Document:

1998 Stock Option Plan

 

EXHIBIT 10.2

POLYMER SOLUTIONS, INC.

Directors, Consultants and Employees 1998 Stock Option Plan

INTRODUCTION

     Polymer Solutions, Inc. (the “Company”) is adopting the Polymer Solutions,
Inc. Directors, Consultants and Employees 1998 Stock Option Plan (the “Stock
Option Plan” or the “Plan”) to provide Directors, Consultants and Employees
with non-qualified stock options (the “Stock Options”). In association with
the Company’s Stock Option Program, the Company has initiated the use of an
Economic Value Added calculation method (the “EVA Plan”) as a mechanism by
which to determine the number of stock options to be allocated to individual
participants in the Company’s Stock Option Plan.

     EVA is based on the performance measure of the creation of economic value.
EVA reflects the benefits and costs of capital employment. Managers create
value when they employ capital in an endeavor that generates a return that
exceeds the cost of the capital employed. EVA is the operating profit
remaining after taxes have been paid and a minimum return has been earned on
the capital employed. The EVA Plan will reward achievement based on increases
in economic value and penalize on any decreases in economic value, and will
operate over a long-term horizon. The EVA Plan is designed to operate in such
a manner as to encourage consistent improvement in EVA over the long term.

     The Compensation Committee has determined that Polymer Solutions will
grant Stock Options as an award for improved EVA. Stock Options will be
granted in accordance with this Stock Option Plan described in detail
throughout this document. Once the Stock Options are granted and upon
regulatory approval, a Stock Option Agreement will then be entered into between
the Company and the individual Director, Consultant or Employee.

SECTION 1 DEFINITIONS

     Wherever used herein, the masculine pronoun shall be deemed to include the
feminine, and the singular to include the plural, unless the context clearly
indicates otherwise, and the following words and phrases shall, when used
herein, have the meanings set forth below:

	 	 	 	 
	 	1.1	 	
“Act” means the Securities Exchange Act of 1934 and the
British Columbia Securities Act and Regulations.
	 	 	 	 
	 	1.2	 	
“Agreement” means a stock option agreement, which is an
agreement subject to the terms of the Plan.
	 	 	 	 
	 	1.3	 	
“Board of Directors” means the Board of Directors of the
Company.
	 	 	 	 
	 	1.4	 	
“CDNX” means the Canadian Venture Exchange.
	 	 	 	 
	 	1.5	 	
“Code” means the Internal Revenue Code of 1986, as amended
and the Canadian Income Tax Act.
	 	 	 	 
	 	1.6	 	
“Committee” means the Compensation Committee appointed by the
Board of Directors to administer the Stock Option Plan.

	 	 	 	 
	 	1.7	 	
“Company” means Polymer Solutions, Inc.

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	 	1.8	 	
“Consultant” means a consultant retained to provide ongoing
technical, business or management services to the Company or a
Subsidiary, under a written contract. Excluded are services
provided in connection with the sales of securities and promotional,
investor relations, or fiscal agency.
	 	 	 	 
	 	1.9	 	
“Director” means a director of the Company or a Subsidiary.
	 	 	 	 
	 	1.10	 	
“Disability” means a condition described in Code Section
22(e)(3), as amended from time to time. In the event of a dispute,
the determination of Disability will be made by the Committee and
must be supported by advice of a physician competent in the area to
which such Disability relates.
	 	 	 	 
	 	1.11	 	
“Disinterested Security Holder Approval” means the majority
of the votes cast at a security holders meeting of the issuer of the
option, other than votes attaching to securities beneficially owned
by related persons.
	 	 	 	 
	 	1.12	 	
“Employee” means any person who is employed by the Company or
a Subsidiary for purposes of the Federal Insurance Contributions Act
and as described in the Canadian Income Tax Act.
	 	 	 	 
	 	1.13	 	
“EVA” means Economic Value Added Incentive Compensation,
which determines the basis in quantifying the number of stock
options to grant to each participant.
	 	 	 	 
	 	1.14	 	
“Fiscal Year” means the fiscal year of the Company, which
runs from April 1 through March 31.
	 	 	 	 
	 	1.15	 	
“Option” means a non-qualified Stock Option to purchase
Shares of the Company granted pursuant to and in accordance with the
provisions of the Stock Option Plan.
	 	 	 	 
	 	1.16	 	
“Optionee” means a Director, Consultant or Employee who is
granted a Stock Option pursuant to and in accordance with the
provisions of the Stock Option Plan.
	 	 	 	 
	 	1.17	 	
“Option Shares” means Shares subject to and issued pursuant
to an exercise of an Option granted under the Stock Option Plan.
	 	 	 	 
	 	1.18	 	
“Participant” means any Employee, Director or Consultant
designated as a participant by the Chairman and CEO & President and
approved by the Compensation Committee, in its sole discretion,
provided that, with respect to individuals who may be deemed to be
insiders under Section 16(b) of the Securities Exchange Act of 1934
and the rules promulgated thereunder, the Committee will have the
sole right to designate such individuals as participants.
	 	 	 	 
	 	1.19	 	
“Plan” means the Polymer Solutions, Inc.’s 1998 Directors,
Consultants and Employees Stock Option Plan.

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	 	1.20	 	
“Share” means a share of Common Stock of the Company and/or
any share or shares of stock of another corporation or corporations
issued in exchange for a share of Common Stock of the Company as a
result of a merger, consolidation or other adjustment to the capital
structure of the Company.
	 	 	 	 
	 	1.21	 	
“Stock Option Plan” means Polymer Solutions, Inc.’s 1998
Directors, Consultants and Employees Stock Option Plan as approved
by relevant regulatory authorities and the shareholders.
	 	 	 	 
	 	1.22	 	
“Subsidiary” means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if
at the time of the granting of the Option, each of the corporations
other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.

SECTION 2 ADMINISTRATION

	 	 	 	 
	 	2.1	 	
Delegation to Committee. The Stock Option Plan shall be
administered by the Committee. The members of the Committee shall
be appointed by the Board of Directors. The Committee shall consist
of at least one or more members of the Board of Directors.
Committee members are granted predetermined allotments of options
each year as determined by the Shareholders and are not eligible to
receive any further grants of Stock Options under the Plan. The
Board of Directors may from time to time remove members from or add
members to the Committee. Vacancies on the Committee shall be
filled by the Board of Directors.
	 	 	 	 
	 	2.2	 	
Committee Actions. The Committee shall select one of its
members as chairman, and shall hold meetings at such times and
places as it may determine. The Committee, as appropriate, shall
work with the Chairman and CEO & President of the Company in all
aspects of the administration of the Stock Option Plan. Acts
approved by the majority of the Committee in a meeting at which a
quorum is present or acts reduced to or approved in writing by a
majority of the members of the Committee shall be the valid acts of
the Committee. A quorum shall be present at any meeting of the
Committee, which a majority of the Committee members attend.
	 	 	 	 
	 	2.3	 	
Finality. The Committee shall have the authority in its sole
discretion to interpret the Stock Option Plan, to grant Stock
Options under and in accordance with the Plan; to prescribe, amend
and rescind rules and regulations relating to the Plan; to determine
the terms and provisions of the respective Stock Option agreements
and to make all other determinations and to take all other actions
it deems necessary or advisable for the implementation and
administration of the Stock Option Plan or Agreements thereunder,
except to the extent such powers are herein reserved by the Board of
Directors. All actions of the Board of Directors and the Committee
shall be final, conclusive, and binding upon the Optionees. No
member of the Board of Directors or the Committee shall be liable
for any action taken or decision made in good faith relating to the
Plans or any grant of an Option thereunder.

