-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MSPN40drKr6UF7lTQ9itXB/4TUI1CZOHgQzDD2/PqdC5VoX7ZdbRUp2T01JreLX0 hSw05r6q3G+nMOsFft9KBw== 0000950110-98-000432.txt : 19980417 0000950110-98-000432.hdr.sgml : 19980417 ACCESSION NUMBER: 0000950110-98-000432 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980415 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOLUCORP INDUSTRIES LTD CENTRAL INDEX KEY: 0001051720 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-29664 FILM NUMBER: 98595012 BUSINESS ADDRESS: STREET 1: 250 WEST NYACK ROAD CITY: WEST NYAC STATE: NY ZIP: 10994 BUSINESS PHONE: 9146232333 MAIL ADDRESS: STREET 1: 250 WEST NYACK ROAD CITY: WEST NYACK STATE: NY ZIP: 10994 10-K 1 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-K (Mark One) [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: ___________________ OR [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from July 1, 1997 to December 31, 1997 Commission File Number: [1-13737] SOLUCORP INDUSTRIES LTD. ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) YUKON N/A ------------------------------- ------------------ (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No. 250 WEST NYACK ROAD, WEST NYACK, NEW YORK 10994 - ----------------------------------------- --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (914) 623-2333 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock, no par value Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [ ] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X] 1 As of February 28, 1998, the aggregate value of the registrant's voting stock held by non-affiliates was $____________ (computed by multiplying the last reported sale price on March ___, 1998 by the number of shares of common stock held by persons other than officers, directors or by record holders of 10% or more of the registrant's outstanding common stock. This characterization of officers, directors and 10% or more beneficial owners as affiliates is for purposes of computation only and is not an admission for any purposes that such person are affiliates of the registrant). [VH & HS] As of March ____, 1998, there were __________ shares of the registrant's common stock, no par value, issued and outstanding. Documents incorporated by reference: Document Form 10-K Reference -------- ------------------- Portions of the Registrant's Proxy Statement for its III 1998 Annual Meeting (to be filed in definitive form within 120 days of December 31, 1997, the Registrant's New Fiscal Year End) ================================================================================ 2 Certain matters discussed herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and as such may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future performance, perceived opportunities in the market and statements regarding the Company's mission and vision. The Company's actual results, performance, or achievements may differ significantly from the results, performance, or achievements expressed or implied in such forward-looking statements. PART I ITEM 1. BUSINESS. GENERAL Solucorp Industries Ltd. (the "Company"), incorporated under the laws of the Province of Yukon, Canada (formerly World Tec Industries, Inc.) was formed through an amalgamation (merger) of Livingstone Energy Corp. and Intelicom Systems, Ltd. on June 30, 1987. On April 4, 1997 the Company changed its corporate domicile from British Columbia to the Yukon Territory. The Company is focused on the development, sales and marketing of solution products that meet the needs of the environmental marketplace. The Company has developed an innovative and cost effective hazardous heavy metal remediation process for the environmental marketplace. The Company's patent-pending Molecular Bonding System ("MBS(R)") process has been included in the United States Environmental Protection Agency's ("EPA") Superfund Innovative Technology Evaluation ("SITE") program as an innovative solution to the remediation of heavy metals in soils, sludges and ash. The MBS process has been proven in completed contracts in New Jersey, New York, Connecticut, West Virginia, Missouri and Massachusetts. The MBS process results in an immediate chemical reaction changing offensive leaching ions into new non-leaching molecules. The process can be utilized on-site rather than removing soil for off-site treatment. The Company's future product development focuses on the patent enhancements and additional product capability of the MBS process. The Company's future plans for sales and marketing of the MBS process will include direct sales and licensing of the process and technology for which the Company would receive license and royalty payments. The Company also markets a product called "Mercon(R)," Mercury Vapor Suppressant Product which is used to clean up mercury spills, and suppress the deadly vapors when spills occur. The Company believes the mercury clean up business is limited and declining and sales emphasis is restricted to filling orders for existing customers, and by taking on projects strictly on a referral basis. 3 The Company operates an environmental training and consulting business through its wholly owned subsidiary Environmental Training Institute, Inc. ("ETI") in Saddle Brook, New Jersey. ETI offers consulting and training services; Safety, Health and Environmental training in accordance with the Federal Occupational Safety and Health Act ("OSHA"); custom on-site video training materials; instruction on how to avoid OSHA citations; and representation during informal and formal OSHA conferences. The Company also provides lead and asbestos abatement, mercury spill cleanups, air monitoring, consultation for underground storage tank problems, ground water recovery and treatment, transport and disposal of hazardous and non-hazardous materials, design and illustration of monitoring wells, waste management consultation, environmental impact studies and assessment, environmental auditing and permitting, hydrogeology and engineering geology. The Company is also in the process of developing a chemical technology to render metals such as lead inert in consumer products such as batteries after the useful life of the product. The Company's principal environmental remediation operations are conducted by E.P.S. Environmental, Inc. ("EPS"), a wholly owned subsidiary incorporated in the Province of British Columbia, Canada and through joint venture arrangements. The Company also has several inactive wholly owned subsidiaries. Unless the context otherwise requires the "Company" as used herein refers to the Company and all of its subsidiaries. The Company has offices in Vancouver, British Columbia; West Nyack, New York; Regina, Saskatchewan; Saddle Brook, New Jersey; Leawood, Kansas; and San Juan, Puerto Rico. The Company's principal executive offices are located at 250 West Nyack Road, West Nyack, New York 10994. Its telephone number at that location is (914) 623-2333. See "Item 2 - Description of Property." ENVIRONMENTAL REMEDIATION The Company is principally engaged in the development, sales and marketing of its MBS process, which is an innovative and cost effective hazardous heavy metal remediation process. It was designed to protect clients from the threat of future liability claims, and offer a permanent solution to stabilizing heavy metals. The MBS process stabilizes heavy metals in soils, sludges, ashes and bag house dust by chemically rendering leachable metal ions inert by bonding them to non-leachable molecules. The MBS process utilizes a powder added to excavated soil or sludge in a pug mill operation. It also can be applied in-situ (directly to contaminated soil) which eliminates the costly excavation and processing associated with soil removal from the ground prior to treatment. These processes stabilizes all toxic characteristic metals identified in the United States Resource Conservation Recovery Act ("RCRA"), and can treat multiple metals concurrently. The MBS process has proven, through long term stability testing (Multiple Extraction Procedure), to not leach for more than 1,000 years and has been proven under all recognized regulatory protocols (TCLP, SPLP, SWEP, and CAL WET) to not only meet, but to exceed minimum standards. The MBS process maintains the pH levels in the media within a range where the insolubility of the heavy-metal sulfides is assured. The process also provides buffer capacity to ensure that the pH is not significantly altered by the addition of acids or 4 caustics to the media. In the MBS process, waste is crushed and screened, reducing particles to a one-inch diameter for maximum contact with a proprietary reagent mixture. The powdered reagent, created for site-specific conditions, is mixed with waste in a closed hopper pug mill. After water is added to the mixture to catalyze the reaction and aid in mixing, the treated substance goes to a stockpile. Vapors from the mill go through a regenerable wet scrubber and a carbon absorption system. The dried soil is then tested to ensure compliance with regulatory limits. Clean soil is returned to the site or transported to a non-hazardous landfill for disposal. The Company has mobile remediation systems that can be brought to a site and set up in a matter of hours or days, depending upon the size of the project. Currently the Company has three different machines capable of performing the MBS process on the particular site. When not in use, these machines are stored in a warehouse. It can be installed at the end of a processing line to render hazardous waste non-hazardous at the source. A customized MBS mixing system can be installed into a manufacturing line to convert a hazardous metal waste, such as slag or bag house dust, into a non-hazardous material. Accordingly, the Company believes that customers with in-line manufacturing systems that produce hazardous heavy metal waste can save significant amounts of money on transportation, disposal and insurance costs, and have a safer facility by using the MBS process. The process can operate at rates up to 90 metric tons per hour depending on site conditions. Metals amenable to the MBS process include arsenic, cadmium, chromium, copper, lead, mercury, nickel, silver and zinc. This system is also effective with mixed wastes or chemical compounds. Soils processed with MBS have successfully met toxicity characteristic leaching procedure requirements and in many cases, metals are virtually undetectable. No residuals or byproducts are generated by the MBS process. The Company has already successfully completed on-site applications in Jersey City, New Jersey; Waterbury, Connecticut; Roanoke, Virginia; Buffalo, New York; and Egremont, Massachusetts. They recently set up an in-line operation in Buick, Missouri which is currently capable of processing hazardous slag 24 hours a day. The Company's MBS process has been accepted by the EPA SITE program as an innovative solution to the remediation of heavy metals in soils, sludges, ash and other manufacturing waste streams. The Company also markets the Mercon(R) line of products which is used throughout the United States in emergency response clean-up projects including those contracted by the EPA. These certain chemicals facilitate collection of mercury and prevent its methylation in water. Mercon is a line of premium quality mercury suppressant products used to clean up mercury spills, and suppress the deadly vapors present when a spill occurs. Unique properties of Mercon include it being non-toxic and bio-degradable. Mercon products are used mostly in hospitals, dental offices and laboratories. Industrial applications are now minimal as most industries which required high cost mercury clean ups have switched to newer, non-mercury dependent systems. Due to this switch the Company believes the market for such services are minimal and has not pursued an active marketing campaign. Instead, the Company only fills orders for existing customers and takes jobs on a referral basis. 5 LICENSING AGREEMENTS AND PATENTS To protect the uniqueness of the Company's remediation process and ensure that it is the sole owner of this process, the Company has secured, and has patents pending in the United States and Canada. The Company is the sole and exclusive owner of the MBS Process. To that extent it has patents pending, under U.S. Patent Application #08,399,784 and Canadian Patent Application #2,137,996. On April 16, 1996 the Company obtained trademarks for the terms "Solucorp" and "MBS" under the Trademark Act of 1946, as amended with The United States Patent and Trademark Office. These Trademarks remain in force for ten years, unless sooner terminated as provided by law. MBS was registered for chemicals for use in soil remediation in Class 1, and Solucorp was registered for hazardous waste management and destruction of waste by means of soil remediation, in Class 42. The Company has also been assigned European Community Trademark Application Numbers for these terms, 00044154 and 000440750 respectively. Management believes that by licensing the MBS technology, the Company can realize greater revenues by establishing licensing arrangements throughout the world for which it will receive license and royalty fees. The Company has entered into several licensing arrangements covering the United States, Canada, Europe and China and will continue to seek such arrangements. In October 1995 the Company entered into an exclusive licensing agreement with John Beech Remediation, Ltd. ("JBRL"), a subsidiary of John Beech Limited, to utilize the Company's soil remediation process, and to market of the Company's MBS soil remediation technology in the United Kingdom. Under the terms of the agreement, JBRL must remediate soils utilizing the Company's MBS process to certain minimum revenue levels each year, pay the Company an annual licensing fee and pay a royalty per ton of soil remediated. This agreement was superseded by a new agreement dated August 1, 1997 between the Company and John Beech Limited ("JBL") which commences when JBL is officially recorded as listed on the Alternative Investment Market ("AIM"). This new agreement redefined the minimum volume requirements and the compensation arrangement between the parties. In November 1996 the Company entered into a licensing agreement with Global Technologies, Inc. ("Global"), a British Columbia company, whereby Global was granted the right to utilize the MBS process in Canada for a period of five years. Effective on September 15, 1997, the Company finalized an exclusive license with Hong Kong based Smart International Ltd. ("Smart") to market and utilize the Company's MBS technology in the People's Republic of China. The agreement provides for annual licensing and royalty fees. 6 SOURCES OF NEW MATERIALS The Company's MBS process requires the use of certain chemical compounds at certain concentrations. The Company relies on two major suppliers for sufficient quantities of this chemical compound which is vital to the MBS process. Although the Company currently has arrangements with suppliers to procure an ongoing supply of a sufficient quantity of the chemical compound, the Company may, from time to time suffer shortages and possible cost increases for this material. Accordingly, the Company's ability to perform contracts and continued sales at a profitable level could be adversely affected. The Company has entered into a contract with Smart whereby Smart will supply chemicals for the Company's MBS process. Smart was specifically established to produce the chemical compound used in the MBS process by the principals of Smartec, a supplier of products to various international customers such as Ericsson, Philips and Tandy. Smart's chemical productions facilities are in China. In addition, through its relationship with Smart and a group of private Chinese investors, the Company has undertaken a plan to provide a reliable long-term source for the primary component in MBS. This relationship is expected to provide the Company with a joint ownership interest in an integrated manufacturing network comprised of three (3) facilities in China. This association will expand the Company's R & D capabilities and safeguard its MBS patent in China as well as secure quality production for world-wide distribution. The Company also purchases some of the chemical compounds used in the MBS process from Best Sulfur. The Company is under no written obligation to purchase any set quantity from Best Sulfur, rather, the Company executes purchase orders with Best Sulfur as the need arises for additional quantities of the chemical compound. MARKETING AND SALES The Company markets and sells its services and products through the efforts of its in-house sales personnel and by entering into agreements with various marketing companies. As more fully described hereunder, the Company has entered into several different marketing agreements including joint marketing and operations agreements and sales representative agreements to market and sell the Company's products and services throughout the world. The Company believes that by forming relationships with established consulting firms it will realize greater revenues by establishing company and product credibility, market awareness, and a definite customer base. On or about October 1995 the Company entered into a contract with IDM Environmental Corp. ("IDM") which provides joint marketing and operations for the Company's MBS process. This resulted in the Company participating in a remediation project in Egremont, MA and being included in a remediation contract with IDM at the Los Alamos National Laboratory site in New Mexico. 7 On December 17, 1996 the Company entered into a Joint Marketing and Operations Agreement with Roy F. Weston, Inc. ("Weston"), a Pennsylvania corporation. Weston is a company that provides engineering, construction, and environmental management services to businesses. Weston is to market and provide field management for some of the Company's products and/or services for a period of three years. The Company, through its subsidiary EPS, entered into a Sales Representative Agreement with ENSCI Environmental ("ENSCI"), a subsidiary of American Eco Corp., for a term of three years. ENSCI will market and promote all of the Company's products and services, including the MBS process, by identifying specific accounts and/or projects where heavy metal contamination is present and then, based on a specific sales/marketing plan, register the account with the Company. On November 20, 1997 the Company entered into a one year non-exclusive finders agreement with Quest International Technologies ("Quest") to promote the Company's soil remediation process. As a result of Quest's efforts, the Company will pay 3% of the gross revenues generated which are payable 10 days after receipt from any third party. COMPETITION The United States remediation construction market, according to the Eighth Annual State of the Industry Report prepared by Farkas Berkowitz & Company, was $3.5 billion in 1995, which represented a twenty percent increase over 1994. It is continuing to undergo a market restructuring fueled by regulatory changes, declines and/or shifts in government spending, and the emergence of very large remediation companies via vertical integration and cross service acquisition. A key emerging market trend is the shift from transportation and disposal to on-site remediation, due to the recent availability of more effective treatment technologies and meaningful economic incentives with on-site remediation. The 1996 heavy metal market was estimated to be approximately ten million tons consisting of three main segments; (i) Hazardous Waste Facilities (land fills and treatment, storage, and disposal facilities); (ii) Manufacturing Operations (producers of hazardous waste); and (iii) Site Remediation (projects for the clean up of contaminated sites.) The remediation market is perceived to offer minimal product differentiation and is characterized by a general reluctance to try new products. The Company believes this stems from the generator/primary responsible party ("PRP") reluctance to risk a possible future liability with unproven products. Additionally, environmental consultants generally take a very conservative approach in evaluating remedial design alternatives. The remediation solutions that have historically dominated the market, including, Portland Cement, Cement Kiln dust, and Lime, are coming under increasing public and private scrutiny, because they are not providing PRP's with long term protection. With increasing frequency, the "caps" that were used on many SuperFund sites are now cracking and exposing the environment to toxic materials. 8 The Company's MBS process competes against three primary remediation categories: (i) Solidification and Stabilization, (ii) Vitrificaton, and (iii) Soil Washing. Each of these have several treatment technologies available. Solidification and Stabilization as the primary category of remediation used for heavy metals accounting for approximately ninety percent (90%) of market usage. The MBS process compares favorably against solidification and Stabilization, with its advantages being cost, versatility and efficacy. The Company believes that its MBS process has certain price and efficacy advantages over competing soil remediation technologies. However, the Company competes against firms that are significantly larger and have far greater capital, scientific and marketing resources than the Company. GOVERNMENTAL REGULATION The EPA is the principal federal agency responsible for environmental matters, including the disposal and discharge of hazardous substances. State and local governments are involved in implementing environmental programs on a state and local level. EPA, state and local policies can adversely affect the demand for the Company's services by relaxing regulations requiring tests, by delaying the effective date of regulations which require tests and by relaxing its enforcement efforts. Furthermore, to the extent that the budgets of administrating agencies are reduced, or funds not made available to them, the demand for the Company's services can also be adversely affected. Applicable federal legislation includes the RCRA, the Clean Water Act, the Safe Drinking Water Act, the Clean Air Act, Toxic Substances Control Act, the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), and the Superfund Amendments and Reauthorization Act ("SARA") and the Technical Standards and Corrective Action Requirements for Owners and Operators of Underground Storage Tanks Act ("UST"). The Company's activities and its facilities are subject to regulation under federal, state and local laws, ordinances and rules and regulations relating to the environment, environmental quality and occupational health and safety including the RCRA, OSHA and similar state laws and regulations promulgated thereunder. The Company receives and uses various hazardous chemicals in its environmental testing operations, and is licensed for these activities. While the Company believes that its operations have at all times been conducted in compliance with all federal, state and local environmental laws and regulations, any business handling hazardous waste is subject to potential contingent liabilities under certain of these laws. The full impact of applicable laws and regulations on the Company is difficult to predict because of their complex nature and the possibility of changes, and because of political and economic pressures. In connection with the Company's business of waste analysis, the Company believes it is acting in compliance with applicable environmental laws. In response to the increasing public and private awareness to the long term results from previous remediation initiatives, the EPA has submitted changes to rules defining the acceptable levels of Toxic Characteristics (TC) metals, and is attempting to have these changes enacted in the near future (see chart below of a sample of these proposed changes). The EPA's goal is to 9 abandon the levels set in the RCRA and adopt the far more stringent Universal Treatment Standards (UTS). These proposed changes to the acceptable TC levels benefit the Company, because MBS is already capable of achieving these new levels without additional cost, equipment, or volume increase for the treated materials. Management believes that the same cannot be said for most competitors in the market. Management also believes that traditional technologies are probably not capable of achieving the proposed new levels without significant cost increases. - -------------------------------------------------------------------------------- SAMPLE OF PROPOSED CHANGES FOR TOXIC CHARACTERISTICS METALS - -------------------------------------------------------------------------------- =============================================================================== | Old Approved | Proposed New | TC METAL | RCRA Levels | "UTS" Levels | % Variance - -------------------------------|----------------|----------------|-------------- Arsenic | 5.0 | 5.0 | (N/C) - -------------------------------|----------------|----------------|-------------- Barium | 100.0 | 7.6 | 92.4% - -------------------------------|----------------|----------------|-------------- Cadmium | 1.0 | 0.19 | 81.0% - -------------------------------|----------------|----------------|-------------- Chromium (Total) | 5.0 | 0.86 | 82.8% - -------------------------------|----------------|----------------|-------------- Lead | 5.0 | 0.37 | 92.6% - -------------------------------|----------------|----------------|-------------- Mercury (Retort Residues) | 0.2 | 0.2 | (N/C) - -------------------------------|----------------|----------------|-------------- Mercury (All Others) | 0.2 | 0.02 | 87.5% - -------------------------------|----------------|----------------|-------------- Selenium | 1.0 | 0.16 | 84.0% - -------------------------------|----------------|----------------|-------------- Silver | 5.0 | 0.30 | 94.0% =============================================================================== INSURANCE The Company maintains a Commercial General Liability Policy on an occurrence basis which expires June 1998 with an aggregate limit of $4,000,000 and a Contractors Pollution Liability Policy with liability coverage of $2,000,000 on a claims-made basis with a $25,000 deductible which expires June 1998. The Commercial General Liability Policy contains various exclusions, including claims related to discharge of pollutants, radioactive matter, and asbestos. The Company intends to maintain the same coverage, either by renewal or by obtaining similar coverage. However, no assurances can be given that the Company will be able to maintain any or all of the above described policies of insurance which may also be canceled before expiration in accordance with the terms of each policy. Further, while management believes this coverage is adequate, there can be no assurance that a recovery or settlement of a material claim will not exceed the Company's coverage. All of the aforementioned policies are maintained by the Company through the Reliance Insurance Company and Hartford Insurance Company. 10 EMPLOYEES As of December 31, 1997, the Company had nineteen full time employees. Of these employees four were executives, five were engaged in sales, three in technical activities and seven were in administrative and support functions. The Company is not subject to any collective bargaining agreement and management believes that its employee relations are good. ITEM 2. PROPERTIES. The Company occupies an office of approximately 7,000 square feet at 250 West Nyack Road, West Nyack, New York pursuant to a sublease agreement commencing March 1, 1996 for a six year term at a rent of (U.S.) $12,000 per month. The Company also occupies an office at 1413 Juncos Avenue, Santurce Puerto Rico. The Company entered into a four year lease commencing June 1, 1996 with a monthly rent of (U.S.) $675 and has prepaid (U.S.) $27,385.68 in rent by allowing Dr. Robert Sheldon, President of 1413 Fernandez Juncos, Inc. (the landlord of the premises) to exercise warrants previously issued to him. The Company also occupies an office at 105-1093 West Broadway, Vancouver, British Columbia pursuant to a month to month lease arrangement at a monthly rent of (U.S.) $600. The Company also occupies an office at 515 Victor Street, Saddle Brook, New Jersey pursuant to a one-year lease agreement commencing May 1, 1997, with a monthly rent of (U.S.) $1,300 for the first six months and (U.S.) $1,400 for the remaining six months. The Company also maintains offices in their salesman's homes in Saskatchewan, Canada, and Kansas, U.S.A. The Company has no written leases for these offices and pays no monthly rent for them. Management believes that all of the aforementioned properties are adequately covered by insurance and are adequate for the Company's present and planned future operations. ITEM 3. LEGAL PROCEEDINGS. The Company is subject only to routine legal proceedings incidental to the Company's business which do not involve claims for damages exceeding 10% of the Company's current assets. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. The Company's Common Stock is traded in the over-the-counter market via the Electronic Bulletin Board under the symbol "SLUP". The following table shows the range of high and low bid quotations for shares of the Company's Common Stock for the calendar quarters indicated. Prior to August 6, 1996, the Company's Common Stock was traded on the Vancouver Stock Exchange ("VSE"). Prices prior to August 6, 1996 are not presented. (In U.S. Dollars) High Low ----- ----- 1998 - ---- First Quarter (through March 18, 1998) ........... $7.37 $3.31 1997 - ---- First Quarter .................................... $6.50 $1.69 Second Quarter ................................... $4.19 $2.31 Third Quarter .................................... $3.87 $1.91 Fourth Quarter ................................... $6.19 $3.37 1996 - ---- Third Quarter (beginning August 6, 1996) ......... $9.12 $1.15 Fourth Quarter ................................... $7.81 $1.53 As of February 28, 1998, the Company's Common Stock was held of record by 367 persons. The Company estimates that there are at least 5,000 additional shareholders whose shares are held by brokerage firms, banks and depositories. On that date, the last sale price on the Electronic Bulletin Board was $3.94. SHAREHOLDER PROTECTION RIGHTS PLAN The Company's shareholders approved a shareholders protection rights plan (the "Rights Plan") at an Annual General Meeting of Shareholders held December 18, 1996. The Rights Plan is effected through an agreement (the "Rights Plan Agreement") with The R-M Trust Company (the "Rights Agent") executed in December 1997 and is subject to the Rights Plan's compliance with the registration requirements of applicable Canadian, Federal State Law. Under the Rights Plan, share purchase rights (the "Rights") will be issued to holders of common shares at the rate of one Right for each common share outstanding at such time on such 12 date as shall be agreed to between the Company and the Agent under the Rights Plan Agreement (the "Record Time"). Initially, each Right will entitle the holder thereof after the Separation Time (as defined in the Rights Plan Agreement) and before the Expiration Time (also as defined in the Rights Plan Agreement) to purchase one common share for $100.00, subject to adjustment in certain circumstances. As discussed in greater detail below, if any person were to make a take-over bid which is not a Permitted Bid (as defined in the Rights Plan Agreement), the Rights (except those held by the person making the take-over bid and certain other related or connected persons (an "Offeror")) would entitle the holders to acquire common shares with a value of $200 for $100, substantially diluting the interest of the Offeror and thus rendering a take-over bid prohibitively expensive. Any Offeror may avoid this result by either negotiating a take-over bid with the Company in advance or making a take-over bid which is a Permitted Bid. SUMMARY OF THE RIGHTS PLAN CHARACTERISTICS Upon a person acquiring Beneficial Ownership of 20% or more of the outstanding common shares, other than through certain "Permitted Acquisitions" (as defined below) including a Permitted Bid, or on terms otherwise approved by the Board of Directors, the Rights entitle their holders (other than the Offeror) to acquire common shares with a value of $200 (based on the then prevailing market price) for $100, with the result that the acquiror may suffer substantial dilution of its interest in the Company. The dilutive effects of the Rights are not triggered by a Permitted Bid, which is a Take-over Bid (as defined below) made for all outstanding common shares by take-over bid circular prepared in compliance with applicable laws and certain additional conditions (as set forth below). The "permitted bid" concept, which is found in most of the shareholder rights plans adopted in Canada, is intended to permit shareholders to review and decide upon a take-over bid for themselves, while establishing a minimum standard of fairness and giving shareholders and the Board of Directors sufficient time to evaluate the Permitted Bid. As discussed below, the Rights Plan requires that a special meeting of shareholders be called to approve a Permitted Bid. If the Permitted Bid is approved by a majority of the votes cast by Independent Shareholders (as defined below) represented at the meeting in person or by proxy, the bid must remain open for deposits and tenders of common shares for a further period of not less than 10 business days from the date of the public announcement of such approval required to be made by the Offeror, to allow initially non-tendering shareholders to tender their common shares to be the bid if they so choose. Pursuant to the role of the Board of Directors to negotiate in the best interests of the Company and to ensure the opportunity for any prospective acquiror to negotiate in good faith with the Board of Directors, the Rights may be redeemed by the Board following the announcement of a Take-Over Bid that is not a Permitted Bid or the occurrence of any transaction in which 20% or more of the outstanding common shares have been accumulated by an acquiror or group other than through Permitted Acquisitions (i.e. "Flip-in Event") at any time 13 prior to the occurrence of such Flip-in Event. In addition, until the occurrence of a Flip-in Event or a "Flip-over Event" (as defined below), the Board of Directors may determine to waive the application of the provisions of the Rights Plan to any transaction that would otherwise be subject to those provisions. If a bidder does not wish to make a Permitted Bid he can negotiate with and seek prior approval of the Board of Directors to make an offer on terms which the Board of Directors considers fair to all shareholders. In such circumstances, the Board of Directors may redeem the Rights or waive the application of the Rights Plan, as the case may be, thereby allowing the offer to proceed without dilution to the bidder. SUMMARY OF THE RIGHTS PLAN TERMS Distribution of Rights Subject to compliance with Canadian, Federal and State securities laws, the Board of Directors will authorize the Company to issue one Right in respect of each outstanding common share to holders of record as at the Record Time, and will authorize the Company to issue one Right for each common share issued after the Record Time and prior to the "Separation Time" (as defined below). Each Right will become exercisable after the Separation Time at an initial exercise price of $100 (the "Exercise Price"). The Exercise Price is subject to certain adjustments as described below. The Rights Plan Agreement will provide that the Rights will expire on the "Expiration Date", being that date which is 10 years after the date of the Rights Plan Agreement (The "Effective Date"), unless exchanged or redeemed earlier by the Company as described below; the Rights Plan Agreement is subject to reconfirmation by the shareholders of the Company at the first annual general meeting following the five-year anniversary of the Effective Date. Dilution Upon the occurrence of a Flip-In Event (defined below), each Right (other than any held by the acquiror) will "flip-in" to entitle the registered holder to acquire common shares at a 50% discount from the then prevailing market price. For example, if at the time of such announcement the Exercise Price is $100 and the Common shares have a Market Value of $25 each, the holder of each right would be entitled to purchase 8 common shares for a price of $100 (that is, the number of common shares at 50% of Market Value that can be obtained for the Exercise Price.) Similarly, in the event that the Company undergoes a merger or amalgamation or similar transaction, or disposes of assets (a) aggregating more than 50% of the assets, or (b) which generate more than 50% of the operating income or cash flow, of the Company and its subsidiaries, taken together (a "Flip-over Event"), each Right (other than any held by the acquiror) will "flip-over" to entitle the registered holder to acquire common shares in the continuing or acquiring company at a 50% discount. 14 Flip-in Event A Flip-in Event occurs when a person becomes an Acquiring Person (defined below). In such event, the directors are required to make provisions so that each Right (except for Rights Beneficially Owned by an Acquiring Person or any affiliate or associate of the Acquiring Person or any person acting jointly or in concert with an Acquiring Person or any Associate or Affiliate of an Acquiring Person or transferees of such persons, which Rights shall be void) shall thereafter constitute the right to receive, upon the exercise thereof at the then current Exercise Price of the Right, that number of common shares having an aggregate Market Price on the Stock Acquisition Date equal to twice the Exercise Price. Acquiring Person Subject to certain exceptions set forth in the Rights Agreement, the dilutive effects of the Rights are triggered by a person becoming an Acquiring Person upon the acquisition of Beneficial Ownership of 20% or more of the outstanding common shares. A person will not trigger the separation and exercisability of the Rights if he becomes the Beneficial Owner of 20% or more of the common shares as a result of, among other things, Permitted Bid Acquisitions, an acquisition or redemption of common shares by the Company or a subsidiary of the Company that reduces the total number of common shares outstanding, Pro-Rata Acquisitions, or otherwise on terms approved by the Board of Directors (collectively the "Permitted Acquisitions"), provided that if he becomes the Beneficial Owner of 20% or more of the common shares by such means and he subsequently becomes the Beneficial Owner of additional common shares other than by a Permitted Acquisition, then, as of the date of such additional acquisition, he shall become an Acquiring Person. A Pro-Rata Acquisition includes an acquisition of common shares as a result of a stock dividend, stock split or other event pursuant to which a person receives or acquires common shares on the same pro-rata basis as all other holders of common shares. Any person who was the Beneficial Owner of 20% or more of the outstanding common shares as at the Record Time will be "grandfathered", so that the dilutive effects of the Rights will not be triggered. A person who becomes the Beneficial Owner of 20% or more of the outstanding common shares after the Record Time will also be "grandfathered" if the total number of common shares Beneficially Owned by him does not exceed the number of common shares Beneficially Owned by him immediately prior to the Record Time by more than 2% of the then issued and outstanding common shares. In either case, the grandfathering will cease to apply if the person increases his shareholdings by more than 2% of the then issued and outstanding common shares, other than pursuant to a Permitted Acquisition. So far as the Company is aware, as at November 13, 1996, no person or related group was the Beneficial Owner of 20% or more of the outstanding common shares. Separation Time The "Separation Time" is the Close of Business on the eighth Trading Day following the earlier of: 15 (a) the date of the first public announcement made by the Company or an Acquiring Person that a person has become an Acquiring Person; and (b) the date of the commencement of, or first public announcement of the intent of any person (other than the Company or any subsidiary of the Company) to commence a Take-Over Bid (other than a Permitted Bid) or such later time as may be determined by the Board of Directors; provided that if the foregoing results in the Separation being prior to the Record Time, the Separation Time shall be the Record Time, and provided further that if such Take-Over Bid expires or is canceled, terminated or otherwise withdrawn prior to the Separation Time, such Take-Over Bid shall be deemed, for the purposes of determining the Separation time, never to have been made. "Trading Day" is defined to mean, with reference to any securities, a day on which the principal Canadian securities exchange on which such securities are listed or admitted to trading is open for business or, if the securities are not listed or admitted to trading on any Canadian securities exchange, a Business Day. The securities of the Company are not currently listed or admitted to trade on any Canadian securities exchange. Trading and Exercise of Rights The Rights will separate and trade apart from the common shares and become exercisable after the Separation Time upon the issuance of "Rights Certificates" (as defined below). Until the Separation Time, the rights may be transferred only with the associated common shares and will be represented by the outstanding common share certificates; new common share certificates issued on the transfer of existing common shares or on The issuance of additional common shares will contain a notation incorporating the Rights Agreement by reference. Promptly following the Separation Time, separate certificates evidencing the Rights (the "Rights Certificates") will be mailed to holders of record of common shares as of the Separation Time; thereafter, the Rights Certificates will evidence the Rights. Beneficial Ownership Beneficial Ownership is broadly defined in the Rights Plan, but certain exceptions from its scope are provided, among them an exception designed to avoid inadvertent triggering of the dilutive effects of the rights by investment fund managers who do not intend to make a Take-Over Bid for the Company's common shares. Permitted Bid As discussed above, a Permitted Bid will not trigger the dilutive effects of the Rights. A Permitted Bid is a Take-Over Bid made in compliance with, and not on a basis which is exempt from or otherwise subject to, the take-over bid provisions of applicable corporate and securities 16 laws and in compliance with all other applicable laws, and which also complies with the following conditions: (a) the Take-Over Bid must be made for all outstanding Voting Shares to all registered holders wherever resident; (b) the person making the Take-Over Bid must provide the Rights Agent, within 2 business days of the announcement of the Take-Over Bid, with a list of all securities of the Company Beneficially Owned by each of such person, such person's associates and affiliates and any person acting jointly or in concert with such person or any associate or affiliate of such person and an undertaking to provide such further information as may be reasonably necessary to allow the Company to make a determination of which shareholders are Independent Shareholders; (c) the Take-Over Bid shall contain, and the take up and payment for securities tendered or deposited thereunder shall be subject to, irrevocable and unqualified conditions that no Voting Shares shall be taken up or paid for pursuant to the Take-Over Bid prior to the close of business on the 60th day following the date of the Take-Over Bid and that no Voting Shares may be taken up and paid for unless at the expiry of such time more than 50% of the Voting Shares held by Independent Shareholders have been deposited pursuant to the bid and not withdrawn; and (d) the Take-Over Bid shall contain irrevocable provisions to the effect that Voting Shares deposited pursuant to the Take-Over Bid may he withdrawn at any time until taken up and paid for, and that in the event that a resolution is passed to approve the Take-Over Bid at a special meeting of the Independent Shareholders, the bid will remain open for not less than 10 business days from the date of the public announcement of such resolution required to be made by the Offeror. "Independent Shareholders" are those shareholders of the Company other than (i) an Acquiring Person, (ii) any person who has made a Take-over Bid for the Voting Shares, and (iii) persons acting jointly or in concert with, or who are associates or affiliates of, any such person. The common shares of the Company currently constitute the only Voting Shares of the Company. Take-over Bid A "Take-over Bid" is an Offer to Acquire Voting Shares of the Corporation or securities convertible into Voting Shares, where the Voting Shares subject to the Offer to Acquire, together with The Voting Shares into which the securities subject to the Offer to Acquire are convertible, and the Offeror's Securities constitute in The aggregate 20% or more of the Voting Shares of the Corporation then outstanding. "Offer to Acquire" is defined to include an acceptance of an offer to sell Voting Shares, whether or not such offer has been solicited. "Offerer's Securities" includes 17 not only Voting Shares Beneficially Owned by the offeror, but also Voting Shares Benefically Owned by any person acting jointly or in concert with the offeror. Redemption and Waiver The Board of Directors acting in good faith may, at its option, at any time prior to the occurrence of a Flip-in Event elect to redeem the Rights at a redemption price of $0.001 per Right. If the Board of Directors elects to redeem the Rights, the right to exercise the Rights will thereupon, without further action and without notice, terminate and each Right will thereafter be null and void. The Board of Directors may, until a Flip-in Event or Flip-over Event occurs, determine to waive the application of the adjustment provisions of the Rights Agreement which give rise to dilution of an Acquiring Person's interest in the Company to any particular Flip-in Event or Flip-over Event. In addition, the Rights Plan provides that on certain conditions the Board of Directors may determine to waive the application of the adjustment provisions when a person becomes an Acquiring Person through inadvertence and without intent or knowledge that he would become an Acquiring Person. Amendments The Company may from time to time supplement or amend the Rights Plan (i) to make any changes which the Board of Directors acting in good faith may deem necessary or desirable, provided that subsequent to the Stock Acquisition Date no such supplement or amendment shall materially adversely affect the interests of the holders of Rights generally and provided further that no such supplement or amendment shall be made to the provisions of the Rights Plan which relate to the Rights Agent without the written concurrence of the Rights Agent, or (ii) in order to cure any ambiguity or to correct or supplement any provision contained in the Rights Plan which may be inconsistent with any other provision thereof or otherwise defective. Exchange Option If the Board of Directors determines that conditions exist which would eliminate or materially diminish the benefits intended to be afforded to the holders of Rights pursuant to the Rights Plan, the Board of Directors may, at any time after a Flip-in Event has occurred, authorize the Company to issue or deliver, either (i) in return for the Exercise Price and the Right, debt or equity securities or other assets (or a combination thereof) having a value equal to twice the Exercise Price, or (ii) in return for the Right, subject to any amounts that may be required to be paid under applicable law, debt or equity securities or other assets (or a combination thereof) having a value equal to the Right, where in either case the value of such debt or equity securities or other assets shall be determined by the Board of Directors, which may rely on the advice of a nationally and internationally recognized firm of investment dealers or investment brokers selected by The Board of Directors. If the Board of Directors authorizes the exchange of debt or equity securities or assets for Rights, the Rights will terminate without any further action or 18 notice, and the Company will, within 10 business days, mail a notice of exchange to the holders of the Rights setting forth the method by which the exchange will be effected. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data has been derived from the consolidated financial statements of the Company which have been audited by MacKay & Partners, Chartered Accountants, unless otherwise noted below or as indicated in their report included elsewhere herein. This information should be read in conjunction with the Company's audited consolidated financial statements and notes thereto and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Six Months Ended December 31, Fiscal Year Ended June 30, ------------------------ -------------------------------------------------------------------- 1997 1996 1997 1996 1995 1994 1993 ----------- ------------ ------------ ------------ ----------- ---------- ----------- (Unaudited) INCOME STATEMENT DATA: Net revenues ........................ $ 629,221 $ 411,515 $ 736,954 $ 2,061,988 $ 1,276,991 $ 136,096 $ 334,070 Cost of sales ....................... 444,718 570,417 1,081,358 906,558 647,404 95,382 271,166 ----------- ------------ ------------ ------------ ----------- ---------- ----------- Gross margin ........................ 184,503 (158,902) (344,404) 1,155,430 629,587 40,714 62,904 Investment and other income ......... 151,902 164 9,163 69,176 3,791 2,823 13,046 License fees ........................ 1,340,910 Operating expenses .................. 1,657,800 1,320,645 3,456,345 3,641,463 1,171,266 659,216 1,475,818 ----------- ------------ ------------ ------------ ----------- ---------- ----------- Earnings (loss) from operations ..... 19,515 (1,479,383) (3,791,586) (2,416,857) (537,888) (615,679) (1,399,868) Non-operating income (expense) ...... (36,013) 163,765 (934,516) (498,402) ------------ ----------- ---------- ----------- Earnings (loss) for the period ...... $ 19,515 ($ 1,479,383) ($ 3,827,599) ($ 2,416,857) ($ 374,123) ($1,550,195) $ 1,898,270 =========== ============ ============ ============ ============ =========== =========== Earnings (loss) per share ........... $ 0.001 ($ 0.10) ($ 0.25) ($ 0.17) ($ 0.03) ($ 0.16) ($ 0.22) =========== =========== ============ ============ ============ =========== ============ Weighted average shares outstanding . 17,638,723 14,948,326 15,187,990 14,170,974 12,015,359 9,899,967 8,808,932 =========== =========== ============ ============ ============ =========== ============ December 31, June 30, ------------------------ -------------------------------------------------------------------- 1997 1996 1997 1996 1995 1994 1993 ----------- ------------ ------------ ------------ ----------- ---------- ----------- BALANCE SHEET DATA: Working capital ..................... $ 3,784,986 ($ 748,323) ($ 283,426) ($ 1,687,286) ($ 1,112,982) ($ 736,732) ($ 624,109) Total assets ........................ 7,267,632 2,947,180 3,867,638 3,135,831 4,089,861 386,387 1,278,725 Total liabilities ................... 2,404,545 2,418,337 2,739,257 2,308,589 2,743,739 897,539 898,080 Shareholders equity ................. 4,863,087 528,843 1,128,381 827,242 1,346,122 (511,152) 380,645
