JOINT VENTURE & SHAREHOLDERS' AGREEMENT

CLAUSE   

HEADING PAGE

20A.

DEFAULT

 21.

DEADLOCK

 23.

NON-COMPETITION

 24.

PERFORMANCE OF AGREEMENT

 25.

NAME

 26.

NOTICES

         27.

REMEDIES

         28.

SEVERANCE

         29.

GOVERNING LAW & JURISDICTION

         30.

ENTIRE AGREEMENT

 31.

ASSIGNMENT

         32.

FURTHER ACTS

 33.

COSTS

 34.

NON-PARTNERSHIP

 39.

SURVIVAL OF RIGHTS, DUTIES AND OBLIGATIONS

(1)

ULIMEC SDN. BHD. (Malaysian Company Registration No. 151197-W) , a private company limited by shares duly incorporated and existing under the laws of Malaysia with its principal place of business at No. 38, Jalan Ng Pi Ton, Taman Sayang, Kluang Baru, 86000 Kluang, Johor (in this Agreement called “ULIMEC”) of the first part;

AND

(2)

ITFX SDN. BHD. (Malaysian Company Registration No. 488239-X) , a private company limited by shares duly incorporated and existing under the laws of Malaysia with its principal place of business at 105, Wangsa Satu, Wangsa Ukay, Bukit Antarabangsa, 68000 Ampang, Selangor Darul Ehsan, Malaysia (in this Agreement called “ITFX”) of the second part;

AND

(3)

FIRST AMERICAN SCIENTIFIC CORPORATION (Canadian Company Registration No.   ) , a private company with limited liability duly incorporated and existing under the laws of British Columbia, Canada and having its place of business at Suite 811-100, Park Royal South, West Vancouver, B.C., V7T 1A2 (in this Agreement called “FASC”) of the last part.

(A)

ULIMEC and ITFX are in the business of sourcing, developing and acquiring new technology for application in various industries in Malaysia, including the palm oil industry in Malaysia, and have, in particular, the expertise and know-how in the palm oil industry in Malaysia.

(B)

FASC is an equipment manufacturer and provider of turn-key systems and is the creator and owner of a patented grinder-dryer technology called the “KDS Micronex Reduction System” (in this Agreement called “the KDS System”), and which technology is reflected in a micronizing machine (in this Agreement called “the KDS Micronex Machine”) manufactured and produced by FASC. FASC has the know-how and expertise in the manufacture and operation of the KDS Micronex Machine.

(C)

The parties have agreed to collaborate with each other to carry on business in the area of selling and marketing the KDS Micronex Machine and to facilitate the same, have agreed to establish a joint venture company in Malaysia.

(D)

The parties have agreed that their respective rights as shareholders of the joint venture company shall be regulated by the provisions of this Agreement and the Memorandum and Articles of Association of the joint venture company.

OPERATIVE PROVISIONS:-

1. 

DEFINITIONS

In this Agreement, unless the context otherwise requires, the following words and expressions shall have the following meanings respectively:-

“Act”

means the Companies Act 1965 of Malaysia;

“Affiliate”

means any company which is controlled by a Shareholder or which is controlling or under the same control as a Shareholder. For this purpose, control shall mean the direct or indirect ownership of 50% or more of the shares entitled to vote;

“Annual Budget”

means the annual operating budget and any other financial and investment plans approved by the Board under Clause 14.1 and as may be amended from time to time;

“Articles”

means the Articles of Association for the time being of the Company;

“Auditors”

means the auditors for the time being of the Company;

“Board”

means the board of directors for the time being of the Company;

“Business”

has the meaning ascribed to it in Clause 5.2 and includes such other business as may be authorised pursuant to the Business Plan;

“Business Day”

means a day except a Saturday, Sunday or public holiday (gazetted or ungazetted and whether scheduled or unscheduled) on which banks are open for business in Kuala Lumpur;

“Business Plan”

means the business plan of the Company for a specified period, which business plan shall specifically:-

“Chairman”

means the chairman of the Board for the time being;

“Chief Executive Officer”

has the meaning ascribed to it in Clause 11.1;

“Company”

means the private company with limited liability to be established by the Parties in Malaysia to undertake the Business, as more particularly referred to in Clause 4;

“Debenture”

has the meaning ascribed to it in section 2 of the Securities Commission Act 1993 of Malaysia;

“Directors”

means the directors for the time being of the Company and the expression “Director” shall mean any of them;

“Fair Market Value”

means the value of the Company agreed by the Shareholders, provided that if the Shareholders cannot agree, then the Shareholders will jointly select an independent major international accounting firm, or if the Shareholders fail to so jointly select, the Auditors, to independently determine and certify the value of the Company based on the Company’s net tangible and intangible assets on a willing seller-willing buyer basis;

“FASC”

means First American Scientific Corporation (Canadian Company Registration No.

