Document:

exhibit10_1.htm

    Exhibit
10.1

     

    AMENDED
AND RESTATED

     

     EMPLOYMENT
AGREEMENT

     

    THIS AMENDED AND RESTATED EMPLOYMENT
AGREEMENT (this “Agreement”)
is made effective as of April 19, 2010 (the “Effective
Date”), between Bronco Drilling Company, Inc., a Delaware corporation
(the “Company”),
and Frank Harrison, an individual (the “Executive”).

     

    W I T N E
S S E T H:

     

    WHEREAS, the Company and the Executive
are parties to that certain Employment Agreement, dated as of August 8, 2006, as
amended on August 2, 2007 (the “Existing
Agreement”).

     

    WHEREAS,
the Company and the Executive desire to amend and restate the Existing Agreement
to set forth the terms of their agreements relating to the employment of the
Employee by the Company.

     

    NOW, THEREFORE, in consideration of the
mutual promises herein contained, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the Company and the Executive agree as
follows:

     

    1. Employment.  The
Company hereby employs the Executive and the Executive hereby accepts such
employment subject to the terms and conditions contained in this
Agreement.  The Executive is engaged as an employee of the Company and
the Executive and the Company do not intend to create a joint venture,
partnership or other relationship that might impose a fiduciary obligation on
the Executive or the Company in the performance of this Agreement, other than as
an officer and director of the Company.

     

    2. Executive’s
Duties.  The Executive is employed on a full-time
basis.  Throughout the term of this Agreement, the Executive will use
the Executive’s best efforts and due diligence to assist the Company in the
objective of achieving the most profitable operation of the Company and the
Company’s affiliated entities consistent with developing and maintaining a
quality business operation.

     

    2.1 Specific
Duties.  During the term of this Agreement the
Executive:  (a) will serve as Chief Executive Officer for the
Company; (b) will be nominated for election or appointed to serve as a director
of the Company; (c) will be appointed as an officer or manager of such of the
Company’s subsidiaries as the Executive requests; and (d) will be nominated for
election or appointed to serve as a director of such of the Company’s
subsidiaries as the Executive requests.  The Executive agrees to use
the Executive’s best efforts to perform all of the services required to fully
and faithfully execute the offices and positions to which the Executive is
appointed and elected and such other services as may be reasonably directed by
the Board of Directors of the Company in accordance with this
Agreement.

     

    2.2 Modifications.  The
precise duties to be performed by the Executive may be extended or curtailed in
the discretion of the Board.  However, the occurrence of any one or
more of the following events (such events, individually and collectively, “Good
Reason”) shall constitute termination without Cause (as hereinafter
defined): (a) a reduction in the Executive’s then current Base Salary (as
hereinafter defined) or a significant reduction in the Executive’s then current
benefits as provided in Section 4 hereof; (b) a demotion by means of a
reduction in authority, responsibilities, duties or titles to a position of less
stature or importance with the Company or an assignment of duties materially
inconsistent with the Executive’s position, authority, duties or responsibility;
(c) the Company’s principal executive offices are moved to a location more than
25 miles from its current location or the Executive is required to be based
anywhere other than the Company’s principal executive offices; (d) a
failure by the Company to require any successor to the Company or to all or
substantially all of the business or assets of the Company to expressly assume
the obligations of the Company under this Agreement; or (e) a breach by the
Company of a material provision of this Agreement or any other material plan or
program covering the Executive.

     

    2.3 Rules and
Regulations.  From time to time, the Company may issue policies
and procedures applicable to employees and the Executive including an Employment
Policies Manual.  The Executive agrees to comply with such policies
and procedures, except to the extent such policies are inconsistent with this
Agreement.  Such policies and procedures may be supplemented,
modified, changed or adopted without notice in the sole discretion of the
Company at any time.  In the event of a conflict between such policies
and procedures and this Agreement, this Agreement will control unless compliance
with this Agreement will violate any law or regulation applicable to the Company
or its affiliated entities.

     

    3. Other
Activities.  During the term of this Agreement, Executive will
devote substantially all of his business time, efforts, skills and abilities and
attention to the business of the Company; provided, however, that Executive
(a) may serve on one board of directors of a publicly traded corporation,
(b) with the consent of the Board of Directors of the Company (which will
not be unreasonably withheld), may serve on other boards of directors of
business entities, (c) may engage in charitable, educational or community
affairs, including serving on the board of directors of any charitable,
educational or community organization, and (d) may manage his personal
investments, provided that such activities do not materially interfere with the
performance of his duties hereunder..

     

    4. Executive’s
Compensation.  The Company agrees to compensate the Executive
as follows:

     

    4.1 Base Salary.  During
the term of this Agreement, a base salary (the “Base
Salary”), in an annual rate of not less than Seven Hundred Fifty Thousand
Dollars ($750,000.00), will be paid to the Executive in installments consistent
with the Company’s customary payroll practices.

     

    4.2 Bonus.  During the
term of this Agreement, the Executive will be eligible to receive an annual
bonus established by the Board of Directors of the Company (or its Compensation
Committee), in its discretion.

     

    4.3 Equity
Compensation.  In addition to the compensation set forth in
Sections 4.1 and 4.2 of this Agreement, the Executive may periodically receive
grants of stock options, restricted stock or other equity related awards from
the Company’s stock compensation plans in effect from time to time, subject to
the terms and conditions of such plans.

     

    4.4 Benefits.  The
Company agrees to extend to the Executive retirement benefits, deferred
compensation, reimbursement of reasonable expenditures for dues, travel and
entertainment and any other benefits the Company provides to other executives or
officers from time to time on the same terms as such benefits are provided to
such individuals.  Such benefits will include comprehensive
healthcare, dental care, life insurance, disability and other welfare benefits
that are not less favorable than the plans in force on the Effective
Date.  The following specific benefits will also be provided to the
Executive at the expense of the Company.

     

    (a) Vacation.  The
Executive will be entitled to take up to five (5) weeks of paid vacation each
calendar year during the term of this Agreement, subject to proration for any
portion of a calendar year under this Agreement.  No additional
compensation will be paid for failure to take vacation and no vacation may be
carried forward from one calendar year to another.

     

    (b) Membership
Dues.  The Company will reimburse the Executive for joining,
and maintaining a full membership in, any country club in the Oklahoma City
area.

     

    (c) Support Services. The
Executive shall be reasonably permitted to utilize the Company’s computer
facilities and the services of one of the company’s secretarial/administrative
employees to provide routine accounting, records maintenance and preparation for
tax returns for the Executive (and his family’s) personal business investments
and activities; provided, that, such payment and use of services be subject to
annual review by the Board of Directors of the Company (or its Compensation
Committee).

     

    (d) Reimbursement of
Expenses.  The Company will reimburse the Executive for such
reasonable and necessary out-of-pocket business expenses as may be incurred by
him or her in the performance of the Executive’s duties hereunder.

     

    (e) Supplemental Retirement
Plan.  The Executive will be eligible to participate in the
Company’s supplemental retirement plan, if any, on terms no less favorable than
those available to other senior executives.

     

    (f) Tax
Withholding.  The Company has the right to deduct from any
compensation payable to the Executive under this Agreement social security
(FICA) taxes and all Federal, state and local income taxes and charges as are
required by applicable law and regulations.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4.5 Gross-Up
Payment.  In the event it is determined that any payment or
distribution by the Company or the Company’s subsidiaries or affiliates to or
for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
4.5) (a “Payment”)
is subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code (the “Code”) or
any interest or penalties related to such excise tax (collectively, the “Excise
Tax”), the Executive will be entitled to receive an additional payment (a
“Gross-Up
Payment”) from the Company.  The Gross-Up Payment will be equal
to the amount such that after payment by the Executive of all taxes (including
the Excise Tax, income taxes, interest and penalties imposed with respect to
such taxes) on the Gross-Up Payment, the Executive will retain an amount of the
Gross-Up Payment equal to the Excise Tax imposed on the Payment.

     

    (a) Determination.  Subject
to the provisions of Section 4.5(b), all determinations required to be made
under this Section 4.5 (including whether and when a Gross-Up Payment is
required, the amount of such Gross-Up Payment and the assumptions to be
utilized) will be made by a nationally recognized certified public accounting
firm designated by the Executive (the “Accounting
Firm”).  The Executive will request that the Accounting Firm
provide detailed supporting calculations both to the Company and the Executive
within fifteen (15) business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is reasonably requested
by the parties.  In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting a Change of
Control (as hereinafter defined), the Executive will be entitled to appoint
another nationally recognized accounting firm to make the determinations
required under this paragraph (which accounting firm will then be referred to as
the Accounting Firm hereunder).  All fees and expenses of the
Accounting Firm will be paid by the Company.  Any Gross-Up Payment
required to be paid under this Section 4.5 will be paid by the Company to the
Executive within five (5) days of the receipt of the Accounting Firm’s
determination.  Any determination by the Accounting Firm will be
binding on the Company and the Executive.  As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm, the Gross-Up Payment made by the
Company may be less than actually required (an “Underpayment”)
consistent with the calculations required to be made hereunder.  In
the event that the Company exhausts its remedies pursuant to Section 4.5(b)
below and the Executive thereafter is required to make a payment of any Excise
Tax, the Accounting Firm will determine the amount of the Underpayment that has
occurred and any such Underpayment will be promptly paid by the Company to or
for the benefit of the Executive.

     

    (b) Contest of
Claims.  The Executive will notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment.  Such notification will
be given as soon as practicable but no later than ten (10) business days after
the Executive is informed in writing of such claim and will apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid.  The Executive will not pay such claim prior to the expiration
of the thirty (30) day period following the date on which the Executive notifies
the Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due).  If the Company notifies the
Executive in writing prior to the expiration of such thirty (30) day period that
the Company desires to contest such claim, the Executive will:  (i)
provide to the Company any information reasonably requested by the Company
relating to such claim; (ii) take such action in connection with contesting such
claim as the Company reasonably requests in writing including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company; (iii) cooperate with the Company in
good faith as necessary to effectively contest such claim; and (iv) permit the
Company to participate in any proceedings relating to such claim.  The
Company will bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with the contest of the claim and
agrees to indemnify and hold the Executive harmless, on an after-tax basis, for
any Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such contest (including payment of costs and
expenses as provided hereunder).  Without limitation on the foregoing
provisions, the Company will control all proceedings related to such contested
claim, may at its sole option pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may at its sole option either direct the Executive to
pay the tax claimed and sue for a refund, or contest the claim in any
permissible manner.  The Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company reasonably
determines.  If the Company directs the Executive to pay a claim and
sue for a refund, the Company will be required to advance the amount of such
payment to the Executive on an interest-free basis and agrees to indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance, provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount.  Furthermore, the Company’s control of the contested claim
will be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive will be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.

