Document:

Exhibit 10.3(a)

 

KYTHERA BIOPHARMACEUTICALS, INC.
 2012 EQUITY INCENTIVE AWARD PLAN

 

ARTICLE 1.

 

PURPOSE

 

The purpose of the Kythera Biopharmaceuticals, Inc. 2012 Equity Incentive Award Plan (the “Plan”) is to promote the success and enhance the value of Kythera Biopharmaceuticals, Inc. (the “Company”) by linking the individual interests of the Employees, Consultants and members of the Board to those of the Company’s stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to the Company’s stockholders.  The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of those individuals upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent.

 

ARTICLE 2.

 

DEFINITIONS AND CONSTRUCTION

 

Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise.  The singular pronoun shall include the plural where the context so indicates.

 

2.1          “Administrator” shall mean the entity that conducts the general administration of the Plan as provided in Article 13 hereof.  With reference to the duties of the Administrator under the Plan which have been delegated to one or more persons pursuant to Section 13.6 hereof, or which the Board has assumed, the term “Administrator” shall refer to such person(s) unless the Committee or the Board has revoked such delegation or the Board has terminated the assumption of such duties.

 

2.2          “Affiliate” shall mean any Parent or Subsidiary.

 

2.3          “Applicable Accounting Standards” shall mean Generally Accepted Accounting Principles in the United States, International Financial Reporting Standards or such other accounting principles or standards as may apply to the Company’s financial statements under United States federal securities laws from time to time.

 

2.4          “Applicable Law” shall mean any applicable law, including without limitation, (i) provisions of the Code, the Securities Act, the Exchange Act and any rules or regulations thereunder; (ii) corporate, securities, tax or other laws, statutes, rules, requirements or regulations, whether federal, state, local or foreign; and (iii) rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded.

 

2.5          “Award” shall mean an Option, a Restricted Stock award, a Restricted Stock Unit award, a Performance Award, a Dividend Equivalent award, a Stock Payment award, an

 

 

award of Stock Appreciation Rights, an Other Incentive Award or a Performance Share award, which may be awarded or granted under the Plan.

 

2.6          “Award Agreement” shall mean any written notice, agreement, contract or other instrument or document evidencing an Award, including through electronic medium, which shall contain such terms and conditions with respect to an Award as the Administrator shall determine, consistent with the Plan.

 

2.7          “Board” shall mean the Board of Directors of the Company.

 

2.8          “Change in Control” shall mean the occurrence of any of the following events:

 

(a)           The consummation of a transaction or series of transactions (other than an offering of Shares to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Parents or Subsidiaries, an employee benefit plan maintained by the Company or any of its Parents or Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

 

(b)           During any period of two (2) consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 2.8(a) or Section 2.8(c) hereof) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the two (2)-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

 

(c)           The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination, (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case, other than a transaction:

 

(i)            Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)), directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

 

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(ii)           After which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this Section 2.8(c)(ii) as beneficially owning fifty percent (50%) or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

 

(d)           Approval by the Company’s stockholders of a liquidation or dissolution of the Company.

 

Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or any portion of an Award) that provides for the deferral of compensation that is subject to Section 409A of the Code, to the extent required to avoid the imposition of additional taxes under Section 409A of the Code, the transaction or event described in subsection (a), (b), (c) or (d) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).  Consistent with the terms of this Section 2.8, the Administrator shall have full and final authority to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto.

 

2.9          “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, together with the regulations and official guidance promulgated thereunder, whether issued prior or subsequent to the grant of any Award.

 

2.10        “Committee” shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board described in Article 13 hereof.

 

2.11        “Common Stock” shall mean the common stock of the Company, par value $$0.00001 per share.

 

2.12        “Company” shall mean Kythera Biopharmaceuticals, Inc., a Delaware corporation.

 

2.13        “Consultant” shall mean any consultant or advisor engaged to provide services to the Company or any Affiliate who qualifies as a consultant or advisor under the applicable rules of Form S-8 Registration Statement or any successor Form thereto or, prior to the Public Trading Date, under Rule 701 of the Securities Act.

 

2.14        “Covered Employee” shall mean any Employee who is, or could become, a “covered employee” within the meaning of Section 162(m) of the Code.

 

2.15        “Director” shall mean a member of the Board, as constituted from time to time.

 

2.16        “Dividend Equivalent” shall mean a right to receive the equivalent value (in cash or Shares) of dividends paid on Shares, awarded under Section 9.2 hereof.

 

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2.17        “DRO” shall mean a “domestic relations order” as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time, or the rules thereunder.

 

2.18        “Effective Date” shall mean the date on which the Company’s registration statement relating to its initial public offering becomes effective, provided that the Board has adopted the Plan prior to such date, subject to approval of the Plan by the Company’s stockholders.

 

2.19        “Eligible Individual” shall mean any person who is an Employee, a Consultant or a Non-Employee Director, as determined by the Administrator.

 

2.20        “Employee” shall mean any officer or other employee (within the meaning of Section 3401(c) of the Code) of the Company or any Affiliate.

 

2.21        “Equity Restructuring” shall mean a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other securities of the Company) or the share price of Common Stock (or other securities) and causes a change in the per share value of the Common Stock underlying outstanding stock-based Awards.

 

2.22        “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

 

2.23        “Fair Market Value” shall mean, as of any given date, the value of a Share determined as follows:

 

(a)           If the Common Stock is (i) listed on any established securities exchange (such as the New York Stock Exchange, the NASDAQ Global Market and the NASDAQ Global Select Market), (ii) listed on any national market system or (iii) listed, quoted or traded on any automated quotation system, its Fair Market Value shall be the closing sales price for a Share as quoted on such exchange or system for such date or, if there is no closing sales price for a Share on the date in question, the closing sales price for a Share on the last preceding date for which such quotation exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

 

(b)           If the Common Stock is not listed on an established securities exchange, national market system or automated quotation system, but the Common Stock is regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a Share on such date, the high bid and low asked prices for a Share on the last preceding date for which such information exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

 

(c)           If the Common Stock is neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized securities dealer, its Fair Market Value shall be established by the Administrator in good faith.

 

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Notwithstanding the foregoing, with respect to any Award granted after the effectiveness of the Company’s registration statement relating to its initial public offering and prior to the Public Trading Date, the Fair Market Value shall mean the initial public offering price of a Share as set forth in the Company’s final prospectus relating to its initial public offering filed with the Securities and Exchange Commission.

 

2.24        “Greater Than 10% Stockholder” shall mean an individual then-owning (within the meaning of Section 424(d) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any “parent corporation” or “subsidiary corporation” (as defined in Sections 424(e) and 424(f) of the Code, respectively).

 

2.25        “Incentive Stock Option” shall mean an Option that is intended to qualify as an incentive stock option and conforms to the applicable provisions of Section 422 of the Code.

 

2.26        “Individual Award Limit” shall mean the cash and share limits applicable to Awards granted under the Plan, as set forth in Section 3.3 hereof.

 

2.27        “Non-Employee Director” shall mean a Director of the Company who is not an Employee.

 

2.28        “Non-Qualified Stock Option” shall mean an Option that is not an Incentive Stock Option or which is designated as an Incentive Stock Option but does not meet the applicable requirements of Section 422 of the Code.

 

2.29        “Option” shall mean a right to purchase Shares at a specified exercise price, granted under Article 6 hereof.  An Option shall be either a Non-Qualified Stock Option or an Incentive Stock Option; provided, however, that Options granted to Non-Employee Directors and Consultants shall only be Non-Qualified Stock Options.

 

2.30        “Other Incentive Award” shall mean an Award denominated in, linked to or derived from Shares or value metrics related to Shares, granted pursuant to Section 9.6 hereof.

 

2.31        “Parent” shall mean any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities ending with the Company if each of the entities other than the Company beneficially owns, at the time of the determination, securities or interests representing more than fifty percent (50%) of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.

 

2.32        “Participant” shall mean a person who has been granted an Award, pursuant to the Plan.

 

2.33        “Performance Award” shall mean an Award that is granted under Section 9.1 hereof.

 

2.34        “Performance-Based Compensation” shall mean any compensation that is intended to qualify as “performance-based compensation” as described in Section 162(m)(4)(C) of the Code.

 

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2.35        “Performance Criteria” shall mean the criteria (and adjustments) that the Committee selects for an Award for purposes of establishing the Performance Goal or Performance Goals for a Performance Period, determined as follows:

 

(a)           The Performance Criteria that shall be used to establish Performance Goals are limited to the following: (i) net earnings (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation, (D) amortization and (E) non-cash equity-based compensation expense); (ii) gross or net sales or revenue; (iii) net income (either before or after taxes); (iv) adjusted net income; (v) operating earnings or profit; (vi) cash flow (including, but not limited to, operating cash flow and free cash flow); (vii) return on assets; (viii) return on capital; (ix) return on stockholders’ equity; (x) total stockholder return; (xi) return on sales; (xii) gross or net profit or operating margin; (xiii) costs; (xiv) funds from operations; (xv) expenses; (xvi) working capital; (xvii) earnings per share; (xviii) adjusted earnings per Share; (xix) price per Share; (xx) regulatory body approval for commercialization of a product; (xxi) implementation or completion of critical projects; (xxii) market share; (xxiii) economic value; (xxiv) debt levels or reduction; (xxv) customer retention; (xxvi) sales-related goals; (xxvii) comparisons with other stock market indices; (xxviii) operating efficiency; (xxix) customer satisfaction and/or growth; (xxx) employee satisfaction; (xxxi) research and development achievements; (xxxii) financing and other capital raising transactions; (xxxiii) recruiting and maintaining personnel; and (xxxiv) year-end cash, any of which may be measured either in absolute terms for the Company or any operating unit of the Company or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.

 

(b)           The Administrator may, in its sole discretion, provide that one or more objectively determinable adjustments shall be made to one or more of the Performance Goals.  Such adjustments may include, but are not limited to, one or more of the following:  (i) items related to a change in accounting principle; (ii) items relating to financing activities; (iii) expenses for restructuring or productivity initiatives; (iv) other non-operating items; (v) items related to acquisitions; (vi) items attributable to the business operations of any entity acquired by the Company during the Performance Period; (vii) items related to the sale or disposition of a business or segment of a business; (viii) items related to discontinued operations that do not qualify as a segment of a business under Applicable Accounting Standards; (ix) items attributable to any stock dividend, stock split, combination or exchange of stock occurring during the Performance Period; (x) any other items of significant income or expense which are determined to be appropriate adjustments; (xi) items relating to unusual or extraordinary corporate transactions, events or developments, (xii)  items related to amortization of acquired intangible assets; (xiii) items that are outside the scope of the Company’s core, on-going business activities; (xiv) items related to acquired in-process research and development; (xv) items relating to changes in tax laws; (xvi) items relating to major licensing or partnership arrangements; (xvii) items relating to asset impairment charges; (xviii) items relating to gains or losses for litigation, arbitration and contractual settlements; or (xix) items relating to any other unusual or nonrecurring events or changes in Applicable Laws, accounting principles or business conditions.  For all Awards intended to qualify as Performance-Based Compensation, such determinations shall be made within the time prescribed by, and otherwise in compliance with, Section 162(m) of the Code.

 

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2.36        “Performance Goals” shall mean, with respect to a Performance Period, one or more goals established in writing by the Administrator for the Performance Period based upon one or more Performance Criteria.  Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of an Affiliate, a division or business unit, or one or more individuals.  The achievement of each Performance Goal shall be determined in accordance with Applicable Accounting Standards, to the extent applicable.

 

2.37        “Performance Period” shall mean one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance Award.

 

2.38        “Performance Share Award” shall mean a contractual right awarded under Section 9.5 hereof to receive a number of Shares or the Fair Market Value of such number of Shares in cash based on the attainment of specified Performance Goals or other criteria determined by the Administrator.

 

2.39        “Permitted Transferee” shall mean, with respect to a Participant, (a) prior to the Public Trading Date, any “family member” of the Participant, as defined under Rule 701 of the Securities Act and (b) on or after the Public Trading Date, any “family member” of the Participant, as defined under the General Instructions to Form S-8 Registration Statement under the Securities Act or any successor Form thereto, or any other transferee specifically approved by the Administrator, after taking into account Applicable Law.

 

2.40        “Plan” shall mean this Kythera Biopharmaceutical, Inc. 2012 Equity Incentive Award Plan, as it may be amended from time to time.

 

2.41        “Prior Plan” shall mean the 2004 Stock Plan (amended and restated as of August 18, 2005, as amended).

 

2.42        “Program” shall mean any program adopted by the Administrator pursuant to the Plan containing the terms and conditions intended to govern a specified type of Award granted under the Plan and pursuant to which such type of Award may be granted under the Plan.

 

2.43            “Public Trading Date” shall mean the first date upon which the Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.

 

2.44        “Restricted Stock” shall mean an award of Shares made under Article 8 hereof that is subject to certain restrictions and may be subject to risk of forfeiture or repurchase.

 

2.45        “Restricted Stock Unit” shall mean a contractual right awarded under Section 9.4 hereof to receive in the future a Share or the Fair Market Value of a Share in cash.

 

2.46        “Securities Act” shall mean the Securities Act of 1933, as amended.

 

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2.47        “Share Limit” shall have the meaning provided in Section 3.1(a) hereof.

 

2.48        “Shares” shall mean shares of Common Stock.

 

2.49        “Stock Appreciation Right” shall mean a stock appreciation right granted under Article 10 hereof.

 

2.50        “Stock Payment” shall mean a payment in the form of Shares awarded under Section 9.3 hereof.

 

2.51        “Subsidiary” shall mean any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing more than fifty percent (50%) of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.

 

2.52        “Substitute Award” shall mean an Award granted under the Plan in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock, in any case, upon the assumption of, or in substitution for, an outstanding equity award previously granted by a company or other entity that is a party to such transaction; provided, however, that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an Option or Stock Appreciation Right.

 

2.53        “Successor Entity” shall have the meaning provided in Section 2.9(c)(i) hereof.

 

2.54        “Termination of Service” shall mean:

 

(a)  As to a Consultant, the time when the engagement of a Participant as a Consultant to the Company and its Affiliates is terminated for any reason, with or without cause, including, without limitation, by resignation, discharge, death or retirement, but excluding terminations where the Consultant simultaneously commences or remains in employment and/or service as an Employee and/or Director with the Company or any Affiliate.

 

(b) As to a Non-Employee Director, the time when a Participant who is a Non-Employee Director ceases to be a Director for any reason, including, without limitation, a termination by resignation, failure to be elected, death or retirement, but excluding terminations where the Participant simultaneously commences or remains in employment and/or service as an Employee and/or Consultant with the Company or any Affiliate.

 

(c) As to an Employee, the time when the employee-employer relationship between a Participant and the Company and its Affiliates is terminated for any reason, including, without limitation, a termination by resignation, discharge, death, disability or retirement, but excluding terminations where the Participant simultaneously commences or remains in service as a Consultant and/or Director with the Company or any Affiliate.

 

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The Administrator, in its sole discretion, shall determine the effect of all matters and questions relating to any Termination of Service, including without limitation, whether a Termination of Service has occurred, whether any Termination of Service resulted from a discharge for cause and whether any particular leave of absence constitutes a Termination of Service; provided, however, that, with respect to Incentive Stock Options, unless the Administrator otherwise provides in the terms of any Program, Award Agreement or otherwise, or as otherwise required by Applicable Law, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Service only if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code.  For purposes of the Plan, a Participant’s employee-employer relationship or consultancy relationship shall be deemed to be terminated in the event that the Affiliate employing or contracting with such Participant ceases to remain an Affiliate following any merger, sale of stock or other corporate transaction or event (including, without limitation, a spin-off).

 

ARTICLE 3.

 

SHARES SUBJECT TO THE PLAN

 

3.1          Number of Shares. (1)

 

(a)           Subject to Sections 3.1(b), 14.1 and 14.2 hereof, the aggregate number of Shares which may be issued or transferred pursuant to Awards under the Plan shall be equal to the sum of (i) three hundred seventy-eight thousand one hundred seventy-one (378,171) Shares, (ii) any Shares which, as of the Effective Date, are (A) available for issuance under the Prior Plan or (B) underlying awards outstanding under the Prior Plan that, on or after the Effective Date, terminate, expire or lapse for any reason without the delivery of Shares to the holder thereof, up to a maximum of two million one hundred thirteen thousand one hundred eighty (2,113,180) Shares, and (iii) an annual increase on the first day of each year beginning in 2013 and ending in 2022 equal to the lesser of (A) one million five hundred twelve thousand six hundred eighty-seven (1,512,687) Shares, (B) four percent (4%) of the Shares outstanding on the last day of the immediately preceding fiscal year  and (C) such smaller number of Shares as may be determined by the Board (the “Share Limit”), of which up to fifteen million five hundred five thousand forty eight (15,505,048) Shares  may be granted as Incentive Stock Options, provided, however, that notwithstanding the foregoing, Shares added to the Share Limit pursuant to Section 3.1(a)(ii) or Section 3.1(a)(iii) shall be available for issuance as Incentive Stock Options only to the extent that making such Shares available for issuance as Incentive Stock Options would not cause any Incentive Stock Option to cease to qualify as such.  Notwithstanding the foregoing, to the extent permitted under applicable law and applicable stock exchange rules, Awards that provide for the delivery of Shares subsequent to the applicable grant date may be granted in excess of the Share Limit if such Awards provide for the forfeiture or cash settlement of such Awards to the extent that insufficient Shares remain under the Share Limit at the time that Shares would otherwise be issued in respect of such Award.  As of the Effective Date, no further awards may be granted under the Prior Plan; however, any awards under the Prior Plan that are outstanding as of the Effective Date shall continue to be subject to the terms and conditions of the Prior Plan.

