Votes Required for Certain Transactions

Under the OBCA, certain corporate actions, such as certain amalgamations (other than with a direct or indirect wholly-owned subsidiary), continuances, and sales, leases or exchanges of all or substantially all the property of a corporation other than in the ordinary course of business, and other corporate actions such as liquidations, dissolutions and (if ordered by a court) arrangements, are required to be approved by special resolution. A special resolution is a resolution passed at a special meeting by not less than two-thirds of the votes cast in respect of the resolution; in certain cases, a special resolution to approve certain corporate actions is also required to be approved separately by the holders of a class or series of shares, including in certain cases a class or series of shares not otherwise carrying voting rights.

The DGCL requires the affirmative vote of a majority of the outstanding stock entitled to vote thereon to authorize any merger, consolidation, dissolution or sale of substantially all of the assets of a corporation, except that no authorizing stockholder vote is required of a corporation surviving a merger if (a) such corporation's certificate of incorporation is not amended in any respect by the merger, (b) each share of stock of such corporation outstanding immediately prior to the effective date of the merger will be an identical outstanding or treasury share of the surviving corporation after the effective date of the merger and (c) the number of shares to be issued in the merger, together with the number of shares initially issuable upon conversion of any other shares, securities or obligations issued or delivered in the merger, does not exceed 20 percent of such corporation's outstanding common stock immediately prior to the effective date of the merger. The DGCL does not generally require class voting, except in connection with certain amendments to the Certificate of Incorporation that, among other things, adversely affects a class of stock. Stockholder approval is also not required under the DGCL for mergers or consolidations in which a parent corporation merges or consolidates with a subsidiary of which it owns at least 90 percent of the outstanding shares of each class of stock. Finally, unless required by its certificate of incorporation, stockholder approval is not required under the DGCL for a corporation to merge with or into a direct or indirect wholly owned subsidiary of a holding company (as defined in the DGCL) in certain circumstances.

Under Section 203 of the DGCL ("Section 203"), certain "business combinations" with "interested shareholders" of Delaware corporations are subject to a three year moratorium unless specified conditions are met. Under Section 203, a Delaware corporation is prohibited from engaging in a "business combination" with an "interested stockholder" for three years following the date that such person or entity becomes an interested stockholder. With certain exceptions, an interested stockholder is a person or entity who or which owns, individually or with or through certain other persons or entities, 15% or more of the corporation's outstanding voting shares (including any rights to acquire shares pursuant to an option, warrant, agreement, arrangement, or understanding, or upon the exercise of conversion or exchange rights, and shares with respect to which the person or entity has voting rights only).

The three year moratorium imposed by Section 203 on business combinations does not apply if (a) prior to the date on which such stockholder becomes an interested stockholder the board of directors of the subject corporation approves either the business combination or the transaction that resulted in the person or entity becoming an interested stockholder; (b) upon consummation of the transaction that made him or her an interested stockholder, the interested stockholder owned at least 85% of the corporation's voting shares outstanding at the time the transaction commenced (excluding from the 85% calculation shares owned by directors who are also officers of the subject corporation and shares held by employee stock plans that do not give employee participants the right to decide confidentially whether to accept a tender or exchange offer); or (c) on or after the date such person or entity becomes an interested stockholder, the board approves the business combination and it is also approved at a stockholders' meeting by 66 2/3% of the outstanding voting shares not owned by the interested stockholder. Section 203 also might have the effect of limiting the ability of a potential acquirer to make a two tiered bid for the Company in which all stockholders would not be treated equally. Stockholders should note, however, that the application of Section 203 will confer upon the Company's board of directors the power to reject a proposed business combination in certain circumstances, even though a potential acquirer may be offering a substantial premium for the Corporation's shares over the then current market price. Section 203 would also discourage certain potential acquirers unwilling to comply with its provisions. Section 203 is not applicable to companies that are not listed on a (US) national stock exchange or that do not have a class of voting securities held of record by more than 2,000 stockholders. Accordingly, Section 203 does not presently apply to the Corporation. A Delaware corporation to which Section 203 applies may elect not to be governed by Section 203, and the Corporation reserves the right to opt out of Section 203 at any time in the future.

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Cumulative Voting

Under the OBCA, unless a corporation's articles provide otherwise, there is no cumulative voting for the election of directors.

