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Nov 10, 2008 08:49PM
Fuel Efficient and Clean Emissions
DYNAMIC FUEL SYSTEMS INC.
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS to be held on Tuesday, December 9, 2008 at 10:00 a.m. (Toronto time) at the McLean Community Centre (Banquet Room), 95 Magill Drive, Ajax, Ontario L1T 4M5 MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT November 7, 2008 2 DYNAMIC FUEL SYSTEMS INC. NOTICE OF ANNUAL AND SPECIAL MEETING OF THE SHAREHOLDERS TAKE NOTICE THAT an Annual and Special Meeting (the "Meeting") of the shareholders of DYNAMIC FUEL
SYSTEMS INC. (the "Corporation") will be held at the McLean Community Centre (Banquet Room), 95 Magill Drive, Ajax, Ontario L1T 4M5 on Tuesday, December 9, 2008 at 10:00 a.m. (Toronto time) for the following purposes: 1. to receive and consider the financial statements of the Corporation as at and for the year ended December 31, 2007, together with the report of the auditors thereon; 2. to elect the directors of the Corporation for the ensuing year; 3. to appoint the auditors of the Corporation for the ensuing year and to authorize the directors of the Corporation to determine the remuneration to be paid to the auditors; 4. to consider and, if deemed advisable, to pass an ordinary resolution, the full text of which is set forth in the accompanying Management Information Circular and Proxy Statement (the "Management Proxy Circular"), ratifying, adopting and approving the new stock option plan of the Corporation and authorizing the Corporation's board of directors to make any amendments thereto that may be required for the purpose of obtaining the approval of the TSX Venture Exchange or, if required, the Toronto Stock Exchange; and 5. to transact such other business as may properly come before the Meeting. Information relating to matters to be acted upon by the shareholders at the Meeting is set forth in the accompanying Management Proxy Circular. A shareholder may attend the Meeting in person or may be represented at the Meeting by proxy. Shareholders who are unable to attend the Meeting in person and wish to be represented by proxy are requested to date, sign and return the accompanying Instrument of Proxy, or other appropriate form of proxy, in accordance with the instructions set forth in the accompanying Management Proxy Circular and Instrument of Proxy. An Instrument of Proxy will not be valid unless it is deposited at the offices of the Corporation's registrar and transfer agent, Equity Transfer & Trust Company at 400, 200 University Avenue, Toronto, Ontario M5H 4H1, in the enclosed self-addressed envelope, not less than 48 hours (excluding Saturdays, Sundays and statutory holidays) before the time of the Meeting, or any adjournment thereof. A person appointed as proxy holder need not be a shareholder of the Corporation. Only shareholders of record as at the close of business on November 3, 2008 (the "Record Date") are entitled to receive notice of the Meeting. SHAREHOLDERS ARE CAUTIONED THAT THE USE OF THE MAIL TO TRANSMIT PROXIES IS AT EACH SHAREHOLDER'S RISK. DATED at Pickering, Ontario as of the 7 day of November, 2008. BY ORDER OF THE BOARD OF DIRECTORS "Thomas Fairfull" (signed) Thomas Fairfull President and Chief Executive Officer 3 DYNAMIC FUEL SYSTEMS INC. MANAGEMENT PROXY CIRCULAR (Unless otherwise stated, information contained herein is given as of November 7, 2008) INFORMATION REGARDING PROXIES AND VOTING AT THE MEETING Solicitation of Proxies This Management Proxy Circular is furnished in connection with the solicitation of proxies by the management of Dynamic Fuel Systems Inc. (the "Corporation") for use at the Annual and Special Meeting of the holders (the "Shareholders") of common shares ("Common Shares") of the Corporation to be held at the McLean Community Centre (Banquet Room), 95 Magill Drive, Ajax, Ontario L1T 4M5 on Tuesday, December 9, 2008 at 10:00 a.m. (Toronto time) (the "Meeting"), for the purposes set forth in the Notice of Annual and Special Meeting (the "Notice") accompanying this Management Proxy Circular. Solicitation of proxies will be primarily by mail, but may also be undertaken by way of telephone, facsimile or oral communication by the directors, officers and regular employees of the Corporation, at no additional compensation. Costs associated with the solicitation of proxies will be borne by the Corporation. Appointment of Proxyholders Accompanying this Management Proxy Circular is an instrument of proxy for use at the Meeting. Shareholders who are unable to attend the Meeting in person and wish to be represented by proxy are required to date and sign the enclosed instrument of proxy and return it in the enclosed return envelope. All properly executed instruments of
proxy for Shareholders must be mailed so as to reach or be deposited at the offices of the Corporation's registrar and transfer agent, Equity Transfer & Trust Company at 400, 200 University Avenue, Toronto, Ontario M5H 4H1 not later than 48 hours (excluding Saturdays, Sundays and statutory holidays in the Province of Ontario) prior to the time set for the Meeting or any adjournment thereof. The persons designated in the instrument of proxy are officers and/or directors of the Corporation. A Shareholder
has the right to appoint a person (who need not be a Shareholder) other than the persons designated in the accompanying instrument of proxy, to attend at and represent the Shareholder at the Meeting . To exercise
this right, a Shareholder should insert the name of the designated representative in the blank space provided on the instrument of proxy and strike out the names of management's nominees. Alternatively, a Shareholder may complete another appropriate instrument of proxy. Signing of Proxy The instrument of proxy must be signed by the Shareholder or the Shareholder's duly appointed attorney authorized in writing or, if the Shareholder is a corporation, under its corporate seal or by a duly authorized officer or attorney of the Corporation. An instrument of proxy signed by a person acting as attorney or in some other representative capacity (including a representative of a corporate Shareholder) should indicate that person's capacity (following his or her signature) and should be accompanied by the appropriate instrument evidencing qualification and authority to act (unless such instrument has previously been filed with the Corporation). Revocability of Proxies A Shareholder who has submitted an instrument of proxy may revoke it at any time prior to the exercise thereof. In addition to any manner permitted by law, a proxy may be revoked by instrument in writing executed by the Shareholder or by his or her duly authorized attorney or, if the Shareholder is a corporation, under its corporate seal or executed by a duly authorized officer or attorney of the corporation and deposited either: (i) at the registered office of the Corporation at any time up to and including the last business day preceding the day of the Meeting, or any adjournments thereof, at which the instrument of proxy is to be used; or (ii) with the Chairman of the Meeting on the day of the Meeting, or any adjournment thereof. In addition, an instrument of proxy may be revoked: (i) by the Shareholder personally attending the Meeting and voting the securities represented thereby or, if the Shareholder is a corporation, by a duly authorized representative of the corporation attending at the Meeting and voting such securities; or (ii) in any other manner permitted by law. 4 Voting of Proxies and Exercise of Discretion by Proxyholders All Common Shares represented at the Meeting by properly executed proxies will be voted on any ballot that may be called for and, where a choice with respect to any matter to be acted upon has been specified in the instrument of proxy, the Common Shares represented by the instrument of proxy will be voted in accordance with such instructions. The management designees named in the accompanying instrument of proxy will vote or withhold from voting the Common Shares in respect of which they are appointed in accordance with the direction of the Shareholder appointing him or her on any ballot that may be called for at the Meeting. In the absence of such
direction, such Common Shares will be voted "FOR" the proposed resolutions at the Meetings. The
accompanying instrument of proxy confers discretionary authority upon the persons named therein with respect to amendments of or variations to the matters identified in the accompanying Notice and with respect to other matters that may properly be brought before the Meeting. In the event that amendments or variations
to matters identified in the Notice are properly brought before the Meeting or any further or other business is properly brought before the Meeting, it is the intention of the management designees to vote in accordance with their best judgment on such matters or business. At the time of printing this Management Proxy Circular, the management of the Corporation knows of no such amendment, variation or other matter to come before the Meeting other than the matters referred to in the accompanying Notice. INTEREST OF CERTAIN PERSONS OR COMPANIES IN MATTERS TO BE ACTED ON Except as disclosed in this Management Proxy Circular, none of the directors or senior officers of the Corporation at any time since the beginning of the Corporation's last financial year, nor any proposed nominee for election as a director of the Corporation, nor any associate or affiliate of any of the foregoing persons, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise in any matter to be acted on, other than the election of directors or the appointment of auditors. VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTING SECURITIES Voting Shares and Record Date The authorized share capital of the Corporation consists of an unlimited number of Common Shares. The record date for the determination of Shareholders entitled to receive notice of and to vote at the Meeting is November 3, 2008 (the "Record Date"). As at the Record Date, there were 104,595,489 Common Shares issued and outstanding as fully paid and non-assessable. Common Shares The holders of Common Shares are entitled to notice of and to vote at all annual and special meetings of shareholders and are entitled to one vote per Common Share. The holders of Common Shares are entitled to receive such dividends as the board of directors of the Corporation (the "Board of Directors" or the "Board") declare and, upon liquidation, to receive such assets of the Corporation as are distributable to holders of Common Shares. Voting of Common Shares – General Only Shareholders whose names are entered in the Corporation's register of shareholders at the close of business on that date and holders of Common Shares issued by the Corporation after such date and prior to the Meeting will be entitled to receive notice of and to vote at the Meeting, provided that, to the extent that: (i) a registered Shareholder has transferred the ownership of any Common Shares subsequent to the Record Date; and (ii) the transferee of those Common Shares produces properly endorsed share certificates, or otherwise establishes that he or she owns the Common Shares and demands, not later than ten days before the Meeting, that his or her name be included on the Shareholder list before the Meeting, in which case the transferee shall be entitled to vote his or her Common Shares at the Meeting. Voting of Common Shares – Advice to Non-Registered Holders Only registered holders of Common Shares, or the persons they appoint as their proxies, are permitted to attend and vote at the Meeting. However, in many cases, Common Shares beneficially owned by a holder (a "Non-Registered Holder") are registered either: a) in the name of an intermediary (an "Intermediary") that the Non-Registered Holder deals with in respect of the Common Shares. Intermediaries include banks, trust companies, securities dealers 5 or brokers, and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans; or b) in the name of a clearing agency (such as The Canadian Depository for Securities Limited or "CDS"). In accordance with the requirements of National Instrument 54-101 of the Canadian Securities Administrators, the Corporation has distributed copies of the Notice, this Management Proxy Circular and the instrument of proxy (collectively, the "Meeting Materials") to the clearing agencies and Intermediaries for onward distribution to Non- Registered Holders. Intermediaries are required to forward meeting materials to Non-Registered Holders unless a Non-Registered Holder has waived the right to receive them. Typically, Intermediaries will use a service company (such as Broadridge Investor Communication Solutions ("Broadridge")) to forward meeting materials to Non-Registered Holders. Generally, Non-Registered Holders who have not waived the right to receive meeting materials will: a) have received as part of the Meeting Materials a voting instruction form which must be completed, signed and delivered by the Non-Registered Holder in accordance with the directions on the voting instruction form; voting instruction forms sent by Broadridge permit the completion of the voting instruction form by telephone or through the Internet at ; or
b) less typically, be given a proxy which has already been signed by the Intermediary (typically by a facsimile, stamped signature) which is restricted as to the number of Common Shares beneficially owned by the Non-Registered Holder but which is otherwise uncompleted. This form of proxy need not be signed by the Non-Registered Holder. In this case, the Non-Registered Holder who wishes to submit a proxy should otherwise properly complete the form of proxy and deposit it with Equity Transfer & Trust Company at the address referred to above. The purpose of these procedures is to permit Non-Registered Holders to direct the voting of the Common Shares they beneficially own. Should a Non-Registered Holder wish to attend and vote at the Meeting in person (or have another person attend and vote on behalf of the Non-Registered Holder), the Non-Registered Holder should strike out the names of the persons named in the proxy and insert the Non-Registered Holder's (or such other person's) name in the blank space provided or, in the case of a voting instruction form, follow the corresponding instructions on the form. In either case, Non-Registered Holders should carefully follow the instructions of their
Intermediaries and their service companies. Only registered Shareholders have the right to revoke a proxy. Non-Registered Holders who wish to change their vote must in sufficient time in advance of the Meeting, arrange for their respective Intermediaries to change their vote and if necessary revoke their proxy in accordance with the revocation procedures set above. Principal Holders of Common Shares To the knowledge of the directors and executive officers of the Corporation, the only persons who beneficially own, directly or indirectly, or exercises control or direction over, securities carrying more than 10% of the voting rights attaching to any class of voting securities of the Corporation as set forth below. Name and Municipality of Residence Type of Ownership Number of Common Shares Percentage of Outstanding Common Shares Thomas Fairfull and Anne Fairfull (1) Ajax, ON Direct and Indirect 16,104,100 (2) 15.40% Hardestine Holdings Limited (3) Brampton, ON Direct 11,980,000 (4)(5) 11.45% Notes: (1) Held as to 1,614,000 Common Shares by Thomas Fairfull directly, and indirectly, 14,490,794 Common Shares by
Anne Faifull, the spouse of Mr. Fairfull and 490,000 Common Shares by Courtney Fairull, the daughter of Mr. Fairfull. 6 (2) In addition to the foregoing Common Shares, Mr. Fairfull has voting control over a further 20,000,000 Common Shares
under a Voting Trust and Pooling Agreement dated May 1, 2008 (the "Voting Trust Agreement") pursuant to which Mr. Fairfull has been appointed proxy in relation to such Common Shares. (3) A private corporation that is wholly-owned by Mr. Sidney Harkema, a director of the Corporation. (4) In accordance with the Voting Trust Agreement, voting control in respect of such Common Shares rests with Mr.
