Document:

eh1200574_ex0401.htm

EXHIBIT 4.1

 

 

SHAREHOLDER RIGHTS PLAN AGREEMENT

 

 

BETWEEN

 

 

CE FRANKLIN LTD.

 

 

- and -

 

COMPUTERSHARE TRUST COMPANY OF CANADA

 

as Rights Agent

 

 

 

DATED AS OF APRIL 18, 2012

 

  

 

 

  

  

  

TABLE OF CONTENTS

 

	
ARTICLE 1 

	  
	
INTERPRETATION

	
1

	
1.1

	
Certain Definitions

	
1

	
1.2

	
Currency

	
11

	
1.3

	
Number and Gender

	
11

	
1.4

	
Sections and Headings

	
11

	
1.5

	
Statutory References

	
12

	
1.6

	
Determination of Percentage Ownership

	
12

	
1.7

	
Acting Jointly or in Concert

	
12

	  	  	  
	
ARTICLE 2 

	  
	
THE RIGHTS

	
12

	
2.1

	
Legend on Share Certificates

	
12

	
2.2

	
Initial Exercise Price; Exercise of Rights; Detachment of Rights

	
13

	
2.3

	
Adjustments to Exercise Price; Number of Rights

	
15

	
2.4

	
Date on which Exercise is Effective

	
20

	
2.5

	
Execution, Authentication, Delivery and Dating of Rights Certificates

	
20

	
2.6

	
Registration, Transfer and Exchange

	
20

	
2.7

	
Mutilated, Lost, Stolen and Destroyed Rights Certificates

	
21

	
2.8

	
Persons Deemed Owners

	
21

	
2.9

	
Delivery and Cancellation of Certificates

	
21

	
2.10

	
Agreement of Rights Holders

	
22

	  	  	  
	
ARTICLE 3 

	  
	
ADJUSTMENTS TO THE RIGHTS

	
22

	
3.1

	
Flip-in Event

	
22

	
3.2

	
Fiduciary Duties of the Board of Directors of the Corporation

	
24

	  	  	  
	
ARTICLE 4 

	  
	
THE RIGHTS AGENT

	
24

	
4.1

	
General

	
24

	
4.2

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

	
25

	
4.3

	
Duties of Rights Agent

	
25

	
4.4

	
Change of Rights Agent

	
27

	  	  	  
	
ARTICLE 5 

	  
	
MISCELLANEOUS

	
27

	
5.1

	
Redemption, Waiver and Termination

	
27

	
5.2

	
Expiration

	
29

	
5.3

	
Issuance of New Rights Certificates

	
29

	
5.4

	
Supplements and Amendments

	
29

	
5.5

	
Fractional Rights and Fractional Shares

	
29

	
5.6

	
Rights of Action

	
29

	
5.7

	
Holder of Rights Not Deemed a Shareholder

	
30

	
5.8

	
Notice of Proposed Actions

	
30

	
5.9

	
Notices

	
30

	
5.10

	
Costs of Enforcement

	
31

	
5.11

	
Regulatory Approvals

	
31

	
5.12

	
Declaration as to Non-Canadian and Non-U.S. Holders

	
31

	
5.13

	
Successors

	
31

	
5.14

	
Benefits of this Agreement

	
31

	
5.15

	
Determination and Actions by the Board of Directors

	
31

	
5.16

	
Governing Law

	
32

	
5.17

	
Language

	
32

	
5.18

	
Counterparts

	
32

	
5.19

	
Severability

	
32

	
5.20

	
Effective Date

	
32

	
5.21

	
Time of the Essence

	
32

 

  

  

  

 

SHAREHOLDER RIGHTS PLAN AGREEMENT

 

THIS AGREEMENT is dated as of April 18, 2012.

 

	
BETWEEN:

	
CE FRANKLIN LTD., 1800, 635 8th Avenue S.W., Calgary, Alberta  T2P 3M3

	 	 
	  	
(the "Corporation")

	 	 
	
AND:

	
COMPUTERSHARE TRUST COMPANY OF CANADA, 600, 530 - 8th Avenue S.W., Calgary, AB  T2P 3S8

	 	 
	  	
(the "Rights Agent")

 

WHEREAS:

 

	
A.

	
The Board of Directors has determined that it is advisable to adopt a shareholder rights plan (the "Rights Plan") to ensure, to the extent possible, that all shareholders of the Corporation are treated fairly in connection with any take-over offer or other acquisition of control of the Corporation.

 

	
B. 

	
In order to implement the Rights Plan, the Board of Directors has:

 

	
  

	
(a)

	
authorized and declared a distribution of one right (a "Right") in respect of each Share outstanding at the Record Time;

 

	
  

	
(b)

	
authorized the issuance of one Right in respect of each Share issued after the Record Time and prior to the earlier of the Separation Time and the Expiration Time; and

 

	
  

	
(c)

	
authorized the issuance of Rights Certificates to holders of Rights pursuant to the terms and subject to the conditions set forth herein.

 

	
C.

	
Each Right entitles the holder thereof, after the Separation Time, to purchase securities of the Corporation pursuant to the terms and subject to the conditions set forth herein.

 

	
D.

	
The Corporation desires to appoint the Rights Agent to act on behalf of the Corporation, and the Rights Agent is willing to so act, in connection with the issuance, transfer, exchange and replacement of Rights Certificates, the exercise of Rights and the other matters referred to herein.

 

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

 

ARTICLE 1 

INTERPRETATION

 

	
1.1

	
Certain Definitions

 

For the purposes of this agreement (the "Agreement"), including the recitals hereto, the following terms have the meanings indicated:

 

	
  

	
(a)

	
"Acquiring Person" shall mean any Person who is at any time after the Effective Date the Beneficial Owner of 20% or more of the outstanding Voting Shares of the Corporation; provided, however, that the term "Acquiring Person" shall not include:

 

 

  

  

  

 

 

	
  

	
(i)

	
the Corporation or any corporation controlled by the Corporation;

 

	
  

	
(ii)

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

 

	
  

	
(A)

	
a Voting Share Reduction;

 

	
  

	
(B)

	
a Permitted Bid Acquisition;

 

	
  

	
(C)

	
an Exempt Acquisition;

 

	
  

	
(D)

	
a Pro Rata Acquisition; or

 

	
  

	
(E)

	
a Convertible Security Acquisition;

 

provided, however, that if a Person shall become the Beneficial Owner of 20% or more of the outstanding Voting Shares by reason of one or any combination of a Voting Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition, a Pro Rata Acquisition or a Convertible Security Acquisition, and thereafter becomes the Beneficial Owner of an additional one percent of the Voting Shares then outstanding (otherwise than pursuant to a Voting Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition, a Pro Rata Acquisition or a Convertible Security Acquisition, or any combination thereof), then, as of the date that such Person becomes a Beneficial Owner of such additional Voting Shares, such Person shall become an "Acquiring Person";

 

	
  

	
(iii)

	
an underwriter or member of a banking or selling group acting in such capacity that becomes the Beneficial Owner of 20% or more of the Voting Shares in connection with a distribution of securities; or

 

	
  

	
(iv)

	
a Person (a "Grandfathered Person") who is the Beneficial Owner of 20% or more of the outstanding Voting Shares determined as of the Record Time, provided, however, that this exemption shall not be, and shall cease to be, applicable to a Grandfathered Person in the event that such Grandfathered Person shall, after the Record Time, become the Beneficial Owner of additional Voting Shares that increases its Beneficial Ownership of Voting Shares by more than one percent of the number of Voting Shares outstanding as at the Record Time, other than through one or any combination of a Voting Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition, a Pro Rata Acquisition or a Convertible Security Acquisition.

 

	
  

	
(b)

	
"Affiliate" shall mean, when used to indicate a relationship with a specified body corporate, a Person that directly or indirectly through one or more intermediaries controls, or is a body corporate controlled by, or under common control with, such specified body corporate.

 

	
  

	
(c)

	
"Alberta Business Corporations Act" shall mean the Business Corporations Act (Alberta), as amended and the regulations thereunder, as from time to time in effect.

 

	
  

	
(d)

	
"Associate" shall mean, when used to indicate a relationship with a specified Person; (i) a spouse of that Person; (ii) any Person of the same or opposite sex with whom that Person is living in a conjugal relationship outside marriage; (iii) any relative of that Person if that relative has the same residence as that Person; or (iv) any relative of such spouse or other Person referred to in the immediately preceding clauses (i), (ii) or (iii) above, if that relative has the same residence as the specified Person.

 

 

  

- 2 -

  

 

 

	
  

	
(e)

	
A Person shall be deemed the "Beneficial Owner" of, and to have "Beneficial Ownership" of, and to "Beneficially Own":

 

	
  

	
(i)

	
any securities of which such Person or any of such Person’s Affiliates or Associates is the owner at law or in equity;

 

	
  

	
(ii)

	
any securities which the Person or any of such Person’s Affiliates or Associates has the right to acquire (where such right is exercisable whether or not upon the occurrence of a contingency or the making of a payment) pursuant to any Convertible Security, agreement, arrangement, pledge or understanding, whether or not in writing (other than (A) customary agreements with and between underwriters and/or banking group and/or selling group members with respect to a distribution of securities or (B) pledges of securities in the ordinary course of the pledgee’s business); and

 

	
  

	
(iii)

	
any securities that are Beneficially Owned within the meaning of clause (i) or (ii) of this Subsection 1.1(e) by any other Person with which such Person is acting jointly or in concert;

 

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

 

	
  

	
(iv)

	
because such security has been deposited or tendered pursuant to a Take-over Bid made by such Person or any of such Person’s Affiliates or Associates or any other Person acting jointly or in concert with such Person until such deposited or tendered security is taken up or paid for, whichever shall first occur;

 

	
  

	
(v)

	
because such security has been agreed to be deposited or tendered pursuant to a Lock-up Agreement until such deposited or tendered security is taken up or paid for, whichever shall first occur;

 

	
  

	
(vi)

	
because such Person or any of the Affiliates or Associates of such Person or any other Person referred to in clause 1.1(e)(iii) above holds such security provided that:

 

	
  

	
(A)

	
the ordinary business of any such Person (the "Fund Manager") includes the management of pension, mutual, pooled or investment funds for others and such security is held by the Fund Manager in the ordinary course of such business in the performance of such Fund Manager’s duties for the account of any other Person (a "Client"), including non-discretionary accounts held on behalf of a Client by a broker or dealer registered under applicable laws;

 

	
  

	
(B)

	
such Person (the "Trust Company") is licensed to carry on the business of a trust company under applicable laws and, as such, acts as trustee or administrator or in a similar capacity in relation to the estates of deceased or incompetent Persons (each an "Estate Account") or in relation to other accounts (each an "Other Account") and holds such security in the ordinary course of such duties for such Estate Accounts or for such Other Accounts;

 

	
  

	
(C)

	
such Person (the "Plan Administrator") is the administrator or the trustee of one or more pension funds or plans (a "Plan") registered under the laws of Canada or any province thereof or the laws of the United States of America or any state thereof and such security is held by the Plan Administrator or the Plan in the ordinary course of such Plan Administrator’s or Plan’s activities;

 

 

  

- 3 -

  

 

 

	
  

	
(D)

	
such Person (the "Statutory Body") is established by statute for purposes that include, and the ordinary business or activity of such Person includes, the management of investment funds for employee benefit plans, pension plans or insurance plans of various public bodies and such security is held by the Statutory Body in the ordinary course of the management of such investment funds;

 

	
  

	
(E)

	
such Person (the "Crown Agent") is acting as an agent of the Crown for purposes that include, and the ordinary business or activity of such Person includes, the management of public assets and such security is held by the Crown Agent in the ordinary course of the management of such public assets; or

 

	
  

	
(F)

	
such Person is a Plan and such security is held by the Plan in the ordinary course of such Plan’s activities;

 

provided, however, that in any of the foregoing cases the Fund Manager, the Trust Company, the Plan Administrator, the Statutory Body, the Crown Agent or the Plan, as the case may be, is not then making or has not then announced a current intention to make a Take-over Bid, alone or by acting jointly or in concert with any other Person, other than an Offer to Acquire Voting Shares or other securities (x) pursuant to a distribution by the Corporation or (y) by means of a Permitted Bid or (z) by means of market transactions made in the ordinary course of business of such Person (including pre-arranged trades entered into in the ordinary course of business of such Person) executed through the facilities of a stock exchange or organized over-the-counter-market;

 

	
  

	
(vii)

	
because such Person is a Client of the same Fund Manager as another Person on whose account the Fund Manager holds such security, or because such Person is an Estate Account or an Other Account of the same Trust Company as another Person on whose account the Trust Company holds such security, or because such Person is a Plan with the same Plan Administrator as another Plan on whose account the Plan Administrator holds such security;

 

	
  

	
(viii)

	
because such Person is a Client of a Fund Manager and such security is owned at law or in equity by the Fund Manager, or because such Person is an Estate Account or an Other Account of a Trust Company and such security is owned at law or in equity by the Trust Company, or because such Person is a Plan and such security is owned at law or in equity by the Plan Administrator; or

 

	
  

	
(ix)

	
because such Person is the registered holder of securities as a result of carrying on the business of, or acting as, a nominee of a securities depositary.

 

For purposes of this Agreement, in determining the percentage of the outstanding Voting Shares with respect to which a Person is, or is deemed to be, the Beneficial Owner, any unissued Voting Shares as to which such Person is deemed the Beneficial Owner pursuant to this Subsection 1.1(e) shall be deemed outstanding.

 

	
  

	
(f)

	
"Board of Directors" shall mean the board of directors of the Corporation or any duly constituted and empowered committee thereof.

 

	
  

	
(g)

	
"Business Day" shall mean any day, other than a Saturday or Sunday or a day on which banking institutions in Calgary, Alberta are authorized or obligated by law to close.

 

	
  

	
(h)

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

 

 

  

- 4 -

  

 

 

	
  

	
(i)

	
"Close of Business" on any given date shall mean the time on such date (or, if such date is not a Business Day, the time on the next Business Day) at which the principal office of the transfer agent for the Shares in Calgary, Alberta (or after the Separation Time, the principal office of the Rights Agent in Calgary, Alberta) is closed to the public.

 

	
  

	
(j)

	
"Closing Price" per security of any securities on any date of determination shall mean:

 

	
  

	
(i)

	
the closing board lot sale price or, if such price is not available, the average of the closing bid and asked prices, for such securities on such date as reported by the stock exchange or national securities quotation system on which such securities are listed or admitted to trading (provided that, if at the date of determination such securities are listed or admitted to trading on more than one stock exchange or national securities quotation system, such price or prices shall be determined based on the stock exchange or quotation system on which such securities are then listed or admitted to trading on which the largest number of such securities were traded during the most recently completed calendar year or, if a calendar year has not been completed prior to the date of determination, during such shorter period as the Board of Directors acting in good faith determines to be appropriate); or

 

	
  

	
(ii)

	
if for any reason none of such prices is available on such date or the securities are not listed or admitted to trading on a stock exchange or a national securities quotation system on such date, the last sale price, or in case no sale takes place on such date, the average of the high bid and low asked prices for each of such securities in the over-the-counter market;

 

provided, however, that (A) if for any reason none of such prices is available on such date, the "Closing Price" per security of such securities on such date shall mean the fair value per security of the securities on such date as determined at the request of the Board of Directors by a nationally or internationally recognized investment dealer or investment banker; and (B) if the Closing Price so determined is expressed in United States dollars, such amount shall be converted to the Canadian Dollar Equivalent.