Under Delaware law, cumulative voting in the election of directors is not mandatory, and for cumulative voting to be effective it must be expressly provided for in the certificate of incorporation. In an election of directors under cumulative voting, each share of stock nominally having one vote is entitled to a number of votes equal to the number of directors to be elected. A stockholder may then cast all such votes for a single candidate or may allocate them among as many candidates as the stockholder may choose. Without cumulative voting, the holders of a majority of the shares of stock present at an annual meeting would have the power to elect all the directors to be elected at that meeting, and no person could be elected without the support of holders of a majority of the shares of stock. The charter documents for SusGlobal Energy Delaware will not provide for cumulative voting.

Classified Board of Directors

Under the OBCA, it is not necessary that all directors elected at the same meeting hold office for the same term. The OBCA also provides that, unless expressly elected for a stated term, each director ceases to hold office at the close of the first annual meeting of shareholders following his or her election, and the OBCA requires that a director cease to hold office not later than the close of the third annual meeting of shareholders following his or her election.

A classified board of directors is one on which a certain number, but not all, of the directors are elected on a rotating basis each year. The DGCL permits a corporation to establish a classified board of directors, pursuant to which the directors can be divided into as many as three classes with staggered three year terms of office, with only one class of directors standing for election each year. Members of a classified board may be removed from office only for cause. A classified board of directors could therefore discourage acquisitions of the Company not approved by management, since the acquirer could be unable to install its own designees on the board for more than two years after acquiring control. SusGlobal Energy Delaware’s certificate of incorporation and bylaws will not provide for a classified board.

Calling a Shareholders Meeting

Under the OBCA, the holders of not less than 5% of the issued shares of a corporation that carry the right to vote at the meeting sought to be held may requisition the directors to call a meeting of shareholders. Upon the satisfaction of the technical requirements set out in the OBCA for making such a requisition, the directors of the corporation must call a meeting of shareholders. If the directors do not call a meeting within 21 days of receiving the requisition, any shareholder who signed the requisition may call the meeting.

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Under the DGCL, special meetings of the shareholders may be called by the board of directors or by any other person as may be authorized to do so by the certificate of incorporation or the bylaws of the corporation. SusGlobal Energy Delaware’s certificate of incorporation will not limit the ability of stockholders to take action by written consent, and its bylaws permit action by written consent. Under the bylaws of SusGlobal Energy Delaware a special meeting of stockholders may be called by the Board of Directors or the Company’s chief executive officer.

Shareholder Quorum

Under the OBCA, a corporation's bylaws may specify the number of shares with voting rights attached thereto which shall be present, or represented by proxy, in order to constitute a quorum for the transaction of any business at any meeting of the shareholders.

Under the DGCL, a corporation's certificate of incorporation or bylaws may specify the number of shares of stock or the voting power that shall be present, or represented by proxy, in order to constitute a quorum for the transaction of any business at any meeting of the stockholders, in no event, however, shall a quorum consist of less than one third of the shares entitled to vote at the meeting except that, where a separate vote by a class or series of classes or series is required, a quorum shall consist of no less than one third of the shares of such class or series or classes or series. Under the bylaws of SusGlobal Energy Delaware, at any meeting of stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of the stock entitled to vote who are present, in person or by proxy may adjourn the meeting to another place, date or time.

Advance Notice Provisions for Shareholder Nominations and Proposals

Under the OBCA, proposals with respect to the nomination of candidates for election to the board of directors may be made at or before any annual meetings of the corporation. Any shareholder may submit a proposal, and a shareholder or persons who have the support of persons who represent, in the aggregate, not less than 5% of the shares or 5% of the shares o f a class or series of shares of the corporation entitled to vote at the meeting to which the proposal is to be presented may submit a proposal nominating a director for election. If a shareholder or shareholders submitting a proposal submit notice to a corporation of the matter that such shareholder or shareholders propose to raise at a meeting of shareholders not later than 60 days prior to the anniversary of the last previous annual meeting of shareholders, then the corporation is required (subject to certain exceptions) to set out the proposal and any statement of support submitted by the shareholder or shareholders in the management information circular in respect of such meeting. If a corporation refuses to accept a notice that otherwise complies with the related provisions of the OBCA, the shareholder or shareholders who provided such notice and proposal may apply to a court to make any order that it seems fit, including restraining the holding of a meeting at which it was sought to bring forth such a proposal.

The DGCL does not require advance notice for stockholder nominations and proposals, but a Delaware corporation may require such advance notice pursuant to its bylaws.

