Adira Energy Ltd.: Exhibit 99.18 - Filed by newsfilecorp.com
ADIRA ENERGY LTD.
MANAGEMENT INFORMATION CIRCULAR
For the Annual and Special Meeting of Shareholders
to be held on August 7, 2013
July 10, 2013
TABLE OF CONTENTS
ADIRA ENERGY LTD.
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that an annual and special
meeting (the “Meeting”) of the holders of the common shares
(collectively, the “Shareholders” or individually, a
“Shareholder”) of Adira Energy Ltd. (the “Corporation”) will be
held at the offices of the Corporation at 1204 – 120 Adelaide St. West.,
Toronto, Ontario, M5H 1T1, on August 7, 2013 at the hour of 10:00 a.m. (Toronto
time) for the following purposes:
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to consider and, if thought appropriate, to pass an
ordinary resolution approving the private placement financing of
US$5,000,000 (the “Offering”) with Pelagic Investment Limited (the
“Investor”) which will result in the creation of the Investor as a
"Control Person", as more particularly described in the accompanying
management information circular dated July 10, 2013 (the “
Circular”); |
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to consider and, if thought appropriate, to pass a
special resolution authorizing the board of directors of the Corporation,
in its sole and absolute discretion, to amend the Articles of the
Corporation to consolidate the issued and outstanding common shares of the
Corporation (the “Common Shares”), on the basis of one (1)
post-consolidation Common Share for every three (3) pre-consolidation
Common Shares, such consolidation being a condition precedent of the
Offering, as more particularly described in the Circular; |
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to receive the audited financial statements of the
Corporation for the financial year ended December 31, 2012, together with
the report of the auditor thereon; |
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to elect the directors of the Corporation, the majority
of whom will hold office until the closing of the Offering, expected to
occur on August 13, 2013 or such other date as the Corporation may
determine acting reasonably, at which time such directors will be replaced
by nominees selected by the Investor, as more particularly described in
the Circular; |
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to appoint Kost Forer Gabbay and Kasierer, member firm of
Ernst and Young Global, as auditor of the Corporation for the ensuing year
and to authorize the directors of the Corporation to fix its
remuneration; |
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to consider and, if thought appropriate, pass, with or
without variation, an ordinary resolution approving the Corporation’s
rolling stock option plan, as more fully described in the Circular;
and |
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to transact such other business as may properly be
brought before the Meeting or any adjournment or adjournments
thereof. |
Accompanying this Notice of Annual and Special Meeting of
Shareholders is the Circular and, for Shareholders who had requested such
information, a copy of the Corporation’s audited consolidated financial
statements and the report of the auditor thereon, and management’s discussion
and analysis for the financial year ended December 31, 2012.
A Shareholder wishing to be represented by proxy at the Meeting
or any adjournment thereof must deposit his, her or its duly executed form of
proxy with the Corporation’s transfer agent and registrar, Computershare
Investor Services Inc., on or before 10:00 a.m. on August 2, 2013, or if the
Meeting is adjourned, at the latest 48 hours (excluding Saturdays, Sundays and
holidays) before the time set for any reconvened meeting at which the proxy is
to be used.
Shareholders who are unable to be present personally at the
Meeting are urged to sign, date and return the enclosed form of proxy in the
envelope provided for that purpose. If you plan to be present personally at the Meeting, you are requested to bring the enclosed form of
proxy for identification. The record date for the determination of those
Shareholders entitled to receive the Notice of Annual and Special Meeting of
Shareholders and to vote at the Meeting is the close of business on July 8,
2013.
DATED at Toronto, Ontario this
10th day of July, 2013.
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BY ORDER OF THE BOARD |
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(Signed) DENNIS BENNIE |
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Co-Chairman of the Board
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ADIRA ENERGY LTD.
MANAGEMENT INFORMATION CIRCULAR
SOLICITATION OF PROXIES
This management information circular (the “Circular”) is
furnished in connection with the solicitation of proxies by the management of
Adira Energy Ltd. (the “Corporation”) for use at the annual and special
meeting (the “Meeting”) of holders (collectively, the
“Shareholders” or individually, a “Shareholder”) of common shares
in the capital of the Corporation (“Common Shares”) to be held at the
time and place and for the purposes set forth in the attached Notice of Annual
and Special Meeting of Shareholders (the “Notice”). The solicitation will
be primarily by mail, but proxies may also be solicited personally or by
telephone by regular employees of the Corporation. The cost of solicitation will
be borne by the Corporation.
Except as noted below, the Corporation has distributed or made
available for distribution, copies of the Notice, the Circular and form of proxy
or voting instruction form (if applicable) (the “Meeting Materials”) to
clearing agencies, securities dealers, banks and trust companies or their
nominees (collectively, the “Intermediaries”) for distribution to
Beneficial Shareholders (as defined below) whose Common Shares are held by or in
custody of such Intermediaries. Such Intermediaries are required to forward such
documents to Beneficial Shareholders unless a Beneficial Shareholder has waived
the right to receive them. The Corporation has elected to pay for the delivery
of the Meeting Materials to objecting Beneficial Shareholders by the
Intermediaries. The Corporation is sending proxy-related materials directly to
non-objecting Beneficial Shareholders, through the services of its transfer
agent and registrar, Computershare Investor Services Inc. The solicitation of
proxies from Beneficial Shareholders will be carried out by the Intermediaries
or by the Corporation if the names and addresses of the Beneficial Shareholders
are provided by Intermediaries. The Corporation will pay the permitted fees and
costs of Intermediaries incurred in connection with the distribution of the
Meeting Materials. The Corporation is not relying on the notice-and-access
provisions of securities laws for delivery of the Meeting Materials to
registered Shareholders or Beneficial Shareholders.
APPOINTMENT AND REVOCATION OF PROXIES
The persons named in the enclosed form of proxy are officers
and directors of the Corporation. A registered Shareholder has the right to
appoint a person (who need not be a Shareholder) to attend and act for such
Shareholder and on his, her or its behalf at the Meeting other than the persons
designated in the enclosed form of proxy. Such right may be exercised by
inserting in the blank space provided for that purpose the name of the desired
person or by completing another proper form of proxy. In either case, as a
registered Shareholder you can choose from three different ways to vote
your Common Shares by proxy: (a) by mail or delivery in the addressed envelope
provided or deposited at the offices of Computershare Investor Services Inc.
(“Computershare”), Proxy Department, 100 University Avenue, 9th Floor,
Toronto, Ontario, Canada M5J 2Y1, on behalf of the Corporation, so as not to
arrive later than 10:00 a.m. (Toronto time) on Friday, August 2, 2013, or if the
Meeting is adjourned, at the latest 48 hours (excluding Saturdays, Sundays and
holidays) before the time set for any reconvened meeting at which the proxy is
to be used; (b) by telephone (toll free) at 1-866-732-VOTE (8683); or (c) on the
internet at www.investorvote.com.
Proxies given by Shareholders for use at the Meeting may be
revoked prior to their use:
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by depositing an instrument in writing executed by the
Shareholder or by such Shareholder’s attorney duly authorized in writing
or, if the Shareholder is a corporation, by an officer or attorney thereof duly authorized indicating the capacity under which such officer or attorney is signing: |
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(i) |
at the office of Computershare, on behalf of the
Corporation, at any time up to and including 10:00 a.m. (Toronto time) on
Friday, August 2, 2013, or if the Meeting is adjourned, at the latest 48
hours (excluding Saturdays, Sundays and holidays) before the time set for
any reconvened meeting at which the proxy is to be used; or |
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with the chairman of the Meeting on the day of the
Meeting or any adjournment thereof; or |
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in any other manner permitted by
law. |
EXERCISE OF DISCRETION BY PROXIES
The persons named in the accompanying form of proxy will vote
the Common Shares in respect of which they are appointed in accordance with the
direction of the Shareholders appointing them. In the absence of such
direction, such Common Shares will be voted in favour of the passing of the
matters set out in the Notice. The form of proxy confers discretionary authority
upon the persons named therein with respect to amendments or variations to
matters identified in the Notice and with respect to other matters which may
properly come before the Meeting or any adjournment thereof. At the time of
the printing of this Circular, the management of the Corporation knows of no
such amendments, variations or other matters to come before the Meeting other
than the matters referred to in the Notice.
However, if any other matters which at present are not known
to the management of the Corporation should properly come before the Meeting,
the proxy will be voted on such matters in accordance with the best judgment of
the named proxies.
ADVICE TO BENEFICIAL SHAREHOLDERS
Shareholders should note that only proxies deposited by
Shareholders whose names appear on the records of the Corporation as the
registered holders of Common Shares, or non-objecting beneficial owners whose
names has been provided to the Corporation’s registrar and transfer agent, can
be recognized and acted upon at the Meeting. The information set forth in
this section is therefore of significant importance to a substantial number of
Shareholders who do not hold their Common Shares in their own name (referred to
in this section as “Beneficial Shareholders”). If Common Shares are
listed in an account statement provided to a Shareholder by an Intermediary,
then in almost all cases those Common Shares will not be registered in such
Shareholder’s name on the records of the Corporation. Such Common Shares will
more likely be registered under the name of the Shareholder’s Intermediary or an
agent of that Intermediary. In Canada, the vast majority of such Common Shares
are registered under the name of CDS & Co., as nominee for CDS Clearing and
Depository Services Inc., which acts as a depository for many Canadian
Intermediaries. Common Shares held by Intermediaries or their nominees can only
be voted for or against resolutions upon the instructions of the Beneficial
Shareholder. Without specific instructions, Intermediaries are prohibited from
voting Common Shares for their clients.
Applicable regulatory policy requires
Intermediaries to seek voting instructions from Beneficial Shareholders in
advance of shareholders’ meetings. Every Intermediary has its own mailing
procedures and provides its own return instructions, which should be carefully
followed by Beneficial Shareholders in order to ensure that their Common Shares
are voted at the Meeting. Often the form of proxy supplied to a Beneficial
Shareholder by its Intermediary is identical to the form of proxy provided by
the Corporation to the Intermediaries. However, its purpose is limited to
instructing the Intermediary how to vote on behalf of the Beneficial Shareholder. The majority of
Intermediaries now delegate responsibility for obtaining instructions from
clients to Broadridge Financial Solutions, Inc. (“Broadridge”).
Broadridge typically mails the voting instruction forms or proxy forms to the
Beneficial Shareholders and asks the Beneficial Shareholders to return the
voting instructions forms or proxy forms to Broadridge. Broadridge then
tabulates the results of all instructions received and provides appropriate
instructions respecting the voting of Common Shares to be represented at the
Meeting. A Beneficial Shareholder receiving a proxy or voting instruction form
from Broadridge cannot use that proxy to vote Common Shares directly at the
Meeting - the proxy must be returned to Broadridge well in advance of the
Meeting in order to have the Common Shares voted.
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Although Beneficial Shareholders may not be recognized directly
at the Meeting for the purposes of voting Common Shares registered in the name
of their Intermediary, a Beneficial Shareholder may attend the Meeting as
proxyholder for the Intermediary and vote their Common Shares in that capacity.
Beneficial Shareholders who wish to attend the Meeting and indirectly vote their
own Common Shares as proxyholder for the Intermediary should enter their own
names in the blank space on the management form of proxy or voting instruction
form provided to them and return the same to their Intermediary (or the agent of
such Intermediary) in accordance with the instructions provided by such
Intermediary or agent well in advance of the Meeting. Beneficial Shareholders
should carefully follow the instructions of their Intermediaries and their
service companies.
All references to shareholders in this Circular and the
accompanying form of proxy and Notice are to Shareholders of record unless
specifically stated otherwise.
NOTE TO NON-OBJECTING BENEFICIAL OWNERS
The Meeting Materials are being sent to both registered and
Beneficial Shareholders. If you are a Beneficial Shareholder, and the
Corporation or its agent has sent the Meeting Materials directly to you, your
name and address and information about your holdings of Common Shares, have been
obtained in accordance with applicable securities regulatory requirements from
the Intermediary holding on your behalf. By choosing to send the Meeting
Materials to you directly, the Corporation (and not the Intermediary holding on
your behalf) has assumed responsibility for (i) delivering the Meeting Materials
to you, and (ii) executing your proper voting instructions. Please return your
voting instructions as specified in the request for voting instructions.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The Corporation has fixed the close of business on July 8, 2013
as the record date (the “Record Date”) for the purposes of determining
Shareholders entitled to receive the Notice and vote at the Meeting. As at the
Record Date, 180,781,093 Common Shares carrying the right to one vote per share
at the Meeting were issued and outstanding.
In accordance with the provisions of the Canada Business
Corporations Act, the Corporation will prepare a list of the holders of
Common Shares on the Record Date. Each holder of Common Shares named on the list
will be entitled to vote the Common Shares shown opposite his, her or its name
on the list at the Meeting.
To the knowledge of the directors and executive officers of the
Corporation, as at the date of this Circular, no persons beneficially own,
control or direct, directly or indirectly, voting securities of the Corporation
carrying 10% or more of the voting rights attached to the Common Shares.
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PARTICULARS OF MATTERS TO BE ACTED UPON
Introduction
Management of the Corporation is proposing that the Corporation
complete a US$5,000,000 financing by way of a private placement (the
“Offering”) with Pelagic Investments Limited, an investment group of
which Mr. Prentis B. Tomlinson is President and Chief Executive Officer (the
“Investor”). Mr. Tomlinson is also the principal owner of Pelagic
Exploration Company, a Cayman Island based exploration company that has held
interests in several licenses offshore Israel. Mr. Tomlinson, has a wide and
varied career spanning more than four decades across natural resource
development and management. Mr. Tomlinson founded and directed a number of
successful Exploration and Production companies operating in the U.S. onshore
and offshore Gulf Coast, and internationally in Kurdistan and the East
Mediterranean, including Israel. Additionally, Mr. Tomlinson was the founder and
owner of TGS Geophysical Inc. that subsequently merged with NOPEC SA forming
TGS-NOPEC, a public company that provides multi-client geoscience data to oil
and gas Exploration and Production companies worldwide.
The Offering will result in the Investor becoming a Control
Person (as defined below) of the Corporation within the meaning of the policies
of the TSX Venture Exchange (the “Exchange”). The Offering is conditional
on, amongst other things, the completion of the Consolidation (as defined below)
on a basis of one (1) post-Consolidation Common Share for every three (3)
pre-Consolidation Common Shares. After completion of the Offering, the Investor
will own, control or direct, directly or indirectly, 61,728,395
post-Consolidation Common Shares representing approximately 50.4% of the issued
and outstanding Common Shares at the time the financing is completed.
Under the policies of the Exchange, a "Control Person"
is defined as any person that holds or is one of a combination of persons that
holds a sufficient number of any of the securities of the Corporation so as to
affect materially the control of the Corporation, or that holds more than 20% of
the outstanding voting shares of the Corporation except where there is evidence
showing that the holder of those securities does not materially affect the
control of the issuer. Pursuant to the policies of the Exchange, if a private
placement will result in, or is part of a transaction that will result in the
creation of a new Control Person, the Exchange will require the Corporation to
obtain shareholder approval of the Private Placement on a disinterested basis
excluding any shares held by the proposed new Control Person and its associates
and affiliates.
Accordingly, at the Meeting, Shareholders will be asked to
consider and, if deemed advisable, to pass, with or without modification, a
resolution authorizing and approving the Offering and the creation of the
Investor as a new Control Person.
Offering Details
On June 29, 2013, the Corporation and the Investor executed a
subscription agreement (the “Subscription Agreement”) detailing the terms
of the Offering. The Subscription Agreement provides that the Investor will
purchase such number of Common Shares that will result in the Investor acquiring
50.4% of the issued and outstanding Common Shares on a non-diluted basis, to be
issued on a post-Consolidation basis, for the aggregate subscription price of
US$5,000,000, representing a subscription price of US$0.27 per pre-Consolidation
Common Share. Based on Consolidation ratio of 3:1, the Investor will purchase
61,728,395 post-Consolidation Common Shares at a price of US$0.081 per
post-Consolidation Common Share.
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The Offering is subject to standard closing conditions,
including: (a) regulatory approval, including that of the Exchange, of the
Offering, (b) regulatory approval, including that of the Exchange, of the
Consolidation, (c) the completion of the Consolidation, (d) the agreement of 80%
of the board of directors of the Corporation (the “Board”) to resign and
be replaced by nominees selected by the Investor, as described below, and (e)
the reduction of certain executive and senior management termination payments.
It’s expected that the Common Shares issued at closing will be subject to an
Exchange hold period of four months plus one day from the closing date of the
Offering.
The Offering does not constitute a related party transaction
(as such term is defined in applicable securities law).
The resolutions approving the Offering provides the Board with
the ability to amend its terms within the policies of the Exchange to ensure
that necessary changes can be made to facilitate closing.
Right to Nominate Directors
Pursuant to the Subscription Agreement, upon closing of the
Offering, 80% of the Board shall have delivered to the Subscriber an executed
undertaking to resign and be replaced by nominees selected by the Investor,
immediately upon approval by the Exchange of such nominees’ ability to act.
In the event disinterested Shareholder approval is not obtained
and the Corporation cannot close the Offering, the directors elected at the
Meeting will hold office until the next annual meeting of shareholders or until
his successor is duly elected or appointed pursuant to the by-laws of the
Corporation (Please see “Particulars of Matters to be Acted Upon – Election
of Directors” below).
Use of Proceeds
The Corporation intends to use the proceeds from the Offering
to pay outstanding debts to various service providers related to the Gabriella
license, offshore Israel, to advance the exploration and development work
programs on its petroleum exploration licenses located offshore Israel and for
general and administrative purposes.
The foregoing use of proceeds represents management’s current
intentions with respect to the use of the proceeds from the Offering. However,
the actual use of the proceeds may vary from the foregoing as management may
find it necessary or advisable to reallocate the proceeds or use such proceeds
for other purposes.
Approval of the Offering
In order for the Offering to be completed, the following
resolution must be approved by (i) a majority of the votes cast by Shareholders
present in person or represented by proxy at the Meeting and (ii) a majority of
the votes cast by the holders of Common Shares present in person or represented
at the Meeting, voting as a class, and in each case on a disinterested basis
excluding any Shares held by the Investor and its associates and affiliates.
In the event disinterested shareholder approval is not obtained
and the Corporation cannot close the Offering, the Corporation will need to
immediately seek alternative financing to continue as a going concern. The
Corporation cannot be certain that it will obtain such alternative financing. In
light of the foregoing, and after careful consideration of all relevant factors
relating to the Offering, the Board recommends that shareholders vote FOR the Offering and the
creation of the Investor as a new Control Person of the Corporation.
