Document:

Settlement
      Agreement

     

    This
      Settlement Agreement (the “Agreement”),
      dated
      as of May 10, 2006 (the ”Effective
      Date”),
      is
      made by and between, on the one hand, Dana Corporation (“DC”),
      Torque-Traction Manufacturing Technologies, Inc. (“TTM”)
      and
      Dana Heavy Axle Mexico, S.A. de C.V. (“DHAM”)
      (collectively, “Dana”);
      and,
      on the other hand, Sypris Solutions, Inc. (“SS”),
      Sypris Technologies, Inc. (“ST”),
      Sypris Technologies Marion, LLC (“STM”)
      and
      Sypris Technologies Mexico, S. de R.L. de C.V. (“STMex”)
      (collectively, “Sypris”,
      collectively with Dana, the “Parties”).

     

    Recitals

     

    
      	
              A.

            	
              On
                March 3, 2006 (the “Petition
                Date”),
                DC, TTM and 39 of their affiliates (collectively, the ”Debtors”)
                filed petitions for relief under chapter 11 of title 11 of the United
                States Code (the “Bankruptcy
                Code”)
                in the United States Bankruptcy Court for the Southern District of
                New
                York (the “Bankruptcy
                Court”).
                The Debtors’ chapter 11 cases (collectively, the “Chapter 11
                Cases”)
                are being jointly administered under Case Number 06-10354 (BRL).
                DHAM and
                various other non-U.S. subsidiaries and affiliates of DC have not
                filed
                petitions for relief under chapter 11 of the Bankruptcy Code, nor
                commenced any similar or ancillary insolvency or reorganization
                proceedings.

            

    

     

    
      	
              B.

            	
              Before
                the Petition Date, Dana and Sypris entered into the various agreements
                listed on Exhibit 1 hereto, pursuant to which,
                inter alia,
                Sypris agreed to sell to Dana and Dana agreed to purchase from Sypris
                various automotive parts required by Dana in connection with its
                ongoing
                business operations. In addition, in connection with the manufacture
                of
                parts by Sypris for Dana, certain of the agreements listed on
                Exhibit 1 required Sypris to purchase from Dana certain raw
                materials, component parts and subassemblies (collectively, the
                “Materials”).

            

    

     

    
      	
              C.

            	
              As
                of December 15, 2005, Dana and Sypris entered into a Temporary
                Payment Assurances Agreement (the “Temporary Payment Agreement” and,
                together with the agreements identified on Exhibit 1, the
                “Agreements”),
                which, inter
                alia,
                modified certain payment terms and conditions of the Marion Supply
                Agreement, the Morganton Supply Agreement, and the Toluca Supply
                Agreement
                (collectively and as previously amended from time to time, the
                “Supply
                Agreements”)
                and established procedures to ensure Dana’s compliance with its
                obligations under the Supply Agreements and remedies in favor of
                Sypris in
                the event of further defaults by Dana under either the Supply Agreements
                and/or the Temporary
                Payment Agreement.

            

    

     

    
      	
              D.

            	
              Sypris
                ceased shipping goods to Dana on March 2, 2006, claiming that Dana
                was
                insolvent, had repudiated the terms of the Temporary Payment Agreement
                and
                had defaulted with respect to its obligations under the Supply Agreements
                and the Temporary Payment Agreement. As a result of such alleged
                defaults,
                Sypris suspended further shipments of Parts (as defined in the Agreements)
                to Dana on credit. Sypris further alleged that Dana was thereafter
                required to pay for any Parts on a “cash before delivery” basis. Dana
                denied that it was in default under the Temporary Payment Agreement
                or
                that it was obligated to pay for any Parts on a “cash before delivery”
                basis.

            

    

     

    
      	
              E.

            	
              In
                each case subject to reconciliation, in amounts which, as reflected
                in
                Schedule A attached herewith, the Parties do not reasonably expect
                to be
                in material dispute, the Parties acknowledge that (i) Dana is indebted
                to
                Sypris in the amount of $21,859,236 for certain Parts delivered to
                Dana
                prior to the Petition Date, exclusive of any other
                claims

            

    

     

    
      
         

        ATI-2216226v3

         

      

      
         

        
          

        

      

      
         

      

    

    which
      Sypris may have (“Trade Payables”), (ii) Sypris is indebted to Dana in the
      amount of $12,311,434 for certain Materials purchased by Sypris prior to the
      Petition Date (the “Offsets”), (iii) the net amount of the Trade Payables less
      the Offsets is $9,547,802 (the “Net Payables”), while (iv) $10,525,265 of the
      Trade Payables represents the price of certain Parts sold within the 20 days
      prior to the Petition Date (including Parts sold to Dana’s plants in the U.S.
      under the Marion, Morganton or Toluca Supply Agreements) for which Sypris is
      entitled to an administrative expense claim in accordance with section 503(b)(9)
      of the Bankruptcy Code (the “Twenty Day Claim”). 

     

    
      	
              F.

            	
              On
                March 6, 2006, the Debtors filed a Notice of Repudiating Vendor with
                the Bankruptcy Court concerning Sypris, alleging that Sypris had
                refused
                to sell Parts to Dana as required pursuant to the Agreements and,
                in
                connection with its hearing on various “first day” motions in the
                Chapter 11 Cases, the Debtors made an oral application to the
                Bankruptcy Court seeking to compel Sypris to perform under the Agreements
                and to supply Dana with Parts on 45-day credit terms, including Parts
                ordered from Sypris by DHAM (the “Oral
                Application”).

            

    

     

    
      	
              G.

            	
              Sypris
                has maintained and alleged in response to the Oral Application that,
                following commencement of the Chapter 11 Cases, the applicable
                payment terms due from Dana to Sypris under the Agreements should
                continue
                to be those in effect before the filing of the Chapter 11 cases,
                which
                Sypris believes to have been cash before delivery, payable weekly.
                Dana
                asserts that such terms were 45 days ACH, payable
                daily.

            

    

     

    
      	
              H.

            	
              In
                response to the Oral Application and in order to ensure that Dana
                had a
                supply of Parts essential for its continued business operations
                immediately subsequent to the commencement of the Bankruptcy Cases,
                the
                Parties agreed to the entry of a temporary restraining order,
                which,
                inter alia,
                provided for Sypris to supply Dana with Parts on 45-day credit terms
                pending a preliminary hearing with respect to a further injunction
                requiring performance by the Parties under the Agreements on 45-day
                credit
                terms.

            

    

     

    
      	
              I.

            	
              On
                March 9, 2006, the Debtors initiated, but did not serve, an adversary
                proceeding against Sypris in the Bankruptcy Court, identified as
                Adversary
                Proceeding No. 06-01337 (brl) (the “Adversary
                Proceeding”),
                seeking injunctive relief as originally requested in the Oral
                Application.

            

    

     

    
      	
              J.

            	
              To
                avoid the risks and costs that necessarily would be attendant in
                connection with a hearing on the Oral Application and the continued
                prosecution of the Adversary Proceeding, the Parties have agreed
                to
                resolve their disputes with respect to these matters without further
                litigation and pursuant to the terms and conditions set forth
                herein.

            

    

     

    Agreement

     

    In
      consideration of the foregoing recitals and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      Dana and Sypris agree that the following terms will govern performance under
      the
      Agreements:

     

    1. Credit
      Terms.

     

    a. Commitment
      for Continued Supply of Parts and Materials.
      ST, STM
      and STMex each agree to continue to sell Parts to DC, TTM and DHAM, as
      applicable, and DC, TTM and DHAM each agree to buy all of their Requirements
      (as
      defined in the Agreements) for

     

    
      
         

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    Parts
      from Sypris, pursuant to those Supply Agreements to which each of the foregoing
      is a party, respectively. DC, TTM and DHAM further agree to sell to each of
      ST,
      STM and STMex the Materials required in connection with its production of such
      Parts, pursuant to the terms and conditions of the Supply Agreements, except
      as
      otherwise provided for herein. Each of the Parties to any Supply Agreement
      is
      and shall remain jointly and severally liable with its co-Parties thereunder.
      

     

    b. Length
      of Credit. Dana
      shall pay each invoice for Parts sold and delivered by Sypris’ plants located in
      the US to Dana subsequent to the Petition Date via ACH transfer within 44 days
      from the date of issuance of any such invoice, without any offset or deduction
      for Materials or otherwise (except for ordinary course deductions for the price
      of nonconforming Parts and invoicing errors). Dana shall pay each outstanding
      invoice for Parts sold and delivered by Sypris’ plant located in Mexico to Dana
      subsequent to the Petition Date via ACH transfer within 20 days from the date
      of
      any such invoice, without any offset or deduction for Materials or otherwise
      (except for ordinary course deductions for the price of nonconforming Parts
      and
      invoicing errors) (and such payment terms shall survive the contemplated
      conversion of DHAM to a maquiladora). Sypris shall pay each invoice for
      Materials sold and delivered to it by DC, TTM and DHAM as applicable, subsequent
      to the Petition Date within 59 days from the date of issuance of any such
      invoice without offset or deduction (except for ordinary course deductions
      for
      the price of nonconforming Materials and invoicing errors). The date that an
      invoice for Parts or Materials is due under this paragraph 1(b) is referred
      to as the “Due
      Date.”

     

    c. Frequency
      of Payment.
      DC, TTM
      and DHAM shall pay Sypris for all Parts sold and delivered to them subsequent
      to
      the Petition Date on a daily basis on each Due Date until such time as they
      pay
      any other suppliers of component parts on a weekly basis, and thereafter
      payments shall be made by Dana to Sypris on a weekly basis for all invoices
      for
      which the Due Date will occur prior to the next scheduled weekly payment. Sypris
      shall pay Dana for all Materials sold and delivered to Sypris by Dana subsequent
      to the Petition Date pursuant to Sypris’ standard procedures. 

     

    d. Invoice
      Register. In
      addition to generating invoices for Parts shipped in the normal course, Sypris
      shall send Dana a daily or weekly invoice register, as then applicable, showing
      the minimum amounts due in advance of the next payment date. Sypris shall
      consider any and all documented objections by Dana in good faith, and Sypris
      may
      remove from such daily or weekly invoice register any documented amounts which
      it believes have been satisfactorily resolved for that day or week, provided
      that Sypris shall not be deemed to have waived any such amount for other than
      a
      one week extension, except in an express, written waiver signed by the Chief
      Financial Officer of Sypris. Acceptance of goods shall constitute acceptance
      of
      Sypris’ invoice for such goods, subject to any underlying rights that Dana may
      have to revoke acceptance or to reject any non-conforming goods, in which cases
      Dana shall promptly: give Sypris reasonably detailed written notice of all
      grounds asserted as the basis for such revocation or rejection, and tender
      all
      such goods for return shipment.

     

    e. Materials
      Standards. Dana
      agrees that all of the raw material, component part and subassembly price
      standards currently charged to Sypris (including all landed costs to Sypris’
plant) shall remain unchanged a) until such time as the Supply Agreements are
      assumed or rejected by Dana and DHAM and b) thereafter unless preceded by at
      least 90 days’ advance written notice including reasonably detailed
      documentation of the new standard prices for each applicable part number and
      a
      description of Dana’s plans, processes and timetables for implementing such new
      prices.

     

    
      
         

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    f. Release.
      Upon
      the approval of this Agreement by the Bankruptcy Court, Dana will release and
      forever discharge Sypris from any claims or causes of action that could have
      been asserted based upon any action taken by Sypris pursuant to the Temporary
      Payment Agreement.

     

    2. Morganton
      Purchasing.
      Effective on a date agreed upon by the parties that shall be on or before May
      15, 2006 (the “Morganton
      Transition Date”),
      Sypris shall be entitled to order all Materials required for the production
      of
      Parts by Sypris at its Morganton plant directly from Dana at the “standard”
Materials prices as reflected in the “standard” Parts prices currently in
      effect, and Dana shall order all such Materials directly from Dana’s designated
      suppliers. The Parties will cooperate in good faith to facilitate the purposes
      of this paragraph. 

     

    3. Administrative
      Claim.
      Sypris
      shall have an allowed administrative expense claim for all Parts sold and/or
      delivered to Dana following the Petition Date, in accordance with
      section 503(b) of the Bankruptcy Code.

     

    4. 20-Day
      Administrative Claim.
      The
      Twenty Day Claim shall be subject to reconciliation by the Parties on or before
      May 19, 2006. Any disputes regarding the reconciliation shall be submitted
      to
      binding Arbitration as described in Section 11 hereto. 

     

    a. Partial
      Payment. On or before May 11, 2006, Dana shall pay to Sypris $9,200,000, via
      wire transfer in partial payment of the Twenty Day Claim (the “Partial
      Payment”). 

     

    b. Treatment
      of Remainder. Following the reconciliation described in paragraph 4(a) above,
      the remainder of the Twenty Day Claim (the “Remaining Administrative Claim”)
      shall be due and payable upon the final reconciliation or arbitration of the
      Offsets or arbitration of the Offsets and Trade Payables pursuant to Section
      6,
      to the extent that such reconciliation results in a net amount due to Sypris
      thereunder. 

     

    5. DHAM
      Contingent Administrative Expense Claims.
      In the
      event of any insolvency, bankruptcy, liquidation, assignment to creditors,
      appointment of a receiver or trustee or any other, similar event, exercise
      of
      rights, or proceedings under the Bankruptcy Code, or any other similar legal
      or
      administrative process in the U.S., Mexico or otherwise, with respect to DHAM
      (each, a “DHAM
      Default”),
      in
      addition to any other rights it may have, Sypris shall be entitled to an allowed
      administrative expense claim against each of DC and TTM, entitled to priority
      under section 503(b) of the Bankruptcy Code for the single recovery of the
      sum
      of any and all amounts due to Sypris by DHAM under any of the Agreements and/or
      as a consequence of any DHAM Default (net of all amounts previously invoiced
      for
      raw materials, but not yet paid by Sypris to DHAM) (collectively the
“Contingent
      Administrative Claims”).
      DC or
      TTM, or both, shall pay in cash a full, single recovery on the Contingent
      Administrative Claims within 30 days after the DHAM Default. In the event of
      any
      delay in such payment, such claim shall accrue interest at a rate of 1% per
      month, Sypris shall be entitled to reimbursement of its expenses to obtain
      credit insurance for the duration of such delinquency and its costs to enforce
      its remedies hereunder, including reasonable attorneys’ fees, and all of the
      foregoing interest, costs and expenses shall be deemed to be allowed
      administrative expense claims against each of DC and TTM, entitled to priority
      under section 503(b) of the Bankruptcy Code. 