);

“Information”

means confidential information relating to a Party or its business made available by it to any other Party (or its representatives), whether before or after this Agreement is entered into, for the purpose of considering, advising in relation to or furthering the Business or for the performance of this Agreement (and any information or analysis derived from such information) and shall include all information relating to any investment or potential investment and all reports, reviews and strategies prepared for the Company in respect of its business;

“Initial Budget”

means the budget as annexed hereto to Appendix 3 detailing the working capital requirements for the Company for the period of 1 year from the date the Company commences operations. For the purposes hereof, the Company “commences operations” on the date the Company places its first order for a KDS Micronex Machine from FASC for the demonstration plant in Malaysia;

“ITFX”

means ITFX Sdn. Bhd. (Malaysian Company Registration No. 488239-X);

“KDS Micronex Machine”

means the micronizing machine designed, manufactured and sold by FASC which utilises the KDS System, the specifications of which are annexed hereto to Appendix 2, and includes all improvements thereto made by FASC from time to time;

“KDS System”

means the patented grinder-dryer micronizing technology called the “KDS Micronex Reduction System” utilised in the KDS Micronex Machine;

“Ordinary Shares”

means the ordinary shares of par value RM1.00 each in the share capital of the Company (subject always to any subdivision of the same), and the expression “Ordinary Share” means an ordinary share in the capital of the Company;

“Parties”

means collectively ULIMEC, ITFX and FASC and any other person becoming a party to this Agreement and the expression “Party”   shall refer to any one of them as the context dictates;

“Pro Rata Share”

means the ratio determined, immediately prior to a proposed transfer, by dividing (i) the number of Ordinary Shares held by the particular Shareholder (as a numerator) by (ii) the total number of Ordinary Shares held by the Shareholders excluding the number of Ordinary Shares held by the transferor Shareholder undertaking the proposed transfer (as a denominator);

“Revised Pro Rata Share”

means the ratio determined, immediately prior to a proposed transfer, by dividing (i) the number of Ordinary Shares held by the particular Shareholder (as a numerator) by (ii) the total number of Ordinary Shares held by the Shareholders excluding (a) the number of Ordinary Shares held by the transferor Shareholder undertaking the proposed transfer and (b) the number of Ordinary Shares held by the Shareholder(s) who have not accepted their full entitlement of their Pro Rata Share (as a denominator);

 “Secretary”

means the company secretary for the time being of the Company;

“Shares”

means the shares (whether ordinary or preferred) in the share capital of the Company, and the expression “Share” means a share in the capital of the Company;

“Shareholders”

means the holders of Shares in the capital of the Company and the expression “Shareholder” means a person who is registered as a holder for the time being of Shares in the capital of the Company and which person is a party to this Agreement;

“Subsidiaries”

means any corporation which by virtue of section 5 of the Act is deemed a subsidiary of the Company;

“Technology”

means any and all technology, technical know-how, engineering techniques, experience, data, specifications, processes, drawings, designs, programs, software, hardware, database, proprietary rights, know-how and other material including all improvements thereto and adaptations thereof;

“ULIMEC”

means ULIMEC Sdn. Bhd. (Malaysian Company Registration No. 151197-W); and

“US$”

means the lawful currency of the United States of America.

2.

INTERPRETATION

In this Agreement unless the context otherwise requires:-

the words “hereof”, “herein”, “hereon” and “hereunder” and words of similar import, when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement;

(vi)

words importing the singular number shall include the plural number and vice versa and references to natural persons shall include bodies corporate and the use of any gender shall include all other genders;

(vii)

the headings to the clauses hereof shall not be taken into consideration in the interpretation or construction thereof or of this Agreement;

(viii)

any reference to a statutory provision shall include such provision and any regulations made in pursuance thereof as from time to time modified or re-enacted whether before or after the date of this Agreement;

(ix)

references to Recitals, Clauses, Schedules and Appendices are references to recitals and clauses of and schedules and appendices to this Agreement unless otherwise stipulated;

