Document:

Kelso Technologies Inc.: Exhibit 4.01 - Filed by newsfilecorp.com

SHAREHOLDER RIGHTS PLAN 
AGREEMENT 

 

DATED AS OF 

February 3, 2011 

 

BETWEEN 

KELSO TECHNOLOGIES INC. 

AND 

COMPUTERSHARE TRUST COMPANY OF CANADA 

AS RIGHTS AGENT 

 

Effective: February 3, 2011 

TABLE OF CONTENTS 

	ARTICLE
      1 INTERPRETATION 	2
      
	 	1.1
      	Certain
      Definitions 	2
      
	 	1.2
      	Currency
      	14
      
	 	1.3
      	Headings
      	14
      
		1.4
      	Calculation
      of Number and Percentage of Beneficial Ownership of Outstanding Voting
      Shares. 	14
      
	 	1.5
      	Acting
      Jointly or in Concert 	15
      
	 	1.6
      	Generally
      Accepted Accounting Principles 	15
      
	 	  	  	  
	ARTICLE
      2 THE RIGHTS 	15
      
	 	2.1
      	Legend
      on Common Share Certificates 	15
      
	 	2.2
      	Initial
      Exercise Price; Exercise of Rights; Detachment of Rights 	16
      
	 	2.3
      	Adjustments
      to Exercise Price; Number of Rights 	18
      
	 	2.4
      	Date
      on Which Exercise Is Effective 	23
      
	 	2.5
      	Execution,
      Authentication, Delivery and Dating of Rights Certificates 	23
      
	 	2.6
      	Registration,
      Transfer and Exchange 	23
      
	 	2.7
      	Mutilated,
      Destroyed, Lost and Stolen Rights Certificates 	24
      
	 	2.8
      	Persons
      Deemed Owners of Rights 	25
      
	 	2.9
      	Delivery
      and Cancellation of Certificates 	25
      
	 	2.10
      	Agreement
      of Rights Holders 	25
      
	 	2.11
      	Rights
      Certificate Holder Not Deemed a Shareholder 	26
      
	 	  	  	  
	ARTICLE
      3 ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN
      TRANSACTIONS 	27
      
	 	3.1
      	Flip-In
      Event 	27
      
	 	  	  	  
	ARTICLE
      4 THE RIGHTS AGENT 	28
      
	 	4.1
      	General
      	28
      
	 	4.2
      	Merger,
      Amalgamation or Consolidation or Change of Name of Rights Agent 	29
      
	 	4.3
      	Duties
      of Rights Agent 	29
      
	 	4.4
      	Change
      of Rights Agent 	31
      
	 	  	  	  
	ARTICLE
      5 MISCELLANEOUS 	32
      
	 	5.1
      	Redemption,
      Waiver and Extension 	32
      
	 	5.2
      	Expiration
      	33
      
	 	5.3
      	Issuance
      of New Rights Certificates 	33
      
	 	5.4
      	Supplements
      and Amendments 	33
      
	 	5.5
      	Fractional
      Rights and Fractional Shares 	35
      
	 	5.6
      	Rights
      of Action 	35
      
	 	5.7
      	Regulatory
      Approvals 	36
      
	 	5.8
      	Declaration
      as to Non-Canadian Holders 	36
      
	 	5.9
      	Notices
      	36
      
	 	5.10
      	Costs
      of Enforcement 	37
      
	 	5.11
      	Successors
      	37
      
	 	5.12
      	Benefits
      of this Agreement 	37
      
	 	5.13
      	Governing
      Law 	37
      
	 	5.14
      	Severability
      	37
      
	 	5.15
      	Effective
      Date 	38
      
	 	5.16
      	Determinations
      and Actions by the Board of Directors 	38
      

- ii - 

	 	5.17
      	Confirmation
      	38
      
	 	5.18
      	Time
      of the Essence 	38
      
	 	5.19
      	Compliance
      with Money Laundering Legislation 	38
      
	 	5.20
      	Privacy
      Provision 	39
      
	 	5.21
      	Execution
      in Counterparts 	39
      

Schedule A - SHAREHOLDER RIGHTS PLAN AGREEMENT 

SHAREHOLDER RIGHTS PLAN AGREEMENT 

THIS AGREEMENT, dated as of February 3, 2011. 

BETWEEN: 

KELSO TECHNOLOGIES INC., a
corporation incorporated under 
the laws of British Columbia 

(the “Company”),

AND: 

COMPUTERSHARE TRUST COMPANY OF
CANADA 

(the “Rights Agent”); 

WHEREAS: 

	A. 	
      The Board of Directors of the Company, in the exercise of
      their fiduciary duties to the Company, has determined that it is advisable
      and in the best interests of the Company to adopt a shareholder rights
      plan (the “Agreement”) to:

	 	 	 
		(a) 	
      ensure, to the extent possible, that all holders of the
      Common Shares (as hereinafter defined) of the Company and the Board of
      Directors have adequate time to consider and evaluate any unsolicited bid
      for the Common Shares;

	 	 	 
		(b) 	
      provide the Board of Directors with adequate time to
      identify, develop and negotiate value-enhancing alternatives, if
      considered appropriate, to any such unsolicited bid;

	 	 	 
		(c) 	
      encourage the fair treatment of the Company’s
      securityholders in connection with any Takeover Bid (as hereinafter
      defined) made for the Common Shares; and

	 	 	 
		(d) 	
      generally to assist the Board of Directors in enhancing
      shareholder value;

	 	 	 
	B. 	
      The Board of Directors has determined that the Agreement
      should take effect immediately, but that its ongoing effectiveness should
      be subject to the approval of the shareholders of the Company;

	 	 	 
	C. 	
      In order to implement the adoption of a shareholder
      rights plan as established by this Agreement, the Company has:

	 	 	 
		(a) 	
      authorized the issuance, effective one minute after the
      Effective Date, of one Right in respect of each Common Share outstanding
      one minute after the Effective Date (the “Record Time”);
  and

	 	 	 
		(b) 	
      authorized the issuance of one Right in respect of each
      Common Share of the Company issued after the Record Time and prior to the
      earlier of the Separation Time and the Expiration
Time;

- 2 - 

	D. 	
      Each Right entitles the holder, after the Separation
      Time, to purchase securities of the Company pursuant to the terms and
      subject to the conditions set forth herein;

	 	 
	E. 	
      The Company desires to appoint the Rights Agent to act on
      behalf of the Company and the holders of Rights, and the Rights Agent is
      willing to so act, in connection with the issuance, transfer, exchange and
      replacement of Rights Certificates, the exercise of Rights and other
      matters referred to herein;

	 	 
	F. 	
      The Company proposes that this Agreement be in place for
      a period of three years;

NOW THEREFORE, in consideration of the premises and the
respective covenants and agreements set forth herein, and subject to such
covenants and agreements, the parties hereby agree as follows: 

ARTICLE 1 
INTERPRETATION 

	1.1 	
      Certain Definitions

	 	 	 	 	 
		
      For purposes of this Agreement, the following terms have
      the meanings indicated:

	 	 	 	 	 
		(a) 	
      “Acquiring Person” means any Person who is the
      Beneficial owner of 20% or more of the outstanding Voting Shares of any
      class; but does not include:

	 	 	 	 	 
			(i) 	
      the Company or any Subsidiary of the Company or any
      employee benefit plan, deferred profit sharing plan, stock participation
      plan or trust for the benefit of employees in each case of the Company or
      any subsidiary of the Company or any Person organized, appointed or
      established by the Company or any subsidiary of the Company for or
      pursuant to the terms of any such plan or trust;

	 	 	 	 	 
			(ii) 	
      any Person who becomes the Beneficial owner of 20% or
      more of the outstanding Voting Shares of any class as a result of one or
      any combination of:

	 	 	 	 	 
				(A) 	
      an acquisition or redemption by the Company of Voting
      Shares of any class which, by reducing the number of Voting Shares of that
      particular class outstanding, increases the proportionate number of Voting
      Shares of that particular class Beneficially owned by such Person to 20%
      or more of the Voting Shares of that particular class then
    outstanding;

	 	 	 	 	 
				(B) 	
      Permitted Bid Acquisitions;

	 	 	 	 	 
				(C) 	
      Exempt Acquisitions; or

	 	 	 	 	 
				(D) 	
      Pro Rata Acquisitions; provided, however, that if a
      Person becomes the Beneficial owner of 20% or more of the outstanding
      Voting Shares of any class as a result of one or any combination of the
      operation of (A), (B), (C) or (D) above and such Person thereafter becomes
      the Beneficial owner of an additional 1% of the Voting Shares of that
      particular class other than as a result of one or any combination of the
      operation of (A), (B), (C) or (D) above, then as of the date such Person
      becomes the Beneficial owner of such additional Voting Shares of that
      particular class, such Person shall become an “Acquiring
      Person”;

- 3 - 

	 		(iii) 	
      for a period of 10 days after the Disqualification Date,
      any Person who becomes the Beneficial owner of 20% or more of the
      outstanding Voting Shares as a result of such Person becoming disqualified
      from relying on Clause 1.1(f)(iii)(B) solely because such Person or the
      Beneficial owner of such Voting Shares has participated in, proposes or
      intends to make or is participating in a Take Over Bid or any plan or
      proposal relating thereto or resulting therefrom, either alone or by
      acting jointly or in concert with any other Person. For the purposes of
      this definition, “Disqualification Date” means the first date of a
      public announcement of facts indicating that any Person has participated
      in, has made, proposes or intends to make or is participating in a Take
      Over Bid;

	 	 	 	 
	 		(iv) 	
      an underwriter or member of a banking or selling group
      that becomes the Beneficial owner of 20% or more of the Voting Shares in
      connection with a bona fide distribution to the public of securities of
      the Company; or

	 	 	 	 
	 		(v) 	
      a Person (a “Grandfathered Person”) who is the
      Beneficial owner of more than 20% of the outstanding Voting Shares
      determined as at the Record Time, provided, however, that this exception
      shall not be, and shall cease to be, applicable to a Grandfathered Person
      in the event that such Grandfathered Person shall, after the Record Time,
      become the Beneficial owner of any additional Voting Shares that increases
      its Beneficial ownership of Voting Shares by more than 1% of the number of
      Voting Shares outstanding as at the Record Time, other than through a
      Permitted Bid Acquisition or a Pro Rata Acquisition;

	 	 	 	 
	 	(b) 	
      “Affiliate”, when used to indicate a relationship
      with a specified Person, shall mean a Person that directly, or indirectly
      through one or more intermediaries, controls, or is controlled by, or is
      under common control with, such a specified Person;

	 	 	 	 
	 	(c) 	
      “Agreement” means this shareholder rights plan
      agreement dated as of February 3, 2011 between the Company and the Rights
      Agent, as amended or supplemented from time to time; “hereof”, “herein”,
      “hereto” and similar expressions mean and refer to this Agreement as a
      whole and not to any particular part of this Agreement;

	 	 	 	 
	 	(d) 	
      “Annual cash dividend” means cash dividends paid
      in any fiscal year of the Company, to the extent that such cash dividends
      do not exceed in the aggregate, the greatest of:

	 	 	 	 
	 		(i) 	
      200% of the aggregate amount of cash dividends declared
      payable by the Company on its Common Shares in its immediately preceding
      fiscal year;

	 	 	 	 
	 		(ii) 	
      300% of the arithmetic mean of the aggregate amounts of
      the annual cash dividends declared payable by the Company on its Common
      Shares in its three immediately preceding fiscal years;

	 	 	 	 
	 		(iii) 	
      100% of the aggregate consolidated net income of the
      Company, before extraordinary items, for its immediately preceding fiscal
      year;

	 	 	 	 
	 	(e) 	
      “Associate” means, when used to indicate a
      relationship with a specified Person, a spouse of that Person, any Person
      of the same or opposite sex with whom that Person is living in a conjugal
      relationship outside marriage, a child of that Person, or a relative of
      that Person who has the same residence as that
Person;

- 4 - 

	 	(f) 	
      A Person shall be deemed the “Beneficial owner”
      of, and to have “Beneficial ownership” of, and to “Beneficially
      own”,

	 	 	 	 
	 		(i) 	
      any securities of which such Person or any of such
      Person’s Affiliates or Associates is the owner at law or in
  equity;

	 	 	 	 
	 		(ii) 	
      any securities of which such Person or any of such
      Person’s Affiliates or Associates has the right to become the owner at law
      or in equity (whether such right is exercisable immediately or within a
      period of 60 days thereafter and whether or not on condition or the
      happening of any contingency or otherwise) pursuant to any agreement,
      arrangement, pledge or understanding, whether or not in writing (other
      than customary agreements with and between underwriters and/or banking
      group members and/or selling group members with respect to a public
      offering of securities and other than pledges of securities in the
      ordinary course of business), or upon the exercise of any conversion
      right, exchange right, share purchase right (other than the Rights),
      warrant or option, or otherwise; and

	 	 	 	 
	 		(iii) 	
      any securities which are Beneficially owned within the
      meaning of Clauses1.1(f)(i) or 1.1(f)(ii) by any other Person with whom
      such Person is acting jointly or in concert,

provided, however, that a Person shall
not be deemed the “Beneficial owner” of, or to have “Beneficial
ownership” of, or to “Beneficially own”, any security: 

	 	(A) 	
      solely because such security has been deposited or
      tendered pursuant to any Take Over Bid made by such Person, made by any of
      such Person’s Affiliates or Associates or made by any other Person
      referred to in Clause 1.1(f)(iii), until such deposited or tendered
      security has been taken up or paid for, whichever shall first
  occur;

	 	 	 	 
	 	(B) 	
      solely because such Person, any of such Person’s
      Affiliates or Associates or any other Person referred to in Clause
      1.1(f)(iii), holds or exercises dispositive power over such security in
      circumstances where:

	 	 	 	 
	 		(1) 	
      the ordinary business of any such Person (the
      “Investment Manager”) includes the management of investment funds
      for others (which others, for greater certainty, may include or be limited
      to one or more employee benefit plans or pension plans) and such
      dispositive power over such security is held by the Investment Manager in
      the ordinary course of such business in the performance of such Investment
      Manager’s duties for the account of any other Person (a “Client”);
      or

	 	 	 	 
	 		(2) 	
      such Person (the “Trust Company”) is licensed to
      carry on the business of a trust company under applicable laws and, as
      such, acts as trustee or administrator or in a similar capacity in
      relation to the estates of deceased or incompetent Persons and holds such
      dispositive power over such security in the ordinary course of such duties
      for the estate of any such deceased or incompetent Person (each an
      “Estate Account”) or for such other accounts (each an “Other
      Account”); or

- 5 - 

	 	(3) 	
      such Person is established by statute for purposes that
      include, and the ordinary business or activity of such Person (the
      “Statutory Body”) includes, the management of investment funds for
      employee benefit plans, pension plans, insurance plans or various public
      bodies; or

	 	 	 
	 	(4) 	
      such Person (the “Administrator”) is the
      administrator or trustee of one or more pension funds on plans (a
      “Plan”) registered under the laws of Canada or any Province thereof
      or the laws of the United States of America or any state thereof;
  or

	 	 	 
	 	(5) 	
      such Person is a securities depositary (a
      “Depositary”); or

	 	 	 
	 	(6) 	
      such Person is a Crown agent or
agency;

provided, in any of the above cases,
that the Investment Manager, the Trust Company, the Statutory Body, the
Administrator, the Plan, the Depositary or the Crown agent or agency, as the
case may be, is not then making a Take Over Bid or has not then announced an
intention to make a Take Over Bid whether acting alone or jointly or in concert
with any other Person, other than an Offer to Acquire Voting Shares or other
securities by means of a distribution by the Company or by means of ordinary
market transactions (including pre-arranged trades entered into in the ordinary
course of business of such Person) executed through the facilities of a stock
exchange or organized over-the-counter market; 

	 	(C) 	
      solely because such Person is:

	 	 	 	 
	 		(1) 	
      a Client of the same Investment Manager as another Person
      on whose account the Investment Manager holds or exercises voting or
      dispositive power over such security; or

	 	 	 	 
	 		(2) 	
      an Estate Account or an Other Account of the same Trust
      Company as another Person on whose account the Trust Company holds or
      exercises voting or dispositive power over such security; or

	 	 	 	 
	 		(3) 	
      a Plan with the same Administrator as another
  Plan;

	 	 	 	 
	 	(D) 	
      where such Person is:

	 	 	 	 
	 		(1) 	
      a Client of an Investment Manager and such security is
      owned at law or in equity by the Investment Manager; or

	 	 	 	 
	 		(2) 	
      an Estate Account or an Other Account of a Trust Company
      and such security is owned at law or in equity by the Trust Company;
    or

	 	 	 	 
	 		(3) 	
      a Plan and such security is owned at law or in equity by
      the Administrator of the Plan; or

- 6 - 

	 	(E) 	
      because such security has been, or has been agreed to be,
      deposited or tendered pursuant to a Lock-up Agreement, or is otherwise
      deposited or tendered, to any Take Over Bid made by such Person, made by
      any of such Person’s Affiliates or Associates or made by any other Person
      acting jointly or in concert with such Person until such deposited or
      tendered security has been taken up or paid for, whichever shall first
      occur;

	 	(g) 	
      “Board of Directors” means the board of directors
      of the Company or any duly constituted and empowered committee
    thereof;

	 	 	 
	 	(h) 	
      “Business Day” means any day other than a
      Saturday, Sunday or a day on which banking institutions in Vancouver are
      authorized or obligated by law to close;

	 	 	 
	 	(i) 	
      “Canadian Dollar Equivalent” of any amount which
      is expressed in United States Dollars means, on any date, the Canadian
      dollar equivalent of any such amount determined by multiplying such amount
      by the U.S. - Canadian Exchange Rate in effect on such date;

	 	 	 
	 	(j) 	
      “Canadian - U.S. Exchange Rate” means, on any
      date, the inverse of the U.S. - Canadian Exchange Rate in effect on such
      date;

	 	 	 
	 	(k) 	
      “Close of business” on any given date means the
      time on such date (or, if such date is not a Business Day, the time on the
      next succeeding Business Day) at which the principal transfer office in
      Vancouver of the transfer agent for the Common Shares of the Company (or,
      after the Separation Time, the principal transfer office in Vancouver of
      the Rights Agent) is closed to the public;

	 	 	 
	 	(l) 	
      “Common Shares” means the common shares without
      par value in the capital of the Company;

	 	 	 
	 	(m) 	
      “Corporation Act” means the Business
      Corporations Act (British Columbia);

	 	 	 
	 	(n) 	
      “Competing Permitted Bid” means a Take Over Bid
      that:

	 	(i) 	
      is made while another Permitted Bid is in
    existence;

	 	 	 
	 	(ii) 	
      satisfies all components of the definition of a Permitted
      Bid other than the requirements set out in clause (ii) of the definition
      of a Permitted Bid; and

	 	 	 
	 	(iii) 	
      contains, and the take-up and payment for securities
      tendered or deposited is subject to, an irrevocable and unqualified
      provision that no Voting Shares will be taken up or paid for pursuant to
      the Take Over Bid prior to the close of business on a date which is no
      earlier than the later of:

	 	(A) 	
      35 days after the date of the Take Over Bid;
and

	 	 	 
	 	(B) 	
      the date on which Voting Shares may be taken up under any
      other Permitted Bid that is then in existence and preceded the Competing
      Permitted Bid;

- 7 - 

	 	(o) 	
      “Controlled” a corporation shall be deemed to be
      “controlled” by another Person or two or more Persons if:

	 	 	 	 
	 		(i) 	
      securities entitled to vote in the election of directors
      carrying more than 50% of the votes for the election of directors are
      held, directly or indirectly, by or on behalf of the other Person or
      Persons; and

	 	 	 	 
	 		(ii) 	
      the votes carried by such securities are entitled, if
      exercised, to elect a majority of the board of directors of such
      corporation;

	 	 	 	 
	 	(p) 	
      “Co-Rights Agents” has the meaning assigned in
      Subsection 4.1(a);

	 	 	 	 
	 	(q) 	
      “Disposition Date” has the meaning assigned in
      Subsection 5.1(a);

	 	 	 	 
	 	(r) 	
      “Dividend Reinvestment Acquisition” means an
      acquisition of Voting Shares of any class pursuant to a Dividend
      Reinvestment Plan;

	 	 	 	 
	 	(s) 	
      “Dividend Reinvestment Plan” means a regular
      dividend reinvestment or other plan of the Company made available by the
      Company to holders of its securities and to holders of securities of a
      Subsidiary of the Company, where such plan permits the holder to direct
      that some or all of:

	 	 	 	 
	 		(i) 	
      dividends paid in respect of shares of any class of the
      Company or a Subsidiary;

	 	 	 	 
	 		(ii) 	
      proceeds of redemption of shares of the Company or a
      Subsidiary;

	 	 	 	 
	 		(iii) 	
      interest paid on evidences of indebtedness of the Company
      or a Subsidiary; or

	 	 	 	 
	 		(iv) 	
      optional cash payments; are applied to the purchase from
      the Company of Common Shares;

	 	 	 	 
	 	(t) 	
      “Election to Exercise” has the meaning assigned in
      Subsection 2.2(d);

	 	 	 	 
	 	(u) 	
      “Effective Date” means February 3, 2011;

	 	 	 	 
	 	(v) 	
      “Exempt Acquisition” means a share acquisition in
      respect of which the Board of Directors has waived the application of
      Section 3.1 pursuant to the provisions of 5.1(a) or (b);

	 	 	 	 
	 	(w) 	
      “Exercise Price” shall mean the price at which a
      holder may purchase the securities issuable upon exercise of one whole
      Right in accordance with the terms hereof and, until adjustment thereof in
      accordance with the terms hereof, the Exercise Price shall be:

	 	 	 	 
	 		(i) 	
      an amount equal to three times the Market Price, from
      time to time, per Common Share; and

	 	 	 	 
	 		(ii) 	
      from and after the Separation Time, an amount equal to
      three times the Market Price, as at the Separation Time, per Common
      Share.

	 	 	 	 
	 	(x) 	
      “Expansion Factor” has the meaning assigned in
      Subsection 2.3(a);

- 8 - 

	 	(y) 	
      “Expiration Time” means the earlier of:

	 	 	 	 
	 		(i) 	
      the Termination Time; and

	 	 	 	 
	 		(ii) 	
      the close of business on the day immediately following
      the date of the Company’s annual meeting of shareholders to be held in
      2014;

	 	 	 	 
	 	(z) 	
      “Flip-in Event” means a transaction whereby or
      pursuant to which any Person becomes an Acquiring Person;

	 	 	 	 
	 	(aa) 	
      “holder” has the meaning assigned in Section
      2.8;

	 	 	 	 
	 	(bb) 	
      “Independent Shareholders” means holders of Voting
      Shares, other than:

	 	 	 	 
	 		(i) 	
      any Acquiring Person;

	 	 	 	 
	 		(ii) 	
      any Offeror (other than any Person who pursuant to Clause
      1.1(f) is not deemed to Beneficially own the Voting Shares held by such
      Person);

	 	 	 	 
	 		(iii) 	
      any Affiliates or Associates of any Acquiring Person or
      Offeror;

	 	 	 	 
	 		(iv) 	
      any Person acting jointly or in concert with any
      Acquiring Person or Offeror; and

	 	 	 	 
	 		(v) 	
      any employee benefit plan, stock purchase plan, deferred
      profit sharing plan and any similar plan or trust for the benefit of
      employees of the Company or a Subsidiary of the Company, unless the
      beneficiaries of the plan or trust direct the manner in which the Voting
      Shares are to be voted or direct whether the Voting Shares are to be
      tendered to a Take Over Bid;

	 	 	 	 
	 	(cc) 	
      “Lock-up Agreement” means an agreement (the terms
      of which are publicly disclosed and a copy of which is made available to
      the public (including the Company) not later than the date on which the
      Lock-up Bid (defined below) is publicly announced or if the Lock-up Bid
      has been made prior to the date of the Lock-up Agreement not later than
      the date of the Lock-up Agreement) between an Offeror, any of its
      Affiliates or Associates or any other Person acting jointly or in concert
      with the Offeror and a Person (the “Locked-up Person”) who is not
      an Affiliate or Associate of the Offeror or a Person acting jointly or in
      concert with the Offeror whereby the Locked-up Person agrees to deposit or
      tender the Voting Shares held by the Locked-up Person to the Offeror’s
      Take Over Bid or to any Take Over Bid made by any of the Offeror’s
      Affiliates or Associates or made by any other Person acting jointly or in
      concert with the Offeror (the “Lock-up Bid”), where the
      agreement:

		
    (i) 
	
    (A) 
	
      subject to Subsection 1.1(cc)(iv), permits the Locked-up
      Person to withdraw Voting Shares from, or to terminate its obligation to
      deposit or tender Voting Shares to or not to withdraw Voting Shares from,
      the Lock-up Bid in order to tender or deposit the Voting Shares to another
      Take Over Bid or to support another transaction that in either case will
      provide greater value to the Locked-up Person than the Lock-up Bid; and
      

- 9 - 

	 			(B) 	 does not provide or require that such greater
      value be more than 5%
	 	 	 	 	 
	 			
      higher than the offering price or value contained in or
      proposed to be contained in the Lock-up Bid to which the Locked-up Person
      has agreed to deposit or tender Voting Shares pursuant to the Lock-up
      Agreement;

	 	 	 	 	 
	 		(ii) 	
      if the Lock-up Bid is for less than all of the Voting
      Shares, permits the Locked- up Person to withdraw Voting Shares from, or
      to terminate its obligation to deposit or tender Voting Shares to or not
      to withdraw Voting Shares from, the Lock-up Bid in order to tender or
      deposit the Voting Shares to another Take Over Bid or to support another
      transaction which, if successful, would result in all of the Locked-up
      Person’s Voting Shares being taken up or otherwise acquired and paid
      for;

	 	 	 	 	 
	 		(iii) 	
      does not provide for payment by a Locked-up Person of any
      “break-up” fees “top-up” fees, penalties, expenses or other amounts that
      exceed in the aggregate the greater of:

	 	 	 	 	 
	 			(A) 	
      the cash equivalent of 2.5% of the price or value payable
      under the Lock- up Bid to the Locked-up Person; and

	 	 	 	 	 
	 			(B) 	
      50% of the amount by which the price or value payable
      under another Take-over Bid or transaction to a Locked-up Person exceeds
      the price or value of the consideration that such Locked-up Person would
      have received under the Lock-up Bid, in the event that the Locked-up
      Person fails to deposit or tender Voting Shares pursuant thereto or
      withdraws Voting Shares previously deposited or tendered thereto in order
      to accept another Take Over Bid or to support another transaction;
    and

	 	 	 	 	 
	 		(iv) 	
      may include a right to match or require a period of delay
      to give the Person who made the Lock-up Bid an opportunity to match a
      higher price or value contained in another Take Over Bid or transaction or
      other similar limitation on a Locked- up Person’s right to withdraw Voting
      Shares from the agreement; provided, however, that the limitation does not
      preclude the Locked-up Person from withdrawing Voting Shares from the
      Lock-up Bid in order to tender or deposit the Voting Shares to another
      Take Over Bid or to support another transaction that in either case will
      provide greater value to the Locked-up Person than the Lock- up Bid or
      which, in the circumstances described in Subsection 1.1(cc)(ii), would
      result in all of the Locked-up Person’s Voting Shares being taken up or
      otherwise acquired and paid for.

	 	 	 	 	 
	 	(dd) 	
      “Market Price” per share of any securities on any
      date of determination means the average of the daily closing prices per
      share of such securities (determined as described below) on each of the 20
      consecutive Trading Days through and including the Trading Day immediately
      preceding such date; provided, however, that if an event of a type
      analogous to any of the events described in Section 2.3 causes closing
      prices used to determine the Market Price on any Trading Days not to be
      fully comparable with the closing price on such date of determination or,
      if the date of determination is not a Trading Day, on the immediately
      preceding Trading Day, each such closing price so used shall be
      appropriately adjusted in a manner analogous to the applicable adjustment
      provided for in Section 2.3 in order to make it fully comparable with the
      closing price on such date of determination or, if the date of
determination is not a Trading Day, on the immediately preceding Trading Day. The closing price per share of any securities on any date shall be: 

- 10 - 

	 	(i) 	
      the closing board lot sale price or, if such price is not
      available, the average of the closing bid and asked prices, for each of
      such securities as reported by the principal Canadian securities exchange
      (as determined by the Board of Directors) on which such securities are
      listed or admitted to trading;

	 	 	 
	 	(ii) 	
      if for any reason neither of such prices is available on
      such day or the securities are not listed or admitted to trading on a
      Canadian securities exchange, the closing board lot sale price or, if such
      price is not available, the average of the closing bid and asked prices,
      for each share as reported by the principal national United States
      securities exchange (as determined by the Board of Directors) on which
      such securities are listed or admitted for trading;

	 	 	 
	 	(iii) 	
      if for any reason none of such prices is available on
      such date or the securities are not listed or admitted to trading on a
      Canadian stock exchange or a national United States securities exchange,
      the last sale price, or in case no sale takes place on such date, the
      average of the high bid and low asked prices for each of such securities
      in the over-the-counter market, as quoted by any reporting system then in
      use (as determined by the Board of Directors); or

	 	 	 
	 	(iv) 	
      if for any reason none of such prices is available on
      such day or the securities are not listed or admitted to trading on a
      Canadian stock exchange or a United States securities exchange or quoted
      by any such reporting system, the average of the closing bid and asked
      prices as furnished by a professional market maker making a market in the
      securities selected by the Board of Directors;

	 		
      provided, however, that if on any such date none of such
      prices is available, the closing price per share of such securities on
      such date shall mean the fair value per share of the securities on such
      date as determined in good faith by the Board of Directors, after
      consultation with a nationally or internationally recognized investment
      dealer or investment banker. The Market Price shall be expressed in
      Canadian dollars.

	 	 	 	 
	 	(ee) 	
      “Nominee” has the meaning assigned in Subsection
      2.2(c);

	 	 	 	 
	 	(ff) 	
      “Offer to Acquire” includes:

	 	 	 	 
	 		(i) 	
      an offer to purchase or a solicitation of an offer to
      sell Voting Shares of any class or classes, and

	 	 	 	 
	 		(ii) 	
      an acceptance of an offer to sell Voting Shares of any
      class or classes, whether or not such offer to sell has been
    solicited,

	 	 	 	 
	 		
      or any combination thereof, and the Person accepting an
      offer to sell shall be deemed to be making an Offer to Acquire to the
      Person that made the offer to sell;

	 	 	 	 
	 	(gg) 	
      “Offeror” means a Person who has announced, and
      has not withdrawn, an intention to make or who has made, and has not
      withdrawn, a Take Over Bid other than a Person who has completed a
      Permitted Bid, a Competing Permitted Bid or an Exempt
  Acquisition;

- 11 - 

	 	(hh) 	
      “Offeror’s Securities” means Voting Shares
      Beneficially owned by an Offeror and by any Person acting jointly or in
      concert with such Person on the date of the Offer to Acquire;

	 	 	 	 	 
	 	(ii) 	
      “Permitted Bid” means a Take Over Bid made by an
      Offeror that is made by means of a Take Over Bid circular and which also
      complies with the following additional provisions:

	 	 	 	 	 
	 		(i) 	
      the Take Over Bid is made to all holders of Voting Shares
      as registered on the books of the Company, other than the
  Offeror;

	 	 	 	 	 
	 		(ii) 	
      the Take Over Bid contains, and the take-up and payment
      for securities tendered or deposited is subject to, an irrevocable and
      unqualified provision that no Voting Shares will be taken up and paid for
      pursuant to the Take Over Bid:

	 	 	 	 	 
	 			(A) 	
      prior to the close of business on a date which is not
      less than 60 days following the date of the Take Over Bid; and

	 	 	 	 	 
	 			(B) 	
      unless at such date more than 50% of the Voting Shares
      held by Independent Shareholders shall have been deposited or tendered
      pursuant to the Take Over Bid and not withdrawn;

	 	 	 	 	 
	 		(iii) 	
      the Take Over Bid contains an irrevocable and unqualified
      provision that, unless the Take Over Bid is withdrawn, Voting Shares may
      be deposited pursuant to such Take Over Bid at any time during the period
      described in Clause 1.1(ii)(ii) and that any Voting Shares deposited
      pursuant to the Take Over Bid may be withdrawn until taken up and paid
      for; and

	 	 	 	 	 
	 		(iv) 	
      the Take Over Bid contains an irrevocable and unqualified
      provision that, unless the Take Over Bid is withdrawn, in the event that
      the deposit condition set forth in Clause 1.1(ii)(ii) is satisfied the
      Offeror will make a public announcement of that fact and the Take Over Bid
      will remain open for deposits and tenders of Voting Shares for not less
      than 10 Business Days from the date of such public announcement;

	 	 	 	 	 
	 	(jj) 	
      “Permitted Bid Acquisition” means an acquisition
      of Voting Shares made pursuant to a Permitted Bid or a Competing Permitted
      Bid;

	 	 	 	 	 
	 	(kk) 	
      “Person” includes an individual, firm, body
      corporate, trust, partnership, syndicate or other form of unincorporated
      association, a government and its agencies or instrumentalities, any
      entity or group whether or not having legal personality and any of the
      foregoing acting in any derivative, representative or fiduciary
      capacity;

	 	 	 	 	 
	 	(ll) 	
      “Pro Rata Acquisition” means an acquisition of
      Voting Shares:

	 	 	 	 	 
	 		(i) 	
      as a result of a stock dividend, stock split or other
      event pursuant to which a Person receives or acquires Voting Shares on the
      same pro rata basis as all other holders of Voting Shares; or

	 	 	 	 	 
	 		(ii) 	
      pursuant to a Dividend Reinvestment Plan;
  or

- 12 - 

	 		(iii) 	
      pursuant to the receipt and/or exercise of rights issued
      by the Company to all the holders of Voting Shares of the Company to
      subscribe for or purchase Voting Shares of the Company, provided that such
      rights are acquired directly from the Company as part of a bona fide
      rights offering and not from any other Person; or

	 	 	 	 
	 		(iv) 	
      pursuant to a distribution by the Company of Voting
      Shares, or securities convertible into or exchangeable for Voting Shares
      (and the conversion or exchange of such convertible or exchangeable
      securities) made pursuant to a prospectus or by way of private placement
      by the Company,

	 	 	 	 
	 		
      provided that the Person does not thereby acquire a
        greater percentage of such Voting Shares, or securities convertible or
        exchangeable for Voting Shares, than the Person’s percentage of Voting
    Shares Beneficially owned immediately prior to such acquisition;

	 	 	 	 
	 	(mm) 	
      “Record Time” has the meaning assigned in recital
      C to this Agreement;

	 	 	 	 
	 	(nn) 	
      “Redemption Price” has the meaning assigned in
      Subsection 5.1(c) of this Agreement;

	 	 	 	 
	 	(oo) 	
      “Right” means a right to purchase a Common Share
      of the Company, upon the terms and subject to the conditions set forth in
      this Agreement;

	 	 	 	 
	 	(pp) 	
      “Rights Certificate” means the certificates
      representing the Rights after the Separation Time, which shall be
      substantially in the form attached as Schedule A;

	 	 	 	 
	 	(qq) 	
      “Rights Holders’ Special Meeting” means a meeting
      of the holders of Rights called by the Board of Directors for the purpose
      of approving a supplement or amendment to this Agreement pursuant to
      Subsection 5.4(c);

	 	 	 	 
	 	(rr) 	
      “Rights Register” has the meaning assigned in
      Subsection 2.6(a);

	 	 	 	 
	 	(ss) 	
      “Securities Act” means the Securities Act
      (British Columbia), R.S.B.C. 1996, c. 418, as amended, and the
      regulations thereunder, and any comparable or successor laws or
      regulations thereto;

	 	 	 	 
	 	(tt) 	
      “Separation Time” means the close of business on
      the eighth Trading Day after the earlier of:

	 	 	 	 
	 		(i) 	
      the Stock Acquisition Date;

	 	 	 	 
	 		(ii) 	
      the date of the commencement of or first public
      announcement of the intent of any Person (other than the Company or any
      Subsidiary of the Company) to commence a Take Over Bid (other than a
      Permitted Bid or a Competing Permitted Bid, as the case may be);
  and

	 	 	 	 
	 		(iii) 	
      the date on which a Permitted Bid or Competing Permitted
      Bid ceases to qualify as such;

	 	 	 	 
	 		
      or such earlier or later time as may be determined by the
      Board of Directors, provided that, if any Take Over Bid referred to in
      this Clause (ii) expires, is cancelled, terminated or otherwise withdrawn
      prior to the Separation Time, such Take Over Bid shall be deemed, for the
      purposes of this definition, never to have been
made;

- 13 - 

	 	(uu) 	
      “Special Meeting” means a special meeting of the
      holders of Voting Shares, called by the Board of Directors for the purpose
      of approving a supplement, amendment or variation to this Agreement
      pursuant to Subsection 5.4(b) or Subsection 5.4(c);

	 	 	 	 	 
	 	(vv) 	
      “Stock Acquisition Date” shall mean the first date
      of public announcement (which, for purposes of this definition, shall
      include, without limitation, a report filed pursuant to Section 5.2 of
      Multilateral Instrument 62-104 Takeover Bids and Issuer Bids) by
      the Company or an Acquiring Person that an Acquiring Person has become
      such;

	 	 	 	 	 
	 	(ww) 	
      “Subsidiary” - a corporation shall be deemed to be
      a Subsidiary of another corporation if:

	 	 	 	 	 
	 		(i) 	
      it is controlled by:

	 	 	 	 	 
	 			(A) 	
      that other, or

	 	 	 	 	 
	 			(B) 	
      that other and one or more corporations each of which is
      controlled by that other, or

	 	 	 	 	 
	 			(C) 	
      two or more corporations each of which is controlled by
      that other, or

	 	 	 	 	 
	 		(ii) 	
      it is a Subsidiary of a corporation that is that other’s
      Subsidiary;

	 	 	 	 	 
	 	(xx) 	
      “Take Over Bid” means an Offer to Acquire Voting
      Shares or securities convertible into Voting Shares if, assuming that the
      Voting Shares or convertible securities subject to the Offer to Acquire
      are acquired and are Beneficially Owned at the date of such Offer to
      Acquire by the Person making such Offer to Acquire, such Voting Shares
      (including Voting Shares that may be acquired upon conversion of
      securities convertible into Voting Shares) together with the Offeror’s
      Securities, constitute in the aggregate 20% or more of the outstanding
      Voting Shares at the date of the Offer to Acquire;

	 	 	 	 	 
	 	(yy) 	
      “Termination Time” means the time at which the
      right to exercise the Rights shall terminate pursuant to Sections 5.1(c),
      5.1(e) or 5.17.