Thomas Faifull. (5) In addition, Hardestine Holdings Limited is the holder of 980,000 common share purchase warrants, which are
exercisable at a price of $1.50 on or before October 17, 2010. STATEMENT OF EXECUTIVE COMPENSATION Summary Compensation Table Executive Compensation is required to be disclosed for each Chief Executive Officer (or individual who served in a similar capacity during the most recently completed financial year), each Chief Financial Officer (or individual who served in a similar capacity during the most recently completed financial year) and each of the three most highly compensated executive officers (other than the Chief Executive Officer and the Chief Financial Officer) who were serving as executive officers at the end of the most recently completed fiscal year and whose total salary and bonus exceeded $150,000 (the "Named Executive Officers"). The following table sets forth information concerning the total compensation paid, during the last three financial years, to the Named Executive Officers. Annual Compensation Long-term Compensation Name and Principal Position Year Ended Dec. 31 Salary (Cdn$) Bonus (Cdn$) Other Annual Compensation (3) (Cdn$) Securities Under Options/SARs (4) Granted (#) Shares or Units Subject to Resale Restrictions (#) LTIP Payouts (5) (Cdn$) All Other Compensation (Cdn$) Thomas Fairfull President, Chief Executive Officer and Interim Chief Financial Officer (1) 2007 2006 2005 $189,615 $43,269 $19,615 Nil Nil Nil Nil Nil Nil 1,600,000 600,000 1,500,000 Nil Nil Nil Nil Nil Nil Nil Nil Nil Gerry Feldman, Chief Financial Officer (2) 2007 2006 2005 Nil Nil Nil Nil Nil Nil Nil Nil $27,500 (4) Nil 600,000 1,500,000 Nil Nil Nil Nil Nil Nil Nil Nil Nil Notes: (1) Mr. Fairfull was appointed Interim Chief Financial Officer in February 2007 and held that position until August 2008. (2) Mr. Feldman resigned as Chief Financial Officer in February 2007. (3) Perquisites and other personal benefits, securities or property, received did not exceed the lesser of $50,000 and 10% of
the total annual salary and bonuses for the Named Executive Officers. (4) "SAR" or "Stock Appreciation Right" means any right granted by the Corporation as compensation for services
rendered, to receive a payment of cash or issue or transfer securities based wholly or in part on changes in the trading price of publicly traded securities of the Corporation. (5) "LTIP" or "Long Term Incentive Plan" means any plan which provides compensation intended to serve as incentive for
performance to occur over a period longer than one financial year, but does not include options or stock appreciation right plans or plans for compensation through restricted shares or restricted share units. Long-Term Incentive Plan Awards The Corporation has no long-term incentive plans. Accordingly, no such compensation was paid or distributed to the Named Executive Officers during the financial year ended December 31, 2007. Options/SARs Granted During the Most Recently Completed Financial Year During the financial year ended December 31, 2007, the Corporation issued stock options to the following Named Executive Officer: Thomas Fairfull The following table sets forth the individual grant of options to purchase or 7 acquire securities of the Corporation made during the most recently completed financial year to the Named Executive Officers. Name Securities Under Options/SARs Granted (#) Per cent of Total Options Granted to Employees in Financial Year Exercise or Base Price ($/Security) Market Value of Securities Underlying Options/SARs on the Date of Grant ($/Security) Expiration Date Thomas Fairfull 1,600,000 30.9% $0.185 $0.185 September 28, 2012 Aggregated Option/SAR Exercises During the Most Recently Completed Financial Year and Financial Year- End Option/SAR Values The following table sets forth certain information respecting the numbers and accrued value of unexercised stock options as at December 31, 2007 and options exercised by the Named Executive Officers during the financial year ended December 31, 2007: Unexercised Options/SARs as at December 31, 2007 (#) Value of Unexercised In-the-Money Options/SARs as at December 31, 2007 (1) (Cdn$) Securities Acquired on Exercise (#) Aggregate Value Realized (Cdn$) Exercisable Unexercisable Exercisable Unexercisable Thomas Fairfull 600,000 Nil 1,600,000 Nil Nil Nil
Gerry Feldman 600,000 Nil Nil Nil Nil Nil Notes: (1) Calculated as the difference in the closing price of $0.185 of the securities underlying the options at December 31, 2007 and the exercise price. (2) No value has been realized to date as the Common Shares acquired on exercise have not been sold. Termination of Employment, Change in Responsibilities and Employment Contracts At present, there is neither a compensatory plan for termination of employment or change in responsibility, nor a pension plan in operation for the benefit of any Named Executive Officers of the Corporation. Compensation of Directors No cash sum was paid to any of the directors of the Corporation for services as a director or as a member of any committee of the board of directors, for attending any meeting of the board of directors or any meeting of any committee of the board of directors of which he or she is a member. Each of the directors is eligible to be awarded options under the Stock Option Plan established by the Corporation. There is no formal arrangement for the compensation of directors at this time. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The following table sets out information as at the end of the Corporation's most recently completed financial year with respect to compensation plans under which equity securities of the Corporation are authorized for issuance. 8 Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) (a) Weighted-average exercise price of outstanding options, warrants and rights (1) (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (1) (c) Equity compensation plans approved by securityholders 4,575,000 $0.185 3,905,899 Equity compensation plans not approved by securityholders N/A N/A N/A Total 3,905,899 Note: (1) As at December 31, 2007. INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS None of the directors and officers of the Corporation, any proposed management nominee for election as a director of the Corporation or any associate of any director, officer or proposed management nominee is or has been indebted to the Corporation at any time during the last completed financial year, for other than routine indebtedness. INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS Except as disclosed in this Management Proxy Circular, none of the informed persons of the Corporation (as defined in National Instrument 51-102), nor any proposed nominee for election as a director of the Corporation, nor any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to the issued shares of the Corporation, nor any associate or affiliate of the foregoing persons has any material interest, direct or indirect, in any transaction since the commencement of the Corporation's most recently completed financial year or in any proposed transaction which, in either case, has or will materially affect the Corporation and none of such persons has any material interest in any transaction proposed to be undertaken by the Corporation that will materially affect the Corporation. MANAGEMENT CONTRACTS The Corporation does not have in place any management contracts between the Corporation and any directors or officers and there are no management functions of the Corporation that are to any substantial degree performed by a person or company other than the directors or officers (or private companies controlled by them, either directly or indirectly) of the Corporation. CORPORATE GOVERNANCE Please see the attached Schedule "A" for information on the Corporation s Corporate Governance (Form 58-101F2). AUDIT COMMITTEE Audit Committee Charter The Charter of the Corporation's Audit Committee is attached to this Management Proxy Circular as Schedule "B". Composition of the Audit Committee The following are the members of the Committee: Ronald Perry (2) James Payne Independent (2) Sidney Harkema Independent (2) 9 Notes: (1) Mr. Perry was appointed Chairman of the Audit Committee in August 2006. (2) As defined by Multilateral Instrument 52-110 – ("MI 52-110"). Education and Experience Mr. Perry has held the position of Chair of the Audit Committee of the Corporation since August 2006. Mr. Perry is a Chartered Accountant (1981), with over 15 years of professional accounting experience. He is presently President of Briolijor Corporation, a financial consulting company. Mr. Payne graduated from St.Clair College in Construction Engineering, Project Management and Estimating in 1974. He worked as a project manager on numerous sites from 1975 through to 1981. Since 1981 he has furthered his education on continual basis in business management, accounting and personal development. He has built and managed his own private companies for more than 28 years. He has been involved in building or renovating commercial buildings, apartment buildings, offices and expansion of a hospital along with sitting on several advisory boards. Throughout those experiences, he has been exposed to a wide range of accounting and financial statement issues. He currently serves as President and Chief Executive Officer of Pashin Holdings Inc., a real-estate development company operating within the GTA and surrounding areas and as President and Chief Executive Officer of V2R Group Inc., a consulting and project management company operating within the City of Toronto. Mr. Harkema has 35 years experience in trucking, warehousing and forwarding and has served as President and Chairman of the Board of Harkema Trucking for 27 years, during which time he has been exposed to various management, accounting and finance issues, giving him a wide range of experience in reviewing such matters. Through such business experience, the members of the Audit Committee review financial statements and gain an understanding of financial reporting controls and procedures. Audit Committee Oversight At no time since the commencement of the Corporation's most recently completed financial year was a recommendation of the Committee to nominate or compensate an external auditor not adopted by the Board of Directors. Reliance on Certain Exemptions At no time since the commencement of the Corporation's most recently completed financial year has the Corporation relied on the exemption in Section 2.4 of MI 52-110 , or an exemption from MI 52-
110, in whole or in part, granted under Part 8 of Multilateral Instrument 52-110. Pre-Approval Policies and Procedures The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services. The Audit Committee will review the engagement of non-audit services as required. External Auditor Service Fees (By Category) The aggregate fees billed by the Corporation's external auditors in each of the last two fiscal years for audit fees are as follows: Financial Year Ending Audit Fees Audit Related Fees Tax Fees All Other Fees 2007 $65,000 Nil Nil Nil 2006 $102,063 Nil Nil Nil 10 Exemption The Corporation is relying on the exemption provided in Section 6.1 of MI 52-110 and, as such, the Corporation is exempt from Parts 3 ( ) of MI 52-110. PARTICULARS OF MATTERS TO BE ACTED UPON Financial Statements The financial statements of the Corporation for the year ended December 31, 2007 and the Auditors' Report thereon accompanying this Management Proxy Circular will be placed before the Shareholders at the Meeting for their consideration. Shareholders who wish to receive interim financial statements are encouraged to send the enclosed notice, in the addressed envelope to Equity Transfer & Trust Company. Election of Directors The term of office of each of the present directors expires at the Meeting. The articles of the Corporation currently provide that the board of directors of the Corporation shall consist of a minimum of three and a maximum of ten directors. The number of directors to be elected at the Meeting has been fixed at five. Management of the Corporation proposes to nominate the persons named below for election as directors of the Corporation at the Meeting to serve until the next annual meeting of the Shareholders of the Corporation, unless his office is earlier vacated. Five of the nominees are currently members of the board of directors of the Corporation. Approval of the election of directors will require the affirmative votes of the holders of not less than half of the votes cast in respect thereof by Shareholders present in person or by proxy at the Meeting. Unless otherwise directed,
the management designees named in the accompanying instrument of proxy intend to vote in favour of the election, as directors, of the nominees whose names are set forth below. In the event that prior to the Meeting,
any vacancies occur on the slate of nominees submitted herewith, it is intended that discretionary authority will be granted to vote proxies solicited by or on behalf of management for the election of any other person or persons as directors. Management is not currently aware that any such nominees would not be willing to serve as director if elected. The following information concerning the proposed nominees has been furnished by each of them: Name, Residence and Present Office Held Principal Occupation or Employment Director Since Number of Common Shares Beneficially Owned or Controlled (1) and
percentage of total issued and outstanding THOMAS FAIRFULL (2) Ajax, Ontario Canada President, Chief Executive Officer and Director Mr. Fairfull has been the President of the Corporation since January 2004 (and of its predecessor since January 2000). Prior to founding the Corporation, Mr. Fairfull founded and managed several successful businesses. From January 1990 to August 1999, he was founder, president and chief executive officer of EWMC International Inc. (now "Environmental Waste International Inc."), a public waste management company. 2004 16,104,100 (3) (15.40%) RONALD PERRY (4)(5) Hudson, Québec Director Mr. Perry has served as the President of Briolojor Corporation, a business consulting company. 2006 Nil 11 Name, Residence and Present Office Held Principal Occupation or Employment Director Since Number of Common Shares Beneficially Owned or Controlled (1) and
percentage of total issued and outstanding GERALD SOLENSKY, JR. (2) Fenton, Michigan USA Director Mr. Solensky served as the Regional Vice- President of the Midwest Division of IndyMac Bank from 2005 . Mr. Solensky
previously held the position of Senior Regional Sales Manager at Fifth Third Bank from 2001 to
2004 .
2006 2,869,434 (6) (2.74%) SIDNEY HARKEMA (4) Brampton, Ontario Director Mr. Harkema served as President and Chairman of the Board of Harkema Trucking for 27 years. 2008 11,980,000 (7) (11.45%) JIM PAYNE (2)(4)(5) Toronto, Ontario Director Mr. Payne serves as Chief Executive Officer of Pashin Holdings Inc., a real-estate development company operating in the GTA and surrounding areas and as President and also Pres. and Chief Executive Officer of V2R Group Inc., a consulting and project management company within the City of Toronto. 2008 2,989,700 (8) (2.86%) Notes: (1) The information as to the number of Common Shares beneficially owned, not being within the knowledge of the Corporation, has been furnished by the respective nominees. These figures do not include any securities that are convertible into or exercisable for Common Shares. (2) Member of the Continuous Disclosure Committee. (3) Held as to 1,614,000 Common Shares by Thomas Fairfull directly, and indirectly, 14,490,794 Common Shares by Anne Faifull, the spouse of Mr. Fairfull and 490,000 Common Shares by Courtney Fairull, the daughter of Mr. Fairfull. In addition to the foregoing Common Shares, Mr. Fairfull has voting control over a further 20,000,000 Common Shares under the Voting Trust Agreement pursuant to which Mr. Fairfull has been appointed proxy in relation to such Common Shares. (4) Member of the Audit Committee. (5) Member of the Compensation Committee (6) In addition, an aggregate of 4,586,100 common share purchase warrants (each exercisable at a price of $0.15 on or before April 20, 2009) are registered in Mr. Solensky's name. It should be noted that one-half of the foregoing securities registered in the name of Mr. Solensky and held in trust on behalf of his business partner. (7) Such shares are held by Hardestine Holdings Ltd., a private corporation that is wholly-owned by Mr. Harkema. In accordance with the Voting Trust Agreement, voting control in respect of such Common Shares rests with Mr. Thomas Faifull. In addition, Hardestine Holdings Limited is the holder of 980,000 common share purchase warrants, which are exercisable at a price of $1.50 on or before October 17, 2010. (8) Such shares are held in Mr. Payne's personal name, as well as in private corporations that he directly or indirectly owns or controls. Corporate Cease Trade Orders or Bankruptcies Other than as set forth below, no director or proposed director of the Corporation is, or has been within the past ten years, a director or officer of any other company that, while such person was acting in that capacity: (i) was the subject of a cease trade or similar order or an order that denied the company access to any exemptions under securities legislation for a period of more than 30 consecutive days; 12 (ii) was subject to an event that resulted, after that individual ceased to be a director or officer, in the company being the subject of a cease trade or similar order or an order that denied the company access to any exemptions under securities legislation for a period of more than 30 consecutive days; or (iii) within a year of that individual ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets. Individual Bankruptcies No director or proposed director of the Corporation is or has, within the ten years prior to the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of that individual. Penalties or Sanctions No director or proposed director of the Corporation has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority. No director or proposed director of the Corporation has been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable securityholder in deciding whether to vote for a proposed director. Conflicts of Interest The directors and officers of the Corporation may, from time to time, be involved with the business and operations of other oil and gas issuers, in which case a conflict of interest may arise between their duties as officers and directors of the Corporation and as officer and directors of such other companies. Such conflicts must be disclosed in accordance with, and are subject to such procedures and remedies, as applicable, under the Business Corporations
Act (Ontario). Appointment of Auditors Schwartz Levitsky Feldman LLP was first appointed as auditor of the Corporation on September 19, 2007. Unless otherwise directed, the management designees named in the accompanying instrument of proxy intend to vote in favor of the re-appointment of Schwartz Levitsky Feldman LLP as auditors of the Corporation, to hold office until the close of the next annual meeting, at a remuneration to be determined by the board of directors of the Corporation. Approval of the appointment of the auditors will require the affirmative votes of the holders of not less than half of the votes cast in respect thereof by Shareholders present in person or by proxy at the Meeting. Unless
instructed otherwise, the management designees in the accompanying Instrument of Proxy intend to vote FOR the resolution. Ratification and Approval of New Stock Option Plan In accordance with the TSX Venture Exchange's (the "Exchange") policy governing stock options, all issuers that have a rolling stock option plan reserving a maximum of 10% of the issued and outstanding shares of the Corporation must receive yearly shareholder approval of the stock option plan. The directors of the Corporation have approved the 2008 Stock Option Plan on November 3, 2008 in the form attached hereto as Schedule "C". The Exchange requires the 2008 Stock Option Plan to be approved by the Shareholders of the Corporation. Management of the Corporation will place before the Meeting the following resolution relating to the approval of the 2008 Stock Option Plan: 13 "BE IT RESOLVED, AS AN ORDINARY RESOLUTION, THAT: 1. The Corporation's 2008 Stock Option Plan be and is hereby ratified, confirmed and approved in substantially the form attached as Schedule "C" to the Information Circular prepared for the purposes of this Meeting, subject to acceptance by the TSX Venture Exchange; 2. The Corporation be authorized to grant stock options for up to 10% of the Common Shares of the Corporation outstanding from time to time pursuant and subject to the terms and conditions of the 2008 Stock Option Plan; 3. The previous existing stock options granted to directors, officers, employees and others be ratified, confirmed and approved; and that all existing stock options becoming subject to the provisions of the 2008 Stock Option Plan upon adoption by the Corporation; 4. The Board of Directors be authorized on behalf of the Corporation to make any amendments to the 2008 Stock Option Plan as may be required by regulatory authorities, without further approval of the shareholders of the Corporation, in order to ensure adoption of the 2008 Stock Option Plan; 5. Notwithstanding that this resolution has been duly passed by the shareholders of the Corporation, without further resolution of shareholders, approval is hereby given to the Board of Directors of the Corporation, in their sole discretion, to revoke this resolution at any time and to refrain from implementing the 2008 Stock Option Plan; and 6. Any one director of officer of the Company be and he is hereby authorized and directed to do all such acts and things and to execute and deliver under the corporate seal or otherwise all such deeds, documents, instruments and assurances as in his opinion may be necessary or desirable to give effect to this resolution." The approval by Shareholders requires a favourable vote of a majority of the Common Shares voted in respect thereof at the Meeting. The Exchange requires such approval before it will allow the adoption of the 2008 Stock Option Plan. Options to purchase Common Shares that were previously granted to directors, officers and employees of the Corporation will be deemed to be granted under the 2008 Stock Option Plan. Unless instructed otherwise,