19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. RESULTS OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31, 1996. Aggregate revenue increased to $629,221 from $411,515, an increase of $217,706 or 53% for the six months ended December 31, 1997 when compared to the same period in 1996. This resulted primarily from increased revenue from in-line systems utilizing the Company's Molecular Bonding System (MBS[R]) to remediate their hazardous wastes; partially offset by less revenue from transportation and disposal jobs. Cost of sales decreased $125,699 or 22% when comparing the six months ended December 31, 1997 to the comparable period in 1996. This decrease was essentially from the reduced transportation and disposal work noted above, and from lower costs for remediation projects than from transportation and disposal jobs. Gross margin increased to $184,503 from ($158,902), an increase of $343,405 for the six month period ended December 31, 1997 when compared to the same period in 1996. As indicated above, this resulted essentially from higher profits from remediation than transportation and disposal projects. Investment and other income increased $151,738; from $164 to $151,902. This increase resulted primarily from the Company's share of a joint venture project, and from interest charged on related party loans. License fees of $1,340,910 occurred in the current period from the Company licensing its Molecular Bonding System in China, from the continuation of its licensing agreement in the United Kingdom, and from an option to license its technology in Europe. Selling, general and administrative expenses ("SG&A") increased $337,155 or 26% for the six months ended December 31, 1997 as compared to the same period in 1996. This increase was essentially from higher consulting and management fees ($154,318), and from increased advertising and public relations efforts (166,774). The Company experienced a net profit of $19,515 for the six months ended December 31, 1997 compared to a net loss of $1,479,383 during the same period in 1996. This turnaround of $1,498,898 as indicated above, resulted primarily from (i) licensing fees in the six month period ended December 31, 1997 with no comparable amounts in 1996; (ii) a favorable business mix in the six month period ended December 31, 1997 versus the same period in 1996; (iii) other income from a joint venture relationship, and interest income in the current period; partially offset by increased operating expenses in the current period. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997 the Company had working capital of $3,784,986 compared to a working capital deficiency of $748,323 at December 31, 1996. This turnaround in working capital resulted from: (i) the Company's profitable operation in the current period versus a loss in the comparable period in 1996; (ii) a significant infusion of capital through the exercising of options and warrants; (iii) an increase in receivables, inventory, and prepaid expenses related to the Company's increased operations and promotional activities; and (iv) an increase in related party receivables being treated as short-term loans. CASH USED IN OPERATIONS The Company's operations for the six months ended December 31, 1997 used net cash of $2,338,523. This was primarily from the increases in working capital noted above under Liquidity and Capital Resources. CASH USED IN INVESTING ACTIVITIES The net cash used for investing activities in the six months ended December 31, 1997 was $69,392. The was primarily from increases in capital assets for the Company's operations. 20 CASH PROVIDED FROM FINANCING ACTIVITIES Financing activities in the six months ended December 31, 1997 netted $2,418,774. This resulted primarily from sales of the Company's stock which occurred mostly from the exercise of stock options; partially offset by increased receivables from related parties. The carrying value of the waste disposal rights ($ 1,624,219) at December 31, 1997 represented a significant portion of the Company's assets. Measurement of the recoverability of the carrying value was based on an assessment of the waste disposal rates currently existing in the New York and New Jersey areas, and at other areas where Thermo Tech plants are located, and on the assumption that the relocation of the Corinth plant and/or some other Thermo Tech plants will be in operation in the near future. However, it is reasonably possible, based on existing knowledge, that changes in future conditions in the near term could require a material change in the estimated recoverable amount. In anticipation of significantly increased remediation activity in 1998, and due to the relatively long lead time required to purchase one of the main chemical ingredients in MBS, the Company significantly increased its inventory of this chemical at December 31, 1997. This was the primary reason for the inventory increasing $683,610 from the level at June 30, 1997. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Description Page ----------- ---- Independent Auditors Report Consolidated Balance Sheets as of December 31, 1997, December 31, 1996 and June 30, 1997 ........................... Consolidated Statement of Operations for each of the six month periods ended December 31, 1997 and 1996 (unaudited), and the year ended June 30, 1997 ................. Consolidated Statement of Cash Flow for each of the six month periods ended December 31, 1997 and 1996 (unaudited), and the year ended June 30, 1997 ................. Schedule of Administrative and General Expenses ................. Notes to Consolidated Financial Statements ...................... ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 21 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT OF THE REGISTRANT. Information with respect to executive officers and directors of the Company will be set forth in the Company's definitive proxy statement which is expected to be filed within 120 days of December 31, 1997 and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information with respect to executive compensation will be set forth in the Company's definitive proxy statement which is expected to be filed within 120 days of December 31, 1997 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information with respect to the ownership of the Company's securities by certain persons will be set forth in the Company's definitive proxy statement which is expected to be filed within 120 days of December 31, 1997 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information with respect to transactions with management and others will be set forth in the Company's definitive proxy statement which is expected to be filed within 120 days of December 31, 1997 and is incorporated herein by reference. 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) (1) Financial Statements - See Index to Consolidated Financial Statements and Financial Statements Schedule at Part II Item 8 of the Form 10-K. (2) Financial Statement Schedules - See Index to Consolidated Financial Statements and Financial Statements Schedule at Part II Item 8 of the Form 10-K. (b) Reports on Form 8-K. None (c) The following Exhibits are filed as part of this report. Official Sequential Exhibit No. Description Page No. - ----------- ----------- -------- 3.0 Certificate of Amalgamation * 3.1 Certificate of Change of Name * 3.2 Company Act Articles of World Tec Industries, Inc. * 3.3 Certificate of Continuance * 3.4 By-Laws 4.0 Specimen Common Stock Certificate * 4.1 Shareholder Protection Rights Plan Agreement dated as of December 18, 1996 between Solucorp Industries Ltd. and CIBC Mellon Trust Company 4.2 Form of Common Stock Option Agreement * 4.3 Form of Common Stock Option Amendment Agreement * 10.0 Licensing Agreement between John Beech Remediation, Ltd. and the Company dated October 11, 1995. * 23 10.1 Addendum to Licensing Agreement between John Beech Remediation, Ltd. and the Company dated October 30, 1995. * 10.2 Licensing Agreement between Global Technologies, Inc. and the Company dated November 5, 1996. * 10.3 License Agreement between Smart International, Ltd. and the Company dated June 4, 1997. * 10.4 Sub-Lease covering Registrant's facility in Nyack, N.Y. between Twin Country Grocers, Inc. and the Company dated March 1, 1996. * 10.5 Lease covering Registrant's facility in Puerto Rico between 1413 Fernandez Juncos, Inc. and the Company dated June 1, 1996. * 10.6 Lease covering Registrant's facility in Saddle Brook, N.J. between Croes-Pecorino Industrial Co. and the Company dated April 1992. * 10.7 Addendum to Lease covering facility in Saddle Brook, N.J. between Croes-Pecorino Industrial Co. and the Company dated May 6, 1997. * 10.8 Agreement between John Beech Remediation Ltd. and the Company dated August 1, 1997. * 10.9 Agreement between M.H. Meyerson & Co., Inc. and the Company dated June 3, 1996. 10.10 Licensing Agreement between Smart International, Ltd. and the Company dated September 15, 1997 10.11 Addendum to Agreement dated June 3, 1996 between M.H. Meyerson & Co., Inc. and the Company dated September 22, 1997. 10.12 Consulting Agreement between William Webster, Webster & Associates and the Company dated October 1, 1997. 10.13 Consulting Agreement between Mark Beloyan and the Company dated November 19, 1997. 10.14 Finder's Agreement between Quest International Technologies and the Company dated November 20, 1997. 10.15 Finder's Agreement between Enviro-Tech Compliance Services, Inc. and the Company dated February 2, 1998. 24 10.16 Licensing Agreement between KBF Pollution Management, Inc. and the Company dated March 20, 1998. 11. None. 13. None. 16. None. 18. None. 21. Subsidiaries of Registrant: * (i) E.P.S. Environmental, Inc. - Incorporated under the laws of the province of Alberta, Canada. - 100% owned (ii) Environmental Training Institute, Inc. - Incorporated under the laws of New Jersey. - 100% owned (iii) ESM Industries, Inc. - Incorporated under the laws of the province of British Columbia, Canada. - 100% owned (iv) World Tec Equities, Inc. - Incorporated under the laws of the province of British Columbia, Canada. - 100% owned (v) World Travel Plaza, Inc. - Incorporated under the laws of the province of Alberta, Canada - 100% owned 22 None. 23 Consent of MacKay and Partners - Chartered Accountants 24 None. 27 Financial Data Schedule [VH] - --------- * Incorporated by reference to the Company's Form 10-SB filing made December 22, 1997. File No. [1-13737] 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned, thereunto duly authorized. Dated: April ___, 1998 SOLUCORP INDUSTRIES LTD. By: /s/ PETER MANTIA ---------------------------------- Peter Mantia, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on behalf of the Registrant and in capacities and at the dates indicated: Signature Capacity Date --------- -------- ---- /s/ PETER MANTIA President and Director April ___, 1998 - -------------------------- Peter Mantia /s/ JAMES G. SPARTZ Senior Vice President April ___, 1998 - -------------------------- and Director James G. Spartz /s/ BERNADETTE ANDERTON Secretary and Director April ___, 1998 - -------------------------- Bernadette Anderton /s/ ARLE L. PIERRO Senior Vice President and April ___, 1998 - -------------------------- Director Arle L. Pierro /s/ JOHN A. VANDUZEN Director April ___, 1998 - -------------------------- John A. VanDuzen /s/ DONALD G. ATKINSON Director April ___, 1998 - -------------------------- Donald G. Atkinson /s/ W. BRYAN FAIR Director April ___, 1998 - -------------------------- W. Bryan Fair 26 SOLUCORP INDUSTRIES LTD. CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED DECEMBER 31, 1997 SOLUCORP INDUSTRIES LTD. CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ SIX MONTHS ENDED DECEMBER 31, 1997 PAGE ================================================================================ Auditors' Report 3 Consolidated Statements of Operations and Deficit 4 Consolidated Balance Sheets 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7-20 Schedule of Administrative and General Expenses 21 Schedule of Research and Development Expenses 22 ================================================================================ 2 AUDITORS' REPORT TO THE SHAREHOLDERS OF SOLUCORP INDUSTRIES LTD. WE HAVE AUDITED THE CONSOLIDATED BALANCE SHEETS OF SOLUCORP INDUSTRIES LTD. AS AT DECEMBER 31, 1997 AND JUNE 30, 1997 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT AND CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND THE YEAR ENDED JUNE 30, 1997. THESE FINANCIAL STATEMENTS ARE THE RESPONSIBILITY OF THE COMPANY'S MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS BASED ON OUR AUDITS. WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED AUDITING STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM AN AUDIT TO OBTAIN REASONABLE ASSURANCE WHETHER THE FINANCIAL STATEMENTS ARE FREE OF MATERIAL MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING THE AMOUNTS AND DISCLOSURE IN THESE FINANCIAL STATEMENTS. AN AUDIT ALSO INCLUDES ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION. IN OUR OPINION, THESE CONSOLIDATED FINANCIAL STATEMENTS PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF THE COMPANY AS AT DECEMBER 31, 1997 AND JUNE 30, 1997, AND THE RESULTS OF ITS OPERATIONS AND THE CHANGES IN ITS FINANCIAL POSITION FOR THE PERIODS THEN ENDED IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. COMPARATIVE FIGURES AS AT DECEMBER 31, 1996 AND FOR THE SIX MONTHS THEN ENDED ARE PREPARED BY MANAGEMENT AND HAVE NOT BEEN AUDITED OR REVIEWED. VANCOUVER, CANADA FEBRUARY 27, 1998 EXCEPT FOR CHARTERED ACCOUNTANTS NOTE 7A WHICH IS AS OF APRIL 8, 1998 ================================================================================ 3
========================================================================================================== SOLUCORP INDUSTRIES LTD. CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT (US DOLLARS) ========================================================================================================== Six Months Six Months Ended Ended Year Ended December 31, December 31, June 30, 1997 1996 1997 ========================================================================================================== (Unaudited) REVENUES Environmental clean up and waste disposal $ 626,501 $ 386,455 $ 686,447 Training Institute 2,720 25,060 50,507 - --------------------------------------------------------------------------------------------------------- 629,221 411,515 736,954 - ---------------------------------------------------------------------------------------------------------- COST OF SALES Environmental clean-up and waste disposal 442,034 566,330 1,070,174 Training Institute 2,684 4,087 11,184 - ---------------------------------------------------------------------------------------------------------- 444,718 570,417 1,081,358 - ---------------------------------------------------------------------------------------------------------- GROSS MARGIN 184,503 (158,902) (344,404) INVESTMENT AND OTHER INCOME 151,902 164 9,163 LICENSE FEES 1,340,910 -- -- - ---------------------------------------------------------------------------------------------------------- 1,677,315 (158,738) (335,241) - ---------------------------------------------------------------------------------------------------------- EXPENSES Administrative and general 1,226,802 317,754 898,114 Corporate development and marketing 277,900 122,273 282,784 Amortization 153,098 159,153 306,537 Research and development -- 721,465 1,968,910 - ---------------------------------------------------------------------------------------------------------- 1,657,800 1,320,645 3,456,345 - ---------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) FROM OPERATIONS 19,515 (1,479,383) (3,791,586) WRITE-DOWN OF INVESTMENT -- -- 36,013 - ---------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) FOR THE PERIOD 19,515 (1,479,383) (3,827,599) - ---------------------------------------------------------------------------------------------------------- DEFICIT, BEGINNING OF PERIOD (13,267,253) (9,439,654) (9,439,654) DEFICIT, END OF PERIOD $(13,247,738) $(10,919,037) $(13,267,253) - ---------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) PER SHARE $ 0.001 $ (0.10) $ (0.25) ========================================================================================================== 4
======================================================================================================== SOLUCORP INDUSTRIES LTD. CONSOLIDATED BALANCE SHEETS (US DOLLARS) ======================================================================================================== December 31, December 31, June 30, 1997 1996 1997 ======================================================================================================== (Unaudited) ASSETS CURRENT Cash $ 26,646 $ 10,451 $ 15,787 Accounts receivable (note 2) 672,791 85,137 70,860 License fees (note 3) 490,910 -- -- Loan receivable (note 4) 50,000 50,000 50,000 Due from related parties (note 5) 1,981,377 113,909 687,392 Other receivables 100,872 26,850 177,532 Inventories (note 6) 784,815 54,565 101,205 Prepaid expenses (note 7) 816,495 63,477 337,430 - ------------------------------------------------------------------------------------------------------- 4,923,906 404,389 1,440,206 LONG-TERM INVESTMENTS (NOTE 8) 368,844 378,889 359,961 CAPITAL ASSETS (NOTE 9) 350,663 323,121 334,971 WASTE DISPOSAL RIGHTS (NOTE 10) 1,624,219 1,840,781 1,732,500 - ------------------------------------------------------------------------------------------------------- $7,267,632 $ 2,947,180 $ 3,867,638 ======================================================================================================= LIABILITIES CURRENT Accounts payable and accrued liabilities $ 868,198 $ 864,938 $ 1,166,328 Billings in excess of earned revenues -- -- 34,150 Loans payable (note 11) 270,722 287,774 273,154 - ------------------------------------------------------------------------------------------------------- 1,138,920 1,152,712 1,473,632 DUE ON WASTE DISPOSAL RIGHTS (NOTE 10) 1,265,625 1,265,625 1,265,625 - ------------------------------------------------------------------------------------------------------- 2,404,545 2,418,337 2,739,257 - ------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY SHARE CAPITAL (NOTE 12) 18,135,240 11,472,295 14,420,049 DEFICIT (13,247,738) (10,919,037) (13,267,253) - ------------------------------------------------------------------------------------------------------- 4,887,502 553,258 1,152,796 LESS: COST OF 8,000 SHARES HELD BY THE COMPANY'S SUBSIDIARY (note 11) (24,415) (24,415) (24,415) - ------------------------------------------------------------------------------------------------------- 4,863,087 528,843 1,128,381 - ------------------------------------------------------------------------------------------------------- $7,267,632 $ 2,947,180 $ 3,867,638 ======================================================================================================= Subsequent events (note 14) Approved by the Directors: Contingencies (note 16) ===================== ==================== Commitments (note 18) Director Director ======================================================================================================= 5
============================================================================================================== SOLUCORP INDUSTRIES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (US DOLLARS) ============================================================================================================== Six Months Six Months Ended Ended December 31, December 31, June 30, 1997 1996 1997 ============================================================================================================== (Unaudited) CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Earnings (loss) for the period $ 19,515 $(1,479,383) $ (3,827,599) Items not involving cash Amortization 153,098 159,153 306,537 Write-down of investments -- -- 36,013 Change in non-cash operating working capital (2,511,136) (105,375) (16,083) - -------------------------------------------------------------------------------------------------------------- (2,338,523) (1,214,855) (3,501,132) - -------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Issue of common shares 3,715,191 1,180,984 4,128,738 Due from related parties (1,293,985) (29,002) (602,485) Loans payable (2,432) (35,556) (50,176) - -------------------------------------------------------------------------------------------------------------- 2,418,774 1,116,426 3,476,077 - -------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Increase in capital assets (60,509) (126,682) (177,635) Long-term investments (8,883) (60,734) (77,819) - -------------------------------------------------------------------------------------------------------------- (69,392) (187,416) (255,454) - -------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH POSITION 10,859 (285,845) (280,509) CASH POSITION, BEGINNING OF PERIOD 15,787 296,296 296,296 - -------------------------------------------------------------------------------------------------------------- CASH POSITION, END OF PERIOD $ 26,646 $ 10,451 $ 15,787 ============================================================================================================== 6
================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES (a) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada, which differ in some respects from those in the United States. Except as disclosed in note 21, no differences have been reported as they are not considered significant. (b) BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. At December 31, 1997, the Company's subsidiaries and its percentage equity interest in each are as follows: ESM Industries (Canada) Inc. .............................. 100% World Travel Plazas Inc. .................................. 100% World Tec Equities Inc. ................................... 100% EPS Environmental, Inc. ................................... 100% Environmental Training Institute Inc. (incorporated in the US) ................................ 100% (c) CASH AND CASH EQUIVALENTS For purposes of balance sheet classification and the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. (d) ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (e) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, loans and other receivables, accounts payables and accrued liabilities and loans payable approximate fair market value because of the immediate or short-term maturity of these financial accounts. The fair value of the long-term investments are not readily determinable due to uncertainties in their realization, however, where available, the quoted market prices have been disclosed. The fair value of the amount due on the waste disposal rights is not determinable due to uncertainty regarding payment. - ----------------------------------------------------------------------------- 7 ================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) (f) INVENTORY Inventory is valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. (g) LONG-TERM INVESTMENTS Investments are recorded at cost less a provision for permanent impairment in value. (h) CAPITAL ASSETS Capital assets are recorded at cost. Amortization is provided over the estimated useful lives of the assets on the following basis: Computer ............................. 30% declining balance Furniture and office equipment ....... 20% declining balance Leasehold improvements ............... 5 years straight-line Remediation equipment ................ 30% declining balance Patent costs ......................... 10 years straight-line No amortization has been provided on patent costs as the patent application has not yet been approved. (i) WASTE DISPOSAL RIGHTS Waste disposal rights are recorded at cost net of amortization. These rights are being amortized at the greater of $10 per ton of waste delivered or $216,500 per year. The Company conducts an annual review of the carrying value to ensure it is not in excess of the estimated recoverable amount of this asset (see note 10). Any excess amount identified as a result of this review is charged to income in that year as a write-down of the carrying value. (j) REPORTING CURRENCY AND TRANSLATION OF FOREIGN CURRENCY The Company has adopted the United States dollar as its reporting currency for its financial statements prepared after March 31, 1996. The United States dollar is the currency of the primary economic environment in which the Company conducts its business, and is considered appropriate functional currency for its operations. Accordingly, the financial statements of the Company have been translated using the temporal method with translation gains and losses included in earnings. Under this method, the operations of the Company have been converted into U.S. dollars at the following rates of exchange: (i) Monetary assets and liabilities -- at the rate of exchange prevailing at the balance sheet date. (ii) All other assets and liabilities -- at the exchange rate prevailing at the time of the transactions. (iii) Revenue and expenses -- at the average exchange rates prevailing during the period. - ----------------------------------------------------------------------------- 8 ================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) (k) SHARE ISSUE COSTS Share issue costs are charged directly to the deficit. (l) REVENUE RECOGNITION Revenue from on-site remediation projects is recognized using the percentage of completion method of accounting. Under this method, contract revenue is determined by applying to the total estimated income on each contract, a percentage which is equal to the ratio of contract costs incurred to date, to the most recent estimate of total costs which will have to be incurred upon the completion of the contract. Costs and estimated earnings in excess of billings represents additional earnings over billings, based upon percentage completed, as outlined above. Similarly, billings in excess of costs and estimated earnings represent excess of amounts billed over income recognized. Provision for estimated losses on uncompleted contracts are made in the period in which such losses are determined. As at December 31, 1997, there were no on-site projects in process. Revenue from in-line remediation projects is recognized using the completed contract method. Under this method, revenue is recognized when work is completed and invoiced. Revenues from license fees, option payments and royalties are recognized as they accrue in accordance with the terms of the relevant agreements. (m) RESEARCH AND DEVELOPMENT Research and development expenditures less related government grants are charged to operations. (n) EARNINGS (LOSS) PER SHARE The earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the year. - ----------------------------------------------------------------------------- 9 ================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) (o) ACCOUNTING FOR STOCK-BASED COMPENSATION In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based compensation". The statement encourages all entities to adopt a new method of accounting to measure compensation cost of all employee stock compensation plans based on the estimated fair value of the award at the date it is granted. Companies are, however, allowed to continue to measure compensation cost for those plans using the intrinsic value based method of accounting, which generally does not result in compensation expense recognition for most plans. Companies that elect to remain with the existing accounting are required to disclose in a footnote to the financial statement pro forma net income and, if presented, earnings per share, as if SFAS No. 123 had been adopted. The accounting requirements of SFAS No. 123 are effective for transactions entered into in fiscal years that begin after December 15, 1995; however, companies are required to disclose information for awards granted in their first fiscal year beginning after December 15, 1995. Currently, the Company's stock-based compensation plan is accounted for using Canadian generally accepted accounting principles similar to the intrinsic value method prescribed by APB No. 25. The Company is in the process of computing the effect of adopting SFAS No. 123 and has not yet made a decision on whether to adopt the U.S. accounting policy for the fiscal period December 31, 1997. Management believes the financial impact of adopting SFAS No. 123 would be immaterial. 2. ACCOUNTS RECEIVABLE DECEMBER 31, December 31, June 30, 1997 1996 1997 (Unaudited) -------------------------------------------------------------------------- Tristate Restoration Company, Inc. (note 7) .......................... $293,361 $ -- $ -- Smart International Ltd. ............ 203,796 -- -- Doe Run Company ..................... -- 27,568 56,630 Environmental Technologies of New Jersey ....................... -- 30,078 30,078 Other ............................... 216,741 37,254 30,759 -------------------------------------------------------------------------- 713,898 94,900 117,467 Allowance for bad debts ............. (41,107) (9,763) (46,607) -------------------------------------------------------------------------- $672,791 $85,137 $ 70,860 ========================================================================== 3. LICENSE FEES By a letter of intent dated June 4, 1997 and an agreement dated September 15, 1997 the Company granted to Smart International Ltd. (Smart) the right to manufacture chemicals for the Company and the right to exclusively engage in remediation projects in China using the Company's technology. The agreement is for a ten-year term commencing from June 1, 1997 with an option to renew for a further 10 years. As consideration, Smart has agreed to pay an annual license fee of $2,000,000 per year plus a royalty of $5 per ton for each ton of processed material in excess of 100,000 tons per contract year. As of December 31, 1997, the Company has received $500,000 of the $600,000 billed towards the license fee and has accrued an amount receivable of $490,910 for license fees earned. No royalties were payable. - ----------------------------------------------------------------------------- 10 ================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 - -------------------------------------------------------------------------------- 4. LOAN RECEIVABLE DECEMBER 31, December 31, June 30, 1997 1996 1997 (Unaudited) --------------------------------------------------------------------------- Loan receivable, 5% per annum, due November 30, 1997 ................. $ 50,000 $50,000 $ 50,000 =========================================================================== Subsequent to the year, the Company received $25,000 and management expects to be repaid in full in 1998. 5. DUE FROM RELATED PARTIES Advances primarily to directors, and employees related to directors in the amount of $1,981,377 (December 1996 - $113,909; June 1997 - $687,392) bear interest at 8.50%, are secured with marketable securities (market value at December 31, 1997 - $1,391,485) and have no specific terms of repayment. 6. INVENTORIES DECEMBER 31, December 31, June 30, 1997 1996 1997 (Unaudited) --------------------------------------------------------------------------- Raw chemicals ........................... $731,576 $ -- $ 52,192 Blended chemicals ....................... 13,626 -- 3,421 Goods for re-sale ....................... 39,613 54,565 45,592 --------------------------------------------------------------------------- $784,815 $54,565 $101,205 =========================================================================== 7. PREPAID EXPENSES DECEMBER 31, December 31, June 30, 1997 1996 1997 (Unaudited) --------------------------------------------------------------------------- Employment agreement (note 7a) .......... $250,000 $ -- $250,000 Deposit on inventory purchase (note 7b) . 244,250 -- -- Consulting agreements (note 7c) ......... 283,911 -- Rental expense .......................... 28,334 51,386 85,564 Other ................................... 10,000 12,091 1,866 --------------------------------------------------------------------------- $816,495 $63,477 $337,430 =========================================================================== a) EMPLOYMENT AGREEMENT During the year ended June 30, 1997 the Company was negotiating with the shareholders of Tristate Restoration Company, Inc. (Tristate) regarding the possible acquisition of Tristate. Tristate is a New Jersey company specializing in the removal of hazardous asbestos materials. As part of the negotiations, the Company advanced 100,000 shares which are currently held in escrow by the Company. During the six months ended December 31, 1997 and subsequent, negotiations continued resulting in the following: - ----------------------------------------------------------------------------- 11 ================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 - -------------------------------------------------------------------------------- 7. PREPAID EXPENSES (CONT'D) i) The Company made advances and provided other assistance to Tristate to help it with its ongoing operations. These advances are repayable on demand with interest at prime plus 1% and are secured by personal guarantees of the two shareholders of Tristate and the assets of Tristate. As further consideration, by an agreement dated November 7, 1997, Tristate agreed to pay the Company a portion of the revenue collected from jobs for a period of two years from June 1, 1997. As noted below, the agreement relating to the revenue sharing was superseded after December 31, 1997. However, Tristate has agreed to pay the Company $90,090 for its share of the revenue which is included in operations for the period. Subsequent to December 31, 1997, Tristate made a direct assignment of one of its outstanding accounts in the amount of $166,000 as further security for the advances. ii) The Company has entered into separate employment agreements with each of the two shareholders of Tristate for a minimum term of five years with an option to renew for another five years. The 100,000 shares originally issued prior to June 30, 1997, as noted above, are construed as part of the compensation included under the terms of the employment agreements. These employment agreements were dated April 8, 1998. The value of the shares issued ($250,000) will be amortized over the five-year term commencing April 8, 1998. (b) DEPOSIT ON INVENTORY PURCHASE Subsequent to December 30, 1997 the deposit was applied to purchases of $269,500 of raw chemicals. (c) CONSULTING AGREEMENTS i) The Company paid 50,000 shares at $4.50 per share related to a consulting agreement, which has a two-year term ending November 19, 1999. ii) The Company paid $145,000 related to a consulting agreement, which has a six-month term commencing July 15, 1997. iii) The Company paid 58,000 shares at a value of $101,000 related to a consulting agreement. The payment is for the period June 1, 1997 to May 31, 1998. - ----------------------------------------------------------------------------- 12 ================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 ================================================================================ 8. LONG-TERM INVESTMENTS
December 31, December 31, June 30, 1997 1996 1997 (Unaudited) - ---------------------------------------------------------------------------------------------------------------------------- (a) 100,500 shares of Earthworks Industries Inc. plus accrued shares of 36,165 (June 30, 1997 - 26,283) (note 11 and 18(d)) (Market value $61,700) $ 99,287 $ 73,319 $ 90,404 (b) Convertible debenture from Travel Plaza Developments Inc. (Travel Plaza). The company elected on December 28, 1994 to convert the Cdn $50,000 debenture into 250,000 shares of Travel Plaza. Final regulatory approval for this conversion from the Alberta Stock Exchange is still pending subject to their acceptance of a financing arrangement and the approval of minority shareholders. On August 21, 1996, pending the finalization of the required financing to complete the project, construction has been temporarily suspended and the stock of Travel Plaza has been halted from trading. Due to these uncertainties, the Company has written this down to a nominal value. 1 36,014 1 (c) Convertible loan to Cortina Integrated Waste Management Inc., a subsidiary of Earthworks Industries Inc. (public company), due September 5, 2000 with interest at 15% per annum. The Company is entitled to convert all or a portion of the loan into shares of Earthworks Industries Inc. at any time. During the term of this loan, the Company has the right to offset royalty payments due to Earthworks Industries Inc. against the loan balance. 208,821 208,821 208,821 (d) A 25% interest in John Beech Remediation Limited (no market value). 1 1 1 (e) 70,000 shares of Global Technologies Inc. (note 11). 60,734 60,734 60,734 - ------------------------------------------------------------------------------------------------------------------------------ $368,844 $378,889 $359,961 ============================================================================================================================== 13
================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 ================================================================================ 9. CAPITAL ASSETS December 31, December 31, June 30, 1997 1996 1997 - -------------------------------------------------------------------------------- Unaudited) Computers $ 24,047 $ 20,290 $ 21,177 Furniture and office equipment 100,940 86,273 95,684 Remediation equipment 426,630 374,294 403,649 Leasehold improvements 15,927 13,499 15,927 Incorporation costs 688 688 688 Patent costs 53,177 14,637 27,983 - -------------------------------------------------------------------------------- 621,409 509,681 565,108 Less: Accumulated amortization 270,746 186,560 230,137 - -------------------------------------------------------------------------------- $350,663 $323,121 $334,971 ================================================================================ 10. WASTE DISPOSAL RIGHTS During the year ended June 30, 1995, the Company entered into a one-year agreement effective from August 1, 1994 with a non-related public company, Thermo Tech Technologies Inc. (Thermo Tech), to deliver 3,500 tons per month of suitable organic waste to a bio conversion facility located in Corinth, New York at $55 per ton on a put or pay basis. The Company delivered only approximately 5% of the waste contemplated under the one-year agreement. The Corinth facility experienced technical start-up problems and was shut down in July 1995 to correct an engineering design problem. On September 14, 1995 and on January 17, 1996 the Company and Thermo Tech signed confirmation agreements which resulted in a ten (10) year extension from the put or pay agreement to commence when either the Corinth facility became operational, or as an alternative, when organic waste was delivered to another Thermo Tech facility. The agreements obligated the Company to pay an up front amount of $2,165,625 for the right to deliver 216,500 tons of acceptable organic waste ($10 per ton) plus an additional $45 per ton during the ten (10) year term of the agreement. The Company paid Thermo Tech $900,000 of the initial up-front amount leaving $1,265,625 still to be paid. Thermo Tech was not able to renegotiate acceptable lease terms with the landlord of the Corinth facility and is currently planning to relocate the plant to a nearby site. The relocation is not expected to be completed within the next year and as a result, Thermo Tech has agreed that the unpaid amount of $1,265,625 is not due until the relocated plant is operational. Accordingly the Company has reclassified the balance due to a non-current payable. However, the Company expects to fully recover the invested amount in waste disposal rights over the ten (10) year contractual period by delivering waste to either the Corinth facility or an alternative Thermo Tech facility. The carrying value for the waste disposal rights represents a significant portion of the Company's assets. Measurement of the recoverability of the carrying value is based on an assessment of the waste disposal rates currently existing in the New York and New Jersey areas, and at other areas where Thermo Tech plants are located, and on the assumption that the Corinth plant will be successfully relocated and in operation in the near future. As at December 31, 1997, the Company has determined that no write-down is necessary. However, it is reasonably possible, based on existing knowledge, that changes in future conditions in the near term could require a material change in the estimated recoverable amount. ================================================================================ 14 ================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 ================================================================================ 11. LOANS PAYABLE
December 31, December 31, June 30, 1997 1996 1997 - -------------------------------------------------------------------------------------------------------- (Unaudited) IDM Environmental Corp., 10.25%, payable in monthly instalments of $22,008 including principal and interest, maturing on July 1, 1998, secured by the Company's treasury stock, 100,500 shares of Earthworks Industries Ltd. (note 8a) and 70,000 shares of Global Technologies Inc. (note 8e) held as investments by the Company. $200,748 $214,444 $200,748 Global Technologies Inc., due on demand ($100,000 Cdn). 69,974 73,330 72,406 - -------------------------------------------------------------------------------------------------------- $270,722 $287,774 $273,154 ========================================================================================================
12. SHARE CAPITAL (a) AUTHORIZED: 200,000,000 common shares of no par value (b) ISSUED:
Six Months Ended Six Months Ended Year Ended December 31, December 31, June 30, 1997 1996 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Shares Amount Shares Amount Shares Amount ---------- ----------- ---------- ----------- ---------- ----------- (Unaudited) Balance, beginning 16,767,552 $14,420,049 14,637,705 $10,291,311 14,637,705 $10,291,311 ---------- ----------- ---------- ----------- ---------- ----------- Issued pursuant to Stock options 1,414,950 2,470,188 185,700 589,402 878,994 1,791,485 Private placement -- -- -- -- 131,457 230,050 Shares for debt settlement 111,611 441,000 -- -- 264,320 520,630 Warrants 250,384 478,003 189,058 490,582 317,848 637,263 Finders agreement (note 7) 58,000 101,000 50,000 101,000 50,000 101,000 Conversion of debentures -- -- -- -- 264,355 395,000 Employment agreement (note 7) -- -- -- -- 100,000 250,000 Consulting agreement (note 7) 50,000 225,000 -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- 1,884,945 3,715,191 424,758 1,180,984 2,006,974 3,925,428 Allotted for cash -- -- -- -- 76,000 133,000 Allotted for debt settlement -- -- -- -- 46,873 70,310 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, ending 18,652,497 $18,135,240 15,062,463 $11,472,295 16,767,552 $14,420,049 ================================================================================================================================== 15
================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 ================================================================================ (c) During the period, the Company granted employees, directors and other individuals associated with the Company stock options to acquire up to 912,210 shares at $3.47 per share. At December 31, 1997, stock options were outstanding as follows: Shares Exercise Price Expiration Date ------------------------------------------------------------------ 250,000 $1.38 December 21, 1999 64,500 $1.75 July 13, 2000 86,000 $1.75 September 12, 2000 75,500 $1.75 January 6, 2002 2,023,329 $1.75 June 9, 2002 912,210 $3.47 November 4, 2002 (d) During the period, the Company issued warrants to acquire 750,000 additional shares at $2.75 and 300,000 additional shares at $7.50. At December 31, 1997, warrants were outstanding as follows: Shares Exercise Price Expiration Date ------------------------------------------------------------------ 192,000 $1.75-$2.00 June 25, 1999 750,000 $2.75 September 10, 2000 25,000 $4.00 April 4, 2001 300,000 $7.50 June 3, 2001 (e) At December 31, 1997, 1,675,000 (June 30, 1997 - 1,675,000) common shares were held in escrow. 13. INCOME TAXES At December 31, 1997, the Company had accumulated tax losses aggregating $10,228,000, which may be carried forward and applied against taxable income in future years up to 2004. The Company does not record the income tax benefit of these losses. 14. SUBSEQUENT EVENTS Subsequent to year-end, the Company issued 149,000 shares for $260,750 on the exercise of outstanding options. ================================================================================ 16 ================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 ================================================================================ 15. SEGMENTED INFORMATION
US Services & Consolidated Products Canada Totals - ------------------------------------------------------------------------------------------------- (a) SIX MONTHS ENDED DECEMBER 31, 1997 Revenue $ 629,221 $ -- $ 629,221 Cost of sales 444,718 -- 444,718 ================================================================================================= Operating earnings 184,503 -- 184,503 Administrative and general 1,092,985 133,817 1,226,802 Corporate development and marketing 269,397 8,503 277,900 Amortization 146,738 6,360 153,098 ================================================================================================= Segmented loss $(1,509,120) $(148,680) (1,473,297) ================================================================================================= Unallocated: Investment and other income 101,902 License fees 1,390,910 - ------------------------------------------------------------------------------------------------- EARNINGS (LOSS) FOR THE PERIOD $ 19,515 ================================================================================================= IDENTIFIABLE ASSETS $6,456,928 $ 810,704 $ 7,267,632 ================================================================================================= 17
================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 ================================================================================ 15. SEGMENTED INFORMATION (CONT'D.)