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The complete text of the ordinary resolution which management
intends to place before the Meeting for approval, confirmation and adoption,
with or without modification, is as follows:
“IT HEREBY RESOLVED, as an
ordinary resolution, that:
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The completion of the private placement financing (the
“Offering”) with Pelagic Investments Limited (the
“Investor”), on such terms as are more particularly described in
the management information circular of the Corporation dated July 10, 2013
(the “Circular”), is hereby authorized and approved; |
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the creation of a new Control Person (as such term is
defined in the policies of the TSX Venture Exchange), of the Corporation,
being the Investor, resulting from the completion of the Offering, on such
terms as are more particularly described in the Circular, is hereby
authorized and approved; |
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notwithstanding that these resolutions have been duly
passed, the Board of Directors of the Corporation is hereby authorized,
without further notice to or approval of the Corporation’s shareholders,
to (a) determine when, if at all, to proceed with the Offering and to
determine its closing date; and (b) to amend the terms of the Offering to
the extent permitted by the policies of, and subject to the approval of,
the TSX Venture Exchange; and |
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any one director or officer of the Corporation for and on
behalf of the Corporation is hereby authorized to execute, deliver and
file, or cause to be filed, all documents, instruments and certificates
and take all such other actions as any such director or officer, in his or
her discretion, may deem necessary, advisable or appropriate to implement
this resolution and the matters authorized hereby, such determination to
be conclusively evidenced by the execution and delivery of any such
documents and instruments and the taking of any such
actions." |
COMMON SHARES REPRESENTED BY PROXIES IN FAVOUR OF MANAGEMENT
WILL BE VOTED IN FAVOUR OF THE RESOLUTION TO APPROVE THE CREATION OF THE
INVESTOR AS A CONTROL PERSON OF THE CORPORATION IN THE ABSENCE OF DIRECTION TO
THE CONTRARY FROM THE SHAREHOLDER APPOINTING THEM.
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Approval of Consolidation of Common
Shares |
The Corporation has an authorized capital consisting of an
unlimited number of Common Shares without par value, of which 180,781,093 Common
Shares are issued and outstanding as of the date hereof.
The Corporation believes that this large number of issued and
outstanding Common Shares has a negative effect on the its share price and could
restrict its ability to raise equity in the future to fund its business
activities, particularly the funding of the exploration and development of its
properties in the State of Israel.
Accordingly, at the Meeting, Shareholders will be asked to
consider, and if deemed advisable approve, with or without variation, a special
resolution, to authorize the directors of the Corporation to amend the Articles
of the Corporation to consolidate the issued and outstanding Common Shares on
the basis of one (1) post-consolidation Common Share for every three (3)
pre-consolidation Common Shares, as set out in the resolution below (the
“Consolidation”). In addition to the Consolidation being a pre-requisite
of the US$5,000,000 Offering, the Corporation believes that benefits include,
among other things, that a smaller number of Common Shares trading at a higher
price makes the Corporation more attractive to additional potential investors,
and could further enhance the value and liquidity of the Common Shares.
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The name of the Corporation will not be changed in conjunction
with the Consolidation.
Effect on Fractional Shares
No fractional Common Shares will be issued as a result of the
Consolidation. Any resulting fractional post-Consolidation Common Shares shall
be rounded down to the nearest whole Common Share. No compensation will be
issued to shareholders as a result of rounding down.
Effect of Consolidation
The Consolidation will affect all Shareholders uniformly.
Except for any variances attributable to fractional shares, the change in the
number of issued and outstanding Common Shares that will result from the
Consolidation will cause no change in the capital attributable to the Common
Shares and will not materially affect any Shareholder’s percentage ownership in
the Corporation, even though such ownership will be represented by a smaller
number of Common Shares.
In addition, the Consolidation will not affect any
Shareholder’s proportionate voting rights. Each Common Share outstanding after
the Consolidation will be entitled to one vote and will be fully paid and
non-assessable. The principal effects of the Consolidation will be that:
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the number of Common Shares issued and outstanding will
be reduced from approximately 180,781,093 Common Shares, as of the date
hereof, to approximately 60,260,318 Common Shares; |
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the number of Common Shares reserved for issuance under
the Stock Option Plan will be reduced proportionately based on the
consolidation ratio of 3:1; |
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the exercise or conversion price and/or the number of
Common Shares issuable under the Corporation’s outstanding stock options
will be proportionately adjusted upon the Consolidation based on the
consolidation ratio of 3:1 with any fraction rounded down; and |
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the exercise price and/or the number of Common Shares
issuable under certain outstanding Common Share purchase warrants of the
Corporation (the “Warrants”) will be proportionately adjusted upon
the Consolidation based on the consolidation ratio of 3:1, in accordance
with the applicable warrant certificates and
indentures. |
In general, a Shareholder that is resident in Canada for
purposes of the Income Tax Act (Canada) and that, at all relevant times,
deals at arm’s length with the Corporation for purposes of the Income Tax
Act (Canada) will realize neither a gain nor a loss under the Income Tax
Act (Canada) in connection with the Consolidation. In general, a
Shareholder’s aggregate adjusted cost base, for purposes of the Income Tax
Act (Canada), will not change as a result of the Consolidation; however, a
Shareholder’s adjusted case base in respect of each Common Share immediately
following the Consolidation will generally be equal to the quotient obtained
when such Shareholder’s aggregate adjusted cost base in respect of all Common
Shares then owned by the Shareholder is divided by the total number of Common
Shares then owned by the Shareholder.
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Effect on Non-Registered Shareholders
If the Consolidation is approved by the Shareholders and
implemented by the Board, non-registered Shareholders holding their Common
Shares through a bank, broker or other nominee should note that such banks,
brokers or other nominees may have different procedures for processing the
Consolidation than those that will be put in place by the Corporation for
registered shareholders. If you hold your shares with such a bank, broker or
other nominee and if you have questions in this regard, you are encouraged to
contact your nominee.
Effect on Share Certificates
If the Consolidation is approved by Shareholders and
implemented by the Board, registered shareholders will be required to exchange
their share certificates representing pre-Consolidation Common Shares for new
share certificates representing post-Consolidation Common Shares. Following the
announcement by the Corporation of the effective date of the Consolidation,
registered Shareholders will be sent a letter of transmittal from the
Corporation’s transfer agent, Computershare, as soon as practicable after the
effective date of the Consolidation. The letter of transmittal will contain
instructions on how to surrender certificate(s) representing pre-Consolidation
Common Shares to the transfer agent. The transfer agent will forward to each
registered Shareholder who has sent the required documents a new share
certificate representing the number of post-Consolidation Common Shares to which
the Shareholder is entitled. Until surrendered, each share certificate
representing pre-Consolidation Common Shares will be deemed for all purposes to
represent the number of whole post-Consolidation Common Shares, to which the
holder is entitled as a result of the Consolidation.
SHAREHOLDERS SHOULD NOT DESTROY ANY COMMON SHARE
CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY COMMON SHARE CERTIFICATE(S) UNTIL
REQUESTED TO DO SO.
Effect on Warrants
If the Consolidation is approved by the Shareholders and
implemented by the Board, the Warrants will also be consolidated based on the
consolidation ratio of 3:1 in accordance with the applicable warrant
certificates and indentures. Such consolidation does not require Warrant holder
approval as the proposed consolidation of Warrants does not alter the terms of
the Warrants. Following the announcement by the Corporation of the
effective date of the Consolidation, Warrant holders will be sent a notice
containing additional information on the effect of the Consolidation on Warrants
as soon as practicable after the effective date of the Consolidation.
Risks Associated with the Consolidation
The effect of the Consolidation upon the market price of the
Common Shares cannot be predicted with any certainty, and the history of similar
share consolidations for corporations similar to the Corporation is varied.
There can be no assurance that the total market capitalization of the Common
Shares immediately following the Consolidation will be equal to or greater than
the total market capitalization immediately before the Consolidation. In
addition, there can be no assurance that the per-share market price of the
Common Shares following the Consolidation will remain higher than the per-share
market price immediately before the Consolidation or equal or exceed the direct
arithmetical result of the Consolidation. In addition, a decline in the market
price of the Common Shares after the Consolidation may result in a greater
percentage decline than would occur in the absence of the Consolidation.
Furthermore, the Consolidation may lead to an increase in the number of
Shareholders who will hold “odd lots”; that is, a number of shares not evenly
divisible into board lots (a board lot is either 100, 500 or 1,000 shares, depending on the price of the shares). As a
general rule, the cost to Shareholders transferring an odd lot of Common Shares
is somewhat higher than the cost of transferring a “board lot”. Nonetheless,
despite the risks and the potential increased cost to Shareholders in
transferring odd lots of post-Consolidation Common Shares, the Board believes
the Consolidation is in the best interest of all Shareholders.
10
.Approval of the Consolidation
After careful consideration of all relevant factors relating to
the Consolidation, the Board recommends that shareholders vote FOR the
Consolidation.
Under the Act, the Consolidation requires the approval of the
shareholders of the Corporation by way of a special resolution. A special
resolution must be approved by a majority of two-thirds of the votes cast by
shareholders present, in person or by proxy, and eligible to vote at the
Meeting.
The complete text of the special resolution which management
intends to place before the Meeting for approval, confirmation and adoption,
with or without modification, is as follows:
“IT HEREBY RESOLVED, as a
special resolution that, subject to the acceptance of the TSX Venture Exchange:
| |
1. |
If and when the directors shall deem appropriate to do
so, in their sole and absolute discretion, the Articles of the Corporation
be amended to provide that the Corporation’s authorized share structure be
altered by consolidating all of the issued and outstanding common shares
in the capital of the Corporation on the basis of three (3) pre-
Consolidation Common Shares for one (1) post-Consolidation Common Share
(“Consolidation”); |
| |
|
|
| |
2. |
The number of authorized Common Shares without par value
in the capital of the Corporation remain unlimited; |
| |
|
|
| |
3. |
Any resulting fractional post-Consolidation Common Shares
shall be rounded down to the nearest whole Common Share; |
| |
|
|
| |
4. |
Any one officer and director of the Corporation be and is
hereby authorized for and on behalf of the Corporation to execute and
deliver all such instruments and documents and to perform and do all such
acts and things as may be deemed advisable in such individual’s discretion
for the purpose of giving effect to this special resolution, the execution
of any such document or the doing of any such other act or thing being
conclusive evidence of such determination; and |
COMMON SHARES REPRESENTED BY PROXIES IN FAVOUR OF MANAGEMENT
WILL BE VOTED IN FAVOUR OF THE SPECIAL RESOLUTION TO APPROVE THE CONSOLIDATION
IN THE ABSENCE OF DIRECTION TO THE CONTRARY FROM THE SHAREHOLDER APPOINTING
THEM.
11
The articles of incorporation provide that the Board consist of
a minimum of three directors.
The Board works together with Management to recommend nominees
for election to the Board for consideration and approval. The nominees are, in
the opinion of the Board, well qualified to act as directors for the coming
year. Each nominee has established his eligibility and willingness to serve as
director, if elected. 80% of the directors elected will hold office until the
closing of the proposed Offering, expected to occur on August 13, 2013 or such
other date as the Corporation may determine acting reasonably (please see
“Particulars of Matters to be Acted Upon - Approval of Offering” above).
The following tables set out certain information as of the date
of this Circular (unless otherwise indicated) with respect to the persons being
nominated at the Meeting for election as directors. Information regarding Common
Shares owned by each director of the Corporation is presented to the best
knowledge of management of the Corporation and has been furnished to management
of the Corporation by such directors.
Name and
Residence(1)(2)
|
Position in the
Corporation
|
Period of Service
|
Principle
Occupation
|
Shares Owned
Directly or
Indirectly |
Dennis Bennie
Ontario, Canada
|
Co-Chairman of the
Board and Director
|
August 2009 – Present
|
General Partner,
XDL Capital Group
|
6,161,068
Common Shares
2,266,000
options
225,200 warrants |
Alan Friedman
Ontario, Canada
|
Executive Vice
President
and
Director
|
August 2009 – Present
|
Executive Vice
President,
Eco
(Atlantic) Oil &
Gas Ltd.
Executive Vice
President
–
Corporate
Development,
Adira Energy Ltd.
President &
Chief
Executive Officer,
Rivonia Capital Inc. |
4,954,100
Common Shares
2,106,000 options
|
Alan Rootenberg
Ontario, Canada
|
Proposed Director
Former Chief
Financial Officer |
Proposed
September 2009
– January 2011
|
Chief Financial
Officer,
Eco
(Atlantic) Oil &
Gas Ltd. |
50,000 Common
Shares
235,000 options
25,000 warrants |
Colin Kinley
Leawood, Kansas,
USA
|
Director
Former Vice
President,
Operations
|
December 2009 – Present
August 2009 – January 2011
|
Managing Director,
Jet
Mining Pty Ltd.
Chief Operating
Officer, Eco
(Atlantic)
Oil &
Gas Ltd.
Director, Excelsior
Mining
Chief
Executive
Officer, Kinley
Exploration LLC. |
50,000 Common
Shares
1,950,000 options
25,000 warrants
|
12
Notes:
| |
(1) |
To the knowledge of the Corporation, no proposed director
is, as at the date of this Circular, or has been, within 10 years before
the date of this Circular, a director, chief executive officer or chief
financial officer of any company (including the Corporation)
that: |
| |
|
a. |
was subject to a cease trade order, an order similar to a
cease trade order, or an order that denied the relevant company access to
any exemption under applicable securities legislation, and which in all
cases was in effect for a period of more than 30 consecutive days (an
“Order”), which Order was issued while the proposed director was acting in
the capacity as director, chief executive officer or chief financial
officer of such company; or |
| |
|
b. |
was subject to an Order that was issued after the
proposed director ceased to be a director, chief executive officer or
chief financial officer and which resulted from an event that occurred
while that person was acting in the capacity as director, chief executive
officer or chief financial officer of such company. |
| |
|
The foregoing information, not being within the knowledge
of the Corporation, has been furnished by the proposed director |
| |
(2) |
To the knowledge of the Corporation, no proposed
director: |
| |
|
a. |
is, as at the date of this Circular, or has been within
10 years before the date of this Circular, a director or executive officer
of any company (including the Corporation) that, while that person was
acting in that capacity, or within a year of that person ceasing to act in
that capacity, became bankrupt, made a proposal under any legislation
relating to bankruptcy or insolvency or was subject to or instituted any
proceedings, arrangement or compromise with creditors or had a receiver,
receiver manager or trustee appointed to hold its assets; |
| |
|
b. |
has, within 10 years before the date of this Circular,
become bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency or become subject to or instituted any
proceedings, arrangement or compromise with creditors or had a receiver,
receiver manager or trustee appointed to hold his assets; |
| |
|
c. |
has been subject to any penalties or sanctions imposed by
a court relating to securities legislation or by a securities regulatory
authority or has entered into a settlement agreement with a securities
regulatory authority; or |
| |
|
d. |
has been subject to any penalties or sanctions imposed by
a court or regulatory body that would likely be considered important to a
reasonable securityholder in deciding whether to vote for a proposed
director. |
| |
|
The foregoing information, not being within the knowledge
of the Corporation, has been furnished by the proposed
directors. |
COMMON SHARES REPRESENTED BY PROXIES IN FAVOUR OF MANAGEMENT
WILL BE VOTED IN FAVOUR OF EACH OF THE PROPOSED NOMINEES UNLESS A SHAREHOLDER
HAS SPECIFIED IN HIS, HER OR ITS PROXY THAT HIS, HER OR ITS COMMON SHARES ARE TO
BE WITHHELD FROM VOTING IN RESPECT OF ANY PARTICULAR NOMINEE OR NOMINEES.
MANAGEMENT DOES NOT CONTEMPLATE THAT ANY OF SUCH NOMINEES WILL BE UNABLE TO
SERVE AS DIRECTORS. HOWEVER, IF FOR ANY REASON, ANY OF THE PROPOSED NOMINEES DO
NOT STAND FOR ELECTION OR ARE UNABLE TO SERVE AS SUCH, PROXIES IN FAVOUR OF
MANAGEMENT NOMINEES WILL BE VOTED FOR ANOTHER NOMINEE IN THEIR DISCRETION UNLESS
THE SHAREHOLDER HAS SPECIFIED IN HIS, HER OR ITS PROXY THAT HIS, HER OR ITS
COMMON SHARES ARE TO BE WITHHELD FROM VOTING IN RESPECT OF ANY PARTICULAR
NOMINEE OR NOMINEES.
| |
4) |
Appointment of Auditor |
Management proposes to nominate Kost Forer Gabbay and Kasierer,
member firm of Ernst and Young Global (“Kost Forer”) as auditor of the
Corporation to hold office until the next annual meeting of Shareholders. Kost
Forer has been the auditor of the Corporation since March 10, 2011. The
appointment of Kost Forer as auditor of the Corporation must be approved by a
majority of the votes cast by Shareholders present in person or represented by
proxy at the Meeting.
COMMON SHARES REPRESENTED BY PROXIES IN FAVOUR OF MANAGEMENT
WILL BE VOTED IN FAVOUR OF THE APPOINTMENT OF KOST FORER AS AUDITOR OF THE
CORPORATION AND THE AUTHORIZING OF THE DIRECTORS TO FIX THEIR REMUNERATION, UNLESS THE SHAREHOLDER HAS SPECIFIED IN THE
PROXY THAT HIS, HER OR ITS OWN SHARES ARE TO BE WITHHELD FROM VOTING IN RESPECT
THEREOF.
13
| |
5) |
Approval of Stock Option
Plan |
Summary of Stock Option Plan
The policies of the Exchange provide that the Board may from
time to time, in its discretion, and in accordance with the Exchange
requirements, grant to directors, officers, employees, management company
employees and consultants of the Corporation and its affiliates,
non-transferable options to purchase Common Shares for a period of up to ten
years from the date of grant, provided that the number of Common Shares reserved
for issuance may not exceed 10% of the total issued and outstanding Common
Shares at the date of the grant.
The purpose of the incentive stock option plan (the “Stock
Option Plan”) established by the Corporation, pursuant to which the
Corporation may grant incentive stock options, is to promote the profitability
and growth of the Corporation by facilitating the efforts of the Corporation to
obtain and retain key individuals. The Stock Option Plan provides an incentive
for and encourages ownership of the Common Shares by its key individuals so that
they may increase their stake in the Corporation and benefit from increases in
the value of the Common Shares. Pursuant to the Stock Option Plan, the maximum
number of Common Shares reserved for issuance in any 12 month period to any one
optionee other than a consultant may not exceed 5% of the issued and outstanding
Common Shares at the date of the grant. The maximum number of Common Shares
reserved for issuance in any 12 month period to any consultant may not exceed 2%
of the issued and outstanding Common Shares at the date of the grant and the
maximum number of Common Shares reserved for issuance in any 12 month period to
all persons engaged in investor relations activities may not exceed 2% of the
issued and outstanding number of Common Shares at the date of the grant.
Incentive stock options may be exercised until the earlier of: (a) the expiry
time of such option; and (b) 30 days following the date the optionee ceases to
be a director, officer or employee of the Corporation or its affiliates or a
consultant or a management company employee, provided that if the cessation of
such position or arrangement was by reason of death, disability, or retirement
the option may be exercised within a maximum period of 180 days after such
death, subject to the expiry date of such option. Notwithstanding the foregoing,
in the event of termination for cause, all options held by such terminated
optionee will be cancelled immediately. Additionally, the Stock Option Plan
allows Israeli employees to be issued stock options in a manner that will allow
the employees to benefit from section 102 of the Israeli tax Ordinance. This is
achieved through:
-
The Israel Appendix to the Option Plan – This is an appendix that applies
only to Israeli residents and sets out the terms and conditions under which
options are granted to Israeli employees.
-
The Israel Option Agreement – This form allows Israeli employees to select
the Section 102 route.