 

	
  

	
(k)

	
"Competing Permitted Bid" means a Take-over Bid that:

 

	
  

	
(i)

	
is made after a Permitted Bid has been made and prior to the expiry of the Permitted Bid;

 

	
  

	
(ii)

	
satisfies all components of the definition of a Permitted Bid other than the requirement in subclause 1.1(ii)(ii)(A)(x) thereof; and

 

	
  

	
(iii)

	
contains, and the take-up and payment for securities tendered or deposited thereunder is subject to, irrevocable and unqualified conditions that no Voting Shares shall be taken up or paid for pursuant to the Take-over Bid prior to the Close of Business on a date that is earlier than the later of (A) 35 days (or such longer minimum period of days that a Take-over Bid must remain open for acceptance under the Securities Act) after the date of the Take-over Bid;  and (B) the 60th day (or such shorter period of time as may be permitted by the Board of Directors from time to time) after the earliest date on which any other Permitted Bid that is then in existence was made.

 

	
  

	
(l)

	
"Confidentiality Agreement" means:

 

	
  

	
(i)

	
a confidentiality agreement that contains a standstill provision that restricts, for a period of at least 18 months (or such shorter period of time as may be approved by the Board of Directors from time to time) from the effective date of such confidentiality agreement, the Offeror and its Affiliates and Associates and their 

 

 

  

- 5 -

  

 

 

respective advisors and other representatives (including directors, officers, employees and agents) and any Person acting jointly or in concert with any of them from:  (i) acquiring or agreeing to acquire or making any proposal to acquire, in any manner, any bank or other senior debt, shares or other securities, property or assets of the Corporation or of any of its Affiliates; (ii) assisting, advising or encouraging any other Person to acquire or agree to acquire or make any proposal to acquire, in any manner, any bank or other senior debt, shares or other securities, property or assets of the Corporation or of any of its Affiliates; (iii) soliciting proxies of the Corporation’s shareholders, or forming, joining or in any way participating in a proxy group; and (iv) making any public announcement with respect to the foregoing, except as may be required by applicable law or regulatory authorities; or

 

	
  

	
(ii)

	
such other form of confidentiality agreement as may be agreed to by the Corporation in lieu of the confidentiality agreement referred to in (i) above.

 

	
  

	
(m)

	
"Confidential Information" means any and all information in any form, not publicly disclosed by the Corporation, relating to the Corporation or to any of its Affiliates or their respective businesses, operations, assets or interests, including financial statements, financial data, business plans, financial projections or forecasts, valuation data and other technical information, data, plans, reports, records, studies, drawings, maps, charts, models, calculations, compilations, analysis, and evaluations, and whether or not specifically identified by the Corporation or by any of its Affiliates as confidential, and shall include any such information disclosed to the Offeror or to any of its Affiliates or Associates or their respective advisors or other representatives (including directors, officers, employees and agents) or to any Person acting jointly or in concert with any of them, or to which access was permitted or granted to any of them, by any Person that is at the time of such disclosure or access required by contract with, or fiduciary or any other duties to, the Corporation or any of its Affiliates to keep such information confidential.

 

	
  

	
(n)

	
"controlled":  a body corporate is "controlled" by another Person or two or more Persons acting jointly or in concert if and only if:

 

	
  

	
(i)

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

 

	
  

	
(ii)

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

 

and "controls", "controlling" "under common control with" shall be interpreted accordingly.

 

	
  

	
(o)

	
"Convertible Security" means, with respect to any security, a security convertible into or exercisable or exchangeable for the first-mentioned security including, without limitation, share purchase rights, exchange rights, options and warrants.

 

	
  

	
(p)

	
"Convertible Security Acquisition" means the acquisition of Voting Shares upon the exercise, conversion or exchange of Convertible Securities acquired by a Person pursuant to a Permitted Bid Acquisition, Exempt Acquisition or Pro Rata Acquisition.

 

	
  

	
(q)

	
"Co-Rights Agents" shall have the meaning ascribed thereto in Subsection 4.1(a).

 

	
  

	
(r)

	
"Disposition Date" shall have the meaning ascribed thereto in Subsection 5.1(b).

 

 

  

- 6 -

  

 

 

	
  

	
(s)

	
"Effective Date" shall mean April 18, 2012 or any other later date determined by a duly authorized officer or director of the Corporation.

 

	
  

	
(t)

	
"Election to Exercise" shall have the meaning ascribed thereto in Subsection 2.2(d).

 

	
  

	
(u)

	
"Exempt Acquisition" means a share acquisition: (i) in respect of which the Board of Directors has waived the application of Section 3.1 pursuant to Subsection 5.1(b), 5.1(d) or 5.1(e); (ii) pursuant to a distribution by the Corporation of Voting Shares or Convertible Securities (and the conversion or exchange to such securities) pursuant to a public offering or private placement, provided that the acquiror does not thereby Beneficially Own a greater percentage of the Voting Shares or Convertible Securities so issued than the percentage of Voting Shares or Convertible Securities Beneficially Owned by the acquiror immediately prior to such acquisition; or (iii) pursuant to an amalgamation, merger or other statutory procedure, provided that the Corporation is a party to the definitive agreement concerning such amalgamation, merger or other statutory procedure.

 

	
  

	
(v)

	
"Exercise Price" shall mean, as of any date from and after the Separation Time, the price at which a holder of a Right may purchase the securities issuable upon exercise of one whole Right which, subject to adjustment in accordance with the terms hereof, shall be an aggregate dollar amount equal to the Market Price per Share (determined as at the Separation Time) multiplied by five (5).

 

	
  

	
(w)

	
"Expiration Time" shall mean the earlier of: (i) the Termination Time; and (ii) the time at which this Agreement terminates in accordance with  Section 5.20.

 

	
  

	
(x)

	
"Fiduciary" shall mean, when acting in that capacity, a trust company registered under the trust company legislation of Canada or any province thereof, a trust company organized under the laws of any state of the United States, a portfolio manager registered under the securities legislation of one or more provinces of Canada or an investment adviser registered under the United States Investment Advisers Act of 1940 or any other securities legislation of the United States or any state of the United States.

 

	
  

	
(y)

	
"Flip-in Event" shall mean a transaction or event in or pursuant to which any Person becomes an Acquiring Person.

 

	
  

	
(z)

	
"holder" shall have the meaning ascribed thereto in Section 2.8.

 

	
  

	
(aa)

	
"Independent Shareholders" shall mean holders of outstanding Voting Shares, other than Voting Shares Beneficially Owned by: (i) any Acquiring Person or Offeror other than a Person who is deemed not to Beneficially Own such Voting Shares by reason of clause 1.1(e)(vi) hereof; (ii) any Person acting jointly or in concert with such Acquiring Person or Offeror; (iii) any Grandfathered Person or any Associate or Affiliate of any Grandfathered Person; (iv) any Associate or Affiliate of such Acquiring Person or Offeror; and (v) any employee benefit plan, stock purchase plan, deferred profit sharing plan and any similar plan or trust for the benefit of employees of the Corporation or a corporation controlled by the Corporation, unless the beneficiaries of the plan or trust direct the manner in which the Voting Shares are to be voted or withheld from voting or direct whether the Voting Shares are to be tendered to a Take-over Bid.

 

	
  

	
(bb)

	
"Initial Resolution" shall have the meaning ascribed thereto in Section 5.20.

 

	
  

	
(cc)

	
"Lock-up Agreement" means an agreement between an Offeror or any Affiliate or Associate of an Offeror and one or more holders of Voting Shares and/or Convertible Securities (each such holder herein referred to as a "Locked-up Person") who are not Affiliates or Associates of the Offeror and who are not, other than by virtue of entering into such agreement, acting jointly or in concert with the Offeror, the terms of which are 

 

 

  

- 7 -

  

 

publicly disclosed and a copy of which is made available to the public (including the Corporation) not later than the date of the Lock-up Bid (as hereinafter defined) or, if the Lock-up Bid has been made prior to the date of the Lock-up Agreement, not later than the Business Day following the date the Lock-up Agreement was entered into, pursuant to which each Locked-up Person agrees to deposit or tender the Voting Shares and/or Convertible Securities held by such holder to a Take-over Bid (the "Lock-up Bid") made by the Offeror or any Affiliates or Associates of the Offeror or any other Person acting jointly or in concert with the Offeror and, in all cases, the terms of the Lock-up Agreement have been approved by the Board of Directors.

 

	
  

	
(dd)

	
"Market Price" per security of any securities on any date of determination shall mean the average of the daily Closing Prices per security of such securities on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date of determination; provided, however, that if an event of a type analogous to any of the events described in Section 2.3 hereof shall have caused any Closing Price used to determine the Market Price on any Trading Day not to be fully comparable with the Closing Price on the Trading Day immediately preceding such date of determination, each such Closing Price so used shall be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 hereof (as determined by the Board of Directors acting in good faith) in order to make it fully comparable with the Closing Price on the Trading Day immediately preceding such date of determination.

 

	
  

	
(ee)

	
"Nominee" shall have the meaning ascribed thereto in Subsection 2.2(c).

 

	
  

	
(ff)

	
"Offer to Acquire" shall include:

 

	
  

	
(i)

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

 

	
  

	
(ii)

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

 

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

 

	
  

	
(gg)

	
"Offeror" shall mean a Person who has announced a current intention to make, or who is making, a Take-over Bid.

 

	
  

	
(hh)

	
"Offeror’s Securities" shall mean the Voting Shares Beneficially Owned on the date of a Take-over Bid by an Offeror.

 

	
  

	
(ii)

	
"Permitted Bid" means a Take-over Bid made by way of a take-over bid circular which also complies with the following additional provisions:

 

	
  

	
(i)

	
the Take-over Bid is for all issued and outstanding Voting Shares made to all holders of record of Voting Shares, other than the Offeror;

 

	
  

	
(ii)

	
the Take-over Bid contains, and the take-up and payment for securities tendered or deposited thereunder is subject to, irrevocable and unqualified conditions that:

 

	
  

	
(A)

	
no Voting Shares shall be taken up or paid for pursuant to the Take-over Bid (x) prior to the Close of Business on a date which is not less than 60 days (or such shorter period of time as may be permitted by the Board of Directors from time to time) following the date of the Take-over Bid and (y) unless, at the Close of Business on that date, the Voting Shares deposited or tendered pursuant to the Take-over Bid and not withdrawn 

 

 

  

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constitute more than 50% of the Voting Shares outstanding which are held by Independent Shareholders;

 

	
  

	
(B)

	
unless the Take-over Bid is withdrawn, Voting Shares may be deposited pursuant to such Take-over Bid at any time prior to the Close of Business on the date of the first take-up of or payment for Voting Shares;

 

	
  

	
(C)

	
any Voting Shares deposited pursuant to the Take-over Bid may be withdrawn until taken up and paid for; and

 

	
  

	
(D)

	
in the event that the requirement set forth in subclause (A)(y) of this clause 1.1(ii)(ii) is satisfied, the Offeror will make a public announcement of that fact and the Take-over Bid will remain open for deposits and tenders of Voting Shares for not less than 10 Business Days from the date of such public announcement,

 

provided, however, that a Take-Over Bid shall not be a Permitted Bid if, at the commencement of the Take-Over Bid, the Offeror or any of its Affiliates or Associates or their respective advisors or other representatives (including directors, officers, employees and agents) or any Person acting jointly or in concert with any of them in connection with the Take-Over Bid, possessed Confidential Information, unless such Persons shall have entered into a Confidentiality Agreement with the Corporation within three months prior to the commencement of the Take-Over Bid.

 

For purposes of this Agreement, the term "Permitted Bid" shall include a Competing Permitted Bid.

 

	
  

	
(jj)

	
"Permitted Bid Acquisition" means an acquisition of Voting Shares made pursuant to a Permitted Bid.

 

	
  

	
(kk)

	
"Person" includes any individual, firm, partnership, association, trust, trustee, executor, administrator, legal personal representative, government, governmental body or authority, corporation, or other incorporated or unincorporated organization, syndicate or other entity.

 

	
  

	
(ll)

	
"Pro Rata Acquisition" means an acquisition by a Person of Voting Shares or Convertible Securities pursuant to (i) any dividend reinvestment plan, such purchase plan or other plan of the Corporation made available to all holders of Voting Shares (other than holders resident in any jurisdiction where participation in such plan is restricted or impractical as a result of applicable law);  (ii) a stock dividend, a stock split or other event pursuant to which such Person becomes the Beneficial Owner of Voting Shares or Convertible Securities on the same pro rata basis as all other holders of Voting Shares or Convertible Securities of the same class or series; (iii) the acquisition or exercise of rights to purchase Voting Shares or Convertible Securities distributed to all holders of Voting Shares (other than holders resident in any jurisdiction where such distribution or exercise is restricted or impractical as a result of applicable law) by the Corporation pursuant to a rights offering (but only if such rights are acquired directly from the Corporation); or (iv) a distribution of Voting Shares or Convertible Securities in respect thereof offered pursuant to a prospectus or by way of a private placement by the Corporation or a conversion or exchange of any such Convertible Security, provided that, in the cases of (iii) and (iv) above, such Person does not thereby acquire a greater percentage of Voting Shares or Convertible Securities so offered than the Person’s percentage of Voting Shares or Convertible Securities Beneficially Owned immediately prior to such acquisition.

 

	
  

	
(mm)

	
"Record Time" means on the Close of Business on the Effective Date.

 

	
  

	
(nn)

	
"Redemption Price" shall have the meaning attributed thereto in Subsection 5.1(a).

 

 

  

- 9 -

  

 

 

	
  

	
(oo)

	
"Regular Cash Dividend" means cash dividends paid on the Shares in any fiscal year of the Corporation to the extent that such cash dividends do not exceed in the aggregate in any fiscal year the greatest of:

 

	
  

	
(i)

	
200% of the aggregate amount of cash dividends declared payable by the Corporation on its Shares in its immediately preceding fiscal year;

 

	
  

	
(ii)

	
300% of the arithmetic mean of the aggregate amounts of cash dividends declared payable by the Corporation on its Shares in its three immediately preceding fiscal years; and

 

	
  

	
(iii)

	
100% of the aggregate consolidated net income of the Corporation, before extraordinary items, for its immediately preceding fiscal year.

 

	
  

	
(pp)

	
"Right" shall mean the rights described herein to purchase securities pursuant to the terms and subject to the conditions set forth herein.

 

	
  

	
(qq)

	
"Rights Certificate" shall mean the certificates representing the Rights after the Separation Time which shall be substantially in the form attached hereto as Exhibit A.

 

	
  

	
(rr)

	
"Rights Register" and "Rights Registrar" shall have the respective meanings ascribed thereto in Subsection 2.6(a).