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SECTION 3 ELIGIBILITY

	 	 	 	 
	 	3.1	 	
Stock Options may be granted only to Officers, Employees and
Consultants of the Company, or any subsidiary or affiliate of the
Company.
	 	 	 	 
	 	3.2	 	
Directors who are not Employees shall be eligible to receive
Options under the Plan as determined by the Committee and on the
terms and subject to the restrictions hereinafter set forth.
	 	 	 	 
	 	3.3	 	
Directors who are not Employees and are members of the
Committee shall be eligible to receive options, but subject to a
predetermined allotment each year, which the shareholders have
ratified.

SECTION 4 SHARES SUBJECT TO PLAN

	 	 	 	 
	 	4.1	 	
The aggregate number of Option Shares that may be issued
under the Plan shall at no time exceed 1,650,000 (the “Maximum Plan
Shares”). The limitations established by this Section shall be
subject to adjustment in accordance with the provisions of the Plan.
The Shares are hereby reserved exclusively for issuance pursuant to
Stock Options. At no time may the Company have outstanding under the
Plan, Stock Options subject to Section 16 of the Exchange Act and
shares of Stock issued in respect of Stock Options under the Plan in
excess of the Maximum Plan Shares and subject to the limits on
Options and Stock Appreciation Rights under Section 162(m) of the
Code and the regulations thereunder for compensation to be treated
as qualified performance based compensation.
	 	 	 	 
	 	4.2	 	
In the event that an Option expires or is terminated for any
reason, the Option Shares allocable to the unexercised portion of
such Option may again be subjected to an Option under the Plan.
	 	 	 	 
	 	4.3	 	
In the event that an Optionee delivers Shares as payment of
the exercise price for an Option, such Shares may be subjected to
Options under this Plan.

SECTION 5 STOCK OPTIONS TERMS AND CONDITIONS

	 	 	 	 
	 	5.1	 	
Each member of the Compensation Committee or non-employee
Director who elects to not participate in the EVA Plan, shall be
granted an annual Option in accordance with the Stock Option Plan.
Each Committee Member is allowed to purchase a fixed number of
Shares of the Company in consideration of their membership on the
Board or as a member of the Committee. Each grant shall be made
January 21 of each year commencing on January 21, 1999, and
exercisable for a term of three years.
	 	 	 	 
	 	5.2	 	
At the Annual General Meeting on August 17, 1999, the
Shareholders of the Company ratified the automatic grant of 20,000
stock options per year to each Committee Member or non-employee
Director, for four years commencing January 21, 1999, after which, a
further proposal will be presented and voted upon by the
shareholders. The Shareholders also approved each member of the
Committee or non-employee Director shall have a cumulative maximum
amount of 60,000 options outstanding at any one time, inclusive of
options granted previously.

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	 	5.3	 	
The aggregate number of shares that may be reserved for
issuance under the option plan to any one Director must not exceed
five (5) percent of the issued and outstanding securities of the
Company, as of the date of the grant of the option to the Director.
	 	 	 	 
	 	5.4	 	
The aggregate number of shares that may be reserved for
issuance under option to any one Consultant must not exceed two (2)
percent of the issued and outstanding securities of the Company, as
of the date of the grant of the option to the Consultant.
	 	 	 	 
	 	5.5	 	
Where the options are granted to a Consultant who is a
related person, the securities may not be issued upon the exercise
of the option, unless the Company has received disinterested
security holder approval.
	 	 	 	 
	 	5.6	 	
The effective date of a Stock Option will be the date on
which the Committee has approved the terms and conditions of the
Stock Option and has determined the recipient of the Stock Option
and the number of shares covered by the Stock Option, and has taken
all such other actions necessary to complete the grant of the Stock
Option.
	 	 	 	 
	 	5.7	 	
Each Option granted under the Plan must be evidenced by a
Stock Option Agreement. At the time any Option is granted, the
Committee will determine whether the Option is to be an incentive
stock option described in Code Section 422 or a non-qualified stock
option, and the Option must be clearly identified as to its status
as an incentive stock option or a non-qualified stock option.
Incentive stock options may only be granted to Directors,
Consultants or Employees of the Company or any Subsidiary. At the
time any incentive stock option granted under the Plan is exercised,
the Company will be entitled to legend the certificates representing
the shares of Stock purchased pursuant to the Option to clearly
identify them as representing the shares purchased upon the exercise
of an incentive stock option. An incentive stock option may only be
granted within ten (10) years from the earlier of the date the Plan
is adopted by the Board of Directors of the Company or approved by
the Company’s stockholders.
	 	 	 	 
	 	5.8	 	
The Term of each option agreement, with the exception of
automatic grant to a Committee Member or non-employee Director, must
not exceed five (5) years from the date of the grant of the option.
	 	 	 	 
	 	5.9	 	
Each Option granted will be exercisable as provided in the
terms of the Agreement to the extent vested, as determined by the
Committee. In conjunction with the EVA Plan, no more than one-third
of any total EVA Award attributable to a participant will be
allocated in the form of options in any one-year. This staged
allocation format is intended to eliminate the need for a vesting
function within the option agreement.
	 	 	 	 
	 	5.10	 	Each Option granted shall be exercisable over the Director’s
period of continued service as a member of the Board of Directors or
as a Consultant according to the schedule set forth as Schedule A on
the option agreement.
	 	 	 	 
	 	5.11	 	In the case of incentive stock options, the aggregate Fair
Market Value (determined as at the date an incentive stock option is
granted) of stock with respect to which stock options intended to
meet the requirements of Code Section 422 become exercisable for the
first time by an individual during any calendar year under all plans
of the Company and its Subsidiaries may not exceed $100,000;
provided further, that if the limitation is exceeded, the incentive stock option(s) which cause the limitation
to be exceeded will be treated as non-qualified stock option(s).

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	 	5.12	 	The Minimum exercise price of each share granted pursuant to
an Option shall be the Fair Market Value of a Share on the day the
Option is granted. “Fair Market Value” with regard to a date means:
	 	 	 	 	 	 
	 	 	 	(a)	 	
the last closing bid price at which Shares have
been quoted on that date or the last trading date prior to
that date as reported by the Nasdaq Stock Market or if the
shares of Stock are actively trading on the Canadian Venture
Exchange (“CDNX”) or the Toronto Stock Exchange (“TSE”), the
average closing price for the ten trading days or the last
trade to occur, immediately preceding the day Notice is
received by the exchange, to minimum price of $0.15 per share,
or
	 	 	 	 	 	 
	 	 	 	(b)	 	
if Shares are not traded on a securities
exchange, but are reported by the Nasdaq Stock Market and
market information is published on a regular basis in The Wall
Street Journal, the average of the published high and low
sales prices for that date or the last business day prior to
that date as published in The Wall Street Journal, or
	 	 	 	 	 	 
	 	 	 	(c)	 	
if such market information is not published on a
regular basis, the bid prices of Shares in the
over-the-counter market on that date or the last business day
prior to that date, as reported by the Nasdaq Stock Market,
or, if not so reported, by a generally accepted reporting
service, or
	 	 	 	 	 	 
	 	 	 	(d)	 	
if Shares are not publicly traded, as determined
in good faith by the Committee with due consideration being
given to (i) the most recent independent appraisal of the
Company, if such appraisal is not more than twelve months old
and (ii) the valuation methodology used in any such appraisal
provided that, for purposes of granting awards other than
incentive stock options, Fair Market Value of the Shares may
be determined by the Committee by reference to the average
market value determined over a period certain or as of
specified dates, to a tender offer price for the Shares (if
settlement of an award is triggered by such an event) or to
any other reasonable measure of fair market value.
	 	 	 	 	 	 
