agreement, and (ii) a “cold comfort”
letter, dated the pricing date of such Underwritten Offering and a letter of like kind dated the
date of the closing under the underwriting agreement, in each case, signed by the independent
public accountants who have certified PNG’s financial statements included or incorporated by
reference into the applicable registration statement, and each of the opinion and the “cold
comfort” letter shall be in customary form and covering substantially the same matters with respect
to such registration statement (and the prospectus included therein and any prospectus supplement
thereto) and as are customarily covered in opinions of issuer’s counsel and in accountants’ letters
delivered to the underwriters in Underwritten Offerings of securities;

          (h) otherwise use its commercially reasonable efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;

          (i) make available to the appropriate representatives of the Managing Underwriter and Selling
Holders access to such information and PNG personnel as is reasonable and customary to enable such
parties to establish a due diligence defense under the Securities Act; provided, however, that PNG
need not disclose any information to any such representative unless and until such representative
has entered into a confidentiality agreement with PNG reasonably satisfactory to PNG;

          (j) cause all such Registrable Securities registered pursuant to this Agreement to be listed
on each securities exchange or nationally recognized quotation system, if any, on which similar
securities issued by PNG are then listed;

          (k) use its commercially reasonable efforts to cause the Registrable Securities to be
registered with or approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of PNG to enable the Selling Holders to consummate the
disposition of such Registrable Securities;

          (l) provide a transfer agent and registrar for all Registrable Securities covered by such
registration statement not later than the effective date of such registration statement; and

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          (m) enter into customary agreements and take such other actions as are reasonably requested by
the Selling Holders or the underwriters, if any, in order to expedite or facilitate the disposition
of such Registrable Securities.

     Each Selling Holder, upon receipt of notice from PNG of the happening of any event of the kind
described in Section 2.04(e), shall forthwith discontinue disposition of the Registrable Securities
pursuant to the Shelf Registration Statement until such Selling Holder’s receipt of the copies of
the supplemented or amended prospectus contemplated by Section 2.04(e) or until it is advised in
writing by PNG that the use of the prospectus may be resumed, and has received copies of any
additional or supplemental filings incorporated by reference in the prospectus, and, if so directed
by PNG, such Selling Holder will deliver, or will request the Managing Underwriter or underwriters,
if any, to deliver to PNG all copies in their possession or control, other than permanent file
copies then in such Selling Holder’s possession, of the prospectus and any prospectus supplement
covering such Registrable Securities current at the time of receipt of such notice.

     Section 2.05 Cooperation by Holders. PNG shall have no obligation to include in the
Shelf Registration Statement or in an Underwritten Offering under Article II of this Agreement,
Registrable Securities of a Holder who has failed to timely furnish such information which, in the
opinion of counsel to PNG, is reasonably required in order for the Shelf Registration Statement or
any prospectus or prospectus supplement thereto, as applicable, to comply with the Securities Act.

     Section 2.06 Restrictions on Public Sale by Holders of Registrable Securities. Each
Holder of Registrable Securities who is included in the Shelf Registration Statement agrees not to
effect any public sale or distribution of the Registrable Securities during the sixty (60) calendar
day period beginning on the date that a prospectus supplement or other prospectus (including any
free writing prospectus) is filed with the Commission with respect to the pricing of an
Underwritten Offering, provided, however, that the duration of the foregoing restrictions shall be
no longer than the duration of the shortest restriction generally imposed by the underwriters on
the officers or directors or any other unitholder of PNG on whom a restriction is imposed in
connection with such Underwritten Offering, provided, further, that the foregoing restrictions
shall not apply to any Holder that does not then own more than $25 million in aggregate principal
amount of Purchased Units based on the Purchase Price or any Holder that has delivered and not
revoked an Opt-Out Notice.

     Section 2.07 Expenses.

          (a) Certain Definitions. “Registration Expenses” means all expenses incident
to PNG’s performance under or compliance with this Agreement to effect the registration of
Registrable Securities in a Shelf Registration, an Underwritten Offering or a Piggy Back Offering,
and the disposition of such securities, including, without limitation, all customary registration,
filing, securities exchange listing and NYSE fees, all customary registration, filing,
qualification and other fees and expenses of complying with securities or “blue sky” laws, fees of
the Financial Industry Regulatory Authority, Inc., transfer taxes and fees of transfer agents and
registrars, all word processing, duplicating and printing expenses, the fees and disbursements of
counsel to PNG and independent public accountants for PNG, including the expenses of any

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special audits or “cold comfort” letters required by or incident to such performance and
compliance. Except as otherwise provided in Section 2.08 hereof, PNG shall not be responsible for
legal fees incurred by Holders in connection with the exercise of such Holders’ rights hereunder.
In addition, PNG shall not be responsible for any “Selling Expenses,” which means all
underwriting fees, discounts and selling commissions (and similar fees or arrangements associated
with) and transfer taxes allocable to the sale of the Registrable Securities.

          (b) Expenses. PNG will pay all reasonable Registration Expenses in connection with
the Shelf Registration Statement filed pursuant to Section 2.01(a) of this Agreement or any
Underwritten Offering or Piggyback Offering, whether or not the Shelf Registration Statement
becomes effective or any sale is made pursuant to the Shelf Registration Statement. Each Selling
Holder shall pay all Selling Expenses in connection with any sale of its Registrable Securities
hereunder.

     Section 2.08 Indemnification.