     

    (c) Refunds.  If, after
the receipt by the Executive of an amount advanced by the Company pursuant to
Section 4.5(b), the Executive becomes entitled to receive any refund with
respect to such claim, the Executive will (subject to the Company’s complying
with the requirements of Section 4.5(b)) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after taxes
applicable thereto).  If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 4.5(b), a determination is
made that the Executive will not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty (30) days after
such determination, then the advance will be forgiven and will not be required
to be repaid and the amount of such advance will offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

     

    4.6 Compensation
Review.  The compensation of the Executive will be reviewed not
less frequently than annually by the Board of Directors of the Company (or a
Compensation Committee thereof) and shall be reviewed semi-annually if the
compensation of other executive officers of the Company is reviewed at such
frequency.  The compensation of the Executive prescribed in Section 4
of this Agreement (including benefits) may be increased at the discretion of the
Board of Directors of the Company or the Compensation Committee, but may not be
reduced without the prior written consent of the Executive except as expressly
provided herein.

     

    5. Term.  In the
absence of termination as set forth in Section 6 below, this Agreement will
extend for a term commencing on the Effective Date, and ending on April 18, 2013
(the “Expiration
Date”) as extended from time to time.  Unless the Company
provides thirty (30) days’ prior written notice of non-extension to the
Executive before each April 18 during the term of this Agreement, the term and
the Expiration Date will be automatically extended for one (1) additional year
so that the remaining term on this Agreement will be not less than two (2) and
not more than three (3) years.

     

    6. Termination.  The
Executive’s employment will continue in effect until the expiration of the term
set forth in Section 5 of this Agreement unless earlier terminated pursuant to
this Section 6.

     

    6.1 Termination by the
Company.  The Company will have the following rights to
terminate Executive’s employment:

     

    (a) Termination without
Cause.  The Company may terminate Executive’s employment
without Cause at any time by the service of written notice of termination to the
Executive specifying an effective date of such termination not sooner than ten
(10) days after the date of such notice (the “Termination
Date”).  In the event the Executive is terminated without Cause
(other than in connection with a Change of Control under Section 6.3 of this
Agreement), the Executive will receive as termination
compensation:  (i) an amount equal to his Base Salary (as in effect on
the Termination Date) during the remaining term of this Agreement, but in any
event through the Expiration Date; provided, however, such amount shall not be
less than two times the then current Base Salary; plus (ii) the greater of any
target bonus for the year of termination or the average of the immediately
preceding two years’ annual discretionary incentive bonuses received by
Executive; plus (iii) any vacation pay accrued through the Termination
Date.  In addition, during the greater of (i) twenty-four month
period following the date of termination and (ii) the number of months,
including fractional months, remaining in the term of this Agreement, the
Company will continue to provide Executive (and, as applicable, his family) with
the benefits, including but not limited to healthcare, dental, life insurance
and other benefits set forth in Section 4.4.  The payment of such
amounts shall be made, at Executive’s option, either in a lump sum within ten
(10) days of termination or during the remaining term of the Agreement in
installments consistent with the Company’s normal payroll practices, but, if on
the Termination Date, the Executive is a “specified employee” as defined in
regulations under Section 409A of the Code, such payments will commence on the
first payroll payment date which is more than six months following the
Termination Date, and the first payment shall include any amounts that would
have otherwise been payable during the six-month period.

     

    (b) Termination for
Cause.  The Company may terminate Executive’s employment for
Cause.  For purposes of this Agreement, “Cause”
means:  (i) the willful and continued failure of the Executive to
perform substantially the Executive’s duties with the Company or its
subsidiaries or affiliates (other than a failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board of Directors which
specifically identifies the manner in which the Board of Directors believes that
the Executive has not substantially performed the Executive’s duties; or (ii)
the willful engaging by the Executive in illegal conduct, gross misconduct or a
clearly established violation of the Company’s written policies and procedures,
in each case which is materially and demonstrably injurious to the
Company.  For purposes of this provision, an act or failure to act, on
the part of the Executive, will not be considered “willful” unless it is done,
or omitted to be done, by the Executive in bad faith or without reasonable
belief that the Executive’s action or omission was in the best interests of the
Company.  Any act, or failure to act, based on authority given
pursuant to a resolution duly adopted by the Board of Directors or based on the
advice of counsel for the Company will be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests of
the Company.  In the event Executive’s employment is terminated for
Cause, the Company will not have any obligation to provide any further payments
or benefits to the Executive after the effective date of such
termination.  Executive’s employment will not be deemed to have been
terminated for Cause unless a written determination specifying the reasons for
such termination is made, approved by a majority of the independent and
disinterested members of the Board of Directors of the Company and delivered to
the Executive.  Thereafter, the Executive will have the right for a
period of thirty (30) days to request a Board of Directors meeting to be held at
a mutually agreeable time and location to be attended by the members of the
Board of Directors in person within the following thirty (30) days, at which
meeting the Executive and his designated representatives will have an
opportunity to be heard.  Failing such determination and opportunity
for hearing, any termination of Executive’s employment will be deemed to have
occurred without Cause.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    6.2 Termination by
Executive.  The Executive may voluntarily terminate his
employment with or without Cause by the service of written notice of such
termination to the Company specifying an effective date of such termination
ninety (90) days after the date of such notice, during which time the Executive
may use remaining accrued vacation days, or at the Company’s option, be paid for
such days.  Subject to Sections 2.2 and 6.1, in the event his
employment is terminated by the Executive, neither the Company nor the Executive
will have any further obligations hereunder, except for any obligations which
expressly survive termination of employment including, without limitation, any
obligation of the Company to provide any further payments or benefits to the
Executive after the effective date of such
termination.  Notwithstanding anything in this Agreement to the
contrary, in the event the Executive provides written notice to the Company that
he is terminating his employment with the Company for Good Reason, other than in
connection with a termination upon a Change of Control (as hereinafter defined),
the Executive shall receive the termination compensation provided in Section
6.1(a) hereof within ten (10) days of receipt by the Company of written notice
of such termination.

     

    6.3 Termination in Connection with a
Change of Control.  The Executive will be entitled to terminate
this Agreement with or without Cause or Good Reason at anytime within two (2)
years following a Change of Control by providing written notice to the Company
(or any successor to the Company or any parent corporation of the
Company).  Within ten (10) days of the Company’s (or any successor to
the Company or any parent corporation of the Company) receipt of such notice,
the Executive shall receive a severance payment (in addition to any other rights
and other amounts payable to the Executive under Section 6.7 or under Company
plans in which the Executive is a participant) payable in a lump sum in cash an
amount equal to the sum of the following: (i) three (3) times the sum of the
Executive’s highest paid annual Base Salary plus any annual discretionary bonus
paid pursuant to Section 4.2 (based on the average of the last three years’
annual discretionary bonuses or such lesser number of years as the Executive may
have been employed); plus (ii) any applicable Gross-Up Payment.  If
the foregoing amount is not paid within ten (10) days after the notice of such
termination is received by the Company, the unpaid amount will bear interest at
the per annum rate of 12% per annum.  Notwithstanding the foregoing,
if at the time of such termination the Executive is a “specified employee” as
defined in regulations under Section 409A of the Code, such payment will be made
on the first day which is more than six (6) months following the date of such
termination.  In connection with any Change of Control, the Company
shall obtain the assumption of this Agreement, without limitation or reduction,
by any successor to the Company or any parent corporation of the
Company.  In the event the Company (or any successor to the Company or
any parent corporation of the Company) terminates this Agreement, with or
without Cause, within two (2) years following a Change of Control, the Executive
shall be entitled to the severance payment set forth in this Section 6.3 on the
same terms as if the Executive elected to terminate this Agreement under this
Section 6.3.

     

    For the
purpose of this Agreement, a “Change of
Control” means the occurrence of any of the following
events:

     

    (a) The
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange
Act”)) (a “Person”),
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 40% or more of either (i) the then outstanding shares of
common stock of the Company (the “Outstanding
Company Common Stock”) or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the “Outstanding
Company Voting Securities”).  For purposes of this Section
6.3(a), any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company will not constitute a Change in Control.

     

    (b) The
individuals who, as of the date hereof, constitute the Board (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the
Board.  Any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company’s stockholders,
is approved by a vote of at least a majority of the directors then comprising
the Incumbent Board will be considered a member of the Incumbent Board as of the
date hereof, but any such individual whose initial assumption of office occurs
as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Incumbent Board
will not be deemed a member of the Incumbent Board as of the date
hereof.

     

    (c) The
consummation of a reorganization, merger, consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a “Business
Combination”), unless following such Business Combination: (i) the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which, as a result of such transaction, owns
the Company or all or substantially all of the Company’s assets either directly
or through one ore more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be; (ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 40% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination; and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination.

     

    The
approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company.

     

    6.4 Disability of
Executive.  (a) The employment of Executive will terminate
upon the Disability of Executive.  For purposes of this Agreement,
“Disability” means Executive’s inability to perform his duties and
responsibilities as contemplated under this Agreement for a period of more than
120 consecutive days due to physical, mental or emotional incapacity or
impairment.  A determination of Disability will be made by a physician
acceptable to both Executive and the Company; provided that if Executive and the
Company cannot agree as to a physician, each will select a physician and the two
physicians will select a third physician, whose determination as to Disability
will be binding on Executive and the Company.  Executive, his legal
representative or any adult member of his immediate family will have the right
to present to the Company and such physician such information and arguments on
his behalf as Executive or they deem appropriate, including the opinion of his
personal physician.  Executive’s employment will not be terminated due
to Disability until the physician has delivered a written opinion certifying
such disability and a written notice of termination for Disability has been
delivered by the Company or Executive, as the case may be, to the other
party.

     

    (b)           In
the event Executive’s employment is terminated for Disability, the Company will
pay Executive his Base Salary in effect on the date of termination through the
remaining term of this Agreement, but in any event through the Expiration
Date.  The payment of such amounts shall be made during the remaining
term of the Agreement in installments consistent with the Company’s normal
payroll practices, but, if on the termination date, the Executive is a
“specified employee” as defined in regulations under Section 409A of the Code,
such payments will commence on the first payroll payment date which is more than
six months following the termination date and the first payment shall include
any amounts that would have otherwise been payable during the six-month
period.  Notwithstanding the foregoing, the amount payable hereunder
will be reduced by any benefits payable under any disability plans provided by
the Company under Section 4.4 of this Agreement.