     

    6. Sypris’
      Offset/Recoupment Rights.
      Subject
      to the reconciliation described below, the Parties acknowledge and agree that
      Sypris has valid and enforceable setoff and/or recoupment rights with respect
      to
      the Offsets. The Parties shall confirm the amounts of the

     

    
      
         

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    Offsets
      and the Trade Payables on or before May 19, 2006. Once confirmed, the Parties
      will calculate the “Reconciliation Balance” by subtracting (a) the Partial
      Payment paid to Sypris from (b) the confirmed Net Payables. In the event that
      such Reconciliation Balance is positive, then Dana shall provide Sypris with
      an
      allowed administrative claim in an amount equal to the Reconciliation Balance
      not to exceed, the Remaining Administrative Claim, and which will be paid by
      wire transfer to Sypris within 5 days of any final determination. In the event
      that such Reconciliation Balance is negative, Sypris shall pay Dana an amount
      equal to the Reconciliation Balance by wire transfer to Dana within 5 days
      of
      such final determination. Any disputes regarding such reconciliation shall
      be
      submitted to binding Arbitration as described in Section 11 hereto. The Parties
      further acknowledge that Sypris has previously claimed other setoff and/or
      recoupment rights, which are reserved and neither recognized nor rejected by
      this Agreement.

     

    7. Default.
      Each of
      the following shall constitute an “Event
      of Default”
      hereunder:

     

    a. The
      termination, suspension, stay or injunction in restraint of any terms of this
      Agreement.

     

    b. The
      administrative insolvency of DC or TTM, DC or TTM’s failure to timely pay
      chapter 11 administrative expenses as they come due, conversion of DC or TTM’s
      Chapter 11 Case to a case under chapter 7 of the Bankruptcy Code, dismissal
      of DC or TTM’s Chapter 11 Case or the appointment of a chapter 11 trustee
      or an examiner with expanded powers in DC or TTM’s Chapter 11
      Case.

     

    c. The
      termination of, or the occurrence of any event of default under, the Debtors’
postpetition financing facility, that is not timely cured, unless in Sypris’
reasonable judgment, such default increases the risk of nonpayment by Dana
      to
      Sypris, despite being cured. Dana will give Sypris written notice of any such
      termination or event of default within two business days thereof.

     

    d. The
      failure of any Dana entity to timely make any payment due pursuant to the terms
      of this Agreement or any of the Agreements, or the rejection or termination
      of
      this Agreement or any of the Agreements.

     

    e. Any
      DHAM
      Default.

     

    8. Notice
      of Default.
      Any
      Sypris party to this Agreement shall provide to any Dana party to this
      Agreement, in accordance with Section 9 of this Agreement, written notice
      of the occurrence of an Event of Default (a “Notice
      of Default”),
      identifying the nature of the default. The party or parties receiving a Notice
      of Default shall have five business days following receipt of the Notice of
      Default during which they may cure the default and provide evidence of such
      cure
      (hereafter “Timely Cured”). No right to cure shall exist following the
      occurrence of three prior Events of Default. For the purposes of this paragraph,
      five late payments that are Timely Cured shall constitute one Event of
      Default.

     

    9. Remedies
      Based Upon Continuing Event of Default.
      Upon
      the occurrence of any Event of Default and if such Event of Default is not
      timely cured, Sypris shall have those rights and remedies, or any combination
      thereof, as described in this Section, except to the extent waived by Sypris
      in
      writing: 

     

    a. Suspension
      of Credit.
      No
      further credit shall be extended to Dana, and Dana shall be required to pay
      on a
      cash-in-advance basis for Parts sold and/or delivered

     

    
      
         

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    following
      an Event of Default, which shall be made on a daily basis in accordance with
      Dana’s initial payment procedures as outlined in Section 1(c)
      hereof.

     

    b. Acceleration
      of Payments.
      All
      invoices issued by Sypris for Parts delivered under the Agreements and this
      Agreement after the Filing Date and prior to such Event of Default shall become
      immediately due and payable by wire transfer of good funds from the defaulting
      party to Sypris. In the event of any delay in such payment, such claim shall
      accrue interest at a rate of 1% per month, and Sypris shall be entitled to
      reimbursement of its expenses to obtain credit insurance for the duration of
      such delinquency and its costs to enforce its remedies hereunder, including
      reasonable attorneys’ fees.

     

    c. The
      Automatic Stay. In
      the
      event that Dana or one of its entities defaults pursuant to paragraphs 8 and
      9
      of this Agreement, upon five (5) days written notice from Sypris to Dana, the
      automatic stay provisions of section 362 of the Bankruptcy Code shall be vacated
      and modified to the extent necessary to permit Sypris to exercise, immediately
      upon such occurrence, without further demand or notice or any further approval
      of the Bankruptcy Court all rights and remedies or any combination thereof.
      In
      the event of such default by Dana or one of its entities, all payments referred
      to in paragraph 9(b) of this Agreement shall be an allowed administrative
      expense claim against DC or TTM, entitled to priority under section 503(b)
      of
      the Bankruptcy Code.

     

    10. Notices.
      Any
      notices in connection with this Agreement shall be in writing and served either
      by (a) telefax, (b) hand delivery or (c) reputable overnight delivery service,
      all charges prepaid, to the addresses below, but regardless of the delivery
      method shall be deemed to have been given to any recipient when
      received:

     

    
      	
              If
                to Sypris:

               

              SYPRIS
                SOLUTIONS, INC. 

              Attn:
                General Counsel

              101
                Bullitt Lane, Suite 450

              Louisville,
                Kentucky 40222

               

              with
                copies to:

               

              KLESTADT
                & WINTERS, LLP

              Attorneys
                to Sypris

              Attn:
                Tracy L. Klestadt, Esq.

              292
                Madison Avenue, 17th Floor

              New
                York, New York 10017

            	
              If
                to Dana:

               

              DANA
                CORPORATION

              Attn:
                Donald Commons, Esq.

              4500 Dorr
                Street

              Toledo,
                Ohio  43615

               

              with
                copies to:

               

              JONES
                DAY

              Attorneys
                to Dana Corporation

              Attn:
                Richard A. Chesley, Esq.

              77
                West Wacker

              Chicago,
                Illinois 60601-1692

            
	 	 

    

    
      11. Alternative
        Dispute Resolution and Jurisdiction.
        

       

      a. Any
        reconciliation regarding Sections 4, 5 or 6 hereof (to be concluded by May
        19,
        2006) shall be limited to confirming the number of Parts sold and delivered
        by
        Sypris before the Petition Date and the quantities of Materials delivered
        to
        Sypris before the Petition Date; provided further that solely for the purposes
        of such reconciliations, Sypris’ books and records shall govern with respect to
        any determination of the applicable prices of such Parts and the application
        of
        Dana’s payments to any particular invoice Notwithstanding the foregoing
        sentence, such reconciliation shall be without prejudice to either Party’s
        rights, including but not

        
          
            
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limited
        to Dana’s ability to challenge Sypris’ books and records in any arbitration
        pursuant to this paragraph, or in any future disputes between the
        parties.

    

     

    b. The
      Parties hereby agree to submit any and all future disputes arising from the
      Supply Agreements, other than the determination of the Debtors’ assumption or
      rejection of any of the Agreements, to the following Alternative Dispute
      Resolution mechanism (“ADR”): (i) either party may initiate non-binding
      mediation by written notice to the other Parties with respect to any issue(s)
      arising from this Agreement or the Agreements within fifteen days thereafter;
      (ii) except as specifically set forth in this Agreement, both parties may
      initiate binding arbitration on an expedited basis, by written notice to the
      other Parties with respect to any issue(s) arising from this Agreement or the
      Agreements, with scheduled to ensure that a final determination is issued within
      60 days after the date of such notice, in accordance with the CPR Rules for
      Non-Administered Arbitration of Business Disputes. Notwithstanding anything
      contained in this paragraph, the parties hereby agree that any disputes
      regarding (a) the reconciliations in Section 11(a), (b) Sypris’ reserved offset
      claims with respect to the Morganton Supply Agreement, and (c) the pricing,
      requirements, volume or timing of any Parts or Materials pursuant to the
      Agreements (including any damages relating thereto), or any issue integral
      to
      the foregoing may be submitted to binding arbitration pursuant to the terms
      of
      this paragraph by either party acting alone. Nothing contained in the preceding
      sentence shall limit any Party from asserting that issues must be submitted
      to
      binding arbitration pursuant to the Supply Contracts. On a basis consistent
      with
      the foregoing, the Bankruptcy Court shall have exclusive jurisdiction to review
      any arbitration award obtained hereunder (for abuse of the arbitrator’s
      discretion) or to resolve any other matters arising under this Agreement, except
      for disputes between Sypris and DHAM. 

     

    12. Amendment
      Only.
      This
      Agreement is merely an amendment to the Agreements and is not intended to be,
      and may not be construed to be, a novation of the Agreement, an independent,
      postpetition contract or an assumption of the Agreements. This Agreement is
      limited to the terms stated expressly herein and all terms and conditions of
      the
      Agreements not expressly amended herein remain in effect (if still in effect
      under the Agreements) except to any extent inconsistent with this Agreement.
      This Agreement shall supersede the Temporary Payment Agreement.

     

    13. Entire
      Agreement.
      This
      Agreement constitutes the entire agreement between the parties as to the
      Agreements. Any and all representations, written or oral, not stated expressly
      herein or in the Agreements themselves (the terms of which are hereby
      incorporated by reference herein) are not part of this Agreement, and are
      superseded by this Agreement.

     

    14. Bankruptcy
      Court Approval.
      The
      agreements herein are conditioned upon, and subject to, the entry of an order
      of
      the Bankruptcy Court approving this Agreement, on or before May 17, 2006. Dana
      agrees to seek such approval as promptly as reasonably practicable after the
      parties’ execution of this Agreement. The parties shall prepare an appropriate
      Setoff Notice consistent with this Agreement pursuant to the Order Pursuant
      to
      Sections 105(a), 363(a)(7) and 553(a) of the Bankruptcy Code, for an Order
      Establishing Procedures for the Setoff of Mutual Pre-petition Obligations of
      the
      Debtors and Certain of their Customers, Vendors and Affiliates. Notwithstanding
      this paragraph, upon the execution of the Agreement, the parties shall
      immediately begin performance of those obligations set forth in paragraphs
      1, 2,
      3 and 4 of this Agreement.

     

    
      
         

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    15. Withdrawal
      of Adversary Proceeding.
      Promptly after obtaining Bankruptcy Court approval of this Agreement, the
      Debtors shall withdraw the Adversary Proceeding, without prejudice.

     

    16. Reservation
      of Rights.
      Notwithstanding anything to the contrary contained herein, this Agreement shall
      not and does not constitute an acknowledgment by Sypris that this Agreement
      and/or one or more of the Agreements may be assumed and/or assigned by Dana
      pursuant to Section 365 of the Bankruptcy Code.  Unless expressly and
      specifically waived hereinabove, Sypris reserves all rights, claims, and
      remedies that may be available to Sypris, including without limitation, with
      respect to any breaches of the Agreements and the right to oppose or contest
      any
      effort by Dana to terminate, transfer, reject, assume and/or assign one or
      more
      of the Agreements and/or this Agreement. 

     

    17. Confidentiality.
      Unless
      otherwise required by law or court order, Sypris and any party it consulted
      with
      in connection with the subject matter hereof agree to keep this Agreement
      confidential, and agree not to disclose, to any party, person or entity, any
      of
      the terms of this Agreement. Each person to whom the terms of this Agreement
      are
      disclosed due to a court order or other legal requirement shall be informed
      of
      the confidentiality provisions of this Agreement and shall also be bound by
      the
      confidentiality provisions. In addition, the parties acknowledge that this
      Agreement or the terms hereof may be disclosed the extent necessary to obtain
      Bankruptcy Court approval of this Agreement.

     

    18. Authority.
      Each
      person who executes this Agreement represents that he or she is duly authorized
      to execute this Agreement on behalf of the respective parties and that each
      such
      party has full knowledge of and has consented to this Agreement, provided
      that,
      with
      respect to Dana, such authority is subject to approval by the Bankruptcy
      Court.

     

    For
      Dana
      Corporation, Torque-Traction Manufacturing Technologies, Inc. and Dana Heavy
      Axle Mexico, S.A. de C.V.:

     

    

     

    /s/
      Paul E.
      Miller                     
  

    Name:
      Paul E. Miller

    Title:
      VP
      Purchasing

    Date:
      May
      10, 2006

     

    For
      Sypris Solutions, Inc.; Sypris Technologies, Inc.; Sypris Technologies Marion,
      LLC and Sypris Technologies Mexico, S. de R.L. de C.V.:

     

    /s/
      John R.
      McGeeney             

    Name:
      John R. McGeeney

    Title:
      General Counsel

    Date:
      May
      10, 2006

     

    
      
         

        ATI-2216226v3

        -8-

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      1 - CORE AGREEMENTS, CLOSING DATES AND PARTIES

    

    
      	
              May
                31, 2001

            	
              Parties

            
	
              Marion
                Supply Agreement

            	
              DC,
                ST**, STM

            
	
              Marion
                Asset Purchase Agreement

            	
              DC,
                ST**

            
	
              Deed

            	
              DC,
                STM

            
	 	
              **successor
                to Tube Turns Technologies, Inc.

            
	
              December
                8, 2003

            	 
	
              Morganton
                Supply Agreement

            	
              DC,
                TTM, ST

            
	
              Addendum
                to Marion Supply Agreement 

            	
              DC,
                ST, STM

            
	
              Morganton
                Asset Purchase Agreement 

            	
              DC,
                ST

            
	
              Deed

            	
              DC,
                ST

            
	 	 
	
              March
                31, 2004

            	 
	
              Spare
                Parts Agreement for Morganton, Glasgow and Humboldt

            	
              DC,
                ST

            
	
              First
                Addendum to Morganton Supply Agreement

            	
              DC,
                ST

            
	 	 
	
              June
                30, 2004

            	 
	
              2004
                Addendum to Marion Supply Agreement

            	
              DC,
                ST, STM

            
	
              Toluca
                Supply Agreement*

            	
              DC,
                DHAM, ST, STMex

            
	
              Toluca
                Lease

            	
              DHAM,
                STMex

            
	
              Second
                Addendum to Morganton Supply Agreement

            	
              DC,
                ST

            
	
              Toluca
                Asset Purchase Agreement

            	
              DC,
                DHAM, SS, STMex

            
	
              Deed

            	
              DHAM,
                STMex

            
	
              Indemnification
                Agreement (Hammer)(12/7/05)

            	
              DC,
                SS

            
	
              Asset
                Purchase Agreement for Glasgow and Humboldt

            	
              DC,
                STMex

            
	 	 
	
              September
                30, 2004

            	 
	
              Asset
                Purchase Agreement (Humboldt Housings)

            	
              DC,
                ST

            
	
              Third
                Addendum to Morganton Supply Agreement

            	
              DC,
                ST

            
	
              Fourth
                Addendum to Morganton Supply Agreement

            	
              DC,
                ST

            
	