          (a) By PNG. In the event of a registration of any Registrable Securities under the
Securities Act pursuant to this Agreement, PNG will indemnify and hold harmless each Selling Holder
thereunder, its directors and officers, and each underwriter, pursuant to the applicable
underwriting agreement with such underwriter, of Registrable Securities thereunder and each Person,
if any, who controls such Selling Holder or underwriter within the meaning of the Securities Act
and the Exchange Act, against any losses, claims, damages, expenses or liabilities (including
reasonable attorneys’ fees and expenses) (collectively, “Losses”), joint or several, to
which such Selling Holder or underwriter or controlling Person may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact (in the case of any prospectus, in the
light of the circumstances under which such statement was made) contained in the Shelf Registration
Statement, any prospectus contained therein, or any free writing prospectus related thereto, or any
amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in light of the circumstances under which they were made) not
misleading, and will reimburse each such Selling Holder, its directors and officers, each such
underwriter and each such controlling Person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such Loss or actions or proceedings;
provided, however, that PNG will not be liable in any such case if and to the extent that any such
Loss arises out of or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by such Selling Holder, such
underwriter or such controlling Person in writing specifically for use in the Shelf Registration
Statement, any prospectus contained therein, or any free writing prospectus related thereto, or any
amendment or supplement thereof. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Selling Holder or any such director, officer or
controlling Person, and shall survive the transfer of such securities by such Selling Holder.

          (b) By Each Selling Holder. Each Selling Holder agrees severally and not jointly to
indemnify and hold harmless PNG, its directors and officers, and each Person, if any,

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who controls PNG within the meaning of the Securities Act or of the Exchange Act to the same
extent as the foregoing indemnity from PNG to the Selling Holders, but only with respect to
information regarding such Selling Holder furnished in writing by or on behalf of such Selling
Holder expressly for inclusion in the Shelf Registration Statement, any prospectus contained
therein, or any free writing prospectus related thereto, or any amendment or supplement thereof
relating to the Registrable Securities; provided, however, that the liability of each Selling
Holder shall not be greater in amount than the dollar amount of the proceeds (net of any Selling
Expenses) received by such Selling Holder from the sale of the Registrable Securities giving rise
to such indemnification.

          (c) Notice. Promptly after receipt by an indemnified party hereunder of notice of the
commencement of any action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the indemnifying party in writing thereof,
but the omission so to notify the indemnifying party shall not relieve the indemnifying party from
any liability which it may have to any indemnified party other than under this Section 2.08. In
any action brought against any indemnified party, it shall notify the indemnifying party of the
commencement thereof. The indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 2.08 for any legal expenses
subsequently incurred by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected; provided, however, that,
(i) if the indemnifying party has failed to assume the defense and employ counsel or (ii) if the
defendants in any such action include both the indemnified party and the indemnifying party and
counsel to the indemnified party shall have concluded that there may be reasonable defenses
available to the indemnified party that are different from or additional to those available to the
indemnifying party, or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, then the indemnified party shall have the
right to select a separate counsel and to assume such legal defense and otherwise to participate in
the defense of such action, with the reasonable expenses and fees of such separate counsel and
other reasonable expenses related to such participation to be reimbursed by the indemnifying party
as incurred. Notwithstanding any other provision of this Agreement, no indemnified party shall
settle any action brought against it with respect to which it is entitled to indemnification
hereunder without the consent of the indemnifying party, unless the settlement thereof imposes no
liability or obligation on, and includes a complete and unconditional release from all liability
of, the indemnifying party.

          (d) Contribution. If the indemnification provided for in this Section 2.08 is held by
a court or government agency of competent jurisdiction to be unavailable to PNG or any Selling
Holder or is insufficient to hold them harmless in respect of any Losses, then each such
indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such Losses as between PNG on the one hand
and such Selling Holder on the other, in such proportion as is appropriate to reflect the relative
fault of PNG on the one hand and of such Selling Holder on the other in connection with the
statements or omissions which resulted in such Losses, as well as any other relevant equitable
considerations; provided, however, that in no event shall such Selling Holder be

12

 

required to contribute an aggregate amount in excess of the dollar amount of proceeds (net of
Selling Expenses) received by such Selling Holder from the sale of Registrable Securities giving
rise to such indemnification. The relative fault of PNG on the one hand and each Selling Holder on
the other shall be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state a material fact
has been made by, or relates to, information supplied by such party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent such statement or
omission. The parties hereto agree that it would not be just and equitable if contributions
pursuant to this paragraph were to be determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred to in the first
sentence of this paragraph. The amount paid by an indemnified party as a result of the Losses
referred to in the first sentence of this paragraph shall be deemed to include any legal and other
expenses reasonably incurred by such indemnified party in connection with investigating or
defending any Loss which is the subject of this paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who is not guilty of such fraudulent misrepresentation.

          (e) Other Indemnification. The provisions of this Section 2.08 shall be in addition
to any other rights to indemnification or contribution which an indemnified party may have pursuant
to law, equity, contract or otherwise.

     Section 2.09 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the Registrable
Securities to the public without registration, PNG agrees to use its commercially reasonable
efforts to:

          (a) Make and keep public information regarding PNG available, as those terms are understood
and defined in Rule 144 of the Securities Act, at all times from and after the date hereof;

          (b) File with the Commission in a timely manner all reports and other documents required of
PNG under the Securities Act and the Exchange Act at all times from and after the date hereof; and

          (c) So long as a Holder owns any Registrable Securities, furnish, unless otherwise available
at no charge by access electronically to the Commission’s EDGAR filing system, to such Holder
forthwith upon request a copy of the most recent annual or quarterly report of PNG, and such other
reports and documents so filed with the Commission as such Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing such Holder to sell any such
securities without registration.

