INFORMATION CIRCULAR - PROXY STATEMENT
DATED MAY 1, 2023
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| WHO WE ARE | WHAT'S INSIDE | ||
| Founded in 2009, Hammerhead Energy Inc., formerly known as Hammerhead Resources Inc., and Canadian International Oil Corporation (CIOC), is a Calgary, Alberta based oil and gas producer committed to strong corporate, operational, stakeholder, and financial performance. Hammerhead Resources ULC is a wholly owned subsidiary of Hammerhead Energy Inc. We are advancing a growth-oriented strategy focused on leading, large scale resource development in the Alberta Montney, one of North America's highest return plays. Our operations target the responsible development of multi-zone, light-oil rich opportunities, supported by a culture of excellence and strong alignment with integrated environment, social and governance ("ESG") principles. We are publicly traded on the Toronto Stock Exchange (TSX: HHRS) and on the NASDAQ (NASDAQ: HHRS). Find out more on our website www.hhres.com | LETTER TO SHAREHOLDERS | 3 | |
| NOTICE OF ANNUAL AND SPECIAL MEETING | 4 | ||
| GLOSSARY OF TERMS | 6 | ||
| VOTING MATTERS | 9 | ||
| EXPLANATORY NOTE | 12 | ||
| MATTERS TO BE ACTED UPON AT THE MEETING | 13 | ||
| DIRECTOR COMPENSATION | 43 | ||
| CORPORATE GOVERNANCE PRACTICES | 43 | ||
| EXECUTIVE COMPENSATION | 50 | ||
| INTERESTS OF CERTAIN PERSONS OR COMPANIES IN MATTERS TO BE ACTED UPON | 65 | ||
| INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS | 65 | ||
| ADDITIONAL INFORMATION | 65 | ||
| ADVISORIES | 66 | ||
| SCHEDULE A | 67 | ||
| SCHEDULE B | 84 | ||
| SCHEDULE C | 108 | ||
PROXY SUMMARY
The following summary highlights some of the important information you will find in this information circular - proxy statement (the "Information Circular"). We recommend you read the entire Information Circular before voting.
| Voting Matters | Board Vote Recommendation | For More Information See Page |
| Fixing the Number of Directors | FOR | 13 |
| Election of Directors | FOR each nominee | 13 |
| Appointment of Auditors | FOR | 20 |
| Approving a Reduction of Stated Capital | FOR | 20 |
| Ratifying the Share Option Plan | FOR | 33 |
| Ratifying the Equity Incentive Award Plan and the grants made thereunder | FOR | 43 |
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LETTER TO SHAREHOLDERS
May 1, 2023
Dear Fellow Shareholder,
On behalf of the Board of Directors and management of Hammerhead Energy Inc., I am pleased to inform you that we will be holding our annual and special shareholders' meeting on Thursday, June 8, 2023, at 2:00 p.m. (Calgary time) at the offices of Burnet, Duckworth & Palmer LLP, 2400, 525 - 8th Avenue S.W., Calgary, Alberta, T2P 1G1.
This meeting provides an opportunity for you to vote on the items of business, hear about our performance over the past year and learn more about our plans. The meeting also provides you with the opportunity to meet our board and staff.
The accompanying information circular - proxy statement describes the business that will be conducted at the meeting and provides information on our executive compensation and governance practises.
Your vote is important to us. If you are unable to attend the meeting, we encourage you to ensure your vote is recorded by returning the signed form of proxy or vote via our internet option. If your shares are not registered in your name and are held in the name of a nominee, you may wish to consult the information beginning on page 9 of the accompanying information circular - proxy statement for information on how to vote your shares.
We hope you will join us at this year's meeting.
Sincerely,
(signed) "Robert Tichio"
Robert Tichio
Chair of the Board
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NOTICE OF ANNUAL AND SPECIAL MEETING
NOTICE is hereby given that the annual and special meeting of the shareholders of Hammerhead Energy Inc. (the "Company") will be held on Thursday, June 8, 2023, at 2:00 p.m. (Calgary time) at the offices of Burnet, Duckworth & Palmer LLP, 2400, 525 - 8th Avenue S.W., Calgary, Alberta to:
1. receive and consider our predecessor entity financial statements for the year ended December 31, 2022, together with the report of the auditors thereon;
2. fix the number of directors to be elected at the meeting at eight (8) members;
3. elect eight (8) directors of the Company;
4. appoint the auditors the Company and authorize our directors to fix their remuneration as such;
5. to consider and, if thought appropriate, to approve a special resolution, the full text of which is set forth in the accompanying management information circular - proxy statement of the Company dated May 1, 2023 (the "Information Circular"), approving a reduction in the stated capital of the Company, as more particularly described in the Information Circular;
6. to consider and, if thought appropriate, to approve an ordinary resolution, the full text of which is set forth in the Information Circular to ratify the share option plan (the "Share Option Plan") of the Company;
7. to consider and, if thought appropriate, to approve an ordinary resolution, the full text of which is set forth in the Information Circular, to ratify the equity incentive award plan (the "Equity Incentive Award Plan") of the Company and ratify the previous grants of 1,945,115 restricted share awards pursuant to the plan; and
8. transact such other business as may properly be brought before the meeting or any adjournment thereof.
The specific details of the matters proposed to be put before the meeting are set forth in the Information Circular accompanying this notice.
If you are a registered shareholder and are unable to attend the meeting or any adjournment or postponement thereof in person, please exercise your right to vote by dating, signing, and returning the accompanying form of proxy for use at the meeting or any adjournment or postponement thereof to Computershare Trust Company of Canada, our transfer agent. To be valid, completed proxy forms must be dated, completed, signed and deposited with Computershare Trust Company of Canada (i) by mail using the enclosed return envelope or one addressed to Computershare Trust Company of Canada, Proxy Department, 135 West Beaver Creek, P.O. Box 300, Richmond Hill, Ontario, L4B 4R5, (ii) by hand delivery to Computershare Trust Company of Canada, 8th Floor, 100 University Avenue, Toronto, Ontario, M5J 2Y1, or (iii) by facsimile to (416) 263-9524 or 1-866-249-7775. If you vote through the internet, you may also appoint another person to be your proxyholder. Please go to www.investorvote.com and follow the instructions. You will require your 15-digit control number found on your proxy form. Your proxy or voting instructions must be received in each case no later than 2:00 p.m. (Calgary time) on June 6, 2023, or, if the meeting is adjourned or postponed, 24 hours (excluding Saturdays, Sundays, and holidays) before the beginning of any adjourned or postponed meeting. If you receive more than one proxy form because you own Class A common shares ("common shares") registered in different names or addresses, each proxy form should be completed and returned.
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Only shareholders of record at the close of business on May 1, 2023, will be entitled to vote at the meeting, unless that shareholder has transferred any common shares after that date and the transferee shareholder, not later than 10 days before the meeting, establishes ownership of the common shares and demands that the transferee's name be included on the list of shareholders entitled to vote at the meeting.
DATED at Calgary, Alberta this 1st day of May, 2023.
By order of the Board of Directors of Hammerhead Energy Inc.
(signed) "Scott Sobie"
Scott Sobie
President and Chief Executive Officer
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GLOSSARY OF TERMS
The following is a glossary of certain terms used in this Information Circular. Terms and abbreviations used in the Schedules to this Information Circular are defined separately and the terms and abbreviations defined below are not used therein, except where otherwise indicated.
"1901" means Zam Ventures Luxembourg II S.A.R.L.
"ABCA" means the Business Corporations Act (Alberta), R.S.A. 2000.
"AmalCo" means 2453729 Alberta ULC, an Alberta unlimited liability corporation and wholly owned subsidiary of DCRD, which amalgamated with Hammerhead pursuant to the Company Amalgamation to form Hammerhead Resources ULC, a wholly owned subsidiary of the Company.
"Amalgamated Company" means Hammerhead Resources ULC, the unlimited liability corporation formed as a result of the Company Amalgamation.
"Audit Committee" means the audit committee of the Company Board.
"Business Combination" means the transactions consummated pursuant to the Business Combination Agreement, the Plan of Arrangement and all other agreements entered into in connection therewith.
"Business Combination Agreement" means the certain Business Combination Agreement, dated September 25, 2022 by and between DCRD, Hammerhead, NewCo and AmalCo.
"Closing Date" means February 23, 2023.
"Common Shares" means the Company's Class A common shares.
"Company" means Hammerhead Energy Inc.
"Company Amalgamation" means the amalgamation of Hammerhead and AmalCo.
"Company Amalgamation Effective Time" means the effective time of the Company Amalgamation.
"Company Articles" means the articles of the Company (as amended).
"Company Board" means the board of directors of Hammerhead Energy Inc.
"Company Options" means all options to purchase Common Shares, whether or not exercisable and whether or not vested, granted under the Share Option Plan.
"Compensation Committee" means the compensation committee of the Company Board.
"DCRD" means Decarbonization Plus Acquisition Corporation IV, a Cayman Islands exempted company, which (i) transferred by way of continuation from the Cayman Islands to the Province of Alberta, Canada and domesticated as an Alberta corporation pursuant to the Domestication and (ii) amalgamated with NewCo, with NewCo surviving as the Company, pursuant to the SPAC Amalgamation.
"Domestication" means the continuation of DCRD from the Cayman Islands to the Province of Alberta, Canada and domestication as an Alberta corporation.
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"Equity Incentive Award Plan" means the equity incentive award plan of the Company effective February 23, 2023, as amended and restated on May 1, 2023.
"Governance and ESG Committee" means the governance and ESG committee of the Company Board.
"Hammerhead" means Hammerhead Resources Inc., an Alberta corporation, which amalgamated with AmalCo to form Hammerhead Resources ULC pursuant to the Company Amalgamation.
"Hammerhead Board" means the board of directors of Hammerhead.
"Hammerhead Common Shares" means the common shares in the authorized share capital of Hammerhead which were re-designated as Class A common shares prior to the Company Amalgamation.
"Hammerhead Options" means all options to purchase Hammerhead Common Shares, whether or not exercisable and whether or not vested, granted under the Hammerhead Share Option Plan.
"Hammerhead RSUs" means all share awards to purchase Hammerhead Common Shares granted under the Hammerhead Share Award Plan.
"Hammerhead Share Award Plan" means the amended and restated share award plan of Hammerhead effective August 31, 2016, as amended on November 7, 2019, December 31, 2020, March 30, 2022 and May 20, 2022.
"Hammerhead Share Option Plan" means the share option plan of Hammerhead effective March 21, 2011 as amended effective January 10, 2017, December 31, 2020, March 30, 2022 and May 30, 2022.
"Legacy Options" means all options to purchase Common Shares, whether or not exercisable and whether or not vested, granted under the Legacy Share Option Plan.
"Legacy RSUs" means all share awards to purchase Common Shares granted under the Legacy Share Award Plan.
"Legacy Share Award Plan" means the share award plan of the Company effective February 23, 2023.
"Legacy Share Option Plan" means the share option plan of the Company effective February 23, 2023.
"NASDAQ" means the Nasdaq Capital Market.
"NewCo" means Hammerhead Energy Inc., an Alberta corporation and wholly owned subsidiary of Hammerhead prior to the SPAC Amalgamation Effective Time, which amalgamated with DCRD to form the Company.
"NI 51-101" means National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.
"NI 51-102" means National Instrument 51-102 – Continuous Disclosure Obligations.
"NI 52-110" means National Instrument 52-110 - Audit Committees.
"NI 58-101" means National Instrument 58-101 - Disclosure of Corporate Governance Practices.
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"Plan of Arrangement" means the Plan of Arrangement, as amended in accordance with the Business Combination Agreement and the Plan of Arrangement.
"Reserves Committee" means the reserves committee of the Company Board.
"Restricted Award" means (i) an Incentive Award (as defined in the Equity Incentive Award Plan) under the Equity Incentive Award Plan designated as a "Restricted Award" in the Incentive Award Agreement (as defined in the Equity Incentive Award Plan) pertaining thereto, for which payment shall be made following the vesting date(s) thereof or (ii) an award of Common Shares under the Equity Incentive Award Plan designated as a "Restricted Award" in the Share Award Agreement (as defined in the Equity Incentive Award Plan) pertaining thereto, which Common Shares shall be issued following the exercise date(s) thereof.
"Restricted Share Award" means an award of Common Shares under the Equity Incentive Award Plan designated as a "Restricted Award" in the Share Award Agreement (as defined therein) pertaining to the award, which Common Shares shall be issued in accordance with the term of the Share Award Agreement.
"Riverstone" means Riverstone Holdings LLC, a Delaware limited liability company, and its affiliates.
"Riverstone Investment" means Riverstone Investment Group LLC, a Delaware limited liability company, and its affiliates.
"Riverstone Parties" means affiliates of Riverstone, which are shareholders of the Company and affiliates of Decarbonization Plus Acquisition Sponsor IV LLC.
"SEC" means the U.S. Securities and Exchange Commission.
"Share Option Plan" means the share option plan of the Company effective February 23, 2023, as amended and restated on May 1, 2023.
"SPAC Amalgamation" means DCRD's amalgamation with NewCo.
"SPAC Amalgamation Effective Time" means the effective time of the SPAC Amalgamation.
"TSX" means the Toronto Stock Exchange.
"Warrant" means a warrant to purchase a Common Share.
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Information Circular - Proxy Statement dated May 1, 2023 for the Annual and Special Meeting of
Shareholders of Hammerhead Energy Inc. to be held on Thursday, June 8, 2023.
VOTING MATTERS
Solicitation of Proxies
This Information Circular is furnished in connection with the solicitation of proxies for use at the annual and special meeting, and any adjournment or postponement thereof, of the shareholders of the Company to be held at 2:00 p.m. (Calgary time) on Thursday, June 8, 2023, at the offices of Burnet, Duckworth & Palmer LLP, 2400, 525 - 8th Avenue S.W., Calgary, Alberta.
If you are a registered shareholder and are unable to attend the meeting or any adjournment or postponement thereof in person, please exercise your right to vote by dating, signing, and returning the accompanying form of proxy for use at the meeting or any adjournment or postponement thereof to Computershare Trust Company of Canada, our transfer agent. To be valid, completed proxy forms must be dated, completed, signed and deposited with Computershare Trust Company of Canada, (i) by mail using the enclosed return envelope or one addressed to Computershare Trust Company of Canada, Proxy Department, 135 West Beaver Creek, P.O. Box 300, Richmond Hill, Ontario, L4B 4R5, (ii) by hand delivery to Computershare Trust Company of Canada, 8th Floor, 100 University Avenue, Toronto, Ontario, M5J 2Y1, or (iii) by facsimile to (416) 263-9524 or 1-866-249-7775. If you vote through the internet, you may also appoint another person to be your proxyholder. Please go to www.investorvote.com and follow the instructions. You will require your 15-digit control number found on your proxy form. Your proxy or voting instructions must be received in each case no later than 2:00 p.m. (Calgary time) on June 6, 2023, or, if the meeting is adjourned or postponed, 24 hours (excluding Saturdays, Sundays, and holidays) before the beginning of any adjourned or postponed meeting. If you receive more than one proxy form because you own Common Shares registered in different names or addresses, each proxy form should be completed and returned.
The instrument appointing a proxy must be in writing and must be executed by you or your attorney authorized in writing or, if you are a corporation, under your corporate seal or by a duly authorized officer or attorney of the corporation.
The persons named in the enclosed form of proxy are our directors and/or officers. As a shareholder you have the right to appoint a person or company, who need not be a shareholder, to represent you at the meeting. To exercise this right, you should insert the name of the desired representative in the blank space provided on the form of proxy and strike out the other names or submit another appropriate proxy.
Only shareholders of record at the close of business on May 1, 2023, will be entitled to vote at the meeting, unless that shareholder has transferred any Common Shares after that date and the transferee shareholder, not later than 10 days before the meeting, establishes ownership of the Common Shares and demands that the transferee's name be included on the list of shareholders entitled to vote at the meeting.
Advice to Beneficial Holders of Common Shares
The information set forth in this section is significant to you if you do not hold your Common Shares in your own name. Only proxies deposited by shareholders whose names appear on our records as the registered holders of Common Shares can be recognized and acted upon at the meeting. If your Common Shares are listed in your account statement provided by your broker, then, in almost all cases, those Common Shares will not be registered in your name on our records. Such Common Shares will likely be registered under the name of your broker or an agent of that broker. In Canada, many of such Common Shares are registered under the name of CDS & Co., the registration name for The CDS Clearing and Depository Services Inc., which acts as nominee for many Canadian brokerage firms. Common Shares held by your broker, or their nominee can only be voted upon your instructions. Without specific instructions, your broker or their nominee is prohibited from voting your Common Shares.
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Applicable regulatory policy requires your broker to seek voting instructions from you in advance of the meeting. Every broker has its own mailing procedures and provides its own return instructions, which you should carefully follow to ensure that your Common Shares are voted at the meeting. Often, the form of proxy supplied by your broker is identical to the form of proxy provided to registered shareholders. However, its purpose is limited to instructing the registered shareholder how to vote on your behalf. Many brokers now delegate responsibility for obtaining instructions from clients to a mailing/tabulating agent who mails a scannable voting instruction form in lieu of the form of proxy. You are asked to complete and return the voting instruction form to them by mail or facsimile. Alternatively, you can use their website or call their toll-free telephone number to instruct them how to vote your Common Shares. They then tabulate the results of all instructions received and provide appropriate instructions respecting the voting of Common Shares to be represented at the meeting. If you receive a voting instruction form from a mailing/tabulating agent, it cannot be used as a proxy to vote Common Shares directly at the meeting as it must be returned to the mailing/tabulating agent well in advance of the meeting to have the Common Shares voted.
The Company is not using "notice-and-access" to send its proxy-related materials to shareholders, and paper copies of such materials will be sent to all shareholders. The Company will not send proxy-related materials directly to non-objecting beneficial shareholders and such materials will be delivered to non-objecting beneficial shareholders through Broadridge Financial Solutions, Inc. or the non-objecting beneficial shareholder's intermediary. The Company intends to pay for the costs of an intermediary to deliver proxy-related materials to objecting beneficial shareholders.
Revocability of Proxy
You may revoke your proxy at any time prior to a vote. If you or the person you give your proxy attends personally at the meeting, you or such person may revoke the proxy and vote in person. In addition to revocation in any other manner permitted by law, a proxy may be revoked by an instrument in writing executed by you or your attorney authorized in writing or, if you are a corporation, under your corporate seal or by a duly authorized officer or attorney of such corporation. To be effective the instrument in writing must be deposited with the President and Chief Executive Officer of the Company c/o 2700, 525 - 8th Avenue S.W., Calgary, Alberta, T2P 1G1, at any time prior to 2:00 p.m. (Calgary time) on the last business day preceding the day of the meeting, or any adjournment or postponement thereof, at which the proxy is to be used, or with the chair of the meeting on the day of the meeting, or any adjournment or postponement thereof.
Persons Making the Solicitation
This solicitation is made on behalf of our management. We will bear the costs incurred in the preparation and mailing of the form of proxy, notice of annual and special meeting and this Information Circular. In addition to mailing forms of proxy, proxies may be solicited by personal interviews, or by other means of communication, by our directors, officers and employees who will not be remunerated therefor.
Exercise of Discretion by Proxy
The Common Shares represented by proxy in favour of management nominees will be voted or withheld from voting on any matter at the meeting. Where you specify a choice with respect to any matter to be acted upon, the Common Shares will be voted on the matter in accordance with the specification so made. If you do not provide instructions, your Common Shares will be voted in favour of the matters to be acted upon as set out herein. The persons appointed under the form of proxy, which we have furnished, are conferred with discretionary authority with respect to amendments or variations of those matters specified in the form of proxy and notice of annual and special meeting and with respect to any other matters which may properly be brought before the meeting or any adjournment thereof. At the time of printing this Information Circular, we know of no such amendment, variation, or other matter.
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Voting Shares and Principal Holders
We are authorized to issue an unlimited number of Common Shares and first preferred shares (the "First Preferred Shares") in an amount equal to not more than 20% of the number of issued and outstanding Common Shares at the time of issuance of any First Preferred Shares. As at May 1, 2023, there were 90,973,622 Common Shares and nil First Preferred Shares issued and outstanding. As a holder of Common Shares, you are entitled to one vote for each Common Share you own.
To the knowledge of our directors and officers, as at May 1, 2023, no person or company beneficially owned, or controlled or directed, directly or indirectly, more than 10% of our Common Shares, other than as set forth below:
| Name | Number of Common Shares Beneficially Owned, or Controlled or Directed, Directly or Indirectly | Percentage of Our Issued and Outstanding Common Shares |
| Investment funds affiliated with the Riverstone Parties (1) | 78,197,457 | 86.0% |
Notes:
(1) Based on information filed on the SEDI website at www.sedi.ca as of May 1, 2023.
(2) Includes: (i) 7,794,002 Common Shares held of record by REL Hammerhead B.V.; (ii) 35,176,272 Common Shares held of record by Riverstone V Investment Management Cooperatief U.A.; (iii) 17,533,979 Common Shares held of record by Riverstone V REL Hammerhead B.V.; (iv) 9,880,444 Common Shares held of record by Riverstone V CIOC LP; (v) 4,348,437 Common Shares held of record by R5 HHR FS Holdings LLC; and (vi) 3,464,323 Common Shares held of record by Decarbonization Plus Acquisition Sponsor IV LLC.
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EXPLANATORY NOTE
On February 23, 2023, the Company consummated the Business Combination by and among DCRD, Hammerhead, NewCo, and AmalCo, which provided for, among other things and subject to the terms and conditions contained in the Business Combination Agreement, and the Plan of Arrangement: (a) the Domestication; (b) the SPAC Amalgamation to form the Company, with NewCo surviving the SPAC Amalgamation as the Company; and (c) on the Closing Date, the Company Amalgamation to form the Amalgamated Company, in accordance with the terms of the Plan of Arrangement.
Pursuant to the SPAC Amalgamation, among other things: (a) each DCRD Class A ordinary share, par value $0.0001 per share (the "DCRD Class A Ordinary Shares") issued and outstanding (which, pursuant to the Domestication, was exchanged for one Class A common share of DCRD) immediately prior to the SPAC Amalgamation Effective Time was exchanged, on a one-for-one basis, for a Common Share; (b) each DCRD Class B ordinary share, par value $0.0001 per share issued and outstanding (which, pursuant to the Domestication, was exchanged for one Class B common share of DCRD) immediately prior to the SPAC Amalgamation Effective Time was exchanged, on a one-for-one basis, for a Class B common share in the authorized share capital of the Company which were deemed to be cancelled without repayment of capital; (c) each common share of NewCo outstanding was exchanged for one Common Share; (d) each common share purchase warrant of DCRD issued and outstanding immediately prior to the SPAC Amalgamation Effective Time was exchanged for a Warrant; (e) each unit of DCRD, consisting of one DCRD Class A Ordinary Share and one-half of one DCRD warrant, issued and outstanding immediately prior to the SPAC Amalgamation Effective Time was exchanged for one unit of the Company representing one Common Share and one-half of one Warrant; and (f) the Common Share held by Hammerhead was purchased for cancellation for cash equal to the subscription price for such common share of NewCo.
On the Closing Date, prior to the Company Amalgamation, among other things: (a) the articles of Hammerhead were amended to authorize the Class B common shares ("Hammerhead Class B Common Share") and concurrently, all of the then issued and outstanding common shares of Hammerhead were re-designated as Class A common shares of Hammerhead; (b) each Hammerhead Common Share held by certain employee borrowers was exchanged for one Hammerhead Class B Common Share; (c) each then issued and outstanding Hammerhead Class B Common Share was exchanged for one Common Share pursuant to the articles of the Company adopted at the Company Amalgamation Effective Time, in accordance with the Plan of Arrangement; and (d) each warrant to purchase Hammerhead Common Shares was either exchanged for Hammerhead Common Shares or cash, in each case, in accordance with the Plan of Arrangement.
On the Closing Date, pursuant to the Company Amalgamation, among other things: (a) each then issued and outstanding preferred share of Hammerhead (the "Hammerhead Preferred Shares") was exchanged for a number of Common Shares; (b) each then issued and outstanding Hammerhead Option and Hammerhead RSU was exchanged for an option to acquire a number of Common Shares; and (c) each then issued and outstanding Hammerhead Common Share and Hammerhead Class B Common Share was exchanged for a number of Common Shares, in each case, in accordance with the Plan of Arrangement.
The Common Shares and the Warrants are traded on the NASDAQ under the symbols "HHRS" and "HHRSW", respectively, and on the TSX under the symbols "HHRS" and "HHRS.WT," respectively.
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MATTERS TO BE ACTED UPON AT THE MEETING
Receipt of the Financial Statements and Auditors' Reports
At the meeting, our shareholders will receive and consider the financial statements of each of the Company, DCRD and Hammerhead for the year ended December 31, 2022 and the Auditors' Reports thereon, but no vote by our shareholders with respect thereto is required or proposed to be taken.
Fixing the Number of Directors
The Company Articles provide for a minimum of three directors and a maximum of eleven directors. The Company's by-laws provide that the number of directors shall be determined from time to time by our shareholders. There are currently eight directors on the Company Board. Accordingly, unless otherwise directed, it is the intention of management to vote proxies in the accompanying form in favour of fixing the number of directors to be elected at the meeting at eight.
Election of Directors
The Company Board has fixed the number of directors to be elected at the meeting at eight members. You are being asked to cast your vote for the following eight directors:
| Robert Tichio | J. Paul Charron |
| Jesal Shah | Scott Sobie |
| Bryan Begley | Michael Kohut |
| A. Stewart Hanlon | James AC McDermott |
Each director will hold office until the next annual meeting of our shareholders, or their successor is duly elected or appointed, unless their office is earlier vacated. If a vacancy among such nominees occurs because of death or for any reason prior to the meeting, the proxy will not be voted with respect to such vacancy.
Voting for Election of Directors
The directors are elected annually, individually and by majority vote. The individual voting results of this meeting will be published by news release and on the SEDAR website at www.sedar.com after the meeting.
The Company has adopted a majority voting policy. In an uncontested election, any nominee for director who receives a greater number of votes "withheld" from his or her election than votes "for" his or her election (a "majority withhold vote") shall tender his or her resignation, for consideration by the Company Board, to the Chair of the Governance and ESG Committee promptly following certification of the shareholder vote, such resignation to be effective upon acceptance by the Company Board. If the Chair of the Governance and ESG Committee received a majority withhold vote, then he or she shall tender his or her resignation to the Chair of the Company Board. The Governance and ESG Committee will promptly consider the tendered resignation and will make a recommendation to the Company Board whether to accept or reject such resignation. In determining whether to recommend acceptance or rejection of the tendered resignation, the Governance and ESG Committee will consider all factors it deems relevant including, without limitation, the impact with respect to covenants in agreements or plans; and legal requirements, policies or guidelines (regulatory, securities or corporate laws, or stock exchange rules) for director numbers and qualifications.
The Company Board will consider the Governance and ESG Committee's recommendation not later than 90 days following the date of the shareholders' meeting at which the election occurred. In deciding whether to accept or reject the tendered resignation, the Company Board will consider the factors considered by the Governance and ESG Committee and any additional information and factors the Company Board believes to be relevant. It is expected that the Company Board will accept a resignation absent exceptional circumstances. If the Company Board determines not to accept a resignation, the reasons for rejecting the tendered resignation will be disclosed in a news release and a copy of the news release will be provided to the TSX and NASDAQ. If the Company Board decides to accept the director's resignation, the Governance and ESG Committee will recommend to the Company Board whether to fill the resulting vacancy or to continue with the reduced size of the Company Board.
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Management recommends that shareholders vote FOR the election of each of these nominees. The persons named in the enclosed form of proxy intend to vote FOR the election of each of these nominees unless the shareholder specifies authority to do so is withheld.
Biographies of our Directors
The following information relating to the director nominees is based in part on our records and in part on information the nominees have provided to us.