 

	
  

	
(ss)

	
"Securities Act" shall mean the Securities Act (Alberta), as amended, and the regulations and rules thereunder, and any comparable or successor laws or regulations thereto;

 

	
  

	
(tt)

	
"Separation Time" means the Close of Business on the tenth Trading Day after the earlier of:

 

	
  

	
(i)

	
the Stock Acquisition Date; and

 

	
  

	
(ii)

	
the date of the commencement of, or first public announcement or disclosure of the intent of any Person (other than the Corporation or any corporation controlled by the Corporation) to commence, a Take-over Bid (other than a Permitted Bid, so long as such Take-over Bid continues to satisfy the requirements of a Permitted Bid);

 

or such later Business Day as may be determined at any time or from time to time by the Board of Directors provided, however, that if any such Take-over Bid expires, is cancelled, is terminated or is otherwise withdrawn prior to the Separation Time, without securities deposited thereunder being taken up and paid for, such Take-over Bid shall be deemed, for purposes of this Subsection 1.1(tt), never to have been made, and, provided further, that if the Board of Directors determines, pursuant to Section 5.1, to waive the application of Section 3.1 to a Flip-in Event, the Separation Time in respect of such Flip-in Event shall be deemed never to have occurred.

 

	
  

	
(uu)

	
"Shares" means the common shares in the share capital of the Corporation, as such shares may be subdivided, consolidated, reclassified or otherwise changed from time to time.

 

	
  

	
(vv)

	
"Stock Acquisition Date" shall mean the first date of public announcement or disclosure by the Corporation or an Acquiring Person of facts indicating that a Person has become an Acquiring Person (which, for the purposes of this definition, shall include, without limitation, a report filed pursuant to Section 111 of the Securities Act or Section 13(d) of the U.S. Exchange Act disclosing such information).

 

 

  

- 10 -

  

 

 

	
  

	
(ww)

	
"Take-over Bid" means an Offer to Acquire Voting Shares of any class, or Convertible Securities with respect thereto, where the Voting Shares subject to the Offer to Acquire, together with the Voting Shares into or for which the securities subject to the Offer to Acquire are convertible or exchangeable and the Offeror’s Securities constitute in the aggregate 20% or more of the outstanding Voting Shares at the date of the Offer to Acquire.

 

	
  

	
(xx)

	
"Termination Time" means the time at which the right to exercise Rights shall terminate pursuant to Section 5.1 hereof.

 

	
  

	
(yy)

	
"Trading Day" when used with respect to any securities, means the day on which the principal Canadian or United States securities exchange (as determined by the Board of Directors acting in good faith) on which such securities are listed or admitted to trading is open for the transaction of business or, if the securities are not listed or admitted to trading on any Canadian or United States securities exchange, a Business Day.

 

	
  

	
(zz)

	
"U.S.   Canadian Exchange Rate" on any date shall mean:

 

	
  

	
(i)

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

 

	
  

	
(ii)

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

 

	
  

	
(aaa)

	
"U.S. Exchange Act" means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder as from time to time in effect.

 

	
  

	
(bbb)

	
"Voting Share Reduction" means an acquisition or redemption by the Corporation or any corporation controlled by the Corporation of Voting Shares which, by reducing the number of Voting Shares outstanding, increases the percentage of Voting Shares Beneficially Owned by any Person to 20% or more of the Voting Shares then outstanding.

 

	
  

	
(ccc)

	
"Voting Shares" means the Shares and any other securities the holders of which are entitled to vote generally on the election of directors of the Corporation.

 

	
1.2

	
Currency

 

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

 

	
1.3

	
Number and Gender

 

Wherever the context will require, terms (including defined terms) used herein importing the singular number only shall include the plural and vice versa and words importing any one gender shall include all others.

 

	
1.4

	
Sections and Headings

 

The division of this Agreement into Articles, Sections, Subsections, clauses and subclauses and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms this "Agreement", "hereunder", "hereof" and similar expressions refer to this Agreement as amended or supplemented from time to time and not to any particular Article, Section or other portion hereof and include any agreement or instrument supplemental or ancillary hereto. Unless something in the subject matter or context is inconsistent therewith, references 

 

 

  

- 11 -

  

 

 

herein to Articles, Sections, Subsections, clauses and subclauses are to Articles, Sections, Subsections, clauses and subclauses of this Agreement.

 

	
1.5

	
Statutory References

 

Unless the context otherwise requires, any reference to a specific Section, Subsection, clause or Rule of any statute or regulation shall be deemed to refer to the same as it may be amended, re-enacted or replaced or, if repealed and there shall be no replacement therefor, to the same as it is in effect on the date of this Agreement.

 

	
1.6

	
Determination of Percentage Ownership

 

The percentage of Voting Shares Beneficially Owned by any Person, shall, for the purposes of this Agreement, be and be deemed to be the product determined by the formula:

 

 

	 	100 x 	A	 
	 	B	 

 

where:

 

	
  

	
A =

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

 

	
  

	
B =

	
the aggregate number of votes for the election of all directors generally attaching to all outstanding Voting Shares.

 

Where any Person is deemed to Beneficially Own unissued Voting Shares pursuant to Subsection 1.1(e), such Voting Shares shall be deemed to be outstanding for the purpose of both A and B in the formula above.

 

	
1.7

	
Acting Jointly or in Concert

 

For the purposes of this Agreement, a Person is acting jointly or in concert with every Person who is a party to an agreement, commitment or understanding, whether formal or informal and whether or not in writing, with the first Person, to acquire or to Offer to Acquire Voting Shares or Convertible Securities in respect thereof (other than customary agreements with and between underwriters and banking group or selling group members with respect to a distribution of securities or pursuant to a pledge of securities in the ordinary course of the pledgee’s business).

 

ARTICLE 2 

THE RIGHTS

 

	
2.1

	
Legend on Share Certificates

 

	
  

	
(a)

	
Certificates representing the Shares, including without limitation Shares issued upon the conversion of Convertible Securities, issued after the Record Time but prior to the Close of Business on the earlier of the Separation Time and the Expiration Time shall also evidence one Right for each Share represented thereby and shall have impressed on, printed on, written on or otherwise affixed to them the following legend:

 

"Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Shareholder Rights Plan Agreement, dated as of April 18, 2012 (the "Rights Agreement"), between the Corporation and Computershare Trust Company of Canada, as rights agent, as the same may be 

 

 

  

- 12 -

  

 

 

amended or supplemented from time to time in accordance with the terms thereof, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the registered office of the Corporation.  Under certain circumstances, as set forth in the Rights Agreement, such Rights may be amended or redeemed, may expire, may become void (if, in certain cases, they are "Beneficially Owned" by an "Acquiring Person", as such terms are defined in the Rights Agreement, whether currently held by or on behalf of such Person or any subsequent holder) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Corporation will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge as soon as practicable after the receipt of a written request therefor."

 

	
  

	
(b)

	
Certificates representing Shares that have been issued prior to, and remain outstanding at, the Record Time shall evidence one Right for each Share evidenced thereby until the earlier of the Separation Time and the Expiration Time notwithstanding the absence of the legend required by Subsection 2.1(a).

 

	
2.2

	
Initial Exercise Price; Exercise of Rights; Detachment of Rights

 

	
  

	
(a)

	
Subject to adjustment as herein set forth, including without limitation as set forth in Article 3 , each Right will entitle the holder thereof, from and after the Separation Time and prior to the Expiration Time, to purchase one Share for the Exercise Price (which Exercise Price and number of Shares are subject to adjustment as set forth below). Notwithstanding any other provision of this Agreement, any Rights held by the Corporation or any of its subsidiaries shall be void.

 

	
  

	
(b)

	
Until the Separation Time, (i) the Rights shall not be exercisable and no Right may be exercised; and (ii) for administrative purposes, each Right will be evidenced by the certificate for the associated Shares registered in the name of the holder thereof (which certificate shall be deemed to represent a Rights Certificate) and will be transferable only together with, and will be transferred by a transfer of, such associated Shares.

 

	
  

	
(c)

	
From and after the Separation Time and prior to the Expiration Time, the Rights may be exercised, and the registration and transfer of the Rights shall be separate from and independent of Shares. Promptly following the Separation Time, the Corporation will prepare or cause to be prepared and the Rights Agent will mail to each holder of record of Shares as of the Separation Time and, in respect of each Convertible Security converted into Shares after the Separation Time and prior to the Expiration Time, promptly after such conversion, the Corporation will prepare or cause to be prepared and the Rights Agent will mail to the holder so converting (other than in each case an Acquiring Person and, in respect of any Rights Beneficially Owned by such Acquiring Person which are not held of record by such Acquiring Person, the holder of record of such rights (a "Nominee")) at such holder’s address as shown by the records of the Corporation (the Corporation hereby agreeing to furnish copies of such record to the Rights Agent for this purpose):

 

	
  

	
(i)

	
a Rights Certificate in substantially the form of Exhibit A hereto appropriately completed, representing the number of Rights held by such holder at the Separation Time and having such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Corporation may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law, rule or regulation or judicial or administrative order, or with any article, requirement or regulation of 

 

 

 

  

- 13 -

  

 

any stock exchange or quotation system on which the Rights may from time to time be listed or traded, or to conform to usage; and

 

	
  

	
(ii)

	
a disclosure statement prepared by the Corporation describing the Rights;

 

provided that a Nominee shall be sent the materials provided for in (i) and (ii) only in respect of all Shares held of record by it which are not Beneficially Owned by an Acquiring Person and the Corporation may require any Nominee or suspected Nominee to provide such information and documentation as the Corporation may reasonably require for such purpose.

 

	
  

	
(d)

	
Rights may be exercised in whole or in part on any Business Day after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent at its principal office in Calgary, Alberta, or any other office of the Rights Agent designated for that purpose from time to time by the Corporation:

 

	
  

	
(i)

	
the Rights Certificate evidencing such Rights;

 

	
  

	
(ii)

	
an election to exercise (an "Election to Exercise") substantially in the form attached to the Rights Certificate duly completed and executed in a manner acceptable to the Rights Agent; and

 

	
  

	
(iii)

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

 

	
  

	
(e)

	
Upon receipt of a Rights Certificate, which is accompanied by an appropriately completed and duly executed Election to Exercise (which does not indicate that such Right is null and void as provided by Subsection 3.1(b)) and payment as set forth in Subsection 2.2(d), the Rights Agent (unless otherwise instructed by the Corporation) will thereupon as soon as possible:

 

	
  

	
(i)

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

 

	
  

	
(ii)

	
after receipt of such share certificates, deliver such certificates to, or to the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder;

 

	
  

	
(iii)

	
when appropriate, requisition from the Corporation the amount of cash, if any, to be paid in lieu of issuing fractional Shares;

 

	
  

	
(iv)

	
when appropriate, after receipt of such cash, deliver such cash to, or to the order of, the registered holder of the Rights Certificate; and

 

	
  

	
(v)

	
tender to the Corporation all payments received on exercise of the Rights.

 

	
  

	
(f)

	
If the holder of any Rights shall exercise less than all of the Rights evidenced by such holder’s Rights Certificate, a new Rights Certificate evidencing the Rights remaining unexercised will be issued by the Rights Agent to such holder or to such holder’s duly authorized assigns.

 

 

  

- 14 -

  

 

 

	
  

	
(g)

	
The Corporation shall:

 

	
  

	
(i)

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

 

	
  

	
(ii)

	
take all such action as may reasonably be considered to be necessary and within its power to comply with any applicable requirements of the Alberta Business Corporations Act, the Securities Act, the U.S. Exchange Act, the United States Securities Act of 1933, as amended, and applicable comparable legislation of each of the provinces and territories of Canada and states of the United States of America, or the rules and regulations thereunder or any other applicable law, rule or regulation, in connection with the issuance and delivery of the Rights, the Rights Certificates and the issuance of any Shares upon exercise of the Rights;

 

	
  

	
(iii)

	
use reasonable efforts to cause all Shares issued upon exercise of the Rights to be listed on the stock exchanges on which the Shares are listed at that time;

 

	
  

	
(iv)

	
cause to be reserved and kept available out of its authorized and unissued Shares, the number of Shares that, as provided in this Agreement, will from time to time be sufficient to permit the exercise in full of all outstanding Rights;

 

	
  

	
(v)

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

 

	
  

	
(vi)

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

 

	
2.3

	
Adjustments to Exercise Price; Number of Rights

 

	
  

	
(a)

	
The Exercise Price, the number and kind of securities subject to purchase upon exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 2.3 and in Article 3 . Fractional interests in securities resulting from such adjustments are subject to Section 5.5.

 

	
  

	
(b)

	
In the event that the Corporation shall at any time after the Record Time and prior to the Expiration Time:

 

	
  

	
(i)

	
declare or pay a dividend on the Shares payable in Voting Shares or Convertible Securities in respect thereof other than pursuant to any dividend reinvestment plan or program;

 

	
  

	
(ii)

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

 

 

  

- 15 -

  

 

 

	
  

	
(iii)

	
consolidate, combine or change the then outstanding Shares into a smaller number of Shares; or

 

	
  

	
(iv)

	
issue any Voting Shares (or Convertible Securities in respect thereof) in respect of, in lieu of, or in exchange for existing Shares, whether in a reclassification, amalgamation, statutory arrangement, consolidation or otherwise;

 

the Exercise Price and the number of Rights outstanding (or, if the payment or effective date therefore shall occur after the Separation Time, the securities purchasable upon the exercise of Rights) shall be adjusted as follows:

 

	
  

	
(A)

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

 

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

 

(y)            each Right held prior to such adjustment will become that number of Rights equal to that number that is equal to the number of Shares (or other securities of the Corporation) that a holder of one Share immediately prior to such dividend, subdivision, change, consolidation or issuance would hold immediately thereafter as a result thereof, and the adjusted number of Rights will be deemed to be allocated among the Shares with respect to which the original Rights were associated (if they remain outstanding) and the securities of the Corporation issued in respect of such dividend, subdivision, change, consolidation or issuance, so that each such Share (or other security of the Corporation) will have exactly one Right associated with it.

 

	
  

	
(B)

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

 

	
  

	
(c)

	
Adjustments pursuant to Subsection 2.3(b) shall be made successively, whenever an event referred to in Subsection 2.3(b) occurs.

 

	
  

	
(d)

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

 

	
  

	
(e)

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

 

	
  

	
(f)

	
In the event the Corporation shall, at any time after the Record Time and prior to the Expiration Time, fix a record date for the making of a distribution to all holders of Shares of rights or warrants entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Shares (or Convertible Securities in 

 

 

  

- 16 -

  

 

 

respect of Shares) at a price per Share (or, in the case of such a Convertible Security, having a conversion, exchange or exercise price per share (including the price required to be paid to purchase such Convertible Security)) less than 90% of the Market Price per Share on such record date, the Exercise Price in effect after such record date will equal the Exercise Price in effect immediately prior to such record date multiplied by a fraction;

 

	
  

	
(i)

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

 

	
  

	
(ii)

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

 

In case such subscription price is satisfied, in whole or in part, by consideration other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors. Such adjustment shall be made successively whenever such a record date is fixed. To the extent that such rights or warrants are not exercised prior to the expiration thereof, the Exercise Price shall be readjusted in the manner contemplated above based on the number of Shares (or securities convertible into or exchangeable for Shares) actually issued on the exercise of such rights or warrants.

