Product & Market Development Agreement

PRODUCT & MARKET DEVELOPMENT AGREEMENT


by and between


Xerus Inc. Tirex Canada R&D Inc. 1210 Cure Poirier Est and 3828 St. Patrick Street Suite 301 Montreal, Quebec Longueuil, Quebec Canada H4E 1A4 Canada J4J 5J2


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.


Page 1 of 9 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


Page 2 of 9


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 Agre ...