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Bryan Begley Texas, USA | |||
Mr. Begley served on the Hammerhead Board from October of 2011 to February 2023. He has served on the board of directors of the Company Board since February 23, 2023. Mr. Begley is the Chief Executive Officer of Maroon Peak Energy Resources, LLC, and Maroon Peak Management LLC. He has held this position since September 2022. Maroon Peak is a private energy company that owns energy interests in multiple locations. Mr. Begley is also a founder and Managing Director of 1901 Partners Management, LP, a private equity firm formed in 2014 that manages a portfolio of oil and gas and other energy-related investments. He is also a member of the board of directors of Athabasca Oil Corporation (TSX:ATH). Mr. Begley previously served as a Managing Director of ZBI Ventures, L.L.C., which he joined in 2007 as part of the founding team, to lead and manage private investments in the energy sector until 2014. Prior to joining ZBI Ventures, L.L.C., Mr. Begley was a partner at McKinsey & Co. in the Dallas and Houston offices, where he advised clients across the global energy sector. He has also worked as an engineer with Phillips Petroleum Company in Bartlesville, Oklahoma and Stavanger, Norway. |
| Board and Committee Participation | Position | Meetings in 2022(1) | Attendance |
| Board of Directors | Member | - | - |
| Compensation Committee | Chair | - | - |
| Reserves Committee | Member | - | - |
| Other Public Board Directorships | Committee Positions | ||
| Athabasca Oil Corporation (TSX) | Director | ||
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J. Paul Charron Alberta, Canada | |||
Mr. Charron served on the Hammerhead Board from November 2017 to February 2023. He has served on the Company Board since February 23, 2023. Mr. Charron formerly served as the Executive Chairman and Chief Executive Officer of Ridgeback Resources Inc. from 2017 to 2023. Prior to joining Ridgeback Resources Inc., Mr. Charron was President, Chief Executive Officer and Director of CanEra Inc, (2014-2017), CanEra Energy Corp., (2010-2014) and CanEra Resources Inc. (2008-2010). Prior thereto he held the same positions at Canetic Resources Trust and its predecessor Acclaim Energy Trust, and served as Vice President and Chief Financial Officer of Ketch Energy Ltd. Prior to joining Ketch, Paul held the positions of Managing Director and Vice President and Director with the Capital Markets Group of BMO Nesbitt Burns Inc. and Vice President of Finance with Morrison Petroleums Ltd. Mr. Charron has held various board appointments including Corporate Director of Legacy Oil and Gas, Canetic Resources Trust, Acclaim Energy Trust, Creststreet Asset Management, Kereco Energy Ltd., Ketch Energy Ltd. and TriStar Oil and Gas Ltd. Currently, Paul serves as board chair of Edge School as well as Islander Oil and Gas. |
| Board and Committee Participation | Position | Meetings in 2022(1) | Attendance |
| Board of Directors | Member | - | - |
| Audit Committee | Member | - | - |
| Reserves Committee | Chair | - | - |
| Other Public Board Directorships | Committee Positions | ||
| None | - | ||
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A. Stewart Hanlon, CPA, CA Alberta, Canada | |||
Mr. Hanlon served on Hammerhead Board from November 2017 to February 2023. He has served on the Company Board since February 23, 2023. Prior to joining the Hammerhead Board, Mr. Hanlon served a 26-year tenure with Gibson Energy Inc. where he filled senior roles in finance, business development and operations, eventually culminating in his appointment as President and Chief Executive Officer in April of 2009. Mr. Hanlon retired from his position as President and Chief Executive Officer in June of 2017, and currently serves on the board of Questor Technology. Mr. Hanlon is also a volunteer member on the board of the Dean's Advisory Council for the Edwards School of Business at the University of Saskatchewan. Mr. Hanlon holds a Bachelor of Commerce Degree from the University of Saskatchewan. |
| Board and Committee Participation | Position | Meetings in 2022(1) | Attendance |
| Board of Directors | Member | - | - |
| Audit Committee | Chair | - | - |
| Compensation Committee | Member | - | - |
| Other Public Board Directorships | Committee Positions | ||
| Questor Technology Inc. (TSXV) | Director and non-executive Chair Audit Committee (Chair) Governance and Compensation Committee (Member) | ||
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Michael Kohut Alberta, Canada | |||
Mr. Kohut has served as Hammerhead's Senior Vice President and Chief Financial Officer since joining Hammerhead in January 2019 and as Senior Vice President, Finance and Chief Financial Officer of the Company since February 2023. Mr. Kohut has served on the Company Board since February 23, 2023. Mr. Kohut has over 25 years of professional experience in various senior executive and board of director positions. Prior to joining Hammerhead, Mr. Kohut was Vice President of Finance at Paramount Resources Ltd. from November 2017 to April 2018 and Chief Financial Officer of Trilogy Energy Corporation from June 2006 to October 2017. Since 2018, Mr. Kohut has served on the board of directors with Southern Energy Corporation. Mr. Kohut graduated with a Bachelor of Commerce from the University of Calgary. |
| Board and Committee Participation | Position | Meetings in 2022(1) | Attendance |
| Board of Directors | Member | - | - |
| Other Public Board Directorships | Committee Positions | ||
| Southern Energy Corp (TSXV) | Director Audit Committee (Chair) Corporate Governance and Compensation Committee (Member) | ||
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James AC McDermott California, USA | |||
Mr. McDermott has served as a member of the Company Board since February 23, 2023. Mr. McDermott served as lead independent director of the board of directors of Decarbonization Plus Acquisition Corporation IV from August 2021 until the consummation of the Business Combination. Mr. McDermott is the founder and chief executive officer of Rusheen Capital Management, a private equity firm that invests in growth-stage companies in the carbon capture and utilization, low-carbon energy, and water sustainability sectors. As an investor and entrepreneur, Mr. McDermott has founded, run, and invested in over 35 businesses over a 25-year career and has built an extensive professional network in the low-carbon energy, water, and sustainability sectors. From 1996 to 2003, Mr. McDermott founded and ran Stamps.com (NASDAQ: STMP), Archive.com (sold to Cyclone Commerce) and Spoke.com. From 2003 to 2017, Mr. McDermott co-founded and served as Managing Partner of US Renewables Group, a private investment firm, where he raised and invested approximately $1 billion into clean energy businesses. Mr. McDermott was founder and board member of NanoH2O, is the founder and executive chairman of Fulcrum BioEnergy, investor, and board observer of Moleaer, a board member of Carbon Engineering and the chief executive officer of 1PointFive. For five years, Mr. McDermott has been a board member of the Los Angeles Cleantech Incubator. Mr. McDermott holds an MBA from UCLA, and a BA in Philosophy from Colorado College. |
| Board and Committee Participation | Position | Meetings in 2022(1) | Attendance |
| Board of Directors | Member | - | - |
| Audit Committee | Member | - | - |
| Governance and ESG Committee | Chair | - | - |
| Other Public Board Directorships | Committee Positions | ||
| None | - | ||
Jesal Shah New York, USA | |||
Mr. Shah has served on the Hammerhead Board since November 2018. He has served on the Company Board since February 23, 2023. Mr. Shah currently serves as a Managing Director of Riverstone. Mr. Shah joined Riverstone in 2010 as an Associate and returned to Riverstone in 2015 after earning his MBA. Prior to joining Riverstone, Mr. Shah was an Investment Banking Analyst in the Global Energy Group at Credit Suisse. While at Credit Suisse, Mr. Shah worked on M&A transactions and capital markets financings, with a focus on the power and utilities sector. Mr. Shah graduated summa cum laude from Tufts University with a B.A. in Economics and Spanish and received his MBA from Harvard Business School. |
| Board and Committee Participation | Position | Meetings in 2022(1) | Attendance |
| Board of Directors | Member | - | - |
| Other Public Board Directorships | Committee Positions | ||
| Pipestone Energy Corp. (TSX) | Director Reserves and Health, Safety & Environment Committee (Member) | ||
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Scott Sobie Alberta, Canada | |||
Mr. Sobie has served as a director and President of Hammerhead since July 2012 and President and Chief Executive Officer since September 2013 and as a director, President and Chief Executive Officer of the Company since February 23, 2023. Mr. Sobie has over 35 years of professional experience in the oil and gas industry with organizations such as Shell and Talisman Energy. Prior to joining Hammerhead, Mr. Sobie held the role of Vice President of Conventional Development, North America with Talisman Energy where he was accountable for underlying production of over 80,000 boe/d, with asset areas in the Western Canadian Basin. Over his career, Mr. Sobie held several executive and management roles including Vice President of Shale Pilots, Vice President of Business Services, and other Management positions. Mr. Sobie holds a Professional Certified Engineering Technologist (C.E.T.) designation with the Association of Science & Engineering Technology Professionals of Alberta (ASET) and graduated from the Southern Alberta Institute of Technology. |
| Board and Committee Participation | Position | Meetings in 2022(1) | Attendance |
| Board of Directors | Member | - | - |
| Other Public Board Directorships | Committee Positions | ||
| None | - | ||
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Robert Tichio New York, USA | |||
Mr. Tichio has served as a member of the Hammerhead Board since March 2014. He has served on the Company Board since February 23, 2023. Mr. Tichio served as DCRD's Chief Executive Officer from March 15, 2022, and as a member of the board of directors of DCRD from February 2021, in each case until the consummation of the Business Combination. Mr. Tichio is a partner of Riverstone. Mr. Tichio joined the firm in 2006 and has been focused on the firm's Private Equity business. Prior to joining Riverstone Holdings, Mr. Tichio was in the Principal Investment Area (PIA) of Goldman Sachs, which manages the firm's private corporate equity investments. Mr. Tichio began his career at J.P. Morgan in the Mergers & Acquisition Group, where he concentrated on assignments that included public company combinations, asset sales, takeover defenses, and leveraged buyouts. Mr. Tichio received his A.B. from Dartmouth College as a Phi Beta Kappa graduate, and later received his MBA. with Distinction from Harvard Business School. Mr. Tichio serves on a number of non-profit and Riverstone Investment portfolio company boards. |
| Board and Committee Participation | Position | Meetings in 2022(1) | Attendance |
| Board of Directors | Chair | - | - |
| Other Public Board Directorships | Committee Positions | ||
| Pipestone Energy Corp. (TSX) | Director Compensation and Governance Committee (Member) Reserves and Health, Safety & Environment Committee (Member) | ||
| Permian Resources Corporation (NYSE) | Director | ||
| Tritium DCFC Limited (NASDAQ) | Director Nominating and Corporate Governance Committee (Chair) Audit Committee (Member) Compensation Committee (Member) | ||
Note:
(1) The Company was formed on February 23, 2023. As a result, there were no meetings in 2022.
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The following table sets forth each such director's ownership of Company securities as at the date of this Information Circular:
| Name | Number of Common Shares | Number of Legacy Options | Number of Legacy RSUs | Number of Company Options | Number of Restricted Share Awards |
| A. Stewart Hanlon | 7,349 | - | 14,697 | - | - |
| Bryan Begley(1) | 7,036,020 | - | - | - | - |
| J. Paul Charron | 7,349 | - | 14,697 | - | - |
| James AC McDermott | 37,396 | - | - | - | - |
| Jesal Shah | - | - | - | - | - |
| Michael G. Kohut | 959 | 10,224 | 431,452 | - | 174,300 |
| Robert Tichio | - | - | - | - | - |
| Scott Sobie | 256,399 | 159,877 | 1,042,558 | - | 292,200 |
| Total: | 7,345,472 | 170,101 | 1,503,404 | - | 466,500 |
Note:
(1) 1901 is the record holder of 7,036,020 Common Shares. Bryan Begley is one of the managing directors of 1901 Partners Management, LP which is the sole member of 1901 Lux Director, LLC, the Class A manager of 1901. Mr. Begley has shared voting and investment discretion with respect to the Common Shares held of record by 1901. As such, each of Mr. Begley, 1901 Lux Director, LLC and 1901 Partners Management, LP may be deemed to have or share beneficial ownership of the Common Shares held directly by 1901. Each such entity or individual disclaims any such beneficial ownership.
Additional Disclosure Relating to Proposed Directors
Except as otherwise disclosed herein or in connection with the other matters described below, none of our directors (nor any personal holding company of any of such persons) is, as of the date hereof, or was within 10 years before the date hereof, a director, chief executive officer or chief financial officer of any company (including us), that was subject to a cease trade order (including a management cease trade order), an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation, in each case that was in effect for a period of more than 30 consecutive days that was issued while the director was acting in the capacity as director, chief executive officer or chief financial officer; or that was issued after the 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.
None of our directors (nor any personal holding company of any of such persons) is, as of the date hereof, or has been within the 10 years before the date hereof, a director or executive officer of any company (including us) 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 other than as set forth below.
Mr. Michael Kohut was a director of Great Prairie Energy Services Inc. ("Great Prairie") on January 22, 2016, when it applied for and obtained an order from the Court of Queen's Bench of Alberta under the CCAA. Mr. Kohut resigned as a director of Great Prairie on January 22, 2016.
Mr. Bryan Begley was the chair of the board of directors of Legend Energy Services, LLC ("Legend"), a privately held company in the U.S. which had been one of the horizontal drilling industry's premier coiled tubing service specialists. Upon the downturn in the oil and gas industry, Legend worked together with its secured lender to sell its assets to a smaller operator. To be sure that its remaining assets were shared equitably by its remaining creditors, on October 26, 2021, Legend filed a voluntary Chapter 7 Petition in the United States Bankruptcy Court for the Eastern District of Texas. Mr. Begley ceased his position as a director of Legend on October 26, 2021.None of our directors (nor any personal holding company of any such persons) has, within the 10 years before the date hereof, 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 the assets of the director.
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Mr. Robert Tichio was a director of EP Energy Corporation and Castex Energy I, LLC, the general partner of Castex Energy 2005, L.P. Both entities previously filed for Chapter 11 reorganizations with the U.S. Bankruptcy Courts and have since emerged from bankruptcy proceedings. Mr. Tichio no longer serves as a director for either company.
None of our directors (nor any personal holding company of any of such persons) 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 any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.
Appointment of Auditors
Unless otherwise directed, it is management's intention to vote proxies in favour of Ernst & Young LLP, Chartered Professional Accountants, of Calgary, Alberta, as our auditors, to hold office until the next annual meeting of shareholders and to authorize the directors to fix their remuneration as such. Ernst & Young LLP were first appointed as auditors of Hammerhead on May 27, 2010 and of the Company on December 6, 2022.
The following table provides information about the fees billed to the Company and Hammerhead for professional services rendered by Ernst & Young LLP during the fiscal years of 2021 and 2022:
| Type of Work (1) | 2022 Fees ($) | 2021 Fees ($) |
| Audit fees(1) | 190,800 | 271,360 |
| Audit-Related Fees(2) | 445,200 | - |
| Tax Fees(3) | 164,881 | 102,322 |
| All Other Fees(4) | 3,112 | 10,427 |
Notes:
(1) Represents the aggregate fees billed by Hammerhead's external auditor in the fiscal year ended December 31, 2022 for audit services. Represents the aggregate fees billed by Hammerhead's external auditor in the fiscal year December 31, 2021.
(2) Represents the aggregate fees billed in the fiscal year December 31, 2022 by Hammerhead's external auditor and the aggregate fees billed in the fiscal year for assurance and related services that are reasonably related to the performance of the audit or review of Hammerhead's financial statements (and not reported under the heading Audit Fees) and fees related to the Business Combination.
(3) Represents the aggregate fees billed in each of the last two fiscal years by Hammerhead's external auditor for professional services for tax compliance, tax advice and tax planning. The services comprising the fees disclosed under this category consisted of tax consultations and tax compliance services.
(4) Represents the aggregate fees billed in each of the last two fiscal years by Hammerhead's external auditor for products and services not included under the headings Audit Fees, Audit Related Fee and Tax Fees.
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Reduction of Stated Capital
At the meeting, shareholders will be asked to consider and, if thought appropriate, to pass, with or without variation, a special resolution reducing the stated capital of the Common Shares by an aggregate amount of $1,000,000,000, without any payment or distribution to the shareholders and adding the amount of such reduction to the Company's contributed surplus account (the "Reduction of Stated Capital Resolution").
Reasons for the Reduction of Stated Capital
Under the ABCA, the corporate statute governing the Company, a corporation is prohibited from taking certain actions, including making any payments of dividends or any payment to purchase or otherwise acquire shares issued by it, if, among other things, there are reasonable grounds for believing that the realizable value of its assets would, as a result of the payment of dividends or the repurchase of its common shares, be less than the aggregate of its liabilities and stated capital of all classes of its shares. The purpose of reducing the stated capital of the Common Shares is to increase the difference between the realizable value of the Company's assets and the aggregate of the Company's liabilities and the stated capital of the Common Shares, thereby providing the Company with additional flexibility under the ABCA to make payment of dividends or repurchase Common Shares if, as and when the Company Board determines it appropriate to do so. The proposed reduction in stated capital will have no impact on our day-to-day operations and will not alter our financial condition.
Limitation on the Reduction of Stated Capital under the ABCA
The ABCA provides that a corporation shall not reduce its stated capital if there are reasonable grounds for believing that: (i) the corporation is, or would after the reduction be, unable to pay its liabilities as they become due; or (ii) the realizable value of the corporation's assets would thereby be less than the aggregate of its liabilities.
The Company does not have reasonable grounds to believe that: (i) it is, or would after the stated capital reduction contemplated by the Reduction of Stated Capital Resolution be, unable to pay its liabilities as they become due; or (ii) the realizable value of the Company's assets would, as a result of the stated capital reduction contemplated by the Reduction of Stated Capital Resolution, be less than the aggregate of its liabilities.
Canadian Federal Income Tax Considerations with Respect to the Reduction of Stated Capital
This summary is based on the current provisions of the Income Tax Act (Canada) (the "Tax Act"), all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the "Tax Proposals") and counsel's understanding of the current administrative policies and assessing practices of the Canada Revenue Agency which have been published in writing prior to the date hereof. The summary assumes that all of the Tax Proposals will be implemented in the form proposed, although no assurance in this regard can be given. This summary does not otherwise take into account or anticipate any changes in law or administrative policies and assessing practices, whether by legislative, regulatory, administrative or judicial decision or action, nor does it take into account provincial, territorial or foreign tax considerations, which may differ significantly from those discussed herein.
This summary is not applicable to a Shareholder: (a) that is a "financial institution" for the purposes of the "mark-to-market" rules; (b) that is a "specified financial institution"; (c) that reports its "Canadian tax results" in a currency other than Canadian dollars (d) an interest in which is a "tax shelter investment"; or (e) that has entered into a "derivative forward agreement" or a "dividend rental arrangement" in respect of the Common Shares, as each of those terms is defined in the Tax Act. All of the foregoing Shareholders should consult their own tax advisors regarding their particular circumstances.
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This summary is not exhaustive of all Canadian federal income tax considerations. Further, this summary is of a general nature only and is not intended to be, nor should it be considered to be, legal or tax advice to any particular Shareholder and no representation is made with respect to the income tax consequences to any particular Shareholder. Accordingly, Shareholders should consult their own tax advisors concerning the application and effect of the income and other taxes of any country, province, territory, state or local tax authority, having regard to their particular circumstances.
The proposed reduction of the stated capital of the Common Shares will not result in any immediate Canadian income tax consequences to a shareholder nor will it affect a Shareholder's adjusted cost base of the Common Shares for purposes of the Tax Act. However, the reduction in the stated capital will reduce the paid-up capital (as defined in the Tax Act) of the Common Shares by an amount equal to the reduction in stated capital. Although the reduction of the stated capital and the corresponding reduction of the paid-up capital of the Common Shares will not have any immediate Canadian income tax consequences, such reduction may have future Canadian federal income tax consequences to a shareholder in certain circumstances. Such circumstances include, but are not limited to, if the Company repurchases any Common Shares (other than Common Shares purchased by the Company in the manner in which shares would normally be purchased by the public in an open market, such as under a normal course issuer bid), if the Company distributes assets to its shareholders or if the Company is wound-up. As a general rule, upon such transactions, a shareholder will be deemed to have received a dividend to the extent that the amount paid or distributed exceeds the paid-up capital of the Common Shares.
United States Federal Income Tax Consequences
The proposed reduction of the stated capital of the Common Shares should not constitute a taxable event for the shareholders of the Company for United States federal income tax purposes. As a result, shareholders generally should not recognize a gain or loss upon the reduction of stated capital. Each shareholder's tax basis in its Common Shares should remain unchanged, and each shareholder's holding period in its Common Shares should include the holding period in the Common Shares held by such shareholder prior to the reduction of stated capital.
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Reduction of Stated Capital Resolution and Approval Requirement
At the meeting, shareholders will be asked to consider and, if thought appropriate, to pass the following special resolution, being the Reduction of Stated Capital Resolution:
"BE IT RESOLVED AS A SPECIAL RESOLUTION OF THE SHAREHOLDERS OF HAMMERHEAD ENERGY INC. (THE "COMPANY") THAT:
1. the stated capital account maintained in respect of the Class A common shares of the Company be and is hereby reduced by $1,000,000,000 and the amount of such reduction be and is hereby added to the Company's contributed surplus account, all as more particularly described in the Company's management information circular - proxy statement dated May 1, 2023;
2. any director or officer of the Company is authorized and directed to do all such things and execute all such documents and instruments as may be necessary or desirable to give effect to the foregoing resolution; and
3. notwithstanding that this resolution has been duly passed by the shareholders of the Company, the directors of the Company are hereby authorized and empowered to revoke this resolution, without any further approval of the shareholders of the Company, at any time if such revocation is considered necessary or desirable by the directors."
In order to be passed, the Reduction of Stated Capital Resolution requires the approval of not less than two-thirds of the votes cast thereon by or on behalf of shareholders present in person or represented by proxy at the meeting.
Unless otherwise directed, it is the intention of the persons named in the enclosed form of proxy, if named as proxy, to vote for approval of the foregoing resolution approving the reduction of the Company's stated capital account.
Matters Respecting New Equity Incentive Plans
In connection with the Business Combination, the Company adopted the Equity Incentive Award Plan and Share Option Plan in order to facilitate the grant of equity incentive awards and options to directors, employees (including executive officers) and consultants of the Company and certain of its affiliates and to enable the Company to obtain and retain the services of these individuals, which is essential to the Company's long-term success. A third-party compensation consulting advisor was engaged to review executive and director compensation plans including the Equity Incentive Award Plan and Share Option Plan. The Equity Incentive Award Plan and Share Option Plan became effective on February 23, 2023, and were amended and restated on May 1, 2023, and are, along with any grants made thereunder, subject to the ratification by the Company's shareholders at the meeting. The relevant terms of the Equity Incentive Award Plan and Share Option Plan are summarized below, and full copies of the Share Option Plan and Equity Incentive Award Plan are attached hereto as Schedule A and Schedule B, respectively.
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Approval of New Share Option Plan
At the meeting, shareholders will be asked to consider and approve the Share Option Plan. The Company Board has approved the Share Option Plan. As at the date hereof, the maximum number of Common Shares issuable under the Share Option Plan and all other security based compensation arrangements of the Company, including the Equity Incentive Award Plan, the Legacy Share Award Plan and the Legacy Share Option Plan, may not exceed 10% of the Common Shares outstanding from time to time. As at the date hereof, the Company had no Company Options outstanding under the Share Option Plan, leaving up to 9,097,362 Common Shares available for future grants under the Share Option Plan before taking into account grants under the Equity Incentive Award Plan, the Legacy Share Award Plan and the Legacy Share Option Plan which further reduces the entitlements under the Share Option Plan.
In addition, as at the date hereof, the Company had Legacy Options, Legacy RSUs and Restricted Share Awards outstanding to acquire 7,751,245 Common Shares outstanding under the Equity Incentive Award Plan, the Legacy Share Award Plan and the Legacy Share Option Plan, representing an aggregate of 8.52% of the issued and outstanding Common Shares as at that date, leaving up to 1,346,117 Common Shares, being 1.48% of the issued and outstanding Common Shares, available for future grants under the Share Option Plan and all other security based compensation arrangements, based on the number of Common Shares outstanding as at that date.
The Share Option Plan has been conditionally approved by the TSX, subject to shareholder approval. A summary of the Share Option Plan is provided below and the full plan is attached hereto as Schedule A. A copy of the plan has also been filed on the Company's SEDAR profile at www.sedar.com under the category "Other Securityholder Documents".
Following the Business Combination, the Company implemented the Share Option Plan on February 23, 2023 and amended and restated the Share Option Plan on May 1, 2023 to convert the Share Option Plan from a fixed plan to a 10% rolling plan. Subsequent to its implementation the Company Board has not granted any Company Options.
Share Option Plan
Terms of Share Option Plan
Defined Terms
In this description of the Share Option Plan, the abbreviations and terms set forth below have the following meanings:
"All or Substantially All of the Assets" means greater than 90% of the aggregate fair market value of the assets of the Company and its subsidiaries, on a consolidated basis, as determined by the Company Board in its sole discretion.
"Black-Out Period" means the period of time when, pursuant to any policies of the Company, any securities of the Company may not be traded by certain persons as designated by the Company, including any holder of a Company Option.
"Cause" means, unless otherwise defined in the applicable option agreement or employment agreement or consulting agreement of the Optionee (in which case "Cause" shall have the meaning therein):
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(a) in respect of an Optionee that is an employee or officer of a member of the HEI Group, any act or omission that would entitle the member of the HEI Group that employs the Optionee to terminate the Optionee's employment without notice or compensation under the Canadian common law for just cause; and
(b) in respect of an Optionee that is a consultant to a member of the HEI Group, any material breach by the Optionee of the terms of the contract or agreement under which the Optionee is retained by a member of the HEI Group.
"Cessation Date" means the date that is the earlier of:
(a) the effective date of the Service Provider's termination, resignation, death or retirement, as the case may be; and
(b) the date that the Service Provider ceases to be in the active performance of the usual and customary day-to-day duties of the Service Provider's position or job other than due to a Leave of Absence,
regardless of whether adequate, legal or proper advance notice of termination or resignation shall have been provided in respect of such cessation of being a Service Provider, and the Cessation Date shall not, under any circumstances, be extended by any statutory, contractual or common law notice period mandated under any application laws.
"Change of Control" means:
(a) (A) a successfully completed takeover bid; and (B) members of the Company Board who are members of the Company Board immediately prior to the earlier of the commencement of such takeover bid and the first public announcement of such takeover bid cease to constitute a majority of the Company Board at any time within 60 days of the successful completion of such takeover bid; or
(b) (A) any change in the beneficial ownership or control of the outstanding securities or other interests of the Company which results in: (I) a person or group of persons "acting jointly or in concert" within the meaning of National Instrument 62-104 - Take-Over Bids and Issuer Bids, as amended from time to time; or (II) an affiliate or associate of such person or group of persons, holding, owning or controlling, directly or indirectly, more than 50% of the outstanding voting securities or interests of the Company; and (B) members of Company Board who are members of Company Board immediately prior to the earlier of such change and the first public announcement of such change cease to constitute a majority of Company Board at any time within 60 days of such change; or
(c) Incumbent Directors no longer constituting a majority of Company Board;
(d) the winding up of the Company or the sale, lease or transfer of All or Substantially All of the Assets to any other person or persons and the distribution of greater than 90% of the net proceeds from such sale, lease or transfer to the shareholders of the Company within 60 days of the completion of such sale, lease or transfer (other than pursuant to an internal reorganization or in circumstances where the business of the Company is continued and where the shareholdings or other security holdings, as the case may be, in the continuing entity and the constitution of the Company Board of directors or similar body of the continuing entity is such that the transaction would not be considered a "Change of Control" if paragraph (ii) above was applicable to the transaction); provided that, for greater certainty, a sale, lease or exchange of all or substantially all the property of the Company for purposes of the Business Corporations Act (Alberta) shall not be considered a sale, lease or transfer All or Substantially All of the Assets for purposes of this paragraph (iv) unless the property that is the subject of such sale, lease or exchange represents greater than 90% of the aggregate fair market value of the assets of the Company and its subsidiaries, on a consolidated basis, as determined in accordance with the Share Option Plan;
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provided that a Change of Control shall be deemed not to have occurred if a majority of the Company Board, in good faith, determines that a Change of Control was not intended to occur in the particular circumstances in question and any such determination shall be binding and conclusive for all purposes of the Share Option Plan.
"Committee" means the Compensation Committee or such other committee of the Company Board appointed from time to time by the Company Board to administer this Plan or, if no such committee is appointed, the Company Board.
"Current Market Price" means, as at any date when the Current Market Price is to be determined, the volume weighted average trading price per Common Share on the TSX, or, if the Common Shares are not listed on the TSX, on any stock exchange in Canada or the United States on which the Common Shares are then listed, for the last five trading days immediately prior to the date of determination, or if the Common Shares are not listed upon any stock exchange in Canada or the United States, the Current Market Price shall be determined by Company Board, acting reasonably.
"Exchange" means the stock exchange(s), if any, on which Common Shares are listed and posted for trading and, if Common Shares are listed on more than one stock exchange, such stock exchange as may be selected for such purpose by Company Board.
"Expiry Date" means the date upon which a Company Option expires pursuant to the option agreement relating to such Company Option.
"Fair Market Value" with respect to a Common Share, as at any date, means the volume weighted average of the prices at which Common Shares traded on the Exchange (or, if Common Shares are then listed and posted for trading on more than Exchange, on such stock exchange on which the majority of the trading volume and value of Common Shares occurs) for the five trading days on which Common Shares traded on the said Exchange immediately preceding such date. In the event that Common Shares are not listed and posted for trading on any Exchange, the Fair Market Value shall be the fair market value of Common Shares as determined by Company Board in its sole discretion, acting reasonably and in good faith. If initially determined in United States dollars, the Fair Market Value shall be converted into Canadian dollars at an exchange rate selected and calculated in the manner determined by the Company Board from time to time, acting reasonably and in good faith.
"HEI Group" means, collectively, the Company and any entity that is a Subsidiary of the Company from time to time (and, for greater certainty, including any successor entity of any of the aforementioned entities).
"Incumbent Directors" means any member of Company Board who was a member of Company Board at the effective date of Share Option Plan and any successor to an Incumbent Director who was recommended or elected or appointed to succeed any Incumbent Director by the affirmative vote of Company Board, including a majority of the Incumbent Directors then on Company Board, prior to the occurrence of the transaction, transactions, elections or appointments giving rise to a Change of Control.
"Insider" has the meaning ascribed thereto in Part I of the TSX Company Manual for the purposes of Section 613 of the TSX Company Manual.
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"In-the-Money Value" means the amount by which the Current Market Price on the Pricing Date exceeds the exercise price of the applicable Company Options, multiplied by the number of Common Shares related to the applicable Company Options.
"Optionee" means a holder of Company Options.
"Pricing Date" means the date the Company receives notice from an Optionee that has elected to exercise a vested Company Option by surrendering such Company Option in exchange for the In-the-Money Value of Company Option in lieu of purchasing the number of Common Shares then issuable on the exercise of the vested Company Option subject to the provisions of the Share Option Plan and if permitted by the Committee.
"Service Provider" means an officer or employee of, or a person or company engaged by, one or more of the entities comprising the HEI Group to provide services to an entity within the HEI Group.
Purpose and Administration
The purpose of the Share Option Plan is to aid in attracting, retaining and motivating the officers, employees and other eligible Service Providers of the HEI Group in the growth and development of the HEI Group by providing them with the opportunity through Company Options to acquire an increased proprietary interest in the Company.
The Share Option Plan is administered by a committee of the Company Board appointed from time to time by the Company Board to administer Share Option Plan or, if no such committee is appointed, the Company Board (the "Committee") pursuant to any rules of procedure that may be fixed by Company Board. To the extent permitted by law, the Committee may delegate or sub-delegate to one or more of its members, to any director or officer of the Company or to one or more agents all or any of the powers conferred on the Committee under the Share Option Plan, and the Committee or any person to whom it has delegated or sub-delegated authority as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Share Option Plan.
For greater certainty and without limiting the discretion conferred on the Committee pursuant to the Share Option Plan, the Committee's decision to approve the grant of a Company Option in any period shall not require the Committee to approve the grant of a Company Option to any Service Provider in any other period; nor shall the Committee's decision with respect to the size or terms and conditions of a Company Option grant in any period require it to approve the grant of a Company Option of the same or similar size or with the same or similar terms and conditions to any Service Provider in any other period. The Committee shall not be precluded from approving the grant of a Company Option to any Service Provider solely because such Service Provider may previously have been granted a Company Option under the Share Option Plan or any other similar compensation arrangement of the Company or a member of the HEI Group. There is no obligation for uniformity of treatment of Service Providers or Optionees under the Share Option Plan. The terms and conditions of Company Options need not be the same with respect to any Optionee or with respect to different Optionees. No Service Provider has any claim or right to be granted a Company Option.
Granting of Company Options
The Committee may from time to time designate officers and employees of, and other eligible Service Providers to, the HEI Group to whom Company Options may be granted and the number of Common Shares to be optioned to each, provided that the number of Common Shares to be optioned shall not exceed the limitations provided.
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Limitations to Share Option Plan
Notwithstanding any other provision of the Share Option Plan: (a) the number of Common Shares reserved for issuance on exercise of Company Options outstanding under the Share Option Plan, together with the number of Common Shares reserved for issuance under all other security based compensation arrangements of the Company that provide for the issuance of Common Shares, shall not at any time exceed 10% of the Common Shares then issued and outstanding; (b) no one Service Provider may be granted any Company Option which, together with all Company Options then held by such Optionee, would entitle such Optionee to receive a number of Common Shares which is greater than 5% of the outstanding Common Shares, calculated on an undiluted basis; (c) the number of Common Shares (i) issued to Insiders of the Company, within any one year period; and (ii) issuable to Insiders of the Company, at any time; under the Share Option Plan, or when combined with all of the Company's other security based compensation arrangements shall not exceed 10% of the Company's total issued and outstanding Common Shares, respectively. For this purpose, "security based compensation arrangements" has the meaning ascribed thereto in Part VI of the TSX Company Manual.
Company Options that are cancelled, surrendered, terminated or expire prior to the exercise of all or a portion thereof shall result in the Common Shares that were reserved for issuance thereunder being available for a subsequent grant of Company Options pursuant to the Share Option Plan to the extent of any Common Shares issuable thereunder that are not issued under such cancelled, surrendered, terminated or expired Company Options. For greater certainty, any increase in the issued and outstanding Common Shares will result in an increase in the number of Common Shares available under the Share Option Plan.
Vesting
The Committee may, in its sole discretion, determine: (i) the time during which Company Options shall vest; (ii) the method of vesting; or (iii) that no vesting restriction shall exist. In the absence of any determination by the Committee to the contrary, Company Options will vest and be exercisable as to one-quarter (1/4) of the total number of Common Shares subject to the Company Options on each of the first, second, third and fourth anniversaries of the date of grant (computed in each case rounded down to the nearest whole Common Share with any fractional amount vesting on such fourth anniversary) subject to continued employment or service with the HEI Group. Notwithstanding the foregoing, the Committee may, at its sole discretion at any time or in the option agreement in respect of any Company Options granted, accelerate or provide for the acceleration of vesting of Company Options previously granted.
Company Option Price
The exercise price of Company Options granted under the Share Option Plan shall be fixed by the Committee when such Company Options are granted, provided that the exercise price of Company Options shall not be less than such minimum price as may be required by the Exchange, if any, on which the Common Shares are listed at the time of grant.
Company Option Terms
The period during which a Company Option is exercisable shall, subject to the provisions of the Share Option Plan requiring or permitting the acceleration of rights of exercise or the extension of the exercise period, be such period, not in excess of 15 years, as may be determined from time to time by the Committee, but subject to the rules of any Exchange(s) or other regulatory body having jurisdiction, and in the absence of any determination to the contrary will be five years from the date of grant. Each Company Option shall, among other things, contain provisions to the effect that Company Option shall be personal to the Optionee and shall not be assignable. In addition, unless the Company and an Optionee agree otherwise in an agreement for Company Options or other written agreement (such as an agreement of employment or a retirement agreement), each Company Option shall provide that:
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(a) upon the death of the Optionee, the Company Option shall terminate on the earlier of (i) the date determined by the Committee which shall not be more than 12 months from the Cessation Date and, in the absence of any determination to the contrary, 12 months from the Cessation Date and (ii) the Expiry Date of such Company Option;
(b) if the Optionee shall no longer be an officer of or be in the employ of, or consultant or other Service Provider to, any of the entities comprising the HEI Group (other than by reason of death or termination for Cause, voluntary resignation or retirement), the Company Option shall terminate on the earlier of (i) expiry of the period as prescribed by the Committee at the time of grant, following the Cessation Date; and, in the absence of any determination to the contrary, at the later of (A) 90 days following the Cessation Date, and (B) the end of the notice period used for calculating severance to which the Optionee is entitled as a result of the Optionee's cessation as a Service Provider pursuant to a written contract of employment, if any, with an entity in the HEI Group; and (ii) the Expiry Date of such Company Option;
(c) if the Optionee shall no longer be an officer of or be in the employ of, or consultant or other Service Provider to, any of the entities comprising the HEI Group by reason of termination for Cause, the Company Option shall terminate immediately on the Cessation Date (whether notice of such termination occurs verbally or in writing);
(d) if the Optionee shall no longer be an officer of or be in the employ of, or consultant or other Service Provider to, any of the entities comprising the HEI Group by reason of voluntary resignation, effective as of the day that is 14 days after the Cessation Date the Company Option shall terminate; and
(e) if the Optionee shall no longer be an officer of or be in the employ of any of the entities comprising of the HEI Group due to the Optionee's retirement, Company Option shall continue in accordance with its terms and the exercise period shall not be accelerated as a result of the Optionee's retirement;
provided that the number of Common Shares that the Optionee (or his or her heirs or successors) shall be entitled to purchase until such date of termination: (i) shall in the case of death of the Optionee, be all of the Common Shares that may be acquired on exercise of Company Options held by such Optionee (or his or her heirs or successors), whether or not previously vested, and the vesting of all such Company Options shall be accelerated on the Cessation Date; and (ii) in any case other than death or termination for Cause, shall be the number of Common Shares which the Optionee was entitled to purchase on the Cessation Date. In the event of termination for Cause, all of the Common Shares optioned, whether vested or unvested, shall be forfeited.