     Section 2.10 Transfer or Assignment of Registration Rights. The rights to cause PNG
to register Registrable Securities granted to the Purchasers by PNG under this Article II may be
transferred or assigned by the Purchasers to one or more transferee(s) or assignee(s) of such
Registrable Securities, provided that (a) unless such transferee or assignee is an Affiliate of the
transferring Purchaser, each such transferee or assignee holds Registrable Securities representing
at least 1,000,000 of the Purchased Units sold pursuant to the terms of the Purchase Agreement,

13

 

(b) PNG is given written notice prior to any said transfer or assignment, stating the name and
address of each such transferee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and (c) each such transferee shall agree in
writing to be subject to all of the terms and conditions of this Agreement and to assume
responsibility for its portion of the obligations of the Purchasers under this Agreement.

ARTICLE III.

MISCELLANEOUS

     Section 3.01 Communications. All notices and other communications provided for or
permitted hereunder shall be made in writing by facsimile, courier service or personal delivery:

          (a) if to the Purchasers, at the most current addresses given by the Purchasers to PNG in
accordance with the provisions of this Section 3.01, which addresses initially are, with respect to
the Purchasers, the addresses set forth in the Purchase Agreement,

          (b) if to a transferee of the Purchaser, to such Holder at the address provided pursuant to
Section 2.10 above, and

          (c) if to PNG, at 333 Clay Street, Suite 1500, Houston, Texas, 77002, notice of which is given
in accordance with the provisions of this Section 3.01.

     All such notices and communications shall be deemed to have been received at the time
delivered by hand, if personally delivered; when receipt acknowledged, if sent via facsimile or
sent via Internet electronic mail; and when actually received, if sent by any other means.

     Section 3.02 Successor and Assigns. This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of each of the parties, including subsequent Holders of
Registrable Securities to the extent permitted herein.

     Section 3.03 Assignment of Rights. All or any portion of the rights and obligations
of the Purchasers under this Agreement may be transferred or assigned by the Purchasers in
accordance with Section 2.10 hereof.

     Section 3.04 Recapitalization, Exchanges, etc. Affecting the Common Units. The
provisions of this Agreement shall apply to the full extent set forth herein with respect to any
and all units of PNG or any successor or assign of PNG (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for or in substitution of, the
Registrable Securities, and shall be appropriately adjusted for combinations, splits,
recapitalizations and the like occurring after the date of this Agreement.

     Section 3.05 Specific Performance. Damages in the event of breach of this Agreement
by a party hereto may be difficult, if not impossible, to ascertain, and it is therefore agreed
that each such Person, in addition to and without limiting any other remedy or right it may have,
will have the right to an injunction or other equitable relief in any court of competent
jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions
hereof, and each of the parties hereto hereby waives any and all defenses it may have on the ground
of lack of jurisdiction or competence of the court to grant such an injunction or other equitable
relief. The

14

 

existence of this right will not preclude any such Person from pursuing any other rights and
remedies at law or in equity which such Person may have.

     Section 3.06 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Agreement.

     Section 3.07 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

     Section 3.08 Governing Law, Submission to Jurisdiction. This Agreement, and all
claims or causes of action (whether in contract or tort) that may be based upon, arise out of or
relate to this Agreement or the negotiation, execution or performance of this Agreement (including
any claim or cause of action based upon, arising out of or related to any representation or
warranty made in or in connection with this Agreement), will be construed in accordance with and
governed by the Laws of the State of Delaware without regard to principles of conflicts of laws.
Any action against any party relating to the foregoing shall be brought in any federal or state
court of competent jurisdiction located within the State of Delaware, and the parties hereto hereby
irrevocably submit to the non-exclusive jurisdiction of any federal or state court located within
the State of Delaware over any such action. The parties hereby irrevocably waive, to the fullest
extent permitted by applicable Law, any objection which they may now or hereafter have to the
laying of venue of any such dispute brought in such court or any defense of inconvenient forum for
the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such
dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner
provided by Law.

     Section 3.09 Waiver of Jury Trial. THE PARTIES TO THIS AGREEMENT EACH HEREBY WAIVE,
AND AGREE TO CAUSE THEIR AFFILIATES TO WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR
(ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN
RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE PARTIES TO
THIS AGREEMENT EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

     Section 3.010 Severability of Provisions. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without invalidating the remaining provisions

15

 

hereof or affecting or impairing the validity or enforceability of such provision in any other
jurisdiction.

     Section 3.11 Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein with respect to the rights granted by PNG set forth herein. This
Agreement supersedes all prior agreements and understandings between the parties with respect to
such subject matter.

     Section 3.12 Amendment. This Agreement may be amended only by means of a written
amendment signed by PNG and the Holders of a majority of the then outstanding Registrable
Securities; provided, however, that no such amendment shall materially and
adversely affect the rights of any Holder hereunder without the consent of such Holder.

     Section 3.13 No Presumption. In the event any claim is made by a party relating to
any conflict, omission, or ambiguity in this Agreement, no presumption or burden of proof or
persuasion shall be implied by virtue of the fact that this Agreement was prepared by or at the
request of a particular party or its counsel.