 

For purposes of this Agreement, the granting of the right to purchase Shares (whether from treasury or otherwise) pursuant to any dividend or interest reinvestment plan or program or any share purchase plan or program providing for the reinvestment of dividends or interest payable on securities of the Corporation or the investment of periodic optional payments or employee benefit or similar plans (so long as such right to purchase is in no case evidenced by the delivery of rights or warrants by the Corporation) shall not be deemed to constitute an issue of rights or warrants by the Corporation; provided, however, that in the case of any dividend or interest reinvestment or share purchase plan or program, the right to purchase Shares is at a price per share of not less than 90% of the current Market Price per share (determined as provided in such plans) of the Shares.

 

	
  

	
(g)

	
In the event the Corporation shall, at any time after the Record Time and prior to the Expiration Time, fix a record date for the making of a distribution to all holders of Shares of (i) evidences of indebtedness or assets (other than a Regular Cash Dividend or a dividend paid in Shares, but including any dividend payable in securities other than Shares), (ii) rights or warrants entitling them to subscribe for or purchase Voting Shares (or Convertible Securities in respect of Voting Shares), at a price per Voting Share (or, in the case of a Convertible Security in respect of Voting Shares, having a conversion, exchange or exercise price per share (including the price required to be paid to purchase such Convertible Security)) less than 90% of the Market Price per Share on such record date (excluding rights or warrants referred to in Subsection 2.3(f)) or (iii) other securities of the Corporation, the Exercise Price in effect after such record date shall be equal to the Exercise Price in effect immediately prior to such record date less the fair market value (as determined in good faith by the Board of Directors) of the portion of the assets, evidences of indebtedness, rights or warrants or other securities so to be distributed applicable to each of the securities purchasable upon exercise of one Right.  Such adjustment shall be made successively whenever such a record date is fixed.

 

	
  

	
(h)

	
Each adjustment made pursuant to Section 2.3 shall be made as of

 

 

  

- 17 -

  

 

 

	
  

	
(i)

	
the payment or effective date for the applicable dividend, subdivision, change, consolidation or issuance, in the case of an adjustment made pursuant to Subsection 2.3(b) above; and

 

	
  

	
(ii)

	
the record date for the applicable dividend or distribution, in the case of an adjustment made pursuant to Subsections 2.3(f) or 2.3(g) above, subject to readjustment to reverse the same if such distribution shall not be made.

 

	
  

	
(i)

	
In the event the Corporation shall, at any time after the Record Time and prior to the Expiration Time, issue any shares (other than Shares), or rights or warrants to subscribe for or purchase any such shares, or Convertible Securities in respect of any such shares, in a transaction referred to in any of clauses 2.3(b)(i) to (iv), Subsection 2.3(f) or Subsection 2.3(g) above, if the Board of Directors acting in good faith determines that the adjustments contemplated by Subsections 2.3(b), 2.3(f) and 2.3(g) above in connection with such transaction would not appropriately protect the interests of the holders of Rights, the Board of Directors may from time to time acting in good faith determine what other adjustments, if any, to the Exercise Price, number of Rights or securities purchasable upon exercise of Rights would be appropriate in the circumstances, if any, and such other adjustments (if any) shall be made upon the Board of Directors providing written certification thereof to the Rights Agent pursuant to Subsection 2.3(q) and no adjustments contemplated by Subsections 2.3(b), 2.3(f) or 2.3(g)shall be made notwithstanding the terms thereof.  The Corporation and the Rights Agent shall amend this Agreement in accordance with Section 5.4 to provide for any such other adjustments contemplated by this Subsection 2.3(i).

 

	
  

	
(j)

	
Notwithstanding anything herein to the contrary, no adjustment of the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such Exercise Price; provided, however, that any adjustments which by reason of this Subsection 2.3(j) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All adjustments to the Exercise Price made pursuant to this Section 2.3 shall be calculated to the nearest cent.

 

	
  

	
(k)

	
All Rights originally issued by the Corporation subsequent to any adjustment made to the Exercise Price hereunder shall evidence the right to purchase, at the adjusted Exercise Price, the number of Shares purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.

 

	
  

	
(l)

	
Unless the Corporation shall have exercised its election as provided in Subsection 2.3(m) to adjust the number of Rights in lieu of any adjustment in the number of Shares purchasable upon the exercise of a Right, upon each adjustment of the Exercise Price as a result of the calculations made in Subsections 2.3(f) and 2.3(g), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of Shares obtained by:

 

	
  

	
(i)

	
multiplying (A) the number of Shares covered by a Right immediately prior to such adjustment, by (B) the Exercise Price in effect immediately prior to such adjustment; and

 

	
  

	
(ii)

	
dividing the product so obtained by the Exercise Price in effect immediately after such adjustment.

 

	
  

	
(m)

	
The Corporation may elect on or after the date of any adjustment of the Exercise Price to adjust the number of Rights, in lieu of any adjustment in the number of Shares purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of Shares for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become the number of 

 

 

  

- 18 -

  

 

 

Rights obtained by dividing the relevant Exercise Price in effect immediately prior to adjustment of the relevant Exercise Price by the relevant Exercise Price in effect immediately after adjustment of the relevant Exercise Price. The Corporation shall make a public announcement of its election to adjust the number of Rights pursuant to this Subsection 2.3(m), indicating the record date for the adjustment; and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the relevant Exercise Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least 10 calendar days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Subsection 2.3(m), the Corporation shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date, Rights Certificates evidencing, subject to Section 5.5, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Corporation, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Corporation, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and may bear, at the option of the Corporation, the relevant adjusted Exercise Price and shall be registered in the names of holders of record of Rights Certificates on the record date specified in the public announcement.

 

	
  

	
(n)

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

 

	
  

	
(o)

	
Notwithstanding anything in this Section 2.3 to the contrary, the Corporation shall be entitled to make such adjustments in the Exercise Price, in addition to those adjustments expressly required by this Section 2.3, as and to the extent that in its good faith judgment the Board of Directors shall determine to be advisable in order that any (i) subdivision or consolidation of the Shares, (ii) issuance wholly for cash of any Shares at less than the applicable Market Price, (iii) issuance wholly for cash of any Shares or securities that by their terms are exchangeable for or convertible into or give a right to acquire Shares, (iv) stock dividends, or (v) issuance of rights, options or warrants referred to in this Section 2.3, hereafter made by the Corporation to holders of its Shares, shall not be taxable to such shareholders.

 

	
  

	
(p)

	
Irrespective of any adjustment or change in the securities purchasable upon exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to represent the securities so purchasable which were represented in the initial Rights Certificates issued hereunder.

 

	
  

	
(q)

	
Whenever an adjustment to the Exercise Price is made pursuant to this Section 2.3, the Corporation shall

 

	
  

	
(i)

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

 

 

  

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(ii)

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

 

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

 

	
2.4

	
Date on which Exercise is Effective

 

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

 

	
2.5

	
Execution, Authentication, Delivery and Dating of Rights Certificates

 

	
  

	
(a)

	
The Rights Certificates shall be executed on behalf of the Corporation by any two officers of the Corporation.  The signature of any of these officers on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Corporation shall bind the Corporation, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the countersignature and delivery of such Rights Certificates.

 

	
  

	
(b)

	
Promptly following the Separation Time, the Corporation will notify the Rights Agent of such Separation Time and will deliver Rights Certificates executed by the Corporation to the Rights Agent for countersignature and a statement describing the Rights, and the Rights Agent shall countersign manually (or by facsimile signature in a manner satisfactory to the Corporation) and deliver such Rights Certificates and statement to the holders of the Rights pursuant to Section 2.2 hereof.  No Rights Certificate shall be valid for any purpose until countersigned by the Rights Agent as aforesaid.

 

	
  

	
(c)

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

 

	
2.6

	
Registration, Transfer and Exchange

 

	
  

	
(a)

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

 

	
  

	
(b)

	
After the Separation Time and prior to the Expiration Time, upon surrender for registration of transfer or exchange of any Rights Certificate, and subject to the provisions of Subsections 2.6(d) and 3.1(b) below, the Corporation will execute, and the Rights Agent will countersign, deliver and register, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder’s instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificates so surrendered.

 

 

  

- 20 -

  

 

 

	
  

	
(c)

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

 

	
  

	
(d)

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

 

	
2.7

	
Mutilated, Lost, Stolen and Destroyed Rights Certificates

 

	
  

	
(a)

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

 

	
  

	
(b)

	
If there shall be delivered to the Corporation and the Rights Agent prior to the Expiration Time: (i) evidence to their reasonable satisfaction of the destruction, loss or theft of any Rights Certificate; and (ii) such security or indemnity as may be reasonably required by them to save each of them and any of their agents harmless, then, in the absence of notice to the Corporation or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Corporation shall execute and, upon the Corporation’s request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen.

 

	
  

	
(c)

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

 

	
  

	
(d)

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

 

	
2.8

	
Persons Deemed Owners

 

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

 

	
2.9

	
Delivery and Cancellation of Certificates

 

All Rights Certificates surrendered upon exercise or for redemption, for registration of transfer or for exchange shall, if surrendered to any Person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Corporation may at any time deliver to the Rights Agent for cancellation any Rights Certificates previously countersigned and 

 

 

  

- 21 -

  

 

 

delivered hereunder which the Corporation may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificate shall be countersigned in lieu of or in exchange for any Rights Certificates cancelled as provided in this Section 2.9 except as expressly permitted by this Agreement. The Rights Agent shall, subject to applicable law, destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Corporation.

 

	
2.10

	
Agreement of Rights Holders

 

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

 

	
  

	
(a)

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

 

	
  

	
(b)

	
that, prior to the Separation Time, each Right will be transferable only together with, and will be transferred by a transfer of, the associated Shares;

 

	
  

	
(c)

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

 

	
  

	
(d)

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

 

	
  

	
(e)

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

 

	
  

	
(f)

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

 

	
  

	
(g)

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

 

ARTICLE 3 

ADJUSTMENTS TO THE RIGHTS

 

	
3.1

	
Flip-in Event

 

	
  

	
(a)

	
Subject to Sections 3.1(b) and 5.1, in the event that prior to the Expiration Time a Flip-in Event occurs, each Right shall thereafter constitute the right to purchase from the Corporation, upon exercise thereof in accordance with the terms hereof, that number of Shares as have an aggregate Market Price on the date of consummation or occurrence 

 

  

- 22 -

  

 

 

of such Flip-in Event equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such Right to be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.3 in the event that, after such date of consummation or occurrence, an event of a type analogous to any of the events described in Section 2.3 shall have occurred with respect to such Shares).

 

	
  

	
(b)

	
Notwithstanding anything in this Agreement to the contrary, upon the occurrence of any Flip-in Event, any Rights that are or were Beneficially Owned on or after the earlier of the Separation Time and the Stock Acquisition Date, or which may thereafter be Beneficially Owned, by:

 

	
  

	
(i)

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

 

	
  

	
(ii)

	
a transferee of Rights, direct or indirect, from an Acquiring Person (or from any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Associate or Affiliate thereof) where such a transferee becomes a transferee concurrently with or subsequent to the Acquiring Person becoming such in a transfer that the Board of Directors, acting in good faith, has determined is part of a plan, arrangement or scheme of an Acquiring Person (or of any Person acting jointly or in concert with an Acquiring Person or any Associate or Affiliate of an Acquiring Person), that has the purpose or effect of avoiding clause 3.1(b)(i);

 

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

 

	
  

	
(c)

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

 

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

 

The Rights Agent shall not be under any responsibility to ascertain the existence of facts that would require the imposition of such legend but shall be required to impose such legend only if instructed to do so in writing by the Corporation or if a holder fails to certify upon transfer or exchange in the space provided to do so that such holder is not a Person described in such legend.

 

 

  

- 23 -

  

 

 

	
  

	
(d)

	
After the Separation Time, the Corporation shall do all such acts and things necessary and within its power to ensure compliance with the provisions of this Section 3.1 including, without limitation, all such acts and things as may be required to satisfy the requirements of the Alberta Business Corporations Act, the Securities Act and the securities laws or comparable legislation in each of the provinces of Canada and in any other jurisdiction where the Corporation is subject to such laws and the rules of the stock exchanges or quotation systems where the Shares are listed or quoted at such time in respect of the issue of Shares upon the exercise of Rights in accordance with this Agreement.

 

	
3.2

	
Fiduciary Duties of the Board of Directors of the Corporation

 

For clarification, it is understood that nothing contained in this Article 3 shall be considered to affect the obligations of the Board of Directors to exercise its fiduciary duties.  Without limiting the generality of the foregoing, nothing contained herein shall be construed to suggest or imply that the Board of Directors shall not be entitled to recommend that holders of the Voting Shares reject or accept any Take-over Bid or take any other action including, without limitation, the commencement, prosecution, defence or settlement of any litigation and the submission of additional or alternative Take-over Bids or other proposals to the shareholders of the Corporation with respect to any Take-over Bid or otherwise that the Board of Directors believes is necessary or appropriate in the exercise of its fiduciary duties.

 

ARTICLE 4 

THE RIGHTS AGENT

 

	
4.1

	
General

 

	
  

	
(a)

	
The Corporation hereby appoints the Rights Agent to act as agent for the Corporation and the holders of the Rights in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Corporation may from time to time appoint such co-rights agents ("Co Rights Agents") as it may deem necessary or desirable subject to the prior written approval of the Rights Agent. In the event the Corporation appoints one or more Co-Rights Agents, the respective duties of the Rights Agent and Co-Rights Agents shall be as the Corporation may determine with the written approval of the Rights Agent. The Corporation agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and other disbursements reasonably incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder, including the reasonable fees and disbursements of counsel and other experts consulted by the Rights Agent pursuant to Subsection 4.3(a). The Corporation also agrees to indemnify the Rights Agent, its officers, directors, employees and agents for, and to hold it harmless against any loss, liability, cost, claim, action, damage, suit or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement including its reasonable legal costs and expenses, which right to indemnification will survive the termination of this Agreement or the removal or resignation of the Rights Agent.

 

	
  

	
(b)

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

 

 

  

- 24 -

  

 

 

	
  

	
(c)

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

 

	
4.2

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

 

	
  

	
(a)

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

 

	
  

	
(b)

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

 

	
4.3

	
Duties of Rights Agent

 

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

 

	
  

	
(a)

	
The Rights Agent may retain and consult with legal counsel (who may be legal counsel for the Corporation) or such other experts that the Rights Agent considers necessary to carry out its duties under this Agreement and the opinion of such counsel or other expert will be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion; the Rights Agent may also, with the approval of the Corporation (such approval not to be unreasonably withheld), consult with such other experts (at the expense of the Corporation) as the Rights Agent shall consider necessary or appropriate to properly carry out the duties and obligations imposed under this Agreement and the Rights Agent shall be entitled to act and rely in good faith on the advice of any such expert.

 

	
  

	
(b)

	
Whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Corporation prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a person believed by the Rights Agent to be a senior officer of the Corporation and delivered to the Rights Agent; and such certificate will be full authorization to the Rights Agent for any action taken or 

 

 

  

- 25 -

  

 

 

suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.

 

	
  

	
(c)

	
The Rights agent will be liable hereunder only for its gross negligence, bad faith or wilful misconduct.