              First
                Addendum to Toluca Supply Agreement

            	
              DC,
                DHAM, ST, STMex

            
	
              Second
                Addendum to Toluca Supply Agreement

            	
              DC,
                DHAM, ST, STMex

            
	
              Third
                Addendum to Marion Supply Agreement

            	
              DC,
                ST, STM

            
	 	 
	
              December
                31, 2004

            	 
	
              First
                Addendum to Asset Purchase Agreement (Humboldt Seam
                Welding)

            	
              DC,
                ST

            
	
              Third
                Addendum to Toluca Supply Agreement

            	
              DC,
                DHAM, ST, STMex

            
	
              Fifth
                Addendum to Morganton Supply Agreement

            	
              DC,
                ST

            
	 	 
	
              July
                10, 2005

            	 
	
              Asset
                Purchase Agreement (Glasgow Secondary Gears)

            	
              DC,
                ST

            
	
              Fourth
                Addendum to Toluca Supply Agreement

            	
              DC,
                DHAM, ST, STMex

            
	
              Fourth
                Addendum to Marion Supply Agreement

            	
              DC,
                ST, STM

            
	
              Fifth
                Addendum to Marion Supply Agreement

            	
              DC,
                ST, STM

            

    

     

     

     

    
      ATI-2216226v3Shareholder Rights Plan Agreement

 

EXHIBIT
4.1

INTERNATIONAL ABSORBENTS INC.

and

PACIFIC CORPORATE TRUST COMPANY

as Rights Agent

SHAREHOLDER RIGHTS PLAN AGREEMENT

May 1, 2006

 

 

TABLE OF CONTENTS

ARTICLE 1

INTERPRETATION

	 	 	 	 	 	 	 
	1.1

	 	Certain Definitions
	 	 	2	 
	1.2

	 	Currency
	 	 	14	 
	1.3

	 	Headings
	 	 	14	 
	1.4

	 	Number and Gender
	 	 	14	 
	1.5

	 	Acting Jointly or in Concert
	 	 	14	 
	1.6

	 	Statutory References
	 	 	15	 

ARTICLE 2

THE RIGHTS

	 	 	 	 	 	 	 
	2.1

	 	Legend on Common Share Certificates
	 	 	15	 
	2.2

	 	Initial Exercise Price; Exercise of Rights; Detachment of Rights
	 	 	15	 
	2.3

	 	Adjustments to Exercise Price; Number of Rights
	 	 	18	 
	2.4

	 	Date on Which Exercise is Effective
	 	 	23	 
	2.5

	 	Execution, Authentication, Delivery and Dating of Rights Certificates
	 	 	24	 
	2.6

	 	Registration, Registration of Transfer and Exchange
	 	 	24	 
	2.7

	 	Mutilated, Destroyed, Lost and Stolen Rights Certificates
	 	 	25	 
	2.8

	 	Persons Deemed Owners
	 	 	26	 
	2.9

	 	Delivery and Cancellation of Rights Certificates
	 	 	26	 
	2.10

	 	Agreement of Rights Holders
	 	 	26	 
	2.11

	 	Rights Certificate Holder not Deemed a Shareholder
	 	 	27	 

ARTICLE 3

ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS

	 	 	 	 	 	 	 
	3.1

	 	Flip-in Event
	 	 	27	 

ARTICLE 4

THE RIGHTS AGENT

	 	 	 	 	 	 	 
	4.1

	 	General
	 	 	29	 
	4.2

	 	Merger or Amalgamation or Change of Name of Rights Agent
	 	 	30	 
	4.3

	 	Duties of Rights Agent
	 	 	30	 
	4.4

	 	Change of Rights Agent
	 	 	32	 

 

 

- ii -

ARTICLE 5

MISCELLANEOUS

	 	 	 	 	 	 	 
	5.1

	 	Redemption and Waiver
	 	 	33	 
	5.2

	 	Expiration
	 	 	35	 
	5.3

	 	Issuance of New Rights Certificates
	 	 	35	 
	5.4

	 	Supplements and Amendments
	 	 	35	 
	5.5

	 	Fractional Rights and Fractional Shares
	 	 	37	 
	5.6

	 	Rights of Action
	 	 	38	 
	5.7

	 	Notice of Proposed Actions
	 	 	38	 
	5.8

	 	Notices
	 	 	38	 
	5.9

	 	Costs of Enforcement
	 	 	39	 
	5.10

	 	Successors
	 	 	39	 
	5.11

	 	Benefits of this Agreement
	 	 	39	 
	5.12

	 	Governing Law
	 	 	40	 
	5.13

	 	Severability
	 	 	40	 
	5.14

	 	Effective Date
	 	 	40	 
	5.15

	 	Shareholder Review
	 	 	40	 
	5.16

	 	Determinations and Actions by the Board of Directors
	 	 	40	 
	5.17

	 	Rights of Board, Corporation and Offeror
	 	 	40	 
	5.18

	 	Regulatory Approvals
	 	 	41	 
	5.19

	 	Declaration as to Non-Canadian and Non-U.S. Holders
	 	 	41	 
	5.20

	 	Time of the Essence
	 	 	41	 
	5.21

	 	Execution in Counterparts
	 	 	42	 

 

 

SHAREHOLDER RIGHTS PLAN AGREEMENT

     THIS
AGREEMENT dated May 1, 2006 between International Absorbents Inc. (the “Corporation”), a
corporation incorporated under the laws of British Columbia, and Pacific Corporate Trust Company, a
trust company incorporated under the laws of British Columbia, as Rights Agent (the “Rights Agent”, which
term shall include any successor Rights Agent hereunder).

WITNESSES THAT:

     WHEREAS the board of directors of the Corporation has determined that it is in the best
interests of the Corporation to adopt a shareholder rights plan to ensure, to the extent possible,
that all shareholders of the Corporation are treated fairly in connection with any take-over bid
for the Corporation;

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

	 	(a)	 	authorized the issuance, effective one minute after the Effective Date (as
hereinafter defined), of one Right (as hereinafter defined) in respect of each Common
Share (as hereinafter defined) outstanding at the Record Time (as hereinafter defined);
and
	 
	 	(b)	 	authorized the issuance of one Right in respect of each Common Share issued
after the Record Time and prior to the earlier of the Separation Time (as hereinafter
defined) and the Expiration Time (as hereinafter defined);

     AND WHEREAS each Right entitles the holder, after the Separation Time, to purchase securities
of the Corporation pursuant to the terms and subject to the conditions set forth in this Agreement;

     AND WHEREAS the Corporation desires to appoint the Rights Agent to act on behalf of the
Corporation and the holders of Rights, and the Rights Agent is willing to so act, in connection
with the issuance, transfer, exchange and replacement of Rights Certificates (as hereinafter
defined), the exercise of Rights and other matters referred to in this Agreement;

     AND WHEREAS the board of directors of the Corporation proposes that this Agreement be in place
for an initial period of 3 years;

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

 

 

- 2 -

ARTICLE 1

INTERPRETATION

	1.1	 	Certain Definitions.
	 
	 	 	For purposes of the Agreement, the following terms have the meanings indicated:

	 	(a)	 	“1933 Securities Act” means the Securities Act of 1933 of the United States, as
amended, and the rules and regulations thereunder, and any comparable or successor laws
or regulations thereto.
	 
	 	(b)	 	“1934 Exchange Act” means the Securities Exchange Act of 1934 of the United
States, as amended, and the rules and regulations thereunder, and any comparable or
successor laws or regulations thereto.
	 
	 	(c)	 	“Acquiring Person” means, any Person who is 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 Subsidiary of the Corporation;
	 
	 	(ii)	 	any Person who becomes the Beneficial Owner of 20% or more of
the outstanding Voting Shares of the Corporation as a result of one or any
combination of: (A) Corporate Acquisitions, (B) Permitted Bid Acquisitions, (C)
Corporate Distributions, (D) Exempt Acquisitions, or (E) Convertible Security
Acquisitions; provided, however, that if a Person shall become the Beneficial
Owner of 20% or more of the Voting Shares then outstanding by reason of one or
more or any combination of the operation of a Corporate Acquisition, Permitted
Bid Acquisition, Corporate Distribution, Exempt Acquisition or Convertible
Security Acquisition and, after such Corporate Acquisition, Permitted Bid
Acquisition, Corporate Distribution, Exempt Acquisition or Convertible Security
Acquisition, becomes the Beneficial Owner of an additional 1% or more of the
outstanding Voting Shares other than pursuant to one or more Corporate
Acquisitions, Permitted Bid Acquisitions, Corporate Distributions, Exempt
Acquisitions or Convertible Security Acquisitions, then as of the date of such
acquisition, such Person shall become an Acquiring Person;
	 
	 	(iii)	 	for a period of 10 days after the Disqualification Date (as
hereinafter defined), any Person who becomes the Beneficial Owner of 20% or
more of the outstanding Voting Shares of the Corporation as a result of such
Person becoming disqualified from relying on Section 1.1(h)(3) solely because
such Person makes or proposes to make a Take-over Bid in respect of securities
of the Corporation alone or by acting jointly or in concert with any other
Person (the first date of public announcement (which, for the purposes of this
definition, shall include, without limitation, a report filed pursuant to
section 111 of the Securities Act) by

 

 

- 3 -

	 	 	 	such Person or the Corporation of a current intent to commence such a
Take-over Bid being herein referred to as the “Disqualification Date”);
	 
	 	(iv)	 	a Person (a “Grandfathered Person”) who is the Beneficial Owner
of more than 20% of the outstanding Voting Shares determined as at the Record
Time provided, however, that this exception shall not be, and shall cease to
be, applicable to a Grandfathered Person in the event that such Grandfathered
Person shall, after the Record Time: (1) cease to own more than 20% of the
outstanding Voting Shares or (2) become the Beneficial Owner of any additional
Voting Shares that increases its Beneficial Ownership of Voting Shares by more
then 1% of the number of Voting Share outstanding as at the Record Time, other
than pursuant to one or more Corporate Acquisitions, Permitted Bid
Acquisitions, Corporate Distributions, Exempt Acquisitions or Convertible
Security Acquisitions; or
	 
	 	(v)	 	an underwriter or member of a banking or selling group that
acquires Voting Shares from the Corporation in connection with a distribution
of securities (including, for greater certainty, by way of private placement of
such securities) to the public.

	 	(d)	 	“Affiliate” when used to indicate a relationship with a specified Person, means
a Person that directly or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with, such specified Person.
	 
	 	(e)	 	“Agreement” means this shareholder rights plan agreement as amended, modified
or supplemented from time to time.
	 
	 	(f)	 	“Associate” when used to indicate a relationship with a specified Person, means
any relative of such specified Person who has the same home as such specified Person,
or any Person to whom such specified Person is married or with whom such specified
Person is living in a conjugal relationship outside marriage, or any relative of such
spouse or other Person who has the same home as such specified Person.
	 
	 	(g)	 	“BCA” means the Business Corporations Act (British Columbia) and any comparable
or successor laws.
	 
	 	(h)	 	A Person shall be deemed the “Beneficial Owner”, and to have “Beneficial
Ownership” of, and to “Beneficially Own”:

	 	(i)	 	any securities of which such Person or any Affiliate or
Associate of such Person is the owner in law or equity;
	 
	 	(ii)	 	any securities as to which such Person or any of such Person’s
Affiliates or Associates has the right to acquire (A) upon the exercise of any
Convertible Securities, or (B) pursuant to any agreement, arrangement or
understanding, in each case if such right is exercisable immediately or

 

 

- 4 -

	 	 	 	within a period of 60 days thereafter whether or not on condition or the
happening of any contingency (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 business); and
	 
	 	(iii)	 	any securities that are Beneficially Owned within the meaning
of Section 1.1(h)(i) or (ii) by any other Person with whom such Person is
acting jointly or in concert;

provided, however, that a Person shall not be deemed the “Beneficial Owner”, or to
have “Beneficial Ownership” of, or to “Beneficially Own”, any security as a result
of the existence of any one or more of the following circumstances:

	 	(1)	 	such security has been deposited or tendered,
pursuant to a Take-over Bid made by such Person or made by any
Affiliate or Associate of such Person or made by any other Person
acting jointly or in concert with such Person, unless such deposited or
tendered security has been taken up or paid for, whichever shall first
occur;
	 
	 	(2)	 	by reason of the holder of such security having
agreed to deposit or tender such security 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 pursuant to
a Permitted Lock-Up Agreement, but only until such time as the
deposited or tendered security has been taken up or paid for, whichever
shall first occur;
	 
	 	(3)	 	such Person or any Affiliate or Associate of
such Person or any other Person acting jointly or in concert with such
Person, holds such security; provided that (i) the ordinary business of
any such Person (the “Fund Manager”) includes the management of mutual
funds or investment funds for others (which others may include or be
limited to one or more employee benefit plans or pension plans) and/or
includes the acquisition or holding of securities for a
non-discretionary account of a Client (as defined below) by a dealer or
broker registered under applicable securities laws to the extent
required, and such security is held by the 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”), (ii) such
Person (the “Trust Company”) is licensed to carry on the business of a
trust company under applicable law and, as such, acts as trustee or
administrator or in a similar capacity in relation to the estates of
deceased or incompetent Persons or in relation to other accounts and
holds such security in the ordinary course of such duties for the
estate of any such deceased or incompetent Person

 

 

-5-

	 	 	 	(each an “Estate Account”) or for such other accounts (each an “Other
Account”), (iii) the Person (the “Statutory Body”) is an independent
Person 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,
insurance plans of various public bodies and the Statutory Body holds
such security for the purposes of its activities as such, (iv) the
ordinary business of such Person includes acting as an agent of the
Crown in the management of public assets (the “Crown Agent”), or (v)
the Person is the administrator or the trustee of one or more pension
funds or plans (each a “Pension Fund”) registered under the laws of
Canada or any province thereof or the United States or any state
thereof (the “Independent Person”), or is a Pension Fund and holds
such securities for the purposes of its activities as an Independent
Person or as a Pension Fund, and further provided that such Pension
Fund or Independent Person does not hold more than 30% of the Voting
Shares; provided, however, that in any of the foregoing cases no one
of the Fund Manager, the Trust Company, the Statutory Body, the Crown
Agent, the Independent Person or the Pension Fund makes or announces
a current intention to make a Take-over Bid in respect of securities
of the Corporation alone or by acting jointly or in concert with any
other Person (other than pursuant to a distribution by the
Corporation or by means of ordinary market transactions (including
prearranged trades entered in the ordinary course of business of such
Person) executed through the facilities of a stock exchange or
organized over-the-counter market);
	 
	 	(4)	 	such Person is a Client of the same Fund
Manager as another Person on whose account the Fund Manager holds such
security, or 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 such Person is a Pension Fund with the
same Independent Person as another Pension Fund;
	 
	 	(5)	 	such Person is a Client of a Fund Manager and
such security is owned at law or in equity by the Fund Manager, or 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
such Person is a Pension Fund and such security is owned at law or in
equity by the Independent Person; or
	 
	 	(6)	 	such Person is a registered holder of
securities as a result of carrying on the business of, or acting as a
nominee of, a securities depository.