As at the date of this Circular, there are outstanding options
for the purchase of 15,821,109 Common Shares under the Stock Option Plan,
representing 8.76% of the issued and outstanding Common Shares.
For a discussion
on the effect of the Consolidation on the Stock Option Plan, please see
“Particulars of Matters to be Acted Upon – Approval of Consolidation of
Common Shares” above.
14
Approval of the Stock Option Plan
As the Stock Option Plan provides for a rolling maximum number
of Common Shares which may be issuable upon the exercise of options granted
under the Stock Option Plan, Exchange Policy 4.4 requires that the Stock Option
Plan receive shareholder approval each year at the annual shareholders’ meeting.
Accordingly, Shareholders will be asked to consider and, if thought appropriate,
pass a resolution approving the Stock Option Plan. A copy of the Stock Option
Plan is attached as Schedule “A” to this Circular.
The Board has unanimously approved the Stock Option Plan and
recommends that Shareholders vote FOR the resolution regarding the Stock Option
Plan. An affirmative vote of a majority of the votes cast at the Meeting is
sufficient to pass the resolution approving the resolution regarding the Stock
Option Plan.
In order to approve the Stock Option Plan, the following resolution
must be approved by a majority of the votes cast by Shareholders present in
person or represented by proxy at the Meeting. The complete text of the
resolution which management intends to place before the Meeting for approval,
confirmation and adoption, with or without modification, is as follows:
“IT IS HEREBY RESOLVED, by
ordinary resolution, that:
| |
5. |
The Stock Option Plan, in the form attached as Schedule
“A” to the management information circular of the Corporation dated July
10, 2013, is hereby authorized and approved. |
| |
|
|
| |
6. |
Any one officer and director of the Corporation be and is
hereby authorized for and on behalf of the Corporation to execute and
deliver all such instruments and documents and to perform and do all such
acts and things as may be deemed advisable in such individual’s discretion
for the purpose of giving effect to this resolution, the execution of any
such document or the doing of any such other act or thing being conclusive
evidence of such determination.” |
COMMON SHARES REPRESENTED BY PROXIES IN FAVOUR OF MANAGEMENT
NOMINEES WILL BE VOTED IN FAVOUR OF THE RESOLUTION TO APPROVE THE STOCK OPTION
PLAN IN THE ABSENCE OF DIRECTION TO THE CONTRARY FROM THE SHAREHOLDER APPOINTING
THEM.
15
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In assessing the compensation of its executive officers, the
Corporation does not have in place any formal objectives, criteria or analysis;
instead, it relies mainly on Board and compensation committee of the Corporation
(the “Compensation Committee”) discussion. Currently, any material
commitments, inclusive of remuneration, are required to be preapproved by the
Board.
Elements of Compensation
The Corporation’s executive compensation program has three
principal components: base salary, incentive bonus plan and stock options.
The Corporation has no other forms of compensation, although
payments may be made from time to time to individuals or companies they control
for the provision of consulting services. Such consulting services are paid for
by the Corporation at competitive industry rates for work of a similar nature by
reputable arm’s length services providers.
Base Salary
Each Named Executive Officer (as defined below) receives a base
salary, which constitutes a significant portion of the Named Executive Officer’s
compensation package. Base salary is recognition for discharging day-to-day
duties and responsibilities and reflects the Named Executive Officer’s
performance over time, as well as that individual’s particular experience and
qualifications. A Named Executive Officer’s base salary is reviewed by the Board
on an annual basis and may be adjusted to take into account performance
contributions for the year and to reflect sustained performance contributions
over a number of years.
Incentive Bonus
Both individual and corporate performances are also taken into
account. Incentive bonuses, in the form of cash payments, are designed to add a
variable component of compensation based on corporate and individual
performances for each officer and employee. No bonuses were paid to the Named
Executive Officer during the most recently completed financial year.
Stock Options
The Corporation’s directors, officers, employees and
consultants, if any, are eligible under the Stock Option Plan to receive grants
of stock options. The Stock Option Plan is an important part of the
Corporation’s long-term incentive strategy for its officers and directors,
permitting them to participate in appreciation of the market value of the Common
Shares over a stated period of time. The Stock Option Plan is intended to
reinforce commitment to long-term growth in profitability and shareholder value.
The size of the stock option grants to officers and directors is dependent on
each officer’s and director’s level of responsibility, authority and importance
to the Corporation and to the degree to which such officer’s or director’s long
term contribution to the Corporation will be key to its long term success. The
Board believes that the Stock Option Plan aligns the interests of the Named
Executive Officers and the Board with shareholders by linking a component of
executive compensation to the longer term performance of the Common Shares.
16
Options are granted at the recommendation of the Board, based
upon the Board’s review of a proposal from the Compensation Committee. In
monitoring or adjusting the option allotments, the Board takes into account its
own observations on individual performance (where possible) and its assessment
of individual contribution to shareholder value, previous option grants and the
objectives set for the Named Executive Officers. The scale of options is
generally commensurate to the appropriate level of base compensation for each
level of responsibility. The Board will make these determinations subject to and
in accordance with the provisions of the Stock Option Plan. See above under
“Particulars of Matters to Be Acted Upon – Approval of Stock Option Plan”
for further details regarding the Stock Option Plan.
Compensation of Directors
The Board or the Compensation Committee will recommend how
much, if any, cash compensation will be paid to directors for services rendered
by directors, in such capacity, to the Corporation. The directors of the
Corporation may be paid cash compensation commensurate with the prevailing level
of compensation for directors in the same industry in which the Corporation
operates. The directors of the Corporation may also be compensated for their
services as directors through the granting of stock options in such amounts and
upon such terms as may be recommended by the Compensation Committee or as
approved by the Board from time to time.
Named Executive Officers who also act as directors of the
Corporation will not receive any additional compensation for services rendered
in such capacity, other than as paid by the Corporation to such Named Executive
Officers in their capacity as executive officers.
Compensation Risk
The Board and, as applicable, the Compensation Committee,
considers and assesses the implications of risks associated with the
Corporation’s compensation practices and devotes such time and resources as is
believed to be necessary in the circumstances. The Corporation’s practice of
compensating its officers primarily through a mix of salary and stock options is
designed to mitigate risk by: (i) ensuring that the Corporation retains such
officers; and (ii) aligning the interests of its officers with the short-term
and long-term objectives of the Corporation and its shareholders. As at the date
of this Circular, the Board had not identified risks arising from the
Corporation’s compensation policies and practices that are reasonably likely to
have a material adverse effect on the Corporation.
Financial Instruments
Except as prohibited by law, the Named Executive Officers and
directors are not currently prohibited from purchasing financial instruments,
such as prepaid variable forward contracts, equity swaps, collars or units of
exchange funds, that are designed to hedge or offset a decrease in market value
of equity securities granted as compensation or held, directly or indirectly, by
a Named Executive Officer or director. To the Corporation’s knowledge, no
executive officer or director of the Corporation has entered into or purchased
such a financial instrument.
The Corporation’s Insider Trading Policy stipulates that
insiders of the Corporation should refrain from frequent buying and selling of
the securities of the Corporation for the purpose of realizing the short-term
profits and should acquire securities of the Corporation only as a long-term
investment. Subject to certain limited exceptions, the Canada Business
Corporations Act specifically prohibits insiders from engaging in selling
short or trading in call or put options.
17
Compensation Governance
In order to assist the Board in fulfilling its oversight
responsibilities with respect to compensation matters, the Board has established
the Compensation Committee and has reviewed and approved the Compensation
Committee’s Charter. The Compensation Committee is composed Mr. Dennis Bennie,
Mr. Richard Crist and Mr. Colin Kinley. Each of Messrs. Bennie and Crist is
independent as such term is defined in National Instrument 58-101 –
Disclosure of Corporate Governance Practices (“NI 58-101”). Mr.
Kinley is not independent under NI 58-101 as he was an officer of the
Corporation within the last three years.
The Compensation Committee meets on compensation matters as and
when required with respect to executive compensation. The primary goal of the
Compensation Committee as it relates to compensation matters is to ensure that
the compensation provided to the Named Executive Officers and the Corporation’s
other senior officers is determined with regard to the Corporation’s business
strategies and objectives, such that the financial interest of the senior
officers is aligned with the financial interest of shareholders, and to ensure
that their compensation is fair and reasonable and sufficient to attract and
retain qualified and experienced executives. The Compensation Committee is given
the authority to engage and compensate any outside advisor that it determines to
be necessary to carry out its duties.
As a whole, the members of the Compensation Committee have
direct experience and skills relevant to their responsibilities in executive
compensation, including with respect to enabling the Compensation Committee in
making informed decisions on the suitability of the Corporation’s compensation
policies and practices. Each of the members of the Compensation Committee has
experience on the board of directors and related committees of other public
companies.
Neither the Board nor the Compensation Committee has, at any
time since the Corporation’s most recently completed fiscal year, retained a
compensation consultant or advisor to assist the Board or the Compensation
Committee in determining the compensation for any of the Corporation’s executive
officers’ or directors’ compensation.
Summary Compensation Table – Named Executive Officers
For purposes of this Information Circular, “named executive
officer” of the Corporation means an individual who, at any time during the
year, was (each a “Named Executive Officer”):
| |
(a) |
the Corporation’s Chief Executive Officer (“CEO
”); |
| |
|
|
| |
(b) |
the Corporation’s Chief Financial Officer
(“CFO”); |
| |
|
|
| |
(c) |
each of the Corporation’s three most highly compensated
executive officers, or the three most highly compensated individuals
acting in a similar capacity, other than the CEO and CFO, at the end of
the most recently completed financial year and whose total compensation
was, individually, more than CDN$150,000 for that financial year;
and |
| |
|
|
| |
(d) |
each individual who would be a named executive officer
under paragraph (c) but for the fact that the individual was neither an
executive officer of the Corporation, nor acting in a similar capacity, at
the end of the most recently completed financial
year. |
Based on the foregoing definition, during the most recently
completed financial year of the Corporation, there were four (4) Named Executive
Officers.
18
The following table sets forth the compensation paid or awarded
to Named Executive Officers for the three most recently completed financial
years ended December 31, 2012 (in thousands of US dollars).
Name and
principal
position
|
Year
|
Salary/
Fee
|
Share-
based
awards
|
Option-
based
awards(1)
|
Non-equity
incentive
plan compensation |
Pension
value
|
All other
compensation
|
Total
compensation
|
Annual
incentive
plans
|
Long-
term
incentive
plans |
| |
|
(US$) |
(US$) |
(US$) |
(US$) |
(US$) |
(US$) |
(US$) |
(US$) |
Hezi Kugler,
CEO(2) |
2011
2012 |
182
52 |
Nil
Nil |
314
104 |
Nil
Nil |
Nil
Nil |
Nil
Nil |
Nil
Nil |
496
162 |
Jeffrey E.
Walter,
CEO(3) |
2012
|
280
|
Nil
|
169
|
Nil
|
Nil
|
Nil
|
Nil
|
449
|
Gadi Levin,
CFO(4) |
2011
2012 |
177
191 |
Nil
Nil |
76
90 |
Nil
Nil |
Nil
Nil |
Nil
Nil |
Nil
Nil |
253
281 |
Alan
Friedman,
Executive
Vice
President,
Corporate
Development |
2010
2011
2012
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
187
152
78
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
148(5)
104(5)
144(5)
|
335
256
222
|
Notes:
| |
(1) |
The fair value of the stock options issued prior to the
year ended December 31, 2011, has been calculated using the Black-Scholes
option pricing model and stock options issued during the year ended
December 31, 2012, has been calculated using the Binominal option pricing
mode. |
| |
(2) |
Mr. Kugler served as the CEO and Director of the
Corporation from June 2, 2011, to February 24, 2012, and continued to
assist the Corporation as a strategic consultant effective February 27,
2012, through to September 22, 2012. |
| |
(3) |
Mr. Walter was appointed the CEO of the Corporation
effective February 27, 2012. |
| |
(4) |
Mr. Levin was appointed CFO of the Corporation on January
11, 2011. |
| |
(5) |
Compensation was paid to Rivonia Capital Inc., in respect
of Mr. Friedman’s consulting time, in his capacity as an officer of the
Corporation. |
19
Incentive Plan Awards – Named Executive Officers
Outstanding Share-Based Awards and Option-Based Awards
The following table sets forth all share-based and option-based
awards outstanding for the Named Executive Officers as of December 31, 2012.
There were no share-based awards outstanding as of December 31, 2012.
|
Option-Based
Awards
|
Name
|
Number of securities
underlying
unexercised options |
Option exercise price
|
Option expiration
date
|
Value of unexercised
in-the-money
options(1) |
| |
(#) |
(US$) |
|
(US$) |
| Hezi Kugler |
1,139,109 |
0.51 |
May 31, 2013 |
Nil |
Jeffrey E. Walter
|
2,000,000
760,000 |
0.25
0.20 |
March 13, 2017
August 21,
2017 |
Nil
Nil |
Gadi Levin
|
250,000
250,000
910,000 |
0.61
0.60
0.20 |
July 21, 2015
May 2, 2016
August 21, 2017 |
Nil
Nil
Nil |
Alan Friedman
|
396,000
250,000
250,000
150,000
1,060,000 |
0.25
0.25
0.60
0.80
0.20 |
August 20, 2014
August
20, 2014
January 27, 2015
January 10, 2017
August 21, 2017 |
Nil
Nil
Nil
Nil
Nil |
Notes:
| (1) |
The “value of unexercised in-the-money options” is
calculated based on the difference between the closing price of $0.10 for
the Common Shares on the Exchange on December 31, 2012 and the exercise
price of the options, multiplied by the number of unexercised
options. |
Incentive Plan Awards – Value Vested or Earned During the
Year
The following table sets forth the value of all incentive plan
awards vested or earned for each Named Executive Officer during the year ended
December 31, 2012.
Name & Principal
Positions
|
Option-based awards –
Value
vested during the year(1) |
Share-based awards –
Value
vested during the year |
Non-equity incentive
plan
compensation – Value
earned during the year
|
| |
(US$) |
(US$) |
(US$) |
| Hezi Kugler |
Nil |
Nil |
Nil |
| Jeffrey E. Walter |
Nil |
Nil |
Nil |
| Gadi Levin |
Nil |
Nil |
Nil |
| Alan Friedman |
Nil |
Nil |
Nil
|
Note:
| (1) |
The “value vested during the year” is calculated based on
the difference between the closing price for the Common Shares on the
Exchange as of the date of vesting and the exercise price of the options,
multiplied by the number of vested options. |
20
Management Contracts – Termination and Change of Control
Benefits
Mr. Hezi Kugler – CEO (until February 24, 2012)
Effective June 1, 2011, the Corporation entered into an
employment agreement (the “Kugler Employment Agreement”) with Kugler
Development and Investments Ltd. (“Kugler Development”), a company wholly
owned by Mr. Kugler, pursuant to which Mr. Kugler agreed to provide his services
to the Corporation in the capacity of CEO. Effective February 24, 2012 Mr.
Kugler ceased to hold the position of CEO and on February 26, 2012, the
Corporation entered into a consulting services agreement with Kugler Development
(the “Kugler Development Agreement”). As such, no severance was paid to
Kugler Development under the employment agreement. The Kugler Development
Agreement was terminated on September 22, 2012, with no additional Compensation
paid to Kugler Development.
Mr. Jeffery Walter – CEO (as of February 27, 2012)
Effective February 27, 2012, the Corporation entered into an
employment agreement with Mr. Walter pursuant to which Mr. Walter agreed to
provide his services to the Corporation in the capacity of CEO for a term to
continue until terminated (the “Walter Employment Agreement”). The Walter
Employment Agreement was subsequently assigned to a subsidiary of the
Corporation, Adira Energy Israel Ltd. (“Adira Israel”), in accordance
with the terms therein.
The Walter Employment Agreement contains certain
representations, warranties and covenants, including, among other things,
standard confidentiality, non-competition and non-solicitation covenants that
will apply during the term of the Walter Employment Agreement and for a period
of six months thereafter.
Pursuant to the Walter Employment Agreement, each party thereto
is entitled to terminate the Walter Employment Agreement at any time by
providing the other party three months’ written notice. In addition, Adira
Israel is entitled to terminate the Walter Employment Agreement immediately
without notice and/or payment in lieu thereof if Mr. Walter has materially
breached the Walter Employment Agreement.
If the Walter Employment Agreement is terminated due to a
change of control in the Corporation (as defined in the Walter Employment
Agreement), Mr. Walter is entitled to a special separation payment equal to (i)
twelve months salary and 50% of the unvested stock options granted to Mr. Walter
will be accelerated and be vested if the Walter Employment Agreement is
terminated between 13 and 36 months of its effective date; or (ii) twenty four
months’ salary and 100% of the unvested stock options granted to Mr. Walter will
be accelerated and be vested if the Walter Employment Agreement is terminated at
least 37 months of its effective date.
Additionally, if the Walter Employment Agreement is terminated
by Adira Israel without Cause (as defined in the Walter Employment Agreement) or
by Mr. Walter for good reason (as defined in the Walter Employment Agreements),
Mr. Walter is entitled to a special separation payment equal to (i) three months
salary and 25% of the unvested stock options granted to Mr. Walter will be
accelerated and be vested if the Walter Employment Agreement is terminated prior
to September 1, 2013; (ii) twelve months salary and 50% of the unvested stock
options granted to Mr. Walter will be accelerated and be vested if the Walter
Employment Agreement is terminated between September 1, 2013, and February 26,
2015; or (ii) twenty four months’ salary and 100% of the unvested stock options
granted to Mr. Walter will be accelerated and be vested if the Walter Employment
Agreement is terminated on, or after, February 27, 2015.
21
All special separation payment amounts described above include
any prior notice entitlement required under the Walter Employment Agreement.
Notwithstanding the foregoing, for a 6 month period ending
August 31, 2013, 50% of Mr. Walters’s salary shall accrue and become payable on
the earlier of September 1, 2013, or upon a change of control.
If, on December
31, 2012, the Walter Employment Agreement was terminated by the Corporation
without cause or due to a change of control in the Corporation, Mr. Walter would
have received a special separation payment equal to approximately US$168,000.
Mr. Gadi Levin – CFO
Effective July 21, 2010, the Corporation entered into an
employment agreement with Mr. Levin pursuant to which Mr. Levin agreed to
provide his services to the Corporation in the capacity of CFO for a term to
continue until terminated (the “Levin Employment Agreement”). The Levin
Employment Agreement was subsequently assigned to Adira Israel in accordance
with the terms therein.
The Levin Employment Agreement contains certain
representations, warranties and covenants, including, among other things,
standard confidentiality, non-competition and non-solicitation covenants that
will apply during the term of the Levin Employment Agreement and for a period of
six months thereafter.
Pursuant to the Levin Employment Agreement, each party
thereto is entitled to terminate the Levin Employment Agreement at any time by
providing the other party two months’ written notice. In addition, Adira Energy
is entitled to terminate the Levin Employment Agreement immediately without
notice and/or payment in lieu thereof if Mr. Levin has materially breached the
Levin Employment Agreement and such breach is not cured within 30 days from the
date on which Adira Energy informs Mr. Levin of such breach.