 

	
  

	
(d)

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

 

	
  

	
(e)

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

 

	
  

	
(f)

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

 

	
  

	
(g)

	
The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any person designated in writing by the Corporation, and to apply to such individuals for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such individual. It is understood that instructions to the Rights Agent shall, except where circumstances make it impractical or the Rights Agent otherwise agrees, be given in writing and, where not in writing, such instructions shall be confirmed in writing as soon as reasonably practicable after the giving of such instructions.

 

	
  

	
(h)

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

 

	
  

	
(i)

	
The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Corporation resulting 

 

 

  

- 26 -

  

 

from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment of such attorneys and agents.

 

	
4.4

	
Change of Rights Agent

 

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

 

ARTICLE 5

MISCELLANEOUS

 

	
5.1

	
Redemption, Waiver and Termination

 

	
  

	
(a)

	
The Board of Directors acting in good faith may, without the approval of any holders of Rights or Voting Shares, at any time prior to a Flip-in Event as to which the application of Section 3.1 has not been waived pursuant to this Section 5.1, elect to redeem all but not less than all of the then outstanding Rights at a redemption price of $0.00001 per Right (appropriately adjusted in a manner analogous to the applicable adjustments provided for in Section 2.3 in the event that an event of the type analogous to any of the events described in Section 2.3 shall have occurred (such redemption price being herein referred to as the "Redemption Price")).

 

	
  

	
(b)

	
The Board of Directors may waive the application of Section 3.1 in respect of the occurrence of any Flip-in Event if the Board of Directors has determined, following the Stock Acquisition Date and prior to the Separation Time, that a Person became an Acquiring Person by inadvertence and without any intention to become, or knowledge that it would become, an Acquiring Person under this Agreement and, in the event that such a waiver is granted by the Board of Directors, such Stock Acquisition Date shall be deemed not to have occurred.  Any such waiver pursuant to this Subsection 5.1(b) may only be given on the condition that such Person, within 10 days after the foregoing determination by the Board of Directors or such later date as the Board of Directors may determine (the "Disposition Date"), has reduced its Beneficial Ownership of Voting Shares such that the Person is no longer an Acquiring Person.  If the Person remains an Acquiring Person at the Close of Business on the Disposition Date, the Disposition Date 

 

  

- 27 -

  

 

 

shall be deemed to be the date of occurrence of a further Stock Acquisition Date and Section 3.1 shall apply thereto.

 

	
  

	
(c)

	
In the event that a Person acquires Voting Shares pursuant to a Permitted Bid or an Exempt Acquisition referred to in Subsection 5.1(d), then the Board of Directors of the Corporation shall, immediately upon the consummation of such acquisition and without further formality, be deemed to have elected to redeem the Rights at the Redemption Price.

 

	
  

	
(d)

	
The Board of Directors acting in good faith may, prior to the occurrence of the relevant Flip-in Event, upon prior written notice delivered to the Rights Agent, waive the application of Section 3.1 to a Flip-in Event that may occur by reason of a Take-over Bid made by means of a take-over bid circular to all holders of record of Voting Shares, provided that if the Board of Directors waives the application of Section 3.1 in respect of a Take over Bid pursuant to this Subsection 5.1(d), the Board of Directors shall also be deemed to have waived the application of Section 3.1 in respect of any other Take-over Bid made by means of a take-over bid circular to all holders of record of Voting Shares prior to the expiry of any Take-over Bid (as the same may be extended from time to time) in respect of which a waiver is, or is deemed to have been, granted under this Subsection 5.1(d).

 

	
  

	
(e)

	
The Board of Directors acting in good faith may, prior to the occurrence of the relevant Flip-in Event, upon prior written notice delivered to the Rights Agent, determine to waive the application of Section 3.1 to a Flip-in Event that may occur by reason of an acquisition of Voting Shares other than pursuant to a Take-over Bid made by means of a Take-over Bid circular to all holders of record of Voting Shares and other than in the circumstances set out in Subsection 5.1(b).

 

	
  

	
(f)

	
Where a Take-over Bid that is not a Permitted Bid is withdrawn or otherwise terminated after the Separation Time has occurred and prior to the occurrence of a Flip-in Event, the Board of Directors may elect to redeem all the outstanding Rights at the Redemption Price without the consent of the holders of the Voting Shares or the Rights and reissue Rights under this Agreement to holders of record of Voting Shares immediately following such redemption.  Upon the Rights being redeemed and reissued pursuant to this Subsection 5.1(f), all the provisions of this Agreement shall continue to apply as if the Separation Time had not occurred and Rights Certificates representing the number of Rights held by each holder of record of Shares at the Separation Time had not been mailed to each such holder, and for all purposes of this Agreement the Separation Time shall be deemed not to have occurred and the Corporation shall be deemed to have issued replacement Rights to the holders of its then outstanding Shares.

 

	
  

	
(g)

	
If the Board of Directors is deemed under Subsection 5.1(c) to have elected or elects under Subsection 5.1(a) to redeem the Rights, the right to exercise the Rights will thereupon, without further action and without notice, terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price.

 

	
  

	
(h)

	
Within 10 days after the Board of Directors is deemed under Subsection 5.1(c) to have elected or elects under Subsection 5.1(a) or (f) to redeem the Rights, the Corporation shall give notice of redemption to the holders of the then outstanding Rights by mailing such notice to each such holder at his last address as it appears upon the registry books of the Rights Agent or, prior to the Separation Time, on the registry books of the transfer agent for the Voting Shares.  Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made.

 

 

  

- 28 -

  

 

 

	
5.2

	
Expiration

 

No Person will have any rights pursuant to this Agreement or in respect of any Right after the Expiration Time, except in respect of any right to receive cash, securities or other property which has accrued at the Expiration Time and except as specified in Subsections 4.1(a) and 4.1(b) hereof.

 

	
5.3

	
Issuance of New Rights Certificates

 

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

 

	
5.4

	
Supplements and Amendments

 

Notwithstanding any other provision of this Agreement, the Corporation may amend, supplement, vary or rescind any of the provisions of this Agreement and the Rights as may be determined by the Board of Directors in its sole and absolute discretion acting in good faith (whether or not such action would materially adversely affect the interest of the holders of the Rights generally); provided that no such amendment, supplement, variation or deletion shall be made to the provisions of Article 4 except with the written concurrence of the Rights Agent thereto.

 

	
5.5

	
Fractional Rights and Fractional Shares

 

	
  

	
(a)

	
The Corporation will not be required to issue fractions of Rights or to distribute Rights Certificates which evidence fractional Rights. After the Separation Time there shall be paid, in lieu of such fractional Rights, to the registered holders of the Rights Certificates with regard to which fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the Market Price of a whole Right. The Rights Agent shall have no obligation to make any payments in lieu of fractional Rights unless the Corporation shall have provided the Rights Agent with the necessary funds to pay in full all amounts payable in accordance with Subsection 2.2(e).

 

	
  

	
(b)

	
The Corporation shall not be required to issue fractional Shares upon exercise of the Rights or to distribute certificates that evidence fractional Shares. In lieu of issuing fractional Shares, the Corporation shall pay to the registered holder of Rights Certificates at the time such Rights are exercised as herein provided, an amount in cash equal to the same fraction of the Market Price of one Share at the date of such exercise. The Rights Agent shall have no obligation to make any payments in lieu of fractional Shares unless the Corporation shall have provided the Rights Agent with the necessary funds to pay in full all amounts payable in accordance with Subsection 2.2(e).

 

	
5.6

	
Rights of Action

 

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

 

 

  

- 29 -

  

 

 

	
5.7

	
Holder of Rights Not Deemed a Shareholder

 

No holder, as such, of any Rights or Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of Shares or any other securities which may at any time be issuable on the exercise of Rights, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights, as such, any of the rights of a shareholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in Section 5.8 hereof) or to receive dividends or subscription rights or otherwise, until such Rights shall have been exercised in accordance with the provisions hereof.

 

	
5.8

	
Notice of Proposed Actions

 

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

 

	
5.9

	
Notices

 

Notices or demands authorized or required by this Agreement to be given or made to or by the Rights Agent, the holder of any Rights or the Corporation will be sufficiently given or made and shall be deemed to be received if delivered or sent by first class mail, postage prepaid, or by fax machine or other means of printed telecommunication, charges prepaid and confirmed in writing by mail or delivery, addressed (until another address is filed in writing with the Rights Agent or the Corporation, as applicable), as follows:

 

	
(a)

	
if to the Corporation:

	 	 
	  	
CE Franklin Ltd.

	  	
1800, 635 - 8th Avenue S.W.

	  	
Calgary,  AB  T2P 3M3

	 	 
	  	
Attention:     Chief Financial Officer

	 	 
	  	
Facsimile No. (403) 234–7698

	 	 
	
(b)

	
if to the Rights Agent:

	 	 
	  	
Computershare Trust Company of Canada

	  	
600, 530 - 8th Avenue S.W.

	  	
Calgary, AB  T2P 3S8

	 	 
	  	
Attention:     Manager, Corporate & Shareholder Services

	 	 
	  	
Facsimile No.  (403) 267-6529

	 	 
	
(c)

	
if to the holder of any Rights, to the address of such holder as it appears on the registry books of the Rights Agent or, prior to the Separation Time, on the registry books of the Corporation for the Shares.

 

 

  

- 30 -

  

 

 

	
5.10

	
Costs of Enforcement

 

The Corporation agrees that if the Corporation or any other Person the securities of which are purchasable upon exercise of Rights fails to fulfil any of its obligations pursuant to this Agreement, then the Corporation or such Person will reimburse the holder of any Rights for the costs and expenses (including legal fees) incurred by such holder in actions to enforce his rights pursuant to any Rights or this Agreement.

 

	
5.11

	
Regulatory Approvals

 

Any obligation of the Corporation or action or event contemplated by this Agreement shall be subject to applicable law and to the receipt of any requisite approval or consent from any governmental or regulatory authority. Without limiting the generality of the foregoing, any issuance or delivery of debt or equity securities (other than non-convertible debt securities) of the Corporation upon the exercise of Rights and any amendment to this Agreement shall be subject to any required prior consent of the stock exchange(s) on which the Corporation is from time to time listed or has been listed during the six months prior to such amendment.

 

	
5.12

	
Declaration as to Non-Canadian and Non-U.S. Holders

 

If in the opinion of the Board of Directors (who may rely upon the advice of counsel), any action or event contemplated by this Agreement would require compliance with the securities laws or comparable legislation of a jurisdiction outside Canada and the United States of America, its territories and possessions, the Board of Directors acting in good faith may take such actions as it may deem appropriate to ensure that such compliance is not required, including without limitation establishing procedures for the issuance to a Canadian resident Fiduciary of Rights or securities issuable on exercise of Rights, the holding thereof in trust for the Persons entitled thereto (but reserving to the Fiduciary or to the Fiduciary and the Corporation, as the Corporation may determine, absolute discretion with respect thereto) and the sale thereof and remittance of the proceeds of such sale, if any, to the Persons entitled thereto.  In no event shall the Corporation or the Rights Agent be required to issue or deliver Rights or securities issuable on exercise of Rights to Persons who are citizens, residents or nationals of any jurisdiction other than Canada and a province or territory thereof and the United States of America and any state thereof in which such issue or delivery would be unlawful without registration of the relevant Persons or securities for such purposes.

 

	
5.13

	
Successors

 

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

 

	
5.14

	
Benefits of this Agreement

 

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

 

	
5.15

	
Determination and Actions by the Board of Directors

 

All actions, calculations, interpretations and determinations (including all omissions with respect to the foregoing) which are done or made by the Board of Directors pursuant to this Agreement, in good faith, (i) may be relied on by the Rights Agent, and (ii) shall not subject the Board of Directors to any liability to the holders of the Rights or to any other parties.

 

 

  

- 31 -

  

 

	
5.16

	
Governing Law

 

This Agreement and the Rights issued hereunder shall be deemed to be a contract made under the laws of the Province of Alberta and the laws of Canada applicable therein and for all purposes will be governed by and construed in accordance with the laws of such province applicable to contracts to be made and performed entirely within such province.

 

	
5.17

	
Language

 

Les parties aux présentes ont exigé que la présente convention ainsi que tous les documents et avis qui s’y rattachent ou qui en découlent soient rédigés en langue anglaise. The parties hereto have required that this Agreement and all documents and notices related thereto or resulting therefrom be drawn up in English.

 

	
5.18

	
Counterparts

 

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

 

	
5.19

	
Severability

 

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

 

	
5.20

	
Effective Date

 

The Agreement shall be effective as of the Effective Date.  This Agreement must be ratified by a resolution (the "Initial Resolution") passed by separate votes by a majority of the votes cast by Independent Shareholders and a majority of the votes cast by Independent Shareholders and Grandfathered Persons collectively, present in person or represented by proxy, at a meeting of shareholders of the Corporation called to consider the approval of this Agreement as an item of business, provided that such meeting shall be held not later than six months from the Effective Date.  If this Agreement is not so ratified, then this Agreement and any Rights then outstanding shall, without further formality, be of no further force and effect as at the earlier of six month from the Effective Date and the close of the meeting of shareholders at which this Agreement is not so ratified.  If this Agreement is so ratified by the Independent Shareholders, it must be confirmed by a resolution passed by a majority of the votes cast by Independent Shareholders, present in person or represented by proxy, at every third annual meeting of shareholders of the Corporation.  If no such resolution is submitted to any such meeting or a majority of the votes cast by Independent Shareholders present or represented by proxy at any such meeting are not voted in favour of confirming this Agreement, then immediately following the meeting if no such resolution was submitted or upon confirmation by the chair of such meeting of the results of the vote on such resolution, without further formality, this Agreement and all other outstanding Rights shall terminate and be void and of no further force and effect; provided that termination shall not occur if a Flip-in Event has occurred (other than a Flip-in Event in respect of which the application of Section 3.1 has been waived) prior to the date upon which this Agreement would otherwise terminate pursuant to this Section 5.20.

 

	
5.21

	
Time of the Essence

 

Time shall be of the essence hereof.

 

  

- 32 -

  

-  -

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of April 18, 2012.

 

	
CE FRANKLIN LTD.

	 
	 	 	 
	 	 	 
	
Per:

	
(signed) "Michael West"

	 
	  	
Name:   Michael West

	 
	  	
Title:      Chief Executive Officer

	 

 

	
COMPUTERSHARE TRUST COMPANY OF CANADA

	 
	 	 	 
	 	 	 
	
Per:

	
(signed) "Simon Law"

	 
	  	
Name:   Simon Law

	 
	  	
Title:      Relationship Manager

	 
	 	 	 
	 	 	 
	
Per:

	
(signed) "Phillip Munday"

	 
	  	
Name:   Phillip Munday

	 
	  	
Title:      Manager, Client Services

	 

 

  

- 33 -

  

EXHIBIT A

 

Form of Rights Certificate

 

Certificate No.    Rights

 

THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE CORPORATION, ON THE TERMS SET FORTH IN THE SHAREHOLDER RIGHTS PLAN AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SUBSECTION 3.1(b) OF SUCH AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON, CERTAIN RELATED PARTIES OF AN ACQUIRING PERSON OR A TRANSFEREE OF AN ACQUIRING PERSON OR ANY SUCH RELATED PARTIES WILL BECOME VOID WITHOUT FURTHER ACTION.