	 	5.13	 	Each Option granted pursuant to this Plan shall be authorized
by the Committee, shall be evidenced by a Stock Option Agreement and
shall be subject to such additional term, conditions and
restrictions as the Committee may determine to be appropriate. Each
Stock Option Agreement or Stock Option Program is subject to the
terms of the Plans and any provisions contained in the Stock Option
Agreement or Stock Option Program that are inconsistent with the
Plan are null and void.

SECTION 6 TERMINATIONS

	 	 	 	 
	 	6.1	 	
Death. If a Participant dies at any time when he is entitled
to exercise, the Participants option shall terminate twelve (12)
months after termination due to death or prior, if the option is
terminated by its terms. The option may be exercised by the
executor or administrator or the person or persons to whom the
option is transferred by will or applicable laws of descent and
distribution but only to the extent the options were exercisable on
the date the Participant ceased to be employed by the Company due to
his death.

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	 	6.2	 	
Disability. A Participant who suffers a “permanent
incapacitating disability” while in the employ of the Company such
Participant options, or any unexercised portion, by reason of
disability shall terminate twelve (12) months after the effective
date of Disability death or prior, if the option is terminated by
its terms. A Participant shall be deemed to suffer a “permanent
incapacitating disability” if, because of physical or mental
condition, the Participant is unable for a period of at least one
year to perform the principal duties of his occupation as determined
by a physician.
	 	 	 	 	 	 
	 	6.3	 	
Retirement. A Participant who retires with the consent of
the Company, prior to the expiration date of the option, such
Participant’s option, or any unexercised portion may be exercised
within three (3) months of retirement. During the three (3) month
period, the Participant may exercise any unexercised option granted,
but only to the extent such options were exercisable.
	 	 	 	 	 	 
	 	6.4	 	
Termination of Employment
	 	 	 	 	 	 
	 	 	 	(a)	 	Involuntary Termination for Cause and Voluntary
Termination without Good Reason:

If a Participant whose employment with the Company is
involuntarily terminated for Cause, or who voluntarily
terminates employment with the Company without Good Reason
(other than, as provided in Sections 10.2 and 10.3), such
Participant’s option shall terminate immediately upon the date
of termination of employment.
	 	 	 	 	 	 
	 	 	 	(b)	 	Involuntary Termination without Cause and
Voluntary Termination for Good Reason:

If a Participant’s employment with the Company is involuntarily
terminated without Cause, or voluntarily terminated for Good
Reason (other than as provided in Sections 10.2 and 10.3), such
Participant’s option, or any unexercised portion, shall
terminate thirty (30) days after the date of termination of
employment. During the thirty (30) day period, the Director or
Consultant may exercise any unexercised option granted, but only
to the extent such options were exercisable.
	 	 	 	 	 	 
	 	Additional Definitions, as used herein;
	 	 	 	 	 	 
	 	 	‘Cause’ shall mean:
	 	 	 	(i)	 	
any act or acts of the Participant constituting a felony (or
its equivalent) under the laws of the United States, any state
thereof of any foreign jurisdiction;
	 	 	 	 	 	 
	 	 	 	(ii)	 	any material breach by the Participant of any employment
agreement with the Company or the policies of the Company or the
willful and persistent (after written notice to the Participant)
failure or refusal of the Participant to comply with any lawful
directive of the Board or of the Board of Directors of the
subsidiary of the Company which employs such Participant;
	 	 	 	 	 	 
	 	 	 	(iii)	 	a course of conduct amounting to gross neglect, willful
misconduct or dishonesty; or
	 	 	 	 	 	 
	 	 	 	(iv)	 	any misappropriation of material property of the Company by
the Participant or any misappropriation of a corporate or business
opportunity of the Company by the Participant.

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‘Good Reason’ shall mean:
	 	 	 	(i)	 	
any material reduction by the Company of such Participant’s
duties, responsibilities or titles; or
	 	 	 	 	 	 
	 	 	 	(ii)	 	any involuntary removal of such Participant from any position
previously held (except in connection with a promotion or a
termination for Cause, death or disability, or the voluntary
termination by the Participant other than for Good Reason);
	 	 	 	 	 	 
	 	 	 	(iii)	 	such other reasons (including non-employment related
reasons) as may be approved by the Committee, in its sole
discretion, from time to time.
	 	 	 	 	 	 
	 	6.5	 	
Breach of Agreement. Notwithstanding any other provision of
the Plan or any other agreement, in the event that a Participant
shall breach any non-competition agreement with the Company or
breach any agreement with respect to the post-employment conduct of
such Participant, the options shall terminate immediately.
	 	 	 	 	 	 
	 	6.6	 	
Tender Offer. Notwithstanding any other provision of the
Plan to the contrary, upon the occurrence of a successful tender
offer for, or the purchase by a person, or by a group as defined in
Section 14(d) (2) of the Securities Exchange Act of 1934, of 45% or
more of the voting stock of the Company, all Participants shall have
a vested right to exercise their options.

SECTION 7 GENERAL PROVISIONS

	 	 	 	 	 	 
	 	7.1	 	
Withholding of Taxes. Whenever the Company proposes or is
required to issue Shares to an Optionee who is or was an employee of
the Company or a Subsidiary, or to his legatee or legal
representative under this Plan, pursuant to the exercise of an
Option granted under this Plan, the Company shall have the right to
require the recipient to remit to the Company an amount sufficient
to satisfy any federal, state and local withholding tax requirement,
if any, prior to the delivery of any certificate or certificates for
such Shares. An Optionee must pay the withholding tax in cash or by
certified check or by the Company deducting a sufficient number of
Shares from the Option Shares issued to satisfy withholding taxes,
in accordance with the Agreement.
	 	 	 	 	 	 
	 	7.2	 	
Expenses. All expenses and costs in connection with the
adoption and administration of the Plan shall be borne by the
Company.
	 	 	 	 	 	 
	 	7.3	 	
No Prior Right or Offer. Except and until expressly granted
pursuant to the Plan, nothing in the Plan shall be deemed to give
any employee any contractual or other right to participate in the
benefits of the Plan.
	 	 	 	 	 	 
	 	7.4	 	
Rights Personal to Employee. Any rights to an employee under
the Plan shall be personal to such employee, shall not be
transferable (except by will or pursuant to the laws of descent or
distribution), and shall be exercisable, during his lifetime, only
by such employee.
	 	 	 	 	 	 
	 	7.5	 	
Right as a Stockholder. An Optionee or a transferee of an
Optionee shall have no rights as a stockholder with respect to any
Option or Option Shares until the date of the issuance

8

 

	 	 	 	 	 	 
	 	 	 	
of a stock certificate to him for the Option Shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other
rights for which the record date is prior to the date the stock
certificate is issued, except as otherwise provided in the Plan.
	 	 	 	 	 	 