US Services & Consolidated Products Canada Totals - ------------------------------------------------------------------------------------------------------ (b) SIX MONTHS ENDED DECEMBER 31, 1996 (Unaudited) Revenue $ 411,515 $ -- $ 411,515 Cost of sales 570,417 -- 570,417 - ------------------------------------------------------------------------------------------------------ Operating earnings (158,902) -- (158,902) Administrative and general 934,161 105,058 1,039,219 Corporate development and marketing 103,751 18,522 122,273 Amortization 152,793 6,360 159,153 - ------------------------------------------------------------------------------------------------------ Segmented loss $1,190,705) $(129,940) (1,479,547) ====================================================================================================== Unallocated: Investment and other income 164 - ------------------------------------------------------------------------------------------------------ LOSS FOR THE PERIOD $(1,479,383) ====================================================================================================== IDENTIFIABLE ASSETS $ 2,533,645 $ 413,535 $ 2,947,180 ====================================================================================================== (c) YEAR ENDED JUNE 30, 1997: Revenue $ 736,954 $ -- $ 736,954 Cost of sales 1,081,358 -- 1,081,358 - ------------------------------------------------------------------------------------------------------ Operating earnings (344,404) -- (344,404) Administrative and general 647,134 250,980 898,114 Corporate development and marketing 270,368 12,416 282,784 Research and development 1,968,537 373 1,968,910 Amortization 300,177 6,360 306,537 - ----------------------------------------------------------------------------------------------------- Segmented loss $(3,530,620) $(270,129) (3,800,749) ===================================================================================================== Unallocated: Write-down of investment (36,013) Investment and other income 9,163 - ------------------------------------------------------------------------------------------------------ LOSS FOR THE YEAR $(3,827,599) ====================================================================================================== IDENTIFIABLE ASSETS $ 3,118,451 $ 749,187 3,867,638 ====================================================================================================== 18
================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 - -------------------------------------------------------------------------------- 16. CONTINGENCIES WASTE DISPOSAL RIGHTS Recoverability of the waste disposal rights is subject to the realization of management's assumptions as discussed in note 10. 17. RELATED PARTY TRANSACTIONS During the six months ended December 31, 1997 the Company paid consulting fees and salaries of $206,849 (June 30, 1997 - $426,089) to directors, former directors and/or private companies controlled by directors and/or individuals related to directors. 18. COMMITMENTS (a) The Company has two leases for buildings it presently occupies in New Jersey and in New York which require the following payments: 1998 ....................................... $146,800 1999 ....................................... $144,000 2000 ....................................... $144,000 2001 ....................................... $144,000 2002 and subsequent ........................ $ 24,000 (b) The Company has entered into numerous non-exclusive finder's agreements with third parties to promote the company's soil remediation process. The Company will pay between 1% and 7% commission on gross revenues generated by the third parties. These agreements expire between one and two years. (c) The Company entered into a finder's agreement with a third party to raise capital for the Company through private placements. The Company will pay a 5% commission on private placements raised directly or indirectly by the third party. The agreement expires on September 27, 2000, with an option to renew for another five years. (d) The Company has agreed to pay royalties to Earthworks Industries Inc. (Earthworks) (a Canadian public company) based on Cdn $1/tonne of soil remediated in Canada or the United States ($1/tonne will be U.S. dollars if soil is remediated in the United States). The Company will receive one share for each $1 of royalty paid, to a maximum of 200,000 shares, in minimum blocks of 50,000. These shares are accrued as the soil is remediated. An additional $1 (Cdn or US) will be paid for each ton remediated on contracts resulting from the efforts of Earthworks. The Company has the right to offset royalty payments against the convertible loan from Cortina Integrated Waste Management, Inc. (Note 8(c)). (e) The Company entered into a consulting agreement with a third party to provide business development and operational support. The Company will pay the third party $3,000 per month plus any costs over and above the monthly consulting fee. The agreement expires on October 1, 1998 with an annual renewal option. - ----------------------------------------------------------------------------- 19 ================================================================================ SOLUCORP INDUSTRIES LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 - -------------------------------------------------------------------------------- 18. COMMITMENTS (CONT'D) (f) In October 1995 the Company entered into an exclusive licensing agreement with a United Kingdom company for the U.K. company to utilize the Company's soil remediation process and to market the Company's soil remediation technology in the U.K. The agreement required an annual licensing fee and a royalty per ton of soil remediated. This agreement will be superseded by a new agreement dated August 1, 1997, when the U.K. company obtains an official listing on the Alternative Investment Market. The Company also granted an option for a twelve-month period to the U.K. company for a similar licensing agreement related to various European territories. Consideration received for granting the option was $200,000. On December 10, 1997 the U.K. company advised its intention to excercise the option and to proceed with agreements for France, Poland, Hungary and Portugal. Accordingly, the option payment received is included in licensing fees for the period ended December 31, 1997. 19. COMPARATIVE FIGURES The Company changed its year-end to December 31. Therefore, the financial statements for the six months ended December 31, 1996 are shown for comparative purposes. Certain June 30, 1997 figures have been reclassified to conform to the presentation adopted in the current period. These changes have no effect on June 30, 1997 earnings. 20. ECONOMIC DEPENDENCE During the six months ended December 31, 1997, revenues of $327,005 and $88,033 were from individual customers, of which $26,995 and $Nil is included in accounts receivable respectively. During the year ended June 30, 1997, revenues of $417,568 were from an individual customer, of which $56,630 is included in accounts receivable. License fees of $1,140,910 were recognized as disclosed in note 3 and fees of $250,000 were recognized as disclosed in note 18(f). 21. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES As discussed in Significant Accounting Policies, these consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada. Differences in accounting principles as they pertain to these consolidated financial statements are as follows: MARKETABLE SECURITIES Under GAAP, the accounting for marketable securities depends on the classification of securities as held to maturity, trading or available for sale. The classification would be based on management's intent. Marketable securities included in long-term investments (Note 8) would be classified as being available for sale. Under U.S. GAAP, such securities would be recorded at fair value with any changes recorded in a separate component of shareholder's equity. Realized gains or losses would be recorded on the income statements. As at December 31, 1997, December 31, 1996 and June 30, 1997, the effect on the presentation of long-term investment for U.S. GAAP purposes would not be material. - ----------------------------------------------------------------------------- 20 ================================================================================ SOLUCORP INDUSTRIES LTD. SCHEDULE OF ADMINISTRATIVE AND GENERAL EXPENSES (US DOLLARS) ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 - --------------------------------------------------------------------------------
December 31, June 30, DECEMBER 31, 1997 1996 1997 ----------------------------------------- (Unaudited) U.S. Canada Total Total Total - -------------------------------------------------------------------------------------------------------------------------- Automobile ................................... $ 15,058 $ -- $ 15,058 $ 9,642 $ 21,341 Bad debts .................................... 1,923 -- 1,923 -- 41,690 Bank charges and interest .................... 14,961 1,075 16,036 12,436 33,401 Consulting and management fees ............... 288,798 -- 288,798 20,172 33,704 Foreign exchange (gain) loss ................. 22,121 2,012 24,133 4,668 (1,338) Insurance .................................... 51,189 -- 51,189 15,537 25,714 Legal, accounting and audit .................. 42,337 36,455 78,792 15,820 227,256 Office, printing and related ................. 65,757 11,634 77,391 19,040 24,698 Rent ......................................... 63,339 3,651 66,990 67,327 129,637 Salaries and wages ........................... 445,073 59,009 504,082 134,123 302,945 Telephone .................................... 44,199 6,137 47,336 13,316 27,155 Transfer and filing fees ..................... -- 11,147 11,147 1,676 19,566 Travel ....................................... 41,229 2,698 43,927 3,997 12,345 - -------------------------------------------------------------------------------------------------------------------------- $1,092,984 $133,818 $1,226,802 $317,754 $898,114 ==========================================================================================================================
- ----------------------------------------------------------------------------- 21 ================================================================================ SOLUCORP INDUSTRIES LTD. Schedule of Research and Development Expenses ================================================================================ PERIODS ENDED DECEMBER 31, 1997 AND JUNE 30, 1997 - --------------------------------------------------------------------------------
December 31, June 30, DECEMBER 31, 1997 1996 1997 ----------------------------------------- (Unaudited) U.S. Canada Total Total Total - -------------------------------------------------------------------------------------------------------------------------- Automobile ................................... $ -- $ -- $ -- $ 3,214 $ 7,690 Chemical and related freight ................. -- -- -- -- 216,959 Consulting and management fees ............... -- -- -- 114,308 188,759 Insurance .................................... -- -- -- 23,306 38,572 Lab analyses ................................. -- -- -- -- 43,695 Legal, accounting and audit .................. -- -- -- 23,729 81,167 Materials and supplies ....................... -- -- -- -- 19,037 Machine rentals .............................. -- -- -- -- 20,827 Mobilization/demobilization costs ............ -- -- -- -- 21,098 Office, printing and related ................. -- -- -- 76,161 95,407 Rent ......................................... -- -- -- 22,442 43,021 Salaries and wages ........................... -- -- -- 402,370 903,706 Subcontracting costs ......................... -- -- -- -- 113,792 Telephone .................................... -- -- -- 39,947 78,875 Travel ....................................... -- -- -- 15,988 96,305 - -------------------------------------------------------------------------------------------------------------------------- $ -- $ -- $ -- $721,465 $1,968,910 ==========================================================================================================================
- ----------------------------------------------------------------------------- 22 EX-3.4 2 BY-LAWS SOLUCORP INDUSTRIES LTD. BY-LAW NO. 1 A BY-LAW RELATING GENERALLY TO THE TRANSACTION OF THE BUSINESS AND AFFAIRS OF SOLUCORP INDUSTRIES LTD. (THE "CORPORATION") CONTENTS 1. Interpretation 2. Business of the Corporation 3. Borrowing and Securities 4. Directors 5. Committees 6. Officers 7. Protection of Directors, Officers and Others 8. Shares 9. Dividends and Rights 10. Meetings of Shareholders 11. Divisions and Departments 12. Notices BE IT ENACTED as a By-Law of the Corporation as follows: A 227544-1/BIP - 2 - 1. INTERPRETATION 1.1 Definitions - In the By-Laws of the Corporation, unless the context otherwise requires: (a) "Act" means the Business Corporations Act, and any statute that may be substituted therefore, as from time to time amended; marginal references to sections of the Act herein are not made for the purpose of modifying or affecting the meaning of any provision of this By-Law in any way but are inserted only for the purpose of directing attention to provisions of the Act which may be regarded as relevant; (b) "appoint" includes "elect" and vice versa; (c) "Articles" means the Articles attached to the Certificate of Continuance dated the 11th day of April, 1997 of the Corporation as from time to time amended or restated; (d) "Board" means the Board of Directors of the Corporation; (e) "By-Laws" means this By-Law and all other By-Laws of the Corporation from time to time in force and effect relating to transaction of business and affairs of the Corporation in addition thereto, or in amendment hereof or in substitution for all or any part of this By-Law; (f) "Corporation" means the Corporation incorporated under the Act and named: SOLUCORP INDUSTRIES LTD.; (g) "Meeting of Shareholders" includes an annual meeting of Shareholders and a Special Meeting of Shareholders; "Special Meeting of Shareholders" includes both a meeting of any class or classes acting separately from any other class or classes and also a meeting, other than an annual meeting, of all Shareholders entitled to vote at any annual meeting of Shareholders; (h) "non-business day" means Saturday, Sunday and any other business day that is a holiday as defined in the Interpretation Act (Canada); the Interpretation Act (Yukon); or the Interpretation Act (British Columbia); (i) "Prohibited Corporate Shareholder" means a corporation prohibited from holding shares in itself or its holding body corporate or a subsidiary corporation prohibited from holding shares in its parent corporation pursuant to the Act and not exempted from such prohibited shareholdings by virtue of the Act; (j) "recorded address" means in the case of a Shareholder his address as recorded in the securities register; and in the case of joint Shareholders - 3 - the address appearing in the securities register in respect of such joint holdings determined under Section 8.9; and in the case of a Director, Officer, auditor or member of a Committee of Directors, his latest address as recorded in the records of the Corporation; (k) save as aforesaid, words and expressions defined in the Act have the same meaning when used herein; and (l) words importing the singular number include the plural and vice-versa; words importing gender include the masculine, feminine and neuter genders; and words importing persons include individuals, bodies corporate, partnerships, trust and unincorporated organizations. 2. BUSINESS OF THE CORPORATION 2.1 Registered Office - Until changed in accordance with the Act, the registered office of the Corporation shall be at the City of Whitehorse, in the Yukon Territory, and at such location therein as the Board may from time to time determine. 2.2 Corporate Seal - Until changed by the Board, the corporate seal for the Corporation and any facsimiles thereof adopted by the Board for use in jurisdictions outside the Yukon Territory shall be in the form approved by the Directors. 2.3 Financial Year - The financial year of the Corporation shall end on the day in each year that is established by the Board. 2.4 Execution of Instruments - Deeds, transfers, assignments, contracts, obligations, certificates and other instruments required by law or otherwise by these By-Laws or any resolution of the Board or Shareholders of the Corporation to be executed under corporate seal may be signed on behalf of the Corporation by any one or more persons each of which is either a Director of the Corporation or a person who holds the office of Chief Executive Officer, Chairman of the Board, President, Managing Director, Vice-President, Secretary, Treasurer, Assistant Secretary, Assistant Treasurer or any other office created by by-law or by resolution of the Board. However, notwithstanding the foregoing, the Board may from time to time direct the manner in which and the person or persons by whom any particular instrument or class of instruments may or shall be signed or sealed. Any signing Officer may affix the corporate seal to any instrument requiring the same. 2.5 Banking Arrangements - The Banking business of the Corporation including, without limitation, the borrowing of money and the giving of security therefore, shall be transacted with such banks, trust companies or other bodies corporate or organizations as may from time to time be designated by or under the authority of the Board. Such banking business or any part thereof shall be transacted under such agreements, instructions and delegations of powers as the Board may from time to time by resolution prescribe or authorize. - 4 - 2.6 Voting Rights in Other Bodies Corporate - The signing Officers of the Corporation may execute and deliver proxies and arrange for the issuance of voting certificates or other evidence of the right to exercise the voting rights attaching to any securities held by the Corporation. Such instruments, certificates or other evidence shall be in favour of such person or persons as may be determined by the Officers executing such proxies or arranging for the issuance of voting certificates or such other evidence of the right to exercise such voting rights. In addition, the Board may from time to time direct the manner in which and the person or persons by whom any particular voting rights or class of voting rights may or shall be exercised. 2.7 Withholding Information from Shareholders - Subject to the provisions of the Act, no Shareholder shall be entitled to discovery of any information respecting any details or conduct of the Corporation's business which, in the opinion of the Board, it would be inexpedient in the interests of the Shareholders or the Corporation to communicate to the public. The Board may from time to time determine whether and to what extent and at what time and place and under what conditions or regulations the accounts, records and documents of the Corporation or any of them shall be open to the inspection of Shareholders and no Shareholder shall have any right of inspecting any account, record or document of the Corporation except as conferred by the Act or authorized by the Board or by resolution passed at a general meeting of Shareholders. 3. BORROWING AND SECURITIES 3.1 Borrowing Power - Subject to the provision of the Act, and without limiting the borrowing powers of the Corporation as set out therein, the Board may from time to time authorize the Corporation to: (i) borrow money in such manner and amount, on such security, from such sources and upon such terms and conditions as they think fit; (ii) issue bonds, debentures, and other debt obligations either outright or as security for any liability or obligation of the Corporation or any other person; (iii) mortgage, charge, whether by way of specific or floating charge, or give other security on the undertaking or on the whole or any part of the property and assets of the Corporation, both present and future; and (iv) give financial assistance to any person, directly or indirectly, by way of loan, guarantee, the provision of security, or otherwise. 3.2 Debt Obligations - The Board may make any bonds, debentures or other debt obligations issued by the Corporation by their terms assignable free from any equities between the Corporation and the person to whom they may be issued or any other person who lawfully acquires them by assignment, purchase or otherwise. 3.3 Discount Permitted - The Board may authorize the issue of any bonds, debentures or other debt obligations of the Corporation at a discount, premium or otherwise and with - 5 - special or other rights or privileges as to redemption, surrender, drawings, allotment of or conversion into or exchange for shares, attending at general meetings of the Company and otherwise as the Board may determine at or before the time of issue. 3.4 Execution of Instruments - Every bond, debenture or other debt obligation of the Corporation shall be signed manually by at least one Director or Officer of the Corporation or by or on behalf of a trustee, registrar, branch registrar, transfer agent or branch transfer agent for the bond, debenture or other debt obligations appointed by the Corporation or under any instrument under which the bond, debenture or other debt obligation is issued and any additional signatures may be printed or otherwise mechanically reproduced thereon and, in such event, a bond, debenture or other debt obligation so signed is as valid as if signed manually notwithstanding that any person whose signature is so printed or mechanically reproduced shall have ceased to hold the office that he is stated on such bond, debenture or other debt obligation to hold at the date of the issue thereof. 3.5 Delegation of Borrowing Power - The Board may from time to time delegate to such one or more of the Directors and Officers of the Corporation as may be designated by the Board all or any of the powers conferred on the Board by this Section 3 to such extent and in such manner as the Board shall determine at the time of each such delegation. 4. DIRECTORS 4.1 Number of Directors and Quorum - Until changed in accordance with the Act, the Board shall consist of not fewer than three (3) and not more than ten (10) Directors. Subject to Section 4.13 and subject also to the Articles and the Act the quorum for the transaction of business at any meeting of the Board shall consist of a majority of the Directors or such lesser number of Directors as the Board may from time to time determine. 4.2 Qualification - No person shall abe qualified for election as a Director if he is less than Nineteen (19) years of age; if he is of unsound mind and has been so found by a Court in Canada or elsewhere; if he is not an individual; or if he has the status of a bankrupt. A Director need not be a Shareholder however any Director who is not a Shareholder shall be deemed to have agreed to be bound by the provisions of the articles to the same extent as if he were a Shareholder of the Corporation. 4.3 First Directors - Each Director named in the Notice of Directors filed at the time of continuance shall hold office from the date of the Certificate of Continuance until the first meeting of Shareholders thereafter. 4.4 Election of Directors - An election of Directors shall take place at the first meeting of Shareholders after the continuance of the Corporation in accordance with the Certificate of Continuance. One third of the Directors shall be appointed for a term expiring at the close of the first annual meeting of Shareholders following the election; one third of the Directors shall be appointed for a term expiring at the close of the second annual meeting of Shareholders following the election; and one third of Directors shall be appointed for a term expiring at the close of the third annual meeting of Shareholders following the election. If their - 6 - number is not three or a multiple of three, then the number to be appointed for each term shall be the whole number nearest but not exceeding one third. Where there is one Director remaining after such calculation, that Director shall be appointed for a term expiring at the close of the third annual meeting of Shareholders following the election. Where there are two Directors remaining after such calculation, one Director shall be appointed for a term expiring at the close of the third annual meeting of Shareholders following the election and the other Director shall be appointed for a term expiring at the close of the second annual meeting of Shareholders following the election. At the second annual meeting of Shareholders after the continuance of the Corporation in accordance with the Certificate of Continuance and at each subsequent annual meeting of Shareholders, each Director shall be appointed for a term expiring at the close of the third annual meeting of shareholders following the election. 4.5 Re-election of Directors - A retiring Director shall be eligible for re-election. 4.6 Directors' Remuneration - The remuneration of the Directors may from time to time be determined by the Directors. Such remuneration may be in addition to any salary or other remuneration paid to any Director in his capacity as Officer or employee of the Corporation. The Directors shall be reimbursed for reasonable travelling, hotel and other expenses they incur in and about the business of the Corporation and if any Director shall perform any professional or other services for the Corporation that in the opinion of the Directors are outside the ordinary duties of a Director or shall otherwise be specially occupied in or about the Corporation's business, he may be paid a remuneration to be fixed by the Board, or, at the option of such Director, by the Corporation in general meeting, and such remuneration may be either in addition to, or in substitution for any other remuneration that he may be entitled to receive. The Directors on behalf of the Corporation may pay a gratuity or pension or allowance on retirement to any Director who has held any office or position with the Corporation or to his spouse or dependents and may make contributions to any fund and pay premiums for the purchase or provisions of any such gratuity, pension or allowance. 4.7 Vacancies - Subject to the Act and the Articles, a quorum of the Board may appoint any person as a Director to fill a vacancy in the Board, except a vacancy resulting from an increase in the minimum number of Directors or from a failure of the Shareholders to elect the minimum number of Directors. Any person so appointed shall assume the term of the Director whose office he assumes and where there are two or more vacancies with differing terms to be filled, the Directors shall, when appointing the replacement Director or Directors, determine which term each replacement Director shall assume. 4.8 Additional Directors - If the Articles so provide, between successive annual meetings the Directors shall have power to appoint one or more additional Directors but the number of additional Directors shall not be more than one-third of the number of Directors elected or appointed at the last annual meeting and the total number of Directors shall not exceed the maximum number fixed by Section 4.1. Any Director so appointed shall hold office only until the next following annual general meeting of the Corporation, but shall be eligible for election at such meeting and so long as he is an additional Director, the number of Directors shall be increased accordingly. - 7 - 4.9 Absence of Quorum - In the absence of a quorum of the Board, or if a vacancy has arisen from a failure of the Shareholders to elect the minimum number of Directors, the Board shall forthwith call a special meeting of the Shareholders to fill the vacancy. If the Board fails to call such meeting or if there are no such Directors then in office, any Shareholder may call the meeting. 4.10 Action by the Board - Subject to any Unanimous Shareholder Agreement, the Board shall manage the business and affairs of the Corporation. Subject to Sections 4.10 and 4.11, the powers of the Board may be exercised by resolution passed at a meeting at which a quorum is present or by resolution in writing, whether by document, telegram, telecopy or any method of transmitting legibly recorded messages or other means, signed by all the Directors entitled to vote on that resolution at a meeting of the Board and any resolution in writing so signed shall be as valid as if it has been passed at a meeting of Directors or a Committee of Directors and shall be held to relate to any date therein stated to be the effective date thereof, and a copy of every such resolution in writing shall be dept with the minutes of the proceedings of Directors or Committee of Directors. Where there is a vacancy in the Board, the remaining Directors may exercise all the powers of the Board so long as a quorum remains in office. Where the Corporation has only one Director, that Director may constitute a meeting. An act of a Director is valid notwithstanding any irregularity in his election or appointment or a defect in his qualifications. 4.11 Meetings By Telephone - A Director may participate in a meeting of the Board or of any committee of the Directors by means of conference telephones or other communications facilities by means of which all Directors participating in the meeting can hear each other and provided that all such Directors agree to such participation. A Director participating in a meeting in accordance with this Article shall be deemed to be present at the meeting and to have so agreed and shall be counted in the quorum therefor and be entitled to speak and vote thereat. 4.12 Place of Meetings - Meetings of the Board may be held at any place in or outside of Canada. 4.13 Calling of Meetings - Meetings of the Board shall be held from time to time and at such place as the Board may determine. In addition, each of the Chairman of the Board, the Managing Directors, the President or any two Directors may convene or direct the convening of a meeting of the Board. 4.14 Notice of Meeting - Except as provided in Section 4.18, notice of the time and place of each meeting of the Board shall be given in the manner provided in Section 12.1 to each Director not less than forty-eight (48) hours before the time when the meeting is to be held. A notice of a meeting of Directors need not specify the purpose of or the business to be transacted at the meeting except where the Act requires such purpose or business to be specified, including any proposal to: (a) submit to the Shareholders any question or matter requiring approval of the Shareholders; - 8 - (b) fill a vacancy among the Directors or in the office of auditor; (c) issue securities; (d) declare dividends; (e) purchase, redeem or otherwise acquire shares of the Corporation; (f) pay a commission for the sale of shares; (g) approve a management proxy circular; (h) approve any annual financial statements; or (i) adopt, amend or repeal By-Laws. A Director may in any manner waive notice of or otherwise consent to a meeting of the Board either before or after the convening of the meeting and, without limiting the generality of the foregoing, attendance of a Director at a meeting of directors is a waiver of notice of the meeting, except when a Director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called. 4.15 Regular Meeting - The Board may by resolution appoint a day or days in any month or months for regular meetings of the Board at a place and hour to be named in the resolution. No notice shall be required for any such regular meeting. 4.16 First Meeting of New Board - Provided a quorum of Directors is present, each newly elected Board may without notice hold its first meeting immediately following the meeting of Shareholders at which such Board or portion thereof is elected. 4.17 Adjourned Meeting - Notice of an adjourned meeting of the Board is not required if the time and place of the adjourned meeting is announced at the original meeting. 4.18 Chairman - The chairman of any meeting of the Board shall be the first mentioned of such of the following Officers as have been appointed and who is a Director and is present at the meeting: Chairman of the Board, Managing Director, President, or a Vice-President who is a Director. If no such Officer is present, the Directors present shall choose one of their number to be chairman. 4.19 Votes to Govern - At all meetings of the Board every question shall be decided by a majority of the votes cast on the question. In cases of an equality of votes the Chairman of the meeting shall be entitled to a second or casting vote. 4.20 Conflict of Interest - A Director or Officer who is a party to, or who is a Director of or has a material interest in any person who is a party to, a material contract or proposed material contract with the Corporation shall disclose the nature and extent of his interest at the - 9 - time and in the manner provided by the Act. A Director interested in a contract so referred to the Board shall not vote on any resolution to approve the same except as provided by the Act. 4.21 Alternate Directors - Any Director may by instrument in writing delivered to the Corporation appoint any person to be his alternate to act in his place at meetings of the Directors at which he is not present unless the Directors shall have reasonably disapproved the appointment of such person as an alternate director and shall have given notice to that effect to the Director appointing the alternate Director within a reasonable time after delivery of such instrument to the Corporation. Every such alternate shall be entitled to notice of meetings of the Directors and to attend and vote as a Director at a meeting at which the person appointing him is not personally present, and, if he is a Director, to have a separate vote on behalf of the Director he is representing in addition to his own vote. A Director may at any time by instrument, telegram, telex or any method of transmitting legibly recorded messages delivered to the Corporation revoke the appointment of an alternate appointed by him. The remuneration payable to such an alternate shall be payable out of the remuneration of the Director appointing him. 4.22 Vacation of Office - A Director ceases to hold office when he: dies; resigns his office by notice in writing delivered to the registered office of the Corporation; ceases to be qualified to act as a Director pursuant to the Act; is removed in accordance with Act. Every resignation of a Director becomes effective at the time a written resignation is delivered to the registered office of the Corporation or at the time specified in the resignation, whichever is later. 5. COMMITTEES 5.1 Committee of Directors (a) The Board may appoint from their numbers a Managing Director or one or more Committees of Directors, however designated, and delegate to the Managing Director or to such committee any of the powers of the Board except those which, under the Act, a Committee of Directors has no authority to exercise. (b) The Directors may by resolution appoint an Executive Committee to consist of such members or members of their body as they think fit, which Committee shall have, and may exercise during the intervals between the meetings of the Board, all the powers vested in the Board except the power to fill vacancies in the Board, the power to change the membership of, or fill vacancies in, said Committee or any other committee of the Board and such other powers, if any, as may be specified in the resolution. The said Committee shall keep regular minutes of its transactions and shall cause them to be recorded in books kept for that purpose, and shall report the same to the Board at such times as the Board may from time to time require. The board shall have the power at any time to revoke or override the authority given to or acts done by the Executive Committee except as to acts done before such revocation or - 10 - overriding and to terminate the appointment or change the membership of such Committee and to fill vacancies in it. The Executive Committee may make rules for the conduct of its business and may appoint such assistants as it may deem necessary. A majority of the members of said Committee shall constitute a quorum thereof. (c) The Directors may from time to time by resolution constitute, dissolve or reconstitute standing committees and other committees consisting of such persons as the Board may determine. Every committee constituted by the Board shall have the powers, authorities and discretions delegated to it by the Board (which shall not include the power to fill vacancies in the Board nor the power to change the membership of or fill vacancies in any committee constituted by the Board nor the power to appoint or remove officers appointed by the Board) and shall conform to the regulations which may from time to time be imposed upon it by the Board. (d) The Executive Committee and any other committee may meet and adjourn as it thinks proper. Subject to the provisions of Section 4.10, questions arising at any meeting shall be determined by and the powers of the committee may be exercised by resolution passed at a meeting at which a quorum is present by a majority of votes of the members of the committee present, and in the case of an equality of votes the chairman shall have a second or casting vote. A resolution in writing, whether by document, telegram, telecopy or any method of transmitting legibly recorded messages or other means, signed by all the members of the committee entitled to vote on that resolution at a meeting of the committee and any resolution in writing so signed shall be as valid as if it had been passed at a meeting of the committee and shall be held to relate to any date therein stated to be the effective date thereof. Such resolution shall be filed with the minutes of the proceedings of the committee and shall be effective on the date stated thereon or on the latest date stated in any counterpart. Meetings of any such committees may be held at any place in or outside Canada. 5.2 Audit Committee - When required by the Act the Board shall, and at any other time the board may, elect from among its number an audit committee to be composed of not fewer than three (3) Directors of whom a majority shall not be Officers or employees of the corporation or its affiliates. The audit committee shall have the powers and duties provided in the Act. 5.3 Procedure - Unless otherwise determined by the Board, each committee of Directors shall have the power to fix its quorum at not less than a majority of its members, to elect its chairman and to regulate its procedure. - 11 - 6. OFFICERS 6.1 Appointment - Subject to any Unanimous Shareholder Agreement, the Board may from time to time, appoint a President, one or more Vice-Presidents (to which title may be added words indicating seniority or function), a Secretary, a Treasurer and such other Officers as the Board may determine, including one or more assistants to any of the Officers so appointed (herein referred to as "Officers"). The Board may specify the duties of and, in accordance with this By-Law and subject to the provisions of the Act, delegate to such Officers powers to manage the business and affairs of the Corporation. Subject to Sections 6.2 and 6.3, an officer may but need not be a Director and one person may hold more than one office. 6.2 Chairman of the Board - The Board may from time to time also appoint a chairman of the Board who shall be a Director. If appointed, the Board may assign to him any of the powers and duties that are by the provisions of the By-Law assigned to the Managing Director or to the President; he shall, subject to the provisions of the Act, have such other powers and duties as the board may specify. During the absence or disability of the chairman of the board, his duties shall be performed and his powers shall be exercised by the managing Director, if any, or by the President. 6.3 Managing Director - The Board may from time to time appoint a Managing Director who shall be a Director. If appointed, he shall be the Chief Executive Officer and, subject to the authority of the Board, shall have general supervision of the business and affairs of the Corporation; he shall, subject to the provisions of the Act, have such other powers and duties as the Board may specify. During the absence or disability of the president, or if no President has been appointed, the Managing Director shall also have the powers and duties of the office. 6.4 President - If appointed, the President shall be the Chief Operating Officer and, subject to the authority of the board, shall have general supervision of the business of the Corporation; he shall have such other powers and duties as the Board may specify. During the absence or disability of the Managing Director, or if no Managing Director has been appointed, the President shall also have the powers and duties of that office. 6.5 Vice-President - A Vice-President shall have such powers and duties as the board or the chief Executive Officer may specify. 6.6 Secretary - The Secretary shall attend and be the Secretary of all meetings of the Board, Shareholders and Committees of the Board and shall enter or cause to be entered in records kept for that purpose minutes of all proceedings thereat; he shall give or cause to be given, as and when instructed, all notices to Shareholders, Directors, Officers, the auditor and members of the Committees of Directors; he shall be the custodian of the stamp or mechanical device generally used for affixing the corporate seal of the Corporation and of all books, papers, records, documents and instruments belonging to the Corporation, except when some other Officer or agent has been appointed for that purpose; and he shall have such other powers and duties as the Board or the Chief Executive Officer may specify. - 12 - 6.7 Treasurer - The Treasurer shall keep proper accounting records in compliance with the Act and shall be responsible for the deposit of money, the safekeeping of securities and the disbursement of the funds of the Corporation; he shall render to the board whenever required an account of all his transactions as Treasurer and of the financial position of the Corporation; and he shall have such other powers and duties as the Board or the Chief Executive Officer may specify. 6.8 Powers and Duties of Other Officers - The powers and duties of all other Officers shall be such as the terms of their engagement call for or as the Board or the Chief Executive Officer may specify. Any of the powers and duties of an Officer to whom an assistant has been appointed may be exercised and performed by such assistant, unless the board or the Chief Executive Officer otherwise directs. 6.9 Variation of Powers and Duties - the Board may from time to time and subject to the provisions of the Act, vary, add to or limit the powers and duties of any Officer. 6.10 Term of Office - The Board, in its discretion, may remove any Officer of the Corporation, without prejudice to such Officer's rights under any employment contract, otherwise each Officer appointed by the Board shall hold office until the earlier of the date his resignation becomes effective, the date his successor is appointed or he shall cease to be qualified for that office under Section 6.2 or 6.3 if applicable. 6.11 Terms of Employment and Remuneration - The terms of employment and the remuneration of Officers appointed by the Board shall be settled by it from time to time. 6.12 Conflict of Interest - An Officer shall disclose his interest in any material contract or proposed material contract with the Corporation in accordance with Section 4.20. 6.13 Agents and Attorneys - The Board shall have power from time to time to appoint agents or attorneys for the Corporation in or outside of Canada with such powers of management or otherwise (including the power to sub-delegate) as may be thought fit. 6.14 Fidelity Bonds - The Board may require such Officers, employees and agents of the Corporation as the Board deems advisable to furnish bonds for the faithful discharge of their powers and duties, in such form and with such surety as the Board may from time to time determine. 7. PROTECTION OF DIRECTORS, OFFICERS AND OTHERS 7.1 Limitation of Liability - No Director shall be liable for the acts, receipts, neglects or defaults of any other Director or Officer or employee, or for joining in any receipt or other act for conformity, or for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired for or on behalf of the Corporation, or for the insufficiency or deficiency of any security in or upon which any of the moneys of the Corporation shall be invested, or for any loss or damage arising from the bankruptcy, insolvency or tortuous acts of any person with whom any of the moneys, securities - 13 - or effects of the Corporation shall be deposited, or for any other loss, damage or misfortune whatever which shall happen in the execution of the duties of his office or in relation thereto, unless the same are occasioned by his own wilful neglect or default; provided that nothing herein shall relieve any Director or Officer from the duty to act in accordance with the Act and the regulations thereunder or from liability for any breach thereof. 7.2 Indemnity - Subject to the limitations contained in the Act, and to the extent he is otherwise fairly and reasonably entitled thereto, the Corporation shall indemnify a Director or Officer, a former Director or Officer, or a person who acts or acted at the Corporation's request as a Director or Officer of a body corporate of which the Corporation is or was a Shareholder or creditor (or a person who undertakes or has undertaken any liability on behalf of the Corporation or any such body corporate) and his heirs and legal representatives, against all costs, charges and expenses, including any amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a Director or Officer of the Corporation or such body corporate, if: (a) he acted honestly and in good faith with a view to the best interests of the Corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. 7.3 Insurance - Subject to the limitations contained in the Act, the Corporation may purchase and maintain such insurance for the benefit of its Directors and Officers as such, as the Board may from time to time determine. 8. SHARES 8.1 Allotment and Issue - The Board may from time to time allot, or grant options to purchase the whole or any part of the authorized and unissued shares of the Corporation at such times and to such persons and for such consideration as the Board shall determine, provided that no share shall be issued until it is fully paid as prescribed by the Act. Subject to the Articles, no holder of any class of share of the capital of the Corporation shall be entitled as of right to subscribe for, purchase or receive any part of any new or additional issue of shares of any class, whether now or hereafter authorized or any bonds, debentures or other securities convertible into shares of any class. 8.2 Commissions - The Board may from time to time authorize the Corporation to pay a reasonable commission to any person in consideration of his purchasing or agreeing to purchase shares of the Corporation, whether from the Corporation or from any other person, or procuring or agreeing to procure purchasers for any such shares. - 14 - 8.3 Registration of Transfer (a) Subject to the provisions of the Act, no transfer of shares shall be registered in a securities register except upon presentation of the Certificate representing such shares with a transfer endorsed thereon or delivered therewith duly executed by the registered holder or by his attorney or successor duly appointed, together with such reasonable assurance or evidence of signature, identification and authority to transfer as the Board may from time to time prescribe, upon payment of all applicable taxes and any fees prescribed by the Board, upon compliance with such restrictions on transfer, if any, as are authorized by the Articles, and upon satisfaction of any lien referred to in Section 8.5. (b) The signature of the registered owner of any shares, or of his duly authorized attorney, upon an authorized instrument of transfer shall constitute a complete and sufficient authority to the Corporation, its directors, officers and agents to register, in the name of the transferee as named in the instrument of transfer, the number of shares specified therein or, if no number is specified, all the shares of the registered owner represented by share certificates deposited with the instrument of transfer. If no transferee is named in the instrument of transfer, the instrument of transfer shall constitute a complete and sufficient authority to the Corporation, its directors, officers and agents to register, in the name of the person in whose behalf any certificate for the shares to be transferred is deposited with the Corporation for the purpose of having the transfer registered, the number of shares specified in the instrument of transfer or, if no number is specified, all the shares represented by all share certificates deposited with the instrument of transfer. (c) Neither the Corporation nor any Director, Officer or agent thereof shall be bound to inquire into the title of the person named in the form of transfer as transferee, or, if no person is named therein as transferee, of the person on whose behalf the certificate is deposited with the Corporation for the purpose of having the transfer registered or be liable to any claim by such registered owner or by any intermediate owner or holder of the certificate or of any of the shares represented thereby or any interest therein for registering the transfer, and the transfer, when registered, shall confer upon the person in whose name the shares have been registered a valid title to such shares. (d) Every instrument of transfer shall be executed by the transferor and left at the registered office of the Corporation or at the office of its transfer agent or branch transfer agent or registrar for registration together with the share certificate for the shares to be transferred and such other evidence if any, as the Directors or the transfer agent or branch transfer agent or registrar or branch registrar may require to prove the title of the - 15 - transferor or his right to transfer the shares and the right of the transferee to have the transfer registered. All instruments of transfer where the transfer is registered shall be retained by the Corporation or its transfer agent or branch transfer agent or registrar or branch/registrar and any instrument of transfer, where the transfer is not registered, shall be returned to the person depositing the same together with the share certificate which accompanied the same when tendered for registration. (e) There shall be paid to the Corporation in respect of the registration of any transfer such sum, if any, as the Directors may from time to time determine. 8.4 Transfer Agents and Registrars - The Board may from time to time appoint a registrar to maintain the securities register and a transfer agent to maintain the register of transfers and may also appoint one or more branch registrars to maintain branch securities registers and one or more branch transfer agents to maintain branch registers of transfer, but one person may be appointed both registrar and transfer agent. The Board may at any time terminate any such appointment. 8.5 Lien for Indebtedness - If the Articles provide that the Corporation shall have a lien on shares registered in the name of a Shareholder indebted to the Corporation, such lien may be enforced, subject to any other provision of the Articles and to any Unanimous Shareholder Agreement, by the sale of the shares thereby affected or by any other action, suit, remedy or proceeding authorized or permitted by law or by equity and, pending such enforcement, may refuse to register a transfer of the whole or any part of such shares. 8.6 Non-Recognition of Trusts - Subject to the provisions of the Act, the Corporation shall treat as absolute owner of the share the person in whose name the share is registered in the securities register as if that person had full legal capacity and authority to exercise all rights of ownership, irrespective of any indication to the contrary through knowledge or notice or description in the Corporation's records or on the share certificate. 8.7 Share Certificates - Every holder of one or more shares of the Corporation shall be entitled, at his option, to a share certificate, or to a non-transferable written acknowledgement of his right to obtain a share certificate, stating the number and list or series of shares held by him as shown on the securities register. Share Certificates and acknowledgments of a Shareholder's right to a share certificate, respectively, shall be in such form as the Board shall from time to time approve. Any share certificate shall be signed in accordance with Section 2.4 and need not be under the Corporate seal; provided that, unless the Board otherwise determines, certificates representing shares in respect of which a transfer agent and/or registrar has been appointed shall not be valid unless countersigned by or on behalf of such transfer agent and/or registrar. The signature of one of the signing Officers or, in the case of share certificates which are not valid unless countersigned by or on behalf of a transfer agent and/or registrar, the signatures of both signing Officers, may be printed or mechanically reproduced in facsimile upon share certificates and every such facsimile signature shall for all purposes be deemed to be the signature of the Officer whose signature it reproduces and shall be binding upon the Corporation. - 16 - A share certificate executed as aforesaid shall be valid notwithstanding that one or both of the Officers whose facsimile signature appears thereon no longer holds office at the date of issue of the Certificate. 8.8 Replacement of Share Certificates - The Board or any Officer or agent designated by the Board may in its or his discretion direct the issue of a new share certificate in lieu of and upon cancellation of a share certificate that has been mutilated or in substitution for a share certificate claimed to have been lost, destroyed or wrongfully taken or which does not comply as to form with the requirements from time to time of the Act in this regard, on payment of such fee as the Board may direct and on such terms as to indemnity, reimbursement of expenses and evidence of loss and of title as the Board may from time to time prescribe, whether generally or in any particular case. 8.9 Joint Shareholders - If two or more persons are registered as joint holders of any share, the Corporation shall not be bound to issue more than one certificate in respect thereof, and delivery of such certificate to one of such persons shall be sufficient delivery to all of them. Any one of such persons may give effectual receipts for the certificate issued in respect there or for any dividend, bonus, return of capital or other money payable or warrant issuable in respect of such share. Joint Shareholders may collectively designate in writing an address as their recorded address for service of notice and payment of dividends but in default of such designation the address of the first named joint Shareholder shall be deemed to be the recorded address aforesaid. 8.10 Deceased Shareholders - In the event of the death of a holder, or of one of the joint holders, of any share, the Corporation shall not be required to make any entry in the securities register in respect thereof or to make payment of any dividends thereon except upon production of all such documents as may be required by law and upon compliance with the reasonable requirements of the Corporation and its transfer agents. 9. DIVIDENDS AND RIGHTS 9.1 Dividends - Subject to the provisions of the Act, the Board may from time to time declare dividends payable to the Shareholders according to their respective rights and interest in the Corporation. Dividends may be paid in money or property or by issuing fully paid shares of the Corporation. 9.2 Dividend Cheques - A dividend payable in cash shall be paid by cheque drawn on the Corporation's bankers or one of them to the order of each registered holder of shares of the class ore series in respect of which it has been declared and mailed by prepaid ordinary mail to such registered holder at his recorded address, unless such holder otherwise directs. In the case of joint holders the cheque shall, unless such joint holders otherwise direct, be made payable to the order of all such joint holders and mailed to them at their recorded address. The mailing of such cheque as aforesaid, unless the same is not paid on due presentation, shall satisfy and discharge the liability for the dividend to the extent of the sum represented thereby plus the amount of any tax which the Corporation is required to and does withhold. - 17 - 9.3 Non-Receipt of Cheques - In the event of non-receipt of any dividend cheque by the person to whom it is sent as aforesaid, the Corporation shall issue to such person a replacement cheque for a like amount on such terms as to indemnity, reimbursement of expenses and evidence of non-receipt and of title as the Board may from time to time prescribe, whether generally or in any particular case. 9.4 Record Date for Dividends and Rights - The Board may fix in advance a date, preceding by not more than Fifty (50) days the date for the payment of any dividend or the date for the issue of any warrant or other evidence of right to subscribe for securities of the Corporation, as a record date for the determination of the persons entitled to receive payment of such dividend or to exercise the right to subscribe for such securities, provided that, where the Corporation is a distributing Corporation for purposes of the Act, notice of any such record date is given not less than seven (7) days before such record date by newspaper advertisement and otherwise in the manner provided in the Act. Where no record date is fixed in advance as aforesaid, the record date for the determination of the persons entitled to receive payment of any dividend or to exercise the right to subscribe for securities of the Corporation shall be at the close of business on the day on which the resolution relating to such dividend or right to subscribe is passed by the Board. 