     Section 3.14 Obligations Limited to Parties to this Agreement. Each of the parties
hereto covenants, agrees and acknowledges that no Person other than the Purchasers, their
respective permitted assignees and PNG shall have any obligation hereunder and that,
notwithstanding that one or more of PNG and the Purchasers may be a corporation, partnership,
limited liability company or other entity, no recourse under this Agreement or under any documents
or instruments delivered in connection herewith or therewith shall be had against any former,
current or future director, officer, employee, agent, general or limited partner, manager, member,
stockholder or Affiliate of any of PNG, the Purchasers or their respective permitted assignees, or
any former, current or future director, officer, employee, agent, general or limited partner,
manager, member, stockholder or Affiliate of any of the foregoing, whether by the enforcement of
any assessment or by any legal or equitable proceeding, or by virtue of any applicable Law, it
being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be
imposed on or otherwise by incurred by any former, current or future director, officer, employee,
agent, general or limited partner, manager, member, stockholder or Affiliate of any of PNG, the
Purchasers or any of their respective assignees, or any former, current or future director,
officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of
any of the foregoing, as such, for any obligations of PNG, the Purchasers or their respective
permitted assignees under this Agreement or any documents or instruments delivered in connection
herewith or therewith or for any claim based on, in respect of or by reason of such obligation or
its creation, except in each case for any assignee of a Holder.

     Section 3.15 Interpretation. Article and Section references in this Agreement are
references to the corresponding Article and Section to this Agreement, unless otherwise specified.
All references to instruments, documents, contracts and agreements are references to such
instruments, documents, contracts and agreements as the same may be amended,

16

 

supplemented and otherwise modified from time to time, unless otherwise specified. The word
“including” shall mean “including but not limited to.” Whenever any determination, consent or
approval is to be made or given by PNG under this Agreement, such action shall be in the PNG’s sole
discretion unless otherwise specified.

[The remainder of this page is intentionally left blank.]

17

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written
above.

	 	 	 	 	 
	 	PAA NATURAL GAS STORAGE, L.P.

 	 
	 	By:  	PNGS GP LLC, its general partner
 	 
	 	 	 
	 	By:  	
 	 
	 	 	Name:  	Richard K. McGee 	 
	 	 	Title:  	Vice President – Legal and Business
Development 	 
	 

Signature Page to Registration Rights Agreement

 

[PURCHASERS – to come]

Signature Page to Registration Rights Agreement

 

SCHEDULE 1

Kayne Anderson MLP Investment Company

Kayne Anderson Energy Total Return Fund, Inc.

Kayne Anderson Midstream/Energy Fund, Inc.

KA First Reserve, LLC

Tortoise Energy Infrastructure Corporation

Tortoise Energy Capital Corporation

Tortoise North American Energy Corporation

Tortoise MLP Fund, Inc.

AT MLP Fund, LLC

Tetrad Corporation

Fiduciary/Claymore MLP Opportunity Fund

FAMCO MLP & Energy Infrastructure Fund

Eagle Income Appreciation Partners L.P.

Eagle Income Appreciation II L.P.

Tallgrass MLP Fund I, L.P.

Anna Maria and Stephen Kellen Foundation, Inc

Hartz Capital Investments, LLC

Baron Small Cap Fund

Baron Real Estate Fund

ClearBridge Energy MLP Fund Inc.

Granite Growth 124, LLC

RCH Energy MLP Fund, L.P.

MTP Energy Infrastructure Finance Master Fund, Ltd

Hoak Public Equities, LP

Hoak Private Equities I, L.P.

Schedule 1exh1012.htm

 

Exhibit 10.12

 

 

 

 

 

 

 

CORONUS SOLAR INC.

 

 

 

 

INCENTIVE STOCK OPTION PLAN

 

 

 

 

 

Dated:  November 23, 2010

 

 

 

 

  

  

 

TABLE OF CONTENTS

 

 

	
ARTICLE 1 DEFINITIONS AND INTERPRETATION

	
1

	  	  	  
	  	
1.1

	
Defined Terms

	
1

	  	
1.2

	
Interpretation

	
3

	  	  
	
ARTICLE 2 ESTABLISHMENT OF PLAN

	
3

	  	  	  	  
	  	
2.1

	
Purpose

	
3

	  	
2.2

	
Shares Reserved

	
3

	  	
2.3

	
Non-Exclusivity

	
4

	  	
2.4

	
Effective Date

	
4

	  	  
	
ARTICLE 3 ADMINISTRATION OF PLAN

	
4

	  	  	  	  
	  	
3.1

	
Administration

	
4

	  	
3.2

	
Amendment, Suspension and Termination

	
4

	  	
3.3

	
Compliance with Legislation

	
5

	  	  
	
ARTICLE 4 OPTION GRANTS

	
5

	  	  	  
	  	
4.1

	
Eligibility and Multiple Grants

	
5

	  	
4.2

	
Representation

	
5

	  	
4.3

	
Limitation on Grants and Exercises

	
5

	  	  
	
ARTICLE 5 OPTION TERMS

	  
	  	  	  	  
	  	
5.1

	
Exercise Price

	
6

	  	
5.2

	
Expiry Date

	
6

	  	
5.3

	
Vesting

	
7

	  	
5.4

	
Non-Assignability

	
7

	  	
5.5

	
Ceasing to be Eligible Person

	
7

	  	  	  
	
ARTICLE 6 EXERCISE PROCEDURE

	
8

	  	  	  	  
	  	
6.1

	
Exercise Procedure

	
8

	  	  	  
	
ARTICLE 7 AMENDMENT Of OPTIONS

	
9

	  	  	  	  
	  	