	 	7.6	 	
No obligation to exercise option. The granting of an Option
shall impose no obligation upon the Optionee to exercise the Option.
	 	 	 	 	 	 
	 	7.7	 	
Action Taken in Good Faith; Indemnification. The Committee
may employ attorneys, consultants, accountants or other persons and
the Company’s directors and officers shall be entitled to rely upon
the advice, opinions or valuations of any such persons. All actions
taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon all
employees who have received options, as well as the Company and all
other interested parties. No member of the Committee, nor any
officer, director, employee or representative of the Company, or any
of its affiliates acting on behalf of or in conjunction with the
Committee, shall be personally liable for any action, determination,
or interpretation, whether of commission or omission, taken or made
with respect to the Plan, except in circumstances involving actual
bad faith or willful misconduct. In addition to such other rights of
indemnification as they may have as members of the Board, as members
of the Committee or as officers or employees of the Company, all
members of the Committee and each and any officer, employee or
representative of the Company or any of its subsidiaries acting on
their behalf shall be fully indemnified and protected by the Company
with respect to any such action, determination or interpretation
against the reasonable expenses, including attorneys’ fees actually
and necessarily incurred, in connection with the defense of any
civil or criminal action, suit or proceeding, or in connection with
any appeal therein, to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection
with the Plan or an award granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement
is approved by independent legal counsel selected by Company) or
paid by them in satisfaction of a judgment in any action, suit or
proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person
claiming indemnification shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
Expenses (including attorneys’ fees) incurred in defending a civil
or criminal action, suit or proceeding shall be paid by the Company
in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by any person claiming
indemnification to repay such amount unless it shall ultimately be
determined that such member is entitled to be indemnified as
provided in this Section.
	 	 	 	 	 	 
	 	7.8	 	
Changes in Capitalization; Merger; Reorganization.
	 	 	 	 	 	 
	 	 	 	(a)	 	
The number of Option Shares and the Exercise
Price shall be proportionately adjusted for any increase or
decrease in the number of shares of Common Stock resulting
from a subdivision or combination of shares or the payment of
a stock dividend in shares of Common Stock to holders of
outstanding shares of Common Stock or any other increase or
decrease in the number of shares of Common Stock outstanding
effected without receipt of consideration by the Company.

9

 

	 	 	 	 	 	 
	 	 	 	(b)	 	
In the event of a merger, consolidation or other
reorganization involving the Company or a tender offer for
shares of Common Stock, the Committee may, in its sole
discretion, adjust the number and class of securities subject
to the Option, with a corresponding adjustment made in the
Exercise Price; substitute a new option to replace the Option;
or accelerate the termination of the Option Period to a date
prior to the occurrence of any event specified in Section 6
above; or terminate the Option in consideration of payment to
Optionee of the excess of the then Fair Market Value (as
defined in the Plan) of the vested Option Shares over the
Exercise Price of the vested Option Shares.
	 	 	 	 	 	 
	 	 	 	(c)	 	
The existence of the Plan and any options shall
not affect in any way the right or power of the Company to
make or authorize any adjustment, reclassification,
reorganization or other change in its capital or business
structure, any merger or consolidation of the Company, any
issue of debt or equity securities having preferences or
priorities as to the Common Stock or the rights thereof, the
dissolution or liquidation of the Company, any sale or
transfer of all or any part of its business or assets, or any
other corporate act or proceeding.
	 	 	 	 	 	 
	 	7.9	 	
Discretion of the Committee. All actions, calculations and
decisions to be made regarding this Plan will be made in the sole
discretion of the Committee, unless otherwise explicitly stated.

SECTION 8 LIMITATIONS

	 	 	 	 	 	 
	 	8.1	 	
No Continued Employment. Nothing contained in the Plan or
any Stock Option confers upon any Participant the right to continued
employment or services or in any way abridge the rights of the
Company and its Participants to determine the terms and conditions
of employment and whether to terminate employment of any Employee,
Director or Consultant.
	 	 	 	 	 	 
	 	8.2	 	
No Vested Rights. Except as otherwise provided herein, no
Director, Consultant, Employee or other person shall have any claim
of right (legal, equitable, or otherwise) to any award, allocation,
or distribution or any right, title or vested interest in any Stock
Option, other than specifically provided with regard to the death of
a Participant, and no Director, Consultant, Officer or Employee of
the Company or any Participant or any other person shall have any
authority to make representations or agreements to the contrary. No
interest conferred herein to a Participant shall be assignable or
subject to claim by a Participant’s creditors.
	 	 	 	 	 	 
	 	8.3	 	
No Part of Other Benefits. The benefits provided in this
Plan shall not be deemed a part of any other benefit provided by the
Company to its employees. The Company assumes no obligation to Plan
Participants except as specified herein. This is a complete
statement, along with the Schedules and Appendices attached hereto
and the terms and conditions of the Stock Option Agreement.
	 	 	 	 	 	 
	 	8.4	 	
Other Plans. Nothing contained herein shall limit the
Company or the Committee’s power to grant bonuses or other
compensation to Directors, Consultants or Employees of the Company,
whether or not the Participants are eligible under the Plan.

10

 

SECTION 9 RESTRICTIONS ON DELIVERY AND SALE OF SHARES; LEGENDS

	 	 	 	 
	 	9.1	 	
Each Stock Option is subject to the condition that if at any
time the Committee, in its discretion, shall determine that the
listing, registration or qualification of the shares covered by such
Stock Option upon any securities exchange or under any provincial,
state or federal law is necessary or desirable as a condition of or
in connection with the granting of such Stock Option or the purchase
or delivery of shares thereunder, the delivery of any or all shares
pursuant to such Stock Option may be withheld unless and until such
listing, registration or qualification shall have been effected. If
a registration statement is not in effect under the Securities Act
of 1933 or any applicable state securities laws with respect to the
shares of Stock purchasable or otherwise deliverable under Stock
Options then outstanding, the Committee may require, as a condition
of exercise of any Option or as a condition to any other delivery of
Stock pursuant to a Stock Option, that the Participant or other
recipient of a Stock Option represent, in writing, that the shares
received pursuant to the Stock Option are being acquired for
investment and not with a view to distribution and agree that the
shares will not be disposed of except pursuant to an effective
registration statement, unless the Company shall have received an
opinion of counsel that such disposition is exempt from such
requirement under the Securities Act of 1933 and any applicable
state securities laws. The Company may include on certificates
representing shares delivered pursuant to a Stock Option such
legends referring to the foregoing representations or restrictions
or any other applicable restrictions on resale as the Company, in
its discretion, shall deem appropriate.
	 	 	 	 
	 	9.2	 	
Listing and Legal Compliance. The Committee may suspend the
exercise or payment of any Stock Option so long as it determines
that securities exchange listing or registration or qualification
under any securities laws is required in connection therewith and
has not been completed on terms acceptable to the Committee.

SECTION 10 AMENDMENT AND TERMINATION OF THE PLAN

	 	 	 	 
	 	10.1	 	This Plan may be amended, suspended or terminated at any time
by the Board upon the recommendation of the Committee without
shareholder approval; provided, however, that the Board of Directors
may condition any amendment on the approval of the shareholders of
the Company, if such approval is necessary or advisable with respect
to tax, securities or other applicable laws to which the Company,
this Plan, optionees or eligible Directors, Consultants and
Employees are subject. Notice of any such amendment, suspension or
termination shall be given promptly to each Participant. No such
amendment or termination without the consent of the holder of a
Stock Option may adversely affect their rights of the Participant
under such Stock Option.
	 	 	 	 