 

 

- 6 -

	 	 	 	For purposes of this Agreement, the percentage of Voting Shares Beneficially
Owned by any Person, shall be and be deemed to be the product of 100 and the
number of which the numerator is the number of votes for the election of all
directors generally attaching to the Voting Shares Beneficially Owned by
such Person and the denominator of which is the 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, such Voting Shares shall be deemed to be issued and outstanding for
the purpose of calculating the percentage of Voting Shares Beneficially
Owned by such Person.

	 	(i)	 	“Board of Directors” means, at any time, the duly constituted board of
directors of the Corporation.
	 
	 	(j)	 	“Business Day” means any day other than a Saturday, Sunday or a day on which
banking institutions in Vancouver, British Columbia are authorized or obligated by law
to close.
	 
	 	(k)	 	“Canadian — U.S. Exchange Rate” means, on any date:

	 	(i)	 	if on such date the Bank of Canada sets an average noon spot
rate of exchange for the conversion of one Canadian dollar into United States
dollars, such rate; and
	 
	 	(ii)	 	in any other case, the rate for such date for the conversion of
one Canadian dollar into United States dollars calculated in such manner as may
be determined by the Board of Directors from time to time acting in good faith.

	 	(l)	 	“close of business” on any given date means the time on such date (or, if such
date is not a Business Day, the time on the next succeeding Business Day) at which the
office of the transfer agent for the Common Shares in Vancouver, British Columbia (or,
after the Separation Time, the office of the Rights Agent in Vancouver, British
Columbia) is closed to the public.
	 
	 	(m)	 	“Common Shares”, when used with reference to the Corporation, means the common
shares in the capital of the Corporation.
	
	 
	 	(n)	 	“Competing Bid” means a Take-over Bid that: (i) is made while another Permitted
Bid is in existence, and (ii) satisfies all the components of the definition of a
Permitted Bid, except that the requirements set out in
Section 1.1(ff)(ii) shall be
satisfied if the Take-over Bid shall contain, and the take up and payment for
securities tendered or deposited thereunder shall be subject to, an irrevocable and
unqualified condition that no Voting Shares shall be taken up or paid for pursuant to
the Competing Bid prior to the close of business on the date that is no earlier than
the date which is the later of 35 days after the date the Competing Bid is made or 60
days after the earliest date on which any other Permitted Bid or Competing Bid that is
then in existence was made and only if at that date, more

	

 

 

- 7 -

	 	 	 	than 50% of the then outstanding Voting Shares held by Independent Shareholders have
been deposited or tendered to the Competing Bid and not withdrawn.
	 
	 	(o)	 	“controlled”: a corporation is “controlled” by another Person 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,
other than by way of security only, by or for the benefit of the other Person;
and
	 
	 	(ii)	 	the votes carried by such securities are entitled, if
exercised, to elect a majority of the board of directors of such corporation;
and “controls”, “controlling” and “under common control with” shall be
interpreted accordingly.

	 	(p)	 	“Convertible Security” means at any time:

	 	(i)	 	any right (regardless of whether such right constitutes a
security) to acquire Voting Shares from the Corporation; and
	 
	 	(ii)	 	any securities issued by the Corporation from time to time
(other than the Rights) carrying any exercise, conversion or exchange right; in
each case pursuant to which the holder thereof may acquire Voting Shares or
other securities which are convertible into or exercisable or exchangeable for
Voting Shares.

	 	(q)	 	“Convertible Security Acquisition” means the acquisition of Voting Shares upon
the exercise, conversion or exchange of Convertible Securities received by a Person
pursuant to a Permitted Bid Acquisition, Exempt Acquisition or a Corporate
Distribution.
	 
	 	(r)	 	“Corporate Acquisition” means an acquisition by the Corporation or a Subsidiary
of the Corporation or the redemption by the Corporation of Voting Shares of the
Corporation which by reducing the number of Voting Shares of the Corporation
outstanding increases the proportionate number of Voting Shares Beneficially Owned by
any Person.
	 
	 	(s)	 	“Corporate Distribution” means an acquisition of Voting Securities:

	 	(i)	 	as a result of a stock dividend or a stock split or other event
pursuant to which a Person receives or acquires Voting Shares on the same pro
rata basis as all other holders of Voting Shares of the same class; or
	 
	 	(ii)	 	as a result of any other event pursuant to which all holders of
Voting Shares are entitled to receive Voting Shares or Convertible Securities
on a pro rata basis, including, without limiting the generality of the
foregoing, pursuant to the receipt or exercise of rights issued by the
Corporation and distributed to all the holders of a class of Voting Shares to
subscribe for or

 

 

- 8 -

	 	 	 	purchase Voting Shares or Convertible Securities of the Corporation,
provided that such rights are acquired directly from the Corporation and not
from any other Person and provided further that the Person in question does
not thereby acquire a greater percentage of Voting Shares, or Convertible
Securities representing the right to acquire Voting Shares of such class,
than the percentage of Voting Shares of the class Beneficially Owned
immediately prior to such acquisition, except pursuant to the voluntary
exercise of Convertible Securities or other rights which may be exercised by
a holder from time to time.

	 	(t)	 	“Disqualification Date” has the meaning ascribed thereto in Section
1.1(c)(iii).
	
	 
	 	(u)	 	“Effective Date” means
May 1, 2006.
	
	 
	 	(v)	 	“Election to Exercise” has the meaning ascribed thereto in Section 2.2(d).
	 
	 	(w)	 	“Exempt Acquisition” means an acquisition:

	 	(i)	 	in respect of which the Board of Directors has waived the
application of Section 3.1 pursuant to the provisions of Section 5.1(b), 5.1(c)
or 5.1(d);
	 
	 	(ii)	 	which was made on or prior to the Record Time;
	 
	 	(iii)	 	which was made pursuant to a dividend reinvestment plan of the
Corporation or other similar share purchase plan made available to the holders
of shares of the Corporation generally;
	 
	 	(iv)	 	pursuant to a distribution to the public by the Corporation of
Voting Shares or Convertible Securities made pursuant to a prospectus provided
that the Person in question does not thereby acquire a greater percentage of
Voting Shares, or Convertible Securities representing the right to acquire
Voting Shares of such class, than the percentage of Voting Shares of the class
Beneficially Owned immediately prior to such acquisition; or
	 
	 	(v)	 	pursuant to an issuance and sale by the Corporation of Voting
Shares or Convertible Securities by way of a private placement by the
Corporation, provided that (x) all necessary stock exchange approvals for such
private placement have been obtained and such private placement complies with
the terms and conditions of such approvals, and (y) such acquisition does not
result in the purchaser being the Beneficial Owner of such number of Voting
Shares as is equal to or greater than 25% of the aggregate number of Voting
Shares outstanding immediately prior to the private placement (and in making
this determination, the securities to be issued to such purchaser on the
private placement shall be deemed to be held by such purchaser but shall not be
included in the aggregate number of outstanding Voting Shares immediately prior
to the private placement).

 

 

- 9 -

	 	(x)	 	“Exercise Price” means, as of any date, the price at which a holder may
purchase the securities issuable upon exercise of one whole Right. Until adjustment
thereof in accordance with the terms hereof, the Exercise Price shall be $100.
	
	 
	 	(y)	 	“Expiration Time” means the earlier of: (i) the Termination Time, and (ii) the
close of business on the day immediately following the date of the Corporation’s
annual meeting of shareholders to be held in 2009.
	
	 
	 	(z)	 	“Flip-in Event” means a transaction in or pursuant to which any Person becomes
an Acquiring Person.
	 
	 	(aa)	 	“Independent Shareholders” means holders of Voting Shares of the Corporation,
but shall not include (i) any Acquiring Person or any Offeror, or any Affiliate or
Associate of such Acquiring Person or such Offeror, or any Person acting jointly or in
concert with such Acquiring Person or such Offeror, or (ii) any employee benefit plan,
stock purchase plan, deferred profit sharing plan or any similar plan or trust for the
benefit of employees of the Corporation or a Subsidiary of the Corporation, unless the
beneficiaries of any such plan or trust direct the manner in which the Voting Shares
are to be voted or direct whether the Voting Shares are to be tendered to a Take-over
Bid; and for greater certainty shall include any Person referred to in Section
1.1(h)(3) (other than any Person who pursuant to Section 1.1(h)(3) is deemed to
Beneficially Own the Voting Shares).
	 
	 	(bb)	 	“Market Price” per share of any securities on any date of determination means
the average of the daily closing prices per share of such securities (determined as
described below) on each of the 20 consecutive Trading Days through and including the
Trading Day immediately preceding such date; provided, however, that if an event of a
type analogous to any of the events described in Section 2.3 shall have caused the
closing prices used to determine the Market Price on any Trading Days not to be fully
comparable with the closing price on such date of determination or, if the date of
determination is not a Trading Day, on the immediately preceding Trading Day, each such
closing price so used shall be appropriately adjusted in a manner analogous to the
applicable adjustment provided for in Section 2.3 in order to make it fully comparable
with the closing price on such date of determination or, if the date of determination
is not a Trading Day, on the immediately preceding Trading Day. The closing price per
share of any securities on any date shall be (i) the closing board lot sale price or,
if such price is not available, the average of the closing bid and asked prices, for
each share as reported by the American Stock Exchange, or (ii) if for any reason none
of such prices is available on such day or the securities are not listed or admitted to
trading on the American Stock Exchange, the closing board lot sale price or, if such
price is not available, the average of the closing bid and asked prices, for each share
as reported in the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the securities exchange on which the
securities are primarily traded, or (iii) if not so listed, the last quoted price, or
if not so quoted, the average of the high bid and

 

 

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	 	 	 	low asked prices for each share of such securities in the over-the-counter market,
or (iv) if on any such date the securities are not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a professional
market maker making a market in the securities selected in good faith by the Board
of Directors; provided, however, that if on any such date the securities are not
traded in the over-the-counter market, the closing price per share of such
securities on such date shall mean the fair value per share of such securities on
such date as determined in good faith by a nationally or internationally recognized
investment dealer or investment banker. The Market Price shall be expressed in
United States dollars and, if initially determined in respect of any day forming
part of the 20 consecutive Trading Day period in question in Canadian dollars, such
amount shall be translated into United States dollars on such date at the United
States Dollar Equivalent thereof.
	 
	 	(cc)	 	“Offer to Acquire” shall include:

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

	 	(dd)	 	“Offeror” means a Person who has announced a current intention to make, or who
makes and has outstanding, a Take-over Bid.
	 
	 	(ee)	 	“Offeror’s Securities” means Voting Shares of the Corporation Beneficially
Owned by an Offeror, any Affiliate or Associate of such Offeror or any Person acting
jointly or in concert with the Offeror.
	 
	 	(ff)	 	“Permitted Bid” means a Take-over Bid that is made by means of a Take-over Bid
circular and which also complies with the following additional provisions:

	 	(i)	 	the Take-over Bid shall be made to all registered holders of
Voting Shares (other than the Voting Shares held by the Offeror);
	 
	 	(ii)	 	the Take-over Bid shall contain, and the take up and payment
for securities tendered or deposited thereunder shall be subject to, an
irrevocable and unqualified condition that no Voting Shares shall be taken up
or paid for pursuant to the Take-over Bid prior to the close of business on the
date which is not less than 60 days following the date of the Take-over
Bid and that no Voting Shares shall be taken up or paid for pursuant to the
Take-over Bid unless, at such date, more than 50% of the then outstanding
Voting Shares held by Independent Shareholders have been deposited to the
Take-over Bid and not withdrawn;

 

 

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	 	(iii)	 	the Take-over Bid shall contain an irrevocable and unqualified
provision that, unless the Take-over Bid is withdrawn, Voting Shares of the
Corporation may be deposited pursuant to such Take-over Bid at any time during
the period of time described in Section 1.1(ff)(ii) and that any Voting Shares
deposited pursuant to the Take-over Bid may be withdrawn at any time until
taken up and paid for; and
	
	
	 
	 	(iv)	 	the Take-over Bid shall contain an irrevocable and unqualified
provision that should the condition referred to in Section 1.1(ff)(ii) be met:
(A) the Offeror will make a public announcement of that fact on the date the
Take-over Bid would otherwise expire; and (B) the Take-over Bid will be
extended for a period of not less than 10 Business Days from the date it would
otherwise expire.
	

	 	(gg)	 	“Permitted Bid Acquisitions” means share acquisitions made pursuant to a
Permitted Bid or a Competing Bid.
	 
	 	(hh)	 	“Permitted Lock-Up Agreement” means an agreement between a Person and one or
more holders (each a “Locked-up Person”) of Voting Shares or Convertible Securities
(the terms of which agreement are publicly disclosed and a copy of which is made
available to the public (including the Corporation) not later than the date the Lock-up
Bid (as defined below) is publicly announced or, if the agreement was entered into
after the date of the Lock-up Bid, as soon as possible after it is entered into and in
any event not later than the day following the date of such agreement), pursuant to
which such Locked-up Persons agree to deposit or tender Voting Shares or Convertible
Securities to a Take-over Bid (the “Lockup Bid”) made by the Person or any of such
Person’s Affiliates or Associates or any other Person referred to in Section
1.1(h)(iii) and where the agreement:

	 	(i)	 	permits the Locked-up Person to withdraw Voting Shares or
Convertible Securities in order to tender or deposit Voting Shares or
Convertible Securities to another Take-over Bid (or terminate the agreement in
order to support another transaction) that represents an offering price for
each Voting Share or Convertible Security that exceeds, or provides a value for
each Voting Share or Convertible Security that is greater than, the offering
price or value represented by or proposed to be represented by the Lock-up Bid
whether or not such agreement requires that such value exceed the value
represented by the Lock-Up Bid by an amount (the “Specified Amount”) specified
in such agreement provided that, where such agreement does contain a Specified
Amount, the Specified Amount is not greater than 7% of the offering price or
value that is represented by the Lock-up Bid; and
	 
	 	(ii)	 	provides for no “break-up” fees, “top-up” fees, penalties,
payments, expenses or other amounts that exceed in the aggregate the greater
of: (A) the cash equivalent of 2.5% of the price or value payable under the
Lock-up Bid to the Locked-up Person, and (B) 50% of the amount by which the

 

 

- 12 -

	 	 	 	price or value payable under another Take-over Bid or another transaction to
a Locked-up Person exceeds the price or value of the consideration that such
Locked-up Person would have received under the Lock-up Bid, to be payable,
directly or indirectly, by such Locked-up Person pursuant to the agreement
if any Locked-up Person fails to tender Voting Shares or Convertible
Securities pursuant thereto or withdraws Voting Shares or Convertible
Securities previously tendered thereto in order to tender such Voting Shares
or Convertible Securities to another Take-over Bid or support another
transaction;

and, for greater certainty, the agreement may contain a right of first refusal or
require a period of delay to give the Offeror an opportunity to at least match a
higher consideration in another Take-over Bid or transaction or contain any other
similar limitation on a Locked-up Person’s right to withdraw Voting Shares or
Convertible Securities from the agreement, so long as any such limitation does not
preclude the exercise by the Locked-up Person of the right to withdraw Voting Shares
or Convertible Securities in sufficient time to tender to the other Take-over Bid or
to support the other transaction.