the management designees in the accompanying Instrument of Proxy intend to vote "FOR" the foregoing resolution. ADDITIONAL INFORMATION Additional information relating to the Corporation is available through the internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which can be accessed at . Financial
information on the Corporation is provided in the comparative financial statements and management discussion and analysis of the Corporation which can also be accessed at or which may be obtained upon request
from the Corporation at 890 Brock Road South, Pickering, Ontario, Canada L1W 1Z9. A-1 SCHEDULE "A" CORPORATE GOVERNANCE POLICY CORPORATE GOVERNANCE DISCLOSURE (FORM 58-101F2) 1. Board of Directors — Disclose how the board of directors (the board) facilitates its exercise of independent
supervision over management, including (i) the identity of directors that are independent, and Ronald Perry, Gerald Solensky, Jr., Sidney Harkema and James Payne. (ii) the identity of directors who are not independent, and the basis for that determination. Thomas Fairfull is not independent, as he is an officer of the Corporation. In determining whether a director is independent, the Corporation chiefly considers whether the director has a relationship which could, or could be perceived to interfere with the director’s ability to objectively assess the performance of management. 2. Directorships — If a director is presently a director of any other issuer that is a reporting issuer (or the equivalent) in a
jurisdiction or a foreign jurisdiction, identify both the director and the other issuer. The following current and proposed directors of the Corporation presently serve as directors of other reporting issuers as follows: Director Reporting Issuer Ronald Perry Pinetree Capital Inc. (TSX) Manitex Capital Inc. (TSXV) Metanor Resources Inc. (TSXV) 3. Orientation and Continuing Education — Describe what steps, if any, the board takes to orient new board members,
and describe any measures the board takes to provide continuing education for directors. While the Corporation does not have a formal continuing education program, the directors individually and as a group are encouraged to read and discuss the wide range of articles and papers on the evolving issues of corporate governance. As it relates specifically to the Corporation s business, certain directors have attended trucking trade
shows and stay current with the hydrogen industry by reading publications. New directors are educated on the process, the technology and the market, while existing directors are kept up to date in this area. To provide orientation to new directors regarding the role of the Board and its audit committee, the Board provides copies of the audit committee charter and discusses the role of management in the Corporation s operations. To orient new directors on the nature
and operation of the Corporation s business, the Board provides new directors with copies of the most recent public
filings of the Corporation. From time to time, the Chief Executive Officer meets with individual directors to update them on issues relating to the business and, in between Board meetings, the Chief Executive Officer also provides updates to the directors regarding the Corporation’s business to ensure that the directors maintain the knowledge regarding the Corporation and its industry necessary for them to meet their obligations as directors. Directors are individually responsible for updating their skills necessary to meet their obligations as directors 4. Ethical Business Conduct — Describe what steps, if any, the board takes to encourage and promote a culture of
ethical business conduct. The Board is responsible for promoting an ethical business culture and fostering an environment that emphasises compliance. To that end, the Board has approved a "Code of Business Ethics" and has also development a Whistleblower Policy. To facilitate promote proper business ethics, the Corporation encourages company personnel to adhere to the Corporation's Code of Business Ethics and to promptly report any problems or concerns to their supervisor, or if that is not possible or does not resolve the matter, up the chain of management in accordance with the Whistleblower Policy. To ensure that an ethical business culture is maintained and promoted, directors are encouraged A-2 to exercise their independent judgement. If a director has a material interest in any transaction that the Corporation proposes to enter into, that director is expected to disclose such interest to the Board in compliance with the applicable laws, rules and policies which govern conflicts of interest in connection with such transaction or agreement. 5. Nomination of Directors — Disclose what steps, if any, are taken to identify new candidates for board nomination,
including: (i) who identifies new candidates, and (ii) the process of identifying new candidates. The Board is responsible for the identification and assessment of potential directors. While no formal nomination procedure is in place to identify new candidates the Board does review the experience and performance of nominees for the election to the Board, and in particular, any appointments to the audit committee. When required, the Board meets to consider any vacancies on the Board or the desirability of additional members of the Board. Members of the Board are canvassed with respect to the qualifications of a potential candidate and each candidate is evaluated with respect to his or her experience and expertise, with particular attention paid to those areas of expertise that complement and enhance current management. The Board also assesses any potential conflicts, independence or time commitment concerns the candidate may present. 6. Compensation — Disclose what steps, if any, are taken to determine compensation for the directors and CEO,
including: (i) who determines compensation, Ronald Perry and James Payne are members of the Corporation's Compensation Committee, which makes recommendateions concerning the compensation for directors (if any) and executives. (ii) the process of determining compensation, and Market comparisons as well as evaluation of similar positions in different industries in the same geography are the criteria used in determining compensation for officers. Compensation of the directors is determined by the Board as a whole, taking into account the relative responsibilities of the directors in serving on the Board and the audit and compensation committees. 7. Other Board Committees — If the board has standing committees other than the audit and compensation identify the
committees and describe their function. At present, the Board does not feel it necessary to establish any committees other than the audit committee, the compensation committee and the continuous disclosure committee; however, the Board remains open to such a possibility as the Corporation continues to grow in the future. The Board believes that the Corporation's size is sufficiently small to facilitate a direct management structure without the need to delegate decision making or authority to a committee. 8. Assessments — Disclose what steps, if any, that the board takes to satisfy itself that the board, its committees, and its
individual directors are performing effectively. At present, the Board is responsible for assessing the effectiveness of the Board, the audit committee, the compensation committee, the continuous disclosure committee and individual directors. The Board did not consider it necessary to formally assess the effectiveness of the Board, its committees and its individual directors in 2007 as it is sufficiently small to permit all directors to have input on matters on a regular basis and to informally assess the performance of the Corporation throughout the year. B-1 SCHEDULE "B" DYNAMIC FUEL SYSTEMS INC. AUDIT COMMITTEE CHARTER 1. ") hereby establish an audit
committee (the " ").
2. : The membership of the Audit Committee shall be as follows:
(a) The Audit Committee shall be composed of three members or such greater number as the Directors may from time to time determine. (b) The majority of the members of the Audit Committee shall be independent Directors. (c) Each member of the Audit Committee shall be financially literate. For purposes hereof "financially literate" has the meaning set forth under MI 52-110 (as amended from time to time) and currently means the ability to read and understand a set of financial statements that present the breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can be reasonably be expected to be raised by the Corporation's financial statements. (d) Members shall be appointed annually from among members of the Directors. A member of the Audit Committee shall cease to be a member of the Audit Committee upon ceasing to be a Director of the
Corporation. 3. : The external auditor is ultimately accountable to the Directors and the Audit Committee, as
representatives of the shareholders and such shareholders representatives have the ultimate authority and responsibility to select, evaluate, and where appropriate, replace the external auditors (or to nominate the external auditors to be proposed for shareholder approval in any management information circular and proxy statement). The external auditor shall report directly to the Audit Committee and shall have the responsibilities as set forth herein. 4. : The Audit Committee shall have responsibility for overseeing:
(a) the accounting and financial reporting processes of the Corporation; and (b) audits of the financial statements of the Corporation. In addition to any other duties assigned to the Audit Committee by the Directors, from time to time, the role of the Audit Committee shall include meeting with the external auditor and the senior financial management of the Corporation to review all financial statements of the Corporation which require approval by the Directors, including year end audited financial statements. Specifically, the Audit Committee shall have authority and responsibility for: (a) reviewing the Corporation's financial statements, MD&A and earnings press releases before the information is publicly disclosed; (b) overseeing the work of the external auditors engaged for purpose of preparing or issuing , an audit report or performing other audit, review or attest services for the Corporation, including the resolution of disagreements between management and the external auditors regarding financial reporting; (c) reviewing annually and recommending to the Directors: (i) the external auditors to be nominated for purposes of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation; and (ii) the compensation of the external auditors. (d) discussing with the external auditor: B-2 (i) the scope of the audit, in particular their view of the quality of the Corporation's accounting principles as applied in the financials in terms of disclosure quality and evaluation methods, inclusive of the clarity of the Corporation's financial disclosure and reporting, degree of conservatism or aggressiveness of the Corporation's accounting principles and underlying estimates and other significant decisions made by management in preparing the financial disclosure and reviewed by the auditors; (ii) significant changes in the Corporation's accounting principles, practices or policies; and (iii) new developments in accounting principles, reporting matters or industry practices which may materially affect the Corporation. (e) reviewing with the external auditor and the Corporation's senior financial management the results of the annual audit regarding: (i) the financial statements; (ii) MD&A and related financial disclosure contained in continuous disclosure documents; (iii) significant changes, if any, to the initial audit plan; (iv) accounting and reporting decisions relating to significant current year events and transactions; (v) the management letter, if any, outlining the auditor's findings and recommendations, together with management's response, with respect to internal controls and accounting procedures; and (vi) any other matters relating to the conduct of the audit, including such other matters which should be communicated to the Audit Committee under Canadian generally accepted auditing standards. (f) reviewing and discussing with the Corporation's senior financial management and, if requested by the Audit Committee, the external auditor: (i) the interim financial statements; (ii) the interim MD&A; and (iii) any other material matters relating to the interim financial statements, including, inter alia, any significant adjustments, management judgments or estimates, new or amended accounting policies. (g) receipt from external auditor of a formal written statement delineating all relationships between the auditor and the Corporation and considering whether the advisory services performed by the external auditor during the course of the year have impacted their independence, and also ensuring that no relationship or services between ) the external auditor and the Corporation is in existence which may affect the objectivity and independence of the auditor or recommending appropriate action to ensure the independence of the external auditor. (h) pre-approval of all non-audit services to be provided to the Corporation or its subsidiary entities by the external auditors or the external auditors of the Corporation's subsidiary entities, unless such pre-approval is otherwise appropriately delegated or if appropriate specific policies and procedures for the engagement of non-audit services have been adopted by the Audit committee. (i) reviewing and discussing with the external auditors and senior financial management: the adequacy of procedures for review of disclosure of financial information extracted or derived from financial statements, other than the disclosure referred to in subparagraph (a) above. (j) establishing and reviewing of procedures for: (i) receipt, retention and treatment of complaints received by the Corporation and its subsidiary entities regarding internal accounting controls, or auditing matters; B-3 (ii) anonymous submission by employees of the Corporation and its subsidiary entities of concerns regarding questionable accounting or auditing matters; and (iii) hiring policies regarding employees and former employees of present and former external auditors of the Corporation and its subsidiary entities. (k) reviewing with the external auditor, the adequacy of management's internal control over financial reporting relating to financial information and management information systems and inquiring of management and the external auditor about significant risks and exposures to the Corporation that may have a material adverse impact on the Corporation's financial statements, and inquiring of the external auditor as to the efforts of management to mitigate such risks and exposures. (1) reviewing and/or considering that, with regard to the previous fiscal year, • management has reviewed the Corporation's audited financial statements with the Audit Committee,
including a discussion of the quality of the accounting principles as applied and significant judgments affecting the financial statements; • the external auditors and the Audit Committee have discussed the external auditors' judgments of the
quality of the accounting principles applied and the type of judgments made with respect to the Corporation's financial statements; • the Audit Committee, on its own (without management or the external auditors present), has considered
and discussed all the information disclosed to the Audit Committee from the Corporation's management and the external auditor; and • in reliance on review and discussions conducted with senior financial management and the external
auditors, the Audit Committee believes that the Corporation's financial statements are fairly presented in conformity with the with Canadian Generally Accepted Accounting Principles (GAAP) in all material respects and that the financial statements fairly reflect the financial condition of the Corporation. 5. : The following general provisions shall have application to the Audit Committee:
(a) A quorum of the Audit Committee shall be the attendance of a majority of the members thereof. No business may be transacted by the Audit Committee except at a meeting of its members at which a quorum of the Audit Committee is present or by a resolution in writing signed by all the members of the Audit Committee. (b) Any member of the Audit Committee may be removed or replaced at any time by resolution of the Directors of the Corporation. If and whenever a vacancy shall exist on the Audit Committee, the remaining members may exercise all its powers so long as a quorum remains. Subject to the foregoing, each member of the Audit Committee shall hold such office until the close of the annual meeting of shareholders next following the date of appointment as a member of the Audit Committee or until a successor is duly appointed. (c) The Audit Committee may invite such Directors, directors, officers and employees of the Corporation or affiliates thereof as it may see fit from time to time to attend at meetings of the Audit Committee and to assist thereat in the discussion of matters being considered by the Audit Committee. The external auditors are is to appear before the Audit Committee when requested to do so by the Audit Committee. (d) The time and place for the Audit Committee meetings, the calling and the procedure at such meetings shall be determined by the Audit Committee having regard to the Articles and By-Laws of the Corporation. (e) The Chair shall preside at all meetings of the Audit Committee and shall have a second and deciding vote in the event of a tie. In the absence of the Chair, the other members of the Audit Committee shall appoint a representative amongst them to act as Chair for that particular meeting. (f) Notice of meetings of the Audit Committee may be given to the external auditors and shall be given in respect of meetings relating to the annual audited financial statements. The external auditors have the right to appear before and to be heard at any meeting of the Audit Committee. Upon the request of the external auditors, the Chair of the Audit Committee shall convene a meeting of the Audit Committee to consider any B-4 matters which the external auditors believes should be brought to the attention of the Directors or shareholders of the Corporation. (g) The Audit Committee shall report to the Directors of the Corporation on such matters and questions relating to the financial position of the Corporation or any affiliates of the Corporation as the Directors of the Corporation may from time to time refer to the Audit Committee. (h) The members of the Audit Committee shall, for the purpose of performing their duties, have the right to inspect all the books and records of the Corporation and its affiliates, and to discuss such books and records that are in any way related to the financial position of the Corporation with the Directors, directors, officers, employees and external auditors of the Corporation and its affiliates. (i) Minutes of the Audit Committee meetings shall be recorded and maintained. The Chair of the Audit Committee will report to the Directors on the activities of the Audit Committee and/or the minutes of the Audit Committee meetings will be promptly circulated to the Directors or otherwise made available at the next meeting of Directors. (j) The Audit Committee shall have the authority to: (i) engage independent counsel and other advisors or consultants as it determines necessary to carry out its duties; (ii) set and pay the compensation for any advisors employed by the Audit Committee; and (iii) communicate directly with the internal (if any) and external auditors and qualified reserves evaluators or auditors. C-1 SCHEDULE "C" DYNAMIC FUEL SYSTEMS INC. STOCK OPTION PLAN 1. THE PLAN A stock option plan (the "Plan"), pursuant to which options to purchase common shares, or such other shares as may be substituted therefor ("Shares"), in the capital of Dynamic Fuel Systems Inc. (the "Corporation") may be granted to the directors, officers and employees of the Corporation and to consultants retained by the Corporation, is hereby established on the terms and conditions set forth herein. 