PRODUCT & MARKET DEVELOPMENT AGREEMENT
by and between
Xerus Inc. Tirex Canada R&D Inc.
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referred to hereinafter referred to hereinafter
as "Xerus" as "Tirex"
Whereas Tirex has developed a unique technology for recycling waste tires
through a cryogenic process and a patented disintegration process, hereinafter
referred to as the "TCS System", and
Whereas Xerus is a company, the owners of which have special expertise and
experience in the coordination and integration of key value-adding activities
associated with introducing recycled materials into new and existing products
and production systems and marketing cycles. These activities range from
developing new applications from selected raw materials to the marketing of
products that could contain recycled materials such as recycled rubber and
thermoplastics, and
Whereas Xerus and Tirex agree that scrap tires represent a valuable resource,
this being raw materials consisting primarily of their rubber content, for
subsequent processing into other new products, and
Whereas Tirex recognizes that, in conjunction with its short and medium-term
sales objectives respecting sales of TCS Systems, it is important to
aggressively pursue the development and marketing of high value-added recycled
rubber-based products while, and
Whereas Tirex recognizes the importance of participating in such development
projects in collaboration with persons, not necessarily related to Tirex, and
having particular expertise in the domain to accomplish these objectives.
NOW THEREFORE, in consideration of the mutual promises contained in this
Agreement, the parties, intending to be legally bound, agree as follows:
1. PURPOSE OF THE AGREEMENT
The purpose of this Agreement is to establish the basis of an
investment partnership and working relationship between Xerus and Tirex
since it is in their mutual interest to engage in collaborative efforts
to develop new products, applications and markets in a timely manner
for recycled rubber, as well as for other polymer based materials such
as thermoplastics and thermosets.
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Xerus-Tirex Agreement
2. SCOPE OF ACTIVITIES
2.1 Xerus's main endeavours will include, without being limited
to, the following :
2.1.1 Development of rubber and plastic compound
formulations and technologies not necessarily based
on tire derived crumb rubber.
2.1.2 Testing and property evaluation with various
critical variables so as to optimize cost
performance results and minimize production cycles,
using as a starting point all information available
from competing technologies; physical, chemical and
mechanical property optimization, first on small
scale basis and then on a full commercial basis;
2.1.3 Management of all manufacturing and marketing
activities for developed applications, including
identifying and concluding agreements with equipment
sources, raw material producers, transporters,
compounders (mostly as sub-contracting activities)
and end product users;
2.1.4 Establishment of costing systems;
2.1.5 Development of worldwide alliances to promote
product marketability.
3. SHAREHOLDERS' AGREEMENT
3.1 The investment by Tirex in Xerus, Inc. shall be subject to and
conditional upon a Shareholders' Agreement which will contain
at least the following Articles.
3.2 The capital structure of Xerus will contain at least three
classes of shares, these being:
3.2.1 Common shares
3.2.2 Class "A" Non-Voting Preferred shares
3.2.3 Rollover shares
3.3 The Shareholders Agreement and Share Conditions and other
corporate documents will contain, without limitation, at least
the following:
3.3.1 With respect to the Common Shares:
3.3.1.1 In the event of death, disability, voluntary
withdrawal from Xerus, bankruptcy or other
act of insolvency by any of the shareholders,
or Just Cause Termination with respect to any
of the shareholders, hereinafter referred to
as the "departing shareholder", and where
there is not a third party identified as a
possible acquiror of the shares of the
departing shareholder, there shall be
articles requiring a first round offering of
the shares of the departing shareholder to
the remaining shareholders in proportion to
their ownership of common shares as a
function of all of the shares outstanding
with the exception of the shares of the
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departing shareholder, followed by a second
round offering of any remaining shares, if
any, to any remaining shareholder in any
proportion and finally, should there be any
remaining shares after the second round,
Xerus will purchase for cancellation any such
remaining shares from the departing
shareholder. In the case of withdrawal as a
result of Just Cause Termination, the price
shall be the Net Book Value per share prior
to the first round offering of the shares to
the remaining shareholders. In all other
cases, the price per share shall be deemed to
be the sum of the shareholders's equity prior
to the first round offering of shares plus an
amount equal to the excess of the previous
complete fiscal year earnings after tax minus
ten per cent (10%) of the average
shareholders' equity throughout the year in
which the earnings after tax were recorded,
the remainder being multiplied by five (5),
the result being divided by the total number
of shares issued and outstanding prior to the
first round offering to the remaining
shareholders.