	 	10.2	 	Notice. Any notice to be given pursuant to the provisions of
the Plan shall be in writing and directed to the appropriate
recipient thereof at his business address or office location.

SECTION 11 GOVERNING LAW

	 	 	 	 
	 	11.1	 	This Plan shall be construed in accordance with the
provisions of the laws of the State of Nevada.

11

 

SECTION 12 EFFECTIVE DATE

	 	 	 	 
	 	12.1	 	The Plan shall be effective as of August 6, 1998 and shall
continue to be effective until ten (10) years following the
effective date of the Plan being the date the stockholders approved
the Plan, unless sooner terminated by the Board of Directors
pursuant to Section 10 hereof. Additionally, this Plan requires the
approval of the Canadian Venture Exchange and the Securities and
Exchange Commission and such other regulatory authorities as is
required. Stock Options granted hereunder prior to such approvals
shall be conditioned upon such approval.

     IN WITNESS WHEREOF, the Company has caused the Plan to be executed as of
the day and year first above written.

	 	 	 
	 	POLYMER SOLUTIONS, INC	 
	 
	 	By: /s/ Gordon Ellis

Gordon L. Ellis, Chairman	 

12Share Purchase Warrant of Malagie

 

EXHIBIT 10.3

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF
AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.

POLYMER SOLUTIONS, INC.

(a Nevada Corporation)

SHARE PURCHASE WARRANT

WARRANT NO. WAM-12/98-001

To Purchase Common Stock of

Polymer Solutions, Inc., a Nevada Corporation

(the “Company”)

DATE OF INITIAL ISSUANCE: December 15, 1998

     THIS CERTIFIES
THAT, for value received, WILLIAM ALBERT MALIGIE —
(hereinafter called the “Holder”) of 1630 Greenhaven Lane, Chico, CA 95926 is
entitled to purchase from the Company during the Term of this Warrant at the
times provided for herein, the number of shares of Common Stock, par value
$0.001 per share, of the Company (the “Common Stock”) as specified herein, at
the Warrant Price, payable in the manner specified herein. The exercise of
this Warrant shall be subject to the provisions, limitations and restrictions
herein contained.

     SECTION 1. Definitions.

     For all purposes of this Warrant, the following terms shall have the
meanings indicated and capitalized terms used herein but not defined shall have
the meanings ascribed thereto in the Subscription and Investment Representation
Agreement:

     Common Stock — shall mean and include the Company’s authorized Common
Stock, par value $.001 per share, as constituted at the date hereof, and shall
also include any capital stock of any class of the Company hereafter authorized
which has the right to participate in the distribution of earnings and assets
of the Company without limit to amount or percentage.

     Securities Act — the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

     Term of the Warrant — shall mean the period beginning on the date of
initial issuance hereof and ending on December 15, 2003 or 90 days after the
warrant holders ceases to be employed by the Company, which ever is earlier.

     Warrant Price — is defined in Section 2.1.

     Warrant Rights — the rights of the Holder to purchase shares of Common
Stock upon exercise of this Warrant, which rights shall not relate to shares of
Common Stock already purchased pursuant to this Warrant.

     Warrant Shares — shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the exercise hereof.

1

 

     SECTION 2. Exercise of Warrant.

	 	 	 	 
	 	2.1	 	
Right to Exercise. At any time and from time to time on and
after the date hereof, the Holder may exercise this Warrant, in whole
or part(s) to purchase up to 100,000 shares of Common Stock subject
to adjustment as provided in Section 5. The Warrant Price shall be
US$0.65 per share subject to adjustment as provided in Section 5.
	 	 	 	 
	 	2.2.	 	
Procedure for Exercise of Warrant. To exercise this Warrant the
Holder shall deliver to the Company at its office referred to in
Section 9 hereof at any time and from time to time during the Term of
this Warrant a notice of exercise and the payment of the aggregate
Warrant Price with respect to the Warrants exercised. In the event
of any exercise of these rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so
purchased, registered in the name of the Holder or such other name or
names as may be designated by the Holder, shall be delivered to the
Holder hereof within a reasonable time, not exceeding fifteen (15)
days, after the rights represented by this Warrant shall have been so
exercised. The person in whose exercise of this Warrant shall for
all purposes be deemed to have Notice of Exercise was delivered and
payment of the Warrant Price delivery of such certificate, except
that, if the date of such delivery and payment is a date when the
stock transfer books of the Company are closed, such person shall be
deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer
books are open.
	 	 	 	 
	 	2.3.	 	
Transfer Restriction Legend. Each certificate for Warrant
Shares shall bear the following legend (and any additional legend
required by (i) any applicable securities laws and (ii) any
securities exchange upon which such Warrant Shares may, at the time
of such exercise, be listed) on the face thereof unless at the time
of exercise such Warrant Shares shall be registered under the
Securities Act:
	 	 	 	 
	 	 	 	“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.”
	 	 	 	 
	 	 	 	Any certificate issued at any time in exchange or substitution for
any certificate bearing such legend (except a new certificate issued
upon completion of a public distribution under a registration
statement of the securities represented thereby) shall also bear such
legend unless, in the opinion of counsel for the holder thereof
(which counsel shall be reasonably satisfactory to counsel for the
Company) the securities represented thereby are not, at such time,
required by all applicable securities laws to bear such legends.

     SECTION 3. Covenants as to Common Stock.

     The Company covenants and agrees that all shares of Common Stock that may
be issued upon the exercise of the rights represented by this Warrant will,
upon issuance, be validly issued, fully paid and non-assessable, and free from
all taxes, liens and charges with respect to the issue thereof. The Company
further covenants and agrees that it will pay when due and payable any and all
federal and state taxes which may be payable in respect of the issue of the
Warrant, or any Common Stock or certificates therefor issuable upon the
exercise of the Warrant. The company further covenants and agrees that the
Company will at all times have authorized and reserved, free from preemptive
rights, a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant. The Company further
covenants and agrees that if any shares of capital stock to be reserved for the
purpose of the issuance of shares upon the exercise of this Warrant requires
registration with or approval of any governmental authority under any federal
or state law before such shares may be validly issued or delivered upon
exercise, then the

2

 

company will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be. If and so long as
the Common Stock issuable upon the exercise of this Warrant is listed on any
national securities exchange, the Company will, if permitted by the rules of
such exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon exercise of the
Warrant.

     SECTION 4. Ownership.

	 	 	 	 
	 	4.1	 	
Transfer of Warrants. This Warrant is not transferable except,
in the case of an individual, by the laws of descent.
	 	 	 	 
	 	4.2	 	
Ownership of this Warrant. The Company may deem and treat the
person in whose name this Warrant is registered by the Warrant as the
holder and owner hereof (notwithstanding any notations of ownership
or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary.
	 	 	 	 