	 	(ii)	 	“Person” means any individual, firm, partnership, limited partnership, limited
liability company or partnership, association, trust, trustee, executor, administrator,
legal or personal representative, government, governmental body, entity or authority,
group, body corporate, corporation, unincorporated organization or association,
syndicate, joint venture or any other entity, whether or not having legal personality,
and any of the foregoing in any derivative, representative or fiduciary capacity and
pronouns have a similar extended meaning.
	
	 
	 	(jj)	 	“Record Time” means the close of business on
May 1, 2006.
(kk) “Redemption Price” has the meaning ascribed thereto in Section 5.1(a).
	
	 
	 	(ll)	 	“regular periodic cash dividends” means cash dividends paid at regular
intervals in any fiscal year of the Corporation to the extent that such cash dividends
do not exceed, in the aggregate, the greater of:

	 	(i)	 	200% of the aggregate amount of cash dividends declared payable
by the Corporation on its Common Shares in its immediately preceding fiscal
year; and
	 
	 	(ii)	 	100% of the aggregate consolidated net income of the
Corporation, before extraordinary items, for its immediately preceding fiscal
year.

	 	(mm)	 	“Right” means a right issued pursuant to this Agreement.
	 
	 	(nn)	 	“Rights Certificate” has the meaning ascribed thereto in Section 2.2(c).
	 
	 	(oo)	 	“Rights Register” has the meaning ascribed thereto in Section 2.6(a).

 

 

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	 	(pp)	 	“Securities Act” means the Securities Act (British Columbia), and the
regulations and rules thereunder, and any comparable or successor laws, regulations and
rules thereto.
	
	 
	 	(qq)	 	“Separation Time” means the close of business on the tenth Trading Day after
the earlier of (i) the Stock Acquisition Date, (ii) the date of the commencement of, or
first public announcement of the intent of any Person (other than the Corporation or
any Subsidiary of the Corporation) to commence, a Take-over Bid (other than a Permitted
Bid or Competing Bid) or such later date as may be determined by the Board of Directors
and (iii) the date on which a Permitted Bid or Competing Bid ceases to qualify as such
or such later date as may be determined by the Board of Directors provided that, if any
Take-over Bid referred to in (ii) above or any Permitted Bid or Competing Bid referred
to in (iii) above expires, is cancelled, terminated or otherwise withdrawn prior to the
Separation Time, such Take-over Bid, Permitted Bid or Competing Bid, as the case may
be, shall be deemed, for the purposes of this Section 1.1(gg), never to have been made
and provided further that if the Board of Directors determines pursuant to Sections
5.1(b),(c) or (d) 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.
	
	 
	 	(rr)	 	“Stock Acquisition Date” means the first date of public announcement (which,
for 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 1934 Exchange
Act) by the Corporation or an Offeror or Acquiring Person of facts indicating that a
Person has become an Acquiring Person.
	 
	 	(ss)	 	“Subsidiary”: a corporation shall be deemed to be a Subsidiary of another
corporation if:

	 	(i)	 	it is controlled by:

	 	(1)	 	that other;
	 
	 	(2)	 	that other and one or more corporations each of
which is controlled by that other; or
	 
	 	(3)	 	two or more corporations each of which is
controlled by that other; or

	 	(ii)	 	it is a Subsidiary of a corporation that is that other’s
Subsidiary.

	 	(tt)	 	“Take-over Bid” means an Offer to Acquire Voting Shares or securities
convertible into or exchangeable for or carrying a right to purchase Voting Shares
where the Voting Shares subject to the Offer to Acquire, together with the Voting
Shares into which the securities subject to the Offer to Acquire are convertible,
exchangeable or exercisable, and the Offeror’s Securities, constitute in the

 

 

- 14 -

	 	 	 	aggregate 20% or more of the outstanding Voting Shares at the date of the Offer to
Acquire.
	
	 
	 	(uu)	 	“Termination Time” means the time at which the right to exercise Rights shall
terminate pursuant to Sections 5.1(a) or (e) or 5.14.
	
	 
	 	(vv)	 	“Trading Day”, when used with respect to any securities, means a day on which
the principal Canadian stock exchange or American stock exchange or market on which
such securities are listed or admitted to trading is open for the transaction of
business or, if the securities are not listed or admitted to trading on any Canadian
stock exchange or American stock exchange or market, a Business Day.
	 
	 	(ww)	 	“United States Dollar Equivalent” of any amount which is expressed in Canadian
Dollars means, on any date, the amount determined by multiplying such amount by the
Canadian – U.S. Exchange Rate in effect on such date.
	 
	 	(xx)	 	“Voting Shares” means the Common Shares and any other shares or voting
interests of the Corporation entitled to vote generally in the election of directors.

	1.2	 	Currency.

     All sums of money which are referred to in this Agreement are expressed in lawful money of the
United States of America, unless otherwise specified.

	1.3	 	Headings.

     The division of this Agreement into Articles and Sections and the insertion of headings,
subheadings and a table of contents are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement. Unless otherwise stated, all references herein
to Articles or Sections are to those in this Agreement.

	1.4	 	Number and Gender.

     Wherever the context so requires, terms used herein importing the singular number only shall
include the plural and vice-versa and words importing only one gender shall include all others.

	1.5	 	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, with the
first Person or any Associate or Affiliate of the first Person to acquire or make an Offer to
Acquire Voting Shares of the Corporation (other than customary agreements with and between
underwriters or banking group members or selling group members with respect to a distribution of
securities or to a pledge of securities in the ordinary course of business).

 

 

- 15 -

1.6 Statutory References.

     Unless the context otherwise requires or except as expressly provided herein, any reference
herein to a specific part, section 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.

ARTICLE 2

THE RIGHTS

2.1 Legend on Common Share Certificates.

	 	(a)	 	Certificates issued for Common Shares after the Record Time but prior to the
close of business on the earlier of the Separation Time and the Expiration Time shall
evidence one Right for each Common Share represented thereby and, commencing as soon as
reasonably practicable after the effective date of this Agreement, shall have impressed
on, printed on, written on or otherwise affixed to them, a legend in substantially the
following form:

“Until the Separation Time (defined in the Rights Agreement referred
to below), this certificate also evidences rights of the holder
described in a Shareholder Rights Plan Agreement, dated May 1, 2006, as amended and restated (the “Rights Agreement”), between the
Corporation and Pacific Corporate Trust Company, a copy of which is
on file at the principal executive offices of the Corporation. Under
certain circumstances set out in the Rights Agreement, the rights
may be redeemed, may expire, may become null and void or may be
evidenced by separate certificates and no longer evidenced by this
certificate.”

	 	(b)	 	Until the earlier of the Separation Time and the Expiration Time, certificates
representing Common Shares that are issued and outstanding at the Record Time shall
evidence one Right for each Common Share evidenced thereby notwithstanding the absence
of the foregoing legend. Following the Separation Time, Rights will be evidenced by
Rights Certificates issued pursuant to Section 2.2.

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

	
	 	(a)	 	Right to entitle holder to purchase one Common Share prior to adjustment.
Subject to adjustment as herein set forth, each Right
will entitle the holder thereof, from and after the Separation Time and prior to the
Expiration Time, to purchase, for the Exercise Price or its Canadian Dollar Equivalent
as at the Business Day immediately preceding the date of exercise of the Right, one
Common Share. Notwithstanding any other provision of this
Agreement, any Rights held by the Corporation or any of its Subsidiaries shall be
void.

	

 

- 16 -

	 	(b)	 	Rights not exercisable until Separation Time. 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 certificates for the
associated Common Shares registered in the respective names of the holders thereof
(which certificates shall also be deemed to be Rights Certificates) and will be
transferable only together with, and will be transferred by a transfer of, such
associated Common Shares.
	 
	 	(c)	 	Rights after Separation Time. From and after the Separation Time and prior to
the Expiration Time, (i) the Rights shall be exercisable, and (ii) the registration and
transfer of the Rights shall be separate from, and independent of, Common Shares.
Promptly following the Separation Time, the Corporation will prepare and the Rights
Agent will mail to each holder of record of Rights as of the Separation Time (other
than 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 records
to the Rights Agent for this purpose), (A) a certificate (a “Rights Certificate”) in
substantially the form of Schedule 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,
regulation or judicial or administrative order or with any rule or regulation made
pursuant thereto or with any rule or regulation of any self-regulatory organization,
stock exchange or quotation system on which the Rights may from time to time be listed
or traded, or to conform to usage, and (B) a disclosure statement describing the
Rights, provided that a Nominee shall be sent the materials provided for in (A) and (B)
in respect of all Common Shares held of record by it which are not Beneficially Owned
by an Acquiring Person. In order for the Corporation to determine whether any Person is
holding Common Shares which are Beneficially Owned by another Person, the Corporation
may require such first mentioned Person to furnish it with such information and
documentation as the Corporation considers appropriate.
	 
	 	(d)	 	Exercise of Rights. 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 the office of the Rights Agent in Vancouver, British Columbia
or any other office of the Rights Agent in the cities designated from time to time for
that purpose by the Corporation) the Rights Certificate evidencing such Rights together
with an election to exercise such Rights (an “Election to Exercise”) substantially in
the form attached to the Rights Certificate duly completed and executed, accompanied by
payment by certified cheque, banker’s draft or money order payable to the order of the Corporation, 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

 

- 17 -

	 	 	 	any transfer involved in the transfer or delivery of Rights Certificates or the
issuance or delivery of certificates for Common Shares in a name other than that of
the holder of the Rights being exercised, all of the above to be received before the
Expiration Time by the Rights Agent at its principal office in any of the cities
listed on the Rights Certificate.

	 	(e)	 	Duties of Rights Agent upon receipt of Election to Exercise. Upon receipt of a
Rights Certificate, which is accompanied by a completed and duly executed Election to
Exercise, and payment as set forth in Section 2.2(d) above, the Rights Agent (unless
otherwise instructed by the Corporation) will thereupon promptly:

	 	(i)	 	requisition from the transfer agent for the Common Shares
certificates representing the number of Common Shares to be purchased (the
Corporation hereby irrevocably authorizing its transfer agent to comply with
all such requisitions);
	 
	 	(ii)	 	when appropriate, requisition from the Corporation the amount
of cash to be paid in lieu of issuing fractional Common Shares;
	 
	 	(iii)	 	after receipt of such certificates, deliver the same to or
upon the order of the registered holder of such Rights Certificate, registered
in such name or names as may be designated by such registered holder;
	
	 
	 	(iv)	 	when appropriate, after receipt, deliver the cash referred to
in Section 2.2(e)(ii) (less any
amounts required to be withheld) 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)	 	Partial Exercise of Rights. In case 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.
	 
	 	(g)	 	Duties of the Corporation. The Corporation covenants and agrees that it will:

	 	(i)	 	take all such action as may be necessary and within its power
to ensure that all Common Shares or other securities delivered upon exercise of
Rights shall, at the time of delivery of the certificates for such shares
(subject to payment of the Exercise Price), be duly and validly authorized,
executed, issued and delivered and fully paid and non-assessable;
	 
	 	(ii)	 	take all such action as may be necessary and within its power
to ensure compliance with the provisions of Section 3.1 including, without
limitation, all such action to comply with any applicable requirements of
the BCA, the Securities Act and any applicable comparable securities
legislation of each of the provinces of Canada, the 1933 Securities Act and
the 1934 Exchange Act and any other applicable law, rule or regulation, in

 

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	 	 	 	connection with the issuance and delivery of the Rights Certificates and the
issuance of any Common Shares or other securities upon exercise of Rights;
	 
	 	(iii)	 	use reasonable efforts to cause, from and after such time as
the Rights become exercisable, all Common Shares issued upon exercise of Rights
to be listed upon issuance on the principal stock exchange on which the Common
Shares were traded prior to the Stock Acquisition Date;
	 
	 	(iv)	 	cause to be reserved and kept available out of its authorized
and unissued Common Shares, the number of Common 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 any and all Canadian federal and
provincial transfer taxes and charges (not including any income or capital
taxes of the holder or exercising holder or any liability of the Corporation to
withhold tax) which may be payable in respect of the original issuance or
delivery of the Rights Certificates, provided that the Corporation shall not be
required to pay any transfer tax or charge which may be payable in respect of
any transfer involved in the transfer or delivery of Rights Certificates or the
issuance or delivery of certificates for shares or other securities in a name
other than that of the registered holder of the Rights being transferred or
exercised; and
	 
	 	(vi)	 	after the Separation Time, except as permitted by Sections 5.1
or 5.4, not take (or permit any Subsidiary to take) any action if at the time
such action is taken it is reasonably foreseeable that such action will
diminish substantially or otherwise eliminate the benefits intended to be
afforded by the Rights.

2.3 Adjustments to Exercise Price; Number of Rights.

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

	 	(a)	 	Adjustment to Exercise Price upon changes to share capital. In the event the
Corporation shall at any time after the Record Time and prior to the Expiration Time:

	 	(i)	 	declare or pay a dividend on the Common Shares payable in
Common Shares or Convertible Securities other than the issue of Common Shares
or such Convertible Securities to holders of Common Shares in lieu of but
not in an amount which exceeds the value of regular periodic cash dividends;

 

- 19 -

	 	(ii)	 	subdivide or change the outstanding Common Shares into a
greater number of Common Shares;
	 
	 	(iii)	 	combine, consolidate or change the outstanding Common Shares
into a smaller number of Common Shares; or
	 
	 	(iv)	 	issue any Common Shares or Convertible Securities in respect
of, in lieu of or in exchange for existing Common Shares, except as otherwise
provided in this Section 2.3;

the Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of Common Shares, or other securities, as the case may be, issuable
on such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of the Exercise
Price then in effect, the aggregate number and kind of Common Shares or other
securities, as the case may be, which, if such Right had been exercised immediately
prior to such date and at a time when the Common Share transfer books of the
Corporation were open, such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an adjustment under both
this Section 2.3 and Section 3.1, the adjustment provided for in this Section 2.3
shall be in addition to and, shall be made prior to, any adjustment required
pursuant to Section 3.1.