If any Company Options may not be exercised due to any Black-Out Period at any time within the three-business day period prior to the normal Expiry Date of such Company Options (the "Restricted Options"), the Expiry Date of all Restricted Options shall be extended for a period of seven business days following the end of the Black-Out Period (or such longer period as permitted by the Exchange(s) and approved by the Committee).
Cashless Exercise
Subject to the provisions of Share Option Plan, if permitted by the Committee, an Optionee may elect to exercise a vested Company Option by surrendering such Company Option in exchange for the In-the-Money Value of Company Option in lieu of purchasing the number of Common Shares then issuable on the exercise of the vested Company Option. If the Optionee so elects to exercise Company Option, the Optionee shall be entitled to payment of the In-the-Money Value of the vested Company Option determined as of the Pricing Date. The In-the-Money Value shall be paid in Common Shares issued from treasury with the number of Common Shares issuable being equal to the number obtained by dividing the In-the-Money Value of Company Options in respect of which such election is made by the Current Market Price on the Pricing Date.
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Surrender Offer
An Optionee may make an offer (the "Surrender Offer") to the Company, at any time, for the disposition and surrender by the Optionee to the Company (and the termination thereof) of any of Company Options granted under Share Option Plan for an amount (not to exceed the Fair Market Value of Common Shares less the exercise price of Company Options) specified in the Surrender Offer by the Optionee, and the Company may, but is not obligated to, accept the Surrender Offer, subject to any regulatory approval required. If the Surrender Offer, either as made or as renegotiated, is accepted, Company Options in respect of which the Surrender Offer relates shall be surrendered and deemed to be terminated and cancelled and shall cease to grant the Optionee any further rights thereunder upon payment of the amount of the agreed Surrender Offer by the Company to the Optionee.
Alterations in Shares
In the event: (a) of any change in Common Shares through subdivision, consolidation, reclassification, amalgamation, merger or otherwise; or (b) that any rights are granted to all or substantially all shareholders to purchase Common Shares at prices substantially below Fair Market Value; or (c) that, as a result of any recapitalization, merger, consolidation or other transaction, Common Shares are converted into or exchangeable for any other shares; then the Company Board may, subject to any required approval by the TSX, make such adjustments to Share Option Plan, to any Company Options and to any agreements for Company Options outstanding under Share Option Plan, and make such amendments to any agreements for Company Options outstanding under Share Option Plan, as the Company Board may, in its sole discretion, consider appropriate in the circumstances to prevent dilution or enlargement of the rights granted to Optionees thereunder and/or to provide for the Optionees to receive and accept such other securities or property in lieu of Common Shares, and the Optionees shall be bound by any such determination.
For greater certainty, and notwithstanding anything to the contrary to the foregoing paragraph, no adjustment shall be made in accordance with respect to the issue of Common Shares being made pursuant to or in connection with (i) any share option plan or share purchase plan, including the Share Option Plan, in force from time to time for existing or proposed officers, directors, employees or Service Providers of the Company, or (ii) the issuance of additional Common Shares pursuant to a public offering or private placement by the Company or a take-over bid or tender offer made by the Company for the securities of another entity.
Provisions Related to Merger/Sale etc.
Except in the case of a transaction that is a Change of Control and to which accelerated vesting and termination of Company Options applies, if the Company enters into any transaction or series of transactions whereby the Company or All or Substantially All of the Assets would become the property of another trust, body corporate, partnership or other person (a "Successor"), whether by way of takeover bid, acquisition, reorganization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise, prior to or contemporaneously with the consummation of such transaction, the Company and the Successor will execute such instruments and do such things as the Committee may determine are necessary to establish that upon the consummation of such transaction the Successor will assume the covenants and obligations of the Company under the Share Option Plan outstanding on consummation of such transaction. Any such Successor shall succeed to, and be substituted for, and may exercise every right and power of the Company under the Share Option Plan with the same effect as though the Successor had been named as the Company therein and thereafter, the Company shall be relieved of all obligations and covenants under the Share Option Plan and the obligation of the Company to the Optionees in respect of Company Options shall terminate and be at an end and the Optionees shall cease to have any further rights in respect thereof including, without limitation, any right to acquire Common Shares upon vesting of Company Options.
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Acceleration of Vesting and Termination of Company Option
Notwithstanding any other provision in Share Option Plan or the terms of any option agreement, upon the consummation of a Change of Control, all issued and outstanding Company Options shall be automatically fully vested and exercisable (whether or not then vested) immediately prior to the time such Change of Control takes place and shall terminate on the 90th day after the occurrence of such Change of Control, or at such earlier time as may be established by the Company Board, in its absolute discretion, prior to the time such Change of Control takes place.
Amendments
The Committee may, subject to any required approval of any Exchange, amend or discontinue the Share Option Plan and Company Options granted thereunder at any time without the approval of the shareholders of the Company or any Optionee whose Company Option is amended or terminated, provided that, subject to the terms of the Share Option Plan, no amendment to the Share Option Plan or Company Options granted pursuant to the Share Option Plan may be made without the consent of the Optionee, if it adversely alters or impairs any Company Option previously granted to such Optionee under the Share Option Plan. Without limitation of the foregoing, such amendments include, without limitation: (a) amendments of a "housekeeping nature" nature, including, without limitation, amending the wording of any provision of the Share Option Plan for the purpose of clarifying the meaning of existing provisions or to correct or supplement any provision of the Share Option Plan that is inconsistent with any other provision of the Share Option Plan, correcting grammatical or typographical errors and amending the definitions contained within the Share Option Plan respecting the administration of the Share Option Plan; (b) amending Company Options under the Share Option Plan, including with respect to the Expiry Date (provided that the term of the Company Option does not exceed 15 years from the date the Company Option is granted and that such Company Option is not held by an Insider) and effect of termination of a Optionee's employment or cessation of the Optionee's service; or (c) amendments necessary to comply with applicable law or the requirements of any Exchange. Notwithstanding the foregoing, the Share Option Plan or any outstanding Company Option granted thereunder may not be amended without shareholder approval to:
(a) increase the number of Common Shares reserved for issuance pursuant to Company Options in excess of the limit prescribed in the Share Option Plan;
(b) extend the vesting date of any Company Options granted under the Share Option Plan to an Insider beyond the latest vesting date specified in the option agreement (other than as permitted by the terms and conditions of the Share Option Plan);
(c) extend the Expiry Date of any Company Option granted to an Insider (other than as permitted by the terms and conditions of the Share Option Plan);
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(d) permit an Optionee to transfer Company Options to a new beneficial holder other than for estate settlement purposes;
(e) reduce the limitations on Company Options contained in the Share Option Plan;
(f) increase the number of Common Shares that may be issued to Insiders above the restrictions contained in the Share Option Plan; and
(g) change the Share Option Plan to modify or delete any of the above.
Notwithstanding the foregoing, the Committee may amend or terminate the Share Option Plan or any outstanding Company Option granted under the Share Option Plan at any time without the approval of the shareholders of the Company or any Optionee whose Company Option is amended or terminated in order to conform the Share Option Plan or such Company Option, as the case may be, to applicable law or regulation or the requirements of any relevant stock exchange or regulatory authority, whether or not that amendment or termination would affect any accrued rights or adversely alter or impair any Company Option previously granted.
Approval of Share Option Plan Resolution and Approval Requirement
At the meeting, shareholders will be asked to consider the following ordinary resolution approving the Share Option Plan:
"BE IT RESOLVED, as an ordinary resolution of the shareholders of Hammerhead Energy Inc. (the "Company") that:
1. the share option plan (the "Share Option Plan") of the Company in the form attached as Schedule A to the information circular -proxy statement of the Company dated May 1, 2023 (the "Information Circular") is hereby ratified, confirmed and approved;
2. any director or officer of the Company be and is hereby authorized and directed to do such things and to execute and deliver all such instruments, deeds and documents, and any amendments thereto, as may be necessary or advisable in order to give effect to the foregoing resolutions; and
3. notwithstanding that this resolution has been duly passed by the shareholders of the Company, the directors of the Company are hereby authorized and empowered to revoke this resolution, without any further approval of the shareholders of the Company, at any time if such revocation is considered necessary or desirable by the directors."
In order to be passed, the foregoing ordinary resolution must be approved by a simple majority of the votes cast by shareholders who vote in person or by proxy at the meeting. The Company Board recommends that shareholders vote FOR the resolution. The management designees intend to vote FOR the resolution, unless a shareholder specifies otherwise in the proxy.
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Approval of New Equity Incentive Award Plan and Grants Made Thereunder
At the meeting, shareholders will be asked to consider and approve the Equity Incentive Award Plan. The Company Board has approved the Equity Incentive Award Plan. As at the date hereof, the maximum number of Common Shares issuable under the Equity Incentive Award Plan and all other security based compensation arrangements of the Company, including the Share Option Plan, the Legacy Share Award Plan and the Legacy Share Option Plan, may not exceed 10% of the Common Shares outstanding from time to time. As at the date hereof, the Company had Restricted Share Awards to acquire 1,945,115 Common Shares outstanding under the Equity Incentive Award Plan, representing 2.14% of the issued and outstanding Common Shares as at that date, leaving up to 7,152,247 Common Shares available for future grants under the Equity Incentive Award Plan before taking into account grants under the Share Option Plan, the Legacy Share Award Plan and the Legacy Share Option Plan which further reduces the entitlements under the Equity Incentive Award Plan.
In addition, as at the date hereof, the Company had Legacy Options, Legacy RSUs and Restricted Share Awards outstanding to acquire 7,751,245 Common Shares outstanding under the Equity Incentive Award Plan, the Legacy Share Award Plan and the Legacy Share Option Plan, representing an aggregate of 8.52% of the issued and outstanding Common Shares as at that date, leaving up to 1,346,117 Common Shares, being 1.48% of the issued and outstanding Common Shares, available for future grants under the Equity Incentive Award Plan and all other security based compensation arrangements, based on the number of Common Shares outstanding as at that date.
The Equity Incentive Award Plan has been conditionally approved by the TSX, subject to shareholder approval. A summary of the Equity Incentive Award Plan is provided below and the full plan is attached hereto as Schedule B. A copy of the plan has also been filed on the Company's SEDAR profile at www.sedar.com under the category "Other Securityholder Documents".
Following the Business Combination, the Company implemented the Equity Incentive Award Plan on February 23, 2023 and amended and restated the Equity Incentive Award Plan on May 1, 2023 to convert the Equity Incentive Award Plan from a fixed plan to a 10% rolling plan. Subsequent to its implementation the Company Board has granted a total of 1,949,700 Restricted Share Awards and prior to the date hereof, 4,585 of those Restricted Share Awards were forfeited due to an employee leaving the Company, leaving a total of 1,945,115 Restricted Share Awards outstanding. Such 1,945,115 Restricted Share Awards will vest at various points through 2024, 2025 and 2026. Of the 1,945,115 Restricted Share Awards granted, 466,500 Restricted Share Awards have been granted to directors of the Company, 460,100 Restricted Share Awards have been granted to officers of the Company and the remaining 1,018,515 Restricted Share Awards were granted to employees of the Company. These 1,945,115 Restricted Share Awards cannot be exercised until such time the Company has obtained shareholder approval of the Equity Incentive Award Plan and that the 1,945,115 Restricted Share Awards granted have been ratified by the shareholders of the Company. These 1,945,115 Restricted Share Awards will be cancelled if shareholders do not ratify the Equity Incentive Award Plan and the grants made thereunder.
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Equity Incentive Award Plan
Defined Terms
In this description of the Equity Incentive Award Plan, the abbreviations and terms set forth below have the following meanings:
"All or Substantially All of the Assets" means greater than 90% of the aggregate fair market value of the assets of the Company and its Subsidiaries, on a consolidated basis, as determined by the Company Board in its sole discretion.
"Award" means an Incentive Award or a Share Award, as applicable.
"Award Agreement" means an Incentive Award Agreement or a Share Award Agreement, as applicable.
"Black-Out Period" means the period of time, if any, when, pursuant to any policies of the Company, any securities of the Company may not be traded by certain persons as designated by the Company, including any Participant that holds an Award.
"Cessation Date" means the date that is the earlier of: (i) the effective date of the Service Provider's termination, resignation, death or retirement, as the case may be; and (ii) the date that the Service Provider ceases to be in the active performance of the usual and customary day-to-day duties of the Service Provider's position or job other than due to a leave of absence, regardless of whether adequate, legal or proper advance notice of termination or resignation shall have been provided in respect of such cessation of being a Service Provider, and the Cessation Date shall not, under any circumstances, be extended by any statutory, contractual or common law notice period mandated under any application laws.
"Change of Control" means:
(a) a successfully completed takeover bid; and (B) members of the Company Board who are members of the Company Board immediately prior to the earlier of the commencement of such takeover bid and the first public announcement of such takeover bid cease to constitute a majority of the Company Board at any time within 60 days of the successful completion of such takeover bid; or
(b) any change in the beneficial ownership or control of the outstanding securities or other interests of the Company which results in: (I) a person or group of persons "acting jointly or in concert" (within the meaning of MI 62-104); or (II) an affiliate or associate of such person or group of persons, holding, owning or controlling, directly or indirectly, more than 50% of the outstanding voting securities or interests of the Company; and (B) members of the Company Board who are members of the Company Board immediately prior to the earlier of such change and the first public announcement of such change cease to constitute a majority of the Company Board at any time within 60 days of such change; or
(c) Incumbent Directors no longer constituting a majority of the Company Board; or
(d) the winding up of the Company or the sale, lease or transfer of All or Substantially All of the Assets to any other person or persons and the distribution of greater than 90% of the net proceeds from such sale, lease or transfer to the shareholders of the Company within 60 days of the completion of such sale, lease or transfer (other than pursuant to an internal reorganization or in circumstances where the business of the Company is continued and where the shareholdings or other securityholdings, as the case may be, in the continuing entity and the constitution of the Company Board of directors or similar body of the continuing entity is such that the transaction would not be considered a "Change of Control" if paragraph (ii) above was applicable to the transaction); provided that, for greater certainty, a sale, lease or exchange of all or substantially all the property of the Company for purposes of the Business Corporations Act (Alberta) shall not be considered a sale, lease or transfer All or Substantially All of the Assets for purposes of this paragraph (iv) unless the property that is the subject of such sale, lease or exchange represents greater than 90% of the aggregate fair market value of the assets of the Company and its Subsidiaries, on a consolidated basis, as determined in accordance with the terms of the Equity Incentive Award Plan;
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provided that a Change of Control shall be deemed not to have occurred if a majority of the Company Board, in good faith, determines that a Change of Control was not intended to occur in the particular circumstances in question and any such determination shall be binding and conclusive for all purposes of the Equity Incentive Award Plan.
"Dividend" means any dividend, return of capital or special distribution paid by the Company in respect of the Shares, whether in the form of cash or Shares or other securities or other property, expressed as an amount per Share.
"Exchange" means the stock exchange(s), if any, on which the Shares are listed and posted for trading.
"Exercise Date" means the day upon which the Company receives an Exercise Notice from a Participant of exercise of all or a portion of the Share Awards held by such Participant in respect of which the Vesting Date has occurred or, failing receipt of an Exercise Notice, the day immediately prior to the Expiry Date of such vested Share Awards.
"Exercise Notice" means a notice in writing to the Company respecting the exercise of Share Awards in respect of which the Vesting Date has occurred in the form approved by the Committee from time to time, duly executed by a Participant.
"Expiry Date" means: (i) in the case of Share Awards, the fifth anniversary of the grant date of the Restricted Award or the Performance Award, as applicable, or such other date as determined by the Committee in its sole discretion, provided that in no circumstances shall the Expiry Date exceed 10 years from the applicable grant date; and (ii) in the case of Incentive Awards, December 15th of the third year following the year in which the Incentive Award was granted.
"Fair Market Value" with respect to a Share, as at any date, means the volume weighted average of the prices at which the Shares traded on the Exchange (or, if the Shares are then listed and posted for trading on more than one Exchange, on such Exchange on which the majority of the trading volume and value of the Shares occurs) for the five trading days on which the Shares traded on the said Exchange immediately preceding such date. In the event that the Shares are not listed and posted for trading on any stock exchange, the Fair Market Value shall be the fair market value of the Shares as determined by the Company Board in its sole discretion, acting reasonably and in good faith. If initially determined in United States dollars, the Fair Market Value shall be converted into Canadian dollars at an exchange rate selected and calculated in the manner determined by the Company Board from time to time, acting reasonably and in good faith.
"HEI Group" means, collectively, the Company and any entity that is a Subsidiary of the Company from time to time (and, for greater certainty, including any successor entity of any of the aforementioned entities).
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"Incentive Award" means a Restricted Award or Performance Award made pursuant to the Equity Incentive Award Plan and designated as an Incentive Award.
"Incentive Award Value" means, with respect to any Incentive Awards, an amount equal to the number of Incentive Awards, as such number may be adjusted in accordance with the terms of the Equity Incentive Award Plan, multiplied by the Fair Market Value of the Shares.
"Incumbent Directors" means any member of the Company Board who was a member of the Company Board at the effective date of the Equity Incentive Award Plan and any successor to an Incumbent Director who was recommended or elected or appointed to succeed any Incumbent Director by the affirmative vote of the Company Board, including a majority of the Incumbent Directors then on the Company Board, prior to the occurrence of the transaction, transactions, elections or appointments giving rise to a Change of Control.
"Participants" mean Service Providers to whom Awards may be granted.
"Performance Award" means (i) an Incentive Award under the Equity Incentive Award Plan designated as a "Performance Award" in the Incentive Award Agreement pertaining thereto, for which payment shall be made following the Vesting Date(s) thereof, or (ii) an award of Shares under the Equity Incentive Award Plan designated as a "Performance Award" in the Share Award Agreement pertaining thereto, which Shares shall be issued following the Exercise Date(s) thereof.
"Service Providers" means persons who are employees or officers of the Company or a member of the HEI Group or who are consultants or other service providers to the Company or a member of the HEI Group.
"Share" means a Company Common Share, or, in the event of an adjustment contemplated in the Equity Incentive Award Plan, such other shares to which a Participant may be entitled upon the exercise or settlement of a Share Award or Incentive Award, as applicable, as a result of such adjustment.
"Share Award" means a Restricted Award or Performance Award made and designated as a Share Award pursuant to the Equity Incentive Award Plan.
"Shareholder" means a holder of Shares.
"Subsidiary" has the meaning ascribed there in the Securities Act (Alberta).
"takeover bid" means a "take-over bid" as defined in MI 62-104 or tender offer, pursuant to which the "offeror" would as a result of such takeover bid or tender offer, if successful, beneficially own, directly or indirectly, in excess of 50% of the outstanding Shares (other than pursuant to an internal reorganization or in circumstances where the business of the Company is continued and where the shareholdings or other security holdings, as the case may be, in the offeror and the constitution of the Company Board or similar body of the offeror is such that the take-over bid or tender offer would not be considered a "Change of Control").
"U.S. Securities Act" means the United States Securities Act of 1933, as amended and the rules and regulations promulgated thereunder.
"Vesting Date" means, (i) with respect to any Incentive Award, the date upon which the Incentive Award Value to which the Participant is entitled pursuant to such Incentive Award shall irrevocably vest and become irrevocably payable by the Company to the Participant in accordance with the terms hereof, and (ii) with respect to any Share Award, the date upon which Shares awarded thereunder shall become issuable to the Participant of such Share Award in accordance with the terms hereof.
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Purpose and Administration
The principal purposes of the Equity Incentive Award Plan are to: (a) aid in attracting, retaining and motivating qualified Service Providers of the HEI Group in the growth and development of the HEI Group by providing them with the opportunity through Awards to acquire an increased proprietary interest in the Company; (b) more closely align such Service Providers' interests with those of the Company's shareholders; (c) focus such Service Providers on operating and financial performance and long-term shareholder value; and (d) motivate and reward for such Service Providers' performance and contributions to the Company's long-term success.
The Equity Incentive Award Plan shall be administered by the Compensation Committee of the Company Board (the "Committee"), provided that the Company Board shall have the authority to appoint itself or another committee of the Company Board to administer the Equity Incentive Award Plan. In the event that the Company Board appoints itself or another committee of the Company Board to administer the Equity Incentive Award Plan, all references in the Equity Incentive Award Plan to the Committee will be deemed to be references to the Company Board or such other committee of the Company Board, as applicable.
To the extent permitted by law, the Committee may delegate or sub-delegate to one or more of its members, to any director or officer of the Company or to one or more agents all or any of the powers conferred on the Committee under the Equity Incentive Award Plan, and the Committee or any person to whom it has delegated or sub-delegated authority as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Equity Incentive Award Plan.
For greater certainty and without limiting the discretion conferred on the Committee pursuant to the Equity Incentive Award Plan, the Committee's decision to approve the grant of an Award in any period shall not require the Committee to approve the grant of an Award to any Service Provider in any other period; nor shall the Committee's decision with respect to the size or terms and conditions of an Award in any period require it to approve the grant of an Award of the same or similar size or with the same or similar terms and conditions to any Service Provider in any other period. The Committee shall not be precluded from approving the grant of an Award to any Service Provider solely because such Service Provider may previously have been granted an Award under the Equity Incentive Award Plan or any other similar compensation arrangement of the Company or a member of the HEI Group. There is no obligation for uniformity of treatment of Service Providers or Participants under the Equity Incentive Award Plan. The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants. No Service Provider has any claim or right to be granted an Award.
Granting of Awards
Each Award granted under the Equity Incentive Award Plan shall be subject to the terms and conditions of the Equity Incentive Award Plan and evidenced by a written agreement between the Company and the Participant (an "Incentive Award Agreement" in the case of an Incentive Award and a "Share Award Agreement" in the case of a Share Award) which agreement shall comply with, and be subject to, the requirements of the Exchange.
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Dividend Equivalents
At the discretion of the Company Board, the Equity Incentive Award Plan provides for cumulative adjustments to the number of Shares to be issued pursuant to Awards on each date that dividends are paid on the Shares by an amount equal to a fraction having as its numerator the amount of the dividend per Share and having as its denominator the price, expressed as an amount per Share, paid by participants in the Company's Dividend Reinvestment Plan (as defined in the Plan), if any, to reinvest their dividends in additional Shares on the applicable dividend payment date, provided that if the Company has suspended the operation of such plan or does not have such a plan, then the reinvestment price shall be equal to the Fair Market Value of the Shares on the trading day immediately preceding the dividend payment date. Under the Equity Incentive Award Plan, in the case of a non-cash dividend, including Shares or other securities or property, the Committee will, in its sole discretion and subject to the approval of the Exchange, determine whether or not such non-cash dividend will be provided to the Participant and, if so provided, the form in which it shall be provided.
Vesting
Pursuant to the terms of the Equity Incentive Award Plan, the Restricted Awards and the Performance Awards shall vest at the end of their three-year terms, respectively.
Limits on Issuances
Notwithstanding any other provisions of the Equity Incentive Award Plan, the aggregate number of Common Shares reserved for issuance from time to time pursuant to Awards granted and outstanding thereunder at any time, and together with the aggregate number of Shares reserved for issuance under all other security based compensation arrangements of the Company that provide for the issuance of Shares, shall not at any time exceed 10% of the Shares then issued and outstanding.
If any Award granted under the Equity Incentive Award Plan shall expire, terminate or be cancelled for any reason without the Shares issuable thereunder having been issued in full, any unissued Shares to which such Award relates shall be available for the purposes of the granting of further Awards under the Equity Incentive Award Plan. For greater certainty, any increase in the issued and outstanding Shares will result in an increase in the number of Shares available under this Plan.
The aggregate number of Shares issuable pursuant to Awards granted to any single Service Provider shall not exceed 5% of the issued and outstanding Shares, calculated on an undiluted basis and assuming all Awards will be settled in Shares. In addition: (i) the number of Shares issuable to insiders at any time, under all security based compensation arrangements of the Company, shall not exceed 10% of the issued and outstanding Shares; and (ii) the number of Shares issued to insiders, within any one year period, under all security based compensation arrangements of the Company, shall not exceed 10% of the issued and outstanding Shares.
Share Award Terms
The Company may grant Restricted Awards and Performance Awards that, at the option of the Company, either: (a) entitle the holder on vesting to be issued the number of Shares designated in the Restricted Award or Performance Award, as applicable; or (b) entitle the holder on vesting to receive an amount equal to the value of the Restricted Award or Performance Award, as applicable, (being an amount equal to the number of Awards multiplied by the Fair Market Value of the Shares), which amount will in the sole and absolute discretion of the Company (and without the consent of the Participant), be settled in (i) cash, (ii) Shares acquired by the Company on the Exchange, (iii) Shares issued from the treasury of the Company, or (iv) any combination of the foregoing. In the case of Performance Awards, the number of Shares issuable or the value of the Award, as applicable, is multiplied by a payout multiplier. The payout multiplier is determined by the Committee based on an assessment of the achievement of pre-defined corporate performance measures in respect of the applicable period as determined by the Committee. The payout multiplier may not be less than 0% or more than 200%. The Awards issuable pursuant to the Equity Incentive Award Plan are not assignable.
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Exercise of Share Awards
A Participant may elect to exercise Share Awards at any time and from time to time from and including the day the Vesting Date in respect of such Share Awards occurs until the Expiry Date of such Share Awards, by delivering to the Company a duly completed and executed Exercise Notice; provided, that no Participant who is resident in the United States may exercise Share Awards unless the Shares issuable by the Company upon such exercise are registered under the U.S. Securities Act or are issued in compliance with an available exemption from the registration requirements of the U.S. Securities Act. If any Share Award may not be exercised due to any Black-Out Period at any time within the three-business day period prior to the Expiry Date of such Share Award the Expiry Date of all such Share Awards shall be extended for a period of seven business days following the end of the Black-Out Period (or such longer period as permitted by the Exchange(s) and approved by the Committee).
Black-out Periods
If a Participant is prohibited from trading in securities of the Company as a result of the imposition by the Company of a trading black-out (a "Black-out Period") and the issue or payment date of the Shares underlying an Award held by such Participant falls within the Black-out Period, then the issue or payment date of such Shares shall be extended to the date that is seven business days following the end of such Black-out Period; provided that if the expiry date of the Awards would occur as a result of such extension, the Awards will be settled on the expiry date in cash rather than Shares.
Merger and Sale, etc.
If the Company enters into any transaction or series of transactions, other than a transaction that is a Change of Control and whereby the Company or All or Substantially All of the Assets would become the property of any other trust, body corporate, partnership or other person (a "Successor") whether by way of takeover bid, acquisition, reorganization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise, then prior to or contemporaneously with the consummation of such transaction: (a) the Company and the Successor will execute such instruments and do such things as the Committee may determine are necessary to establish that upon the consummation of such transaction the Successor will have assumed the covenants and obligations of the Company under the Equity Incentive Award Plan and the Award Agreements outstanding on consummation of such transaction and such Successor shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Equity Incentive Award Plan and such Award Agreements with the same effect as though the Successor had been named as the Company in the Equity Incentive Award Plan and therein and thereafter, the Company shall be relieved of all obligations and covenants under the Equity Incentive Award Plan and such Award Agreements and the obligation of the Company to the Participants in respect of the Awards shall terminate and be at an end and the Participants shall cease to have any further rights in respect thereof including, without limitation, any right to acquire or receive Shares on the Vesting Date(s) applicable to such Awards; or (b) if the Awards (and the covenants and obligations of the Company under the Equity Incentive Award Plan and the Award Agreements outstanding on consummation of such transaction) are not so assumed by the Successor, then the Vesting Date for all Shares awarded pursuant to such Awards that have not yet been issued as of such time shall be the date which is immediately prior to the date upon which the transaction is consummated.
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Change of Control
In the event (a) of any change in the Shares through subdivision, consolidation, reclassification, amalgamation, merger or otherwise; (b) that any rights are granted to all Shareholders to purchase Shares at prices substantially below Fair Market Value; or (c) that, as a result of any recapitalization, merger, consolidation or other transaction, the Shares are converted into or exchangeable for any other securities, then, in any such case, the Company Board may, subject to any required approval of the Exchange, make such adjustments to the Equity Incentive Award Plan, to any Awards and to any Award Agreements outstanding under the Equity Incentive Award Plan as the Company Board may, in its sole discretion, consider appropriate in the circumstances to prevent dilution or enlargement of the rights granted to Participants thereunder.
Termination of Relationship as Service Provider
Unless otherwise determined by the Committee or unless otherwise provided in an Award Agreement pertaining to a particular Award or any written employment or consulting agreement governing a Participant's role as a Service Provider, the following provisions shall apply in the event that a Participant ceases to be a Service Provider:
(a) Death - If a Participant ceases to be a Service Provider as a result of the Participant's death, the Vesting Date for all Incentive Awards awarded to such Participant under any outstanding Incentive Award Agreements and for all Shares awarded to such Participant under any outstanding Award Agreements shall be accelerated to the Cessation Date, provided that the Committee, taking into consideration the performance of such Participant and the performance of the Company since the date of grant of the Award(s), may determine in its sole discretion the payout multiplier to be applied to any Performance Awards held by the Participant. The Expiry Date of any vested or unvested Share Awards held by the Participant at the date of death, which have not yet been subject to an Exercise Notice and subsequent settlement of the Share Award, shall be amended to the earlier of (i) one year after the Cessation Date, and (ii) the Expiry Date of such Share Award.
(b) Termination for Cause - If a Participant ceases to be a Service Provider as a result of termination for cause, effective as of the Cessation Date all outstanding Award Agreements under which Awards have been made to such Participant, whether Restricted Awards or Performance Awards, and whether (A) vested and unexercised or unsettled or (B) unvested, shall be immediately terminated and all rights to receive payments or Shares thereunder, as the case may be, shall be forfeited by the Participant.
(c) Voluntary Resignation - If a Participant ceases to be a Service Provider as a result of a voluntary resignation, effective as of the day that is 14 days after the Cessation Date, all outstanding Award Agreements under which Awards have been made to such Participant, whether Restricted Awards or Performance Awards, and whether (A) vested and unexercised or unsettled or (B) unvested, shall be terminated and all rights to receive payments or Shares thereunder, as the case may be, shall be forfeited by the Participant.
(d) Retirement - If a Participant ceases to be a Service Provider as a result of the Participant's retirement, all outstanding Award Agreements under which Awards have been made to such Participant, whether Restricted Awards or Performance Awards, shall continue in accordance with their terms and the Expiry Date shall not be accelerated as a result of such retirement.
(e) Other Termination - If a Participant ceases to be a Service Provider for any reason other than as provided for in (i), (ii), (iii) and (iv) above, effective as of the date that is the later of (A) 90 days after the Cessation Date, and (B) the end of the notice period used for calculating severance to which the Participant is entitled as a result of the Participant's cessation as a Service Provider pursuant to a written contract of employment, if any, with an entity in the HEI Group, and notwithstanding any other severance entitlements or entitlement to notice or compensation in lieu thereof, all then outstanding Award Agreements under which Awards have been made to such Participant, whether Restricted Awards or Performance Awards, shall be terminated and all rights to receive payments or Shares thereunder, as the case may be, shall be forfeited by the Participant.
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Agreement to be Bound
If a Participant fails to acknowledge an Award by acceptance of the Award Agreement within the time specified by the Committee, the Company reserves the right to revoke the Award. Participation in the Equity Incentive Award Plan by any Participant shall be construed as irrevocable acceptance by the Participant of the terms and conditions set out in the Equity Incentive Award Plan and all rules and procedures adopted thereunder and as amended from time to time.
Amendment and Termination of Plan
The Equity Incentive Award Plan and any Awards granted pursuant to the Equity Incentive Award Plan may, subject to any required approval of the Exchange, be amended, modified or terminated by the Company Board without the approval of Shareholders. Without limitation of the foregoing, such amendments include, without limitation: (a) amendments of a "housekeeping nature", including, without limitation, amending the wording of any provision of the Equity Incentive Award Plan for the purpose of clarifying the meaning of existing provisions or to correct or supplement any provision of the Equity Incentive Award Plan that is inconsistent with any other provision of the Equity Incentive Award Plan, correcting grammatical or typographical errors and amending the definitions contained within the Equity Incentive Award Plan respecting the administration of the Equity Incentive Award Plan; (b) amending Awards under the Equity Incentive Award Plan, including with respect to the Expiry Date (provided that the term of the Award does not exceed 10 years from the date the Award is granted and that such Award is not held by an insider), vesting period, and effect of termination of a Participant's employment or cessation of the Participant's service; (c) accelerating vesting; or (d) amendments necessary to comply with applicable law or the requirements of any Exchange on which the Shares are listed. Notwithstanding the foregoing, the Equity Incentive Award Plan or any Award may not be amended without Shareholder approval to:
(a) increase the number of Shares reserved for issuance pursuant to Awards in excess of the limit prescribed in the Equity Incentive Award Plan;
(b) extend the Vesting Date of any Awards issued under the Equity Incentive Award Plan to an insider beyond the latest Vesting Date specified in the Award Agreement (other than as permitted by the terms and conditions of the Equity Incentive Award Plan);
(c) extend the Expiry Date of any Award granted to an insider (other than as permitted by the terms and conditions of the Equity Incentive Award Plan);
(d) permit a Participant to transfer Awards to a new beneficial holder other than for estate settlement purposes;
(e) reduce the limitations on Awards contained in the Equity Incentive Award Plan;
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(f) increase the number of Shares that may be issued to Insiders above the restrictions contained in the Equity Incentive Award Plan; and
(g) change the Equity Incentive Award Plan to modify or delete any of (a) through (f) above.
