TRUST UNIT RIGHTS INCENTIVE PLAN
(AS AT DECEMBER 15, 2004)
This document sets out the terms and conditions of the Unit Rights Incentive
Plan (the "PLAN") of the Harvest Energy Trust ("THE TRUST") adopted and approved
by the board of directors (the "BOARD") of Harvest Operations Corp. (the
"CORPORATION") effective as of November 4, 2002.
1. The purpose of the Plan is to provide certain directors, officers,
consultants, employees and other ongoing service providers, as applicable
(all of which are hereinafter called "SERVICE PROVIDERS"), of the Trust and
any of its subsidiaries, including the Corporation, with an opportunity to
acquire rights ("RIGHTS") to acquire units ("UNITS") of the Trust as
designated from time to time by the Board of the Corporation. The purpose
of the Plan is to provide an effective long term incentive to Service
Providers and to reward them on the basis of long term performance and
distributions. This will provide an increased incentive for these Service
Providers to contribute to the future success and prosperity of the Trust,
thus enhancing the value of the Units for the benefit of all the
unitholders of Trust.
2. The Plan shall come into effect on December 5, 2002, subject to the
approval thereof by the Toronto Stock Exchange (the "TSX").
3. Under the Plan, 1,487,250 Units of the Trust will be set aside and reserved
for the granting of Rights, subject to the approval of the TSX. Unless
otherwise approved by the TSX and the unitholders of the Trust, the number
of Units reserved for issuance upon the exercise of Rights shall not at any
time exceed 10% of the aggregate number of issued and outstanding Units of
the Trust (collectively, the "TOTAL UNITS").
4. Rights shall be granted by the Board from time to time, at its sole
discretion, to Service Providers, provided that the aggregate number of
Rights granted to any single holder of Rights shall not exceed 5% of the
Total Units. No Service Provider shall have any rights to be granted Rights
hereunder, except as may be specifically granted by the Board.
5. Rights granted under the Plan may not be assigned or transferred by a
holder thereof.
6. The Plan is subject to the approval of the TSX and no Rights which may be
granted prior to the receipt of such approval may be exercised until such
approval has been received.
7. Subject to the restrictions on exercise set out in paragraph 6 above and
paragraphs 11, 12 and 15 below, Rights granted under the Plan may be
exercised during a period (the "EXERCISE PERIOD") not exceeding five (5)
years from the date upon which the Rights were granted (the "GRANT DATE"),
pursuant to vesting schedules determined by the Board in its sole
discretion. At the expiration of the Exercise Period any Rights which have
not been exercised shall expire and become null and void.
8. The grant price ("GRANT PRICE") per Right granted hereunder shall be equal
to the per Trust Unit closing price on the trading date immediately
preceding the Grant Date, unless otherwise permitted.
9. The exercise price ("EXERCISE PRICE") per Right granted hereunder shall be
determined monthly by deducting from the Grant Price (or, after the first
month, from the most recently calculated Exercise Price) in respect of each
distribution made by the Trust during that month that occurs after the
Grant Date, either:
(a) the lesser of
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(i) the amount of the distribution, on a per Unit basis, made by
the Trust; and
(ii) the reduction, if any, in the fair market value of the Unit,
which shall be measured for each distribution as the
difference between the closing price of the Unit on the last
Business Day prior to the ex-distribution date of the
distribution and the closing price of the Unit on the
ex-distribution date; or
(b) the amount of the distribution, if the Holder so elects;
but only where the Trust's net operating cash flow for that month
exceeds 0.833% of the Trust's recorded cost of capital assets less all
debt, working capital deficiency (surplus) or debt equivalent
instruments, depletion, depreciation and amortization charges, asset
retirement obligations, and any future income tax liability associated
with such capital assets at the end of that month. In no event will the
Exercise Price be less than $0.01 per Trust Unit.
10. The Plan shall be administered by the Board. The Plan may be amended,
modified or terminated by the Board with the approval of the TSX. The
Board may establish a minimum Exercise Price and vary the vesting and
expiry periods under the Plan provided that the duration of the Rights
shall not exceed five years.