	 	4.3	 	
Loss and Replacement. Upon receipt by the company of evidence
reasonably satisfactory to it of the loss, theft or destruction, and,
in such case, of indemnity or security reasonably satisfactory to it,
and upon surrender of this Warrant if mutilated, the company will
make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of
a state or local government or an institutional holder or a nominee
for such an instrumentality or institutional holder, an irrevocable
agreement of indemnity by such Holder shall be sufficient for all
purposes of this Section 4, and no evidence of loss or theft or
destruction shall be necessary. This Warrant shall be promptly
canceled by the Company upon the surrender hereof in connection with
any transfer or replacement. Except as otherwise provided above, in
the case of the loss, theft or destruction of a Warrant, the Company
shall pay all expenses, taxes and other charges payable in connection
with any transfer or replacement of this Warrant, other than stock
transfer taxes (if any) payable in connection with a transfer of the
Warrant, which shall be payable by the Holder.

     SECTION 5. Adjustment of Exercise Price and Number of Shares of Common
Stock or Warrants.

	 	 	 	 
	 	(a)	 	
Subject to the exceptions referred to in Section 5(g) below, in
the event the company shall, at any time or from time to time after
the date hereof, sell any shares of Common Stock for consideration
per share less than the Market Price (as defined below) on the date
of the sales, or issue any shares of Common Stock as a stock dividend
to the holders of Common Stock, or subdivide or combine the
outstanding shares of Common Stock into a greater or lesser number of
shares (any such sales, issuance, subdivision or combination being
herein called a “Change of Shares”), then, and thereafter upon each
further Change of Shares, the Warrant Price in effect immediately
prior to such Change of Shares shall be changed to a price (including
any applicable fraction of a cent) determined by multiplying the
Warrant Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of the number of shares of Common
Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in
subsection 5(f) (F) below) for the issuance of such additional shares
would purchase at the Market Price, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is
made.
	 	 	 	 
	 	 	 	Upon each adjustment of the Warrant Price pursuant to this Section 5,
the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained
in Section 5(b) hereof) be such number of shares (calculated to the
nearest tenth) purchasable at the Warrant Price in effect immediately
prior to such adjustment multiplied by a

3

 

	 	 	 	 	 	 
	 	 	 	fraction, the numerator of which shall be the Warrant Price in effect
immediately prior to such adjustment and the denominator of which
shall be the Warrant Price in effect immediately after such
adjustment.
	 	 	 	 	 	 
	 	(b)	 	
The Company may elect, upon any adjustment of the Warrant Price
hereunder, to adjust the number of Warrants outstanding, in lieu of
the adjustment in the number of shares of Common Stock purchasable
upon the exercise of each Warrant as hereinabove provided, so that
each Warrant outstanding after such adjustment shall represent the
right to purchase one share of Common Stock. Each Warrant held of
record prior to such adjustment of the number of Warrants shall
become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator
of which shall be the Warrant Price in effect immediately prior to
such adjustment and the denominator of which shall be the Warrant
Price in effect immediately after such adjustment.
	 	 	 	 	 	 
	 	(c)	 	
In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the
Company is the continuing corporation and which does not result in
any reclassification, capital reorganization or other change of
outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as,
or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the holder of a Warrant
then outstanding shall have the right thereafter, by exercising such
Warrant, to purchase the kind and number of shares of stock or other
securities or property (including cash) receivable upon such
reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number
of shares of Common Stock that might have been purchased upon
exercise of Warrant immediately prior to such reclassification,
capital reorganization or other change, consolidation, merger, sale
or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 5. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other
than the Company) resulting from such consolidation or merger or the
corporation purchasing assets or other appropriate corporation or
entity shall assume, by written instrument executed and delivered to
the Company, the obligation to deliver to the holder of each Warrant
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holders may be entitled to purchase and
the other obligations under this Warrant. The foregoing provisions
shall similarly apply to successive reclassification, capital
reorganizations and other changes of outstanding shares of Common
Stock and to successive consolidations, mergers, sales or
conveyances.
	 	 	 	 	 	 
	 	(d)	 	(Reserved)
	 	 	 	 	 	 
	 	(e)	 	
After each adjustment of the Warrant pursuant to this Section 5, the Company will promptly prepare a certificate signed by the
President, and by the Treasurer or an Assistant Treasurer or the
Secretary or any Assistant Secretary, of the Company setting forth:
(i) the Warrant Price as so adjusted, (ii) the number of shares of
Common Stock purchasable upon exercise of each Warrant after such
adjustment, and, if the Company shall have elected to adjust the
number of Warrants, the number of Warrants to which the registered
holder of each Warrant shall then be entitled.
	 	 	 	 	 	 
	 	(f)	 	
For purposes of Section 5(a) and 5(b) hereof, the following
provisions (A) to (F) shall also be applicable:
	 	 	 	 	 	 
	 	 	 	(A)	 	
The number of shares of Common Stock outstanding at
any given time shall include shares of Common Stock owned or
held by or for the account of the Company and the sale or
issuance of such treasury shares or the distribution of any such
treasury shares shall not be considered a change for shares for
purposes of said sections.

4

 

	 	 	 	 	 	 
	 	 	 	(B)	 	
No adjustment of the Warrant Price shall be made
unless such adjustment would require an increase or decrease of
at least $.05 in such price; provided that any adjustments which
by reason of this clause (B) are not required to be made at the
time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall
require an increase or decrease of at least $.05 in the Warrant
Price then in effect hereunder.
	 	 	 	 	 	 
	 	 	 	(C)	 	
Other than Warrants being issued contemporaneously
herewith (collectively, a “Permissible Issuance”), in case of
(1) the sale by the company for cash (or as a component of a unit
being sold for cash) of any options for the purchase of, Common
Stock or any securities convertible into or exchangeable for
Common Stock without the payment of any further consideration
other than cash, if any (such securities convertible,
exercisable or exchangeable into Common Stock being herein
called “Convertible Securities”), or (2) the issuance by the
Company, without the receipt by the Company of any consideration
therefor, of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or
Convertible Securities, in each case, if (and only if) the
consideration payable to the Company upon the exercise of such
rights, warrants or options.
	 	 	 	 	 	 
	 	 	 	(D)	 	
Except in the case of a Permissible Issuance, in case
of the sale by the Company for cash of any Convertible
Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share
for which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities (determined by dividing
(x) the total amount of consideration received by the Company
for the sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, other than
such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares
of Common Stock for purposes of Sections 5(a) and 5(b) hereof
and shall be deemed to have been sold for cash in an amount
equal to such price per share.
	 	 	 	 	 	 
	 	 	 	(E)	 	
Except in the case of a Permissible Issuance, in case
the Company shall modify the rights of conversion, exchange or
exercise of any of the securities referred to in (c) above or
any other securities of the Company convertible, exchangeable or
exercisable for shares of Common Stock, for any reason other
than an event that would require adjustment to prevent dilution,
so that the consideration per share received by the Company
after such modification is less than the Market Price of the
Common Stock on the date prior to such modification, the Warrant
Price to be in effect after such modification shall be
determined by multiplying the Warrant Price in effect
immediately prior to such event by a fraction, of which the
numerator shall be the number of shares of Common Stock
outstanding multiplied by the Market Price of the Common Stock
on the date prior to the modification plus the number of shares
of Common Stock which the aggregate consideration receivable by
the company for the securities affected by the modification
would purchase at the Market Price of the Common Stock and of
which the denominator shall be the number of shares of Common
Stock outstanding on such date plus the number of shares of
Common Stock to be issued upon conversion, exchange or exercise
of the modified securities at the modified rate. Such
adjustment shall become effective as of the date upon which such
modification shall take effect. On the expiration of any such
right, warrant or option or the termination of any such right to
convert or exchange any such Convertible Securities referred to
in subparagraph C or D above, the Warrant Price then in effect
hereunder shall forthwith be readjusted to such Warrant Price as
would have obtained (a) had the adjustments made upon the
issuance or sale of such rights, warrants, options or
Convertible Securities been made upon the basis of the issuance
of only the number

5

 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	
of shares of Common Stock heretofore actually delivered (and
the total consideration received therefor) upon the exercise
of such right, warrants or options or Convertible Securities
and (b) had adjustments been made on the basis of the Warrant
Price as adjusted under clause (a) for all transactions (which
would have affected such adjusted Warrant Price) made after the
issuance or sale of such rights, warrants, options or
Convertible Securities.
	 	 	 	 	 	 	 	 