 

(1)         Gives effect to a 1-for-2.6443 reverse stock split effected October 8, 2012.

 

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(b)           The following Shares shall be available for future grants of Awards under the Plan and shall be added back to the Share Limit in the same number of Shares as were debited from the Share Limit in respect of the grant of such Award (as may be adjusted in accordance with Section 14.2 hereof): (i) Shares tendered by a Participant or withheld by the Company in payment of the exercise price of an Option; (ii) Shares tendered by the Participant or withheld by the Company to satisfy any tax withholding obligation with respect to an Award; (iii) Shares subject to an Award that is forfeited, expires or is settled for cash (in whole or in part,  provided that only that portion of Shares related to the cash settlement shall be added back to the Share Limit), to the extent of such forfeiture, expiration or cash settlement; and (iv) Shares subject to Stock Appreciation Rights that are not issued in connection with the settlement of the Stock Appreciation Rights on exercise thereof.  Notwithstanding anything to the contrary contained herein, Shares purchased on the open market with the cash proceeds from the exercise of Options shall not be added back to the Share Limit and shall not be available for future grants of Awards.  Any Shares repurchased by the Company under Section 8.4 hereof at the same price paid by the Participant so that such Shares are returned to the Company will again be available for Awards.  The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the Shares available for issuance under the Plan.  Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code.

 

(c)           Substitute Awards shall not reduce the Shares authorized for grant under the Plan.  Additionally, in the event that a company acquired by the Company or any Affiliate, or with which the Company or any Affiliate combines, has shares available under a pre-existing plan approved by its stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan, and shall not reduce the Shares authorized for grant under the Plan; provided, however, that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employed by or providing services to the Company or its Affiliates immediately prior to such acquisition or combination.

 

3.2          Stock Distributed.  Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Common Stock, treasury Common Stock or Common Stock purchased on the open market.

 

3.3          Limitation on Number of Shares Subject to Awards (2).  Notwithstanding any provision in the Plan to the contrary, and subject to Section 14.2 hereof, the maximum aggregate number of Shares with respect to one or more Awards that may be granted to any one person during any calendar year shall be seven hundred fifty-six thousand three hundred forty-three (756,343) and the maximum aggregate amount of cash that may be paid in cash during any calendar year with respect to one or more Awards payable in cash shall be five million dollars ($5,000,000) (together, the “Individual Award Limits”); provided, however, that the foregoing limitations shall not apply until the earliest of the

 

(2)         Gives effect to a 1-for-2.6443 reverse stock split effected October 8, 2012.

 

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following events to occur after the Public Trading Date: (a) the first material modification of the Plan (including any increase in the Share Limit in accordance with Section 3.1 hereof); (b) the issuance of all of the Shares reserved for issuance under the Plan; (c) the expiration of the Plan; (d) the first meeting of stockholders at which members of the Board are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security of the Company under Section 12 of the Exchange Act; or (e) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.

 

ARTICLE 4.

 

GRANTING OF AWARDS

 

4.1          Participation.  The Administrator may, from time to time, select from among all Eligible Individuals, those to whom one or more Awards shall be granted and shall determine the nature and amount of each Award, which shall not be inconsistent with the requirements of the Plan.  Except as provided in Article 12 hereof regarding the automatic grant of Awards to Non-Employee Directors or any applicable Program, no Eligible Individual shall have any right to be granted an Award pursuant to the Plan.

 

4.2          Award Agreement.  Each Award shall be evidenced by an Award Agreement stating the terms and conditions applicable to such Award, consistent with the requirements of the Plan and any applicable Program.

 

4.3          Limitations Applicable to Section 16 Persons.  Notwithstanding anything contained herein to the contrary, with respect to any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, the Plan, any applicable Program and the applicable Award Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including Rule 16b-3 of the Exchange Act and any amendments thereto) that are requirements for the application of such exemptive rule, and such additional limitations shall be deemed to be incorporated by reference into such Award to the extent permitted by Applicable Law.

 

4.4          At-Will Service.  Nothing in the Plan or in any Program or Award Agreement hereunder shall confer upon any Participant any right to continue as an Employee, Director or Consultant of the Company or any Affiliate, or shall interfere with or restrict in any way the rights of the Company or any Affiliate, which rights are hereby expressly reserved, to discharge any Participant at any time for any reason whatsoever, with or without cause, and with or without notice, or to terminate or change all other terms and conditions of any Participant’s employment or engagement, except to the extent expressly provided otherwise in a written agreement between the Participant and the Company or any Affiliate.

 

4.5          Foreign Participants.  Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Affiliates operate or have Employees, Non-Employee Directors or Consultants, or in order to comply with the requirements of any foreign securities exchange, the Administrator, in its sole discretion, shall have the power and authority to: (a) determine which Affiliates shall be covered by the

 

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Plan; (b) determine which Eligible Individuals outside the United States are eligible to participate in the Plan; (c) modify the terms and conditions of any Award granted to Eligible Individuals outside the United States to comply with applicable foreign laws or listing requirements of any such foreign securities exchange; (d) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable; provided, however, that no such subplans and/or modifications shall increase the Share Limit or Individual Award Limits contained in Sections 3.1 and 3.3 hereof, respectively; and (e) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals or listing requirements of any such foreign securities exchange.  Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate Applicable Law.

 

4.6          Stand-Alone and Tandem Awards.  Awards granted pursuant to the Plan may, in the sole discretion of the Administrator, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan.  Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

 

ARTICLE 5.

 

PROVISIONS APPLICABLE TO AWARDS INTENDED TO QUALIFY AS PERFORMANCE-BASED COMPENSATION

 

5.1          Purpose.  The Committee, in its sole discretion, may determine whether any Award is intended to qualify as Performance-Based Compensation. If the Committee, in its sole discretion, decides to grant an Award to an Eligible Individual that is intended to qualify as Performance-Based Compensation, then the provisions of this Article 5 shall control over any contrary provision contained in the Plan.  The Administrator may in its sole discretion grant Awards to Eligible Individuals that are based on Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article 5 and that are not intended to qualify as Performance-Based Compensation.  Unless otherwise specified by the Committee at the time of grant, the Performance Criteria with respect to an Award intended to be Performance-Based Compensation payable to a Covered Employee shall be determined on the basis of Applicable Accounting Standards.

 

5.2          Applicability.  The grant of an Award to an Eligible Individual for a particular Performance Period shall not require the grant of an Award to such Eligible Individual in any subsequent Performance Period and the grant of an Award to any one Eligible Individual shall not require the grant of an Award to any other Eligible Individual in such period or in any other period.

 

5.3          Procedures with Respect to Performance-Based Awards.  To the extent necessary to comply with the requirements of Section 162(m)(4)(C) of the Code, with respect to any Award which is intended to qualify as Performance-Based Compensation, no later than ninety (90) days following the commencement of any Performance Period or any designated fiscal period or period of service (or such earlier time as may be required under Section 162(m)

 

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of the Code), the Committee shall, in writing, (a) designate one or more Eligible Individuals; (b) select the Performance Criteria applicable to the Performance Period; (c) establish the Performance Goals and amounts of such Awards, as applicable, which may be earned for such Performance Period based on the Performance Goals; and (d) specify the relationship between the Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period.  Following the completion of each Performance Period, the Committee shall certify in writing whether and the extent to which the applicable Performance Goals have been achieved for such Performance Period.  In determining the amount earned under such Awards, unless otherwise provided in an applicable Program or Award Agreement, the Committee shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant, including the assessment of individual or corporate performance for the Performance Period.

 

5.4          Payment of Performance-Based Awards.  Unless otherwise provided in the applicable Program or Award Agreement (and only to the extent otherwise permitted by Section 162(m)(4)(C) of the Code), the holder of an Award that is intended to qualify as Performance-Based Compensation must be employed by the Company or an Affiliate throughout the applicable Performance Period.  Unless otherwise provided in the applicable Performance Goals, Program or Award Agreement, a Participant shall be eligible to receive payment pursuant to such Awards for a Performance Period only if and to the extent the Performance Goals for such applicable Performance Period are achieved.

 

5.5          Additional Limitations.  Notwithstanding any other provision of the Plan and except as otherwise determined by the Administrator, any Award which is granted to an Eligible Individual and is intended to qualify as Performance-Based Compensation shall be subject to any additional limitations imposed by Section 162(m) of the Code that are requirements for qualification as Performance-Based Compensation, and the Plan, the Program and the Award Agreement shall be deemed amended to the extent necessary to conform to such requirements.

 

ARTICLE 6.

 

GRANTING OF OPTIONS

 

6.1          Granting of Options to Eligible Individuals.  The Administrator is authorized to grant Options to Eligible Individuals from time to time, in its sole discretion, on such terms and conditions as it may determine which shall not be inconsistent with the Plan.

 

6.2          Qualification of Incentive Stock Options.  No Incentive Stock Option shall be granted to any person who is not an Employee of the Company or any “parent corporation” or “subsidiary corporation” of the Company (as defined in Sections 424(e) and 424(f) of the Code, respectively).  No person who qualifies as a Greater Than 10% Stockholder may be granted an Incentive Stock Option unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code.  Any Incentive Stock Option granted under the Plan may be modified by the Administrator, with the consent of the Participant, to disqualify such Option from treatment as an “incentive stock option” under Section 422 of the Code. To the extent that the aggregate fair market value of stock with respect to which “incentive stock options” (within

 

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the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by a Participant during any calendar year under the Plan and all other plans of the Company and any Affiliate corporation thereof exceeds $100,000, the Options shall be treated as Non-Qualified Stock Options to the extent required by Section 422 of the Code.  The rule set forth in the preceding sentence shall be applied by taking Options and other “incentive stock options” into account in the order in which they were granted and the Fair Market Value of stock shall be determined as of the time the respective options were granted.  In addition, to the extent that any Options otherwise fail to qualify as Incentive Stock Options, such Options shall be treated as Nonqualified Stock Options.

 

6.3          Option Exercise Price.  Except as provided in Section 6.6 hereof, the exercise price per Share subject to each Option shall be set by the Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted (or, as to Incentive Stock Options, on the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code).  In addition, in the case of Incentive Stock Options granted to a Greater Than 10% Stockholder, such price shall not be less than one hundred ten percent (110%) of the Fair Market Value of a Share on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code).

 

6.4          Option Term.  The term of each Option shall be set by the Administrator in its sole discretion; provided, however, that the term shall not be more than ten (10) years from the date the Option is granted, or five (5) years from the date an Incentive Stock Option is granted to a Greater Than 10% Stockholder.  The Administrator shall determine the time period, including the time period following a Termination of Service, during which the Participant has the right to exercise the vested Options, which time period may not extend beyond the stated term of the Option. Except as limited by the requirements of Section 409A or Section 422 of the Code, the Administrator may extend the term of any outstanding Option, and may extend the time period during which vested Options may be exercised, in connection with any Termination of Service of the Participant, and, subject to Section 14.1 hereof, may amend any other term or condition of such Option relating to such a Termination of Service.

 

6.5          Option Vesting.

 

(a)           The terms and conditions pursuant to which an Option vests in the Participant and becomes exercisable shall be determined by the Administrator and set forth in the applicable Award Agreement.  Such vesting may be based on service with the Company or any Affiliate, any of the Performance Criteria, or any other criteria selected by the Administrator.  At any time after the grant of an Option, the Administrator may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the vesting of the Option, including following a Termination of Service; provided, that in no event shall an Option become exercisable following its expiration, termination or forfeiture.

 

(b)           No portion of an Option which is unexercisable at a Participant’s Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in an applicable Program, the applicable Award Agreement or by action of the Administrator following the grant of the Option.

 

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6.6          Substitute Awards.  Notwithstanding the foregoing provisions of this Article 6 to the contrary, in the case of an Option that is a Substitute Award, the price per Share of the Shares subject to such Option may be less than the Fair Market Value per share on the date of grant, provided, however, that the exercise price of any Substitute Award shall be determined in accordance with the applicable requirements of Sections 424 and 409A of the Code.

 

6.7          Substitution of Stock Appreciation Rights.  The Administrator may, in its sole discretion, substitute an Award of Stock Appreciation Rights for an outstanding Option at any time prior to or upon exercise of such Option; provided, however, that such Stock Appreciation Rights shall be exercisable with respect to the same number of Shares for which such substituted Option would have been exercisable, and shall also have the same exercise price and remaining term as the substituted Option.

 

ARTICLE 7.

 

EXERCISE OF OPTIONS

 

7.1          Partial Exercise.  An exercisable Option may be exercised in whole or in part.  However, an Option shall not be exercisable with respect to fractional shares and the Administrator may require that, by the terms of the Option, a partial exercise must be with respect to a minimum number of Shares.

 

7.2          Manner of Exercise.  All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company, or such other person or entity designated by the Administrator, or his, her or its office, as applicable:

 

(a)           A written or electronic notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised.  The notice shall be signed by the Participant or other person then entitled to exercise the Option or such portion of the Option;

 

(b)           Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with Applicable Law.  The Administrator may, in its sole discretion, also take such additional actions as it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;

 

(c)           In the event that the Option shall be exercised pursuant to Section 11.3 hereof by any person or persons other than the Participant, appropriate proof of the right of such person or persons to exercise the Option, as determined in the sole discretion of the Administrator; and

 

(d)           Full payment of the exercise price and applicable withholding taxes to the stock administrator of the Company for the Shares with respect to which the Option, or portion thereof, is exercised, in a manner permitted by the Administrator in accordance with Sections 11.1 and 11.2 hereof.

 

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7.3          Notification Regarding Disposition.  The Participant shall give the Company prompt written or electronic notice of any disposition of Shares acquired by exercise of an Incentive Stock Option which occurs within (a) two (2) years after the date of granting (including the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code) of such Option to such Participant, or (b) one (1) year after the date of transfer of such Shares to such Participant.

 

ARTICLE 8.

 

RESTRICTED STOCK

 

8.1          Award of Restricted Stock.

 

(a)           The Administrator is authorized to grant Restricted Stock to Eligible Individuals, and shall determine the terms and conditions, including the restrictions, applicable to each award of Restricted Stock, which terms and conditions shall not be inconsistent with the Plan, and may impose such conditions on the issuance of such Restricted Stock as it deems appropriate.

 

(b)           The Administrator shall establish the purchase price, if any, and form of payment for Restricted Stock; provided, however, that if a purchase price is charged, such purchase price shall be no less than the par value of the Shares to be purchased, unless otherwise permitted by Applicable Law.  In all cases, legal consideration shall be required for each issuance of Restricted Stock to the extent required by Applicable Law.

 

8.2          Rights as Stockholders.  Subject to Section 8.4 hereof, upon issuance of Restricted Stock, the Participant shall have, unless otherwise provided by the Administrator, all the rights of a stockholder with respect to said shares, subject to the restrictions in an applicable Program or in the applicable Award Agreement, including the right to receive all dividends and other distributions paid or made with respect to the shares; provided, however, that, in the sole discretion of the Administrator, any extraordinary distributions with respect to the shares shall be subject to the restrictions set forth in Section 8.3 hereof.

 

8.3          Restrictions.  All shares of Restricted Stock (including any shares received by Participants thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall, in the terms of an applicable Program or the applicable Award Agreement, be subject to such restrictions and vesting requirements as the Administrator shall provide.  Such restrictions may include, without limitation, restrictions concerning voting rights and transferability and such restrictions may lapse separately or in combination at such times and pursuant to such circumstances or based on such criteria as selected by the Administrator, including, without limitation, criteria based on the Participant’s continued employment, directorship or consultancy with the Company, the Performance Criteria, Company or Affiliate performance, individual performance or other criteria selected by the Administrator.  By action taken after the Restricted Stock is issued, the Administrator may, on such terms and conditions as it may determine to be appropriate, accelerate the vesting of such Restricted Stock by removing any or all of the restrictions imposed by the terms of an applicable

 

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Program and/or Award Agreement.  Restricted Stock may not be sold or encumbered until all restrictions are terminated or expire.

 

8.4          Repurchase or Forfeiture of Restricted Stock.  If no purchase price was paid by the Participant for the Restricted Stock, upon a Termination of Service, the Participant’s rights in unvested Restricted Stock then subject to restrictions shall lapse, and such Restricted Stock shall be surrendered to the Company and cancelled without consideration. If a purchase price was paid by the Participant for the Restricted Stock, upon a Termination of Service, the Company shall have the right to repurchase from the Participant the unvested Restricted Stock then-subject to restrictions at a cash price per share equal to the price paid by the Participant for such Restricted Stock or such other amount as may be specified in an applicable Program or the applicable Award Agreement.  The Administrator in its sole discretion may provide that, upon certain events, including without limitation a Change in Control, the Participant’s death, retirement or disability, any other specified Termination of Service or any other event, the Participant’s rights in unvested Restricted Stock shall not terminate, such Restricted Stock shall vest and cease to be forfeitable and, if applicable, the Company shall cease to have a right of repurchase.

 

8.5          Certificates for Restricted Stock.  Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Administrator shall determine.  Certificates or book entries evidencing shares of Restricted Stock must include an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, in its sole discretion, retain physical possession of any stock certificate until such time as all applicable restrictions lapse.

 

8.6          Section 83(b) Election.  If a Participant makes an election under Section 83(b) of the Code to be taxed with respect to the Restricted Stock as of the date of transfer of the Restricted Stock rather than as of the date or dates upon which the Participant would otherwise be taxable under Section 83(a) of the Code, the Participant shall be required to deliver a copy of such election to the Company promptly after filing such election with the Internal Revenue Service.

 

ARTICLE 9.