11. Upon any holder of Rights ceasing to be a Service Provider for any
reason whatsoever, other than the death or disability of such holder of
Rights, during the Exercise Period, all Rights which have not vested at
such date shall terminate and become null and void, and such holder of
Rights shall have until the earlier of:
(a) thirty (30) days from the date such holder of Rights ceased to be
a Service Provider; or
(b) the end of the Exercise Period,
to exercise the portions of any outstanding Rights which have vested in
such holder of Right pursuant to paragraph 7 above, and at the
expiration of such thirty day period, any vested Rights which have not
been so exercised shall terminate and become null and void; provided
that upon the termination of any employee for cause, the Board may, in
its sole discretion, determine that all vested Rights which have not
been exercised shall immediately terminate and become null and void.
12. Upon the death of any individual holder of Rights during the Exercise
Period, all Rights which have not vested at such date shall terminate
and become null and void, and the executor, administrator or personal
representative of such holder of Rights shall have until the earlier
of:
(a) six (6) months from the date of the death of such holder of Rights;
or
(b) the end of the Exercise Period,
to exercise those outstanding Rights which had vested in such holder of
Rights pursuant to paragraph 7 above as at the date of death, and at
the expiration of such six month period, any vested Rights which have
not been exercised shall terminate and become null and void.
13. Subject to the provisions of the Plan:
(a) Rights may be exercised (the "Exercised Rights") from time to time, at
any time (the "Exercise Date"), by a Holder's delivery to the Trust at
its head office in Calgary, Alberta or such other place as may be
specified by the Trust of a written exercise attached as Schedule A
hereto
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specifying the number of Rights being exercised and accompanied by
payment in full of the Exercise Price for the number of Rights for
which such exercise is made, or
(b) Rights may be exchanged for an equivalent value of cash on the Exercise
Date by a Holder's delivery to the Trust at its head office in Calgary,
Alberta or such other place as may be specified by the Trust of a
written exercise attached as Schedule A hereto
specifying the number of Rights being exercised, or
(c) Rights may be exchanged (the "Exchanged Rights") for a right (the
"Substituted Right") to acquire Trust Units in accordance with clause
14 below, from time to time, at any time (the "Exchange Date"), by a
Holder's delivery to the Trust at its head office in Calgary, Alberta
or such other place as may be specified by the Trust of a written
election attached as Schedule A hereto specifying the number of Options
being exchanged. The Rights exchanged under this clause 13(c), shall
terminate upon such exchange and the Holder shall cease to have further
rights in such Rights, or
(d) if a particular Holder elects under clause 13(a) hereof, the Trust may,
in its sole discretion, require the Holder to exchange his Rights for
Substituted Rights.
In each case, the calculation of the Exercise Price shall be ratified
and confirmed by the Director of Taxation of the Corporation. (In the
event of the exercise of Rights by the Director of Taxation of the
Corporation, the calculation of the Exercise Price shall be ratified
and confirmed by the Vice President, Finance).
Upon receipt of such notice made in accordance with the terms and
conditions of the Plan, the Trust shall cause to be issued, and deliver
to such holder of Rights, a certificate representing the Units for
which such Rights or Substituted Rights have been exercised, unless the
holder of Rights has elected under clause 13(b) hereof to settle the
Rights, in whole or in part, by way of a cash payment, in which case
the Trust shall cause to be paid, and shall deliver to such holder of
Rights, a cheque in the amount equal to the difference between the
Exercise Price and the closing price of the Trust Units on the date of
exercise multiplied by the number of Rights which are to be settled in
cash or Trust Units, less all applicable withholdings.
14. A Holder electing under clause 13(c) or required to elect under clause
13(d) will receive a Substituted Right which will entitle him to
acquire on exercise the following number of Trust Units in settlement
of the Substituted Right:
Number of Trust Units = Number of Trust Units x Current Price - Exercise Price)
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under the Exchanged Rights Current Price
For the purpose of this clause, "Current Price" means, the closing
price on the date of exercise or exchange of the Rights.
Following the settlement of the Substituted Right, the Trust shall
cause a certificate representing such Trust Units to be issued in the
name of the Holder (or as the Holder may direct) to be sent by pre-paid
mail or delivered to the Holder.
15. In the event, during any Exercise Period of any Rights granted
hereunder, of any consolidation, subdivision, re-division or change of
the Units of the Trust into a greater or lesser number of Units, then
such outstanding Rights shall be deemed to be amended to be for such
greater or
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lesser number of Units as would have resulted if the Units represented
by such Rights had been issued and outstanding at the date of such
consolidation, subdivision, re-division or change, and the Exercise
Price shall be deemed to be adjusted on a pro rata basis.