(x)

any reference to this Agreement or any other agreement or deed or document shall be construed as a reference to this Agreement or, as the case may be, such other agreement or deed or document as the same may be or have been or may from time to time be amended, varied or supplemented;

(xi)

a period of days from the occurrence of an event or the performance of any act or thing shall be deemed to exclude the day on which the event happens or the act or thing is done or to be done (and shall be reckoned from the day immediately following such event or act or thing), and if the last day of the period is not a Business Day, then the period shall include the next following day which is a Business Day;

(xii)

“including” and similar expressions are not and must not be treated as words of limitation;

“encumbrance” includes any interest or equity of any person (including any right to acquire, option or right of first refusal) or any mortgage, charge, pledge, lien, assignment, hypothecation, security interest, title retention or any other security agreement or arrangement; and

(xiv)

the expressions “ULIMEC”, “ITFX” and “FASC” shall include their respective successors and permitted assigns.

3.

OBJECT

3.1

The purpose of this Agreement is to set forth the terms and conditions of the agreement and understanding reached between the Parties in respect of the Company and the Business.

3.2

In consideration of the mutual agreements and undertakings set out herein, the Shareholders have granted the rights and accepted the obligations hereinafter appearing.

4.

ESTABLISHMENT OF THE COMPANY

4.1

The Parties agree to acquire a dormant “shelf” company, being a private company with limited liability under the laws of Malaysia, as the Company to undertake the Business.

4.2

The Parties propose to name the Company as “First American Scientific Corp. (Malaysia) Sdn Bhd” or in the alternative as “FASC (Malaysia) Sdn Bhd”. In the event the Registrar of Companies of Malaysia does not approve either of these names, the Parties shall mutually agree in good faith on an alternative suitable name of the Company.

4.3

The Parties agree that ULIMEC and ITFX shall be responsible for acquiring the dormant “shelf” company as the Company.

4.4

The Company shall initially (upon acquisition) have an authorised share capital of RM100,000 divided into 100,000 Ordinary Shares and with an issued and paid up share capital of RM2.00 divided into 2 Ordinary Shares, which 2 Ordinary Shares shall be transferred to ULIMEC and ITFX equally..

5.

BUSINESS OF THE COMPANY

5.1

The Business shall be conducted in the Company’s best interests on sound commercial principles and in accordance with good business practice and subject to the provisions of this Agreement, the Memorandum and Articles of Association and any applicable laws.

5.2

The Shareholders agree that the business of the Company shall include the following (in this Agreement collectively called “ the Business ”):-

            5.2.2

provision of servicing and maintenance for the KDS Micronex Machine in Malaysia and any other territories agreed by the Board;

            5.2.3

manufacture of the KDS Micronex Machine in Malaysia at such time and upon such terms as shall be mutually agreed in good faith between the Parties in accordance with Clause 8.4; and

            5.2.4

research and development of the KDS System and the KDS Micronex Machine and other micronizing technology.

The Parties agree that all commercial transactions between (i) the Company and (ii) any Shareholder or its Affiliate, shall be at arms-length and bona fide for value and any such transactions shall not be on terms or conditions more favourable than would be extended to a non-related person.

5.4

The Business of the Company other than as may be specifically referred to in this Agreement shall be detailed from time to time in the Business Plan.

5.5

The Parties agree that upon completion of the Initial Subscription (as hereinafter defined) the Company will:-

             5.5.1

proceed to order one unit KDS Micronex Machine from FASC at a cost of US$140,000.00 (excluding the cost of the electrical components); and

             5.5.2

set up a demonstration plant in Malaysia for the KDS System utilising such KDS Micronex Machine acquired from FASC.

5A.

WARRANTIES AND REPRESENTATIONS

5A.1 

Each Party represents and warrants to the other Party that:- 

            5A.1.1

it is validly formed and existing under the laws of the country of its incorporation;

           5A.1.2

it has the power and authority to enter and lawfully perform this Agreement;

           5A.1.3

it has taken all necessary actions and passed all necessary resolutions or taken all necessary steps, as the case may be, to authorise the entry into and performance of this Agreement including for the purposes of undertaking the obligations contemplated by this Agreement;

            5A.1.4

this Agreement is legal and binding on such Party;

            5A.1.5

the execution, delivery and performance of this Agreement, will not exceed the power granted to such Party by or violate the provisions of:-

(a)

any law or regulation or any order or decree of any governmental authority, agency or court to which it is subject; or

(b)

its memorandum and articles of association or other constitutive documents; and

            5A.1.6

it is not and will not be entitled to any immunity from suit or other legal process in any proceedings in any jurisdiction.