	 	 	 	(F)	 	
In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to
subscribe for or purchase, or any options for the consideration
received by the Company therefor shall be deemed to be the
gross sales price therefor without deducting therefrom any
expense paid or incurred by the Company or any underwriting
discounts or commissions or concessions paid or allowed by the
Company in connection therewith.
	 	 	 	 	 	 	 	 
	 	 	 	(G)	 	
No adjustment to the Warrant Price of the Warrants or
to the number of shares of Common Stock purchasable upon the
exercise of each Warrant will be made, however,
	 	 	 	 	 	 	 	 
	 	 	 	 	 	(i)	 	
upon the exercise of any of the options
presently outstanding; or
	 	 	 	 	 	 	 	 
	 	 	 	 	 	(ii)	 	
upon the issuance or exercise of any
other securities which may hereafter be granted or
exercised under any employee stock options plan or under
any other employee benefit plan of the Company; or
	 	 	 	 	 	 	 	 
	 	 	 	 	 	(iii)	 	
upon the sale of any shares of Common
Stock or Convertible Securities in a firm commitment
underwritten public offering, including, without
limitation, shares sold upon the exercise or any over
allotment option granted to the Underwriter in connection
with such offering; or
	 	 	 	 	 	 	 	 
	 	 	 	 	 	(iv)	 	
upon the issuance or sale of Common Stock
or Convertible Securities upon the exercise of any rights
or warrants to subscribe for or purchase, or any options
for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or
options were outstanding on the date of the original sale
of the Warrants or were thereafter issued or sold; or
	 	 	 	 	 	 	 	 
	 	 	 	 	 	(v)	 	
upon the issuance or sale of Common Stock
upon conversion or exchange of any Convertible Securities,
whether or not any adjustment in the Warrant Price was
made or required to be made upon the issuance or sale of
such Convertible Securities and whether or not such
Convertible Securities were outstanding on the date of the
original sale of the Warrants or were thereafter issued or
sold.
	 	 	 	 	 	 	 	 
	 	 	 	(H)	 	
Any determination as to whether an adjustment in the
Warrant Price in effect hereunder is required pursuant to
Section 5, or as to the amount of any such adjustment, if
required, shall be binding upon the holders of the Warrants and
the Company if made in good faith by the Board of Directors of
the Company in the absence of manifest error.
	 	 	 	 	 	 	 	 
	 	 	 	(I)	 	
If and whenever the Company shall grant to the
holders of Common Stock, as such, rights or warrants to
subscribe for or to purchase, or any options for the purchase
of, Common Stock or securities convertible into or exchangeable
for carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each
Registered Holder as of the record date for such transaction of
the Warrants then outstanding, the rights, warrants or options
to which each Registered Holder would have been entitled if, on
the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company,
the Registered Holder were the holder of record of the number or
whole shares of Common Stock then issuable upon exercise
(assuming, for purposes of this section 5 (I), that exercise of
Warrants is permissible during periods prior to the Warrant
Exercise Date) of his Warrants. Such grant by the Company to
the holders of the Warrants shall be in lieu of any adjustment
which otherwise might be called for pursuant to this Section 5.

6

 

	 	 	 	 	 	 
	 	 	 	(J)	 	
The term Market Price shall mean when shares of
Common Stock are publicly traded, the immediately preceding 30
day average of the bid and asked on any market that it is then
currently trading; provided, however, if either the share of
Common Stock are not publicly traded or the Company or the
Holder of this Warrant objects to a price, the Market Price
shall be determined by the company’s Board of Directors acting
in good faith.

     SECTION 6. Notice of Extraordinary Dividends.

     If the Board of Directors of the Company shall declare any dividend or
other distribution on its Common Stock except out of earned surplus or by way
of a stock dividend payable in shares of its Common Stock except out of earned
surplus or by way of a stock dividend payable in shares of its Common Stock,
the Company shall mail notice thereof to the Holder hereof not less than
fifteen (15) days prior to the record date fixed for determining shareholders
entitled to participate in such dividend or other distribution, and the Holder
hereof shall not participate in such dividend or other distribution unless this
Warrant may be exercised, in whole or in part, pursuant to Section 2.1 of this
Warrant, and is exercised prior to such record date. The provisions of the
Section 6 shall not apply to distributions made in connection with transactions
covered by Section 5.

     SECTION 7. (Intentionally Omitted.)

     SECTION 8. Registration Rights; Etc.

	 	 	 	 
	 	8.1	 	
Certain Definitions. As used in this Section 8, the following
terms shall have the following respective meanings:
	 	 	 	 
	 	 	 	
“Commission” shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.

     “Registerable Securities” shall mean the Warrant Shares less any Warrant
Shares theretofore sold to the public or in a private placement.

     The terms “register”, “registered” and “registration” shall refer to a
registration affected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.

     “Registration Expenses” shall mean all expenses incurred by the Company in
compliance with section 8.2 hereof other than Selling Expenses, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
company, which shall be paid in any event by the Company).

     “Selling Expenses” shall mean all underwriting discounts and selling
commissions applicable to the sale of Registerable Securities, all fees and
disbursements of counsel for any Holder and any blue-sky fees and expenses
excluded from the definition of “Registration Expenses”.

     “Holder” shall mean any holder of outstanding Warrant Shares or
Registerable Securities which (except for purposes of determining “Holders”
under Section 8.6 hereof) have not been sold to the public.

     “Other Shareholders” shall mean holders of securities of the Company who
are entitled by contract with the Company to have securities included in a
registration of the Company’s securities.

7

 

	 	 	 	 	 	 
	 	8.2	 	
Company Registration.
	 	 	 	 	 	 
	 	(a)	 	
Notice of Registration. If the company shall determine to
register any of its securities either for its own account or the
account of a security holder or holders exercising their respective
demand registration rights, other than a registration relating solely
to employee benefit plans or a registration relating solely to a
Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales, the Company
will:
	 	 	 	 	 	 
	 	 	 	(i)	 	promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws); and
	 	 	 	 	 	 
	 	 	 	(ii)	 	include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registerable
Securities specified in a written request or requests, made by
any Holder within fifteen (15) days after receipt of the written
notice from the Company described in clause (I) above, except as
set forth in Section 8.2(b) below.
	 	 	 	 	 	 