16. The vesting provisions set out in paragraph 7 above shall be
accelerated and all unexercised Rights may be exercised upon the
effective date of a change of control of the Trust or the Corporation.
For the purposes hereof, a "change of control" shall be deemed to occur
upon the effective date of the earlier of any of the following events,
provided that such event results in an actual change of control of the
Trust or the Corporation:
(a) a successful "take-over bid" as defined in the SECURITIES ACT, R.S.A.
2000, c. S-4, as amended, or any successor legislation thereto,
pursuant to which the "offeror" would as a result of such take-over
bid, if successful, beneficially own in excess of 50% of the
outstanding Total Units of the Trust or common shares of the
Corporation;
(b) the issuance to or acquisition by any person, or group of persons
acting in concert, of Units of the Trust which in the aggregate total
50% or more of the then issued and outstanding Total Units of the
Trust;
(c) a change in the ownership of the Corporation the effect of which is
that a sufficient number of voting shares of the Corporation taken on a
fully diluted basis, necessary to elect a majority of directors to the
Board of the Corporation are not beneficially held or under the
direction or control of the Trust; and
(d) a sale of assets representing at least 75% of the Corporation's total
assets; and
(e) the termination of the Trust or a going private transaction.
17. The granting of Rights hereunder to any holder of Rights shall not
obligate such holder of Rights to exercise such Rights or any portion
thereof.
HARVEST ENERGY TRUST
Per:
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Per:
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SCHEDULE "A"
NOTICE OF EXERCISE OF UNIT RIGHTS
To: Harvest Energy Trust (the "Trust")
The undersigned holder of Rights hereby gives notice of intention to exercise
those Rights on terms as defined by the following and the attached instructions:
- ------------------------------------------------------- ------------------ -- ------------- -- -----------------------
Payroll Director of Taxation
RIGHTS VALUATION Approval or designate Approval
(initial) (signatures)
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Grant Date(1)
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- ------- ----------------------------------------------- ------------------ -- ------------- -- -----------------------
A Grant Price(2) $
- ------- ----------------------------------------------- ------------------ -- ------------- -- -----------------------
- ------- ----------------------------------------------- ------------------ -- ------------- -- -----------------------
B Exercise Price Reduction: MARKET FULL $
(3)
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- ------- ----------------------------------------------- ------------------ -- ------------- -- -----------------------
C Exercise Price (A - B) $
- ------- ----------------------------------------------- ------------------ -- ------------- -- -----------------------
- ------- ----------------------------------------------- ------------------ -- ------------- -- -----------------------
Exercise Date
- ------- ----------------------------------------------- ------------------ -- ------------- -- -----------------------
- ------- ----------------------------------------------- ------------------ -- ------------- -- -----------------------
D Closing Price(4) $
- ------- ----------------------------------------------- ------------------ -- ------------- -- -----------------------
- ------- ----------------------------------------------- ------------------ -- ------------- -- -----------------------
E Rights Exercised
- ------- ----------------------------------------------- ------------------ -- ------------- -- -----------------------
- ------ ----------------------------------------------- ------------------ -- ------------- -- -----------------------
F Exercise Cost (C x E) $
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- ------- ----------------------------------------------- ------------------ -- ------------- -- -----------------------
G Net Settlement Value ((D - C) x E)) $
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(1) Grant Date as defined in Plan, Clause 7 (3) As per the Plan, Clause 9 (calculated by Harvest).
"Market" reduction (9(a)) qualifies holder for 50% tax
deduction. Full reduction (9(b)) disqualifies holder for
50% tax deduction.
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- ------------------------------------------------------- --------------------------------------------------------------
(2) Grant Price as defined in Plan, Clause 8 (4) Closing Price on the TSX on the day of the Exercise Date
- ------------------------------------------------------- --------------------------------------------------------------
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HOLDER PREFERENCE
In accordance with the Plan, I am indicating my preference (by indicating the amount in the box below) to acquire
units at the Exercise Cost or receive cash or Substituted Rights (which are exchanged for units valued in the amount
of the Net Settlement Value).