If the Levin Employment Agreement is terminated due to a change
of control in the Corporation (as defined in the Levin Employment Agreement), by
the Corporation without cause (as defined in the Levin Employment Agreement) or
by Mr. Levin for good reason (as defined in the Levin Employment Agreements),
Mr. Levin is entitled to a payment equal to (i) twelve months’ salary and 50% of
the unvested stock options granted to Mr. Levin will be accelerated and be
vested if the Levin Employment Agreement is terminated between 13 and 36 months
of its effective date; or (ii) twenty four months’ salary and 100% of the
unvested stock options granted to Mr. Levin will be accelerated and be vested if
the Levin Employment Agreement is terminated at least 37 months of its effective
date. The special separation payment amounts described above include any prior
notice entitlement required under the Levin Employment Agreement.
Notwithstanding the foregoing, for a six month period ending
August 31, 2013, Mr. Levin’s salary will be reduced by 10%. The aggregate amount
of the reduced salary will paid to Mr. Levin at the earlier of September 1,
2013, a change in control of the Corporation (as defined in the Levin Employment
Agreement), the resignation of Mr. Levin for good reason (as defined in the
Levin Employment Agreement), the termination of the Levin Employment Agreement
by Adira Energy without cause (as defined in the Levin Employment Agreement).
If, on December 31, 2012, the Levin Employment Agreement was
terminated by Adira Energy without cause or due to a change of control in the
Corporation, Mr. Levin would have received a special separation payment equal to
approximately 612,000 New Israeli Shekels (“NIS”) (US$169,929, based on
an exchange rate of one US dollar into NIS 3.725 on December 31, 2012, as
published by International Monetary Fund).
22
Mr. Alan Friedman – Executive Vice President, Corporate
Development
Effective May 1, 2011, the Corporation entered into a
consulting agreement with Rivonia Capital Inc. (“Rivonia”), a company
wholly owned by Mr. Friedman, pursuant to which Mr. Friedman agreed to provide
his services to the Corporation in the capacity of Executive Vice President,
Corporate Development for a term to continue until terminated (the “Rivonia
Service Agreement”).
The Rivonia Service Agreement contains certain representations,
warranties and covenants, including, among other things, standard
confidentiality, non-competition and non-solicitation covenants that will apply
during the term of the Rivonia Service Agreement and for a period of six months
thereafter.
Pursuant to the Rivonia Service Agreement, each party thereto is
entitled to terminate the Rivonia Service Agreement at any time by providing
sixty days’ written notice. In addition, the Corporation is entitled to
terminate the Rivonia Service Agreement immediately without notice and/or
payment in lieu thereof if Rivonia or Mr. Friedman materially breach the Rivonia
Service Agreement and such breach is not cured within 30 days from the date on
which the Corporation informs such party of such breach.
Furthermore, if the
Rivonia Service Agreement is terminated by the Corporation without cause (as
defined in the Rivonia Service Agreement), by Rivonia or Mr. Friedman for good
reason (as defined in the Rivonia Service Agreement ) or due to a change of
control in the Corporation (as defined in the Rivonia Service Agreement),
Rivonia is entitled to a payment equal to twenty four months’ compensation (the
“Separation Payment”) and 100% of the stock options granted to Mr.
Friedman will vest immediately. The special separation payment amounts described
above include any prior notice entitlement required under the Rivonia Service
Agreement.
Notwithstanding the forgoing, for a 6 month period ending
August 31, 2013, 50% of Rivonia’s compensation shall accrue and become payable
on the earlier of September 1, 2013, or the happening of certain prescribed
events. Additionally, if the Rivonia Service Agreement is terminated during the
6 month period ending August 31, 2013 by the Corporation without cause (as
defined in the Rivonia Service Agreement) or by Rivonia or Mr. Friedman for good
reason (as defined in the Rivonia Service Agreement), 50% of the Separation
Payment will be delayed until the earlier of September 1, 2013, or the happening
of certain prescribed events.
If, on December 31, 2012, the Rivonia Service Agreement was
terminated by the Corporation without cause or due to a change of control in the
Corporation, Rivonia would have received a Separation Payment equal to
approximately $288,000.
Director Compensation
No cash compensation was paid to the directors of the
Corporation in their capacity as directors during the financial year ended
December 31, 2012. The directors of the Corporation are eligible to receive
options to purchase Common Shares pursuant to the terms of the Stock Option
Plan.
Director Compensation Table
The following table sets forth all amounts of compensation
provided to the directors of the Corporation (other than directors who are also
Named Executive Officers) during the financial year ended December 31, 2012 (in
thousands of US dollars):
23
Name(1)
|
Fees
Earned
|
Share-
based
awards
|
Option-
based
awards
|
Non-equity
incentive
plan
compensation |
Pension
value
|
All other
compensation
|
Total
|
| |
(US$) |
(US$) |
(US$) |
(US$) |
(US$) |
(US$) |
(US$) |
| Dennis Bennie |
Nil |
Nil |
67 |
Nil |
Nil |
15.15(2) |
82.15 |
| Amos Lasker |
Nil |
Nil |
46 |
Nil |
Nil |
48(3) |
94 |
| Colin Kinley |
Nil |
Nil |
7 |
Nil |
Nil |
Nil |
7 |
| Richard Crist |
Nil |
Nil |
26 |
Nil |
Nil |
Nil |
26 |
Sheldon
Inwentash(4) |
Nil
|
Nil
|
50
|
Nil
|
Nil
|
Nil
|
50
|
| Orit Lietman(5) |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
| Eli Barkat(6) |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
| Yael Reznik(7) |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil |
Nil
|
Notes:
| |
(1) |
Information regarding Messrs. Walter and Friedman is set
out above under “Summary Compensation Table – Named Executive
Officers”. |
| |
(2) |
Compensation was paid to Delrina Consolidated Ltd., in
respect of Mr. Bennie’s consulting time, in his capacity as a Co-Chairman
of the Corporation. |
| |
(3) |
Compensation was paid to Mr. Lasker by Adira Israel for
services provided in his capacity as VP Business Development of Adira
Israel. |
| |
(4) |
Mr. Inwentash resigned from the Board on February 11,
2013. |
| |
(5) |
Mr. Leitman resigned from the Board on March 10,
2013. |
| |
(6) |
Mr. Barkat resigned from the Board on July 6,
2012. |
| |
(7) |
Ms. Reznik resigned from the Board on July 6,
2012. |
Incentive Plan Awards - Outstanding Share-Based
Awards and Option-Based Awards
The following table sets forth all awards outstanding for each
of the directors of the Corporation (other than directors who are also Named
Executive Officers) as of December 31, 2012. There were no share-based awards
outstanding as of December 31, 2012.
24
| |
Option-Based
Awards |
Name(1)
|
Number of securities
underlying
unexercised options |
Option exercise price
|
Option expiration
date
|
Value of unexercised
in-the-money
options(2) |
| |
(#) |
(US$) |
|
(US$) |
Dennis Bennie
|
296,000
250,000
100,000
1,520,000 |
0.25
0.61
0.80
0.20 |
August 20, 2014
January
27, 2015
January 10, 2015
August 21, 2017 |
Nil
Nil
Nil
Nil
|
| Amos Lasker |
1,000,000 |
0.20 |
August 21, 2017 |
Nil |
Colin Kinley
|
400,000
250,000
250,000
800,000
100,000
150,000 |
0.25
0.25
0.60
0.80
0.80
0.20 |
August 31, 2014
September
23, 2014
January 28, 2015
January 17, 2017
March 17, 2017
August 21, 2017 |
Nil
Nil
Nil
Nil
Nil
Nil |
| Richard Crist |
600,000 |
0.20 |
August 21, 2017 |
Nil |
Sheldon Inwentash
|
100,000
1,140,000 |
0.51
0.20 |
June 24, 2016
August 21,
2017 |
Nil
Nil |
| Orit Lietman |
Nil |
Nil |
Nil |
Nil |
| Eli Barkat(3) |
Nil |
Nil |
Nil |
Nil |
| Yael Reznik(4) |
Nil |
Nil |
Nil |
Nil
|
Notes:
| |
(1) |
Information regarding Messrs. Walter and Friedman is set
out above under “Summary Compensation Table – Named Executive
Officers”. |
| |
(2) |
The “value of unexercised in-the-money options” is
calculated based on the difference between the closing price of $0.10 for
the Common Shares on the Exchange on December 31, 2012 and the exercise
price of the options, multiplied by the number of unexercised
options. |
| |
(3) |
As of December 31, 2012, all of Mr. Barkat’s options have
either been exercised or expired. |
| |
(4) |
As of December 31, 2012, all of Ms. Reznik’s options have
either been exercised or expired. |
Incentive Plan Awards – Value Vested or Earned During the
Year
The following table sets forth the value of all incentive plan
awards vested or earned by each director of the Corporation (other than
directors who are also Named Executive Officers) during the year ended December
31, 2012 (in thousands of US dollars).
Name(1)
|
Option-based awards –
Value vested during the
year(2)
|
Share-based awards –
Value vested during the
year |
Non-equity incentive
plan
compensation – Value
earned during the year
|
| |
(US$) |
(US$) |
(US$) |
| Dennis Bennie |
Nil |
Nil |
Nil |
| Amos Lasker |
Nil |
Nil |
Nil |
| Colin Kinley |
Nil |
Nil |
Nil |
| Richard Crist |
Nil |
Nil |
Nil |
| Sheldon Inwentash |
Nil |
Nil |
Nil |
| Orit Lietman |
Nil |
Nil |
Nil |
| Eli Barkat |
Nil |
Nil |
Nil |
| Yael Reznik |
Nil |
Nil |
Nil
|
Notes:
| |
(1) |
Information regarding Messrs. Walter and Friedman is set
out above under “Summary Compensation Table – Named Executive
Officers”. |
25
| |
(2) |
The “value vested during the year” is calculated based on
the difference between the closing price for the Common Shares on the
Exchange as of the date of vesting and the exercise price of the options,
multiplied by the number of vested options. |
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
PLANS
The following table provides information regarding the number
of Common Shares to be issued upon the exercise of outstanding options and the
weighted-average exercise price of the outstanding options in connection with
the Stock Option Plan as at December 31, 2012. There were no equity compensation
plans not approved by security holders of the Corporation as at December 31,
2012.
Plan Category |
Number of Common
Shares to be issued upon
exercise of outstanding
options |
Weighted-average
exercise price of
outstanding options |
Number of Common
Shares
remaining available for
future issuance
under
equity compensation plans |
| |
(#) |
($) |
(#) |
Equity compensation plans
approved by security
holders |
115,084,124
|
0.26
|
417,000
|
| Total |
115,084,124 |
0.26 |
417,000
|
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
As at the date of this Circular, no individual who is an
executive officer, director, employee or former executive officer, director or
employee of the Corporation or any of its subsidiaries is indebted to the
Corporation or any of its subsidiaries pursuant to the purchase of securities or
otherwise.
No individual who is, or at any time during the financial year
ended December 31, 2012 was, a director or executive officer of the Corporation,
a proposed management nominee for election as a director of the Corporation, or
an associate of any such director, executive officer or proposed nominee, was
indebted to the Corporation or any of its subsidiaries during the financial year
ended December 31, 2012 or as at the date of this Circular in connection with
security purchase programs or other programs.
REPORT ON CORPORATE GOVERNANCE
Maintaining a high standard of corporate governance is a
priority for the Board and the Corporation’s management as both believe that
effective corporate governance will help create and maintain shareholder value
in the long term. A description of the Corporation’s corporate governance
practices, which addresses the matters set out in NI 58-101 – Disclosure of
Corporate Governance Practices, is set out at Schedule “B” to this Circular.
AUDIT COMMITTEE DISCLOSURE
The audit committee of the Corporation’s (the “Audit
Committee”) primary purpose is to assist the Board in fulfilling its
oversight responsibilities for the financial reporting process, the system of
internal control over financial reporting and accounting compliance, the audit
process and processes for identifying, evaluating and monitoring the management
of the Corporation’s principal risks impacting financial reporting. The
committee also assists the Board with the oversight of financial strategies and
overall risk management.
26
A copy of the charter of the Audit Committee (the “Audit
Committee Charter”) is attached as Schedule “C” to this Circular.
Composition of Audit Committee
The Audit Committee is comprised of Messrs. Bennie, Crist and
Friedman. Messrs. Bennie and Crist are “independent” as such term is defined in
National Instrument 52-110 – Audit Committees (“NI 52-110”). Mr.
Friedman is not considered independent as he is currently an officer of the
Corporation. The Corporation is of the opinion that all three members of the
Audit Committee are “financially literate” as such term is defined in NI
52-110.
Relevant Education and Experience
All the members of the Audit Committee have the education
and/or practical experience required to understand and evaluate financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the Corporation’s financial statements.
The education and experience of each Audit Committee member
that is relevant to such member’s responsibilities as a member of the Audit
Committee are set forth below:
| |
(a) |
Dennis Bennie: Mr. Bennie qualified as a chartered
accounting in 1975. Over the past 25 years, Mr. Bennie has founded and
managed several private and public companies. |
| |
|
|
| |
(b) |
Richard Crist: Mr. Crist has over 45 years of corporate
and senior management experience in the oil and gas industry. |
| |
|
|
| |
(c) |
Alan Friedman: Mr. Friedman has played an integral role
in the acquisition of various mining and oil and gas assets, financings
and go -public transactions for many resource companies over the past 13
years. He has and continues to sit as a director on several
boards. |
Audit Committee Oversight
At no time since the commencement of the Corporation’s most
recently completed financial year have any recommendations by the Audit
Committee respecting the appointment and/or compensation of the Corporation’s
external auditors not been adopted by the Board.
Reliance on Certain Exemptions
As the Corporation is listed on the Exchange, it is a "venture
issuer" and avails itself of exemptions from the requirements of Part 3
Composition of the Audit Committee and Part 5 Reporting Obligations of NI
52-110, which require the independence of each member of an audit committee and
the disclosure of audit committee information in an annual information form,
respectively.
At no time since the commencement of the Corporation’s most
recently completed financial year has the Corporation relied on exemptions in
relation to “De Minimis Non-audit Services” or any exemption provided by
Part 8 of NI 52-110.
27
Pre-Approval Policies and Procedures
Pursuant to the terms of the Audit Committee Charter, the Audit
Committee shall pre-approve all non-audit services to be provided to the
Corporation or its subsidiary entities by the Corporation’s external
auditor.
External Auditor Service Fees (By Category)
The following table sets forth information regarding the amount
billed to the Corporation by its principal independent auditors for the years
ended December 31, 2012 and December 31, 2011.
| |
Year Ended
December 31, |
|
2012
(US$)
|
2011
(US$)
|
| Audit Fees(1): |
$155,000 |
$110,000 |
| Audit Related Fees(2): |
$88,000 |
$18,000 |
| Tax Fees(3): |
$120,000 |
$64,000 |
| Total: |
$363,000 |
$174,000
|
Notes:
| |
(1) |
This category includes the aggregate fees billed by our
independent auditor for the audit of our consolidated annual financial
statements, reviews of interim financial statements and attestation
services that are provided in connection with statutory and regulatory
filings or engagements. |
| |
(2) |
This category includes the aggregate fees billed in each
of the last two fiscal years for assurance and related services by the
independent auditors that are reasonably related to the performance of the
audits or reviews of the financial statements and are not reported above
under "Audit Fees," and generally consist of fees for other engagements
under professional auditing standards, accounting and reporting
consultations, |
| |
(3) |
This category includes the aggregate fees billed in each
of the last two fiscal years for professional services rendered by the
independent auditors for tax compliance, tax planning and tax
advice. |
INTERESTS OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
To the knowledge of the Corporation, no director or executive
officer of the Corporation, or any person who has held such a position since the
beginning of the Corporation’s last fiscal year, nor any proposed nominee for
election as a director of the Corporation, nor any associate or affiliate of the
foregoing persons, has any material interest, direct or indirect, in any
transaction in which the Corporation has participated since the commencement of
the Corporation’s most recently completed financial year or in any proposed
transaction which has materially affected or will materially affect the
Corporation.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
To the knowledge of the Corporation, no person or company who
has been a director or executive officer of the Corporation at any time since
the beginning of the Corporation’s last completed financial year, no proposed
nominee for election as a director of the Corporation and no associate or
affiliate of any of the foregoing persons has any material interest, direct or
indirect, by way of beneficial ownership of securities or otherwise, in any
matter to be acted upon at the Meeting other than the election of directors.
ADDITIONAL INFORMATION
Additional information relating to the Corporation is available
under the Corporation’s profile on SEDAR at www.sedar.com. Financial
information is provided in the Corporation’s audited financial statements and
Management’s Discussion and Analysis (“MD&A”) for the year ended
December 31, 2012. In addition, copies of the Corporation’s annual financial
statements and MD&A and this Circular may be obtained upon request to the Corporation. The Corporation may
require the payment of a reasonable charge if the request is made by a person
who is not a shareholder of the Corporation.
28
APPROVAL OF BOARD OF DIRECTORS
The contents of this Circular and the sending of it to each
director of the Corporation, to the auditor of the Corporation, to the
Shareholders and to the appropriate governmental agencies, have been approved by
the directors of the Corporation.
DATED as of the 10th day of July, 2013.
| |
BY ORDER OF THE BOARD |
| |
|
| |
(Signed) DENNIS BENNIE |
| |
Co-Chairman of the Board
|
A - 1
SCHEDULE "A"
STOCK OPTION PLAN
ADIRA ENERGY LTD.
STOCK OPTION PLAN
(August 31, 2009, amended April 13, 2011, May 30, 2012)
TABLE OF CONTENTS
A - 2
A - 3
ADIRA ENERGY LTD.