 

PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, STOCK PAYMENTS, RESTRICTED STOCK UNITS, PERFORMANCE SHARE AWARDS, OTHER INCENTIVE AWARDS

 

9.1          Performance Awards.

 

(a)           The Administrator is authorized to grant Performance Awards to any Eligible Individual and to determine whether such Performance Awards shall be Performance-Based Compensation.  The value of Performance Awards may be linked to any one or more of the Performance Criteria or other specific criteria determined by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator.

 

(b)           Without limiting Section 9.1(a) hereof, the Administrator may grant Performance Awards to any Eligible Individual in the form of a cash bonus payable upon the

 

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attainment of objective Performance Goals, or such other criteria, whether or not objective, which are established by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator.  Any such bonuses paid to a Participant which are intended to be Performance-Based Compensation shall be based upon objectively determinable bonus formulas established in accordance with the provisions of Article 5 hereof.

 

9.2          Dividend Equivalents.

 

(a)           Subject to Section 9.2(b) hereof, Dividend Equivalents may be granted by the Administrator, either alone or in tandem with another Award, based on dividends declared on the Common Stock, to be credited as of dividend payment dates during the period between the date the Dividend Equivalents are granted to a Participant and the date such Dividend Equivalents terminate or expire, as determined by the Administrator.  Such Dividend Equivalents shall be converted to cash or additional Shares by such formula, at such time and subject to such limitations as may be determined by the Administrator.  In addition, the Administrator may provide that Dividend Equivalents with respect to Shares covered by an Award shall only be paid out to the Participant at the same time or times and to the same extent that the vesting conditions, if any, are subsequently satisfied and the Award vests with respect to such Shares.

 

(b)           Notwithstanding the foregoing, no Dividend Equivalents shall be payable with respect to Options or Stock Appreciation Rights, unless otherwise determined by the Administrator.

 

9.3          Stock Payments.  The Administrator is authorized to make one or more Stock Payments to any Eligible Individual.  The number or value of Shares of any Stock Payment shall be determined by the Administrator and may be based upon one or more Performance Criteria or any other specific criteria, including service to the Company or any Affiliate, determined by the Administrator.  Stock Payments may, but are not required to, be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to such Eligible Individual.

 

9.4          Restricted Stock Units.  The Administrator is authorized to grant Restricted Stock Units to any Eligible Individual.  The number and terms and conditions of Restricted Stock Units shall be determined by the Administrator.  The Administrator shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate, including conditions based on one or more Performance Criteria or other specific criteria, including service to the Company or any Affiliate, in each case, on a specified date or dates or over any period or periods, as determined by the Administrator.  The Administrator shall specify, or permit the Participant to elect, the conditions and dates upon which the Shares underlying the Restricted Stock Units shall be issued, which dates shall not be earlier than the date as of which the Restricted Stock Units vest and become nonforfeitable and which conditions and dates shall be consistent with the applicable provisions of Section 409A of the Code or an exemption therefrom.  On the distribution dates, the Company shall issue to the Participant one unrestricted, fully transferable Share (or the Fair Market Value of one such Share in cash) for each vested and nonforfeitable Restricted Stock Unit.

 

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9.5          Performance Share Awards.  Any Eligible Individual selected by the Administrator may be granted one or more Performance Share Awards which shall be denominated in a number of Shares and the vesting of which may be linked to any one or more of the Performance Criteria, other specific performance criteria (in each case on a specified date or dates or over any period or periods determined by the Administrator) and/or time-vesting or other criteria, as determined by the Administrator.

 

9.6          Other Incentive Awards.  The Administrator is authorized to grant Other Incentive Awards to any Eligible Individual, which Awards may cover Shares or the right to purchase Shares or have a value derived from the value of, or an exercise or conversion privilege at a price related to, or that are otherwise payable in or based on, Shares, shareholder value or shareholder return, in each case, on a specified date or dates or over any period or periods determined by the Administrator.  Other Incentive Awards may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Administrator.

 

9.7          Other Terms and Conditions.  All applicable terms and conditions of each Award described in this Article 9, including without limitation, as applicable, the term, vesting conditions and exercise/purchase price applicable to the Award, shall be set by the Administrator in its sole discretion, provided, however, that the value of the consideration paid by a Participant for an Award shall not be less than the par value of a Share, unless otherwise permitted by Applicable Law.

 

9.8          Exercise upon Termination of Service.  Awards described in this Article 9 are exercisable or distributable, as applicable, only while the Participant is an Employee, Director or Consultant, as applicable.  The Administrator, however, in its sole discretion may provide that such Award may be exercised or distributed subsequent to a Termination of Service as provided under an applicable Program, Award Agreement, payment deferral election and/or upon certain events, including without limitation, a Change in Control, the Participant’s death, retirement or disability or any other specified Termination of Service.

 

ARTICLE 10.

 

STOCK APPRECIATION RIGHTS

 

10.1        Grant of Stock Appreciation Rights.

 

(a)           The Administrator is authorized to grant Stock Appreciation Rights to Eligible Individuals from time to time, in its sole discretion, on such terms and conditions as it may determine consistent with the Plan.

 

(b)           A Stock Appreciation Right shall entitle the Participant (or other person entitled to exercise the Stock Appreciation Right pursuant to the Plan) to exercise all or a specified portion of the Stock Appreciation Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per Share of the Stock Appreciation Right from the Fair Market Value on the date of exercise of the Stock Appreciation Right by the number of Shares with respect to which the Stock Appreciation Right shall have been exercised, subject to

 

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any limitations the Administrator may impose.  Except as described in Section 10.1(c) hereof, the exercise price per Share subject to each Stock Appreciation Right shall be set by the Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value on the date the Stock Appreciation Right is granted.

 

(c)           Notwithstanding the provisions of Section 10.1(b) hereof to the contrary, in the case of a Stock Appreciation Right that is a Substitute Award, the price per share of the shares subject to such Stock Appreciation Right may be less than 100% of the Fair Market Value per share on the date of grant; provided, however, that the exercise price of any Substitute Award shall be determined in accordance with the applicable requirements of Sections 424 and 409A of the Code.

 

10.2        Stock Appreciation Right Vesting.

 

(a)           The Administrator shall determine the period during which a Participant shall vest in a Stock Appreciation Right and have the right to exercise such Stock Appreciation Rights (subject to Section 10.4 hereof) in whole or in part.  Such vesting may be based on service with the Company or any Affiliate, any of the Performance Criteria or any other criteria selected by the Administrator.  At any time after grant of a Stock Appreciation Right, the Administrator may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the period during which the Stock Appreciation Right vests.

 

(b)           No portion of a Stock Appreciation Right which is unexercisable at Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in an applicable Program or Award Agreement or by action of the Administrator following the grant of the Stock Appreciation Right, including following a Termination of Service; provided, that in no event shall a Stock Appreciation Right become exercisable following its expiration, termination or forfeiture.

 

10.3        Manner of Exercise.  All or a portion of an exercisable Stock Appreciation Right shall be deemed exercised upon delivery of all of the following to the stock administrator of the Company, or such other person or entity designated by the Administrator, or his, her or its office, as applicable:

 

(a)           A written or electronic notice complying with the applicable rules established by the Administrator stating that the Stock Appreciation Rights, or a portion thereof, is exercised.  The notice shall be signed by the Participant or other person then-entitled to exercise the Stock Appreciation Rights or such portion of the Stock Appreciation Rights;

 

(b)           Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal, state or foreign securities laws or regulations.  The Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance;

 

(c)           In the event that the Stock Appreciation Right shall be exercised pursuant to this Section 10.3 by any person or persons other than the Participant, appropriate proof of the right of such person or persons to exercise the Stock Appreciation Rights; and

 

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(d)                                 Full payment of the applicable withholding taxes to the stock administrator of the Company for the Shares with respect to which the Stock Appreciation Rights, or portion thereof, are exercised, in a manner permitted by the Administrator in accordance with Sections 11.1 and 11.2 hereof.

 

10.4                        Stock Appreciation Right Term.  The term of each Stock Appreciation Right shall be set by the Administrator in its sole discretion; provided, however, that the term shall not be more than ten (10) years from the date the Stock Appreciation Right is granted.  The Administrator shall determine the time period, including the time period following a Termination of Service, during which the Participant has the right to exercise any vested Stock Appreciation Rights, which time period may not extend beyond the expiration date of the Stock Appreciation Right term.  Except as limited by the requirements of Section 409A of the Code, the Administrator may extend the term of any outstanding Stock Appreciation Right, and may extend the time period during which vested Stock Appreciation Rights may be exercised, in connection with any Termination of Service of the Participant, and, subject to Section 14.1 hereof, may amend any other term or condition of such Stock Appreciation Rights relating to such a Termination of Service.

 

ARTICLE 11.

 

ADDITIONAL TERMS OF AWARDS

 

11.1                        Payment.  The Administrator shall determine the methods by which payments by any Participant with respect to any Awards granted under the Plan shall be made, including, without limitation: (a) cash or check, (b) Shares (including, in the case of payment of the exercise price of an Award, Shares issuable pursuant to the exercise of the Award) held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences, in each case, having a Fair Market Value on the date of delivery equal to the aggregate payments required, (c) delivery of a written or electronic notice that the Participant has placed a market sell order with a broker with respect to Shares then-issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required; provided, however, that payment of such proceeds is then made to the Company upon settlement of such sale or (d) other form of legal consideration acceptable to the Administrator.  The Administrator shall also determine the methods by which Shares shall be delivered or deemed to be delivered to Participants.  Notwithstanding any other provision of the Plan to the contrary, no Participant who is a Director or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.

 

11.2                        Tax Withholding.  The Company and its Affiliates shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company or an Affiliate, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant’s social security, Medicare and any other employment tax obligation) required by law to be withheld with respect to any taxable event concerning a Participant arising in connection with

 

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any Award.  The Administrator may in its sole discretion and in satisfaction of the foregoing requirement allow a Participant to satisfy such obligations by any payment means described in Section 11.1 hereof, including without limitation, by allowing such Participant to elect to have the Company or an Affiliate withhold Shares otherwise issuable under an Award (or allow the surrender of Shares).  The number of Shares which may be so withheld or surrendered shall be limited to the number of Shares which have a Fair Market Value on the date of withholding or repurchase no greater than the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income.  The Administrator shall determine the fair market value of the Shares, consistent with applicable provisions of the Code, for tax withholding obligations due in connection with a broker-assisted cashless Option or Stock Appreciation Right exercise involving the sale of Shares to pay the Option or Stock Appreciation Right exercise price or any tax withholding obligation.

 

11.3                        Transferability of Awards.

 

(a)                                 Except as otherwise provided in Section 11.3(b) or (c) hereof:

 

(i)                                     No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO, unless and until such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed;

 

(ii)                                  No Award or interest or right therein shall be subject to the debts, contracts or engagements of the Participant or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy) unless and until such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed, and any attempted disposition of an Award prior to the satisfaction of these conditions shall be null and void and of no effect, except to the extent that such disposition is permitted by clause (i) of this provision; and

 

(iii)                               During the lifetime of the Participant, only the Participant may exercise an Award (or any portion thereof) granted to him under the Plan, unless it has been disposed of pursuant to a DRO; after the death of the Participant, any exercisable portion of an Award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Program or Award Agreement, be exercised by his personal representative or by any person empowered to do so under the deceased Participant’s will or under the then-applicable laws of descent and distribution.

 

(b)                                 Notwithstanding Section 11.3(a) hereof, the Administrator, in its sole discretion, may determine to permit a Participant or a Permitted Transferee of such Participant to transfer an Award other than an Incentive Stock Option (unless such Incentive Stock Option is to become a Non-Qualified Stock Option) to any one or more Permitted Transferees of such

 

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Participant, subject to the following terms and conditions: (i) an Award transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee (other than to another Permitted Transferee of the applicable Participant) other than by will or the laws of descent and distribution; (ii) an Award transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Award as applicable to the original Participant (other than the ability to further transfer the Award); and (iii) the Participant (or transferring Permitted Transferee) and the Permitted Transferee shall execute any and all documents requested by the Administrator, including without limitation, documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under applicable federal, state and foreign securities laws and (C) evidence the transfer.  In addition, and further notwithstanding Section 11.3(a) hereof, the Administrator, in its sole discretion, may determine to permit a Participant to transfer Incentive Stock Options to a trust that constitutes a Permitted Transferee if, under Section 671 of the Code and applicable state law, the Participant is considered the sole beneficial owner of the Incentive Stock Option while it is held in the trust.

 

(c)                                  Notwithstanding Section 11.3(a) hereof, a Participant may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death.  A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Program or Award Agreement applicable to the Participant, except to the extent the Plan, the Program and the Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrator.  If the Participant is married or a domestic partner in a domestic partnership qualified under Applicable Law and resides in a “community property” state, a designation of a person other than the Participant’s spouse or domestic partner, as applicable, as his or her beneficiary with respect to more than fifty percent (50%) of the Participant’s interest in the Award shall not be effective without the prior written or electronic consent of the Participant’s spouse or domestic partner.  If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant’s will or the laws of descent and distribution.  Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is delivered to the Administrator prior to the Participant’s death.

 

11.4                        Conditions to Issuance of Shares.

 

(a)                                 Notwithstanding anything herein to the contrary, neither the Company nor its Affiliates shall be required to issue or deliver any certificates or make any book entries evidencing Shares pursuant to the exercise of any Award, unless and until the Administrator has determined, with advice of counsel, that the issuance of such Shares is in compliance with Applicable Law, and the Shares are covered by an effective registration statement or applicable exemption from registration.  In addition to the terms and conditions provided herein, the Administrator may require that a Participant make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements.

 

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(b)                                 All Share certificates delivered pursuant to the Plan and all Shares issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with Applicable Law.  The Administrator may place legends on any Share certificate or book entry to reference restrictions applicable to the Shares.

 

(c)                                  The Administrator shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement, distribution or exercise of any Award, including a window-period limitation, as may be imposed in the sole discretion of the Administrator.

 

(d)                                 No fractional Shares shall be issued and the Administrator shall determine, in its sole discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding down.

 

(e)                                  Notwithstanding any other provision of the Plan, unless otherwise determined by the Administrator or required by any Applicable Law, the Company and/or its Affiliates may, in lieu of delivering to any Participant certificates evidencing Shares issued in connection with any Award, record the issuance of Shares in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).

 

11.5                        Forfeiture and Claw-Back Provisions.  Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Administrator shall have the right to provide, in the terms of Awards made under the Plan, or to require a Participant to agree by separate written or electronic instrument, that:

 

(a)                                 (i) any proceeds, gains or other economic benefit actually or constructively received by the Participant upon any receipt or exercise of the Award, or upon the receipt or resale of any Shares underlying the Award, must be paid to the Company, and (ii) the Award shall terminate and any unexercised portion of the Award (whether or not vested) shall be forfeited, if (x) a Termination of Service occurs prior to a specified date, or within a specified time period following receipt or exercise of the Award, or (y) the Participant at any time, or during a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Administrator or (z) the Participant incurs a Termination of Service for cause; and

 

(b)                                 All Awards (including any proceeds, gains or other economic benefit actually or constructively received by the Participant upon any receipt or exercise of any Award or upon the receipt or resale of any Shares underlying the Award) shall be subject to the provisions of any claw-back policy implemented by the Company, including without limitation, any claw-back policy adopted to comply with the requirements of Applicable Law, including without limitation the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder, to the extent set forth in such claw-back policy and/or in the applicable Award Agreement.

 

11.6                        Repricing.  Subject to limitations imposed by Section 409A of the Code or other applicable law and the limitations contained in Section 14.1 below, the Administrator shall have

 

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the authority, without the approval of the stockholders of the Company, to amend any outstanding Award, in whole or in part, to increase or reduce the price per Share or to cancel and replace an Award, in whole or in part, with cash and/or another Award, including without limitation, another Option or Stock Appreciation Right having a price per Share that is less than, greater than or equal to the price per Share of the original Award.

 

11.7                        Cash Settlement.  Without limiting the generality of any other provision of the Plan, the Administrator may provide, in an Award Agreement or subsequent to the grant of an Award, in its discretion, that any Award may be settled in cash, Shares or a combination thereof.

 

11.8                        Leave of Absence.  Unless the Administrator provides otherwise, vesting of Awards granted hereunder shall be suspended during any unpaid leave of absence.  A Participant shall not cease to be considered an Employee, Non-Employee Director or Consultant, as applicable, in the case of any (a) leave of absence approved by the Company, (b) transfer between locations of the Company or between the Company and any of its Affiliates or any successor thereof, or (c) change in status (Employee to Director, Employee to Consultant, etc.), provided that such change does not affect the specific terms applying to the Participant’s Award.

 

11.9                        Terms May Vary Between Awards.  The terms and conditions of each Award shall be determined by the Administrator in its sole discretion and the Administrator shall have complete flexibility to provide for varied terms and conditions as between any Awards, whether of the same or different Award type and/or whether granted to the same or different Participants (in all cases, subject to the terms and conditions of the Plan).

 

ARTICLE 12.

 

NON-EMPLOYEE DIRECTOR AWARDS

 

12.1                        Non-Employee Director Awards.  The Board may grant Awards to Non-Employee Directors, subject to the limitations of the Plan, pursuant to a written non-discretionary formula established by the Committee, or any successor committee thereto carrying out its responsibilities on the date of grant of any such Award (the “Non-Employee Director Equity Compensation Program”).  The Non-Employee Director Equity Compensation Program shall set forth the type of Award(s) to be granted to Non-Employee Directors, the number of Shares subject to Non-Employee Director Awards, the conditions on which such Awards shall be granted, become exercisable and/or payable and expire, and such other terms and conditions as the Committee (or such other successor committee as described above) shall determine in its discretion.