6.

CAPITAL CALL & SHAREHOLDING

6.1

Subject to Clause 6.2 and Clause 6.3, within 14 Business Days from the date of this Agreement or from the date the Registrar of Companies of Malaysia approves the new name of the Company, whichever date shall be later, each Shareholder shall subscribe and pay for the following proportions of new Ordinary Shares (in this Clause called “the Initial Subscription”):-

6.2

The consideration payable by ULIMEC and ITFX for their respective portions of the Initial Subscription shall be cash and on a partly paid up basis of RM0.60 per new Ordinary Share. The balance consideration of RM0.40 outstanding on each such new Ordinary Share shall be paid, in full or in part, when called to meet the working capital requirements of the Company in accordance with the Initial Budget.

6.3

The consideration payable by FASC for its portion of the Initial Subscription shall be a non-cash consideration, through the grant by FASC to the Company of an exclusive 20 year licence for the use, marketing and sale of the KDS Micronex Machine and all technology associated therewith in Malaysia for the processing of oil palm tree waste in the palm oil industry and other wastes in other industries, which licence is valued at RM1,000,000.

6.3A

Upon completion of the Initial Subscription, the shareholding of Ordinary Shares in the Company will be as follows:-

FASC

1,000,000

6.4

Subject to the provisions of this Agreement, the shareholding of Ordinary Shares in the Company shall at all times be maintained in the following proportions:-

Shareholder         

Percentage of Shareholding

7.

SHARE CAPITAL OF THE COMPANY

7.1

The issued and paid-up share capital of the Company shall be in the proportions referred to in Clause 6.4 and unless otherwise altered pursuant to this Agreement, the Shareholders' equity ratio in the Company so reflected shall be maintained at all times as aforesaid.

7.2

If there is any increase in the paid-up share capital of the Company, each Shareholder shall have the pre-emptive right to subscribe for such further Shares in the applicable proportions referred to in Clause 7.1.

8.1

ULIMEC and ITFX undertake with FASC as follows:-

that ULIMEC will provide cash advances to the Company, from time to time, up to an aggregate of RM500,000 to enable the Company to meet its working capital requirements in accordance with the Initial Budget. Such advances shall be provided on an interest free basis and shall be repayable by the Company to ULIMEC once the Company achieves profitability;

8.1.2

that they will provide the expertise and market links for the sale of the KDS Micronex Machine in Malaysia;

8.1.3

to assist in the development and expansion of the Business.

8.2.1

that it will provide the Company with the necessary Technology and expertise in the use and operation of the KDS Micronex Machine;

8.2.2

to assist in the transfer of technology to the Company in respect of the KDS System on terms and conditions to be agreed by the Parties; and

8.2.3

to assist in the development and expansion of the Business.

8.3

The Parties agree that the Company shall:-

8.3.1

pay to FASC a royalty of 8% of the selling price for each KDS Micronex Machine sold in Malaysia. For the avoidance of doubt, FASC shall not be entitled to any royalty in respect of the sale of the first KDS Micronex Machine to be utilised in the Company’s demonstration plant in Malaysia; and

8.3.2

that ULIMEC and ITFX will be entitled to be paid a commission by the Company for each KDS Micronex Machine sold in Malaysia, the amount of which commission shall be mutually agreed between the Parties.

8.4

It is the intention of the Parties that the Company will as soon as practicable after completion of the Initial Subscription proceed to set up a demonstration plant in Malaysia in respect of the KDS Micronex Machine. Further, it is the intention of the Parties that FASC will grant to the Company the right to manufacture and produce the KDS Micronex Machine in Malaysia once the demonstration plant is completed and the Company has received positive market feedback in Malaysia on the KDS Micronex Machine. The Parties agree to negotiate in good faith the terms and conditions of the grant by FASC to the Company of the right to manufacture and produce the KDS Micronex Machine in Malaysia. The agreed terms and conditions of such manufacturing rights shall be embodied in a separate agreement between FASC and the Company.