	 	(b)	 	Adjustment to Exercise Price upon issue of rights, options and warrants. In
case the Corporation shall at any time after the Record Time fix a record date for the
issuance of rights, options or warrants to all holders of Common Shares entitling them
(for a period expiring within 45 calendar days after such record date) to subscribe for
or purchase Common Shares (or shares having the same rights, privileges and preferences
as Common Shares (“equivalent common shares”)) or securities convertible into or
exchangeable for or carrying a right to purchase Common Shares or equivalent common
shares at a price per Common Share or per equivalent common share (or having a
conversion price or exchange price or exercise price per share, if a security
convertible into or exchangeable for or carrying a right to purchase Common Shares or
equivalent common shares) less than 90% of the Market Price per Common Share on such
record date, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such record
date by a fraction, the numerator of which shall be the number of Common Shares
outstanding on such record date, plus the number of Common Shares that the aggregate
offering price of the total number of Common Shares and/or equivalent common shares so
to be offered (and/or the aggregate initial conversion, exchange or exercise price of
the convertible or exchangeable securities or rights so to be
offered, including the price required to be paid to purchase such convertible or
exchangeable securities or rights so to be offered) would purchase at such Market
Price per Common Share, and the denominator of which shall be the number of 

 

- 20 -

	 	 	 	Common Shares outstanding on such record date, plus the number of additional Common Shares
and/or equivalent common shares to be offered for subscription or purchase (or into
which the convertible or exchangeable securities are initially convertible,
exchangeable or exercisable). In case such subscription price may be paid by
delivery of consideration, part or all of which may be in a form other than cash,
the value of such consideration shall be as determined in good faith by the Board of
Directors, whose determination shall be described in a certificate filed with the
Rights Agent and shall be binding on the Rights Agent and the holders of the Rights.
Such adjustment shall be made successively whenever such a record date is fixed and,
in the event that such rights or warrants are not so issued, the Exercise Price
shall be adjusted to be the Exercise Price which would then be in effect if such
record date had not been fixed.

	 	 	 	For purposes of this Agreement, the granting of the right to purchase Common Shares
(or equivalent common shares) (whether from treasury shares or otherwise) pursuant
to any dividend or interest reinvestment plan and/or any Common Share purchase plan
providing for the reinvestment of dividends or interest payable on securities of the
Corporation and/or the investment of periodic optional payments and/or employee
benefit, stock option or similar plans (so long as such right to purchase is in no
case evidenced by the delivery of rights or warrants) shall not be deemed to
constitute an issue of rights, options or warrants by the Corporation; provided,
however, that, in the case of any dividend or interest reinvestment plan, the right
to purchase Common Shares (or equivalent common 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 Common Shares.

	 	(c)	 	Adjustment to Exercise Price upon Corporate Distributions. In case the
Corporation shall at anytime after the Record Time fix a record date for a distribution
to all holders of Common Shares (including any such distribution made in connection
with a merger, amalgamation, arrangement, plan, compromise or reorganization in which
the Corporation is the continuing or successor corporation) of evidences of
indebtedness, cash (other than a regular periodic cash dividend or a regular periodic
cash dividend paid in Common Shares, but including any dividend payable in securities
other than Common Shares), assets or subscription rights, options or warrants
(excluding those referred to in Section 2.3(b) above), the Exercise Price to be in
effect after such record date shall be determined by multiplying the Exercise Price in
effect immediately prior to such record date by a fraction, the numerator of which
shall be the Market Price per Common Share on such record date, less the fair market
value (as determined in good faith by the Board of Directors, whose determination shall
be described in a statement filed with the Rights Agent) of the portion of the cash,
assets or evidences of indebtedness so to be distributed or of such subscription
rights, options or warrants applicable to a Common Share and the denominator of which
shall be such Market Price per Common Share. Such adjustments shall be made
successively whenever such a record date is fixed, and in the event that such
distribution is not so made, the Exercise Price shall be adjusted to be the Exercise
Price which would have been in effect if such record date had not been fixed.

 

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	 	(d)	 	Regarding calculation of adjustment to Exercise Price. Notwithstanding
anything herein to the contrary, no adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in the
Exercise Price; provided, however, that any adjustments which by reason of this Section
2.3(d) are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 2.3 shall be made to the
nearest cent or to the nearest one hundredth of a Common Share or other share, as the
case may be. Notwithstanding the first sentence of this Section 2.3(d), any adjustment
required by this Section 2.3 shall be made no later than the earlier of (i) 3 years
from the date of the transaction which mandates such adjustment or (ii) the Expiration
Time.
	 
	 	(e)	 	Adjustment to number of Common Shares purchasable upon adjustment to Exercise
Price. Unless the Corporation shall have exercised its election as provided in Section
2.3(i) below, upon each adjustment of the Exercise Price as a result of the
calculations made in Sections 2.3(b) and (c) above, 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 Common Shares (calculated to the nearest
one ten-thousandth) obtained by (A) multiplying (x) the number of shares purchasable
upon exercise of a Right immediately prior to this adjustment by (y) the Exercise Price
in effect immediately prior to such adjustment of the Exercise Price, and (B) dividing
the product so obtained by the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
	 
	 	(f)	 	Corporation may provide for alternate means of adjustment. Subject to the
prior consent of the holders of Voting Shares or Rights obtained as set forth in
Section 5.4(a) or (b), as applicable, in the event the Corporation shall at any time
after the Record Time issue any shares (other than Common Shares), or rights or
warrants to subscribe for or purchase any such shares, or securities convertible into
or exchangeable for any such shares, in a transaction referred to in Sections 2.3(a)(i)
or (iv) or 2.3(b) or (c) above, if the Board of Directors acting in good faith
determines that the adjustments contemplated by Sections 2.3(a), (b) and (c) above in
connection with such transaction will not appropriately protect the interests of the
holders of Rights, the Corporation shall be entitled to determine what other
adjustments to the Exercise Price, number of Rights and/or securities purchasable upon
exercise of Rights would be appropriate and, notwithstanding Sections 2.3(a), (b) and
(c) above, such adjustments, rather than the adjustments contemplated by Sections
2.3(a), (b) and (c) above, shall be made. The Corporation and the Rights Agent shall
amend this Agreement as appropriate to provide for such adjustments.
	 
	 	(g)	 	Adjustment to Rights exercisable into shares other than Common Shares. If as a
result of an adjustment made pursuant to Section 3.1 hereof, the holder of any Right
thereafter exercised shall become entitled to receive any shares other than Common
Shares, thereafter the number of such other shares so receivable upon exercise of any
Right and the Exercise Price thereof shall be subject to adjustment

 

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	 	 	 	from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Shares contained in this Section 2.3, and the provisions of this
Agreement with respect to the Common Shares shall apply on like terms to any such other shares.

	 	(h)	 	Rights to evidence right to purchase Common Shares at adjusted Exercise Price.
Each Right 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 Common Shares purchasable from time to time hereunder
upon exercise of such Right, all subject to further adjustment as provided herein.
	 
	 	(i)	 	Election to adjust number of Rights upon adjustment to Exercise Price. The
Corporation shall be entitled to 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 Common Shares purchasable upon the exercise of a Right. If the Corporation so
elects, each of the Rights outstanding after the adjustment in the number of Rights
shall be exercisable for the number of Common 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 that number of Rights (calculated to
the nearest one ten-thousandth) obtained by dividing the Exercise Price in effect
immediately prior to adjustment of the Exercise Price by the Exercise Price in effect
immediately after adjustment of the Exercise Price. The Corporation shall make a public
announcement of its election to adjust the number of Rights, 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 Exercise Price is adjusted or any day
thereafter but, if Rights Certificates have been issued, shall be at least 10 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 Section 2.3(i),
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, 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 adjusted Exercise Price and shall be registered in
the names of the holders of record of
Rights Certificates on the record date for the adjustment specified in the public
announcement.
	 
	 	(j)	 	Corporation may in certain cases defer issues of securities. In any case in
which this Section 2.3 shall require that an adjustment in the Exercise Price be made
effective as of a record date for a specified event, the Corporation may elect 

 

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	 	 	 	to defer until the occurrence of such event the issuance to the holder of any Right exercised
after such record date the number of Common Shares and other securities of the
Corporation, if any, issuable upon such exercise over and above the number of Common
Shares and other securities of the Corporation, if any, issuable upon such exercise on
the basis of the 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
securities upon the occurrence of the event requiring such adjustment.

	 	(k)	 	Corporation has discretion to reduce Exercise Price for tax reasons.
Notwithstanding anything in this Section 2.3 to the contrary, the Corporation shall be
entitled to make such reductions in the Exercise Price, in addition to those
adjustments expressly required by this Section 2.3, as and to the extent that in their
good faith judgment, the Board of Directors shall determine to be advisable in order
that any (A) consolidation or subdivision of the Common Shares, (B) issuance of any
Common Shares at less than the Market Price, (C) issuance of Convertible Securities,
(D) stock dividends or (E) issuance of rights, options or warrants, referred to in this
Section 2.3 hereafter made by the Corporation to holders of its Common Shares, shall
not be taxable to such shareholders.

	 	(l)	 	Certificate of Adjustment. Whenever an adjustment to
the Exercise price or number of Rights ia made pursuant to this
section 2.3, the Corporation shall;

	
	 	(i)	 	promptly prepare a certificate setting forth such adjustment
and calculation thereof and a brief statement of the facts accounting
for such adjustment; and
	
	
	 
	 	(ii)	 	promptly file with the Rights Agent and with each transfer
agent for the Common Shares a copy of such certificate and mail a
brief summary thereof to each holder of Rights.
	

2.4 Date on Which Exercise is Effective.

     Each person in whose name any certificate for Common Shares is issued upon the exercise of
Rights, shall for all purposes be deemed to have become the holder of record of the Common 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 holder hereunder) was made; provided, however,
that if the date of such surrender and payment is a date upon which the Common Share transfer books
of the Corporation are closed, such person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day on which the
Common Share transfer books of the Corporation are open.

2.5 Execution, Authentication, Delivery and Dating of Rights Certificates

	 	(a)	 	Each Rights Certificate shall be executed on behalf of the Corporation by its
Chairman, President, Chief Executive Officer, Chief Financial Officer or any
Vice-President. 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.

 

- 24 -

	 	(b)	 	Promptly after the Corporation learns of 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
disclosure statement as described in Section 2.2(c), and the Rights Agent shall
manually or by facsimile signature countersign and send such Rights Certificates and
disclosure statement to the holders of the Rights pursuant to Section 2.2(c). 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, Registration of Transfer and Exchange.

	 	(a)	 	The Corporation will 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. In the
event that the Rights Agent shall cease to be the Rights Registrar, the Rights Agent
will have the right to examine the Rights Register at all reasonable times.
	 
	 	 	 	After the Separation Time and prior to the Expiration Time, upon surrender for
registration of transfer or exchange of any Rights Certificate and subject to the
provisions of Section 2.6(c) below and the other provisions of this Agreement, the
Corporation will execute and the Rights Agent will countersign, register and
deliver, in the name of the holder or the designated transferee or transferees as
required pursuant to the holder’s instructions, one or more new Rights Certificates
evidencing the same aggregate number of Rights as did the Rights Certificates so
surrendered.
	 
	 	(b)	 	All Rights issued upon any registration of transfer or exchange of Rights
Certificates shall be the 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.
	 
	 	(c)	 	Every Rights Certificate surrendered for registration of transfer or exchange
shall be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Corporation or the Rights Agent, as the case may be, duly executed
by the registered 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 or the Rights Agent may require the
payment of a sum sufficient to cover any tax or other governmental charge that may
be imposed in relation thereto and the Corporation may require payment of a sum
sufficient to cover any other expenses (including the fees and expenses of the
Rights Agent) in connection therewith.

 

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2.7 Mutilated, Destroyed, Lost and Stolen 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 indemnity or other security as
may be 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 its 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 or the Rights Agent may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation thereto and
the Corporation may require payment of a sum sufficient to cover any other expenses
(including the fees and expenses of the Rights Agent) in connection 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 an original additional
contractual obligation of the Corporation, whether or not the destroyed lost or stolen
Rights Certificate shall be at any time enforceable by anyone, and the holder thereof
shall be entitled to all the benefits of this Agreement equally and proportionately
with any and all other holders of Rights duly issued by the Corporation.

2.8 Persons Deemed Owners.

     Prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the
associated Common Share certificate) for registration of transfer, the Corporation, the Rights
Agent and any agent of the Corporation or the Rights Agent shall be entitled to deem and treat the
person in whose name a Rights Certificate (or, prior to the Separation Time, the associated Common
Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby
for all purposes whatsoever. As used in this Agreement, unless the context
otherwise requires, the term “holder” of any Rights shall mean the registered holder of such
Rights (or, prior to the Separation Time, the associated Common Shares).

2.9 Delivery and Cancellation of Rights Certificates.

     All Rights Certificates surrendered upon exercise or for redemption, registration of transfer
or exchange shall, if surrendered to any person other than the Rights Agent, be delivered

 

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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 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 laws, 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 the same, 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 or
supplemented 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 Common Share;
	 
	 	(c)	 	that after the Separation Time, the Rights Certificates will be transferable
only on the Rights Register as provided herein;
	 
	 	(d)	 	that prior to due presentment of a Rights Certificate (or, prior to the
Separation Time, the associated Common Share certificate) for registration of transfer,
the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent
shall be entitled to deem and treat the person in whose name the Rights Certificate (or
prior to the Separation Time, the associated Common 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 Common
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 his right to receive any fractional
Rights or any fractional shares upon exercise of a Right;
	 
	 	(f)	 	that, in accordance with Section 5.4, without the approval of any holder of
Rights and upon the sole authority of the Board of Directors acting in good faith this
Agreement may be supplemented or amended from time to time pursuant to and as
provided herein; and
	 
	 	(g)	 	that notwithstanding anything in this Agreement to the contrary, neither the
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

 

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	 	 	 	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.

2.11 Rights Certificate Holder not Deemed a Shareholder.

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

ARTICLE 3

ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS

3.1 Flip-in Event.

	
	 	(a)	 	Subject to Section 3.1(b) and Sections 5.1, in the event that
prior to the Expiration Time a Flip-in Event shall occur, the Corporation shall take
such action as may be necessary to ensure and provide within 8 Business Days of such
occurrence, or such longer period as may be required to satisfy all requirements of
applicable securities legislation that, except as provided below, each Right shall
thereafter constitute the right to purchase from the Corporation upon exercise thereof
in accordance with the terms hereof that number of Common Shares of the Corporation
having an aggregate Market Price on the date of the occurrence of such Flip-in Event
equal to twice the Exercise Price for an amount in cash equal to the Exercise Price
(such Right to be appropriately adjusted in a manner analogous to the applicable
adjustment provided for in Section 2.3 in the event that after such date of occurrence
an event of a type analogous to any of the
events described in Section 2.3 shall have occurred with respect to such Common
Shares).
	