	 	 	 	 	 
	 	(zz) 	
      “Trading Day”, when used with respect to any
      securities, means a day on which the principal Canadian securities
      exchange or United States securities exchange or quotation system on which
      such securities are listed or admitted to trading is open for the
      transaction of business or, if the securities are not listed or admitted
      to trading on any Canadian securities exchange or United States securities
      exchange or quotation system, a Business Day;

	 	 	 	 	 
	 	(aaa) 	
      “U.S.-Canadian Exchange Rate” means, on any
      date:

	 	 	 	 	 
	 		(i) 	
      if on such date the Bank of Canada sets an average noon
      spot rate of exchange for the conversion of one United States dollar into
      Canadian dollars, such rate; and

	 	 	 	 	 
	 		(ii) 	
      in any other case, the rate for such date for the
      conversion of one United States dollar into Canadian dollars calculated in
      such manner as may be determined by the Board of Directors from time to
      time acting in good faith;

- 14 - 

		(bbb) 	
      “U.S. Dollar Equivalent” of any amount which is
      expressed in Canadian dollars means, on any date, the United States dollar
      equivalent of such amount determined by multiplying such amount by the
      Canadian - U.S. Exchange Rate in effect on such date;

	 	 	 
		(ccc) 	
      “U.S. Exchange Act” means the United States
      Securities Exchange Act of 1934, as amended, and the rules and
      regulations thereunder as now in effect or as the same may from time to
      time be amended, re-enacted or replaced;

	 	 	 
		(ddd) 	
      “U.S. Securities Act” means the United States
      Securities Act of 1933, as amended, and the rules and regulations
      thereunder as now in effect or as the same may from time to time be
      amended, re-enacted or replaced; and

	 	 	 
		(eee) 	
      “Voting Shares” means the Common Shares of the
      Company and any other shares in the capital of the Company entitled to
      vote generally in the election of all elected directors.

	 	 	 
	1.2 	
      Currency

	 	 	 
		
      All sums of money which are referred to in this Agreement
      are expressed in lawful money of Canada, unless otherwise
  specified.

	 	 	 
	1.3 	
      Headings

	 	 	 
		
      The division of this Agreement into Articles, Sections,
      Subsections, Clauses, Paragraphs, Subparagraphs or other portions hereof
      and the insertion of headings, subheadings and a table of contents are for
      convenience of reference only and shall not affect the construction or
      interpretation of this Agreement.

	 	 	 
	1.4 	
      Calculation of Number and Percentage of Beneficial
      Ownership of Outstanding Voting Shares.

	 	 	 
		
      For purposes of this Agreement, the percentage of Voting
      Shares of any class Beneficially owned by any Person, shall be and be
      deemed to be the product determined by the
formula:

	 	 	100 x A/B 
	 	 	  	  
	 	where: 		  
			
      A = 
	
      the number of votes for the election of all directors
      generally attaching to the Voting Shares Beneficially owned by such
      Person; and 

	 	 	  	  
			
      B = 
	
      the number of votes for the election of all directors
      generally attaching to all outstanding Voting Shares.

Where any Person is deemed to
Beneficially own unissued Voting Shares, such Voting Shares shall be deemed to
be outstanding for the purpose of calculating the percentage of Voting Shares
owned by such Person. 

- 15 - 

	1.5 	
      Acting Jointly or in Concert

	 	 
		
      For purposes of this Agreement, whether Persons are
      acting jointly or in concert is a question of fact in each circumstance,
      however, a Person shall be deemed to be acting jointly or in concert with
      every Person who, as a result of any agreement, commitment or
      understanding, whether formal or informal, with the first Person, any
      Affiliate or Associate of the first Person or any person acting jointly or
      in concert with the first Person, acquires or offers to acquire Voting
      Shares (other than customary agreements with and between underwriters
      and/or banking group members and/or selling group members with respect to
      a public offering or private placement of securities or pledges of
      securities in the ordinary course of business).

	 	 
	1.6 	
      Generally Accepted Accounting Principles

	 	 
		
      Wherever in this Agreement reference is made to generally
      accepted accounting principles, such reference shall be deemed to be the
      recommendations at the relevant time of the Canadian Institute of
      Chartered Accountants, or any successor institute, applicable on a
      consolidated basis (unless otherwise specifically provided herein to be
      applicable on an unconsolidated basis) as at the date on which a
      calculation is made or required to be made in accordance with generally
      accepted accounting principles. Where the character or amount of any asset
      or liability or item of revenue or expense is required to be determined,
      or any consolidation or other accounting computation is required to be
      made for the purpose of this Agreement or any document, such determination
      or calculation shall, to the extent applicable and except as otherwise
      specified herein or as otherwise agreed in writing by the parties, be made
      in accordance with generally accepted accounting principles applied on a
      consistent basis.

ARTICLE 2 
THE RIGHTS 

	2.1 	
      Legend on Common Share Certificates

	 	 
		
      Certificates for the Common Shares that are issued after
      the Record Time but prior to the earlier of the Separation Time and the
      Expiration Time, shall also represent and evidence one Right for each
      Common Share represented thereby and shall have impressed on, printed on,
      written on or otherwise affixed to them the following
  legend:

	
      Until the Separation Time (defined in the Shareholder
      Rights Plan Agreement referred to below), this certificate also evidences
      rights of the holder described in a Shareholder Rights Plan Agreement,
      dated as of February 3, 2011 (the “Shareholder Rights Plan
      Agreement”), between Kelso Technologies Inc. (the
      “Corporation”) and Computershare Trust Company of Canada, the terms
      of which are incorporated herein by reference and a copy of which is on
      file at the principal executive offices of the Corporation. Under certain
      circumstances set out in the Shareholder Rights Plan Agreement, the rights
      may expire, may become null and void or may be evidenced by separate
      certificates and no longer evidenced by this certificate. The Corporation
      will mail or arrange for the mailing of a copy of the Shareholder Rights
      Plan Agreement to the holder of this certificate without charge as soon as
      practicable after the receipt of a written request therefor.
  

- 16 - 

		
      Certificates representing Common Shares that are issued
      and outstanding at the Record Time, which as at the Effective Date
      represent Common Shares, shall also represent and evidence one Right for
      each Common Share evidenced thereby, notwithstanding the absence of the
      foregoing legend, until the close of business on the earlier of the
      Separation Time and the Expiration Time.

	 	 	 	 
	2.2 	
      Initial Exercise Price; Exercise of Rights; Detachment
      of Rights

	 	 	 	 
		(a) 	
      Subject to adjustment as herein set forth, each Right
      will entitle the holder thereof, from and after the Separation Time and
      prior to the Expiration Time, to purchase one Common Share for the
      Exercise Price (and the Exercise Price and number of Common Shares are
      subject to adjustment as set forth below). Notwithstanding any other
      provision of this Agreement, any Rights held by the Company or any of its
      Subsidiaries shall be void.

	 	 	 	 
		(b) 	
      Until the Separation Time,

	 	 	 	 
			(i) 	
      the Rights shall not be exercisable and no Right may be
      exercised; and

	 	 	 	 
			(ii) 	
      each Right will be represented and evidenced by the
      certificate for the associated Common Share of the Company registered in
      the name of the holder thereof (which certificate shall also be deemed to
      represent a Rights Certificate) and will be transferable only together
      with, and will be transferred by a transfer of, such associated Common
      Share of the Company.

	 	 	 	 
		(c) 	
      From and after the Separation Time and prior to the
      Expiration Time:

	 	 	 	 
			(i) 	
      the Rights shall be exercisable; and

	 	 	 	 
			(ii) 	
      the registration and transfer of Rights shall be separate
      from and independent of Common Shares of the Company.

	 	 	 	 
			
      Promptly following the Separation Time, the Company will
      prepare and the Rights Agent will mail to each holder of record of Common
      Shares as of the Separation Time (other than an Acquiring Person and, in
      respect of any Rights Beneficially owned by such Acquiring Person which
      are not held of record by such Acquiring Person, the holder of record of
      such Rights (a “Nominee”)), at such holder’s address as shown by
      the records of the Company (the Company hereby agreeing to furnish copies
      of such records to the Rights Agent for this purpose):

	 	 	 	 
			(i) 	
      a Rights Certificate appropriately completed,
      representing the number of Rights held by such holder at the Separation
      Time and having such marks of identification or designation and such
      legends, summaries or endorsements printed thereon as the Company may deem
      appropriate and as are not inconsistent with the provisions of this
      Agreement, or as may be required to comply with any law, rule or
      regulation or with any rule or regulation of any self- regulatory
      organization, stock exchange or quotation system on which the Rights may
      from time to time be listed or traded, or to conform to usage;
  and

	 	 	 	 
			(ii) 	
      a disclosure statement describing the
  Rights,

- 17 - 

	 		
      provided that a Nominee shall be sent the materials
      provided for in (i) and (ii) in respect of all Common Shares of the
      Company held of record by it which are not Beneficially owned by an
      Acquiring Person.

	 	 	 	 
	 	(d) 	
      Rights may be exercised, in whole or in part, on any
      Business Day after the Separation Time and prior to the Expiration Time by
      submitting to the Rights Agent:

	 	 	 	 
	 		(i) 	
      the Rights Certificate evidencing such Rights;

	 	 	 	 
	 		(ii) 	
      an election to exercise such Rights (an “Election to
      Exercise”) substantially in the form attached to the Rights
      Certificate appropriately completed and executed by the holder or his
      executors or administrators or other personal representatives or his or
      their legal attorney duly appointed by an instrument in writing in form
      and executed in a manner satisfactory to the Rights Agent; and

	 	 	 	 
	 		(iii) 	
      payment by certified cheque, banker’s draft or money
      order payable to the order of the Company, of a sum equal to the Exercise
      Price multiplied by the number of Rights being exercised and a sum
      sufficient to cover any transfer tax or charge which may be payable in
      respect of any transfer involved in the transfer or delivery of Rights
      Certificates or the issuance or delivery of certificates for Common Shares
      in a name other than that of the holder of the Rights being
    exercised.

	 	 	 	 
	 	(e) 	
      Upon receipt of a Rights Certificate, together with a
      completed Election to Exercise executed in accordance with Clause
      2.2(d)(ii), which does not indicate that such Right is null and void as
      provided by Subsection 3.1(b), and payment as set forth in Clause
      2.2(d)(iii), the Rights Agent (unless otherwise instructed by the Company
      in the event that the Company is of the opinion that the Rights cannot be
      exercised in accordance with this Agreement) will thereupon
    promptly:

	 	 	 	 
	 		(i) 	
      requisition from the transfer agent certificates
      representing the number of such Common Shares to be purchased (the Company
      hereby irrevocably authorizing its transfer agent to comply with all such
      requisitions);

	 	 	 	 
	 		(ii) 	
      when appropriate, requisition from the Company the amount
      of cash to be paid in lieu of issuing fractional Common Shares;

	 	 	 	 
	 		(iii) 	
      after receipt of the certificates referred to in Clause
      2.2(e)(i), deliver the same to or to the order of the registered holder of
      such Rights Certificates, registered in such name or names as may be
      designated by such holder;

	 	 	 	 
	 		(iv) 	
      when appropriate, after receipt, deliver the cash
      referred to in Clause 2.2(e)(ii) to or to the order of the registered
      holder of such Rights Certificate; and

	 	 	 	 
	 		(v) 	
      tender to the Company all payments received on the
      exercise of the Rights.

	 	 	 	 
	 	(f) 	
      In case the holder of any Rights shall exercise less than
      all the Rights evidenced by such holder’s Rights Certificate, a new Rights
      Certificate evidencing the Rights remaining unexercised (subject to the
      provisions of Subsection 5.5(a)) will be issued by the Rights Agent to
      such holder or to such holder’s duly authorized
assigns.

- 18 - 

	 	(g) 	
      The Company covenants and agrees that it will:

	 	 	 	 
	 		(i) 	
      take all such action as may be necessary and within its
      power to ensure that all Common Shares delivered upon exercise of Rights
      shall, at the time of delivery of the certificates for such Common Shares
      (subject to payment of the Exercise Price), be duly and validly
      authorized, executed, issued and delivered and fully paid and
      non-assessable;

	 	 	 	 
	 		(ii) 	
      take all such action as may be necessary and within its
      power to comply with the requirements of the Corporation Act and the
      Securities Act, and the applicable securities laws or comparable
      legislation of each of the provinces and territories of Canada, and if
      applicable the U.S. Securities Act, the U.S. Exchange Act, and any other
      applicable law, rule or regulation, in connection with the issuance and
      delivery of the Rights Certificates and the issuance of any Common Shares
      upon exercise of Rights;

	 	 	 	 
	 		(iii) 	
      use reasonable efforts to cause all Common Shares issued
      upon exercise of Rights to be listed on the principal stock exchanges on
      which such Common Shares were traded immediately prior to the Stock
      Acquisition Date;

	 	 	 	 
	 		(iv) 	
      cause to be reserved and kept available out of the
      authorized and unissued Common Shares, the number of Common Shares that,
      as provided in this Agreement, will from time to time be sufficient to
      permit the exercise in full of all outstanding Rights;

	 	 	 	 
	 		(v) 	
      pay when due and payable, if applicable, any and all
      United States, federal, provincial, state and municipal transfer taxes and
      charges (not including any income or capital taxes of the holder or
      exercising holder or any liability of the Company to withhold tax) which
      may be payable in respect of the original issuance or delivery of the
      Rights Certificates, or certificates for Common Shares to be issued upon
      exercise of any Rights, provided that the Company shall not be required to
      pay any transfer tax or charge which may be payable in respect of any
      transfer involved in the transfer or delivery of Rights Certificates or
      the issuance or delivery of certificates for Common Shares in a name other
      than that of the holder of the Rights being transferred or exercised;
      and

	 	 	 	 
	 		(vi) 	
      after the Separation Time, except as permitted by Section
      5.1, not take (or permit any Subsidiary to take) any action if at the time
      such action is taken it is reasonably foreseeable that such action will
      diminish substantially or otherwise eliminate the benefits intended to be
      afforded by the Rights.

	2.3 	
      Adjustments to Exercise Price; Number of
    Rights

	 	 	 
		
      The Exercise Price, the number and kind of securities
      subject to purchase upon exercise of each Right and the number of Rights
      outstanding are subject to adjustment from time to time as provided in
      this Section 2.3.

	 	 	 
		(a) 	
      In the event the Company shall at any time after the
      Record Time and prior to the Expiration Time:

- 19 - 

	 	(i) 	
      declare or pay a dividend on Common Shares payable in
      Common Shares (or other securities exchangeable for or convertible into or
      giving a right to acquire Common Shares or other securities of the
      Company) other than pursuant to any optional stock dividend
  program;

	 	 	 
	 	(ii) 	
      subdivide or change all of the then outstanding Common
      Shares into a greater number of Common Shares;

	 	 	 
	 	(iii) 	
      consolidate or change all of the then outstanding Common
      Shares into a smaller number of Common Shares; or

	 	 	 
	 	(iv) 	
      issue any Common Shares (or other securities exchangeable
      for or convertible into or giving a right to acquire Common Shares or
      other securities of the Company) in respect of, in lieu of or in exchange
      for all of the existing outstanding Common Shares except as otherwise
      provided in this Section 2.3,

the Exercise Price and the number of
Rights outstanding, or, if the payment or effective date therefor shall occur
after the Separation Time, the securities purchasable upon exercise of Rights
shall be adjusted as of the payment or effective date in the manner set forth
below. 

If an event occurs which would require
an adjustment under both this Section 2.3 and Subsection 3.1(a), the adjustment
provided for in this Section 2.3 shall be in addition to, and shall be made
prior to, any adjustment required under Subsection 3.1(a). 

If the Exercise Price and number of
Rights outstanding are to be adjusted: 

	 	(v) 	
      the Exercise Price in effect after such adjustment will
      be equal to the Exercise Price in effect immediately prior to such
      adjustment divided by the number of Common Shares (or other capital stock)
      (the “Expansion Factor”) that a holder of one Common Share
      immediately prior to such dividend, subdivision, change, consolidation or
      issuance would hold thereafter as a result thereof; and

	 	 	 
	 	(vi) 	
      each Right held prior to such adjustment will become that
      number of Rights equal to the Expansion Factor,

and the adjusted number of Rights will
be deemed to be distributed among the Common Shares with respect to which the
original Rights were associated (if they remain outstanding) and the shares
issued in respect of such dividend, subdivision, change, consolidation or
issuance, so that each such Common Share (or other capital stock) will have
exactly one Right associated with it. 

For greater certainty, if the
securities purchasable upon exercise of Rights are to be adjusted, the
securities purchasable upon exercise of each Right after such adjustment will be
the securities that a holder of the securities purchasable upon exercise of one
Right immediately prior to such dividend, subdivision, change, consolidation or
issuance would hold thereafter as a result of such dividend, subdivision,
change, consolidation or issuance. 

- 20 - 

	 		
      If, after the Record Time and prior to the Expiration
      Time, the Company shall issue any shares in its capital other than Common
      Shares in a transaction of a type described in Clause 2.3(a)(i) or (iv),
      such shares shall be treated herein as nearly equivalent to Common Shares
      as may be practicable and appropriate under the circumstances and the
      Company and the Rights Agent agree to amend this Agreement in order to
      effect such treatment.

	 	 	 	 
	 		
      If the Company at any time after the Record Time and
      prior to the Separation Time issues any Common Shares otherwise than in a
      transaction referred to in this Subsection 2.3(a), each such Common Share
      so issued shall automatically have one new Right associated with it, which
      Right shall be represented and evidenced by the certificate representing
      such associated Common Share.