STOCK OPTION PLAN
(August 31, 2009, amended April, 2011, May 30, 2012)
The purpose of the Plan is to advance the interests of Adira
Energy Ltd. (the “Corporation”) by attracting, retaining and motivating
persons as directors, officers, key employees and consultants of the Corporation
and its Affiliated Corporations and providing them with a greater incentive to
develop and promote the growth and success of the Corporation by granting to
them options to purchase shares in the capital of the Corporation.
| 2. |
INTERPRETATION |
| |
|
| 2.1 |
Definitions |
For the purposes of the Plan, unless they are otherwise defined
elsewhere herein, the following terms have the following meanings,
respectively:
| |
(a) |
“Affiliate” has the meaning set forth in the
Securities Act (Ontario), as amended from time to time; |
| |
|
|
| |
(b) |
“Affiliated Corporation” is a corporation which is
an “affiliate” (as such term is defined in the Securities Act
(Ontario), as amended from time to time) of the Corporation; |
| |
|
|
| |
(c) |
“Applicable Law” means the requirements relating
to the administration of stock option plans under the applicable corporate
and securities laws of Ontario and Canada, any stock exchange or quotation
system on which the Shares are listed or quoted and the applicable laws of
any foreign country or jurisdiction which apply to Options granted under
the Plan; |
| |
|
|
| |
(d) |
“Associate” has the meaning set forth in the
Securities Act (Ontario), as amended from time to time; |
| |
|
|
| |
(e) |
“Board” means the board of directors of the
Corporation; |
| |
|
|
| |
(f) |
“Business Day” means a day that is not a Saturday,
a Sunday or a statutory or legal holiday in Toronto, Ontario; |
| |
|
|
| |
(g) |
“Cause” means any act or omission by the Optionee
which would in law permit an employer to, without notice or payment in
lieu of notice, terminate the Optionee’s employment or services, and shall
include, without limitation, the meaning attributed thereto in the
employment agreement or consulting agreement, as may be applicable, of
such Optionee; |
| |
|
|
| |
(h) |
“Change of Control” has the meaning set forth in
Subsection 4.11(a) hereof; |
| |
|
|
| |
(i) |
“Change of Control Price ” has the meaning set
forth in Subsection 4.11(a) hereof; |
A - 4
| |
(j) |
“Committee” has the meaning set forth in
Subsection 3.1(c) hereof; |
| |
|
|
|
| |
(k) |
“Consultant Optionee” means an individual, other
than an Employee Optionee or an Executive Optionee, that: |
| |
|
|
|
| |
|
(i) |
is engaged to provide on an ongoing bona fide basis
consulting, technical, management or other services to the Corporation or
to an Affiliated Corporation, other than services provided in relation to
a distribution; |
| |
|
|
|
| |
|
(ii) |
provides the services under a written contract between
the Corporation or an Affiliated Corporation and the individual or a
Consultant Company or Consultant Partnership of the individual; |
| |
|
|
|
| |
|
(iii) |
in the reasonable opinion of the Corporation, spends or
will spend a significant amount of time and attention on the affairs and
business of the Corporation or an Affiliated Corporation; and |
| |
|
|
|
| |
|
(iv) |
has a relationship with the Corporation or an Affiliated
Corporation that enables the Consultant to be knowledgeable about the
business and affairs of the Corporation. |
| |
|
|
|
| |
(l) |
“Consultant Company” means, for an individual
consultant, a company of which the individual consultant is an employee or
shareholder; |
| |
|
|
|
| |
(m) |
“Consultant Partnership” means, for an individual
consultant, a partnership of which the individual consultant is an
employee or partner; |
| |
|
|
|
| |
(n) |
“Corporation” means Adira Energy Ltd. and includes
any successor corporation thereto; |
| |
|
|
|
| |
(o) |
“Date of Grant” means, for any Option, the date
specified by the Board at the time it grants the Option or, if no such
date is specified, the date upon which the Option was granted; |
| |
|
|
|
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(p) |
“Disability” means the mental or physical state of
the Optionee such that, as a result of illness, disease, mental or
physical disability or similar cause, the Optionee has been unable to
fulfil his or her obligations as an employee or consultant of the
Corporation or an Affiliated Corporation either for any consecutive six
month period or for any period of twelve months (whether or not
consecutive) in any consecutive 12-month period, provided that, where the
Optionee has entered into a written employment or consulting agreement
with the Corporation or an Affiliated Corporation, “Disability” will have
the meaning attributed to that term, or the term equivalent in concept,
contained in that employment or consulting agreement; |
| |
|
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|
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(q) |
“Eligible Person” means a bona fide Consultant
Optionee, Employee Optionee or Executive Optionee or any of their
subsidiaries; |
| |
|
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|
| |
(r) |
“Eligible Transferee” means, in respect of a
particular Optionee, such of the following as have specifically been
designated by the Board as an Eligible Transferee of such Optionee: (i) a
registered retirement savings plan or a registered retirement investment
fund, of which the Optionee is the beneficiary; (ii) a Holding Company; or
(iii) a trust, the beneficiary of which is the
Optionee; |
A - 5
| |
(s) |
“Employee Optionee” means a current full-time or
part-time employee or contract employee of the Corporation or of an
Affiliated Corporation and shall include, other than for the purposes of
Sections 4.8 and 4.9, any registered retirement savings plans or
registered income funds established by or for the employee (or under which
such employee is the beneficiary) and a Holding Company of such
individual; |
| |
|
|
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(t) |
“Exchange” means the stock exchange or quotation
system and, where the context permits, includes all other stock exchanges
and quotation systems designated by the Board, on which the Shares are or
may be listed or quoted from time to time (provided that if, for the
purposes of the Plan it is necessary to have reference to a single
Exchange, then such Exchange shall be any stock exchange or quotation
system on which the Shares are then listed or quoted as designated by the
Board); |
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|
|
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(u) |
“Executive Optionee” means a current director or
an officer of the Corporation or of an Affiliated Corporation and shall
include, other than for the purposes of Sections 4.8 and 4.9, any
registered retirement savings plans or registered retirement income funds
established by or for the individual director or officer (or under which
such director or officer is the beneficiary) and a Holding Company of such
individual; |
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|
|
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(v) |
“Exercise Price” has the meaning set forth in
Section 4.2 hereof; |
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|
|
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(w) |
“Fair Market Value” means, at any date in respect
of Shares, the closing price of such Shares on the Exchange on the last
Business Day preceding such date (less the applicable discount). In the
event that such Shares did not trade on such Business Day, the Fair Market
Value shall be the average of the bid and ask prices in respect of such
Shares at the close of trading on such date or such other price determined
by the Board, acting reasonably; |
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|
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(x) |
“Holding Company” means a corporation wholly-owned
and controlled by an Optionee; |
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|
|
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(y) |
“Insider” has meaning ascribed thereto in the
Securities Act (Ontario); |
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|
|
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(z) |
“Option” means a right granted to an Eligible
Person to purchase Shares on the terms of the Plan; |
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|
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(aa) |
“Optionee” means the Eligible Person to whom an
Option has been granted and includes, other than for the purposes of
Sections 4.8 and 4.9 hereof, any Eligible Transferee to whom an Optionee
has transferred an Option in accordance with the terms of the
Plan; |
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|
|
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(bb) |
“Option Agreement” has the meaning set forth in
Section 4.5 hereof; |
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|
|
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(cc) |
“Person” means any individual, partnership,
limited partnership, joint venture, syndicate, sole proprietorship,
company or corporation with or without share capital, unincorporated
association or organization, trust, trustee, executor, administrator or
other legal personal representative, regulatory body or agency, government
or governmental agency, authority or entity however designated or
constituted; |
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|
|
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(dd) |
“Plan” means this stock option plan of the
Corporation (as the same may be amended or varied from time to
time); |
A - 6
| |
(ee) |
“Retirement” means retirement from active
employment with the Corporation or an Affiliated Corporation at or after
the age of 65 or, with the consent for the purposes of the Plan of such
officer of the Corporation or an Affiliated Corporation as may be
designated by the Board, at or after such earlier age and upon the
completion of such years of service as the Board may specify; |
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|
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(ff) |
“Shares” means the common shares in the capital of
the Corporation as constituted from time to time or, in the event of an
adjustment contemplated by Section 5.1 hereof, such other shares or
securities to which an Optionee may be entitled upon the exercise of an
Option as a result of such adjustment; |
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(gg) |
“Termination Date” means: |
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|
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|
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|
(i) |
in the case of an Employee Optionee or Executive Optionee
whose employment or term of office with the Corporation or an Affiliated
Corporation, as the case may be, terminates in the circumstances set out
in Sections 4.8 or 4.9 hereof, the date that is designated by the
Corporation or an Affiliated Corporation, as the case may be, as the last
day of the Optionee’s employment or term of office with the Corporation or
an Affiliated Corporation, as the case may be, and “Termination Date”
specifically does not mean the date on which any period of contractual or
reasonable notice that the Corporation or an Affiliated Corporation, as
the case may be, may be required by contract or at law to provide to the
Optionee would expire; |
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|
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|
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|
(ii) |
in the case of an Executive Optionee who received Options
in his or her capacity as a director of the Corporation or an Affiliated
Corporation, the date which is the earliest of: (A) the date that such
Executive Optionee resigns as a director of the Corporation or an
Affiliated Corporation; (B) the date that such Executive Optionee is not
re-elected as a director; and (C) the date that such Executive Optionee is
removed from the board of directors of the Corporation or an Affiliated
Corporation; and |
| |
|
|
|
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|
(iii) |
in the case of a Consultant Optionee whose consulting
agreement or arrangement with the Corporation or an Affiliated
Corporation, as the case may be, terminates in the circumstances set out
in Sections 4.8 or 4.9 hereof, the date that is designated by the
Corporation or an Affiliated Corporation, as the case may be, as the date
on which the Optionee’s consulting agreement or arrangement is terminated,
and “Termination Date” specifically does not mean the date on which any
period of notice of termination that the Corporation or an Affiliated
Corporation, as the case may be, may be required to provide to the
Optionee under the terms of the consulting agreement or arrangement would
expire; |
| |
|
or such later date as may be determined by the Board in
the case of Options granted to a specific Optionee; |
| |
|
|
| |
(hh) |
“Transfer” includes any sale, exchange,
assignment, gift, bequest, disposition, hypothecation, mortgage, charge,
pledge, encumbrance, grant of security interest or other arrangement by
which possession, legal title or beneficial ownership passes from one
Person to another, or to the same Person in a different capacity, whether
or not voluntary and whether or not for value, and any agreement to effect
any of the foregoing; and the words “Transferred”, “Transferring” and similar words
have corresponding meanings; and |
A - 7
| |
(ii) |
“Vesting Schedule” has the meaning set forth in
Section 4.4 hereof. |
| 2.2 |
Interpretation |
| |
|
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|
|
|
(a) |
Whenever the Board or, where applicable, the Committee is
to exercise discretion in the administration of the terms and conditions
of the Plan, the term “discretion” means the sole and absolute discretion
of the Board or the Committee, as the case may be. |
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|
|
|
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(b) |
As used herein, the terms “Article”, “Section”,
“Subsection” and paragraph” mean and refer to the specified Article,
Section, Subsection and paragraph hereof, respectively. |
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|
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(c) |
Words importing the singular number only include the
plural and vice versa, and words indicating gender include all
genders. |
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(d) |
In the Plan, a Person is considered to be “controlled” by
a Person if: |
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|
|
|
|
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(i) |
in the case of a corporation or similar entity, |
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(A) |
voting securities of the first-mentioned Person carrying
more than 50% |
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of the votes ordinarily exercisable at meetings of
shareholders of the corporation are held, otherwise than by way of
security only, by or for the benefit of the other Person; and |
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(B) |
the votes carried by such securities are entitled, if
exercised, to elect a |
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majority of the directors of the first-mentioned
Person; |
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(ii) |
in the case of a partnership that does not have
directors, other than a limited partnership, the second-mentioned Person
holds more than 50% of the interests in the partnership; or |
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|
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(iii) |
in the case of a limited partnership, the general partner
is the second-mentioned Person. |
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| 3. |
ADMINISTRATION |
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| 3.1 |
Administration |
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(a) |
The Plan shall be administered by the Board in accordance
with the rules and policies of the Exchange in respect of employee stock
option plans. The Board shall receive recommendations of management and
shall determine and designate from time to time those Eligible Persons to
whom an Option should be granted, the number of Shares which will be
optioned from time to time to any Eligible Person and the terms and
conditions of the Option. |
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|
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(b) |
Subject to Applicable Law, Subsection 3.1(c) hereof and
the limitations of the Plan, the Plan will be administered by the Board
and the Board has the sole and complete authority, in its discretion,
to: |
| |
|
|
|
|
|
|
(i) |
grant Options to Eligible
Persons; |
A - 8
| |
(ii) |
determine the terms, limitations, restrictions and
conditions upon such grants; |
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|
| |
(iii) |
interpret and construe the terms and conditions of the
Plan and the Options; |
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|
| |
(iv) |
adopt, amend and rescind such administrative guidelines
and other rules relating to the Plan as the Board may from time to time
deem advisable; and |
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|
| |
(v) |
make all other determinations and to take all other
actions in connection with the implementation and administration of the
Plan as the Board may deem necessary or
advisable. |
| |
|
The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or in any agreement relating
thereto in the manner and to the extent it shall deem necessary to
effectuate the purpose and intent of the Plan. The Committee may adopt
special guidelines and provisions for Persons who are residing in, or
subject to, the taxes of, any jurisdiction outside of Canada (including,
without limitation, countries, states, provinces and localities) to comply
with applicable tax, and securities and other laws and may impose any
limitations and restrictions that it deems necessary to comply with the
applicable tax, securities and other laws of such jurisdiction outside of
Canada. |
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|
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|
Any decision, interpretation or other action made or
taken in good faith by or at the direction of the Corporation, the Board
or the Committee or any of its members arising out of or in connection
with the Plan shall be within the absolute discretion of all and each of
them, as the case may be, and shall be final, binding and conclusive on
the Corporation, Optionees and their respective heirs, executors,
administrators, successors and permitted assigns. |
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|
The Board’s interpretation, construction or determination
of its guidelines and rules will be conclusive and binding upon all
parties concerned. The day-to-day administration of the Plan may be
delegated to such officers and employees of the Corporation or of an
Affiliated Corporation as the Board may in its sole discretion
determine. |
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|
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(c) |
To the extent permitted by Applicable Law, the Board may,
from time to time, delegate to a committee (the “Committee”) of the
Board all or any of the powers conferred on the Board under the Plan. In
such event, the Committee will exercise the powers delegated to it by the
Board in the manner and on the terms authorized by the Board. Any decision
made or action taken by the Committee arising out of or in connection with
the administration or interpretation of the Plan in this context is final
and conclusive. If the Committee is appointed, the Board shall designate
one of the members of the Committee as chairman and the Committee shall
hold meetings, subject to the by-laws of the Corporation, at such times
and places as it shall deem advisable; including, without limitation, by
telephone conference or by written consent to the extent permitted by
Applicable Law. A majority of the Committee members shall constitute a
quorum. All determinations of the Committee shall be made by a majority of
its members. Any decision or determination reduced to writing and signed
by all the Committee members in accordance with the by-laws of the
Corporation, shall be fully as effective as if it had been made by a vote
at a meeting duly called and held. The Committee shall keep minutes of its
meetings and shall make such rules and regulations for the conduct of its
business as it shall deem advisable. |
A - 9
|
(d) |
Notwithstanding the foregoing, the additional provisions
set forth in Exhibit “A” attached hereto entitled “Provisions
Applicable to Residents of Israel” shall apply to those Participants (as
hereinafter defined) who are resident in the State of Israel (Participants
who are residents of Israeli are referred to herein as “Israeli
Participants”). |
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| 3.2 |
Shares Reserved |
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|
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|
(a) |
Options may be granted in respect of authorized and
unissued Shares. Subject to an increase by the Board in its sole and
absolute discretion, Applicable Law and any shareholder or other approval
which may be required, and subject further to any adjustments pursuant to
Section 5.1, the maximum aggregate number of Shares which may be reserved
by the Corporation for issuance under the Plan will be such number of
Shares as is equal to 10% of the aggregate number of outstanding Shares
from time to time. |
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(b) |
Any Shares subject to an Option which has been granted
under the Plan and which is cancelled or terminated for any reason without
having been exercised will be added back to the number of Shares reserved
for issuance under the Plan and such Shares will again be available for
grant under the Plan. No fractional Shares may be issued, and the Board
may determine the manner in which any fractional Share value will be
treated. |
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| 3.3 |
Eligibility |
Participation in the Plan shall be limited to Eligible Persons.
Participation shall be voluntary and the extent to which any Eligible Person
shall be entitled to participate in the Plan shall be, subject to the terms of
the Plan and Applicable Law, determined in the sole and absolute discretion of
the Board. Eligibility to participate does not confer upon any Optionee any
right to be granted Options pursuant to the Plan.
| 4. |
OPTIONS |
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| 4.1 |
Grants |
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(a) |
The Board may, from time to time, subject to the
provisions of the Plan and such other terms and conditions as the Board
may prescribe, grant Options to any Eligible Person. |
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(b) |
Subject to the Plan, the Board may impose limitations,
restrictions and conditions, in addition to those set out in the Plan,
that are applicable to the exercise of an Option, including, without
limitation, the nature and duration of any restrictions applicable to a
sale or other disposition of Shares acquired upon exercise of an Option
and the nature of events, if any, that may cause any Optionee’s rights in
respect of Shares acquired upon exercise of an Option to be forfeited and
the duration of the period of such forfeiture. |
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(c) |
An Eligible Person may receive Options on more than one
occasion under the Plan and may receive separate Options on any one
occasion. |
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(d) |
the Corporation shall not grant Options: |
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|
(i) |
to any one person in any 12 month period which could,
when exercised, result in the issuance of Shares exceeding five percent
(5%) of the issued and outstanding Shares of the Corporation unless
disinterested shareholder approval is
obtained; |
A - 10
| |
(ii) |
to any one Consultant which could, when exercised, in any
12 month period result in the issuance of Shares exceeding two percent
(2%) of the issued and outstanding Shares of the Corporation; |
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|
| |
(iii) |
to all persons employed by the Corporation who perform
investor relations activities which could, when exercised, in any 12 month
period result in the issuance of Shares exceeding two percent (2%) of the
issued and outstanding Shares of the Corporation nor shall more than 1/4
of any such Options vest in any three month period; |
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| |
(iv) |
if the aggregate number of Shares issuable pursuant to
Options granted to Insiders pursuant to the Plan and other security based
compensation arrangements would exceed 10% of the Corporation’s total
issued and outstanding Common Shares unless disinterested shareholder
approval is obtained; or |
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|
| |
(v) |
if the aggregate number of Shares issued to Insiders
pursuant to the Plan and other security based compensation arrangements
within any one-year period would exceed 10% of the Corporation’s total
issued and outstanding Shares, unless disinterested shareholder approval
is obtained. |
| 4.2 |
Exercise Price |
| |
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|
(a) |
Subject to Applicable Law and to adjustment from time to
time in accordance with Section 5.1 hereof, the exercise price (the
“Exercise Price”) of an Option granted pursuant to the Plan will be
as determined by the Board but in any event, unless otherwise determined
by the Board, shall not be less than the Fair Market Value of the Shares
on the Business Day immediately prior to the Date of Grant. |
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|
(b) |
Furthermore, disinterested shareholder approval is
required in order to reduce the exercise price of an Optionee that is an
Insider of the Corporation at the time of the proposed
amendment. |
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| 4.3 |
Term of Options |
Subject to any accelerated termination as set forth in the
Plan, Options must expire no later than ten (10) years after the Date of Grant
or such lesser period as applicable regulatory authorities or Applicable Law may
require.
| 4.4 |
Vesting of Options |
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|
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|
(a) |
The Board may determine, in its sole discretion, in
respect of an Option, when an Option will become exercisable and the
extent to which an Option will vest or will be exercisable in instalments
(the “Vesting Schedule”) and such Vesting Schedule shall be set
forth in the applicable Option Agreement. For example, the Board may, in
its sole discretion, provide that the vesting of an Option be dependent on
the passage of time and/or on the achievement of specified milestones or
thresholds. |
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|
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|
(b) |
Any Options issued to a Consultant Optionee must vest in
stages over at least a 12 month period with no more than ¼ of such Options
vesting in any three (3) month period. |
A - 11
| |
(c) |
Once a portion of an Option vests and becomes
exercisable, it shall remain exercisable until expiration or termination
of such Option, unless otherwise specified by the Board in connection with
the grant of such Option or pursuant to Section 4.11 hereof with respect
to a Change of Control. Each Option or portion thereof may be exercised at
any time or from time to time, in whole or in part, for up to the total
number of Shares with respect to which it is then
exercisable. |
Each Option must be confirmed by an agreement (an “Option
Agreement”), in the form of option agreement attached hereto as Exhibit
“B” and for Israeli Participants, the form attached hereto as Exhibit
“C”, as such forms may be amended by the Board from time to time, and
with such changes thereto as may be necessary for any particular Option to a
particular Optionee, signed by the Corporation and by the Optionee. In the event
an Option is Transferred in accordance with the terms of the Plan, it shall be a
condition to the effectiveness of such Transfer that the Eligible Transferee
enter into an Option Agreement on the same terms and conditions.
| 4.6 |
Exercise of Option and Payment of Exercise
Price |
The Optionee may, from time to time and at any time after the
vesting of an Option and prior to the expiry of such Option, elect to purchase
all or a portion of the Shares available for purchase by lump sum payment by
delivering to the Corporation at its registered office (or other office
designated in writing by the Corporation to the Optionee), a completed Notice of
Exercise substantially in the form attached hereto as Exhibit “D”. Such
notice shall specify the number of Shares the Optionee desires to purchase and
shall be accompanied by payment in full of the Exercise Price for such Shares.