2. PURPOSE The purpose of this Plan is to advance the interests of the Corporation by encouraging the directors, officers and employees of the Corporation and consultants retained by the Corporation to acquire Shares, thereby: (i) increasing the proprietary interests of such persons in the Corporation; (ii) aligning the interests of such persons with the interests of the Corporation's shareholders generally; (iii) encouraging such persons to remain associated with the Corporation and (iv) furnishing such persons with an additional incentive in their efforts on behalf of the Corporation. 3. ADMINISTRATION a) This Plan shall be administered by the board of directors of the Corporation (the "Board"). b) Subject to the terms and conditions set forth herein, the Board is authorized to provide for the granting, exercise and method of exercise of Options (as defined in paragraph 3(d) below), all on such terms (which may vary between Options granted from time to time) as it shall determine. In addition, the Board shall have the authority to: (i) construe and interpret this Plan and all option agreements entered into hereunder; (ii) prescribe, amend and rescind rules and regulations relating to this Plan; and (iii) make all other determinations necessary or advisable for the administration of this Plan. All determinations and interpretations made by the Board shall be binding on all Participants (as hereinafter defined) and on their legal, personal representatives and beneficiaries. c) Notwithstanding the foregoing or any other provision contained herein, the Board shall have the right to delegate the administration and operation of this Plan, in whole or in part, to a committee of the Board or to the President or any other officer of the Corporation. Whenever used herein, the term "Board" shall be deemed to include any committee or officer to which the Board has, fully or partially, delegated responsibility and/or authority relating to the Plan or the administration and operation of this Plan pursuant to this Section 3. d) Options to purchase the Shares granted hereunder ("Options") shall be evidenced by: (i) an agreement, signed on behalf of the Corporation and by the person to whom an Option is granted, which agreement shall be in such form as the Board shall approve; or (ii) a written notice or other instrument, signed by the Corporation, setting forth the material attributes of the Options. 4. SHARES SUBJECT TO PLAN a) Subject to Section 15 below, the securities that may be acquired by Participants upon the exercise of Options shall be deemed to be fully authorized and issued Shares of the Corporation. Whenever used herein, the term "Shares" shall be deemed to include any other securities that may be acquired by a Participant upon the exercise of an Option the terms of which have been modified in accordance with Section 15 below. b) The aggregate number of Shares reserved for issuance under this Plan or any other plan of the Corporation, shall not exceed ten percent (10%) of the total number of issued and outstanding Shares (calculated on a nondiluted basis) unless the Corporation receives the permission of the stock exchange or exchanges on which the Shares are then listed to exceed such threshold. c) If any Option granted under this Plan shall expire or terminate for any reason without having been exercised in full, any un-purchased Shares to which such Option relates shall be available for the purposes of the granting of Options under this Plan. C-2 5. MAINTENANCE OF SUFFICIENT CAPITAL The Corporation shall at all times during the term of this Plan ensure that the number of Shares it is authorized to issue shall be sufficient to satisfy the Corporation's obligations under all outstanding Options granted pursuant to this Plan. 6. ELIGIBILITY AND PARTICIPATION a) The Board may, in its discretion, select any of the following persons to participate in this Plan: i. directors of the Corporation; ii. officers of the Corporation; iii. employees of the Corporation; and iv. consultants retained by the Corporation, provided such consultants have performed and/or continue to perform services for the Corporation on an ongoing basis or are expected to provide a service of value to the Corporation; (any such person having been selected for participation in this Plan by the Board is herein referred to as a "Participant"). b) The Board may from time to time, in its discretion, grant an Option to any Participant, upon such terms, conditions and limitations as the Board may determine, including the terms, conditions and limitations set forth herein, provided that Options granted to any Participant shall be approved by the shareholders of the Corporation if the rules of any stock exchange on which the Shares are listed require such approval. c) The Corporation represents that, for any Options granted to an officer, employee or consultant of the Corporation, such Participant is a bona fide officer, employee or consultant of the Corporation. 7. EXERCISE PRICE The Board shall, at the time an Option is granted under this Plan, fix the exercise price at which Shares may be acquired upon the exercise of such Option provided that such exercise price shall not be less than that from time to time permitted under the rules of any stock exchange or exchanges on which the shares are then listed and provided that the exercise price of any Option granted shall be no less than the closing trading price of the Shares on the last trading day immediately preceding the day of grant. In addition, the exercise price of an option must be paid in cash. In accordance with Section 18, disinterested shareholder approval shall be obtained by the Corporation prior to any reduction to the exercise price if the affected Participant is an insider (as such term is defined under the Securities Act
(Ontario) (hereafter, an "Insider"). 8. NUMBER OF OPTIONED SHARES The number of Shares that may be acquired under an Option granted to a Participant shall be determined by the Board as at the time the Option is granted, provided that the aggregate number of Shares reserved for issuance to any one Participant under this Plan or any other plan of the Corporation, shall not exceed 5% of the total number of issued and outstanding Shares (calculated on a non-diluted basis) in any 12 month period unless the Corporation receives the permission of the stock exchange or exchanges on which the Shares are listed to exceed such threshold and provided further that the number of Options granted to any one consultant in a 12 month period shall not exceed 2% of the total number of issued and outstanding Shares and the aggregate number of Options granted to persons employed to provide investor relations activities shall not exceed 2% of the total number of issued and outstanding Shares in any 12 month period. The Corporation shall obtain shareholder approval for grants of Options to Insiders, of a number of Options exceeding 10% of the issued Shares, within any 12 month period. 9. TERM The period during which an Option may be exercised (the "Option Period") shall be determined by the Board at the time that the Option is granted, subject to any vesting limitations which may be imposed by the Board in its sole unfettered discretion at the time that such Option is granted and Sections 11, 12 and 16 below, provided that: C-3 a) no Option shall be exercisable for a period exceeding five (5) years from the date that the Option is granted unless the Corporation receives the permission of the stock exchange or exchanges on which the Shares are then listed and as specifically provided by the Board and as permitted under the rules of any stock exchange or exchanges on which the Shares are then listed, and in any event, no Option shall be exercisable for a period exceeding ten (10) years from the date the Option is granted; b) no Option in respect of which shareholder approval is required under the rules of any stock exchange or exchanges on which the Shares are then listed shall be exercisable until such time as the Option has been approved by the shareholders of the Corporation; c) the Board may, subject to the receipt of any necessary regulatory approvals, in its sole discretion, accelerate the time at which any Option may be exercised, in whole or in part; and d) any Options granted to any Participant must expire within 90 days after the Participant ceases to be a Participant, and within 30 days for any Participant engaged in investor relation activities after such Participant ceases to be employed to provide investor relation activities. 10. METHOD OF EXERCISE OF OPTION a) Except as set forth in Sections 11 and 12 below or as otherwise determined by the Board, no Option may be exercised unless the holder of such Option is, at the time the Option is exercised, a director, officer, employee or consultant of the Corporation. b) Options that are otherwise exercisable in accordance with the terms thereof may be exercised in whole or in part from time to time during the Option Period. c) Any Participant (or his legal, personal representative) wishing to exercise an Option shall deliver to the Corporation, at its principal office in the City of Pickering, Ontario: (i) a written notice expressing the intention of such Participant (or his legal, personal representative) to exercise his Option and specifying the number of Shares in respect of which the Option is exercised; and (ii) a cash payment, certified cheque or bank draft, representing the full purchase price of the Shares in respect of which the Option is exercised. d) Upon the exercise of an Option as aforesaid, the Corporation shall use reasonable efforts to forthwith deliver, or cause the registrar and transfer agent of the Shares to deliver, to the relevant Participant (or his legal, personal representative) or to the order thereof, a certificate representing the aggregate number of fully paid and non-assessable Shares in respect of which the Option has been duly exercised. 11. CEASING TO BE A DIRECTOR, OFFICER, EMPLOYEE OR CONSULTANT If any Participant shall cease to hold the position or positions of director, officer, employee or consultant of the Corporation (as the case may be) for any reason other than death, his Option will terminate at 4:30 p.m. (Toronto time) on the earlier of the date of the expiration of the Option Period and 90 days after the date such Participant ceases to hold the position or positions of director, officer, employee or consultant of the Corporation as the case may be, and ceases to actively perform services for the Corporation. An Option granted to a Participant who performs investor relations services on behalf of the Corporation shall terminate on the date of termination of the employment or cessation of services being provided and shall be subject to Exchange policies and procedures for the termination of Options for investor relations services. For greater certainty, the termination of any Options held by the Participant, and the period during which the Participant may exercise any Options, shall be without regard to any notice period arising from the Participant s ceasing to hold the position or positions of director, officer, employee or consultant of the
Corporation (as the case may be). Neither the selection of any person as a Participant nor the granting of an Option to any Participant under this Plan shall: (i) confer upon such Participant any right to continue as a director, officer, employee or consultant of the Corporation, as the case may be; or (ii) be construed as a guarantee that the Participant will continue as a director, officer, employee or consultant of the Corporation, as the case may be. C-4 12. DEATH OF A PARTICIPANT In the event of the death of a Participant, any Option previously granted to him shall be exercisable until the end of the Option Period or until the expiration of 12 months after the date of death of such Participant, whichever is earlier, and then, in the event of death, only: a) by the person or persons to whom the Participant's rights under the Option shall pass by the Participant's will or applicable law; and b) to the extent that he was entitled to exercise the Option as at the date of his death. 13. RIGHTS OF PARTICIPANTS No person entitled to exercise any Option granted under this Plan shall have any of the rights or privileges of a shareholder of the Corporation in respect of any Shares issuable upon exercise of such Option until such Shares have been paid for in full and issued to such person. 14. PROCEEDS FROM EXERCISE OF OPTIONS The proceeds from any sale of Shares issued upon the exercise of Options shall be added to the general funds of the Corporation and shall thereafter be used from time to time for such corporate purposes as the Board may determine and direct. 15. ADJUSTMENTS a) The number of Shares subject to the Plan shall be increased or decreased proportionately in the event of the subdivision or consolidation of the outstanding Shares of the Corporation, and in any such event a corresponding adjustment shall be made to the number of Shares deliverable upon the exercise of any Option granted prior to such event without any change in the total price applicable to the unexercised portion of the Option, but with a corresponding adjustment in the price for each Share that may be acquired upon the exercise of the Option. In case the Corporation is reorganized or merged or consolidated or amalgamated with another corporation, appropriate provisions shall be made for the continuance of the Options outstanding under this Plan and to prevent any dilution or enlargement of the same. b) Adjustments under this Section 15 shall be made by the Board, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional Shares shall be issued upon the exercise of an Option following the making of any such adjustment. 16. CHANGE OF CONTROL Notwithstanding the provisions of Section 11 or any vesting restrictions otherwise applicable to the relevant Options, in the event of a sale by the Corporation of all or substantially all of its assets or in the event of a change of control of the Corporation, each Participant shall be entitled to exercise, in whole or in part, the Options granted to such Participant hereunder, either during the term of the Option or within 90 days after the date of the sale or change of control, whichever first occurs. For the purpose of this Plan, "change of control of the Corporation" means and shall be deemed to have occurred upon: a) the acceptance by the holders of Shares of the Corporation, representing in the aggregate, more than 50 percent of all issued Shares of the Corporation, of any offer, whether by way of a takeover bid or otherwise, for all or any of the outstanding Shares of the Corporation; or b) the acquisition, by whatever means, by a person (or two or more persons who, in such acquisition, have acted jointly or in concert or intend to exercise jointly or in concert any voting rights attaching to the Shares acquired), directly or indirectly, of beneficial ownership of such number of Shares or rights to Shares of the Corporation, which together with such person's then owned Shares and rights to Shares, if any, represent (assuming the full exercise of such rights to voting securities) more than fifty percent (50%) of the combined voting rights of the Corporation's then outstanding Shares; or c) the entering into of any agreement by the Corporation to merge, consolidate, amalgamate, initiate an arrangement or be absorbed by or into another corporation; or C-5 d) the passing of a resolution by the Board or shareholders of the Corporation to substantially liquidate the assets or wind-up the Corporation's business or significantly rearrange its affairs in one or more transactions or series of transactions or the commencement of proceedings for such a liquidation, winding-up or rearrangement (except where such re-arrangement is part of a bona fide reorganization of the Corporation in circumstances where the business of the Corporation is continued and where the shareholdings remain substantially the same following the re-arrangement); or e) individuals who were members of the Board of the Corporation immediately prior to a meeting of the shareholders of the Corporation involving a contest for or an item of business relating to the election of directors, not constituting a majority of the Board following such election. 17. TRANSFERABILITY All benefits, rights and Options accruing to any Participant in accordance with the terms and conditions of this Plan shall be non-transferrable and non-assignable unless specifically provided herein. During the lifetime of a Participant, any Options granted hereunder may only be exercised by the Participant and in the event of the death of a Participant, by the person or persons to whom the Participant's rights under the Option pass by the Participant's will or applicable law. 18. AMENDMENT AND TERMINATION OF PLAN a) The Board may, at any time and from time to time, amend, suspend or terminate the Plan or an Option without shareholder approval, provided that no such amendment, suspension or termination may be made without obtaining any required approval of any regulatory authority or stock exchange or the consent or deemed consent of a Participant where such amendment, suspension or termination materially prejudices the rights of the Participant. b) Notwithstanding the provisions of Section 18(a), the Board may not, without the approval of the security holders of the Corporation (or, as may be required by the policies and procedures of the Exchange, the approval of the disinterested security holders of the Corporation), make amendments to the Plan or any Option for any of the following purposes: i. to increase the maximum number of Shares that may be issued pursuant to Options granted under the Plan as set out in Section 8; ii. to reduce the exercise price of Options for the benefit of an Insider; iii. to extend the term of an Option beyond the Option Period for the benefit of an Insider; and iv. to amend the provisions of this Section 18. c) In addition to the changes made pursuant to Section 3, the Board may, at any time and from time to time, without the approval of the security holders of the Corporation amend any term of any outstanding Option (including, without limitation, the exercise price, vesting and expiry of the Option), provided that: i. any required approval of any regulator authority or stock exchange is obtained; ii. if the amendments would reduce the exercise price or extend the expiry date of the Options granted to Insiders, approval of the security holders of the Corporation must be obtained; iii. the Board would have had the authority to initially grant the Option under the terms so amended; and iv. the consent or deemed consent of the Participant is obtained if the amendment would materially prejudice the rights of the Participant under the Option. 19. NECESSARY APPROVALS The obligation of the Corporation to issue and deliver Shares in accordance with this Plan and Options granted hereunder is subject to applicable securities legislation and to the receipt of any approvals that may be required from C-6 any regulatory authority or stock exchange having jurisdiction over the securities of the Corporation. If Shares cannot be issued to a Participant upon the exercise of an Option for any reason whatsoever, the obligation of the Corporation to issue such Shares shall terminate and any funds paid to the Corporation in connection with the exercise of such Option will be returned to the relevant Participant as soon as practicable. 20. STOCK EXCHANGE RULES This Plan and any option agreements entered into hereunder shall comply with the requirements from time to time of the stock exchange or exchanges on which the Shares are listed. 21. RIGHT TO ISSUE OTHER SHARES The Corporation shall not by virtue of this Plan be in any way restricted from declaring and paying stock dividends, issuing further Shares, varying or amending its share capital or corporate structure or conducting its business in any way whatsoever. 22. NOTICE Any notice required to be given by this Plan shall be in writing and shall be given by registered mail, postage prepaid or delivered by courier or by facsimile transmission addressed, if to the Corporation, at its principal address in Pickering, Ontario (Attention: President); or if to a Participant, to such Participant at his address as it appears on the books of the Corporation or in the event of the address of any such Participant not so appearing then to the last known address of such Participant; or if to any other person, to the last known address of such person. 23. GENDER Whenever used herein words importing the masculine gender shall include the feminine and neuter genders and vice versa. 24. INTERPRETATION This Plan will be governed by and construed in accordance with the laws of the Province of Ontario.
.
DYNAMIC FUEL SYSTEMS INC.