9.5 Unclaimed Dividends - Any dividend unclaimed after a period of six (6) years from the date on which the same has been declared to be payable shall be forfeited and shall revert to the Corporation. 10. MEETINGS OF SHAREHOLDERS 10.1 Annual Meetings - The annual meetings of Shareholders shall be held at such time in each year and, subject to the Act and to Section 10.4, at such place as the Board, the Chairman of the Board, the Managing Director or the President may from time to time determine, for the purpose of considering the financial statements and reports required by the Act to be placed before the annual meeting, electing Directors, appointing auditors and for the transaction of such other business as may property be brought before the meeting. 10.2 Special Meetings - The Board, the Chairman of the Board, the Managing Director or the President shall have power to call a special meeting of Shareholders at any time. 10.3 Special Business - All business transacted at a special meeting of Shareholders and all business transacted at an annual meeting of Shareholders, except consideration of the financial statements, auditors reports, election of directors and re-appointment of the incumbent auditors, is deemed to be special business. 10.4 Place of Meeting - Subject to the Articles, meetings of Shareholders shall be held in the City of Vancouver, British Columbia or at the registered office of the Corporation or elsewhere in the municipality in which the registered office is situated or, if the board shall so determine, at some other place in the Yukon Territory or, if the Articles so provide at some other place outside the Yukon Territory. - 18 - 10.5 Notice of Meeting - Notice of the time and place of each meeting of Shareholders shall be given in the manner provided in Section 12.1 not less than twenty-one (21) or more than fifty (50) days before the date of the meeting to each Director, to the auditor and to each Shareholder who at the close of business on the record date, if any, for notice is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of Shareholders called for any purpose other than consideration of the financial statements and auditor's report, election of directors and re-appointment of the incumbent auditor shall state the nature of such business in sufficient detail to permit the Shareholder to form a reasoned judgement thereon and shall state the text of any special resolution to be submitted to the meeting. A Shareholder and any other person entitled to attend a meeting of Shareholders may in any manner waive notice of or otherwise consent to a meeting of Shareholders. 10.6 List of Shareholders Entitled to Notice - For every meeting of Shareholders, at any time that the Corporation has more than fifteen (15) Shareholders entitled to vote at a meeting of Shareholders, the Corporation shall prepare a list of Shareholders entitled to receive notice of the meeting, arranged in alphabetical order and showing the number of shares entitled to vote at the meeting held by each Shareholder. If a record date for the meeting is fixed pursuant to Section 10.7, the Shareholders listed shall be those registered or constructively registered pursuant to the Act at the close of business of the record date, such list to be prepared on a day not later than ten (10) days after such record date. If no record date is fixed, the list of Shareholders shall be prepared no later than at the close of business on the day immediately preceding the day on which notice of the meeting is given, or where no such notice is given, the day on which the meeting is held. The list shall be available for examination by any Shareholder during usual business hours at the records office of the Corporation or at the place where the central securities registrar is kept and at the place where the meeting is held. 10.7 Record Date for Notice - The Board may fix in advance a record date, preceding the date of any meeting of Shareholders by not more than fifty (50) days and not less than twenty-one (21) days for the determination of the Shareholders entitled to notice of the meeting, provided that notice of any such record date is given, not less than (7) days before such record date, by newspaper advertisement in the manner provided in the Act. If no record date is so fixed, the record date for the determination of the Shareholders entitled to notice of the meeting shall be the close of business on the day immediately preceding the day on which the notice is given, or if no notice is given, the day on which the meeting is held. 10.8 Meetings Without Notice - A meeting of Shareholders may be held without notice at any time and place permitted by the Act: (a) if all the Shareholders entitled to vote thereat are present in person or represented by proxy or if those not present or represented by proxy waive notice of or otherwise consented to such meeting being held, and (b) if the auditor and the Directors are present or waived notice of or otherwise consent to such meeting being held. - 19 - At such meeting any business may be transacted which the Corporation at a meeting of Shareholders may transact. If the meeting is held at a place outside the Yukon territory, Shareholders not present or represented by proxy, but who have waived notice of or otherwise consented to such meeting, shall also be deemed to have consented to the meting being held at such place. 10.9 Meetings by Telephone - If all the Shareholders consent, a Shareholder may participate in a meeting of Shareholders by means of such telephone or other communications facilities as permit all persons participating in the meeting to hear each other, and a Shareholder participating in such a meeting by such consent shall be effective whether given before or after the meeting to which it relates. 10.10 Chairman, Secretary and Scrutineers - The Chairman of any meeting of Shareholders shall be the first mentioned of such of the following Officers as have been appointed and who is present at the meeting: Chairman of the Board, President, Managing Director, or a Vice-President. If no such Officer is present within fifteen (15) minutes from the time fixed for holding the meeting, the person present and entitled to vote shall choose on of their number to be Chairman. If the Secretary of the Corporation is absent, the Chairman shall appoint some person, who need not be a Shareholder, to act as Secretary of the meeting. If desired, one or more scrutineers, who need not be Shareholders, many be appointed by a resolution or by the Chairman with the consent of the meeting. 10.11 Persons Entitled to be Present - The only persons entitled to be present at a meeting of Shareholders shall be those entitled to vote thereat, the Directors and auditor of the Corporation and others who, although not entitled to vote, are entitled or required under any provision of the Act or Articles or By-Laws to be present at the meeting. Any other person may be admitted only on the invitation of the Chairman of the meeting or with the consent of the meeting. 10.12 Quorum - Subject to Sections 10.23, 10.24, and the Act, a quorum for the transaction of business at any meeting of Shareholders shall be two (2) persons present in person, each being a Shareholder entitled to vote thereat or a duly appointed proxy for an absent Shareholder so entitled and together holding or representing by proxy not less than five percent (5%) of the outstanding shares of the Corporation entitled to vote at the meeting save and except if there is only one Shareholder the quorum shall consist of that one Shareholder. If a quorum is present at the opening of any meeting of Shareholders, the Shareholders present or represented by proxy may proceed with the business of the meeting notwithstanding that a quorum is not present throughout the meeting. If a quorum is not present within one-half hour of the time appointed for convening of any meeting of Shareholders, the Shareholders present or represented by proxy may adjourn the meeting to a fixed time and place subject to Section but may not transact any other business provided, however, that if no provision for adjournment is made at any such meeting or adjourned meeting at which a quorum is not present, the meeting shall be dissolved. 10.13 Right to Vote - Record Date for Voting - Subject to the provisions of the Act as to authorized representative of any other body corporate, at any meeting of Shareholders in - 20 - respect of which the Corporation has prepared the list referred to in Section 10.6, every person who is named in such list shall be entitled to vote the shares shown thereon opposite his name except, where the Corporation has fixed a record date in respect of such meeting pursuant to Section 10.7, to the extent that such person has transferred any of his shares after such record date and the transferee, upon producing properly endorsed Certificates evidencing such shares or otherwise establishing that he owns such shares, demands not later than ten (10) days before the meeting that his name be included in such list, in which event the transferee alone shall be entitled to vote the transferred shares at the meeting. Where the transferee alone shall be entitled to vote the transferred shares at the meeting. Where no record date for notice has been fixed and no notice of meeting given, or in the absence of a list prepared as aforesaid in respect of a meeting of Shareholders, every person shall be entitled to vote at the meeting who at the time is entered in the securities register as the holder of one or more shares carrying the right vote at such meeting. 10.14 Proxies (a) Subject to subparagraph 10.14(c) every Shareholder entitled to vote at a meeting of Shareholders, may appoint a proxyholder, or one or more alternate proxy holders, who need not be Shareholders, to attend and act at the meeting in the manner and to the extent authorized and with the authority conferred by the proxy. A proxy shall be in writing executed by the Shareholder or his attorney and shall conform with the requirements of the Act. An instrument of proxy shall be valid only at the meeting in respect of which it is given or any adjournment thereof. (b) Subject to subparagraph 10.14(c) any corporation, other than a Prohibited Corporate Shareholder, which is a Shareholder of the Corporation may by resolution of its Directors or other governing body authorize such person as it thinks fit to act as its representative at any meeting or class meeting. The person so authorized shall be entitled to exercise in respect of and at such meeting the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual member of the Corporation personally present, including, without limitation, the right, unless restricted by such resolution, to appoint a proxyholder to represent such corporation, and shall, if present at the meeting, be counted for the purpose of forming a quorum and be deemed to be a may be sent to the Corporation by written instrument, telegram, telex or any method of transmitting legibly recorded messages. (c) Professional Corporation - Notwithstanding subparagraphs 10.14(a) and 10.14(b), the appointing of a proxy holder or one or more alternate proxy holders or the entering into of a voting trust agreement or other type of agreement vesting voting rights shall be subject to any restrictions or qualifications provided for in any act or regulation to which the Corporation or its Shareholders are subject to, including but not limited to the Legal Professions Act and the Medical Professions Act. - 21 - 10.15 Time for Deposit of Proxies - The Board may specify in a notice calling a meeting of Shareholders a time, preceding the time of such meeting by not more than forty-eight (48) hours exclusive of non-business days, before which time proxies to be used at such meeting must be deposited. A proxy shall be acted upon only if, prior to the time so specified, it shall have been deposited with the Corporation or any agent thereof specified in such notice or, if no such time is specified in such notice, unless it has been received by the Secretary of the Corporation or by the Chairman of the meeting or any adjournment thereof prior to the time of voting. 10.16 Joint Shareholders - If two or more persons hold shares jointly, any one of them present in person or represented by proxy at a meeting of Shareholders may, in the absence of the other or others, vote the shares but if two or more of those persons are present in person or represented by proxy and vote, they shall vote as one on the shares jointly held by them and in the absence of agreement between those so voting the person named first in the Register shall vote the shares. 10.17 Votes to Govern - At any meeting of Shareholders every question shall, unless otherwise required by the Articles or By-Laws or by law, be determined by the majority of the votes cast on the question. In case of an equality of votes either upon a show of hands or upon a poll, the Chairman of the meeting shall/shall not be entitled to a second or casting vote. 10.18 Motion - The Chairman may propose or second a motion. 10.19 Show of Hands - Subject to the provisions of the Act any question at a meeting of Shareholders shall be decided by a show of hands unless a ballot thereon is required or demanded as hereinafter provided. Upon a show of hands, every person who is present and entitled to vote shall have one vote. Whenever a vote by show of hands shall have been taken upon a question, unless a ballot thereon is so required or demanded, a declaration by the Chairman of the meeting that the vote upon the question has been carried or carried by a particular majority or not carried, an entry to that effect in the minutes of the meeting shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against any resolution or other proceeding in respect of the said question, and the result of the vote so taken shall be the decision of the Shareholders upon the said question. 10.20 Ballots (a) On any question proposed for consideration at a meeting of Shareholders, and whether or not a show of hands has been taken thereof, any Shareholder or proxyholder entitled to vote at the meeting may require or demand a ballot. A ballot so required or demanded shall be taken in such manner as the Chairman shall direct. A requirement or demand for a ballot may be withdrawn at any time prior to the taking of the ballot. If a ballot is taken each person present shall be entitled in respect of the shares which he is entitled to vote at the meeting upon the question, to that number of votes provided by the Act or the Articles, and the result of the ballot so taken shall be the decision of the Shareholders upon the said question. - 22 - (b) No ballot may be demanded on the election of a Chairman. A ballot demanded on a question of adjournment shall be taken forthwith. A ballot demanded on any other question shall be taken as soon as, in the opinion of the chairman, is reasonably convenient, but in no event later than seven (7) days after the meeting and at such time and place and in such manner as the chairman of the meeting directs. The result of the ballot shall be deemed to be the resolution of and passed at the meeting at which the ballot was demanded. Any business other than that upon which the ballot has been demanded may be proceeded with pending the taking of the ballot. In any dispute as to the admission or rejection of a vote the decision of the chairman made in good faith shall be final and conclusive. 10.21 Adjournment - If a meeting of Shareholders is adjourned for less than thirty (30) days, it shall not be necessary to give notice of the adjourned meeting, other than by announcement at the earliest meeting that it is adjourned. If a meeting of Shareholders is adjourned by one or more adjournments for an aggregate of thirty (30) days or more, notice of the adjourned meeting shall be given as for an original meeting. At any such adjourned meeting no business shall be transacted other than business left unfinished at the meeting from which the adjournment took place. 10.22 Resolution in Writing - A resolution in writing signed by all the Shareholders entitled to vote on that resolution at a meeting of Shareholders is as valid as if it had been passed at a meeting of the Shareholders, and shall be held to relate to any date therein stated to be the effective date thereof. 10.23 Only One Shareholder - Where the Corporation has only one Shareholder or only one holder of any class or series of shares, the Shareholder present in person or by proxy constitutes a meeting. 10.24 Only Two Shareholders - Where the Corporation has only one Shareholder a quorum for transaction of business at any meeting of Shareholders shall be one (1) person present in person, being a Shareholder entitled to vote thereat, or a duly appointed proxy of said Shareholder, holding not less than ten (10%) percent of the outstanding shares of the Corporation entitled to vote at the meeting. 11. DIVISIONS AND DEPARTMENTS 11.1 Creation and Consolidation of Divisions - The Board may cause the business and operations of the Corporation or any part thereof to be divided or to be segregated into one or more divisions upon such basis, including without limitation, character or type of operation, geographical territory, product manufactured or service rendered, as the Board may consider appropriate in each case. The Board may also cause the business and operations of any such division to be further divided into sub-units and the business and operations of any such divisions or sub-units to be consolidated upon such basis as the Board may consider appropriate in each case. - 23 - 11.2 Name of Division - Subject to the Act any division or its sub-units may be designated by such name as the Board may from time to time determine and may transact business, enter into contracts, sign cheques and other documents of any kind and do all acts and things under such name, provided that the Corporation shall set out its name in legible characters in all contracts, invoices, negotiable instruments and orders for goods or services, documents shall be binding upon the Corporation as if it had been entered or signed in the name of the Corporation. 11.3 Officers of Division - From time to time the Board or if authorized by the Board, the Chief Executive Officer, may appoint one or more Officers for any division, prescribe their powers and duties and settle their terms of employment and remuneration. The Board or, if authorized by the Board, the Chief Executive Officer, may remove at its or his pleasure any Officers so appointed, without prejudice to such Officer's right under any employment contract. Officers of division or their sub-units shall not, as such, be Officers of the Corporation. 12. NOTICES 12.1 Method of Giving Notices - Any notice (which term incudes any communication or document) to be given (which term includes sent, delivered or served) pursuant to the Act, the regulations thereunder, the Articles, the By-Laws or otherwise to a Shareholder, Director, Officers, auditor or member of a Committee of Directors shall be sufficiently given if delivered personally to the person to whom it is to be given or if delivered to his recorded address by any means of prepaid transmitted or recorded communication. A notice so delivered shall be deemed to have been given when it is delivered personally or to the recorded address as aforesaid; a notice so mailed shall be deemed to have been received by him at the time it would be delivered to the appropriate communication corporation or agency or its representative for dispatch. Subject to the Act, a notice of meeting of Shareholders shall be deemed to have been sent to the Shareholder on the day on which it is deposited in the mail. The Secretary may change or cause to be changed the recorded address of any Shareholder, Director, Officer, auditor or member of a Committee of Directors in accordance with any information believed by him to be reliable. 12.2 Notice of Joint Shareholders - If two or more persons are registered as joint holders of any share, any notice shall be addressed to all of such joint holders but notice given to any one or more of such persons at the recorded address for such joint shareholders shall be sufficient notice to all of them. 12.3 Computation of Time - In computing the date when notice must be given under any provision requiring a specified number of days notice of any meeting or other event, the date of giving the notice shall be excluded and the date of the meeting or other event in respect of which the notice is being given shall be included. 12.4 Undelivered Notices - If any notice given to a Shareholder pursuant to Section 12.2 is returned on three (3) consecutive occasions because he cannot be found or served or is unknown at his recorded address, the Corporation shall not be required to give any further notices to such Shareholder until he informs the Corporation in writing of his new recorded address. - 24 - 12.5 Proof of Service - A certificate of the Secretary or other duly authorized Officer of the Corporation in office at the time of the making of the certificate, or of any agent of the Corporation as to the facts in relation to the mailing or delivery sending of any notice to any Shareholder, Director, the auditors, or conclusive evidence thereof and shall be binding on every Shareholder, Director, the auditors or any Officer of the Corporation as the case may be. 12.6 Omissions and Errors - The accidental omission to give any notice to any Shareholder, Director, Officer, auditor or member of a Committee of Directors or the non-receipt of any notice by any action taken at any meeting held pursuant to such notice or otherwise founded thereon. 12.7 Persons Entitled by Death or Operation of Law - Every person who by operation of law, transfer, death of a Shareholder or any other means whatsoever, shall become entitled to any share, shall be bound by every notice in respect of such share which shall have been duly given to the Shareholder from whom he derives his title prior to such person's name and address being entered on the securities register (whether such notice was given before or after the happening of the event upon which he became so entitled) and prior to his furnishing to the Corporation the proof of authority or evidence of his entitlement prescribed by the Act. 12.8 Waiver of Notice - Any Shareholder (or his duly appointed proxyholder), Director, Officer, auditor or member of a Committee of Directors may at any time waive the sending of any notice, or waive or abridge the time for any notice, required to be given to him under any provision of the Act, the regulations thereunder, the Articles, the By-Laws or otherwise and such waiver or abridgement shall cure any default in the giving or the time of such notice, as the case may be. Any such waiver or abridgement shall be in writing except an waiver of notice of a meeting of Shareholders or of the Board which may be given in any manner. This is page 24 of a By-Law relating generally to the transaction of the business and affairs of Solucorp Industries Ltd. EX-4.1 3 SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT DATED AS OF December 18, 1996 BETWEEN SOLUCORP INDUSTRIES LTD. AND CIBC MELLON TRUST COMPANY AS RIGHTS AGENT CLARK, WILSON Vancouver SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT TABLE OF CONTENTS Page ---- ARTICLE 1 INTERPRETATION.............................................................. 2 1.1 Certain Definitions........................................... 2 1.2 Continuation to Another Jurisdiction.......................... 14 1.3 Currency...................................................... 14 1.4 Description Headings.......................................... 14 1.5 References to Agreement....................................... 14 1.6 Number and Gender............................................. 14 1.7 Acting in Good Faith.......................................... 14 1.8 Holder........................................................ 15 1.9 Grandfather Provision......................................... 15 1.10 Calculation of Number and Percentage of Beneficial Ownership Of Outstanding Voting Shares........... 16 ARTICLE 2 THE RIGHTS.................................................................. 16 2.1 Legend on Certificates........................................ 16 2.2 Execution, Authentication, Delivery and Dating of Rights Certificates................................................ 17 2.3 Registration, Registration of Transfer and Exchange........... 18 2.4 Mutilated, Destroyed, Lost and Stolen Rights Certificates..... 18 2.5 Persons Deemed Owners of Rights............................... 19 2.6 Delivery and Cancellation of Certificates..................... 19 2.7 Agreement of Rights Holders................................... 20 2.8 Rights Certificate Holder Not Deemed a Shareholder............ 20 ARTICLE 3 EXERCISE OF THE RIGHTS...................................................... 21 3.1 Initial Exercise Price; Exercise of Rights; Detachment of Rights...................................................... 21 3.2 Adjustments to Exercise Prices; Number of Rights.............. 24 3.3 Date on Which Exercise is Effective........................... 29 - i - Page ---- ARTICLE 4 ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS........................................ 30 4.1 Flip-in Event................................................. 30 4.2 Exchange Option............................................... 31 ARTICLE 5 THE RIGHTS AGENT............................................................ 32 5.1 General....................................................... 32 5.2 Merger or Amalgamation or Change of Name of Rights Agent...... 33 5.3 Duties of Rights Agent........................................ 33 5.4 Change of Rights Agent........................................ 35 ARTICLE 6 MISCELLANEOUS............................................................... 36 6.1 Redemption and Waiver......................................... 36 6.2 Expiration.................................................... 37 6.3 Shareholder Review............................................ 37 6.4 Issuance of New Rights Certificate............................ 37 6.5 Fractional Rights and Fractional Shares....................... 38 6.6 Supplements and Amendments.................................... 38 6.7 Rights of Action.............................................. 38 6.8 Notice of Proposed Actions.................................... 39 6.9 Notices....................................................... 39 6.10 Costs of Enforcement.......................................... 40 6.11 Successors.................................................... 40 6.12 Benefits of this Agreement.................................... 40 6.13 Governing Law................................................. 40 6.14 Counterparts.................................................. 40 6.15 Severability.................................................. 40 6.16 Effective Date................................................ 41 6.17 Determination and Actions by the Board of Directors........... 41 6.18 Successor Corporations........................................ 41 6.19 Time of the Essence........................................... 42 - ii - SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT MEMORANDUM OF AGREEMENT made as of the 18th day of December, 1996. BETWEEN: SOLUCORP INDUSTRIES LTD., a corporation existing under the laws of the Province of British Columbia (hereinafter called the "Corporation") OF THE FIRST PART AND: CIBC MELLON TRUST COMPANY, a trust company incorporated under the laws of Canada, as rights agent (hereinafter called the "Rights Agent") OF THE SECOND PART WHEREAS the Board of Directors of the Corporation has determined that it is advisable for the Corporation to adopt a shareholder protection rights plan (the "Rights Plan") to protect the Corporation and its shareholders from unfair, abusive or coercive acquisition tactics; AND WHEREAS in order to implement the Rights Plan the Board of Directors of the Corporation has: 1. authorized the issuance, effective 5:00 p.m. (Vancouver time) on December 18, 1996 of one right (a "Right") in respect of each Common Share of the Corporation in each case outstanding at 5:00 p.m.(Vancouver time) on December 17, 1996 (the "Record Time"); and 2. authorized the issuance of one Right in respect of each Common Share issued after the Record Time and prior to the earlier of the Separation Time (as hereinafter defined) and the Expiration Time (as hereinafter defined); AND WHEREAS each Right entitles the holder thereof, after the Separation Time, to purchase securities of the Corporation (or, in certain cases, of certain other entities) pursuant to the terms and subject to the conditions set forth herein; - 2 - AND WHEREAS the Corporation desires to appoint the Rights Agent to act on behalf of the Corporation and holders of Rights, and the Rights Agent is willing so to act, in connection with the issuance, transfer, exchange and replacement of Rights Certificates (as hereinafter defined), the exercise of Rights and other matters referred to herein; NOW THEREFORE, in consideration of the premises and the respective covenants and agreements set forth herein, the parties hereby agree as follows: ARTICLE 1 INTERPRETATION 1.1 CERTAIN DEFINITIONS For the purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean, subject to Section 1.6, any Person who is the Beneficial owner of 20% or more of the outstanding Voting Shares of the Corporation; provided, however, that the term "Acquiring Person" shall not include: (i) the Corporation or any Subsidiary of the Corporation or any employee benefit plan, deferred profit sharing plan, stock participation plan or trust for the benefit of employees, in each case of the Corporation or any Subsidiary of the Corporation, or any Person organized, appointed or established by the Corporation or any Subsidiary of the Corporation for or pursuant to the terms of any such plan or trust; (ii) any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares of the Corporation as a result of: (1) an acquisition or redemption by the Corporation or a Subsidiary of the Corporation of Voting Shares of the Corporation that, by reducing the number of Voting Shares of the Corporation outstanding, increases the percentage of outstanding Voting Shares of the Corporation Beneficially Owned by such Person to 20% or more; (2) share acquisitions made pursuant to a Permitted Bid ("Permitted Bid Acquisitions"); or (3) share acquisitions in respect of which the Board of Directors has waived the application of Section pursuant to the provisions of subsection or 6.1(b) or 6.1 (c) or - 3 - that were made on or prior to the date of this Agreement ("Exempt Acquisitions"); provided, however, that if a Person shall become the Beneficial Owner of 20% or more of the Voting Shares of the Corporation then outstanding by reason of share acquisitions or redemptions by the Corporation (or a Subsidiary of the Corporation) or Permitted Bid Acquisitions or Exempt Acquisitions and, after such share acquisitions or redemptions by the Corporation (or a Subsidiary of the Corporation) or Permitted Bid Acquisitions or Exempt Acquisitions, such Person, while such Person is the Beneficial Owner of 20% or more of the Voting Shares of the Corporation then outstanding, becomes the Beneficial Owner of any additional outstanding Voting Shares of the Corporation other than pursuant to Permitted Bid Acquisitions or through Exempt Acquisitions or as a result of a Pro Rata Acquisition, then as of the date such Person becomes the Beneficial Owner of such additional outstanding Voting Shares, such Person shall be an "Acquiring Person"; and (iii) for the period of 10 days after the Disqualification Date (as hereinafter defined), any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares of the Corporation as a result of such Person becoming disqualified from relying on clause hereof where such disqualification results solely because such Person has made or proposes to make a Take-over Bid in respect of securities of the Corporation alone or by acting jointly or in concert with any other Person (the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 111 of the Securities Act (British Columbia) or Section 13(d) of the 1934 Exchange Act) by such Person or the Corporation of the intent of such Person to commence such a Take-over Bid being herein referred to as the "Disqualification Date"); (b) "Affiliate" shall mean a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, another Person; (c) "Associate" shall have the meaning ascribed to such term in the Company Act (British Columbia) as at the date of this Agreement; provided, however, that a Person shall not be an Associate of a trust by reason only of the fact that such Person serves as trustee or in a similar capacity in relation to such trust if such Person is duly licensed to carry on the business of a trust company under the laws of Canada or a province - 4 - thereof or if a substantial portion of the ordinary business of such Person is the management of investment funds for unaffiliated investors and such Person acts as trustee or in a similar capacity in relation to such trust in the ordinary course of such business; (d) subject to Section 1.6, a Person shall be deemed the "Beneficial Owner" of, and to have "Beneficial Ownership" of, and to "Beneficially Own": (i) any securities as to which such Person, or any of such Person's Affiliates or Associates, is the direct or indirect beneficial owner (including through being a beneficiary of a trust that owns such securities whether or not such Person's interest in the trust is present or future, vested or contingent) or would be deemed to be the beneficial owner pursuant to the provisions of the Securities Act (British Columbia) or pursuant to Rule 13-3 and 13d-5 under the 1934 Exchange Act (or pursuant to any comparable or successor laws or regulations) for the purposes of the insider trading or take-over bid provisions thereof or, if such provisions shall be rescinded and there shall be no comparable or successor laws or regulations, pursuant to the provisions of the Securities Act (British Columbia) or pursuant to Rule 13-3 and 13d-5 under the 1934 Exchange Act, as in effect on the date of this Agreement, whether or not such beneficial owner or deemed beneficial owner is the holder of record of such securities; (ii) any securities as to which such Person or any of such Person's Affiliates or Associates has, directly or indirectly: (1) the right to acquire (whether such right is exercisable immediately or after the lapse or passage of time or upon the occurrence of a contingency or otherwise) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and banking group or selling group members with respect to a bona fide public offering of securities and other than pledges of securities in the ordinary course of business) or upon the exercise of any conversion right, exchange right, share purchase right (other than a Right), warrant or option, or otherwise; or (2) the right to vote (whether such right is exercisable immediately or after the lapse or passage of time or upon the occurrence of a contingency or otherwise) pursuant to any agreement, arrangement or understanding, or otherwise; and - 5 - (iii) any securities that are Beneficially Owned, directly or indirectly, within the meaning of the foregoing provisions of this subsection 1.1(d) by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (whether or not in writing) with respect to or for the purpose of acquiring, holding, voting or disposing of any Voting Shares of the Corporation (other than customary agreements with and between underwriters and banking group or selling group members with respect to a bona fide public offering of securities) or acquiring, holding or disposition of property or assets of the Corporation or any Subsidiary of the Corporation that represent a significant portion of the properties and assets of the Corporation on a consolidated basis; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to have Beneficial Ownership of, or to Beneficially Own, any security: (iv) solely because such security has been deposited or tendered pursuant to any Take-over Bid made by such Person or made by any of such Person's Affiliates or Associates until such deposited security has been taken up or paid for, whichever shall occur first; (v) solely because such Person or any of such Person's Affiliates or Associates has or shares the right to vote or direct the voting of such security pursuant to a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Company Act (British Columbia), the Securities Act (British Columbia) or the 1934 Exchange Act, except if such power or the arrangements relating thereto) is then reportable under Item 6 of Schedule 13D under the 1934 Exchange Act (or any similar provision of a comparable or successor report); (vi) solely because such Person or any of such Person's Affiliates or Associates has or shares the power to vote or direct the voting of such security in connection with or in order to participate in a public proxy solicitation, made or to be made pursuant to and in accordance with the applicable rules and regulations referred to in clause above; or (vii) solely because such Person holds or exercises voting or disposition power over such security; provided that: (1) a substantial portion of the ordinary business of such Person (the "Investment Manager") is the management of - 6 - investment funds for others and such voting or disposition power over such security is held by the Investment Manager in the ordinary course of such business in the performance of such Investment Manager's duties for the fully managed account of any other Person who is not an Associate or Affiliate of the Investment Manager; or (2) such Person (the "Trust Company") is licensed to carry on the business of a trust company under the laws of Canada or any province thereof and, as such, acts as trustee or administrator or in a similar capacity in relation to the estates of deceased or incompetent Persons and holds such voting or disposition power over such security in the ordinary course of such duties for the estate of any such deceased or incompetent Person, where such estate or any beneficiary thereof is not an Associate or Affiliate of the Trust Company; provided, in either such case that: (3) the Voting Shares of the Corporation Beneficially Owned by the Investment Manager or the Trust Company, as the case may be, other than those in respect of which the exemption in this clause 1.1(d)(vii) applies, do not exceed 5% of the outstanding Voting Shares of the Corporation; and (4) the Investment Manager or the Trust Company, as the case may be, has not made and does not propose to make a Take-over Bid alone or by acting jointly or in concert with any other Person; (e) "Board of Directors" shall mean the board of directors of the Corporation or, if duly constituted and whenever duly empowered, the executive committee of the board of directors of the Corporation; (f) "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in Vancouver are authorized or obligated by law to close; (g) "Close of Business" on any given date shall mean the time on such date (or, if such date is not a Business Day, the time on the next succeeding Business Day) at which the offices of the transfer agent for the Common Shares (or, after the Separation Time, the offices of the Rights Agent) are closed to the public in the city in which such transfer agent or Rights Agent has an office for the purposes of this Agreement; - 7 - (h) "Common Shares" shall mean the Common Shares of the Corporation, and, when used with reference to any Person other than the Corporation, shall mean the class or classes of shares (or similar equity interest) with the greatest per share (or similar interest) voting power entitled to vote generally in the election of all directors of such other Person or the equity securities or other equity interest having power (whether or not exercised) to control or direct the management of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons that ultimately control such first-mentioned Person; (i) "Company Act (British Columbia)" shall mean the Company Act (British Columbia) R.S.B.C. 1996, c. 62, as amended, and the regulations thereunder, and any comparable or successor laws or regulations thereto; (j) "Disqualification Date" shall have the meaning assigned thereto in subclause 1.1(a)(iii); (k) "Dividends Paid in the Ordinary Course" shall mean cash dividends paid at regular intervals in any fiscal year of the Corporation to the extent that such cash dividends do not exceed, in the aggregate, the greatest of: (i) 200% of the aggregate amount of cash dividends declared payable by the Corporation on its Common Shares in its immediately preceding fiscal year; (ii) 300% of the arithmetic average of the aggregate amounts of cash dividends declared payable by the Corporation on its Common Shares in its three immediately preceding fiscal years; and (iii) 100% of the aggregate consolidated net income of the Corporation, before extraordinary items, for its immediately preceding fiscal year; (l) "Exempt Acquisition" shall have the meaning ascribed thereto in subclause 1.1(a)(ii)(3); (m) "Exercise Price" shall mean, as of any date, the price at which a holder of a Right may purchase the securities issuable upon exercise of such Right. Until adjustment thereof in accordance with the terms hereof, the Exercise Price for each Right shall be $100; (n) "Expiration Time" shall mean the earlier of: (i) the Termination Time; or (ii) the Close of Business on the 10th anniversary of the date hereof; - 8 - (o) "Flip-in Event" shall mean a transaction in or pursuant to which any Person shall become an Acquiring Person; (p) "Independent Shareholders" shall mean holders of Voting Shares of the Corporation other than: (i) any Acquiring Person; (ii) any Offeror; (iii) any Associate or Affiliate of any Offeror or Acquiring Person; (iv) any Person acting jointly or in concert with an Offeror, Acquiring Person or with any Associate or Affiliate of any Offeror or Acquiring Person; and (v) any Person holding Voting Shares which are Beneficially Owned by way of the Persons referred to in this clause 1.1(p); (q) "Market Price" per share of any securities on any date of determination shall mean the average of the daily closing prices per share of such securities (determined as described below) on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date; provided, however, that if an event of a type analogous to any of the events described in Section 3.2 shall have caused the closing price in respect of any Trading Day used to determine the Market Price not to be fully comparable with the closing price on such date of determination or, if the date of determination is not a Trading Day, on the immediately preceding Trading Day, each such closing price so used shall be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 3.2 in order to make it fully comparable with the closing price on such date of determination or, if the date of determination is not a Trading Day, on the immediately preceding Trading Day. The closing price per share of any securities on any date shall be: (i) the closing board lot sale price or, in case no such sale takes place on such date, the average of the closing bid and asked prices, for each share of such securities as reported by the principal stock exchange in Canada on which such securities are listed and posted for trading; (ii) if the securities are not listed and posted for trading on any stock exchange in Canada, the last sale price, regular way, or, in case no such sale takes place on such date, the average of the closing bid and asked prices, regular way, for each share of such securities - 9 - as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the principal national securities exchange in the United States on which such securities are listed or admitted to trading; (iii) if for any reason none of such prices is available on such day or the securities are not listed and posted for trading on a stock exchange in Canada or a national securities exchange in the United States, the last quoted price, or if not so quoted, the average of the high bid and low asked prices for each share of such securities in the over-the-counter market, as reported by the Canadian Over-The-Counter Automated Trading System or such other comparable system then in use; or (iv) if on any such date the securities are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securities selected in good faith by the Board of Directors; provided, however, that if on any such date the securities are not traded on any exchange or in the over-the-counter market, the closing price per share of such securities on such date shall mean the fair value per share of such securities on such date as determined in good faith by the Board of Directors, after consultation with a nationally or internationally recognized investment dealer or investment banker with respect to the fair value per share of such securities. The Market Price shall be expressed in Canadian dollars and if initially determined in respect of any day forming part of the 20 consecutive Trading Day period in question in the United States, such amount shall be translated to Canadian dollars at the then current exchange rate for the conversion of United States dollars, into Canadian dollars; (r) "1933 Securities Act" shall mean the Securities Act of 1933 of the United States, as amended and the rules and regulations thereunder, and any comparable or successor laws or regulations thereto; (s) "1934 Exchange Act" shall mean the Securities Exchange Act of 1934 of the United States, as amended, and the rules and regulations thereunder, and any comparable or successor laws or regulations thereto; (t) "Offer to Acquire" shall include: (i) an offer to purchase, or a solicitation of an offer to sell Votin Shares; and - 10 - (ii) an acceptance of an offer to sell Voting Shares, whether or not such offer to sell has been solicited, or any combination thereof, and the Person accepting an offer to sell shall be deemed to be making an Offer to Acquire to the Person that made the offer to sell; (u) "Offeror" shall mean a Person who has announced an intention to make or who has made a Take-over Bid; (v) "Offeror's Securities" shall mean Voting Shares Beneficially Owned on the date of an Offer to Acquire by any Person who makes a Take-over Bid or by any Person acting jointly or in concert with such Person; (w) "Permitted Bid" means a Take-over Bid made in compliance with, and not on a basis that is exempt from, the provisions of Part 13 of the Securities Act (British Columbia) and the regulations thereunder, and if applicable, Section 10, 13(d) and 14 of the 1934 Exchange Act and the regulations thereunder (or such comparable or successor laws or regulations or, if such provisions shall be repealed and there shall be no comparable or successor laws or regulations, Part 13 of the Securities Act (British Columbia) and the regulations thereunder as they read on the date of this Agreement) and in compliance with all other applicable laws (including the securities laws of all other relevant jurisdictions) and that also complies with the following additional provisions: (i) the Take-over Bid is made for all outstanding Voting Shares of a particular class and to all holders of record of Voting Shares wherever resident or registered on the books of the Corporation for all Voting Shares on identical terms; (ii) the Take-over Bid is made on terms and conditions that comply with all laws, regulations, rules, policy statements, cabinet directions or conditions of licence or franchise relating to a change of ownership or effective control of the Corporation or any Subsidiary of the Corporation or any undertaking carried on by the Corporation or any Subsidiary of the Corporation, and all other applicable laws, and that do not and will not, upon the consummation of the bid, result in the Corporation or any Subsidiary of the Corporation being in default under, or in contravention of, any such laws, regulations, rules, policy statements, cabinet directions, conditions of licence or franchise or any other applicable laws; (iii) the Person making the Take-over Bid: - 11 - (1) together with its Affiliates and Associates and any Person acting jointly or in concert with such Person or with its Affiliates and Associates does not, either at the start of such Take-over Bid or while it is outstanding, Beneficially Own more than 5% of the Voting Shares of the Corporation; or (2) is a Person described in subsection 1.9(b), and in either case undertakes that none of such Person, any Affiliate or Associate of such Person or any Person acting jointly or in concert with such Person or with its Affiliates or Associates will acquire any Voting Shares of the Corporation while such Take-over Bid is outstanding; (iv) the Take-over Bid contains, and the take-up and payment for securities tendered or deposited is subject to, an irrevocable and unqualified provision that no Voting Shares of the particular class that is subject to the Take-over Bid will be taken up or paid for pursuant to the Take-over Bid prior to the Close of Business on the date which is not less than 60 days following the date of the Take-over Bid and only if at such date more than 50% of the Voting Shares held by Independent Shareholders shall have been deposited or tendered pursuant to the Take-over Bid and not withdrawn; (v) the Take-over Bid contains an irrevocable and unqualified provision that Voting Shares may be deposited pursuant to such Take-over Bid at any time during the period of time described in clause 1.1(w)(iv) and that any Voting Shares deposited pursuant to the Take-over Bid may be withdrawn until taken up and paid for; (vi) the Take-over Bid contains an irrevocable and unqualified provision that in the event that the condition set forth in clause is satisfied the Offeror will make a public announcement of that fact and the Take-over Bid will remain open for deposits and tenders of Voting Shares for not less than ten Business Days from the date of such public announcement; and (vii) the Offeror shall provide the Rights Agent, within two Business Days of the announcement of the Take-over Bid, with a list of all securities of the Corporation Beneficially Owned by each of the Offeror and such Offeror's Associates and Affiliates and any Person acting jointly or in concert with the Offeror or any of the Offeror's Associates and Affiliates, together with the particulars of the registration of all such securities, and an undertaking to update - 12 - such list on a daily basis to reflect any changes occurring or to occur in such Beneficial Ownership prior to the termination or expiration of the Take-over Bid, and the Offeror shall perform its obligation under such undertaking; provided always that a Permitted Bid shall cease to be a Permitted Bid at the time when such bid ceases to meet any of the provisions of subsection 1.1(w), and any acquisitions of Voting Shares of any class theretofore made, shall cease to be a Permitted Bid Acquisition; (x) "Permitted Bid Acquisitions" shall have the meaning ascribed thereto in subclause 1.1(a)(ii)(2); (y) "Person" shall include any individual, firm, partnership, association, trust, trustee, executor, administrator, legal personal representative, group, body corporate, corporation, unincorporated organization, syndicate or other entity; (z) "Pro Rata Acquisition" shall mean the acquisition of Voting Shares of the Corporation as a result of a stock dividend, a stock split or other event pursuant to which a Person receives or acquires Voting Shares of the Corporation on the same pro rata basis as all other holders of Voting Shares of the Corporation, or pursuant to any regular dividend reinvestment plan or other plan made available by the Corporation to all holders of the same class of Voting Shares, which plan permits the holder to direct that dividends paid in respect of such Voting Shares of the Corporation be applied to the purchase from the Corporation of further securities of the Corporation; (aa) "Record Time" shall have the meaning ascribed thereto in the recitals to this Agreement; (ab) "Right" shall mean the herein described right to purchase securities pursuant to the terms and subject to the conditions set forth herein; (ac) "Rights Certificates" shall mean the certificates representing the Rights after the Separation Time, which shall be in the form attached hereto as Exhibit A; (ad) "Securities Act (British Columbia)" shall mean the Securities Act, R.S.B.C 1996, c. 418, as amended, and the regulations thereunder, and any comparable or successor laws or regulations thereto; (ae) "Separation Time" shall mean, subject to subsection 6.1(c), the Close of Business on the eighth Trading Day after the earlier of: - 13 - (i) the Stock Acquisition Date; and (ii) the date of the commencement of, or first public announcement (provided such announcement is made after the Record Time) of the intent of any Person (other than the Corporation or any Subsidiary of the Corporation) to commence, a Take-over Bid (other than a Permitted Bid), or such later time as may be determined by the Board of Directors; provided that, if the foregoing results in the Separation Time being prior to the Record Time, the Separation Time shall be the Record Time and provided further that, if any Take-over Bid referred to in clause 1.1(ae)(ii) of this subsection expires, or is cancelled, terminated or otherwise withdrawn prior to the Separation Time, such Take-over Bid shall be deemed, for the purposes of this subsection 1.1(ae), never to have been made; (af) "Shares" shall mean shares in the capital of the Corporation; (ag) "Stock Acquisition Date" shall mean the date of the first public announcement (which, for purposes of this definition, shall include, without limitation, the filing of a report pursuant to Section 111 of the Securities Act (British Columbia) or Section 13(d) under the 1934 Exchange Act) by the Corporation or an Acquiring Person of facts indicating that a Person has become an Acquiring Person; (ah) "Subsidiary" of a Person shall mean any corporation or organization of which a majority of the voting power of the equity securities or a majority of the equity interest is Beneficially Owned, directly or indirectly, by such Person; (ai) "Take-over Bid" shall mean an Offer to Acquire Voting Shares of the Corporation or securities convertible into Voting Shares, where the Voting Shares subject to the Offer to Acquire, together with the Voting Shares into which the securities subject to the Offer to Acquire are convertible, and the Offeror's securities constitute in the aggregate 20% or more of the Voting Shares of the Corporation then outstanding; (aj) "Termination Time" shall mean the time at which the right to exercise Rights shall terminate pursuant to subsection 4.2(b) or subsection 6.1(e); (ak) "Trading Day", when used with respect to any securities, shall mean a day on which the principal Canadian securities exchange on which such securities are listed or admitted to trading is open for the transaction of business or, if the securities are not listed or admitted to trading on any Canadian securities exchange, a Business Day; and - 14 - (al) "Voting Share", when used with reference to the Corporation, shall mean any share in the capital of the Corporation to which is attached a right to vote for the election of all directors, generally, and when used with reference to any Person other than the Corporation, shall mean a Common Share of such Person and any other share of capital stock or voting interests of such Person entitled to vote generally in the election of all directors. 1.2 CONTINUATION TO ANOTHER JURISDICTION If the Corporation is continued under the laws of another jurisdiction, all references herein to provisions of the Company Act (British Columbia) shall be deemed to refer to comparable provisions of the corporate laws of that other jurisdiction to which the Corporation shall then be subject, and the regulations thereunder, and any successor laws or regulations thereto; provided that if there are no comparable provisions under the corporate laws of the other jurisdiction, or the regulations thereunder, or under the successor laws or regulations thereto, such references shall continue to be to the relevant provisions of the Company Act (British Columbia). 