3.3.1.2 In the event voluntary withdrawal from Xerus,
hereinafter referred to as the "voluntary
departing shareholder", and where there is a
third party identified as a possible acquiror
of the shares of the voluntary departing
shareholder, there shall be articles
requiring prior offering for a period of
thirty (30) calendar days to the remaining
shareholders at a price equal to or better
than the price offered by the proposed third
party acquiror for the shares of the
voluntary departing shareholder, and that the
price offered by the third party shall be
documented in writing in a formal offer of
purchase.
3.3.2 The Class "A" Non-Voting Preferred shares will have
attributed to them the following rights and
privileges:
3.3.2.1 Priority over the common shares as to
dividends and assets upon liquidation,
whether voluntary or involuntary liquidation.
3.3.2.2 A dividend at an annual rate to be determined
by unanimous consent of the shareholders, as
well as any preferred features including,
without limitation, redemption,
cumulativeness of dividends, interest payable
on unpaid preferred dividends, capitalization
of interest payable into either preferred or
common shares, and acquisition of voting
rights in circumstances to be decided upon by
the shareholders.
3.3.2.3 No payment of common dividends until all
cumulative preferred dividends will have
either been paid or converted to share
capital.
3.4 The parties to this Agreement agree that if, on the advice of
legal counsel, it would be preferable to accept variations
from the preceding sub-articles of Article 3, without
significantly modifying the intent, such acceptance can be
accomplished without having to amend the present agreement.
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Xerus-Tirex Agreement
4. INITIAL INVESTMENT IN XERUS
4.1 Tirex agrees to subscribe to that number of common shares
which will provide Tirex with a 15% ownership in Xerus for a
total compensation of US$150,000..
4.2 The payment for the shares to be issued under Article 4.1
preceding shall be completed within three months following the
date of signing of this agreement on terms to be agreed upon
by the shareholders.
5. OPTION TO PURCHASE ADDITIONAL SHARES
5.1 Xerus grants to The Tirex Corporation an option to purchase
such number of additional common shares in Xerus that Tirex
would own 25% of Xerus on a post-purchase basis. The shares
which might be purchased under this option shall be the same
price per share as the price per share of the initial Tirex
investment. The option will be valid for a period of two years
following the date of signature of this Agreement. For greater
certainty, the additional ten percentage points of ownership
in Xerus which Tirex might purchase under this option will
cost US$100,000.
5.2 The parties agree to negotiate any additional purchase of
shares of Xerus by The Tirex Corporation, beyond the shares
contemplated in Article 5.1 preceding and that Tirex shall
have the right during the two-year period following the date
the present Agreement was signed to require such negotiations
to take place. The parties agree that, if as a result of such
negotiations, Tirex would acquire absolute control of Xerus,
the other shareholders will have the right to demand and,
should such demand be made, Tirex would have the obligation to
negotiate with each and all of the demanding remaining
shareholders the purchase of any remaining shares held by the
demanding shareholders.
6. OBLIGATIONS OF THE PARTIES
Projects undertaken by Xerus will normally be initiated by one or more
of the shareholders and/or shareholders key contact network;
6.1 Where, in the opinion of Tirex, product development and
research and development efforts fall within the scope of
expertise of Xerus, with the exception of research and
development respecting TCS Systems, Tirex agrees to offer to
Xerus for a period of sixty (60) days a right of first refusal
to undertake such product development and research and
development on terms competitive with such terms as Tirex
would, with demonstrable proof thereof, be able to secure from
third parties.
6.2 With respect to any product or process development undertaken
by Xerus at the documented request of Tirex, Xerus agrees that
any intellectual property relating to such products and
processes involving tire derived crumb rubber shall accrue to
Tirex;
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Xerus-Tirex Agreement
6.3 With respect to any product or process development undertaken
by Xerus at the documented request of Tirex, Xerus agrees that
Tirex shall be able to claim all tax credits and/or financial
assistance from various public programs for research and
development activities;
6.4 Tirex agrees to provide to Xerus, for sixty (60) days
following the completion of product development or research
and development activities in respect of a product or process,
excluding research and development related to TCS Systems, a
right of first refusal regarding the marketing rights with
respect to such products or processes related to crumb rubber.
6.5 Xerus agrees that, in the event it exercises its right of
first refusal under Article 6.4 preceding, the rights
conferred upon Xerus will be specific as to territory and
duration and will contain performance clauses which, if unmet
by Xerus, will confer upon Tirex the indisputable and final
right to rescind such marketing rights in whole or in part or
reduce their scope in terms of territory, duration and degree
of exclusivity. Xerus acknowledges and accepts that Tirex will
have an unfettered right to market or cause to be marketed by
others such products or processes developed by Xerus in such
countries or regions which are beyond the territory for which
Xerus will have been granted an exclusive marketing right.