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS to be held on Tuesday, December 9, 2008 at 10:00 a.m. (Toronto time) at the McLean Community Centre (Banquet Room), 95 Magill Drive, Ajax, Ontario L1T 4M5 MANAGEMENT INFORMATION CIRCULAR AND PROXY STATEMENT November 7, 2008 2 DYNAMIC FUEL SYSTEMS INC. NOTICE OF ANNUAL AND SPECIAL MEETING OF THE SHAREHOLDERS TAKE NOTICE THAT
an Annual and Special Meeting (the "Meeting") of the shareholders of DYNAMIC FUEL
SYSTEMS INC. (the "Corporation") will be held at the McLean Community Centre (Banquet Room), 95 Magill Drive, Ajax, Ontario L1T 4M5 on Tuesday, December 9, 2008 at 10:00 a.m. (Toronto time) for the following purposes: 1. to receive and consider the financial statements of the Corporation as at and for the year ended December 31, 2007, together with the report of the auditors thereon; 2. to elect the directors of the Corporation for the ensuing year; 3. to appoint the auditors of the Corporation for the ensuing year and to authorize the directors of the Corporation to determine the remuneration to be paid to the auditors; 4. to consider and, if deemed advisable, to pass an ordinary resolution, the full text of which is set forth in the accompanying Management Information Circular and Proxy Statement (the "Management Proxy Circular"), ratifying, adopting and approving the new stock option plan of the Corporation and authorizing the Corporation's board of directors to make any amendments thereto that may be required for the purpose of obtaining the approval of the TSX Venture Exchange or, if required, the Toronto Stock Exchange; and 5. to transact such other business as may properly come before the Meeting. Information relating to matters to be acted upon by the shareholders at the Meeting is set forth in the accompanying Management Proxy Circular. A shareholder may attend the Meeting in person or may be represented at the Meeting by proxy. Shareholders who are unable to attend the Meeting in person and wish to be represented by proxy are requested to date, sign and return the accompanying Instrument of Proxy, or other appropriate form of proxy, in accordance with the instructions set forth in the accompanying Management Proxy Circular and Instrument of Proxy. An Instrument of Proxy will not be valid unless it is deposited at the offices of the Corporation's registrar and transfer agent, Equity Transfer & Trust Company at 400, 200 University Avenue, Toronto, Ontario M5H 4H1, in the enclosed self-addressed envelope, not less than 48 hours (excluding Saturdays, Sundays and statutory holidays) before the time of the Meeting, or any adjournment thereof. A person appointed as proxy holder need not be a shareholder of the Corporation. Only shareholders of record as at the close of business on November 3, 2008 (the "Record Date") are entitled to receive notice of the Meeting.
SHAREHOLDERS ARE CAUTIONED THAT THE USE OF THE MAIL TO TRANSMIT PROXIES IS AT EACH SHAREHOLDER'S RISK. DATED at Pickering, Ontario as of the 7
th
day of November, 2008.
BY ORDER OF THE BOARD OF DIRECTORS "Thomas Fairfull" (signed) Thomas Fairfull President and Chief Executive Officer 3 DYNAMIC FUEL SYSTEMS INC. MANAGEMENT PROXY CIRCULAR (Unless otherwise stated, information contained herein is given as of November 7, 2008) INFORMATION REGARDING PROXIES AND VOTING AT THE MEETING Solicitation of Proxies This Management Proxy Circular is furnished in connection with the solicitation of proxies by the management of Dynamic Fuel Systems Inc. (the "Corporation") for use at the Annual and Special Meeting of the holders (the "Shareholders") of common shares ("Common Shares") of the Corporation to be held at the McLean Community Centre (Banquet Room), 95 Magill Drive, Ajax, Ontario L1T 4M5 on Tuesday, December 9, 2008 at 10:00 a.m. (Toronto time) (the "Meeting"), for the purposes set forth in the Notice of Annual and Special Meeting (the "Notice") accompanying this Management Proxy Circular. Solicitation of proxies will be primarily by mail, but may also be undertaken by way of telephone, facsimile or oral communication by the directors, officers and regular employees of the Corporation, at no additional compensation. Costs associated with the solicitation of proxies will be borne by the Corporation. Appointment of Proxyholders Accompanying this Management Proxy Circular is an instrument of proxy for use at the Meeting. Shareholders who are unable to attend the Meeting in person and wish to be represented by proxy are required to date and sign the enclosed instrument of proxy and return it in the enclosed return envelope.
All properly executed instruments of
proxy for Shareholders must be mailed so as to reach or be deposited at the offices of the Corporation's registrar and transfer agent, Equity Transfer & Trust Company at 400, 200 University Avenue, Toronto, Ontario M5H 4H1 not later than 48 hours (excluding Saturdays, Sundays and statutory holidays in the Province of Ontario) prior to the time set for the Meeting or any adjournment thereof.
The persons designated in the instrument of proxy are officers and/or directors of the Corporation.
A Shareholder
has the right to appoint a person (who need not be a Shareholder) other than the persons designated in the accompanying instrument of proxy, to attend at and represent the Shareholder at the Meeting
. To exercise
this right, a Shareholder should insert the name of the designated representative in the blank space provided on the instrument of proxy and strike out the names of management's nominees. Alternatively, a Shareholder may complete another appropriate instrument of proxy.
Signing of Proxy The instrument of proxy must be signed by the Shareholder or the Shareholder's duly appointed attorney authorized in writing or, if the Shareholder is a corporation, under its corporate seal or by a duly authorized officer or attorney of the Corporation. An instrument of proxy signed by a person acting as attorney or in some other representative capacity (including a representative of a corporate Shareholder) should indicate that person's capacity (following his or her signature) and should be accompanied by the appropriate instrument evidencing qualification and authority to act (unless such instrument has previously been filed with the Corporation). Revocability of Proxies A Shareholder who has submitted an instrument of proxy may revoke it at any time prior to the exercise thereof. In addition to any manner permitted by law, a proxy may be revoked by instrument in writing executed by the Shareholder or by his or her duly authorized attorney or, if the Shareholder is a corporation, under its corporate seal or executed by a duly authorized officer or attorney of the corporation and deposited either: (i) at the registered office of the Corporation at any time up to and including the last business day preceding the day of the Meeting, or any adjournments thereof, at which the instrument of proxy is to be used; or (ii) with the Chairman of the Meeting on the day of the Meeting, or any adjournment thereof. In addition, an instrument of proxy may be revoked: (i) by the Shareholder personally attending the Meeting and voting the securities represented thereby or, if the Shareholder is a corporation, by a duly authorized representative of the corporation attending at the Meeting and voting such securities; or (ii) in any other manner permitted by law. 4 Voting of Proxies and Exercise of Discretion by Proxyholders All Common Shares represented at the Meeting by properly executed proxies will be voted on any ballot that may be called for and, where a choice with respect to any matter to be acted upon has been specified in the instrument of proxy, the Common Shares represented by the instrument of proxy will be voted in accordance with such instructions. The management designees named in the accompanying instrument of proxy will vote or withhold from voting the Common Shares in respect of which they are appointed in accordance with the direction of the Shareholder appointing him or her on any ballot that may be called for at the Meeting.
In the absence of such
direction, such Common Shares will be voted
"FOR" the proposed resolutions at the Meetings. The
accompanying instrument of proxy confers discretionary authority upon the persons named therein with respect to amendments of or variations to the matters identified in the accompanying Notice and with respect to other matters that may properly be brought before the Meeting.
In the event that amendments or variations
to matters identified in the Notice are properly brought before the Meeting or any further or other business is properly brought before the Meeting, it is the intention of the management designees to vote in accordance with their best judgment on such matters or business. At the time of printing this Management Proxy Circular, the management of the Corporation knows of no such amendment, variation or other matter to come before the Meeting other than the matters referred to in the accompanying Notice.
INTEREST OF CERTAIN PERSONS OR COMPANIES IN MATTERS TO BE ACTED ON Except as disclosed in this Management Proxy Circular, none of the directors or senior officers of the Corporation at any time since the beginning of the Corporation's last financial year, nor any proposed nominee for election as a director of the Corporation, nor any associate or affiliate of any of the foregoing persons, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise in any matter to be acted on, other than the election of directors or the appointment of auditors. VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTING SECURITIES Voting Shares and Record Date The authorized share capital of the Corporation consists of an unlimited number of Common Shares. The record date for the determination of Shareholders entitled to receive notice of and to vote at the Meeting is November 3, 2008 (the "Record Date"). As at the Record Date, there were 104,595,489 Common Shares issued and outstanding as fully paid and non-assessable. Common Shares The holders of Common Shares are entitled to notice of and to vote at all annual and special meetings of shareholders and are entitled to one vote per Common Share. The holders of Common Shares are entitled to receive such dividends as the board of directors of the Corporation (the "Board of Directors" or the "Board") declare and, upon liquidation, to receive such assets of the Corporation as are distributable to holders of Common Shares. Voting of Common Shares – General Only Shareholders whose names are entered in the Corporation's register of shareholders at the close of business on that date and holders of Common Shares issued by the Corporation after such date and prior to the Meeting will be entitled to receive notice of and to vote at the Meeting, provided that, to the extent that: (i) a registered Shareholder has transferred the ownership of any Common Shares subsequent to the Record Date; and (ii) the transferee of those Common Shares produces properly endorsed share certificates, or otherwise establishes that he or she owns the Common Shares and demands, not later than ten days before the Meeting, that his or her name be included on the Shareholder list before the Meeting, in which case the transferee shall be entitled to vote his or her Common Shares at the Meeting. Voting of Common Shares – Advice to Non-Registered Holders Only registered holders of Common Shares, or the persons they appoint as their proxies, are permitted to attend and vote at the Meeting. However, in many cases, Common Shares beneficially owned by a holder (a "Non-Registered Holder") are registered either: a) in the name of an intermediary (an "Intermediary") that the Non-Registered Holder deals with in respect of the Common Shares. Intermediaries include banks, trust companies, securities dealers 5 or brokers, and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans; or b) in the name of a clearing agency (such as The Canadian Depository for Securities Limited or "CDS"). In accordance with the requirements of National Instrument 54-101 of the Canadian Securities Administrators, the Corporation has distributed copies of the Notice, this Management Proxy Circular and the instrument of proxy (collectively, the "Meeting Materials") to the clearing agencies and Intermediaries for onward distribution to Non- Registered Holders. Intermediaries are required to forward meeting materials to Non-Registered Holders unless a Non-Registered Holder has waived the right to receive them. Typically, Intermediaries will use a service company (such as Broadridge Investor Communication Solutions ("Broadridge")) to forward meeting materials to Non-Registered Holders. Generally, Non-Registered Holders who have not waived the right to receive meeting materials will: a) have received as part of the Meeting Materials a voting instruction form which must be completed, signed and delivered by the Non-Registered Holder in accordance with the directions on the voting instruction form; voting instruction forms sent by Broadridge permit the completion of the voting instruction form by telephone or through the Internet at
www.proxyvotecanada.com
; or
b) less typically, be given a proxy which has already been signed by the Intermediary (typically by a facsimile, stamped signature) which is restricted as to the number of Common Shares beneficially owned by the Non-Registered Holder but which is otherwise uncompleted. This form of proxy need not be signed by the Non-Registered Holder. In this case, the Non-Registered Holder who wishes to submit a proxy should otherwise properly complete the form of proxy and deposit it with Equity Transfer & Trust Company at the address referred to above. The purpose of these procedures is to permit Non-Registered Holders to direct the voting of the Common Shares they beneficially own. Should a Non-Registered Holder wish to attend and vote at the Meeting in person (or have another person attend and vote on behalf of the Non-Registered Holder), the Non-Registered Holder should strike out the names of the persons named in the proxy and insert the Non-Registered Holder's (or such other person's) name in the blank space provided or, in the case of a voting instruction form, follow the corresponding instructions on the form.
In either case, Non-Registered Holders should carefully follow the instructions of their
Intermediaries and their service companies.
Only registered Shareholders have the right to revoke a proxy. Non-Registered Holders who wish to change their vote must in sufficient time in advance of the Meeting, arrange for their respective Intermediaries to change their vote and if necessary revoke their proxy in accordance with the revocation procedures set above. Principal Holders of Common Shares To the knowledge of the directors and executive officers of the Corporation, the only persons who beneficially own, directly or indirectly, or exercises control or direction over, securities carrying more than 10% of the voting rights attaching to any class of voting securities of the Corporation as set forth below. Name and Municipality of Residence Type of Ownership Number of Common Shares Percentage of Outstanding Common Shares Thomas Fairfull and Anne Fairfull
(1)
Ajax, ON Direct and Indirect 16,104,100
(2)
15.40% Hardestine Holdings Limited
(3)
Brampton, ON Direct 11,980,000
(4)(5)
11.45% Notes: (1)
Held as to 1,614,000 Common Shares by Thomas Fairfull directly, and indirectly, 14,490,794 Common Shares by
Anne Faifull, the spouse of Mr. Fairfull and 490,000 Common Shares by Courtney Fairull, the daughter of Mr. Fairfull.
6 (2)
In addition to the foregoing Common Shares, Mr. Fairfull has voting control over a further 20,000,000 Common Shares
under a Voting Trust and Pooling Agreement dated May 1, 2008 (the "Voting Trust Agreement") pursuant to which Mr. Fairfull has been appointed proxy in relation to such Common Shares.
(3)
A private corporation that is wholly-owned by Mr. Sidney Harkema, a director of the Corporation.
(4)
In accordance with the Voting Trust Agreement, voting control in respect of such Common Shares rests with Mr.
Thomas Faifull.
(5)
In addition, Hardestine Holdings Limited is the holder of 980,000 common share purchase warrants, which are
exercisable at a price of $1.50 on or before October 17, 2010.
STATEMENT OF EXECUTIVE COMPENSATION Summary Compensation Table Executive Compensation is required to be disclosed for each Chief Executive Officer (or individual who served in a similar capacity during the most recently completed financial year), each Chief Financial Officer (or individual who served in a similar capacity during the most recently completed financial year) and each of the three most highly compensated executive officers (other than the Chief Executive Officer and the Chief Financial Officer) who were serving as executive officers at the end of the most recently completed fiscal year and whose total salary and bonus exceeded $150,000 (the "Named Executive Officers"). The following table sets forth information concerning the total compensation paid, during the last three financial years, to the Named Executive Officers. Annual Compensation Long-term Compensation Name and Principal Position Year Ended Dec. 31 Salary (Cdn$) Bonus (Cdn$) Other Annual Compensation
(3)
(Cdn$) Securities Under Options/SARs
(4)
Granted (#) Shares or Units Subject to Resale Restrictions (#) LTIP Payouts
(5)
(Cdn$) All Other Compensation (Cdn$) Thomas Fairfull President, Chief Executive Officer and Interim Chief Financial Officer
(1)
2007 2006 2005 $189,615 $43,269 $19,615 Nil Nil Nil Nil Nil Nil 1,600,000 600,000 1,500,000 Nil Nil Nil Nil Nil Nil Nil Nil Nil Gerry Feldman, Chief Financial Officer
(2)
2007 2006 2005 Nil Nil Nil Nil Nil Nil Nil Nil $27,500
(4)
Nil 600,000 1,500,000 Nil Nil Nil Nil Nil Nil Nil Nil Nil Notes: (1)
Mr. Fairfull was appointed Interim Chief Financial Officer in February 2007 and held that position until August 2008.
(2)
Mr. Feldman resigned as Chief Financial Officer in February 2007.
(3)
Perquisites and other personal benefits, securities or property, received did not exceed the lesser of $50,000 and 10% of
the total annual salary and bonuses for the Named Executive Officers.
(4)
"SAR" or "Stock Appreciation Right" means any right granted by the Corporation as compensation for services
rendered, to receive a payment of cash or issue or transfer securities based wholly or in part on changes in the trading price of publicly traded securities of the Corporation.
(5)
"LTIP" or "Long Term Incentive Plan" means any plan which provides compensation intended to serve as incentive for
performance to occur over a period longer than one financial year, but does not include options or stock appreciation right plans or plans for compensation through restricted shares or restricted share units.