Amendment to Governing Documents

Under the OBCA, any amendment to a corporation's articles generally requires approval by special resolution which is a resolution passed by not less than two-thirds of the votes cast by shareholders entitled to vote on the resolution. The OBCA provides that unless the articles or bylaws otherwise provide, the directors may, by resolution, make, amend or repeal any bylaws that regulate the business or affairs of a corporation. Where the directors make, amend or repeal a bylaw, they are required under the OBCA to submit the bylaw, amendment or repeal to the shareholders at the next meeting of shareholders, and the shareholders may confirm, reject or amend the bylaw, amendment or repeal. If the directors of a corporation do not submit a bylaw an amendment or a repeal to the shareholders at the next meeting of shareholders, the bylaw, amendment or repeal will cease to be effective, and no subsequent resolution of the directors to adopt, amend or repeal a bylaw having substantially the same purpose and effect is effective until it is confirmed or confirmed as amended by the shareholders.

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The DGCL requires a vote of the corporation's board of directors followed by the affirmative vote of a majority of the outstanding stock of each class entitled to vote for any amendment to the certificate of incorporation. If an amendment alters the powers, preferences or special rights of a particular class or series of stock so as to affect them adversely, that class or series shall be given the power to vote as a class notwithstanding the absence of any specifically enumerated power in the certificate of incorporation. If an amendment adversely affects the rights or preferences of a particular class or series of stock, that class or series must approve the amendment as a class even if the certificate of incorporation does not provide that right. The DGCL also states that the power to adopt, amend or repeal the bylaws of a corporation shall be in the stockholders entitlement to vote, provided that the corporation in its certificate of incorporation may confer such power on the board of directors in addition to the stockholders. The Certificate of Incorporation of SusGlobal Energy Delaware confers such power on the Company's board of directors.

Dissenters’ or Appraisal Rights

The OBCA provides that shareholders of a corporation governed thereunder who are entitled to vote on certain matters are entitled to exercise dissent rights and to be paid the fair value of their shares in connection therewith. The OBCA does not distinguish for this purpose between listed and unlisted shares. Such matters include: (i) any amalgamation with another corporation (other than with certain affiliated corporations); (ii) an amendment to the corporation's articles to add, change or remove any provisions restricting the issue, transfer or ownership of shares; (iii) an amendment to the corporation's articles to add, change or remove any restriction upon the business or businesses that the corporation may carry on; (iv) a continuance under the laws of another jurisdiction; (v) a sale, lease or exchange of all or substantially all the property of the corporation other than in the ordinary course of business; (vi) matters in respect of which a court has granted dissent rights to shareholders; or (vii) certain amendments to the articles of a corporation which require a separate class or series vote.

Under the DGCL, registered holders of shares of any class or series have the right, in certain circumstances, to dissent from a merger or consolidation of the corporation by demanding payment in cash for the shares equal to the fair value (excluding any appreciation or depreciation as a consequence, or in expectation, of the transaction) of such shares, as determined by agreement with the corporation or by an independent appraiser appointed by a court in an action timely brought by the corporation or the dissenters. The DGCL grants dissenters appraisal rights only in the case of mergers or consolidations and not in the case of a sale or transfer of assets or a purchase of assets for stock regardless of the number of shares being issued, and does not grant dissenters' rights in connection with amendments to the certificate of incorporation. Further, no appraisal rights are available for shares of any class or series listed on a national securities exchange or held of record by more than 2,000 stockholders, unless the agreement of merger or consolidation converts such shares into anything other than (a) stock of the surviving corporation (or depositary receipts in respect thereof), (b) stock of another corporation which is either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by NASDAQ or held of record by more than 2,000 stockholders, (c) cash in lieu of fractional shares, or (d) some combination of the above. In addition, dissenter's rights are not available for any shares of the surviving corporation if the merger did not require the vote of the stockholders of the surviving corporation. The DGCL does not provide stockholders of a corporation with appraisal rights when the corporation acquires another business through the issuance of its stock (i) in exchange for the assets of the business to be acquired, (ii) in exchange for the outstanding stock of the corporation to be acquired, or (iii) in a merger of the corporation to be acquired with a subsidiary of the acquiring corporation.

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Oppression Remedy

The OBCA provides an oppression remedy that enables a court to make any order, both interim and final, to rectify the matters complained of if the court is satisfied upon application by a complainant (as defined below) that: (i) any act or omission of the corporation or an affiliate effects or threatens to effect a result; (ii) the business or affairs of the corporation or an affiliate are or have been carried on or conducted in a manner; or (iii) the powers of the directors of the corporation or an affiliate are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interest of any security holder, creditor, director or officer.

A complainant may include: (a) a present or former registered holder or beneficial owner of securities of a corporation or any of its affiliates; (b) a present or former officer or director of the corporation or any of its affiliates; and/or (c) any other person who in the discretion of the court is a proper person to make such application.