 

ARTICLE 13.

 

ADMINISTRATION

 

13.1                        Administrator.  The Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under the Plan) shall administer the Plan (except as otherwise permitted herein, including with respect to determinations under Section 3.1(a)(iii)(C)) and, unless otherwise determined by the Board, shall consist solely of two or more Non-Employee Directors appointed by and holding office at the pleasure of the Board, each of

 

25

 

whom is intended to qualify as a “non-employee director” as defined by Rule 16b-3 of the Exchange Act, an “outside director” for purposes of Section 162(m) of the Code and an “independent director” under the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded, in each case, to the extent required under such provision; provided, however, that any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 13.l or otherwise provided in any charter of the Committee.  Except as may otherwise be provided in any charter of the Committee, appointment of Committee members shall be effective upon acceptance of appointment, Committee members may resign at any time by delivering written or electronic notice to the Board, and vacancies in the Committee may only be filled by the Board.  Notwithstanding the foregoing, (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Awards granted to Non-Employee Directors and (b) the Board or Committee may delegate its authority hereunder to the extent permitted by Section 13.6 hereof.

 

13.2                        Duties and Powers of Administrator.  It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with its provisions.  The Administrator shall have the power to interpret the Plan and all Programs and Award Agreements, and to adopt such rules for the administration, interpretation and application of the Plan and any Program as are not inconsistent with the Plan, to interpret, amend or revoke any such rules and to amend any Program or Award Agreement, provided that the rights or obligations of the holder of the Award that is the subject of any such Program or Award Agreement are not affected adversely by such amendment unless the consent of the Participant is obtained or such amendment is otherwise permitted under Section 14.10 hereof.  Any such grant or award under the Plan need not be the same with respect to each Participant.  Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code.  In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 under the Exchange Act, Section 162(m) of the Code, or the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded are required to be determined in the sole discretion of the Committee.

 

13.3                              Action by the Committee.  Unless otherwise established by the Board or in any charter of the Committee or as required by law, a majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by all members of the Committee in lieu of a meeting, shall be deemed the acts of the Committee.  Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

 

13.4                        Authority of Administrator.  Subject to any specific designation in the Plan, the Administrator has the exclusive power, authority and sole discretion to:

 

(a)                         Designate Eligible Individuals to receive Awards;

 

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(b)                         Determine the type or types of Awards to be granted to each Eligible Individual;

 

(c)                          Determine the number of Awards to be granted and the number of Shares to which an Award will relate;

 

(d)                         Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any performance criteria, any reload provision, any restrictions or limitations on the Award, any schedule for vesting, lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, and any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Administrator in its sole discretion determines;

 

(e)                          Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

 

(f)                           Prescribe the form of each Award Agreement, which need not be identical for each Participant;

 

(g)                          Decide all other matters that must be determined in connection with an Award;

 

(h)                         Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

 

(i)                             Interpret the terms of, and any matter arising pursuant to, the Plan, any Program or any Award Agreement; and

 

(j)                            Make all other decisions and determinations that may be required pursuant to the Plan or as the Administrator deems necessary or advisable to administer the Plan.

 

13.5                        Decisions Binding.  The Administrator’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Program, any Award Agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.

 

13.6                        Delegation of Authority.  To the extent permitted by Applicable Law, the Board or Committee may from time to time delegate to a committee of one or more members of the Board or, with respect to Options or other rights with respect to Shares (but not Shares themselves), one or more officers of the Company the authority to grant or amend Awards or to take other administrative actions pursuant to this Article 13; provided, however, that in no event shall an officer of the Company be delegated the authority to grant Awards to, or amend Awards held by, the following individuals: (a) individuals who are subject to Section 16 of the Exchange Act, (b) Covered Employees with respect to Awards intended to constitute Performance-Based Compensation, or (c) officers of the Company (or Directors) to whom authority to grant or

 

27

 

amend Awards has been delegated hereunder; provided  further, that any delegation of administrative authority shall only be permitted to the extent it is permissible under Section 162(m) of the Code and Applicable Law.  Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation, and the Board may at any time rescind the authority so delegated or appoint a new delegatee.  At all times, the delegatee appointed under this Section 13.6 shall serve in such capacity at the pleasure of the Board and the Committee.

 

ARTICLE 14.

 

MISCELLANEOUS PROVISIONS

 

14.1                        Amendment, Suspension or Termination of the Plan.  Except as otherwise provided in this Section 14.1, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board.  However, without approval of the Company’s stockholders given within twelve (12) months before or after the action by the Administrator, no action of the Administrator may, except as provided in Section 14.2 hereof, increase the Share Limit. Except as provided in Section 14.10 hereof, no amendment, suspension or termination of the Plan shall, without the consent of the Participant, impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides.  No Awards may be granted or awarded during any period of suspension or after termination of the Plan. The annual increase to the Share Limit (set forth in Section 3.1(a)(iii) hereof) shall terminate on the tenth (10th) anniversary of the Effective Date and, from and after such tenth (10th) anniversary, no additional share increases shall occur pursuant to Section 3.1(a)(iii) hereof.  In addition, notwithstanding anything herein to the contrary, no Incentive Stock Option shall be granted under the Plan after the tenth (10th) anniversary of the Effective Date.

 

14.2                        Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events.

 

(a)                                 In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of the Company’s stock or the share price of the Company’s stock other than an Equity Restructuring, the Administrator shall make equitable adjustments, if any, to reflect such change with respect to (i) the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the Share Limit and Individual Award Limits); (ii) the number and kind of Shares (or other securities or property) subject to outstanding Awards; (iii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and/or (iv) the grant or exercise price per share for any outstanding Awards under the Plan.  Any adjustment affecting an Award intended as Performance-Based Compensation shall be made consistent with the requirements of Section 162(m) of the Code unless otherwise determined by the Administrator.

 

(b)                                 In the event of any transaction or event described in Section 14.2(a) hereof or any unusual or nonrecurring transactions or events affecting the Company, any Affiliate, or

 

28

 

the financial statements of the Company or any Affiliate, or of changes in Applicable Law, the Administrator, in its sole discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:

 

(i)                                     To provide for either (A) termination of any such Award in exchange for an amount of cash and/or other property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 14.2, the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion having an aggregate value not exceeding the amount that could have been attained upon the exercise of such Award or realization of the Participant’s rights had such Award been currently exercisable or payable or fully vested;

 

(ii)                                  To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;

 

(iii)                               To make adjustments in the number and type of securities subject to outstanding Awards and Awards which may be granted in the future and/or in the terms, conditions and criteria included in such Awards (including the grant or exercise price, as applicable);

 

(iv)                              To provide that such Award shall be exercisable or payable or fully vested with respect to all securities covered thereby, notwithstanding anything to the contrary in the Plan or an applicable Program or Award Agreement; and

 

(v)                                 To provide that the Award cannot vest, be exercised or become payable after such event.

 

(c)                                  In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Sections 14.2(a) and 14.2(b) hereof:

 

(i)                                     The number and type of securities subject to each outstanding Award and/or the exercise price or grant price thereof, if applicable, shall be equitably adjusted; and/or

 

(ii)                                  The Administrator shall make such equitable adjustments, if any, as the Administrator in its discretion may deem appropriate to reflect such Equity Restructuring

 

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with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments to the Share Limit and the Individual Award Limits).

 

The adjustments provided under this Section 14.2(c) shall be nondiscretionary and shall be final and binding on the affected Participant and the Company.

 

(d)                                 Change in Control.

 

(i)                                     Notwithstanding any other provision of the Plan, in the event of a Change in Control, each outstanding Award shall be assumed or an equivalent Award substituted by the successor corporation or a parent or subsidiary of the successor corporation, in each case, as determined by the Administrator.

 

(ii)                                  In the event that the successor corporation in a Change in Control and its parents and subsidiaries refuse to assume or substitute for any Award in accordance with Section 14.2(d)(i) hereof, each such non-assumed/substituted Award shall become fully vested and, as applicable, exercisable and shall be deemed exercised, immediately prior to the consummation of such transaction, and all forfeiture restrictions on any or all such Awards shall lapse at such time.  If an Award vests and, as applicable, is exercised in lieu of assumption or substitution in connection with a Change in Control, the Administrator shall notify the Participant of such vesting and any applicable exercise period, and the Award shall terminate upon the Change in Control.  For the avoidance of doubt, if the value of an Award that is terminated in connection with this Section 14.2(d)(ii) is zero or negative at the time of such Change in Control, such Award shall be terminated upon the Change in Control without payment of consideration therefor.

 

(e)                                  The Administrator may, in its sole discretion, include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of the Company that are not inconsistent with the provisions of the Plan.

 

(f)                                   With respect to Awards which are granted to Covered Employees and are intended to qualify as Performance-Based Compensation, no adjustment or action described in this Section 14.2 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause such Award to fail to so qualify as Performance-Based Compensation, unless the Administrator determines that the Award should not so qualify.  No adjustment or action described in this Section 14.2 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code.  Furthermore, no such adjustment or action shall be authorized with respect to any Award to the extent such adjustment or action would result in short-swing profits liability under Section 16 of the Exchange Act or violate the exemptive conditions of Rule 16b-3 of the Exchange Act unless the Administrator determines that the Award is not to comply with such exemptive conditions.

 

(g)                                  The existence of the Plan, any Program, any Award Agreement and/or any Award granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company or any Affiliate to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s or such Affiliate’s

 

30

 

capital structure or its business, any merger or consolidation of the Company or any Affiliate, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock, the securities of any Affiliate or the rights thereof or which are convertible into or exchangeable for Common Stock or securities of any Affiliate, or the dissolution or liquidation of the Company or any Affiliate, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

 

(h)                                 No action shall be taken under this Section 14.2 which shall cause an Award to fail to comply with Section 409A of the Code or an exemption therefrom, in either case, to the extent applicable to such Award, unless the Administrator determines any such adjustments to be appropriate.

 

(i)                                     In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the Shares or the share price of the Common Stock including any Equity Restructuring, for reasons of administrative convenience, the Company in its sole discretion may refuse to permit the exercise of any Award during a period of thirty (30) days prior to the consummation of any such transaction.

 

14.3                        Approval of Plan by Stockholders.  The Plan shall be submitted for the approval of the Company’s stockholders within twelve (12) months following the date of the Board’s initial adoption of the Plan.  Awards may be granted or awarded prior to such stockholder approval; provided, that such Awards shall not be exercisable, shall not vest and the restrictions thereon shall not lapse and no Shares shall be issued pursuant thereto prior to the time when the Plan is approved by the Company’s stockholders; and provided, further, that if such approval has not been obtained at the end of such twelve (12)-month period, all such Awards previously granted or awarded under the Plan shall thereupon be canceled and become null and void.

 

14.4                        No Stockholders Rights.  Except as otherwise provided herein or in an applicable Program or Award Agreement, a Participant shall have none of the rights of a stockholder with respect to Shares covered by any Award until the Participant becomes the record owner of such Shares.

 

14.5                        Paperless Administration.  In the event that the Company establishes, for itself or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Participant may be permitted through the use of such an automated system.

 

14.6                        Effect of Plan upon Other Compensation Plans.  Other than the termination of the Prior Plan, the adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Affiliate.  Nothing in the Plan shall be construed to limit the right of the Company or any Affiliate: (a) to establish any other forms of incentives or compensation for Employees, Directors or Consultants of the Company or any Affiliate or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection

 

31

 

with any proper corporate purpose, including without limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association.

 

14.7                        Compliance with Laws.  The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of Shares and the payment of money under the Plan or under Awards granted or awarded hereunder are subject to compliance with all Applicable Law, and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith.  Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with Applicable Law.  To the extent permitted by Applicable Law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such Applicable Law.

 

14.8                        Titles and Headings, References to Sections of the Code or Exchange Act.  The titles and headings of the sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. References to sections of the Code or the Exchange Act shall include any amendment or successor thereto.

 

14.9                        Governing Law.  The Plan and any Programs or Award Agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof.

 

14.10                 Section 409A.  To the extent that the Administrator determines that any Award granted under the Plan is subject to Section 409A of the Code, the Plan, any applicable Program and the Award Agreement covering such Award shall be interpreted in accordance with Section 409A of the Code.  Notwithstanding any provision of the Plan to the contrary, in the event that, following the Effective Date, the Administrator determines that any Award may be subject to Section 409A of the Code, the Administrator may adopt such amendments to the Plan, any applicable Program and the Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to avoid the imposition of taxes on the Award under Section 409A of the Code, either through compliance with the requirements of Section 409A of the Code or with an available exemption therefrom.

 

14.11                 No Rights to Awards.  No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Administrator is obligated to treat Eligible Individuals, Participants or any other persons uniformly.

 

14.12                 Unfunded Status of Awards.  The Plan is intended to be an “unfunded” plan for incentive compensation.  With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Program or Award Agreement shall give the

 

32

 

Participant any rights that are greater than those of a general creditor of the Company or any Affiliate.

 

14.13                 Indemnification.  To the extent allowable pursuant to Applicable Law, each member of the Board and any officer or other employee to whom authority to administer any component of the Plan is delegated shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided, however, that he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf.  The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

 

14.14                 Relationship to other Benefits.  No payment pursuant to the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Affiliate except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

 

14.15                 Expenses.  The expenses of administering the Plan shall be borne by the Company and its Affiliates.

 

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*  *  *  *  *

 

I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of Kythera Biopharmaceuticals, Inc. on March 29, 2012.

 

*  *  *  *  *

 

I hereby certify that the foregoing Plan was approved by the stockholders of Kythera Biopharmaceuticals, Inc. on September 21, 2012.

 

Executed on this 16th day of October, 2012.

 

 

	
 
    	
/s/   Keith L. Klein
    
	
 
    	
Keith   L. Klein, Secretary
    

 

34Exhibit 10.1

 

AGREEMENT OF PURCHASE AND SALE

 

THIS AGREEMENT made as of the 13th day of November, 2012.

 

BETWEEN:

 

LONE PINE RESOURCES CANADA LTD., a body corporate, having offices in the City of Calgary, in the Province of Alberta (hereinafter referred to as “Vendor”)

 

- and -

 

CANADIAN NATURAL RESOURCES LIMITED, a body corporate, having offices in the City of Calgary, in the Province of Alberta (hereinafter referred to as “Purchaser”)

 

WHEREAS Vendor wishes to sell and Purchaser wishes to purchase the interest of Vendor in and to the Assets, subject to and in accordance with the terms and conditions hereof;

 

NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the Parties have agreed as follows:

 

ARTICLE 1

INTERPRETATION

 

1.1                               Definitions

 

In this Agreement, unless the context otherwise requires:

 

(a)                                 “Adjustment Date” means the hour of 8:00 a.m., Calgary time, on the 1st day of October, 2012;

 

(b)                                 “AFE’s” means the authorities for expenditure, operations notices, amounts budgeted pursuant to the Unit Agreements and mail ballots, if any, set out in Schedule “B” under the heading “AFE’s”;

 

(c)                                  “ARC” means an advance ruling certificate issued pursuant to Section 102 of the Competition Act;

 

(d)                                 “Assets” means the Petroleum and Natural Gas Rights, the Tangibles and the Miscellaneous Interests;

 

(e)                                  “Business Day” means a day other than a Saturday, a Sunday or a statutory holiday in Calgary, Alberta;

 

(f)                                   “Certificate” means a written certification of a matter or matters of fact which, if required from a corporation, shall be made by an officer of the corporation, on behalf of the corporation and not in any personal capacity;

 

 

(g)                                  “Closing” means the closing of the purchase and sale herein provided for;

 

(h)                                 “Closing Place” means the offices of Vendor, or such other place as may be agreed upon in writing by Vendor and Purchaser;

 

(i)                                     “Closing Time” means the hour of 10:00 a.m. on the later of:

 

(i)                                     the 14th day of December, 2012;

 

(ii)                                  the third Business Day following an arbitration decision pursuant to section 11.6, if applicable;

 

(iii)                               the third Business Day following the day on which the Competition Act Condition has been satisfied; and

 

(iv)                              the third Business Day following the day on which any and all preferential, pre-emptive or first purchase rights of Third Parties that become operative by virtue of this Agreement or the transaction to be effected by it shall have been exercised or waived by the holders thereof or all time periods within which such rights may be exercised shall have expired;

 

or such other time and date as may be agreed upon in writing by Vendor and Purchaser;

 

(j)                                    “Commissioner” means the Commissioner of Competition appointed under the Competition Act;

 

(k)                                 “Competition Act” means the Competition Act (Canada);

 

(l)                                     “Competition Act Condition” means that with respect to the Competition Act, prior to the Closing Time:

 

(i)                                     Purchaser shall have received an ARC with respect to the transaction contemplated herein; or

 

(ii)                                  (a) the applicable waiting period under subsection 123(1) of the Competition Act shall have expired, been terminated or shall have been waived by the Commissioner under subsection 123(1) or 123(2) of the Competition Act respectively, or the obligation to submit a notification under Part IX of the Competition Act shall have been waived by the Commissioner pursuant to paragraph 113(c) of the Competition Act, and; (b) Purchaser shall have received a letter from the Commissioner confirming that the Commissioner does not, at that time, intend to make an application to the Competition Tribunal under section 92 of the Competition Act in respect of the transaction contemplated herein;

 

(m)                             “Counsel” means any Alberta barrister and solicitor or firm thereof retained by Vendor or Purchaser, as the case may be;

 

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(n)                                 “Environmental Defect” means an occurrence of environmental damage or contamination or any other adverse environmental condition that has an adverse effect to the value of the Assets, but specifically excludes:

 

i)                                         the normal and typical costs of abandonment of a Well, Pipeline, Facility or other aspect of the Tangibles and of the restoration and reclamation of the surface location and region of such Well, Pipeline, Facility or Tangible, all in accordance with applicable government rules and regulations; and

 

ii)                                      any occurrence of environmental damage or contamination that has a negative impact on the value of the assets of less than $50,000.00

 

(o)                                 “Escrow Agent” means Osler, Hoskin & Harcourt LLP;

 

(p)                                 “Escrow Agreement” means the agreement among the Escrow Agent, Purchaser and Vendor in form and substance satisfactory to such parties, acting reasonably, to be entered into prior to the Closing Time and pursuant to which the Escrow Agent will hold and deal with the Deposit LC;

 

(q)                                 “Facilities” means the facility or facilities, if any, set out in Schedule “B” under the heading “Facilities”;

 

(r)                                    “Goods and Services Tax” means the goods and services tax administered pursuant to the Excise Tax Act (Canada);

 

(s)                                   “Lands” means the lands set out in Schedule “A” under the heading “Lands”;

 

(t)                                    “Leased Substances” means all Petroleum Substances, rights to or in respect of which are granted, reserved or otherwise conferred by or under the Unit Agreements, or by or under the Title Documents (but only to the extent that the Title Documents pertain to the Lands);

 

(u)                                 “Deposit LC” means the irrevocable Letter of Credit for the benefit of the Escrow Agent issued by the Royal Bank of Canada with a face amount of $8,200,000 delivered by Purchaser to the Escrow Agent concurrently with the execution and delivery of this Agreement, which Letter of Credit shall expire on January 14, 2013;

 

(v)                                 “Licence Transfers”  means, in relation to the Assets, the transfers of any permits, approvals, licences and authorizations granted by any applicable governmental body;

 

(w)          “Miscellaneous Interests” means, subject to any and all limitations and exclusions provided for in this definition, all property, assets, interests and rights pertaining to the Petroleum and Natural Gas Rights and the Tangibles, or either of them, but only to the extent that such property, assets, interests and rights pertain to the Petroleum and Natural Gas Rights and the Tangibles, or either of them, including without limitation any and all of the following:

 

3

 

(i)                                     contracts and agreements relating to the Petroleum and Natural Gas Rights and the Tangibles, or either of them, including without limitation gas purchase contracts, processing agreements, transportation agreements and agreements for the construction, ownership and operation of facilities; but unless included as Production Contracts, excluding production sales contracts pertaining to the Leased Substances or any of them that cannot be terminated on notice of 31 days or less (without an early termination penalty or other cost), gas balancing or similar agreements pertaining to the Leased Substances or any of them, agreements for the transportation, processing or disposal of the Leased Substances or any of them or substances produced in connection with the Leased Substances or any of them, agreements for the contract operation by a Third Party of the Assets or any of them and agreements to provide transportation, processing or disposal capacity or service to any Third Party;

 

(ii)                                fee simple rights to, and rights to enter upon, use or occupy, the surface of any lands which are or may be used to gain access to or otherwise use the Petroleum and Natural Gas Rights and the Tangibles;

 

(iii)                               all records, books, documents, licences, reports and data which relate to the Petroleum and Natural Gas Rights and the Tangibles, or either of them, excluding any of the foregoing that pertain to seismic, geological or geophysical matters unless prepared for the joint account;

 

(iv)                              rights to carry out operations relating to the Lands or the Tangibles including all easements and well, pipeline, facility and other permits, licences and authorizations; and

 

(v)                                 the Wells (and no other wells), including the wellbores and any and all casing;

 

(x)                                 “Party” means a party to this Agreement;

 

(y)                                 “Permitted Encumbrances” means:

 

(i)                                     liens for taxes, assessments and governmental charges which are not due or the validity of which is being diligently contested in good faith by or on behalf of Vendor;

 

(ii)                                undetermined or inchoate liens incurred or created in the ordinary course of business as security in favour of the person who is conducting the development or operation of the property to which such liens relate for Vendor’s proportionate share of the costs and expenses of such development or operation in respect of such costs and expenses which are not due;

 

(iii)                             mechanics’, builders’ and materialmen’s liens in respect of services rendered or goods supplied for which payment is not due;

 

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(iv)                              easements, rights of way, servitudes and other similar rights in land (including without limitation rights of way and servitudes for highways and other roads, railways, sewers, drains, gas and oil pipelines, gas and water mains, electric light, power, telephone, telegraph and cable television conduits, poles, wires and cables) which do not materially impair the use of the Assets affected thereby;

 

(v)                                 the right reserved to or vested in any municipality or government or other public authority by the terms of any lease, licence, franchise, grant or permit or by any statutory provision, to terminate any such lease, licence, franchise, grant or permit or to require annual or other periodic payments as a condition of the continuance thereof;

 

(vi)                              rights of general application reserved to or vested in any governmental authority to levy taxes on the Leased Substances or any of them or the income therefrom, and governmental requirements and limitations of general application as to production rates on the operations of any property;

 

(vii)                           statutory exceptions to title, and the reservations, limitations, provisos and conditions in any original grants from the Crown of any of the mines and minerals within, upon or under the Lands;

 

(viii)                      any security held by any Third Party encumbering Vendor’s interest in and to the Assets or any part or portion thereof, in respect of which Vendor delivers a discharge to Purchaser at or prior to Closing;

 

(ix)                              the Production Contracts and agreement or agreements (if any) for the sale of Leased Substances that are terminable on not greater than 31 days’ notice (without an early termination penalty or other cost); and

 

(x)                                 all royalty burdens, liens, adverse claims, conversion rights, penalties, reductions in interests and other encumbrances set out in Schedule “A” or in Schedule “D”;

 

(z)                                  “Petroleum and Natural Gas Rights” means all rights to and in respect of the Unit Agreements, the Leased Substances and the Title Documents (but only to the extent that the Title Documents pertain to the Lands), including without limitation the interests set out in Schedule “A” under the heading “Petroleum and Natural Gas Rights”;

 

(aa)                          “Petroleum Substances” means any of crude oil, crude bitumen and products derived therefrom, synthetic crude oil, petroleum, natural gas, natural gas liquids, and any and all other substances related to any of the foregoing, whether liquid, solid or gaseous, and whether hydrocarbons or not, including without limitation sulphur;

 

(bb)                          “Pipelines” means the pipelines listed in Schedule “D” under the heading “Pipelines”

 

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(cc)                            “Prime Rate” means an annual rate of interest equal to the annual rate of interest announced from time to time by the main Calgary branch of Royal Bank of Canada as the reference rate then in effect for determining interest rates on Canadian dollar commercial loans in Canada;

 

(dd)                          “Privacy Law” means the Personal Information Protection and Electronic Documents Act (Canada), Personal Information Protection Act (Alberta), Freedom of Information and Protection of Privacy Act (Alberta), the Health Information Act (Alberta), equivalent legislation in other Provinces and Territories, all regulations thereunder, and all Commissioner orders issued pursuant thereto;

 

(ee)                            “Production Contracts” means the agreement or agreements, if any, set out in Schedule “B” under the heading “Production Contracts”;

 

(ff)                              “Purchase Price” means the sum of money first set out in section 2.7;

 

(gg)                            “RMF2” means the Alberta Energy Reassignment of Volume Setup/Change Form, including all attachments required to be annexed thereto;

 

(hh)                          “Security Interest” means any assignment, security, mortgage, charge, pledge, negative pledge, lien or other security interest whatsoever or howsoever created or arising whether absolute or contingent, fixed or floating, perfected or not, which encumbers Vendor’s title in and to the Assets or any part or portion thereof or the proceeds to be received hereunder;

 

(ii)                                  “Specific Conveyances” means all conveyances, assignments, transfers, novations, RMF2 Forms and other documents or instruments that are reasonably required or desirable to convey, assign and transfer the interest of Vendor in and to the Assets to Purchaser and to novate Purchaser in the place and stead of Vendor with respect to the Assets;

 

(jj)                                “Take or Pay Obligations” means obligations to sell or deliver Petroleum Substances or any of them, rights to which are granted, reserved or otherwise conferred pursuant to the Title Documents, without being entitled in due course to receive and retain full payment for such Petroleum Substances;

 

(kk)                          “Tangibles” means the Facilities and any and all tangible depreciable property and assets other than the Facilities which are located within, upon or in the vicinity of the Lands and which are used or are intended to be used to produce, process, gather, treat, measure, make marketable or inject the Leased Substances or any of them or in connection with water injection or removal operations that pertain to the Petroleum and Natural Gas Rights, including without limitation any and all gas plants, oil batteries, buildings, production equipment, pipelines including the Pipelines, pipeline connections, meters, generators, motors, compressors, treaters, dehydrators, scrubbers, separators, pumps, tanks, boilers and communication equipment but excluding all motorized vehicles;

 

(ll)                                  “Third Party” means any individual or entity other than Vendor and Purchaser, including without limitation any partnership, corporation, trust, unincorporated

 

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organization, union, government and any department and agency thereof and any heir, executor, administrator or other legal representative of an individual;

 

(mm)                  “this Agreement”, “herein”, “hereto”, “hereof” and similar expressions mean and refer to this Agreement of Purchase and Sale;

 

(nn)                          “Title Documents” means, collectively, any and all certificates of title, leases, reservations, permits, licences, assignments, trust declarations, operating agreements, royalty agreements, gross overriding royalty agreements, participation agreements, farm-in agreements, sale and purchase agreements, pooling agreements and any other documents and agreements granting, reserving or otherwise conferring rights to (i) explore for, drill for, produce, take, use or market Petroleum Substances, (ii) share in the production of Petroleum Substances, (iii) share in the proceeds from, or measured or calculated by reference to the value or quantity of, Petroleum Substances which are produced, and (iv) rights to acquire any of the rights described in items (i) to (iii) of this definition; but only if the foregoing pertain in whole or in part to Petroleum Substances within, upon or under the Lands; including without limitation those, if any, set out in Schedule “A” under the heading “Title Document(s)”;

 

(oo)                          “Title Defect” means a defect in or affecting Vendor’s title to any of the Assets that has a adverse effect to the enforcement of title but specifically excludes:

 

i)                                         Vendor’s interests as described in Schedule “A” having converted from a before-payout interest as a result of payout having occurred;

 

ii)                                      any defects or deficiencies in title otherwise disclosed specifically to Purchaser in writing;

 

iii)                                   the Permitted Encumbrances;

 

iv)                                  any missing or unsigned documents in the chain of Vendor’s title to the Lands, Leases or Tangibles where:

 

a)             such document is not reasonably required to confirm the creation, establishment or maintenance of such title and the current status of title can otherwise be confirmed with reasonable certainty; or

 

b)             such documentation represents an increase to Vendor’s interest therein that is described in Schedule “A”;

 

v)                                     failure to confirm delay rental payments required to maintain freehold leases as having been paid, where the failure to confirm such payments will not result in a termination of the applicable Lease;

 

vi)                                  Vendor’s title or any predecessor’s title or the title of any predecessor in interest to Vendor being a beneficial interest rather than a legal interest;

 

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vii)                               the exercise of any right of first refusal or preferential right of purchase that become operative by virtue of this Agreement or the transaction to be effected by it; and

 

viii)                            any defect in or affecting Vendor’s title to any of the Assets that has a negative impact on the value of the Assets of less than $50,000.00;

 

(pp)                          “Unit Agreements” means any and all unit agreements and unit operating agreements, including any and all amendments thereto, pertaining to the unit or units, if any, set out in Schedule “B” under the heading “Units”; and

 

(qq)                          “Wells” means the wells set out in Schedule “D” and, for greater clarity, including all wells identified in Schedule “D” irrespective of whether any such well is or is not associated with any active Petroleum and Natural Gas Rights forming part of the Assets.

 

1.2                               Headings

 

The expressions “Article”, “section”, “subsection”, “clause”, “subclause”, “paragraph” and “Schedule” followed by a number or letter or combination thereof mean and refer to the specified article, section, subsection, clause, subclause, paragraph and schedule of or to this Agreement.

 

1.3                               Interpretation Not Affected by Headings

 

The division of this Agreement into Articles, sections, subsections, clauses, subclauses and paragraphs and the provision of headings for all or any thereof are for convenience and reference only and shall not affect the construction or interpretation of this Agreement.

 

1.4                               Included Words

 

When the context reasonably permits, words suggesting the singular shall be construed as suggesting the plural and vice versa, and words suggesting gender or gender neutrality shall be construed as suggesting the masculine, feminine and neutral genders.

 

1.5                               Schedules

 

There are appended to this Agreement the following schedules pertaining to the following matters:

 

	
Schedule “A”
    	
-
    	
Lands
    
	
 
    	
-
    	
Petroleum and Natural Gas Rights
    
	
 
    	
 
    	
 
    
	
Schedule “B”
    	
-
    	
AFE’s
    
	
 
    	
-
    	
Facilities
    
	
 
    	
-
    	
Production Contracts
    
	
 
    	
-
    	
Take or Pay Obligations
    
	
 
    	
-
    	
Units
    
	
 
    	
 
    	
 
    
	
Schedule “C”
    	
-
    	
Rights of First Refusal
    

 

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Schedule “D”
    	
-
    	
Wells
    
	
 
    	
-
    	
Pipelines
    
	
 
    	
 
    	
 
    
	
Schedule “E”
    	
-
    	
Form of general conveyance
    

 

Such schedules are incorporated herein by reference as though contained in the body hereof.  Wherever any term or condition of such schedules conflicts or is at variance with any term or condition in the body of this Agreement, such term or condition in the body of this Agreement shall prevail.

 

1.6                               Damages

 

All losses, costs, claims, damages, expenses and liabilities in respect of which a Party has a claim pursuant to this Agreement include without limitation reasonable legal fees and disbursements on a solicitor and client basis.

 

1.7          Knowledge

 

In this Agreement, the stated knowledge, information, belief or awareness of a Party consists only of the actual knowledge or awareness, as the case may be, of the current officers and managers  of such Party whose normal responsibilities relate to the matter in question in the course of their normal duties, and does not include knowledge, information or belief and awareness of any other person or persons or any constructive or imputed knowledge.  Vendor does not have any obligation to make inquiry of Third Parties or the files and records of any Third Party or public authority in connection with representations and warranties that are made to its knowledge, information, belief or awareness.

 

ARTICLE 2

PURCHASE AND SALE AND CLOSING

 

2.1                               Purchase and Sale

 

Vendor hereby agrees to sell, assign, transfer, convey and set over to Purchaser, and Purchaser hereby agrees to purchase from Vendor, all of the right, title, estate and interest of Vendor (whether absolute or contingent, legal or beneficial) in and to the Assets subject to and in accordance with the terms of this Agreement.

 

2.2                               Closing

 

Closing shall take place at the Closing Place at the Closing Time if there has been satisfaction or waiver of the conditions of Closing herein contained.  Subject to all other provisions of this Agreement, possession, risk and beneficial ownership of Vendor’s interest in and to the Assets shall pass from Vendor to Purchaser at the Closing Time.

 

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2.3                               Closing Deliveries

 

Vendor shall prepare the Specific Conveyances at its cost and as required, none of which shall confer or impose upon a Party any greater right or obligation than contemplated in this Agreement.  At Closing:

 

(a)                                 Vendor shall execute, where applicable, and deliver to Purchaser:

 

	
(i)
    	
a general conveyance in the form attached as   Schedule “E”;
    
	
(ii)
    	
all Specific Conveyances;
    
	
(iii)
    	
copies of all consents to disposition and   waivers of preferential, pre-emptive or first purchase rights obtained by   Vendor with respect to the transaction herein contemplated, other than   customary post-closing consents;
    
	
(iv)
    	
the certificates required by subsection   3.1(a), (b) and (c);
    
	
(v)
    	
“no interest” letters and discharges of any   Security Interests from the holder thereof which are requested by Purchaser a   reasonable time before Closing;
    
	
(vi)
    	
Receipt for payment of the amount hereunder   payable to Vendor by Purchaser on the Closing Time; and
    
	
(vii)
    	
Such other documents as may be specifically   required hereunder or as Purchaser may reasonably request by reasonable   notice to Vendor; and
    

 

(b)                                 Purchaser shall execute, where applicable, and deliver to Vendor:

 

	
(i)
    	
The Purchaser Price, subject to any   adjustments provided for in this Agreement, and applicable Goods and Services   Tax, and interest all in accordance with section 2.7;
    
	
(ii)
    	
a general conveyance in the form attached as   Schedule “E”;
    
	
(iii)
    	
all Specific Conveyances;
    
	
(iv)
    	
the certificates required by subsection   3.2(a) and (b); and
    
	
(v)
    	
Such other documents as may be specifically   required hereunder or as Purchaser may reasonably request by reasonable   notice to Vendor.
    

 

Forthwith after Closing, Purchaser shall at its cost circulate and register, as the case may be, all Specific Conveyances that by their nature may be circulated or registered.