     

    6.5 Death of
Executive.  If Executive dies during the term of this
Agreement, Executive’s employment will terminate without compensation to the
Executive’s estate, except:  (a) the obligation to continue the Base
Salary payments under Section 4.1 of this Agreement for twelve (12) months after
the effective date of such termination, and (b) the benefits described in
Section 4.4 of this Agreement accrued through the effective date of such
termination.

     

    6.6 Effect of
Termination.  The termination of Executive’s employment will
terminate all obligations of the Executive to render services on behalf of the
Company.  Executive will maintain the confidentiality of all
information acquired by the Executive during the term of his employment in
accordance with Section 7 of this Agreement.  In the event of
Executive’s termination of employment, and in addition to any other payments or
benefits owed to Executive under this Section 6, the Company will pay
Executive, his estate or his representative, as the case may be, any accrued but
unpaid salary, bonuses, expenses or benefits as of the date of
termination.  Except as provided in the previous sentence, no accrued
bonus, severance pay or other form of compensation will be payable by the
Company to the Executive by reason of the termination of his
employment.  In the event that payments are required to be made by the
Company under this Section 6, the Executive will not be required to seek other
employment as a means of mitigating the Company’s obligations hereunder
resulting from termination of the Executive’s employment and the Company’s
obligations hereunder (including payment of severance benefits) will not be
terminated, reduced or modified as a result of the Executive’s earnings from
other employment or self-employment.  All keys, entry cards, credit
cards, files, records, financial information, furniture, furnishings, equipment,
supplies and other items relating to the Company will remain the property of the
Company.  All such personal items will be removed from such offices no
later than ten (10) days after the effective date of termination, and the
Company is hereby authorized to discard any items remaining and to reassign the
Executive’s office space after such date.  Prior to the effective date
of termination, the Executive will cooperate with the Company to provide for the
orderly termination of the Executive’s employment.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    6.7 Equity Compensation
Provisions.  Notwithstanding any provision to the contrary in
any option agreement, restricted stock agreement, plan or other agreement
relating to equity based compensation, in the event of a termination by the
Executive for Good Reason under Section 6.2, termination by the Company under
Section 6.1(a) (which includes any constructive termination by the Company for
Good Reason), or upon a Change of Control under Section 6.3 of this
Agreement:  (a) all units, stock options, incentive stock options,
performance shares, stock appreciation rights and restricted stock held by the
Executive immediately prior to such termination will immediately become 100%
vested; and (b) the Executive’s right to exercise any previously unexercised
options will not terminate until the latest date on which such option would
expire but for Executive’s termination of employment.  To the extent
the Company is unable to provide for one or both of the foregoing rights, the
Company will provide, in lieu thereof, a lump-sum cash payment equal to the
difference between the total value of such units, stock options, incentive stock
options, performance shares, stock appreciation rights and shares of restricted
stock (the “Equity
Compensation Rights”) with the foregoing rights as of the date of
Executive’s termination of employment and the total value of the Equity
Compensation Rights without the foregoing rights as of the date of the
Executive’s termination of employment.  The foregoing amounts will be
determined by the Board of Directors in good faith based on a valuation
performed by an independent consultant selected by the Board of Directors and
the cash payment, if any, will be paid in a lump sum in the case of a
termination under Section 6.1(a), at the same time as the first severance
payment is otherwise due under such Section, and in the case of a termination by
the Executive for Good Reason under Section 6.2, at the same time as the first
severance payment is otherwise due under such Section, and in the case of a
termination as a result of a Change of Control under Section 6.3, within ten
(10) days of such Change of Control.

     

    6.8 Payment in Lieu of
Benefits.  In the event that Executive and/or his family is
entitled to benefits, such as healthcare, under this Section 6, to the extent
that the Company’s plans, programs and arrangements do not permit a continuation
of Executive’s and/or his family’s participation in a benefit plan, program or
arrangement following his termination of employment, the Company will pay
Executive (and/or his family), no less frequently than quarterly in advance an
amount which, after all taxes on such amount, is sufficient for him and/or his
family to purchase equivalent benefits.

     

    6.9 Release.  As a
condition of receiving any amounts pursuant to Section 6, or of accelerated
vesting of any equity-based or cash-based award in connection with the
termination of Executive’s employment, Executive agrees to execute a release of
claims that he has or may have against the Company relating to, or arising out
of his employment (including the termination of such employment) with the
Company; provided, however, Executive will not release:

     

    (i) claims
that Executive may have against the Company for reimbursement of ordinary and
necessary business expenses incurred by him during the course of his
employment;

     

    (ii) claims
that arise after the effective date of the release;

     

    (iii) any
rights Executive may have to enforce this Agreement;

     

    (iv) any
rights or entitlements that Executive has under any applicable plan, policy,
program, or arrangement of, or other agreement with, the Company;
and

     

    (v) claims
for which Executive is entitled to be indemnified under the Company’s
Certificate of Incorporation or By-laws or under applicable law or pursuant to
the Company’s directors’ and officer’s liability insurance
policies.

     

    7. Confidentiality.  The
Executive recognizes that the nature of the Executive’s services are such that
the Executive will have access to information that constitutes trade secrets, is
of a confidential nature, is of great value to the Company or is the foundation
on which the business of the Company is predicated (“Confidential
Information”).  The Executive agrees not to disclose to any
person other than the Company’s employees or the Company’s legal counsel or
other parties authorized by the Company to receive confidential information nor
use for any purpose, other than the performance of this Agreement, any
Confidential Information.  Confidential Information includes data or
material (regardless of form) which is:  (a) a trade secret; (b)
provided, disclosed or delivered to Executive by the Company, any officer,
director, employee, agent, attorney, accountant, consultant or other person or
entity employee by the Company in any capacity, any customer, borrower or
business associate of the Company or any public authority having jurisdiction
over the Company of any business activity conducted by the Company; or (c)
produced, developed, obtained or prepared by or on behalf of the Executive or
the Company (whether or not such information was developed in the performance of
this Agreement) with respect to the Company or any assets, business activities,
officers, directors, employees, borrowers or customers of the
foregoing.  However, Confidential Information will not include any
information, data or material which at the time of disclosure or use was
generally available to the public other than by a breach of this Agreement, was
available to the party to whom disclosed on a non-confidential basis by
disclosure or access provided by the Company or a third party, or was otherwise
developed or obtained independently by the person to whom disclosed without a
breach of this Agreement.  On request by the Company, the Company will
be entitled to a copy of any Confidential Information in the possession of the
Executive.  The provisions of this Section 7 will survive the
termination, expiration or cancellation of Executive’s employment for a period
of one (1) year after the date of termination.  The Executive will
deliver to the Company all originals and copies of the documents or materials
containing Confidential Information.  For purposes of Sections 7, 8
and 9 of this Agreement, the Company expressly includes any of the Company’s
subsidiaries or affiliates.

     

    8. Non-competition.  During
the period of Executive’s employment and for a period ending six (6) months
after the Executive’s termination of employment for any reason other than
pursuant to Section 6.1(a) or 6.3, (a) the Executive will not solicit, induce,
entice or attempt to entice any employee, contractor, customer, vendor or
subcontractor to terminate or breach any relationship with the Company or the
Company’s subsidiaries or affiliates for the Executive’s own account or for the
benefit of another party; and (b) the Executive will not circumvent or attempt
to circumvent the foregoing agreements in clause (a) by any future arrangement
or through the actions of a third party.  The foregoing will not
prohibit the activities which are expressly permitted by Section 3 of this
Agreement.

     

    9. Proprietary
Matters.  The Executive expressly understands and agrees that
any and all improvements, inventions, discoveries, processes or know-how that
are generated or conceived by the Executive during the term of this Agreement,
whether generated or conceived during the Executive’s regular working hours or
otherwise, will be the sole and exclusive property of the
Company.  Whenever requested by the Company (either during the term of
this Agreement or thereafter), the Executive will assign or execute any and all
applications, assignments and/or other instruments and do all things which the
Company deems necessary or appropriate in order to permit the Company
to:  (a) assign and convey or otherwise make available to the Company
the sole and exclusive right, title and interest in and to said improvements,
inventions, discoveries, processes, know-how, applications, patents, copyrights,
trade names or trademarks; or (b) apply for, obtain, maintain, enforce and
defend patents, copyrights, trade names or trademarks of the United States or of
foreign countries for said improvements, inventions, discoveries, processes or
know-how.  However, the improvements, inventions, discoveries,
processes or know-how generated or conceived by the Executive and referred to
above (except as they may be included in the patents, copyrights or registered
trade names or trademarks of the Company, or corporations, partnerships or other
entities which may be affiliated with the Company) will not be exclusive
property of the Company at any time after having been disclosed or revealed or
have otherwise become available to the public or to a third party on a
non-confidential basis other than by a breach of this Agreement, or after they
have been independently developed or discussed without a breach of this
Agreement by a third party who has no obligation to the Company or the Company
Entities.

     

    10. Arbitration.  The
parties will attempt to promptly resolve any dispute or controversy arising out
of our relating to this Agreement or termination of the Executive by the
Company.  Any negotiations pursuant to this Section 10 are
confidential and will be treated as compromise and settlement negotiations for
all purposes.  If the parties are unable to reach a settlement
amicably, the dispute will be submitted to binding arbitration before a single
arbitrator in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association.  The arbitrator will be instructed
and empowered to take reasonable steps to expedite the arbitration and the
arbitrator’s judgment will be final and binding upon the parties subject solely
to challenge on the grounds of fraud or gross misconduct.  Except for
damages arising out of a breach of Sections 6, 7, 8 or 9 of this Agreement, the
arbitrator is not empowered to award total damages (including compensatory
damages) that exceed 300% of compensatory damages and each party hereby
irrevocably waives any damages in excess of that amount.  The
arbitration will be held in Oklahoma County, Oklahoma.  Judgment upon
any verdict in arbitration may be entered in any court of competent jurisdiction
and the parties hereby consent to the jurisdiction of, and proper venue in, the
federal and state courts located in Oklahoma County, Oklahoma.  The
Company will pay the costs and expenses of the arbitration including, without
implied limitation, the fees for the arbitrators.  Unless otherwise
expressly set forth in this Agreement, the procedures specified in this Section
10 will be the sole and exclusive procedures for the resolution of disputes and
controversies between the parties arising out of or relating to this
Agreement.  Notwithstanding the foregoing, a party may seek a
preliminary injunction or other provisional judicial relief if in such party’s
judgment such action is necessary to avoid irreparable damage or to preserve the
status quo.