In addition, no amendment to the Equity Incentive Award Plan or any Awards granted pursuant to the Equity Incentive Award Plan may be made without the consent of a Participant if it adversely alters or impairs the rights of such Participant in respect of any Award previously granted to such Participant under the Equity Incentive Award Plan.
At the meeting, shareholders will be asked to consider the following ordinary resolution approving the Equity Incentive Award Plan:
Approval of New Equity Incentive Award Plan and Approval Requirement
"BE IT RESOLVED, as an ordinary resolution of the shareholders of Hammerhead Energy Inc. (the "Company") that:
1. the equity incentive award plan (the "Equity Incentive Award Plan") of the Company in the form attached as Schedule B to the information circular -proxy statement of the Company dated May 1, 2023 (the "Information Circular") is hereby ratified, confirmed and approved;
2. the grants of awards which are described in the Information Circular, be and are hereby ratified, confirmed and approved;
3. any director or officer of the Company be and is hereby authorized and directed to do such things and to execute and deliver all such instruments, deeds and documents, and any amendments thereto, as may be necessary or advisable in order to give effect to the foregoing resolutions; and
4. notwithstanding that this resolution has been duly passed by the shareholders of the Company, the directors of the Company are hereby authorized and empowered to revoke this resolution, without any further approval of the shareholders of the Company, at any time if such revocation is considered necessary or desirable by the directors."
In order to be passed, the foregoing ordinary resolution must be approved by a simple majority of the votes cast by shareholders who vote in person or by proxy at the meeting. The Company Board recommends that shareholders vote FOR the resolution. The management designees intend to vote FOR the resolution, unless a shareholder specifies otherwise in the proxy.
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DIRECTOR COMPENSATION
The Company did not pay any compensation or provide any benefits for the fiscal year ended December 31, 2022, to the non-management directors as the Company was formed by way of amalgamation on February 22, 2023, pursuant to the Business Combination.
Fees and Retainers
The Company has approved annual retainers of $140,000 and $180,000 for the non-management directors and the Chair of the Company Board, respectively, payable in cash or a combination of cash and share awards.
CORPORATE GOVERNANCE PRACTICES
Independence
The Common Shares and Warrants are listed on the NASDAQ under the ticker symbols "HHRS" and "HHRSW," respectively, and on the TSX under the ticker symbols "HHRS" and "HHRS.WT," respectively.
As a result, the Company adheres to the rules of the NASDAQ and applicable Canadian securities laws in determining whether a director is independent. The listing standards of the NASDAQ generally define an "independent director" as a person, other than an executive officer of a company or any other individual having a relationship which, in the opinion of the issuer's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Under NI 58-101, a director is considered to be independent if he or she is independent within the meaning of Section 1.4 of NI 52-110. Pursuant to NI 52-110, an independent director is a director who is free from any direct or indirect material relationship with the Company which could, in the view of the Company Board, be reasonably expected to interfere with the exercise of such director's independent judgement. The Company Board has determined that A. Stewart Hanlon, J. Paul Charron, James AC McDermott, and Bryan Begley are considered independent directors. The Company Board has determined Scott Sobie, Michael Kohut, Jesal Shah, and Robert Tichio are not independent based on their relationships with the Company and the Riverstone Parties, as applicable. The independent directors of the Company Board will hold regularly scheduled meetings at which non-independent directors and members of management are not in attendance.
The following directors are presently directors of other issuers that are reporting issuers (or the equivalent):
| Name | Names of Other Issuers |
| Bryan Begley | Athabasca Oil Corporation (TSX) |
| A. Stewart Hanlon | Questor Technology Inc. (TSXV) |
| Michael Kohut | Southern Energy Corp. (TSXV) |
| Jesal Shah | Pipestone Energy Corp. (TSX) |
| Robert Tichio | Pipestone Energy Corp. (TSX) Permian Resources Corporation (NYSE) Tritium DCFC Limited (NASDAQ) |
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Board Mandate
The primary responsibility of the Company Board is to appoint competent management and to oversee the management of the Company with a view to maximize shareholder value and ensure corporate conduct in an ethical and legal manner through an appropriate system of corporate governance and internal controls. Subject to the provisions of the ABCA, the Company Board may delegate certain of those powers and authority that the directors of the Company, or independent directors, as applicable, deemed necessary or desirable to affect the actual administration of the duties of the Company Board. The Company Board's duties are set out in the Company Board Mandate which is found in Schedule C attached hereto and on our website at www.hhres.com.
The Company Board, in part, performs its responsibilities through its four committees: the Audit Committee; the Governance and ESG Committee; the Compensation Committee and the Reserves Committee. Each of the four committees has their own mandate as described below.
Orientation and Continuing Education
It is the responsibility of the Company Board to provide an orientation program for new directors and ongoing educational opportunities for all directors. The Company Board will from time to time arrange for presentations by key personnel or qualified outside consultants concerning topics relating to the Company's business, changes to the Company's legal and regulatory framework and corporate and Company Board governance. The Company Board also encourages directors to attend external continuing education programs designed for directors of public companies. In addition to pursuing individual educational initiatives, members of the Company Board are provided with quarterly operational and financial reports summarizing the Company's performance. The Company also provides opportunities to have meetings and discussions with management as needed to address requests or questions a Company Board member may have.
The Company Board consists of highly skilled and experienced individuals with strong industry knowledge. Please see "Biographies of Our Directors" for more information on each Company Board member and their curriculum vitae.
Code of Business Conduct
The Company has adopted a Code of Conduct and has posted such Code of Conduct, and intends to post any amendments to or any waivers from a provision of its Code of Conduct, on its website, and also intends to disclose any amendments to or waivers of certain provisions of its Code of Conduct in a manner consistent with NI 58-101 and the applicable rules or regulations of the SEC and the NASDAQ. All employees of the Company are required to acknowledge compliance with the code of business conduct and all related policies when they are hired and again on an annual basis. In addition, the Company has implemented a whistleblower policy throughout the Company and the Company will monitor compliance with the Code of Conduct. Any effort to retaliate against any person making a complaint in good faith under the Code of Conduct is strictly prohibited and will be reported immediately to the Chair of the Company Board.
In accordance with the ABCA, directors who are a party to, or are a director or an officer of a person who is a party to, a material contract or material transaction or a proposed material contract or proposed material transaction, are required to disclose the nature and extent of their interest and not vote on any resolution to approve the contract or transaction.
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Insider Trading Policy
The Company has adopted an insider trading policy which prohibits its executives, other employees, and directors from: (i) trading in its securities while in possession of material undisclosed information about the Company; and (ii) entering into certain derivative-based transactions that involve, directly or indirectly, securities of the Company, during a restricted period.
Diversity
The Company recognizes the importance and benefit of having the Company Board and senior management composed of highly talented and experienced individuals having regard to the need to foster and promote diversity among Company Board members and senior management with respect to attributes such as gender, ethnicity and other factors. In support of this goal, the Governance and ESG Committee will, when identifying candidates to nominate for election to the Company Board or appoint as senior management or in its review of senior management succession planning and talent management:
- consider individuals who are highly qualified, based on their talents, experience, functional expertise and personal skills, character and qualities having regard to the Company's current and future plans and objectives, as well as anticipated regulatory and market developments;
- consider criteria that promote diversity, including with regard to gender, ethnicity, and other dimensions;
- consider the level of representation of women on the Company Board and in senior management positions, along with other markers of diversity, when making recommendations for nominees to the Company Board or for appointment as senior management and in general with regard to succession planning for the Company Board and senior management; and
- as required, engage qualified independent external advisors to assist the Company Board in conducting its search for candidates that meet the Company Board of directors' criteria regarding skills, experience and diversity.
An individual's qualifications are paramount in identifying a Company Board nominee. Consideration for nominations is made based on the needs of the Company Board at the applicable time and the alignment of the individual's talent, functional expertise, experience and personal skills. Currently, the Company's Diversity Policy does not provide for targets for the number of women on the Company Board or in executive officer positions. This does not preclude the Company from electing or promoting women. Currently 30% of the Company's employees are women; of which 73.0% are a designated professional or hold a leadership role. The Company does not have any women serving on the Company Board and has one woman in an executive officer position, representing approximately 16.7% of the Company's executive officer positions.
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Committee Membership and Responsibilities
Set forth below is information with respect to each of the current committees of the Company Board, including current membership and a brief description of their Company Board approved mandate which outlines the roles and responsibilities of the committee. The full text of the mandate of each committee is available on our website at www.hhres.com.
Audit Committee | |
Current Members(1) |
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Mandate | The Audit Committee's mandate includes:
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Note:
(1) The Company Board has determined that each such director is independent under the Listing Rules, NI 52-110 and under Rule 10A-3 of the Exchange Act. A. Stewart Hanlon serves as the chair of the Audit Committee. Each member of the audit committee meets the financial literacy requirements of the NASDAQ and the Company Board has determined that A. Stewart Hanlon is an "audit committee financial expert" as defined in applicable SEC rules and has accounting or related financial management expertise. The Company complies with NI 52-110 and relies on the exemptions for U.S. listed issuers thereunder.
For more information relating to the background of the Audit Committee members, see "Biographies of our Directors" above under "Matters to be Acted Upon at the Meeting".
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The Audit Committee pre-approves all audit and non-audit services performed by our external auditor. For more information relating to the fees billed by our external auditor for audit services in 2022 and 2021, see "Appointment of Auditors" above under "Matters to be Acted Upon at the Meeting".
| Governance and ESG Committee | |
| Current Members(1) |
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| Mandate | The Governance and ESG Committee is responsible for, among other things:
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Note:
(1) The Company has established the Governance and ESG Committee of the Company Board comprised of A. Stewart Hanlon and James AC McDermott, each of whom is independent under the applicable rules of the SEC and the Listing Rules, NI 58-101 and James AC McDermott serves as the chair of the Governance and ESG Committee.
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| Compensation Committee | |
| Current Members(1) |
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| Mandate | The Company Board has adopted a Compensation Committee mandate, which details the principal functions of the Compensation Committee, including but not limited to:
However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the Compensation Committee will consider the independence of each such adviser, including the factors required by the NASDAQ and the SEC. |
Note:
(1) Bryan Begley and A. Stewart Hanlon are independent under the applicable rules of the SEC, the NASDAQ and NI 58-101.
For more information relating to the background of the Compensation Committee members, see "Biographies of our Directors" above under "Matters to be Acted Upon at the Meeting".
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| Reserves Committee | |
| Current Members(1) |
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| Mandate | The Reserves Committee is responsible for, among other things:
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Note:
(1) The Company has established a Reserves Committee comprised entirely of independent directors, in accordance with NI 51-101 guidelines. The reserves committee is comprised of J. Paul Charron and Bryan Begley. J. Paul Charron and Bryan Begley are independent under the applicable rules of the SEC and the NASDAQ.
Board Nominations
The Governance and ESG Committee is responsible for identifying individuals qualified to become members of the Company Board. See "Corporate Governance Practices - Committee Membership and Responsibilities - Governance and ESG Committee" and "Corporate Governance Practices - Diversity" for further information.
Compensation
The Company has established the Compensation Committee, comprised entirely of independent directors. For more information about the responsibilities, powers and operation of the Compensation Committee, see "Committee Membership and Responsibilities" in this Information Circular. For information regarding compensation of the Company's executive officers and directors, see "Executive Compensation" and "Director Compensation" in this Information Circular.
Position Descriptions
The Company Board has developed position descriptions for each of the Chair, the President and Chief Executive Officer, the Lead Director and the chair of each committee of the Company Board.
Board Assessment
The Company Board does not regularly assess its members but members are regularly invited to express any concerns they may have either at meetings or in discussions with the Chair of the Company Board.
Retirement Policy / Board Tenure
The Company Board has not adopted term limits for the directors on the Company Board or other mechanisms of board renewal. While the Company Board recognizes the benefit of new perspectives, ideas and business strategies can offer and support periodic renewal, the Company Board also recognizes that experience and knowledge of the Company's business is a valuable resource. Accordingly, the Company Board believes that the Company and the Company shareholders are better served with regular assessment of the effectiveness of periodic renewal instead of age or tenure limits.
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EXECUTIVE COMPENSATION
The Company was formed pursuant to the Business Combination on February 22, 2023. Neither the Company nor Hammerhead was a reporting issuer in the year ended December 31, 2022. As such, pursuant to NI 51-102, the Company is not required to disclose historical executive compensation for the Company or Hammerhead for the year ended December 31, 2022. The following disclosure relates to the current executive compensation practices of the Company for the current fiscal year.
Executive Officer Compensation Following the Business Combination
Named Executive Officer Compensation
In the year ended December 31, 2022, Hammerhead engaged a third-party executive compensation advisory firm to assist in the review and development of the Company's executive compensation program following the Business Combination.
The current salaries for the Company's officers are as follows:
| Name | Title | Salary ($)(1)(2)(3) |
| Scott Sobie | President, Chief Executive Officer and Director | 575,200 |
| Michael G. Kohut | Senior Vice President, Chief Financial Officer and Director | 375,000 |
| David Anderson | Senior Vice President, Operations and Alternative Energy | 350,900 |
| Daniel Labelle | Senior Vice President, Development and A&D | 350,900 |
| Nicki Stevens | Senior Vice President, Production, Marketing and ESG | 350,900 |
| Richard Unsworth | Senior Vice President, Business and Organizational Effectiveness | 350,900(4) |
Notes:
(1) Does not include any cash bonus amounts. The Company will be implementing a cash bonus program pursuant to which, the NEOs are eligible for a cash bonus amount based on various performance measures of the NEO and the Company. The terms of the cash bonus program have not been finalized.
(2) Does not include any equity incentive awards of the Company. See "Matters To Be Acted Upon At The Meeting - Matters Respecting New Equity Incentive Plans" for descriptions of the Equity Incentive Award Plan and Share Option Plan.
(3) Does not include any personal benefits provided to the NEOs. The Company anticipates that NEOs will be provided an executive benefit package consistent with benefits paid to executives of the Company but the anticipated amount of such benefits and the terms of such benefit package has not been finalized.
(4) The amount listed shows a full-time salary amount. Mr. Unsworth works a 0.8 full-time equivalent basis.
Incentive Plans
Pursuant to the Plan of Arrangement:
Each Hammerhead Option (whether or not exercisable and whether or not vested) issued and outstanding immediately prior to the Company Amalgamation Effective Time was exchanged for a Legacy Option to acquire a number of Common Shares pursuant to the terms of the Plan of Arrangement; and
Each Hammerhead RSU (whether or not exercisable and whether or not vested) issued and outstanding immediately prior to the Company Amalgamation Effective Time was exchanged for a Legacy RSU to acquire a number of Common Shares pursuant to the terms of the Plan of Arrangement.
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In addition to the Share Option Plan and the Equity Incentive Award Plan, the Company has adopted the Legacy Share Option Plan and the Legacy Share Award Plan solely to provide for the issuance of Legacy Options and Legacy RSUs in exchange for the outstanding Hammerhead Options and Hammerhead RSUs, respectively, under the Plan of Arrangement, which plans became effective immediately following the SPAC Amalgamation Effective Time. The Legacy Plans are in substantially the same form as the Hammerhead Share Option Plan and Hammerhead Share Award Plan, subject to such changes to provide for the Business Combination and such changes as required by applicable laws and stock exchange rules. Under the terms of the Legacy Plans and the policies of the TSX, the Company is not entitled to make any further grants of Legacy Options or Legacy RSUs under the Legacy Plans. Upon completion of the Business Combination, the previously in force Hammerhead Option Plan and Hammerhead Share Award Plan were discontinued.
Legacy Share Award Plan
Defined Terms
In this description of the Legacy Share Award Plan, the abbreviations and terms set forth below have the following meanings:
"Account" means an account maintained by the Company for each Participant and which will be credited with Share Awards in accordance with the terms of the Legacy Share Award Plan.
"All or Substantially All of the Assets" means greater than 90% of the aggregate fair market value of the assets of the Company and its Subsidiaries, on a consolidated basis, as determined by the Company Board in its sole discretion.
"associate" and "affiliate" each have the meaning ascribed thereto in MI 62-104, as amended from time to time.
"Award Date" means the date or dates on which an award of Share Awards is made to a Participant.
"Black-Out Period" means the period of time, if any, when, pursuant to any policies of the Company, any securities of the Company may not be traded by certain persons as designated by the Company, including any Participant that holds a Share Award.
"Cessation Date" means the date that is the earlier of: (i) the effective date of the Service Provider's termination, resignation, death or retirement, as the case may be; and (ii) the date that the Service Provider ceases to be in the active performance of the usual and customary day-to-day duties of the Service Provider's position or job, regardless of whether adequate, legal or proper advance notice of termination or resignation shall have been provided in respect of such cessation of being a Service Provider, and the Cessation Date shall not, under any circumstances, be extended by any statutory, contractual or common law notice period mandated under any application laws.
"Court" means the Alberta Court of King's Bench.
"Dividend Equivalent" means a bookkeeping entry whereby each Share Award is credited with the equivalent amount of the dividend paid on a Share.
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"Dividend Market Value" means the Fair Market Value per Share on the dividend record date.
"Exchange" means the stock exchange(s), if any, on which the Shares are listed and posted for trading.
"Exercise" means the exercise of Share Awards granted to a Participant pursuant to the Legacy Share Award Plan.
"Fair Market Value" with respect to a Share, as at any date, means the volume weighted average of the prices at which the Shares traded on the Exchange (or, if the Shares are then listed and posted for trading on more than one stock exchange, on such stock exchange on which the majority of the trading volume and value of the Shares occurs) for the five trading days on which the Shares traded on the said stock exchange immediately preceding such date. In the event that the Shares are not listed and posted for trading on any stock exchange, the Fair Market Value shall be the fair market value of the Shares as determined by the Company Board in its sole discretion.
"HEI Group" means, collectively, the Company, any entity that is a Subsidiary of the Company from time to time, and any other entity designated by the Company Board from time to time as a member of the HEI Group for the purposes of the Legacy Share Award Plan (and, for greater certainty, including any successor entity of any of the aforementioned entities).
"Incumbent Directors" means any member of the Company Board who was a member of the Company Board at the effective date of the Legacy Share Award Plan and any successor to an Incumbent Director who was recommended or elected or appointed to succeed any Incumbent Director by the affirmative vote of the Company Board, including a majority of the Incumbent Directors then on the Company Board, prior to the occurrence of the transaction, transactions, elections or appointments giving rise to a Change of Control.
"Insider" has the meaning ascribed thereto in Part I of the TSX Company Manual for the purposes of Section 613 of the TSX Company Manual.
"MI 62-104" means Multilateral Instrument 62-104 - Take-Over Bids and Issuer Bids, as amended from time to time.
"Participant" means a Service Provider determined to be eligible to participate in the Legacy Share Award Plan and, where applicable, a former Service Provider deemed eligible to continue to participate in the Legacy Share Award Plan.
"Service Provider" means a director, officer or employee of, or a person or company engaged by, one or more of the entities comprising the HEI Group to provide services to an entity within the HEI Group.
"Share Award" means a unit equivalent in value to a Share credited by means of a bookkeeping entry in the Participants' Accounts (also defined within this Canadian Prospectus as a Legacy RSU).
"Subsidiary" has the meaning ascribed there in the Securities Act (Alberta).
Purpose and Administration
The purpose of the Legacy Share Award Plan is to provide for the issuance of Share Awards pursuant to the Plan of Arrangement and to: (a) aid in retaining and motivating certain directors, officers, employees and other eligible Service Providers of the HEI Group in the growth and development of the HEI Group by providing them with the opportunity through Share Awards to acquire an increased proprietary interest in the Company; (b) more closely align their interests with those of the Company's shareholders; (c) focus such Service Providers on operating and financial performance and long-term shareholder value; and (d) motivate and reward for their performance and contributions to the Company's long-term success.
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The Legacy Share Award Plan shall be administered by the Company Board. Notwithstanding the foregoing, to the extent permitted by applicable law, the Company Board may, from time to time, delegate to a committee (the "Committee") of the Company Board all or any of the powers conferred on the Company Board under the Equity Incentive Award Plan (as defined below). In such event, the Committee will exercise the powers delegated to it by the Company Board in the manner and on the terms authorized by the Company Board. The Company Board or the Committee may delegate or sub-delegate to any director or officer of the Company the whole or any part of the administration of the Equity Incentive Award Plan and shall determine the scope of such delegation or sub-delegation in its sole discretion.
Granting of Legacy Awards
An award of Share Awards pursuant to the Legacy Share Award Plan will be made and the number of such Share Awards awarded will be credited to each Participant's Account, effective as of the Award Date. The number of Share Awards to be credited to each Participant's Account shall be determined by the Company Board, or the Committee delegated by the Company Board to do so, each in its sole discretion.
Credits for Dividends
A Participant's Account shall be credited with a Dividend Equivalent in the form of additional Share Awards only if the Company Board, in its sole discretion, so determines. Such Dividend Equivalent, if any, shall be computed by dividing: (a) the amount obtained by multiplying the amount of the dividend declared and paid per Common Share by the number of Share Awards recorded in the Participant's Account on the record date for the payment of such dividend, by (b) the Dividend Market Value, with fractions computed to three decimal places.
Vesting
All Share Awards issued pursuant the Legacy Share Award Plan shall be fully vested and exercisable on issuance and shall not be subject to any vesting restrictions.
Limits on Issuances
Notwithstanding any other provision of the Legacy Share Award Plan, the maximum number of Shares issuable pursuant to outstanding Share Awards at any time shall be limited to 5,329,938, subject to adjustment for Dividend Equivalents, if any.
Share Awards that are cancelled, surrendered, terminated or that expire prior to exercise thereof shall not in such Shares being available to be issued in respect of a subsequent grant of Share Awards pursuant to the Legacy Share Award Plan.
Share Award Terms
The term during which a Share Award may be outstanding shall, subject to the provisions of the Legacy Share Award Plan requiring or permitting the acceleration or the extension of the term, be such period as may be determined from time to time by the Company Board or the Committee, but subject to the rules of any stock exchange or other regulatory body having jurisdiction.
In addition, unless otherwise determined by the Company Board or the Committee, or unless the Company and a Participant agree otherwise in a Share Award Agreement or other written agreement (including an employment or consulting agreement), each Share Award shall provide that if a Participant shall cease to be a director, officer of or be in the employ of, or a consultant or other Service Provider to, any of the entities comprising the HEI Group for any reason whatsoever (other than death or retirement) including, without limitation, resignation or involuntary termination (with or without cause), as determined by the Company Board in its sole discretion, before all of the Share Awards credited to the Participant's Account have been Exercised or are forfeited pursuant to any other provision hereof: (a) such Participant shall cease to be a Participant as of the Cessation Date; (b) any underlying Shares corresponding to any Share Awards that have not been Exercised on the Cessation Date shall be Exercised by the former Participant within 90 days of the Cessation Date in accordance with the Legacy Share Award Plan; and (c) the former Participant shall not be entitled to any further distribution of Shares or any payment from the Legacy Share Award Plan.
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Notwithstanding the preceding paragraph or anything else contained in the Legacy Share Award Plan to the contrary, unless otherwise determined by the Company Board or the Committee, or unless the Company and a Participant agree otherwise in a Share Award Agreement or other written agreement (including an employment or consulting agreement), if a Participant shall cease to be an officer of or be in the employ of, or a consultant or other Service Provider to, any of the entities comprising the HEI Group due to the death of the Participant, any underlying Shares corresponding to any Share Awards that have not been exercised shall be exercised by the legal representative of the deceased former Participant's estate within 12 months of the Cessation Date in accordance with the Legacy Share Award Plan.
Delivery of Shares by the Company
The Company shall, as soon as practicable after the exercise of any Share Awards granted under the Legacy Share Award Plan, issue from treasury to the Participant the number of Shares required to be delivered upon the exercise of such Participant's Share Awards; provided, however, that, with the consent of the Participant, in lieu of issuing Shares from treasury the Company may satisfy its obligation to deliver Shares to the Participant upon the exercise of such Participant's Share Awards by delivering Shares from the Hammerhead Employee Benefit Trust. The Company shall register and deliver certificates for such Shares to the Participant by first class insured mail, unless the Company shall have received alternative instructions from the Participant acceptable to the Company for the registration and/or delivery of the certificates. The Participant shall exercise any Share Awards by: (i) delivering to the Company a notice of exercise in writing, in such form as may be approved by the Company Board or the Committee from time to time, signed by the Participant and stating the Participant's intention to exercise a particular Share Award together with payment of the exercise price of C$0.16 per Share Award so exercised; and (ii) if the Share Awards are being exercised by the legal representative of a deceased former Participant's estate, providing the Company with satisfactory evidence of the Participant's death. Upon receipt of the exercise notice, aggregate exercise price and evidence of the Participant's death (if applicable), the Company shall cause the Shares in respect of which the Share Award has been Exercised to be issued or delivered as provided above.
Surrender Offer
A Participant may make an offer (the "Surrender Offer") to the Company, at any time, for the disposition and surrender by the Participant to the Company (and the termination thereof) of any of the Share Awards granted thereunder for an amount (not to exceed the Fair Market Value of the Shares less the exercise price of the Share Award) specified in the Surrender Offer by the Participant, and the Company may, but is not obligated to, accept the Surrender Offer, subject to any regulatory approval required. If the Surrender Offer, either as made or as renegotiated, is accepted, the Share Awards in respect of which the Surrender Offer relates shall be surrendered and deemed to be terminated and cancelled and shall cease to grant the Participant any further rights thereunder upon payment of the amount (less all taxes and other amounts required by law to by withheld by the Company) of the Surrender Offer agreed to by the Company and the Participant.
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Alterations of Shares
In the event: (a) of any change in the Shares through subdivision, consolidation, reclassification, amalgamation, merger or otherwise; or (b) that any rights are granted to all or substantially all shareholders to purchase Shares at prices substantially below Fair Market Value; or (c) that, as a result of any recapitalization, merger, consolidation or other transaction, the Shares are converted into or exchangeable for any other securities or property; then the Company Board may make such adjustments to the Legacy Share Award Plan, to any Share Awards and to any Share Award Agreements outstanding under the Legacy Share Award Plan as the Company Board may, in its sole discretion, consider appropriate in the circumstances to prevent dilution or enlargement of the rights granted to Participants thereunder and/or to provide for the Participants to receive and accept such other securities or property in lieu of Shares, and the Participants shall be bound by any such determination.
No adjustment shall be made with respect to the issue of Shares being made pursuant to or in connection with: (a) any share option plan or share purchase plan, including the Legacy Share Award Plan, in force from time to time for existing or proposed officers, directors, employees or Service Providers of the Company; (b) the issuance of additional Shares pursuant to a public offering or private placement by the Company or a take-over bid, tender offer or other acquisition made by the Company for the securities of another entity; or (c) upon Exercise or vesting of any convertible securities of the Company outstanding from time to time.
Merger and Sale, etc.
Except in the case of a transaction that is a Change of Control and to which the paragraph below applies, if the Company enters into any transaction or series of transactions whereby the Company or All or Substantially All of the Assets would become the property of any other trust, body corporate, partnership or other person (a "Successor"), whether by way of takeover bid, acquisition, reorganization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise, prior to or contemporaneously with the consummation of such transaction the Company and the Successor will execute such instruments and do such things as the Company Board or the Committee may determine are necessary to establish that upon the consummation of such transaction the Successor will assume the covenants and obligations of the Company under the Legacy Share Award Plan and the Share Award Agreements outstanding on consummation of such transaction. Any such Successor shall succeed to, and be substituted for, and may exercise every right and power of the Company under the Legacy Share Award Plan and Share Award Agreements with the same effect as though the Successor had been named as the Company in the Legacy Share Award Plan and therein and thereafter, the Company shall be relieved of all obligations and covenants under the Legacy Share Award Plan and such Share Award Agreements and the obligation of the Company to the Participants in respect of the Share Awards shall terminate and be at an end and the Participants shall cease to have any further rights in respect thereof including, without limitation, any right to acquire Shares upon the Exercise of the Share Awards.
Change of Control
Notwithstanding any other provision in the Legacy Share Award Plan but subject to any provision to the contrary contained in a Share Award Agreement or other written agreement (such as an agreement of employment) between the Company and a Participant, if there takes place a Change of Control, all issued and outstanding Share Awards shall terminate on the 90th day after the occurrence of such Change of Control or at such earlier time as may be established by the Company Board or the Committee, in its absolute discretion, prior to the time such Change of Control takes place.
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Amendment or Discontinuance of the Legacy Share Award Plan
The Company Board may amend or discontinue the Legacy Share Award Plan and any Share Award granted thereunder at any time without the approval of the shareholders of the Company or any Participant whose Share Award is amended or terminated, provided that no amendment to the Equity Incentive Award Plan or Share Awards granted pursuant to the Equity Incentive Award Plan may be made without the consent of the Participant, if it adversely alters or impairs any Share Award previously granted to such Participant under the Equity Incentive Award Plan.
The Company Board may, subject to any required approval of any Exchange, amend or discontinue the Legacy Share Award Plan and any Share Award granted thereunder at any time without the approval of the shareholders of the Company or any Participant whose Share Award is amended or terminated, provided that, no amendment to the Legacy Share Award Plan or Share Awards granted pursuant to the Legacy Share Award Plan may be made without the consent of the Participant, if it adversely alters or impairs any Share Award previously granted to such Participant under the Legacy Share Award Plan. Without limitation of the foregoing, such amendments include, without limitation: (a) amendments of a "housekeeping nature" nature, including, without limitation, amending the wording of any provision of the Legacy Share Award Plan for the purpose of clarifying the meaning of existing provisions or to correct or supplement any provision of the Legacy Share Award Plan that is inconsistent with any other provision of the Legacy Share Award Plan, correcting grammatical or typographical errors and amending the definitions contained within the Legacy Share Award Plan respecting the administration of the Legacy Share Award Plan; (b) amending Share Awards under the Legacy Share Award Plan , including with respect to the expiry date (provided that such Share Award is not held by an Insider) and effect of termination of a Participant's employment or cessation of the Participant's service; or (c) amendments necessary to comply with applicable law or the requirements of any Exchange. Notwithstanding the foregoing, the Legacy Share Award Plan or any outstanding Share Award granted thereunder may not be amended without shareholder approval to:
(a) permit Share Awards to be issued other than pursuant to the Plan of Arrangement;
(a) increase the number of Shares reserved for issuance pursuant to Share Awards in excess of the limit prescribed in the Legacy Share Award Plan;
(b) extend the expiry date of any Share Award granted to an Insider (other than as permitted by the terms and conditions of the Legacy Share Award Plan);
(c) permit a Participant to transfer Share Awards to a new beneficial holder other than for estate settlement purposes;
(d) reduce the limitations on Share Awards contained in the Legacy Share Award Plan; and
(e) change the Legacy Share Award Plan to modify or delete any of the above.
Notwithstanding the foregoing, the Company Board may amend or terminate the Legacy Share Award Plan or any outstanding Share Award granted thereunder at any time without the approval of the shareholders of the Company or any Participant whose Share Award is amended or terminated, in order to conform the Legacy Share Award Plan or such Share Award, as the case may be, to applicable law or regulation or the requirements of any relevant stock exchange or regulatory authority, whether or not that amendment or termination would affect any accrued rights or adversely alter or impair any Share Award previously granted.
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Without limiting the foregoing, the Company Board may correct any defect or supply any omission or reconcile any inconsistency in the Equity Incentive Award Plan in the manner and to the extent deemed necessary or desirable, may establish, amend, and rescind any rules and regulations relating to the Legacy Share Award Plan, and may make such determinations as it deems necessary or desirable for the administration of the Legacy Share Award Plan.
On termination of the Legacy Share Award Plan, any outstanding Share Awards under the Legacy Share Award Plan shall immediately vest and the number of Shares corresponding to such Share Awards shall be delivered to the Participants in accordance with and upon compliance with the Legacy Share Award Plan. The Legacy Share Award Plan will finally cease to operate for all purposes when: (i) the last remaining Participant receives delivery of all Shares corresponding to all Share Awards credited to the Participant's Account; or (ii) all unexercised Share Awards expire in accordance with the terms of the Legacy Share Award Plan.