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FOR COMPANY USE ONLY
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Trust Units Purchased in Exchange for Exercise Cost(5) For __________________________ Units
- ----------------------------------------------------------- -------- --- ---------------------------------------------
- ----------------------------------------------------------- -------- --- ---------------------------------------------
Net Settlement Value to be received in Cash For $_________________________
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Net Settlement Value to be received in Units (I Elect to For __________________________ Units
receive an equivalent number of Substituted Rights and
exercise them for Trust Units)(5)
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(5) For tax deferral, complete attached election by Jan 15 of year following
exercise
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HOLDER INFORMATION
- ------------------------------------------ ---------------------------------------------------------------------------
Date:
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Signature of Holder of Rights:
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Name (please print):
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Address to which unit certificate
or cheque is to be sent:
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INSTRUCTIONS TO NOTICE OF EXERCISE OF UNIT RIGHTS
1. Holders of Rights may exercise such Rights by completing and executing
the Notice of Exercise of Unit Rights (the "Notice") and submitting such
Notice to the Benefits and Payroll Coordinator for validation.
2. The Notice must be received by the Benefits and Payroll Coordinator or
his/her designate no later than 12:00 pm MST on the day of the Exercise
Date. Any Notice received by Payroll after 12:00 pm MST will be
effective for the following business day.
3. If a holder of Rights is requesting Trust Units in exchange for the
Exercise Cost, such Notice must include a cheque in the amount of the
Exercise Cost. The Trust reserves the right to demand such payment be
made by certified cheque. If a submitted cheque does not clear due to
insufficient funds, the Trust has the option to cancel the transaction
or retain the units and deduct the exercise price from the holder's
cheque until fully repaid, or sell the units to pay the exercise price,
at the holder's risk.
4. When submitting a Notice, the Holder should complete all sections of the
Notice, including RIGHTS VALUATION, HOLDER PREFERENCE and HOLDER
INFORMATION.
5. To complete RIGHTS VALUATION, the Holder may use the following sources:
a. Grant Date - from the Unit Incentive Rights Grant letter (the
"UAR Grant Letter") provided to the Holder when UARs were issued;
b. Grant Price - from the UAR Grant Letter; c. Rights Exercised - to
be determined by the Holder, to a maximum eligible under the
vesting defined in the UAR Grant Letter;
d. Closing Price - Closing price for Harvest Units can be obtained
from most news papers. Note, for a Notice to be effective on a
given business day, (priced the previous day) Notice must be
received by Payroll by 12:00 pm MST;
e. Exercise Price Reductions - can be obtained from a schedule
prepared by Harvest - and administered by the Benefits and
Payroll Coordinator;
f. A Holder has the choice of using either the Exercise Price or the
Grant Price less distributions since the Grant Date. See tax memo
for details
6. A Holder should notify the Trust of which settlement alternate he/she
prefers, being either: i. Trust Units Exercised in Exchange for Exercise
Cost, wherein the Holder essentially purchases Units, the quantity being
equal to the Rights Exercised, for a cost equal to the Exercise Cost;
ii. Net Settlement Value in Cash, wherein the Holder does not want to
hold Units and prefers to receive the net settlement value in cash
immediately; iii. Net Settlement Value in Equivalent Units, wherein the
Holder wishes to hold Units but does not wish to pay the Exercise Cost.
In this case, the Trust will provide to the Holder, the number of Units
to compensate the Holder for the Net Settlement Value, based on the
Closing Price. Fractional Units will be compensated with Cash. Those who
select option i. or iii. may elect to defer taxation of their benefit
until they sell the units by filling out the attached election form. See
tax memo for details.
7. Holders who choose option i. may be required by the Trust to accept
option iii. instead.
SAMPLE ELECTION TO DEFER TAXATION OF BENEFITS ARISING FROM
EXERCISE OF UAR'S
Date
Harvest Energy Trust
1900, 330 - 5th Avenue SW
Calgary, AB T2P 0L4
Attention: Payroll and Benefits Coordinator
I hereby elect under subsection 7(8) of the Income Tax Act to defer the
taxation of benefits arising from the exercise of ____ unit
appreciation rights granted to me under Harvest's Trust Unit Rights
Incentive Plan and exercised during the ____ calendar year.
I understand that the calculation of the number of units available for
deferral may be reviewed by the company and adjusted as necessary to
ensure compliance with the limits set out in subsection 7(10) of the
Income Tax Act.
Sincerely,