     

    11. Miscellaneous.  The
parties further agree as follows:

     

    11.1 Time.  Time is of
the essence of each provision of this Agreement.

     

    11.2 Notices.  Any
notice, payments, demand or communication required or permitted to be given by
any provision of this Agreement will be in writing and will be deemed to have
been given when received by personal delivery, by facsimile, by overnight
courier, or be certified mail, postage and charges prepaid, directed to the
following address or to such other additional addresses as any party might
designate by written notice to the other party:

     

    To the
Company:                                Bronco
Drilling Company, Inc.

                                                                                            
16217 N. May Avenue

                                                          
Edmond, OK 73013

                                                                 
        Attn:
General Counsel

     

    To the Executive:  The
Executive’s most recent home address on file with the Company.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    11.3 Assignment.  Neither
this Agreement nor any of the parties’ rights or obligations hereunder can be
transferred or assigned without the prior written consent of the other parties
to this Agreement.

     

    11.4 Construction.  If
any provision of this Agreement or the application thereof to any person or
circumstances is determined, to any extent, to be invalid or unenforceable, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those as to which the same is held invalid or
unenforceable, will not be affected thereby, and each term and provision of this
Agreement will be valid and enforceable to the fullest extent permitted by
law.  This Agreement is intended to be interpreted, construed and
enforced in accordance with the laws of the State of Oklahoma.

     

    11.5 Entire
Agreement.  Except as provided in Section 2.3 of this
Agreement, this Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter herein contained, and no modification
hereof will be effective unless made by a supplemental written agreement
executed by all of the parties hereto.

     

    11.6 Binding
Effect.  This Agreement will be binding on the parties and
their respective successors, legal representatives and permitted
assigns.  In the event of a merger, consolidation, combination,
dissolution or liquidation of the Company, the performance of this Agreement
will be assumed by any entity which succeeds to or is transferred the business
of the Company as a result thereof.

     

    11.7 Attorneys’ Fees.  If
any party institutes an action, proceeding or arbitration against any other
party relating to the provisions of this Agreement or any default hereunder, the
Company will be responsible for paying the Company’s legal fees and expenses and
the Company will be required to reimburse the Executive for reasonable expenses
and legal fees incurred by the Executive in connection with the resolution of
such action or proceeding, including any costs of appeal.

     

    11.8 Superseding
Agreement.  This Agreement is the final, complete and exclusive
expression of the agreement between the Company and the Executive and supersedes
and replaces in all respects any prior oral or written employment agreements,
including, but not limited to, the Existing Agreement.  On execution
of this Agreement by the Company and the Executive, the relationship between the
Company and the Executive after the effective date of this Agreement will be
governed by the terms of this Agreement and not by any other agreements, oral or
otherwise.

     

    11.9 Non-Contravention.  Executive
represents and warrants to the Company that the execution and performance of
this Agreement will not violate, constitute a default under, or otherwise give
rights to any third party, pursuant to the terms of any Agreement to which
Executive is a party.

     

    11.10 Compliance with Section 409A of the
Code.  This Agreement is intended to comply with Section 409A
of the Code and shall be construed and interpreted in accordance with such
intent.  To the extent any benefit paid under this Agreement shall be
subject to Section 409A of the Code, such benefit shall be paid in a manner that
will comply with Section 409A, including any IRS 409A Guidance.  Any
provision of this Agreement that would cause the payment of any benefit to fail
to satisfy Section 409A of the Code shall have no force and effect until amended
to comply with Section 409A (which amendment may be retroactive to the extent
permitted by the IRS 409A Guidance.

     

    

     

    [SIGNATURES
ON FOLLOWING PAGE]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the undersigned have executed this Agreement effective the date
first above written.

     

    COMPANY:

     

    

     

    By:/s/MARK
DUBBERSTEIN                                                                

     

          Mark
Dubberstein, President

     

    EXECUTIVE:

     

    

     

    By:/s/ D. FRANK
HARRISON                                                                

     

          D.
Frank Harrisonex4-1.htm

Exhibit 4.1

 

Schedule “A”

 

The US $100.00 5% Cumulative Redeemable Convertible Preferred Shares of the Corporation shall consist of One Hundred and Fifty Thousand (150,000) shares, shall be designated as First Preferred Shares, Series B (the “First Preferred Shares, Series B”) and, in addition to the rights, restrictions and conditions attached to the First Preferred Shares as a class, shall have attached thereto the following rights, privileges, restrictions and conditions;

 

ARTICLE 1

INTERPRETATION

 

	
1.1

	
In these provisions, unless the context otherwise requires:

 

	
  

	
(a)

	
“accrued and unpaid dividends” means, at any particular date, dividends accrued to and including such date pursuant to Article 2 which have not then been paid, whether or not declared by the Board of Directors;

 

	
  

	
(b)

	
“applicable law” means the law applicable to the Corporation, including the Business Corporations Act (Alberta) and any successor statute, as the same may from time to time be in force;

 

	
  

	
(c)

	
“affiliate” has the meaning ascribed thereto in the Business Corporations Act (Alberta) and any successor statute, as the same may from time to time be in force;

 

	
  

	
(d)

	
“Business Day” means a day other than a Saturday, a Sunday or any other day that is treated as a statutory holiday in the jurisdiction in which the Corporation’s registered office is located;

 

	
  

	
(e)

	
“Certificate” means a certificate of the Corporation signed by any two of the President, a Vice-President or the Secretary of the Corporation and may consist of one or more instruments so executed;

 

	
  

	
(f)

	
“Common Shares” means common shares of the Corporation as such shares were constituted on January 1, 2010 or as subsequently consolidated or subdivided and any other shares resulting from the reclassification or change of such Common Shares or other capital reorganization or amalgamation, consolidation, merger or sale, all as referred to in Sections 5.4 and 5.10;

 

	
  

	
(g)

	
“Current Conversion Basis” means the number of Common Shares into which each First Preferred Share, Series B is convertible, which number at any particular time is equal to the result obtained (expressed to the second decimal place rounded upwards) by dividing US $100.00 by the Current Conversion Price;

 

	
  

	
(h)

	
“Current Conversion Price” means US $0.60 per Common Share subject to adjustment as hereinafter provided, regardless of the Common Share price in effect at the time of such adjustment provided that such price shall always be expressed to one-tenth of one cent, rounded upwards;

 

  

  

  

- 2 -

	
  

	
(i)

	
“Current Market Price” means, as at any date when the Current Market Price is to be determined, the weighted average price per Common Share at which board lots of the Common Shares have been traded on the Exchange for at least 20 trading days in any consecutive 30 day period, ending three trading days prior to such date.  In the event the Common Shares are not listed on the Exchange but are listed on another major stock exchange or stock exchanges in the United States, any references to such other stock exchange, or, if more than one, to such one as shall be designated by the Board of Directors.  In the event Common Shares are not so traded on any major stock exchange in the United States, the Current Market Price thereof shall be determined by the Board of Directors;

 

	
  

	
(j)

	
“Dividend Payment Date” means the last day of March, June, September and December in each year commencing on the Initial Payment Date;

 

	
  

	
(k)

	
“Exchange” means the NYSE Amex;

 

	
  

	
(l)

	
“Forced Conversion Price” means, as at any date when the Forced Conversion Price is to be determined, the minimum of the highest 20 closing prices for the Common Shares in any consecutive 30 day trading period hereafter on the Exchange or, if the Common Shares are not traded on the Exchange, on any other major stock exchange in the United States on which the Common Shares are traded;

 

	
  

	
(m)

	
“Initial Dividend Rate” means 5%, multiplied by the number of days from the date of issue to the Initial Payment Date, divided by 365;

 

	
  

	
(n)

	
“Initial Payment Date” means March 31, 2010;

 

	
  

	
(o)

	
“Quarterly Dividend Rate” means, in respect of any Dividend Payment Date. 1.25%; and

 

	
  

	
(p)

	
“Stated Value” means US $100.00 provided that for the purposes of Article 2 in the event that any amount of dividends accrued on a First Preferred Shares, Series B to a particular Dividend Payment Date is not paid on such date, for the purpose of calculating the amount of dividends accruing after such Dividend Payment Date, Stated Value shall be the aggregate of US $100.00 and the amount of accrued and unpaid dividends on such Dividend Payment Date until such accrued and unpaid dividends are paid.

 

	
1.2

	
In the event that any day on which any dividend on First Preferred Shares, Series B is payable by the Corporation, or on or by which any other action is required to be taken by the Corporation hereunder, is not a Business Day, then such dividend shall be payable, or such other actions shall be required to be taken, on or by the next succeeding day that is a Business Day.

 

  

  

  

- 3 -

 

ARTICLE 2

DIVIDENDS

 

	
2.1

	
The holders of First Preferred Shares, Series B shall be entitled to receive, and the Corporation shall pay on each First Preferred Shares, Series B as and when declared by the Board of Directors out of the assets of the Corporation properly applicable to the payment of dividends, cumulative preferential cash dividends on:

 

	
  

	
(a)

	
the Initial Payment Date in an amount per share equal to the Initial Dividend Rate multiplied by the Stated Value; and

 

	
  

	
(b)

	
each of the Dividend Payment Dates in an amount per share equal to the Quarterly Dividend Rate multiplied by the Stated Value;

 

provided that for and restricted to the 150 day period after December 30, 2010, the dividend rate on outstanding First Preferred Shares, Series B shall be increased by 1/30 of 1% per day.

 

In any case where dividends are to be calculated for a period (the “Dividend Payment Period”) that ends on a date other than the Initial Payment Date or a Dividend Payment Date, the daily rate at which such dividends shall accrue shall be an amount per share equal to (i) 5% multiplied by the Stated Value; multiplied by (ii) the result obtained when the number of days in such Dividend Payment Period is divided by 365 and adjusted with respect to the immediately preceding proviso.

 

	
2.2

	
If on any date on which dividends are to be paid the dividends payable on such date are not paid in full on the First Preferred Shares, Series B then issued and outstanding, such dividends, or the unpaid part thereof, shall be paid on a subsequent date or dates determined by the Board of Directors on which the Corporation shall have sufficient monies properly applicable to the payment of such dividends and in priority to dividends on the Common Shares and on all other shares ranking junior to the First Preferred Shares, Series B with respect to the payment of dividends.  The holders of First Preferred Shares, Series B shall not be entitled to any dividend other than or in excess of the cumulative preferential cash dividends herein provided for.