Legacy Share Option Plan
Terms of Legacy Share Option Plan
Defined Terms
In this description of the Legacy Share Option Plan, the abbreviations and terms set forth below have the following meanings:
"All or Substantially All of the Assets" means greater than 90% of the aggregate fair market value of the assets of the Company and its Subsidiaries, on a consolidated basis, as determined by the Company Board in its sole discretion.
"Black-Out Period" means the period of time when, pursuant to any policies of the Company, any securities of the Company may not be traded by certain persons as designated by the Company, including any holder of a Legacy Option.
"Change of Control" means: (i) a successful takeover bid; or (ii) (A) any change in the beneficial ownership or control of the outstanding securities or other interests of the Company which results in: (I) a person or group of persons "acting jointly or in concert" within the meaning of National Instrument 62-104 - Take-Over Bids and Issuer Bids, as amended from time to time; or (II) an affiliate or associate of such person or group of persons, holding, owning or controlling, directly or indirectly, more than 50% of the outstanding voting securities or interests of the Company; and (B) members of the Company Board who are members of the Company Board immediately prior to the earlier of such change and the first public announcement of such change cease to constitute a majority of the Company Board at any time within 60 days of such change; or (iii) Incumbent Directors no longer constituting a majority of the Company Board; (iv) the winding up of the Company or the sale, lease or transfer of All or Substantially All of the Assets to any other person or persons and the distribution of greater than 90% of the net proceeds from such sale, lease or transfer to the shareholders of the Company within 60 days of the completion of such sale, lease or transfer (other than pursuant to an internal reorganization or in circumstances where the business of the Company is continued and where the shareholdings or other security holdings, as the case may be, in the continuing entity and the constitution of the Company Board or similar body of the continuing entity is such that the transaction would not be considered a "Change of Control" if paragraph (ii) above was applicable to the transaction); provided that, for greater certainty, a sale, lease or exchange of all or substantially all the property of the Company for purposes of the Business Corporations Act (Alberta) shall not be considered a sale, lease or transfer All or Substantially All of the Assets for purposes of this paragraph (iv) unless the property that is the subject of such sale, lease or exchange represents greater than 90% of the aggregate fair market value of the assets of the Company and its subsidiaries, on a consolidated basis, as determined in accordance with the Legacy Share Option Plan; or (v) any determination by a majority of the Company Board that a "Change of Control" has occurred or is about to occur and any such determination shall be binding and conclusive for all purposes of the Legacy Share Option Plan.
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"Current Market Price" means, as at any date when the Current Market Price is to be determined, the volume weighted average trading price per Common Share on the TSX, or, if the Common Shares are not listed on the TSX, on any stock exchange in Canada or the United States on which the Common Shares are then listed, for the last five trading days immediately prior to the date of determination, or if the Common Shares are not listed upon any stock exchange in Canada or the United States, the Current Market Price shall be determined by the Company Board acting reasonably.
"Exchange" means the stock exchange(s), if any, on which Common Shares are listed and posted for trading and, if Common Shares are listed on more than one stock exchange, such stock exchange as may be selected for such purpose by the Company Board.
"Fair Market Value" with respect to a Common Share, as at any date, means the volume weighted average of the prices at which Common Shares traded on the Exchange (or, if Common Shares are then listed and posted for trading on more than one stock exchange, on such stock exchange on which the majority of the trading volume and value of Common Shares occurs) for the five trading days on which Common Shares traded on the said stock exchange immediately preceding such date. In the event that Common Shares are not listed and posted for trading on any stock exchange, the Fair Market Value shall be the fair market value of Common Shares as determined by the Company Board in its sole discretion.
"HEI Group" means, collectively, the Company, any entity that is a Subsidiary of the Company from time to time, including, without limitation, any entity designated by the Company Board from time to time as a member of the HEI Group for the purposes of the Legacy Share Option Plan (and, for greater certainty, including any successor entity of any of the aforementioned entities) provided, however, that with respect to any Optionee that is subject to United States federal income taxation, such entity is a "service recipient" within the meaning of Code Section 409A with respect to such Optionee.
"Incumbent Directors" means any member of the Company Board who was a member of the Company Board at the effective date of the Legacy Share Option Plan and any successor to an Incumbent Director who was recommended or elected or appointed to succeed any Incumbent Director by the affirmative vote of the Company Board, including a majority of the Incumbent Directors then on the Company Board, prior to the occurrence of the transaction, transactions, elections or appointments giving rise to a Change of Control.
"Insider" has the meaning ascribed thereto in Part I of the TSX Company Manual for the purposes of Section 613 of the TSX Company Manual.
"In-the-Money Value" means the amount by which the Current Market Price on the Pricing Date exceeds the exercise price of the applicable Legacy Options, multiplied by the number of Common Shares related to the applicable Legacy Options.
"Optionee" means a holder of Legacy Options.
"Pricing Date" means the date the Company receives notice from an Optionee that has elected to exercise a vested Legacy Option by surrendering such Legacy Option in exchange for the In-the-Money Value of Legacy Option in lieu of purchasing the number of Common Shares then issuable on the exercise of the vested Legacy Option subject to the provisions of the Legacy Share Option Plan and if permitted by the Committee.
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"Service Provider" means an officer or employee of, or a person or company engaged by, one or more of the entities comprising the HEI Group to provide services to an entity within the HEI Group.
Purpose and Administration
The limited purpose of the Legacy Share Option Plan is to provide for the issuance of Legacy Options pursuant to of the Plan of Arrangement and thereby to aid in retaining and motivating certain officers, directors, employees and other eligible Service Providers of the HEI Group in the growth and development of the HEI Group by providing them with the opportunity through Legacy Options to acquire an increased proprietary interest in the Company.
The Legacy Share Option Plan is administered by a committee of the Company Board appointed from time to time by the Company Board to administer the Legacy Share Option Plan or, if no such committee is appointed, the Company Board (the "Committee") pursuant to any rules of procedure that may be fixed by the Company Board.
Granting of Legacy Options
Subject to the Plan of Arrangement, the Committee may from time to time designate officers, directors and employees of, and other eligible Service Providers to, the HEI Group to whom Legacy Options may be granted and the number of Common Shares to be optioned to each, provided that the number of Common Shares to be optioned shall not exceed the limitations provided in the Legacy Share Option Plan.
Limitations to the Legacy Share Option Plan
Notwithstanding any other provision of the Legacy Share Option Plan the maximum number of Common Shares issuable on exercise of outstanding Legacy Options at any time shall be limited to 671,539.
Legacy Options that are cancelled, terminated or expire prior to the exercise of all or a portion thereof shall not result in Common Shares that were reserved for issuance thereunder being available for a subsequent grant of Legacy Options pursuant to the Legacy Share Option Plan.
No one Service Provider may be granted any Legacy Option which, together with all Legacy Options then held by such Optionee, would entitle or enable such Optionee to receive a number of Common Shares which is greater than 5% of the outstanding Common Shares, calculated on an undiluted basis. In addition: (i) the number of Common Shares issuable to Insiders at any time, under all security based compensation arrangements of the Company, shall not exceed 10% of the issued and outstanding Common Shares; and (ii) the number of Common Shares issued to Insiders, within any one year period, under all security based compensation arrangements of the Company, shall not exceed 10% of the issued and outstanding Common Shares. For this purpose, "security based compensation arrangements" has the meaning ascribed thereto in Part VI of the TSX Company Manual.
Vesting
All Legacy Options issued pursuant to the Plan of Arrangement shall be fully vested and exercisable on issuance and shall not be subject to any vesting restrictions.
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Legacy Option Price
Subject to the Plan of Arrangement, the exercise price of Legacy Options granted under the Legacy Share Option Plan shall be fixed by the Committee when such Legacy Options are granted, provided that the exercise price of Legacy Options shall not be less than such minimum price as may be required by the stock exchange, if any, on which the Common Shares are listed at the time of grant.
Legacy Option Terms
The period during which a Legacy Option is exercisable shall, subject to the provisions of the Legacy Share Option Plan requiring or permitting the acceleration or extension of the exercise period, be such period, not in excess of 15 years, as may be determined from time to time by the Committee, but subject to the rules of any stock exchange or other regulatory body having jurisdiction, and in the absence of any determination to the contrary will be five years from the date of grant. Each Legacy Option shall, among other things, contain provisions to the effect that Legacy Option shall be personal to the Optionee and shall not be assignable. In addition, unless the Company and an Optionee agree otherwise in an agreement for Legacy Options or other written agreement (such as an agreement of employment or a retirement agreement), each Legacy Option shall provide that:
(a) upon the death of the Optionee, the Legacy Option shall terminate on the date determined by the Committee which shall not be more than 12 months from the date of death and, in the absence of any determination to the contrary, will be 12 months from the date of death;
(b) if the Optionee shall no longer be an officer of or be in the employ of, or consultant or other Service Provider to, any of the entities comprising the HEI Group (other than by reason of death or termination for cause or retirement), the Legacy Option shall terminate on the expiry of the period not in excess of six months as prescribed by the Committee at the time of grant, following the date that the Optionee ceases to be an officer of, or an employee of or a consultant or other Service Provider to, any of the entities comprising the HEI Group; and, in the absence of any determination to the contrary, will terminate 90 days following the date that the Optionee ceases to be an officer of, or an employee of or a consultant or other Service Provider to, any of the entities comprising the HEI Group;
(c) if the Optionee shall no longer be an officer of or be in the employ of, or consultant or other Service Provider to, any of the entities comprising the HEI Group by reason of termination for cause, the Legacy Option shall terminate immediately on such termination for cause (whether notice of such termination occurs verbally or in writing); and
(d) if the Optionee shall no longer be an officer of or be in the employ of any of the entities comprising of the HEI Group due to the Optionee's retirement, the Legacy Option shall terminate 12 months following the date that the Optionee ceases to be an officer of or be in the employ of any of the entities in the HEI Group;
provided that the number of Common Shares that the Optionee (or his or her heirs or successors) shall be entitled to purchase until such date of termination: (i) shall in the case of death of the Optionee, be all of the Common Shares that may be acquired on exercise of Legacy Options held by such Optionee (or his or her heirs or successors), whether or not previously vested, and the vesting of all such Legacy Options shall be accelerated on the date of death for such purpose; and (ii) in any case other than death or termination for cause, shall be the number of Common Shares which the Optionee was entitled to purchase on the date the Optionee ceased to be an officer, director, employee, consultant or other Service Provider, as the case may be. In the event of termination for cause, all of the Common Shares optioned, whether vested or unvested, shall be forfeited.
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If any Legacy Options may not be exercised due to any Black-Out Period at any time within the three-business day period prior to the normal expiry date of such Legacy Options (the "Restricted Options"), the expiry date of all Restricted Options shall be extended for a period of seven business days following the end of the Black-Out Period (or such longer period as permitted by the Exchange and approved by the Committee).
Cashless Exercise
Subject to the provisions of the Legacy Share Option Plan, if permitted by the Committee, an Optionee may elect to exercise a vested Legacy Option by surrendering such Legacy Option in exchange for the In-the-Money Value of Legacy Option in lieu of purchasing the number of Common Shares then issuable on the exercise of the vested Legacy Option. If the Optionee so elects to exercise the Legacy Option, the Optionee shall be entitled to payment of the In-the-Money Value of the vested Legacy Option determined as of the Pricing Date. The In-the-Money Value shall be paid in Common Shares issued from treasury with the number of Common Shares issuable being equal to the number obtained by dividing the In-the-Money Value of Legacy Options in respect of which such election is made by the Current Market Price on the Pricing Date.
Surrender Offer
A Optionee may make an offer (the "Surrender Offer") to the Company, at any time, for the disposition and surrender by the Optionee to the Company (and the termination thereof) of any of Legacy Options granted under the Legacy Share Option Plan for an amount (not to exceed the Fair Market Value of Common Shares less the exercise price of Legacy Options) specified in the Surrender Offer by the Optionee, and the Company may, but is not obligated to, accept the Surrender Offer, subject to any regulatory approval required. If the Surrender Offer, either as made or as renegotiated, is accepted, Legacy Options in respect of which the Surrender Offer relates shall be surrendered and deemed to be terminated and cancelled and shall cease to grant the Optionee any further rights thereunder upon payment of the amount of the agreed Surrender Offer by the Company to the Optionee. The Company may, in its sole discretion, elect to allow an Optionee to claim such deductions in computing taxable income of such Optionee, if any, that may be available to the Optionee in respect of any amount received by the Optionee, provided that the Company shall be under no obligation, express or implied, to make such election.
Alterations in Shares
In the event: (a) of any change in Common Shares through subdivision, consolidation, reclassification, amalgamation, merger or otherwise; or (b) that any rights are granted to all or substantially all shareholders to purchase Common Shares at prices substantially below Fair Market Value; or (c) that, as a result of any recapitalization, merger, consolidation or other transaction, Common Shares are converted into or exchangeable for any other securities or property; then the Company Board may make such adjustments to the Legacy Share Option Plan, to any Legacy Options and to any agreements for Legacy Options outstanding under the Legacy Share Option Plan, and make such amendments to any agreements for Legacy Options outstanding under the Legacy Share Option Plan, as the Company Board may, in its sole discretion, consider appropriate in the circumstances to prevent dilution or enlargement of the rights granted to Optionees thereunder and/or to provide for the Optionees to receive and accept such other securities or property in lieu of Common Shares, and the Optionees shall be bound by any such determination.
For greater certainty, and notwithstanding anything to the contrary to the foregoing paragraph, no adjustment shall be made in accordance with respect to the issue of Common Shares being made pursuant to or in connection with (i) any share option plan or share purchase plan, including the Legacy Share Option Plan, in force from time to time for existing or proposed officers, directors, employees or Service Providers of the Company, or (ii) the issuance of additional Common Shares pursuant to a public offering or private placement by the Company or a take-over bid or tender offer made by the Company for the securities of another entity.
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Provisions Related to Merger/Sale etc.
Except in the case of a transaction that is a Change of Control and to which accelerated vesting and termination of Legacy Options applies, if the Company enters into any transaction or series of transactions whereby the Company or All or Substantially All of the Assets would become the property of another trust, body corporate, partnership or other person (a "Successor"), whether by way of takeover bid, acquisition, reorganization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise, prior to or contemporaneously with the consummation of such transaction, the Company and the Successor will execute such instruments and do such things as the Committee may determine are necessary to establish that upon the consummation of such transaction the Successor will assume the covenants and obligations of the Company under the Legacy Share Option Plan outstanding on consummation of such transaction. Any such Successor shall succeed to, and be substituted for, and may exercise every right and power of the Company under the Legacy Share Option Plan with the same effect as though the Successor had been named as the Company therein and thereafter, the Company shall be relieved of all obligations and covenants under the Legacy Share Option Plan and the obligation of the Company to the Optionees in respect of Legacy Options shall terminate and be at an end and the Optionees shall cease to have any further rights in respect thereof including, without limitation, any right to acquire Common Shares upon vesting of Legacy Options.
Termination of Option
Notwithstanding any other provision in the Legacy Share Option Plan or the terms of any option agreement, if there takes place a Change of Control, all issued and outstanding Legacy Options shall terminate on the 90th day after the occurrence of such Change of Control, or at such earlier time as may be established by the Company Board, in its absolute discretion, prior to the time such Change of Control takes place.
Amendments
The Committee may, subject to any required approval of any Exchange, amend or discontinue the Legacy Share Option Plan and Legacy Options granted thereunder at any time without the approval of the shareholders of the Company or any Optionee whose Legacy Option is amended or terminated, provided that, subject to the terms of the Legacy Share Option Plan, no amendment to the Legacy Share Option Plan or Legacy Options granted pursuant to the Legacy Share Option Plan may be made without the consent of the Optionee, if it adversely alters or impairs any Legacy Option previously granted to such Optionee under the Legacy Share Option Plan. Without limitation of the foregoing, such amendments include, without limitation: (a) amendments of a "housekeeping nature" nature, including, without limitation, amending the wording of any provision of the Legacy Share Option Plan for the purpose of clarifying the meaning of existing provisions or to correct or supplement any provision of the Legacy Share Option Plan that is inconsistent with any other provision of the Legacy Share Option Plan, correcting grammatical or typographical errors and amending the definitions contained within the Legacy Share Option Plan respecting the administration of the Legacy Share Option Plan; (b) amending Legacy Options under the Legacy Share Option Plan, including with respect to the expiry date (provided that the term of the Legacy Option does not exceed 15 years from the date the Legacy Option is granted and that such Legacy Option is not held by an Insider) and effect of termination of a Optionee's employment or cessation of the Optionee's service; or (c) amendments necessary to comply with applicable law or the requirements of any Exchange. Notwithstanding the foregoing, the Legacy Share Option Plan or any outstanding Legacy Option granted thereunder may not be amended without shareholder approval to:
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(a) permit Legacy Options to be issued other than pursuant to the Plan of Arrangement;
(b) increase the number of Common Shares reserved for issuance pursuant to Legacy Options in excess of the limit prescribed in the Legacy Share Option Plan;
(c) extend the expiry date of any Legacy Option granted to an Insider (other than as permitted by the terms and conditions of the Legacy Share Option Plan);
(d) permit an Optionee to transfer Legacy Options to a new beneficial holder other than for estate settlement purposes;
(e) reduce the limitations on Legacy Options contained in the Legacy Share Option Plan; and
(f) change the Legacy Share Option Plan to modify or delete any of the above.
Notwithstanding the foregoing, the Committee may amend or terminate the Legacy Share Option Plan or any outstanding Legacy Option granted under the Legacy Share Option Plan at any time without the approval of the shareholders of the Company or any Optionee whose Legacy Option is amended or terminated in order to conform the Legacy Share Option Plan or such Legacy Option, as the case may be, to applicable law or regulation or the requirements of any relevant stock exchange or regulatory authority, whether or not that amendment or termination would affect any accrued rights or adversely alter or impair any Legacy Option previously granted.
The Company has also adopted the Equity Incentive Award Plan and Share Option Plan. For summaries of the Equity Incentive Award Plan and Share Option Plan, see "Matters To Be Acted Upon At The Meeting - Matters Respecting New Equity Incentive Plans" in this Information Circular.
Clawback Policy
The Company has a formal "clawback" policy on executive incentive compensation, including, without limitation, bonuses, share options and share awards, that may be awarded to our executive officers when (i) the executive engages in willful misconduct or fraud which causes or significantly contributes to a restatement of our financial statements due to our material noncompliance with any applicable financial reporting requirement under securities laws, (ii) the executive receives incentive compensation calculated on the achievement of those financial results, and (iii) the incentive compensation received would have been lower had the financial statements been properly reported. The policy provides that when a clawback is triggered, upon the recommendation of the Governance and ESG Committee, the Company Board may, in its sole discretion and to the extent that it determines it is in the Company's best interests to do so, require the executive to repay the amount of incentive compensation relating to the year(s) subject to the restatement or received upon exercise or payment of incentive compensation in or following the year(s) subject to the restatement that is in excess of the incentive compensation the executive would have received if the incentive compensation had been computed in accordance with the results as restated, calculated on an after tax basis.
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Securities Authorized for Issuance Under Equity Compensation Plans
As at December 31, 2022, the Company did not have any equity incentive plans. See "Matters Related to New Equity Incentive Plans", "Executive Compensation – Legacy Share Award Plan" and "Executive Compensation – Legacy Share Option Plan".
The following sets forth information in respect of securities authorized for issuance under Hammerhead's equity compensation plans as at December 31, 2022:
| Plan Category | Number of securities to be issued upon exercise of outstanding options and awards (a) | Weighted average exercise price of outstanding options and awards(3) (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| Equity compensation plans approved by securityholders: | |||
| Hammerhead Share Option Plan(1) | 10,510,250 | 0.50 | 28,745,832 |
| Hammerhead Share Award Plan(2) | 83,595,675 | 0.01 | 10,412,014 |
| Equity compensation plans not approved by securityholders: | Nil | Nil | Nil |
| Total | 94,105,925 | 39,157,846 |
Notes:
(1) The maximum number of Hammerhead Common Shares that were issuable pursuant to the Hammered Share Option Plan was 10% of the outstanding Hammerhead Common Shares, which was equal to 39,256,082 Hammerhead Common Shares, being 10% of the 392,560,824 Hammerhead Common Shares issued and outstanding as of December 31, 2022. The Hammerhead Options were exchanged for Legacy Option upon completion of the Business Combination.
(2) The maximum number of Hammerhead Common Shares issuable pursuant to the Hammerhead Share Award Plan was 12% of the outstanding Hammerhead Common Shares and Preferred Shares (on an as-converted basis) less the number of Hammerhead Common Shares issuable pursuant to the Hammerhead Share Option Plan at such time, which was equal to 104,517,939 Hammerhead Common Shares, being 12% of the 954,316,155 as converted Hammerhead Common Shares issued and outstanding as of December 31, 2022 less 10,510,250 Hammerhead Common Shares issuable pursuant to the Option Plan as at December 31, 2022. The Hammerhead RSUs were exchanged for Legacy RSUs upon completion of the Business Combination.
(3) Following the completion of the Business Combination, the exercise prices of the Hammerhead RSUs and Hammerhead Options were $0.16 and $7.82, respectively.
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INTERESTS OF CERTAIN PERSONS OR COMPANIES IN MATTERS TO BE ACTED UPON
The Company is not aware of any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, of any person who has been a director or executive officer of the Company at any time since the beginning of the Company's last financial year, or nominee for election as a director, or of any associate or affiliate of the foregoing, in respect of any matter to be acted on at the Meeting, other than the election of directors, the appointment of auditors or the approval of the equity incentive plans.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Except as otherwise disclosed herein, there were no material interests, direct or indirect, of any proposed director or any Informed Person (as defined in NI 51-102) or any known associate or affiliate of such persons, in any transaction since the commencement of the last completed financial year of the Company or in any proposed transaction which has materially affected or would materially affect the Company or its subsidiary.
On February 23, 2023, the Company completed the Business Combination. See "Explanatory Note" and "Voting Shares and Principal Holders".
The Riverstone Parties are affiliates of Riverstone, of which Robert Tichio, current director of the Company, is a Partner and Jesal Shah, current director of the Company, is an employee. James AC McDermott is a former director of DCRD.
ADDITIONAL INFORMATION
Upon request, the Company will provide securityholders with a copy of the Company's or our predecessor entity financial statements for the year ended December 31, 2022 and associated management's discussion and analysis of financial condition and results of operations, as well as a copy of the Company's annual information form on Form 20-F, subsequent interim financial statements and management's discussion and analysis and this Information Circular.
Copies of these documents may be obtained on request without charge from the Senior Vice President and Chief Financial Officer at 2700, 525 – 8th Avenue S.W., Calgary, Alberta, T2P 1G1; telephone 403.930.0560 or by accessing the disclosure documents available under our profile on SEDAR at www.sedar.com or on EDGAR at www.sec.gov/edgar.
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ADVISORIES
Forward-Looking Information and Statements
This Information Circular contains forward-looking information and statements (collectively, "forward-looking statements"). These forward-looking statements relate to future events or our future performance. All information and statements other than statements of historical fact contained in this Information Circular are forward-looking statements. Such forward-looking statements may be identified by looking for words such as "approximately", "may", "believe", "measure", "stability", "depends", "expects", "will", "intends", "should", "could", "plan", "budget", "predict", "potential", "projects", "anticipates", "forecasts", "estimates", "objective", "ongoing", "continues", "sustainability" or similar words or the negative thereof or other comparable terminology suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future, including statements about our strategy, plans, focus, objectives, priorities and position. In particular, and without limiting the generality of the foregoing, this Information Circular contains forward-looking statements with respect to: the Company's proposed incentive plans and anticipated implementation thereof; director compensation; and Company Board diversity.
By their nature, forward-looking statements are based upon certain assumptions and are subject to numerous risks and uncertainties, some of which are beyond our control, including the impact of general economic conditions, industry conditions, current and future commodity prices and inflation rates, the effects of pandemics, including with respect to commodity prices, currency and interest rates, anticipated production rates, borrowing, operating and other costs and adjusted funds flow, the timing, allocation and amount of capital expenditures and the results therefrom, anticipated reserves and the imprecision of reserve estimates, the performance of existing wells, the success obtained in drilling new wells, the sufficiency of budgeted capital expenditures in carrying out planned activities, access to infrastructure and markets, competition from other industry participants, availability of qualified personnel or services and drilling and related equipment, stock market volatility, effects of regulation by governmental agencies including changes in environmental regulations, tax laws and royalties, the ability to access sufficient capital from internal sources and bank and equity markets, the availability of qualified candidates to meet the Company Board and executive officer diversity goals and, without limitation, those risks considered under "Risk Factors" in our annual information form on Form 20-F. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, or if any of them do so, what benefits we will derive therefrom.
The Company has included the forward-looking statements in this Information Circular in order to provide readers with a more complete perspective on our future plans and operations and such information may not be appropriate for other purposes. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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SCHEDULE A
See attached.
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SHARE OPTION PLAN
HAMMERHEAD ENERGY INC.
Effective as of February 23, 2023 and as amended and restated effective May 1, 2023
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HAMMERHEAD ENERGY INC.
SHARE OPTION PLAN
1. Purpose of Plan
The purpose of this Plan is to aid in attracting, retaining and motivating the officers, employees and other eligible Service Providers of the HEI Group in the growth and development of the HEI Group by providing them with the opportunity through Options to acquire an increased proprietary interest in the Corporation.
2. Administration
This Plan shall be administered by the Committee pursuant to any rules of procedure that may be fixed by the Board.
To the extent permitted by law, the Committee may delegate or sub-delegate to one or more of its members, to any director or officer of the Corporation or to one or more agents all or any of the powers conferred on the Committee under this Plan, and the Committee or any person to whom it has delegated or sub-delegated authority as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under this Plan.
For greater certainty and without limiting the discretion conferred on the Committee pursuant to this Article, the Committee's decision to approve the grant of an Option in any period shall not require the Committee to approve the grant of an Option to any Service Provider in any other period; nor shall the Committee's decision with respect to the size or terms and conditions of an Option grant in any period require it to approve the grant of an Option of the same or similar size or with the same or similar terms and conditions to any Service Provider in any other period. The Committee shall not be precluded from approving the grant of an Option to any Service Provider solely because such Service Provider may previously have been granted an Option under this Plan or any other similar compensation arrangement of the Corporation or a member of the HEI Group. There is no obligation for uniformity of treatment of Service Providers or Optionees under this Plan. The terms and conditions of Options need not be the same with respect to any Optionee or with respect to different Optionees. No Service Provider has any claim or right to be granted an Option.
3. Granting of Options
The Committee may from time to time designate officers and employees of, and other eligible Service Providers to, the HEI Group to whom Options may be granted and the number of Shares to be optioned to each, provided that the number of Shares to be optioned shall not exceed the limitations provided in Article 4 hereof.
4. Limitations to this Plan
Notwithstanding any other provision of this Plan:
(a) subject to Articles 11 and 12, the number of Shares reserved for issuance on exercise of Options outstanding under this Plan, together with the number of Shares reserved for issuance under all other Security Based Compensation Arrangements of the Company that provide for the issuance of Shares, shall not at any time exceed 10% of the Shares then issued and outstanding;
(b) no one Service Provider may be granted any Option which, together with all Options then held by such Optionee, would entitle or enable such Optionee to receive a number of Shares which is greater than 5% of the outstanding Shares, calculated on an undiluted basis; and
(c) the number of Shares:
(i) issued to Insiders of the Corporation, within any one year period; and
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(ii) issuable to Insiders of the Corporation, at any time;
under this Plan, or when combined with all of the Corporation's other Security Based Compensation Arrangements shall not exceed 10% of the Corporation's total issued and outstanding Shares, respectively.
Options that are cancelled, surrendered, terminated or expire prior to the exercise of all or a portion thereof shall result in the Shares that were reserved for issuance thereunder being available for a subsequent grant of Options pursuant to this Plan to the extent of any Shares issuable thereunder that are not issued under such cancelled, surrendered, terminated or expired Options. For greater certainty, any increase in the issued and outstanding Shares will result in an increase in the number of Shares available under this Plan
5. Vesting
The Committee may, in its sole discretion, determine: (i) the time during which Options shall vest; (ii) the method of vesting; or (iii) that no vesting restriction shall exist. In the absence of any determination by the Committee to the contrary, Options will vest and be exercisable as to one-quarter (1/4) of the total number of Shares subject to the Options on each of the first, second, third and fourth anniversaries of the date of grant (computed in each case rounded down to the nearest whole Share with any fractional amount vesting on such fourth anniversary) subject to continued employment or service with the HEI Group. Notwithstanding the foregoing, the Committee may, at its sole discretion at any time or in the Option Agreement in respect of any Options granted, accelerate or provide for the acceleration of vesting of Options previously granted.
6. Option Price
The exercise price of Options granted under this Plan shall be fixed by the Committee when such Options are granted, provided that the exercise price of Options shall not be less than such minimum price as may be required by the Exchange(s), if any, on which the Shares are listed at the time of grant.
7. Option Terms
The period during which an Option is exercisable shall, subject to the provisions of this Plan requiring or permitting the acceleration of rights of exercise or the extension of the exercise period, be such period, not in excess of ten (10) years, as may be determined from time to time by the Committee, but subject to the rules of any Exchange(s) or other regulatory body having jurisdiction, and in the absence of any determination to the contrary will be five (5) years from the date of grant. Each Option shall, among other things, contain provisions to the effect that the Option shall be personal to the Optionee and shall not be assignable. In addition, unless the Corporation and an Optionee agree otherwise in an Option Agreement or other written agreement (such as an agreement of employment or a Retirement Agreement), each Option shall provide that:
(a) Death - upon the death of the Optionee, the Option shall terminate on the earlier of (i) the date determined by the Committee which shall not be more than twelve (12) months from the Cessation Date and, in the absence of any determination to the contrary, twelve (12) months from the Cessation Date and (ii) the Expiry Date of such Option;
(b) Other Termination - if the Optionee shall no longer be an officer of or be in the employ of, or consultant or other Service Provider to, any of the entities comprising the HEI Group (other than by reason of death, termination for Cause, voluntary resignation or Retirement), the Option shall terminate on the earlier of (i) expiry of the period as prescribed by the Committee at the time of grant, following the Cessation Date, and, in the absence of any determination to the contrary, at the later of (A) ninety (90) days following the Cessation Date, and (B) the end of the notice period used for calculating severance to which the Optionee is entitled as a result of the Optionee's cessation as a Service Provider pursuant to a written contract of employment, if any, with an entity in the HEI Group; and (ii) the Expiry Date of such Option;
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(c) Termination for Cause - if the Optionee shall no longer be an officer of or be in the employ of, or consultant or other Service Provider to, any of the entities comprising the HEI Group by reason of termination for Cause, the Option shall terminate immediately on the Cessation Date (whether notice of such termination occurs verbally or in writing);
(d) Voluntary Resignation - if the Optionee shall no longer be an officer of or be in the employ of, or consultant or other Service Provider to, any of the entities comprising the HEI Group by reason of voluntary resignation, effective as of the day that is fourteen (14) days after the Cessation Date the Option shall terminate;
(e) Retirement - if the Optionee shall no longer be an officer of or be in the employ of any of the entities comprising the HEI Group due to the Optionee's Retirement, the Option shall continue in accordance with its terms and the exercise period shall not be accelerated as a result of the Optionee's Retirement;
provided that the number of Shares that the Optionee (or his or her heirs or successors) shall be entitled to purchase until such date of termination: (i) shall in the case of death of the Optionee, be all of the Shares that may be acquired on exercise of the Options held by such Optionee (or his or her heirs or successors) whether or not previously vested, and the vesting of all such Options shall be accelerated on the Cessation Date; and (ii) in any case other than death or termination for Cause, shall be the number of Shares which the Optionee was entitled to purchase on the Cessation Date. In the event of termination for Cause, all of the Shares optioned, whether vested or unvested shall be forfeited.
If any Options may not be exercised due to any Black-Out Period at any time within the three business day period prior to the normal expiry date of such Options (the "Restricted Options"), the expiry date of all Restricted Options shall be extended for a period of seven business days following the end of the Black-Out Period (or such longer period as permitted by the Exchange(s) and approved by the Committee).
8. Exercise of Option
Subject to the provisions of this Plan, a vested Option may be exercised from time to time prior to the Expiry Date thereof by delivery to the Corporation at its head office in Calgary, Alberta or such other place as may be specified by the Corporation, of a written notice of exercise specifying the number of Shares with respect to which the Option is being exercised and accompanied by payment in full of the purchase price of the Shares then being purchased.
No Option holder who is resident in the United States may exercise Options unless the Shares issuable by the Corporation upon such exercise are registered under the U.S. Securities Act or are issued in compliance with an available exemption from the registration requirements of the U.S. Securities Act.