	 	 	 	 
		(b) 	
      If the Company at any time after the Record Time and
      prior to the Separation Time fixes a record date for the issuance of
      rights, options or warrants to all holders of Common Shares entitling them
      (for a period expiring within 45 calendar days after such record date) to
      subscribe for or purchase Common Shares (or securities convertible into or
      exchangeable for or carrying a right to purchase Common Shares) at a price
      per Common Share (or, if a security convertible into or exchangeable for
      or carrying a right to purchase or subscribe for Common Shares, having a
      conversion, exchange or exercise price, including the price required to be
      paid to purchase such convertible or exchangeable security or right per
      share) less than the Market Price per Common Share on such record date,
      the Exercise Price to be in effect after such record date shall be
      determined by multiplying the Exercise Price in effect immediately prior
      to such record date by a fraction:

	 	 	 	 
			
      (i) 
	
      the numerator of which shall be the number of Common
      Shares outstanding on such record date, plus the number of Common Shares
      that the aggregate offering price of the total number of Common Shares so
      to be offered (and/or the aggregate initial conversion, exchange or
      exercise price of the convertible or exchangeable securities or rights so
      to be offered, including the price required to be paid to purchase such
      convertible or exchangeable securities or rights) would purchase at such
      Market Price per Common Share; and

	 	 	 	 
			
      (ii) 
	
      the denominator of which shall be the number of Common
      Shares outstanding on such record date, plus the number of additional
      Common Shares to be offered for subscription or purchase (or into which
      the convertible or exchangeable securities or rights so to be offered are
      initially convertible, exchangeable or exercisable).

	 	 	 	 
	 		
      In case such subscription price may be paid by delivery
      of consideration, part or all of which may be in a form other than cash,
      the value of such consideration shall be as determined in good faith by
      the Board of Directors, whose determination shall be described in a
      statement filed with the Rights Agent and shall be binding on the Rights
      Agent and the holders of Rights. Such adjustment shall be made
      successively whenever such a record date is fixed, and in the event that
      such rights, options or warrants are not so issued, or if issued, are not
      exercised prior to the expiration thereof, the Exercise Price shall be
      readjusted to the Exercise Price which would then be in effect if such
      record date had not been fixed, or to the Exercise Price which would be in
      effect based upon the number of Common Shares (or securities convertible
      into, or exchangeable or exercisable for Common Shares) actually issued
      upon the exercise of such rights, options or warrants, as the case may
      be.

- 21 - 

	 		
      For purposes of this Agreement, the granting of the right
      to purchase Common Shares (whether from treasury or otherwise) pursuant to
      a Dividend Reinvestment Plan or any similar plan shall be deemed not to
      constitute an issue of rights, options or warrants by the
  Company.

	 	 	 
	 	(c) 	
      If the Company at any time after the Record Time and
      prior to the Separation Time fixes a record date for the making of a
      distribution to all holders of Common Shares (including any such
      distribution made in connection with a merger or amalgamation) of
      evidences of indebtedness, cash (other than an annual cash dividend or a
      dividend referred to in Section 2.3(a)(i), but including any dividend
      payable in securities other than Common Shares), assets or rights, options
      or warrants (excluding those referred to in Subsection 2.3(b) hereof), the
      Exercise Price to be in effect after such record date shall be determined
      by multiplying the Exercise Price in effect immediately prior to such
      record date by a fraction:

	 	(i) 	
      the numerator of which shall be the Market Price per
      Common Share on such record date, less the fair market value (as
      determined in good faith by the Board of Directors, whose determination
      shall be described in a statement filed with the Rights Agent and shall be
      binding on the Rights Agent and the holders of Rights), on a per share
      basis, of the portion of the cash, assets, evidences of indebtedness,
      rights, options or warrants so to be distributed; and

	 	 	 
	 	(ii) 	
      the denominator of which shall be such Market Price per
      Common Share.

	 		
      Such adjustments shall be made successively whenever such
      a record date is fixed, and in the event that such a distribution is not
      so made, the Exercise Price shall be adjusted to be the Exercise Price
      which would have been in effect if such record date had not been
    fixed.

	 	 	 
	 	(d) 	
      Notwithstanding anything herein to the contrary, no
      adjustment in the Exercise Price shall be required unless such adjustment
      would require an increase or decrease of at least 1% in the Exercise
      Price; provided, however, that any adjustments which by reason of this
      Subsection 2.3(d) are not required to be made shall be carried forward and
      taken into account in any subsequent adjustment. All calculations under
      Section 2.3 shall be made to the nearest cent or to the nearest
      ten-thousandth of a share. Notwithstanding the first sentence of this
      Subsection 2.3(d), any adjustment required by Section 2.3 shall be made no
      later than the earlier of:

	 	(i) 	
      three years from the date of the transaction which gives
      rise to such adjustment; or

	 	 	 
	 	(ii) 	
      the Expiration Time.

	 	(e) 	
      Whenever an adjustment to the Exercise Price is made
      pursuant to this Section 2.3, the Company shall:

	 	 	 	 
	 		(i) 	
      promptly prepare a certificate setting forth such
      adjustment and a brief statement of the facts accounting for such
      adjustment; and

- 22 - 

	 		(ii) 	
      promptly file with the Rights Agent and with each
      transfer agent for the Common Shares a copy of such certificate and mail a
      brief summary thereof to each holder of Rights.

	 	 	 	 
	 	(f) 	
      If the Company at any time after the Record Time and
      prior to the Separation Time issue any shares in its capital (other than
      Common Shares), or rights, options or warrants to subscribe for or
      purchase any such shares, or securities convertible into or exchangeable
      for any such capital stock in a transaction referred to in Clauses
      2.3(a)(i) or (iv) above, if the Board of Directors acting in good faith
      determines that the adjustments contemplated by Subsections 2.3(a), (b)
      and (c) above in connection with such transaction will not appropriately
      protect the interests of the holders of Rights, the Board of Directors may
      determine what other adjustments to the Exercise Price, number of Rights
      and/or securities purchasable upon exercise of Rights would be appropriate
      and, notwithstanding Subsections 2.3(a), (b) and (c) above, such
      adjustments, rather than the adjustments contemplated by Subsections
      2.3(a), (b) and (c) above, shall be made. Subject to the prior consent of
      the holders of the Voting Shares or the Rights as set forth in subsection
      5.4(b) or (c), the Company and the Rights Agent shall have authority to
      amend this Agreement as appropriate to provide for such
  adjustments.

	 	 	 	 
	 	(g) 	
      Each Right originally issued by the Company subsequent to
      any adjustment made to the Exercise Price hereunder shall evidence the
      right to purchase, at the adjusted Exercise Price, the number of Common
      Shares purchasable from time to time hereunder upon exercise of a Right
      immediately prior to such issue, all subject to further adjustment as
      provided herein.

	 	 	 	 
	 	(h) 	
      Irrespective of any adjustment or change in the Exercise
      Price or the number of Common Shares issuable upon the exercise of the
      Rights, the Rights Certificates theretofore and thereafter issued may
      continue to express the Exercise Price per Common Share and the number of
      Common Shares which were expressed in the initial Rights Certificates
      issued hereunder.

	 	 	 	 
	 	(i) 	
      In any case in which this Section 2.3 requires that an
      adjustment in the Exercise Price be made effective as of a record date for
      a specified event, the Company may elect to defer until the occurrence of
      such event the issuance to the holder of any Right exercised after such
      record date the number of Common Shares and other securities of the
      Company, if any, issuable upon such exercise over and above the number of
      Common Shares and other securities of the Company, if any, issuable upon
      such exercise on the basis of the Exercise Price in effect prior to such
      adjustment; provided, however, that the Company shall deliver to such
      holder an appropriate instrument evidencing such holder’s right to receive
      such additional shares (fractional or otherwise) or other securities upon
      the occurrence of the event requiring such adjustment.

	 	 	 	 
	 	(j) 	
      Notwithstanding anything contained in this Section 2.3 to
      the contrary, the Company shall be entitled to make such reductions in the
      Exercise Price, in addition to those adjustments expressly required by
      this Section 2.3, as and to the extent that in their good faith judgment
      the Board of Directors shall determine to be advisable, in order that
      any:

	 	 	 	 
	 		(i) 	
      consolidation or subdivision of Common Shares;

	 	 	 	 
	 		(ii) 	
      issuance (wholly or in part for cash) of Common Shares or
      securities that by their terms are convertible into or exchangeable for
      Common Shares;

- 23 - 

	 	(iii) 	
      stock dividends; or

	 	 	 
	 	(iv) 	
      issuance of rights, options or warrants referred to in
      this Section 2.3,

hereafter made by the Company to
holders of its Common Shares, shall not be taxable to such shareholders. 

	2.4 	
      Date on Which Exercise Is Effective

	 	 	 
		
      Each Person in whose name any certificate for Common
      Shares or other securities, if applicable, is issued upon the exercise of
      Rights shall for all purposes be deemed to have become the holder of
      record of the Common Shares or other securities, if applicable,
      represented thereon, and such certificate shall be dated the date upon
      which the Rights Certificate evidencing such Rights was duly surrendered
      in accordance with Subsection 2.2(d) (together with a duly completed
      Election to Exercise) and payment of the Exercise Price for such Rights
      (and any applicable transfer taxes and other governmental charges payable
      by the exercising holder hereunder) was made; provided, however, that if
      the date of such surrender and payment is a date upon which the Common
      Share transfer books of the Company are closed, such Person shall be
      deemed to have become the record holder of such shares on, and such
      certificate shall be dated, the next succeeding Business Day on which the
      Common Share transfer books of the Company are open.

	 	 	 
	2.5 	
      Execution, Authentication, Delivery and Dating of
      Rights Certificates

	 	 	 
		(a) 	
      The Rights Certificates shall be executed on behalf of
      the Company by its chairman of the Board, chief executive officer,
      president or chief financial officer and by its secretary under the
      corporate seal of the Company reproduced thereon. The signature of any of
      these officers on the Rights Certificates may be manual or facsimile.
      Rights Certificates bearing the manual or facsimile signatures of
      individuals who were at any time the proper officers of the Company shall
      bind the Company, notwithstanding that such individuals or any of them
      have ceased to hold such offices either before or after the
      countersignature and delivery of such Rights Certificates.

	 	 	 
		(b) 	
      Promptly after the Company learns of the Separation Time,
      the Company will notify the Rights Agent of such Separation Time and will
      deliver Rights Certificates executed by the Company to the Rights Agent
      for countersignature, and the Rights Agent shall countersign manually or
      by facsimile signature (in a manner satisfactory to the Company) and send
      such Rights Certificates to the holders of the Rights pursuant to
      Subsection 2.2(c) hereof. No Rights Certificate shall be valid for any
      purpose until countersigned by the Rights Agent as aforesaid.

	 	 	 
		(c) 	
      Each Rights Certificate shall be dated the date of
      countersignature thereof.

	 	 	 
	2.6 	
      Registration, Transfer and Exchange

	 	 	 
		(a) 	
      The Company will cause to be kept a register (the
      “Rights Register”) in which, subject to such reasonable regulations
      as it may prescribe, the Company will provide for the registration and
      transfer of Rights. The Rights Agent is hereby appointed registrar for the
      Rights (the “Rights Registrar”) for the purpose of maintaining the
      Rights Register for the Company and registering Rights and transfers of
      Rights as herein provided and the Rights Agent hereby accepts such
      appointment. In the event that the Rights Agent
shall cease to be the Rights Registrar, the Rights
      Agent will have the right to examine the Rights Register at all reasonable
  times.

- 24 - 

			
      After the Separation Time and prior to the Expiration
      Time, upon surrender for registration of a transfer or exchange of any
      Rights Certificate, and subject to the provisions of Subsection 2.6(c),
      the Company will execute, and the Rights Agent will countersign, register
      and deliver, in the name of the holder or the designated transferee or
      transferees, as required pursuant to the holder’s instructions, one or
      more new Rights Certificates evidencing the same aggregate number of
      Rights as did the Rights Certificates so surrendered.

	 	 	 	 
		(b) 	
      All Rights issued upon any registration of a transfer or
      exchange of Rights Certificates shall be the valid obligations of the
      Company, and such Rights shall be entitled to the same benefits under this
      Agreement as the Rights surrendered upon such registration of transfer or
      exchange.

	 	 	 	 
		(c) 	
      Every Rights Certificate surrendered for registration of
      a transfer or exchange shall be duly endorsed, or be accompanied by a
      written instrument of transfer in form satisfactory to the Company or the
      Rights Agent, as the case may be, duly executed by the holder thereof or
      such holder’s attorney duly authorized in writing and shall be guaranteed
      by a chartered bank or an eligible guarantor institution with membership
      in an approved signature guarantee medallion program. As a condition to
      the issuance of any new Rights Certificate under this Section 2.6, the
      Company may require the payment of a sum sufficient to cover any tax or
      other governmental charge that may be imposed in relation thereto and any
      other expenses (including the reasonable fees and expenses of the Rights
      Agent) connected therewith.

	 	 	 	 
	2.7 	
      Mutilated, Destroyed, Lost and Stolen Rights
      Certificates

	 	 	 	 
		(a) 	
      If any mutilated Rights Certificate is surrendered to the
      Rights Agent prior to the Expiration Time, the Company shall execute and
      the Rights Agent shall countersign register and deliver in exchange
      therefor a new Rights Certificate evidencing the same number of Rights as
      did the Rights Certificate so surrendered.

	 	 	 	 
		(b) 	
      If there shall be delivered to the Company and the Rights
      Agent prior to the Expiration Time:

	 	 	 	 
			(i) 	
      evidence to their reasonable satisfaction of the
      destruction, loss or theft of any Rights Certificate; and

	 	 	 	 
			(ii) 	
      such security or indemnity as may be reasonably required
      by them to save each of them and any of their agents harmless, then, in
      the absence of notice to the Company or the Rights Agent that such Rights
      Certificate has been acquired by a bona fide purchaser, the Company shall
      execute and upon the Company request the Rights Agent shall countersign
      and deliver, in lieu of any such destroyed, lost, or stolen Rights
      Certificate, a new Rights Certificate evidencing the same number of Rights
      as did the Rights Certificate so destroyed, lost or
  stolen.

- 25 - 

		(c) 	
      As a condition to the issuance of any new Rights
      Certificate under this Section 2.7, the Company may require the payment of
      a sum sufficient to cover any tax or other governmental charge that may be
      imposed in relation thereto and any other expenses (including the
      reasonable fees and expenses of the Rights Agent) connected
    therewith.

	 	 	 
		(d) 	
      Every new Rights Certificate issued pursuant to this
      Section 2.7 in lieu of any destroyed, lost or stolen Rights Certificate
      shall evidence the contractual obligation of the Company, whether or not
      the destroyed, lost or stolen Rights Certificate shall be at any time
      enforceable by anyone, and shall be entitled to all the benefits of this
      Agreement equally and proportionately with any and all other Rights duly
      issued hereunder.

	 	 	 
	2.8 	
      Persons Deemed Owners of Rights

	 	 	 
		
      The Company, the Rights Agent and any agent of the
      Company or the Rights Agent may deem and treat the Person in whose name a
      Rights Certificate (or, prior to the Separation Time, the associated
      Common Share certificate) is registered as the absolute owner thereof and
      of the Rights evidenced thereby for all purposes whatsoever. As used in
      this Agreement, unless the context otherwise requires, the term
      “holder” of any Rights shall mean the registered holder of such
      Rights (or, prior to the Separation Time, of the associated Common Share)
      and the Corporation and the Rights Agent shall not be affected by any
      notice or knowledge to the contrary except as required by statute or by
      order of a court of competent jurisdiction.

	 	 	 
	2.9 	
      Delivery and Cancellation of
Certificates

	 	 	 
		
      All Rights Certificates surrendered upon exercise or for
      redemption, registration of transfer or exchange shall, if surrendered to
      any Person other than the Rights Agent, be delivered to the Rights Agent
      and, in any case, shall be promptly cancelled by the Rights Agent. The
      Company may at any time deliver to the Rights Agent for cancellation any
      Rights Certificates previously countersigned and delivered hereunder which
      the Company may have acquired in any manner whatsoever, and all Rights
      Certificates so delivered shall be promptly cancelled by the Rights Agent.
      No Rights Certificate shall be countersigned in lieu of or in exchange for
      any Rights Certificates cancelled as provided in this Section 2.9, except
      as expressly permitted by this Agreement. The Rights Agent shall, subject
      to applicable laws, destroy all cancelled Rights Certificates and deliver
      a certificate of destruction to the Company.

	 	 	 
	2.10 	
      Agreement of Rights Holders

	 	 	 
		
      Every holder of Rights, by accepting the Rights, consents
      and agrees with the Company and the Rights Agent and with every other
      holder of Rights:

	 	 	 
		(a) 	
      to be bound by and subject to the provisions of this
      Agreement, as amended from time to time in accordance with the terms
      hereof, in respect of all Rights held;

	 	 	 
		(b) 	
      that prior to the Separation Time, each Right will be
      transferable only together with, and will be transferred by a transfer of,
      the associated Common Share certificate representing such Right;

	 	 	 
		(c) 	
      that after the Separation Time, the Rights Certificates
      will be transferable only on the Rights Register as provided
  herein;

- 26 - 

	 	(d) 	
      that prior to due presentment of a Rights Certificate
      (or, prior to the Separation Time, the associated Common Share
      certificate) for registration of a transfer, the Company, the Rights Agent
      and any agent of the Company or the Rights Agent may deem and treat the
      Person in whose name the Rights Certificate (or, prior to the Separation
      Time, the associated Common Share certificate) is registered as the
      absolute owner thereof and of the Rights evidenced thereby
      (notwithstanding any notations of ownership or writing on such Rights
      Certificate or the associated Common Share certificate made by anyone
      other than the Company or the Rights Agent) for all purposes whatsoever,
      and neither the Company nor the Rights Agent shall be affected by any
      notice to the contrary;

	 	 	 
	 	(e) 	
      that such holder of Rights has waived his right to
      receive any fractional Rights or any fractional shares or other securities
      upon exercise of a Right (except as provided herein);

	 	 	 
	 	(f) 	
      that, subject to the provisions of Section 5.4, without
      the approval of any holder of Rights or Voting Shares and upon the sole
      authority of the Board of Directors, acting in good faith, this Agreement
      may be supplemented or amended from time to time to cure any ambiguity or
      to correct or supplement any provision contained herein which may be
      inconsistent with the intent of this Agreement or is otherwise defective,
      as provided herein; and

	 	 	 
	 	(g) 	
      that notwithstanding anything in this Agreement to the
      contrary, neither the Company nor the Rights Agent shall have any
      liability to any holder of a Right to any other Person as a result of its
      inability to perform any of its obligations under this Agreement by reason
      of any preliminary or permanent injunction or other order, decree or
      ruling issued by a court of competent jurisdiction or by a government,
      regulatory or administrative agency or commission, or any statute, rule,
      regulation or executive order promulgated or enacted by any governmental
      authority, prohibiting or otherwise restraining performance of such
      obligation.