7.1

	
Consent to Amend

	
9

	  	
7.2

	
Amendment Subject to Approval

	
9

	  	  	  
	
ARTICLE 8 MISCELLANEOUS

	
9

	  	  	  
	  	
8.1

	
No Rights as Shareholder

	
9

	  	
8.2

	
No Right to Employment

	
9

	  	
8.3

	
Governing Law

	
9

  

  

  

 

ARTICLE 1

DEFINITIONS AND INTERPRETATION

 

1.1   Defined Terms

 

For the purposes of this Plan, the following terms shall have the following meanings:

 

	
(a)   

	
"Affiliate" shall have the meaning ascribed thereto by the Exchange in Policy 1.1 – Interpretation";

 

	
(b)   

	
"Associate" shall have the meaning ascribed thereto by the Exchange in Policy 1.1 – Interpretation";

 

	
(c)   

	
"Board" means the Board of directors of the Corporation or, as applicable, a committee consisting of not less than 3 directors of the Corporation duly appointed to administer this Plan;

 

	
(d)   

	
"Common Shares" means the common shares of the Corporation;

 

	
(e)   

	
"Consultant" means an individual or Consultant Company, other than an Employee or a Director of the Issuer, that:

 

	
(i)    

	
is engaged to provide ongoing consulting, technical, management or other services to the Corporation or to an Affiliate of the Corporation under a written contract with the Corporation or the Affiliate,

 

	
(ii)    

	
possesses technical, business or management expertise of value to the Corporation or an Affiliate,

 

	
(iii)    

	
in the opinion of the Corporation, spends or will spend a reasonable amount of time and attention on the business and affairs of the Corporation or an Affiliate, and

 

	
(iv)    

	
has a relationship with the Corporation or an Affiliate of the Corporation that enables the Consultant to be knowledgeable about the business and affairs of the Corporation or the Affiliate;

 

	
(f)   

	
"Consultant Company" means for an individual consultant, a company or partnership of which the individual is an employee, shareholder or partner;

 

	
(g)   

	
"Corporation" means Coronus Solar Inc.;

 

	
(h)   

	
"Director" means directors, senior officers and Management Company Employees of the Issuer or its subsidiaries, if any, to whom stock options can be granted in reliance on a prospectus exemption under applicable securities laws;

 

	
(i)    

	
"Disinterested Shareholder Approval" means approval by a majority of the votes cast by all shareholders entitled to vote at a meeting of shareholders of the Corporation excluding votes attached to shares beneficially owned by insiders to whom options may be granted under this Plan and their Associates;

 

	
(j)    

	
"Eligible Person" means a Director, Officer, Employee or Consultant of the Corporation or its subsidiaries, if any, at the time the option is granted, and includes companies that are wholly owned by Eligible Persons;

  

  

  

- 2 -

 

	
(k)   

	
"Employee" means an individual who:

 

	
(i)    

	
is considered an employee of the Corporation or its subsidiaries, if any, under the Income Tax Act, (Canada) i.e. for whom income tax, employment insurance and Canada Pension Plan deductions must be made at source,

 

	
(ii)    

	
works full-time for the Corporation or its subsidiaries, if any, providing services normally provided by an employee and who is subject to the same control and direction by the Corporation over the details and method of work as an employee of the Corporation, but for whom income tax deductions are not made at source, or

 

	
(iii)    

	
works for the Corporation or its subsidiaries, if any, on a continuing and regular basis for a minimum amount of time per week providing services normally provided by an employee and who is subject to the same control and direction by the Corporation over the details and method of work as an employee of the Corporation, but for whom income tax deductions are not made at source;

 

	
(l)   

	
"Expiry Date" means the last day of the term for an Option, as set by the Board at the time of grant in accordance with Section 5.2 and, if applicable, as amended from time to time;

 

	
(m)  

	
"Insider" means a director or senior officer of the Corporation, a person that beneficially owns or controls directly or indirectly, voting shares carrying more than 10% of the voting rights attached to allow standing voting shares of the Corporation, a director or senior officer of a company that is an insider or a subsidiary of the Corporation, and the Corporation itself if it holds any of its own securities.

 

	
(n)   

	
"Investor Relations Activities" means any activities, by or on behalf of the Corporation or shareholder of the Corporation that promotes or could reasonably be expected to promote the sale of securities of the Corporation;

 

	
(o)   

	
"Management Company Employee" means an individual who is employed by a person providing management services to the Corporation which are required for the ongoing successful operation of the business enterprise of the Corporation, but excluding a person providing Investor Relations Activities;

 

	
(p)   

	
"Officer" means an officer of the Corporation or its subsidiaries, if any;

 

	
(q)   

	
"Option" means an option to purchase Common Shares pursuant to this Plan;

 

	
(r)   

	
"Other Share Compensation Arrangement" means, other than this Plan and any Options, any stock option plan, stock options, employee stock purchase plan or other compensation or incentive mechanism involving the issuance or potential issuance of Common Shares, including but not limited to a purchase of Common Shares from treasury which is financially assisted by the Corporation by way of loan, guarantee or otherwise;

 

	
(s)   

	
"Participant" means an Eligible Person who has been granted an Option;

 

	
(t)   

	
"Plan" means this incentive stock option plan.

  

  

  

- 3 -

 

1.2   Interpretation

 

	
(a)   

	
References to the outstanding Common Shares at any point in time shall be computed on a non-diluted basis.