1.3 CURRENCY All sums of money that are referred to in this Agreement are expressed in lawful money of Canada, unless otherwise specified. 1.4 DESCRIPTION HEADINGS Descriptive headings appear herein for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 1.5 REFERENCES TO AGREEMENT References to "this Agreement", "hereto", "herein", "hereby", "hereunder", "hereof" and similar expressions refer to this Agreement and not to any particular Article, section, subsection, clause, subclause, subdivision or other portion hereof and include any and every instrument supplemental or ancillary hereto. 1.6 NUMBER AND GENDER Wherever the context so requires, terms used herein importing the singular number only shall include the plural and vice versa and words importing any one gender shall include all others. 1.7 ACTING IN GOOD FAITH For the purposes of this Agreement, when any determination or decision is made by the Board of Directors pursuant to this Agreement, the Board of Directors shall exercise its - 15 - power and discharge its duties honestly and in good faith with a view to the best interests of the Corporation and each director shall exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. 1.8 HOLDER As used in this Agreement, unless the context otherwise requires, the term "holder" when used with reference to Rights, means the registered holder of such Rights or, prior to the Separation Time, the Shares with which such Rights are associated. 1.9 GRANDFATHER PROVISION (a) For the purposes of determining whether a Person is an Acquiring Person and interpreting the definition of Acquiring Person, a Person shall not be and shall not be deemed to be an Acquiring Person if such Person (a "Grandfathered Person"): (i) is the Beneficial Owner of 20% or more of the outstanding Voting Shares of the Corporation determined as at the Record Time; or (ii) becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares of the Corporation after the Record Time and such Person's Beneficial ownership of Voting Shares of the Corporation does not exceed the number of Voting Shares of the Corporation Beneficially Owned by such Person immediately prior to the Record Time by more than 2% of the then issued and outstanding Voting Shares of the Corporation; provided, however, that this exception shall not be, and shall cease to be, applicable to a Grandfathered Person in the event that a Grandfathered Person shall, after the Record Time, become the Beneficial Owner of additional Voting Shares of the Corporation constituting more than 2% of the Voting Shares of the Corporation then outstanding other than pursuant to Permitted Bid Acquisitions or through Exempt Acquisitions or Pro Rata Acquisitions; provided further, however, that such Grandfathered Person shall not become an Acquiring Person as a result of an acquisition or redemption of Voting Shares of the Corporation by the Corporation or a Subsidiary of the Corporation; and provided further that, in the event that this exception shall cease to be applicable to a Grandfathered Person as aforesaid, such a Grandfathered Person shall be and shall be deemed to be an Acquiring Person as at and from the time that this exception shall not be so applicable. (b) For the purposes of determining whether a Person is entitled to make a Permitted Bid, a Person shall not be restricted from making a Permitted Bid under clause 1.1(9w)(iii) if such Person is, at the Record Time, the Beneficial Owner of more than 5% of the outstanding Voting Shares of the Corporation; provided, however, that this exception shall not be, and shall - 16 - cease to be, applicable to any such Person in the event that such Person shall become, after the Record Time: (i) the Beneficial Owner of an additional 2% or more of the Voting Shares of the Corporation other than through Permitted Bid Acquisitions, Exempt Acquisitions or Pro Rata Acquisitions; or (ii) an Acquiring Person. 1.10 CALCULATION OF NUMBER AND PERCENTAGE OF BENEFICIAL OWNERSHIP OF OUTSTANDING VOTING SHARES For the purposes of this Agreement, in determining the percentage of the outstanding Voting Shares of the Corporation with respect to which a Person is or is deemed to be the Beneficial Owner, all Voting Shares of the Corporation as to which such Person is deemed the Beneficial Owner shall be deemed to be outstanding. The percentage of outstanding Voting Shares Beneficially Owned by any Person shall, for the purpose of this Agreement, be and be deemed to be the product determined by the formula: A 100 x - B where: A = the number of votes for the election of all directors generally attaching to the outstanding Voting Shares Beneficially Owned by such Person; and B = the number of votes for the election of all directors generally attaching to all outstanding Voting Shares. Where any Person is deemed to Beneficially Own unissued Voting Shares, such Voting Shares shall be deemed to be outstanding for the purpose of calculating the percentage of Voting Shares Beneficially Owned by such Person. ARTICLE 2 THE RIGHTS 2.1 LEGEND ON CERTIFICATES Certificates for Common Shares issued after the Record Time but prior to the earlier of the Separation Time and the Expiration Time shall evidence one Right for each Common Share represented thereby and, at the option of the Board of Directors, may have impressed on, printed on, written on or otherwise affixed to them the following legend: - 17 - Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Shareholder Protection Rights Plan Agreement, dated as of the 18th day of December, 1996, (the "Rights Agreement"), between Solucorp Industries Ltd. (the "Corporation") and CIBC Mellon Trust Company, as Rights Agent, the terms of which are hereby incorporated herein by reference and a copy of which may be inspected during normal business hours at the registered office of the Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be amended, redeemed, terminated, may expire, may become void (if, in certain cases, they are "Beneficially Owned" by an "Acquiring Person", as such terms are defined in the Rights Agreement, whether currently held by or on behalf of such Person or any subsequent holder) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Corporation will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge as soon as is practicable after the receipt of a written request therefor. Certificates representing Common Shares that are issued and outstanding at and after the Record Time shall evidence one Right for each Common Share evidenced thereby, notwithstanding the absence of the foregoing legend until the earlier of the Separation Time and the Expiration Time. 2.2 EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF RIGHTS CERTIFICATES (a) The Rights Certificates shall be executed on behalf of the Corporation by any of the Chairman of the Board, the President or any Vice-President (including any Senior Vice-President), together with any other of such persons or together with any one of the Secretary, the Treasurer, any Assistant Secretary or any Assistant Treasurer, under the corporate seal of the Corporation or otherwise. The signature of any of the officers of the Corporation on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Corporation shall bind the Corporation, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the countersignature and delivery of such Rights Certificates. (b) Promptly after the Corporation learns of the Separation Time, the Corporation will notify the Rights Agent of such Separation Time and will deliver Rights Certificates executed by the Corporation to the Rights Agent for countersignature, and the Rights Agent shall manually countersign and deliver such Rights Certificates to the holders of the Rights pursuant to subsection 3.1(d). No Rights Certificate shall be valid for any purpose until countersigned by the Rights Agent as aforesaid. - 18 - (c) Each Rights Certificate shall be dated the date of the countersignature thereof. 2.3 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE (a) The Corporation will cause to be kept a register (the "Rights Register") in which, subject to such reasonable regulations as it may prescribe, the Corporation will provide for the registration and transfer of Rights. The Rights Agent is hereby appointed the "Rights Registrar" for the purpose of maintaining the Rights Register for the Corporation and registering Rights and transfers of Rights as herein provided. In the event that the Rights Agent shall cease to be the Rights Registrar, the Rights Agent will have the right to examine the Rights Register at all reasonable times. After the Separation Time and prior to the Expiration Time, upon surrender for registration of transfer or exchange of any Rights Certificate, and subject to the provisions of subsection (c) of this Section 2.3, the Corporation will execute, and the Rights Agent will manually countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder's instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificates so surrendered. (b) All Rights issued upon any registration of transfer or exchange of Rights Certificates shall be valid obligations of the Corporation, and such Rights shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or exchange. (c) Every Rights Certificate surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Corporation or the Rights Agent, as the case may be, duly executed by the holder thereof or such holder's attorney duly authorized in writing. As a condition to the issuance of any new Rights Certificate under this Section 2.3, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) in connection therewith. 2.4 MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES (a) If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, the Corporation shall execute and the Rights Agent shall manually countersign and deliver in exchange therefor a new Rights Certificate evidencing the same number of Rights as the Rights Certificate so surrendered. (b) If there shall be delivered to the Corporation and the Rights Agent prior to the Expiration Time: (i) evidence to their satisfaction of the destruction, loss or theft of any Rights Certificate; and - 19 - (ii) such security or indemnity as may be required by them to save each of them and any of their agents harmless, then, in the absence of notice to the Corporation or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Corporation shall execute and upon its request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen. (c) As a condition to the issuance of any new Rights Certificate under this Section 2.4, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) in connection therewith. (d) Every new Rights Certificate issued pursuant to this Section 2.4 in lieu of any destroyed, lost or stolen Rights Certificate shall evidence the contractual obligation of the Corporation, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Rights duly issued by the Corporation. 2.5 PERSONS DEEMED OWNERS OF RIGHTS Prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Share certificate) for registration of transfer, the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the Person in whose name such Rights Certificate (or, prior to the Separation Time, the associated Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever. As used in this Agreement, unless the context otherwise requires, the term "holder" of any Rights shall mean the registered holder of such Rights (or, prior to the Separation Time, the associated Shares). 2.6 DELIVERY AND CANCELLATION OF CERTIFICATES All Rights Certificates surrendered upon exercise or for redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Corporation may at any time deliver to the Rights Agent for cancellation any Rights Certificates previously countersigned and delivered hereunder that the Corporation may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificate shall be countersigned in lieu of or in exchange for any Rights Certificates cancelled as provided in this Section 2.6, except as expressly permitted by this Agreement. The Rights Agent shall destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Corporation. - 20 - 2.7 AGREEMENT OF RIGHTS HOLDERS Every holder of Rights, by accepting the same, consents and agrees with the Corporation and the Rights Agent and with every other holder of Rights: (a) to be bound by and subject to the provisions of this Agreement, as amended from time to time in accordance with the terms hereof, in respect of the Rights held; (b) that prior to the Separation Time, each Right will be transferable only together with, and will be transferred by a transfer of, the Share representing such Right; (c) that after the Separation Time, the Rights Certificates will be transferable only upon registration of the transfer on the Rights Register as provided herein; (d) that prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Share certificate) for registration of transfer, the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the Person in whose name the Rights Certificate (or, prior to the Separation Time, the associated Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on such Rights Certificate or the associated Share certificate made by anyone other than the Corporation or the Rights Agent) for all purposes whatsoever, and neither the Corporation nor the Rights Agent shall be affected by any notice to the contrary; (e) that such holder of Rights have waived his right to receive any fractional Right or any fractional Shares upon exercise of a Right (except as provided herein); and (f) that without the approval of any holder of Rights and upon the sole authority of the Board of Directors acting in good faith, this Agreement may be supplemented or amended from time to time pursuant to and as provided herein. 2.8 RIGHTS CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER No holder, as such, of any Right or Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose whatsoever the holder of any Share that may at any time be issuable on the exercise of such Rights, nor shall anything contained herein or in any Rights Certificate be construed or deemed to confer upon the holder of any Right or Rights Certificate, as such, any of the rights, titles, benefits or privileges of a shareholder of the Corporation or any right to vote at any meeting of shareholders of the Corporation whether for - 21 - the election of directors or otherwise or upon any matter submitted to holders of any Shares at any meeting thereof, or to give or withhold consent to any action of the Corporation, or to receive notice of any meeting or other action affecting any shareholder of the Corporation except as expressly provided herein, or to receive dividends, distributions or subscription rights, or otherwise, until the Right or Rights evidenced by any Rights Certificate shall have been duly exercised in accordance with the terms and provisions hereof. ARTICLE 3 EXERCISE OF THE RIGHTS 3.1 INITIAL EXERCISE PRICE; EXERCISE OF RIGHTS; DETACHMENT OF RIGHTS (a) Subject to adjustment as herein set forth, from and after the Separation Time and prior to the Expiration Time, each Right will entitle the holder thereof to purchase one Common Share for the Exercise Price (which Exercise Price and number of Shares are subject to adjustment as set forth below). (b) Until the Separation Time: (i) the Rights shall not be exercisable and no Right may be exercised; and (ii) for administrative purposes, each Right will be evidenced by the certificate for the associated Share and will be transferable only together with, and will be transferred by a transfer of, such associated Share. (c) From and after the Separation Time and prior to the Expiration Time: (i) the Rights shall be exercisable; and (ii) the registration and transfer of the Rights shall be separate from and independent of Common Shares. (d) Promptly following the Separation Time, the Rights Agent will mail to each holder of record of Common Shares as of the Separation Time (other than an Acquiring Person and other than, in respect of any Rights Beneficially Owned by such Acquiring Person that are not held of record by such Acquiring Person, the holder of Record of such Rights (a "Nominee")), at such holder's address as shown by the records of the Corporation (and the Corporation hereby agrees to furnish copies of such records to the Rights Agent for this purpose): (i) Rights Certificates representing the number of Rights held by such holder at the Separation Time in substantially the form of Exhibit A hereto, appropriately completed and having such marks of identification or designation and such legends, summaries or - 22 - endorsements printed thereon as the Corporation may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law, rule, regulation or judicial or administrative order or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or quotation system on which the Rights may from time to time be listed or traded, or to conform to usage; and (ii) a disclosure statement describing the Rights; provided that a Nominee shall be sent the materials provided for in subclauses 3.1(d)(i) and 3.1(d)(ii) only in respect of all Common Shares held of record by it that are not Beneficially Owned by an Acquiring Person. (e) Rights may be exercised in whole or in part on any Business Day after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent the Rights Certificate evidencing such Rights together with: (i) the Rights Certificate evidencing such Rights; (ii) an election to exercise such Rights (an "Election to Exercise") substantially in the form attached to the Rights Certificate duly completed and executed by the holder or his executors or administrators or other personal representatives or his or their legal attorney duly appointed by an instrument in writing in form and executed in a manner satisfactory to the Rights Agent; (iii) payment in cash, or by certified cheque, banker's draft or money order payable to the order of the Corporation, of a sum equal to the applicable Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any transfer tax or charge that may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for the relevant Shares in a name other than that of the holder of the Rights being exercised. (f) Upon receipt of the Rights Certificate that is accompanied by: (i) a completed Election to Exercise that does not indicate that such Right is null and void as provided by subsection 4.1(b); and (ii) payment as set forth in subsection 3.1(e), the Rights Agent (unless otherwise instructed by the Corporation) will thereupon promptly: - 23 - (iii) requisition from a transfer agent for the relevant Shares, certificates representing the number of such Shares to be purchased (the Corporation hereby irrevocably authorizing its transfer agents to comply with all such requisitions); (iv) when appropriate, requisition from the Corporation the amount of cash to be paid in lieu of issuing fractional Shares; (v) after receipt of such certificate, deliver the same to or to the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder; and (vi) when appropriate, after receipt, deliver such cash to or to the order of the registered holder of the Rights Certificate. (g) In case the holder of any Rights shall exercise less than all the Rights evidenced by such holder's Rights Certificate, a new Rights Certificate evidencing the Rights remaining unexercised will be issued by the Rights Agent to such holder or to such holder's duly authorized assigns. (h) The Corporation covenants and agrees that it will: (i) take all such action as may be necessary and within its power to ensure that all Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates representing such Shares (subject to payment of the Exercise Price), be duly and validly authorized, issued and delivered as fully paid and non-assessable; (ii) take all such action as may be necessary and within its power to comply with any applicable requirements of the Securities Act (British Columbia) or comparable legislation of each of the other provinces of Canada and the 1933 Securities Act or the 1934 Exchange Act, and the rules and regulations thereunder or any other applicable law, rule or regulation, in connection with the issuance and delivery of the Rights Certificates and the issuance of any Shares upon exercise of Rights; (iii) use reasonable efforts to cause all Shares issued upon exercise of Rights to be listed on the principal exchanges on which the Shares of such class or series were traded prior to the Stock Acquisition Date; (iv) cause to be reserved and kept available out of its authorized and unissued Shares, the number of Shares that, as provided in this Agreement, will from time to time be sufficient to permit the exercise in full of all outstanding Rights; and - 24 - (v) pay when due and payable any and all federal and provincial transfer taxes (for greater certainty, not including any income taxes of the holder or exercising holder or any liability of the Corporation to withhold tax) that may be payable in respect of the original issuance or delivery of the Rights Certificates, provided that the Corporation shall not be required to pay any transfer tax or charge that may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for Shares in a name other than that of the holder of the Rights being transferred or exercised. 3.2 ADJUSTMENTS TO EXERCISE PRICES; NUMBER OF RIGHTS The Exercise Price, the number and kind of Shares subject to purchase upon the exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 3.2. (a) In the event the Corporation shall at any time after the Record Time and prior to the Expiration Time: (i) declare or pay a dividend on the Common Shares payable in Common Shares (or other securities exchangeable for or convertible into or giving a right to acquire Common Shares) other than pursuant to any optional stock dividend program, (ii) subdivide or change the outstanding Common Shares into a greater number of Common Shares, (iii) combine or change the outstanding Common Shares into a smaller number of Common Shares, or (iv) issue any Common Shares (or other securities exchangeable for or convertible into or giving a right to acquire Common Shares) in respect of, in lieu of or in exchange for existing Common Shares, except as otherwise provided in this Section 3.2, the Exercise Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or other change, and the number and kind of Shares or other securities, as the case may be, issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the applicable Exercise Price then in effect, the aggregate number and kind of Shares or other securities, as the case may be, that, if such Right had been exercised immediately prior to such date and at a time when the Share transfer books of the Corporation were open, he would have been entitled to receive by virtue of such dividend, - 25 - subdivision, combination or reclassification. If an event occurs that would require an adjustment under both this Section 3.2 and Section 4.1, the adjustment provided for in this Section 3.2 shall be in addition to, and shall be made prior to, any adjustment required pursuant to this Section 4.1. (b) In case the Corporation shall at any time after the Record Time and prior to the Expiration Time fix a record date for the issuance of rights, options or warrants to all holders of Common Shares entitling them to subscribe for or purchase (for a period expiring within 45 calendar days after such record date) Common Shares (or shares having the same rights, privileges and preferences as Common Shares ("Equivalent Common Shares")) or securities convertible into Common Shares or Equivalent Common Shares at a price per Common Share or per Equivalent Common Share (or having a conversion price per share, if a security convertible into Common Shares or Equivalent Common Shares) less than the Market Price per Common Share on such record date, the Exercise Price in respect of the Rights to be in effect after such record date shall be determined by multiplying the Exercise Price in respect of the Rights in effect immediately prior to such record date by a fraction: (i) the numerator of which shall be the number of Common Shares outstanding on such record date, plus the number of Common Shares that the aggregate offering price of the total number of Common Shares (and/or Equivalent Common Shares) so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Market Price per Common Share; and (ii) the denominator of which shall be the number of Common Shares outstanding on such record date, plus the number of additional Common Shares and/or Equivalent Common Shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration, part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Such adjustment shall be made successively whenever such a record date is fixed and, in the event that such rights or warrants are not so issued, the Exercise Price in respect of the Rights shall be adjusted to be the Exercise Price that would then be in effect if such record date had not been fixed. - 26 - (c) In case the Corporation shall at any time after the Record Time and prior to the Expiration Time fix a record date for a distribution to all holders of Common Shares (including any such distribution made in connection with a merger in which the Corporation is the continuing corporation) of evidences of indebtedness, cash (other than a dividend paid in the ordinary course or a dividend paid in Common Shares, but including any dividend payable in securities other than Common Shares), assets or subscription rights or warrants (excluding those referred to in subsection 3.2(b)), the Exercise Price in respect of the Rights to be in effect after such record date shall be determined by multiplying the Exercise Price in respect of the Rights in effect immediately prior to such record date by a fraction: (i) the numerator of which shall be the Market Price per Common Share on such record date, less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights) on a per share basis, of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to the Common Share; and (ii) the denominator of which shall be such Market Price per Common Share. Such adjustments shall be made successively whenever such a record date is fixed and, in the event that such distribution is not so made, the Exercise Price in respect of the Rights shall be adjusted to be the Exercise Price in respect of the Rights that would have been in effect if such record date had not been fixed. (d) Notwithstanding anything herein to the contrary, no adjustment in an Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such Exercise Price; provided, however, that any adjustments that by reason of this subsection 3.2(d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 3.2 shall be made to the nearest cent or to the nearest ten-thousandth of a Share. Notwithstanding the first sentence of this subsection 3.2(d), any adjustment required by this Section 3.2 shall be made no later than the earlier of: (i) three years from the date of the transaction that mandates such adjustment; or (ii) the Termination Time. - 27 - (e) If, as a result of an adjustment made pursuant to Section 4.1, the holder of any Right thereafter exercised shall become entitled to receive any shares other than Common Shares, thereafter the number of such other shares so receivable upon exercise of any Right and the applicable Exercise Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as is practicable to the provisions with respect to the Common Shares contained in subsections 3.2(a), 3.2(b), 3.2(c), 3.2(d), 3.2(e), 3.2(f), 3.2(g), and 3.2(h), and the provisions of this Agreement with respect to the Common Shares shall apply on like terms to any such other shares. (f) All Rights originally issued by the Corporation subsequent to any adjustment made to an Exercise Price hereunder shall evidence the right to purchase, at the adjusted Exercise Price, the respective number of Common Shares, as the case may be, purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustments as provided herein. (g) Unless the Corporation shall have exercised its election as provided in subsection 3.2(h), upon each adjustment of an Exercise Price as a result of the calculations made in subsections 3.2(b) and 3.2(c, each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of Common Shares (calculated to the nearest one ten-thousandth), obtained by: (i) multiplying: (1) the number of such Shares covered by a Right immediately prior to this adjustment; by (2) the relevant Exercise Price in effect immediately prior to such adjustment of the relevant Exercise Price; and (ii) dividing the product so obtained by the relevant Exercise Price in effect immediately after such adjustment of the relevant Exercise Price. (h) The Corporation may elect on or after the date of any adjustment of an Exercise Price to adjust the number of Rights, in lieu of any adjustment in the number of Shares purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number and kind of Shares for which such a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one - 28 - ten-thousandth) obtained by dividing the relevant Exercise Price in effect immediately prior to adjustment of the relevant Exercise Price by the relevant Exercise Price in effect immediately after adjustment of the relevant Exercise Price. The Corporation shall make a public announcement of its election to adjust the number of Rights, including the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the relevant Exercise Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this subsection 3.2(h), the Corporation shall, as promptly as is practicable, cause to be distributed to holders of record of Rights Certificates on such record date, Rights Certificates evidencing, subject to Section 6.5, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Corporation, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Corporation, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates to be so distributed shall be issued, executed and countersigned in the manner provided for herein and may bear, at the option of the Corporation, the relevant adjusted Exercise Price and shall be registered in the names of holders of record of Rights Certificates on the record date specified in the public announcement. (i) Irrespective of any adjustment or change in an Exercise Price or the number of Shares issuable upon the exercise of the Rights, the rights Certificates theretofore and thereafter issued may continue to express the relevant Exercise Price per Share and the number of Shares that were expressed in the initial Rights Certificates issued hereunder. (j) In any case in which this Section 3.2 shall require that an adjustment in an Exercise Price be made effective as of a record date for a specified event, the Corporation may elect to defer, until the occurrence of such event, the issuance to the holder of any Right exercised after such record date of the number of Shares and other securities of the Corporation, if any, issuable upon such exercise over and above the number of Shares and other securities of the Corporation, if any, issuable upon such exercise on the basis of the relevant Exercise Price in effect prior to such adjustment; provided, however, that the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional Shares (fractional or otherwise) or other securities upon the occurrence of the event requiring such adjustment. - 29 - (k) Notwithstanding anything in this Section 3.2 to the contrary, the Corporation shall be entitled to make such reductions in each Exercise Price, in addition to those adjustments expressly required by this Section 3.2, as and to the extent that in their good faith judgment the Board of Directors shall determine to be advisable in order that any: (i) consolidation or subdivision of Shares; (ii) issuance wholly for cash of any Shares at less than the applicable Market Price; (iii) issuance wholly for cash of any Common Shares or securities that by their terms are convertible into or exchangeable for Shares; (iv) stock dividends; or (v) issuance of rights, options or warrants referred to in this Section 3.2, hereafter made by the Corporation to holders of its Shares, shall not be taxable to such shareholders. (l) The Corporation covenants and agrees that, after the Separation Time, it will not, except as permitted by Section 6.1 or 6.7, take (or permit any Subsidiary of the Corporation to take) any action, if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. 3.3 DATE ON WHICH EXERCISE IS EFFECTIVE Each Person in whose name any certificate for Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Shares represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered (together with a duly completed Election to Exercise) and payment of the relevant Exercise Price for such Rights (and any applicable transfer taxes and other governmental charges payable by the exercising holder hereunder) was made; provided, however, that if the date of such surrender and payment is a date upon which the relevant Share transfer books of the Corporation are closed, such Person shall be deemed to have become the holder of record of such Shares on, and such certificate shall be dated, the next succeeding Business Day on which the relevant Share transfer books of the Corporation are open. - 30 - ARTICLE 4 ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS 4.1 FLIP-IN EVENT (a) Subject to subsection 4.1(b), Section 4.2, subsections 6.1(b) and 6.1(c), in the event that prior to the Expiration Time a Flip-in Event shall occur, each Right shall constitute, effective on and after the Stock Acquisition Date, the right to purchase from the Corporation, upon payment of the relevant Exercise Price and otherwise exercising such Right in accordance with the terms hereof, that number of Common Shares having an aggregate Market Price on the date of consummation or occurrence of such Flip-in Event equal to twice the relevant Exercise Price for an amount in cash equal to the relevant Exercise Price (such right to be appropriately adjusted in a manner analogous to the applicable adjustments provided for in Section 3.2 upon each occurrence after the Stock Acquisition Date of any event analogous to any of the events described in Section 3.2). (b) Notwithstanding anything in this Agreement to the contrary, upon the occurrence of any Flip-in Event, any Rights that are Beneficially Owned by: (i) an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of an Acquiring Person), or (ii) a transferee or other successor in title directly or indirectly (a "Transferee") of Rights held by an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of an Acquiring Person) who becomes a Transferee concurrently with or subsequent to the Acquiring Person becoming an Acquiring Person, shall become null and void without any further action, and any holder of such Rights (including any Transferee) shall not have any right whatsoever to exercise such Rights under any provision of this Agreement and shall not have thereafter any other rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. (c) In the event that there shall not be sufficient Shares authorized for issuance to permit the exercise in full of the rights in accordance with this Section 4.1, the Corporation shall take all such action as may be necessary to authorize additional Shares for issuance upon the exercise of the Rights. (d) Any Rights Certificate that represents Rights Beneficially Owned by a Person described in either paragraphs 4.1(b)(i) or 4.1(b)(ii) of subsection 4.1(b) or transferred to any nominee of any such Person, and any Rights Certificate issued upon transfer, exchange, - 31 - replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain the following legend: "The Rights represented by this Rights Certificate were issued to a Person who was an Acquiring Person or an Affiliate or an Associate of an Acquiring Person or a Transferee (as such terms are defined in the Rights Agreement) or acting jointly or in concert with any of them. This Rights Certificate and the Rights represented hereby shall become void in the circumstances specified in subsection 4.1(b) of the Rights Agreement" provided that the Rights Agent shall not be under any responsibility to ascertain the existence of facts that would require the imposition of such legend but shall be required to impose such legend only if instructed to do so by the Corporation or if a holder fails to certify upon transfer or exchange in the space provided on the Rights Certificate that such holder is not an Acquiring Person or an Affiliate or Associate thereof or acting jointly or in concert with any of them. (e) From and after the Separation Time, the Corporation shall do all such acts and things as shall be necessary and within its power to ensure compliance with the provisions of this Section 4.1, including without limitation, all such acts and things as may be required to satisfy the requirements of the Securities Act (British Columbia) or comparable legislation in each of the other provinces of Canada and the 1933 Securities Act or the 1934 Exchange Act, and the rules and regulations thereunder in respect of the issue of Shares upon the exercise of Rights in accordance with this Agreement. 4.2 EXCHANGE OPTION (a) In the event that the Board of Directors, acting in good faith, shall determine that conditions exist that would eliminate or otherwise materially diminish in any respect the benefits intended to be afforded to the holders of Rights pursuant to this Agreement, the Board of Directors may, at its option and without seeking the approval of holders of Shares or Rights, at any time after a Flip-in Event has occurred, authorize the Corporation to issue or deliver in respect of each Right that is not void pursuant to subsection 4.1(b), either: (i) in return for the applicable Exercise Price and the Right, debt or equity securities or assets (or a combination thereof) having a value equal to twice the applicable Exercise Price; or (ii) in return for the Right, subject to any amounts that may be required to be paid under applicable law, debt or equity securities or assets (or a combination thereof) having a value equal to the value of the Right, in full and final settlement of all rights attaching to the Rights, where in either case the value of such debt or equity securities or other assets (or a combination thereof) and, in the case of clause , the value of the Right, shall be determined by the Board of Directors, which - 32 - may rely upon the advice of a nationally or internationally recognized firm of investment dealers or investment bankers selected by the Board of Directors. (b) If the Board of Directors authorizes the exchange of debt or equity securities or assets for Rights pursuant to subsection 4.2(a), the right to exercise the Rights will terminate without any further action or notice and the only right thereafter of a holder of Rights shall be to receive the debt or equity securities or assets in accordance with the exchange formula authorized by the Board of Directors. Within 10 Business Days after the Board of Directors has authorized the exchange of debt or equity securities or assets for Rights pursuant to subsection 4.2(a), the Corporation shall give notice of exchange to the holders of such Rights by mailing such notice to all such holders at their last addresses as they appear upon the register of Rights holders maintained by the Rights Agent. Each such notice of exchange will state the method by which the exchange of debt or equity securities or assets for Rights will be effected. ARTICLE 5 THE RIGHTS AGENT 5.1 GENERAL (a) The Corporation hereby appoints the Rights Agent to act as agent for the Corporation and the holders of Rights in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Corporation may from time to time appoint one or more Co-Rights Agents as it may deem necessary or desirable. In the event the Corporation appoints one or more Co-Rights Agents, the respective duties of the Rights Agents and Co-Rights Agents shall be as the Corporation may determine. The Corporation also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability or expense, incurred without negligence, bad faith or wilful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expense of defending against any claim of liability, which right to indemnification will survive the termination of this Agreement. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any certificate for Shares, Rights Certificate, certificate for other securities of the Corporation, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and where necessary, verified or acknowledged, by the proper Person or Persons. (c) The Corporation covenants that it will pay to the Rights Agent from time to time reasonable remuneration for its services hereunder and will pay to or reimburse the Rights Agent upon its request for all reasonable expenses, disbursements and advances made or incurred by the Rights Agent in the administration or execution of the trusts hereby created (including reasonable compensation and disbursements of its legal counsel and all other advisers and assistants not regularly in its employ) both before and after any default hereunder until all of the duties of the Rights Agent hereunder have been fully and finally performed. - 33 - 5.2 MERGER OR AMALGAMATION OR CHANGE OF NAME OF RIGHTS AGENT (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or amalgamated or with which it may be consolidated, or any corporation resulting from any merger, amalgamation or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the shareholder or stockholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 5.4 hereof. In case at the time such successor Rights Agent succeeds to the agency created by this Agreement any of the Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such rights Certificates so countersigned; and in case at that time any of the rights Certificates have not been countersigned, any successor Rights Agent may countersign such rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such rights Certificates will have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered,the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. 5.3 DUTIES OF RIGHTS AGENT The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Corporation and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) the Rights Agent may consult with legal counsel (who may be legal counsel for the Corporation) and the opinion of such counsel will be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion; (b) whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Corporation prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a Person believed by the Rights Agent to be the Chairman of the Board, the President or any Vice- - 34 - President and by the Treasurer or any Assistant-Treasurer or the Secretary or any Assistant-Secretary of the Corporation and delivered to the Rights Agent; and such certificate will be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate; (c) the Rights Agent will be liable hereunder only for its own negligence, bad faith or wilful misconduct; (d) the Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates for Shares or the Rights Certificates (except its countersignature thereof) or be required to verify the same,but all such statements and recitals are and will be deemed to have been made by the Corporation only; (e) the Rights Agent will not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any Share Certificate or Rights Certificate (except its countersignature thereof); nor will it be responsible for any breach by the Corporation of any covenant or condition contained in this Agreement or in any Rights Certificate; nor will it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to subsection 4.1(b)) or any adjustment required under the provisions of Section 3.2 or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of the certificate contemplated by Section 3.2 describing any such adjustment); nor will it by any act hereunder be deemed to make any representation or warranty as to the authorization of any Shares to be issued pursuant to this Agreement or any Rights or as to whether any Shares will, when issued, be duly and validly authorized, executed, issued and delivered as fully paid and non-assessable; (f) the Corporation agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement; (g) the Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any Person believed by the Rights Agent to be the Chairman of the Board, the President, any Vice-President or the Secretary or any Assistant-Secretary - 35 - or the Treasurer or any Assistant-Treasurer of the Corporation, and to apply to such Persons for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such Person; (h) the Rights Agent and any shareholder or stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in Shares, Rights or other securities of the Corporation or become pecuniarily interested in any transaction in which the Corporation may be interested, or contract with or lend money to the Corporation or otherwise act as fully and freely as though it were not the Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Corporation or for any other legal entity; and (i) the Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Corporation resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. 5.4 CHANGE OF RIGHTS AGENT The Rights Agent may resign and be discharged from its duties under this Agreement upon 60 days' notice in writing (or such lesser notice as is acceptable to the Corporation) mailed to the Corporation and to each transfer agent of Shares by registered or certified mail, and to the holders of the Rights in accordance with Section 6.9. The Corporation may remove the Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent and to each transfer agent of the Shares by registered or certified mail, and to the holders of the Rights in accordance with Section 6.9. If the Rights Agent should resign or be removed or otherwise become incapable of acting, the Corporation will appoint a successor to the Rights Agent. If the Corporation fails to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of any Rights (which holder shall, with such notice, submit such holder's Rights Certificate for inspection by the Corporation), then the holder of any rights may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Corporation or by such a court, shall be a corporation incorporated under the laws of Canada or a province thereof authorized to carry on the business of a trust company in the Province of British Columbia. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder and execute and deliver any further assurance,conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Corporation will file notice thereof in writing with the predecessor - 36 - Rights Agent and each transfer agent of the Shares, and mail a notice thereof in writing to the holders of the Rights. Failure to give any notice provided for in this Section 5.4, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. ARTICLE 6 MISCELLANEOUS 6.1 REDEMPTION AND WAIVER (a) The Board of Directors may, at its option, at any time prior to the occurrence of a Flip-in Event, elect to redeem all but not less than all of the then outstanding Rights at a redemption price of $0.001 per Right, appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 3.2, if an event of the type analogous to any of the events described in Section shall have occurred (such redemption price being herein referred to as the "Redemption Price"). The redemption of the Rights by the Board of Directors may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. (b) The Board of Directors may, until the occurrence of a Flip-in Event upon written notice delivered to the Rights Agent, determine to waive the application of Section 4.1. (c) Notwithstanding the provisions of subsection 6.1(b) hereof, the Board of Directors of the Corporation may waive the application of Section 4.1 in respect of any Flip-in Event, provided that both of the following conditions are satisfied: (i) the Board of Directors has determined, within 14 days of the date on which the Board of Directors learns of such Flip-in Event, that a Person became an Acquiring Person by inadvertence and without any intention to become, or knowledge that it would become, an Acquiring Person; and (ii) such Person has, within 14 days after such determination or such earlier or later period as the Board of Directors may determine, reduced its Beneficial Ownership of Voting Shares such that at the time of the granting of a waiver pursuant to this subsection 6.1(c) such Person is no longer an Acquiring Person; and, in the event of any such waiver, for the purposes of this Agreement, such Flip-in Event shall be deemed not to have occurred and the Separation Time shall be deemed not to have occurred as a result of such Person having inadvertently become an Acquiring Person. (d) In the event that a Person makes a Permitted Bid that, within 120 days after the date of the Permitted Bid, has been accepted by the holders of not less than 90% of the then outstanding Common Shares, other than the Shares held at the date of the Permitted Bid by or on behalf of the Offeror or an Affiliate or Associate of the Offeror, then the Board of Directors - 37 - shall, immediately upon the consummation of such acquisition, without further formality be deemed to have elected to redeem the Rights at the Redemption Price. (e) If the Board of Directors elects or is deemed to have elected to redeem the Rights, the right to exercise the Rights will thereupon, without further action and without notice, terminate, and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. (f) Within 10 days after the Board of Directors electing or having been deemed to have elected to redeem the Rights, the Corporation shall give notice of redemption to the holders of the then outstanding Rights by mailing such notice to each such holder at his last address as it appears upon the registry books of the Rights Agent or, prior to the Separation Time, on the registry books of the Transfer Agent for the Shares. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. The Corporation may not redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 6.1, and other than in connection with the purchase of Shares prior to the Separation Time. 6.2 EXPIRATION No Person shall have any rights pursuant to this Agreement or in respect of any Right after the Expiration Time, except the Rights Agent as specified in Section 5.1. 6.3 SHAREHOLDER REVIEW At the first annual meeting of shareholders of the Corporation following the fifth anniversary of the date of this Agreement, provided that a Flip-in Event has not occurred prior to such time, the Board of Directors shall submit a resolution to the holders of voting Shares of the Corporation for their consideration and, if thought advisable, approval, ratifying the continued existence of the Rights. If a majority of the votes cast on such resolution are voted against the continued existence of the Rights then the Board of Directors shall, immediately upon the confirmation by the Chairman of such shareholders' meeting of the result of the vote on such resolution, without further formality be deemed to have elected to redeem the Rights at the Redemption Price. 6.4 ISSUANCE OF NEW RIGHTS CERTIFICATE Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Corporation may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by the Board of Directors to reflect any adjustment or change in the number or kind or class of shares purchasable upon exercise of Rights made in accordance with the provisions of this Agreement. - 38 - 6.5 FRACTIONAL RIGHTS AND FRACTIONAL SHARES (a) The Corporation shall not be required to issue fractions of Rights or to distribute Rights Certificates that evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional Right would otherwise be issuable, an amount in cash equal to the same fraction of the Market Price of a whole Right. (b) The Corporation shall not be required to issue fractions of Shares upon exercise of the Rights or to distribute certificates that evidence fractional Shares. In lieu of issuing fractional Shares, the Corporation shall pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided, an amount in cash equal to the same fraction of the Market Price of a whole Share. 6.6 SUPPLEMENTS AND AMENDMENTS The Corporation may from time to time supplement or amend this Agreement without the approval of any holders of Shares or Rights: (a) to make any changes, which the Board of Directors acting in good faith may deem necessary or desirable, including to give effect to any reclassification of the Shares into other shares of the Corporation, provided that no such supplement or amendment made on or after the Stock Acquisition Date shall materially adversely affect the interests of the holders of Rights generally and provided further that no such supplement or amendment shall be made to the provisions of Article 5 except with the written concurrence of the Rights Agent to such supplement or amendment; and (b) in order to cure any ambiguity or to correct or supplement any provision contained herein that may be inconsistent with any other provisions herein or otherwise defective. 6.7 RIGHTS OF ACTION Subject to the terms of this Agreement, all rights of action in respect of this Agreement, other than rights of action vested solely in the Rights Agent, are vested in the respective holders of the Rights; and any holder of any Rights, without the consent of the Rights Agent or of the holder of any other Rights, may, on such holder's own behalf and for such holder's own benefit and the benefit of other holders of Rights, enforce, and may institute and maintain any suit, action or proceeding against the Corporation to enforce, or otherwise act in respect of, such holder's right to exercise such holder's Rights in the manner provided in such holder's Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be - 39 - entitled to specific performance of the obligations under, and injunctive relief against, actual or threatened violations of, the obligations of any Person subject to this Agreement. 6.8 NOTICE OF PROPOSED ACTIONS In case the Corporation shall propose after the Separation Time and prior to the Expiration Time: (a) to effect or permit (in cases where the Corporation's permission is required) any Flip-in Event; or (b) to effect the liquidation, dissolution or winding-up of the Corporation or the sale of all or substantially all of the Corporation's assets, then, in each such case, the Corporation shall give to each holder of a Right, in accordance with Section 6.9, a notice of such proposed action, which shall specify the date on which such Flip-in Event, liquidation, dissolution or winding-up is to take place, and such notice shall be so given at least 20 Business Days prior to the date of taking such proposed action. 6.9 NOTICES Notices or demands authorized or required by this Agreement to be given or made by the Rights Agent or by the holder of any Rights to or on the Corporation shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Solucorp Industries Ltd. 250 West Nyack Road West Nyack, New York 10994 U.S.A. Attention: Mr. Jim Spartz Any notice or demand authorized or required by this Agreement to be given or made by the Corporation or by the holder of any Rights to or on the Rights Agent shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Corporation) as follows: CIBC Mellon Trust Company P.O. Box 1900 Mall Level, 1177 West Hastings Street Vancouver, BC V6E 2K9 Attention: Manager, Corporate Trust Services - 40 - Notices or demands authorized or required by this Agreement to be given or made by the Corporation or the Rights Agent to or on the holder of any Rights shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as it appears upon the registry books of the Rights Agent or, prior to the Separation Time, on the registry books of the Corporation for the Common shares. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. 6.10 COSTS OF ENFORCEMENT The Corporation agrees that if the Corporation or any other Person the securities of which are purchasable upon exercise of Rights fails to fulfil any of its obligations pursuant to this Agreement, then the Corporation or such Person will reimburse the holder of any Rights for the costs and expenses (including legal fees) incurred by such holder in actions to enforce his rights pursuant to any Rights or this Agreement. 6.11 SUCCESSORS All the covenants and provisions of this Agreement by or for the benefit of the Corporation or the Rights Agent shall bind and enure to the benefit of their respective successors and assigns hereunder. 6.12 BENEFITS OF THIS AGREEMENT Nothing in this Agreement shall be construed to give to any Person other than the Corporation, the Rights Agent and the holders of the Rights any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Corporation, the Rights Agent and the holders of the Rights. 6.13 GOVERNING LAW This Agreement and each Right issued hereunder shall be deemed to be a contract made under the laws of the Province of British Columbia and for all purposes shall be governed by and construed in accordance with the laws of such province applicable to contracts to be made and performed entirely within such province. 