Subject to the provisions of the immediately following sentence, payment may be
made by bank draft or certified cheque payable to the order of the Corporation
at the time of exercise. Upon receipt of payment in full or, in the discretion
of the Board, upon the determination that the fair value of property or past
services provided by the Optionee is equal to or greater than the Exercise Price
if the Shares had been issued for money, and in any event, subject to the terms
of the Plan, the number of Shares in respect of which the Option is exercised
will be duly issued as fully paid and non assessable. Without derogating from
the aforementioned, as long as the Corporation’s share are listed for trade on a
recognized stock exchange, payment of the Exercise Price may be made all or in
part by delivery (on a form prescribed by the Board) of an irrevocable direction
to a securities broker to sell Shares and to deliver all or part of the sale
proceeds to the Corporation in payment of the aggregate Exercise Price.
| 4.7 |
Prohibition on Transfer of Options and
Shares |
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|
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|
(a) |
Subject to the other provisions of this Section 4.7 and
Section 4.8, an Option is personal to the Optionee and is non-assignable,
other than by will or laws of descent and distribution, and such Option
shall be exercisable during the Optionee’s lifetime only by the Optionee
to which such Option has been granted. No Optionee may deal with any
Option or any interest in it or Transfer any Option now or hereafter held
by the Optionee except in accordance with the Plan. If an Optionee’s
Holding Company ceases to be wholly-owned by the Optionee, the Holding
Company will be deemed to have Transferred any Options held by such
Holding Company to the Optionee. A purported Transfer of any Option in
violation of the Plan will not be valid and the Corporation will not be
required to issue any Shares upon the attempted exercise of an improperly
Transferred Option. Nothing contained herein shall permit any Optionee to
transfer any Option, whether to an Eligible Transferee or otherwise,
without the prior written consent of the Board. Subject to Applicable Law
and subject to the prior written consent of
the Board, an Option may be transferred to and from the
Optionee and an Eligible Transferee provided that the transferor delivers
to the Corporation at its registered office a completed Notice of Transfer
substantially in the form attached hereto as “Exhibit
“E”. |
A - 12
| |
(b) |
Options and Shares issued upon exercise thereof are
subject to transfer and resale restrictions pursuant to the constating
documents of the Corporation and Applicable Law. The Optionee is
responsible for obtaining such legal advice as may be appropriate in
connection with any transfer or resale of Options and Shares issued upon
the exercise thereof. |
| 4.8 |
Death, Disability or Retirement of
Optionee |
If,
| |
(a) |
an Employee Optionee or an Executive Optionee dies or
becomes Disabled while an employee, director or officer of the Corporation
or an Affiliated Corporation, as the case may be; |
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|
|
| |
(b) |
a Consultant Optionee’s consulting agreement or
arrangement with the Corporation or an Affiliated Corporation, as the case
may be, is terminated by reason of the death or Disability of such
Optionee; or |
| |
|
|
| |
(c) |
the employment or term of office of an Employee Optionee
or an Executive Optionee with the Corporation or an Affiliated
Corporation, as the case may be, terminates due to
Retirement, |
then
| |
(d) |
the executor, administrator or other legal representative
of such Optionee’s estate or such Optionee, as the case may be, may
exercise any Options granted to such Optionee to the extent that such
Options were exercisable at the date of such death, Disability or
Retirement and the right to exercise such Options shall terminate on the
earlier of: |
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|
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|
(i) |
the date that is 180 days from the date of such
Optionee’s death, Disability or Retirement; and |
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|
(ii) |
the date of expiration specified in the Option Agreement
or in the resolution of the Board granting such Option, as the case may
be, |
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|
| |
|
provided that any Options granted to such Optionee that
were not exercisable at the date of the death, Disability or Retirement
shall immediately expire and be cancelled on such date; and |
| |
|
|
|
| |
(e) |
such Optionee’s eligibility to receive further grants of
Options under the Plan shall cease as of the date of such Optionee’s
death, Disability or Retirement, as the case may
be. |
With regard to Options held by a trustee of an Israeli
Participant, this Section will apply to the Israeli Participants.
A - 13
| 4.9 |
Termination of Employment or Services by reason other
than Death, Disability or Retirement |
| |
(a) |
Where, in the case of an Employee Optionee or Executive
Optionee, an Optionee’s employment or term of office with the Corporation
or an Affiliated Company ceases by reason of the Optionee’s death,
Disability or Retirement, then the provisions of Section 4.9 hereof shall
apply. |
| |
|
|
| |
(b) |
Where, in the case of an Employee Optionee or Executive
Optionee, an Optionee’s employment or term of office with the Corporation
or an Affiliated Corporation terminates by reason
of: |
| |
(i) |
termination by the Corporation or an Affiliated
Corporation without Cause (whether such termination occurs with or without
any or adequate reasonable notice, or with or without any or adequate
compensation in lieu of such reasonable notice); |
| |
|
|
| |
(ii) |
voluntary resignation by such Optionee; or |
| |
|
|
| |
(iii) |
in the case of an Executive Optionee who received Options
in his or her capacity as a director of the Corporation or an Affiliated
Corporation, the failure of such Executive Optionee to be re-elected as a
director or the removal of such Executive Optionee from the board of
directors of the Corporation or an Affiliated
Corporation, |
| |
|
then any Options granted to such Optionee that are
exercisable at the Termination Date shall continue to be exercisable until
the earlier of: (A) the date that is 30 days following the Termination
Date; and (B) the date of expiration specified in the Option Agreement or
in the resolution of the Board granting such Option, as the case may be.
Any Options granted to such Optionee that are not exercisable at the
Termination Date shall immediately expire and be cancelled on the
Termination Date. |
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(c) |
Where, in the case of an Employee Optionee or Executive
Optionee, such Optionee’s employment or term of office with the
Corporation or an Affiliated Corporation is terminated by the Corporation
or Affiliated Corporation for Cause then any Options granted to such
Optionee, whether or not exercisable at the Termination Date, shall
immediately expire and be cancelled on the Termination Date
contemporaneously with such termination. |
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(d) |
Where, in the case of a Consultant Optionee, such
Optionee’s consulting agreement or arrangement terminates by reason
of: |
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(i) |
termination by the Corporation or an Affiliated
Corporation for any reason other than for material breach of the
consulting agreement or arrangement (whether or not such termination is
effected in compliance with any termination provisions contained in such
Optionee’s consulting agreement or arrangement); or |
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(ii) |
voluntary termination by such Optionee, |
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then any Options granted to such Optionee that are
exercisable at the Termination Date shall continue to be exercisable until
the earlier of: (A) the date that is 30 days
following the Termination Date; and (B) the date of expiration
specified in the Option Agreement or in the resolution of the Board
granting such Option, as the case may be. Any Options granted to such
Optionee that are not exercisable at the Termination Date shall
immediately expire and be cancelled on such date. |
A - 14
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(e) |
Where, in the case of a Consultant Optionee, such
Optionee’s consulting agreement or arrangement is terminated by the
Corporation or an Affiliated Corporation for material breach of the
consulting agreement or arrangement (whether or not such termination is
effected in compliance with any termination provisions contained in such
Optionee’s consulting agreement or arrangement), then any Options granted
to such Optionee, whether or not such Options are exercisable at the
Termination Date, shall immediately expire and be cancelled on the
Termination Date contemporaneously with such termination. |
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(f) |
Unless the Board, in its discretion, otherwise determines
at any time and from time to time, Options shall not be affected by any
change of employment or consulting arrangement within or among the
Corporation or an Affiliated Corporation for so long as an Employee
Optionee continues to be an employee of the Corporation or an Affiliated
Corporation, or for so long as the Executive Optionee continues to be a
director or officer of the Corporation or an Affiliated Corporation, or
for so long as the Consultant Optionee continues to be engaged as a
consultant to the Corporation or an Affiliated Corporation, as the case
may be. For greater certainty, if an Optionee ceases to be an Executive
Optionee but remains an Employee Optionee, the Options granted to such
Optionee shall not be affected by such change. |
| 4.10 |
Discretion to Permit
Exercise |
Notwithstanding the provisions of Sections 4.8 and 4.9 hereof,
the Board may, in its discretion, at any time prior to or following the events
contemplated in such Sections, permit the exercise of any or all Options held by
an Optionee in the manner and on the terms authorized by the Board, provided
that the Board shall not, in any case, authorize the exercise of an Option
pursuant to this Section beyond the date of expiration specified in the Option
Agreement or in the resolution of the Board granting such Option, as the case
may be.
| 4.11 |
Change of Control |
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(a) |
For the purposes of the Plan, |
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(i) |
“Change of Control” shall mean the happening of
any of the following events: (A) any transaction pursuant to which the
Corporation goes out of existence; (B) any transaction pursuant to which
any Person or any Associate or Affiliate of such Person and any Person
acting jointly or in concert with such Person (within the meaning of the
Securities Act (Ontario)) (other than the Corporation, a subsidiary
of the Corporation or an employee benefit plan of the Corporation
(including any trustee of such plan acting as trustee)), hereafter
acquires the direct or indirect “beneficial ownership” (as such term is
defined in the Business Corporations Act (Ontario)) of securities
of the Corporation representing 50% or more of the aggregate votes of all
of the Corporation’s then issued and outstanding securities; (C) the sale
of all or substantially all of the Corporation’s assets to a Person other
than a Person that is an Affiliated Corporation; (D) the dissolution or
liquidation of the Corporation except in connection with
the distribution of assets of the Corporation to one or more
Persons which were Affiliated Corporations prior to such event; or (E) the
occurrence of a transaction requiring approval of the Corporation’s
shareholders involving the acquisition of the Corporation by an entity
through purchase of assets, by amalgamation or otherwise; and |
A - 15
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(ii) |
“Change of Control Price” shall mean the highest
price per Share paid in any transaction related to a Change of
Control. |
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(b) |
Notwithstanding anything else in the Plan or contained in
any Option Agreement, unless otherwise determined by the Board,
outstanding Options shall be converted or exchanged into or for options,
rights or other securities in any entity participating in or resulting
from a Change of Control, (each such Option hereinafter called an
“Alternative Option”) and any such Alternative Option must meet the
following criteria: |
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(i) |
the Alternative Option must be based on stock which is
traded on an established securities market, or which will be so traded
within 30 days of the Change of Control; |
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(ii) |
the Alternative Option must provide such Optionee with
rights and entitlements substantially equivalent to or better than the
rights, terms and conditions applicable under such Option, including, but
not limited to, an identical or better exercise schedule; and |
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(iii) |
the Alternative Option must have economic value
substantially equivalent to the value of such Option (determined at the
time of the Change of Control) (having regard to such factors as the Board
shall reasonably consider applicable). |
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(c) |
The Board may, in its sole discretion, accelerate the
vesting of any or all outstanding Options to provide that, notwithstanding
the Vesting Schedule or any Option Agreement, such outstanding Options
shall be fully vested and conditionally exercisable upon (or prior to) the
completion of the Change of Control, provided, however, that the Board
shall not, in any case, authorize the exercise of Options pursuant to this
Section beyond the date of expiration specified in the Option Agreement or
resolution of the Board granting such Options, as the case may be. If the
Board elects to accelerate the vesting of the Options, and if any of such
Options are not exercised within five Business Days following the giving
of notice of such acceleration, such unexercised Options shall terminate
and expire upon the completion of the proposed Change of Control. If, for
any reason, the Change of Control does not occur within the contemplated
time period, the acceleration of the vesting of the Options shall be
retracted and vesting shall instead revert to the manner provided in the
Vesting Schedule or Option Agreement. |
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(d) |
The Board, in its sole discretion, may provide for the
purchase of any Option by the Corporation or an Affiliate or other Person
upon (or prior to) the completion of the Change of Control for an amount
equal to: (i) the Change of Control Price of each Share underlying an
Option multiplied by the Shares underlying such Options, less (ii) the
aggregate Exercise Price of such Options. |
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(e) |
If, in connection with a Change of Control, the
shareholders of the Corporation are to receive consideration other than
consideration consisting solely of cash, then the Board may determine,
prior to the occurrence of the Change of Control, that upon the
exercise of any Options after the Change of Control, that the Optionees shall be entitled to receive that consideration which they would have received had they exercised their Options immediately prior to the Change of Control and sold their Shares on the same terms and conditions as the shareholders of the Corporation who sold their Shares in connection with the Change of Control. |
A - 16
| 5. |
GENERAL |
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| 5.1 |
Capital Adjustments |
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(a) |
The existence of any Options shall not affect in any way
the right and power of the Corporation or its shareholders to make,
authorize or determine any adjustment, recapitalization, reorganization,
or any other change in the Corporation’s capital structure or its
business, or any amalgamation, combination, merger or consolidation
involving the Corporation, to create or issue any bonds, debentures,
Shares or other securities of the Corporation or to determine the rights
and conditions attaching thereto, to effect the dissolution or liquidation
of the Corporation or any sale or transfer of all or any part of its
assets or business, or to effect any other corporate act or proceeding,
whether of a similar character or otherwise, whether or not any such
action referred to in this Subsection 5.1(a) would have an adverse effect
on the Plan or any Option granted hereunder. |
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(b) |
If there is any change in the outstanding Shares by
reason of a stock dividend or split, recapitalization, consolidation,
combination or exchange of shares or other similar corporate change, other
than a Change of Control, subject to any prior approval required of
applicable regulatory authorities, the Board may make appropriate
substitution or adjustment in: |
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(i) |
the Exercise Price of unexercised Options; |
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(ii) |
the number or kind of shares or other securities reserved
for issuance pursuant to the Plan; and |
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(iii) |
the number and kind of shares subject to unexercised
Options theretofore granted and in the Exercise Price of those
shares, |
provided, however, that no substitution
or adjustment will obligate the Corporation to issue or sell fractional shares.
The determination of the Board as to any adjustment, or as to there being no
need for adjustment, will be final and binding on all parties concerned.
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(c) |
The distribution of a cash dividend and/or any rights
offering to other shareholders of the Company, shall not trigger any
adjustment to the Options granted under this
Plan. |
| 5.2 |
Conditions of Exercise |
The Plan and Options are subject to the requirement that if at
any time the Board determines that: (a) the listing, registration or
qualification of the Shares subject to such Option upon any stock exchange or
quotation system or under any provincial, state or federal law, or that the
consent or approval of any governmental body, stock exchange or quotation system
or of the holders of the Shares generally, is necessary or desirable, as a
condition of, or in connection with the granting of such Option or the issuance
of Shares upon the exercise thereof; or (b) the grant of an Option or the
issuance of Shares upon the exercise thereof is in conflict with or is
inconsistent with Applicable Law, no such Option may be granted or exercised in whole or in part unless such listing,
registration, qualification, consent or approval has been effected or obtained
or such conflict or inconsistency is no longer outstanding, each free of any
conditions not acceptable to the Board. The Optionees shall, to the extent
applicable, co-operate with the Corporation in relation to such registration,
qualification or other approval and shall have no claim or cause of action
against the Corporation or any of its officers or directors as a result of any
failure by the Corporation to obtain or to take any steps to obtain any such
registration, qualification, or approval.
A - 17
| 5.3 |
Amendment and Termination |
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(a) |
The Board may amend, suspend or terminate the Plan or any
portion of it at any time in accordance with Applicable Law and subject to
any required regulatory, Exchange or shareholder approval. However,
subject to the terms hereof, unless consent is obtained from the Optionee
affected, no amendment, suspension or termination may alter or impair any
Options, or any rights related to Options, that were granted to that
Optionee prior to the amendment, suspension or termination. |
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(b) |
If the Plan is terminated, the provisions of the Plan and
any administrative guidelines and other rules adopted by the Board and in
force at the time of termination of the Plan will continue in effect as
long as any Option remains outstanding. However, notwithstanding the
termination of the Plan, the Board may make any amendments to the Plan or
to any outstanding Option that the Board would have been entitled to make
if the Plan were still in effect. |
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(c) |
Subject to Applicable Law and to any necessary prior
approval of applicable regulatory authorities and with the consent of the
affected Optionee, the Board may amend or modify any outstanding Option in
any manner, including, without limitation, by changing the date or dates
as of which, or the price at which, an Option becomes exercisable, so long
as the Board would have had the authority to grant initially the Option as
so modified or amended. |
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| 5.4 |
Status as Shareholder |
Optionees shall not have any rights as a shareholder with
respect to Shares until full payment of the Exercise Price for the Shares has
been made to the Corporation and the Corporation has issued the Optionee’s
Shares.
Upon becoming a shareholder of the Corporation, an Optionee may
only transfer Shares in accordance with and subject to Applicable Law and the
constating documents of the Corporation.
The exercise of each Option granted under the Plan is subject
to the condition that if at any time the Corporation determines, in its
discretion, that the satisfaction of withholding tax or other withholding
liabilities is necessary or desirable in respect of such exercise, such exercise
is not effective unless such withholding has been effected to the satisfaction
of the Corporation. In such circumstances, the Corporation may require that an
Optionee pay to the Corporation, in addition to and in the same manner as the
Exercise Price for the Shares, such amount as the Corporation is obliged to
remit to the relevant taxing authority in respect of the exercise of the Option.
Any such additional payment is due no later than the date as of which any amount
with respect to the Option exercised first becomes includable in the gross
income of the Optionee for tax purposes.
A - 18
| 5.6 |
Non Exclusivity and Corporate Action |
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(a) |
Subject to any required regulatory or shareholder
approval, nothing contained herein will prevent the Board from adopting
other additional compensation arrangements for the benefit of any
Optionee. |
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(b) |
Nothing contained in the Plan or in the Options shall be
construed so as to prevent the Corporation or any subsidiary of the
Corporation from taking corporate action which is deemed by the
Corporation or the subsidiary to be appropriate or in its best interest,
whether or not such action would have an adverse effect on the
Plan. |
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| 5.7 |
Employment and Board of Directors Position
Non-Contractual |
The granting of an Option to an Optionee under the Plan does
not confer upon the Optionee any right to continue in the employment of the
Corporation or any Affiliated Corporation or as a member of the Board, as the
case may be, nor does it interfere in any way with the rights of the Optionee or
of the Corporation’s rights to terminate the Optionee's employment or consulting
arrangements at any time or of the shareholders' right to elect one or more
directors of the Corporation.