The oppression remedy provides the court with an extremely broad and flexible jurisdiction to intervene in corporate affairs to protect shareholders and other complainants. While conduct which is in breach of fiduciary duties of directors or that is contrary to the legal right of a complainant will normally trigger the court's jurisdiction under the oppression remedy, the exercise of that jurisdiction does not depend on a finding of a breach of such legal and equitable rights.

The DGCL does not provide for an oppression remedy. However, the DGCL provides a variety of legal and equitable remedies to a corporation's stockholders for improper acts or omissions of a corporation, its officers and directors. Under the DGCL, only stockholders can bring an action alleging a breach of fiduciary duty by the directors of a corporation.

Derivative Action

Under the OBCA, a complainant may apply to the court for leave to bring an action in the name of and on behalf of a corporation or any subsidiary, or to intervene in an existing action to which any such corporation or subsidiary is a party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the corporation or subsidiary. Under the OBCA, no action may be brought and no intervention in an action may be made unless the court is satisfied that the complainant has given notice to the directors of the corporation or its subsidiary of the complainant's intention to apply to the court not less than fourteen (14) days before bringing the application, or otherwise as ordered by the court and (i) the directors of the corporation or its subsidiary do not bring, diligently prosecute or defend or discontinue the action; (ii) the complainant is acting in good faith; and (iii) it appears to be in the interests of the corporation or its subsidiary that the action be brought, prosecuted, defended or discontinued. Under the OBCA, the court in a derivative action may make any order it thinks fit including, without limitation, (i) an order authorizing the complainant or any other person to control the conduct of the action,(ii) an order giving directions for the conduct of the action, (iii) an order directing that any amount adjudged payable by a defendant in the action shall be paid, in whole or in part, directly to former and present security holders of the corporation or its subsidiary instead of to the corporation or its subsidiary, and (iv) an order requiring the corporation or its subsidiary to pay reasonable legal fees and any other costs reasonably incurred by the complainant in connection with the action.

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Under the DGCL, derivative actions may be brought in Delaware by a stockholder on behalf of, and for the benefit of, the corporation. The DGCL provides that a stockholder must aver in the complaint that he or she was a stockholder of the corporation at the time of the transaction of which he or she complains or that such stockholder's stock thereafter devolved upon such stockholders by operation of law. A stockholder may not sue derivatively unless he or she first makes demand on the corporation that it bring suit and such demand has been refused, unless it is shown that such demand would have been futile. The DGCL does not require a bond or security by a plaintiff in a derivative action.

Director Qualifications

At least 25% of the directors of a corporation governed by the OBCA must be resident Canadians, unless the corporation has fewer than four directors (in which case at least one director must be a resident Canadian).

The OBCA also requires that an offering corporation, not have fewer than three directors, at least one-third of whom are not officers or employees of the corporation or its affiliates.

Delaware law does not have comparable requirements, but a corporation can prescribe qualifications for directors under its certificate of incorporation or bylaws.

Fiduciary Duties of Directors

Directors of corporations governed by the OBCA have fiduciary obligations to the corporation. Under the OBCA, directors of an OBCA corporation must act honestly and in good faith with a view to the best interests of the corporation, and must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

Under the DGCL, the duty of care requires that the directors act in an informed and deliberative manner and to inform themselves, prior to making a business decision, of all material information reasonably available to them. The duty of loyalty may be summarized as the duty to act in good faith, not out of self-interest, and in a manner that the directors reasonably believe to be in the best interests of the stockholders.

The DGCL also provides that the charter of the corporation may include a provision which limits or eliminates the liability of directors to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided such liability does not arise from certain proscribed conduct, including acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, breach of the duty of loyalty, the payment of unlawful dividends or expenditure of funds for unlawful stock purchases or redemptions or transactions from which such director derived an improper personal benefit. SusGlobal Energy Delaware’s certificate of incorporation eliminates the liability of the directors to the Company or its stockholders for monetary damages for breach of fiduciary duty as directors to the fullest extent permitted by Delaware laws, as that law exists currently and as it may be amended in the future.

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The OBCA does not permit any such limitation of a director's liability.

Interested Director Transactions

Under the OBCA, a director who has a conflict of interest is required to disclose the conflict of interest in writing to the corporation or request to have entered in the minutes of meetings of directors the nature and extent of his or her interest. Subject to certain exceptions, a director who has a conflict of interest shall not attend any part of a meeting of directors during which the relevant contract or transaction giving rise to the conflict of interest is discussed and shall not vote on any resolution to approve the contract or transaction. Provided that an interested director has complied with the OBCA’s disclosure requirements with respect to a conflict of interest and that the contract or transaction was reasonable and fair to the corporation at the time of its approval, the contract or transaction is not void or voidable.