9. Cashless Exercise
Subject to the provisions of this Plan, if permitted by the Committee, an Optionee may elect to exercise a vested Option by surrendering such Option in exchange for the In-the-Money Value (as defined below) of the Option in lieu of purchasing the number of Shares then issuable on the exercise of the vested Option. If the Optionee so elects to exercise the Option, the Optionee shall be entitled to payment of the In-the-Money Value of the vested Option determined as of the date (the "Pricing Date") the Corporation receives notice of the exercise of such Option. The In-the-Money Value shall be paid in Shares issued from treasury with the number of Shares issuable being equal to the number obtained by dividing the In-the-Money Value of the Options in respect of which such election is made by the Current Market Price on the Pricing Date. "In-the-Money Value" means the amount by which the Current Market Price on the Pricing Date exceeds the exercise price of the applicable Options, multiplied by the number of Shares related to the applicable Options. "Current Market Price" means, as at any date when the Current Market Price is to be determined, the volume weighted average trading price per Share on the TSX, or, if the Shares are not listed on the TSX, on any Exchange in Canada or the United States, for the last five (5) trading days immediately prior to the date of determination, or if the Shares are not listed upon any stock exchange in Canada or the United States, the Current Market Price shall be determined by the Board of Directors acting in good faith. An Option may be exercised pursuant to this Article 9 from time to time by delivery to the Corporation at its head office in Calgary, Alberta or such other place as may be specified by the Corporation, of a written notice of exercise specifying that the Optionee has elected to make a cashless exercise of such Option and the number of Options to be exercised (provided that the Committee may, in its sole discretion, vary the aforementioned procedure for exercising an Option from time to time). The Corporation will not be required, upon the exercise of any Options pursuant to this Article 9, to issue fractions of Shares or to distribute certificates which evidence fractional Shares. In lieu of fractional Shares, the Corporation will pay to the Optionee within ten (10) business days after the exercise date, an amount in lawful money of Canada equal to the then Current Market Price of such fractional interest, provided that the Corporation will not be required to make any payment, calculated as aforesaid, that is less than $10.00. Any reference in this Article 9 to the issuance of Shares or the payment of cash is subject to compliance with Article 17.
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10. Surrender Offer
An Optionee may make an offer (the "Surrender Offer") to the Corporation, at any time, for the disposition and surrender by the Optionee to the Corporation (and the termination thereof) of any of the Options granted hereunder for an amount (not to exceed the Fair Market Value of the Shares less the exercise price of the Options) specified in the Surrender Offer by the Optionee, and the Corporation may, but is not obligated to, accept the Surrender Offer, subject to any regulatory approval required. If the Surrender Offer, either as made or as renegotiated, is accepted, the Options in respect of which the Surrender Offer relates shall be surrendered and deemed to be terminated and cancelled and shall cease to grant the Optionee any further rights thereunder upon payment of the amount of the agreed Surrender Offer by the Corporation to the Optionee. Any reference in this Article 10 to the payment of cash is subject to compliance with Article 17.
11. Alterations in Shares
In the event:
(a) of any change in the Shares through subdivision, consolidation, reclassification, amalgamation, merger or otherwise; or
(b) that any rights are granted to all or substantially all shareholders to purchase Shares at prices substantially below Fair Market Value; or
(c) that, as a result of any recapitalization, merger, consolidation or other transaction, the Shares are converted into or exchangeable for any other shares;
then the Board may, subject to any required approval of the TSX, make such adjustments to this Plan, to any Options and to any Option Agreements outstanding under this Plan, and make such amendments to any Option Agreements outstanding under this Plan, as the Board may, in its sole discretion, consider appropriate in the circumstances to prevent inappropriate dilution or enlargement of the rights granted to Optionees hereunder and/or to provide for the Optionees to receive and accept such other shares in lieu of Shares, and the Optionees shall be bound by any such determination.
For greater certainty, and notwithstanding anything to the contrary in this Article 11, no adjustment shall be made in accordance with this Article 11 with respect to the issue of Shares being made pursuant to or in connection with (i) any share option plan or share purchase plan, including this Plan, in force from time to time for existing or proposed officers, directors, employees or Service Providers of the Corporation, or (ii) the issuance of additional Shares pursuant to a public offering or private placement by the Corporation or a take-over bid or tender offer made by the Corporation for the securities of another entity.
With respect to any Options which are governed by section 7 of the Tax Act, all adjustments and actions described in this Article 11 shall be structured in compliance with the requirements of subsections 7(1.4) (if done by way of an exchange of Options) or with subsections 110(1.7) and 110(1.8) of the Tax Act.
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12. Merger and Sale, etc.
Except in the case of a transaction that is a Change of Control and to which Article 13 applies, if the Corporation enters into any transaction or series of transactions whereby the Corporation or All or Substantially All of the Assets would become the property of any other trust, body corporate, partnership or other person (a "Successor"), whether by way of takeover bid, acquisition, reorganization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise, prior to or contemporaneously with the consummation of such transaction the Corporation and the Successor will execute such instruments and do such things as the Committee may determine are necessary to establish that upon the consummation of such transaction the Successor will assume the covenants and obligations of the Corporation under this Plan and the Option Agreements outstanding on consummation of such transaction. Any such Successor shall succeed to, and be substituted for, and may exercise every right and power of the Corporation under this Plan and Option Agreements with the same effect as though the Successor had been named as the Corporation herein and therein and thereafter, the Corporation shall be relieved of all obligations and covenants under this Plan and such Option Agreements and the obligation of the Corporation to the Optionees in respect of the Options shall terminate and be at an end and the Optionees shall cease to have any further rights in respect thereof including, without limitation, any right to acquire Shares upon vesting of the Options. With respect to any Options that are governed by section 7 of the Tax Act, to the extent commercially practicable, any such assumption by the Successor will be structured so as to be governed by subsection 7(1.4) of the Tax Act.
13. Acceleration of Vesting and Termination of Option
Notwithstanding any other provision in this Plan or the terms of any Option Agreement, upon the consummation of a Change of Control, all issued and outstanding Options shall be automatically fully vested and exercisable (whether or not then vested) immediately prior to the time such Change of Control takes place and shall terminate on the 90th day after the occurrence of such Change of Control, or at such earlier time as may be established by the Board, in its absolute discretion, prior to the time such Change of Control takes place.
14. No Rights as a Shareholder
An Optionee shall not have any of the rights or privileges of a shareholder of the Corporation in respect of any Shares issuable upon exercise of an Option until certificates representing such Shares have been issued and delivered.
15. Regulatory Authorities Approvals
This Plan shall be subject to the approval, if required, of any Exchange(s) on which the Shares are listed for trading. Any Options granted prior to receipt of such approval and after listing on any such Exchange(s) shall be conditional upon such approval being given and no such Options may be exercised unless such approval, if required, is given.
16. Option Agreements
A written agreement (an "Option Agreement") will be entered into between the Corporation and each Optionee to whom an Option is granted hereunder, which Option Agreement will set out the number of Shares subject to Option, the exercise price, the vesting dates, circumstances when vesting of Options may be accelerated, the Expiry Date, whether any of the Options are Options in respect of "non-qualified securities" under the Tax Act, and any other terms approved by the Committee, all in accordance with the provisions of this Plan. The Option Agreement will be in such form as the Committee may from time to time approve or authorize the officers of the Corporation to enter into and may contain such terms as may be considered necessary in order that the Option will comply with any provisions respecting Options in the income tax or other laws in force in any country or jurisdiction of which the person to whom the Option is granted may from time to time be a resident or citizen or the rules of any regulatory body having jurisdiction over the Corporation. Such Option Agreements may also contain such other provisions as the Committee may determine.
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If an Optionee fails to acknowledge a grant of an Option by acceptance of the Option Agreement within the time specified by the Committee, the Corporation reserves the right to revoke the Option grant. Participation in this Plan by any Optionee shall be construed as irrevocable acceptance by the Participant of the terms and conditions set out herein and all rules and procedures adopted hereunder and as amended from time to time.
17. Tax Withholding
The Corporation shall have the power and the right to deduct or withhold, or require (as a condition of exercise) an Optionee to remit to the Corporation, the required amount to satisfy, in whole or in part, federal, provincial, state and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan, including the grant, exercise or surrender of Options granted under this Plan. With respect to required withholding, the Corporation shall have the irrevocable right to (and the Optionee consents to) the Corporation setting off any amounts required to be withheld, in whole or in part, against amounts otherwise owing by the Corporation to such Optionee (whether arising pursuant to the Optionee's relationship as an officer or employee of the Corporation or as a result of the Optionee providing services on an ongoing basis to the Corporation or otherwise), or may make such other arrangements as are satisfactory to the Optionee and the Corporation. In addition, the Corporation may elect, in its sole discretion, to satisfy the withholding requirement, in whole or in part, by withholding such number of Shares as it determines are required to be sold by the Corporation, as trustee, to satisfy the withholding obligation net of selling costs (which costs shall be the responsibility of the Optionee and which shall be and are authorized to be deducted from the proceeds of sale). The Optionee consents to such sale and grants to the Corporation an irrevocable power of attorney to effect the sale of such Shares and acknowledges and agrees that the Corporation does not accept responsibility for the price obtained on the sale of such Shares. Any reference in this Plan to the issuance of Shares or a payment of cash is expressly subject to this Article 17.
18. Tax Treatment
All Options granted to persons who are granted Options by virtue of their employment with the Corporation or a Subsidiary shall have such terms and conditions so as to be governed by section 7 of the Tax Act.
Optionees (or their beneficiaries) shall be responsible for all taxes with respect to any Option outstanding under this Plan, whether arising as a result of the grant or exercise of Options or otherwise. The Corporation and the Committee make no guarantees to any person regarding the tax treatment of an Option or payments made under this Plan and none of the Corporation or any of its directors, officers, employees or representatives shall have any liability to an Optionee with respect thereto. Optionees are advised to consult with their own tax advisors.
The Corporation shall make reasonable commercial efforts to ensure that Optionees receive the most favourable tax treatment permitted by law in connection with the exercise and/or surrender of Options, including, without limitation, executing any tax elections necessary for an Optionee to receive capital-gains like tax treatment under paragraph 110(1)(d) of the Tax Act (or any successor provision thereof), provided that Corporation shall not be liable if the paragraph 110(1)(d) deduction is not available in respect of any Options granted under this Plan due to a failure of the Options to meet the conditions required to qualify for such deduction (other than the requirement for any election under subsection 110(1.1) of the Tax Act if the Options are subject to a cashless exercise under Article 9 or are surrendered under Article 10).
Notwithstanding any other provision of this Plan, grants of Options to Participants who are subject to United States federal income taxation ("U.S. Taxpayers") under the United States Internal Revenue Code of 1986, as amended (the "Code"), shall be made and administered under the terms of Schedule A to this Plan.
19. No Effect on Employment or Retainer
Participation in this Plan by an Optionee is entirely voluntary and does not affect the Optionee's employment or continued retainer by, or other engagement with, any of the entities comprising the HEI Group, nor does it interfere in any way with the right of the Optionee or any of the entities comprising the HEI Group to terminate the Optionee's employment or service provision at any time. Neither this Plan nor the granting to an Optionee of an Option hereunder of itself gives such Optionee any right to continue to be an officer, employee or Service Provider of any of the entities comprising the HEI Group. None of the terms and conditions governing an Option shall be affected by any change in the terms of the Optionee's employment or by engagement with any of the entities comprising the HEI Group so long as the Optionee continues to hold Options. The terms of this Plan or any option agreement shall not affect in any manner whatsoever the terms or validity of any employment or other services agreement to which the Corporation is a party. Schedule A is incorporated herein by reference
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20. Amendment or Discontinuance of this Plan
(a) The Committee may, subject to any required approval of any Exchange(s), amend, modify or discontinue this Plan and Options granted thereunder at any time without the approval of the shareholders of the Corporation or any Optionee whose Option is amended or terminated, provided that, subject to the following paragraph of this Article 20, no amendment to this Plan or Options granted pursuant to this Plan may be made without the consent of the Optionee, if it adversely alters or impairs any Option previously granted to such Optionee under this Plan. Without limitation of the foregoing, such amendments include, without limitation: (a) amendments of a "housekeeping nature" nature, including, without limitation, amending the wording of any provision of this Plan for the purpose of clarifying the meaning of existing provisions or to correct or supplement any provision of this Plan that is inconsistent with any other provision of this Plan, correcting grammatical or typographical errors and amending the definitions contained within this Plan respecting the administration of this Plan; (b) amending Options under this Plan, including with respect to the expiry date (provided that the term of the Option does not exceed ten years from the date the Option is granted and that such Option is not held by an Insider) and effect of termination of a Optionee's employment or cessation of the Optionee's service; or (c) amendments necessary to comply with applicable law or the requirements of any Exchange(s). Notwithstanding the foregoing, this Plan or any outstanding Option granted hereunder may not be amended without shareholder approval to:
(i) increase the number of Shares reserved for issuance pursuant to Options in excess of the limit prescribed in Article 4 hereof;
(ii) extend the vesting date of any Options granted under this Plan to an Insider beyond the latest vesting date specified in the Option Agreement (other than as permitted by the terms and conditions of this Plan);
(iii) extend the expiry date of any Option granted to an Insider (other than as permitted by the terms and conditions of this Plan);
(iv) permit an Optionee to transfer Options to a new beneficial holder other than for estate settlement purposes;
(v) reduce the limitations on Options contained in Article 4 hereof;
(vi) increase the number of Shares that may be issued to Insiders above the restrictions contained in Article 4(c) hereof; and
(vii) change this Article 20(a) to modify or delete any of (i) through (v) above.
(b) Notwithstanding the foregoing, the Committee may amend or terminate this Plan or any outstanding Option granted hereunder at any time without the approval of the shareholders of the Corporation or any Optionee whose Option is amended or terminated, in order to conform this Plan or such Option, as the case may be, to applicable law or regulation or the requirements of any relevant Exchange(s) or regulatory authority, whether or not that amendment or termination would affect any accrued rights or adversely alter or impair any Option previously granted.
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21. Decisions Final and Binding
All decisions and interpretations by the Committee respecting this Plan or Options granted hereunder, including decisions as to adjustments in the number of Shares to be received upon exercise of an Option or the exercise price thereof in accordance with Article 11 shall be final and binding on the Corporation and all Optionees and their respective successors, heirs and legal representatives, as applicable.
Subject to Article 32, all rights, entitlements and obligations of Optionees under this Plan and in respect of Options are set forth in the terms hereof and the applicable Option Agreements and cannot be modified by any other documents, statements or communications, except by amendment to the terms hereof or thereof in accordance with Article 20.
22. Defined Terms
Where used herein, the following terms shall have the following meanings, respectively:
(a) "affiliate" and "associate" each have the meaning ascribed thereto in MI 62-104;
(b) "All or Substantially All of the Assets" means greater than 90% of the aggregate fair market value of the assets of the Corporation and its Subsidiaries, on a consolidated basis, as determined by the Board in its sole discretion;
(c) "Black-Out Period" means the period of time, if any, when, pursuant to any policies of the Corporation, any securities of the Corporation may not be traded by certain persons as designated by the Corporation, including any holder of an Option;
(d) "Board" means the board of directors of the Corporation as constituted from time to time;
(e) "business day" means a day other than a Saturday, Sunday or other day when banks in the City of Calgary, Alberta are generally not open for business;
(f) "Cause" means, unless otherwise defined in the applicable Option Agreement or employment agreement or consulting agreement of the Optionee (in which case "Cause" shall have the meaning therein):
(i) in respect of an Optionee that is an employee or officer of a member of the HEI Group, any act or omission that would entitle the member of the HEI Group that employs the Optionee to terminate the Optionee's employment without notice or compensation under the Canadian common law for just cause; and
(ii) in respect of an Optionee that is a consultant to a member of the HEI Group, any material breach by the Optionee of the terms of the contract or agreement under which the Optionee is retained by a member of the HEI Group;
(g) "Cessation Date" means the date that is the earlier of:
(i) the effective date of the Service Provider's termination, resignation, death or Retirement, as the case may be; and
(ii) the date that the Service Provider ceases to be in the active performance of the usual and customary day-to-day duties of the Service Provider's position or job other than due to a Leave of Absence,
regardless of whether adequate, legal or proper advance notice of termination or resignation shall have been provided in respect of such cessation of being a Service Provider, and the Cessation Date shall not, under any circumstances, be extended by any statutory, contractual or common law notice period mandated under any application laws;
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(h) "Change of Control" means:
(i) (A) a successfully completed takeover bid; and (B) members of the Board who are members of the Board immediately prior to the earlier of the commencement of such takeover bid and the first public announcement of such takeover bid cease to constitute a majority of the Board at any time within sixty days of the successful completion of such takeover bid; or
(ii) (A) any change in the beneficial ownership or control of the outstanding securities or other interests of the Corporation which results in:
(I) a person or group of persons "acting jointly or in concert" (within the meaning of MI 62-104); or
(II) an affiliate or associate of such person or group of persons;
holding, owning or controlling, directly or indirectly, more than 50% of the outstanding voting securities or interests of the Corporation; and
(B) members of the Board who are members of the Board immediately prior to the earlier of such change and the first public announcement of such change cease to constitute a majority of the Board at any time within sixty days of such change; or
(iii) Incumbent Directors no longer constituting a majority of the Board; or
(iv) the winding up of the Corporation or the sale, lease or transfer of All or Substantially All of the Assets to any other person or persons and the distribution of greater than 90% of the net proceeds from such sale, lease or transfer to the shareholders of the Corporation within 60 days of the completion of such sale, lease or transfer (other than pursuant to an internal reorganization or in circumstances where the business of the Corporation is continued and where the shareholdings or other security holdings, as the case may be, in the continuing entity and the constitution of the board of directors or similar body of the continuing entity is such that the transaction would not be considered a "Change of Control" if paragraph (f)(ii) above was applicable to the transaction); provided that, for greater certainty, a sale, lease or exchange of all or substantially all the property of the Corporation for purposes of the Business Corporations Act (Alberta) shall not be considered a sale, lease or transfer All or Substantially All of the Assets for purposes of this paragraph (f)(iv) unless the property that is the subject of such sale, lease or exchange represents greater than 90% of the aggregate fair market value of the assets of the Corporation and its Subsidiaries, on a consolidated basis, as determined in accordance with Article 22(b);
provided that a Change of Control shall be deemed not to have occurred if a majority of the Board, in good faith, determines that a Change of Control was not intended to occur in the particular circumstances in question and any such determination shall be binding and conclusive for all purposes of this Plan;
(i) "Code" has the meaning set forth in Article 18 hereof;
(j) "Committee" means the Compensation Committee of the Board or such other committee of the Board appointed from time to time by the Board to administer this Plan or, if no such committee is appointed, the Board;
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(k) "Corporation" means Hammerhead Energy Inc., an Alberta corporation, and includes any successor corporation thereof;
(l) "Exchange" means the stock exchange(s), if any, on which the Shares are listed and posted for trading;
(m) "Expiry Date" means the date upon which an Option expires pursuant to the Option Agreement relating to such Option;
(n) "Fair Market Value" with respect to a Share, as at any date, means the volume weighted average of the prices at which the Shares traded on the Exchange (or, if the Shares are then listed and posted for trading on more than one Exchange, on such Exchange on which the majority of the trading volume and value of the Shares occurs) for the five (5) trading days on which the Shares traded on the said Exchange immediately preceding such date. In the event that the Shares are not listed and posted for trading on any stock exchange, the Fair Market Value shall be the fair market value of the Shares as determined by the Board in its sole discretion, acting reasonably and in good faith. If initially determined in United States dollars, the Fair Market Value shall be converted into Canadian dollars at an exchange rate selected and calculated in the manner determined by the Board from time to time, acting reasonably and in good faith;
(o) "HEI Group" means, collectively, the Corporation and any entity that is a Subsidiary of the Corporation from time to time (and, for greater certainty, including any successor entity of any of the aforementioned entities);
(p) "Incumbent Directors" means any member of the Board who was a member of the Board at the effective date of this Plan and any successor to an Incumbent Director who was recommended or elected or appointed to succeed any Incumbent Director by the affirmative vote of the Board, including a majority of the Incumbent Directors then on the Board, prior to the occurrence of the transaction, transactions, elections or appointments giving rise to a Change of Control;
(q) "Insider" has the meaning ascribed thereto in Part I of the TSX Company Manual for the purposes of Section 613 of the TSX Company Manual;
(r) "Leave of Absence" means a Service Provider being absent from active employment or active service as a result of sabbatical, disability, education leave, maternity or parental leave, or any other form of leave approved by the Committee;
(s) "MI 62-104" means Multilateral Instrument 62-104 - Take-Over Bids and Issuer Bids, as amended from time to time;
(t) "Option" means an option to purchase Shares granted pursuant to the provisions hereof;
(u) "Option Agreement" has the meaning ascribed thereto in Article 16 hereof;
(v) "Optionees" means persons to whom Options are granted and which Options, or a portion thereof, remain unexercised;
(w) "Plan" means this share option plan of the Corporation, as the same may be amended or varied from time to time;
(x) "Retirement" means:
(i) the date that an Optionee who is an officer or employee of one or more of the entities comprising the HEI Group reaches the age of fifty-five (55), has ten (10) years of service with the HEI Group and voluntarily ceases to be an officer or employee of one or more of the entities comprising the HEI Group, provided that: (A) if the Optionee is an officer or employee of one or more of the entities comprising the HEI Group, such Optionee has provided the Corporation with six (6) months prior written notice of the Optionee's intention to retire; and (B) is offered by the Corporation the opportunity to and enters into an agreement (which shall include non-competition and non-solicitation covenants and the consequences of breaching such covenants including the immediate termination of all outstanding Options notwithstanding the provisions of Article 7(e) in respect of such Retirement) with the Corporation respecting such Optionee's retirement from any employment with the HEI Group in a form that is acceptable to the Corporation (a "Retirement Agreement"); or
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(ii) such other meaning as the Board may determine from time to time;
(y) "Retirement Agreement" has the meaning set forth in Article 22(x)(i) hereof;
(z) "Security Based Compensation Arrangements" has the meaning ascribed thereto in Part VI of the TSX Company Manual;
(aa) "Service Provider" means an officer or employee of, or a person or company engaged by, one or more of the entities comprising the HEI Group to provide services to an entity within the HEI Group;
(bb) "Shares" means the Class A common shares of the Corporation or, in the event of an adjustment contemplated by Article 11 hereof, such other shares to which an Optionee may be entitled upon the exercise of an Option as a result of such adjustment;
(cc) "Subsidiary" has the meaning ascribed there in the Securities Act (Alberta);
(dd) "takeover bid" means a "take-over bid" as defined in MI 62-104 or tender offer, pursuant to which the "offeror" would as a result of such takeover bid or tender offer, if successful, beneficially own, directly or indirectly, in excess of 50% of the outstanding Shares (other than pursuant to an internal reorganization or in circumstances where the business of the Corporation is continued and where the shareholdings or other security holdings, as the case may be, in the offeror and the constitution of the board of directors or similar body of the offeror is such that the take-over bid or tender offer would not be considered a "Change of Control" if paragraph 23(f)(ii) above was applicable to the transaction);
(ee) "Tax Act" means the Income Tax Act (Canada) and the regulations promulgated thereunder, each as amended from time to time;
(ff) "TSX" means the Toronto Stock Exchange;
(gg) "U.S." or "United States" means the United States of America, its territories and possessions, any State of the United States, and the District of Columbia;
(hh) "U.S. Securities Act" means the United States Securities Act of 1933, as amended and the rules and regulations promulgated thereunder; and
(ii) "U.S. Taxpayers" has the meaning set forth in Article 18 hereof
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23. Interpretation
In this Plan: (a) words in the singular include the plural and words in the plural include the singular; (b) words importing the masculine gender shall include the feminine and neuter genders and vice versa; (c) article and sub-article headings contained herein are for convenience only and shall not affect the construction hereof; and (d) words "hereto", "herein", "hereby", "hereunder", "hereof" and similar expressions mean or refer to this document as a whole and not to any particular Article, paragraph or other part hereof.
24. Compliance with Legal Requirements
The Corporation shall not be obliged to issue any Shares pursuant to any Option if such issuance would violate any law or regulation or any rule of any government authority or Exchange. The Corporation, in its sole discretion, may postpone the issuance of Shares under any Option as the Committee may consider appropriate, and may require any Optionee to make such representations and furnish such information as it may consider appropriate in connection with the issuance of Shares in compliance with applicable laws, rules and regulations. The Corporation shall not be required to qualify for resale pursuant to a prospectus or similar document any Shares issued upon the exercise of Options, provided that, if required, the Corporation shall notify the Exchange(s) and any other appropriate regulatory bodies in Canada and the United States of the existence of this Plan and the granting of Options hereunder in accordance with any such requirements.
25. Foreign Optionees
The Corporation may, without amending this Plan, modify the terms of Options granted to Service Providers who provide services to the Corporation or any member of the HEI Group from outside of Canada in order to comply with the applicable laws of such foreign jurisdictions. Any such modification to this Plan with respect to a particular Service Provider shall be reflected in the Option Agreement for such Service Provider.
The Committee shall not grant any Options that may be denominated or settled in Shares to residents of the United States unless such Awards and the Shares issuable upon exercise thereof are registered under the U.S. Securities Act or are issued in compliance with an available exemption from the registration requirements of the U.S. Securities Act.
26. Ceasing to be a Member of the HEI Group
Except as otherwise provided in this Plan, Options granted under this Plan shall not be affected by any change in the relationship between or ownership of the Corporation and a member of the HEI Group.
27. Expenses
Except as provided in Articles 17 and 18, all expenses in connection with this Plan shall be borne by the Corporation.
28. Unfunded Plan
This Plan shall be unfunded. The Corporation shall not be required to segregate any assets that may at any time be represented by Shares or rights thereto, nor shall this Plan be construed as providing for such segregation. Any liability or obligation of the Corporation to any Optionee with respect to an Option under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Option Agreement, and no such liability or obligation of the Corporation shall be deemed to be secured by any pledge or other encumbrance on any property of the Corporation. Neither the Corporation nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan.
29. Market Fluctuations
No amount will be paid to, or in respect of, a Optionee under this Plan to compensate for a downward fluctuation in the price of Shares, nor will any other form of benefit be conferred upon, or in respect of, a Optionee for such purpose. The Corporation makes no representations or warranties to Optionees with respect to this Plan or the Options whatsoever. Optionees are expressly advised that the value of any Options under this Plan will fluctuate as the trading price of Shares fluctuates. In seeking the benefits of participation in this Plan, a Optionee agrees to exclusively accept all risks associated with a decline in the market price of Shares and all other risks associated with the holding of Options.
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30. Reorganization of the Corporation
The existence of any Options or Shares corresponding to any such Options shall not affect in any way the right or power of the Corporation or its shareholders to make or authorize any adjustment, recapitalization, reorganization or other change in the Corporation's capital structure or its business, or any amalgamation, combination, merger or consolidation involving the Corporation or to create or issue any bonds, debentures, shares or other securities of the Corporation or the rights and conditions attaching thereto or 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 any other corporate act or proceeding, whether of a similar nature or otherwise.
31. Optionee Information
Each Optionee shall provide the Corporation with all information (including personal information) required by the Corporation in order to administer this Plan. Each Optionee acknowledges that information required by the Corporation in order to administer this Plan may be disclosed to the Committee or its appointed administrator and other third parties in connection with the administration of this Plan. Each Optionee consents to such disclosure and authorizes the Corporation to make such disclosure on the Optionee's behalf.
32. Discretionary Relief
Notwithstanding any other provision hereof but subject to applicable law and the rules of any government authority or Exchange, the Committee may, in its sole discretion, waive any condition or provision set out herein or in any Option granted hereunder if it determines that specific individual circumstances warrant such waiver.
33. Indemnification
Each member of the Board or Committee or any director or officer who is delegated the whole or any part of the administration of this Plan pursuant to Article 2 is indemnified and held harmless by the Corporation against any cost or expense (including any sum paid in settlement of a claim with the approval of the Corporation) arising out of any act or omission to act in connection with the terms hereof to the extent permitted by applicable law. This indemnification is in addition to any rights of indemnification a Board or Committee member or any director or officer who is delegated the whole or any part of the administration of this Plan pursuant to Article 2 may have as director or officer or otherwise under the by-laws of the Corporation, any agreement, any vote of shareholders or disinterested directors, or otherwise.
34. Governing Law
This Plan will be construed in accordance with and governed by the laws of the Province of Alberta and the federal laws of Canada applicable therein.
35. Currency
Unless otherwise indicated, all monetary amounts in this Plan and any Option Agreement are in Canadian dollars. Unless otherwise permitted by the Committee, all amounts payable under or in connection with this Plan or any Option Agreement shall be paid in Canadian dollars. If any monetary amount needs to be converted from U.S. dollars to Canadian dollars or vice versa for the purposes of this Plan or any Option Agreement, then the exchange rate for such conversion shall be determined by the Committee.
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36. Effective Time
This Plan, as amended and restated, was approved by the Board on May 1, 2023, and is effective from such date, subject to acceptance of this Plan by the shareholders of the Corporation, the TSX and any other applicable regulatory authorities.
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SCHEDULE A
U.S. Participants and Section 409A Compliance
(a) Notwithstanding any other provision of the Plan, grants of Options to Participants who are U.S. Taxpayers under the Code or any successor thereto, shall be made and administered under the terms of this Schedule A to the Plan. With respect to any Participant who is a U.S. Taxpayer, in no event shall the exercise price of the Options be less than Fair Market Value on the date of grant as determined under Section 409A of the Code.
(b) The Board or Committee, as the case may be, shall interpret and construe the Plan and take all authorized actions with respect to any U.S. Taxpayer in a manner that is consistent with applicable U.S. Treasury regulations and other guidance issued pursuant to Section 409A of the Code. However, neither the Board, the Committee, the Corporation nor any other person connected with the Plan in any capacity makes any representation, commitment, or guarantee that any tax treatment shall be applicable with respect to any grant of Options, any amounts deferred under this Plan, or any amounts paid to any person hereunder.
U.S. Participants and U.S. Securities Laws
(a) Shares issued pursuant to the Plan shall not be issued under the Plan to a Participant unless the issuance of those securities shall comply with all relevant laws, including, the U.S. Securities Act, applicable state securities laws, and the requirements of any stock exchange or automated inter-dealer quotation system in the United States upon which the Shares may then be listed or quoted, if applicable. The issuance shall also be subject to the approval of counsel for the Corporation with respect to such compliance, including the availability of an exemption from registration for the issuance of any Shares issued pursuant to the Plan. The unavailability of an exemption from registration for the issuance to a Participant of any Shares issued pursuant to the Plan or the inability of the Corporation to obtain from any regulatory body the authority deemed by the Corporation to be necessary for the lawful issuance and sale of any Shares under the Plan, shall relieve the Corporation of any liability for not issuing Shares to the Participant.
(b) As a condition to the issuance of the Shares pursuant to the Plan, the Corporation may require the Participant to execute such documentation and make such representations and warranties as may be necessary to comply with federal and state securities laws or as may be required by this Plan.
Clawback
The Plan and all Options granted hereunder are subject to any written clawback policies that the Corporation, with the approval of the Board or an authorized committee thereof, may adopt either prior to or following the effective time, including any policy adopted to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and rules promulgated thereunder by the SEC and that the Corporation determines should apply to Options. Any such policy may subject a Participant's Options and amounts paid or realized with respect to Options to reduction, cancelation, forfeiture or recoupment if certain specified events or wrongful conduct occur, including an accounting restatement due to the Corporation's material noncompliance with financial reporting regulations or other events or wrongful conduct specified in any such clawback policy.
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SCHEDULE B
See attached.
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EQUITY INCENTIVE AWARD PLAN
HAMMERHEAD ENERGY INC.
Effective February 23, 2023 and as amended and restated effective May 1, 2023
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HAMMERHEAD ENERGY INC.
EQUITY INCENTIVE AWARD PLAN
The board of directors of Hammerhead Energy Inc. has adopted this Equity Incentive Award Plan, dated effective February 23, 2023 and as amended and restated effective May 1, 2023, to govern the issuance of Incentive Awards and Share Awards to Service Providers.