	 
	 	(b)	 	Notwithstanding anything in this Agreement to the contrary, upon the occurrence
of any Flip-in Event, any Rights that are Beneficially Owned by (i) an Acquiring
Person, or any Affiliate or Associate of an Acquiring Person, or any Person acting
jointly or in concert with an Acquiring Person or any Affiliate or Associate of such
Acquiring Person, or any Affiliate or Associate of such Person so acting 

 

- 28 -

	 	 	 	jointly or in concert, or (ii) a transferee or other successor in title of Rights, directly or
indirectly, of an Acquiring Person (or of any Affiliate or Associate 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 (or of any Affiliate or Associate of such
Person so acting jointly or in concert) who becomes a transferee or successor in title
concurrently with or subsequent to the Acquiring Person becoming such, shall become
null and void without any further action, and any holder of such Rights (including
transferees or successors in title) shall not have any rights whatsoever to exercise
such Rights under any provision of this Agreement and shall not have thereafter any
other rights whatsoever with respect to such Rights, whether under any provision of
this Agreement or otherwise.

	 	(c)	 	Any Rights Certificate that would represent Rights Beneficially owned by a
Person described in either Section 3.1(b)(i) or (ii) or transferred to any nominee of
any such Person, and any Rights Certificate that would be issued upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to in this
sentence, shall either not be issued upon the instruction of the Corporation to the
Rights Agent or contain the following legend:

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

	 	 	 	Provided, however, that the Rights Agent shall not be under any responsibility to
ascertain the existence of facts that would require the imposition of such legend
but shall impose such legend only if instructed to do so by the Corporation in
writing or if a holder fails to certify upon transfer or exchange in the space
provided on the Rights Certificate that such holder is not a Person described in
such legend. The issuance of a Rights Certificate without the legend referred to in
this Section 3.1(c) shall be of no effect on the provisions of Section 3.1(b).

ARTICLE 4

THE RIGHTS AGENT

4.1 General.

	 	(a)	 	The Corporation hereby appoints the Rights Agent to act as agent for the
Corporation in accordance with the terms and conditions hereof, and the Rights Agent
hereby accepts such appointment. The Corporation may from time to time

 

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	 	 	 	appoint such co-Rights Agents as it may deem necessary or desirable, subject to the prior approval
of the Rights Agent. In the event the Corporation appoints one or more co-Rights
Agents, the respective duties of the Rights Agents and co-Rights Agents shall be as the
Corporation may determine, with the 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 (including reasonable fees and disbursements of counsel) incurred in the
administration and execution of this Agreement and the exercise and performance of its
duties hereunder. The Corporation also agrees to indemnify the Rights Agent, its
officers, directors and employees for, and to hold such persons harmless against, any
loss, liability, cost, claim, action, suit, damage, or expense incurred (that is not
the result of negligence, bad faith or wilful misconduct on the part of any one or all
of the Rights Agent, its officers, directors or employees) for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability, which right to indemnification will survive the termination of this
Agreement or the resignation or removal of the Rights Agent.

	 	(b)	 	The Rights Agent shall be protected from 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 Common Shares or
any Rights Certificate or 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.

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

4.2 Merger or Amalgamation 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, statutory arrangement or consolidation to
which the Rights Agent or any successor Rights Agent is a party, or any corporation
succeeding to the shareholder or stockholder 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 paper 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. 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 

 

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	 	 	 	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, to 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) and the opinion of such counsel will be full and complete
authorization and protection to the Rights Agent as to any action taken or omitted to
be taken by it in good faith and in accordance with such opinion. Subject to the prior
written consent of the Corporation, which consent shall not be unreasonably withheld,
the Rights Agent may also consult with such other experts as the Rights Agent shall
consider necessary or appropriate to properly carry out the duties and obligations
imposed under this Agreement (at the expense of the Corporation) 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 proven and established by a certificate signed by a person
believed by the Rights Agent to be the Chairman of the Board, the President, Chief
Executive Officer, Chief Financial Officer or any Vice-President, 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 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 events which are the result
of its own negligence, bad faith or wilful misconduct and that of its officers,
directors and employees.
	 
	 	(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 Common

 

- 31 -

	 	 	 	Shares or the Rights Certificates (except its countersignature thereof) or be required
to verify the same, but all such statements and recitals are and will be deemed to have
been made by the Corporation only.

	 	(e)	 	The Rights Agent will not be under any responsibility in respect of (i) the
validity of this Agreement or the execution and delivery hereof (except the due
authorization, execution and delivery hereof by the Rights Agent) (ii) the validity or
execution of any Common Share certificate or Rights Certificate (except its
countersignature thereof); (iii) any breach by the Corporation of any covenant or
condition contained in this Agreement or in any Rights Certificate; (iv) any change in
the exercisability of the Rights (including the Rights becoming void pursuant to
Section 3.1(b)) or any adjustment required under the provisions of Section 2.3; or (v)
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 a certificate contemplated by Section 2.3
describing any such adjustment); nor will it by any act hereunder be deemed to make any
representation or warranty as to the authorization of any Common Shares to be issued
pursuant to this Agreement or any Rights or as to whether any Common Shares will, when
issued, be duly and validly authorized, executed, issued and delivered or 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 believed by the
Rights Agent to be the Chairman of the Board, President, Chief Executive Officer, Chief
Financial Officer or any Vice-President of the Corporation and to apply to such persons
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 person. It is understood that instructions to the Rights Agent shall, except
where circumstances make it impracticable 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 possible after
the giving of such instructions.
	 
	 	(h)	 	The Rights Agent and any shareholder, director, officer or employee of the
Rights Agent may buy, sell or deal in Common 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 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.

 

- 32 -

	 	(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, with the prior written
consent of the Corporation, by or through its attorneys or agents. The Rights Agent
will not be answerable or accountable for any act, omission, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Corporation resulting
from any such act, omission, default, neglect or misconduct, provided the prior written
consent of the Corporation was obtained and reasonable care was exercised in the
selection and continued employment thereof.

4.4 Change of Rights Agent.

     The
Rights Agent may resign and be discharged from its duties under this
Agreement upon 60
days’ notice (or such lesser notice as is acceptable to the Corporation) in writing mailed to the
Corporation and to each transfer agent of Common Shares by registered or certified mail, and to the
holders of the Rights in accordance with Section 5.8 hereof (all of which shall be at the expense
of the Corporation). The Corporation may remove the Rights Agent upon 30 days’ notice in writing,
mailed to the Rights Agent and to each transfer agent of the Common Shares by registered or
certified mail and to the holders of the Rights in accordance with Section 5.8. 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 60 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 by the
Corporation), then the Rights Agent or the holder of any Rights 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, shall be a corporation
incorporated under the laws of Canada or a province thereof authorized to carry on the business of
a trust company in Canada. 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 receiving from the Corporation
payment in full of all amounts outstanding under this Agreement, 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 Common Shares, and mail a notice thereof
in writing to the holders of the
Rights. The cost of giving any notice required under this Section 4.4 shall be borne solely by
the Corporation. 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.

 

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ARTICLE 5

MISCELLANEOUS

5.1 Redemption and Waiver.

	 	(a)	 	Subject to the prior consent of the holders of Voting Shares (prior to the
Separation Time) or Rights (after the Separation Time) obtained as set forth in Section
5.4(b) or (c), as applicable, the Board of Directors acting in good faith may, at any
time prior to the occurrence of a Flip-in Event as to which the application of Section
3.1 has not been waived pursuant to the provisions of this Section 5.1, elect to redeem
all but not less than all of the then outstanding Rights at a redemption price of
$0.00001 per Right appropriately adjusted in a manner analogous to the applicable
adjustment provided for in Section 2.3 in the event that an event of the type described
in Section 2.3 shall have occurred (such redemption price being herein referred to as
the “Redemption Price”).
	 
	 	(b)	 	Subject to the prior consent of the holders of Voting Shares obtained as set
forth in Section 5.4(b), the Board of Directors may, at any time prior to the
occurrence of a Flip-in Event as to which the application of Section 3.1 has not been
waived pursuant to this Section 5.1, if such Flip-in Event would occur by reason of an
acquisition of Voting Shares otherwise than pursuant to a Take-over Bid made by means
of a Take-over Bid circular to all registered holders of Voting Shares and otherwise
than in the circumstances set forth in Section 5.1(d), waive the application of Section
3.1 to such Flip-in Event. In the event the Board of Directors proposes such a waiver,
the Board of Directors shall extend the Separation Time to a date at least 10 Business
Days subsequent to the meeting of shareholders called to approve such waiver.
	 
	 	(c)	 	The Board of Directors acting in good faith, may, prior to the occurrence of a
Flip-in Event, and upon prior written notice delivered to the Rights Agent, determine
to waive the application of Section 3.1 to 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 registered holders of
Voting Shares; provided that if the Board of Directors waives the application of
Section 3.1 to a particular Flip-in Event pursuant to this Section 5.1(c), the Board of
Directors shall be deemed to have waived the application of Section 3.1 to any other
Flip-in Event occurring by reason of any Take-over Bid made by means of a Takeover Bid
circular to all registered holders of Voting Shares prior to the expiry of any
Take-over Bid in respect of which a waiver is, or is deemed to have been granted,
pursuant to this Section 5.1(c).
	 
	 	(d)	 	The Board of Directors acting in good faith may, prior to the close of business
on the tenth day following the Stock Acquisition Date, determine, upon prior written
notice delivered to the Rights Agent, to waive or to agree to waive the application of
Section 3.1 to a Flip-in Event, provided that both of the following conditions are
satisfied:

 

- 34 -

	 	(i)	 	the Board of Directors has determined that a Person became an
Acquiring Person by inadvertence and without any intention to become, or
knowledge that Person would become, an Acquiring Person; and
	 
	 	(ii)	 	such Acquiring Person has reduced its Beneficial Ownership of
Voting Shares (or has entered into a contractual arrangement with the
Corporation, acceptable to the Board of Directors, to do so within 30 days of
the date on which such contractual arrangement is entered into) such that at
the time the waiver becomes effective pursuant to this Section 5.1(d) it is no
longer an Acquiring Person;
	 
	 	 	 	and in the event of such a waiver, for the purposes of this Agreement, the Flip-in
Event shall be deemed never to have occurred.

	 	(e)	 	Where, pursuant to a Permitted Bid, a Competing Permitted Bid or a Take-over
Bid in respect of which the Board of Directors has waived, or is deemed to have waived,
pursuant to Section 5.1(c), the application of Section 3.1, a Person acquires
outstanding Voting Shares, then the Corporation shall immediately upon the consummation
of such acquisition without further formality and without any approval under Section
5.4(b) or (c) redeem the Rights at the Redemption Price.
	
	 
	 	(f)	 	Within ten days after the Corporation electing or becoming obligated to redeem
the Rights, the Corporation shall give notice of redemption to the holders of the then
outstanding Rights by mailing such notice to all such holders at their last address as
they appear upon the Rights Register or, prior to the Separation Time, on the registry
books of the transfer agent for the Common 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.
	
	
	 
	 	(g)	 	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.
	
	 
	 	(h)	 	Notwithstanding the Rights being redeemed pursuant to Section 5.1(g), 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 Common Shares as of the Separation Time had not been 

 

 

- 35 -

	 	 	 	mailed to each such
holder and for all purposes of this Agreement the Separation Time shall be deemed not
to have occurred and the Rights shall remain attached to outstanding Voting Shares,
subject to and in accordance with the provisions of this Agreement. mailed to each such holder and for all purposes of this Agreement the Separation
Time shall be deemed not to have occurred and the Rights shall remain attached to
outstanding Voting Shares, subject to and in accordance with the provisions of this
Agreement.
	 
	 	(i)	 	If the Corporation is obligated under Section 5.1(e) to redeem the Rights, or
if the Board of Directors elects under Section 5.1(a) or 5.1(g) to redeem the Rights
and, if required, the holders of Voting Shares or the holders of Rights, as the case
may be, have approved such redemption, the right to exercise the Rights will thereupon,
without further action and without notice, terminate and each Right will after
redemption be null and void and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price.
	 
	 	(j)	 	The Corporation may not redeem, acquire or purchase for value any Rights at any
time in any manner other than that specifically set forth in this Section 5.1 or in
connection with the purchase of Common Shares prior to the Separation Time.

	5.2	 	Expiration.

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

	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.

	 	(a)	 	The Corporation may from time to time supplement or amend this Agreement
without the approval of any holders of Rights or Voting Shares to correct any clerical
or typographical error or to maintain the validity of the Agreement as a result of a
change in any applicable legislation or regulations or rules thereunder. The
Corporation may, prior to the date of the shareholders’ meeting referred to in Section
5.14, supplement, amend, vary, rescind or delete any of the provisions of this
Agreement without the approval of any holders of Rights or Voting Shares (whether or
not such action would materially adversely affect the interests of the holders of
Rights generally) where the Board of Directors acting in good faith deems such action
necessary or desirable. Notwithstanding anything in this Section 5.4 to the contrary,
no supplement or amendment shall be made to the provisions of Article 4 except with the
written concurrence of the Rights Agent to such supplement or amendment.

 

- 36 -

	 	(b)	 	Subject to Section 5.4(a), the Corporation may, with the prior consent of the
holders of the Voting Shares obtained as set forth below, at any time prior to the
Separation Time amend, vary or rescind any of the provisions of this Agreement and the
Rights (whether or not such action would materially adversely affect the interests of
the holders of Rights generally). Such consent shall be deemed to have been given if
provided by the holders of Voting Shares at a meeting of the holders of Voting Shares,
which meeting shall be called and held in compliance with applicable laws and
regulatory requirements and the requirements in the articles of the Corporation.
Subject to compliance with any requirements imposed by the foregoing, consent shall be
deemed to have been given if the proposed amendment, variation or revision is approved
by the affirmative vote of a majority of the votes cast by all holders of Voting Shares
(other than any holder of Voting Shares who is an Offeror pursuant to a Take-over Bid
that is not a Permitted Bid or Competing Bid with respect to all Voting Shares
Beneficially Owned by such Person), represented in person or by proxy at the meeting.
	 
	 	(c)	 	The Corporation may, with the prior consent of the holders of Rights, at any
time after the Separation Time and before the Expiration Time, amend, vary or rescind
any of the provisions of this Agreement and the Rights (whether or not such action
would materially adversely affect the interests of the holders of Rights generally).
Any approval of the holders of Rights shall be deemed to have been given if the action
requiring such approval is authorized by the affirmative votes of the holders of Rights
present or represented at and entitled to be voted at a meeting of the holders of
Rights and representing a majority of the votes cast in respect thereof. For the
purposes hereof, each outstanding Right (other than Rights which are void pursuant to
the provisions hereof) shall be entitled to one vote, and the procedures for the
calling, holding and conduct of the meeting shall be those, as nearly as may be, which
are provided in the Corporation’s articles and the BCA with respect to a meeting of
shareholders of the Corporation.
	 