 

	
2.3

	
Subject to Section 2.4, dividends (less any tax required to be withheld by the Corporation) on the First Preferred Shares, Series B shall be paid by cheque payable in lawful money of the United States at par or by any other reasonable means that the Corporation deems desirable.  The mailing of such cheque from the Corporation’s registered office, or the payment by such other reasonable means as may herein be permitted or which the Corporation deems desirable, on or before the date on which such dividend is to be paid to a holder of First Preferred Shares, Series B shall be deemed to be payment of the dividends represented thereby and payable on such date unless the cheque is not paid upon presentation or payment by such other means is not received. Dividends which are represented by a cheque which has not been presented to the Corporation’s bankers for payment or that otherwise remain unclaimed within six years after the date on which they were declared to be payable shall be forfeited to the Corporation.

 

  

  

  

- 4 -

	
2.4

	
The Corporation may elect from time to time, to satisfy its dividend payment obligation on any Dividend Payment Date entirely or in part by delivering Common Shares to the holders of First Preferred Shares, Series B within five days of the Dividend Payment Date.  The number of Common Shares issuable, if and when so determined by the Board of Directors of the Corporation, shall be equal to 115% of the Quarterly Dividend Rate multiplied by the Stated Value divided by the Current Market Price, less any amount to be paid in cash, calculated on a per share basis.  In the event that the aggregate dividend payable to any holder shall result in a fraction of a Common Share, the Corporation shall adjust such fractional interest by rounding up such fraction to the next whole number of Common Shares.  Any Common Shares issued by way of dividends shall be approved for listing on the Exchange.

 

ARTICLE 3

REDEMPTION

 

	
3.1

	
Subject to applicable law, on and after December 30, 2011, the Corporation may redeem, at any time or from time to time, the whole or any part of the First Preferred Shares, Series B on payment for each such share to be redeemed of the Stated Value together with an amount equal to all accrued and unpaid dividends to the date fixed for redemption (the whole amount being herein referred to as the “redemption price”).

 

In case only a part of the then outstanding First Preferred Shares, Series B are at any time to be redeemed, the shares so to be redeemed shall be redeemed pro rata, excluding fractions, from the holdings of all shareholders of First Preferred Shares, Series B or in such other manner as the Board of Directors deems reasonable.

 

	
3.2

	
On any redemption of First Preferred Shares, Series B under this Article 3, the Corporation shall give, in the manner provided in Article 13 and at least 30 days and not more than 60 days before the date fixed for redemption, a notice in writing of the intention of the Corporation to redeem First Preferred Shares, Series B to each person who at the date of giving of such notice is a registered holder of First Preferred Shares, Series B to be redeemed.  Such notice shall set out the calculation of the redemption price, the date fixed for redemption and, unless all the First Preferred Shares, Series B held by the holder to whom it is addressed are to be redeemed, the number of such shares so held which are to be redeemed.

 

	
3.3

	
The redemption price (less any tax required to be withheld by the Corporation) shall be paid by cheque payable in lawful money of the United States or by such other reasonable means as the Corporation deems desirable.  The mailing of such cheque from the Corporation’s registered office, or the payment of such other reasonable means as the Corporation deems desirable, on or before the date fixed for redemption shall be deemed to be payment of the redemption price represented thereby on such date fixed for redemption unless the cheque is not paid upon presentation or payment by such other means is not received.  Notwithstanding the foregoing, the Corporation shall be entitled to require at any time, and from time to time, that the redemption price be paid to holders of First Preferred Shares, Series B only upon presentation and surrender at the head office of the Corporation or at any other place or places within Canada designated by the notice

 

  

  

  

- 5 -

of redemption of the certificate or certificates for such First Preferred Shares, Series B to be redeemed.

 

	
3.4

	
If a part only of the First Preferred Shares, Series B represented by any certificate are to be redeemed, a new certificate for the balance shall be issued at the expense of the Corporation.

 

	
3.5

	
At any time after notice of redemption is given the Corporation shall have the right to irrevocably deposit the redemption price of any or all First Preferred Shares, Series B to be redeemed with any chartered bank or banks or with any trust company or trust companies in Canada named for such purpose in the notice of redemption to the credit of a special account or accounts in trust for the respective holders of such shares, to be paid to them respectively upon surrender to such bank or banks or trust company or trust companies of the certificate or certificates representing the First Preferred Shares, Series B to be redeemed.  Upon such deposit or deposits being made or upon the date fixed for redemption, whichever is later, the shares in respect of which such deposit has been made shall be and be deemed to be redeemed and the rights of the holders of such shares shall be limited to receiving, without interest, the proportion of the amount sc deposited applicable to their respective shares.  Any interest allowed on such deposit or deposits shall accrue to the Corporation.

 

	
3.6

	
Any cheque representing payment of redemption price not presented to the Corporation’s bankers for payment, or any money so set aside and not claimed by or paid to the holders of First Preferred Shares, Series B entitled thereto, within six years after the date fixed for redemption shall be forfeited to the Corporation.

 

	
3.7

	
From and after the date fixed for redemption, the First Preferred Shares, Series B called for redemption shall cease to be entitled to dividends and the holders thereof shall not be entitled to exercise any of the rights of shareholders in respect thereof unless payment of the redemption price shall not be duly made by the Corporation.

 

	
3.8

	
First Preferred Shares, Series B which are redeemed or deemed to be redeemed in accordance with this Article 3 shall, subject to applicable law, be and be deemed to be cancelled and shall not be reissued.

 

ARTICLE 4

RETRACTION

 

	
4.1

	
Subject to applicable law, on the earlier of (i) December 31, 2011, or (ii) upon the occurrence of a takeover of the Corporation resulting in the Common Shares no longer being publicly-traded, each registered holder of First Preferred Shares, Series B shall be entitled to require the Corporation to retract any First Preferred Shares, Series B tendered as hereinafter provided at a price per share equal to the Stated Value, together with all accrued and unpaid dividends thereon up to the retraction date (the whole amount being herein referred to as the “retraction price”), the whole subject to the provisions which follow.  A holder of First Preferred Shares, Series B wishing to exercise the retraction privilege must complete and duly execute the retraction form on the certificate(s)

 

  

  

  

- 6 -

representing the First Preferred Shares, Series B which the holder elects to have so purchased and deposit such certificate(s) representing First Preferred Shares, Series B which the holder elects to have so purchased not later than 30 days immediately before the date on which the holder wishes to exercise the retraction privilege (being herein referred to as the “retraction date”) with the Secretary of the Corporation, the registrar of the First Preferred Shares, Series B or any other place designated by the Corporation in the retraction form, whereupon the deposit will be irrevocable except in the event that the Corporation otherwise agrees or to the extent that the Corporation fails to retract the shares in respect of which the deposit was made on or before the retraction date.

 

If at any time more First Preferred Shares, Series B are tendered pursuant hereto for retraction than the Corporation is obligated pursuant hereto to retract or than are permitted to be retracted pursuant to the terms of any instruments of indebtedness of the Corporation or applicable law, the Corporation shall retract the maximum number of First Preferred Shares, Series B it may retract within such limitations and the shares so to be retracted shall be retracted pro rata, excluding fractions, from the holdings of all shareholders of First Preferred Shares, Series B who have tendered shares for retraction or in such other manner as the Board of Directors deems reasonable.  Thereafter, the Corporation shall retract, on each succeeding Dividend Payment Date, on the same basis, the maximum number of First Preferred Shares, Series B as it is then permitted to retract (disregarding fractions) until all First Preferred Shares, Series B tendered for retraction and not withdrawn therefrom shall have been retracted.

 

	
4.2

	
The retraction price (less any tax required to be withheld by the Corporation) shall be paid by cheque payable in lawful money of the United States at par.  The mailing of such cheque from the Corporation’s registered office, or the payment by such other reasonable means as the Corporation deems desirable, on or before the retraction date, shall be deemed to be payment of the retraction price on the retraction date unless the cheque is not paid upon presentation or payment by such other means is not received.

 

	
4.3

	
If part only of the First Preferred Shares, Series B represented by any certificate are to be retracted, a new certificate for the balance shall be issued at the expense of the Corporation.

 

	
4.4

	
Any cheque representing payment of the retraction price not presented to the Corporation's bankers for payment or otherwise not claimed within the six years after the retraction date shall be forfeited to the Corporation.

 

	
4.5

	
From and after the retraction date, the First Preferred Shares, Series B retracted shall cease to be entitled to dividends and the holders thereof shall not be entitled to exercise any of the rights of shareholders in respect thereof unless payment of the retraction price shall not be duly made by the Corporation.

 

	
4.6

	
First Preferred Shares, Series B which are retracted or deemed to be retracted in accordance with this Article 4 shall, subject to applicable law, be and be deemed to be cancelled and shall not be reissued.

 

  

  

  

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ARTICLE 5

CONVERSION PRIVILEGE

 

	

5.1

	
(a)

	
Subject to Section 5.1(c), a holder of First Preferred Shares, Series B has the right, at the holder’s option, at any time, or, in the case such shares are called for redemption, on or prior to 4:30 p.m. (Calgary time) on the third business day prior to the date fixed for redemption, if any, to convert, subject to the terms and provisions hereof, such First Preferred Shares, Series B into fully paid and non-assessable Common Shares at the Current Conversion Basis.  Should payment of the redemption price of First Preferred Shares, Series B which have been called for redemption not be paid on surrender of the certificate for such First Preferred Shares, Series B, the right of conversion shall revive and continue from the time of the failure to pay as if such First Preferred Shares, Series B had not been called for redemption.

 

	
  

	
(b)

	
The conversion of First Preferred Shares, Series B by a holder may be effected by the surrender of the certificate or certificates representing the same, together with the certificate referred to in Section 5.1(c), at any time during usual business hours at any office of any transfer agent of the Corporation at which the First Preferred Shares, Series B are transferable, accompanied by a written instrument of surrender duly executed by the registered holder, or the holder’s attorney duly authorized in writing, in which instrument such holder may also elect to convert:

 

	
  

	
(i)

	
part only of the First Preferred Shares, Series B represented by such certificate or certificates, in which event such holder shall be entitled to receive, at the expense of the Corporation, a new certificate representing the First Preferred Shares, Series B represented by such certificate or certificates which have not yet been converted; or

 

	
  

	
(ii)

	
the First Preferred Shares, Series B, or part thereof, represented by such certificate or certificates theretofore called for redemption, in which event on the date specified for the redemption of such First Preferred Shares, Series B such holder shall be entitled to payment of the redemption price of the First Preferred Shares, Series B represented by such certificate or certificates which have been called for redemption and which have not been converted. and to receive, at the expense of the Corporation, a certificate representing First Preferred Shares, Series B represented by such certificate or certificates which have been neither converted nor redeemed.