	 	(b)	 	
Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting,
the Company shall so advise the Holders as part of the written notice
given pursuant to Section 8.2 (a)(i). In such event, the right of
any Holder to registration pursuant to Section 8.2 shall be
conditioned upon such Holder’s participation in such underwriting and
the inclusion of such Holder’s Registerable Securities in the
underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together
with the Company, directors and officers and the Other Shareholders
distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting by the Company.
	 	 	 	 	 	 
	 	 	 	Notwithstanding any other provision of the Section 8.2, if the
underwriter determines that marketing factors require a limitation on
the number of shares to be underwritten, the underwriter may (subject
to the allocation priority set forth below) exclude from such
registration and underwriting some or all of the registerable
Securities which would otherwise be underwritten pursuant hereto.
The Company shall so advise all holders of securities requesting
registration, and the number of shares of securities that are
entitled to be included in the registration and underwriting shall be
allocated in the following manner. The number of shares that may be
included in the registration and underwriting on behalf of such
Holders, directors and officers and Other Shareholders shall be
allocated among such Holders, directors and officers and other
Shareholders in proportion, as nearly as practicable, to the
respective amounts of Registerable Securities and other securities
which they had requested to be included in such registration at the
time of filing the registration statement.
	 	 	 	 	 	 
	 	 	 	If any Holder of Registerable Securities or any officer, director or
Other Shareholder disapproves of the terms of any such underwriting,
such person may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registerable Securities or other
securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
	 	 	 	 	 	 
	 	8.3	 	
Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with any registration,
qualification and compliance by the company pursuant to Section 8,
the company will keep each Holder advised in writing as to the
initiation of each registration and as to the completion thereof.
The Company will, at its expense:
	 	 	 	 	 	 
	 	 	 	(a)	 	
keep such registration effective for a period of one
hundred twenty (120) days or until the Holder or Holders have
completed the distribution described in the registration
statement relating thereto, whichever first occurs;

8

 

	 	 	 	 	 	 
	 	 	 	(b)	 	
furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may
reasonably request; and
	 	 	 	 	 	 
	 	 	 	(c)	 	
laws or blue-sky laws of such jurisdictions as any
Holder may request; provided, however, that the Company shall
not be obligated to register or qualify such Registerable
Securities in any particular jurisdiction in which the Company
would be required to execute a general consent to service of
process in order to effect such registration, qualification or
compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the
Securities Act or applicable rules or regulations thereunder.
	 	 	 	 	 	 
	 	8.5	 	Indemnification
	 	 	 	 	 	 
	 	 	 	(a)	 	
The Company, with respect to each registration,
qualification and compliance effected pursuant to this Section
8, will indemnify and hold harmless each Holder, each of its
officers, directors and partners, and each party controlling
such Holder, and each underwriter, if any, and each party who
controls any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any prospectus, offering
circular or other document (including any related registration
statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the
company of the Securities Act or any rule or regulation
thereunder applicable to the company and relating to action or
inaction required of the company in connection with any such
registration, qualification or compliance, and will reimburse
each such Holder, each of its officers, directors and partners,
and each party controlling such Holder, each such underwriter
and each party who controls any such underwriter, for any legal
and any other expenses incurred in connection with investigating
or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or
omission based solely upon written information furnished to the
Company by such Holder or underwriter, information furnished to
the Company by such Holder or underwriter, as the case may be,
and stated to be specifically for use therein.
	 	 	 	 	 	 
	 	 	 	(b)	 	Each Holder and Other Shareholder will, if
Registerable Securities held by such person are included in the
securities as to which such registration, qualification or
compliance is being effected, indemnify and hold harmless the
Company, each of its directors and officers and each
underwriter, if any, of the Company’s securities covered by such
a registration statement, each party who controls the Company or
such underwriter, each other such Holder and Other Shareholder
and each of their respective officers, directors and partners,
and each party controlling such Holder or Other Shareholder,
against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue
statement ( or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Holders,
Other Shareholders, directors, officers, partners, parties,
underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement,
prospectus, offering circular or other document solely in
reliance upon and in conformity with written information
furnished to the Company by such Holder or Other Shareholder and
stated to be specifically for use therein;

9

 

	 	 	 	 	 	 
	 	 	 	 	 	provided, however, that the obligations of such Holders and other
Shareholders hereunder shall be limited to an amount equal to the
proceeds to each such Holder or Other Shareholder of securities
sold as contemplated herein.
	 	 	 	 	 	 
	 	 	 	(c)	 	
Each party entitled to indemnification under this
Section 8.5 (the “Indemnified Party”) shall give notice to the
party required to provide indemnification (the “Indemnifying
Party”) promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought, and
shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the
defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party’s expense (unless the
Indemnified Party shall have been advised by counsel that actual
or potential differing interests or defenses exist or may exist
between the Indemnifying Party and the Indemnified Party, in
which case such expense shall be paid by the Indemnifying
Party), and provided further that the failure of any Indemnified
Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 8. No
Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to
such claim or litigation.
	 	 	 	 	 	 
	 	8.6	 	
Information by Holder. Each Holder of Registerable Securities,
and each Other Shareholder holding securities included in any
registration, shall furnish to the Company such information regarding
such Holder or Other Shareholder as the Company may reasonably
request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in
this Section 8.
	 	 	 	 	 	 
	 	8.7	 	
Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission that may
permit the sale of the Registerable Securities to the public without
registration, the Company agrees to:
	 	 	 	 	 	 
	 	 	 	(a)	 	
Make and keep public information available, as those
terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after ninety (90) days
following the effective date of the first registration under the
Securities Act filed by the Company for an offering of its
securities to the general public;
	 	 	 	 	 	 
	 	 	 	(b)	 	
Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the
company under the Securities Act and the Securities Exchange Act
of 1934, as amended, at any time after it has become subject to
such reporting requirements; and
	 	 	 	 	 	 
	 	 	 	(c)	 	
So long as the Holder owns any Registerable
Securities, furnish to the Holder forthwith upon request a
written statement by the Company as to its compliance with the
reporting requirements of Rule 4 (2) (at any time from and after
ninety (90) days following the effective date of the first
registration statement in connection with an offering of its
Securities to the general public), and of the Securities Act and
the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the
Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Holder to sell any
such securities without registration.

10

 

     SECTION 9. Notices.

     Any notice or other document required or permitted to be given or
delivered to the Holder shall be delivered at, or sent by certified or
registered mail to, the Holder at such address as shall have been furnished to
the Company in writing by the Holder. Any notice or other document required or
permitted to be given or delivered to the company shall be delivered at, or
sent by certified or registered mail to, the Company at 1569 Dempsey Road,
North Vancouver, B.C. Canada V7K 1S8 or to such other address as shall have
been furnished in writing to the Holder by the Company. Any notice so
addressed and mailed by registered or certified mail shall be deemed to be
given when so mailed. Any notice so addressed and otherwise delivered shall be
deemed to be given when actually received by the addressee.

     SECTION 10. No Rights as Stockholder; Limitation of Liability. This
Warrant shall not entitle the Holder to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of
the rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.

     SECTION 11. Law Governing. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of Nevada.

     SECTION 12. Miscellaneous. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in the Warrant are for
purposes of reference only and shall not affect the meaning or construction of
any of the provisions hereof.

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer this 15th day of December, 1998.

	 	 	 
	POLYMER
SOLUTIONS, INC.	 
	 	 	 
	 	 	 
	 	 	 
	 	By:

        

         
	 	Name	 
	 	 	 
	 	 	 
	 	Title: 
	 

11

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