	 	(d)	 	The Corporation shall be required to provide the Rights Agent with notice in
writing of any such amendment, variation or deletion to this Agreement as referred to
in this Section 5.4 within 5 days of effecting such amendment, variation or deletion.
	 
	 	(e)	 	Any supplements or amendments made by the Corporation to this Agreement
pursuant to Section 5.4(a) above which are required to maintain the validity of this
Agreement as a result of any change in any applicable legislation or regulations or
rules thereunder shall:

	 	(i)	 	if made before the Separation Time, be submitted to the
shareholders of the Corporation at the next meeting of shareholders and the
shareholders may, by the majority referred to in Section 5.4(b) above confirm
or reject such amendment; and
	 
	 	(ii)	 	if made after the Separation Time, be submitted to the holders
of Rights at a meeting to be called for on a date not later than immediately
following

 

- 37 -

	 	 	 	the next meeting of shareholders of the Corporation and the holders of
Rights may, by resolution passed by the majority referred to in Section
5.4(c) above, confirm or reject such amendment.

	 	 	 	A supplement or amendment of the nature referred to in this Section 5.4(e) shall be
effective from the date of the resolution of the Board of Directors adopting such
supplement or amendment until it is confirmed or rejected or until it ceases to be
effective (as described in the next sentence) and, where such supplement or
amendment is confirmed, it continues in effect in the form so confirmed. If such
supplement or amendment is rejected by the shareholders or the holders of Rights or
is not submitted to the shareholders or holders of Rights as required, then such
supplement or amendment shall cease to be effective from and after the termination
of the meeting at which it was rejected or to which it should have been but was not
submitted or from and after the date of the meeting of holders of Rights that should
have been but was not held, and no subsequent resolution of the Board of Directors
to amend, vary or delete any provision of this Agreement to substantially the same
effect shall be effective until confirmed by the shareholders or holders of Rights,
as the case may be.

	5.5	 	Fractional Rights and Fractional Shares.

	 	(a)	 	The Corporation shall not be required to issue fractions of Rights or to
distribute Rights Certificates which evidence fractional Rights. Any such fractional
Right shall be null and void and the Corporation will not have any obligation or
liability in respect thereof.
	 
	 	(b)	 	The Corporation shall not be required to issue fractions of Common Shares or
other securities upon exercise of the Rights or to distribute certificates which
evidence fractional Common Shares or other securities. In lieu of issuing fractional
Common Shares or other securities, the Corporation shall pay to the registered holders
of Rights Certificates at the time such Rights are exercised as herein provided, an
amount in cash equal to the same fraction of the Market Price of one Common Share. The
Rights Agent shall have no obligation to make any payments in lieu of fractional Common
Shares unless the Corporation shall have provided the Rights Agent with the necessary
funds to pay in full all amounts payable in accordance with Section 2.2(e).

	5.6	 	Rights of Action.

     Subject to the terms of this Agreement, all rights of action in respect of this Agreement,
other than rights of action vested solely in the Rights Agent, are vested in the respective
registered holders of the Rights; and any registered holder of any Rights, without the consent of
the Rights Agent or of the registered 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 such
holder’s right to exercise such holder’s Rights in the manner provided in such holder’s Rights
Certificate and in this Agreement. Without limiting the foregoing or any remedies available to

 

- 38 -

the holders of Rights, it is specifically acknowledged that the holders of Rights would not
have an adequate remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.

	5.7	 	Notice of Proposed Actions.

     In case the Corporation shall propose 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 5.8, 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 15 Business Days prior to the date of taking of
such proposed action.

	5.8	 	Notices.

	 	(a)	 	Notices or demands authorized or required by this Agreement to be given or made
by the Rights Agent or by the holder of any Rights to the Corporation shall be
sufficiently given or made if delivered or sent by mail, postage prepaid,
or sent by facsimile or other form of recorded electronic communication (until new
contact information is filed in writing with the Rights Agent) as follows:

International Absorbents Inc.

1569 Dempsey Road

North Vancouver, BC V7K 1S8

Attention:       Gordon L. Ellis,
Chief Executive Officer

Facsimile No.: 604-904-4105

	 	(b)	 	Any notice or demand authorized or required by this Agreement to be given or
made by the Corporation or by the holder of any Rights to the Rights Agent shall be
sufficiently given or made if delivered or sent by mail, postage prepaid,
or sent by facsimile or other form of recorded electronic communication (until new
contact information is filed in writing with the Corporation) as follows:

Pacific Corporate Trust Company

2nd Floor, 510 Burrard Street

Vancouver, BC V6C 3B8

Attention:      
Norman Hamade

Facsimile No.: 604-689-8144

	 	(c)	 	Notices or demands authorized or required by this Agreement to be given or made
by the Corporation or the Rights Agent to the holder of any Rights shall be
sufficiently given or made if delivered or sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as it appears upon the Rights
Register or, prior to the Separation Time, on the registry books of the

 

- 39 -

	 	 	 	transfer agent for the Common Shares. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice.
	 
	 	(d)	 	Any notice given or made in accordance with this Section 5.8 shall be deemed to
have been given and to have been received on the day of delivery, if so delivered, on
the third Business Day (excluding each day during which there exists any general
interruption of postal service due to strike, lockout or other cause) following the
mailing thereof, if so mailed, and on the day of telecopying or sending of the same by
other means of recorded electronic communication (provided such sending is during the
normal business hours of the addressee on a Business Day and if not, on the first
Business Day thereafter).

	5.9	 	Costs of Enforcement

     The Corporation agrees that if the Corporation fails to fulfill any of its obligations
pursuant to this Agreement, then the Corporation will reimburse the holder of any Rights for the
costs and expenses (including legal fees) incurred by such holder to enforce his rights pursuant to
any Rights or this Agreement.

	5.10	 	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.

	5.11	 	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; but this Agreement shall be for the sole and exclusive benefit of the Corporation,
the Rights Agent and the holders of the Rights.

	5.12	 	Governing Law.

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

	5.13	 	Severability.

     If any section, clause, term or provision hereof or the application thereof to any
circumstances or any right hereunder shall, in any jurisdiction and to any extent, be invalid or
unenforceable, such section, clause, term or provision or such right shall be ineffective only in
such jurisdiction and to the extent of such invalidity or unenforceability in such jurisdiction
without invalidating or rendering unenforceable or ineffective the remaining sections, clauses,
terms and provisions hereof or rights hereunder in such jurisdiction or the application of such

 

- 40 -

section, clause , term or provision or rights hereunder in any other jurisdiction or to
circumstances other than those as to which it is specifically held invalid or unenforceable.

	5.14	 	Effective Date

     This Agreement is effective and in full force and effect accordance with its terms from and
after the Effective Date. If this Agreement is not confirmed by a majority of the votes cast by
Independent Shareholders, at the next annual or special meeting of shareholders of the Corporation,
then this Agreement and all outstanding Rights shall terminate and shall be null and void and of no
force and effect from the date of such meeting.

	5.15	 	Shareholder Review.

     At or prior to the annual meeting of the shareholders of the Corporation in 2009 and at every
third annual meeting thereafter, provided that a Flip-in Event has not occurred prior to such time,
the Board of Directors shall submit a resolution ratifying the continued existence of this
Agreement to the Independent Shareholders for their consideration and, if thought advisable,
approval. Unless the majority of the votes cast by the Independent Shareholders who vote in
respect of any such resolution are voted in favour of the continued existence of this Agreement,
the Corporation shall, immediately upon the confirmation by the Chairman of such shareholders’
meeting of the results of the votes on such resolution and without further formality, redeem the
Rights at the Redemption Price.

	5.16	 	Determinations and Actions by the Board of Directors.

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

	5.17	 	Rights of Board, Corporation and Offeror.

     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
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 holders of Voting
Shares 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.

	5.18	 	Regulatory Approvals.

     This Agreement shall be subject in any jurisdiction to the receipt of any required prior or
subsequent approval or consent from any governmental or regulatory authority in such jurisdiction
including any securities regulatory authority or stock exchange.

 

- 41 -

	5.19	 	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 or the United States, the Board of
Directors acting in good faith may take such actions as it may deem appropriate to ensure such
compliance. 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 or the United States in which such issue or
delivery would be unlawful without registration of the relevant Persons or securities for such
purposes, or (until such notice is given as required by law) without advance notice to any
regulatory or self-regulatory body.

	5.20	 	Time of the Essence.

     Time shall be of the essence in this Agreement.

	5.21	 	Compliance with Money Laundering Legislation.

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

	5.22	 	Compliance with Money Laundering Legislation.

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

	5.23	 	Execution in Counterparts.

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

IN WITNESS WHEREOF, the parties have executed this Agreement.

INTERNATIONAL ABSORBENTS INC.

	 	 	 	 	 
	
	By:
	 	/s/ D. Thompson	 	 
	 

	 	 

David H. Thompson
	 	 
	
	 
	 	 	 	 
	
	By:
	 	/s/ G. Ellis	 	 
	 

	 	 

Gordon L. Ellis
	 	 
	
	 
	 	 	 	 
	PACIFIC CORPORATE TRUST COMPANY
	 
	 	 	 	 
	
	By:
	 	/s/ Norm Hamade	 	 
	 

	 	 

Authorized Signing Officer
	 	 
	
	
	

 

SCHEDULE A

FORM OF RIGHTS CERTIFICATE

			
	Certificate No.
                                       
 
	 	                                
        Rights

THE RIGHTS REPRESENTED HEREBY ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE CORPORATION, ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SECTION 3.1(b)
OF THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON, ANY PERSON ACTING
JOINTLY OR IN CONCERT WITH AN ACQUIRING PERSON OR THEIR RESPECTIVE ASSOCIATES AND AFFILIATES (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND THEIR RESPECTIVE TRANSFEREES SHALL BECOME VOID
WITHOUT ANY FURTHER ACTION.

RIGHTS CERTIFICATE

INTERNATIONAL ABSORBENTS INC.

     This certifies that                      or
registered assigns, is the registered holder of the
number of Rights set forth above each of which entitles the registered holder thereof, subject to
the terms, provisions and conditions of the Shareholder Rights Plan
Agreement dated February  May 1,
2006, as amended and restated from time to time (the “Rights Agreement”), between International
Absorbents Inc., a corporation incorporated under the laws of British Columbia (the “Corporation”),
and Pacific Corporate Trust Company, a trust company incorporated
under the laws of British Columbia, 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 (as such
term is defined in the Rights Agreement) and prior to the Expiration Time (as such term is defined
in the Rights Agreement) (or such earlier expiration time as is provided in the Rights Agreement)
one fully paid and nonassessable Common Share (a “Common Share”) of the Corporation at the
Exercise Price referred to below, upon presentation and surrender of this Rights Certificate
together with the Form of Election to Exercise duly executed and submitted to the Rights Agent at
its principal offices in Vancouver, British Columbia. The Exercise Price shall initially be $100
per Right and shall be subject to adjustment in certain events as provided in the Rights Agreement.

     In certain circumstances described in the Rights Agreement, each Right evidenced hereby may
entitle the registered holder thereof to purchase or receive assets, debt securities or other
equity securities of the Corporation (or a combination thereof) all as provided in the Rights
Agreement.

 

- 2 -

     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 herein 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. 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 any of
the offices of the Rights Agent designated for such purpose, may be exchanged for another Rights
Certificate or Rights Certificates of like tenor and date evidencing an aggregate number of Rights
equal to the aggregate number of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered. If this Rights Certificate shall be exercised in part, the registered holder shall be
entitled to receive, upon surrender hereof, another Rights Certificate or Rights Certificates for
the number of whole Rights not exercised.

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

     No fractional Common Shares will be issued upon the exercise of any Right or Rights evidenced
hereby.

     No holder of this Rights Certificate, as such, shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of Common Shares or of any other securities of the Corporation
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 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 of the Corporation 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 of the Corporation (except as expressly provided in the Rights Agreement), or to
receive dividends, distributions 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 or obligatory for any purpose until it shall have
been manually countersigned by the Rights Agent.

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

Dated   u 

	 	 	 	 	 
	INTERNATIONAL ABSORBENTS INC.
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Authorized Signing Officer
	 	 

 

- 3 -

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Authorized Signing Officer
	 	 
	 
	 	 	 	 
	PACIFIC CORPORATE TRUST COMPANY	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Authorized Signing Officer
	 	 
	
	

 

FORM OF ELECTION TO EXERCISE

TO: INTERNATIONAL ABSORBENTS INC.

     The undersigned hereby irrevocably elects to exercise
                     whole Rights represented by
the attached Rights Certificate to purchase the Common Shares issuable upon the exercise of such
Rights and requests that certificates for such Shares be issued to:

	 	 	 	 	 
	 
	 	 

(NAME)
	 	 
	 	 	 	 	 
	 
	 	 

(ADDRESS)
	 	 
	 	 	 	 	 
	 
	 	 

(CITY AND STATE OR PROVINCE)
	 	 

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

	 	 	 	 	 
	 
	 	 

(NAME)
	 	 
	 	 	 	 	 
	 
	 	 

(ADDRESS)
	 	 
	 	 	 	 	 
	 
	 	 

(CITY AND STATE OR PROVINCE)
	 	 

SOCIAL INSURANCE, SOCIAL SECURITY OR OTHER TAXPAYER NUMBER

	 	 	 	 	 
	Dated
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Signature Guaranteed	 	 
	 

	 	 	 	 
	 

	 	 	 	Signature
	 
	 	 	 	 
	 

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

     Signature must be guaranteed by a Canadian Schedule 1
chartered bank or an eligible guarantor institution with membership in
an approved signature guarantee medallion program.

 

- 2 -

To be completed if true

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

	 	 	 	 	 
	 

	 	 

Signature
	 	 

NOTICE

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

 

FORM OF ASSIGNMENT

(To be executed by the registered holder if such

holder desires to transfer the Rights Certificate)

FOR VALUE RECEIVED
                                        
                                       
                                       
   hereby sells,

assigns and transfers unto
                                        
                                       
                                       
  

 

	 	 	 	 	 
	 

	 	 

(Please print name and address of transferee)
	 	 

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

	 	 	 	 	 
	Dated
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Signature Guaranteed	 	 
	 

	 	 	 	 
	 

	 	 	 	Signature
	 
	 	 	 	 
	 

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

     Signature must be guaranteed by a Canadian Schedule 1
chartered bank or an eligible guarantor institution with membership
in an approved signature guarantee medallion program.

To be completed if true

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

	 	 	 
	 

	 	 
	 

	 	Signature

NOTICE

     In the event the certification set forth in the Form of Assignment is not completed, the
Corporation will deem the Beneficial Owner of the Rights evidenced by this Rights Certificate to be
an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and
accordingly such Rights shall be null and void.

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