 

ARTICLE 2

ESTABLISHMENT OF PLAN

 

2.1   Purpose

 

The purpose of this Plan is to advance the interests of the Corporation, through the grant of Options, by:

 

	
(a)   

	
providing an incentive mechanism to foster the interest of Eligible Persons in the success of the Corporation, its Affiliates and its subsidiaries, if any;

 

	
(b)   

	
encouraging Eligible Persons to remain with the Corporation, its Affiliates or its subsidiaries, if any; and

 

	
(c)   

	
attracting new Directors, Officers, Employees and Consultants.

 

2.2   Shares Reserved

 

	
(a)   

	
The aggregate number of Common Shares that may be reserved for issuance pursuant to Options shall not exceed 10% of the outstanding Common Shares at the time of the granting of an Option, LESS the aggregate number of Common Shares then reserved for issuance pursuant to any Other Share Compensation Arrangement.  For greater certainty, if an Option is surrendered, terminated or expires without being exercised, the Common Shares reserved for issuance pursuant to such Option shall be available for new Options granted under this Plan.

 

	
(b)   

	
If there is a change in the outstanding Common Shares by reason of any share consolidation or split, reclassification or other capital reorganization, or a stock dividend, arrangement, amalgamation, merger or combination, or any other change to, event affecting, exchange of or corporate change or transaction affecting the Common Shares, the Board shall make, as it shall deem advisable and subject to the requisite approval of the relevant regulatory authorities, appropriate substitution and/or adjustment in:

 

	
(i)    

	
the number and kind of shares or other securities or property reserved or to be allotted for issuance pursuant to this Plan;

 

	
(ii)    

	
the number and kind of shares or other securities or property reserved or to be allotted for issuance pursuant to any outstanding unexercised Options, and in the exercise price for such shares or other securities or property; and

 

	
(iii)    

	
the vesting of any Options, including the accelerated vesting thereof on conditions the Board deems advisable and, if it relates to Investor Relations vesting provisions, then subject to the approval of the Exchange, and if the Corporation undertakes an arrangement or is amalgamated, merged or combined with another corporation, the Board shall make such provision for the protection of the rights of Participants as it shall deem advisable.

  

  

  

- 4 -

 

	
(c)   

	
No fractional Common Shares shall be reserved for issuance under this Plan and the Board may determine the manner in which an Option, insofar as it relates to the acquisition of a fractional Common Share, shall be treated.

 

	
(d)   

	
The Corporation shall, at all times while this Plan is in effect, reserve and keep available such number of Common Shares as will be sufficient to satisfy the requirements of this Plan.

 

2.3   Non-Exclusivity

 

Nothing contained herein shall prevent the Board from adopting such other incentive or compensation arrangements as it shall deem advisable.

 

2.4   Effective Date

 

This Plan shall be subject to the approval of any regulatory authority whose approval is required.  Any Options granted under this Plan prior to such approvals being given shall be conditional upon such approvals being given, and no such Options may be exercised unless and until such approvals are given.  Should this read subject to shareholder approval?

 

ARTICLE 3

ADMINISTRATION OF PLAN

 

3.1   Administration

 

	
(a)   

	
This Plan shall be administered by the Board or any securities established by the Board for the purpose of administering this Plan.  Subject to the provisions of this Plan, the Board shall have the authority:

 

	
(i)    

	
to determine the Eligible Persons to whom Options are granted, to grant such Options, and to determine any terms and conditions, limitations and restrictions in respect of any particular Option grant, including but not limited to the nature and duration of the restrictions, if any, to be imposed upon the acquisition, sale or other disposition of Common Shares acquired upon exercise of the Option, and the nature of the events and the duration of the period, if any, in which any Participant's rights in respect of an Option or Common Shares acquired upon exercise of an Option may be forfeited;

 

	
(ii)    

	
to interpret the terms of this Plan, to make all such determinations and take all such other actions in connection with the implementation, operation and administration of this Plan, and to adopt, amend and rescind such administrative guidelines and other rules and regulations relating to this Plan, as it shall from time to time deem advisable, including without limitation for the purpose of ensuring compliance with Section 3.3 hereof.

 

	
(b)   

	
The Board's interpretations, determinations, guidelines, rules and regulations shall be conclusive and binding upon the Corporation, Eligible Persons, Participants and all other persons.

 

3.2   Amendment, Suspension and Termination

 

The Board may amend, suspend or terminate this Plan or any portion thereof.  No such amendment, suspension or termination shall alter or impair any outstanding unexercised Options or any rights without the consent of such Participant.  If this Plan is suspended or terminated, the provisions of this Plan and any administrative guidelines, rules and regulations relating to this Plan shall continue in effect for the duration of such time as any Option remains outstanding.

  

  

  

- 5 -

 

3.3   Compliance with Legislation

 

	
(a)    

	
This Plan, the grant and exercise of Options hereunder and the Corporation's obligation to sell, issue and deliver any Common Shares upon exercise of Options shall be subject to all applicable federal, provincial and foreign laws, policies, rules and regulations, to the policies, rules and regulations of any stock exchanges or other markets on which the Common Shares are listed or quoted for trading and to such approvals by any governmental or regulatory agency as may, in the opinion of counsel to the Corporation, be required.  The Corporation shall not be obligated by the existence of this Plan or any provision of this Plan or the grant or exercise of Options hereunder to sell, issue or deliver Common Shares upon exercise of Options in violation of such laws, policies, rules and regulations or any condition or requirement of such approvals.