 

Upon the surrender of any First Preferred Shares, Series B for conversion, the Corporation shall issue and deliver, or cause to be delivered to, within five days thereof, upon the written order of the holder of the First Preferred Shares, Series B so surrendered, a certificate or certificates issued in the name of, or in such name or names as may be directed by, such holder representing the number of Common Shares to which such holder is entitled.  Such conversion shall be deemed to have been made at the close of business on the date such First Preferred Shares, Series

 

  

  

  

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B shall have been surrendered for conversion, so that the rights of the holder of such First Preferred Shares, Series B, as the holder thereof, shall cease at such time and the person or persons entitled to receive Common Shares upon such conversion shall be treated for all purposes as having become the holder or holders of record of such Common Shares at such time and such conversion shall be on the Current Conversion Basis as at such time.

 

	
  

	
(c)

	
Notwithstanding Section 5.1(a), a holder of First Preferred Shares, Series B shall not be entitled to exercise the right to convert such shares into Common Shares to the extent that, after such conversion, such holder, together with such holder’s affiliates, would hold, beneficially or of record, more than 9.9% of the then outstanding Common Shares.  On any exercise of the conversion right attached to the First Preferred Shares, Series B, the holder shall deliver to the transfer agent of the Corporation a written certificate, signed by the holder and addressed to the Corporation and the transfer agent, certifying as to the number of Common Shares that will be held by the holder and the holder’s affiliates, beneficially and of record, on conversion of the First Preferred Shares, Series B in respect of which the conversion right is being exercised.

 

	

5.2

	
(a)

	
Subject to Section 5.2(d), the Corporation may convert the whole or any part of the outstanding First Preferred Shares, Series B into fully paid and non-assessable Common Shares at the Current Conversion Basis, provided that the Corporation may only exercise such right of conversion if, prior to the exercise of such right, (i) the Forced Conversion Price has been at least a 100% premium to the Current Conversion Price, and (ii) a registration statement covering the resale of all Common Shares to be issued on such conversion has been filed with the U.S. Securities and Exchange Commission and remains effective.  If the Corporation elects to convert less than all of the First Preferred Shares, Series B outstanding, subject to Section 5.2(d) the shares so to be converted shall be converted pro rata, excluding fractions, from the holdings of all shareholders of First Preferred Shares, Series B or in such other manner as the Board of Directors deems reasonable.

 

	
  

	
(b)

	
In order to exercise the right of conversion, the Corporation shall give to the transfer agent of the Corporation and the holders of First Preferred Shares, Series B a notice of conversion in writing stating the intention of the Corporation to convert the First Preferred Shares, Series B.  Such notice shall set out the date fixed for conversion (which, unless otherwise agreed by the holders, shall be at least 30 and not more than 60 days after the date of the giving of the notice) and, unless all the First Preferred Shares, Series B held by the holder to whom it is addressed are to be converted, the number of shares so held which are to be converted.  The notice shall be accompanied by a Certificate certifying that, prior to the exercise of such right, the Forced Conversion Price has been at least a 100% premium to the Current Conversion Price and that the registration statement required by Section 5.2(a) has been filed and remains effective.

 

  

  

  

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(c)

	
On conversion of First Preferred Shares, Series B by the Corporation, the Corporation shall issue and deliver, or cause to be delivered, to the holder of First Preferred Shares, Series B so converted within five days of such conversion a certificate or certificates in the name of such holder, or in such other name or names as such holder may direct, representing the number of Common Shares to which such holder is entitled together with, if part only of the First Preferred Shares, Series B of the holder have been converted, a new certificate representing the First Preferred Shares, Series B of the holder which have not yet been converted.  Notwithstanding the foregoing, the Corporation shall be entitled to require that the certificate of the holder for First Preferred Shares, Series B so converted be presented and surrendered at the head office of the Corporation or at any other place or places within Canada designated by the notice of conversion prior to delivery or forwarding the certificate or certificates for Common Shares and First Preferred Shares, Series B (if any) to which such holder is entitled as a result of such conversion.  The conversion shall be deemed to have been made at the close of business on the date specified in the notice of conversion (or such other date as agreed by the Corporation and the holder), so that the rights of the holder of the First Preferred Shares, Series B converted shall cease at such time and the person or persons entitled to receive Common Shares upon such conversion shall be treated for all purposes as having become the holder or holders of record of such Common Shares at such time and such conversion shall be on the Current Conversion Basis at such time.

 

	
  

	
(d)

	
Notwithstanding Section 5.2(a), the Corporation shall not be entitled to exercise the right to convert the First Preferred Shares, Series B of any holder to the extent that, after such conversion, such holder, together with such holder’s affiliates, would hold, beneficially or of record, more than 9.9% of the then outstanding Common Shares.  A holder of First Preferred Shares, Series B, who objects to the conversion of some or all of such shares as a result of the foregoing limitation shall deliver to the transfer agent of the Corporation within 10 days of receipt of the notice of conversion referred to in Section 5.2(b) a written certificate, signed by the holder, certifying as to the number of Common Shares that will be held by the holder and the holder’s affiliates, beneficially and of record, on conversion of the First Preferred Shares, Series B in respect of which the conversion right is being exercised and, to the extent that the conversion causes the number of Common Shares that will be so held to exceed 9.9% of the then outstanding Common Shares, the conversion shall be deemed not to have been exercised.  If a holder fails to so deliver such certificate as aforesaid, the Corporation shall be deemed to be entitled to exercise the conversion right in respect of all First Preferred Shares, Series B specified in the notice of conversion.  The Corporation shall be entitled at any time (whether or not a notice of conversion has been given) to request in writing that a holder provide to the transfer agent of the Corporation a certificate, signed by the holder and addressed to the Corporation and the transfer agent, certifying as to the number of Common Shares held by such holder and the holder’s affiliates, beneficially and of record and such holder shall provide such certificate within 10 days of the receipt of any such request.

 

  

  

  

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5.3

	
The registered holder of any First Preferred Shares, Series B on the record date for any dividend declared payable on such shares shall be entitled to such dividend notwithstanding that such shares are converted after such record date and before the payment date of such dividend and the registered holder of any Common Share resulting from any conversion shall be entitled to rank equally with the registered holders of all other Common Shares in respect of all dividends declared payable to holders of Common Shares of record on any date after the date of conversion.  Subject to the foregoing and to the provisions hereof, upon the conversion of First Preferred Shares, Series B the Corporation shall make no other payment or other adjustment on account of any dividends on the First Preferred Shares, Series B so converted or on account of the dividends on the Common Shares issuable upon such conversion.

 

	
5.4

	
The Current Conversion Price shall be subject to adjustment from time to time as follows:

 

	
  

	
(a)

	
If, at any time after the issuance of the First Preferred Shares, Series B, the Corporation shall:

 

	
  

	
(i)

	
subdivide, redivide or change its outstanding Common Shares into a greater number of shares;

 

	
  

	
(ii)

	
reduce, combine or consolidate its outstanding Common Shares into a smaller number of shares; or

 

	
  

	
(iii)

	
issue Common Shares (or securities convertible or exchangeable into Common Shares) to the holders of any of its outstanding Common Shares by way of a stock dividend (other than an issue of Common Shares to holders of Common Shares who exercise an option to receive stock dividends in lieu of cash dividends);

 

the Current Conversion Price in effect immediately after such subdivision, redivision, change, reduction, combination or consolidation or such issue of Common Shares (or securities convertible or exchangeable into Common Shares) by way of a stock dividend becomes effective or is paid, as the case may be, shall, in the case of the events referred to in (i) and (iii), be decreased in the same proportion to the increase in the number of outstanding Common Shares resulting from such subdivision, redivision or change or such dividend (including, in the case where securities convertible or exchangeable into Common Shares, are issued, the number of Common Shares that would have been outstanding had such securities been converted or exchanged into Common Shares on such date of issuance thereof), or, in the case of (ii), shall be increased in the same proportion to the decrease in the number of outstanding Common Shares resulting from such combination or consolidation; such adjustment shall be made successively whenever any event referred to in this paragraph 5.4(a) shall occur, any such issue of Common Shares (or securities convertible or exchangeable into Common Shares) by way of stock dividend referred to in (iii) above shall be deemed to have been made on the date the stock dividend is paid for the purpose of calculating the number of outstanding Common Shares under this Section 5.4 and

 

  

  

  

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to the extent that any such securities convertible or exchangeable into Common Shares are not converted into Common Shares prior to the expiration of the conversion right contained in such securities, the Conversion Price shall be re-adjusted, effective as of the date of such expiration, to the Conversion Price which would then be in effect based upon the number of Common Shares actually issued on the exercise of such conversion right;

 

	
  

	
(b)

	
If, at any time after the issuance of the First Preferred Shares, Series B, the Corporation shall fix a record date for the issuance of rights, options or warrants to all or substantially all of the holders of its outstanding Common Shares entitling them to subscribe for or purchase Common Shares (or securities convertible or exchangeable into Common Shares) at a price per share (or having a conversion or exchange price per share) less than 90% of the Current Market Price on such record date the Current Conversion Price shall be adjusted immediately after such record date so that it shall equal a price determined by multiplying the Current Conversion Price in effect immediately before such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date plus a number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of additional Common Shares offered for subscription or purchase (or the aggregate conversion or exchange price of the convertible or exchangeable securities so offered) by the Current Market Price, and of which the denominator shall be the total number of Common Shares outstanding on such record date or date of entering into such agreement plus the total number of additional Common Shares offered for subscription or purchase (or into which the convertible or exchangeable securities so offered are convertible or exchangeable); any Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation, such adjustment shall be made successively whenever such record date is fixed or agreement entered into; if all such rights, options, warrants or rights, to acquire Common Shares or convertible or exchangeable securities are not exercised prior to the expiration thereof, the Current Conversion Price shall be readjusted, effective as of the date of such expiration, to the Current Conversion Price which would then be in effect based upon the number of Common Shares (or securities convertible or exchangeable into Common Shares) actually delivered upon the exercise of such rights, options, warrants or rights as the case may be;

 

	
  

	
(c)

	
If, at any time after the issuance of the First Preferred Shares, Series B, the Corporation shall fix a record date for the making of a distribution to all or substantially all the holders of its outstanding Common Shares of:

 

	
  

	
(i)

	
shares of any class other than Common Shares;

 

	
  

	
(ii)

	
rights, options or warrants (excluding those referred to in paragraph 5.4(b) and rights, options or warrants to subscribe for or purchase Common Shares (or securities convertible or exchangeable into Common Shares) at a price per Common Share (or having a conversion or exchange price per

 

  

  

  

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Common Share) not less than 90% of the Current Market Price on such record date);

 

	
  

	
(iii)

	
evidences of its indebtedness; or

 

	
  

	
(iv)

	
assets;

 

then in each such case the Current Conversion Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Current Conversion Price in effect on such record date by a fraction, of which the numerator shall be the: (A) total number of Common Shares outstanding on such record date multiplied by the Current Market Price on such record date; less (B) the fair market value (as determined by the Board of Directors) of such shares or rights, options or warrants or evidences of indebtedness or assets so distributed, and of which the denominator shall be the total number of Common Shares outstanding on such record date multiplied by such Current Market Price; any Common Shares owned by or held for the account of the Corporation shall be deemed not to be outstanding for the purpose of any such computation; such adjustment shall be made successively whenever such a record date is fixed; to the extent that such distribution of shares, evidences of indebtedness or assets is not so made or to the extent that any rights, options or warrants so distributed are not exercised, the Current Conversion Price shall be readjusted to the Current Conversion Price which would then be in effect based upon such shares, evidences of indebtedness or assets actually distributed or based upon the number of Common Shares (or securities convertible or exchangeable into Common Shares) actually delivered upon the exercise of such rights, options or warrants, as the case may be.