 

Rights Certificate

 

This certifies that ● is the registered holder of the number of Rights set forth above, each of which entitles the registered holder thereof, subject to the terms, provisions and conditions of the Shareholder Rights Plan Agreement (the "Rights Agreement") made as of April 18, 2012 between CE Franklin Ltd., a corporation existing under the laws of Alberta (the "Corporation") and Computershare Trust Company of Canada, a trust company duly incorporated under the laws of Canada, as Rights Agent (the "Rights Agent"), which term shall include any successor Rights Agent under the Rights Agreement to purchase from the Corporation, at any time after the Separation Time and prior to the Expiration Time (as such terms are defined in the Rights Agreement), one fully paid Share (as defined in the Rights Agreement) at the Exercise Price referred to below, upon presentation and surrender of this Rights Certificate, together with the Form of Election to Exercise appropriately completed and duly executed, to the Rights Agent at its principal office in Calgary. Until adjustment thereof in certain events as provided in the Rights Agreement, the Exercise Price per Right shall be an aggregate dollar amount equal to the Market Price (as defined in the Rights Agreement) per Share (determined as at the Separation Time) multiplied by five (5) (payable by certified cheque, banker’s draft or money order payable to the order of the Rights Agent or by wire transfer to an account designated by the Rights Agent). The number of Shares which may be purchased for the Exercise Price is subject to adjustment as set forth in the Rights Agreement.

 

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

 

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

 

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Rights Certificate may be redeemed by the Corporation at a redemption price of $0.00001 per Right subject to adjustment in certain events.

 

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

 

No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Shares or any other securities which may at any time be issuable upon the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Corporation or any right to vote 

 

 

  

  

  

 

 

for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of any meeting or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights or otherwise, until the Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement.

 

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

 

WITNESS the facsimile signature of the proper officers of the Corporation.

 

Date:

 

	
CE FRANKLIN LTD.

	 
	 	 	 
	 	 	 
	
Per:

	  	 
	  	  	 
	
Per:

	  	 
	  	  	 

 

 

	Countersigned:	 
	 	 
	
COMPUTERSHARE TRUST COMPANY OF CANADA

	 
	 	 	 
	 	 	 
	
Per:

	  	 
	  	
Name:

	 
	  	
Title:

	 

 

  

- 2 -

  

FORM OF ELECTION TO EXERCISE

 

The undersigned hereby irrevocably elects to exercise _________________________ whole Rights represented by this Rights Certificate to purchase the Shares issuable upon the exercise of such Rights and requests that certificates for such Shares be issued in the name of and delivered to:

 

	  
	
Name

	 
	
Address

	 
	
City, Province and Postal Code

	 
	
Social Insurance No. or other taxpayer identification number

 

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

 

	  
	
Name

	 
	
Address

	 
	
City, Province and Postal Code

	 
	
Social Insurance No. or other taxpayer identification number

 

 

  

  

  

 

	
Date:

	  	 	  
	  	  	 	
Signature

	  	  	 	  
	
Signature Guaranteed

	 	

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

 

Signature must be signature guaranteed by a Schedule 1 Canadian chartered bank, a major Canadian trust company or a member of a recognized Medallion Guarantee program.

 

(To be completed by the holder if true)

 

The undersigned hereby certifies and represents, for the benefit of the Corporation and all holders of Rights and Shares, that the Rights evidenced by this Rights Certificate are not and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or by an Affiliate or Associate of an Acquiring Person or any other Person acting jointly or in concert with any of the foregoing (as such terms are defined in the Rights Agreement).

 

	  	  	  
	  	  	
Signature

	  	  	  
	  	  	  
	  	  	
(Please print name below signature)

 

NOTICE

 

In the event that the certification set forth above in the Form of Election to Exercise is not completed, the Corporation shall deem the Beneficial Owner of the Rights represented by this Rights Certificate to be an Acquiring Person (as defined in the Rights Agreement) and, accordingly, such Rights shall be null and void.

 

 

 

 

  

- 2 -

  

 

FORM OF ASSIGNMENT

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

 

(please print name and address of transferee) the Rights represented by this Rights Certificate, together with all right, title and interest therein.

 

 

	
Date:

	  	 	  
	  	  	 	
Signature

	  	  	 	  
	
Signature Guaranteed

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

Signature must be signature guaranteed by a Schedule 1 Canadian chartered bank, a major Canadian trust company or a member of a recognized Medallion Guarantee program.

 

 (To be completed by the assignor if true)

 

The undersigned hereby certifies and represents, for the benefit of the Corporation and all holders of Rights and Shares, that the Rights evidenced by this Rights Certificate are not and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or by an Affiliate or Associate of an Acquiring Person or any other Person acting jointly or in concert with any of the foregoing (as such terms are defined in the Rights Agreement).

 

	  	  	  
	  	  	
Signature

	  	  	  
	  	  	  
	  	  	
(Please print name below signature)

 

NOTICE

 

In the event that the certification set forth above in the Form of Assignment is not completed, the Corporation shall deem the Beneficial Owner of the Rights represented by this Rights Certificate to be an Acquiring Person (as defined in the Rights Agreement) and, accordingly, such Rights shall be null and void.Converted by EDGARwiz

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is made by and between Arrogene NanoTechnology, Inc., a California corporation (the “Company”), and Synthetica (America) Ltd., a California corporation (“Synthetica”), for the personal services of MAURIZIO VECCHIONE (“Executive”) and entered into at Los Angeles, California, effective as of July 21, 2011 (“the Effective Date”). 

RECITALS

A.

As of the Effective Date, the Company has (i) optioned a license for certain patented and patent pending technologies from Cedars Sinai Medical Center (“CSMC”) as set forth in a License Agreement executed by the Company and CSMC on or about December 23, 2009 (“the License Agreement”), for the Company’s use of variant, breakthrough nano-biopolymers capable of acting as a drug delivery and targeting platform for cancer therapies (“the Licensed Technology”); and (ii) engaged the services of key scientific personnel to further develop such technologies for commercial exploitation (collectively the “Business”).

B.

Executive is experienced, generally, in the Company’s Business, and is willing to be employed by the Company in a confidential relationship wherein Executive, in the course of the Executive’s employment with the Company, has and will continue to become familiar with and aware of information as to the Company’s Business, its potential customers and sub-licensees, and the Company’s specific manner of doing business, and future plans with respect thereto, all of which has been and will be established and maintained at great expense to the Company.  This information, except as excluded in section 8(d) herein, is regarded by the Company as non-public, proprietary trade secrets that constitute the valuable goodwill of the Company.

Therefore, in consideration of the mutual promises, terms, covenants and conditions set forth herein and the performance of each, it is hereby agreed as follows:

1.

Employment and Duties.

a.

(a)

The Company hereby employs Executive as Chief Executive Officer of the Company.  As such, Executive shall have the responsibilities, duties and authority customarily appertaining to such office.  In that regard, the Executive shall be responsible, generally, for overall corporate business strategy, strategies for financing the business affairs of the Company, recommending fiscal policies to the Company’s Board of Directors (“the Board”), increasing and maintaining the enterprise value of the Company, and such other duties as may be reasonably assigned to Executive by the Board and which are consistent with such position.  Executive hereby accepts this employment upon the terms and conditions herein contained and, subject to Section 1(c), agrees to devote a sufficient amount of the Executive’s full productive time, attention and efforts during normal business hours to promote and further the Business and interests of the Company and its affiliates.

(b)

Executive shall faithfully adhere to, execute and fulfill all lawful policies established by the Company, to the extent such policies have been communicated to Executive in writing and are not inconsistent with any of the terms of this Agreement.

(c)

Except as set forth on Schedule 1(c) hereto, upon which the Executive shall disclose any and all positions held as an officer of, or advisor, board member or consultant to other business enterprises, Executive shall not, during the term of his employment hereunder, engage in any other business activity pursued for gain, profit or other pecuniary advantage without giving written notice thereof to the Board.  The foregoing limitation shall not be construed as prohibiting Executive from (i) performing personal services as an advisor, member of a board of directors or serving as a consultant, or serving in executive roles, to companies with non-competitive businesses, and (ii) making personal investments in such form or manner as will not violate the terms of Section 3 hereof.  The Company acknowledges that it has been advised that the Executive has other consulting and executive officer roles with other companies as of the Effective Date.  Notwithstanding the preceding provisions of this Section 1(a) through (c), the Executive may devote less than his full productive time and energies to performing the Executive’s duties hereunder so long as such other duties do not conflict with the Executive’s role as Chief Executive Officer of the Company.  If the Board requires the Executive to cease acting as an executive officer of other companies, the Executive may still perform services as an advisor or consultant during non-regular business hours of the Company.   

2.

Compensation.  For all services rendered by Executive, the Company shall compensate Executive as follows:

(a)

Base Compensation.  The Base Compensation payable for the personal services of the Executive during the Term (defined below) shall be an hourly fee of $300.00 per hour expended by the Executive each calendar month up to a maximum of $15,000.00 per calendar month.  At such point in time as the Board, in its absolute and sole discretion, advises the Executive, in writing, that the Board reasonably believes that the needs of the Business require the Executive to devote the Executive’s full time and productive energies to performing services to the Company, then, in such event, the Company and the Executive shall have ninety (90) days, from the date of the Company’s written note, to negotiate, in good faith, a mutually acceptable compensation.  If the Executive declines the request to perform services on a full time basis, or the parties hereto are unable to reach agreement, after mutually negotiating in good faith, on a mutually acceptable compensation arrangement, then after an additional ninety (90) day period, this Agreement shall be deemed null and void upon receipt of a written declination from the Executive, the Executive shall cease rendering services, and the Company may hire another individual to perform the Executive’s duties.  In the event of such declination, the Company shall have no obligation to pay any severance or other termination benefits as provided herein.  

On an annual basis on or before December 1st of each year during the Term, the amount of Base Compensation payable to the Executive shall be reviewed by the Board, and such Base Compensation may, in the sole discretion of the Board, be adjusted at its discretion in light of the Executive’s position, responsibilities, performance and such other factors that the Board deems appropriate; provided, however, as adjusted Base Compensation may not be less than that amount in effect on the Effective Date. 

(b)

Annual Bonus.  The Company will adopt an annual performance bonus plan under which Executive and other key executive officers of the Company will be eligible to receive annual performance bonus awards (i.e., the “Annual Bonus”) in an amount that is comparable to those similar annual performance bonuses paid to senior executives of companies engaged in businesses similar to the Company’s Business, in general, and as determined by the Board in the Board’s 

absolute and sole discretion.  The Annual Bonus payable to the Executive shall not exceed Fifty Percent (50%) of the Base Compensation actually paid for the Executive’s services.  Any portion or all of the Annual Bonus payable for the Executive’s services shall in the form of outright grants of the Company’s common stock subject to (i) such commercially reasonable restrictions as may be imposed by the Board and agreed upon by the Executive, (ii) such grants being made by the Company on or before March 31st of each year during the Term, (iii) the Company’s achievement of milestones or benchmarks established by the Board on or before March 31st of each year for such calendar year, and (iv) the shares so granted shall be at the fair market value of the Company’s common stock as of the option grant date.  As of the Effective Date, the two milestones for calendar year 2011 shall be (x) the Company’s successful completion of an offering of the Company’s common stock with a capital raise of at least $2.0 million and (y) the Company’s exercise of its option for license of the CSMC technology pursuant to the License Agreement.  

(c)

Executive Perquisites and Benefits.  Executive shall be entitled to receive additional benefits and compensation from the Company in such form and to such extent as specified below:

(i)

Reimbursement for all business travel and other out-of-pocket expenses reasonably incurred by Executive in the performance of the Executive’s duties pursuant to this Agreement and in accordance with the Company’s policy for its senior executive officers.  All such expenses shall be appropriately documented in reasonable detail by Executive on a monthly or more frequent basis upon submission of any request for reimbursement, and in a format and manner consistent with the Company’s expense reporting policy.

(ii)

Executive shall be entitled to participate in all incentive compensation plans and to receive all fringe benefits and perquisites offered by the Company or to any of the Company’s other principal executives, including, without limitation, participation in the various employee benefit plans or programs provided to the employees of the Company in general, subject to the regular eligibility requirements with respect to each of such benefit plans or programs, and such other benefits or prerequisites as may be approved for Executive by the Board during the term, all on a basis as favorable to Executive as may be provided or offered to other similar senior executive officers of the Company.

(iii)

Executive shall be entitled to vacation in accordance and in parity with the policies of the Company for its senior executive officers.

(iv)  

Executive shall be entitled to participate in any and all stock option plans and programs and/or similar compensatory arrangements, whether qualified or non-qualified for favorable tax deferred treatment pursuant to the Internal Revenue Code of 1986, as amended, in which other senior executive officers of the Company are entitled to participate.  

3.

Non-Competition Agreement.

(a)

Executive acknowledges that as a consequence of his employment with the Company, he will be furnished or have access to Confidential Information (as defined below).  Executive further recognizes that the Company’s willingness to enter into this Agreement is based in material part on Executive’s agreement to the provisions of this Section 3 and that Executive’s breach of the 

provisions of this Section 3 could materially damage the Company.  Subject to the further provisions of this Agreement, Executive will not, during the Term of his employment with the Company and for a period of one year immediately following the termination of such employment for any reason, directly or indirectly, for the Executive or on behalf of or in conjunction with any other person, company, partnership, corporation or business of whatever nature:

(i)

engage, as an officer, director, shareholder, owner, partner, joint venturer, or in a managerial capacity, whether as an employee, independent contractor, consultant,or advisor, or as a sales representative, whether paid or unpaid, in any business similar in nature or scope to the Business of the Company, and the marketing and/or provision of related services within 50 miles of where the Company or any of subsidiary or sister company of any of the foregoing operated within two (2) years prior to such time (the “Territory”);  

(ii)

call upon any person who is, at such time, an employee of the Company for the purpose or with the intent of enticing such employee away from or out of the employ of the Company; and/or

(iii)

call upon any prospective acquisition candidate, on Executive’s own behalf or on behalf of any competitor in the Business, which candidate was, to Executive’s knowledge after due inquiry, either called upon by the Company or for which the Company made an acquisition analysis, for the purpose of acquiring such entity;

Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit Executive from acquiring as an investment (i) of not more than 5% of the capital stock of a competing business, whose stock is traded on a national securities exchange, the NASDAQ Stock Market or on any over-the-counter or similar market or (ii) not more than 5% of the capital stock (or any interest convertible into such capital stock) of a competing business whose stock is not publicly traded.

(b)

Because of the difficulty of measuring economic losses to the Company as a result of a breach of the foregoing covenant, and because of the immediate and irreparable damage that could be caused to the Company for which it would have no other adequate remedy, Executive agrees that foregoing covenant may be enforced by the Company, in the event of breach by the Executive, by injunctions, restraining orders, and orders of specific performance issued by a court of competent jurisdiction.  Executive further agrees to waive any requirement for the Company’s securing or posting of any bond in connection with such remedies.