Long-Term Incentive Plan Awards The Corporation has no long-term incentive plans. Accordingly, no such compensation was paid or distributed to the Named Executive Officers during the financial year ended December 31, 2007. Options/SARs Granted During the Most Recently Completed Financial Year During the financial year ended December 31, 2007, the Corporation issued stock options to the following Named Executive Officer: Thomas Fairfull
.
The following table sets forth the individual grant of options to purchase or
7 acquire securities of the Corporation made during the most recently completed financial year to the Named Executive Officers. Name Securities Under Options/SARs Granted (#) Per cent of Total Options Granted to Employees in Financial Year Exercise or Base Price ($/Security) Market Value of Securities Underlying Options/SARs on the Date of Grant ($/Security) Expiration Date Thomas Fairfull 1,600,000 30.9% $0.185 $0.185 September 28, 2012 Aggregated Option/SAR Exercises During the Most Recently Completed Financial Year and Financial Year- End Option/SAR Values The following table sets forth certain information respecting the numbers and accrued value of unexercised stock options as at December 31, 2007 and options exercised by the Named Executive Officers during the financial year ended December 31, 2007: Unexercised Options/SARs as at December 31, 2007 (#) Value of Unexercised In-the-Money Options/SARs as at December 31, 2007 (1) (Cdn$) Securities Acquired on Exercise (#) Aggregate Value Realized (Cdn$) Exercisable Unexercisable Exercisable Unexercisable Thomas Fairfull 600,000 Nil
(2)
1,600,000 Nil Nil Nil
Gerry Feldman 600,000 Nil
(2)
Nil Nil Nil Nil
Notes: (1) Calculated as the difference in the closing price of $0.185 of the securities underlying the options at December 31, 2007 and the exercise price. (2) No value has been realized to date as the Common Shares acquired on exercise have not been sold. Termination of Employment, Change in Responsibilities and Employment Contracts At present, there is neither a compensatory plan for termination of employment or change in responsibility, nor a pension plan in operation for the benefit of any Named Executive Officers of the Corporation. Compensation of Directors No cash sum was paid to any of the directors of the Corporation for services as a director or as a member of any committee of the board of directors, for attending any meeting of the board of directors or any meeting of any committee of the board of directors of which he or she is a member. Each of the directors is eligible to be awarded options under the Stock Option Plan established by the Corporation. There is no formal arrangement for the compensation of directors at this time. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The following table sets out information as at the end of the Corporation's most recently completed financial year with respect to compensation plans under which equity securities of the Corporation are authorized for issuance. 8 Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) (a) Weighted-average exercise price of outstanding options, warrants and rights (1) (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (1) (c) Equity compensation plans approved by securityholders 4,575,000 $0.185
3,905,899
Equity compensation plans not approved by securityholders N/A N/A N/A Total
3,905,899
Note: (1) As at December 31, 2007. INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS None of the directors and officers of the Corporation, any proposed management nominee for election as a director of the Corporation or any associate of any director, officer or proposed management nominee is or has been indebted to the Corporation at any time during the last completed financial year, for other than routine indebtedness. INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS Except as disclosed in this Management Proxy Circular, none of the informed persons of the Corporation (as defined in National Instrument 51-102), nor any proposed nominee for election as a director of the Corporation, nor any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to the issued shares of the Corporation, nor any associate or affiliate of the foregoing persons has any material interest, direct or indirect, in any transaction since the commencement of the Corporation's most recently completed financial year or in any proposed transaction which, in either case, has or will materially affect the Corporation and none of such persons has any material interest in any transaction proposed to be undertaken by the Corporation that will materially affect the Corporation. MANAGEMENT CONTRACTS The Corporation does not have in place any management contracts between the Corporation and any directors or officers and there are no management functions of the Corporation that are to any substantial degree performed by a person or company other than the directors or officers (or private companies controlled by them, either directly or indirectly) of the Corporation. CORPORATE GOVERNANCE Please see the attached Schedule "A" for information on the Corporation
'
s Corporate Governance (Form 58-101F2).
AUDIT COMMITTEE Audit Committee Charter The Charter of the Corporation's Audit Committee is attached to this Management Proxy Circular as Schedule "B". Composition of the Audit Committee The following are the members of the Committee: Ronald Perry
(2)
James Payne Independent
(2) Financially literate
(2)
Sidney Harkema Independent
(2) Financially literate
(2)
9 Notes: (1) Mr. Perry was appointed Chairman of the Audit Committee in August 2006. (2) As defined by Multilateral Instrument 52-110 –
Audit Committees
("MI 52-110").
Education and Experience Mr. Perry has held the position of Chair of the Audit Committee of the Corporation since August 2006. Mr. Perry is a Chartered Accountant (1981), with over 15 years of professional accounting experience. He is presently President of Briolijor Corporation, a financial consulting company. Mr. Payne graduated from St.Clair College in Construction Engineering, Project Management and Estimating in 1974. He worked as a project manager on numerous sites from 1975 through to 1981. Since 1981 he has furthered his education on continual basis in business management, accounting and personal development. He has built and managed his own private companies for more than 28 years. He has been involved in building or renovating commercial buildings, apartment buildings, offices and expansion of a hospital along with sitting on several advisory boards. Throughout those experiences, he has been exposed to a wide range of accounting and financial statement issues. He currently serves as President and Chief Executive Officer of Pashin Holdings Inc., a real-estate development company operating within the GTA and surrounding areas and as President and Chief Executive Officer of V2R Group Inc., a consulting and project management company operating within the City of Toronto. Mr. Harkema has 35 years experience in trucking, warehousing and forwarding and has served as President and Chairman of the Board of Harkema Trucking for 27 years, during which time he has been exposed to various management, accounting and finance issues, giving him a wide range of experience in reviewing such matters. Through such business experience, the members of the Audit Committee review financial statements and gain an understanding of financial reporting controls and procedures. Audit Committee Oversight At no time since the commencement of the Corporation's most recently completed financial year was a recommendation of the Committee to nominate or compensate an external auditor not adopted by the Board of Directors. Reliance on Certain Exemptions At no time since the commencement of the Corporation's most recently completed financial year has the Corporation relied on the exemption in Section 2.4 of MI 52-110
, or an exemption from MI 52-
110, in whole or in part, granted under Part 8 of Multilateral Instrument 52-110.
Pre-Approval Policies and Procedures The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services. The Audit Committee will review the engagement of non-audit services as required. External Auditor Service Fees (By Category) The aggregate fees billed by the Corporation's external auditors in each of the last two fiscal years for audit fees are as follows: Financial Year Ending Audit Fees Audit Related Fees Tax Fees All Other Fees 2007 $65,000 Nil Nil Nil 2006 $102,063 Nil Nil Nil 10 Exemption The Corporation is relying on the exemption provided in Section 6.1 of MI 52-110 and, as such, the Corporation is exempt from Parts 3 (
) of MI 52-110.
PARTICULARS OF MATTERS TO BE ACTED UPON Financial Statements The financial statements of the Corporation for the year ended December 31, 2007 and the Auditors' Report thereon accompanying this Management Proxy Circular will be placed before the Shareholders at the Meeting for their consideration. Shareholders who wish to receive interim financial statements are encouraged to send the enclosed notice, in the addressed envelope to Equity Transfer & Trust Company. Election of Directors The term of office of each of the present directors expires at the Meeting. The articles of the Corporation currently provide that the board of directors of the Corporation shall consist of a minimum of three and a maximum of ten directors. The number of directors to be elected at the Meeting has been fixed at five. Management of the Corporation proposes to nominate the persons named below for election as directors of the Corporation at the Meeting to serve until the next annual meeting of the Shareholders of the Corporation, unless his office is earlier vacated. Five of the nominees are currently members of the board of directors of the Corporation. Approval of the election of directors will require the affirmative votes of the holders of not less than half of the votes cast in respect thereof by Shareholders present in person or by proxy at the Meeting.
Unless otherwise directed,
the management designees named in the accompanying instrument of proxy intend to vote in favour of the election, as directors, of the nominees whose names are set forth below.
In the event that prior to the Meeting,
any vacancies occur on the slate of nominees submitted herewith, it is intended that discretionary authority will be granted to vote proxies solicited by or on behalf of management for the election of any other person or persons as directors. Management is not currently aware that any such nominees would not be willing to serve as director if elected. The following information concerning the proposed nominees has been furnished by each of them:
Name, Residence and Present Office Held Principal Occupation or Employment Director Since Number of Common Shares Beneficially Owned or Controlled (1) and
percentage of total issued and outstanding THOMAS FAIRFULL
(2)
Ajax, Ontario Canada President, Chief Executive Officer and Director Mr. Fairfull has been the President of the Corporation since January 2004 (and of its predecessor since January 2000). Prior to founding the Corporation, Mr. Fairfull founded and managed several successful businesses. From January 1990 to August 1999, he was founder, president and chief executive officer of EWMC International Inc. (now "Environmental Waste International Inc."), a public waste management company. 2004 16,104,100
(3)
(15.40%) RONALD PERRY
(4)(5)
Hudson, Québec Director Mr. Perry has served as the President of Briolojor Corporation, a business consulting company. 2006 Nil 11 Name, Residence and Present Office Held Principal Occupation or Employment Director Since Number of Common Shares Beneficially Owned or Controlled (1) and
percentage of total issued and outstanding GERALD SOLENSKY, JR.
(2)
Fenton, Michigan USA Director Mr. Solensky served as the Regional Vice- President of the Midwest Division of IndyMac Bank from 2005
to 2007
. Mr. Solensky
previously held the position of Senior Regional Sales Manager at Fifth Third Bank from 2001
to
2004
.
2006 2,869,434
(6)
(2.74%) SIDNEY HARKEMA
(4)
Brampton, Ontario Director Mr. Harkema served as President and Chairman of the Board of Harkema Trucking for 27 years. 2008 11,980,000
(7)
(11.45%) JIM PAYNE
(2)(4)(5)
Toronto, Ontario Director Mr. Payne serves as Chief Executive Officer of Pashin Holdings Inc., a real-estate development company operating in the GTA and surrounding areas and as President and also Pres. and Chief Executive Officer of V2R Group Inc., a consulting and project management company within the City of Toronto. 2008 2,989,700
(8)
(2.86%) Notes: (1) The information as to the number of Common Shares beneficially owned, not being within the knowledge of the Corporation, has been furnished by the respective nominees. These figures do not include any securities that are convertible into or exercisable for Common Shares. (2) Member of the Continuous Disclosure Committee. (3) Held as to 1,614,000 Common Shares by Thomas Fairfull directly, and indirectly, 14,490,794 Common Shares by Anne Faifull, the spouse of Mr. Fairfull and 490,000 Common Shares by Courtney Fairull, the daughter of Mr. Fairfull. In addition to the foregoing Common Shares, Mr. Fairfull has voting control over a further 20,000,000 Common Shares under the Voting Trust Agreement pursuant to which Mr. Fairfull has been appointed proxy in relation to such Common Shares. (4) Member of the Audit Committee. (5) Member of the Compensation Committee (6) In addition, an aggregate of 4,586,100 common share purchase warrants (each exercisable at a price of $0.15 on or before April 20, 2009) are registered in Mr. Solensky's name. It should be noted that one-half of the foregoing securities registered in the name of Mr. Solensky and held in trust on behalf of his business partner. (7) Such shares are held by Hardestine Holdings Ltd., a private corporation that is wholly-owned by Mr. Harkema. In accordance with the Voting Trust Agreement, voting control in respect of such Common Shares rests with Mr. Thomas Faifull. In addition, Hardestine Holdings Limited is the holder of 980,000 common share purchase warrants, which are exercisable at a price of $1.50 on or before October 17, 2010. (8) Such shares are held in Mr. Payne's personal name, as well as in private corporations that he directly or indirectly owns or controls. Corporate Cease Trade Orders or Bankruptcies Other than as set forth below, no director or proposed director of the Corporation is, or has been within the past ten years, a director or officer of any other company that, while such person was acting in that capacity: (i) was the subject of a cease trade or similar order or an order that denied the company access to any exemptions under securities legislation for a period of more than 30 consecutive days; 12 (ii) was subject to an event that resulted, after that individual ceased to be a director or officer, in the company being the subject of a cease trade or similar order or an order that denied the company access to any exemptions under securities legislation for a period of more than 30 consecutive days; or (iii) within a year of that individual ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets. Individual Bankruptcies No director or proposed director of the Corporation is or has, within the ten years prior to the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of that individual. Penalties or Sanctions No director or proposed director of the Corporation has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority. No director or proposed director of the Corporation has been subject to any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable securityholder in deciding whether to vote for a proposed director. Conflicts of Interest The directors and officers of the Corporation may, from time to time, be involved with the business and operations of other oil and gas issuers, in which case a conflict of interest may arise between their duties as officers and directors of the Corporation and as officer and directors of such other companies. Such conflicts must be disclosed in accordance with, and are subject to such procedures and remedies, as applicable, under the
Business Corporations
Act
(Ontario).
Appointment of Auditors Schwartz Levitsky Feldman LLP was first appointed as auditor of the Corporation on September 19, 2007. Unless otherwise directed, the management designees named in the accompanying instrument of proxy intend to vote in favor of the re-appointment of Schwartz Levitsky Feldman LLP as auditors of the Corporation, to hold office until the close of the next annual meeting, at a remuneration to be determined by the board of directors of the Corporation. Approval of the appointment of the auditors will require the affirmative votes of the holders of not less than half of the votes cast in respect thereof by Shareholders present in person or by proxy at the Meeting.
Unless
instructed otherwise, the management designees in the accompanying Instrument of Proxy intend to vote FOR the resolution. Ratification and Approval of New Stock Option Plan
In accordance with the TSX Venture Exchange's (the "Exchange") policy governing stock options, all issuers that have a rolling stock option plan reserving a maximum of 10% of the issued and outstanding shares of the Corporation must receive yearly shareholder approval of the stock option plan. The directors of the Corporation have approved the 2008 Stock Option Plan on November 3, 2008 in the form attached hereto as Schedule "C". The Exchange requires the 2008 Stock Option Plan to be approved by the Shareholders of the Corporation. Management of the Corporation will place before the Meeting the following resolution relating to the approval of the 2008 Stock Option Plan: 13 "BE IT RESOLVED, AS AN ORDINARY RESOLUTION, THAT: 1. The Corporation's 2008 Stock Option Plan be and is hereby ratified, confirmed and approved in substantially the form attached as Schedule "C" to the Information Circular prepared for the purposes of this Meeting, subject to acceptance by the TSX Venture Exchange; 2. The Corporation be authorized to grant stock options for up to 10% of the Common Shares of the Corporation outstanding from time to time pursuant and subject to the terms and conditions of the 2008 Stock Option Plan; 3. The previous existing stock options granted to directors, officers, employees and others be ratified, confirmed and approved; and that all existing stock options becoming subject to the provisions of the 2008 Stock Option Plan upon adoption by the Corporation; 4. The Board of Directors be authorized on behalf of the Corporation to make any amendments to the 2008 Stock Option Plan as may be required by regulatory authorities, without further approval of the shareholders of the Corporation, in order to ensure adoption of the 2008 Stock Option Plan; 5. Notwithstanding that this resolution has been duly passed by the shareholders of the Corporation, without further resolution of shareholders, approval is hereby given to the Board of Directors of the Corporation, in their sole discretion, to revoke this resolution at any time and to refrain from implementing the 2008 Stock Option Plan; and 6. Any one director of officer of the Company be and he is hereby authorized and directed to do all such acts and things and to execute and deliver under the corporate seal or otherwise all such deeds, documents, instruments and assurances as in his opinion may be necessary or desirable to give effect to this resolution." The approval by Shareholders requires a favourable vote of a majority of the Common Shares voted in respect thereof at the Meeting. The Exchange requires such approval before it will allow the adoption of the 2008 Stock Option Plan. Options to purchase Common Shares that were previously granted to directors, officers and employees of the Corporation will be deemed to be granted under the 2008 Stock Option Plan.