 

2.4                               Licence Transfers

 

Within two (2) Business Days following Closing, Vendor shall prepare and, where applicable, electronically submit an application to the applicable governmental bodies for Licence Transfers and Purchaser or its nominee shall, where applicable, electronically ratify and sign such application within two (2) Business Days of such application being submitted by Vendor.  If the ERCB or other governmental body denies a Licence Transfer because of misdescription or other minor deficiencies in the application, Vendor shall, within two (2) Business Days of such denial, correct the application and amend and re-submit the application for the Licence Transfer and Purchaser or its nominee shall, where applicable, electronically ratify and sign such application within two (2) Business Days of such application being re-submitted by Vendor.  If, for any reason, the ERCB or other governmental body requires a Party or its nominee to make a deposit or furnish any other form of security in order to approve a Licence Transfer, such Party shall make such deposit or furnish such other form of security as is required and shall forthwith notify the other Party of such requirement.  If a Party fails, within a

 

10

 

reasonable time, to commence and diligently and continuously conduct operations to perform any obligations requested, ordered or directed by the ERCB or other governmental body respecting environmental liabilities (a “Work Order”), and the ERCB or other governmental body refuses to approve a Licence Transfer as a result thereof, the other Party shall have the right to provide a written request to the first Party requesting them to satisfy any such Work Order and if the receiving Party of such notice fails within two business days to provide written notice of its intention and plan for satisfying a Work Order or then does not diligently and continuously conduct operations to satisfy a Work Order, than the other Party shall be entitled to enter upon and access the Assets to perform such obligations for and on behalf of the first Party without liability by the other Party to the first Party for trespass or otherwise, and the first Party shall reimburse the other Party for all reasonable costs, charges and expenses incurred by the other Party in the performance of such obligations, by providing payment thereof to the other Party within thirty (30) days of the other Party’s delivery to the first Party of an invoice for such costs, charges and expenses together with interest thereon at the Prime Rate from the date at which such costs, charges and/or expenses are incurred or paid by the other Party until such reimbursement is made.

 

2.5                               Title Documents and Miscellaneous Interests

 

Vendor shall deliver to Purchaser at Closing the original copies of the Title Documents and any other agreements and documents to which the Assets are subject and the original copies of contracts, agreements, records, books, documents, licences, reports and data comprising Miscellaneous Interests which are now in the possession of Vendor or of which it gains possession prior to Closing.  Notwithstanding the foregoing, if and to the extent such Title Documents, contracts, agreements, records, books, documents, licences, reports and data also pertain to interests other than the Assets, photocopies or other copies may be provided to Purchaser in lieu of original copies.

 

2.6                               Form of Payment

 

All payments to be made pursuant to this Agreement shall be in Canadian funds.  All payments to be made at Closing shall be made by wire transfer to an account designated by Vendor to Purchaser in writing prior to Closing or by certified cheque or bank draft.

 

2.7                               Purchase Price

 

The aggregate consideration to be paid by Purchaser to Vendor for Vendor’s interest in and to the Assets shall be $82,000,000.00.  At Closing, Purchaser shall pay to Vendor (i) the Purchase Price, (ii) the Goods and Services Tax payable in respect of the Assets, which Vendor shall remit according to law, and (iii) interest payable pursuant to section 2.10. The Goods and Services Tax registration number of Vendor is 862268982RT0001 and the Purchaser’s GST number is 121346357RT0001.  At Closing, Purchaser shall be solely responsible for all sales taxes, transfer taxes, fees, charges, levies or similar assessments, other than the Goods and Services Tax which may be imposed by any governmental authority and pertaining to its acquisition of the Assets or to the circulation and registration of the Specific Conveyances and shall remit any such amounts to the applicable governmental authority according to law.

 

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2.8                               Letter of Credit

 

Purchaser shall, within two Business Days of the execution of this Agreement, forward the Deposit LC to the Escrow Agent, which shall be held and dealt with by the Escrow Agent in accordance with the terms and conditions of the Escrow Agreement.  If Closing occurs, Vendor and Purchaser shall jointly and irrevocably direct the Escrow Agent to release the Deposit LC to Purchaser undrawn, unless the Deposit LC has been drawn pursuant to section 2(e) of the Escrow Agreement, in which case Vendor and Purchaser shall jointly and irrevocably direct the Escrow Agent to pay the proceeds thereof to Vendor as partial payment of the Purchase Price.  If Closing does not occur, then with respect to the Deposit LC:

 

(a)                                 if Closing does not occur due to an exercise of the termination provisions of sections 3.1 or 11.5 on account of Purchaser’s closing conditions not being met through no act, default, or omission of Purchaser or on account of uncured Title Defects and Environmental Defects to which the provisions of section 11.5 are applicable; then Vendor and Purchaser shall jointly and irrevocably direct the Escrow Agent to return the Deposit LC, or the proceeds thereof if already drawn pursuant to section 2(e) of the Escrow Agreement, to the Purchaser, or

 

(b)                                 in all other circumstances, Vendor and Purchaser shall jointly and irrevocably instruct the Escrow Agent to draw on the Deposit LC, if not already drawn pursuant to section 2(e) of the Escrow Agreement, and pay the proceeds thereof to Vendor as liquidated damages, to compensate Vendor for expenses incurred in connection with the transaction contemplated herein and the delay or permanent impairment caused to Vendor’s efforts to sell the Assets and, in consideration for its retention of the proceeds of the Deposit LC, Vendor hereby waives any and all rights or additional remedies that may be available to it, at law or in equity, as a result of closing not occurring in such circumstances.  For clarity, Vendor’s retention of the proceeds of the Deposit LC is not a penalty but is a genuine pre-estimate by the Parties of the full limit of all damages that Vendor will suffer, having regard to the size of the Purchase Price, the amount of time between the date hereof and the proposed Closing Time, and the time and expense incurred and to be incurred by Vendor.

 

2.9                               Allocation of Purchase Price

 

The Parties shall allocate the Purchase Price as follows:

 

	
Petroleum and   Natural Gas Rights 
    	
 
    	
$
    	
65,600,000.00
    	
 
    
	
Tangibles
    	
 
    	
16,399,990.00
    	
 
    
	
Miscellaneous   Interests
    	
 
    	
10.00
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Total
    	
 
    	
$
    	
82,000,000.00
    	
 
    

 

GST (5% of Tangibles and Miscellaneous Interests)

 

2.10                        Interest

 

At Closing, Purchaser shall pay to Vendor an amount equal to the interest that would have accrued on the Purchase Price, at the Prime Rate, calculated daily and not compounded, from and including the Adjustment Date to and including the day prior to the Closing Time,

 

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which amount shall constitute an increase to the Purchase Price and shall be allocated to the Petroleum and Natural Gas Rights.

 

ARTICLE 3

CONDITIONS OF CLOSING

 

3.1                               Purchaser’s Conditions

 

The obligation of Purchaser to purchase Vendor’s interest in and to the Assets is subject to the following conditions precedent, which are inserted herein and made part hereof for the exclusive benefit of Purchaser and may be waived by Purchaser:

 

(a)                                 the representations and warranties of Vendor herein contained shall be true in all material respects when made and as of the Closing Time, and a Certificate to that effect shall have been delivered by Vendor to Purchaser at Closing;

 

(b)                                 all obligations of Vendor contained in this Agreement to be performed prior to or at Closing shall have been timely performed in all material respects, and a Certificate to that effect shall have been delivered by Vendor to Purchaser at Closing;

 

(c)                                  from the Adjustment Date to the Closing Time, the Assets shall have suffered no material adverse damage or change, and a Certificate to that effect shall have been delivered by Vendor to Purchaser at Closing;

 

(d)                                 prior to the Closing Time, any and all preferential, pre-emptive or first purchase rights of Third Parties that become operative by virtue of this Agreement or the transaction to be effected by it shall have been exercised or waived by the holders thereof or all time periods within which such rights may be exercised shall have expired;

 

(e)                                  Vendor shall have delivered to Purchaser at or prior to Closing discharges of any security held by any Third Party encumbering Vendor’s interest in and to the Assets or any part or portion thereof, which discharges are requested by Purchaser a reasonable time prior to Closing;

 

(f)                                   Vendor shall have delivered to Purchaser at least one copy of the documents described in subsection 2.3(a); and

 

(g)                                  the Competition Act Condition shall have been satisfied.

 

If any one or more of the foregoing conditions precedent has or have not been satisfied, complied with, or waived by Purchaser, at or before the Closing Time, Purchaser may in addition to any other remedies which it may have available to it, rescind this Agreement by written notice to Vendor.  If Purchaser rescinds this Agreement, Purchaser and Vendor shall be released and discharged from all obligations hereunder except as provided in sections 2.8, 3.3 and 12.15.

 

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3.2                               Vendor’s Conditions

 

The obligation of Vendor to sell its interest in and to the Assets is subject to the following conditions precedent, which are inserted herein and made part hereof for the exclusive benefit of Vendor and may be waived by Vendor:

 

(a)                                 the representations and warranties of Purchaser herein contained shall be true in all material respects when made and as of the Closing Time, and a Certificate to that effect shall have been delivered by Purchaser to Vendor at Closing;

 

(b)                                 all obligations of Purchaser contained in this Agreement to be performed prior to or at Closing shall have been timely performed in all material respects, and a Certificate to that effect shall have been delivered by Purchaser to Vendor at Closing;

 

(c)                                  Purchaser shall have delivered to Vendor at least one copy of the documents described in subsection 2.3(b);

 

(d)                                 the Competition Act Condition shall have been satisfied;

 

(e)                                  all amounts to be paid by Purchaser to Vendor at Closing shall have been paid to Vendor in the form stipulated in this Agreement; and

 

(f)                                   prior to the Closing Time, any and all preferential, pre-emptive or first purchase rights of Third Parties that become operative by virtue of this Agreement or the transaction to be effected by it shall have been exercised or waived by the holders thereof or all time periods within which such rights may be exercised shall have expired.

 

If any one or more of the foregoing conditions precedent has or have not been satisfied, complied with, or waived by Vendor, at or before the Closing Time, Vendor may in addition to any other remedies which it may have available to it, rescind this Agreement by written notice to Purchaser.  If Vendor rescinds this Agreement, Purchaser and Vendor shall be released and discharged from all obligations hereunder except as provided in sections 2.8, 3.3 and 12.15.

 

3.3                               Efforts to Fulfil Conditions Precedent

 

Purchaser and Vendor shall proceed diligently and in good faith and use best efforts to satisfy and comply with and assist in the satisfaction and compliance with the conditions precedent.  If there is a condition precedent that is to be satisfied or complied with prior to the Closing Time, and if, by the time the condition precedent is to be satisfied or complied with, the Party for whose benefit the condition precedent exists fails to notify the other Party whether or not the condition precedent has been satisfied or complied with, the condition precedent shall be conclusively deemed to have been satisfied or complied with.

 

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ARTICLE 4

REPRESENTATIONS AND WARRANTIES

 

4.1                               Representations and Warranties of Vendor

 

Purchaser acknowledges that it is purchasing Vendor’s interest in and to the Assets on an “as is, where is” basis, without representation and warranty and without reliance on any information provided to or on behalf of Purchaser by Vendor or any Third Party, except that and subject in all instances to Permitted Encumbrances, Vendor makes the following representations and warranties to Purchaser, no claim in respect of which shall be made or be enforceable by Purchaser unless written notice of such claim, with reasonable particulars, is given by Purchaser to Vendor within a period of twelve (12) months from the Closing Time:

 

(a)                                 Vendor is a corporation duly organized and validly existing under the laws of the jurisdiction of incorporation of Vendor, is authorized to carry on business in the Province in which the Lands are located, and now has good right, full power and absolute authority to sell, assign, transfer, convey and set over the interest of Vendor in and to the Assets according to the true intent and meaning of this Agreement;

 

(b)                                 the execution, delivery and performance of this Agreement has been duly and validly authorized by any and all requisite corporate, shareholders’ and directors’ actions and will not result in any violation of, be in conflict with or constitute a default under any articles, charter, bylaw or other governing document to which Vendor is bound;

 

(c)                                  the execution, delivery and performance of this Agreement will not result in any violation of, be in conflict with or constitute a default under any term or provision of any agreement or document to which Vendor is party or by which Vendor is bound, nor under any judgment, decree, order, statute, regulation, rule or license applicable to Vendor;

 

(d)                                 this Agreement and any other agreements delivered in connection herewith constitute valid and binding obligations of Vendor enforceable against Vendor in accordance with their terms;

 

(e)                                  other than the Competition Act Condition, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body exercising jurisdiction over the Assets is required for the due execution, delivery and performance by Vendor of this Agreement, other than authorizations, approvals or exemptions from requirement therefor, previously obtained and currently in force;

 

(f)                                   Vendor has not incurred any obligation or liability, contingent or otherwise, for brokers’ or finders’ fees in respect of this Agreement or the transaction to be effected by it for which Purchaser shall have any obligation or liability;

 

(g)                                  Vendor is not a non-resident within the meaning of section 116 of the Income Tax Act (Canada) and the interest of Vendor in and to the Assets does not constitute all or substantially all the property of Vendor;

 

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(h)                                 no tangible depreciable property and assets in which Vendor had an interest which are used, were used or are intended to be used in producing, processing, gathering, treating, measuring, making marketable or injecting the Leased Substances or any of them or in connection with water injection or removal operations that pertain to the Petroleum and Natural Gas Rights, has been removed from its location since Adjustment Date, nor has Vendor alienated or encumbered any such tangible depreciable property and assets since such date;

 

(i)                                     Vendor has not alienated or encumbered the Assets or any part or portion thereof, Vendor has not committed and is not aware of there having been committed any act or omission whereby the interest of Vendor in and to the Assets or any part or portion thereof may be cancelled or determined, and the Assets are now free and clear of all liens, royalties, conversion rights and other claims of Third Parties, created by, through or under Vendor or of which Vendor has knowledge;

 

(j)                                    except as may be set out in Schedule “C”, none of the interest of Vendor in and to the Assets is subject to any preferential, pre-emptive or first purchase rights, created by, through or under Vendor or of which Vendor is aware, that become operative by virtue of this Agreement or the transaction to be effected by it;

 

(k)                                 Vendor has not received notice from any Third Party claiming an interest in and to the Assets adverse to the interest of Vendor and Vendor has no reason to believe that any such claim may be made;

 

(l)                                     To the best of Vendor’s knowledge, Vendor has not failed to comply with, perform, observe or satisfy any term, condition, obligation or liability which has heretofore arisen under the provisions of any of the Title Documents or any other agreements and documents to which the Assets are subject;

 

(m)                             To the best of Vendor’s knowledge, information and belief, Vendor has not received notice of default and is not, to the knowledge, information and belief of Vendor, in any default under any obligation, agreement, document, order, writ, injunction or decree of any court or of any commission or administrative agency, which might result in impairment or loss of the interest of Vendor in and to the Assets or which might otherwise adversely affect the Assets;

 

(n)                                 no suit, action or other proceeding before any court or governmental agency has been commenced against Vendor or, to the knowledge, information and belief of Vendor, has been threatened against Vendor or any Third Party, which might result in impairment or loss of the interest of Vendor in and to the Assets or which might otherwise adversely affect the Assets or any rights to, and rights to enter upon, use or occupy the surface of any lands which are or may be used to gain access to or otherwise use the Petroleum and Natural Gas Rights and the Tangibles, or either of them;

 

(o)                                 all amounts due and payable to Third Parties prior to the date hereof and pertaining to the Assets have been fully paid, including without limitation (i) any and all ad valorem and property taxes, (ii) any and all production, severance and similar taxes, charges and assessments based upon or measured by the ownership or production of the Leased Substances or any of them or the receipt

 

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of proceeds therefor, (iii) all rentals, royalties and other amounts due pursuant to the Title Documents, and (iv) all amounts due and payable in connection with Permitted Encumbrances, provided however, in the case of any and all amounts due and payable prior to the time Vendor acquired an interest in and to the Assets to which such amounts pertain, Vendor makes this representation and warranty only based upon its knowledge, information and belief;

 

(p)                                 in respect of the Assets, except in connection with the AFE’s, there are no financial commitments of Vendor which are in excess of $25,000.00 and which are due as of the date hereof or which may become due by virtue of matters occurring or arising prior to the date hereof, other than usual operating expenses incurred in the normal conduct of operations;

 

(q)                                 in respect of the Assets that are operated by Vendor, to the knowledge, information and belief of Vendor, if any, Vendor holds all valid licenses, permits and similar rights and privileges that are required and necessary under applicable law to operate the Assets as presently operated;

 

(r)                                    any and all operations of Vendor, and to the knowledge, information and belief of Vendor, any and all operations by Third Parties, on or in respect of the Assets, have been conducted in accordance with good oil and gas industry practices and in material compliance with all applicable laws, rules, regulations, orders and directions of governmental and other competent authorities;

 

(s)                                   the Tangibles operated by Vendor, if any, are in good and operable condition, reasonable wear and tear excepted, and the Tangibles operated by Third Parties, if any, are in good and operable condition, reasonable wear and tear excepted, to the knowledge, information and belief of Vendor;

 

(t)                                    no obligations have accrued pursuant to the Title Documents that may be satisfied by the drilling of a well, the payment of compensatory royalty or the surrender of some or all of the interests granted, reserved or otherwise conferred pursuant to the Title Documents, other than obligations that have been satisfied (by means other than by the payment of compensatory royalties) or have been permanently waived;

 

(u)                                 excepting production limits of general application in the oil and gas industry, none of the Wells is subject to production or other penalties imposed by the Title Documents or by any other agreements and documents to which the Assets are subject, or by any laws, rules, regulations, orders or directions of governmental or other competent authorities;

 

(v)                                 the licensee liability rating (as set forth and described in ERCB Directive 006: Licensee Liability Rating Program and Licence Transfer Process) of Vendor equals or exceeds 1.0 and will not fall below 1.0 as a result of any licence transfer application(s) submitted or to be submitted in respect of the Assets and the transaction effected hereby;

 

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(w)                               Vendor is not aware of and has not received:

 

(i)                                     any orders or directives which relate to environmental matters and which require any work, repairs, construction or capital expenditures with respect to the Assets, where such orders or directives have not been complied with in all material respects; or

 

(ii)                                  any demand or notice issued with respect to the breach of any environmental, health or safety law applicable to the Assets, including without limitation, respecting the use, storage, treatment, transportation or disposition of environmental contaminants, which demand or notice remains outstanding on the date hereof;

 

(x)                                 Vendor has made all reasonable inquiries and searches for material documents and information, it has delivered or made available to Purchaser all documents, instruments, records and books relevant to Vendor’s title to the Lands and the Title Documents and in Vendor’s possession or to which it has reasonable access;

 

(y)                                 Vendor is not in default of any amounts required to be paid to any workers’ compensation board under any applicable laws or regulations, for which Purchaser shall have any obligation or liability;

 

(z)                                  the Assets are not subject to an agreement which provides for areas of mutual interest or areas of exclusion;

 

(aa)                          except as described in Schedule “A”, Vendor has not elected or refused to participate in any exploration, development or other operation on the Lands, which has given or may give rise to penalties or forfeitures;

 

(bb)                          To the best of Vendor’s knowledge, Vendor has not received notice under applicable laws or regulations to abandon any Well which has not been properly abandoned in accordance with applicable laws and regulations;

 

(cc)                            except for the Production Contracts, Vendor is not a party to and Vendor’s interest in and to the Assets is not otherwise bound or affected by any (i) production sales contracts pertaining to the Leased Substances or any of them that cannot be terminated on notice of 31 days or less (without an early termination penalty or other cost), (ii) gas balancing or similar agreements pertaining to the Leased Substances or any of them, (iii) agreements for the transportation, processing or disposal of the Leased Substances or any of them or substances produced in connection with the Leased Substances or any of them, (iv) agreements for the contract operation by a Third Party of the Assets or any of them, and (v) agreements to provide transportation, processing or disposal capacity or service to any Third Party; and

 

(dd)                          there are no Take or Pay Obligations.