	2.11 	
      Rights Certificate Holder Not Deemed a
      Shareholder

	 	 
		
      No holder, as such, of any Rights or Rights Certificate
      shall be entitled to vote, receive dividends or be deemed for any purpose
      whatsoever the holder of any Common Share or any other share or security
      of the Company which may at any time be issuable on the exercise of the
      Rights represented thereby, nor shall anything contained herein or in any
      Rights Certificate be construed or deemed or confer upon the holder of any
      Right or Rights Certificate, as such, any right, title, benefit or
      privilege of a holder of Common Shares or any other shares or securities
      of the Company or any right to vote at any meeting of shareholders of the
      Company whether for the election of directors or otherwise or upon any
      matter submitted to holders of Common Shares or any other shares of the
      Company at any meeting thereof, or to give or withhold consent to any
      action of the Company, or to receive notice of any meeting or other action
      affecting any holder of Common Shares or any other shares of the Company
      except as expressly provided herein, or to receive dividends,
      distributions or subscription rights, or otherwise, until the Right or
      Rights evidenced by Rights Certificates shall have been duly exercised in
      accordance with the terms and provisions
hereof.

- 27 - 

ARTICLE 3 
ADJUSTMENTS TO THE RIGHTS IN THE EVENT
OF CERTAIN TRANSACTIONS 

	3.1 	
      Flip-In Event

	 	 	 	 
		(a) 	
      Subject to Subsection 3.1(b) and Section 5.1, in the
      event that prior to the Expiration Time a Flip-in Event shall occur, then
      thereafter, each Right shall constitute, effective at the close of
      business on the eighth Trading Day after the Stock Acquisition Date, the
      right to purchase from the Company, upon exercise thereof in accordance
      with the terms hereof, that number of Common Shares having an aggregate
      Market Price on the date of consummation or occurrence of such Flip-in
      Event equal to two times the Exercise Price for an amount in cash equal to
      the Exercise Price (such right to be appropriately adjusted in a manner
      analogous to the applicable adjustment provided for in Section 2.3 in the
      event that after the consummation or occurrence or event, an event of a
      type analogous to any of the events described in Section 2.3 shall have
      occurred).

	 	 	 	 
		(b) 	
      Notwithstanding anything in this Agreement to the
      contrary, upon the occurrence of any Flip-in Event, any Rights that are or
      were Beneficially owned on or after the earlier of the Separation Time or
      the Stock Acquisition Date by:

	 	 	 	 
			(i) 	
      an Acquiring Person (or any Affiliate or Associate of an
      Acquiring Person or any Person acting jointly or in concert with an
      Acquiring Person or with any Affiliate or Associate of an Acquiring
      Person); or

	 	 	 	 
			(ii) 	
      a transferee of Rights, directly or indirectly, from an
      Acquiring Person (or any Affiliate or Associate of an Acquiring Person or
      any Person acting jointly or in concert with an Acquiring Person or with
      any Affiliate or Associate of an Acquiring Person), where such transferee
      becomes a transferee concurrently with or subsequent to the Acquiring
      Person becoming such in a transfer that the Board of Directors has
      determined is part of a plan, arrangement or scheme of an Acquiring Person
      (or any Affiliate or Associate of an Acquiring Person or any Person acting
      jointly or in concert with an Acquiring Person or with any Associate or
      Affiliate of an Acquiring Person), that has the purpose or effect of
      avoiding Clause 3.1(b)(i);

	 	 	 	 
			(iii) 	
      shall become null and void without any further action,
      and any holder of such Rights (including transferees) shall thereafter
      have no right to exercise such Rights under any provision of this
      Agreement and further shall thereafter not have any other rights
      whatsoever with respect to such Rights, whether under any provision of
      this Agreement or otherwise.

	 	 	 	 
		(c) 	
      From and after the Separation Time, the Company shall do
      all such acts and things as shall be necessary and within its power to
      ensure compliance with the provisions of Section 3.1, including without
      limitation, all such acts and things as may be required to satisfy the
      requirements of the Corporation Act, the Securities Act, and if applicable
      the U.S. Securities Act, the U.S. Exchange Act, and the applicable
      securities laws or comparable legislation in each of the provinces and
      territories of Canada and States of the United States in respect of the
      issue of Common Shares upon the exercise of Rights in accordance with this
      Agreement.

- 28 - 

	 	(d) 	
      Any Rights Certificate that represents Rights
      Beneficially owned by a Person described in either Clause 3.1(b)(i) or
      (ii) or transferred to any nominee of any such Person, and any Rights
      Certificate issued upon transfer, exchange, replacement or adjustment of
      any other Rights Certificate referred to in this sentence, shall contain
      the following legend:

	
      “The Rights represented by this Rights Certificate were
      issued to a Person who was an Acquiring Person or an Affiliate or an
      Associate of an Acquiring Person (as such terms are defined in the
      Shareholder Rights Plan Agreement) or a Person who was acting jointly or
      in concert with an Acquiring Person or with an Affiliate or Associate of
      an Acquiring Person. This Rights Certificate and the Rights represented
      hereby are void or shall become void in the circumstances specified in
      Subsection 3.1(b) of the Shareholder Rights Plan Agreement.”
  

Provided, however, that the Rights
Agent shall not be under any responsibility to ascertain the existence of facts
that would require the imposition of such legend but shall impose such legend
only if instructed to do so by the Company in writing or if a holder fails to
certify upon transfer or exchange in the space provided on the Rights
Certificate that such holder is not a Person described in such legend. The
issuance of a Rights Certificate without the legend referred to in this
Subsection 3.1(d) shall be of no effect on the provisions of Subsection 3.1(b).

ARTICLE 4 
THE RIGHTS AGENT 

	4.1 	
      General

	 	 	 
		(a) 	
      The Company hereby appoints the Rights Agent to act as
      agent for the Company and the holders of the Rights in accordance with the
      terms and conditions hereof, and the Rights Agent hereby accepts such
      appointment. The Company may from time to time appoint such co-Rights
      Agents (“Co-Rights Agents”) as it may deem necessary or desirable,
      subject to the prior approval of the Rights Agent. In the event the
      Company appoints one or more Co-Rights Agents, the respective duties of
      the Rights Agent and Co-Rights Agents shall be as the Company may
      determine with the approval of the Rights Agent and the Co-Rights Agent.
      The Company also agrees to indemnify the Rights Agent its officers,
      directors and employees for, and to hold it harmless against, any loss,
      liability, or expense, incurred without negligence, bad faith or wilful
      misconduct on the part of the Rights Agent, for anything done or omitted
      by the Rights Agent in connection with the acceptance and administration
      of this Agreement, including the costs and expenses of defending against
      any claim of liability, which right to indemnification will survive the
      termination of this Agreement.

	 	 	 
		(b) 	
      The Rights Agent shall be protected and shall incur no
      liability for or in respect of any action taken, suffered or omitted by it
      in connection with its administration of this Agreement in reliance upon
      any certificate for Common Shares, Rights Certificate, certificate for
      other securities of the Company, instrument of assignment or transfer,
      power of attorney, endorsement, affidavit, letter, notice, direction,
      consent, certificate, opinion, statement, or other paper or document
      believed by it to be genuine and to be signed, executed and, where
      necessary, verified or acknowledged, by the proper Person or
    Persons.

- 29 - 

	 	(c) 	
      The Company shall inform the Rights Agent in a reasonably
      timely manner of events which may materially affect the administration of
      this Agreement by the Rights Agent and, at any time upon request, shall
      provide to the Rights Agent an incumbency certificate certifying the then
      current officers of the Company; provided that failure to inform the
      Rights Agent of any such events, or any defect therein shall not affect
      the validity of any action taken hereunder in relation to such
    events.

	 	 	 
	 	(d) 	
      The Company agrees to pay to the Rights Agent reasonable
      compensation for all services rendered by it hereunder and, from time to
      time on demand of the Rights Agent, its reasonable expenses and counsel
      fees and any other disbursements incurred in the administration and
      execution of this Agreement and the exercise and performance of its duties
      hereunder.

	4.2 	
      Merger, Amalgamation or Consolidation or Change of
      Name of Rights Agent

	 	 	 
		(a) 	
      Any corporation into which the Rights Agent may be merged
      or amalgamated or with which it may be consolidated, or any corporation
      resulting from any merger, amalgamation, statutory arrangement or
      consolidation to which the Rights Agent is a party, or any corporation
      succeeding to the shareholder or stockholder services business of the
      Rights Agent, will be the successor to the Rights Agent under this
      Agreement without the execution or filing of any paper or any further act
      on the part of any of the parties hereto, provided that such corporation
      is eligible for appointment as a successor Rights Agent under the
      provisions of Section 4.4 hereof. If at the time such successor Rights
      Agent succeeds to the agency created by this Agreement any of the Rights
      Certificates have been countersigned but not delivered, any successor
      Rights Agent may adopt the countersignature of the predecessor Rights
      Agent and deliver such Rights Certificates so countersigned; and in case
      at that time any of the Rights have not been countersigned, any successor
      Rights Agent may countersign such Rights Certificates in the name of the
      predecessor Rights Agent or in the name of the successor Rights Agent; and
      in all such cases such Rights Certificates will have the full force
      provided in the Rights Certificates and in this Agreement.

	 	 	 
		(b) 	
      If at any time the name of the Rights Agent is changed
      and at such time any of the Rights Certificates have been countersigned
      but not delivered, the Rights Agent may adopt the countersignature under
      its prior name and deliver Rights Certificates so countersigned; and if at
      that time any of the Right Certificates have not been countersigned, the
      Rights Agent may countersign such Rights Certificates either in its prior
      name or in its changed name; and in all such cases such Right Certificates
      will have the full force provided in the Right Certificates and in this
      Agreement.

	 	 	 
	4.3 	
      Duties of Rights Agent

	 	 	 
		
      The Rights Agent undertakes the duties and obligations
      imposed by this Agreement upon the following terms and conditions, all of
      which the Company and the holders of certificates for Common Shares and
      Rights Certificates, by their acceptance thereof, shall be
bound:

	 	 	 
		(a) 	
      the Rights Agent, at the expense of the Company, may
      consult with and retain legal counsel (who may be legal counsel for the
      Company) and the opinion of such counsel will be full and complete
      authorization and protection to the Rights Agent as to any action taken or
      omitted by it in good faith and in accordance with such
  opinion;

- 30 - 

	 	(b) 	
      whenever in the performance of its duties under this
      Agreement, the Rights Agent deems it necessary or desirable that any fact
      or matter be proved or established by the Company prior to taking or
      suffering any action hereunder, such fact or matter (unless other evidence
      in respect thereof be herein specifically prescribed) may be deemed to be
      conclusively proved and established by a certificate signed by a Person
      believed by the Rights Agent to be the chairman of the Board, president,
      any vice president, treasurer or secretary of the Company and delivered to
      the Rights Agent; and such certificate will be full authorization to the
      Rights Agent for any action taken or suffered in good faith by it under
      the provisions of this Agreement in reliance upon such
  certificate;

	 	 	 
	 	(c) 	
      notwithstanding anything to the contrary, the Rights
      Agent will be liable hereunder for its own negligence, bad faith or wilful
      misconduct;

	 	 	 
	 	(d) 	
      the Rights Agent will not be liable for or by reason of
      any of the statements of fact or recitals contained in this Agreement or
      in the certificates for Common Shares or the Rights Certificates (except
      its countersignature thereof) or be required to verify the same, but all
      such statements and recitals are and will be deemed to have been made by
      the Company only;

	 	 	 
	 	(e) 	
      the Rights Agent will not be under any responsibility in
      respect of the validity of this Agreement or the execution and delivery
      hereof (except the due authorization, execution and delivery hereof by the
      Rights Agent) or in respect of the validity or execution of any
      certificate for a Common Share or Rights Certificate (except its
      countersignature thereof); nor will it be responsible for any breach by
      the Company of any covenant or condition contained in this Agreement or in
      any Rights Certificate; nor will it be responsible for any change in the
      exerciseability of the Rights (including the Rights becoming void pursuant
      to Subsection 3.1(b) hereof) or any adjustment required under the
      provisions of Section 2.3 hereof or responsible for the manner, method or
      amount of any such adjustment or the ascertaining of the existence of
      facts that would require any such adjustment (except with respect to the
      exercise of Rights after receipt of the certificate contemplated by
      Section 2.3 describing any such adjustment); nor will it by any act
      hereunder be deemed to make any representation or warranty as to the
      authorization of any Common Shares to be issued pursuant to this Agreement
      or any Rights or as to whether any Common Shares will, when issued, be
      duly and validly authorized, executed, issued and delivered and fully paid
      and non-assessable;

	 	 	 
	 	(f) 	
      the Company agrees that it will perform, execute,
      acknowledge and deliver or cause to be performed, executed, acknowledged
      and delivered all such further and other acts, instruments and assurances
      as may reasonably be required by the Rights Agent for the carrying out or
      performing by the Rights Agent of the provisions of this
  Agreement;

	 	 	 
	 	(g) 	
      the Rights Agent is hereby authorized and directed to
      accept instructions in writing with respect to the performance of its
      duties hereunder from any individual believed by the Rights Agent to be
      the chairman of the Board, chief executive officer, president, any vice
      president, treasurer or secretary of the Company, and to apply to such
      individuals for advice or instructions in connection with its duties, and
      it shall not be liable for any action taken or suffered by it in good
      faith in accordance with instructions of any such
  individual;

- 31 - 

	 	(h) 	
      the Rights Agent and any shareholder or stockholder,
      director, officer or employee of the Rights Agent may buy, sell or deal in
      Common Shares, Rights or other securities of the Company or have a
      pecuniary interest in any transaction in which the Company may be
      interested, or contract with or lend money to the Company or otherwise act
      as fully and freely as though it were not the Rights Agent under this
      Agreement. Nothing herein shall preclude the Rights Agent from acting in
      any other capacity for the Company or for any other legal entity;
    and

	 	 	 
	 	(i) 	
      the Rights Agent may execute and exercise any of the
      rights or powers hereby vested in it or perform any duty hereunder either
      itself or by or through its attorneys or agents, and the Rights Agent will
      not be answerable or accountable for any act, default, neglect or
      misconduct of any such attorneys or agents or for any loss to the Company
      resulting from any such act, default, neglect or misconduct, provided
      reasonable care was exercised in the selection and continued employment
      thereof.

	4.4 	
      Change of Rights Agent

	 	 
		
      The Rights Agent may resign and be discharged from its
      duties under this Agreement upon 60 days’ notice (or such lesser notice as
      is acceptable to the Company) in writing mailed to the Company and to each
      transfer agent of Common Shares by registered or certified mail. The
      Company may remove the Rights Agent upon 60 days’ notice in writing,
      mailed to the Rights Agent and to each transfer agent of the Common Shares
      by registered or certified mail. If the Rights Agent should resign or be
      removed or otherwise become incapable of acting, the Company will appoint
      a successor to the Rights Agent. If the Company fails to make such
      appointment within a period of 60 days after such removal or after it has
      been notified in writing of such resignation or incapacity by the
      resigning or incapacitated Rights Agent, then by prior written notice to
      the Company the resigning Rights Agent or the holder of any Rights (which
      holder shall, with such notice, submit such holder’s Rights Certificate,
      if any, for inspection by the Company), may apply to any court of
      competent jurisdiction for the appointment of a new Rights Agent. Any
      successor Rights Agent, whether appointed by the Company or by such a
      court, shall be a corporation incorporated under the laws of Canada or a
      province thereof authorized to carry on the business of a trust company in
      the Province of British Columbia. After appointment, the successor Rights
      Agent will be vested with the same powers, rights, duties and
      responsibilities as if it had been originally named as Rights Agent
      without further act or deed; but the predecessor Rights Agent shall
      deliver and transfer to the successor Rights Agent any property at the
      time held by it hereunder, and execute and deliver any further assurance,
      conveyance, act or deed necessary for the purpose. Not later than the
      effective date of any such appointment, the Company will file notice
      thereof in writing with the predecessor Rights Agent and each transfer
      agent of the Common Shares, and mail a notice thereof in writing to the
      holders of the Rights in accordance with Section 5.9. Failure to give any
      notice provided for in this Section 4.4, however, or any defect therein,
      shall not affect the legality or validity of the resignation or removal of
      the Rights Agent or the appointment of any successor Rights Agent, as the
      case may be.

- 32 - 

ARTICLE 5
 MISCELLANEOUS 

	5.1 	
      Redemption, Waiver and Extension

	 	 	 
		(a) 	
      The Board of Directors acting in good faith may waive the
      application of Section 3.1 in respect of the occurrence of any Flip-in
      Event if the Board of Directors has determined within eight Trading Days
      following a Stock Acquisition Date that a Person became an Acquiring
      Person by inadvertence and without any intention to become, or knowledge
      that it would become, an Acquiring Person under this Agreement and, in the
      event that such a waiver is granted by the Board of Directors, such
      Flip-in Event shall be deemed not to have occurred and the Separation Time
      shall be deemed not to have occurred as a result of such Person becoming
      an Acquiring Person.

	 	 	 
		(b) 	
      The Board of Directors acting in good faith may, prior to
      a Flip-in Event having occurred, upon prior written notice delivered to
      the Rights Agent, determine to waive the application of Section 3.1 to
      such particular Flip-in Event that would result from a Take Over Bid made
      by means of a Take Over Bid circular to all holders of Voting Shares
      (which for greater certainty shall not include the circumstances described
      in Subsection 5.1(a)), provided that if the Board waives the application
      of Section 3.1 to a particular Flip-in Event pursuant to this Subsection
      5.1(b), the Board shall be deemed to have waived the application of
      Section 3.1 to any other Flip-in Event occurring by reason of any other
      Take Over Bid which is made by means of a Take Over Bid circular to all
      holders of Voting Shares prior to the expiry of any Take Over Bid (as the
      same may be extended from time to time) in respect of which a waiver is,
      or is deemed to have been granted under this Subsection 5.1(b).

	 	 	 
		(c) 	
      In the event that prior to the occurrence of a Flip-in
      Event a Person acquires, pursuant to a Permitted Bid, a Competing
      Permitted Bid or an Exempt Acquisition under Subsection 5.1(b),
      outstanding Voting Shares, other than Voting Shares Beneficially owned at
      the date of the Permitted Bid, Competing Permitted Bid or Exempt
      Acquisition under Subsection 5.1(b) by such Person, then the Board of
      Directors shall, immediately upon the consummation of such acquisition
      without further formality be deemed to have elected to redeem the Rights
      at a redemption price of $0.0001 per Right appropriately adjusted in a
      manner analogous to the applicable adjustment provided for in Section 2.3
      if an event of the type analogous to any of the events described in
      Section 2.3 shall have occurred (such redemption price being herein
      referred to as the “Redemption Price”).

	 	 	 
		(d) 	
      With the prior approval of the holders of Voting Shares
      or Rights given in accordance with Section 5.4, the Board of Directors of
      the Company acting in good faith may, at its option, at any time prior to
      the provisions of Section 3.1 becoming applicable as a result of the
      occurrence of a Flip-in Event, elect to redeem all but not less than all
      of the then outstanding Rights at the Redemption Price appropriately
      adjusted in a manner analogous to the applicable adjustments provided for
      in Section 2.3, which adjustments shall only be made in the event that an
      event of the type analogous to any of the events described in Section 2.3
      shall have occurred.