6.14 COUNTERPARTS This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 6.15 SEVERABILITY If any section, subsection, clause, subclause, term or provision hereof or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid - 41 - or unenforceable, such section, subsection, clause, subclause, term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining sections subsections, clauses, subclauses, terms and provisions hereof or the application of such section, subsection, clause, subclause, term or provision to circumstances other than those as to which it is held invalid or unenforceable. 6.16 EFFECTIVE DATE This Agreement is in full force and effect in accordance with its terms from the date hereof. 6.17 DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS The Board of Directors shall have the exclusive power and authority to administer and amend this Agreement in accordance with the terms hereof and to exercise all rights and powers specifically granted to the Board of Directors or the Corporation, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to: (a) interpret the provisions of this Agreement; and (b) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to terminate or not to terminate the Rights or to amend the Agreement in accordance with the terms hereof). All such actions, calculations, interpretations and determinations (including, for purposes of subsection 6.17(c) below, all omissions with respect to the foregoing) that are done or made by the Board of Directors, in good faith, shall: (c) be final, conclusive and binding on the Corporation, the Rights Agent, the holders of the Rights Certificates and all other parties; and (d) not subject the Board of Directors to any liability to the holders of the Rights Certificates. 6.18 SUCCESSOR CORPORATIONS The Corporation shall not consummate or permit or suffer to occur any consolidation, amalgamation, merger or transfer of the undertaking or assets of the Corporation as an entirety or substantially as an entirety to another corporation (the "Successor Corporation") unless the Successor Corporation resulting from such consolidation, amalgamation, merger or transfer (if not the Corporation) shall expressly assume, by supplemental agreement in form satisfactory to the Rights Agent and executed and delivered to the Rights Agent, the due and - 42 - punctual performance and observance of each and every covenant and condition of this Agreement to be performed and observed by the Corporation. 6.19 TIME OF THE ESSENCE Time shall be of the essence in this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. SOLUCORP INDUSTRIES LTD. CIBP MELLON TRUST COMPANY Per: /s/ NOT LEGIBLE Per: /s/ NOT LEGIBLE --------------------------- ----------------------------- Authorized Signatory Authorized Signatory Per: /s/ NOT LEGIBLE Per: /s/ NOT LEGIBLE --------------------------- ----------------------------- Authorized Signatory Authorized Signatory EXHIBIT "A" (Form of Rights Certificate) Certificate No. ___________________ _____________ Rights THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE CORPORATION, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SUBSECTION 4.1(b) OF THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR TRANSFEREES OF AN ACQUIRING PERSON OR ITS AFFILIATES OR ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR ANY PERSON ACTING JOINTLY OR IN CONCERT WITH ANY OF THEM MAY BECOME VOID WITHOUT ANY FURTHER ACTION. RIGHTS CERTIFICATE This certifies that _______________________________ , or registered assigns, is the registered holder of the number of Rights set forth above, each of which entitles the registered holder thereof, subject to the terms, provisions and conditions of the Shareholder Protection Rights Plan Agreement, dated as of the 18th day of December, 1996 (the "Rights Agreement") between Solucorp Industries Ltd., a corporation incorporated under the Company Act (British Columbia) (the "Corporation") and CIBC Mellon Trust Company, a trust company incorporated under the laws of Canada, as Rights Agent (the "Rights Agent"), which term shall include any successor Rights Agent under the Rights Agreement, to purchase from the Corporation at any time after the Separation Time (as such term is defined in the Rights Agreement) and prior to the Expiration Time (as such term is defined in the Rights Agreement), one fully paid common share of the Corporation (a "Common Share") at the Exercise Price referred to below, upon presentation and surrender of this Rights Certificate with the Form of Election to Exercise duly executed and submitted to the Rights Agent at its principal office in the City of Vancouver. The Exercise Price shall initially be (Cdn.)$100 per Right and shall be subject to adjustment in certain events as provided in the Rights Agreement. In certain circumstances described in the Rights Agreement, each Right evidenced hereby may entitle the registered holder thereof to purchase or receive securities of an entity other than the Corporation, assets, debt securities or shares in the capital stock of the Corporation other than Common Shares and more or fewer than one Common Share (or a combination thereof), all as provided in the Rights Agreement. This Rights Certificate is subject to all the terms, provisions and conditions of the Rights Agreement which terms and provisions are hereby incorporated herein by reference and - 2 - made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Rights Agent, the Corporation and the holders of the Rights Certificates. Copies of the Rights Agreement are on file at the registered office of the Corporation and are available upon written request. This Rights Certificate, with or without other Rights Certificates, upon surrender at any of the offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificate of like tenor and date evidencing an aggregate number of Rights equal to the aggregate number of Rights evidenced by the Rights Certificate or Rights Certificates surrendered. If this Rights Certificate is exercised in part, the registered holder shall be entitled to receive, upon surrender hereof, another Rights Certificate for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Corporation at a redemption price of $.001 per Right, subject to adjustment in certain events, under certain circumstances at its option. No fractional Common Shares will be issued upon the exercise of any Right or Rights evidenced hereby nor will Rights Certificates be issued for less than one whole Right. After the Separation Time, in lieu of issuing fractional Rights, a cash payment will be made as provided in the Rights Agreement. No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Common Shares or of any other securities which may at any time be issuable upon the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. - 3 - This Rights Certificate is not valid or obligatory for any purpose until it has been countersigned by the Rights Agent. IN WITNESS WHEREOF SOLUCORP INDUSTRIES LTD. has caused this Rights Certificate to be signed by its duly authorized officers as of the _____ day of __________________, 19______. SOLUCORP INDUSTRIES LTD. Per: ______________________ Per: ______________________ Authorized Signatory Authorized Signatory Countersigned: (By Rights Agent) CIBC MELLON TRUST COMPANY By: _______________________ Authorized Signatory (Form of Election To Exercise) ELECTION TO EXERCISE TO: CIBC Mellon Trust Company P.O. Box 1900 Mall Level, 1177 West Hastings Street Vancouver, B.C. V6E 2K9 The undersigned hereby irrevocably elects to exercise __________________________ whole Rights represented by the attached Rights Certificate to purchase the Common Shares or other securities, if applicable, issuable upon the exercise of such Rights and requests that certificates for such securities be issued in the name of: __________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ Address ___________________________________________________________________ Social Insurance, Social Security or Other Taxpayer Identification Number If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ Address ___________________________________________________________________ Social Insurance, Social Security or Other Taxpayer Identification Number Dated: ___________________ ________________________________________ Signature Signature Guaranteed: (Signature must correspond to name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever) - 5 - Signature must be guaranteed by a member firm of a recognized stock exchange in Canada, a registered national securities exchange in the United States, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in Canada or the United States. ****************************************************************************** (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). _________________________________________ Signature ****************************************************************************** NOTICE In the event the certification set forth above in the Forms of Assignment and Election is not completed, the Corporation will deem the Beneficial Owner of the Rights evidenced by this Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). No Rights Certificates shall be issued in exchange for a Rights Certificate owned or deemed to have been owned by an Acquiring Person or an Affiliate or Associate thereof. EX-10.9 4 AGREEMENT BTW MEYERSON & COMPANY M.H. MEYERSON & CO., INC. FOUNDED 1960 BROKERS & DEALERS IN SECURITIES UNDERWRITERS A PUBLICLY TRADED COMPANY NMS - NASDAQ MHMV 30 MONTGOMERY STREET o P.O. BOX 260 o JERSEY CITY, NJ 07303-0260 201-332-3353 o 212-425-1212 o 800-333-3113 FAX 201-332-1562 June 3, 1996 Mr. James Spartz Director SOLUCORP INDUSTRIES, LTD. 520 Victor Street Saddle Brook, NJ 07663 RE: LETTER OF INTENT Dear Mr. Spartz: THIS AGREEMENT (the "Agreement") is made as of June 3, 1996 between ("SOLUCORP") and M.H. Meyerson & Co., Inc. ("MEYERSON") & Brookehill Equities, Inc. ("BROOKEHILL") 545 Madison Avenue, New York, New York 10022. In consideration of the mutual covenants contained herein and intending to be legally bound thereby, SOLUCORP and MEYERSON/BROOKEHILL hereby agree as follows: 1. MEYERSON/BROOKEHILL will perform investment banking services for SOLUCORP on the terms set forth below for a period of five years from the date hereof. Such services will be performed on a best efforts basis and will include, without limitation, assistance to SOLUCORP in mergers, acquisitions, and internal capital structuring and the placement of new debt and equity issues of SOLUCORP, all with the objective of accomplishing SOLUCORP's business and financial goals. In each instance, MEYERSON/BROOKEHILL shall endeavor, subject to market conditions, to assist SOLUCORP in identifying corporate candidates for mergers and acquisitions and sources of private and institutional funds; to provide planning, structuring, strategic and other advisory services to SOLUCORP; and to assist in negotiations on behalf of SOLUCORP. MEYERSON/BROOKEHILL will have the option to perform all financings to be done by SOLUCORP for as long as this agreement is in effect. In each instance, MEYERSON/BROOKEHILL will render such services as to which SOLUCORP and MEYERSON/BROOKEHILL mutually agree and MEYERSON/BROOKEHILL will exert its best efforts to accomplish the goals agreed to by MEYERSON/BROOKEHILL and SOLUCORP. 2. In connection with the performance of this AGREEMENT, MEYERSON/BROOKEHILL and SOLUCORP shall comply with all applicable laws and regulations, including, without limitation, those of the National Association of Securities Dealers, Inc. and the Securities and Exchange Commission. 3. In consideration of the services previously rendered and to be rendered by MEYERSON/BROOKEHILL hereunder, MEYERSON/BROOKEHILL is hereby granted Warrants to purchase a total of 300,000 shares of Common Stock with an exercise price of $7.50 per share with demand and piggy back registration rights as provided in section 5 below. These Warrants shall vest and become irrevocable upon the signing of this AGREEMENT. These Warrants and/or Underlying shares may be sold anytime after 1 year and for a period of five years from the date of this agreement. 4. If SOLUCORP should, at any time, or from time to time hereafter, effect a stock split, a reverse stock split, or a recapitalization, the terms of the Warrant shall be proportionately adjusted to prevent the dilution or enlargement of the rights of the holders. 5. During the period from June 3, 1996 to June 3, 2001 the holders of at least 51% of the shares of SOLUCORP Common Stock issued or issuable upon the exercise of the Warrants (the "TOTAL MEYERSON/BROOKEHILL EQUITY") may demand, on one occasion only, that SOLUCORP, at its own expense, promptly file a Registration Statement under the Securities Act of 1933, as amended ("ACT"), to permit a public offering of the MEYERSON/BROOKEHILL shares of Common Stock issued and issuable pursuant to exercise of the MEYERSON/BROOKEHILL Warrants (the "MEYERSON/BROOKEHILL SHARES"). Additionally, if SOLUCORP, during the period from June 3, 1996 to June 3, 2001 files a Registration Statement covering the sale of any shares of SOLUCORP Common Stock, then SOLUCORP, on each such occasion, at the request of the holders of at least 51% of the TOTAL MEYERSON/BROOKEHILL EQUITY, shall include in any such Registration Statement, at SOLUCORP's expense, the MEYERSON/BROOKEHILL SHARES, provided that, if the sale of securities by SOLUCORP is being made through an underwriter and the underwriter objects to inclusion of the MEYERSON/BROOKEHILL SHARES in the Registration Statement, the MEYERSON/BROOKEHILL SHARES shall not be so included in any registration statement filed within 90 days after the effective date of the Registration statement. 6. This AGREEMENT constitutes the entire Warrant Agreement between the parties and when a copy hereof is presented to SOLUCORP's transfer agent, together with a certified check in the proper amount and a request that all or part of the MEYERSON/BROOKEHILL Warrants be exercised, the certificates for the appropriate number of shares of Common Stock Shall be promptly issued. 7. Upon the execution of this AGREEMENT, SOLUCORP shall include in their next annual report and filings the highlights and terms of our investment banking contract. 8. Within 30 days of the signing of this AGREEMENT, SOLUCORP shall pay MEYERSON/BROOKEHILL $10,000.00 as a non-accountable and non-refundable expense allowance for due diligence and general compliance review. MEYERSON/BROOKEHILL shall be entitled to additional compensation to be negotiated between MEYERSON/BROOKEHILL and SOLUCORP, arising out of any transactions that are proposed or executed by MEYERSON/BROOKEHILL and consummated by SOLUCORP, or are executed by MEYERSON/BROOKEHILL at SOLUCORP's request, during the term of this AGREEMENT to the extent that such compensation is normal and ordinary for such transactions. In addition MEYERSON/BROOKEHILL shall be reimbursed by SOLUCORP for any reasonable out-of-pocket expenses that MEYERSON/BROOKEHILL may incur in connection with rendering any service to or on behalf of MEYERSON/BROOKEHILL is approved, in writing, in advance by SOLUCORP's Chief Executive Officer. 9. SOLUCORP agrees to indemnify and hold MEYERSON/BROOKEHILL and its directors, officers and employees harmless from and against any and all losses, claims, damages, liabilities, costs or expenses arising out of any action or cause of action brought against MEYERSON/BROOKEHILL, in connection with its rendering services under this AGREEMENT except for any losses, claims, damages, liabilities, costs or expenses resulting from any violation by MEYERSON/BROOKEHILL of applicable laws and regulations including, without limitation, those of the National Association of Securities Dealers, Inc. and the Securities and Exchange Commission or any state securities commission or from any act of MEYERSON/BROOKEHILL involving negligence or willful misconduct and except that SOLUCORP shall not be liable for any amount paid in settlement of any claim that is settled without its prior written consent. 10. MEYERSON/BROOKEHILL agrees to indemnify and hold SOLUCORP and its directors, officers and employees harmless from and against any and all losses claims, damages, liabilities, costs or expenses resulting from any violation by MEYERSON/BROOKEHILL of applicable laws and regulations including, without limitation, those of the National Association of Securities Dealers, Inc., the Securities and Exchange Commission any state securities commission or from any act of SOLUCORP involving negligence or willful misconduct. 11. Nothing contained in this AGREEMENT shall be construed to constitute MEYERSON/BROOKEHILL as a partner, employee, or agent of SOLUCORP, nor shall either party have any authority to bind the other in any respect, it being intended that MEYERSON/BROOKEHILL is, and shall remain an independent contractor. 12. This AGREEMENT may not be assigned by either party hereto, shall be interpreted in accordance with the laws of the State of New Jersey, and shall be binding upon the successors of the parties. Either party may terminate this investment banking contract at any time, however, legally vested Warrants will remain with MEYERSON/BROOKEHILL. 13. If any paragraph, sentence, clause or phrase of this AGREEMENT is for any reason declared to be illegal, invalid, unconstitutional void or unenforceable, all other paragraphs, sentences, clauses or phrases hereof not so held shall be and remain in full force and effect. 14. None of the terms of this AGREEMENT shall be deemed to be waived or modified except by an express agreement in writing signed by the party against whom enforcement of such waiver or modification is sought. The failure of either party at any time to require performance by the other party of any provision hereof shall, in no way, affect the full right to require such performance at any time thereafter. Nor shall the waiver by either party of a breach of any provision hereof be taken or held to be a waiver of any succeeding breach of such provision or as a waiver of the provision itself. 15. Any dispute, claim or controversy arising out of or relating to this AGREEMENT, or the breach thereof, shall be settled by arbitration in Jersey City, New Jersey, in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The parties hereto agree that they will abide by and perform any award rendered by the arbitrator(s) and that judgement upon any such award may be entered in any Court, state or federal, having jurisdiction over the party against whom the judgement is being entered. Any arbitration demand, summons, complaint, other process, notice of motion, or other application to an arbitration panel, Court or Judge, and any arbitration award or judgement may be served upon any party hereto by registered or certified mail, or by personal service, provided a reasonable time for appearance or answer is allowed. 16. For purposes of compliance with laws pertaining to potential inside information being distributed unauthorized to anyone, all communications regarding the Company's confidential information should only be directed to Martin H. Meyerson, Chairman, Michael Silvestri, President, or Linda Antosiewicz, Vice President, Compliance. If information is being faxed, our confidential compliance fax number is (201) 332-1263 for communication use. IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT as of the day and year first above written. M.H. MEYERSON & CO., INC. SOLUCORP INDUSTRIES, LTD. By: /s/ Michael Silvestri By: /s/ James G. Spartz -------------------------- --------------------------- Michael Silvestri James G. Spartz President Director BROOKEHILL EQUITIES, INC. By: /s/ Walter Grossman -------------------------- Mr. Walter Grossman Chairman EX-10.10 5 LICENSING AGREEMENT [LOGO] SOLUCORP LETTERHEAD Exclusive Licensing Agreement This Exclusive Licensing Agreement, dated as of September 15, 1997, (this "Agreement" hereinafter) by and between Smart International Ltd. with its principal offices located at 901 Kwong Sang Hong Center, 151-153 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong, The People's Republic of China, ("SMART") and EPS Environmental, Inc., doing business as Solucorp Industries, a British Columbia corporation with its principal offices located at 250 West Nyack Road, West Nyack, NY 10994 U.S.A. ("SOLUCORP"). WITNESSETH WHEREAS, SOLUCORP is the owner of a patent-pending process named Molecular Bonding System ("MBS" hereinafter) used for the stabilization of heavy metals contaminated soils, sludge, industrial slag, ash and other such materials by the addition of proprietary reagents to the contaminated materials under moisture controlled conditions; WHEREAS, SMART is involved in the remediation business and is interested in obtaining an Exclusive License to market and apply MBS technology from SOLUCORP; AND WHEREAS, SOLUCORP and SMART entered into an Agreement in Principle on June 6, 1997, and wish to supersede that agreement with this Agreement; NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1.0 Territory: The territory covered by this Exclusive License is The People's Republic of China ("China" hereafter). Under no circumstances can SMART operate or solicit business outside of China without the written permission from SOLUCORP. Breach of this clause shall give SOLUCORP reason to pursue termination of this Agreement. 2.0 License: SOLUCORP grants to SMART the Exclusive License to make, use, market and Sub-license the MBS process to stabilize heavy metal contaminated soils, industrial slag, sludge, ash, etc. in the Territory. 2.1 License Extension: In the event that another company, including a Licensee for MBS in another region or country, has access to a project within China which is not available to SMART, SMART has the automatic right as the exclusive licensee to enter into an Agreement of its chosen form with that company to complete the project. SMART's rights in this include the option to Sub-license any such company for a period of one (1) year with the discretion to grant a further one (1) year option for renewal. 3.0 Currency: Throughout this agreement the currency is U.S. DOLLARS ($US). 4.0 License Fee: Throughout the entire term of this contract, SMART will pay SOLUCORP an annual license fee as follows: In year one of this Agreement (June 1, 1997 through May 31, 1998), SMART agrees to pay SOLUCORP $2,000,000.00 ($200,000 by July 31, 1997; $200,000 by September 30, 1997; $200,000 by November 30, 1997; $400,000 by January 31, 1998; $500,000 by March 31, 1998; and $500,000.00 by May 31, 1998.) In years two (2) through ten (10) of the Agreement SMART agrees to pay SOLUCORP $2,000,000.00 each year in quarterly 2 installments ($500,000 on August 31; $500,000 on November 30; $500,000 on February 28; and $500,000 on May 31.) 4.1 Royalty Fee: Throughout the entire term of this contract SMART will pay SOLUCORP a royalty of $5.00 per processed ton in excess of 100,000 tons for each contract year. These royalties become due and payable at the end of each calendar quarter after the minimum tonnage requirements are met. (Refer Clause 7.1 - Market Obligations) All processed tonnage must be identified by SMART on a project by project basis and SOLUCORP, with reasonable notification, shall have access to all substantiating material relevant to these projects. 5.0 Term: Except on the occurrence of significant default by either party, the Term of this Agreement is ten (10) years, commencing on June 1, 1997, with an automatic renewal for an additional ten (10) years, unless both parties agree in writing to terminate. 6.0 Chemicals SOLUCORP acknowledges that its separate contractual agreement with SMART to manufacture the primary chemical ingredient of MBS allows SMART to produce that chemical ingredient for its own remediation projects in China. SOLUCORP also acknowledges the commercial efficiency of SMART sourcing and blending all additional chemical ingredients required for the manufacture of MBS in China without the need to purchase them from or via SOLUCORP. SMART will maintain and supply to SOLUCORP accurate records of the amounts of both the primary chemical ingredient and the blended MBS used on each project. These records will be supplied to SOLUCORP within the first week of each month, and cover the work effected during the previous month. 3 6.1 Chemical Manufacture: SMART will continue to manufacture MBS exclusively for sale to SOLUCORP and for its own remediation projects, based on the agreement that all supplied will be matched to SOLUCORP's defined specifications. SOLUCORP agrees to not use or sell the chemicals in any way which could be construed to be competitive to SMART in the Territory of China. SMART'S right to manufacture MBS for its own remediation projects is dependent on SOLUCORP, as the sole owner of the MBS process, maintaining the right of final arbitration and/or veto on all matters relating to ensuring compliance with production protocols and Quality Assurance/Quality Control standards, as are, or may be defined by SOLUCORP through the full Term of this Agreement. 6.2 Ownership of MBS: The ownership of the MBS formulas, processes and techniques for its application remains the exclusive property of SOLUCORP. Any derivation or modification of the MBS process, whether devised or developed by SOLUCORP or SMART, remains the proprietary property of SOLUCORP. 6.3 Equipment: SOLUCORP will provide SMART with equipment specifications to enable SMART to source appropriate equipment to operate the MBS process. SOLUCORP will additionally provide SMART with training by SOLUCORP's Director of Field Operations or an appropriate Consultant Engineer in the operation of the equipment. 7.0 Marketing Support: At all times during the terms of this agreement, SOLUCORP will provide sufficient technical and/or marketing support, as limited to SOLUCORP's capabilities, to SMART. 4 Upon SMART'S request, SOLUCORP shall, within reason, promptly make available several of its officers and personnel so as to enable SMART to perform its obligations as set forth in this Agreement. 7.1 Market Obligations: SMART will act on SOLUCORP's behalf in China to effect such operational matters as: reviews and compliance with all relevant environmental regulations; obtaining all pertinent permits and authorizations, and representations to all regulatory authorities. SMART will make every endeavor to achieve an annual processed tonnage target of 100,000 tons for each year (June through May) throughout the full Term of this Agreement. (Refer also to Clause 20.0 - Other) 8.0 Termination: Either party will have the right to terminate the license in the event of the other party declaring bankruptcy, or by mutual agreement after meeting to review the contract terms. 8.1 Fundamental Breach: On the occurrence of significant default by either party under the terms of this Agreement, and in such event, the defaulting party shall receive notice in writing to rectify the situation within 90 days or risk termination. Such notification shall acknowledge that all existing terms are applicable throughout that period. 8.2 Merger/Acquisition: It is further agreed in the event of a merger or acquisition of either party, and only in such an event, that party shall ensure that both the terms and spirit of this agreement will continue to operate for the full term of the contract. 5 It is further agreed, in the event of a merger or acquisition of either party or adverse market change in China (as determined by SMART), any monies owed to SOLUCORP for licenses or royalties either past, present, or future by SMART can be converted, at SMART's option, to pre-paid inventory of the primary MBS ingredient. Demand for delivery of pre-paid inventory cannot exceed ten percent (10%) of SMART's monthly production unless agreed in writing by SMART. 9.0 Termination Consequence: On the expiry or other terminations of this Procedure: Agreement SMART agrees to: 9.1 Return to SOLUCORP all samples, publicity promotional and advertising materials, and all confidential data. 9.2 Sign such notification of cessation of use of the Patent Applications as is required by SOLUCORP. 9.3 Return to SOLUCORP all originals and copies of all documents and information in any form containing or covering in any way any part of the Patent Applications. 9.4 Cease carrying on the activities permitted by this Agreement. 10.0 Existing Rights The termination of this Agreement shall be without prejudice to any rights which have already accrued to either of the parties under this Agreement. 11.0 Force Majeure: If either party is prevented from fulfilling its obligations under this Agreement by reason of any supervening event beyond its control, including but not by way of limitation, war, national emergency, flood, earthquake, strike or lockout (other than a strike or lockout induced by the party so incapacitated) the party unable to fulfill its 6 obligations shall immediately give notice of this to the other party and shall do everything in its power to resume full performance. 11.1 On such notice being given neither party shall be deemed to be in breach of its obligations under this Agreement. 11.2 If and when the period of incapacity exceeds six (6) months, then this Agreement shall automatically terminate unless the parties first agree otherwise in writing. 12.0 Confidentiality: With the exception of acknowledging that this exclusive license for the Territory has been established for a minimum period of ten (10) years, all other terms relating to this contract shall remain confidential between the parties and there will be no disclosure of them by a party without the written consent of the other party. 12.1 The parties acknowledge that, in order to further the purposes of this Agreement, information containing or consisting of trade secret, customer list and other confidential information may be communicated by either party to the other. Such information may take the form of plans, drawings and data, and will be deemed confidential unless otherwise designated by SOLUCORP or SMART as appropriate. SOLUCORP shall have the right to apply and obtain from the Court a restraining order to prevent SMART from disclosing or using such confidential information to third parties either during the Term or for a period of 12 months thereafter. 13.0 Indemnification: SMART shall not incur any liability or indebtedness in the name of SOLUCORP, nor do or suffer any act or thing which may render SOLUCORP liable for the payment of money whatsoever to any third person for any purpose whatsoever, except as herein otherwise 7 13.1 provided. SMART agrees that the following paragraphs shall appear verbatim in any agreement SMART makes with any organization or individual that is in any way relevant to or connected to the use of this license; and that SMART shall make no contact or anything similar thereto with any party that is not memorialized or executed in a writing that contains the following one (1) paragraph. "SMART is a licensee of Solucorp Industries' MBS technology. Both parties to this Agreement agree that SOLUCORP, except for its own default, will not be held liable or in any way responsible for a default under this Agreement or as a result of the performance of this Agreement by either party." 14.0 Jurisdiction: This contract shall be governed by New York State law and both parties shall agree to submit to the jurisdiction of an independent international arbitrator in the event of disputes arising which can not be settled by discussion between the parties. 15.0 Notices: Any notice consent or the like (in this clause referred to generally as 'notice') required or permitted to be given under this Agreement shall not be binding unless in writing, and may be given personally or sent to the party to be notified by pre-paid first class post or by telex or by facsimile transmission at its address as set out above or as otherwise notified in accordance with this clause. 15.1 Notice given personally shall be deemed given at the time of delivery. 15.2 Notice sent by post in accordance with this clause shall be deemed given at the commencement of business on the fifth business day next following its posting. 8 15.3 Notice sent by telex or facsimile transmission in accordance with this clause shall be deemed given at the time of its actual transmission. 16.0 Reservation of Rights: All rights currently exclusive to SOLUCORP but not specifically and expressly granted to SMART by this Agreement are reserved to SOLUCORP for further negotiation with SMART as warranted. 17.0 Waiver: The failure by either party to enforce at any time or for any period any one or more of the terms of conditions or this Agreement shall not be a waiver of them or of the right at any time subsequently to enforce all terms and conditions of this Agreement. 18.0 Interpretation: Unless the context otherwise requires: 18.1 Words importing the singular number shall include the plural and vice versa. 18.2 Words importing any particular gender shall include all other genders. 18.3 Reference to persons shall include bodies of persons whether corporate or incorporate. 18.4 Any reference in this Agreement to any statute or statutory provision shall be construed as referring to that statute or statutory provision as the same may from time to time be amended, modified, extended, reenacted or replaced (whether before or after the date of this Agreement) and including all subordinate legislation made under it from time to time. 19.0 No Agency or The parties are not partners or joint ventures, nor it SMART 9 Partnership: entitled to act as SOLUCORP's agent nor shall SOLUCORP be liable in respect of any representation act or omission of SMART of whatever nature. 20.0 Other: SOLUCORP agrees that no automatic penalty or revocation of the license will be imposed in the event of SMART's failure to meet the targeted annual processed tonnage. However, after the agreement goes into effect for 24 months, in the event there is a failure to process 50% of the targeted processed tonnage in any two consecutive years, both parties shall meet to review the entire China License. The primary purpose of such a review will be to modify the contract to a mutually accepted terms. 21.0 Whole Agreement: This Agreement contains the whole agreement between the parties and supersedes any prior written or oral agreement between them in relation to its subject matter and the parties confirm that they have not entered into this Agreement on the basis of any representations that are not expressly incorporated into this Agreement. Should any provisions of this Agreement be determined to be unenforceable or prohibited by any applicable law, this Agreement shall be considered divisible after such provision which shall be inoperative and the remainder of this Agreement shall inure to the benefits of both parties and be valid and binding as though such provisions were not included herein. 22.0 No Modification: This Agreement may not be modified except by an instrument in writing signed by both of the parties or their duly authorized representatives. 23.0 Joint and Several: All agreements on the part of either of the parties which comprises more than one person or entity shall be joint and several. 10 IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the date first set forth herein and hereby warrant that the persons whose signature appear below have the authority to enter into this Agreement on behalf of their respective parties: For SOLUCORP INDUSTRIES: For SMART INTERNATIONAL Ltd.: For and on behalf of [ILLEGIBLE] SMART INTERNATIONAL LIMITED /s/ [ILLEGIBLE] -------------------------------- Authorized Signature(s) /s/ Peter R. Mantia - ---------------------------------- -------------------------------- Peter R. Mantia Q.B. Zheng President Chairman & Managing Director 9-15-97 9-15-97 - ---------------------------------- -------------------------------- Date: Date: 11 EX-10.11 6 ADDENDUM TO AGREE. BTW MEYERSON & COMPANY M.H. MEYERSON & CO., INC. FOUNDED 1960 BROKERS & DEALERS IN SECURITIES UNDERWRITERS NEWPORT OFFICE TOWER 525 WASHINGTON BLVD. P.O. BOX 260 JERSEY CITY, NJ 07303-0260 201-459-9500 800-888-8118 FAX 201-459-9510 www.mhmeyerson.com September 22, 1997 Mr. James G. Spartz, Sr. Vice President Director Solucorp Industries, Ltd. 250 West Nyack Road West Nyack, NY 10994 RE: ADDENDUM TO AGREEMENT Dear Mr. Spartz: This Addendum to Agreement ("ADDENDUM") is made as of September 10, 1997 between Solucorp Industries, Ltd. ("SOLUCORP") and M.H. Meyerson & Co., Inc. ("MEYERSON") and shall operate as an addendum to that certain agreement, made as of June 3, 1996, between SOLUCORP, MEYERSON, and a third party ("original AGREEMENT"). In consideration of the mutual covenants contained herein, and intending to be legally bound thereby, SOLUCORP and MEYERSON hereby agree as follows: 1. Nothing in this ADDENDUM shall affect the rights of the third party under the original AGREEMENT and the third party shall have no rights under, or participation in, this ADDENDUM. 2. The services being performed by MEYERSON under the original AGREEMENT, as set forth in the original AGREEMENT, shall be expanded to include the international sphere as well as the United States and MEYERSON shall endevour to assist SOLUCORP in identifying foreign candidates for mergers and acquisitions and foreign sources of private and institutional funds. 3. Within 30 days after the date of this ADDENDUM, MEYERSON shall perform another due diligence and general compliance review of SOLUCORP to update the review previously performed. The cost of this additional, review shall be borne solely by MEYERSON. 4. MEYERSON shall continue to render services to SOLUCORP, as set forth in the original AGREEMENT and in this ADDENDUM, for a period of at least three years from the date of this ADDENDUM. Without regard to the present or the future value of common stock of SOLUCORP, and without regard to the consequent present or future value or any lack thereof of the warrants granted to MEYERSON under the original AGREEMENT and under this ADDENDUM, MEYERSON hereby waives its right to terminate the original AGREEMENT as set forth in paragraph 12 of the original AGREEMENT, for the three year period commencing on the date of this ADDENDUM. 5. In consideration of all the foregoing, MEYERSON is hereby granted additional Warrants to purchase a total of 750,000 shares of common stock of SOLUCORP, at an exercise price of $2.75 per share, exercisable during the period from September 10, 1997 to and including September 10, 2000 ("ADDENDUM WARRANTS"), with piggy back and registration rights as set forth below. These ADDENDUM WARRANTS shall vest and become saleable and irrevocable upon the signing of this ADDENDUM. 6. MEYERSON is hereby granted the same piggy back and registration rights with respect to the ADDENDUM WARRANTS as are granted in paragraph 5 of the original AGREEMENT with respect to the warrants referred to therein except that the cost of any registration of the ADDENDUM WARRANTS, or the proportional cost of any registration that includes the ADDENDUM WARRANTS, shall be borne by MEYERSON and not by SOLUCORP. For purposes of exercising the registration rights granted in this paragraph with respect to the ADDENDUM WARRANTS, the provisions of the registration rights set forth in the original AGREEMENT shall be deemed to apply solely to SOLUCORP, MEYERSON and the ADDENDUM WARRANTS. 7. MEYERSON is hereby granted the same anti-dilution rights with respect to the ADDENDUM WARRANTS as are granted in paragraph 4 of the original AGREEMENT with respect to the Warrants referred to therein. 8. This ADDENDUM constitutes the entire Warrant Agreement between Solucorp and MEYERSON with respect to the Addendum Warrants and when a copy hereof is presented to SOLUCORP'S transfer agent, together with a certified check in the proper amount and a request that all or pert of the ADDENDUM WARRANTS be exercised, the certificates for the appropriate number of shares of Common Stock shall be promptly issued. 9. In all other respects, except as set forth above, the original AGREEMENT shall remain in full force and effect and the provisions thereof shall apply to this ADDENDUM. IN WITNESS WHEREOF, SOLUCORP and MEYERSON have executed this Addendum to Agreement as of September 10, 1997. M.H. MEYERSON & CO., INC. SOLUCORP INDUSTRIES, LTD. By: /s/ Peter Mantia ----------------------------- Mr. Peter Mantia, President By: /s/ Michael Silvestri By: /s/ James G. Spartz -------------------------- ----------------------------- Mr. Michael Silvestri Mr. James G. Spartz, Senior President Vice President Director EX-10.12 7 CONSULTING AGREEMENT BTW. WEBSTER AND THE COMPANY CONSULTING AGREEMENT This CONSULTING AGREEMENT dated as of October 1, 1997 (this "Agreement") by and between EPS Environmental, Inc. d/b/a SOLUCORP INDUSTRIES Yukon, Canada corporation with its principal offices located at 250 West Nyack Road, West Nyack, New York 10994 ("Solucorp"), and William Webster, Webster & Associates with its principal offices at 119 Laurel Drive, Auburn, Alabama 36830 ("WW"). WITNESSETH WHEREAS, Solucorp is a publicly traded Canadian firm and is the sole and exclusive owner of a process to stabilize metal contaminated soils by the addition of proprietary reagents to the contaminated soils and/or my enhancements or additions during the Term of this Agreement (hereinafter referred to as the "Process"); WHEREAS, Solucorp is interested in entering into this CONSULTING AGREEMENT with WW for the purpose of increasing Solucorp's client base through operations as a key member of the consulting staff of the Company; and NOW, THEREFORE, in consideration of the usual priorities and covenants hereto contained and for other good and valuable consideration, the receipt and sufficiency of which I hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows; SECTION 1. Cooperation. WW and Solucorp will cooperate to develop MBS(R) sales and new technologies/products that will require agreement and support from Solucorp's management. SECTION 2. Solucorp Support. At all times during the term of this Agreement. Solucorp will provide sufficient support, as limited to Solucorp's capabilities, to WW. Upon WW's request, Solucorp shall within reason, promptly make available such of its officers and personnel so as to enable WW to perform its obligations set forth in this Agreement. SECTION 3. Consultancy. Solucorp management will provide the following consultant package to WW, subject to all regulatory approvals and Solucorp's Board approval, as required: (a) Position - Consultant, reporting to the President of Solucorp or his designated offices, dependent upon the subject of the consultancy. (b) Responsibilities - This position will require primary responsibilities for business development, operational support, optimization of a reliable MBS treatability evaluation capability and identification of new technologies for the hazardous waste market. Further, the position will entail participation in contract negotiations, both on projects found by Solucorp and ones initiated by WW up to $5 million; (c) Term - Solucorp will agree to provide a 12 month consultancy agreement with an annual renewal option subject to Solucorp's approval and with 60 days notice to WW; (d) Retainer - Solucorp will provide WW with a retainer of $36,000, for the term of the agreement which is to be paid $3,000 per month commencing October 1, 1997. However, should the value of services performed exceed the $3,000 paid for a particular month, the excess will be paid in the month following their incurrance. On the other hand, if the payments during the term of the agreement, equal or exceed the annual retainer, additional payments in subsequent months would only be made if additional services are performed over the annual retainer. These payments would be made in the month following the month that the services are performed. (e) Consulting Fees - Solucorp will apply the following fee structure which will accrue against the monthly retainer: Technology Development ---------------------- William Webster $100.00/hour Operations Support ------------------ William Webster $120.00/hour WW will prepare a detailed accounting of services provided on a monthly basis. Any amounts due for services in excess of the retainer, together with any approved expenses will be invoiced by WW at that time. Payment is due within 30 days of invoice date (see Exhibit A). (f) Performance Incentive Plan - Subject to the performance by WW and, at the sole discretion of Solucorp's management and the Board of Directors of Solucorp, WW may be eligible for options based upon performance. The performance options are subject to all regulatory approvals. THE criteria which will be used to determine WW eligibility for any bonuses or options shall be the following: a) Participation in major contract negotiations which proves successful both on projects found by Solucorp and ones initiated by WW. b) Identification, evaluation, development and commercialization of new technologies, products for the hazardous waste market which will be identified by SOLUCORP as of primary interest. c) This compensation package is considered mainly WW's compensation for being a Consultant of the Corporation with its attendant duties. d) It is the clear intent of this agreement with WW, that his ability to receive substantial compensation over and above his retainer fee, will be mainly dependent on his ability in the new products sector and subject to the executed Finder's agreement. SECTION 4. Confidentiality and Other Matters. (a) The parties acknowledge that in order to further the purposes of this Agreement, information containing or consisting of trade secrets, customer lists and other confidential information may be communicated by Solucorp to WW. Such information may take the form of plans, drawings and data and will be deemed confidential unless otherwise designated by Solucorp or otherwise available to the public. During the Term and for a period of twelve (12) months thereafter, Solucorp shall have the right to apply and obtain from any state court located in New York a restraining order to prevent WW from disclosing such confidential information to third parries unless such disclosure is required by law or a court or other legal authority. (b) WW hereby agrees that during the Term of this Agreement he will refer prospects to Solucorp with up to $4,999,999.00 revenue potential per project, which prospects appear in WW's sole judgment to be prospects for which Solucorp can provide the best stabilization technology. Larger projects are referred by WW to Kvaerner Metals under an existing agreement. (c) WW will remain free to work with others in stabilization projects where the revenue potential exceeds $4,999,999.00 or the waste is other than metal-contaminated soil intended for off-site disposal after treatment giving Solucorp "First Right of Refusal" on such projects. SECTION 5. Discrepancies, (a) Should any provisions of this Agreement be determined to be unenforceable or prohibited by any applicable law, this Agreement shall be considered divisible as to such provision, which shall be inoperative and the remainder of this Agreement shall be valid and binding as though such provisions were not included herein. (b) If any part of this Agreement should be disputed in a court of law, the parties agree that the proper venue will be the Superior Court of New York in Rockland County. SECTION 6. Term. The term of this agreement will be for twelve (12) months from the date first entered on page 1. Either party can cancel the Agreement upon 30 days notice upon mutual agreement or upon review and acceptance of cause by an independent arbitrator. SECTION 7. WW's Covenant In soliciting business on behalf of Solucorp, WW shall only make representations and warranties concerning Solucorp's products and services as are contained in materials furnished by Solucorp to WW (all such materials being referred to herein as the "Descriptive Materials"). SECTION 8. Expenses, Solucorp will pay all reasonable business expenses incurred on behalf of Solucorp. Major expenses must be pre-approved by the President of Solucorp or his designated officers. SECTION 9. Relationship. Except as otherwise provided herein or as may be authorized in writing Solucorp, WW shall have no authority to contract any obligation in the name of, on account of, or an behalf of, Solucorp, or to make any representation or commitment with respect to Solucorp; and/or its products or services. SECTION 10. Assignment. This Agreement may not be assigned by the parties hereto without the agreement of the other party. SECTION 11. Default. Each party hereto shall have the right to correct a default in the performance of such party's obligations hereunder within fourteen (14) days upon receiving notice by certified mail to the appropriate address of the defaulting party. SECTION 12. Agreement. This Agreement constitutes the Agreement between the parties hereto and supersedes and cancels any and all previous contracts, agreements and understandings, and this Agreement may be altered only by written instrument duly executed by both parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first written above. SOLUCORP INDUSTRIES /s/ ILLEGIBLE BY: /s/ PETER MANTIA - ------------------------------- ------------------------------- Witness Name: Peter Mantia Title: President /s/ ILLEGIBLE BY: /s/ WILLIAM WEBSTER - ------------------------------- ------------------------------- Witness Name: William Webster Title: President EXHIBIT A CLARIFICATION OF RETAINER EXAMPLE 1. WW incurs $8,000.00 of services in month one (1), $1,000.00 of services in month's 2-11, but does no work in month 12, for a total of $15,000.00 of services rendered. Solucorp would pay WW $1,000.00 on the 1st of month one (1) plus $1,000.00 on the 1st of month two (2). Sometime in month two (2) the additional $7,000.00 earned would be paid. In months 3-11 on the 1st of each month Solucorp would pay WW $1,000,00. On the 1st of the 12th month a payment of $1,000 00 is made, but WW would have to refund this $1,000.00 or carry it forward as a credit if the contract is renewed since it is $1,000 more than $18,000.00 earned. EXAMPLE 2. WW does not perform any services in months 1 & 2, incurs $10,000.00 of services in month 3, does no services in month 4-12, Solucorp would pay WW $1,000.00 on the 1st of month 1, 2, & 3, and an additional $7,000.00 sometime in month 3. On the 1st of months 4 & 5 Solucorp would pay WW $1,000.00. At this point WW would have been paid $12,000.00 for only $10,000.00 of services. Accordingly, no further payments would be made. However, if the contract is renewed, Solucorp would have a credit of $2,000.00 carried forward. EXAMPLE 3. WW does not perform services in months 1-11, but incurs $7,000.00 of services in month 12, SOLUCORP would pay WW $1,000.00 on the 1st of months 1-12 for a total of $12,000.00, and make no further payments. Since less than $12,000,00 was earned WW would still be allowed to keep the $12,000.00 paid. However, if the contract is renewed, Solucorp would have a carry forward credit of $5,000.00 EX-10.13 8 CONSULTING AGREE. BTW. BELOYAN AND THE COMPANY THIS AGREEMENT dated this 19th day of November, 1997 BETWEEN: EPS ENVIRONMENTAL INC. D/B/A/ SOLUCORP INDUSTRIES LTD. a body corporate, having a business office at 250 West Nyack Road, West Nyack, NY 10994 U.S.A. (hereinafter referred to as "SOLUCORP") OF THE FIRST PART AND: MARK BELOYAN 3411 North Park Road Hollywood, Fl 33021 (hereinafter referred to as "MB") OF THE SECOND PART WHEREAS: A. Solucorp is in the business of developing products for environmental markets with specific focus on solving heavy metals contamination; B. Solucorp owns soil remediation technologies including the patent-pending MBS(R) technology; C. Solucorp Industries Ltd. operates under its registered name of Solucorp(R); D. MB is an expert in financial consulting; E. Solucorp is interested in entering into an Agreement with MB for the purpose of financial consulting and analysis for promoting its hazardous soil remediation products; Page two of three Mark Beloyan Solucorp Industries Inc. November 19, 1997 NOW THEREFORE THIS AGREEMENT WITNESSETH in consideration of the mutual convenants and premises contained herein, the parties agree as follows: 1. MB will provide Solucorp with financial consulting on an as needed basis for the period of 24 months by date of signing of this agreement. 2. MB will be present during its financial meetings regarding Solucorp and its products and services which will include the patent-pending MBS(R) soil remediation technology, EPSE chemicals, the Environmental Training Institute, Tri State Restoration and transport of hazardous waste. 3. In consideration for these services by MB, Solucorp agrees to pay MB the total sum of 50,000 free trading shares to be paid up front and will cover prepayment for the 24 month period effective the date of signing. 4. Solucorp agrees to indemnify and save harmless MB from all claims, causes of action, debts or damage which may arise pursuant to or connected with MB involvement with Solucorp under this Agreement or otherwise which claim, cause of action, debt or damage is not caused by the negligence or misfeasance of MB or his agents; 5. MB agrees to indemnify and save harmless Solucorp from all claims, causes of action, debts or damage which may arise pursuant to or connected with Solucorp's involvement with MB under this Agreement or otherwise which claim, cause of action, debt or damage is not caused by the negligence or misfeasance of Solucorp or its agents; 6. This Agreement may not be assigned by either party without the written consent of the other and is subject to Solucorp Board of Directors approval. 10. This Agreement shall be governed by the laws of the State of New York and the parties attorn to the jurisdiction of the Superior Court of New York, in Rockland County, State of new York, with respect to any disputes. Page three of three Mark Beloyan Solucorp Industries Inc. November 19, 1997 IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written. The Common Seal of Mark Beloyan was hereunder affixed in the presence of: /s/ Mark B. Beloyan - --------------------------------- Authorized Signatory Date: 11/19/97 The Common Seal of Solucorp Industries Ltd. was hereunder affixed in the presence of: /s/ Peter Mantia - --------------------------------- Authorized Signatory Date: 11/19/97 EX-10.14 9 FINDERS AGREEMENT FINDERS AGREEMENT This FINDERS AGREEMENT dated as of November 20, 1997 (this "Agreement") by and between EPS Environmental, Inc. d/b/a SOLUCORP Industries, a British Columbia corporation licensed in New York and New Jersey with its principal offices located at 250 West Nyack Road, West Nyack, New York 10994 ("Solucorp"), and Quest International Technologies, located at 279 Wood Circle Lane, Houston, TX 77015 (Quest). WITNESSETH WHEREAS, Solucorp is the sole and exclusive owner of a process to stabilize metal contaminated soils by the addition of proprietary reagents to the contaminated soils (hereinafter referred to as the "Process"); WHEREAS, Solucorp is interested in entering into this Agreement with Quest for the purpose of increasing Solucorp's client base; and WHEREAS, it is the intention of the parties hereto that through's efforts in and other named accounts and territories, Solucorp will increase its market penetration and revenues within the State of New York and other named accounts. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: SECTION 1. Cooperation. Solucorp will provide a market evaluation of the application of the Process. SECTION 2. Solucorp Support. At all times during the term of this Agreement, Solucorp will provide sufficient technical and marketing support, as limited to Solucorp's capabilities to Quest. Upon Quest's request, Solucorp shall, within reason, promptly make available such of its officers and personnel so as to enable Quest to perform his obligations set forth in this Agreement. Solucorp will contract all acceptable work with a permitted general contractor (including itself) licensed in New York, New Jersey, or, if applicable, in other named territories. SECTION 3. License. (a) Subject to the immediately following sentence, Solucorp hereby grants to Quest the non-exclusive license and right to market and promote the Process in Texas and to other named accounts and in other territories for the Term (as hereinafter defined) of this Agreement. (b) All potential work, projects, contracts and accounts will be identified in writing by Quest and must be approved prior to contract by Solucorp, which approval shall not be unreasonably withheld or delayed. (c) Solucorp recognizes that such marketing and promotional efforts of Quest could likely result in further direct and indirect accounts contacting Solucorp directly and unbeknownst to Quest. Solucorp acknowledges that it will make every possible effort in identifying these accounts as rightfully those resulting from Quest's efforts, in and out of the United States. SECTION 4. Compensation. (a) In consideration of Quests obligations set forth herein, Solucorp hereby covenants and agrees that it shall promptly pay to Quest the following amounts for all remediation jobs, work, projects or contracts obtained by Solucorp or its affiliates as a direct result of Quests efforts or contacts. Three percent (3.0%) of the Gross Revenues for each such job, work, project or contract. Such amounts shall be paid by Solucorp to Quest in immediately available funds within ten (10) days after Solucorp's receipt of any amounts from any third party. All amounts paid to Quest shall be made without any offset or deduction; provided, however, that Quest shall not be entitled to commissions with respect to such amounts as are invoiced by Solucorp which have not been paid by the applicable customer. (b) For purposes of this Agreement, the term "Gross Revenues" means the total dollar amount of all revenues due in connection with each job, work, project or contract obtained by Solucorp or its affiliates as a direct result of Quests efforts or contacts before deductions for any purpose. SECTION 5. Use of the Process. Except as otherwise provided in this Agreement, this Agreement shall not constitute a license for the use of the Process and any use of the Process by Quest will be subject to the approval by Solucorp. SECTION 6. Confidentiality and Other Matters. (a) The parties acknowledge that in order to further the purposes of this Agreement, information containing or consisting of trade secrets, customer lists and other confidential information may be communicated by Solucorp to Quest. Such information may take the form of plans, drawings and data and will deemed confidential unless otherwise designated by Solucorp or otherwise available to the public. During the Term and for a period of twelve (12) months thereafter, Solucorp shall have the right to apply and obtain form any state court located in New Jersey or New York a restraining order to prevent Quest from disclosing such confidential information to third parties unless such disclosure is required by law or a court or other legal authority. (b) Quest hereby agrees that during the Term of this Agreement it will not handle or represent any directly competitive products to those of Solucorp in the United States or otherwise promote the sale of any such products or services in the United States, except, in all cases, those of Solucorp. For a period of twelve (12) months following the termination of this Agreement, Quest agrees that it will not work for any competitors of Solucorp involved in heavy metal remediation in the United States. SECTION 7. Discrepancies. (a) Should any provisions of this Agreement be determined to be unenforceable or prohibited by any applicable law, this Agreement shall be considered divisible as to such provision, which shall be inoperative and the remainder of this Agreement shall be valid and binding as though such provisions were not included herein. (b) If any part of this Agreement should be disputed in a court of law, the parties agree that the proper venue will be the Superior Court of New York in Rockland County. SECTION 8. Term. The term of this Agreement will be for 12 months form the date first entered on page 1. Either party can cancel the Agreement upon 90 days written notice upon mutual agreement or upon review and acceptance of cause by an independent arbitrator. SECTION 9. Quest, In soliciting business on behalf of Solucorp, Quest shall only make representations and warranties concerning Solucorp's products or services as are contained in materials furnished by Solucorp to Quest (all such materials being referred to herein as the "Descriptive Materials"), and Quest shall not be held liable for any actions relating to the use of Solucorp products or services. SECTION 10. Expenses. Each party hereto will assume and pay all expenses of their respective business operations, including, without limitation, any and all costs and expenses related to their respective telephones, automobiles, gasoline costs, postage, wages, taxes, social security taxes, unemployment and disability benefits, workman's compensation, etc. SECTION 11. Relationship. Except as otherwise provided herein or as may be authorized in writing by Solucorp, Quest shall have no authority to contract any obligation in the name of, on account of, or on behalf of, Solucorp, or to make any representation or commitment with respect to Solucorp and/or its products or services. SECTION 12. Assignment. Except as otherwise provided herein, this Agreement may not be assigned by the parties hereto. SECTION 13. Default. Each party hereto shall have the right to correct a default in the performance of such party's obligations hereunder within thirty (30) days upon receiving notice by certified mail to the appropriate address of the defaulting party. SECTION 14. Agreement. This Agreement constitutes the entire Agreement between the parties hereto and supersedes and cancels any and all previous contracts, agreements and understandings, and this Agreement may be altered only by written instrument duly executed by both parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Aagreement to be duly executed and delivered by their duly authorized officers as of the date first written above. SOLUCORP INDUSTRIES By: /s/ PETER MANTIA - --------------------------- --------------------------------- Witness Name: Peter Mantia Title: President Date: 11/19/97 By: /s/ HERMAN GONZALEZ - --------------------------- --------------------------------- Witness Name: Herman Gonzalez Quest International Technologies Date: 12-1-97 PM/kmm EX-10.15 10 FINDERS AGREEMENT BETWEEN ENVIRO-TECH AND CO. FINDERS AGREEMENT This FINDERS AGREEMENT dated as of February 2, 1998 (this "Agreement") by and between EPS Environmental, Inc. d/b/a SOLUCORP Industries, a British Columbia, Canada corporation with its principal offices located at 250 West Nyack Road, West Nyack, New York 10994 ("Solucorp"), and ENVIRO-TECH COMPLIANCE SERVICES, INC. ("ETCS") whose office is located at 27777 Franklin Road, Suite 1080, Southfield, Michigan 48034, and EnviroMatrix Inc., (EM) 1249 Washington Blvd., Suite 3500, Detroit, Michigan 48228 WITNESSETH WHEREAS, Solucorp is the sole and exclusive owner of a process to stabilize metal contaminated soils by the addition of proprietary reagents to the contaminated soils (hereinafter referred to as the "Process") and vendor of environmental remediation abatement and disposal services through subsidiaries, affiliates and contacts. WHEREAS, ETCS is interested in entering into this Agreement with EM for the purpose of increasing Solucorp's client base; and WHEREAS, it is the intention of the parties hereto that through EM efforts in Michigan and other named accounts and territories, ETCS will increase its market penetration and revenues within the State of Michigan and other named accounts. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: SECTION 1. Cooperation. Solucorp will provide a market evaluation of the application of the Process. SECTION 2. Solucorp Support. At all times during the term of this Agreement, Solucorp will provide sufficient technical and marketing support, as limited to Solucorp's capabilities, to ETCS and EM. Upon ETCS's request, Solucorp shall, within reason, promptly make available such of its officers and personnel so as to enable ETCS and EM to perform its obligations set forth in this Agreement. Solucorp will contract all acceptable work with a permitted general contractor (including itself) licensed in Michigan or, if applicable, in other named territories. SECTION 3. License. (a) Subject to the immediately following sentence, ETCS hereby grants to EM the non-exclusive license and right to market and promote the Process in Michigan and exclusive right to market and promote in India and Southeast Asia or other named accounts and in other territories for the Term (as hereinafter defined) of this Agreement. (b) All potential work, projects, contracts and accounts will be identified in writing by EM and must be approved prior to contract by ETCS and Solucorp, which approval shall not be unreasonably withheld or delayed. (c) Solucorp recognizes that such marketing and promotional efforts of ETCS and EM could likely result in further direct and indirect accounts contacting Solucorp directly and unbeknownst to ETCS and EM. Solucorp acknowledges that it will make every possible effort in identifying these accounts as rightfully those resulting from ETCS's and EM's efforts. SECTION 4. Compensation. (a) In consideration of ETCS's Obligations set forth herein, Solucorp hereby covenants and agrees that it shall promptly pay the Finders Fee to ETCS the following amounts for all remediation jobs, work, projects or contracts obtained by Solucorp or its affiliates as a direct result of EM efforts or contacts. Three percent (3.0%) of the Gross Revenues for each such job, work, project or contract; or a mutually agreed upon rate for a specifiec project where profit margins allow. Such amounts shall be paid to ETCS in immediately available funds within ten (10) days after Solucorp's receipt of any amounts from any third party. All amounts paid shall be made without any offset or deduction; provided, however, that ETCS shall not be entitled to commissions with respect to such amounts as are invoiced by Solucorp which have not been paid by the applicable customer. (b) In consideration of EM's Obligations set forth herein, ETCS hereby convenants and agrees that it shall promptly pay to EM the following amounts for all remediation jobs, work, projects or contracts obtained by Solucorp or its affiliates as a direct result of EM efforts or contacts; One and one half percent (1.5%) of the Gross Revenues for each such job, work, project or contract, or a mutually agreed upon rate for a specific project where profit margins allow. (c) For purposes of this Agreement, the term "Gross Revenues" means the total dollar amount of all revenues due in connection with each job, work, project or contract obtained by Solucorp or its affiliates as a direct result of ETCS and EM's efforts or contacts before deductions for any purpose. SECTION 5. Use of the Process. Except as otherwise provided in this Agreement, this Agreement shall not constitute a license for the use of the Process and any use of the Process by ETCS and EM will be subject to the approval by Solucorp. SECTION 6. Confidentiality and Other Matters. (a) The parties acknowledge that in order to further the purposes of this Agreement, information containing or consisting of trade secrets, customer lists and other confidential information may be communicated by Solucorp to ETCS and EM. Such information may take the form of plans, drawings and data and will deemed confidential unless otherwise designated by Solucorp or otherwise available to the public. During the Term and for a period of twelve (12) months thereafter, Solucorp shall have the right to apply and obtain from any state court a restraining order to prevent ETCS and EM from disclosing such confidential information to third parties unless such disclosure is required by law or a court or other legal authority. 2 (b) ETCS hereby agrees that during the Term of this Agreement it will not handle or represent any directly competitive products to those of Solucorp in the United States or otherwise promote the sale of any such products or services in the United States, except, in all cases, those of Solucorp. For a period of twelve (12) months following the termination of this Agreement, ETCS agrees that it will not work for any competitors of Solucorp involved in heavy metal remediation in the United States. (c) EM hereby agrees that during the Term of this Agreement it will not handle or represent any directly competitive products to those of Solucorp in the United States or otherwise to promote the sale of any such products or services in the United States, except, in all cases those of Solucorp. For a period of (12) twelve months following the termination of this agreement EM agrees that it will not work for any competitors of Solucorp involved in heavy metal remediation in the United States. SECTION 7. Discrepancies. (a) Should any provisions of this Agreement be determined to be unenforceable or prohibited by any applicable law, this Agreement shall be considered divisible as to such provision, which shall be inoperative and the remainder of this Agreement shall be valid and binding as though such provisions were not included herein. (b) If any part of this Agreement should be disputed in a court of law, the parties agree that the proper venue will be the Superior Court of New York in Rockland County. SECTION 8. Term. The term of this Agreement will be for 12 months form the date first entered on page 1. Either party can cancel the Agreement upon 30 days written notice upon mutual agreement or upon review and acceptance of cause by an independent arbitrator. SECTION 9. Covenant. (a) ETCS's Covenant in soliciting business on behalf of Solucorp, ETCS shall only make representations and warranties concerning Solucorp's products or services as are contained in materials furnished by Solucorp's products or services as are contained in materials furnished by Solucorp to ETCS (all such materials being referred to herein as the "Descriptive Materials"). (b) EM Covenant in soliciting business on behalf of Solucorp, EM shall only make representation and warranties concerning Solucorp's products or services as are contained in materials furnished by Solucorp's products or services as are contained in materials furnished by Solucorp to EM (all such materials being referred to herein as the "Descriptive Materials"). SECTION 10. Expenses. Each party hereto will assume and pay all expenses of their respective business operations, including, without limitation, any and all costs and expenses related to their respective telephones, automobiles, gasoline costs, postage, wages, taxes, social security taxes, unemployment and disability benefits, workman's compensation, etc. 3 SECTION 11. Relationship. (a) Except as otherwise provided herein or as may be authorized in writing by Solucorp, ETCS shall have no authority to contract any obligation in the name of, on account of, or on behalf of, Solucorp, or to make any representation or commitment with respect to Solucorp and/or its products. (b) Except as otherwise provided herein or as may be authorized in writing Solucorp, EM shall have no authority to contract any obligation in the name of, on account of, or on behalf of, Solucorp, or to make any representation or commitment with respect to Solucorp and/or its products. SECTION 12. Assignment. Except as otherwise provided herein, this Agreement may not be assigned by the parties hereto. SECTION 13. Default. Each party hereto shall have the right to correct a default in the performance of such party's obligations hereunder within thirty (30) days upon receiving notice by certified mail to the appropriate address of the defaulting party. SECTION 14. Agreement. This Agreement constitutes the entire Agreement between the parties hereto and supersedes and cancels any and all previous contracts, agreements and understandings, and this Agreement may be altered only by written instrument duly executed by both parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first written above. Solucorp Industries, Ltd. /s/ [ILLEGIBLE] By: /s/ ROBERT B. KUHN 2-3-98 - --------------------------- --------------------------------- Witness R. Kuhn V.P. Sales Enviro-Tech Compliance Services, Inc. /S/ [ILLEGIBLE] /s/ WILLIAM R. HARTMAN 2-2-98 - --------------------------- --------------------------------- Witness William R. Hartman, President Enviro Matrix, Inc. /s/ [ILLEGIBLE] /s/ [ILLEGIBLE] 2-3-98 - --------------------------- --------------------------------- Witness [ILLEGIBLE], President 4 EX-10.16 11 LICENSING AGREEMENT [KBF POLLUTION MANAGEMENT INC. LETTERHEAD] PETER MANTIA March 18, 1998 Solucorp Industries 250 West Nyack Road West Nyack, New York 10994 - --------------------------------- STRICTLY PRIVATE AND CONFIDENTIAL - --------------------------------- RE: ESCROW ACCOUNT. Dear Peter: This letter will serve as our understanding that the portion of the License Fee due and owing under the terms of the Licensing Agreement (hereinafter the "Agreement") executed by the parties of even date herewith shall be held in escrow by Sonageri & Fallon LLC, Continental Plaza II, Hackensack, New Jersey 07601 (the "Escrow Agent") and shall be released from same pursuant to the following conditions, contingent upon all regulatory approval. All capitalized terms not otherwise defined herein shall have the respective meanings ascribed thereto in the Asset Purchase Agreement. 1. After an initial 38,110 shares of unrestricted common stock of the Licensee are issued and released to the Licensor immediately, a total 152,440 shares of unrestricted common stock of the Licensee shall be placed into the escrow account. 2. 50,813 shares of this stock shall be released to the Licensor from escrow on April 20, 1998, 50,813 shares shall be released on May 20, 1998, and 50,814 shares shall be released on June 20, 1998. Very Truly Yours, KBF POLLUTION MANAGEMENT INC. By: /S/ LAWRENCE M. KREISLER ------------------------- Lawrence M. Kreisler Chief Executive Officer Confirmed and Agreed to by: SOLUCORP INDUSTRIES LTD. By: /S/ PETER MANTIA ---------------- Peter Mantia President LICENSING AGREEMENT =================== This Licensing Agreement is effective as of this 20th day of March, 1998 by and between KBF Pollution Management, Inc., a New York Corporation, with offices located at One KBF Plaza, End of Jasper Street, Paterson 07522 (hereinafter the "Licensor") and EPS Environmental, Inc. dba Solucorp Industries, a British Columbia Corporation, with its principal offices located at 250 West Nyack Road, West Nyack, New York 10994 (hereinafter the "Licensee"). WITNESSETH WHEREAS, the Licensor owns the exclusive rights to a patent-pending process to separate, recover and reclaim metals from liquids by the addition of certain reagents (hereinafter the "Technology"), under prescribed methodological conditions (hereinafter the "Process"); and, WHEREAS, the Licensor possesses expertise in determining the nature and extent of the applicability of the Technology and Process (hereinafter the "Know-how"); and, WHEREAS, the Licensee is involved in the environmental remediation business and desires to obtain a License for the use and marketing of the Technology and Process to remediate, recover and/or treat liquid streams of wastes containing metals throughout the world. NOW THEREFORE, in consideration of the foregoing premises and of the mutual promises, covenants, conditions, and limitations herein contained, as well as other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Licensor and the Licensee do hereby agree as follows: ARTICLE I --------- DEFINITIONS ----------- As used above and throughout this entire Agreement, the following terms shall have the meanings as hereinafter defined: 1.01 Affiliates. Any entity in which a party to this Agreement or any of its stockholders, directors or officers has a direct or indirect ownership interest (other than insubstantial interests in publicly held companies), or any entity which directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with a party to this Agreement. 1.02 Consumer Price Index ("CPI"). The index used for site specific price escalation as determined by the prevailing official rates and other factors of the national market in which that site exists (see Attachment B). 1.03 Demand. The demand for the Licensed Material shall be evidenced by any and all potential clients, customers, third party environmental remediation or management companies, governments and/or site operators which generate or in any manner produce, remediate or manage any liquid metal bearing waste to which the Licensed Material may apply. 1.04 Effective Date. The effective date of this Agreement shall be the 20th day of March, 1998. 1.05 Engineering Contractor. An engineering and/or construction firm shall be designated for each site. This engineering contractor will work directly with the Licensor in the design and engineering of the site, and consult with the Licensor as needed during the construction of the site. The engineering contractor will be required to enter into separate agreements directly with the Licensor. 1.06 Essential Components. Components without which the Technology and/or the Process would be, at worst, ineffective, and at best, inefficient. These components include SST, a required polymer and ================================================================================ 1 the items and categories of equipment provided for pursuant to the terms and conditions of each site specific agreement. All essential components shall be purchased directly from the Licensor. 1.07 F.o.b. Shipping. Method of shipping having that meaning ascribed to it by standard convention that essentially provides that title for any goods purchased changes hands at the point of distribution. The Licensee will after taking such title be responsible for all costs, taxes, transportation, insurance and/or damage. 1.08 Feasibility Study. Upon the provision of certain information and samples, detailed herein, the Licensor will perform an analysis of each site and the existing contamination and/or waste stream. This study will allow the Licensor to determine the nature and the extent of the applicability of the Technology and Process. This feasibility study will ultimately form the basis for all subsequent design, engineering, technical assistance, training and standard operating procedures for each site. 1.09 Gross Receipts. The residual gross revenue upon which the royalties payable hereunder shall be calculated in accord with the principles outlined in Attachment B, specifically Section A of said Attachment. 1.10 Know-how. The Licensor possesses considerable knowledge and experience in practicing the Licensed Material. Every site and every stream of waste is unique and requires different procedures, quantities of reagents and equipment to process efficiently. The Licensor's expertise in this respect is critical in determining the nature and extent of the applicability of the Technology and Process to each individual site or stream of waste. Know-how is expressly excluded from Licensed Material. 1.11 Letter of Credit. Stand-by letter of credit with site draft attached provided by banking institution approved by the Licensor. 1.12 Licensed Material. The license herein granted applies to the use and marketing of the present Technology and Process to remediate, recover and/or treat liquid streams of wastes containing metals as defined in Attachment A, annexed hereto, and does not apply to other technologies or processes now existing or hereafter to be created, designed or engineered by the Licensor. 1.13 Off-Spec Waste or Site. Pursuant to the terms herein, the Licensor will be performing a feasibility study for each site. This study is critical to determining the nature end the extent of the applicability of the Technology and Process, as well as the design, engineering and construction for each site. In order to perform this feasibility study, samples and other information must be provided. If the actual site or waste characteristics materially differ from the sample's characteristics, the site or waste will be deemed by the Licensor to be off-spec. 1.14 Patent. Shall refer to and include applications for letters patent, letters patent (including reissues, divisions, continuations or extensions thereof), and rights by license or otherwise acquired under letters of patent whenever acquired, owned, or possessed, applicable to the use of the Technology and Process to remediate, recover and/or treat liquid streams of wastes containing metals as defined in Attachment A, annexed hereto. 1.15 Polymer. A coagulating compound that may or may not be used in treatment. Its use will be a function of the characteristics of the individual site and/or waste at issue. The polymer is one of the essential components as that term is defined herein. 1.16 Process. The portion of the Licensed Material that details the general methodology for the correct application of the Technology to remediate, treat, recover and reclaim metals from liquid waste for re-use as provided for in Attachment A, annexed hereto. 1.17 Quality Control and Assurance ("QC QA"). The quality control and quality assurance protocols are essential to the effective and efficient operation of the Technology and Process. Failure to conform ================================================================================ 2 to these protocols may result in the failure of the Technology and Process to perform the functions contemplated herein. 1.18 Reagent. A chemical compound that is required for the use of the Licensed Material. 1.19 Recovered Product. An ultimate end product of the use of the Licensed Material. The recovered product will take the form of a dried powder that will have moderate to high concentrations of elemental metals. The recovered product is analogous to virgin ore taken directly from the ground and is likely to have concentrations of metals and a higher commercial value than virgin ore. 1.20 Related Company. Any third party with whom the Licensee has entered into a partnering, licensing, sales, marketing, contracting, or other remediation, recovery and/or treatment relationship with for the express purpose of carrying out the transactions contemplated hereby in the Grant Territory. 1.21 Selective Separation Technology ("SST"). An essential chemical component of the Technology without which the Licensed Material would be ineffective. 1.22 Site Approval. After performing the initial feasibility study for a specific site, the Licensor will make a determination as to whether or not and/or to what extent the Licensed Material applies to the characteristics of the site. The Licensor, upon making its final determination will issue a site approval and prepare a preliminary proposal for the process to be employed at the site. 1.23 Site Operator. The Related Company or other entity in charge of the management and/or operations of an individual site. 1.24 Site Specific Agreement. Separate per site agreement contemplating the use of the Technology and Process as applied to the specific conditions of one individual site. It is the intent of the parties hereto to enter into a site specific agreement for each and every site, as that term is herein defined. This agreement shall state with precision (in terms of U.S. dollars) the gross per gallon receipts and other price and cost terms herein referenced for each site, which terms will be defined upon the final site approval of each site (see Attachment B). This agreement shall also detail with precision all such terms herein referenced that remain discretionary and conditioned upon final site approval, including, but not limited to, any terms detailing the requisite standard operating procedures and quality control protocols, the required essential equipment and the furnishing of Know-how to the site operator or other third party. 1.25 Site. A specific treatment or remediation system, designed for the treatment, recovery and/or remediation of a specific stream of waste using the Licensed Material. There can be more than one site at any one individual location. 1.26 Standard Operating Procedure ("SOP"). As part of the preparation of the final design proposal for each site, the Licensor shall prepare a site specific standard operating procedure manual for the site. All site personnel will be trained according to the standard operating procedure of their respective sites. Strict adherence to SOP protocols is essential to the efficient use of the Licensed Materials. 1.27 Technology. The portion of the Licensed Material that details the general chemistry and reagents for the correct application of the Technology to remediate, treat, recover and reclaim metals from liquid waste as provided for in Attachment A, annexed hereto. 1.28 Work-plan. After performing the initial feasibility study for each site, and upon issuance of the specific site approval, the Licensor will prepare a preliminary proposal and work plan for the design and construction of the site. This proposal will be presented to the Licensee or any Related Company, including the engineering contractor for inclusion into the a final work plan for each site. ================================================================================ 3 ARTICLE II ---------- GRANT OF LICENSE; TERRITORY AND LIMITATIONS ------------------------------------------- 2.01 Grant. The Licensor hereby grants to the Licensee, for approved sites within the Grant Territory only, as provided for by provision 2.02 hereof, the exclusive right, license and privilege, subject to provision 5.07 hereof, to use and market the Technology and Process to remediate, recover and/or treat liquid streams of wastes containing metals. 2.02 Grant Territory. The exclusive license herein granted is world-wide and for only those sites approved by the Licensor. 2.03 Scope. The grant shall be inclusive of the right, license and privilege solely to the use of the Technology and Process as contemplated by this Agreement only. (a) Exclusion of Know-how. The parties hereby agree that Know-how, as that term is herein defined, will be furnished by the Licensor, pursuant to the terms as herein defined, on a site specific basis as needed for the consideration defined in Article IV, "Royalties and Fees," and that this Know-how shall not be included in the grant of the Licensed Material. (b) Exclusion of the Manufacture of Reagents. Neither the Licensee or any Related Company, Affiliate, sublicensee or other party shall have the right to manufacture SST or the polymer required for the Technology and Process as herein defined or referenced, and shall purchase the SST and the polymer exclusively from the Licensor on the cost basis and upon terms defined in Article IV, "Royalties and Fees," and the applicable site specific agreement. (c) Exclusion of New Technologies; Processes and Know-how. The license herein granted applies to the Technology and Process in existence on the effective date of this Agreement, and does not apply to other technologies or processes now existing or hereafter created, designed or engineered by the Licensor or others. In the event that the Licensee desires to obtain the rights to any additional technologies or processes now or hereafter existing, the granting of such rights shall be subject to separate written agreement then to be negotiated, for which rights the Licensee shall have a right of first refusal in the Grant Territory only. 2.04 Site Specific Approval. The Licensee shall not under any circumstance use or otherwise arrange for the use of the Licensed Material in any site not approved by the Licensor. 2.05 Transferability. The grant of the License to Licensee is nontransferable, nonassignable and indivisible. The Licensee shall have the right, however, to sub-license to any third party upon the prior express written consent of the Licensor, which consent shall not be unreasonably withheld. Upon such circumstance, the Licensor reserves the right, free of restriction, to make independent arrangements with the third-parry with respect to the furnishing of Know-how, purchase of reagents and equipment quality control and assurance, training, record keeping and reporting, and any technical or other support that may be required. 2.06 No Competitive Technologies, Processes or Know-how. Until either party shall give to the other notice of termination of this Agreement as hereinafter provided: (a) Licensee shall not enter into any other license agreement for any directly competitive Technology and/or Process within the Grant Territory and, (b) the Licensee shall not directly or indirectly undertake to purchase and/or use any directly competitive Technology or Process, if any such technologies and/or processes presently or hereafter exist, except those of the Licensor. 2.07 Sales Through Related Company. Licensee shall have the right to conduct sales, marketing and contracting through a Related Company provided that the Licensee shall be responsible for the payment ================================================================================ 4 of royalties and other obligations under this Agreement. The Licensee shall within reason disclose to the Licensor the identity of any such Related Company, and provide copies of all relevant agreements in place with the Related Company that are reasonably related to the transaction contemplated by this Agreement. 2.08 Patent Coverage Delimited. No license or right is hereby granted by implication or otherwise, with respect to any other letters patent or applications thereto except as specifically set forth herein and in Attachment A, annexed hereto. 2.09 Breach Event. Breach of this Article of the License Agreement in any manner shall be deemed a material breach for which the Licensor may pursue termination in full accord with the provisions of this Agreement. ARTICLE III ----------- TERMINATION AND TENURE ---------------------- 3.01 Term. This agreement shall continue in effect, unless sooner terminated as hereinafter provided, for a period of five (5) years ending on March 20, 2003. The term of this Agreement shall automatically renew for successive periods of one year at the end of the term hereof, including renewal terms, unless either party shall have given written notice of non-renewal at least one year prior to the end of the term. 3.02 Material Breach. If the Licensee shall at any time and for any reason not make payment to the Licensor of any royalty or other amount agreed to be paid hereunder by the date required by this Agreement as required under any site specific agreements, or shall default in the making and provision of any report hereunder required by the date required by this Agreement, or shall commit any breach of any covenant or agreement herein contained, or shall negligently make any false report and shall fail to remedy such default, breach or report within thirty (30) days in the case of the Licensee or sixty (60) days in the case of any potential sub-licensee after written notice thereof by Licensor, Licensor may, at its option, terminate this Agreement and the Licenses herein granted by written notice of such termination. (a) in the event of any or more of the following: (i) any breach of this Agreement not cured within sixty (60) days after notification thereof; (ii) insolvency or bankruptcy of either party; (iii) appointment of a trustee or receiver for either party; (iv) the failure of the Licensee to use its best efforts to satisfy any of the Demand, as herein defined in the Grant Territory after a period of one (1) year from the date of this Agreement; (v) the failure of the Licensee to comply with and abide by the terms of any the Licensor's feasibility studies, final work plans or designs, quality control and assurance procedures and reporting requirements or any instructional manual detailing the standard operating procedures for each site; and/or, (vi) the production by the Licensee of any intentionally misleading or otherwise fraudulent or false report. then, and in addition to all other rights and remedies which either party may have in law or equity, the party not in default may at its option terminate this Agreement by written notice. Such termination shall become effective on the date set forth in the said notice of termination but in no event shall it be earlier than thirty (30) days from the date of notice thereof. The waiver of the right of termination for any default under this Agreement shall ================================================================================ 5 not constitute a waiver of the right to claim damages for such default or the right to terminate for any subsequent default. 3.03 Agreement Not to Use or Employ. On termination of this Agreement, Licensee hereby agrees that it will not, in perpetuity, either directly, indirectly or through any or its Related Companies or Affiliates, Licensees, sublicenses, clients, or partners, use or employ any information disclosed by the Licensor from the patent disclosures and applications, technologies, trade secrets, designs, formulas, processes, Know-how, contracts, samples, feasibility studies, work-plans, project documentation, books, instructional volumes, notes, drawings, writings, documents, files, models, photographs, videos, drawings, sketches, ideas, concepts and inventions in any stage of development or completion, improvements and discoveries relating to the rights, privileges and license, and any improvements thereto, which are the subject matter of this Agreement. (a) Sublicense Contingency. In the event that, pursuant to provision 2.05, and upon the express written consent of the Licensor, the Licensee sublicenses any rights or privileges to any third party, the Licensee shall impose the same condition in perpetuity upon its sublicensees with respect to not using any of the information disclosed by the Licensor or the Licensee from the Licensor's patent disclosures and applications, technologies, trade secrets, designs, formulas, processes, Know-how, contracts, samples, feasibility studies, work-plans, project documentation, books, instructional volumes, notes, drawings, writings, documents, files, models, photographs, videos, drawings, sketches, ideas, concepts and inventions in any stage of development or completion, improvements and discoveries relating to the rights, privileges and license, and any improvements thereto, which are the subject matter of this Agreement (b) Covenant to Enforce as to Sublicensee. The Licensee agrees and hereby covenants that it shall engage in all reasonable efforts to enforce the terms of this subsection 3.03 as against any possible defaulting sublicensee, the failure of which enforcement may result in the initiation of suit in infringement and breach as against any possible defaulting sublicensee. 3.04 Surrender of Rights and Know-how. On the termination of this Agreement, for any reason whatsoever, Licensee, its Related Companies or Affiliates shall deliver to Licensor all parent disclosures and applications, technologies, trade secrets, designs, formulas, processes, Know-how, contracts, samples, feasibility studies, work-plans, project documentation, books, instructional volumes, standard operating procedures, notes, drawings, writings, documents, files, models, photographs, videos, drawings, sketches, any and all duplicated materials on whatever media so reproduced, ideas, concepts and inventions in any stage of development or completion, improvements and discoveries relating to the rights, privileges and license, and any improvements thereto, which are the subject matter of this Agreement. (a) Sublicense Contingency. In the event that, pursuant to provision 2.05, and upon the express written consent of the Licensor, the Licensee sublicenses any rights or privileges to any third party, the Licensee shall to the best of its ability cause said sublicensee(s) to deliver to Licensor all patent disclosures and applications, technologies, trade secrets, designs, formulas, processes, Know-how, contracts, samples, feasibility studies, work-plans, project documentation, books, instructional volumes, standard operating procedures, notes, drawings, writings, documents, files, models, photographs, videos, drawings, sketches, any and all duplicated materials on whatever media so reproduced, ideas, concepts and inventions in any stage of development or completion, improvements and discoveries relating to the rights, privileges and license, and any improvements thereto, which are the subject matter of this Agreement. 3.05 Disposal of Inventory. In the event of termination, Licensor shall be given right of first refusal to purchase any reagents and/or stocks of any raw materials, as required to have been purchased from the Licensor pursuant to the terms herein defined, as the Licensee and/or any Related Company, Affiliate or ================================================================================ 6 sublicensee of the Licensee may have in its possession. If the Licensor does not buy said inventories, the Licensor will give to the Licensee or Related Company, Affiliate or sublicensee the right to continue selling or using the stock on hand and raw materials until these stocks on hand are exhausted. 3.06 Rights and Obligations Upon Termination. In case of termination, Licensor shall have the right to give public notice thereof in such manner and at such time and places as it may deem advisable. Upon termination of this Agreement, by expiration or otherwise, the following rights, privileges and/or obligations shall continue to inure to the benefit of the parties: (a) The Licensor shall have the right, free of restriction, to directly contract or otherwise conduct any transaction in furtherance of the purposes herein contemplated with any Related Company, Affiliate, and/or sublicensee of the Licensee or any other third party then using, preparing for or otherwise anticipating the use of the Technology and Process. (b) The termination of this Agreement shall not relieve the Licensee in any way from its obligation to pay Licensor all royalties and fees which shall have accrued up to the effective date of termination. (c) Any termination or expiration of this Agreement shall not prejudice any cause of action or claim of Licensor accrued or to accrue on account of any breach or default by Licensee. (d) Any termination or expiration of this Agreement under this Article shall not prejudice the right of the Licensor to a final audit of the records of the Licensee in accordance with the provisions of Article IV hereof. (e) Any termination or expiration of this Agreement shall not affect the continued operation or enforcement of any provision of this Agreement which by its express terms is to survive expiration or termination. 3.07 Remedies. The parties hereto agree that the remedy at law for any breach of this Agreement will be inadequate and it will be impracticable and extremely difficult to prove, and further agree that such a breach would cause the aggrieved party irreparable harm, and each party hereby covenants and agrees that such aggrieved party shall be entitled to temporary and permanent injunctive relief, without the necessity of proving actual damages. ARTICLE IV ---------- ROYALTIES AND FEES ------------------ All royalties and fees outlined hereafter become payable as scheduled herein: 4.01 License Fee. The Licensee shall pay to the Licensor, simultaneously with the execution and delivery of this license, an initial license issue fee of $500,000. The Licensee shall further pay to the Licensor a residual license fee of $0.0005 per gallon for the entire term of this agreement, which fee shall be paid by the Licensee out of its percentage of the total gross per gallon receipts, as that term is herein defined. (a) The initial license issue fee shall be paid in the form of unrestricted common stock of the Licensee, at 80% of its market value as of the close of business on March 19, 1998 (190,550 shares). Four-fifths of this stock shall be held in escrow by Sonageri & Fallon LLC, Continental Plaza II, Hackensack, New Jersey 07601. The stock held in escrow shall be released to the Licensor in three equal disbursements on April 20, 1998, May 20, 1998 and June 20, 1998. (b) The residual license fee shall be paid on the fifteenth (15th) of every month, commencing with the onset of operations at the first approved site and continuing in perpetuity thereafter on a per gallon basis. ================================================================================ 7 4.02 Royalty. For the rights and privileges granted under the License, the Licensee shall pay to the Licensor, in the manner hereinafter provided, and until this license is terminated as herein provided, a standard royalty 50% of the gross per gallon receipts, as that term is herein defined, calculated on a per site basis (see Attachment B), for the use of the Technology and Process for the remediation, recovery and/or treatment of any and all quantities of liquid waste processed in the Grant Territory. (a) Minimum Royalty. Except upon the express written consent of the Licensor or as provided in provision 4.02 (b) hereof, in no event shall the Licensee pay to the Licensor a royalty of less than $3,000,000 for the first two years, and $2,000,000 per year thereafter for the remaining term of the agreement. In the event that the minimum royalty shall be paid, the first minimum royalty shall be payable in full by December 31, 1999, and all minimum royalties thereafter shall be payable in full at the end of the relevant calendar year. (b) In the event that the Licensed Material is not as warranted herein, and provided that the total gross receipts, as that term is herein defined, do not exceed $6,000.000 in the first two years and $4,000.000 per year for each year thereafter for the term of this Agreement, the extent of the Licensee's pecuniary liability for the minimum royalty payable hereunder to the Licensor shall be limited to 50% of the gross receipts. (c) The dollar amount of the royalty and all costs and calculations therefor shall be precisely detailed in each Site Specific Agreement to be entered into by the parties hereto upon the final site approval of each site. It is the intent of the parties to compute the above defined costs and figures on a per gallon basis, using dollars per gallon as the unit of calculation, and to standardize these costs by taking into account the total quantity of waste per site anticipated to be processed per year as herein contemplated. All costs of operations and reagents shall be expressed as a function of this projected total quantity (see Attachment B). (d) The royalty shall be computed per site, and shall under no circumstance be less than $0.007 per gallon. The royalty due on any one site shall not under any circumstance have any impact on the amount of the royalty due on any other site. 4.03 Purchase of Reagents. The Licensee shall cause to be purchased exclusively from the Licensor the SST at a rate of $18.00 per gallon, and a required polymer at a rate of $5.00 per pound. All costs of shipment of the reagents f.o.b. from the point of manufacture to the Grant Territory. (a) The payment will be tendered by an approved institutional stand-by letter of credit with site draft attached for each order or as approved in writing individually by Licensor. 4.04 Purchase of Equipment. Except upon the express written consent of the Licensor, the Licensor shall distribute and/or make available to the Licensee and/or the sublicensee and/or the site operator specific items of essential equipment at a cost plus ten and ten (10% plus 10%) basis. (a) The payment will be tendered by an approved institutional stand-by letter of credit with site draft attached for each order or as approved in writing individually by Licensor. 4.05 Feasibility Report. The Licensor shall at its own expense perform a feasibility study and produce a report thereon on a site by site basis. (a) The Licensee, or any of its Related Companies, Affiliates, sublicensees, site operators or the engineering contractor shall provide all relevant information for each site reasonably required by the Licensor to perform the initial feasibility study, including but not limited to samples, process descriptions, engineering drawings and schematics, precise quantity, flow and throughput figures, and, if travel to any site is for any reason impracticable, a video recording of the site. ================================================================================ 8 4.06 Training. The Licensor shall at its own expense provide for all training for each site. All personnel will be trained for a two week period at the Licensor's facility in Paterson, New Jersey, and then for a period of time, not to exceed one week, at their respective site. (a) General Indemnification. The Licensee hereby agrees to indemnify and hold the Licensor harmless from all loss, expense (including reasonable attorney's fees) and damages arising out of any claims, demands and liabilities (including claims by Related Companies, sublicensees, employees and other third parties) incurred by the neglect, crime or other act of any person under control of the Licensee being trained by the Licensor. 4.07 Support. The Licensor shall be responsible for and shall render technical support to the Related Company, Affiliate, sublicensee, and/or the site operator at a cost of up to $300.00 per hour, but at no time less than $190.00 per hour (depending on the level of support required), for all technical support, billed to each quarter hour. All support fees shall be payable within thirty days of the date the support is rendered. 4.08 Quality Control Monitoring. All quality control monitoring shall be the responsibility of the Licensor and shall be charged to each site operator pursuant to the terms of its respective site specific agreement. 4.09 Escalation Factor and Price Adjustment. All prices and fees heretofore detailed in this Article will automatically escalate per calendar year pursuant to the following: (a) Per Annum Escalation. The per year fee escalation will be determined in accord with the provisions of section C of Attachment B, and as specified in each site specific agreement. (b) Discretionary Adjustment. All prices will be subject to further discretionary adjustments where market forces and other unforeseen factors resulting in increased costs to the Licensor require any such increases to be proportionately passed along to the Licensee. (c) Annual Review of Royalties. The parties hereby agree that they shall conduct an annual review of the royalty schedule herein defined at or about each anniversary date of this agreement, at which time the parties agree, as part of the consideration for this Agreement, that they may, only upon the express written consent of both parties, modify the amounts of the royalties payable hereunder. 4.10 Reports, Records and Audits. The Licensee hereby covenants, as part of the consideration for this Agreement, that it shall cause to be paid any and all reasonable costs associated with ensuring compliance with the record keeping, reporting and auditing procedures as defined herein by causing to be integrated into any sublicensing or other agreement entered into for the purposes herein contemplated sufficient provisions to ensure said compliance as against any Related Company, Affiliate, sublicensee or other third party. (a) Records. Licensee agrees that it shall cause to be kept accurate records in full accord with the site specific Standard Operating Procedures in sufficient detail to enable the royalties payable hereunder to be determined, and agrees to cause such records to be made available for inspection from time to time during the term of this Agreement. Such inspection shall be made by authorized representatives of the Licensor at reasonable intervals during normal business hours to the extent necessary to verify the reports and payments required as specified herein. (b) Reports. Reports shall be produced in accord with the notice provisions hereof, on an as needed basis to the extent deemed necessary by the Licensee and/or Licensor. The intent of any such report is to clearly and unambiguously set forth the following information: (i) Influent gallonage, flow, rate and throughput statistics measured hourly, with specific reference to time of measurement and cumulative quantity and flow data; ================================================================================ 9 (ii) Analytical data, including but not limited to, concentrations of inorganic, and when applicable, organic compounds and pH of both the influent and effluent. This data shall be compiled hourly; (iii) Precise quantities used of SST and polymer per day; (iv) Any additional information deemed necessary and requested by the Licensor; and, (v) The assessment of the royalties due thereon. (c) Provision of Samples. To the extent that any site specific agreement calls for or otherwise requires samples to be taken at any time, such samples shall be taken and clearly and unambiguously identified in full accord with the site specific standard operating procedure. (e) Procedure on Audit. It is hereby agreed that Licensor shall have the privilege of having a certified public accountant, or other representative or agent of the Licensor audit all statements of account, reports and records required or contemplated by this Agreement to be made by Licensee to Licensor, as frequently as Licensor may desire to have such audits made, and that Licensee shall place at the disposal of said certified public accountant for the purposes of this paragraph any and all records essential to the verification of such reports. The expense of such audits and verifications shall be borne jointly by the Licensee and Licensor except upon the development of conditions giving either party reasonable cause to suspect any violation of the reporting and record keeping requirements defined herein, in which circumstance the site operator shall be responsible for all costs and expenses of the audit. (i) Reasonable Cause. Any information from whatever source derived that may be interpreted by either party as a potential violation of any term herein defined. (ii) Notice Prior to Audit. The Licensee and/or Licensor shall give to the site operator express written notice of its discovery of any fact, condition or circumstance giving the auditing party reasonable cause to suspect any violation of the terms of this Agreement. The site operator shall be given a reasonable opportunity to take corrective action not to exceed ten (10) business days. If, upon the failure of the corrective action to remedy the fact, condition or circumstance giving rise to reasonable cause, or upon the failure of the site operator to take corrective action, the Licensee and/or Licensor will arrange for the audit to commence immediately. (iii)Notice of Violation. The Licensee and/or Licensor shall provide express written notice of any violation revealed as a result of any audit conducted. The site operator will then be obligated to cure said violation or shall suffer default pursuant to the provisions of Article III hereunder. (iv) Examination Upon and After Termination Event. In the event of termination or expiration of this Agreement for any reason whatsoever, Licensee agrees to provide access, or to otherwise cause access to be provided, to the Licensor, its auditors, accountants or agents to inspect all said records and books of Licensee, and/or any sublicensee and/or any site operator and to investigate generally all transactions of business carried on by Licensee and/or any sublicensee and/or any site operator, or any of its Related Companies, in the Grant Territory pursuant to this Agreement and the License hereby granted, for a one (1) year period of rime after such termination. 4.11 Interest on Overdue Payments. Licensee shall cause to be paid to Licensor with interest thereon at the rate of 18% per annum any and all amounts past due and owing for sixty (60) days hereunder to the Licensor, calculated from the date when such payments are due and payable as provided herein to the date ================================================================================ 10 of payment. This provision shall survive termination of this Agreement and shall remain in effect until all sums due including interest thereon are paid in full without offset or counterclaim. 4.12 Acceleration of Overdue Account. The payment provisions of this agreement are to be strictly construed with time being of the essence with regard to all payments to be made hereunder by the Licensee to the Licensor. The failure of the Licensee to make such payments on their due dates shall be deemed a material breach of this Agreement and the Licensor, at its option, may terminate this Agreement upon notice to the Licensee. ARTICLE V --------- OTHER PRINCIPAL RIGHTS AND OBLIGATIONS; PATENT PROVISIONS --------------------------------------------------------- 5.01 Representations and Warranties of Licensor. As of the effective date of this Agreement, Licensor represents and warrants to Licensee as follows: (a) Organization and Qualification. Licensor is a corporation duly organized, validly existing and in good standing under the laws of the State of New York, and has the corporate power and authority to enter into this Agreement, to consummate the transactions contemplated hereby and thereby, Licensor is duly licensed or qualified to do business, and is in good standing, in every jurisdiction in which it is required to be so licensed or qualified due to its business or ownership of its assets and where failure to be so licensed or qualified would have a material adverse effect on its ability to perform its obligations hereunder. (b) Authority. Licensor has full power, capacity and authority (corporate or otherwise) to execute and deliver this Agreement upon the concurrent payment to Licensor of the required licensing fees and payments, and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by Licensor, and no other proceedings (corporate or otherwise) on the part of Licensor are necessary to authorize this Agreement, or to consummate the transactions contemplated hereby. This agreement has been duly and validly executed and delivered by Licensor and (assuming the valid execution and delivery of the agreement by Licensee) constitute legal, valid and binding agreements of Licensor. (c) Consents and Approvals. There is no authorization, consent, order or approval of, or notice to or filing with, any individual or entity required to be obtained, given or made in order for Licensor to execute and deliver this Agreement, to consummate the transactions contemplated hereby and thereby and fully perform its obligations hereunder and thereunder. (d) Absence of Conflicts. The execution, delivery and performance by Licensor of this Agreement, and the consummation by Licensor of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, or both, (i) violate any provision of law, statute, rule or regulation to which Licensor is subject, (ii) violate any order, judgment or decree applicable to Licensor, or (iii) conflict with, or result in a breach or default under, any term or condition of the charter or by-laws of Licensor, if applicable, or any agreement or other instrument to which Licensor is a party or by which Licensor is bound, or to which any of Licensor's assets are subject. (e) Brokers and Finders. Neither Licensor nor any of its officers, directors, employees, Affiliates or associates has employed any broker, finder or investment banker, or incurred any liability for any brokerage fees, commissions or finders' fees in connection with this Agreement or the transactions contemplated by this Agreement. ================================================================================ 11 (f) Ownership and Right to License. Licensor represents and warrants that it is the owner of the world-wide exclusive right, title and interest in and to the applications for letters patent for the Licensed Material, and that it has the sole right to grant licenses under said applications for letters patent, prospective letters patent, reissues and extensions, of the scope herein granted. (g) Commercial Utility. Licensor hereby represents and warrants that the Licensed Material has commercial utility. (h) Validity. Licensor hereby represents and warrants that said application for letters patent is genuine and valid. 