Under the DGCL, certain contracts or transactions in which one or more of a corporation's directors has an interest are not void or voidable simply because of such interest, provided that certain conditions are met, such as obtaining required disinterested board approval, fulfilling the requirements of good faith and full disclosure, or proving the fairness of the transaction.

Loans to Officers and Employees

Under the DGCL, a Delaware corporation may make loans to, guarantee the obligations of, or otherwise assist its officers or other employees and those of its subsidiaries (including directors who are also officers or employees) when such action, in the judgment of the directors, may reasonably be expected to benefit the corporation.

Removal of Directors

Under the OBCA, provided that articles of the corporation do not provide for cumulative voting, shareholders of a corporation may by ordinary resolution passed at an annual or special meeting remove any director or directors from office. If holders of a class or series of shares have the exclusive right to elect one or more directors, a director elected by them may only be removed by an ordinary resolution at a meeting of the shareholders of that class or series.

If all of the directors have resigned or have been removed without replacement, a person who manages or supervises the management of the business and affairs of the corporation is deemed to be a director, unless the person who manages the business or affairs of the corporation is (a) an officer under the direction or control of a shareholder or other person, (b) a lawyer, notary accountant or other professional who participates in the management of the corporation solely for providing professional services or (c) a trustee in bankruptcy, receiver, receiver manager or secured creditor who participates in the management of the corporation or exercises control over its property solely for the purpose of the realization of security or the administration of the bankrupt's estate, in the case of a trustee in bankruptcy.

Under Delaware law, any director or the entire board of directors of a corporation that does not have a classified board of directors or cumulative voting may be removed with or without cause with the approval of at least a majority of the outstanding shares entitled to vote at an election of directors. The certificate of incorporation and bylaws of SusGlobal Energy Delaware do not provide for cumulative voting or a classified board.

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Filling Vacancies on the Board of Directors

Under the OBCA, subject to the articles of the corporation, a vacancy among the directors may be filled at a meeting of shareholders or by a quorum of directors except when the vacancy results from an increase in the number or maximum number of directors or from a failure to elect the appropriate number of directors required by the articles. Each director so appointed holds office for the unexpired term of his or her predecessor unless his or her office is vacated earlier. The directors are not entitled to appoint directors between meetings of shareholders if, after such an appointment, the total number of directors would be more than one and one-third the number of directors required to have been elected at the last annual meeting of the corporation’s shareholders.

Under the DGCL, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum.

Indemnification of Officers and Directors

Under the OBCA, a corporation may indemnify a director or officer, a former director or officer or a person who acts or acted at the corporation's request as a director or officer, or another person acting in similar capacity, of another entity (each an "Indemnifiable Person"), against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him or her in respect of any civil, criminal or administrative action or proceeding to which he or she is made a party by reason of being or having been a director or officer of the corporation, if: (a) he or she acted honestly and in good faith with a view to the best interests of the corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he or she had reasonable grounds for believing that his or her conduct was lawful. A corporation may indemnify an Indemnifiable Person or advance monies in respect of a proceeding in which the Indemnifiable Person is involved because of the Indemnifiable Person’s association with the corporation or other entity if the individual fulfils the requirements under (a) and (b), above. An Indemnifiable Person is entitled to indemnity from the corporation if he or she was not judged by the court or other competent authority to have committed any fault or omitted to do anything that the individual ought to have done and fulfilled the conditions set out in (a) and (b), above.

The DGCL generally permits the indemnification of expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in the defense or settlement of a direct, derivative, or third party action, provided there is a determination by a majority vote of a disinterested quorum of the directors or a committee of the board, by independent legal counsel, or by the stockholders, that the person seeking indemnification acted in good faith and in a manner he or she reasonably believed to be in (or not opposed to) the best interests of the corporation and, with respect to any criminal action, had no reasonable cause to believe the conduct was unlawful. Without court approval, however, no indemnification may be made in respect of any action by the corporation, including any derivative action, in which the person was adjudged liable. The Certificate of Incorporation of SusGlobal Energy Delaware requires it to indemnify its officers and directors and former officers and directors to the fullest extent permitted by Delaware law and as the same may be amended from time to time. Irrespective of the contents of the Company’s charter documents, Delaware law requires indemnification of reasonable defense expenses incurred by a director or officer, in any such proceeding, to the extent the director or officer was successful in the defense of the proceeding.