	 	 	 
		(e) 	
      Where a Take Over Bid that is not a Permitted Bid
      Acquisition is withdrawn or otherwise terminated after the Separation Time
      has occurred and prior to the occurrence of a Flip-in Event, the Board of
      Directors may elect to redeem all the outstanding Rights at the Redemption
      Price.

- 33 - 

	 	(f) 	
      If the Board of Directors is deemed under Subsection
      5.1(c) to have elected or elects under Subsections 5.1(d) or 5.1(e) to
      redeem the Rights, then subject to Subsection 5.1(h), the right to
      exercise the Rights will thereupon, without further action and without
      notice, terminate and the only right thereafter of the holders of Rights
      shall be to receive the Redemption Price.

	 	 	 
	 	(g) 	
      Within 10 calendar days after the Board of Directors is
      deemed under Subsection 5.1(c) to have elected or elects under Subsection
      5.1(d) or 5.1(e) to redeem the Rights, the Company shall give notice of
      redemption to the holders of the then outstanding Rights by mailing such
      notice to each such holder at his last address as it appears upon the
      registry books of the Rights Agent or, prior to the Separation Time, on
      the registry books of the transfer agent for the Voting Shares. Any notice
      which is mailed in the manner herein provided shall be deemed given,
      whether or not the holder receives the notice. Each such notice of
      redemption will state the method by which the payment of the Redemption
      Price will be made.

	 	 	 
	 	(h) 	
      Upon the Rights being redeemed pursuant to Subsection
      5.1(e), all the provisions of this Agreement shall continue to apply as if
      the Separation Time had not occurred and Rights Certificates representing
      the number of Rights held by each holder of record of Common Shares as of
      the Separation Time had not been mailed to each such holder and for all
      purposes of this Agreement the Separation Time shall be deemed not to have
      occurred.

	 	 	 
	 	(i) 	
      The Company shall give prompt written notice to the
      Rights Agent of any waiver of the application of Section 3.1 pursuant to
      this Subsection 5.1.

	5.2 	
      Expiration

	 	 	 
		
      No Person shall have any rights whatsoever pursuant to
      this Agreement or in respect of any Right after the Expiration Time,
      except the Rights Agent as specified in Subsection 4.1(a) of this
      Agreement.

	 	 	 
	5.3 	
      Issuance of New Rights Certificates

	 	 	 
		
      Notwithstanding any of the provisions of this Agreement
      or of the Rights to the contrary, the Company may, at its option, issue
      new Rights Certificates evidencing Rights in such form as may be approved
      by the Board of Directors to reflect any adjustment or change in the
      number or kind or class of securities purchasable upon exercise of Rights
      made in accordance with the provisions of this Agreement.

	 	 	 
	5.4 	
      Supplements and Amendments

	 	 	 
		(a) 	
      The Company may make any amendments to this Agreement to
      correct any clerical or typographical error, or which are required to
      maintain the validity of the Agreement as a result of any change in any
      applicable legislation or regulations or rules thereunder, or at the
      request of a stock exchange on which the Common Shares are traded from
      time to time. Notwithstanding anything in this Section 5.4 to the
      contrary, no amendment shall be made to the provisions of Article 4 except
      with the written concurrence of the Rights Agent to such supplement or
      amendment.

- 34 - 

		(b) 	
      Subject to Subsection 5.4(a), the Company may, with the
      prior consent of the holders of Voting Shares obtained as set forth below,
      at any time before the Separation Time, amend, vary or rescind any of the
      provisions of this Agreement and the Rights (whether or not such action
      would materially adversely affect the interests of the holders of Rights
      generally). Such consent shall be deemed to have been given if provided by
      the holders of Voting Shares at a Special Meeting, called and held in
      compliance with applicable laws and regulatory requirements and the
      requirements in the articles of the Company. Subject to compliance with
      any requirements imposed by the foregoing, consent shall be given if the
      proposed amendment, variation or rescission is approved by the affirmative
      vote of a majority of the votes cast by all holders of Voting Shares
      (other than any holder of Voting Shares who is an Offeror pursuant to a
      Take Over Bid that is not a Permitted Bid, a Competing Permitted Bid or an
      Exempt Acquisition, with respect to all Voting Shares Beneficially owned
      by such Person), represented in person or by proxy at the Special
      Meeting.

	 	 	 
	 	(c) 	
      The Company may, with the prior consent of the holders of
      Rights obtained as set forth below, at any time after the Separation Time
      and before the Expiration Time, amend, vary or rescind any of the
      provisions of this Agreement and the Rights (whether or not such action
      would materially adversely affect the interests of the holders of Rights
      generally). Such consent shall be deemed to have been given if provided by
      the holders of Rights at a Rights Holders’ Special Meeting called and held
      in compliance with applicable laws and regulatory requirements and, to the
      extent possible, with the requirements in the articles of the Company
      applicable to meetings of holders of Voting Shares, applied mutatis
      mutandis. Subject to compliance with any requirements imposed by the
      foregoing, consent shall be given if the proposed amendment, variation or
      rescission is approved by the affirmative vote of a majority of the votes
      cast by holders of Rights (other than holders of Rights whose Rights have
      become null and void pursuant to Subsection 3.1(b)), represented in person
      or by proxy at the Rights Holders’ Special Meeting.

	 	 	 
	 	(d) 	
      Any approval of the holders of Rights shall be deemed to
      have been given if the action requiring such approval is authorized by the
      affirmative votes of the holders of Rights present or represented at and
      entitled to be voted at a meeting of the holders of Rights and
      representing a majority of the votes cast in respect thereof. For the
      purposes hereof, each outstanding Right (other than Rights which are void
      pursuant to the provisions hereof) shall be entitled to one vote, and the
      procedures for the calling, holding and conduct of the meeting shall be
      those, as nearly as may be, which are provided in the Company’s articles
      and the Corporation Act with respect to the meetings of shareholders of
      the Company.

	 	 	 
		(e) 	
      Any amendments made by the Company to this Agreement
      pursuant to Subsection 5.4(a) which are required to maintain the validity
      of this Agreement as a result of any change in any applicable legislation
      or regulations or rules thereunder, or are made at the request of a stock
      exchange on which the Common Shares are traded from time to time,
      shall:

	 	(i) 	
      if made before the Separation Time, be submitted to the
      shareholders of the Company at the next meeting of shareholders and the
      shareholders may, by the majority referred to in Subsection 5.4(b),
      confirm or reject such amendment; or

- 35 - 

	 	(ii) 	
      if made after the Separation Time, be submitted to the
      holders of Rights at a meeting to be called for on a date not later than
      immediately following the next meeting of shareholders of the Company and
      the holders of Rights may, by resolution passed by the majority referred
      to in Subsection 5.4(d) confirm or reject such
amendment.

Any such amendment shall be effective
from the date of the resolution of the Board of Directors adopting such
amendment, until it is confirmed or rejected or until it ceases to be effective
(as described in the next sentence) and, where such amendment is confirmed, it
continues in effect in the form so confirmed. If such amendment is rejected by
the shareholders or the holders of Rights or is not submitted to the
shareholders or holders of Rights as required, then such amendment shall cease
to be effective from and after the termination of the meeting at which it was
rejected or to which it should have been but was not submitted or from and after
the date of the meeting of holders of Rights that should have been but was not
held, and no subsequent resolution of the Board of Directors to amend this
Agreement to substantially the same effect shall be effective until confirmed by
the shareholders or holders of Rights as the case may be. 

	5.5 	
      Fractional Rights and Fractional Shares

	 	 	 
		(a) 	
      The Company shall not be required to issue fractions of
      Rights or to distribute Rights Certificates which evidence fractional
      Rights and the Company shall not be required to pay any amount to a holder
      of record of Rights Certificates in lieu of such fractional
  Rights.

	 	 	 
		(b) 	
      The Company shall not be required to issue fractions of
      Common Shares upon exercise of Rights or to distribute certificates which
      evidence fractional Common Shares and the Company shall not be required to
      pay any amount in lieu of such fractional Common Shares.

	 	 	 
	5.6 	
      Rights of Action

	 	 	 
		
      Subject to the terms of this Agreement, all rights of
      action in respect of this Agreement, other than rights of action vested
      solely in the Rights Agent, are vested in the respective holders of the
      Rights. Any holder of Rights, without the consent of the Rights Agent or
      of the holder of any other Rights, may, on such holder’s own behalf and
      for such holder’s own benefit and the benefit of other holders of Rights,
      enforce, and may institute and maintain any suit, action or proceeding
      against the Company to enforce such holder’s right to exercise such
      holder’s Rights or Rights to which such holder is entitled in the manner
      provided in such holder’s Rights Certificate and in this Agreement.
      Without limiting the foregoing or any remedies available to the holders of
      Rights, it is specifically acknowledged that the holder of Rights would
      not have an adequate remedy at law for any breach of this Agreement and
      will be entitled to specific performance of the obligations under, and
      injunctive relief against actual or threatened violations of the
      obligations of any Person subject to, this
Agreement.

- 36 - 

	5.7 	
      Regulatory Approvals

	 	 	 
		
      Any obligation of the Company or action or event
      contemplated by this Agreement or any amendments thereto shall be subject
      to the receipt of any requisite approval or consent from any governmental
      or regulatory authority, and without limiting the generality of the
      foregoing, necessary approvals of any stock exchange shall be obtained,
      such as to the issuance of Common Shares upon the exercise of Rights under
      Subsection 2.2(d).

	 	 	 
	5.8 	
      Declaration as to Non-Canadian Holders

	 	 	 
		
      If in the opinion of the Board of Directors (who may rely
      upon the advice of counsel) any action or event contemplated by this
      Agreement would require compliance by the Company with the securities laws
      or comparable legislation of a jurisdiction outside Canada, the Board of
      Directors acting in good faith shall take such actions as it may deem
      appropriate to ensure such compliance. In no event shall the Company or
      the Rights Agent be required to issue or deliver Rights or securities
      issuable on exercise of Rights to persons who are citizens, residents or
      nationals of any jurisdiction other than Canada, in which such issue or
      delivery would be unlawful without registration of the relevant Persons or
      securities for such purposes.

	 	 	 
	5.9 	
      Notices

	 	 	 
		(a) 	
      Notices or demands authorized or required by this
      Agreement to be given or made by the Rights Agent or by the holder of any
      Rights to or on the Company shall be sufficiently given or made if
      delivered, sent by registered or certified mail, postage prepaid (until
      another address is filed in writing with the Rights Agent), or sent by
      facsimile or other form of recorded electronic communication, charges
      prepaid and confirmed in writing, as follows:

	 	KELSO TECHNOLOGIES INC. 
	 	7773 – 118A Street 
	 	North Delta, BC, V4C 6V1 
	 	  
	 	Attention: Chief Financial Officer 
	 	Fax No.: 604-590-1528 

	(b) 	
      Notices or demands authorized or required by this
      Agreement to be given or made by the Company or by the holder of any
      Rights to or on the Rights Agent shall be sufficiently given or made if
      delivered, sent by registered or certified mail, postage prepaid (until
      another address is filed in writing with the Company), or sent by
      facsimile or other form of recorded electronic communication, charges
      prepaid, and confirmed in writing, as follows:

	 	Computershare Trust Company of Canada 
	 	510 Burrard Street, 3rd Floor 
	 	Vancouver, British Columbia V6C 3B9 
	 	  
	 	Attention: Manager, Client Services 
	 	Fax No.: 604-661-9400 

- 37 - 

	 	(c) 	
      Notices or demands authorized or required by this
      Agreement to be given or made by the Company or the Rights Agent to or on
      the holder of any Rights shall be sufficiently given or made if delivered
      or sent by registered or certified mail, postage prepaid, addressed to
      such holder at the address of such holder as it appears upon the register
      of the Rights Agent or, prior to the Separation Time, on the register of
      the Company for its Common Shares. Any notice which is mailed or sent in
      the manner herein provided shall be deemed given, whether or not the
      holder receives the notice.

	 	 	 
	 	(d) 	
      Any notice given or made in accordance with Section 5.9
      shall be deemed to have been given and to have been received on the day of
      delivery, if so delivered, on the third Business Day (excluding each day
      during which there exists any general interruption of postal service due
      to strike, lockout or other cause) following the mailing thereof, if so
      mailed, and on the day of telecopying or sending of the same by other
      means of recorded electronic communication (provided such sending is
      during the normal business hours of the addressee on a Business Day and if
      not, on the first Business Day thereafter). Each of the Company and the
      Rights Agent may from time to time change its address for notice by notice
      to the other given in the manner aforesaid.

	5.10 	
      Costs of Enforcement

	 	 
		
      The Company agrees that if the Company fails to fulfil
      any of its obligations pursuant to this Agreement, then the Company will
      reimburse the holder of any Rights for the costs and expenses (including
      legal fees) incurred by such holder to enforce his rights pursuant to any
      Rights or this Agreement.

	 	 
	5.11 	
      Successors

	 	 
		
      All the covenants and provisions of this Agreement by or
      for the benefit of the Company or the Rights Agent shall bind and enure to
      the benefit of their respective successors and assigns
hereunder.

	 	 
	5.12 	
      Benefits of this Agreement

	 	 
		
      Nothing in this Agreement shall be construed to give to
      any Person other than the Company, the Rights Agent and the holders of the
      Rights any legal or equitable right, remedy or claim under this Agreement;
      further, this Agreement shall be for the sole and exclusive benefit of the
      Company, the Rights Agent and the holders of the Rights.

	 	 
	5.13 	
      Governing Law

	 	 
		
      This Agreement and each Right issued hereunder shall be
      deemed to be a contract made under the laws of the Province of British
      Columbia and for all purposes shall be governed by and construed in
      accordance with the laws of such Province applicable to contracts to be
      made and performed entirely within such Province.

	 	 
	5.14 	
      Severability

	 	 
		
      If any term or provision hereof or the application
      thereof to any circumstance shall, in any jurisdiction and to any extent,
      be invalid or unenforceable, such term or provision shall be ineffective
      only as to such jurisdiction and to the extent of such invalidity or
      unenforceability in such jurisdiction without invalidating or rendering
      unenforceable or ineffective the remaining terms and provisions hereof in such jurisdiction or the
      application of such term or provision in any other jurisdiction or to
      circumstances other than those as to which it is specifically held invalid
  or unenforceable.

- 38 - 

	5.15 	
      Effective Date

	 	 	 
		
      This Agreement is effective and in full force and effect
      in accordance with its terms from and after the Effective Date.

	 	 	 
	5.16 	
      Determinations and Actions by the Board of
      Directors

	 	 	 
		
      Upon the advice of outside legal counsel, the Board of
      Directors of the Company shall have the exclusive power and authority to
      administer this Agreement and to exercise all rights and powers
      specifically granted to the Board of Directors of the Company as may be
      necessary or advisable in the administration of this Agreement, including,
      without limitation, the right and power to, make all determinations deemed
      necessary or advisable for the administration of this Agreement. All such
      actions, calculations and determinations (including all omissions with
      respect to the foregoing) which are done or made by the Board, in good
      faith, shall not subject the Board or any director of the Company to any
      liability to the holders of the Rights.

	 	 	 
	5.17 	
      Confirmation

	 	 	 
		
      The Company shall request the confirmation of this
      Agreement at a general meeting of holders of Voting Shares to be held
      within six months of the date of this Agreement. If the Agreement is not
      confirmed at such meeting by a majority of votes cast by holders of Voting
      Shares who vote in respect of the confirmation of this Agreement, this
      Agreement and all outstanding Rights shall terminate and be void and of no
      further force and effect on and from the close of business on the date of
      termination of such meeting; provided that termination shall not occur if
      a Flip-in Event has occurred (other than a Flip-in Event which has been
      waived pursuant to Section 5.1(a) or (b) hereof) prior to the date upon
      which this Agreement would otherwise terminate pursuant to this Section
      5.17.

	 	 	 
	5.18 	
      Time of the Essence

	 	 	 
		
      Time shall be of the essence in this Agreement.

	 	 	 
	5.19 	
      Compliance with Money Laundering
  Legislation

	 	 	 
		
      The Rights Agent shall retain the right not to act and
      shall not be liable for refusing to act if, due to a lack of information
      or for any other reason whatsoever, the Rights Agent reasonably determines
      that such an act might cause it to be in non-compliance with any
      applicable anti- money laundering or anti-terrorist legislation,
      regulation or guideline. Further, should the Rights Agent reasonably
      determine at any time that its acting under this Agreement has resulted in
      it being in non-compliance with any applicable anti-money laundering or
      anti-terrorist legislation, regulation or guideline, then it shall have
      the right to resign on 10 days written notice to the Company
    provided:

	 	 	 
		(a) 	
      the Rights Agent’s written notice shall describe the
      circumstances of such non- compliance; and

SCHEDULE A 

KELSO TECHNOLOGIES INC. 

SHAREHOLDER RIGHTS PLAN AGREEMENT 

(Form of Rights Certificate) 

	Certificate No. ___________________	Rights ___________________

THE RIGHTS ARE SUBJECT TO TERMINATION ON THE TERMS SET FORTH
IN THE SHAREHOLDER RIGHTS PLAN AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED
IN SUBSECTION 3.1(b) OF THE SHAREHOLDER RIGHTS PLAN AGREEMENT), RIGHTS
BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR CERTAIN RELATED PARTIES, OR
TRANSFEREES OF AN ACQUIRING PERSON OR CERTAIN RELATED PARTIES, MAY BECOME VOID.

RIGHTS CERTIFICATE 

This certifies that _____________________________ , or
registered assigns, is the registered holder of the number of Rights set forth
above, each of which entitles the registered holder thereof, subject to the
terms, provisions and conditions of the Shareholder Rights Plan Agreement, dated
as of November 10, 2010 (the “Shareholder Rights Plan Agreement”),
between KELSO TECHNOLOGIES INC. (the “Company”), a corporation
incorporated under the laws of British Columbia, and Computershare Trust Company
of Canada (the “Rights Agent”) (which term shall include any successor
Rights Agent under the Shareholder Rights Plan Agreement), to purchase from the
Company at any time after the Separation Time (as such term is defined in the
Shareholder Rights Plan Agreement) and prior to the Expiration Time (as such
term is defined in the Shareholder Rights Plan Agreement), one fully paid common
share of the Company (a “Common Share”) at the Exercise Price referred to
below, upon presentation and surrender of this Rights Certificate with the Form
of Election to Exercise (in the form provided hereinafter) duly executed and
submitted to the Rights Agent at its principal office in the city of Vancouver.
The Exercise Price shall an amount equal to three times the Market Price (as
such term is defined in the Shareholder Rights Plan Agreement), from time to
time, per Common Share; and from and after the Separation Time, an amount equal
to three times the Market Price, as at the Separation Time, per Common Share and
shall be subject to adjustment in certain events as provided in the Shareholder
Rights Plan Agreement. 

This Rights Certificate is subject to all of the terms and
provisions of the Shareholder Rights Plan Agreement, which terms and provisions
are incorporated herein by reference and made a part hereof and to which
Shareholder Rights Plan Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Rights Agent, the Company and the holders of the
Rights Certificates. Copies of the Shareholder Rights Plan Agreement are on file
at the registered office of the Company. 