1. Definitions
For purposes of this Plan:
(a) "Adjustment Ratio" means, (i) with respect to any Incentive Award, the ratio used to adjust the number of Incentive Awards on which payment shall be based on the applicable Vesting Date pertaining to such Incentive Award determined in accordance with the terms of this Plan; and, in respect of each Incentive Award, the Adjustment Ratio shall initially be equal to one, and shall be cumulatively adjusted thereafter by increasing the Adjustment Ratio on each Dividend Payment Date, effective on the day following the Dividend Record Date, by an amount, rounded to the nearest five decimal places, equal to a fraction having as its numerator the Dividend, expressed as an amount per Share, paid on that Dividend Payment Date, and having as its denominator the Reinvestment Price, and (ii) with respect to any Share Award, the ratio used to adjust the number of Shares to be issued on exercise of such Share Award determined in accordance with the terms of this Plan; and, in respect of each Share Award, the Adjustment Ratio shall initially be equal to one, and shall be cumulatively adjusted thereafter by increasing the Adjustment Ratio on each Dividend Payment Date, effective on the day following the Dividend Record Date, by an amount, rounded to the nearest five decimal places, equal to a fraction having as its numerator the Dividend, expressed as an amount per Share, paid on that Dividend Payment Date, and having as its denominator the Reinvestment Price;
(b) "affiliate" and "associate" each have the meaning ascribed thereto in MI 62-104;
(c) "All or Substantially All of the Assets" means greater than 90% of the aggregate fair market value of the assets of the Corporation and its Subsidiaries, on a consolidated basis, as determined by the Board in its sole discretion;
(d) "Award" means an Incentive Award or a Share Award, as applicable;
(e) "Award Agreement" means an Incentive Award Agreement or a Share Award Agreement, as applicable;
(f) "Black-Out Period" means the period of time, if any, when, pursuant to any policies of the Corporation, any securities of the Corporation may not be traded by certain persons as designated by the Corporation, including any Participant that holds an Award;
(g) "Board" means the board of directors of the Corporation as constituted from time to time;
(h) "business day" means a day other than a Saturday, Sunday or other day when banks in the City of Calgary, Alberta are generally not open for business;
(i) "Cash Amount" has the meaning set forth in Section 6(g) hereof;
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(j) "Cause" means, unless otherwise defined in the applicable Award Agreement or employment agreement or consulting agreement of the Participant (in which case "Cause" shall have the meaning therein):
(i) in respect of a Participant that is an employee or officer of a member of the HEI Group, any act or omission that would entitle the member of the HEI Group that employs the Participant to terminate the Participant's employment without notice or compensation under the Canadian common law for just cause; and
(ii) in respect of a Participant that is a consultant to a member of the HEI Group, any material breach by the Participant of the terms of the contract or agreement under which the Participant is retained by a member of the HEI Group;
(k) "Cessation Date" means the date that is the earlier of:
(i) the effective date of the Service Provider's termination, resignation, death or Retirement, as the case may be; and
(ii) the date that the Service Provider ceases to be in the active performance of the usual and customary day-to-day duties of the Service Provider's position or job other than due to a Leave of Absence,
regardless of whether adequate, legal or proper advance notice of termination or resignation shall have been provided in respect of such cessation of being a Service Provider, and the Cessation Date shall not, under any circumstances, be extended by any statutory, contractual or common law notice period mandated under any application laws;
(l) "Change of Control" means:
(i) (A) a successfully completed takeover bid; and (B) members of the Board who are members of the Board immediately prior to the earlier of the commencement of such takeover bid and the first public announcement of such takeover bid cease to constitute a majority of the Board at any time within sixty days of the successful completion of such takeover bid; or
(ii) (A) any change in the beneficial ownership or control of the outstanding securities or other interests of the Corporation which results in: (I) a person or group of persons "acting jointly or in concert" (within the meaning of MI 62-104); or (II) an affiliate or associate of such person or group of persons, holding, owning or controlling, directly or indirectly, more than 50% of the outstanding voting securities or interests of the Corporation; and (B) members of the Board who are members of the Board immediately prior to the earlier of such change and the first public announcement of such change cease to constitute a majority of the Board at any time within sixty days of such change; or
(iii) Incumbent Directors no longer constituting a majority of the Board; or
(iv) the winding up of the Corporation or the sale, lease or transfer of All or Substantially All of the Assets to any other person or persons and the distribution of greater than 90% of the net proceeds from such sale, lease or transfer to the shareholders of the Corporation within 60 days of the completion of such sale, lease or transfer (other than pursuant to an internal reorganization or in circumstances where the business of the Corporation is continued and where the shareholdings or other security holdings, as the case may be, in the continuing entity and the constitution of the board of directors or similar body of the continuing entity is such that the transaction would not be considered a "Change of Control" if paragraph (ii) above was applicable to the transaction); provided that, for greater certainty, a sale, lease or exchange of all or substantially all the property of the Corporation for purposes of the Business Corporations Act (Alberta) shall not be considered a sale, lease or transfer All or Substantially All of the Assets for purposes of this paragraph (iv) unless the property that is the subject of such sale, lease or exchange represents greater than 90% of the aggregate fair market value of the assets of the Corporation and its Subsidiaries, on a consolidated basis, as determined in accordance with Section 1(c);
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provided that a Change of Control shall be deemed not to have occurred if a majority of the Board, in good faith, determines that a Change of Control was not intended to occur in the particular circumstances in question and any such determination shall be binding and conclusive for all purposes of this Plan;
(m) "Code" has the meaning set forth in Section 7 hereof;
(n) "Committee" has the meaning set forth in Section 3 hereof;
(o) "Corporate Performance Measures" for any period that the Committee in its sole discretion shall determine, means the performance measures to be taken into consideration in granting Awards under this Plan and determining the Payout Multiplier in respect of any Performance Award, which shall be determined by the Committee in its sole discretion and may include, without limitation, any one or more of the following:
(i) Total Shareholder Return, absolute or relative;
(ii) the market price of the Shares;
(iii) the financial or operational performance or results of the Corporation, the members of the HEI Group, or a business unit or division thereof, including, without limitation, cash flow, cost structure, capital efficiency, production or reserves or unit costs of production;
(iv) other operational or performance criteria relating to the Corporation, the members of the HEI Group, or a business unit or division thereof;
(v) activities related to growth of the Corporation, the members of the HEI Group or a business unit or division thereof;
(vi) health and safety and environmental, social and governance performance of the Corporation, the members of the HEI Group, or a business unit or division thereof;
(vii) the execution of the Corporation's strategic plan as determined by the Board;
(viii) other performance criteria relating to the Participant; and
(ix) such additional measures as the Committee or the Board, in its sole discretion, shall consider appropriate in the circumstances;
(p) "Corporation" means Hammerhead Energy Inc., an Alberta corporation, and includes any successor corporation thereof;
(q) "Dividend" means any dividend, return of capital or special distribution paid by the Corporation in respect of the Shares, whether in the form of cash or Shares or other securities or other property, expressed as an amount per Share;
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(r) "Dividend Payment Date" means any date that a Dividend is paid to Shareholders;
(s) "Dividend Record Date" means the applicable record date in respect of any Dividend used to determine the Shareholders entitled to receive such Dividend;
(t) "Exchange" means the stock exchange(s), if any, on which the Shares are listed and posted for trading;
(u) "Exercise Date" means the day upon which the Corporation receives an Exercise Notice from a Participant of exercise of all or a portion of the Share Awards held by such Participant in respect of which the Vesting Date has occurred or, failing receipt of an Exercise Notice, the day immediately prior to the Expiry Date of such vested Share Awards;
(v) "Exercise Notice" means a notice in writing to the Corporation respecting the exercise of Share Awards in respect of which the Vesting Date has occurred in the form approved by the Committee from time to time, duly executed by a Participant;
(w) "Expiry Date" means: (i) in the case of Share Awards, the fifth anniversary of the grant date of the Restricted Award or the Performance Award, as applicable, or such other date as determined by the Committee in its sole discretion, provided that in no circumstances shall the Expiry Date exceed ten (10) years from the applicable grant date; and (ii) in the case of Incentive Awards, December 15th of the third year following the year in which the Incentive Award was granted;
(x) "Fair Market Value" with respect to a Share, as at any date, means the volume weighted average of the prices at which the Shares traded on the Exchange (or, if the Shares are then listed and posted for trading on more than one Exchange, on such Exchange on which the majority of the trading volume and value of the Shares occurs) for the five (5) trading days on which the Shares traded on the said Exchange immediately preceding such date. In the event that the Shares are not listed and posted for trading on any stock exchange, the Fair Market Value shall be the fair market value of the Shares as determined by the Board in its sole discretion, acting reasonably and in good faith. If initially determined in United States dollars, the Fair Market Value shall be converted into Canadian dollars at an exchange rate selected and calculated in the manner determined by the Board from time to time, acting reasonably and in good faith;
(y) "HEI Group" means, collectively, the Corporation and any entity that is a Subsidiary of the Corporation from time to time (and, for greater certainty, including any successor entity of any of the aforementioned entities);
(z) "Incentive Award" means a Restricted Award or Performance Award made pursuant to this Plan and designated as an Incentive Award;
(aa) "Incentive Award Agreement" has the meaning set forth in Section 6 hereof;
(bb) "Incentive Award Value" means, with respect to any Incentive Awards, an amount equal to the number of Incentive Awards, as such number may be adjusted in accordance with the terms of this Plan, multiplied by the Fair Market Value of the Shares;
(cc) "Incumbent Directors" means any member of the Board who was a member of the Board at the effective date of this Plan and any successor to an Incumbent Director who was recommended or elected or appointed to succeed any Incumbent Director by the affirmative vote of the Board, including a majority of the Incumbent Directors then on the Board, prior to the occurrence of the transaction, transactions, elections or appointments giving rise to a Change of Control;
(dd) "Insider" has the meaning ascribed thereto in Part I of the TSX Company Manual for the purposes of Section 613 of the TSX Company Manual;
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(ee) "Leave of Absence" means a Service Provider being absent from active employment or active service as a result of sabbatical, disability, education leave, maternity or parental leave, or any other form of leave approved by the Committee;
(ff) "MI 62-104" means Multilateral Instrument 62-104 - Take-Over Bids and Issuer Bids, as amended from time to time;
(gg) "Participants" has the meaning set forth in Section 4 hereof;
(hh) "Payout Multiplier" means the payout multiplier determined by the Committee in its sole discretion in accordance with Section 6(e) hereof;
(ii) "Peer Comparison Group" means, generally, public oil and gas exploration and production or other companies in the energy or other sectors that in the opinion of the Committee are competitors of the Corporation or are otherwise appropriate for comparison purposes and which shall be determined from time to time by the Committee in its sole discretion;
(jj) "Performance Award" means (i) an Incentive Award under this Plan designated as a "Performance Award" in the Incentive Award Agreement pertaining thereto, for which payment shall be made following the Vesting Date(s) thereof, or (ii) an award of Shares under this Plan designated as a "Performance Award" in the Share Award Agreement pertaining thereto, which Shares shall be issued following the Exercise Date(s) thereof;
(kk) "Plan" means this equity incentive award plan of the Corporation, as the same may be amended or varied from time to time;
(ll) "Reinvestment Price" means the price, expressed as an amount per Share, paid by participants in the Corporation's dividend reinvestment plan, if any, to reinvest their Dividends in additional Shares on a Dividend Payment Date, provided that if the Corporation has suspended the operation of such plan or does not have such a plan, then the Reinvestment Price shall be equal to the Fair Market Value of the Shares on the trading day immediately preceding the Divided Payment Date;
(mm) "Restricted Award" means (i) an Incentive Award under this Plan designated as a "Restricted Award" in the Incentive Award Agreement pertaining thereto, for which payment shall be made following the Vesting Date(s) thereof, or (ii) an award of Shares under this Plan designated as a "Restricted Award" in the Share Award Agreement pertaining thereto, which Shares shall be issued following the Exercise Date(s) thereof;
(nn) "Retirement" means:
(i) the date that a Participant who is an officer or employee of one or more of the entities comprising the HEI Group reaches the age of fifty-five (55), has ten (10) years of service with the HEI Group and voluntarily ceases to be an officer or employee of one or more of the entities comprising the HEI Group, provided that: (A) if the Participant is an officer or employee of one or more of the entities comprising the HEI Group, such Participant has provided the Corporation with six (6) months prior written notice of the Participant's intention to retire; and (B) is offered by the Corporation the opportunity to and enters into an agreement (which shall include non-competition and non-solicitation covenants and the consequences of breaching such covenants including the immediate termination of all outstanding Awards notwithstanding the provisions of Section 6(i)(iv) in respect of such Retirement) with the Corporation respecting such Participant's retirement from any employment with the HEI Group in a form that is acceptable to the Corporation (a "Retirement Agreement"); or
(ii) such other meaning as the Board may determine from time to time;
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(oo) "Retirement Agreement" has the meaning set forth in Section 1(nn)(i) hereof;
(pp) "Service Providers" has the meaning set forth in Section 4 hereof;
(qq) "Share" means a Class A common share of the Corporation; or, in the event of an adjustment contemplated by Section 6(l) hereof, such other shares to which a Participant may be entitled upon the exercise or settlement of a Share Award or Incentive Award ,as applicable, as a result of such adjustment;
(rr) "Share Award" means a Restricted Award or Performance Award made and designated as a Share Award pursuant to this Plan;
(ss) "Share Award Agreement" has the meaning set forth in Section 6 hereof;
(tt) "Shareholder" means a holder of Shares;
(uu) "Subsidiary" has the meaning ascribed there in the Securities Act (Alberta);
(vv) "Successor" has the meaning set forth in Section 9 hereof;
(ww) "takeover bid" means a "take-over bid" as defined in MI 62-104 or tender offer, pursuant to which the "offeror" would as a result of such takeover bid or tender offer, if successful, beneficially own, directly or indirectly, in excess of 50% of the outstanding Shares (other than pursuant to an internal reorganization or in circumstances where the business of the Corporation is continued and where the shareholdings or other security holdings, as the case may be, in the offeror and the constitution of the board of directors or similar body of the offeror is such that the take-over bid or tender offer would not be considered a "Change of Control" if Section 1(l)(ii) above was applicable to the transaction);
(xx) "Total Shareholder Return" means, with respect to any period, the total return to Shareholders on the Shares calculated using cumulative Dividends on a reinvested basis and the change in the trading price of the Shares on the TSX over such period (or, if the Shares are not then listed and posted for trading on the TSX or are then listed and posted for trading on more than one Exchange, on such Exchange on which the Shares are then listed and posted for trading as may be selected for such purpose by the Committee in its sole discretion) as may be determined by the Committee in its sole discretion;
(yy) "TSX" means the Toronto Stock Exchange;
(zz) "U.S." or "United States" means the United States of America, its territories and possessions, any State of the United States, and the District of Columbia;
(aaa) "U.S. Securities Act" means the United States Securities Act of 1933, as amended and the rules and regulations promulgated thereunder;
(bbb) "U.S. Taxpayers" has the meaning set forth in Section 7 hereof; and
(ccc) "Vesting Date" means, (A) with respect to any Incentive Award, the date upon which the Incentive Award Value to which the Participant is entitled pursuant to such Incentive Award shall irrevocably vest in and become irrevocably payable by the Corporation to the Participant in accordance with the terms hereof, and (B) with respect to any Share Award, the date upon which such Share Award shall irrevocably vest in and become exercisable by the Participant in accordance with the terms hereof.
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2. Purposes
The principal purposes of this Plan are to:
(a) aid in attracting, retaining and motivating qualified Service Providers of the HEI Group in the growth and development of the HEI Group by providing them with the opportunity through Awards to acquire an increased proprietary interest in the Corporation;
(b) more closely align such Service Providers' interests with those of the Corporation's shareholders;
(c) focus such Service Providers on operating and financial performance and long-term shareholder value; and
(d) motivate and reward such Service Providers' performance and contributions to the Corporation's long-term success.
3. Administration
This Plan shall be administered by the Compensation Committee of the Board (the "Committee"), provided that the Board shall have the authority to appoint itself or another committee of the Board to administer this Plan. In the event that the Board appoints itself or another committee of the Board to administer this Plan, all references in this Plan to the Committee will be deemed to be references to the Board or such other committee of the Board, as applicable.
The Committee shall have the authority in its sole discretion to administer this Plan and to exercise all the powers and authorities either specifically granted to it under this Plan or necessary or advisable in the administration of this Plan, subject to and not inconsistent with the express provisions of this Plan and of Section 10 hereof, including, without limitation:
(a) the authority to grant Awards;
(b) to determine the Fair Market Value of the Shares on any date;
(c) to determine the Incentive Award Value in respect of any Incentive Award on any date;
(d) to determine the Service Providers to whom, and the time or times at which Awards shall be granted and shall become issuable or payable, as the case may be;
(e) to determine the number of Shares to be covered by each Share Award, the number of Incentive Awards to be granted and in each case the allocation between Restricted Awards and Performance Awards;
(f) to determine members of the Peer Comparison Group, if any, from time to time;
(g) to determine the Corporate Performance Measures and the Payout Multiplier in respect of a particular period;
(h) to prescribe, amend and rescind rules and regulations relating to this Plan;
(i) interpret and construe any provision of this Plan and decide all questions of fact arising in their interpretation;
(j) to determine the terms and provisions of Award Agreements (which need not be identical) entered into in connection with Share Awards and Incentive Awards;
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(k) to take any and all actions permitted by this Plan; and
(l) to make any other determinations and take such other action in connection with the administration of this Plan that it deems necessary or advisable.
To the extent permitted by law, the Committee may delegate or sub-delegate to one or more of its members, to any director or officer of the Corporation or to one or more agents all or any of the powers conferred on the Committee under this Plan, and the Committee or any person to whom it has delegated or sub-delegated authority as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under this Plan.
For greater certainty and without limiting the discretion conferred on the Committee pursuant to this Section, the Committee's decision to approve the grant of an Award in any period shall not require the Committee to approve the grant of an Award to any Service Provider in any other period; nor shall the Committee's decision with respect to the size or terms and conditions of an Award in any period require it to approve the grant of an Award of the same or similar size or with the same or similar terms and conditions to any Service Provider in any other period. The Committee shall not be precluded from approving the grant of an Award to any Service Provider solely because such Service Provider may previously have been granted an Award under this Plan or any other similar compensation arrangement of the Corporation or a member of the HEI Group. There is no obligation for uniformity of treatment of Service Providers or Participants under this Plan. The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants. No Service Provider has any claim or right to be granted an Award.
4. Eligibility and Award Determination
Awards may be granted only to persons who are employees or officers of the Corporation or a member of the HEI Group or who are consultants or other service providers to the Corporation or a member of the HEI Group (collectively, "Service Providers"); provided, however, that the participation of a Service Provider in this Plan is voluntary and any decision not to participate shall not affect any Service Provider's employment with or service to the Corporation or any member of the HEI Group. For greater certainty, a transfer of employment or services between the Corporation and a member of the HEI Group or between a members of the HEI Group shall not be considered an interruption or termination of the employment of a Participant for any purpose of this Plan.
The Committee, in its sole discretion, shall determine which Service Providers will participate in this Plan. In determining the Service Providers to whom Awards may be granted ("Participants") and the number of Shares to be covered by each Share Award or the number of Incentive Awards granted, the Committee may take into account such factors as it shall determine in its sole discretion, including without limitation, if so determined by the Committee, any one or more of the following factors:
(a) compensation data for comparable benchmark positions among the Peer Comparison Group or among other comparison groups;
(b) the duties, responsibilities, position and seniority of the Participant;
(c) the Corporate Performance Measures for the applicable period compared with internally established performance measures approved by the Committee and/or similar performance measures of members of the Peer Comparison Group or among other comparison groups for such period;
(d) the individual contributions and potential contributions of the Participant to the success of the Corporation;
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(e) any bonus payments paid or to be paid to the Participant in respect of his or her individual contributions and potential contributions to the success of the Corporation;
(f) the Fair Market Value or current market price of the Shares at the time of such Award; and
(g) such other factors as the Committee shall deem relevant in its sole discretion in connection with accomplishing the purposes of this Plan.
5. Reservation of Shares
Subject to Sections 6(l) and 9 hereof, the aggregate number of Shares reserved for issuance pursuant to Awards granted and outstanding hereunder, together with the aggregate number of Shares reserved for issuance under all other security based compensation arrangements (as defined in Section 6(c)) of the Company that provide for the issuance of Shares, shall not at any time exceed ten percent (10%) of the Shares then issued and outstanding.
If any Award granted under this Plan shall expire, terminate or be cancelled for any reason without the Shares issuable thereunder having been issued in full, any unissued Shares to which such Award relates shall be available for the purposes of the granting of further Awards under this Plan. For greater certainty, any increase in the issued and outstanding Shares will result in an increase in the number of Shares available under this Plan.
For purposes of the calculations in this Section only, it shall be assumed that all issued and outstanding Incentive Awards will be settled by the issuance of Shares from treasury, notwithstanding the Corporation's right pursuant to Section 6(h) hereof to settle the Incentive Award Value underlying Incentive Awards in cash or by purchasing Shares on the open market.
6. Terms and Conditions of Awards
Each Award granted under this Plan shall be subject to the terms and conditions of this Plan and evidenced by a written agreement between the Corporation and the Participant (an "Incentive Award Agreement" in the case of an Incentive Award and a "Share Award Agreement" in the case of a Share Award) which agreement shall comply with, and be subject to, the requirements of the Exchange and the following terms and conditions (and with such other terms and conditions as the Committee, in its sole discretion, shall establish):
(a) Type of Awards - The Committee shall determine the number of Shares to be awarded to a Participant pursuant to the Share Award and/or the number of Incentive Awards to be awarded to a Participant in accordance with the provisions set forth in Section 4 hereof and shall designate such Award as either a "Restricted Award" or a "Performance Award", as applicable, in the Award Agreement relating thereto.
(b) Tax Treatment - Notwithstanding any other provision of this Plan, (i) all Share Awards granted to employees and officers of a member of the HEI Group shall have such terms and conditions required or desirable to ensure that such Share Awards are continuously governed by section 7 of the Income Tax Act (Canada) and, except as provided in the second paragraph of Section 6(g) hereof, all Share Awards shall be settled solely by the issuance of Shares from treasury; and (ii) all Incentive Awards granted to employees and officers of a member of the HEI Group shall be granted as a bonus for services rendered by the Participant in the year of grant and shall have such terms and conditions required or desirable to ensure that such Incentive Awards do not constitute a "salary deferral arrangement" within the meaning of the Income Tax Act (Canada) by virtue of the exception in paragraph (k) of the definition thereof.
(c) Limitations on Awards - No one Service Provider may be granted any Award which, together with all Awards then held by such Participant, would entitle or enable such Participant (assuming in the case of Incentive Awards that all such Incentive Awards would be settled by the issuance of Shares from treasury) to receive a number of Shares which is greater than 5% of the outstanding Shares, calculated on an undiluted basis. In addition: (i) the number of Shares issuable to Insiders at any time, under all security based compensation arrangements of the Corporation, shall not exceed 10% of the issued and outstanding Shares; and (ii) the number of Shares issued to Insiders, within any one year period, under all security based compensation arrangements of the Corporation, shall not exceed 10% of the issued and outstanding Shares. For this purpose, "security based compensation arrangements" has the meanings ascribed thereto in Part VI of the TSX Company Manual. For purposes of the calculations in this Section, it shall be assumed that all issued and outstanding Incentive Awards will be settled by the issuance of Shares from treasury, notwithstanding the Corporation's right pursuant to Section 6(h) to settle the Incentive Award Value underlying Incentive Awards in cash or by purchasing Shares on the open market.
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The Committee shall not grant any Awards that may be denominated or settled in Shares to residents of the United States unless such Awards and the Shares issuable upon exercise or settlement thereof are registered under the U.S. Securities Act or are issued in compliance with an available exemption from the registration requirements of the U.S. Securities Act.
(d) Vesting Dates and Adjustment of Awards
(i) Restricted Awards: Subject to Section 6(i) hereof, with respect to any Restricted Award, unless otherwise determined by the Committee (and, for greater certainty, the Committee may in its sole discretion impose no or additional or different conditions to the determination of the Vesting Date(s) in respect of any Restricted Award including, without limitation, performance conditions, except that in no event may the Committee fix a Vesting Date for a Restricted Award that is an Incentive Award such that it is later than the Expiry Date), provided that the Participant remains in continuous employment or service with the Corporation or a member of the HEI Group through the applicable Vesting Date, the Vesting Date shall be the third anniversary of the grant date of the Restricted Award; provided, however, that, unless otherwise determined by the Committee:
(I) where a Participant is on a Leave of Absence, the Vesting Date or Vesting Dates for any Restricted Awards held by such Participant shall be suspended until such time as such Participant returns to active employment or active service, provided that where the period of the Leave of Absence exceeds three (3) months, the Vesting Date for any Restricted Award that occurs during or subsequent to the period of the Leave of Absence shall be extended by, and no adjustments shall be made to the Adjustment Ratio for Dividends that are paid during, that portion of the Leave of Absence that exceeds three (3) months, and further provided that, if any such extension would cause the Vesting Date or Vesting Dates to extend beyond the Expiry Date, such Awards and the rights to receive Shares in the case of Share Awards and the rights to receive payments in the case of Incentive Awards on such Vesting Date or Vesting Dates shall be terminated and all rights to receive Shares or payments thereunder shall be forfeited by the Participant;
(II) where a Vesting Date occurs for an Incentive Award on a date when a Participant is subject to a Black-Out Period, such Vesting Date shall be extended to the date which is seven business days following the end of such Black-Out Period, provided that if any such extension would cause the Vesting Date or Vesting Dates of such Incentive Award to extend beyond the Expiry Date, the amounts to be paid on such Vesting Date or Vesting Dates shall be paid on the Expiry Date notwithstanding the Black-Out Period. If the Expiry Date occurs and as a result of the previous sentence of this paragraph the Vesting Date will occur while a Black-Out Period is still in effect, then the Corporation shall pay the Participant the entire Incentive Award Value in cash (and not Shares) and, for greater certainty, the Corporation shall not have any right to pay the Incentive Award Value in whole or in part in Shares notwithstanding any other provision of this Plan or any Incentive Award Agreement;
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(III) in the event of any Change of Control prior to the Vesting Dates determined in accordance with the above provisions of this Section 6(d)(i), and regardless of whether or not a Participant is on a Leave of Absence, the Vesting Date for all Shares awarded pursuant to such Restricted Award that is a Share Award that have not yet been issued and for the balance of the Incentive Award Value underlying such Restricted Award that is an Incentive Award that remains to be paid as of such time shall be the date which is immediately prior to the date upon which a Change of Control is completed; and
(IV) (A) on the Exercise Date thereof, the number of Shares to be issued pursuant to any Restricted Award that is a Share Award shall be adjusted by multiplying such number by the Adjustment Ratio applicable to such Restricted Award at such time, and (B) on the Vesting Date thereof, the Incentive Award Value payable pursuant to any Restricted Award that is an Incentive Award shall be adjusted by multiplying the number of Incentive Awards for which payment remains to be made by the Adjustment Ratio applicable to such Incentive Award at such time.
(ii) Performance Awards: Subject to Section 6(i) hereof, with respect to any Performance Award, unless otherwise determined by the Committee (and, for greater certainty, the Committee may in its sole discretion impose no or additional or different conditions to the determination of the Vesting Dates in respect of any Performance Award, except that in no event may the Committee fix a Vesting Date for a Performance Award that is an Incentive Award such that it is later than the Expiry Date), provided that the Participant remains in continuous employment or service with the Corporation or a member of the HEI Group through the applicable Vesting Date, the Vesting Date shall be the third anniversary of the grant date of the Performance Award; provided, however, that, unless otherwise determined by the Committee:
(I) where a Participant is on a Leave of Absence, the Vesting Date or Vesting Dates for any Performance Awards held by such Participant shall be suspended until such time as such Participant returns to active employment or active service, provided that where the period of the Leave of Absence exceeds three (3) months, the Vesting Date for any Performance Award that occurs during or subsequent to the period of the Leave of Absence shall be extended by, and no adjustments shall be made to the Adjustment Ratio for Dividends that are paid during, that portion of the Leave of Absence that exceeds three (3) months, and further provided that, if any such extension would cause the Vesting Date or Vesting Dates to extend beyond the Expiry Date, such Awards and the rights to receive Shares in the case of Share Awards and the rights to receive payments in the case of Incentive Awards on such Vesting Date or Vesting Dates shall be terminated and all rights to receive Shares or payments thereunder shall be forfeited by the Participant;
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(II) where a Vesting Date occurs for an Incentive Award on a date when a Participant is subject to a Black-Out Period, such Vesting Date shall be extended to the date which is seven business days following the end of such Black-Out Period, provided that if any such extension would cause the Vesting Date or Vesting Dates of such Incentive Award to extend beyond the Expiry Date, the amounts to be paid on such Vesting Date or Vesting Dates shall be paid on the Expiry Date notwithstanding the Black-Out Period. If the Expiry Date occurs and as a result of the previous sentence of this paragraph the Vesting Date will occur while a Black-Out Period is still in effect, then the Corporation shall pay the Participant the entire Incentive Award Value in cash (and not Shares) and, for greater certainty, the Corporation shall not have any right to pay the Incentive Award Value in whole or in part in Shares notwithstanding any other provision of this Plan or any Incentive Award Agreement;
(III) in the event of any Change of Control prior to the Vesting Date determined in accordance with the above provisions of this Section 6(d)(ii), and regardless of whether or not a Participant is on a Leave of Absence, the Vesting Date for all Shares awarded pursuant to such Performance Award that is a Share Award that have not yet been issued and for the balance of the Incentive Award Value underlying such Performance Award that is an Incentive Award that remains to be paid as of such time shall be the date which is immediately prior to the date upon which a Change of Control is completed; and
(IV) (A) on the Exercise Date thereof, the number of Shares to be issued pursuant to any Performance Award that is a Share Award shall be adjusted by multiplying such number by (1) the Adjustment Ratio applicable to such Performance Award at such time, and (2) the Payout Multiplier applicable to such Performance Award at such time, and (B) on the Vesting Date thereof, the Incentive Award Value payable pursuant to any Performance Award that is an Incentive Award shall be adjusted by multiplying the number of Incentive Awards for which payment remains to be made by (1) the Adjustment Ratio applicable to such Performance Award at such time, and (2) the Payout Multiplier applicable to such Performance Award at such time.
Notwithstanding any other provision of this Plan, but subject to the limits described in Sections 5 and 6(c) hereof and any other applicable requirements of the Exchange or other regulatory authority, the Committee hereby reserves the right to make any additional adjustments to the number of Shares to be issued pursuant to or the Incentive Award Value underlying any Performance Award if, in the sole discretion of the Committee, such adjustments are appropriate in the circumstances having regard to the principal purposes of this Plan.
(e) Determination of the Payout Multiplier - Prior to the Vesting Date in respect of any Performance Award, the Committee will assess the performance of the Corporation for the applicable period. The weighting of the individual measures comprising the Corporate Performance Measures shall be determined by the Committee in its sole discretion and, following such determination, the Committee shall determine the applicable Payout Multiplier, which shall be not less than 0% and not more than 200%.
(f) Exercise of Share Awards - A Participant may elect to exercise Share Awards at any time and from time to time from and including the day the Vesting Date in respect of such Share Awards occurs until the Expiry Date of such Share Awards, by delivering to the Corporation a duly completed and executed Exercise Notice; provided, that no Participant who is resident in the United States may exercise Share Awards unless the Shares issuable by the Corporation upon such exercise are registered under the U.S. Securities Act or are issued in compliance with an available exemption from the registration requirements of the U.S. Securities Act. If any Share Award may not be exercised due to any Black-Out Period at any time within the three business day period prior to the Expiry Date of such Share Award, the Expiry Date of all such Share Awards shall be extended for a period of seven business days following the end of the Black-Out Period (or such longer period as permitted by the Exchange and approved by the Committee).
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(g) Payment in Respect of Share Awards - Subject to the paragraph immediately below, Share Awards shall be settled by the Corporation with Shares issued from the treasury of the Corporation.
A Participant may elect in an Exercise Notice to surrender a vested Share Award to the Corporation for cash in an amount equal to the aggregate Fair Market Value of such Shares that would otherwise be delivered in consideration for the surrender by the Participant to the Corporation of the right to receive such Shares under such Share Award (the "Cash Amount"). The Committee shall have the sole discretion to determine whether or not to accept the Participant's election. If the Committee accepts such election, then the Corporation shall pay the Cash Amount to the Participant in accordance with the provisions of this Section 6(g). If the Committee does not accept such election, such Share Award shall be settled by the Corporation with Shares issued from the treasury of the Corporation.
Any Shares deliverable or amount payable to a Participant in respect of a Share Award shall be delivered or paid to the Participant as soon as practicable following the Exercise Date and in any event within thirty (30) days of the Exercise Date (provided that any Shares deliverable or amount payable with respect to a Vesting Date that occurs after the Cessation Date, but before the Share Award has terminated in accordance with an applicable provision of Section 6(i), must occur not later than March 15 of the year following the year in which the Cessation Date occurs, if earlier) and the Corporation shall withhold from any such amount payable all amounts as may be required by law and in the manner contemplated by Section 7 hereof.
Where the determination of the number of Shares to be delivered to a Participant pursuant to a Share Award in respect of a particular exercise would result in the issuance of a fractional Share, the number of Shares deliverable shall be rounded down to the next whole number of Shares. No certificates representing fractional Shares shall be delivered pursuant to this Plan nor shall any cash amount be paid at any time in lieu of any such fractional interest.