 

	
(b)   

	
No Option shall be granted and no Common Shares sold, issued or delivered hereunder where such grant, sale, issue or delivery would require registration or other qualification of this Plan or of the Common Shares under the securities laws of any foreign jurisdiction, and any purported grant of any Option or any sale, issue and delivery of Common Shares hereunder in violation of this provision shall be void.  In addition, the Corporation shall have no obligation to sell, issue or deliver any Common Shares hereunder unless such Common Shares shall have been duly listed, upon official notice of issuance, with all stock exchanges on which the Common Shares are listed for trading.

 

	
(c)   

	
Common Shares sold, issued and delivered to Participants pursuant to the exercise of Options shall be subject to restrictions on resale and transfer under applicable securities laws and the requirements of any stock exchanges or other markets on which the Common Shares are listed or quoted for trading, and any certificates representing such Common Shares shall bear, as required, a restrictive legend in respect thereof.

 

ARTICLE 4

OPTION GRANTS

 

4.1   Eligibility and Multiple Grants

 

Options shall only be granted to Eligible Persons.  An Eligible Person may receive Options on more than one occasion and may receive separate Options, with differing terms, on any one or more occasions.

 

4.2   Representation

 

The Corporation represents that an Employee, Consultant or Management Company Employee who is granted an Option or Options is a bona fide Employee, Consultant or Management Company Employee, as the case may be.

 

4.3   Limitation on Grants and Exercises

 

	
(a)   

	
To any one person.  The number of Common Shares reserved for issuance to any one person in any 12 month period under this Plan and any Other Share Compensation Arrangement shall not exceed 5% of the outstanding Common Shares at the time of the grant (unless the Corporation is listed on Tier 1 of the Exchange and has obtained Disinterested Shareholder Approval to exceed such limit).

  

  

  

- 6 -

 

	
(b)   

	
To Consultants.  The number of Common Shares reserved for issuance to any one Consultant in any 12 month period under this Plan and any Other Share Compensation Arrangement shall not exceed 2% of the outstanding Common Shares at the time of the grant.

 

	
(c)   

	
To persons conducting Investor Relations Activities.  The number of Common Shares reserved for issuance to any persons conducting Investor Relations Activities in any 12 month period under this Plan and any Other Share Compensation Arrangement shall not exceed an aggregate of 2% of the outstanding Common Shares at the time of the grant.

 

	
(d)   

	
To Insiders.  Unless the Corporation has received Disinterested Shareholder Approval to do so:

 

	
(i)     

	
the aggregate number of Common Shares reserved for issuance to Insiders under this Plan and any Other Share Compensation Arrangement shall not exceed 10% of the outstanding Common Shares at the time of the grant;

 

	
(ii)    

	
the aggregate number of Common Shares reserved for issuance to Insiders in any 12 month period under this Plan and any Other Share Compensation Arrangement shall not exceed 10% of the outstanding Common Shares at the time of the grant.

 

	
(e)   

	
Exercises.  Unless the Corporation is listed on Tier 1 of the Exchange and has received Disinterested Shareholder Approval to do so, the number of Common Shares issued to any person within a 12 month period pursuant to the exercise of Options granted under this Plan and any Other Share Compensation Arrangement shall not exceed 5% of the outstanding Common Shares at the time of the exercise.

 

ARTICLE 5

OPTION TERMS

 

5.1   Exercise Price

 

	
(a)   

	
Subject to a minimum exercise price of $0.10 per Common Share, the exercise price per Common Share for an Option shall not be less than the Market Price for the Corporation's common shares at the date of grant.

 

	
(b)   

	
If Options are granted within ninety days of a distribution by the Corporation by prospectus, then the exercise price per Common Share for such Option shall not be less than the greater of the minimum exercise price calculated pursuant to subsection (a) herein and the price per Common Share paid by the public investors for Common Shares acquired pursuant to such distribution.  Such ninety day period shall begin:

 

	
(i)     

	
on the date the final receipt is issued for the final prospectus in respect of such distribution; and

 

	
(ii)    

	
in the case of a prospectus that qualifies special warrants, on the closing date of the private placement in respect of such special warrants.

 

5.2   Expiry Date

 

If the Corporation is listed on Tier 1 of the Exchange, every Option shall have a term not exceeding and shall therefore expire no later than 10 years after the date of grant.  If the Corporation is listed on Tier 2 of the Exchange, every Option granted while the Corporation is listed on Tier 2 of the Exchange shall have a term not exceeding and shall therefore expire no later than 5 years after the date of grant.

  

  

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5.3   Vesting

 

	
(a)   

	
Subject to the subsections (b) and (c) herein and otherwise in compliance with the policies of the Exchange, the Board shall determine the manner, if any in which an Option shall vest and become exercisable.

 

	
(b)   

	
Options granted to Consultants performing Investor Relations Activities shall vest over a minimum of 12 months with no more than 1/4 of such Options vesting in any 3 month period.

 

	
(c)   

	
If the Corporation is listed on Tier 2 of the Exchange and subsection 2.2(a) herein specifies a fixed number (ie. not a rolling percentage) of Common Shares that may be reserved, allotted and issued pursuant to Options under this Plan which exceeds 10% of the greater of:

 

	
(i)    

	
the number of outstanding Common Shares on the date of shareholder approval for this Plan; and

 

	
(ii)    

	
the number of Common Shares which will be outstanding upon completion of a transaction occurring concurrently with shareholder approval for this Plan, always subject to the approval of the Exchange to use such post-transaction number of outstanding Common Shares as the basis for determining the percentage of outstanding Common Shares that can be reserved, allotted and issued pursuant to Options under this Plan,

 

	
  

	
then all Options shall vest equally on a quarterly basis and become exercisable over a period of 18 months on a basis which shall not permit a majority of the Options to vest and become exercisable early in the vesting period rather than equally on a periodic basis, subject to such lesser vesting requirements as may be required from time to time pursuant to the policies of, or as may otherwise be permitted by, the Exchange.