(c)

It is agreed by the parties that the foregoing covenants in this Section 3 impose a reasonable restraint on Executive in light of the activities and business of the Company on the date of the execution of this Agreement and the current plans of the Company; but it is also the intent of the Company and Executive that, subject to Section 3(g) hereof, such covenants be construed and enforced in accordance with the changing activities, business and locations of the Company during the term of Executive’s performance of services hereunder, unless Executive was conducting such new business prior to the Company conducting such new business.  For example, if, during the Term, the Company engages in new and different activities, enters a new business or establishes new locations for its current or new activities or business in addition to or other than the activities or business enumerated under the Recitals above or the locations currently established therefor, then, subject to Section 3(g) hereof, through the Term of this covenant Executive will be precluded from soliciting the customers or employees of such new activities or business or from such new location and from directly competing with such new business activities, or locations within 100 miles of 

where such new activities, business or locations are conducted, unless Executive was conducting such new activities or business prior to the Company conducting such new activities or business.

(d)

It is further agreed by the parties hereto that, in the event that Executive shall cease to be employed hereunder and shall enter into a business or pursue other activities not in competition with the Business of the Company in locations the operation of which, under such circumstances, does not violate clause (a)(i) of this Section 3, and in any event such new business, activities or location are not in violation of this Section 3 or of Executive’s obligations under this Section 3, if any, Executive shall not be chargeable with a violation of this Section 3 if the Company shall, at any time after the termination of Executive’s employment, enter the same, similar or a competitive (i) business, (ii) course of activities or (iii) location, as applicable.

(e)

The covenants in this Section 3 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant.  Moreover, in the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent which the court deems reasonable, and the Agreement shall thereby be reformed.

(f)

All of the covenants in this Section 3 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of such covenants. It is specifically agreed that the period of one year (subject to the further provisions of this Agreement) following termination of employment stated at the beginning of this Section 3, during which the agreements and covenants of Executive made in this Section 3 shall be effective, shall be computed by excluding from such computation any time during which Executive is in violation of any provision of this Section 3.

(g)

Notwithstanding anything in this Section 3 to the contrary, this Section 3 shall not operate to prohibit Executive from engaging in activities, directly or indirectly, related to owning, developing or operating any other business activity not competitive with the Company’s Business.

(h)

The Company and the Executive hereby agree that this covenant is a material and substantial part of this transaction. 

4.

Term; Termination; Rights on Termination.  The term of this Agreement shall begin on the Effective Date and continue for three (3) years (the “Initial Term”), unless terminated sooner as herein provided; however, beginning on the third (3rd) anniversary of the Effective Date and on each anniversary thereafter the Term shall automatically continue for one year on the same terms and conditions contained herein in effect as of the time of renewal (the “Extended Term”) unless not less than six months prior to any such anniversary either party shall give written notice to the other party that the term shall not be so extended; provided further, however, upon a Change in Control (as defined in Section 11(d)) during the Initial Term or any Extended Term the term of this Agreement shall automatically continue following such Change in Control for a period equal to the then remaining term or one year, whichever period is longer (such longer period being an Extended Term), unless earlier terminated as provided in Section 11. This Agreement and Executive’s employment may be terminated in any one of the followings ways:

(a)

Death.  The death of Executive shall immediately terminate this Agreement with no severance compensation due Executive’s estate; provided, however, for a ninety (90) day period following Executive’s death, the Company, at its sole cost and expense, shall continue to provide 

Executive’s then qualified beneficiaries with coverage under the Company’s group health plan if and to the extent that the Executive participated immediately prior to his death or a successor plan thereto, subject to the terms of such plan as it may be amended (“Company Health Plan”).  Thereafter, the Company shall provide continuation of coverage elections to such qualified beneficiaries as are required by law.

(b)

Disability.  If Executive becomes entitled to and receives benefits under an insured long term disability plan of the Company (i.e., if the Executive incurs a “Disability”), the Company, with the approval of vote of at least Sixty Percent (0%) of the then existing members of the Board, may terminate this Agreement and Executive’s services hereunder.  In the event this Agreement is terminated as a result of Executive’s Disability, Executive shall be entitled to receive the following compensation: 

(i)  

for six (6) months following the date upon which there is made a determination that the Executive has suffered a permanent disability (of either a physical or psychologic nature) that prevents the Executive from performing the Executive’s normal, full corporate duties (“the Determination”), then thereafter or until his death, if earlier, the Company shall continue to pay Executive an amount equal to his monthly base salary at the time of his termination, reduced by any monthly benefits payable to Executive under any long term disability plan maintained by the Company which provides benefits to the Executive; and,

(ii) 

the Company, at its sole cost and expense, shall continue the coverage of the Executive and his qualified beneficiaries (assuming the Executive was provided coverage and for as long as they are qualified beneficiaries thereunder) under the Company’s Health Plan for as long as Executive continues to qualify for and receive benefits under such plan, but not to exceed three (3) years; and (ii) for an additional six (6) calendar months, the Company shall pay to the Executive fifty percent (50%) of the Executive’s then prevailing monthly base compensation.  Thereafter, the Company shall provide COBRA elections to Executive and his qualified beneficiaries as required by law.

(iii)

During the first six (6) months of any period of disability, the Executive shall be entitled to receive the full amount of any earned or accrued incentive compensation otherwise payable as of the date of the Determination.

(c)

Cause.  The Company may terminate this Agreement and Executive’s services thirty (30) days after written notice to Executive for “Cause”, which shall be deemed to have occurred upon: (i) Executive’s willful and material breach of this Agreement (which remains uncured at the end of such 30-day period); (ii) the Executive’s gross negligence in the performance or intentional nonperformance (in either case continuing for 30 days after receipt of written notice of need to cure) of any of Executive’s material duties and responsibilities hereunder; (3) a good faith determination by the Board of the Executive’s dishonesty or fraud with respect to the business, reputation or affairs of the Company which materially and adversely affects the Company (monetarily or otherwise); or (4) the Executive’s conviction of a felony crime involving moral turpitude.  Any termination for Cause must be approved by a vote of at least Eighty Percent (80%) of the members of the Company’s Board.  For purposes hereof, no act, or failure to act, on Executive’s part shall be deemed “willful” unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive’s action or omission was in the best interest of the Company.  Notwithstanding the 

foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the Board, finding that in the good faith opinion of the Board that the Executive was guilty of conduct set forth above and specifying the particulars thereof in detail.  In the event of a termination for Cause, Executive shall have no right to any severance compensation.  The services to be furnished by the Executive hereunder and the rights and privileges granted to the Company by the Executive are of a special, unique, unusual, extraordinary, and intellectual character which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in any action at law, and a breach by the Executive of any of the provisions contained herein will cause the Company irreparable injury and damage. The Executive expressly agrees that the Company shall be entitled to seek injunctive and other equitable relief to prevent a breach of this Agreement by the Executive. Resort to such equitable relief, however, shall not be construed as a waiver of any preceding or succeeding breach of the same or any other term or provision. The various rights and remedies of the Company hereunder shall be construed to be cumulative and no one remedy shall be exclusive of any other or of any right or remedy allowed by law.

(d)

Without Good Reason.  Executive may, without Good Reason (as hereinafter defined), terminate this Agreement and Executive’s employment, effective ninety (90) days after written notice is provided to the Company.  If Executive resigns or otherwise terminates his employment without Good Reason, Executive shall receive no severance compensation.

(e)

Without Cause or for Good Reason.  Executive may only be terminated Without Cause, except in the case of Disability, during either the Initial Term or Extended Term if such termination is approved by a vote of at least Eighty Percent (80%) of the members of the Company’s Board of Directors.  Should Executive be terminated by the Company without Cause, except in the case of Disability, or should Executive elect to terminate this Agreement with Good Reason during the first twenty four (24) months of the Initial Term, so long as the Executive is then providing the Executive’s full productive time and energies to the Company and is being paid the full amount of Base Compensation payable pursuant to Section 2(a) above, the Executive shall receive from the Company, in a lump sum payment due on the effective date of termination, an amount equal to twelve (12) monthly payments of the Base Compensation then payable pursuant to Section 2(a), and/or if such termination without Cause occurs after the initial 24 months of the Term, then Synthetica shall be entitled to a payment in an amount equal to six (6) monthly payments of the Base Compensation then payable pursuant to Section 2(a).  Further, any termination by the Company without Cause or due to Disability or by Executive for Good Reason shall operate to shorten the period set forth in Section 3(a) and during which the terms of Section 3 shall apply to one year from the date of termination of employment.  

Executive shall have “Good Reason” to terminate this Agreement and the Executive’s obligation to perform services hereunder as a consequence of any of the following events: (a) a material reduction in his authority, title, responsibilities or duties; (b) the relocation of the Company’s principal executive offices to a location outside the Los Angeles Metropolitan area; (c) the assignment to Executive of any duties or responsibilities which are materially inconsistent with Executive’s title, position or responsibilities as in effect immediately prior to such assignment; (d) the failure by the Company to continue in effect any employee benefit plan in which Executive participates and/or any perquisite provided Executive, which is (are) material to Executive’s total compensation and benefits, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or perquisite, or the failure by the Company to continue 

Executive’s participation therein, or any action by the Company which would materially reduce Executive’s participation therein or reward opportunities thereunder; (e) the failure of the Company to obtain a satisfactory agreement from any successor or assign of the Company to assume and agree to perform this Agreement, as contemplated in Section 10; or (f) a material breach of this Agreement by the Company; provided, however, Good Reason shall exist with respect to a matter only if such matter is not corrected by the Company within 30 days of its receipt of written notice of such matter from Executive.

(f)

Earned Payments and Vested Rights.  Upon termination of this Agreement for any reason provided in (d) or (e) above, in addition to the above payments, if any, Executive shall be entitled to receive all compensation earned, accrued vacation and reimbursements due through the effective date of termination, paid to Executive in a lump sum on the effective date of termination.  In addition, a termination of this Agreement shall not alter or impair any of Executive’s vested rights or benefits, if any, under any (i) employee benefit plan of the Company or (ii) deferred compensation plan, including, without limitation, any stock option plan, of the Company.  All other rights and obligations of the Company and Executive under this Agreement shall cease as of the effective date of termination, except that Executive’s obligations under Sections 3, 5, 6, 7, and 8 herein and the Company’s obligations pursuant to Section 14 shall survive such termination in accordance with their terms, unless or except as expressly provided otherwise in this Agreement.

(g)  

Non-Solicitation.  In the event of termination of this Agreement, the Executive will not, for a period of three (3) years thereafter, directly or indirectly, induce or attempt to induce or solicit any managerial, administrative, sales or supervisory employee of the Company or any of its affiliates to render services to any other person, firm or corporation.

5.  

Return of Company Records.  All records, designs, patents, business plans, financial statements, manuals, memoranda, lists and other property delivered to or compiled by Executive by or on behalf of the Company or its representatives, vendors or customers which pertain to the business of the Company shall be and remain the property of the Company, as the case may be, and be subject at all times to their discretion and control.  Likewise, all correspondence, reports, records, charts, advertising materials and other similar data pertaining to the business, activities or future plans of the Company which is collected by Executive shall be delivered promptly to the Company without request by it upon termination of Executive’s employment and Executive shall not retain any copies of the same.

6.

Intellectual Property.  Executive acknowledges that the relationship between the parties hereto is exclusively that of employer and employee and that the Company’s obligations to the Executive are exclusively contractual in nature. Executive shall disclose promptly to the Company any and all conceptions, ideas, designs, plans, know-how, processes, improvements and other discoveries, whether patentable or not, which (i) are conceived or made by Executive, solely or jointly with another, during the period of employment or thereafter, (ii) are directly related to the Business or activities of the Company, and (iii) Executive conceives as a result of the Executive’s employment by the Company, including any predecessor (collectively, the “Intellectual Property”).  The Company shall be the sole owner of all the fruits and proceeds of the Executive’s services hereunder, all of which shall be deemed ‘work for hire’, including, but not limited to, all ideas, concepts, formats, suggestions, developments, arrangements, designs, packages, programs, promotions and other intellectual properties which the Executive may create in connection with and during the term of this Agreement, free and clear of any claims by the Executive (or any third party claims) of any kind or character whatsoever (other than the Executive’s right to compensation 

hereunder).   The Executive shall, at the request of the Company, execute such assignments, certificates or other instruments as the Company may from time to time deem necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend its right, title and interest in or to any such properties.  Executive hereby assigns and agrees to assign all the Executive’s interests therein to the Company or its nominee.  Executive must also render to the Company, at the Company’s expense, assistance in the perfection, enforcement and defense of any Intellectual Property.    In conjunction with the preceding provisions of this Section, the Executive shall execute and deliver that certain Non-Disclosure and Inventions Agreement attached hereto as Exhibit “A”.

7.

Trade Secrets.  All memoranda, notes, records and other documents made or compiled by the Executive, or made available to the Executive during the term of this Agreement or subsequently during any at will employment period concerning the business of the Company or its affiliates shall be the Company’s property and shall be delivered to the Company on the termination of this Agreement or at any other time on request. The Executive understands and agrees that in the course of employment with the Company, the Executive may obtain access to and/or acquire Confidential Information (as defined in Section 8 below), all of which information the Executive understands and agrees would be extremely damaging to the Company if disclosed to a competitor or made available to any other person or corporation. As used herein the term “competitor” includes, but is not limited to, any corporation, firm or business engaged in a business similar to that of the Company or its affiliate or subsidiary companies. The Executive understands and agrees that such information is divulged to the Executive in confidence and the Executive understands and agrees that, at all times, the Executive shall keep in confidence and will not disclose or communicate Confidential Information or any other secrets and confidential information on the Executive’s own behalf, or on behalf of any competitor, if such information is not otherwise publicly available, unless disclosure is made pursuant to written approval by the Company or is required by law. In view of the nature of the Executive’s employment and information which the Executive may receive during the course of the Executive’s performing services hereunder, the Executive likewise agrees that the Company would be irreparably harmed by any violation of this Agreement and that, therefore, the Company shall be entitled to seek an injunction prohibiting the Executive from any violation or threatened violation of this Agreement.

8.

Confidentiality.  

(a)

Executive acknowledges and agrees that all Confidential Information (as defined below) of the Company is confidential and a valuable, special and unique asset of the Company that gives the Company an advantage over its actual and potential, current and future competitors.  Executive further acknowledges and agrees that Executive owes the Company a fiduciary duty to preserve and protect all Confidential Information from unauthorized disclosure or unauthorized use, that certain Confidential Information constitutes “trade secrets” under applicable laws and, that unauthorized disclosure or unauthorized use of the Confidential Information would irreparably injure the Company.

(b)

Both during the Term and after the termination of Executive’s services for any reason (including wrongful termination), Executive shall hold all Confidential Information in strict confidence, and shall not use any Confidential Information except for the benefit of the Company, in accordance with the duties assigned to Executive.  Executive shall not, at any time (either during or after the term of Executive’s employment), disclose any Confidential Information to any person or 

entity (except other employees of the Company who have a need to know the information in connection with the performance of their employment duties, and who have been informed of the confidential nature of the confidential information and have agreed to keep it confidential), or copy, reproduce, modify, transmit, including electronic transmission, decompile or reverse engineer any Confidential Information, or remove any Confidential Information from the Company’s premises, without the prior written consent of the Board, or permit any other person to do so.  Executive shall take reasonable precautions to protect the physical security of all documents and other material containing Confidential Information (regardless of the medium on which the Confidential Information is stored).  This Agreement applies to all Confidential Information, whether now known or later to become known to Executive.