6.5 With respect to those products or processes for which Xerus
will have exercised a right of first refusal, and wishes to
have manufacturing of such products undertaken by a third
party, Xerus will first offer a sixty (60) day right of first
refusal to Tirex to undertake such manufacturing operations.
6.6 With respect to those products or processes for which Xerus
will have exercised a right of first refusal, and will have
undertaken manufacturing or, subject to Article 6.5 preceding,
will have caused to have manufacturing undertaken by a third
party, Xerus agrees to provide to Tirex a right of first
refusal with respect to providing any and all crumb rubber for
inclusion in those products to be produced for its customer
contracts..
6.7 Xerus agrees to provide to Tirex a right of first refusal with
respect to providing any and all crumb rubber for inclusion in
its and research and development efforts.
6.8 The selling price of the crumb rubber which Tirex may choose
to sell to Xerus shall be mutually agreed upon outside the
parameters of this Agreement as a function of current and
future market conditions with respect to rubber crumb of
similar specifications and quality and adjusted for premiums
on price where rubber crumb of similar quality is not
available.
7. BOARD OF DIRECTORS
7.1 The Board of Directors shall consist of a minimum of three and
a maximum of ten directors. The parties have agreed that the
initial composition of the Board of Directors will consist of
three members. The parties further agree that each shareholder
will have the right to elect one-third of the members of the
Board of Directors.
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Xerus-Tirex Agreement
7.2 The number of Directors may be modified from time to time by
unanimous vote of the common shareholders of Xerus.
7.3 Xerus agrees that for as long as Tirex or persons affiliated
with Tirex, other than shareholders of The Tirex Corporation
owning less than 15% of the issued and outstanding shares of
The Tirex Corporation, own at least 15% of the voting shares
of Xerus, and for as long as Tirex or persons related to
Tirex, other than shareholders of The Tirex Corporation owning
less than 15% of the issued and outstanding shares of The
Tirex Corporation, own Preferred Shares of Xerus which have
neither been redeemed nor converted into common shares, Tirex
will have the right to appoint a minimum of one-third of the
members of the Board of Directors of Xerus.
8. DURATION
8.1 The initial duration of this Agreement shall be for a period
of three years starting on the date of signature of this
Agreement and, in the absence of renewal as specified in 9.2
following, will terminate on the last day of the month in
which the third anniversary of its signing occurs. However,
the provisions of Article 10 following (Confidentiality), and
the Shareholders' Agreement will each survive the termination
of this Agreement for an additional period of three years
following the date this Agreement would have been terminated.
8.2 This Agreement will be renewed automatically for successive
one-year periods unless written notice is given by one party
to the other party at least ninety (90) days prior to the
expiry date or the renewed expiry date, as the case may be.
9. TERMINATION
9.1 Tirex shall have the right to unilaterally terminate this
Agreement on thirty days written notice at any time in the
event that the Other Shareholders of Xerus willingly undertake
actions, legal or illegal, which would cause material harm to
Tirex or its shareholders, and where the effect of such
actions should have been predictable by an experienced and
prudent businessperson ("Just Cause Termination").
9.2 The provisions of this Article 9 shall apply "mutatis
mutandis" in such circumstances where one or more of the other
shareholders of Xerus is or are the offended party or parties.
9.3 To be effective, Notice of Just Cause Termination must be
delivered by Registered Mail, Courier Service, or by hand by a
duly authorized director or officer of Tirex or by a court
official, or such other person authorized in writing by a
director or officer of Tirex to deliver such Notice of
Termination for Just Cause.
9.4 In the event that Tirex serves notice of Just Cause
Termination, as provided for in Article 9.2 preceding, one or
all of the Other Shareholders shall have the right to appeal
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Xerus-Tirex Agreement
such termination before the Board of Directors of Tirex in a
meeting to be held no later than three weeks after the date
the notice of Just Cause Termination was delivered. In the
event that the terminated shareholder is dissatisfied with the
hearing before the Board of Directors of The Tirex
Corporation, the parties agree to invoke Article 12.1
(Disputes...Arbitration) for final resolution of the issues
which gave rise to the serving of notice under Article 9.3 of
Just Cause Termination.
9.5 Termination for cause shall mean termination by Tirex of this
Agreement for reason of wilful dishonesty towards, fraud upon,
or deliberate injury or attempted injury to Tirex by the Other
Shareholders of Xerus, either individually or collectively, or
by reason of their wilful material breach of this Agreement
which has resulted in material injury to Tirex. For purposes
of this paragraph, no act or failure to act on the part of the
Other Shareholders, either individual or collectively, shall
be considered "wilful" or "deliberate" unless done or omitted
to be done by them, alone or collectively, not in good faith
and without reasonable belief that their action or omission
was in the best interest of Tirex. For greater certainty, but
without limitation, "Just Cause Termination" shall include any
illegal acts of such severity as to negatively affect the
image of Tirex, the promotion or support of a hostile takeover
bid of Tirex, and the dissemination of false information
respecting the operating and financial capabilities of Tirex.