 

5.4   Non-Assignability

 

Options may not be assigned or transferred.

 

5.5   Ceasing to be Eligible Person

 

	
(a)   

	
If a Participant who is an Officer, Employee or Consultant is terminated for cause, each Option held by such Participant shall terminate and shall therefore cease to be exercisable upon such termination for cause.

 

	
(b)   

	
If a Participant dies prior to otherwise ceasing to be an Eligible Person, each Option held by such Participant shall terminate and shall therefore cease to be exercisable no later than the earlier of the Expiry Date and the date which is twelve months after the date of the Participant's death.

 

	
(c)   

	
If a Participant ceases to be an Eligible Person for any reason whatsoever other than death, each Option held by the Participant other than a Participant who is involved in investor relations activities will cease to be exercisable 90 days after the Termination Date. For Participants involved in investor relations activities, Options shall cease to be exercisable 30 days after the Termination Date.

  

  

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(d)   

	
For greater certainty, if a Participant dies, each Option held by such Participant shall be exercisable by the legal representative of such Participant until such Option terminates and therefore ceases to be exercisable pursuant to the terms of this Section.

 

	
(e)   

	
If any portion of an Option is not vested at the time a Participant ceases, for any reason whatsoever, to be an Eligible Person, such unvested portion of the Option may not be thereafter exercised by the Participant or its legal representative, as the case may be, always provided that the Board may, in its discretion and in the case of options relating to Investor Relations, subject to the approval of the Exchange, thereafter permit the Participant or its legal representative, as the case may be, to exercise all or any part of such unvested portion of the Option that would have vested prior to the time such Option otherwise terminates and therefore ceases to be exercisable pursuant to the terms of this Section.  For greater certainty, and without limitation, this provision will apply regardless of whether the Participant ceased to be an Eligible Person voluntarily or involuntarily, was dismissed with or without cause, and regardless of whether the Participant received compensation in respect of dismissal or was entitled to a notice of termination for a period which would otherwise have permitted a greater portion of an Option to vest.

 

ARTICLE 6

EXERCISE PROCEDURE

 

6.1   Exercise Procedure

 

An Option may be exercised from time to time, and shall be deemed to be validly exercised by the Participant only upon the Participant's delivery to the Corporation at its head office:

 

	
(a)   

	
a written notice of exercise addressed to the Corporate Secretary of the Corporation, specifying the number of Common Shares with respect to which the Option is being exercised;

 

	
(b)   

	
the originally signed option agreement with respect to the Option being exercised;

 

	
(c)   

	
a certified cheque or bank draft made payable to the Corporation for the aggregate exercise price for the number of Common Shares with respect to which the Option is being exercised; and

 

	
(d)   

	
documents containing such representations, warranties, agreements and undertakings, including such as to the Participant's future dealings in such Common Shares, as counsel to the Corporation reasonably determines to be necessary or advisable in order to comply with or safeguard against the violation of the laws of any jurisdiction;

 

and on the business day following, the Participant shall be deemed to be a holder of record of the Common Shares with respect to which the Option is being exercised, and thereafter the Corporation shall, within a reasonable amount of time, cause certificates for such Common Shares to be issued and delivered to the Participant.

  

  

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ARTICLE 7

AMENDMENT OF OPTIONS

 

7.1   Consent to Amend

 

The Board may amend any Option with the consent of the affected Participant and the Exchange, including any shareholder approval required by the Exchange.  For greater certainty, Disinterested Shareholder Approval is required for any reduction in the exercise price of an Option if the Participant is an Insider at the time of the proposed amendment.

 

7.2   Amendment Subject to Approval

 

If the amendment of an Option requires regulatory or shareholder approval, such amendment may be made prior to such approvals being given, but no such amended Options may be exercised unless and until such approvals are given.

 

ARTICLE 8

MISCELLANEOUS

 

8.1   No Rights as Shareholder

 

Nothing in this Plan or any Option shall confer upon a Participant any rights as a shareholder of the Corporation with respect to any of the Common Shares underlying an Option unless and until such Participant shall have become the holder of such Common Shares upon exercise of such Option in accordance with the terms of the Plan.

 

8.2   No Right to Employment

 

Nothing in this Plan or any Option shall confer upon a Participant any right to continue in the employ of the Corporation or any Affiliate or affect in any way the right of the Corporation or any Affiliate to terminate the Participant's employment, with or without cause, at any time; nor shall anything in the Plan or any Option be deemed or construed to constitute an agreement, or an expression of intent, on the part of the Corporation or any Affiliate to extend the employment of any Participant beyond the time which the Participant would normally be retired pursuant to the provisions of any present or future retirement plan of the Corporation or any Affiliate, or beyond the time at which he would otherwise be retired pursuant to the provisions of any contract of employment with the Corporation or any Affiliate.

 

8.3   Governing Law

 

This Plan, all option agreements, the grant and exercise of Options hereunder, and the sale, issue and delivery of Common Shares hereunder upon exercise of Options shall be, as applicable, governed by and construed in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein.  The Courts of the Province of British Columbia shall have the exclusive jurisdiction to hear and decide any disputes or other matters arising herefrom.

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