This Rights Certificate, with or without other Rights
Certificates, upon surrender at any of the offices of the Rights Agent
designated for such purpose, may be exchanged for another Rights Certificate or
Rights Certificates of like tenor and date evidencing an aggregate number of
Rights equal to the aggregate number of Rights evidenced by the Rights
Certificate or Rights Certificates surrendered. If the Rights evidenced by this
Rights Certificate shall be exercised in part, the registered holder shall be
entitled to receive, upon surrender hereof, another Rights Certificate or
Rights Certificates for the number of whole Rights not exercised. 

- 2 - 

No holder of this Rights Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder of
Common Shares or of any other securities which may at any time be issuable upon
the exercise hereof, nor shall anything contained in the Shareholder Rights Plan
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Shareholder Rights Plan Agreement), or to receive dividends or
subscription rights, or otherwise, until the Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Shareholder Rights Plan
Agreement. 

This Rights Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent. 

IN WITNESS WHEREOF, the parties hereto have caused this
Rights Certificate to be duly executed as of the date first above written. 

KELSO TECHNOLOGIES INC. 

	Per: 		 
	 	Authorized Signatory 	 

COMPUTERSHARE TRUST COMPANY OF CANADA 

	Per: 		 
	 	Authorized Signatory 	 
	 	  	 
	Per: 		 
	 	Authorized Signatory 	 

FORM OF TRANSFER 

(To be executed by the registered holder if the holder wishes to
transfer the Rights Certificate) 

FOR VALUE RECEIVED
_______________________________________________ hereby sells, assigns and
transfers unto  __________________________________________________ 
the
Rights represented by this Rights Certificate, together with all right, title
and interest therein, to transfer hereby irrevocably constitute and
appoint  __________________________________________________ , as attorney,
to transfer the within rights on the books of KELSO TECHNOLOGIES INC.,
with full power of substitution. 

	Date: 	 	 	  
	 	 	 	Signature 

	
      Signature Guaranteed: 
	
      (Signature must correspond to name as written upon the
      face of this Rights Certificate in every particular, without alteration or
      enlargement or any change whatsoever) 

The signature of the person executing this form of transfer
must be guaranteed by a chartered bank or an eligible guarantor institution with
membership in an approved signature guarantee medallion program. 

CERTIFICATE 

(To be completed if true) 

The undersigned party transferring Rights hereunder, hereby
represents, for the benefit of all holders of Rights and Common Shares, that the
Rights evidenced by this Rights Certificate are not and, to the knowledge of the
undersigned, have never been, Beneficially Owned by an Acquiring Person or an
Affiliate or Associate thereof or a Person acting jointly or in concert with an
Acquiring Person or an Affiliate or Associate thereof. Capitalized terms shall
have the meaning ascribed thereto in the Shareholder Rights Plan Agreement. 

	Dated: 	 	 	 
	 	 	 	Signature 

(To be attached to each Rights Certificate) 

FORM OF ELECTION TO EXERCISE 

(To be exercised by the registered holder if such holder desires
to exercise the Rights Certificate) 

	TO: 	KELSO TECHNOLOGIES INC. and COMPUTERSHARE
      TRUST COMPANY OF 
	  	CANADA 

	
      The undersigned hereby irrevocably elects to exercise
      ________________________ whole Rights represented by the attached Rights
      Certificate to purchase the Common Shares or other securities, if
      applicable, issuable upon the exercise of such Rights and requests that
      certificates for such securities be issued in the name of:
  

	 
	(Name) 
	 
	 
	(Address) 
	 
	 
	(City and Province) 
	 
	 
	Social Insurance Number or other taxpayer identification
      number 

If such number of Rights shall not be all the Rights evidenced
by this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to: 

	 
	Name 
	 
	 
	Address 
	 
	 
	City and Province 
	 
	 
	Social Insurance Number. or other taxpayer identification
      number 

	Date: 	 	 	 
	 	 	 	Signature 

	
      Signature Guaranteed: 
	
      (Signature must correspond to name as written upon the
      face of this Rights Certificate in every particular, without alteration or
      enlargement or any change whatsoever) 

*The signature of the person executing this form of election to
exercise must be guaranteed by a chartered bank or an eligible guarantor
institution with membership in an approved signature guarantee medallion
program. 

CERTIFICATE 

(To be completed if true) 

The undersigned party exercising Rights hereunder, hereby
represents, for the benefit of all holders of Rights and Common Shares, that the
Rights evidenced by this Rights Certificate are not and, to the knowledge of the
undersigned, have never been, Beneficially Owned by an Acquiring Person or an
Affiliate or Associate thereof or a Person acting jointly or in concert with an
Acquiring Person or an Affiliate or Associate thereof. Capitalized terms shall
have the meaning ascribed thereto in the Shareholder Rights Plan Agreement. 

	Dated: 	 	 	 
	 	 	 	Signature 

(To be attached to each Rights Certificate) 

NOTICE 

In the event that the certifications set forth above in the
Forms of Transfer and Election is not completed, KELSO TECHNOLOGIES INC.
will deem the Beneficial Owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof. No
Rights Certificate shall be issued in exchange for a Rights Certificate owned or
deemed to have been owned by an Acquiring Person or an Affiliate or Associate
thereof, or by a Person acting jointly or in concert with an Acquiring Person or
an Affiliate or Associate thereof.Kelso Technologies Inc.: Exhibit 10.4 - Filed by newsfilecorp.com

	KELSO TECHNOLOGIES INC. 
	2013 STOCK OPTION PLAN 
	 

PART 1
 INTERPRETATION

	1.01 	
      Definitions. In this Plan the following words and
      phrases shall have the following meanings, namely:

	 	 	 	 
		(a) 	
      “Associate” means, where used to indicate a relationship
      with any person:

	 	 	 	 
			(i) 	
      a partner, other than a limited partner, of that
      person;

	 	 	 	 
			(ii) 	
      a trust or estate in which that person has a substantial
      beneficial interest or for which that person serves as trustee or in a
      similar capacity;

	 	 	 	 
			(iii) 	
      a company in respect of which that person beneficially
      owns or controls, directly or indirectly, voting securities carrying more
      than 10% of the voting rights attached to all outstanding voting
      securities of the company; or

	 	 	 	 
			(iv) 	
      a relative, including the spouse or child, of that person
      or a relative of that person’s spouse, where the relative has the same
      home as that person;

	 	 	 	 
			
      and for the purpose of this definition, “spouse” includes
      an individual who is living with another individual in a marriage-like
      relationship.

	 	 	 	 
		(b) 	
      “Board” means the Board of Directors of the Company or,
      if applicable, the Committee.

	 	 	 	 
		(c) 	
      “Committee” means a committee of the Board appointed in
      accordance with this Plan or, if no such committee is appointed, the Board
      itself.

	 	 	 	 
		(d) 	
      “Company” means Kelso Technologies Inc.

	 	 	 	 
		(e) 	
      “Consultant” means, in relation to the Company, an
      individual (or a company wholly- owned by an individual) who:

	 	 	 	 
			(i) 	
      provides ongoing consulting services to the Company or an
      affiliate of the Company under a written contract;

	 	 	 	 
			(ii) 	
      possesses technical, business or management expertise of
      value to the Company or an affiliate of the Company;

	 	 	 	 
			(iii) 	
      spends a significant amount of time and attention on the
      business and affairs of the Company or an affiliate of the Company;
    and

	 	(iv) 	
      has a relationship with the Company or an affiliate of
      the Company that enables the individual to be knowledgeable about the
      business and affairs of the Company.

	 	(f) 	
      “Director” means any director of the Company or of any of
      its subsidiaries.

	 	 	 
	 	(g) 	
      “Discounted Market Price” means the Market Price less the
      following maximum discounts based on closing price (and subject, not
      withstanding the application of any such maximum discount, to a minimum
      price per share of $0.05 and a minimum exercise price per incentive stock
      option, as the case may be, of $0.10):

	Closing Price 	Discount 
	up to $0.50 	25% 
	$0.51 to $2.00 	20% 
	above $2.00 	15%

	 	(h) 	
      “Disinterested Shareholder Approval” means that the
      proposal must be approved by a majority of the votes cast at the
      shareholders’ meeting other than votes attaching to securities
      beneficially owned by Insiders and their Associates to whom shares may be
      issued pursuant to this Plan and, for purposes of this Plan, holders of
      non-voting and subordinate voting securities (if any) will be given full
      voting rights on a resolution which requires disinterested shareholder
      approval.

	 	 	 	 
	 	(i) 	
      “Employee” means:

	 	 	 	 
	 		(i) 	
      an individual who is considered an employee of the
      Company or any of its subsidiaries under the Income Tax Act (i.e.
      for whom deductions (income tax, UIC and CPP) must be made at
    source);

	 	 	 	 
	 		(ii) 	
      an individual who is a full-time (i.e. 35 - 40 hours per
      week) dependent contractor, that is one who works full-time for the
      Company or any of its subsidiaries providing services normally provided by
      an employee and is subject to the same control and direction by the
      Company or its subsidiary over the detail and methods of work as an
      employee of the Company or its subsidiary, but for whom income tax
      deductions are not made at source; or

	 	 	 	 
	 		(iii) 	
      a part-time dependent contractor, that is an individual
      who works for the Company or any of its subsidiaries on a continuing and
      regular basis for a minimum amount of time per week providing services
      normally provided by an employee and is subject to the same control and
      direction by the Company or its subsidiary over the details and methods of
      work as an employee of the Company or its subsidiary, but for whom income
      tax deductions are not made at source;

	 	 	 	 
	 		
      and includes Management Company Employees and
      Consultants.

	 	 	 	 
	 	(j) 	
      “Exchange” means the TSX Venture Exchange.

	 	 	 	 
	 	(k) 	
      “Insider” means:

	 	 	 	 
	 		(i) 	
      a director or senior officer of the
  Company;

	 		(ii) 	
      a director or senior officer of a person that is itself
      an insider or subsidiary of the Company; or

	 	 	 	 
	 		(iii) 	
      a person that beneficially owns or controls, directly or
      indirectly, voting securities carrying more than 10% of the voting rights
      attached to all outstanding voting securities of the Company; or

	 	 	 	 
	 		(iv) 	
      the Company itself if it holds any of its own
      securities.

	 	 	 	 
	 	(l) 	
      “Management Company Employee” means an individual
      employed by a person providing management services to the Company, which
      are required for the ongoing successful operation of the business
      enterprise of the Company, but excluding a person engaged in investor
      relations activities.

	 	 	 	 
	 	(m) 	
      “Market Price” means, subject to the exceptions
      prescribed by the Exchange from time to time, the last closing price of
      the Company’s shares before the issuance of the required news release
      disclosing the grant of options (but, if the policies of the Exchange
      provide an exception to such news release, then the last closing price of
      the Company’s shares before the grant of options).

	 	 	 	 
	 	(n) 	
      “Officer” means any senior officer of the Company or of
      any of its subsidiaries as defined in the Securities Act (British
      Columbia).

	 	 	 	 
	 	(o) 	
      “Plan” means this stock option plan as from time to time
      amended.

	 	 	 	 
	 	(p) 	
      “Shares” means common shares without par value in the
      capital of the Company.

	 	 	 	 
	 	(q) 	
      “Tier 1 Issuer” and “Tier 2 Issuer” have the meanings
      prescribed by the TSX Venture Exchange.

	1.02 	
      Gender. Throughout this Plan, words importing the
      masculine gender shall be interpreted as including the female
    gender.

PART 2
 PURPOSE OF PLAN

	2.01 	
      Purpose. The purpose of this Plan is to attract
      and retain Employees, Officers and Directors and to motivate them to
      advance the interests of the Company by affording them the opportunity to
      acquire an equity interest in the Company through options granted under
      this Plan to purchase Shares. The Plan is expected to benefit the
      Company’s shareholders by enabling the Company to attract and retain
      personnel of the highest caliber by offering to them an opportunity to
      share in any increase in the value of the Shares to which they have
      contributed.

PART 3
GRANTING OR AMENDING OF
OPTIONS

	3.01 	
      Administration. This Plan shall be administered by
      the Board or, if the Board so elects, by a committee (consisting of not
      less than two (2) of its members) appointed by the Board. Any Committee
      shall administer the Plan on behalf of the Board in accordance with such
      terms and conditions as the Board may prescribe, consistent with this
      Plan. Once appointed, the Committee shall continue to serve until
      otherwise directed by the Board. From time to time, the Board
  may increase the size of the Committee and appoint additional
      members, remove members (with or without cause) and either appoint new
      members in their place or decrease the size of the Committee, fill
      vacancies however caused, or remove all members of the Committee and
      thereafter directly administer the Plan. A majority of the members of the
      Committee shall constitute a quorum, and, subject to the limitations in
      this Part 3, all actions of the Committee shall require the affirmative
      vote of members who constitute a majority of such quorum. Members of the
      Committee may vote on any matters affecting the administration of the Plan
      or the grant of options pursuant to the Plan, except that no such member
      shall act upon the granting of an option to himself (but any such member
      may be counted in determining the existence of a quorum at any meeting of
      the Committee during which action is taken with respect to granting
  options to him).

	3.02 	
      Committee's Recommendations. The Board may accept
      all or any part of the recommendations of the Committee or may refer all
      or any part thereof back to the Committee for further consideration and
      recommendation. Such recommendations may include, but not be limited to,
      the following:

	 	 	 
		(a) 	
      resolution of questions arising in respect of the
      administration, interpretation and application of the Plan;

	 	 	 
		(b) 	
      reconciliation of any inconsistency or defect in the Plan
      in such manner and to such extent as shall reasonably be deemed necessary
      or advisable to carry out the purpose of the Plan;

	 	 	 
		(c) 	
      determination of the Employees, Officers and Directors
      (or their wholly-owned corporations) to whom, and when, options should be
      granted, as well as the number of Shares subject to each option;

	 	 	 
		(d) 	
      determination of the terms and conditions of the option
      agreement to be entered into with any optionee, consistent with this Plan;
      and

	 	 	 
		(e) 	
      determination of the duration and purpose of leaves of
      absence from employment which may be granted to optionees without
      constituting a termination of employment for purposes of the
  Plan.

	 	 	 
	3.03 	
      Grant by Resolution. The Board, on its own
      initiative or, if a Committee of the Board shall have been appointed for
      the purpose of administering this Plan, upon the recommendation of such
      Committee, may by resolution designate those Employees, Officers and
      Directors to whom options should be granted (unless the Committee has been
      authorized by the Board to pass such resolution in which case they may do
      as so authorized).

	 	 	 
	3.04 	
      Terms of Options. The resolution of the Board, or
      the Committee if applicable, shall specify the number of Shares that
      should be placed under option to each optionee, the price per Share to be
      paid upon exercise of the options, and the period during which such
      options may be exercised.

	 	 	 
	3.05 	
      Written Agreements. Every option granted under
      this Plan shall be evidenced by a written agreement between the Company
      and the optionee and, where not expressly set out in the agreement, the
      provisions of such agreement shall conform to and be governed by this
      Plan. In the event of any inconsistency between the terms of the agreement
      and this Plan, the terms of this Plan shall
govern.

	3.06 	
      Regulatory Approvals. The Board shall obtain all
      necessary regulatory approvals that may be required under applicable
      securities laws or the rules or policies of the Exchange. The Board shall
      also take reasonable steps to ensure that no options granted under the
      Plan, or the exercise thereof, shall violate the securities laws of the
      jurisdiction in which any optionee resides.

	 	 
	3.07 	
      Amendment of Options. Options may also be amended
      under this Plan, whether granted under this Plan or otherwise, and the
      terms of this Plan shall apply mutatis mutandis.

PART 4
CONDITIONS GOVERNING THE GRANTING AND
EXERCISING OF OPTIONS

	4.01 	
      Exercise Price. The exercise price of an option
      granted under this Plan shall not be less than the Discounted Market
      Price, provided that:

	 	(a) 	
      if options are granted within 90 days of a distribution
      by a prospectus, the minimum exercise price of those options will be the
      greater of the Discounted Market Price and the per share price paid by the
      public investors for Shares acquired under the distribution;

	 	 	 
	 	(b) 	
      the 90 day period begins on the date a final receipt is
      issued for the prospectus;

	 	 	 
	 	(c) 	
      for unit offerings, the minimum option exercise price
      will be the ‘base’ (or imputed) price of the shares included in the unit;
      and

	 	 	 
	 	(d) 	
      for all other financings, the minimum exercise price will
      be the average price paid by the public
investors.

	4.02 	
      Expiry Date. Each option shall, unless sooner
      terminated, expire on a date to be determined by the Board which will not
      exceed 10 years from the day the option is
granted.

	4.03 	
      Different Exercise Periods, Prices and Number. The
      Board may, in its absolute discretion, upon granting options under this
      Plan, specify different time periods following the dates of granting the
      options during which the optionees may exercise their options to purchase
      Shares and may designate different exercise prices and numbers of Shares
      in respect of which each optionee may exercise his option during each
      respective time period.

	4.04 	
      Number of Shares. The number of Shares reserved
      for issuance to any one person pursuant to options granted under this
      Plan, together with any Shares reserved for issuance pursuant to options
      granted to that person during the previous 12 months in the case that the
      Company is a Tier 2 Issuer, shall not exceed 5% of the issued and
      outstanding Shares at the time of granting of the options, provided that
      the number of such Shares reserved for issuance
to:

	 	(a) 	
      any one Consultant and

	 	 	 
	 	(b) 	
      all persons in the aggregate employed in investor
      relations activities on behalf of the Company

must not respectively exceed 2% of the
outstanding Shares at the time of grant unless the Exchange permits
otherwise.

	4.05 	
      Death of Optionee. If an optionee dies prior to
      the expiry of his option, his legal representatives may, by the earlier
      of:

	 	(a) 	
      one year from the date of the optionee’s death (or such
      lesser period as may be specified by the Board at the time of granting the
      option); and

	 	 	 
	 	(b) 	
      the expiry date of the option;

exercise any portion of such
option.

	4.06 	
      Expiry on Termination or Cessation. If an optionee
      ceases to be a Director, Officer or Employee for any reason other than
      death, his option shall terminate as specified by the Board at the time of
      granting the option and all rights to purchase Shares under such option
      shall cease and expire and be of no further force or effect. In accordance
      with the policies of the TSX Venture Exchange, all options must terminate
      within a reasonable period of time after the optionee ceases to be a
      Director, Officer or Employee.

	 	 
	4.07 	
      Leave of Absence. Employment shall be deemed to
      continue intact during any sick leave or other bona fide leave of absence
      if the period of such leave does not exceed 90 days or, if longer, for so
      long as the optionee’s right to reemployment is guaranteed either by
      statute or by contract. If the period of such leave exceeds 90 days and
      the optionee’s reemployment is not so guaranteed, then his employment
      shall be deemed to have terminated on the ninety-first day of such
      leave.