 

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4.2                               Representations and Warranties of Purchaser

 

Purchaser makes the following representations and warranties to Vendor, no claim in respect of which shall be made or be enforceable by Vendor unless written notice of such claim, with reasonable particulars, is given by Vendor to Purchaser within a period of twelve (12) months from the Closing Time:

 

(a)                                 Purchaser is a corporation duly organized and validly existing under the laws of the jurisdiction of incorporation of Purchaser, is authorized to carry on business in the Province in which the Lands are located, and now has good right, full power and absolute authority to purchase the interest of Vendor in and to the Assets according to the true intent and meaning of this Agreement;

 

(b)                                 the execution, delivery and performance of this Agreement has been duly and validly authorized by any and all requisite corporate, shareholders’ and directors’ actions and will not result in any violation of, be in conflict with or constitute a default under any articles, charter, bylaw or other governing document to which Purchaser is bound;

 

(c)                                  the execution, delivery and performance of this Agreement will not result in any violation of, be in conflict with or constitute a default under any term or provision of any agreement or document to which Purchaser is party or by which Purchaser is bound, nor under any judgment, decree, order, statute, regulation, rule or license applicable to Purchaser;

 

(d)                                 this Agreement and any other agreements delivered in connection herewith constitute valid and binding obligations of Purchaser enforceable against Purchaser in accordance with their terms;

 

(e)                                  other than the Competition Act Condition, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body exercising jurisdiction over the Assets is required for the due execution, delivery and performance by Purchaser of this Agreement, other than authorizations, approvals or exemptions from requirement therefor, previously obtained and currently in force;

 

(f)                                   Purchaser has not incurred any obligation or liability, contingent or otherwise, for brokers’ or finders’ fees in respect of this Agreement or the transaction to be effected by it for which Vendor shall have any obligation or liability;

 

(g)                                  Purchaser is not a non-Canadian person for the purposes of the Investment Canada Act; and

 

(h)                                 the licensee liability rating (as set forth and described in ERCB Directive 006: Licensee Liability Rating Program and Licence Transfer Process) of Purchaser equals or exceeds 1.0 and will not fall below 1.0 as a result of any licence transfer application(s) submitted or to be submitted in respect of the Assets and the transaction effected hereby.

 

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ARTICLE 5

INDEMNITIES FOR REPRESENTATIONS AND WARRANTIES

 

5.1                               Vendor’s Indemnities for Representations and Warranties

 

Vendor shall be liable to Purchaser for and shall, in addition, indemnify Purchaser from and against, all losses, costs, claims, damages, expenses and liabilities suffered, sustained, paid or incurred by Purchaser which would not have been suffered, sustained, paid or incurred had all of the representations and warranties contained in section 4.1 been accurate and truthful, provided however that nothing in this section 5.1 shall be construed so as to cause Vendor to be liable to or indemnify Purchaser in connection with any representation or warranty contained in section 4.1 if and to the extent that Purchaser did not rely upon such representation or warranty or unless (and then only to the extent) the aggregate amount of such losses, costs, claims, damages, expenses and liabilities suffered, sustained or incurred by Purchaser is greater than $820,000.00.  This clause shall not apply to the extent that any matter or thing is the proper subject of an operating adjustment under Article 7.

 

5.2                               Purchaser’s Indemnities for Representations and Warranties

 

Purchaser shall be liable to Vendor for and shall, in addition, indemnify Vendor from and against, all losses, costs, claims, damages, expenses and liabilities suffered, sustained, paid or incurred by Vendor which would not have been suffered, sustained, paid or incurred had all of the representations and warranties contained in section 4.2 been accurate and truthful, provided however that nothing in this section 5.2 shall be construed so as to cause Purchaser to be liable to or indemnify Vendor in connection with any representation or warranty contained in section 4.2 if and to the extent that Vendor did not rely upon such representation or warranty or unless (and then only to the extent) the aggregate amount of such losses, costs, claims, damages, expenses and liabilities suffered, sustained or incurred by Vendor is greater than $820,000.00.  This clause shall not apply to the extent that any matter or thing is the proper subject of an operating adjustment under Article 7.

 

5.3                               Time Limitation

 

No claim under this Article 5 shall be made or be enforceable by a Party unless written notice of such claim, with reasonable particulars, is given by such Party to the Party against whom the claim is made within a period of twelve (12) months from the Closing Time.

 

ARTICLE 6

PURCHASER’S INDEMNITIES

 

6.1                               General Indemnity

 

Purchaser shall be liable to Vendor for and shall, in addition, indemnify Vendor from and against, all losses, costs, claims, damages, expenses and liabilities suffered, sustained, paid or incurred by Vendor which arise out of any matter or thing occurring or arising from and after the Closing Time and which relates to the Assets, provided however that Purchaser shall not be liable to nor be required to indemnify Vendor in respect of any losses, costs, claims, damages, expenses and liabilities suffered, sustained, paid or incurred by Vendor which arise out of acts or omissions of Vendor.

 

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6.2                               Abandonment and Reclamation

 

Purchaser shall see to the timely performance of all abandonment and reclamation obligations pertaining to the Assets which in the absence of this Agreement would be the responsibility of Vendor.  Purchaser shall be liable to Vendor for and shall, in addition, indemnify Vendor from and against, all losses, costs, claims, damages, expenses and liabilities suffered, sustained, paid or incurred by Vendor should Purchaser fail to timely perform such obligations.

 

6.3                               Environmental Matters

 

Purchaser shall be liable to Vendor for and shall, in addition, indemnify Vendor from and against, all losses, costs, claims, damages, expenses and liabilities suffered, sustained, paid or incurred by Vendor which pertain to environmental damage or contamination or other environmental problems pertaining to or caused by the Assets or operations thereon or related thereto, however and by whomsoever caused, and whether such environmental damage or contamination or other environmental problems occur or arise in whole or in part prior to, at or subsequent to the Closing Time.  Purchaser shall not be entitled to exercise and hereby waives any rights or remedies Purchaser may now or in the future have against Vendor in respect of such environmental damage or contamination or other environmental problems, whether such rights and remedies are pursuant to the common law or statute or otherwise, including without limitation, the right to name Vendor as a third party to any action commenced by any Third Party against Purchaser.  Without limiting the generality of the foregoing, such environmental damage or contamination or other environmental problems shall include (i) surface, underground, air, ground water or surface water contamination, (ii) the abandonment or plugging of or failure to abandon or plug any of the Wells, (iii) the restoration or reclamation of or failure to restore or reclaim any part of the Assets, (iv) the breach of applicable government rules and regulations in effect at any time, and (v) the removal of or failure to remove foundations, structures or equipment.

 

6.4                               Limitation

 

Notwithstanding any other provision in this Agreement, Purchaser shall not be liable to nor be required to indemnify Vendor in respect of any losses, costs, claims, damages, expenses and liabilities suffered, sustained, paid or incurred by Vendor in respect of which Vendor is liable to and has indemnified Purchaser pursuant to section 5.1, and Vendor shall not be liable to nor be required to indemnify Purchaser in respect of any losses, costs, claims, damages, expenses and liabilities suffered, sustained, paid or incurred by Purchaser in respect of which Purchaser is liable to and has indemnified Vendor pursuant to section 5.2, in both cases disregarding the time limit set out in section 5.3.

 

ARTICLE 7

OPERATING ADJUSTMENTS

 

7.1                               Operating Adjustments

 

Subject to all other provisions of this Agreement, all benefits and obligations of any kind and nature relating to the operation of the Assets conveyed pursuant to this Agreement, excluding income taxes but otherwise including without limitation maintenance, development, operating and capital costs, government incentives and administration fees, royalties and other burdens, and proceeds from the sale of production, whether accruing, payable or paid and

 

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received or receivable, shall be adjusted between the Parties as of the Adjustment Date in accordance with generally accepted accounting principles.  For greater certainty, adjustments in respect of production, if any, shall be made in favour of Vendor in respect of production beyond the wellhead at the Adjustment Date and in favour of Purchaser in respect of all other production.  The adjustments shall constitute an increase or decrease, as the case may be, to the Purchase Price and to the amount allocated to the Petroleum and Natural Gas Rights.  Vendor shall provide to Purchaser within a reasonable time prior to the Closing Time a written statement of all such adjustments to be made at Closing, and shall cooperate with Purchaser to enable Purchaser to verify the accuracy of such statement.  Adjustments not settled or incorrectly settled prior to or at Closing shall be settled by payment to or by Vendor and Purchaser, as the case may be, as soon as practicable after Closing.  The intention of the Parties is that final settlement shall occur within 180 days following the Closing Time, but it is recognized that adjustments may be made after that time.  No adjustments shall be made after 12 months from the Closing Time unless written notice of the requested adjustment, with reasonable particulars, is given within 12 months from the Closing Time, provided however that adjustments arising as a consequence of Crown royalty audits and joint venture audits are not subject to the 1 year limit.  During the 12-month period following the Closing Time, Purchaser may audit Vendor’s books, records and accounts respecting the Assets, for effecting adjustments pursuant to this section 7.1.  Such audit shall be conducted upon reasonable notice to Vendor at Vendor’s offices during Vendor’s normal business hours, and shall be conducted at Purchaser’s sole expense.  Any claims of discrepancies disclosed by such audit shall be made in writing to Vendor within thirty (30) days following the completion of such audit and Vendor shall respond in writing to any such claims of discrepancies within thirty (30) days of receipt of such claims.

 

ARTICLE 8

MAINTENANCE OF ASSETS

 

8.1                               Maintenance of Assets

 

Until the Closing Time, Vendor shall, to the extent that the nature of its interest permits, and subject to the Title Documents and any other agreements and documents to which the Assets are subject:

 

(a)                                 maintain the Assets in a proper and prudent manner in accordance with good oil and gas industry practices and in material compliance with all applicable laws, rules, regulations, orders and directions of governmental and other competent authorities;

 

(b)                                 maintain current insurance policies, if any;

 

(c)                                  pay or cause to be paid all costs and expenses relating to the Assets which become due from the date hereof to the Closing Time; and

 

(d)                                 perform and comply with all covenants and conditions contained in the Title Documents and any other agreements and documents to which the Assets are subject.

 

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8.2                               Consent of Purchaser

 

Notwithstanding section 8.1, Vendor shall not, without the written consent of Purchaser, which consent shall not be unreasonably withheld by Purchaser and which, if provided, shall be provided in a timely manner:

 

(a)                                 make any commitment or propose, initiate or authorize any capital expenditure with respect to the Assets of which Vendor’s share is in excess of $25,000.00, except in case of an emergency or in respect of amounts which Vendor may be committed to expend or be deemed to authorize for expenditure without its consent;

 

(b)                                 surrender or abandon any of the Assets;

 

(c)                                  resign or take any action which would result in Vendor’s resignation or replacement as operator of any of the Assets for which Vendor is currently operator;

 

(d)                                 amend or terminate any Title Document or any other agreement or document to which the Assets are subject, or enter into any new agreement or commitment relating to the Assets; or

 

(e)                                  sell, encumber or otherwise dispose of any of the Assets or any part or portion thereof excepting sales of the Leased Substances or any of them in the normal course of business.

 

8.3                               Post-Closing Transition

 

Following Closing and to the extent to which Purchaser must be novated into operating agreements and other agreements or documents to which the Assets are subject, until the novation has been effected:

 

(a)                                 Vendor shall, in a timely manner, deliver to Purchaser all third party notices and communications, including AFEs and mail ballots and all notices and communications received in respect of the Assets and Vendor shall respond to such notices pursuant to Purchaser’s written instructions, if received on a timely basis, provided that Vendor may refuse to follow any instructions which it reasonably believes to be unlawful, unethical or in conflict with any applicable agreement or contract, and provided that nothing shall preclude Vendor from taking such actions as Vendor reasonably determines are necessary for the protection of life or property, or as are required by applicable laws and regulations;

 

(b)                                 Vendor shall, in a timely manner, deliver to third parties all such notices and communications which Purchaser may reasonably request and all such monies and other items as Purchaser may reasonably provide in respect of the Assets, provided that Vendor may (but shall not be obligated to) refuse to follow instructions which it reasonably believes to be unlawful, unethical or in conflict with any applicable agreement or contract;

 

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(c)                                  Until February 28, 2013, Vendor shall pay all freehold rentals and similar payments required to preserve any of the Title Documents and any surface leases; and

 

(d)                                 Where Vendor is the operator of the Assets, or any portion thereof, and in such capacity is responsible for the production accounting functions pertaining to the Assets, or any portion thereof, Vendor shall continue to perform such production accounting functions until December 31, 2012.

 

ARTICLE 9

RIGHTS OF FIRST REFUSAL AND COMPETITION ACT APPLICATION

 

9.1                               Rights of First Refusal

 

Vendor has advised Purchaser that the Assets are subject to certain preferential, pre-emptive or first purchase rights that become operative by virtue of this Agreement or the transaction to be effected by it, as detailed in Schedule “C”.  Vendor shall comply with the applicable provisions of such rights and shall courier notices to the Third Parties (and Purchaser, if applicable) holding such rights no later than one Business Days after the execution and delivery of this Agreement, using the bona fide allocations, derived by using good-engineering practices, to be provided by Purchaser on the date hereof, in a form that is acceptable to Purchaser acting reasonably.  Vendor shall notify Purchaser in writing forthwith upon each Third Party exercising or waiving such a right.  If any such Third Party elects to exercise such a right, the definition of Assets shall be deemed to be amended to exclude those Assets in respect of which the right has been exercised, such Assets shall not be conveyed to Purchaser and the Purchase Price, the tax allocations and the Goods and Services Tax shall be reduced in accordance with Schedule “C”.  Purchaser shall be liable to Vendor for and in addition shall indemnify Vendor from all and against all losses, costs, claims, damages, expenses and liabilities suffered, sustained , paid or incurred by Vendor which arise from any matter or thing occurring or arising, through or attributable to the allocations provided by Purchaser to Vendor for the purposes of this section 9.1, whether such allocations are reasonable or unreasonable.

 

9.2                               Competition Act Application

 

(a)                                 The Parties shall use commercially reasonable efforts to prepare and submit, and shall cooperate with each other in connection with the preparation and submission of, all applications and filings as may be or become necessary or desirable under the Competition Act for, or in connection with, the consummation of the Transaction and to file such applications and filings as soon as practicable.

 

(b)                                 Vendor shall furnish to Purchaser such information and assistance as Purchaser may reasonably request in order to satisfy the Competition Act Condition and, upon Purchaser’s request, Vendor shall submit to the Commissioner such information as is required under section 114 of the Competition Act and shall provide any additional information that Purchaser reasonably requests in order for Purchaser to prepare its filings in respect of the Transaction.

 

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(c)                                  The Parties shall use commercially reasonable efforts to respond promptly to any request or notice from any Governmental Authority requiring the Parties, or any one of them, to supply additional information that is relevant to the Commissioner’s assessment of the Transaction.

 

(d)                                 Subject to Vendor’s obligations under Part IX of the Competition Act and the Notifiable Transactions Regulations, Purchaser shall have primary responsibility for the preparation and submission of all applications and filings under Subclause 9.2(a) in respect of the Competition Act.

 

(e)                                  All filing fees (and the GST thereon) incurred with respect to the satisfaction of the Competition Act Condition will be shared equally between Vendor and Purchaser.  Except as provided in the preceding sentence, each party will pay all costs and expenses incurred by it in connection with the satisfaction of the Competition Act Condition.

 

(f)                                   In connection with any filings or applications made pursuant to the Competition Act under 9.2:

 

(i)                                     Purchaser shall consult with Vendor, and provide Vendor with a reasonable opportunity to review and comment drafts of any written correspondence proposed to be sent by or on behalf of Purchaser;

 

(ii)                                  Vendor shall be entitled to participate in any meetings or any material conversations with governmental bodies related thereto; and

 

(iii)                               Purchaser shall promptly notify Vendor of any material developments related thereto, including providing Vendor with copies of any correspondence received and a summary of any verbal communications;

 

provided, however, that competitively sensitive information shall be redacted from such correspondence prior to being shared with Vendor.