In a derivative action under the DGCL, or an action by or in the right of the corporation, the corporation is permitted to indemnify directors and officers against expenses actually and reasonably incurred by them in connection with the defense or settlement of an action or suit if they acted in good faith and in a manner that they reasonably believed to be in or not opposed to the best interests of the corporation. However, in such a case, no indemnification shall be made if the person is adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine upon application that the defendant directors or officers are fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.

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The DGCL allows the corporation to advance expenses before the resolution of an action, if the person agrees to repay any such amount advanced if they are later determined not to be entitled to indemnification. In addition, Delaware law authorizes a corporation to purchase insurance for the benefit of its officers and directors whether or not the corporation would have the power to indemnify against the liability covered by the policy but subject to limits imposed by insurance law.

Access to Corporate Records

The OBCA provides that shareholders and creditors of a corporation, their agents and legal representatives and the Director under the OBCA may examine certain of the corporation's records during usual business hours and take extracts therefrom free of charge, and, if the corporation is an offering corporation, any other person may do so for a reasonable fee. In addition, any person is entitled to obtain the list of registered shareholders of a "offering corporation" upon compliance with certain requirements.

Under the DGCL, any stockholder of a corporation, their agents or legal representatives may make a written demand to examine the records of that corporation. Such a demand to examine the corporation's records must have a proper purpose, be sworn under oath, and directed to that corporation at its principal place of business or its registered office in Delaware. A proper purpose is one that is reasonably related to that stockholder's interest in the corporation as a stockholder.

Dividends and Repurchases of Shares

Under the OBCA, and subject to a corporation’s articles, the board of directors may declare dividends, and a corporation may pay a dividend by issuing fully paid shares of the corporation or options or rights to acquire fully paid shares of the corporation and a corporation may pay a dividend in money or property. The board of directors, however, shall not declare and the corporation shall not pay a dividend if there are reasonable grounds for believing that: (a) the corporation is or, after the payment, would be unable to pay its liabilities as they become due; or (b) the realizable value of the corporation's assets would thereby be less than the aggregate of (i) its liabilities, and (ii) its stated capital of all classes. In the case of payment by a corporation to purchase or redeem shares, under the OBCA, and subject to a corporation’s articles , a corporation may not redeem redeemable shares at a price above the redemption price specified in the articles, and the corporation may not make any payment is respect of the purchase or redemption of shares if there are reasonable grounds for believing that (a) the corporation is or, after the payment, would be unable to pay its liabilities as they become due; or (b) after the payment, the realizable value of the corporation's assets would be less than the aggregate of (i) its liabilities and (ii) the amount that would be required to pay the holders of shares that have a right to be paid, on a redemption or in a liquidation, ratably with or before the holders of the shares to be purchased or redeemed, to the extent that the amount has not been included in its liabilities.

The DGCL permits a corporation to declare and pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year as long as the amount of capital of the corporation following the declaration and payment of the dividend is not less than the aggregate amount of the capital represented by the issued and outstanding shares of all classes having a preference upon the distribution of assets. In addition, the DGCL generally provides that a corporation may redeem or repurchase its shares only if the capital of the corporation is not impaired and such redemption or repurchase would not impair the capital of the corporation.

Dissolution

Under the OBCA, the liquidation or dissolution of a corporation requires the approval of, subject to any applicable court order, two-thirds of the votes cast at a meeting of shareholders and of two-thirds of the votes cast by holders of shares of each class or series entitled to vote separately thereon.

Under the DGCL, dissolution may be authorized by unanimous approval of all the stockholders entitled to vote thereon, without action of the directors, or by the board of directors followed by approval by a simple majority of the outstanding shares of the corporation's stock entitled to vote.

No Vote or Dissenters’ Rights of Appraisal in the Domestication

Under the OBCA, a continuance becomes authorized once (a) shareholders voting on the application for continuance have approved it by special resolution and (b) the Director under the OBCA has endorsed an authorization on the application for continuance. On September 17, 2015 the board of directors of SusGlobal Energy Canada approved the Domestication and on September 17, 2015 the shareholders of SusGlobal Energy Canada by special resolution approved the Domestication and authorized SusGlobal Energy Canada to submit an application for continuance. We are not asking you for a proxy and you are requested not to send us a proxy. No shareholder vote or action is required to effect the Domestication.