No Share Award holder who is resident in the United States may settle a Share Award for Shares unless the Shares issuable upon settlement of the Share Awards are registered under the U.S. Securities Act or are issued in compliance with an available exemption from the registration requirements of the U.S. Securities Act.
(h) Payment in Respect of Incentive Awards - The Corporation, at its sole and absolute discretion, shall have the option of settling the Incentive Award Value payable in respect of an Incentive Award by any of the following methods or by a combination of such methods:
(i) payment in cash;
(ii) payment in Shares acquired by the Corporation on the Exchange; or
(iii) payment in Shares issued from the treasury of the Corporation.
The Incentive Award Value of any Incentive Award shall be determined as at the applicable Vesting Date and shall be settled on a date during the period from and including the day the Vesting Date in respect of such Incentive Awards occurs until the Expiry Date of such Incentive Award determined by the Committee.
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The Corporation shall not determine whether the payment method shall take the form of cash or Shares until the Vesting Date, or some reasonable time prior thereto. A holder of an Incentive Award shall not have any right to demand, be paid in, or receive Shares in respect of the Incentive Award Value underlying an Incentive Award, at any time. Notwithstanding any election by the Corporation to settle any Incentive Award Value, or portion thereof, in Shares, the Corporation reserves the right to change its election in respect thereof at any time up until payment is actually made, and the holder of such Incentive Award shall not have the right, at any time to enforce settlement in the form of Shares of the Corporation.
Any amount payable to a Participant in respect of an Incentive Award shall be paid to the Participant as soon as practicable following the Vesting Date and in any event not later than December 31 of the third year following the year in which the Incentive Award was granted (provided that any amount payable with respect to a Vesting Date that occurs after the Cessation Date, but before the Incentive Award has terminated in accordance with an applicable provision of Section 6(i), must occur not later than either the Expiry Date or March 15 of the year following the year in which the Cessation Date occurs, if earlier than the Expiry Date) and the Corporation shall withhold from any such amount payable all amounts as may be required by law and in the manner contemplated by Section 7 hereof. In any event, the amount payable to a Participant in respect of an Incentive Award shall not be paid later than the Expiry Date of that Incentive Award.
Where the Corporation elects to pay any amounts pursuant to an Incentive Award by issuing Shares, and the determination of the number of Shares to be delivered to a Participant in respect of a particular Vesting Date would result in the issuance of a fractional Share, the number of Shares deliverable shall be rounded down to the next whole number of Shares. No certificates representing fractional Shares shall be delivered pursuant to this Plan nor shall any cash amount be paid at any time in lieu of any such fractional interest.
No Incentive Award holder who is resident in the United States may settle an Incentive Award for Shares unless the Shares issuable upon settlement of the Incentive Awards are registered under the U.S. Securities Act or are issued in compliance with an available exemption from the registration requirements of the U.S. Securities Act.
(i) Termination of Relationship as Service Provider - Unless otherwise determined by the Committee or unless otherwise provided in an Award Agreement pertaining to a particular Award or any written employment or consulting agreement governing a Participant's role as a Service Provider, the following provisions shall apply in the event that a Participant ceases to be a Service Provider:
(i) Death - If a Participant ceases to be a Service Provider as a result of the Participant's death, the Vesting Date for all Incentive Awards awarded to such Participant under any outstanding Incentive Award Agreements and for all Shares awarded to such Participant under any outstanding Share Award Agreements shall be accelerated to the Cessation Date, provided that the Committee, taking into consideration the performance of such Participant and the performance of the Corporation since the date of grant of the Award(s), may determine in its sole discretion the Payout Multiplier to be applied to any Performance Awards held by the Participant. The Expiry Date of any vested or unvested Share Awards held by the Participant at the date of death, which have not yet been subject to an Exercise Notice and subsequent settlement of the Share Award, shall be amended to the earlier of (i) one (1) year after the Cessation Date, and (ii) the Expiry Date of such Share Award.
(ii) Termination for Cause - If a Participant ceases to be a Service Provider as a result of termination for Cause, effective as of the Cessation Date all outstanding Award Agreements under which Awards have been made to such Participant, whether Restricted Awards or Performance Awards, and whether (A) vested and unexercised or unsettled or (B) unvested, shall be immediately terminated and all rights to receive payments or Shares thereunder, as the case may be, shall be forfeited by the Participant.
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(iii) Voluntary Resignation - If a Participant ceases to be a Service Provider as a result of a voluntary resignation, effective as of the day that is fourteen (14) days after the Cessation Date, all outstanding Award Agreements under which Awards have been made to such Participant, whether Restricted Awards or Performance Awards, and whether (A) vested and unexercised or unsettled or (B) unvested, shall be terminated and all rights to receive payments or Shares thereunder, as the case may be, shall be forfeited by the Participant.
(iv) Retirement - If a Participant ceases to be a Service Provider as a result of the Participant's Retirement, all outstanding Award Agreements under which Awards have been made to such Participant, whether Restricted Awards or Performance Awards, shall continue in accordance with their terms and the Expiry Date shall not be accelerated as a result of such Retirement.
(v) Other Termination - If a Participant ceases to be a Service Provider for any reason other than as provided for in (i), (ii), (iii) and (iv) above, effective as of the date that is the later of (A) ninety (90) days after the Cessation Date, and (B) the end of the notice period used for calculating severance to which the Participant is entitled as a result of the Participant's cessation as a Service Provider pursuant to a written contract of employment, if any, with an entity in the HEI Group, and notwithstanding any other severance entitlements or entitlement to notice or compensation in lieu thereof, all then outstanding Award Agreements under which Awards have been made to such Participant, whether Restricted Awards or Performance Awards, shall be terminated and all rights to receive payments or Shares thereunder, as the case may be, shall be forfeited by the Participant.
(j) Rights as a Shareholder - Until the Shares granted pursuant to any Share Award have been issued or in the case of Incentive Awards until Shares have actually been issued should the Corporation elect to so issue Shares, in either case in accordance with the terms of this Plan, the Participant to whom such Award has been made shall not possess any incidents of ownership of such Shares including, for greater certainty and without limitation, the right to receive Dividends on such Shares and the right to exercise voting rights in respect of such Shares.
Such Participant shall only be considered a Shareholder in respect of such Shares when such issuance has been entered upon the records of the duly authorized transfer agent of the Corporation.
(k) Treatment of Non-Cash Dividends - In the case of a non-cash Dividend, including Shares or other securities or other property, the Committee will, in its sole discretion and subject to any required approval of the Exchange, determine whether or not such non-cash Dividend will be provided to the Award holder and, if so provided, the form in which it shall be provided.
(l) Effect of Certain Changes - In the event:
(i) of any change in the Shares through subdivision, consolidation, reclassification, amalgamation, merger or otherwise;
(ii) that any rights are granted to all Shareholders to purchase Shares at prices substantially below Fair Market Value; or
(iii) that, as a result of any recapitalization, merger, consolidation or other transaction, the Shares are converted into or exchangeable for any other securities,
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then, in any such case, the Board may, subject to any required approval of the Exchange, make such adjustments to this Plan, to any Awards and to any Award Agreements outstanding under this Plan as the Board may, in its sole discretion, consider appropriate in the circumstances to prevent inappropriate dilution or enlargement of the rights granted to Participants hereunder.
(m) Participant's Agreement to be Bound - If a Participant fails to acknowledge an Award by acceptance of the Award Agreement within the time specified by the Committee, the Corporation reserves the right to revoke the Award. Participation in this Plan by any Participant shall be construed as irrevocable acceptance by the Participant of the terms and conditions set out herein and all rules and procedures adopted hereunder and as amended from time to time.
7. Withholding Taxes
When a Participant or other person becomes entitled to receive Shares, a cash payment or other amount in respect of any Award, the Corporation shall have the right to require the Participant or such other person to remit to the Corporation an amount sufficient to satisfy any withholding tax requirements relating thereto. Unless otherwise prohibited by the Committee or by applicable law, satisfaction of the withholding tax obligation may be accomplished by any of the following methods or by a combination of such methods:
(a) the tendering by the Participant of cash payment to the Corporation in an amount less than or equal to the total withholding tax obligation;
(b) the withholding by the Corporation or a member of the HEI Group, as the case may be, from the Shares otherwise due or payable to the Participant such number of Shares as it determines are required to be sold by the Corporation, as trustee, to satisfy the total withholding tax obligation (net of selling costs, which shall be paid by the Participant). The Participant consents to such sale and grants to the Corporation an irrevocable power of attorney to effect the sale of such Shares and acknowledges and agrees that the Corporation does not accept responsibility for the price obtained on the sale of such Shares; or
(c) the withholding by the Corporation or a member of the HEI Group, as the case may be, from any cash payment otherwise due to the Participant such amount of cash as is less than or equal to the amount of the total withholding tax obligation;
provided, however, that the sum of any cash so paid or withheld and the Fair Market Value of any Shares so withheld is sufficient to satisfy the total withholding tax obligation. Any reference in this Plan to the Incentive Award Value or payment of cash or issuance of Shares in settlement thereof or issuance of Shares or payment of cash pursuant to any Share Award is expressly subject to this Section 7.
Notwithstanding any other provision of this Plan, grants of Awards to Participants who are subject to United States federal income taxation ("U.S. Taxpayers") under the United States Internal Revenue Code of 1986, as amended (the "Code"), shall be made and administered under the terms of Schedule A to this Plan.
8. Non-Transferability
Subject to Section 6(i)(i) hereof, the right to receive payment pursuant to an Incentive Award or Shares pursuant to a Share Award granted to a Service Provider is personal to such Service Provider. Except as otherwise provided in this Plan, no assignment, sale, transfer, pledge or charge of an Award, whether voluntary, involuntary, by operation of law or otherwise, vests any interest or right in such Award whatsoever in any assignee or transferee and, immediately upon any assignment, sale, transfer, pledge or charge or attempt to assign, sell, transfer, pledge or charge, such Award shall terminate and be of no further force or effect.
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The rights and obligations hereunder and under any Award Agreement may be assigned by the Corporation to a Successor.
9. Merger and Sale, etc.
If the Corporation enters into any transaction or series of transactions, other than a transaction that is a Change of Control and to which Section 6(d)(i)(III) or 6(d)(ii)(III), as the case may be, hereof apply, whereby the Corporation or All or Substantially All of the Assets would become the property of any other trust, body corporate, partnership or other person (a "Successor") whether by way of takeover bid, acquisition, reorganization, consolidation, amalgamation, arrangement, merger, transfer, sale or otherwise, then prior to or contemporaneously with the consummation of such transaction:
(a) the Corporation and the Successor will execute such instruments and do such things as the Committee may determine are necessary to establish that upon the consummation of such transaction the Successor will have assumed the covenants and obligations of the Corporation under this Plan and the Award Agreements outstanding on consummation of such transaction and such Successor shall succeed to, and be substituted for, and may exercise every right and power of, the Corporation under this Plan and such Award Agreements with the same effect as though the Successor had been named as the Corporation herein and therein and thereafter, the Corporation shall be relieved of all obligations and covenants under this Plan and such Award Agreements and the obligation of the Corporation to the Participants in respect of the Awards shall terminate and be at an end and the Participants shall cease to have any further rights in respect thereof including, without limitation, any right to acquire or receive Shares on the Vesting Date(s) applicable to such Awards; or
(b) if the Awards (and the covenants and obligations of the Corporation under this Plan and the Award Agreements outstanding on consummation of such transaction) are not so assumed by the Successor, then the Vesting Date for all Shares awarded pursuant to such Awards that have not yet been issued as of such time shall be the date which is immediately prior to the date upon which the transaction is consummated.
10. Amendment and Termination of Plan
This Plan and any Awards granted pursuant to this Plan may, subject to any required approval of the Exchange, be amended, modified or terminated by the Board without the approval of Shareholders. Without limitation of the foregoing, such amendments include, without limitation: (a) amendments of a "housekeeping nature", including, without limitation, amending the wording of any provision of this Plan for the purpose of clarifying the meaning of existing provisions or to correct or supplement any provision of this Plan that is inconsistent with any other provision of this Plan, correcting grammatical or typographical errors and amending the definitions contained within this Plan respecting the administration of this Plan; (b) amending Awards under this Plan, including with respect to the Expiry Date (provided that the term of the Award does not exceed ten years from the date the Award is granted and that such Award is not held by an Insider), vesting period, and effect of termination of a Participant's employment or cessation of the Participant's service; (c) accelerating vesting; or (d) amendments necessary to comply with applicable law or the requirements of any Exchange on which the Shares are listed. Notwithstanding the foregoing, this Plan or any Award may not be amended without Shareholder approval to:
(a) increase the number of Shares reserved for issuance pursuant to Awards in excess of the limit prescribed in Section 5 hereof;
(b) extend the Vesting Date of any Awards issued under this Plan to an Insider beyond the latest Vesting Date specified in the Award Agreement (other than as permitted by the terms and conditions of this Plan);
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(c) extend the Expiry Date of any Award granted to an Insider (other than as permitted by the terms and conditions of this Plan);
(d) permit a Participant to transfer Awards to a new beneficial holder other than for estate settlement purposes;
(e) reduce the limitations on Awards contained in the first paragraph of Section 6(c) hereof;
(f) increase the number of Shares that may be issued to Insiders above the restrictions contained in Section 6(c) hereof; and
(g) change this Section 10 to modify or delete any of (a) through (f) above.
In addition, no amendment to this Plan or any Awards granted pursuant to this Plan may be made without the consent of a Participant if it adversely alters or impairs the rights of such Participant in respect of any Award previously granted to such Participant under this Plan.
11. Miscellaneous
(a) Interpretation - In this Plan: (a) words in the singular include the plural and words in the plural include the singular; (b) words importing the masculine gender shall include the feminine and neuter genders and vice versa; (c) section and subsection headings contained herein are for convenience only and shall not affect the construction hereof; and (d) words "hereto", "herein", "hereby", "hereunder", "hereof" and similar expressions mean or refer to this document as a whole and not to any particular Section, paragraph or other part hereof.
(b) Compliance with Legal Requirements - The Corporation shall not be obliged to issue any Shares pursuant to any Award if such issuance would violate any law or regulation or any rule of any government authority or Exchange. The Corporation, in its sole discretion, may postpone the issuance or delivery of Shares under any Award as the Committee may consider appropriate, and may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Shares in compliance with applicable laws, rules and regulations. The Corporation shall not be required to qualify for resale pursuant to a prospectus or similar document any Shares awarded under this Plan, provided that, if required, the Corporation shall notify the Exchange and any other appropriate regulatory bodies in Canada and the United States of the existence of this Plan and the granting of Awards hereunder in accordance with any such requirements.
(c) Foreign Participants - The Corporation may, without amending this Plan, modify the terms of Awards granted to Service Providers who provide services to the Corporation or any member of the HEI Group from outside of Canada in order to comply with the applicable laws of such foreign jurisdictions. Any such modification to this Plan with respect to a particular Service Provider shall be reflected in the Award Agreement for such Service Provider. Schedule A is incorporated herein by reference.
(d) No Right to Continued Employment or Service - Nothing in this Plan or in any Award Agreement entered into pursuant hereto shall confer upon any Participant the right to continue in the employ or service of the Corporation or any member of the HEI Group, to be entitled to any remuneration or benefits not set forth in this Plan or an Award Agreement or to interfere with or limit in any way the right of the Corporation or any member of the HEI Group to terminate a Participant's employment or service arrangement with the Corporation or any member of the HEI Group.
(e) Ceasing to be a Member of the HEI Group - Except as otherwise provided in this Plan, Awards granted under this Plan shall not be affected by any change in the relationship between or ownership of the Corporation and a member of the HEI Group.
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(f) Expenses - Except as provided in Sections 7 and 11(i), all expenses in connection with this Plan shall be borne by the Corporation.
(g) Unfunded Plan - This Plan shall be unfunded. The Corporation shall not be required to segregate any assets that may at any time be represented by Shares, cash or rights thereto, nor shall this Plan be construed as providing for such segregation. Any liability or obligation of the Corporation to any Participant with respect to an Award under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Award Agreement, and no such liability or obligation of the Corporation shall be deemed to be secured by any pledge or other encumbrance on any property of the Corporation. Neither the Corporation nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan.
(h) Market Fluctuations - No amount will be paid to, or in respect of, a Participant under this Plan to compensate for a downward fluctuation in the price of Shares, nor will any other form of benefit be conferred upon, or in respect of, a Participant for such purpose. The Corporation makes no representations or warranties to Participants with respect to this Plan or the Awards whatsoever. Participants are expressly advised that the value of any Awards and Shares under this Plan will fluctuate as the trading price of Shares fluctuates. Further, the payment amount or number of Shares delivered to a Service Provider following the vesting of a Performance Award may fluctuate based upon the terms of the applicable Corporate Performance Measures and Payout Multiplier. In seeking the benefits of participation in this Plan, a Participant agrees to exclusively accept all risks associated with a decline in the market price of Shares and all other risks associated with the holding of Awards.
(i) Taxes - The Corporation shall not be liable for any personal income or other tax imposed on any Participant as a result of the awarding or holding of Awards, the issue or holding of Shares pursuant thereto or any other amounts or securities paid, issued or credited to a Participant under this Plan. It is the responsibility of the Participant to complete and file any tax returns which may be required under any applicable tax laws within the period prescribed by such laws. The Corporation and the Committee make no guarantees to any person regarding the tax treatment of an Award or payments made under this Plan and none of the Corporation or any of its employees or representatives shall have any liability to a Participant with respect thereto. Participants are advised to consult with their own tax advisors.
(j) Reorganization of the Corporation - The existence of any Awards or Shares corresponding to any such Awards shall not affect in any way the right or power of the Corporation or its shareholders to make or authorize any adjustment, recapitalization, reorganization or other change in the Corporation's capital structure or its business, or any amalgamation, combination, merger or consolidation involving the Corporation or to create or issue any bonds, debentures, shares or other securities of the Corporation or the rights and conditions attaching thereto or 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 any other corporate act or proceeding, whether of a similar nature or otherwise.
(k) Participant Information - Each Participant shall provide the Corporation with all information (including personal information) required by the Corporation in order to administer this Plan. Each Participant acknowledges that information required by the Corporation in order to administer this Plan may be disclosed to the Committee or its appointed administrator and other third parties in connection with the administration of this Plan. Each Participant consents to such disclosure and authorizes the Corporation to make such disclosure on the Participant's behalf.
(l) Final Determination - Any determination, interpretation or decision by, or opinion of, the Board, the Committee or a director or officer of the Corporation made or held pursuant to the terms set out herein shall be made or held reasonably and shall be final, conclusive and binding on all parties concerned, including, but not limited to, the Corporation, the Participants and their beneficiaries and legal representatives.
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Subject to Section 11(m), all rights, entitlements and obligations of Participants under this Plan and in respect of Awards are set forth in the terms hereof and the applicable Award Agreements and cannot be modified by any other documents, statements or communications, except by amendment to the terms hereof or thereof in accordance with Section 10.
(m) Discretionary Relief - Notwithstanding any other provision hereof but subject to applicable law and the rules of any government authority or Exchange, the Committee may, in its sole discretion, waive any condition or provision set out herein or in any Award granted hereunder if it determines that specific individual circumstances warrant such waiver.
(n) Currency - All values to be determined or amounts paid under this Plan shall be in Canadian dollars.
12. Indemnification
Each member of the Board or Committee or any director or officer who is delegated the whole or any part of the administration of this Plan pursuant to Section 3 is indemnified and held harmless by the Corporation against any cost or expense (including any sum paid in settlement of a claim with the approval of the Corporation) arising out of any act or omission to act in connection with the terms hereof to the extent permitted by applicable law. This indemnification is in addition to any rights of indemnification a Board or Committee member or any director or officer who is delegated the whole or any part of the administration of this Plan pursuant to Section 3 may have as director or officer or otherwise under the by-laws of the Corporation, any agreement, any vote of shareholders or disinterested directors, or otherwise..
13. Governing Law
The validity, construction and effect of this Plan and any actions taken or relating to this Plan shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein.
14. Effective Date
This Plan, as amended and restated, was approved by the Board on May 1, 2023, and is effective from such date, subject to acceptance of this Plan by the shareholders of the Corporation, the TSX and any other applicable regulatory authorities.
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SCHEDULE A
U.S. Participants and Section 409A Compliance
(a) Notwithstanding any other provision of the Plan, grants of Awards to Participants who are U.S. Taxpayers under the Code or any successor thereto, shall be made and administered under the terms of this Schedule A to the Plan.
(b) Upon the vesting of a Share Award granted to a U.S. Taxpayer, the Participant shall automatically and without any required action on his or her behalf exercise and the Corporation shall issue from treasury to the Participant the number of Shares required to be delivered upon the vesting and exercise of such Participant's Share Awards and upon the vesting of an Incentive Award granted to a U.S. Taxpayer, the Corporation shall settle the Incentive Award Value by payment or delivery to the Participant the cash and/or Shares required to be delivered upon the vesting of such Participant's Awards, in each case not later than March 15 of the year following the year in which the Vesting Date of such Award occurs (the "Payment Date"), except as otherwise provided in this Schedule A; provided however the Committee may determine that the Award will otherwise be designed on the grant date to comply with section 409A of the Code.
(c) In the event that an Award grant is amended, no such amendment shall be effective if it results in a postponement of the Vesting Date or the Payment Date, other than postponement on account of a Black-Out Period.
(d) In the event of a Change of Control, the Vesting Date of the then unvested portion of an Award granted to a U.S. Taxpayer shall be the date determined by the Board, and in the case of Share Awards the Participant shall exercise and the Corporation shall issue from treasury to the Participant the number of Shares required to be delivered upon the vesting and exercise of such Participant's Share Awards and in the case of Incentive Awards the Corporation shall settle the Incentive Award Value by payment or delivery to the Participant the cash and/or Shares required to be delivered to the Participant upon the vesting of such Participant's Share Awards, in each case by the Payment Date.
(e) The Board or Committee, as the case may be, shall interpret and construe the Plan and take all authorized actions with respect to any U.S. Taxpayer in a manner that is consistent with applicable U.S. Treasury regulations and other guidance issued pursuant to Section 409A of the Code. However, neither the Board, the Committee, the Corporation nor any other person connected with the Plan in any capacity makes any representation, commitment, or guarantee that any tax treatment shall be applicable with respect to any grant of Awards, any amounts deferred under this Plan, or any amounts paid to any person hereunder.
(f) No Participant who is a U.S. Taxpayer shall be eligible for Retirement treatment.
U.S. Participants and U.S. Securities Laws
(a) Shares issued pursuant to the Plan shall not be issued under the Plan to a Participant unless the issuance of those securities shall comply with all relevant laws, including, the U.S. Securities Act, applicable state securities laws, and the requirements of any Exchange or automated inter-dealer quotation system in the United States upon which the Shares may then be listed or quoted, if applicable. The issuance shall also be subject to the approval of counsel for the Corporation with respect to such compliance, including the availability of an exemption from registration for the issuance of any Shares issued pursuant to the Plan. The unavailability of an exemption from registration for the issuance to a Participant of any Shares issued pursuant to the Plan or the inability of the Corporation to obtain from any regulatory body the authority deemed by the Corporation to be necessary for the lawful issuance and sale of any Shares under the Plan, shall relieve the Corporation of any liability for not issuing Shares to the Participant.
(b) As a condition to the issuance of the Shares pursuant to the Plan, the Corporation may require the Participant to execute such documentation and make such representations and warranties as may be necessary to comply with federal and state securities laws or as may be required by this Plan.
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Clawback
(a) The Plan and all Awards granted hereunder are subject to any written clawback policies that the Corporation, with the approval of the Board or an authorized committee thereof, may adopt either prior to or following the effective time, including any policy adopted to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and rules promulgated thereunder by the United States Securities and Exchange Commission and that the Corporation determines should apply to Awards. Any such policy may subject a Participant's Awards and amounts paid or realized with respect to Awards to reduction, cancelation, forfeiture or recoupment if certain specified events or wrongful conduct occur, including an accounting restatement due to the Corporation's material noncompliance with financial reporting regulations or other events or wrongful conduct specified in any such clawback policy.
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SCHEDULE C
BOARD OF DIRECTORS MANDATE
The board of directors (the "Board") of Hammerhead Energy Inc. (the "Corporation") directly, and through its committees is responsible for the stewardship of the Corporation, and any subsidiaries of the Corporation (collectively, "Hammerhead"). In discharging its responsibility, the Board will exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances and will act honestly and in good faith with a view to the best interests of Hammerhead. In general terms, the Board will:
1. in consultation with the president and chief executive officer of the Corporation (the "CEO"), define the principal objectives of Hammerhead;
2. supervise the management of the business and affairs of Hammerhead with the goal of achieving Hammerhead's principal objectives as defined by the Board in association with the CEO;
3. discharge the duties imposed on the Board by applicable laws; and
4. for the purpose of carrying out the foregoing responsibilities, take all such actions as the Board deems necessary or appropriate.
Without limiting the generality of the foregoing, the Board will perform the following duties:
Strategic Direction, Operating, Capital and Financial Plans
1. require the CEO to present annually to the Board a longer range strategic plan and a shorter range business plan for Hammerhead, which plans must:
a. be designed to achieve Hammerhead's principal objectives;
b. identify the principal strategic and operational opportunities and risks of Hammerhead's business; and
c. be approved by the Board as a pre-condition to the implementation of such plans;
2. review progress towards the achievement of the goals established in the strategic, operating and capital plans;
3. review the principal risks of Hammerhead's business identified by the CEO and review management's implementation of the appropriate systems to manage and mitigate these risks;
4. approve the annual operating and capital budgets, and plans, as may be amended from time to time;
5. approve acquisitions and dispositions in excess of pre-approved expenditure limits established by the Board;
6. approve the establishment of credit facilities;
7. approve issuances of additional Class A Common Shares of the Corporation, other securities or other instruments to the public;
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8. approve the repurchase of Class A Common Shares of the Corporation or other securities in accordance with applicable securities laws;
Monitoring and Acting
9. monitor Hammerhead's progress towards achieving its goals, and to revise and alter its direction through management in light of changing circumstances;
10. monitor overall human resources policies and procedures, including compensation and succession planning;
11. review the systems implemented by management and the Board which are designed to maintain or enhance the integrity of Hammerhead's internal control and management information systems;
12. approve all matters relating to a material transaction involving Hammerhead;
Management and Organization
13. appoint the CEO and determine the terms of the CEO's employment with Hammerhead;
14. in consultation with the CEO, appoint all officers of Hammerhead and approve the terms of each officer's employment with Hammerhead;
15. ensure that Hammerhead has in place appropriate programs and policies for the health and safety of its employees and that Hammerhead sets high environmental standards in its operations and is compliant with environmental laws and regulations;
16. evaluate the performance of the CEO on an ongoing basis through the in camera session held at the end of each regularly scheduled Board meeting;
17. in consultation with the CEO, establish the limits of management's authority and responsibility in conducting Hammerhead's business;
18. to the extent possible, satisfy itself as to the integrity of the CEO and other executive officers and that the CEO and other executive officers create a culture of integrity throughout the organization;
19. develop a system under which succession to senior management positions will occur in a timely manner;
20. approve any proposed significant change in the management organization structure of Hammerhead;
21. approve all retirement plans for officers and employees of Hammerhead;
22. generally provide advice and guidance to management;
Finances and Controls
23. review Hammerhead's systems to manage and mitigate the risks of Hammerhead's business and, with the assistance of management, Hammerhead's auditors and others (as required), evaluate the appropriateness of such systems;
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24. review the procedures implemented by Hammerhead's management and the Board which are designed to ensure that the financial performance of Hammerhead is properly reported to Hammerhead shareholders, other security holders and regulators on a timely and regular basis;
25. approve all matters relating to a takeover bid or tender offer for the securities of Hammerhead;
26. in consultation with the CEO, establish and maintain a disclosure and trading policy for Hammerhead;
27. monitor the appropriateness of Hammerhead's capital structure;
28. ensure that the financial performance of Hammerhead is properly reported to shareholders, other security holders and regulators on a timely and regular basis;
29. in consultation with the CEO, establish the ethical standards to be observed by all officers and employees of Hammerhead and use reasonable efforts to ensure that a process is in place to monitor compliance with those standards;
30. require that the CEO institute and monitor processes and systems designed to ensure compliance with applicable laws by Hammerhead and its officers and employees;
31. require the CEO institute, and maintain the integrity of, internal control and information systems, including maintenance of all required records and documentation;
32. review and approve the Corporation's hedging program;
33. approve material contracts to be entered into by the Corporation;
34. recommend to shareholders of Hammerhead a firm of chartered accountants to be appointed as Hammerhead's auditors;
35. approve any payment of dividends;
36. review dividend levels (if applicable), based on information from and consultation with management, and approve all changes to dividend levels;
37. ensure Hammerhead's oil and gas reserve and/or resource report fairly represents the quantity and value of corporate reserves and/or resources in accordance with generally accepted engineering principles and applicable securities laws;
38. take reasonable actions to gain reasonable assurance that all financial information made public by Hammerhead (including Hammerhead's annual and quarterly financial statements) is accurate and complete and represents fairly the Corporation's financial position and performance;
Governance
39. selecting nominees for election to the Board in compliance with Hammerhead's Diversity and Term Limit Policy;
40. engage in the process of determining Board member qualifications with the Governance Committee and ESG Committee, and that the appropriate number of independent directors are on each committee of the Board as required under applicable securities rules and requirements;
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41. facilitate the continuity, effectiveness and independence of the Board by, amongst other things:
a. appointing a Chair of the Board who is not a member of management;
b. in consultation with the Chair of the Board, develop a position description for the Chair of the Board;
c. appointing from amongst the directors an audit committee and such other committees of the Board as the Board deems appropriate;
d. defining the mandate of each committee of the Board;
e. ensuring that processes are in place and are utilized to assess the effectiveness of the Chair of the Board, the Board as a whole, each committee of the Board and each director;
f. review the orientation and education program for new members to the Board to ensure that it is adequate and effective, and
g. establishing a system to enable any director to engage an outside adviser at the expense of Hammerhead;
42. review annually the composition of the Board and its committees and assess directors' performance on an ongoing basis, and propose new members to the Board;
43. review annually the adequacy and form of the compensation of directors;
Delegation
44. the Board may delegate its duties to, and receive reports and recommendations from, any committee of the Board to the extent permitted by applicable laws;
Composition
45. the Board shall consist of such number of directors within the range set forth in Hammerhead constating documents as the Board deems appropriate in order to facilitate effective decision making. The Board delegates to the Governance and ESG Committee the responsibility of considering and making recommendations to the Board with respect to the appropriate Board size;
46. Board members should have or obtain sufficient knowledge of Hammerhead and the oil and gas business to assist in providing advice and counsel on relevant issues;
47. Board members should offer their resignation from the Board to the Chair of the Board following:
a. change in personal circumstances which would reasonably interfere with the ability to serve as a director;
b. change in personal circumstances which would reasonably reflect poorly on Hammerhead (for example, finding by a court of fraud, or conviction under Criminal Code (Canada) or securities legislation);
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c. in accordance with Hammerhead's Majority Voting Policy, should a Board member receive a greater number of votes "withheld" from his or her election than votes "for" his or her election; or
d. failure to qualify as a director in accordance with Section 105 of the Business Corporations Act (Alberta);
Meetings
48. the Board shall meet at least four times per year and/or as deemed appropriate by the Chair of the Board;
49. absent extenuating circumstances or scheduling conflicts, Board members are expected to attend all Board meetings;
50. the Chair shall attempt to ensure that Board materials are distributed to directors in advance of regularly scheduled meetings to allow for sufficient review of the materials prior to such meetings;
51. the CEO or his designate(s) may be present at all meetings of the Board;
52. the CEO and Chief Financial Officer shall be available to attend all meetings of the Board upon invitation by the Board. Vice-Presidents and such other staff as appropriate to provide information to the Board shall attend meetings at the invitation of the Board;
53. the Board shall meet at the end of each meeting without members of management being present;
54. minutes of each meeting shall be prepared by the secretary to the Board;
55. independent directors shall meet regularly, and in no case less frequently than quarterly, without non-independent directors and management participation;
Authority
56. following each meeting, the secretary will promptly report to the Board by way of providing draft copies of the minutes of the meetings;
57. supporting schedules and information reviewed by the Board at any meeting shall be available for examination by any director upon request to the CEO;
58. the Board shall have the authority to review any corporate report or material and to investigate activity of Hammerhead and to request any employees to cooperate as requested by the Board; and
59. the Board may retain persons having special expertise and/or obtain independent professional advice to assist in fulfilling its responsibilities at the expense of Hammerhead.
Approved by the Board of Directors on February 23, 2023.
 | TSX: HHRS NASDAQ: HHRS
HAMMERHEAD ENERGY INC. 2700, 525 8TH AVENUE S.W. CALGARY, ALBERTA T2P 1G1
www.hhres.com |