Unless instructed otherwise,
the management designees in the accompanying Instrument of Proxy intend to vote "FOR" the foregoing resolution. ADDITIONAL INFORMATION
Additional information relating to the Corporation is available through the internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which can be accessed at
www.sedar.com
. Financial
information on the Corporation is provided in the comparative financial statements and management discussion and analysis of the Corporation which can also be accessed at
www.sedar.com
or which may be obtained upon request
from the Corporation at 890 Brock Road South, Pickering, Ontario, Canada L1W 1Z9.
A-1 SCHEDULE "A" CORPORATE GOVERNANCE POLICY CORPORATE GOVERNANCE DISCLOSURE (FORM 58-101F2) 1. Board of Directors —
Disclose how the board of directors (the board) facilitates its exercise of independent
supervision over management, including (i) the identity of directors that are independent, and
Ronald Perry, Gerald Solensky, Jr., Sidney Harkema and James Payne. (ii) the identity of directors who are not independent, and the basis for that determination. Thomas Fairfull is not independent, as he is an officer of the Corporation. In determining whether a director is independent, the Corporation chiefly considers whether the director has a relationship which could, or could be perceived to interfere with the director’s ability to objectively assess the performance of management. 2. Directorships —
If a director is presently a director of any other issuer that is a reporting issuer (or the equivalent) in a
jurisdiction or a foreign jurisdiction, identify both the director and the other issuer.
The following current and proposed directors of the Corporation presently serve as directors of other reporting issuers as follows: Director Reporting Issuer Ronald Perry Pinetree Capital Inc. (TSX) Manitex Capital Inc. (TSXV) Metanor Resources Inc. (TSXV) 3. Orientation and Continuing Education —
Describe what steps, if any, the board takes to orient new board members,
and describe any measures the board takes to provide continuing education for directors.
While the Corporation does not have a formal continuing education program, the directors individually and as a group are encouraged to read and discuss the wide range of articles and papers on the evolving issues of corporate governance. As it relates specifically to the Corporation
s business, certain directors have attended trucking trade
shows and stay current with the hydrogen industry by reading publications. New directors are educated on the process, the technology and the market, while existing directors are kept up to date in this area. To provide orientation to new directors regarding the role of the Board and its audit committee, the Board provides copies of the audit committee charter and discusses the role of management in the Corporation
'
s operations. To orient new directors on the nature
and operation of the Corporation
'
s business, the Board provides new directors with copies of the most recent public
filings of the Corporation. From time to time, the Chief Executive Officer meets with individual directors to update them on issues relating to the business and, in between Board meetings, the Chief Executive Officer also provides updates to the directors regarding the Corporation’s business to ensure that the directors maintain the knowledge regarding the Corporation and its industry necessary for them to meet their obligations as directors. Directors are individually responsible for updating their skills necessary to meet their obligations as directors
4. Ethical Business Conduct —
Describe what steps, if any, the board takes to encourage and promote a culture of
ethical business conduct.
The Board is responsible for promoting an ethical business culture and fostering an environment that emphasises compliance. To that end, the Board has approved a "Code of Business Ethics" and has also development a Whistleblower Policy. To facilitate promote proper business ethics, the Corporation encourages company personnel to adhere to the Corporation's Code of Business Ethics and to promptly report any problems or concerns to their supervisor, or if that is not possible or does not resolve the matter, up the chain of management in accordance with the Whistleblower Policy. To ensure that an ethical business culture is maintained and promoted, directors are encouraged A-2 to exercise their independent judgement. If a director has a material interest in any transaction that the Corporation proposes to enter into, that director is expected to disclose such interest to the Board in compliance with the applicable laws, rules and policies which govern conflicts of interest in connection with such transaction or agreement. 5. Nomination of Directors —
Disclose what steps, if any, are taken to identify new candidates for board nomination,
including: (i) who identifies new candidates, and (ii) the process of identifying new candidates.
The Board is responsible for the identification and assessment of potential directors. While no formal nomination procedure is in place to identify new candidates the Board does review the experience and performance of nominees for the election to the Board, and in particular, any appointments to the audit committee. When required, the Board meets to consider any vacancies on the Board or the desirability of additional members of the Board. Members of the Board are canvassed with respect to the qualifications of a potential candidate and each candidate is evaluated with respect to his or her experience and expertise, with particular attention paid to those areas of expertise that complement and enhance current management. The Board also assesses any potential conflicts, independence or time commitment concerns the candidate may present. 6. Compensation —
Disclose what steps, if any, are taken to determine compensation for the directors and CEO,
including: (i) who determines compensation,
Ronald Perry and James Payne are members of the Corporation's Compensation Committee, which makes recommendateions concerning the compensation for directors (if any) and executives. (ii) the process of determining compensation, and Market comparisons as well as evaluation of similar positions in different industries in the same geography are the criteria used in determining compensation for officers. Compensation of the directors is determined by the Board as a whole, taking into account the relative responsibilities of the directors in serving on the Board and the audit and compensation committees. 7. Other Board Committees —
If the board has standing committees other than the audit and compensation identify the
committees and describe their function.
At present, the Board does not feel it necessary to establish any committees other than the audit committee, the compensation committee and the continuous disclosure committee; however, the Board remains open to such a possibility as the Corporation continues to grow in the future. The Board believes that the Corporation's size is sufficiently small to facilitate a direct management structure without the need to delegate decision making or authority to a committee. 8. Assessments —
Disclose what steps, if any, that the board takes to satisfy itself that the board, its committees, and its
individual directors are performing effectively.
At present, the Board is responsible for assessing the effectiveness of the Board, the audit committee, the compensation committee, the continuous disclosure committee and individual directors. The Board did not consider it necessary to formally assess the effectiveness of the Board, its committees and its individual directors in 2007 as it is sufficiently small to permit all directors to have input on matters on a regular basis and to informally assess the performance of the Corporation throughout the year. B-1 SCHEDULE "B" DYNAMIC FUEL SYSTEMS INC. AUDIT COMMITTEE CHARTER 1.
Establishment of Audit Committee: The directors of the Corporation (the "Directors
") hereby establish an audit
committee (the "
Audit Committee
").
2.
Membership
: The membership of the Audit Committee shall be as follows:
(a) The Audit Committee shall be composed of three members or such greater number as the Directors may from time to time determine. (b) The majority of the members of the Audit Committee shall be independent Directors. (c) Each member of the Audit Committee shall be financially literate. For purposes hereof "financially literate" has the meaning set forth under MI 52-110 (as amended from time to time) and currently means the ability to read and understand a set of financial statements that present the breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can be reasonably be expected to be raised by the Corporation's financial statements. (d) Members shall be appointed annually from among members of the Directors. A member of the Audit Committee shall
ipso facto
cease to be a member of the Audit Committee upon ceasing to be a Director of the
Corporation. 3.
Oversight Responsibility
: The external auditor is ultimately accountable to the Directors and the Audit Committee, as
representatives of the shareholders and such shareholders representatives have the ultimate authority and responsibility to select, evaluate, and where appropriate, replace the external auditors (or to nominate the external auditors to be proposed for shareholder approval in any management information circular and proxy statement). The external auditor shall report directly to the Audit Committee and shall have the responsibilities as set forth herein. 4.
Mandate
: The Audit Committee shall have responsibility for overseeing:
(a) the accounting and financial reporting processes of the Corporation; and (b) audits of the financial statements of the Corporation. In addition to any other duties assigned to the Audit Committee by the Directors, from time to time, the role of the Audit Committee shall include meeting with the external auditor and the senior financial management of the Corporation to review all financial statements of the Corporation which require approval by the Directors, including year end audited financial statements. Specifically, the Audit Committee shall have authority and responsibility for: (a) reviewing the Corporation's financial statements, MD&A and earnings press releases before the information is publicly disclosed; (b) overseeing the work of the external auditors engaged for purpose of preparing or issuing , an audit report or performing other audit, review or attest services for the Corporation, including the resolution of disagreements between management and the external auditors regarding financial reporting; (c) reviewing annually and recommending to the Directors: (i) the external auditors to be nominated for purposes of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation; and (ii) the compensation of the external auditors. (d) discussing with the external auditor:
B-2 (i) the scope of the audit, in particular their view of the quality of the Corporation's accounting principles as applied in the financials in terms of disclosure quality and evaluation methods, inclusive of the clarity of the Corporation's financial disclosure and reporting, degree of conservatism or aggressiveness of the Corporation's accounting principles and underlying estimates and other significant decisions made by management in preparing the financial disclosure and reviewed by the auditors; (ii) significant changes in the Corporation's accounting principles, practices or policies; and (iii) new developments in accounting principles, reporting matters or industry practices which may materially affect the Corporation. (e) reviewing with the external auditor and the Corporation's senior financial management the results of the annual audit regarding: (i) the financial statements; (ii) MD&A and related financial disclosure contained in continuous disclosure documents; (iii) significant changes, if any, to the initial audit plan; (iv) accounting and reporting decisions relating to significant current year events and transactions; (v) the management letter, if any, outlining the auditor's findings and recommendations, together with management's response, with respect to internal controls and accounting procedures; and (vi) any other matters relating to the conduct of the audit, including such other matters which should be communicated to the Audit Committee under Canadian generally accepted auditing standards. (f) reviewing and discussing with the Corporation's senior financial management and, if requested by the Audit Committee, the external auditor: (i) the interim financial statements; (ii) the interim MD&A; and (iii) any other material matters relating to the interim financial statements, including, inter alia, any significant adjustments, management judgments or estimates, new or amended accounting policies. (g) receipt from external auditor of a formal written statement delineating all relationships between the auditor and the Corporation and considering whether the advisory services performed by the external auditor during the course of the year have impacted their independence, and also ensuring that no relationship or services between ) the external auditor and the Corporation is in existence which may affect the objectivity and independence of the auditor or recommending appropriate action to ensure the independence of the external auditor. (h) pre-approval of all non-audit services to be provided to the Corporation or its subsidiary entities by the external auditors or the external auditors of the Corporation's subsidiary entities, unless such pre-approval is otherwise appropriately delegated or if appropriate specific policies and procedures for the engagement of non-audit services have been adopted by the Audit committee. (i) reviewing and discussing with the external auditors and senior financial management: the adequacy of procedures for review of disclosure of financial information extracted or derived from financial statements, other than the disclosure referred to in subparagraph (a) above. (j) establishing and reviewing of procedures for: (i) receipt, retention and treatment of complaints received by the Corporation and its subsidiary entities regarding internal accounting controls, or auditing matters; B-3 (ii) anonymous submission by employees of the Corporation and its subsidiary entities of concerns regarding questionable accounting or auditing matters; and (iii) hiring policies regarding employees and former employees of present and former external auditors of the Corporation and its subsidiary entities. (k) reviewing with the external auditor, the adequacy of management's internal control over financial reporting relating to financial information and management information systems and inquiring of management and the external auditor about significant risks and exposures to the Corporation that may have a material adverse impact on the Corporation's financial statements, and inquiring of the external auditor as to the efforts of management to mitigate such risks and exposures. (1) reviewing and/or considering that, with regard to the previous fiscal year, •
management has reviewed the Corporation's audited financial statements with the Audit Committee,
including a discussion of the quality of the accounting principles as applied and significant judgments affecting the financial statements;
•
the external auditors and the Audit Committee have discussed the external auditors' judgments of the
quality of the accounting principles applied and the type of judgments made with respect to the Corporation's financial statements;
•
the Audit Committee, on its own (without management or the external auditors present), has considered
and discussed all the information disclosed to the Audit Committee from the Corporation's management and the external auditor; and
•
in reliance on review and discussions conducted with senior financial management and the external
auditors, the Audit Committee believes that the Corporation's financial statements are fairly presented in conformity with the with Canadian Generally Accepted Accounting Principles (GAAP) in all material respects and that the financial statements fairly reflect the financial condition of the Corporation. 5.