Material U.S. Federal Income Tax Consequences of the Merger and the Domestication

The following discussion sets forth the material United States federal income tax consequences of the Domestication to SusGlobal Energy Canada, and the U.S. Holders and Non-U.S. Holders (each as defined below) of its common shares, as well as the expected material United States federal income consequences of the ownership and disposition of the shares of common stock of SusGlobal Energy Delaware by Non-U.S. Holders. This discussion does not address U.S. federal tax laws other than those pertaining to U.S. federal income taxation (such as estate or gift tax laws), nor does it address any aspects of U.S. state or local or non-U.S. taxation. This discussion is general in nature and does not discuss all aspects of U.S. federal income taxation that might be relevant to particular holder in light of their personal investment circumstances or status, nor does it address tax considerations applicable to special classes of holders, such as:

This summary is based on the assumption that SusGlobal Energy Canada common shares or SusGlobal Energy Delaware common stock, as applicable, are held as capital assets for U.S. federal income tax purposes (generally, property held for investment). If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) holds SusGlobal Energy Canada common shares or SusGlobal Energy Delaware common stock, as applicable, the tax treatment of such partnership and a person treated as a partner of such partnership generally will depend on the status of the partner and the activities of the partnership.

This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed Treasury regulations promulgated under the Code, published rulings by the U.S. Internal Revenue Service (“IRS”) and court decisions, all as of the date hereof. These laws are subject to change, possibly on a retroactive basis. We have not and do not intend to seek any rulings from the IRS regarding the Domestication. The Domestication will be effected in part under the applicable provisions of Canadian law which are not identical to analogous provisions of U.S. corporate law. There is no assurance that the IRS will not take positions concerning the tax consequences of the Domestication that are different from those discussed below, or that any such different positions would not be sustained by a court. Subject to the qualifications, assumptions and limitations in the opinion attached as Exhibit 8.1, the statements of law and legal conclusions set forth below represent the opinion of Blais, Halpert, Lieberman & Greene LLC.

As used in this summary, the term “U.S. Holder” means a beneficial owner of SusGlobal Energy Canada common shares or SusGlobal Energy Delaware common stock, as applicable, that is for U.S. federal income tax purposes a citizen or resident of the United States; a corporation (including any entity that is treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof, or the District of Columbia; an estate the income of which is taxable in the United States regardless of its source; or a trust, the administration of which is subject to the primary supervision of a United States court and one or more United States persons have the authority to control all substantial decisions of the trust, or that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person. The term “Non-U.S. Holder” means a beneficial owner of SusGlobal Energy Canada common shares or SusGlobal Energy Delaware common stock, as applicable, who is not a U.S. Holder.

THE FOLLOWING SUMMARY IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE. SHAREHOLDERS SHOULD CONSULT WITH THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE DOMESTICATION AND CONSIDERATIONS RELATING TO THE OWNERSHIP AND POSSIBLE DISPOSITION OF SUSGLOBAL ENERGY DELAWARE COMMON STOCK, INCLUDING THE EFFECTS OF U.S. FEDERAL, STATE, AND LOCAL AND NON-U.S. TAX LAWS.

U.S. Federal Income Tax Characterization of the Domestication

Under Section 368(a)(1)(F) of the Code, a reorganization (an “F reorganization”) is a “mere change in identity, form, or place of organization of one corporation, however effected.” To qualify as an F reorganization, a transaction must satisfy three requirements: (i) it must involve only one operating corporation; (ii) there must be no change in the shareholders of the corporation; and (iii) there must be no change in the assets of the corporation. Based on the Treasury regulations under Section 368 of the Code, the proper time for testing these requirements is immediately before and immediately after the purported F reorganization, without regard to other aspects of a larger transaction that may follow that step. Based upon the foregoing, the requirements for an F reorganization will be satisfied, and the Domestication should constitute an F reorganization. Therefore, U.S. Holders will not recognize taxable gain or loss as a result of the Domestication for U.S. federal income tax purposes, except as explained below under the caption headings “—Effect of Section 367” and “—PFIC Considerations.”

If the Domestication qualifies as an F reorganization, then the tax basis of SusGlobal Energy Delaware common stock received by a U.S. Holder in the Domestication will equal the U.S. Holder’s tax basis in the SusGlobal Energy Canada common shares surrendered in exchange therefor, increased by any amount included in the income of such U.S. Holder as a result of Section 367 or Section 1291(f) of the Code. See the discussion under “—Effect of Section 367” and “—PFIC Considerations” below. The holding period for the SusGlobal Energy Delaware common stock received by a U.S. Holder in the Domestication will include such holder’s holding period for the SusGlobal Energy Canada common shares surrendered in exchange therefor.