	 	 
	4.08 	
      Assignment. No option granted under this Plan or
      any right thereunder or in respect thereof shall be transferable or
      assignable otherwise than by will or pursuant to the laws of succession
      except that, if permitted by the rules and policies of the Exchange, an
      optionee shall have the right to assign any option granted to him
      hereunder to a trust or similar legal entity established by such
      optionee.

	 	 
	4.09 	
      Notice. Options shall be exercised only in
      accordance with the terms and conditions of the agreements under which
      they are respectively granted and shall be exercisable only by notice in
      writing to the Company at its principal place of business.

	 	 
	4.10 	
      Payment. Subject to any vesting requirements
      described in each individual option agreement, options may be exercised in
      whole or in part at any time prior to their lapse or termination. Shares
      purchased by an optionee on exercise of an option shall be paid for in
      full at the time of their purchase (i.e. concurrently with the giving of
      the requisite notice).

	 	 
	4.11 	
      Share Certificate. As soon as practicable after
      due exercise of an option, the Company shall issue a share certificate
      evidencing the Shares with respect to which the option has been exercised.
      Until the issuance of such share certificate, no right to vote or receive
      dividends or any other rights as a shareholder shall exist with respect to
      such Shares, notwithstanding the exercise of the option. No adjustment
      will be made for a dividend or other right for which the record date is
      prior to the date the share certificate is issued, except as provided in
      Part 6 hereof.

	 	 
	4.12 	
      Vesting. Subject to the discretion of the Board,
      the options granted to an optionee under this Plan shall fully vest on the
      date of grant of such options. In accordance with the policies of the
      Exchange, and subject to their approval to the contrary, options issued to
      Consultants providing investor relations services must vest (and not
      otherwise be exercisable) in stages over a minimum of 12 months with no
      more than 1⁄4 of the options vesting in any 3 month period.

	 	 
	4.13 	
      Hold Period. In addition to any resale
      restrictions under applicable legislation, all options granted hereunder
      and all Shares issued on the exercise of such options will, if applicable
      under the policies of the Exchange, be subject to a four month TSX Venture Exchange hold period from the date the options are granted, and the stock option agreements and the certificates representing such Shares will bear the following legend:

“Without prior written approval of the
Exchange and compliance with all applicable securities legislation, the
securities represented by this certificate may not be sold, transferred,
hypothecated or otherwise traded on or through the facilities of the TSX Venture
Exchange or otherwise in Canada or to or for the benefit of a Canadian resident
until [insert date].”

	4.14 	
      Individuals. Options may be granted only to an
      individual or to a company that is wholly- owned by an individual who is
      eligible for an option grant. Only individuals who are Directors,
      Officers, Consultants, Employees or Management Company Employees may be
      granted stock options. If the optionee is a Consultant, Employee or
      Management Company Employee, the Company must represent that the optionee
      is a bona fide Consultant, Employee or Management Company Employee, as the
      case may be. If the optionee is a company, it must agree not to effect or
      permit any transfer of ownership or option of shares of the company or to
      issue further shares of any class in the company to any other individual
      or entity as long as the incentive stock option remains outstanding,
      except with the written consent of the Exchange.

PART 5
RESERVE OF SHARES FOR OPTIONS

	5.01 	
      Maximum Number of Shares Reserved Under Plan. The
      aggregate number of Shares which may be subject to issuance pursuant to
      options granted under this Plan shall not exceed the equivalent of 10% of
      the issued and outstanding Shares of the Company from time to time. In
      addition, all options granted outside of this Plan, which are in existence
      on the effective date of this Plan, shall be counted as if granted under
      this Plan. The terms of this Plan shall not otherwise govern such
      pre-existing options.

	 	 	 
	5.02 	
      Sufficient Authorized Shares to be Reserved.
      Whenever the Memorandum or Articles of the Company limit the number of
      authorized Shares, a sufficient number of Shares shall be reserved by the
      Board to satisfy the exercise of options granted under this Plan or
      otherwise. Shares that were the subject of options that have lapsed or
      terminated shall thereupon no longer be in reserve and may once again be
      subject to an option granted under this Plan.

	 	 	 
	5.03 	
      Disinterested Shareholder Approval. Unless
      Disinterested Shareholder Approval is obtained, under no circumstances
      shall this Plan, together with all of the Company’s other previously
      established or proposed stock options, stock option plans, employee stock
      purchase plans or any other compensation or incentive mechanisms involving
      the issuance or potential issuance of Shares, result in or allow at any
      time:

	 	 	 
		(a) 	
      the number of Shares reserved for issuance pursuant to
      options granted to Insiders exceeding 10% of the outstanding Shares at the
      time of granting the options;

	 	 	 
		(b) 	
      the issuance to Insiders, within a one year period, of a
      number of Shares exceeding 10% of the outstanding Shares at the time of
      granting the options; or

	 	 	 
		(c) 	
      except in the case of a Tier 1 Issuer (or equivalent),
      the issuance to any one Insider and such Insider’s Associates, within a
      one year period, of a number of Shares exceeding 5% of the outstanding
      Shares at the time of granting the options; or

	 	(d) 	
      any reduction in the exercise price of options granted to
      any person who is an Insider at the time of the proposed
  reduction.

PART 6
 CHANGES IN SHARES

	6.01 	
      Share Consolidation or Subdivision. In the event
      that the Shares are at any time subdivided or consolidated, the number of
      Shares reserved for option and the price payable for any Shares that are
      then subject to option shall be adjusted accordingly.

	 	 
	6.02 	
      Stock Dividend. In the event that the Shares are
      at any time changed as a result of the declaration of a stock dividend
      thereon, the number of Shares reserved for option and the price payable
      for any Shares that are then subject to option may be adjusted by the
      Board to such extent as they deem proper in their absolute
    discretion.

	 	 
	6.03 	
      Reorganization. Subject to any required action by
      its shareholders, if the Company shall be a party to a reorganization,
      merger, dissolution or sale or lease of all or substantially all of its
      assets, whether or not the Company is the surviving entity, the option
      shall be adjusted so as to apply to the securities to which the holder of
      the number of shares of capital stock of the Company subject to the option
      would have been entitled by reason of such reorganization, merger or sale
      or lease of all or substantially all of its assets, provided however that
      the Company may satisfy any obligations to an optionee hereunder by paying
      to the said optionee in cash the difference between the exercise price of
      all unexercised options granted hereunder and the fair market value of the
      securities to which the optionee would be entitled upon exercise of all
      unexercised options, regardless of whether all conditions of exercise
      relating to continuous employment have been satisfied. Adjustments under
      this paragraph or any determinations as to the fair market value of any
      securities shall be made by the Board, or any committee thereof
      specifically designated by the Board to be responsible therefor, and any
      reasonable determination made by the said Board or committee thereof shall
      be binding and conclusive.

	 	 
	6.04 	
      Rights Offering. If at any time the Company grants
      to the holders of its capital stock rights to subscribe for and purchase
      pro rata additional securities of the Company or of any other corporation
      or entity, there shall be no adjustments made to the number of shares or
      other securities subject to the option in consequence thereof and the said
      stock option of the optionee shall remain
unaffected.

PART 7
EXCHANGE'S RULES AND POLICIES
APPLY

	7.01 	
      Exchange's Rules and Policies Apply. This Plan and
      the granting and exercise of any options hereunder are also subject to
      such other terms and conditions as are set out from time to time in the
      rules and policies on stock options of the Exchange and any securities
      commission having jurisdiction and such rules and policies shall be deemed
      to be incorporated into and become a part of this Plan. In the event of an
      inconsistency between the provisions of such rules and policies and of
      this Plan, the provisions of such rules and policies shall
  govern.

PART 8 
AMENDMENT OF PLAN

	8.01 	
      Board May Amend. Subject to Part 5 the Board may,
      by resolution, amend or terminate this Plan, but no such amendment or
      termination shall, except with the written consent of the optionees
      concerned, affect the terms and conditions of options previously granted
      under this Plan which have not then been exercised or
terminated.

	 	 
	8.02 	
      Exchange Approval. Any amendment to this Plan or
      options granted pursuant to this Plan shall not become effective until
      accepted for filing by the Exchange.

PART 9 
MISCELLANEOUS PROVISIONS

	9.01 	
      Other Plans Not Affected. This Plan shall not in
      any way affect the policies or decisions of the Board in relation to the
      remuneration of Directors, Officers and
Employees.

	9.02 	
      Effective Date of Plan. This Plan shall become
      effective upon the later of the date of acceptance for filing of this Plan
      by the Exchange and the approval of this Plan by the shareholders of the
      Company (i.e. by the holders of a majority of the Company's securities
      present or represented, and entitled to vote at a meeting of shareholders
      duly held) including, if applicable, Disinterested Shareholder Approval.
      However, options may be granted under this Plan prior to the receipt of
      approval of the Exchange or the shareholders. Any option granted before
      Exchange or shareholder approval is obtained, may not be exercised until
      both are obtained.

	9.03 	
      Use of Proceeds. Proceeds from the sale of Shares
      pursuant to the options granted and exercised under the Plan shall
      constitute general funds of the Company and shall be used for general
      corporate purposes.

	9.04 	
      Headings. The headings used in this Plan are for
      convenience of reference only and shall not in any way affect or be used
      in interpreting any of the provisions of this
Plan.

	9.05 	
      No Obligation to Exercise. Optionees shall be
      under no obligation to exercise options granted under this
  Plan.

Termination of Plan. This Plan shall only terminate
pursuant to a resolution of the Board or the Company’s shareholders.

SCHEDULE A

KELSO TECHNOLOGIES INC. 
AUDIT COMMITTEE CHARTER

General

The Audit Committee is a committee of the Board of Directors
(the “Board”) of Kelso Technologies Inc. (the “Corporation”) to
which the Board delegates its responsibility for oversight of the financial
reporting process.

Responsibilities of the Audit Committee include:

	
  Review the financial reporting process to ensure the accuracy of the
  financial statements of the Corporation; 

  
	
  Assist the Board to properly and fully discharge its responsibilities; 

  
	
  Strengthen the role of the Board by facilitating in depth discussions
  between directors, management and external auditors; 

  
	
  Evaluate the independent auditor’s qualifications, performance and
  independence; 

  
	
  Facilitate the independence of the independent auditor; 

  
	
  Assess the processes relating to the determination and mitigation of risks
  and the maintenance of an effective control environment; and 

  
	
  Review the processes to monitor compliance with laws and regulations.
  

The Audit Committee will provide communication among the
independent auditor, senior management of the Corporation and the Board. The
Audit Committee has the sole authority to approve any non-audit engagement by
the Corporation’s independent auditors and to approve all audit engagement fees
and terms.

Responsibilities of the Audit Committee

	1. 	
      Financial Reporting

	 	 
	1.1 	
      Review, with management and the independent auditor, the
      Corporation’s annual financial statements, independent auditor reports,
      and disclosures under “Management’s Discussion and Analysis” before they
      are reviewed by the Board. Review interim financial information before it
      is released to the public. Review all public disclosure documents
      containing audited or unaudited financial information before release,
      including any prospectus, the annual report, the annual information form
      and management’s discussion and analysis.

- 2 -

	1.2 	
      The Audit Committee Chair, as a representative of the
      Committee, shall consult directly with the independent auditor to obtain
      their comments with respect to interim reports including related
      “Management’s Discussion and Analysis” (as a result of their limited scope
      review of the interim reports).

	 	 
	1.3 	
      Conduct an investigation sufficient to provide reasonable
      grounds for believing that the financial statements and reports referred
      to in a) above are complete in all material respects and consistent with
      the information known to Committee members, and assess whether the
      financial statements reflect appropriate accounting principles.

	 	 
	1.4 	
      Review with senior management of the Corporation and the
      independent auditor, management’s handling of any proposed audit
      adjustments identified by the independent auditors, the presentation and
      impact of signification risks and uncertainties, and key estimates and
      judgements of management that may be material to financial
    reporting.

	 	 
	1.5 	
      Meet with the independent auditor to review the results
      of the annual audit, their judgments about the quality and appropriateness
      of the Corporation’s accounting principles, and any audit problems or
      difficulties and management’s response.

	 	 
	1.6 	
      Review and resolve any significant disagreement among the
      Corporation’s management and the independent auditors in the financial
      reporting process.

	 	 
	1.7 	
      Review the integrity of the Corporation’s internal and
      external financial reporting process, in consultation with the independent
      auditors.

	 	 
	1.8 	
      Review the evaluation of internal controls by the
      external auditor, together with management’s response.

	 	 
	1.9 	
      Review the post-audit or management letter, containing
      the recommendations of the external auditor, and management’s response and
      subsequent follow up to any identified weakness.

	 	 
	1.10 	
      Consider, evaluate and recommend to the Board such
      changes as are appropriate to the Corporation’s auditing and accounting
      principles and practices as suggested by the independent auditors or the
      Corporation’s senior management.

	 	 
	1.11 	
      Review with independent auditors and the Corporation
      senior management the extent to which changes and improvements in
      financial and accounting practices, as approved by the Audit Committee,
      have been implemented.

	2. 	
      Independent Auditor

	 	 
	2.1 	
      Approve the independent auditors’ proposed audit scope,
      approach and fees.

	 	 
	2.2 	
      At least annually, obtain and review a report by the
      independent auditor describing:

	 	(a) 	
      the firm’s internal quality-control procedures,
  and

- 3 -

	 	(b) 	
      any material issues raised by the most recent internal
      quality-control review, or peer review, of the firm, or by any inquiry or
      investigation by governmental or professional authorities, within the
      preceding five years, respecting one or more independent audits carried
      out by the firm, and any steps taken to deal with any such
  issues.

	2.3 	
      Confirm the independence of the independent auditor by
      discussing and reviewing all significant relationships that the
      independent auditors have with the Corporation and obtaining their
      assertion of independence in accordance with professional
  standards.

	 	 
	2.4 	
      Review the performance of the independent
  auditor.

	 	 
	2.5 	
      Engage the Corporation’s independent auditor and present
      recommendations on the appointment or discharge of the independent auditor
      to the Board for presentation to the shareholders.

	 	 
	2.6 	
      Approve in advance of the Corporation’s final commitment
      all consulting arrangements and any other non-audit service with the
      Corporation’s independent auditors other than services related to reviews
      of interim reports and tax services.

	 	 
	2.7 	
      Approve all audit fees and terms.

	 	 
	2.8 	
      When there is to be a change in the auditor, review all
      issues relating to the change including any reportable events.

	 	 
	2.9 	
      Review any engagements for non-audit services to be
      provided by the independent auditor’s firm or affiliates, together with
      estimated fees and consider the independence of the auditor.

	 	 
	3. 	
      Risk Assessment and Risk
  Management

	 	 
	3.1 	
      Discuss with Corporation management guidelines and
      policies governing the risk assessment and risk management
    processes.

	 	 
	3.2 	
      Review with Corporation management, the independent
      auditors, significant risks and exposures. Review management’s plans and
      processes to minimize such risks, including insurance coverage.

	 	 
	3.3 	
      Evaluate whether Corporation management is adequately
      communicating the importance of internal control to all relevant
      personnel.

	 	 
	3.4 	
      Periodically privately consult with the independent
      auditor about internal controls and the completeness and accuracy of the
      Corporation’s financial statements.

	 	 
	3.5 	
      Review whether the internal control recommendations made
      by the internal auditors and the independent auditor are being implemented
      by Corporation management and, if not, why
not.

- 4 -

	4. 	
      Compliance With Relevant Laws and
      Regulations

Periodically obtain updates from the Corporation’s senior
management regarding procedures and processes to ensure compliance with
applicable laws and regulations (including but not limited to, securities, tax
and environmental matters).

	5. 	
      Other Responsibilities

	 	 
	5.1 	
      Meet at least four times annually (for review of Q1, Q2
      and Q3 interim reports as well as pre audit) with senior management and
      the independent auditors in separate sessions.

	 	 
	5.2 	
      Institute special investigations, if necessary, and hire
      special counsel or experts to assist, if appropriate.

	 	 
	5.3 	
      Review and update this Charter at least annually or as
      otherwise determined by the Committee, and obtain approval of changes from
      the Board.

	 	 
	5.4 	
      Set clear hiring policies for employees or former
      employees of the independent auditors.

	 	 
	5.5 	
      Review the procedures established for the receipt,
      retention, and treatment of complaints received by the Corporation
      regarding accounting, internal accounting controls, or auditing
      matters.

	 	 
	5.6 	
      Review the procedures established allowing the
      confidential, anonymous submission by Corporation employees of concerns
      regarding questionable accounting or auditing matters and resolution of
      such concerns, if any.

	 	 
	5.7 	
      Review with the Board, any issues that arise with respect
      to the quality or accuracy of the Corporation’s financial statements, the
      Corporation’s compliance with legal or regulatory requirements and the
      performance and independence of the Corporation’s independent
    auditors.

	 	 
	5.8 	
      Perform other oversight functions as requested by the
      Board.

	 	 
	5.9 	
      As considered necessary in the course of fulfilling Audit
      Committee duties, obtain advice and assistance from outside legal,
      accounting or other advisors.

	 	 
	5.10 	
      Report after each meeting to the Board regarding actions
      taken and matters discussed by the Committee.

Organization of the Audit Committee

The Audit Committee shall be comprised of a minimum of three
Directors of which the majority are not officers, employees or control persons
of the Corporation or its affiliates. Each member of the Committee shall have a
working knowledge of basic finance and accounting practices. The Chair of the
Committee must have accounting or related financial management experience. The
members of the Committee and its Chair shall be appointed by the Board. 

- 5 -

The Corporation will adequately fund the budget of the Audit
Committee. The budget will include, at a minimum, payments to the independent
auditors for audit services and, if necessary, other professionals retained by
the Audit Committee from time to time.

The Committee shall meet four times annually (for review of Q1,
Q2 and Q3 interim reports as well as pre audit), or more frequently as
circumstances dictate. On an annual basis, the Committee shall report to the
Board on the Committee’s performance against its charter and the goals
established annually by the Committee for itself.

Procedure Governing Errors or Misstatements in Financial
Statements

In the event a director or an officer of the Corporation has
reason to believe, after discussion with management, that a material error or
misstatement exists in financial statements of the Corporation, that director or
officer shall forthwith notify the Audit Committee and the auditor of the error
or misstatement of which the director or officer becomes aware in a financial
statement that the auditor or a former auditor has reported on.

If the auditor or a former auditor of the Corporation is
notified or becomes aware of an error or misstatement in a financial statement
on which the auditor or former auditor has reported, and if in the auditor’s or
former auditor’s opinion the error or misstatement is material, the auditor or
former auditor shall inform each director accordingly.

When the Audit Committee or the Board is made aware of an error
or misstatement in a financial statement the Board shall prepare and issue
revised financial statements or otherwise inform the shareholders and file such
revised financial statements as required.

Limitation on Audit Committee Members’ Duties

Nothing in this Charter is intended, or may be construed, to
impose on any member of the Audit Committee a standard of care or diligence that
is in any way more onerous or extensive than the standard required by law.

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