8.5

As a material inducement to ULIMEC and ITFX to enter into this Agreement, FASC hereby represents and warrants to ULIMEC and ITFX that:-

(i)

FASC is the inventor of the KDS Micronex Machine and the owner of the KDS System;

(ii)

it is not aware of any unsatisfied judgments, orders or writs of execution that may affect the Intellectual Property Rights in and to the KDS System and the KDS Micronex Machine;

(iii)

it has not granted any rights to any person for the manufacture, use and sale of the KDS Micronex Machine in Malaysia;

(iv)

the KDS System, the KDS Micronex Machine and all Intellectual Property Rights subsisting respectively therein do not and will not infringe the Intellectual Property Rights of any person and its exploitation does not and will not require any consent from, nor the making of any payment to, any person other than FASC;

(v)

the KDS System and the KDS Micronex Machine and any Intellectual Property Rights subsisting respectively therein have not been the subject of a claim by a third party based on the infringements by the KDS System and the KDS Micronex Machine on that party's Intellectual Property Rights prior to the date of this Agreement, and no third party has threatened or is threatening any infringement of this kind or has made or is making any claims or has commenced or threatened to commence, or is commencing or threatening to commence, any proceedings in relation to the KDS System and/or the KDS Micronex Machine; and

(vi)

the following applications for the registration of patents in respect of the KDS System and the KDS Micronex Machine have been duly filed with the relevant bodies:-

(a)

Patent application [No. 10/127,662] filed on 23 April 2002 with the United States Patent and Trademark Office. Application approved and patent [No. 6,55,167 B2] has been granted on 2 December 2003;

(c)

Patent application [No. 197677] filed on 23 November 1998 with the United States Patent and Trademark Office. Application approved and patent [No. 6,024,307] has been granted on 15 February 2000;

Canada

(e)

Patent application [No. 2,344,511] filed on 19 April 2001 with the Canadian Intellectual Property Office;

Europe

9.

OPERATIONS OF THE COMPANY

9.1

The Shareholders agree to exercise their respective rights as a shareholder of the Company and (insofar as it lawfully can) to ensure that:-

9.1.1

the Company performs and complies with all obligations on its part under this Agreement and complies with the restrictions imposed upon it under the Articles; and

9.1.2

the Business is conducted in accordance with law, sound and good business practice and the highest ethical standards.

9.2

The Shareholders acknowledge and agree that unless and until the Board decides otherwise, the business of the Company shall be confined to the activities defined as Business in this Agreement.

10.

CONDUCT OF BUSINESS

10.1

The affairs of the Company shall be managed by a chief executive officer (in this Agreement called “the Chief Executive Officer”).

10.2

The Chief Executive Officer shall, in accordance with the directions and policies of the Board, be responsible for the day-to-day management and operations of the Company. The Chief Executive Officer shall act in accordance with the directions of the Board and shall be responsible for such matters as shall be delegated to him by the Board.

10.3

Each Party shall have the right to nominate the candidate for the office of the Chief Executive Officer. Notwithstanding the right to nominate such candidate, each Party shall consult the other Parties prior to nominating such candidate and submitting his candidature to the Board for approval. The appointment of the Chief Executive Officer shall require the approval of the Board.

11.

BOARD OF DIRECTORS

11.1

Constitution of Board : The Parties agree that the Board shall at all times consist of a maximum of four (4) Directors, of which ULIMEC shall nominate two (2) Directors and FASC shall nominate two (2) Directors.

11.2

Removal of Directors : The right to nominate the Directors under Clause 11.1 shall include the corresponding right from time to time to remove any nominee or nominees and to substitute for another or others in his or their place.

11.3

Appointment and Removal : Any appointment or removal of a Director as aforesaid shall be made in writing and be signed by or on behalf of the relevant Shareholder and shall be delivered to the registered office for the time being of the Company. Subject to Clauses 11.1 and 11.2, in order to give effect to the provisions of this Clause 11, each of the Shareholders shall exercise all its voting rights for the time being in the Company to enable such Director(s) to be appointed. Notwithstanding anything else to the contrary herein contained, a Director shall cease to be a Director of the Company (and the appointing Shareholder shall forthwith remove such Director) if such Director:-

(iii)

is otherwise prevented from being a director due to any statutory disqualification; or

(iv)

the Shareholder appointing such Director shall cease to hold any Shares in the Company.

11.4

Alternate Director : A Director shall be entitled at any time and from time to time to appoint any person to act as his alternate and to terminate the appointment of such person and in that connection the provisions of the Articles shall be complied with.  Such alternate director shall be entitled while holding office as such to receive notices of meetings of the Board and to attend and vote as a Director at any such meetings