9.6 In the event that Tirex terminates this Agreement under the
terms of Article 9.2 preceding, Tirex shall have the right to
acquire the voting shares of the Other Shareholders at a
mutually agreed upon market price.
9.7 In the event that the Other Shareholders, individually or
collectively, voluntarily wish to terminate this Agreement,
Tirex shall have the right to acquire the voting shares of the
Other Shareholders in accordance with Articles 3.3.1.1 and
3.3.1.2 of this Agreement.
10. EXCHANGE OF INFORMATION
10.1 During the term of this Agreement, it is understood that
certain information, both of a technical nature and of a
general nature, will be disclosed by each party to the other
party (the "receiving party") which the disclosing party might
consider to be confidential (the "information").
10.2 The parties agree that, subject to Article 10. 6, all
documents and will be deemed to be confidential unless
indicated otherwise by the disclosing party.
10.3 It is also understood that both parties agree to keep
confidential all of such information and any other information
which the parties may obtain during the term of this
Agreement.
10.4 By signing this Agreement, the parties shall be deemed to have
acknowledged, for all legal purposes, that all right, title
and interest in and to any documents, drawings, files and
samples supplied by one party to the other party, and any
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Xerus-Tirex Agreement
other information of a proprietary nature is and shall remain
the exclusive property of the disclosing party and shall be
held in trust and confidence by the receiving party, and shall
not be used by the receiving party in any manner whatsoever
except as reasonably required to undertake the terms of this
Agreement.
10.5 It is further understood that each party will use all
reasonable efforts to protect the other party's interest in
the information and keep it confidential to the same degree of
care that the receiving party would be reasonably expected to
employ for its own confidential information. Furthermore, the
information shall not be copied, reproduced in any form, or
stored in a retrievable system or database by the receiving
party without the prior written consent of the disclosing
party. It is also understood that the receiving party will,
upon the request of the disclosing party, immediately return
to the disclosing party all information and all copies
thereof, and delete the information from all retrievable
systems and databases.
10.6 The obligations set forth herein shall not apply to either of
the parties and neither of the parties shall not be liable for
disclosure or use of information which:
o is or becomes available to the public from a source other
than from the receiving party before or during the term
of this agreement, it being understood that it shall be
the burden of the receiving party to establish such
public availability and the source of such information;
o is authorized for release in writing by the disclosing
party; or
o is known by the receiving party prior to disclosure to
the receiving party, provided that the receiving party
can establish such prior knowledge by reasonable
documentary evidence pre-dating such disclosures.
o is lawfully obtained by the receiving party from a third
party;
10.7 The parties mutually agree to safeguard as each other's
commercial secrets, without limitation, all price information,
product costing information, customer lists, quotations,
discount sheets, technical data, financial information not
normally disclosed to the general public and which, if
disclosed to third parties, would cause material financial
hardship to the other party, with the exception of disclosures
which may be required by law or judicial procedure, regardless
of the format of the information, electronic, verbal or
written, respecting the Products and Services transferred or
disclosed by one party to the other, and will not permit the
unauthorized use or disclosure of such information in any way
which would be detrimental to any of the parties to this
Agreement.
10.8 Due to the valuable and proprietary nature of the information
to the parties, the obligations assumed by the parties shall
be unlimited territory. This Article 10 shall not be modified,
except by a further written agreement executed by both of the
parties.
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Xerus-Tirex Agreement
11. JURISDICTION OF THE AGREEMENT
11.1 This Agreement shall be governed by and subject to the laws of
the Province of Quebec.
12. DISPUTES
12.1 In the event of differences in interpretation or litigation
regarding this Agreement, the parties mutually agree to submit
such differences or litigation to a mutually agreed upon
arbitrator for resolution of the dispute or litigation, the
decision of which will be binding on all parties.
13. LANGUAGE OF THE AGREEMENT
13.1 The parties have agreed that the present document be written
in English. Les parties conviennent que le present document
soit redige en anglais.
14. AUTHORIZATION TO PUBLICIZE
14.1 The parties all agree that the information contained in this
document may be rendered public by any of the parties thereto,
preceding or following the final signatures of the legal
versions thereof.
Signed in Montreal, Quebec this_____ Day of _____________________________, 2001.
For and on behalf of : For and on behalf of:
Xerus Inc. The Tirex Corporation
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President President
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Vice-President, Xerus Vice-President & Director
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