 

In the event the Corporation contemplates making any distribution under the provisions of this paragraph 5.4(c), the Corporation shall give written notice of such event to all holders First Preferred Shares, Series B.  The Corporation shall not make a distribution under this paragraph 5.4(c) where the fair market value (as determined by the Board of Directors), of the shares or rights, options or warrants or evidences of indebtedness or assets so distributed exceeds the product of the Current Market Price on the record date for such distribution multiplied by the total number of Common Shares outstanding on such record date unless the holders of First Preferred Shares, Series B are permitted and such holders have elected, or have waived in writing or are deemed to have waived their right, to participate in such distribution as though and to the same extent as if they had converted their First Preferred Shares, Series B into Common Shares immediately prior to such distribution even though in fact they have not converted their First Preferred Shares, Series B.  A holder of First Preferred Shares, Series B shall be deemed to have waived its right to so participate under this paragraph 5.4(c) where such holder has not elected in writing to participate by delivery of such election to the Corporation within fourteen (14) days of the date on which notice of the event was given by the Corporation.

 

  

  

  

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5.5

	
No adjustments of the Current Conversion Price shall be made pursuant to paragraphs (b) or (c) of Section 5.4 if the holders of the First Preferred Shares, Series B were permitted and all such holders have elected or have waived or are deemed to have waived their right to participate in the issue of such rights, options or warrants or such distribution, as the case may be, as though and to the same extent as if they had converted their First Preferred Shares, Series B into Common Shares prior to the issue of such rights, options or warrants or such distribution, as the case may be.  Any such participation shall be subject to approval of the stock exchanges upon which the securities of the Corporation are then listed.

 

	
5.6

	
No adjustment of the Current Conversion Price shall be made in any case in which the resulting increase or decrease in the Current Conversion Price would be less than 1% of the then Current Conversion Price, but in such case any adjustment that would otherwise have been required then to be made shall be carried forward and made at the time of, and together with, the next subsequent adjustment to the Current Conversion Price which, together with any and all such adjustments so carried forward, shall result in an increase or decrease in the Current Conversion Price by not less than 1%.

 

	
5.7

	
When, after the date of issuance of the First Preferred Shares, Series B, any action is taken which requires an increase or decrease of the Current Conversion Price under Section 5.4, the Corporation shall forthwith file with its transfer agent for the First Preferred Shares, Series B, and deliver a copy to each registered holder of First Preferred Shares, Series B, a Certificate setting forth the details of the action taken and, as the case may be, the increased or decreased Current Conversion Price, the details of the computation of the adjusted Current Conversion Price and the resulting adjusted Current Conversion Basis.  The transfer agent shall be under no duty to make any investigation or inquiry as to the statements obtained in any such Certificate of the Corporation or the manner in which any computation was made, but the transfer agent may accept such certificate as conclusive evidence of the statements therein contained and shall be fully protected with respect to any and all acts done or action taken or suffered by it in reliance thereon.  The Corporation shall exhibit a copy of such Certificate of the Corporation, from time to time, to any holder of First Preferred Shares, Series B desiring to inspect the same, and shall give notice of any such adjustment of the Current Conversion Price and the resulting adjustment of the Current Conversion Basis to the holders of First Preferred Shares, Series B in the manner provided in Article 13.  The Corporation may, and shall upon the written request of holders of not less than 25% of the then issued and outstanding First Preferred Shares, Series B, retain a firm of independent chartered accountants (who may be the auditors of the Corporation) to make any computation required under Section 5.4, and any computation so made shall be final and binding on the Corporation, the transfer agent for the First Preferred Shares, Series B and the holders of the First Preferred Shares, Series B.  Such computation shall be contained in a certificate of such independent chartered accountants addressed to the holders of First Preferred Shares, Series B, the transfer agent for such shares and to the Corporation.  Such firm of independent chartered accountants may, as to questions of law, request and rely upon an opinion of independent counsel (who may be counsel for the Corporation).

 

  

  

  

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5.8

	
Upon the conversion of any First Preferred Shares, Series B, the number of full Common Shares issuable shall be computed on the basis of the aggregate number of such First Preferred Shares, Series B converted, and in any case where a fraction of a Common Share is involved the Corporation shall adjust such fractional interest by rounding up such fraction to the next whole number of Common Shares.

 

	
5.9

	
The issuance of certificates for Common Shares upon the conversion of First Preferred Shares, Series B shall be made without charge to the holders of the First Preferred Shares, Series B so converted for any fee or tax (other than tax on the income of the holders) in respect of the issuance on such certificates or the Common Shares represented thereby.

 

	
5.10

	
In case of any reclassification or change (other than a change referred in paragraph 5.4(a)) of the Common Shares or capital reorganization of the Corporation other than as referred to in Section 5.4, or in the case of any amalgamation, consolidation or merger of the Corporation with or into any other corporation, trust, partnership or other entity, or in the case of any sale of the properties and assets of the Corporation as, or substantially as, an entirety to any other corporation, trust, partnership or other entity each First Preferred Shares, Series B shall, after such reclassification, change, amalgamation, consolidation, merger or sale, be convertible into the number of shares or other securities or property of the Corporation, or such continuing, successor, purchasing corporation, trust, partnership or other entity, as the case may be, to which a holder of the number of Common Shares as would have been issued if such First Preferred Shares, Series B had been converted immediately prior to such reclassification, change, amalgamation, consolidation, merger or sale would have been entitled upon such reclassification, change, amalgamation, consolidation, merger or sale.  The Board of Directors may, and upon the written request of the holders of not less than 25% of the then issued and outstanding First Preferred Shares, Series B, shall retain a firm of independent chartered accountants (who may be the auditors of the Corporation) to make the foregoing calculation, and the Board of Directors shall determine such entitlement on the basis of the certificate of such firm which shall be addressed to the holders of First Preferred Shares, Series B, the transfer agent for such shares and the Corporation.  Any such determination shall be conclusive and binding on the Corporation, the transfer agent for the First Preferred Shares, Series B, and the holders of the First Preferred Shares, Series B.  No such reclassification, change, amalgamation, consolidation, merger or sale shall be carried into effect unless, in the opinion of the Board of Directors, all necessary steps shall have been taken to ensure that the holders of the First Preferred Shares, Series B shall thereafter be entitled to receive such number of shares or other securities or property of the Corporation, or such continuing, successor or purchasing corporation, as the case may be, subject to adjustment thereafter in accordance with provisions similar, as nearly as may be, to those contained in this Article 5.  No such reclassification, change, amalgamation, consolidation, merger or sale shall be implemented by the Corporation unless, in addition to any other requirement of applicable law, the Corporation has obtained a certificate of a firm of independent chartered accountants referred to above and such certificate also states that as a result of the implementation of any such reclassification, change, amalgamation, consolidation, merger or sale, there will be no class or series of shares (or other equity securities or interest) in the Corporation, or such continuing successor, purchasing corporation, trust, partnership or entity, as the case may be, that would, or

 

  

  

  

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could, rank prior to or on a parity with the First Preferred Shares, Series B as to payment of dividends or the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation or other continuing entity.

 

	
5.11

	
So long as any First Preferred Shares, Series B remain outstanding the Corporation shall give to the holders of First Preferred Shares, Series B at least 14 days’ prior notice of the record date for the payment of any cash dividend, stock dividend or other distribution on its Common Shares and prompt public notice of the issue to any of its shareholders of rights to subscribe for Common Shares or other securities and shall give at least 30 days’ prior notice before making any repayment of capital on its Common Shares.  Any such notice shall be sufficiently given if given individually to the holders of First Preferred Shares, Series B.  The accidental failure or omission to give the notice required by this Section 5.11 or any defect therein shall not affect the legality or validity of any such payment. distribution or issue.

 

	
5.12

	
The Corporation covenants and agrees that it shall not, during the periods of notice aforesaid, close its share transfer book, other than after normal business hours, or take any other corporate action which might deprive a holder of First Preferred Shares, Series B from the opportunity of exercising any rights herein provided.

 

	
5.13

	
If in the opinion of the Board of Directors the provisions of this Article 5 are not strictly applicable, or if strictly applicable would not fairly protect the rights of the holders of the First Preferred Shares, Series B in accordance with the intent and purposes hereof, the Board of Directors shall make any adjustment in such provisions as the Board of Directors deems appropriate.

 

	
5.14

	
So long as any of the First Preferred Shares, Series B are outstanding the Corporation shall use its best efforts to maintain a listing and posting for trading of its outstanding Common Shares on one or more stock exchanges, including the Exchange.

 

	
5.15

	
The Corporation will not, by amendment of this certificate or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions hereof and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of First Preferred Shares, Series B against impairment.

 

ARTICLE 6

PURCHASE FOR CANCELLATION

 

	
6.1

	
In addition to its right to redeem First Preferred Shares, Series B as provided in Article 3, the Corporation may at any time or times purchase for cancellation the whole or any part of the outstanding First Preferred Shares, Series B in the open market (including purchases through or from an investment dealer or firm holding membership on a stock exchange) reasonably available to all holders or, at the option of the Corporation, by

 

  

  

  

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invitation for tenders addressed to all holders of record of the outstanding First Preferred Shares, Series B, at the lowest price or prices at which, in the opinion of the Board of Directors, such shares are obtainable.  In the event that, upon any request for tenders, the Corporation shall receive two or more tenders of First Preferred Shares, Series B at the same price and which shares, when added to any shares tendered at a lower price or prices, aggregate more than the amount for which the Corporation is prepared to accept tenders, if any of the First Preferred Shares, Series B so tendered at the same price are purchased by the Corporation, they shall be purchased pro rata from such holders tendering at the same price, disregarding fractions.