(c)

Upon the termination of this Agreement with the Company for any reason, and upon written request of the Company at any other time, Executive shall promptly surrender and deliver to the Company all documents and other written material of any nature containing or pertaining to any Confidential Information and shall not retain any such document or other material.  Within ten days of any such written request, Executive shall certify to the Company in writing that all such materials have been returned.

(d)

As used in this Agreement, the term “Confidential Information” shall mean any information or material known to or used by or for the Company (whether or not owned or developed by the Company and whether or not developed by Executive) that is not generally known to persons in the Business.  Confidential Information includes, but is not limited to, the following: all trade secrets of the Company; all information that the Company has marked as confidential or has otherwise described to Executive (either in writing or orally) as confidential; all non-public information concerning the Company’s website, services, prospective products or services, research, product designs, prices, product costs, marketing plans, marketing techniques, market studies, test data, customers, customer lists and records, suppliers and contracts; all of the Company’s business records and plans; all of the Company’s personnel files; all financial information of or concerning the Company; all information relating to operating system software, application software, software and system methodology, hardware platforms, technical information, inventions, computer programs and listings, source codes, object codes, copyrights and other intellectual property; all technical specifications; any proprietary information belonging to the Company; all computer hardware or software manuals; all training or instruction manuals; and all data and all computer system passwords and user codes.  For purposes hereof, Confidential Information shall not include such information (i) which becomes or is already known to the public through no fault of Executive; or (ii) the disclosure of which (x) is required by law (including regulations and rulings) or the order of any competent governmental authority or (y) Executive reasonably believes is required in connection with the defense of a lawsuit against Executive, provided that in either case, prior to disclosing any information, Executive shall give prior written notice thereof to the Company and provide the Company with the opportunity to contest such disclosure.

(e)

Employee agrees that the Employee will not undertake planning for or organization of any business activity competitive with Employer's business or combine or join with other employees or representatives of Employer's business for the purpose of organizing any such competitive business activity.

9.

No Prior Agreements.   Executive hereby represents and warrants to the Company that the execution of this Agreement by Executive and the Employee’s employment by the Company and the performance of the Executive’s duties hereunder will not violate or be a breach of any agreement, 

including any non-competition agreement, invention or secrecy agreement, with a former employer, client or any other person or entity.  Further, Executive agrees to indemnify the Company for any loss, including, but not limited to, reasonable attorneys’ fees and expenses, the Company may incur based upon or arising out of Executive’s breach of this Section 9.

10.

Assignment; Binding Effect.  Executive understands that he has been selected for employment by the Company on the basis of his personal qualifications, experience and skills.  Executive agrees, therefore, that neither Synthetica nor the Executive shall assign all or any portion of the Executive’s obligations of performance pursuant to this Agreement.  Subject to the preceding two sentences and the express provisions of Section 12 below, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective heirs, legal representatives, successors and assigns.  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and assets of the Company to expressly assume and agree in writing reasonably satisfactory to Executive to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  Failure of the Company to obtain such written agreement prior to the effectiveness of any such succession shall be a material breach of this Agreement.

11.

Change in Control.

(a)

In the event a Change in Control is initiated or occurs during the Initial Term or an Extended Term, then the provisions of this Section 11 shall be applicable.

(b)

If, on or within two (2) years following the effective date of a Change in Control the Company terminates Executive’s employment other than for Cause or Disability or Executive terminates his employment for Good Reason, or if Executive’s employment with the Company is terminated by the Company within three months before the effective date of a Change in Control and it is reasonably demonstrated that such termination (i) was at the request of a third party that has taken steps reasonably calculated to effect a Change in Control, or (ii) otherwise arose in connection with or anticipation of a Change in Control, then Executive shall receive from Company, the greater of (A) a lump sum payment due on the effective date of termination, equal to twelve (12) months’ Base Compensation payable pursuant to Section 2(a) above at the rate then in effect, or (B) the base salary for whatever period is then remaining on the Initial Term or the Extended Term, as the case may be, which payment shall be in lieu of any amounts otherwise payable pursuant to Section 4(d).

(c)

A “Change in Control” shall be deemed to have occurred if:

(i)

any person, entity or group (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Act”), other than the  Company or an employee benefit plan of the Company, acquires, directly or indirectly, the beneficial ownership (as defined in Section 13(d) of the Act) of any voting security of the Company, and immediately after such acquisition such person, entity or group is, directly or indirectly, the beneficial owner of voting securities representing 40% or more of the total voting power of all of the then outstanding voting securities of the Company entitled to vote generally in the election of directors;

(ii)

upon the first purchase of common stock of the Company pursuant to a tender 

or exchange offer (other than a tender or exchange offer made by the Company);

(iii)

the stockholders of the Company shall approve a merger, consolidation, recapitalization or reorganization of the Company, or a reverse stock split of outstanding voting securities, or consummation of any such transaction if stockholder approval is not obtained, other than any such transaction which would result in at least 75% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction being beneficially owned by the holders of all of the outstanding voting securities of the Company immediately prior to the transactions with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction;

(iv)

the stockholders of the Company shall approve a plan of complete liquidation or dissolution of the Company, or an agreement for the sale or disposition by the Company of all or substantially all of its respective assets; 

(v)

if, at any time during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of the Company cease for any reason to constitute at least a majority thereof, unless the election or nomination for the election by the Company’s stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period;

(vi)

any person, entity or group (as such terms are defined in Sections 13(d) and 14(d)(2) of the Act), other than the Company or an employee benefit plan of the Company, acquires, directly or indirectly, the beneficial ownership (as defined in Section 13(d) of the Act) of any voting security of the Company and immediately after such acquisition such person, entity or group is, directly or indirectly, the beneficial owner of voting securities representing 50% or more of the total voting power of all of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; or 

(vii)

the Company merges or consolidates with or into, or sells all or substantially all of its assets to, a person, entity or group, the Company or an employee benefit plan of the Company.

(d)

Notwithstanding anything in this Agreement to the contrary, a termination pursuant to Section 11(b) shall operate to automatically waive in full the non-competition restrictions imposed on Executive pursuant to Section 3.  Additionally, the Company’s contemplated exchange of shares for the outstanding common stock of SRKP, Inc., a Delaware corporation, shall not be deemed to constitute a “Change of Control” for purposes of this Agreement.

(e)

If it shall be determined that any payment made or benefit provided to Executive in connection with a change in control (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), or any successor thereto) of the Company occurring after the Effective Date and on or before the termination of this Agreement, whether or not made or provided pursuant to this Agreement, is subject to the excise tax imposed by Section 4999 of the Code, the Company shall pay Executive an amount of cash (the “Additional Amount”) such that the net amount received by Executive after paying all applicable taxes on such Additional Amount and any penalties, interest and other reasonable costs incurred as a result of such excise tax or additional payment, shall be equal to the amount that Executive would have received if Section 4999 were not applicable.

12.

No Mitigation or Offset.  Executive shall not be required to mitigate the amount of any Company payment provided for in this Agreement by seeking other employment or otherwise.  The amount of any payment required to be paid to Executive by the Company pursuant to this Agreement shall not be reduced by any amounts that are owed to the Company by Executive, provided that Executive executes and delivers to the Company a promissory note evidencing a promise by Executive to pay the full amount of any amounts owed to the Company within 12 months from the date of Executive’s termination of employment.

13.

Release.  Notwithstanding anything in this Agreement to the contrary, Executive shall not be entitled to receive any severance payments pursuant to Sections 4 or 11 of this Agreement unless Executive has executed (and not revoked) a general release of all claims Executive may have against the Company and its affiliates in a form of such release reasonably acceptable to the Company.

14.

Insurance; Indemnification.  The Company agrees to obtain and maintain a policy of directors and officers insurance as part of the Company’s general comprehensive business liability insurance with a policy limit of not less than One Million Dollars ($1.0 million) and provide a certificate of insurance evidencing the existence of such coverage to the Executive.  In the event Executive is made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by the Company against Executive), by reason of the fact that he is or was performing services under this Agreement or as an executive officer of the Company prior to the date of this Agreement, then the Company shall indemnify Executive against all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, as actually and reasonably incurred by Executive in connection therewith.  In the event that both Executive and the Company are made a party to the same third-party action, complaint, suit or proceeding, the Company agrees to engage competent legal representation, and Executive agrees to use the same representation, provided that if counsel selected by the Company shall have a conflict of interest that prevents such counsel from representing Executive, Employee may engage separate counsel and the Company shall pay all reasonable attorneys’ fees and reasonable expenses of such separate counsel.  Further, while Executive is expected at all times to use his best efforts to faithfully discharge his duties under this Agreement, Executive cannot be held liable to the Company for errors or omissions made in good faith where Executive has not exhibited gross, willful and wanton negligence and misconduct nor performed criminal and fraudulent acts which materially damage the business of the Company.  The Company shall indemnify Executive against and hold Executive harmless from any costs, liabilities, losses and exposures for Executive’s services as an employee, officer and director of the Company (or any successor) to the maximum extent permitted under applicable law.

15.

Complete Agreement. This Agreement supersedes, and replaces in full, all representations, understandings and agreements (oral or written) between Executive and the Company or any subsidiary of the Company or any of their officers, directors or representatives existing as of the Effective Date and covering the same subject matter as this Agreement.  This written Agreement is the final, complete and exclusive statement and expression of the agreement between the Company and Executive and of all the terms of this Agreement, and it cannot be varied, contradicted or supplemented by evidence of any prior or contemporaneous oral or written agreements.  This written Agreement may not be modified after the Effective Date except by a further writing signed by a duly authorized officer of the Company and Executive, and no term of this Agreement may be waived except by writing signed by the party waiving the benefit of such term.  Without limiting the generality of the foregoing, either party’s failure to insist on strict compliance with this Agreement 

shall not be deemed a waiver thereof.

16.

Notice.   Whenever any notice is required hereunder, it shall be given in writing addressed as follows:

To the Company:

The Board of Directors

Attn: Chairman of the Board

5777 W. Century Blvd. Ste. 360

Los Angeles, Calif. 90045

To Executive:

Notice shall be deemed given and effective on the earlier of three days after the deposit in the U.S. mail of a writing addressed as above and sent first class mail, certified, return receipt requested, or when actually received.  Either party may change the address for notice by notifying the other party of such change in accordance with this Section 16.

17.

Severability; Headings.  If any portion of this Agreement is held invalid or inoperative, the other portions of this Agreement shall be deemed valid and operative and, so far as is reasonable and possible, effect shall be given to the intent manifested by the portion held invalid or inoperative.  The paragraph headings herein are for reference purposes only and are not intended in any way to describe, interpret, define or limit the extent or intent of the Agreement or of any part hereof.

18.

Dispute Resolutions. Except with respect to injunctive relief as provided in Section 3(b), neither party shall institute a proceeding in any court or administrative agency to resolve a dispute between the parties before that party has sought to resolve the dispute through direct negotiation with the other party.  If the dispute is not resolved within two weeks after a demand for direct negotiation, the parties shall attempt to resolve the dispute through mediation.  If the parties do not promptly agree on a mediator, the parties shall request the Association of Attorney Mediators in Los Angeles, California to appoint a mediator with specific experience in matters involving employment law in California.  If the mediator is unable to facilitate a settlement of the dispute within a reasonable period of time, as determined by the mediator, the mediator shall issue a written statement to the parties to that effect and any unresolved dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Los Angeles, California in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect.  The arbitrators shall have the authority to order back-pay, severance compensation, vesting of options (or cash compensation in lieu of vesting of options), reimbursement of costs and expenses, including those incurred to enforce this Agreement, including reasonable attorneys’ fees, and interest thereon.  A decision by a majority of the arbitration panel shall be final and binding.  Judgment may be entered on the arbitrators’ award in any court having jurisdiction.

19.

Governing Law.  This Agreement shall in all respects be construed according to the laws of the State of California without regard to its conflicts of law provisions.

20.

Counterparts.  This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument.

21.

Attorneys Fees.  If any legal action arises under this Agreement or because of any asserted breach of it, the prevailing party shall be entitled to recover all costs and expenses, including reasonable attorney fees as an element of costs, incurred in enforcing or attempting to enforce any of the terms, covenants, or conditions, including costs incurred prior to commencement of legal action, and all costs and expenses, including reasonable attorney fees, incurred in any appeal from an action brought to enforce any of the terms, covenants, or conditions.

22.

Binding Upon Successors.  All agreements, covenants, conditions and provisions of this Agreement shall apply to and bind the heirs, successors and assigns of all parties hereto.

23.

Captions.  The captions or headings at the beginning of each section hereof are for the convenience of the parties only and are not a part of this Agreement.

24.

Amendment.  This Agreement can be modified or rescinded only in writing expressly referring to this Agreement and signed by all of the parties.

25.

Invalidity of Provisions.  Every provision of this Agreement is intended to be severable.  In the event that any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable, then to the extent possible all other provisions shall nonetheless remain in full force and effect.

26.

Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one and the same instruments.

27.

Waiver.  No consent or waiver, expressed or implied, by either party to or of any breach or default by the other in the performance by the other of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such other party of the same or any other obligations of such party hereunder.  Failure on the part of either party to complain of any act or failure to act of any of the other party, or to declare the other party in default, irrespective of how long such failure continues, shall not constitute a waiver of such party of its rights hereunder. 

28. 

Survival of Representations.  The covenants of the Executive set forth herein shall survive the termination of this Agreement.  

29.  

Assignment.  In the event of the merger or consolidation of the Company with any other corporation or corporations, the sale by the Company of a major portion of its assets or of its business and good will, or any other corporate reorganization involving a change in voting control of the Company, this Agreement may be assigned and transferred to such successor in interest as an asset of the Company upon such assignee assuming the Company’s obligations hereunder, in which event Executive agrees to continue to perform Executive’1s duties and obligations according to the terms hereof, to or for such assignee or transferee of this Agreement. Executive shall not have any right to delegate or transfer any duty or obligation to be performed by Executive hereunder to any third party, nor to assign or transfer the right, if any, to receive payments hereunder.

30.  

Force Majeure.  The Company shall not be liable for any damages, including, without limitation, incidental and consequential damages, arising out of the a party’s failure to perform any obligation or duty hereunder if: (i) such failure was due to circumstances beyond the party’s control, 

including, without limitation, acts of God, labor disputes (including work stoppages), wars or other civil conflicts, civil disorders and any adverse changes in the political, economic or social conditions in the United States (each occurrence of such circumstances shall be deemed a “Force Majeure Event”); and (ii) that the Company could not be reasonably expected to have avoided or overcome the circumstances or the consequences of such Force Majeure Event. 

[Signature page to follow.]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective for all purposes as of the Effective Date.

Arrogene NanoTechnology, Inc.

A California Corporation

By: __/s/ Bob Stuckelman_____

Bob Stuckelman

Chairman of the Board

Synthetica (America) Ltd.

A California corporation

For the services of:

__/s/ Maurizio Vecchione______

Maurizio Vecchione

“Executive”

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