Administrative Matters
: The following general provisions shall have application to the Audit Committee:
(a) A quorum of the Audit Committee shall be the attendance of a majority of the members thereof. No business may be transacted by the Audit Committee except at a meeting of its members at which a quorum of the Audit Committee is present or by a resolution in writing signed by all the members of the Audit Committee. (b) Any member of the Audit Committee may be removed or replaced at any time by resolution of the Directors of the Corporation. If and whenever a vacancy shall exist on the Audit Committee, the remaining members may exercise all its powers so long as a quorum remains. Subject to the foregoing, each member of the Audit Committee shall hold such office until the close of the annual meeting of shareholders next following the date of appointment as a member of the Audit Committee or until a successor is duly appointed. (c) The Audit Committee may invite such Directors, directors, officers and employees of the Corporation or affiliates thereof as it may see fit from time to time to attend at meetings of the Audit Committee and to assist thereat in the discussion of matters being considered by the Audit Committee. The external auditors are is to appear before the Audit Committee when requested to do so by the Audit Committee. (d) The time and place for the Audit Committee meetings, the calling and the procedure at such meetings shall be determined by the Audit Committee having regard to the Articles and By-Laws of the Corporation. (e) The Chair shall preside at all meetings of the Audit Committee and shall have a second and deciding vote in the event of a tie. In the absence of the Chair, the other members of the Audit Committee shall appoint a representative amongst them to act as Chair for that particular meeting. (f) Notice of meetings of the Audit Committee may be given to the external auditors and shall be given in respect of meetings relating to the annual audited financial statements. The external auditors have the right to appear before and to be heard at any meeting of the Audit Committee. Upon the request of the external auditors, the Chair of the Audit Committee shall convene a meeting of the Audit Committee to consider any
B-4 matters which the external auditors believes should be brought to the attention of the Directors or shareholders of the Corporation. (g) The Audit Committee shall report to the Directors of the Corporation on such matters and questions relating to the financial position of the Corporation or any affiliates of the Corporation as the Directors of the Corporation may from time to time refer to the Audit Committee. (h) The members of the Audit Committee shall, for the purpose of performing their duties, have the right to inspect all the books and records of the Corporation and its affiliates, and to discuss such books and records that are in any way related to the financial position of the Corporation with the Directors, directors, officers, employees and external auditors of the Corporation and its affiliates. (i) Minutes of the Audit Committee meetings shall be recorded and maintained. The Chair of the Audit Committee will report to the Directors on the activities of the Audit Committee and/or the minutes of the Audit Committee meetings will be promptly circulated to the Directors or otherwise made available at the next meeting of Directors. (j) The Audit Committee shall have the authority to: (i) engage independent counsel and other advisors or consultants as it determines necessary to carry out its duties; (ii) set and pay the compensation for any advisors employed by the Audit Committee; and (iii) communicate directly with the internal (if any) and external auditors and qualified reserves evaluators or auditors. C-1 SCHEDULE "C" DYNAMIC FUEL SYSTEMS INC. STOCK OPTION PLAN 1. THE PLAN A stock option plan (the "Plan"), pursuant to which options to purchase common shares, or such other shares as may be substituted therefor ("Shares"), in the capital of Dynamic Fuel Systems Inc. (the "Corporation") may be granted to the directors, officers and employees of the Corporation and to consultants retained by the Corporation, is hereby established on the terms and conditions set forth herein. 2. PURPOSE The purpose of this Plan is to advance the interests of the Corporation by encouraging the directors, officers and employees of the Corporation and consultants retained by the Corporation to acquire Shares, thereby: (i) increasing the proprietary interests of such persons in the Corporation; (ii) aligning the interests of such persons with the interests of the Corporation's shareholders generally; (iii) encouraging such persons to remain associated with the Corporation and (iv) furnishing such persons with an additional incentive in their efforts on behalf of the Corporation. 3. ADMINISTRATION a) This Plan shall be administered by the board of directors of the Corporation (the "Board"). b) Subject to the terms and conditions set forth herein, the Board is authorized to provide for the granting, exercise and method of exercise of Options (as defined in paragraph 3(d) below), all on such terms (which may vary between Options granted from time to time) as it shall determine. In addition, the Board shall have the authority to: (i) construe and interpret this Plan and all option agreements entered into hereunder; (ii) prescribe, amend and rescind rules and regulations relating to this Plan; and (iii) make all other determinations necessary or advisable for the administration of this Plan. All determinations and interpretations made by the Board shall be binding on all Participants (as hereinafter defined) and on their legal, personal representatives and beneficiaries. c) Notwithstanding the foregoing or any other provision contained herein, the Board shall have the right to delegate the administration and operation of this Plan, in whole or in part, to a committee of the Board or to the President or any other officer of the Corporation. Whenever used herein, the term "Board" shall be deemed to include any committee or officer to which the Board has, fully or partially, delegated responsibility and/or authority relating to the Plan or the administration and operation of this Plan pursuant to this Section 3. d) Options to purchase the Shares granted hereunder ("Options") shall be evidenced by: (i) an agreement, signed on behalf of the Corporation and by the person to whom an Option is granted, which agreement shall be in such form as the Board shall approve; or (ii) a written notice or other instrument, signed by the Corporation, setting forth the material attributes of the Options. 4. SHARES SUBJECT TO PLAN a) Subject to Section 15 below, the securities that may be acquired by Participants upon the exercise of Options shall be deemed to be fully authorized and issued Shares of the Corporation. Whenever used herein, the term "Shares" shall be deemed to include any other securities that may be acquired by a Participant upon the exercise of an Option the terms of which have been modified in accordance with Section 15 below. b) The aggregate number of Shares reserved for issuance under this Plan or any other plan of the Corporation, shall not exceed ten percent (10%) of the total number of issued and outstanding Shares (calculated on a nondiluted basis) unless the Corporation receives the permission of the stock exchange or exchanges on which the Shares are then listed to exceed such threshold. c) If any Option granted under this Plan shall expire or terminate for any reason without having been exercised in full, any un-purchased Shares to which such Option relates shall be available for the purposes of the granting of Options under this Plan. C-2 5. MAINTENANCE OF SUFFICIENT CAPITAL The Corporation shall at all times during the term of this Plan ensure that the number of Shares it is authorized to issue shall be sufficient to satisfy the Corporation's obligations under all outstanding Options granted pursuant to this Plan. 6. ELIGIBILITY AND PARTICIPATION a) The Board may, in its discretion, select any of the following persons to participate in this Plan: i. directors of the Corporation; ii. officers of the Corporation; iii. employees of the Corporation; and iv. consultants retained by the Corporation, provided such consultants have performed and/or continue to perform services for the Corporation on an ongoing basis or are expected to provide a service of value to the Corporation; (any such person having been selected for participation in this Plan by the Board is herein referred to as a "Participant"). b) The Board may from time to time, in its discretion, grant an Option to any Participant, upon such terms, conditions and limitations as the Board may determine, including the terms, conditions and limitations set forth herein, provided that Options granted to any Participant shall be approved by the shareholders of the Corporation if the rules of any stock exchange on which the Shares are listed require such approval. c) The Corporation represents that, for any Options granted to an officer, employee or consultant of the Corporation, such Participant is a bona fide officer, employee or consultant of the Corporation. 7. EXERCISE PRICE The Board shall, at the time an Option is granted under this Plan, fix the exercise price at which Shares may be acquired upon the exercise of such Option provided that such exercise price shall not be less than that from time to time permitted under the rules of any stock exchange or exchanges on which the shares are then listed and provided that the exercise price of any Option granted shall be no less than the closing trading price of the Shares on the last trading day immediately preceding the day of grant. In addition, the exercise price of an option must be paid in cash. In accordance with Section 18, disinterested shareholder approval shall be obtained by the Corporation prior to any reduction to the exercise price if the affected Participant is an insider (as such term is defined under the
Securities Act
(Ontario) (hereafter, an "Insider"). 8. NUMBER OF OPTIONED SHARES The number of Shares that may be acquired under an Option granted to a Participant shall be determined by the Board as at the time the Option is granted, provided that the aggregate number of Shares reserved for issuance to any one Participant under this Plan or any other plan of the Corporation, shall not exceed 5% of the total number of issued and outstanding Shares (calculated on a non-diluted basis) in any 12 month period unless the Corporation receives the permission of the stock exchange or exchanges on which the Shares are listed to exceed such threshold and provided further that the number of Options granted to any one consultant in a 12 month period shall not exceed 2% of the total number of issued and outstanding Shares and the aggregate number of Options granted to persons employed to provide investor relations activities shall not exceed 2% of the total number of issued and outstanding Shares in any 12 month period. The Corporation shall obtain shareholder approval for grants of Options to Insiders, of a number of Options exceeding 10% of the issued Shares, within any 12 month period. 9. TERM The period during which an Option may be exercised (the "Option Period") shall be determined by the Board at the time that the Option is granted, subject to any vesting limitations which may be imposed by the Board in its sole unfettered discretion at the time that such Option is granted and Sections 11, 12 and 16 below, provided that: C-3 a) no Option shall be exercisable for a period exceeding five (5) years from the date that the Option is granted unless the Corporation receives the permission of the stock exchange or exchanges on which the Shares are then listed and as specifically provided by the Board and as permitted under the rules of any stock exchange or exchanges on which the Shares are then listed, and in any event, no Option shall be exercisable for a period exceeding ten (10) years from the date the Option is granted; b) no Option in respect of which shareholder approval is required under the rules of any stock exchange or exchanges on which the Shares are then listed shall be exercisable until such time as the Option has been approved by the shareholders of the Corporation; c) the Board may, subject to the receipt of any necessary regulatory approvals, in its sole discretion, accelerate the time at which any Option may be exercised, in whole or in part; and d) any Options granted to any Participant must expire within 90 days after the Participant ceases to be a Participant, and within 30 days for any Participant engaged in investor relation activities after such Participant ceases to be employed to provide investor relation activities. 10. METHOD OF EXERCISE OF OPTION a) Except as set forth in Sections 11 and 12 below or as otherwise determined by the Board, no Option may be exercised unless the holder of such Option is, at the time the Option is exercised, a director, officer, employee or consultant of the Corporation. b) Options that are otherwise exercisable in accordance with the terms thereof may be exercised in whole or in part from time to time during the Option Period. c) Any Participant (or his legal, personal representative) wishing to exercise an Option shall deliver to the Corporation, at its principal office in the City of Pickering, Ontario: (i) a written notice expressing the intention of such Participant (or his legal, personal representative) to exercise his Option and specifying the number of Shares in respect of which the Option is exercised; and (ii) a cash payment, certified cheque or bank draft, representing the full purchase price of the Shares in respect of which the Option is exercised. d) Upon the exercise of an Option as aforesaid, the Corporation shall use reasonable efforts to forthwith deliver, or cause the registrar and transfer agent of the Shares to deliver, to the relevant Participant (or his legal, personal representative) or to the order thereof, a certificate representing the aggregate number of fully paid and non-assessable Shares in respect of which the Option has been duly exercised. 11. CEASING TO BE A DIRECTOR, OFFICER, EMPLOYEE OR CONSULTANT If any Participant shall cease to hold the position or positions of director, officer, employee or consultant of the Corporation (as the case may be) for any reason other than death, his Option will terminate at 4:30 p.m. (Toronto time) on the earlier of the date of the expiration of the Option Period and 90 days after the date such Participant ceases to hold the position or positions of director, officer, employee or consultant of the Corporation as the case may be, and ceases to actively perform services for the Corporation. An Option granted to a Participant who performs investor relations services on behalf of the Corporation shall terminate on the date of termination of the employment or cessation of services being provided and shall be subject to Exchange policies and procedures for the termination of Options for investor relations services. For greater certainty, the termination of any Options held by the Participant, and the period during which the Participant may exercise any Options, shall be without regard to any notice period arising from the Participant
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s ceasing to hold the position or positions of director, officer, employee or consultant of the
Corporation (as the case may be). Neither the selection of any person as a Participant nor the granting of an Option to any Participant under this Plan shall: (i) confer upon such Participant any right to continue as a director, officer, employee or consultant of the Corporation, as the case may be; or (ii) be construed as a guarantee that the Participant will continue as a director, officer, employee or consultant of the Corporation, as the case may be.
C-4 12. DEATH OF A PARTICIPANT In the event of the death of a Participant, any Option previously granted to him shall be exercisable until the end of the Option Period or until the expiration of 12 months after the date of death of such Participant, whichever is earlier, and then, in the event of death, only: a) by the person or persons to whom the Participant's rights under the Option shall pass by the Participant's will or applicable law; and b) to the extent that he was entitled to exercise the Option as at the date of his death. 13. RIGHTS OF PARTICIPANTS No person entitled to exercise any Option granted under this Plan shall have any of the rights or privileges of a shareholder of the Corporation in respect of any Shares issuable upon exercise of such Option until such Shares have been paid for in full and issued to such person. 14. PROCEEDS FROM EXERCISE OF OPTIONS The proceeds from any sale of Shares issued upon the exercise of Options shall be added to the general funds of the Corporation and shall thereafter be used from time to time for such corporate purposes as the Board may determine and direct. 15. ADJUSTMENTS a) The number of Shares subject to the Plan shall be increased or decreased proportionately in the event of the subdivision or consolidation of the outstanding Shares of the Corporation, and in any such event a corresponding adjustment shall be made to the number of Shares deliverable upon the exercise of any Option granted prior to such event without any change in the total price applicable to the unexercised portion of the Option, but with a corresponding adjustment in the price for each Share that may be acquired upon the exercise of the Option. In case the Corporation is reorganized or merged or consolidated or amalgamated with another corporation, appropriate provisions shall be made for the continuance of the Options outstanding under this Plan and to prevent any dilution or enlargement of the same. b) Adjustments under this Section 15 shall be made by the Board, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional Shares shall be issued upon the exercise of an Option following the making of any such adjustment. 16. CHANGE OF CONTROL Notwithstanding the provisions of Section 11 or any vesting restrictions otherwise applicable to the relevant Options, in the event of a sale by the Corporation of all or substantially all of its assets or in the event of a change of control of the Corporation, each Participant shall be entitled to exercise, in whole or in part, the Options granted to such Participant hereunder, either during the term of the Option or within 90 days after the date of the sale or change of control, whichever first occurs. For the purpose of this Plan, "change of control of the Corporation" means and shall be deemed to have occurred upon: a) the acceptance by the holders of Shares of the Corporation, representing in the aggregate, more than 50 percent of all issued Shares of the Corporation, of any offer, whether by way of a takeover bid or otherwise, for all or any of the outstanding Shares of the Corporation; or b) the acquisition, by whatever means, by a person (or two or more persons who, in such acquisition, have acted jointly or in concert or intend to exercise jointly or in concert any voting rights attaching to the Shares acquired), directly or indirectly, of beneficial ownership of such number of Shares or rights to Shares of the Corporation, which together with such person's then owned Shares and rights to Shares, if any, represent (assuming the full exercise of such rights to voting securities) more than fifty percent (50%) of the combined voting rights of the Corporation's then outstanding Shares; or c) the entering into of any agreement by the Corporation to merge, consolidate, amalgamate, initiate an arrangement or be absorbed by or into another corporation; or C-5 d) the passing of a resolution by the Board or shareholders of the Corporation to substantially liquidate the assets or wind-up the Corporation's business or significantly rearrange its affairs in one or more transactions or series of transactions or the commencement of proceedings for such a liquidation, winding-up or rearrangement (except where such re-arrangement is part of a bona fide reorganization of the Corporation in circumstances where the business of the Corporation is continued and where the shareholdings remain substantially the same following the re-arrangement); or e) individuals who were members of the Board of the Corporation immediately prior to a meeting of the shareholders of the Corporation involving a contest for or an item of business relating to the election of directors, not constituting a majority of the Board following such election. 17. TRANSFERABILITY All benefits, rights and Options accruing to any Participant in accordance with the terms and conditions of this Plan shall be non-transferrable and non-assignable unless specifically provided herein. During the lifetime of a Participant, any Options granted hereunder may only be exercised by the Participant and in the event of the death of a Participant, by the person or persons to whom the Participant's rights under the Option pass by the Participant's will or applicable law. 18. AMENDMENT AND TERMINATION OF PLAN a) The Board may, at any time and from time to time, amend, suspend or terminate the Plan or an Option without shareholder approval, provided that no such amendment, suspension or termination may be made without obtaining any required approval of any regulatory authority or stock exchange or the consent or deemed consent of a Participant where such amendment, suspension or termination materially prejudices the rights of the Participant. b) Notwithstanding the provisions of Section 18(a), the Board may not, without the approval of the security holders of the Corporation (or, as may be required by the policies and procedures of the Exchange, the approval of the disinterested security holders of the Corporation), make amendments to the Plan or any Option for any of the following purposes: i. to increase the maximum number of Shares that may be issued pursuant to Options granted under the Plan as set out in Section 8; ii. to reduce the exercise price of Options for the benefit of an Insider; iii. to extend the term of an Option beyond the Option Period for the benefit of an Insider; and iv. to amend the provisions of this Section 18. c) In addition to the changes made pursuant to Section 3, the Board may, at any time and from time to time, without the approval of the security holders of the Corporation amend any term of any outstanding Option (including, without limitation, the exercise price, vesting and expiry of the Option), provided that: i. any required approval of any regulator authority or stock exchange is obtained; ii. if the amendments would reduce the exercise price or extend the expiry date of the Options granted to Insiders, approval of the security holders of the Corporation must be obtained; iii. the Board would have had the authority to initially grant the Option under the terms so amended; and iv. the consent or deemed consent of the Participant is obtained if the amendment would materially prejudice the rights of the Participant under the Option. 19. NECESSARY APPROVALS The obligation of the Corporation to issue and deliver Shares in accordance with this Plan and Options granted hereunder is subject to applicable securities legislation and to the receipt of any approvals that may be required from C-6 any regulatory authority or stock exchange having jurisdiction over the securities of the Corporation. If Shares cannot be issued to a Participant upon the exercise of an Option for any reason whatsoever, the obligation of the Corporation to issue such Shares shall terminate and any funds paid to the Corporation in connection with the exercise of such Option will be returned to the relevant Participant as soon as practicable. 20. STOCK EXCHANGE RULES This Plan and any option agreements entered into hereunder shall comply with the requirements from time to time of the stock exchange or exchanges on which the Shares are listed. 21. RIGHT TO ISSUE OTHER SHARES The Corporation shall not by virtue of this Plan be in any way restricted from declaring and paying stock dividends, issuing further Shares, varying or amending its share capital or corporate structure or conducting its business in any way whatsoever. 22. NOTICE Any notice required to be given by this Plan shall be in writing and shall be given by registered mail, postage prepaid or delivered by courier or by facsimile transmission addressed, if to the Corporation, at its principal address in Pickering, Ontario (Attention: President); or if to a Participant, to such Participant at his address as it appears on the books of the Corporation or in the event of the address of any such Participant not so appearing then to the last known address of such Participant; or if to any other person, to the last known address of such person. 23. GENDER Whenever used herein words importing the masculine gender shall include the feminine and neuter genders and vice versa. 24. INTERPRETATION This Plan will be governed by and construed in accordance with the laws of the Province of Ontario.
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