 

ARTICLE 10

PRE-CLOSING INFORMATION

 

10.1                        Production of Documents

 

At all reasonable times from the date hereof until the Closing Time, Vendor shall make available to Purchaser and Purchaser’s Counsel in Vendor’s offices in Calgary the following information pertaining to the Assets to which Vendor has possession or to which it has access:

 

(a)                                 all title opinions and reports;

 

(b)                                 all of the Title Documents and any other agreements and documents to which the Assets are subject including without limitation (i) production sales contracts pertaining to the Leased Substances or any of them, (ii) gas balancing or similar agreements pertaining to the Leased Substances or any of them, (iii) agreements for the transportation, processing or disposal of the Leased Substances or any of them or substances produced in connection with the Leased Substances or any of them, (iv) agreements for the contract operation by a Third Party of the Assets

 

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or any of them, and (v) agreements to provide transportation, processing or disposal capacity or service to any Third Party;

 

(c)                                  mortgages, deeds of trust, security agreements, chattel mortgages and other encumbrances affecting the Assets;

 

(d)                                 evidence with respect to the payment of all bonuses, rentals, royalties and other payments due under the Title Documents and any other agreements and documents to which the Assets are subject;

 

(e)                                  evidence with respect to the payment of all taxes, charges and assessments pertaining to the Assets;

 

(f)                                   lease records, data sheets, production records, ownership maps and surveys;

 

(g)                                  permits, easements, licenses and orders;

 

(h)                                 all documents and information relevant to environmental damage or contamination or other environmental problems pertaining to the Assets; and

 

(i)                                     accounting records, policies of insurance, consulting agreements, field contracts and other agreements relating to the operation of the Assets.

 

10.2                        Environmental Due Diligence

 

At all reasonable times from the date hereof until the Closing Time, Vendor shall provide to Purchaser reasonable access to the Assets to allow it to conduct reasonable environmental due diligence in respect of same.

 

ARTICLE 11

TITLE DEFECTS AND ENVIRONMENTAL DEFECTS

 

11.1                        Notice of Title Defects

 

From time to time, as soon as reasonably practicable after determination, and in any event no later than ten (10) Business Days after the date of this Agreement, Purchaser shall notify Vendor in writing of any Title Defects.  Such notice shall include a description of each Title Defect and the interests affected thereby, the value allocated by Purchaser acting reasonably to each affected interest and the amount, in Purchaser’s opinion acting reasonably, by which the value of each affected interest has been reduced by the Title Defect.  Failure to include a Title Defect in a written notice shall be deemed to be a waiver of such Title Defect for the purposes of this section 11.1.

 

11.2                        Rectification of Title Defects by Vendor

 

Prior to the Closing Time, Vendor shall use all reasonable efforts to cure or rectify the Title Defects of which Purchaser gives notice pursuant to section 11.1.  If any such Title Defects are not cured or removed at or prior to the Closing Time:

 

(a)                                 where the cumulative amount by which the value of the affected interests has been reduced is, in Purchaser’s opinion acting reasonably, less than or equal to

 

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$5,740,000.00, Purchaser shall, subject to section 11.5, complete the purchase of Vendor’s interest in and to the Assets without adjustment of the Purchase Price on account of such Title Defects;

 

(b)                                 where the cumulative amount by which the value of the affected interests has been reduced is, in Purchaser’s opinion acting reasonably, more than $5,740,000.00:

 

(i)                                   the Parties may delay Closing to a mutually agreeable time and date, in which case:

 

A.                                    Vendor shall make further attempts to cure or remove the uncured Title Defects; and

 

B.                                    when such mutually agreeable time and date arrives, the elections pursuant to this section 11.2 shall once again be made;

 

(ii)                                Purchaser may, subject to section 11.5, waive the uncured Title Defects, in which case all of Vendor’s interest in and to the Assets shall be purchased by Purchaser without an adjustment to the Purchase Price; or

 

(iii)                             Purchaser may, subject to section 11.5, complete the purchase of Vendor’s interest in and to the Assets, in which case the Purchase Price shall be reduced by an amount equal to (A) the total value allocated by Purchaser to all Title Defects, less (B) $2,870,000.00.

 

11.3                        Notice of Environmental Defects

 

From time to time, as soon as reasonably practicable after determination, and in any event no later than ten (10) Business Days after the date of this Agreement, Purchaser shall notify Vendor in writing of any Environmental Defects revealed by its environmental due diligence with respect to the Assets.  Such notice shall include a description of each such Environmental Defect and the amount, in Purchaser’s opinion acting reasonably, by which the value of the Assets has been reduced by each such Environmental Defect.  Failure to include an Environmental Defect in a written notice shall be deemed to be a waiver of such Environmental Defect for the purposes of this section 11.3.

 

11.4                        Impact of Environmental Defects

 

If any Environmental Defect in respect of which Purchaser gives notice pursuant to section 11.3 is not cured or removed at or prior to the Closing Time:

 

(a)                                 where the cumulative amount by which the value of the Assets has been reduced is, in Purchaser’s opinion acting reasonably, less than or equal to $5,740,000.00, Purchaser shall, subject to section 11.5, complete the purchase of Vendor’s interest in and to the Assets without adjustment of the Purchase Price on account of such Environmental Defects;

 

(b)                                 where the cumulative amount by which the value of the Assets has been reduced is, in Purchaser’s opinion acting reasonably, more than $5,740,000.00:

 

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(i)                                     the Parties may delay Closing to a mutually agreeable time and date, in which case:

 

A.                                    Vendor shall make further attempts to remedy the uncured Environmental Defects; and

 

B.                                    when such mutually agreeable time and date arrives, the elections pursuant to this section 11.4 shall once again be made;

 

(ii)                                  Purchaser may, subject to section 11.5, waive the uncured Environmental Defects, in which case all of Vendor’s interest in and to the Assets shall be purchased by Purchaser without an adjustment to the Purchase Price; or

 

(iii)                               Purchaser may, subject to section 11.5, complete the purchase of Vendor’s interest in and to the Assets, in which case the Purchase Price shall be reduced by an amount equal to (A) the total value allocated by Purchaser to all uncured Environmental Defects, less (B) $2,870,000.00.

 

11.5                        Cumulative Impacts of Title Defects and Environmental Defects

 

(a)                                 In addition to the impacts set forth and described in Sections 11.2 and 11.4 hereof, if any Title Defects and/or any Environmental Defects are not cured or removed at or prior to the Closing Time and the cumulative amount by which the Purchase Price has been reduced pursuant to Sections 11.2(b)(iii) and 11.4(b)(iii) hereof is more than $6,560,000.00 Vendor may terminate this Agreement upon written notice to the Purchaser, in which case the Parties shall forthwith comply with the provisions of 2.8(a) and the Parties shall have no further obligation to each other hereunder, except for obligations arising pursuant to section 12.15; and

 

(b)                                 In addition to the impacts set forth and described in Sections 11.2 and 11.4 hereof, if any Title Defects and/or any Environmental Defects are not cured or removed at or prior to the Closing Time and the cumulative amount by which the value of the Assets has been reduced is, in Purchaser’s opinion acting reasonably, more than $12,300,000.00, Purchaser may terminate this Agreement upon written notice to the other Party, in which case the Parties shall forthwith comply with the provisions of section 2.8(a) and the Parties shall have no further obligation to each other hereunder, except for obligations arising pursuant to section 12.15.

 

11.6                        Value Disputes

 

If Vendor disagrees with the value allocated by Purchaser to any Title Defects or  Environmental Defect pursuant to Section 11.1 or 11.3 hereof, the Parties shall forthwith meet in good faith to discuss the issue and to attempt to agree upon an appropriate valuation to be placed upon such Title Defect or Environmental Defect.  If after such a meeting the issue has not been resolved or if a Party does not forthwith meet to discuss the issue, the issue shall be resolved by a single arbitrator pursuant to the provisions of the Arbitration Act (Alberta).  The decision of the arbitrator shall be final and shall not be subject to review.  All costs of arbitration

 

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shall be borne by the Parties equally.  Closing shall proceed based upon the value allocated by the arbitrator following such allocation being made by the arbitrator.

 

ARTICLE 12

GENERAL

 

12.1                        Further Assurances

 

Each Party will, from time to time and at all times after Closing, without further consideration, do such further acts and deliver all such further assurances, deeds and documents as shall be reasonably required in order to fully perform and carry out the terms of this Agreement.  Until Purchaser is novated, with respect to the interest of Vendor in and to the Assets, into the Title Documents and any other agreements and documents to which the Assets are subject, Vendor shall act as Purchaser’s agent (including without limitation to serve operation notices and authorizations for expenditure) as Purchaser reasonably and lawfully directs.  Purchaser shall be liable to Vendor and shall, in addition, indemnify Vendor from and against, all losses, costs, claims, damages, expenses and liabilities suffered, sustained, paid or incurred by Vendor arising in connection with all acts or omissions of Vendor in its capacity as agent of Purchaser to the extent such acts and omissions were expressly or impliedly authorized by Purchaser.

 

12.2                        No Merger

 

The covenants, representations, warranties and indemnities contained in this Agreement shall be deemed to be restated in any and all assignments, conveyances, transfers and other documents conveying the interests of Vendor in and to the Assets to Purchaser, subject to any and all time and other limitations contained in this Agreement.  There shall not be any merger of any covenant, representation, warranty or indemnity in such assignments, conveyances, transfers and other documents notwithstanding any rule of law, equity or statute to the contrary and such rules are hereby waived.

 

12.3                        Entire Agreement

 

The provisions contained in any and all documents and agreements collateral hereto shall at all times be read subject to the provisions of this Agreement and, in the event of conflict, the provisions of this Agreement shall prevail.  No amendments shall be made to this Agreement unless in writing, executed by the Parties.  This Agreement supersedes all other agreements, documents, writings and verbal understandings among the Parties relating to the subject matter hereof and expresses the entire agreement of the Parties with respect to the subject matter hereof.

 

12.4                        Subrogation

 

The assignment and conveyance to be effected by this Agreement is made with full right of substitution and subrogation of Purchaser in and to all covenants, representations, warranties and indemnities previously given or made by others in respect of the Assets or any part or portion thereof.

 

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12.5                        Governing Law

 

This Agreement shall, in all respects, be subject to, interpreted, construed and enforced in accordance with and under the laws of the Province of Alberta and applicable laws of Canada and shall, in all respects, be treated as a contract made in the Province of Alberta.  The Parties irrevocably attorn and submit to the exclusive jurisdiction of the courts of the Province of Alberta and courts of appeal therefrom in respect of all matters arising out of or in connection with this Agreement.

 

12.6                        Enurement

 

This Agreement may not be assigned by a Party without the prior written consent of the other Party, which consent may be unreasonably and arbitrarily withheld.  This Agreement shall be binding upon and shall enure to the benefit of the Parties and their respective administrators, trustees, receivers, successors and permitted assigns.

 

12.7                        Time of Essence

 

Time shall be of the essence in this Agreement.

 

12.8                        Notices

 

The addresses for service of the Parties shall be as follows:

 

	
Vendor -
    	
Mailing:
    
	
 
    	
Lone Pine Resources Canada Ltd.
    
	
 
    	
1100, 640 — 5th Avenue SW
    
	
 
    	
Calgary, AB T2P 3G4
    
	
 
    	
 
    
	
 
    	
Attention: VP Land & Negotiations
    
	
 
    	
 
    
	
 
    	
With a copy to:
    
	
 
    	
 
    
	
 
    	
Attention: VP General Counsel &   Corporate Secretary
    
	
 
    	
 
    
	
Purchaser -
    	
Canadian Natural Resources Limited
    
	
 
    	
2500, 855 — 2nd Street SW
    
	
 
    	
Calgary, AB T2P 4J8
    
	
 
    	
 
    
	
 
    	
Attention: Manager, Acquisitions &   Divestments
    

 

All notices, communications and statements required, permitted or contemplated hereunder shall be in writing, and shall be delivered as follows:

 

(a)                                 by personal service on a Party at the address of such Party set out above, in which case the item so served shall be deemed to have been received by that Party when personally served;

 

(b)                                 except in the event of an actual or threatened postal strike or other labour disruption that may affect mail service, by mailing first class registered post, postage prepaid, to a Party at the address of such Party set out above, in which

 

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case the item so mailed shall be deemed to have been received by that Party on the third Business Day following the date of mailing (the date of mailing being the Business Day immediately prior to the postmarked date of the envelope containing the notice, communication or statement or if the subject envelope has been lost or destroyed, the date of such notice, communication or statement or if undated the date of the transmittal letter accompanying the same).

 

A Party may from time to time change its address for service by giving written notice of such change to the other Party.

 

12.9                        Operatorship

 

Purchaser acknowledges that Vendor is unable to assign to Purchaser operatorship of the Assets, if any, operated by Vendor and in respect of which Vendor does not have a 100% interest.  Vendor shall, however, use reasonable best efforts to assist Purchaser in its attempts to obtain operatorship.

 

12.10                 Limit of Liability

 

In no event shall the liability of Vendor to Purchaser in respect of claims of Purchaser arising out of or in connection with this Agreement exceed, in the aggregate, the Purchase Price, taking into account any and all increases or decreases to the Purchase Price that occur by virtue of the terms of this Agreement.  In addition, the Vendor shall have no liability to Purchaser in respect of claims of Purchaser arising out of or in connection with this Agreement unless (and then only to the extent) the total of such liability exceeds $820,000.00.  This clause shall not apply to the extent that any matter or thing is the proper subject of an operating adjustment under Article 7.

 

12.11                 Invalidity of Provisions

 

In case any of the provisions of this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

 

12.12                 Waiver

 

No failure on the part of any Party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise thereof or the exercise of any right or remedy in law or in equity or by statute or otherwise conferred.  No waiver of any provision of this Agreement, including without limitation, this section, shall be effective otherwise than by an instrument in writing dated subsequent to the date hereof, executed by a duly authorized representative of the Party making such waiver.

 

12.13                 Amendment

 

This Agreement shall not be varied in its terms or amended by oral agreement or by representations or otherwise other than by an instrument in writing dated subsequent to the date hereof, executed by a duly authorized representative of each Party.

 

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12.14                 Agreement not Severable

 

This Agreement extends to the whole of the Assets and is not severable without Purchaser’s express written consent or as otherwise herein provided.

 

12.15                 Confidentiality and Public Announcements

 

Until Closing has occurred, each Party shall keep confidential all information obtained from the other Party in connection with the Assets and shall not release any information concerning this Agreement and the transactions herein provided for, without the prior written consent of the other Party, which consent shall not be unreasonably withheld.  Nothing contained herein shall prevent a Party at any time from furnishing information (i) to any governmental agency or regulatory authority or to the public if required by applicable law, provided that the Parties shall advise each other in advance of any public statement which they propose to make, (ii) in connection with obtaining consents or complying with preferential, pre-emptive or first purchase rights contained in Title Documents and any other agreements and documents to which the Assets are subject, or (iii) to procure the consent of Vendor’s lenders.

 

Neither Party will make any press release or other public announcement respecting this Agreement without the written consent of the other Party, such consent not to be unreasonably withheld, except to the extent to which the Party desiring to make the press release or other public announcement is advised by its counsel that the release or announcement is required to comply with any applicable regulations or the rules of any listing authority or stock exchange with which the disclosing Party is bound to comply.

 

12.16                 Privacy Laws

 

All disclosures of “personal information” pursuant to this Agreement shall only be carried out in compliance with applicable Privacy Laws.  The Parties agree that the transaction proposed by this Agreement constitutes a “business transaction” within the meaning of Privacy Laws.  Each Party agrees only to request from the other Party and each Party agrees only to provide to the other Party, “personal information” which is necessary: (a) for the Parties to determine whether to proceed with the transaction contemplated by this Agreement; and (b) if the Closing is to occur, for the Parties to carry out and complete the Closing.  The Parties agree that the collection, use and disclosure of “personal information” is restricted to the purposes that relate to the transaction contemplated by this Agreement.

 

If Closing occurs, Purchaser hereby undertakes to use and disclose the “personal information” about Third Parties that is obtained from Vendor only for those purposes for which the information was initially collected from or in respect of such Third Parties.  The Parties acknowledge and agree that the “personal information” which is provided by Vendor to Purchaser shall be: (a) information that relates solely to the Assets; and (b) information that relates solely to carrying out the objects for which the Closing occurs.

 

If Closing does not occur, Purchaser shall destroy or turn over (at the option of Vendor) to Vendor all of the “personal information” obtained in contemplation of Closing and still in the custody of (or under the control of) Purchaser.

 

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12.17                 Counterpart Execution

 

This Agreement may be executed in counterpart, no one copy of which need be executed by Vendor and Purchaser.  A valid and binding contract shall arise if and when counterpart execution pages are executed and delivered by Vendor and Purchaser.

 

IN WITNESS WHEREOF the Parties have executed this Agreement as of the day and year first above written.

 

	
LONE PINE RESOURCES CANADA LTD.
    	
 
    	
CANADIAN NATURAL RESOURCES LIMITED
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Per:
    	
/s/ David M. Anderson
    	
 
    	
Per:
    	
/s/ A. M. Knight
    
	
 
    	
President & Chief Executive Officer
    	
 
    	
 
    	
Senior Vice President, International &   Corporate Development
    

 

 

This is the execution page to an Agreement of Purchase and Sale made as of the 13th day of November, 2012, between Lone Pine Resources Canada Ltd., as Vendor and Canadian Natural Resources Limited, as Purchaser.

 

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