 

	
6.2

	
First Preferred Shares, Series B purchased in accordance with this Article 6 shall be and be deemed to be cancelled and shall not be reissued.

 

ARTICLE 7

LIQUIDATION

 

	
7.1

	
In the event of the liquidation, dissolution or winding-up of the Corporation or other distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs, the holders of First Preferred Shares, Series B shall be entitled to receive an amount per First Preferred Shares, Series B equal to the Stated Value per share, together with any accrued and unpaid dividends to the date of commencement of any such liquidation, dissolution, winding-up or other distribution of the assets of the Corporation, to be paid all such money before any money shall be paid or property or assets distributed to the holders of any Common Shares or other shares of the capital of the Corporation ranking junior to the First Preferred Shares, Series B with respect to return of capital.

 

	
7.2

	
After payment to the holders of the First Preferred Shares, Series B of the amounts so payable to them they shall not be entitled to share in any further distribution of the property or assets of the Corporation.

 

ARTICLE 8

RESTRICTIONS

 

	
8.1

	
So long as any First Preferred Shares, Series B  are outstanding the Corporation shall not, without the approval of the holders of the First Preferred Shares, Series B given in the manner provided under Section 12.1:

 

	
  

	
(a)

	
issue any shares ranking prior to or on a parity with the First Preferred Shares, Series B as to the payment of dividends or the distribution of assets in the event of liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs;

 

	
  

	
(b)

	
declare, pay, or set aside for payment, any dividends on the Common Shares or on any other shares of the Corporation ranking junior to the First Preferred Shares, Series B as to the payment of dividends (other than stock dividends in any such shares of the Corporation, provided that any such stock dividend is made in

 

  

  

  

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accordance with the provisions hereof) unless all dividends up to, and including, the Dividend Payment Date for the last completed period for which dividends shall be payable shall have been declared and paid or set apart for payment in respect of the First Preferred Shares, Series B and all other shares ranking senior to or on a parity with the First Preferred Shares, Series B in respect of the payment of dividends;

 

	
  

	
(c)

	
set aside any money or make any payments for any sinking fund or other retirement fund applicable to any shares of the Corporation ranking junior to the First Preferred Shares, Series B;

 

	
  

	
(d)

	
make any capital distribution in respect of less than all of the First Preferred Shares, Series B:

 

	
  

	
(e)

	
(except out of net cash proceeds of a substantially concurrent issue of shares of the Corporation ranking junior to the First Preferred Shares, Series B) redeem, purchase or make any capital distribution in respect of the Common Shares or any other shares of the Corporation ranking junior to the First Preferred Shares, Series B; or

 

	
  

	
(f)

	
redeem, purchase or make any capital distribution in respect of (except in connection with any purchase obligation, sinking fund, retraction privilege or mandatory redemption requirement) any shares of the Corporation ranking on a parity with the First Preferred Shares, Series B.

 

	
8.2

	
Nothing in Section 8.1 shall apply to hinder or prevent, and authorization is hereby given for, any of the actions referred to in such Section if consented to, or approved by, the holders of the First Preferred Shares, Series B in the manner hereinafter specified or if all the outstanding First Preferred Shares, Series B have been duly called for redemption and the redemption price paid in full or the amount required to pay the redemption price in full has been set aside for payment on or before the date fixed for redemption.

 

ARTICLE 9

VOTING RIGHTS

 

	
9.1

	
Subject to applicable law, the holders of the First Preferred Shares, Series B shall not be entitled as such (except as hereinafter specifically provided) to any voting rights or to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting unless and until the Corporation from time to time shall fail to pay, in the aggregate, four quarterly dividends on the First Preferred Shares, Series B on the dates on which the same should be paid according to the terms hereof, whether or not consecutive and whether or not such dividends have been declared and whether or not there are moneys of the Corporation properly applicable to the payment of dividends; thereafter but only so long as any dividends on the First Preferred Shares, Series B are not declared and actually paid. the holders of First Preferred Shares, Series B shall be entitled to receive notice of and to attend all meetings of shareholders of the Corporation and shall be entitled to 40 votes in respect of each First Preferred Shares, Series B held at

 

  

  

  

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all shareholders’ meetings (other than meetings of holders of another class or series of shares required by law to be held separately).

 

	
9.2

	
To the extent permitted by applicable law, a holder of First Preferred Shares, Series B may not exercise and the Corporation shall not recognize the exercise of any voting rights attached to the First Preferred Shares, Series B to the extent that, assuming the conversion of the First Preferred Shares, Series B in respect of which such voting rights are exercised into Common Shares, such holder, together with such holder’s affiliates, would hold, beneficially or of record, more than 9.9% of the then outstanding Common Shares.  On any exercise of voting rights by a holder of First Preferred Shares, Series B, the holder shall deliver to the transfer agent of the Corporation a written certificate, signed by the holder, certifying as to the number of Common Shares held by such holder and the holder’s affiliates, beneficially and of record, after giving effect to the assumption stipulated in this paragraph.  The voting restriction in this paragraph shall not apply to matters in respect of which the holders of the First Preferred Shares as a class or the holders of the First Preferred Shares, Series B as a series are entitled to vote separately.

 

ARTICLE 10

MISCELLANEOUS

 

	
10.1

	
The First Preferred Shares, Series B shall be convertible at the option of the holder thereof into shares of one or more other series of First Preferred Shares (the “New Shares”) into which the First Preferred Shares, Series B are made convertible by resolution of the Board of Directors upon the amendment of the constating documents of the Corporation or the enactment of a resolution by the Board of Directors setting out the terms and conditions of such conversion and the time or times during which such conversion may be effected.  If at any time or from time to time such right of conversion shall become applicable, the Corporation shall as soon as practicable give notice in writing thereof to the registered holders of the First Preferred Shares, Series B, which notice shall set forth, in reasonable detail, a summary of the rights, conditions, restrictions and limitations attaching or to be attached to the New Shares.

 

	
10.2

	
Holders of First Preferred Shares, Series B shall not be entitled, as of right, to subscribe for or purchase or receive any shares, bonds, debentures, or other securities of the Corporation now or hereafter authorized.

 

	

10.3

	
(a)

	
The outstanding First Preferred Shares, Series A are convertible at the option of the holder thereof at any time on or prior to February 15, 2010 into fully paid and non-assessable First Preferred Shares, Series B on a one-for-one basis on the terms and conditions hereinafter set out.

 

	
  

	
(b)

	
The conversion right herein provided for may be exercised by notice in writing given to the transfer agent for the First Preferred Shares, Series A at any office where a register of transfers for First Preferred Shares, Series A is maintained or to the Corporation at its head office, accompanied by the certificate or certificates representing the First Preferred Shares, Series A in respect of which the holder thereof desires to exercise such right of conversion.  The notice shall be signed by

 

  

  

  

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the holder.  The conversion right herein provided for may only be exercised if it is concurrently exercised in respect of all First Preferred Shares, Series A then outstanding.

 

	
  

	
(c)

	
Any accrued and unpaid dividends on the First Preferred Shares, Series A to the date of conversion shall be payable on the Initial Payment Date.

 

	
  

	
(d)

	
On any conversion of First Preferred Shares, Series A, the certificates representing the First Preferred Shares, Series B issuable on such conversion shall be issued in the name of the registered holder of the First Preferred Shares, Series A converted or, subject to the payment by the registered holder of any stock transfer or other applicable taxes, in such name as such registered holder may direct in writing.

 

	
  

	
(e)

	
The right of a registered holder of First Preferred Shares, Series A to convert the same into First Preferred Shares, Series B shall be deemed to have been exercised, and the registered holder of the First Preferred Shares, Series A to be converted (or the person in whose name the registered holder of the First Preferred Shares, Series A shall have directed the First Preferred Shares, Series B to be issued) shall be deemed to have become the holder of First Preferred Shares, Series B of record for all purposes on the date of delivery of the notice in writing referred to in paragraph (b) above together with the certificate representing the First Preferred Shares, Series A to be converted, notwithstanding any delay in the delivery of the certificate representing the First Preferred Shares, Series B into which such First Preferred Shares, Series A have been converted.

 

ARTICLE 11

AMENDMENTS

 

	
11.1

	
The rights, privileges, restrictions and conditions attached to the First Preferred Shares, Series B may be amended, modified, suspended, altered or repealed but only if consented to, or approved by, the holders of the First Preferred Shares, Series B in the manner hereinafter specified and in accordance with any requirements of applicable law.

 

ARTICLE 12

APPROVAL BY HOLDERS OF FIRST PREFERRED SHARES, SERIES B

 

	
12.1

	
For the purpose of Section 11.1, any consent or approval given by the holders of First Preferred Shares, Series B shall be deemed to have been sufficiently given if it shall have been given in writing by all the holders of the outstanding First Preferred Shares, Series B or by a resolution passed at a meeting of holders of First Preferred Shares, Series B duly called and held upon not less than 21 days' notice in writing to the holders at which the holders of at least 25% of the outstanding First Preferred Shares, Series B are present or are represented by proxy and carried by the affirmative vote of not less than two-thirds of the votes cast at such meeting.  If at any such meeting the holders of at least 25% of the outstanding First Preferred Shares, Series B are not present or represented by proxy within one-half hour after the time appointed for such meeting then the meeting shall be

 

  

  

  

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adjourned to such date not less than 15 days thereafter and to such time and place as may be designated by the chairman.  At such adjourned meeting the holders of First Preferred Shares, Series B present or represented by proxy may transact the business for which the meeting was originally convened and a resolution passed thereat by the affirmative vote of not less than two-thirds of the votes cast at such meeting shall constitute the consent or approval of the holders of First Preferred Shares, Series B.  On every ballot cast at every meeting every holder of a First Preferred Shares, Series B shall be entitled to one vote in respect of each First Preferred Shares, Series B held.  Subject to the foregoing, the formalities to be observed in respect of the giving or waiving of notice of any such meeting or adjourned meeting and the conduct thereof shall be those from time to time prescribed in the by-laws of the Corporation.

 

ARTICLE 13

NOTICES

 

	
13.1

	
Any notice, except as provided in Section 5.11, required to be given under the provisions attaching to the First Preferred Shares, Series B to holders thereof shall be given by posting the same in a postage paid envelope addressed to each holder at the last address of such holder as it appears on the books of the Corporation or, in the event of the address of any such holder not so appearing, then to the address of such holder last known to the Corporation provided that accidental failure or omission to give any such notice to one or more shareholders or any defect therein shall not affect the legality or validity of any action or proceeding founded thereon but upon such failure or omission being discovered notice shall be given forthwith to such holder or holders and shall have the same force and effect as if given in due time.

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