Every member of the Board will at all times be indemnified and
saved harmless by the Corporation from and against all costs, charges and
expenses whatsoever including any income tax liability arising from any such
indemnification, that such Board member may sustain or incur by reason of any
action, suit or proceeding, taken or threatened against the Board member,
otherwise by the Corporation, for or in respect of any act done or omitted by
the Board member in respect of the Plan, such costs, charges and expenses to
include any amount paid to settle such action, suite or proceeding or in
satisfaction of any judgement rendered therein.
All written notices to be delivered by the Optionee to the
Corporation may be delivered personally, by facsimile or by registered mail,
postage prepaid, addressed as follows:
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Adira Energy Ltd. |
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Suite 1204 |
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120 Adelaide St. West |
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Toronto, Ontario |
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M5H 1T1 |
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Attention: |
Alan Friedman, Executive Vice-President |
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Facsimile No.: |
(416) 250-6330 |
Any notice delivered by the Optionee pursuant to the terms of
the Option shall not be effective until actually received by the Corporation at
the above address. Any notice to be delivered to the Optionee shall be effective
when delivered personally (effective at the time of delivery), by facsimile
transmission (effective one day after transmission) or by postage prepaid mail
to the last address of the Optionee on the records of the Corporation (which
shall be deemed effective the first Business Day after mailing).
A - 19
This Plan is created under and is to be governed by and
interpreted in accordance with the laws of the Province of Ontario and the
federal laws of Canada applicable therein, except for Exhibit “A”, which
will be governed and construed in accordance with the laws of the State of
Israel.
A - 20
EXHIBIT “A”
ISRAEL APPENDIX
DEFINITIONS
For purposes of this Annex and the Option Agreement, the
following definitions shall apply:
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(a) |
“Affiliate” - any “employing corporation” within
the meaning of Section 102(a) of the Ordinance. |
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(b) |
“Approved 102 Option” - an Option granted pursuant
to Section 102(b) of the Ordinance and held in trust by a Trustee for the
benefit of the Optionee. |
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(c) |
“Capital Gain Option (CGO)” - an Approved 102
Option elected and designated by the Corporation to qualify under the
capital gain tax treatment in accordance with the provisions of Section
102(b)(2) of the Ordinance. |
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(d) |
“Controlling Shareholder” - shall have the meaning
ascribed to it in Section 32(9) of the Ordinance. |
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(e) |
“Corporation” - Adira Energy Ltd. |
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(f) |
“Employee” - a person who is employed by an
Israeli resident Affiliate, including an individual who is serving as a
director or an office holder, but excluding any Controlling Shareholder,
all as determined in Section 102 of the Ordinance. |
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(g) |
“ITA” - the Israeli Tax Authorities. |
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(h) |
“Non-Employee” - a consultant, adviser, service
provider, Controlling Shareholder or any other person who is not an
Employee. |
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(i) |
“Ordinary Income Option (OIO)” - an Approved 102
Option elected and designated by the Corporation to qualify under the
ordinary income tax treatment in accordance with the provisions of Section
102(b)(1) of the Ordinance. |
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(j) |
“Plan” – The Corporation’s Stock Option Plan dated
August 31, 2009. |
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(k) |
“102 Option” - any Option granted to Employees
pursuant to Section 102 of the Ordinance. |
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(l) |
“3(i) Option” - an Option granted pursuant to
Section 3(i) of the Ordinance to any person who is a
Non-Employee. |
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(m) |
“Ordinance” - the Israeli Income Tax Ordinance
[New Version] 1961 as now in effect or as hereafter amended. |
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(n) |
“Section 102” - Section 102 of the Ordinance and
any regulations, rules, orders or procedures promulgated thereunder as now
in effect or as hereafter amended. |
A - 21
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(o) |
“Trustee” - any individual or entity appointed by
the Corporation to serve as a trustee and approved by the ITA, all in
accordance with the provisions of Section 102(a) of the
Ordinance. |
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(p) |
“Unapproved 102 Option” - an Option granted
pursuant to Section 102(c) of the Ordinance and not held in trust by a
Trustee. |
For the avoidance of any doubt, it is hereby clarified that any
capitalized terms not specifically defined in this Annex shall be construed
according to the interpretation given to it in the Plan.
A - 22
1. GENERAL
1.1. This Annex (the: “Annex”) shall apply only to
Optionees who are residents of the state of Israel at the date of grant or those
who are deemed to be residents of the state of Israel for the payment of tax at
the date of grant. The provisions specified hereunder shall form an integral
part of the Plan, which applies to the issuance of options to purchase Shares of
the Corporation. According to the Plan, options to purchase the Corporation’s
Shares may be issued to employees, directors, consultants and service provides
of the Corporation or its affiliates.
1.2 This Annex is effective with respect to Options granted
following Amendment no. 132 of the Ordinance, which entered into force on
January 1, 2003.
1.3 This Annex is to be read as a continuation of the Plan and
only modifies options granted to Israeli Optionees so that they comply with the
requirements set by the Israeli law in general, and in particular with the
provisions of Section 102 (as specified herein), as may be amended or replaced
from time to time. For the avoidance of doubt, this Annex does not add to or
modify the Plan in respect of any other category of Optionees.
1.4 The Plan and this Annex are complimentary to each other and
shall be deemed as one. In any case of contradiction, whether explicit or
implied, between the provisions of this Annex and the Plan, the provisions set
out in the Annex shall prevail.
2. ISSUANCE OF OPTIONS
2.1 The persons eligible for participation in the Plan as
Optionees shall include any Employees and/or Non-Employees of the Corporation or
of any Affiliate; provided, however, that (i) Employees may only be granted 102
Options; and (ii) Non-Employees and/or Controlling Shareholders may only be
granted 3(i) Options.
2.2 The Corporation may designate Options granted to Employees
pursuant to Section 102 as Unapproved 102 Options or Approved 102 Options.
2.3 The grant of Approved 102 Options shall be made under this
Annex adopted by the Board, and shall be conditioned upon the approval of this
Annex by the ITA.
2.4 Approved 102 Options may either be classified as Capital
Gain Options (“CGOs”) or Ordinary Income Options (“OIOs”).
2.5 No Approved 102 Options may be granted under this Annex to
any eligible Employee, unless and until, the Corporation’s election of the type
of Approved 102 Options as CGO or OIO granted to Employees (the:
“Election”), is appropriately filed with the ITA. Such Election shall
become effective beginning the first date of grant of an Approved 102 Option
under this Annex and shall remain in effect at least until the end of the year
following the year during which the Corporation first granted Approved 102
Options. The Election shall obligate the Corporation to grant only the
type of Approved 102 Option it has elected, and shall apply to all Optionees who
were granted Approved 102 Options during the period indicated herein, all in
accordance with the provisions of Section 102(g) of the Ordinance. For the
avoidance of doubt, such Election shall not prevent the Corporation from
granting Unapproved 102 Options simultaneously.
2.6 All Approved 102 Options must be held in trust by a
Trustee, as described in Section 3 below.
A - 23
2.7 For the avoidance of doubt, the designation of Unapproved
102 Options and Approved 102 Options shall be subject to the terms and
conditions set forth in Section 102.
3. TRUSTEE
3.1 Approved 102 Options which shall be granted under this
Annex and/or any Shares allocated or issued upon exercise of such Approved 102
Options and/or other shares received subsequently following any realization of
rights, including without limitation bonus shares, shall be allocated or issued
to the Trustee and held for the benefit of the Optionees for such period of time
as required by Section 102 or any regulations, rules or orders or procedures
promulgated thereunder (the: “Holding Period”). In the case the
requirements for Approved 102 Options are not met, then the Approved 102 Options
may be regarded as Unapproved 102 Options, all in accordance with the provisions
of Section 102.
3.2 Notwithstanding anything to the contrary, the Trustee shall
not release any Shares allocated or issued upon exercise of Approved 102 Options
prior to the full payment of the Optionee’s tax liabilities arising from
Approved 102 Options which were granted to him and/or any Shares allocated or
issued upon exercise of such Options.
3.3 With respect to any Approved 102 Option, subject to the
provisions of Section 102 and any rules or regulation or orders or procedures
promulgated thereunder, a Optionee shall not sell or release from trust any
Share received upon the exercise of an Approved 102 Option and/or any share
received subsequently following any realization of rights, including without
limitation, bonus shares, until the lapse of the Holding Period required under
Section 102 of the Ordinance. Notwithstanding the above, if any such sale or
release occurs during the Holding Period, the sanctions under Section 102 of the
Ordinance and under any rules or regulation or orders or procedures promulgated
thereunder shall apply to and shall be borne by such Optionee.
3.4 Upon receipt of Approved 102 Option, the Optionee will sign
an undertaking in which he or she will give his or her consent to the grant of
the Option under Section 102, and will undertake to comply with the terms of
Section 102 and the trust agreement between the Corporation and the Trustee.
3.5 Approved 102 Options that do not comply with the
requirements of Section 102 shall be considered either 3(i) Options or
Unapproved 102 Options as applicable.
4. THE OPTIONS
The terms and conditions, upon which the Options shall be
issued and exercised, shall be as specified in the Option Agreement to be
executed pursuant to the Plan and to this Annex. Each Option Agreement shall
state, inter alia, the number of Shares to which the Option relates, the type of
Option granted thereunder (whether a CGO, OIO, Unapproved 102 Option or a 3(i)
Option), the vesting provisions and the Exercise Price.
5. FAIR MARKET VALUE
Without derogating from the definition of “Fair Market Value”
enclosed in Section 2.1(w) of the Plan and solely for the purpose of determining
the tax liability pursuant to Section 102(b)(3) of the Ordinance, if at the date
of grant the Corporation’s shares are listed on any established stock exchange
or a national market system or if the Corporation’s shares will be registered
for trading within ninety (90) days following the date of grant of the CGOs, the
fair market value of the Shares at the date of grant shall be determined in
accordance with the average value of the Corporation’s shares on the thirty (30)
trading days preceding the date of grant or on the thirty (30) trading
days following the date of registration for trading, as the case may be.
A - 24
6. EXERCISE OF OPTIONS
Options shall be exercised and, when applicable, by the
Trustee, in accordance with the requirements of Section 102, which exercise
shall be effective upon receipt of such notice by the in accordance with the
provisions of Section 4.6 of the Plan.
7. ASSIGNABILITY AND SALE OF OPTIONS
7.1 Notwithstanding Section 4.7 of the Plan and any other
provision of the Plan, no Option or any right with respect thereto, purchasable
hereunder, whether fully paid or not, shall be assignable, transferable or given
as collateral or any right with respect to them given to any third party
whatsoever, and during the lifetime of the Optionee each and all of such
Optionee's rights to purchase Shares hereunder shall be exercisable only by the
Optionee.
Any such action made directly or indirectly, for an immediate
validation or for a future one, shall be void.
7.2 As long as Options or Shares
purchased pursuant to thereto are held by the Trustee on behalf of the Optionee,
all rights of the Optionee over the shares are personal, cannot be transferred,
assigned, pledged or mortgaged, other than by will or laws of descent and
distribution.
7.3 Notwithstanding Section 4.7 of the Plan and in addition
thereto, any Notice of Transfer shall be, when applicable, in accordance with
the provisions and requirements of Section 102.
8. INTEGRATION OF SECTION 102 AND TAX ASSESSING OFFICER’S
PERMIT
8.1 With regards to Approved 102 Options, the provisions of the
Plan and/or the Annex and/or the Option Agreement shall be subject to the
provisions of Section 102 and the Tax Assessing Officer’s permit, and the said
provisions and permit shall be deemed an integral part of the Plan and of the
Annex and of the Option Agreement.
8.2 Any provision of Section 102 and/or the said permit which
is necessary in order to receive and/or to keep any tax benefit pursuant to
Section 102, which is not expressly specified in the Plan or the Annex or the
Option Agreement, shall be considered binding upon the Corporation and the
Optionees.
9. DIVIDEND
Subject to the Corporation’s incorporation documents, with
respect to all Shares (but excluding, for avoidance of any doubt, any
unexercised options) allocated or issued upon the exercise of Options and held
by the Optionee or by the Trustee as the case may be, the Optionee shall be
entitled to receive dividends in accordance with the quantity of such shares,
and subject to any applicable taxation on distribution of dividends, and when
applicable subject to the provisions of Section 102
10. TAX CONSEQUENCES
10.1 Notwithstanding Section 5.5 of the Plan and in addition
thereto, any tax consequences arising from the grant or exercise of any Option,
from the payment for Shares covered thereby or from any other event or act (of
the Corporation, and/or its Affiliates, and the Trustee or the Optionee),
hereunder, shall be borne solely by the Optionee. The Corporation and/or its
Affiliates, and/or the Trustee shall withhold taxes according to the requirements under the applicable laws,
rules, and regulations, including withholding taxes at source. Furthermore, the
Optionee shall agree to indemnify the Corporation and/or its Affiliates and/or
the Trustee and hold them harmless against and from any and all liability for
any such tax or interest or penalty thereon, including without limitation,
liabilities relating to the necessity to withhold, or to have withheld, any such
tax from any payment made to the Optionee.
A - 25
10.2 The Corporation and/or, when applicable, the Trustee shall
not be required to release any share certificate to an Optionee until all
required payments have been fully made.
10.3 With respect to Unapproved 102 Option, if the Optionee
ceases to be employed by the Corporation or any Affiliate, the Optionee shall
extend to the Corporation and/or its Affiliate a security or guarantee for the
payment of tax due at the time of sale of Shares, all in accordance with the
provisions of Section 102 and the rules, regulation or orders promulgated
thereunder.
A - 26
EXHIBIT “B”
OPTION AGREEMENT
| |
____________________________ |
| Optionee: |
(name)
|
| |
|
| |
____________________________ |
| |
____________________________ |
| |
____________________________ |
| |
(Address)
|
| |
|
| |
|
| Grant: |
____________________________ |
| |
Maximum Number of Shares |
| Option Exercise Price: |
$____________per Share |
| Date of Grant: |
___________________, 20___ |
| Expiry Date: |
___________________, 20___ |
| Vesting Schedule: |
|
Date of Vesting
Instalment
(Milestone) |
Number of Optioned Shares
Vested |
Cumulative Number of
Optioned Shares
Vested |
| 1 |
|
|
| 2 |
|
|
| 3 |
|
|
| 4 |
|
|
This Option Agreement is made under and is subject in all
respects to the Stock Option Plan dated August 31, 2009 (as may be supplemented
and amended from time to time) (the “Plan”) of Adira Energy Ltd. (the
“Corporation”), and the Plan is deemed to be incorporated in and to be
part of this Option Agreement. The Optionee is deemed to have notice of and to
be bound by all of the terms and provisions of the Plan as if the Plan was set
forth in full herein (including the restrictions on transfer of the Options and
the Shares issuable upon exercise thereof). In the event of any inconsistency
between the terms of this Option Agreement and the Plan, the terms of this
Option Agreement shall prevail. The Plan contains provisions respecting
termination and/or voiding of the Plan or the Option.
This Option Agreement evidences that the Optionee named above
is entitled, subject to and in accordance with the Plan, to purchase up to but
not more than the maximum number of Shares set out above at the option Exercise
Price set out above upon delivery of an exercise form as annexed hereto duly
completed and accompanied by certified cheque or bank draft for the aggregate
Exercise Price. All undefined terms contained herein shall have the definitions
provided in the Plan.
The Optionee hereby agrees that: (a) any rule, regulation or
determination, including the interpretation by the Board of the Plan, the Option
granted hereunder and the exercise thereof, is final and conclusive for all purposes and binding on all Persons including the
Corporation or Affiliated Corporation, as the case may be, and the Optionee; and
(b) the grant of the Option does not affect in any way the right of the
Corporation or any Affiliated Corporation to terminate the services and/or
employment of the Optionee.
This Option Agreement has been made in and is to be
construed under and in accordance with the laws of the Province of Ontario and
the laws of Canada applicable therein.
A - 27
This Option Agreement is not effective until countersigned by
the Corporation and accepted by the Optionee.
Dated: __________________, 20__
| |
ADIRA ENERGY LTD. |
| |
|
| |
By: ____________________________ |
| |
Name: |
| |
Title: |
| |
Authorized
Signing Officer |
I have read the foregoing Option Agreement and hereby accept
the Option to purchase Shares in accordance with and subject to the terms and
conditions of such Option Agreement and the Plan. I understand that I may review
the complete Plan by contacting the Secretary of the Corporation. I agree to be
bound by the terms and conditions of the Plan governing the option.
Accepted: _____________________, 20____
| ____________________________ |
| Signature of Optionee |
A - 28
EXHIBIT “C”
ISRAELI OPTION AGREEMENT
| Optionee: |
____________________________ |
| |
(Name) |
| |
|
| |
____________________________ |
| |
____________________________ |
| |
____________________________ |
| |
(Address) |
| Grant: |
|
| |
____________________________ |
| |
Maximum Number of Shares |
| Designation: |
[ ] |
Approved 102 Option: |
| |
[ ] |
Capital Gain Option (CGO); or |
| |
|
|
| |
[ ] |
Ordinary Income Option (OIO) |
| |
|
|
| |
[ ] |
Unapproved 102 Option |
| |
[ ] |
3(i) Option |
Option Exercise Price: $ ____________________________per
Share
Date of Grant: ____________________________,
20 ___
Expiry Date: ____________________________, 20 ___
Vesting Schedule: ____________________________
Instalment
|
Date of Vesting
(Milestone)
|
Number of
Optioned Shares
Vested |
Cumulative Number of
Optioned
Shares
Vested |
| 1 |
|
|
|
| 2 |
|
|
|
| 3 |
|
|
|
| 4 |
|
|
|
This Option Agreement is made under and is subject in all
respects to the Stock Option Plan dated August 31, 2009 (as may be supplemented
and amended from time to time) (the “Plan”) of Adira Energy Ltd. (the
“Corporation”), and the Israeli Annex (the “Israeli Annex”)
deemed to be incorporated in and to be part of this Option Agreement. The
Optionee is deemed to have notice of and to be bound by all of the terms and
provisions of the Plan and Israeli Annex as if the Plan and Israeli Annex were
set forth in full herein (including the restrictions on transfer of the Options
and the Shares issuable upon exercise thereof). In the event of any
inconsistency between the terms of this Option Agreement and the Plan and
Israeli Annex, the terms of this Option Agreement shall prevail. The Plan
contains provisions respecting termination and/or voiding of the Plan or the
Option.
This Option Agreement evidences that the Optionee named above
is entitled, subject to and in accordance with the Plan and Israeli Annex, to
purchase up to but not more than the maximum number of Shares set out above at
the Option Exercise Price set out above upon delivery of an exercise form as
annexed hereto duly completed and accompanied by certified cheque or bank draft
for the aggregate Exercise Price. All undefined terms contained herein shall
have the definitions provided in the Plan and/or the Israeli Annex.
A - 29
The Optionee accepts and agrees that with respect to any
Approved 102 Option granted, subject to the provisions of Section 102 of the
Ordinance, he/she shall not sell or release from trust any Share received by
him/her upon the exercise of an Approved 102 Option and/or any share received
subsequently following any realization of rights, including without limitation,
bonus shares, until the lapse of the Holding Period required under Section 102
of the Ordinance. Notwithstanding the above, the Optionee is aware that if any
such sale or release occurs during the Holding Period, the sanctions under
Section 102 of the Ordinance shall apply to him/her and shall be borne by
him/her.