5.02 Acknowledgment of Validity. Licensee hereby covenants and agrees that it will not contest, nor assist others in contesting, the validity of the letters patent, or applications thereto, of the United States which are the subject of this Agreement, nor the title thereto of Licensor. 5.03 Third Party Infringement. If at any time any third party shall infringe the patent(s) licensed hereunder in the Grant Territory, then Licensee and/or the Licensor shall, promptly either (1) obtain a discontinuance of said infringing operations or (2) bring suit, bringing said suit in the name of the Licensee, or if so required by the laws of the State of New York, bringing suit in the name of the Licensor or joining Licensor as a party plaintiff with the Licensee. For this purpose Licensor shall execute such legal papers necessary for the prosecution of such suit as may be reasonably requested by Licensee. The Licensor further covenants that it will otherwise provide all reasonable assistance to the Licensee in the prosecution of any such suit. (a) Prosecution of Rights. Licensee, with the reasonable assistance of the Licensor, agrees to bring and diligently prosecute such suits for the infringement of the aforesaid patent(s) as may reasonably be necessary to prevent unlicensed competition materially interfering with the businesses of the Licensee and Licensor hereunder. Whenever any suit is brought against any infringer by Licensee as above provided, Licensee shall immediately notify Licensor of such suit. The costs and expenses of such suit and all recoveries therefrom shall be shared equally by the parties hereto, except that, at the option of the Licensor, the Licensor's contribution shall be limited to one-half (50%) of the royalties payable to Licensor by Licensee during the pendency of any such action. (i) Trigger Event Duties Thereafter. If at any time hereafter any third party shall infringe any unexpired patent licensed hereunder and Licensor shall give notice in writing to Licensee of the existence of such infringement, including such evidence of infringement as Licensor may possess and if Licensee shall fail to assist in the suit against such third party as provided above or obtain a discontinuance of such infringing operations within six (6) months of the date of receipt of such notice, then Licensor may at its election either terminate this Agreement and the rights, privileges and license herein granted and any sublicenses that may be granted by the Licensee (pursuant to provision 2.05 of Article II above) or bring suit in its own name as against such infringer. Should Licensor bring suit in its own name as hereinbefore provided, Licensee shall execute such legal papers necessary for the prosecution of such suit as may be requested by Licensor, and Licensor shall be liable for all costs and expenses of such litigation and shall be entitled to receive and retain all recoveries therefrom. In the event that the Licensor should undertake such litigation, then the Licensor has the right to cancel the exclusive features of this license and may thereupon license others in the Grant Territory. In case the Licensee terminates this Agreement by material breach or otherwise failing to satisfy its duties as defined herein, Licensee shall assign to Licensor all sublicenses ================================================================================ 12 that may have been granted hereunder pursuant to provision 2.05 of Article II of this Agreement. (ii) Rights Reserved to Licensor. Licensor shall have the right, in any suit brought by the Licensee, pursuant to the foregoing, to be represented at its own expense by counsel of its own selection to the extent of having access to full information and opportunity to be heard in the councils and attorneys of the Licensee, but such expense shall not be considered as costs or expenses of the litigation unless Licensor elects to participate in the suit as provided in subparagraph (a) of this clause. (b) Defense of Third Party Suit. The Licensor agrees during the term of this Agreement to defend Licensee against any suit for infringement of any patent of third parties covering the Licensed Material so long as said patent(s) were issued prior to the effective date of this Agreement in the Grant Territory. This obligation is subject to the following conditions: (i) Licensee must have given notice to Licensor of the claim of infringement within twenty (20) days after receipt of service thereof upon Licensee; (ii) Licensors liability shall be restricted to the defense of any suits arising from claims based on any of the Licensor's letters patent, for the Licensed Material granted hereunder; and, (iii)Licensee shall render reasonable assistance to Licensor or, upon the request of the Licensee and at the Licensor's option, shall be permitted to defend against the suit and shall be entitled to receive and retain all recoveries, if any, therefrom. (c) No Effect on Royalties. Upon the circumstance of any suit for infringement being brought by Licensee and/or Licensor or against Licensee and/or Licensor, there shall be no effect upon the amount or schedule of royalties owing from the sublicensee or site operator as so defined in Article IV hereunder. 5.04 Improvements. Licensee, as a part of the consideration for the License hereby granted to it, hereby agrees to submit to Licensor during the term of this Agreement, all developments or improvements in the Licensed Material or Know-how made by or at the instance of the Licensee, and Licensee hereby agrees that, during the life of this Agreement, the Licensor and each of its Affiliates, both past and future, shall have the exclusive right to said developments and improvements, whether patented or unpatented. (a) Assignment to Licensor. Said developments or improvements shall be entirely assigned to the Licensor and shall be the sole property of the Licensor, except, however, that the Licensee shall automatically have an exclusive license thereunder in the Grant Territory without additional charge. (b) Development or Improvement. As used herein the terms development and improvement mean any design, process, method, modification, idea, concept or Technology, of whatever form, the use of which affects the Licensed Material in any one or more of the following ways: (i) Reduces Process or Technology costs; (ii) Improves the efficiency or performance of the Process in any manner; (iii)Improves the efficiency or performance of the Technology in any manner; (iv) Improves reaction efficiency or performance in any manner; (v) In any way broadens the scope or range of Process and/or Technology applicability; ================================================================================ 13 (vi) Increases marketability; or, (vii)Results in any further invention that was reasonably discovered as a direct or indirect result of the Licensor disclosing any information herein contemplated as necessary to the rights, privileges and license herein granted. (c) Licensee's Covenant to Disclose. The Licensee hereby covenants to immediately communicate any developments, improvements, modifications, further inventions, and designs it or its Related Companies or Affiliates may discover, make, or develop with respect to the Licensed Material, Know-how and other information herein contemplated as necessary to the rights, privileges and license herein granted, and shall fully disclose to the Licensor the nature and manner of applying and utilizing such improvements, developments, modifications, further inventions and designs. Failure to promptly comply with this covenant in any manner shall be deemed a material breach for which the Licensor may pursue termination in full accord with the provisions this Agreement. (d) Development or Improvement by Licensor. The Licensor hereby agrees, as part of the consideration for this Agreement, that it shall make available all direct Developments and Improvements to the Licensed Material, made by or at the instance of the Licensor, for no additional cost and under the same terms as this Agreement, except as provided for in subparagraph 5.04(d)(i) hereof. The Licensee hereby agrees that, during the life of this Agreement, the Licensor and each of its Affiliates, both past and future, shall have the exclusive right to said Developments and Improvements, whether patented or unpatented. This provision shall apply only to those direct Developments and Improvements of the Licensed Material that are applicable to the same market (e.g. liquid metal bearing wastes) and the same media (e.g. liquid) that the Licensed Material presently applies. (i) Licensee to Bear Costs of Research and Development. The Licensee hereby agrees that it shall bear all costs and shall compensate Licensor for all reasonable expenses incurred by the Licensor in research and development of any direct Developments or Improvements as provided for by subparagraph 5.04(d) hereof. The Licensee shall pay this amount to the Licensor by reducing its percentage of the gross receipts as provided in provision 4.02 hereof and Attachment B, annexed hereto, by 10% to 40% for a period of time until the amount owing under this provision is paid in full. (e) New or Different Market. In the event that any Development or Improvement on the Licensed Material enables access to a new market (e.g. solid air or radioactive waste), the parties hereby agree that the terms of this License shall not apply. In such instance, the Licensee shall have the right of first refusal on entering into a separate license with the Licensor for such new market Developments or Improvements. 5.05 License Under Foreign Patents; Requirement of Foreign Patents. The Licensee shall have the right to the Licensed Material herein contemplated under any and all foreign letters patent now pending or hereafter to be filed expressly and exclusively corresponding to the herein defined United States letters patent. Under no circumstance shall the Licensee be permitted to use or sublicense the Licensed Material in any geographic region or country for the purposes herein contemplated prior to the Licensor's filing of the application for letters patent corresponding to the herein defined United States letters patent in that geographic region or country. 5.06 Licensor's Covenant to Disclose. In the event that the Licensor contacts or is ever contacted directly by any third party seeking to remediate, recover and/or treat liquid streams of wastes containing metals in the Grant Territory, the Licensor hereby covenants to disclose the identity of any such party to ================================================================================ 14 the Licensee and to simultaneously therewith refer such party to the Licensee, except as provided for in Attachment C. annexed hereto. 5.07 Sales and Marketing; Commissions to Licensor. The Licensor shall have the right to engage the market on its own behalf provided that any such sales shall be made through the Licensee, upon which the Licensee shall pay a commission to the Licensor's sales or marketing agent, which commission shall be paid out of the Licensee's percentage of the gross per gallon receipts, calculated on a per site basis. The commission shall be paid in accord with the provisions of the relevant Licensor marketing agreement. All Licensor costs of sale shall be borne by the Licensee, and shall be deducted from its percentage of the gross per gallon receipts, calculated on a per site basis. 5.08 Profit and Commission on Licensor Sale of Licensee Product. In the event that the efforts of the sales or marketing agents of the Licensor result in any sale of any product or service of the Licensee, the Licensee shall pay to the Licensor 50% of the relevant gross receipts, calculated on a per site basis (see Attachment B), derived from any use or sale of any product or service of the Licensee in the Grant Territory. The Licensor shall pay the relevant commission to the Licensor's sales or marketing agent responsible for said sale of the Licensee's product or service. ARTICLE VI ---------- KNOW-HOW, TECHNICAL ASSISTANCE, PURCHASE OF ESSENTIAL COMPONENTS ---------------------------------------------------------------- 6.01 Know-how Commitment. The Licensor shall from time to time, and to such extent that it shall consider to be reasonably necessary for the performance of this Agreement, furnish to Licensee information essential to determining the nature and extent of the applicability of the Technology and Process. Only the Licensor has the right to divulge Know-how, and at no time shall the Licensee or its Related Companies or Affiliates divulge any Know-how taught or otherwise discovered. (a) Delimination of Commitment. The Licensor shall communicate to the Licensee upon request such information relating to the Licensed Material which shall in the opinion of the Licensor be of use to the Licensee in its licensed operations. Such information shall at the option of the Licensor, consist of any patent disclosures and applications, technologies, trade secrets, designs, formulas, processes, Know-how, contracts, samples, feasibility studies, work-plans, project documentation, books, instructional volumes, notes, drawings, writings, documents, tiles, models, photographs, videos, drawings, sketches, ideas, concepts and any improvements thereto, which are the subject matter of this Agreement, and which is directly applicable to the operations of the Licensee or its Related Companies or Affiliates. The Licensor shall undertake in the initial feasibility studies, work plan preparations, designs and engineering development, pursuant to the terms herein, of each individual site with respect to the Licensed Material and may provide special, specific or additional information pertaining thereto to the Licensee or its Related Companies or Affiliates or sublicensees. The Licensee shall cause to be paid the relevant support owing to the Licensor for such additional information pursuant to the applicable fees delineated in Article IV. To the extent that the Licensor in its own opinion deems this information to be necessary for the Licensee's use of the Licensed Material, the Licensor shall furnish such specific Know-how as the Licensor deems required and has in its possession. (b) Covenant to Provide Technical Assistance. On the cost basis defined in Article IV and other terms herein defined, the Licensor shall provide all reasonable support to the Licensee and/or its Related Companies, Affiliates, sublicensees or other third parties in the use of the Licensed Material on a site by site basis. (c) Excluded Know-how. Information with respect to research and advance development activities is not included in the scope of this Agreement and shall not be made available ================================================================================ 15 hereunder. Nothing contained in this Agreement shall oblige the Licensor or its Affiliates to make available to Licensee or its Related Companies or Affiliates any information concerning any further invention, development or improvement of the Licensor until an application for letters patent thereon has been filed in the United States patent office. 6.02 Provision of Necessary Information. The Licensee shall cause to be provided to the Licensor any and all information requested and otherwise known to be required, as detailed hereafter, so that the Licensor may conduct an initial feasibility study and prepare a preliminary proposal for each site. The information required by the Licensor shall include, but shall not be limited to: (a) Nature, extent and relative degradation of the site with specific identifying information; (b) Quantity, flow, throughput and influent source characteristics as applicable; (c) Specific details on the existing industrial processes and operations; (d) Sufficient characteristic samples of the waste intended to be remediated and/or treated by the Licensed Material, not less than one (1) gallon for liquids and five (5) pounds for soils, sludges, and other semi-solid wastes; (i) Sampling Procedure. The sampling procedures which shall be adhered to will be provided in the site specific SOP manuals. (e) Desired nature, level and extent of treatment and/or recovery; (f) Specific site information (including schematics if accessible) detailing the site accessibility, structural design requirements, sewer availability, power and water supply availability, power type; (g) Overall geophysical and hydraulic characteristics of the site; and, (h) Any other information deemed necessary by the Licensor on a site by site basis. 6.03 Non-Conformance of Information; Off-Spec Wastes and/or Sites. As provided herein, the Licensor will be performing a feasibility study for each site. The parties recognize that this study is critical for determining the nature and the extent of the applicability of the Technology and Process, as well as the design, engineering and construction for each site. In order to perform this feasibility study, samples and other information must be provided. If the actual site or waste characteristics materially differ from the samples' characteristics, the site or waste will be deemed by the Licensor to have not met the original specifications of the site. The non-conforming waste or site will be deemed to be off-spec. The Licensee hereby agrees that it shall bear all reasonable costs and expenses associated with re-performing any additional feasibility studies, designs, proposals or work-plans. 6.04 Licensee to Bear Costs. (a) Set-up. The Licensor will bear the costs of preparing its per site process design proposal and work-plan. The Licensee will cause the sublicensee and/or site operator, at its cost, to obtain all necessary approvals needed to operate the site, and will bear all remaining costs associated with site set-up, including but not limited to final process design, engineering, construction, and operation. Any support required at any time will be provided by the Licensor on the cost basis defined in Article IV. The Licensor or Licensee shall designate a third-party engineering and/or construction firm (hereinafter the "engineering contractor") for each site. The engineering contractor shall work with the Licensor and will be required to enter into separate agreements (including but not limited to nondisclosures and indemnifications) directly with the Licensor. The Licensee will bear any additional costs which may be charged for any regulatory, legal or permitting requirements, which requirements are the sole obligation of the Licensee or its Related Companies or the engineering contractor to comply with. ================================================================================ 16 (b) Covenant to Assist in Design, Engineering and Construction. Upon satisfaction of the condition that the engineering contractor enters into any separate agreements with Licensor as the Licensor deems necessary, the Licensor covenants to assist the engineering contractor in the design, engineering and construction of that portion of any site in which the remediation, recovery and/or treatment activities contemplated by this Agreement shall be conducted. The Licensor further covenants that, to the extent only that it is able, it will assist the engineering contractor in a reasonable manner in the design, engineering and construction of other portions of any site. The Licensor shall furnish that reasonable Know-how necessary to comply with the conditions of this covenant. (i) Any support required at any time to comply with the conditions of this covenant will be provided by the Licensor on the cost basis defined in Article IV. (c) Covenant to Render Technical Assistance for Operation. The Licensee shall designate for each site a Related Company, third party or itself as the Site Operator. The site operator, may at the option of the Licensor, be required to enter into separate agreements (including but not limited to nondisclosures and indemnifications) directly with the Licensor. This covenant shall only be given upon the execution of these agreements in the event that the Licensor elects to have said agreements executed. (i) Upon satisfaction of the foregoing condition, the Licensor covenants to assist and to render all reasonable technical and other support required to initiate and maintain operation at each site, for only those portions of each site in which the remediation, recovery and/or treatment activities contemplated by this Agreement shall be conducted. (ii) Any support required at any time to comply with the conditions of this covenant will be provided by the Licensor on the cost basis defined in Article IV. (iii)The determination as to whether any on-site assistance by the Licensor is required will be made solely by the Licensor. 6.05 Purchase of Essential Components Exclusively from Licensor. The Licensee shall cause the sublicensee and/or site operator to purchase all components termed herein as essential directly from the Licensor pursuant to the following terms and conditions: (a) Essential Reagents. The Licensee, as a part of the consideration for the License herein granted, hereby agrees to purchase the essential reagents directly from the Licensor. There are two essential reagents for which this term applies: (1) SST; and, (2) a required polymer compound. SST shall be purchased on a per gallon basis and the polymer shall be purchased on a per pound basis pursuant to the cost basis provided for in Article IV. (i) Requirement of Manufacturing. At no time, except upon the express written consent and control of the Licensor, shall SST or the polymer be manufactured in the Grant Territory. (ii) Shipping. All costs of shipment shall be borne by the site operator. The method of shipment shall be f.o.b. (shipping) from point of manufacture, having that meaning ascribed to it by standard convention. (b) Essential Process Equipment. Except upon the express written consent of the Licensor, the Licensee, as a part of the consideration for the License herein granted, hereby agrees to cause the sublicensee and/or site operator to purchase the essential process equipment directly from the Licensor. All pieces or categories of equipment which shall be deemed essential and shall be purchased directly from the Licensor shall be detailed in the Site Specific Agreement for each site. ================================================================================ 17 (i) Shipping. All costs of shipment shall be borne by the site operator. The method of shipment shall be f.o.b. (shipping) from the point of manufacture and/or distribution, having that meaning ascribed to it by standard convention. (c) Licensor Covenants to Supply Essential Components. The Licensor hereby covenants that it will within a reasonable time supply the aforesaid essential components to the Licensee or its designated recipient on an as needed basis. (i) Ability to Supply. As of the date hereof, Licensor represents and warrants to Licensee that it presently has and shall have the ability to supply the aforesaid essential components to the Licensee or its designated recipient. (d) Excluded Components. The Licensee or its Related Companies or any engineering contractors shall source and provide for all components not herein referenced, or provided for in any Site Specific Agreement. 6.06 Covenant to Provide Training. Licensor hereby covenants and agrees to train the personnel of the site operator for the requisite laboratory and process operations. (a) Procedure on Training. All personnel shall be trained over the course of two (2) weeks at the Licensor's principal facility at One KBF Plaza in Paterson, New Jersey - and a period of time not to exceed one (1) week on location at the individual site. (b) Standard Operating Procedure. As part of the preparation of the final design proposal for each site, the Licensor shall prepare a site specific Standard Operating Procedure (the "SOP") manual for the site. All personnel will be trained according to the standard operating procedure of their respective sites. (c) Indemnification on Failure to Comply with the SOP. The Licensee hereby agrees to indemnify and hold the Licensor harmless from all loss, expense (including reasonable attorneys' fees) and damages arising out of any claims, demands and liabilities (including claims by Related Companies, sublicensees, employees and/or other third parties) incurred by its, their own or the site operator's neglect arising out of the failure to strictly abide by and adhere to the terms and instructions specified in the site SOP manual and the relevant Site Specific Agreement. 6.07 Assumption of Risk by Licensee. Licensee agrees that it shall be responsible for damage to its or its Related Companies' property and for injury or death of its employees and agents caused by any acts or omissions to act arising from its or it's sublicensee's direction, supervision or instruction, including negligence, of the employees or agents of the Licensor, during the performance of this Agreement. The Licensee agrees to release the Licensor from any and all liability for loss or damage so caused to its or its Related Companies' properties, and further agrees to indemnify and hold harmless the Licensor against all claims and causes of action arising out of such damage to property or such injury or death of employees or agents, except where actions or omissions of the Licensor or its agents give rise to any claims, demands and liabilities. (a) Environmental, Health and Safety Considerations. Since the Licensee will hire or cause to be hired various engineering contractors, the Licensee expressly acknowledges that it will be the responsibility of such engineering contractors as well as the Licensee, not the Licensor, to ensure that each site is ultimately designed, engineered, constructed and thereafter operated in accordance with the applicable safety, health, and environmental standards or requirements of the Grant Territory, (b) General Indemnification. Licensee further indemnifies and holds Licensor harmless from any and all claims, demands, causes of action and all costs of defense incurred by the Licensor (including court costs and reasonable attorney's fees actually incurred) which ================================================================================ 18 claims, demands or causes of action are asserted by any third party whatsoever including employees of the Licensee and its Related Companies and are caused or alleged to be caused by reason of any fault or defect in the design, construction or operation of any site. (c) Survival. The provisions of this clause shall survive expiration or termination of this Agreement for any reason and shall not be affected thereby. 6.08 Maintenance of Secrecy; Restrictions; Survival. It is recognized by the parties hereto that information in the form of Know-how will be disclosed, taught or delivered by the Licensor pursuant to this Agreement and will contain and incorporate confidential information in which Licensor has and will continue to have a proprietary interest as the owner of such information, and Licensee agrees to maintain, and will maintain, as confidential any and all information disclosed to Licensee, directly or indirectly, pursuant to this Agreement. Licensee will obtain from its employees, contractors, consultants, agents, stockholders and other persons having access to Know-how acquired by Licensee from Licensor (or any possible third party infringer), pursuant to this Agreement, duly binding agreements from such persons, in a form acceptable to Licensor, to maintain in confidence any such information disclosed to such person by Licensee. Licensee agrees to reveal Know-how revealed to it by Licensor pursuant to this Agreement, only to such persons and only to the extent as may be required to permit Licensee to make possible the utilization of such Know-how pursuant to this Agreement. The provisions of this paragraph shall survive the termination of this Agreement. ARTICLE VII ----------- DISTRIBUTION - MARKETING MINIMUM SALES AND BEST EFFORTS ------------------------------------------------------- 7.01 Authorized Sales Channel. Licensee shall arrange for the sale or use of the Licensed Material in the Grant Territory. 7.02 No Competitive Products. Licensee hereby covenants and agrees that it shall not sell or use any material which may be regarded by the Licensor as directly competitive with the Licensed Material, except upon the express written consent of the Licensor. 7.03 Reciprocal Exchange of Commercial Information. The Licensor agrees to furnish to the Licensee all commercial and marketing information and contacts which it has heretofore obtained or developed in connection with the exp1oitation of the Licensed Material in the Grant Territory, and the Licensee agrees to furnish to the Licensor all commercial and marketing information and contacts which it has heretofore obtained or developed in connection with the exploitation of the Licensed Material in the Grant Territory. 7.04 Best Efforts of Licensee. The Licensee hereby covenants and agrees to use its best efforts to promote the sale and use of the Licensed Material in the Grant Territory. The Licensee shall as soon as possible after receiving the Licensed Material herein granted begin to sell and to arrange for penetration of the Grant Territory. The Licensee shall at all times throughout the life of this Agreement exert its best efforts to create, service, supply and otherwise satisfy as extensive a market for the Licensed Material in the Grant Territory as is possible. Breach of this provision in any manner shall be deemed a material breach for which the Licensor may pursue termination in full accord with this Agreement. (a) Duty to Exploit. It is understood and agreed that the Licensee undertakes for itself the obligation to sell the Licensed Material, but shall not incur any pecuniary liability for breach of this undertaking, it being understood and agreed that if the Licensee declines to accept otherwise feasible orders from any purchasers or fails to meet the requirements of any purchaser of the Licensed Material provided for in orders accepted by die Licensee, the Licensor may license such other third parties to supply the Licensed Material to such purchasers. Said licenses to said third parties shall be confined to supplying the Licensed Material to only such purchasers from whom the Licensee may have refused to accept orders or whom the Licensee has failed to supply, and said license shall be limited as to ================================================================================ 19 time only to the extent that the Licensee corrects such non-conforming conduct. The Licensor agrees that, in the event of the Licensee's breach of this duty to exploit the Licensed Material, no license shall be granted to any third party upon terms more favorable than the terms then in force between the Licensee and the Licensor. (b) Sales Organization and Efforts. The Licensee agrees to maintain suitable sales personnel and exert its best efforts toward vigorously promoting the sales and use of the Licensed Material, including prompt handling of all inquiries, personal calls on customers and/or potential site operators and local marketing to the extent permissible or practical in the Grant Territory. 7.05 Minimum Sales Requirement. If within any one (1) year period, as measured by the anniversary date of the first Site Specific Agreement, there shall be any less than ten (10) additional individual sites in operation in the Grant Territory using the Licensed Material (i.e., ten additional sites each year), or otherwise in substantial completion of construction, the Licensor may, at its option, choose to excise the exclusivity provisions from this Agreement and license the Licensed Material to others for the exploitation of the Grant Territory market. This requirement shall accrue and is to be satisfied only by the sales and marketing efforts of the Licensee; any site or contract that results from the sales or marketing efforts of the licensor shall not be included in the accrual or satisfaction of this requirement. Breach of this provision in any manner shall be deemed a material breach for which the Licensor may pursue termination in full accord with this Agreement. 7.06 Remedy on Inability to Supply Demand. In the event of or at the time the Licensee should be unable to supply the Demand for the Licensed Material, the Licensor shall have the right after reasonable notice to the Licensee to engage in sufficient efforts (including licensing to others) to fill such demand over and above the then present capacity of the Licensee but only so long as the Licensee shall be unable to fulfill said demand or otherwise gives its consent to the Licensor to engage in such efforts. Otherwise, the Licensor shall have the right to pursue termination in accord with Section 3.02 (a)(iv) hereof. ARTICLE VIII ------------ QUALITY CONTROL; STANDARD OPERATING PROCEDURES ---------------------------------------------- 8.01 Quality Control. Since quality control and quality assurance protocols (hereinafter "QC/QA") are essential to the efficient operation of the Technology and Process, and the failure to conform to these protocols may result in the failure of the Technology and Process to function as contemplated hereby, the Licensee hereby agrees that it shall, pursuant to this Agreement and each individual Site Specific Agreement, cause strict adherence to all QC/QA standards for each site precisely equivalent to those provided for in the Standard Operating Procedure (the "SOP") manual, which manual shall be provided to the Licensee and/or site operator and the individual employees of the site operator by the Licensor. 8.02 Standard Operating Procedures. As part of the preparation of the final design proposal for each site, the Licensor shall prepare a site specific SOP manual for each site, all personnel trained by the Licensor will be trained according to the standard operating procedure of their respective sites. All necessary copies of the SOP manual shall be provided to trained personnel and/or the site operator and/or the Licensee at the expense of the Licensor. 8.03 QC/QA Reporting Requirement. The Licensee shall, pursuant to this Agreement and each individual Site Specific Agreement, cause to be enforced strict compliance with all site specific QC/QA reporting requirements detailed in each site specific SOP manual, to be provided prior to the commencement of operations at each site. 8.04 Procedure on Failure to Comply. Strict adherence to the QC/QA protocols and the SOP shall be required. Since strict compliance with the SOP and QC/QA protocols is critical to the effective use of the Licensed Material, the Licensee, as a part of the consideration for the License herein granted, agrees to ================================================================================ 20 cause strict compliance with the SOP and QC/QA protocols. The Licensee further covenants that it shall have the responsibility and authority to enforce compliance of these protocols, and shall do so in strict compliance with the terms and provisions of this Article. (a) Notice of Non-Compliance. Any deviation from the QC/QA protocols or any material operating provision of the SOP will result in the issuance of a Notice of Non-Compliance. The notice will issue to the Licensee as well as to the site operator. The site operator will then be given ten days (10) to cure the compliance deficiency. If the deficiency remains uncured, an additional notice will issue. The site operator will be given ten (10) additional days to cure the deficiency. This process of notice and instruction to cure will repeat a maximum of five (5) times for the same deficiency. If the deficiency at issue still remains uncured, the Licensor shall issue to the Licensee and the site operator a Notice of Issuance of Penalty. (b) Issuance of Penalty. The Licensor may issue to the Licensee a fine not to exceed $15,000 for each penalty required to be imposed. The Licensee shall then enforce and make all reasonable efforts to collect this penalty as against the site operator. (c) Visitation. The Licensor, at its option, may at any time elect to visit the site in violation in order to ensure correction of any deficiency. The reasonable costs of any such visitation shall be borne equally by the Licensee and Licensor. (d) Material Breach. Continued persistent failure to correct any one single violation and/or deviation from the procedure as outlined herein and in the individual per site SOP manuals over the course of any six (6) month period will be deemed a material breach for which the Licensor may pursue termination in full accord with the provisions of this Agreement. ARTICLE IX ---------- MUTUAL COVENANTS ---------------- Each of the parties hereto covenants to the other party as follows: 9.01 Incorporation of Previous Agreements. The parties hereto agree that all confidential information and/or evaluation materials, respectively defined in the Nondisclosure and Confidentiality Agreements (collectively, the "confidentiality agreements"), executed by the parties on December 30, 1997, and disclosed in furtherance of this Agreement, shall remain confidential between the parties and there will be no disclosure of these materials except as provided under the terms of the confidentiality agreements and this Agreement. 9.02 Confidentiality of Terms. With the exception of acknowledging that this exclusive license for the territory has been established for a minimum period of ten (10) years, all other terms relating to this contract shall remain confidential between the parties and there shall be no disclosure of them by a party without the written consent of the other party, except as is necessary to comply with any Legal and/or accounting disclosure requirements. 9.03 General Confidentiality. Except as otherwise required by law or in connection with judicial, administrative or arbitration proceedings (in which case the disclosing party shall be afforded a reasonable opportunity to seek a protective order), each of the parties agrees not to (i) disclose any confidential information herein defined of the other party, or the remaining terms of this Agreement, to any individual or entity (other than its directors, officers, employees, agents and representatives with a need to know such confidential information) or (ii) use any confidential information of the other party for any purpose other than consummating the transaction contemplated hereby and, with respect to Licensee, conducting the remediation, recovery and/or treatment contemplated herein. ================================================================================ 21 9.04 Mutual Cooperation. The parties acknowledge that in order to further the purposes of this Agreement, information containing or consisting of trade secrets, customer lists and other confidential information may be communicated by either party to the other. Such information may take the forms of plans, drawings and data, and will be deemed confidential unless otherwise designated by the Licensor of Licensee as "Non-Confidential Information." The parties hereto agree to cooperate after the execution of this Agreement to the fullest extent reasonably necessary to consummate fully the transaction contemplated hereby, including but not limited to accounting for the transaction hereunder. 9.05 General Indemnification of Licensor. The Licensee shall not incur any liability or indebtedness in the name of the Licensor, nor do or suffer any act or thing which may render the Licensor liable for the payment of any money to any third person for any purpose whatsoever, except as herein otherwise provided. The Licensee hereby agrees to indemnify and hold the Licensor harmless from all loss, expense (including reasonable attorney's fees) and damages arising out of any claims, demands and liabilities incurred by its own neglect in connection with the fulfillment of the terms and conditions of this Agreement. ARTICLE X --------- MISCELLANEOUS PROVISIONS ------------------------ 10.01 Representations and Warranties of Licensee. As of the date hereof, Licensee represents and warrants to Licensee as follows: (a) Authority. Licensee has full power, capacity and authority (corporate or otherwise) to execute and deliver this Agreement, and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by Licensee, and no other proceedings (corporate or otherwise) on the part of Licensee are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This agreement has been duly and validly executed and delivered by Licensee, and (assuming valid execution and delivery by Licensor) constitutes the legal, valid and binding agreement of Licensee. (b) Consents and Approvals. There is no authorization, consent, order or approval of, or notice to or filing with, any individual or entity required to be obtained or given in order for Licensee to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to fully perform its obligations hereunder. (c) Absence of Conflicts. The execution, delivery and performance by Licensee of this Agreement, and the consummation by Licensee of the transactions contemplated hereby and thereby, will not, with or without the giving of notice or lapse of time or both, (i) violate any provision of law, statute, rule or regulation to which Licensee is subject, (ii) violate any order, judgment or decree applicable to Licensee, or (iii) conflict with or result in a breach or default under any term or condition of the Certificate of Incorporation or By Laws of Licensee, or any agreement or other instrument to which Licensee is a party or by which it is bound. (d) Brokers and Finders. Neither Licensee nor any of its officers, directors, employees, Affiliates or associates has employed any broker, finder or investment banker, or incurred any liability for any brokerage fees, commissions or finders' fees in connection with this Agreement or the transactions contemplated by this Agreement. (e) Related Companies and Affiliates. The Licensee has the means to exploit the entire market in the Grant Territory, and to arrange for timely payment of all fees and royalties herein defined itself or through existing arrangements with Related Companies or other third parties. ================================================================================ 22 10.02. Licensee Covenant to Assist in Approvals. The Licensee hereby covenants, as part of the consideration of this Agreement, to engage in all reasonable efforts to secure all approvals reasonably required by the Licensor, including but not limited to approval to the EPA SITE program and any and all patent approvals in each national market in which the Licensee will market the Licensed Material. 10.03 Survival of Representations and Warranties; Covenants; Indemnities. All representations, warranties, covenants and indemnities contained herein or made in writing by any party in connection herewith shall survive the termination or expiry of this Agreement indefinitely. All covenants contained herein shall survive until performed fully. The provisions for payment of (and accounting in respect to) the fees detailed in Article IV of this Agreement and other monies due to the Licensor under this Agreement shall survive the termination or expiry of this Agreement. 10.04 Severability. If any provision of this Agreement or the application of such provision to any person or circumstance shall be held invalid, the remainder of this Agreement, or the application of such provision to persons or circumstances other than to those to which it was held invalid, shall not be affected thereby, shall be severable, shall inure to the benefits of both parties and shall be valid and enforceable in accordance with their terms. 10.05 Further Acts. The parties hereto agree, as part of the consideration to this Agreement, to perform such further acts and execute such additional instruments as may be necessary to carry out the full intent and purpose of this Agreement. 10.06 Counterparts. This agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. 10.07 Headings. The article, section and provision headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 10.08 Application. This agreement applies to, inures to the benefit of, and binds the parties hereto and, subject to the express assignment provisions hereof, their respective successors and assigns. 10.09 Scope. This agreement together with the attachments annexed hereto constitutes the entire agreement between the parties. It supercedes any prior agreement or understandings between them as to the subject matter contemplated herein, and it may not be modified or amended in any manner other than as set forth herein. 10.10 Amendment and Modification. This agreement may only be amended, modified or supplemented by written agreement of the parties. 10.11 Assignment. Licensor shall have a right to assign any and all of its rights under this Agreement to any Affiliate or other entity owned or controlled by Licensor provided that Licensor and the assignee shall be jointly and severally liable to perform all of Licensor's obligations hereunder. Otherwise, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the express prior written consent of the other party, except that Licensor or Licensee may assign their respective rights and obligations under this Agreement to any purchaser of all or substantially all of their respective assets or the assets or their respective parent companies. 10.12 Waiver. Any failure of the Licensor, on the one hand, or the Licensee, on the other, to comply with any obligation herein may be expressly waived hereunder, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Any waiver must be in writing and duly executed by the appropriate party. The remedies set forth in this Agreement shall be cumulative and no one shall be construed as exclusive of any other or of any remedy provided by law. The failure of any party to exercise any remedy at any time shall not operate as a waiver of them or the right of such party to exercise any remedy for the same or subsequent default at any time. 10.13 Reservation of Rights. All rights not specifically and expressly granted to the Licensee by this Agreement are reserved to the Licensor. ================================================================================ 23 10.14 Third Parties. Except as specifically set forth or referred to herein, nothing herein shall be construed to confer upon or give to any party other than the parties hereto and, only if applicable, their successors or permitted assigns, any rights or remedies under or by reason of this Agreement. 10.15 No Agency or Partnership. The parties are not partners or joint venturers nor is the Licensee entitled to act as the Licensor's agent, nor shall the Licensor be liable in respect of any representation, act or omission of the Licensee of whatever nature. 10.16 Force Majeure. The parties hereto shall not be liable for the failure of performance hereunder if occasioned by war, declared or undeclared, fire, flood, acts of God, interruption of transportation, embargo, accident, explosion, inability to procure or shortage of supply of raw materials, equipment, or production facilities, prohibition of import or export of the Licensed Materials covered hereby, governmental orders, regulations, restrictions, priorities or rationing, or by strike, lockout, or other labor troubles interfering with the production or transportation of such goods or with the supplies of raw materials entering into their production of or any other cause beyond the control of the parties. Any suspension of performance by reason of this article shall be limited to the period during which such cause of failure exists, but such suspension shall not affect the running of the term of this Agreement. (a) Merger or Acquisition. In the event of the direct or indirect acquisition, or assumption of a 20% or greater controlling interest of the Licensee by any superior authority, the Licensor shall, at its option, have the right to terminate this Agreement at any time thereafter upon giving written notice thereof to the Licensee, and, upon the giving of such notice of termination, this Agreement shall terminate forthwith. (i) Continuing Rights and Obligations. In the event of such termination, the Licensee and/or the relevant superior authority shall be entitled to income as provided for by the terms of this Agreement, and shall remain obligated to the Licensor for all royalties payable and duties owing hereunder for only those sites, as that term is herein defined, existing upon termination in the event provided for by subparagraph 10.16 (a) hereof. In the event of any such termination, the Licensor hereby covenants to contract or otherwise deal with the Licensee and/or the relevant superior authority on a site by site basis as is reasonably necessary for each of these existing sites. (ii) Non-Exclusivity. In the event of the direct or indirect acquisition, or assumption of a 20% or greater controlling interest of the Licensee by any superior authority, the Licensor, at its option, and in lieu of termination, may choose to excise the exclusivity provisions from this Agreement and may license the Licensed Material to others for the exploitation of the Grant Territory market. If the Licensor chooses to exercise this option, there shall be no effect on the royalties payable and duties owing to the Licensor pursuant to the remaining terms of this Agreement 10.17 Conflicts. In the event that any provision, term, condition, or object of this Agreement may be in conflict with any law, measure, ruling, court judgment (by consent or otherwise), or regulation of the any governmental authority, or any department or agency thereof and the legal counsel of either party shall advise that in their considered opinion such conflict, or a reasonable possibility of such conflict exists, then either party may propose to the other appropriate modifications of this Agreement to avoid such conflict. In such case, if an agreement or modification is not reached within sixty (60) days, the party making such proposal, after thirty (30) day written notice to the other party, may terminate this Agreement in its entirety, as of a date subsequent to such thirty (30) days, and which shall be specified in said notice. 10.18 Government Approval. Any approval of this Agreement by any government which may require the Licensee to seek its approval to enable the Licensee to enter into this Agreement or to make payments ================================================================================ 24 hereunder in United States dollars in the United States of America shall be secured in writing by the Licensee who shall supply the same or a true copy thereof to the Licensor within six (6) months of the date of this Agreement. 10.19 Joint and Several. All agreements on part of either of the parties which comprises more than one person or entity shall be joint and several. 10.20 Currency. Throughout this Agreement the currency is U.S. Dollars. 10.21 Entire Agreement. This agreement sets forth the entire agreement and understanding between the parties as to the subject matter of this Agreement and merges all prior discussions between them, and neither of the parties shall be bound by any conditions, definitions, warranties or representations with respect to the subject matter of this Agreement other than as expressly provided in this Agreement or as duly set forth on or subsequent to the date hereof in express writing and signed by a proper and duly authorized representative of the party to be bound thereby. This written agreement embodies all of the understanding and obligations between the parties with respect to the subject matter hereof. ARTICLE XI ---------- GOVERNING LAW ------------- 11.01 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflicts of law principles. ARTICLE XII ----------- NOTICE PROVISIONS ----------------- 12.01 Notices. All notices, consents, requests, demands and other communications required or permitted hereunder shall not be binding unless in writing and shall be deemed to have been duly given when delivered by hand or by facsimile transmission (transmission confirmed and hard copy mailed by first class mail) or three (3) days after mailed, certified or registered mail with postage prepaid: (a) If to Licensor, to: KBF Pollution Management, Inc. 1 KBF Plaza End of Jasper Street Paterson, New Jersey 07522 Attn: Lawrence M. Kreisler Fax No.: 973-942-7700 or to such other person or address as the Licensor shall furnish to the Licensee in writing by notice given in the manner set forth above. (b) If to the Licensee, to: Solucorp Industries, Ltd. 250 West Nyack Road West Nyack, New York 10994 Attn.: Peter Mantia Fax No.: 914-623-4987 or to such other person or address as the Licensee shall furnish to the Licensor in writing by notice given in the manner set forth above. ================================================================================ 25 12.02 Adequacy of Service. Notice given personally shall be deemed given at the time of delivery. Notice sent by post in accord with this clause shall be deemed given at the commencement of business on the second business day following its posting. Notice sent by telefax or facsimile transmission in accord with this clause shall be deemed given at the time of actual transmission and must be accompanied by notice by post. Notice sent by post must either be sent certified mail, return receipt requested, or by Federal Express or other suitable licensed overnight carrier. ARTICLE XIII ------------ DELIVERIES UPON EXECUTION ------------------------- 13.01 Deliveries. The following deliveries shall be made upon execution and unless waived by the appropriate party in writing or by consummating the transactions contemplated hereby without them, are conditions precedent to execution of this Agreement: (a) Letters patent and applications for letters patent of the Licensor (Attachment A); (b) All relevant agreements as and between the Licensee and any Related Company in the Grant Territory with whom the Licensee intends on working or partnering with to conduct the remediation, recovery and/or treatment activities contemplated herein; (c) Samples, and precise quantity, flow, throughput and existing process data for the anticipated first site; (d) All unrestricted common stock of the Licensee due upon execution; and, (e) All other attachments to this Agreement as deemed reasonably necessary by either party. 13.02 Further Assurances. Licensor and Licensee shall each deliver, or cause to be delivered, all other documents reasonably required to be delivered by the other party at the execution and shall take all other actions which are reasonably necessary or appropriate in order to consummate fully the transactions contemplated hereby. 13.03 Compliance With Payment Schedule. Concurrently upon execution of this Agreement, Licensee shall pay all fees owing to Licensor in accord with the terms of Article IV. IN WITNESS WHEREOF, Licensor and Licensee have caused this Agreement to be duly executed in their names by their proper officers thereunto duly authorized and their corporate seals to be hereunto affixed on the date hereinafter set forth. KBF POLLUTION MANAGEMENT, INC. SOLUCORP INDUSTRIES By:/S/ LAWRENCE M. KREISLER By: /S/ PETER R. MANTIA ------------------------ -------------------- Lawrence M. Kreisler Peter R. Mantia President, Chief Executive Officer President Date: March 20 1998 Date: March 20, 1998 ------------- --------------- (Corporate Seal] (Corporate Seal] ================================================================================ 26 EX-27 12 FINANCIAL DATA SCHEDULE
5 1 6-MOS DEC-31-1997 DEC-31-1997 26,646 0 672,791 41,107 0 4,923,906 350,663 270,746 7,267,632 1,138,920 0 0 0 18,135,240 0 7,267,632 0 629,221 444,718 1,657,800 0 0 0 19,515 0 0 0 0 0 19,515 0.001 0.001
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