With respect to Approved 102 Options, the Optionee hereby
acknowledges that he/she is familiar with the provisions of Section 102 of the
Ordinance, including without limitations the type of Option granted to him/her
hereunder and the tax implications applicable to such grant. The Optionee
accepts the provisions of the trust agreement signed between the Corporation and
the Trustee, attached as Exhibit A hereto, and agree to be bound by its
terms.
Should any Unapproved 102 Option be granted to the Optionee,
the Optionee hereby agrees that should he/she ceases to be employed by the
Corporation or any Affiliated Corporation, he/she shall extend to the
Corporation and/or its Affiliated Corporation a security or guarantee for the
payment of tax due at the time of sale of Shares, all in accordance with the
provisions of Section 102 of the Ordinance.
By signing this Option Agreement the Optionee is aware and
agrees that any tax consequences arising from the grant or exercise of any
Option, from the payment for Shares covered thereby or from any other event or
act (of the Corporation and/or its Affiliated Corporations, the Trustee or the
Optionee), hereunder, shall be borne solely by the Optionee. The Corporation
and/or its Affiliated Corporations and/or the Trustee shall withhold taxes
according to the requirements under the applicable laws, rules, and regulations,
including withholding taxes at source. Furthermore, the Optionee hereby accepts
to indemnify the Corporation and/or its Affiliated Corporations and/or the
Trustee and hold them harmless against and from any and all liability for any
such tax or interest or penalty thereon, including without limitation,
liabilities relating to the necessity to withhold, or to have withheld, any such
tax from any payment made to the Optionee.
The Optionee will not be entitled to receive from the
Corporation and/or the Trustee any Shares allocated or issued upon the exercise
of the Options prior to the full payments of the Optionee's tax liabilities
arising from Options which were granted and/or Shares issued upon the exercise
of Options. For the avoidance of doubt, neither the Corporation nor the Trustee
shall be required to release any share certificate to the Optionee until all
payments required to be made by the Optionee have been fully satisfied.
Optionee confirms that he understands that Approved 102 Options
that do not comply with the requirements of Section 102 shall be considered
either 3(i) Options or Unapproved 102 Options as applicable.
Please note that the receipt of the Options and the acquisition
of the Shares to be issued upon the exercise of the Options may result in tax
consequences. THE OPTIONEE IS ADVISED TO CONSULT A TAX ADVISER WITH RESPECT TO
THE TAX CONSEQUENCES OF RECEIVING OR EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
The Optionee hereby agrees that: (a) any rule, regulation or
determination, including the interpretation by the Board of the Plan and/or the
Israeli Annex, the Option granted hereunder and the exercise thereof, is final
and conclusive for all purposes and binding on all Persons including the
Corporation or Affiliated Corporation, as the case may be, and the Optionee; and
(b) the grant of the Option does not affect in any way the right of the Corporation or any Affiliated Corporation
to terminate the services and/or employment of the Optionee.
A - 30
This Option Agreement has been made in and is to be construed
under and in accordance with the laws of the Province of Ontario and the laws of
Canada applicable therein.
This Option Agreement is not effective until countersigned by
the Corporation and accepted by the Optionee.
Dated: ____________________________, 20 ___
| |
ADIRA ENERGY LTD. |
| |
|
| |
|
| |
|
| |
By:
____________________________ |
| |
Name: |
| |
Title: |
| |
Authorized Signing Officer |
I have read the foregoing Option Agreement and hereby accept
the Option to purchase Shares in accordance with and subject to the terms and
conditions of such Option Agreement, the Plan and the Israeli Annex. I
understand that I may review the complete Plan by contacting the Secretary of
the Corporation. I agree to be bound by the terms and conditions of the Plan
governing the option.
| ____________________________ |
| Signature of Optionee |
Entered into and signed in Tel Aviv on the _____day of
_________2010
| Between: |
Yardeni-Gelfand Trusts (2000) Ltd. |
| |
(hereinafter: “ the
Trustee”) |
| |
|
| A n d |
Adira Energy Ltd. |
| |
(hereinafter : “the Allocating
Company”) |
| |
|
| A n d |
Adira Energy Israel Services Ltd. |
| |
(hereinafter : "the Employing
Company”) |
(The Allocating Company and the
Employing Company shall hereinafter be referred together as “the
Companies”)
Without derogating from the contents of the Trust Letter signed
between the parties on _________ (hereinafter: “the Trust Letter”)
and in addition to the contents of the Trust Letter, the following provisions
shall apply:
A - 31
| 1. |
If the employee has obtained a loan for the purpose of
acquiring shares under the Companies' Share Allocation Plan (hereinafter:
“the Plan”), the shares may not be transferred, assigned, pledged,
attached, or have any other voluntary lien placed on them, and no
power-of-attorney or transfer instrument shall be issued with respect
thereto, whether they are valid immediately or shall become valid at some
future date, prior to the employee's having repaid the loan. The Trustee
shall not transfer the shares, as aforesaid, except after the Allocating
Company having confirmed to him that the employee has repaid the said
loan, if granted, for the purpose of acquiring shares under the
Plan. |
| |
|
| 2. |
Out of any amount to be received in consideration for the
sale of all or part of the shares, prior to repayment of the tax liability
and/or repayment of the loan with respect thereto, the Trustee shall
transfer to the Tax Assessment Officer the amount of tax to be transferred
pursuant to Section 102 of the Ordinance and the Income Tax Regulations
(Tax Relief on Allocation of Shares to Employees), 5763 - 2003
(hereinafter: “the Regulations”), and the Trustee shall, prior to
any other transfer, repay the employee's outstanding debt, as the case may
be, in respect of the loan, as determined by the Allocating
Company. |
| |
|
|
Should the company notify the Trustee that the employee
has not repaid all or part of the loan on due repayment date, in
accordance with the Loan Agreement, the Trustee shall sell all or part of
the shares in his possession, and shall transfer, out of the proceeds
obtained in respect thereof, to the Tax Assessment Officer, the tax due
under Section 102 of the Ordinance and Regulations, and repay the
employee's outstanding debt to the Company in respect of the loan, as
shall be determined by the Company. The remaining amount, to the extent it
remains, shall be transferred to the entitled employee. |
| |
|
| 3. |
Pursuant to the provisions of Section 5 of the
Regulations the Allocating Company undertakes to notify the Trustee of any
share allocation close to the date of the allocation, and in any event, no
later than 10 days from the date of such allocation. The Trustee shall not
be liable toward the employee and/or the Allocating Company and/or any
third party (including, but without derogating from the generality of the
aforesaid, the income tax authorities and any other government or
administrative authority), regarding failure to report of allocations, if
such failure derives from negligence or omission on the part of the
Allocating Company and/or its representative and/or the employee. The
employee and/or the Allocating Company undertake to indemnify the Trustee
for such liability and/or concerning any claim and/or demand from any
party whatsoever, deriving from failure to report as aforesaid. |
| |
|
| 4. |
The Trustee shall bear no responsibility and will be
indemnified by the employee and/or the Allocating Company for any expense
or loss suffered by him in respect of any payments to be effected by him,
including payments pertaining to non-withholding of tax at source in
connection with granting the options by virtue of the Plan, exercise
thereof, allocation of shares, sale of shares, transfer of shares in the
employee's name, payment of dividends, etc., provided the Trustee has
acted in good faith and reasonably. |
| |
|
| 5. |
The Trustee shall not be liable toward the employee
and/or any third party (including, but without derogating from the
generality of the aforesaid, the income tax authorities and any other
government or administrative authority), with respect to any action taken
and/or which shall be taken in connection with the Allocation Plan and any
issue related thereto or deriving therefrom, provided the Trustee has
acted in good faith and in a reasonable manner. The employee and/or the
Allocating Company undertake to indemnify the Trustee for such liability
and/or in connection with any claim and/or any demand from any party
whatsoever, including the tax authorities, in connection with the Allocation Plan. |
A - 32
| 6. |
The Allocating Company undertakes to notify the Trustee
of any distribution of dividend in the Company within seven (7) days from
the date of such distribution. |
| |
|
| 7. |
The Company representative to be appointed (hereinafter:
“the Contact Person”) shall be responsible for establishing contact
between the Trustee and the Company, regarding all issues arising out or
relating to the Trust Letter and this Agreement, including forwarding of
documents and necessary information and details. It should be clarified
that no direct contact is to be established between the Employing
Company's employees and the Trustee, but through the Contact
Person. |
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT:
| |
|
|
| The Trustee |
|
The Allocating Company |
| |
|
Adira Energy Ltd. |
| |
|
|
| The Employing Company |
|
|
| Adira Energy Israel Services Ltd. |
|
|
A - 33
EXHIBIT “D”
NOTICE OF EXERCISE
To Exercise the Option, Complete and Return this Form
The undersigned Optionee (or his or her legal representative(s)
permitted under the Stock Option Plan of Adira Energy Ltd., dated August 31,
2009 (as the same may be supplemented and amended from time to time) (the
“Plan”) hereby irrevocably elects to exercise the Option for the number
of Shares as set forth below:
| (a) |
Number of Options to be Exercised: |
|
| (b) |
Option Exercise Price per Share: |
$____________________ |
| (c) |
Aggregate Purchase Price |
|
| |
[(a) multiplied by (b)]: |
$____________________
|
and hereby tenders a certified cheque or bank draft for such
aggregate Exercise Price, and directs such Shares to be issued and registered in
the name of the undersigned, all subject to and in accordance with the Plan.
Unless otherwise defined herein, any capitalized terms used herein shall have
the meaning ascribed to such terms in the Plan.
Dated: _______________, 20___
| |
) |
|
| |
) |
|
| |
) |
|
| |
) |
Name of Optionee |
| |
) |
|
| |
) |
|
| |
) |
|
| |
|
|
| |
|
|
| Witness to the
Signature of: |
) |
Signature of Optionee |
| Address of Optionee |
|
|
A - 34
EXHIBIT “E”
NOTICE OF TRANSFER
To Request Permission to Transfer an Option, Complete and
Return This Form Along with the Original Option Agreement
The undersigned Optionee (or his or her legal representative(s)
permitted under the Stock Option Plan of Adira Energy Ltd., dated August 31,
2009 (as the same may be supplemented and amended from time to time) (the
“Plan”) hereby irrevocably requests permission to transfer the Option
evidenced by the attached Option Agreement to the undersigned Person(s), each of
whom the Optionee hereby certifies is an Eligible Transferee in accordance with
Sections 4.5 and 4.8 of the Plan:
| Direction as to
Registration: |
|
| |
Name of Registered Holder(s) |
| |
|
| |
|
| |
|
| |
|
| |
Address of Registered Holder(s)
|
The undersigned Optionee hereby directs such Option(s) to be
registered in the name(s) of such Eligible Transferee(s). Unless they are
otherwise defined herein, any defined terms used herein shall have the meaning
ascribed to such terms in the Plan.
Dated: ____________________, 20___
| |
) |
|
| |
) |
|
| |
) |
|
| |
) |
|
| Witness to the Signature of: |
) |
Name of Optionee |
B - 1
SCHEDULE "B"
STATEMENT OF GOVERNANCE PRACTICES
B - 2
C - 1
SCHEDULE "C"
AUDIT COMMITTEE CHARTER
ADIRA ENERGY LTD. (the “Corperation”)
(Implemented pursuant to National Instrument 52-110 (the
“Instrument”))
The current version of the
Instrument, which relates to the composition and function of audit committees,
applies to every reporting issuer, including the Corporation. The Instrument
requires all affected issuers to have a written audit committee charter which
must be disclosed, as stipulated by Form 52-110F2, in the information circular
of the Corporation wherein management solicits proxies from the security holders
of the Corporation for the purpose of electing directors to the board of
directors.
This audit committee charter has
been adopted by the board of directors of the Corporation in order to comply
with the Instrument and to define the role of the Corporation’s audit committee
in relation to the oversight of the financial reporting processes of the
Corporation. Nothing in this audit committee charter is intended to restrict the
ability of the board of directors or the audit committee of the Corporation to
alter or vary procedures in order to comply more fully with the Instrument, as
amended from time to time.
Committee Role
The committee’s role is to act on behalf of the board of
directors and oversee all material aspects of the company’s reporting, control,
and audit functions, except those specifically related to the responsibilities
of another standing committee of the board. The audit committee’s role includes
a particular focus on the qualitative aspects of financial reporting to
shareholders and on company processes for the management of business/financial
risk and for compliance with significant applicable legal, ethical, and
regulatory requirements.
In addition, the committee responsible for: (1) selection and
oversight of our independent accountant; (2) establishing procedures for the
receipt, retention and treatment of complaints regarding accounting, internal
controls and auditing matters; (3) establishing procedures for the confidential,
anonymous submission by our employees of concerns regarding accounting and
auditing matters; (4) establishing internal financial controls; (5) engaging
outside advisors; and, (6) funding for the outside auditor and any outside
advisors engagement by the audit committee.
The role also includes coordination with other board committees
and maintenance of strong, positive working relationships with management,
external and internal auditors, counsel, and other committee advisors.
Committee Membership
The committee shall consist solely of independent directors (as
such term is defined by Securities law) as appointed by the board of directors
from time to time. The committee shall have access to its own counsel and other
advisors at the committee’s sole discretion.
Committee Operating Principles
The committee shall fulfill its responsibilities within the
context of the following overriding principles:
(1) Communications - The
chairperson and others on the committee shall, to the extent appropriate, have
contact throughout the year with senior management, other committee
chairpersons, and other key committee advisors, external and internal auditors, etc., as
applicable, to strengthen the committee’s knowledge of relevant current and
prospective business issues.
C - 2
(2) Committee Education/Orientation - The committee, with
management, shall develop and participate in a process for review of important
financial and operating topics that present potential significant risk to the
company. Additionally, individual committee members are encouraged to
participate in relevant and appropriate self-study education to assure
understanding of the business and environment in which the company operates.
(3) Annual Plan - The committee, with input from management and
other key committee advisors, shall develop an annual plan responsive to the
“primary committee responsibilities” detailed herein. The annual plan shall be
reviewed and approved by the full board.
(4) Meeting Agenda - Committee meeting agendas shall be the
responsibility of the committee chairperson, with input from committee members.
It is expected that the chairperson would also ask for management and key
committee advisors, and perhaps others, to participate in this process.
(5) Committee Expectations and Information Needs - The
committee shall communicate committee expectations and the nature, timing, and
extent of committee information needs to management, internal audit, and
external parties, including external auditors. Written materials. including key
performance indicators and measures related to key business and financial risks,
shall be received from management, auditors, and others at least one week in
advance of meeting dates. Meeting conduct will assume board members have
reviewed written materials in sufficient depth to participate in committee/board
dialogue.
(6) External Resources -The committee shall be authorized to access
internal and external resources, as the committee requires, to carry out its
responsibilities.
(7) Committee Meeting Attendees - The committee shall request
members of management, counsel, internal audit, and external auditors, as
applicable, to participate in committee meetings, as necessary, to carry out the
committee responsibilities. Periodically and at least annually, the committee
shall meet in private session with only the committee members. It shall be
understood that either internal or external auditors, or counsel, may, at any
time, request a meeting with the audit committee or committee chairperson with
or without management attendance. In any case, the committee shall meet in
executive session separately with internal and external auditors, at least
annually.
(8) Reporting to the Board of Directors - The committee,
through the committee chairperson, shall report periodically, as deemed
necessary, but at least semi-annually, to the full board. In addition,
summarized minutes from committee meetings, separately identifying monitoring
activities from approvals, shall be available to each board member at least one
week prior to the subsequent board of directors meeting.
(9) Committee Self
Assessment - The committee shall review, discuss, and assess its own performance
as well as the committee role and responsibilities, seeking input from senior
management, the full board, and others. Changes in role and/or responsibilities,
if any, shall be recommended to the full board for approval.
Meeting Frequency
The committee shall meet at least once per year, as necessary.
Additional meetings shall be scheduled as considered necessary by the committee
or chairperson,
C - 3
Reporting to Shareholders
The committee shall make available to shareholders a summary
report on the scope of its activities. This may be identical to the report that
appears in the company’s annual Form 10-KSB.
Committee’s Relationship with External and Internal Auditors
(1) The external auditors, in their capacity as independent
public accountants, shall be responsible to the board of directors and the audit
committee as representatives of the shareholders.
(2) As the external auditors review financial reports, they
will be reporting to the audit committee. They shall report all relevant issues
to the committee responsive to agreed-on committee expectations. In executing
its oversight role, the board or committee should review the work of external
auditors.
(3) The committee shall annually review the performance
(effectiveness, objectivity, and independence) of the external and internal
auditors. The committee shall ensure receipt of a formal written statement from
the external auditors consistent with standards set by the Independent Standards
Board and the Securities and Exchange Commission. Additionally, the committee
shall discuss with the auditor relationships or services that may affect auditor
objectivity or independence. If the committee is not satisfied with the
auditors’ assurances of independence, it shall take or recommend to the full
board appropriate action to ensure the independence of the external auditor.
(4) The internal audit function shall be responsible to the
board of directors through the committee.
(5) If either the internal or the external auditors identify
significant issues relative to the overall board responsibility that have been
communicated to management but, in their judgment, have not been adequately
addressed, they should communicate these issues to the committee chairperson.
(6) Changes in the directors of internal audit or corporate
compliance shall be subject to committee approval.
Primary Committee Responsibilities
Monitor Financial Reporting and Risk Control Related
Matters
The committee should review and assess:
(1) Risk Management - The company’s business risk management
process, including the adequacy of the company’s overall control environment and
controls in selected areas representing significant financial and business risk.
(2) Annual Reports and Other Major Regulatory Filings - All
major financial reports in advance of filings or distribution.
(3) Internal Controls and Regulatory Compliance - The company’s
system of internal controls for detecting accounting and reporting financial
errors, fraud and defalcations, legal violations, and noncompliance with the
corporate code of conduct.
(4) Internal Audit Responsibilities - The annual audit plan and
the process used to develop the plan. Status of activities, significant
findings, recommendations, and management’s response
C - 4
(5) Regulatory Examinations - SEC inquiries and the results of
examinations by other regulatory authorities in terms of important findings,
recommendations, and management’s response.
(6) External Audit Responsibilities - Auditor independence and
the overall scope and focus of the annual/interim audit, including the scope and
level of involvement with unaudited quarterly or other interim-period
information.
(7) Financial Reporting and Controls - Key financial statement
issues and risks, their impact or potential effect on reported financial
information, the processes used by management to address such matters, related
auditor views, and the basis for audit conclusions. Important conclusions on
interim and/or year-end audit work in advance of the public release of
financials.
(8) Auditor Recommendations - Important internal and external
auditor recommendations on financial reporting, controls, other matters, and
management’s response. The views of management and auditors on the overall
quality of annual and interim financial reporting.
The committee should review, assess, and approve:
(1) The code
of ethical conduct,
(2) Changes in important accounting principles and the
application thereof in both interim in and annual financial reports.
(3) Significant conflicts of interest and related-party
transactions.
(4) External auditor performance and changes in external audit
firm (subject to ratification by the full board).
(5) Internal auditor performance and changes in internal audit
leadership and/or key financial management.
(6) Procedures for whistle blowers.
(7) Pre-approve allowable services to be provided by the
auditor. (8) Retention of complaints.