Effect of Section 367

Code Section 367 applies to certain non-recognition transactions involving foreign corporations. When it applies, Code Section 367 has the effect of imposing income tax on U.S. persons in connection with transactions that would otherwise be tax free. Code Section 367 would apply to the Domestication under the circumstances discussed below.

U.S. Holders That Own 10% or More of SusGlobal Energy Canada Common Shares

A U.S. Holder who, on the day of the Domestication, beneficially owns (directly, indirectly or constructively) 10% or more of the total combined voting power of all classes of SusGlobal Energy Canada stock entitled to vote (a “10% Shareholder”) must include in income as a dividend the “all earnings and profits amount” (within the meaning of Treasury Regulations Section 1.367(b) -2(d)) attributable to the SusGlobal Energy Canada stock owned directly by such U.S. Holder. A U.S. Holder’s ownership of stock options will be taken into account in determining whether such holder owns 10% or more of the total combined voting power of all classes of stock. Complex attribution rules apply in determining whether a U.S. Holder owns 10% or more of the total combined voting power of all classes of SusGlobal Energy Canada stock entitled to vote for U.S. federal income tax purposes.

A U.S. Shareholder’s all earnings and profits amount with respect to its SusGlobal Energy Canada common shares is the net positive earnings and profits of the corporation (as determined under Treasury Regulations Section 1.367(b) -2(d)(2)) attributable to the shares (as determined under Treasury Regulations Section 1.367(b) -2(d)(3)) but without regard to any gain that would be realized on a sale or exchange of such shares. Treasury Regulations Section 1.367(b) -2(d)(3) provides that the all earnings and profits amount attributable to a shareholder’s stock is determined according to the principles of Section 1248 of the Code. In general, Section 1248 of the Code and the Treasury regulations thereunder provide that the amount of earnings and profits attributable to a block of stock in a foreign corporation is the ratably allocated portion of the foreign corporation’s earnings and profits generated during the period the shareholder held the block of stock.

Accordingly, under Treasury Regulations Section 1.367(b) -3(b)(3), a U.S. Shareholder should be required to include in income as a deemed dividend the all earnings and profits amount (as defined in Treasury Regulations Section 1.367(b) -2(d)) with respect to its SusGlobal Energy Canada common shares. Based on its own expectation of its projected earnings and profits through the Domestication, SusGlobal Energy Canada does not expect that its cumulative earnings and profits will be greater than zero through the date of the Domestication. If SusGlobal Energy Canada’s cumulative earnings and profits through the date of the Domestication are not greater than zero, then a U.S. Shareholder should not be required to include in gross income the all earnings and profits amount with respect to its SusGlobal Energy Canada common shares.

However, it is possible that the amount of SusGlobal Energy Canada’s earnings and profits could be greater than expected through the date of the Domestication or could be adjusted as a result of an IRS examination. The determination of SusGlobal Energy Canada’s earnings and profits is a complex determination and may be impacted by numerous factors. Therefore, it is possible that one or more of these factors may cause SusGlobal Energy Canada to have positive earnings and profits through the date of the Domestication. As a result, depending upon the period in which such a U.S. Shareholder held its SusGlobal Energy Canada common shares, the U.S. Shareholder could be required to include all its earnings and profits amount in income as a deemed dividend under Treasury Regulations Section 1.367(b) -3(b)(3) as a result of the Domestication.

U.S. Holders That Own Less Than 10% of SusGlobal Energy Canada Common Shares

A U.S. Holder who, on the date of the Domestication, beneficially owns (directly, indirectly or constructively) SusGlobal Energy Canada common shares with a fair market value of $50,000 or more but less than 10% of the total combined voting power of all classes of SusGlobal Energy Canada stock entitled to vote may elect to recognize gain with respect to the receipt of SusGlobal Energy Delaware common stock in the Domestication or, in the alternative, recognize the all earnings and profits amount as described below.

Unless a U.S. Holder makes the all earnings and profits election as described below, such holder generally must recognize gain (but not loss) with respect to the receipt of SusGlobal Energy Delaware common stock in the Domestication. Any such gain should be equal to the excess of the fair market value of the SusGlobal Energy Delaware common stock received over the U.S. Holder’s adjusted basis in the SusGlobal Energy Canada common shares surrendered in exchange therefor. Such gain should be capital gain, and should be long-term capital gain if the holder held the SusGlobal Energy Canada common shares for longer than one year. Long-term capital gains of non-corporate taxpayers are subject to a maximum U.S. federal income tax rate of 20% (excluding any additional tax that may apply under Section 1411 of the Code on a taxpayer’s “net investment income”).

In lieu of recognizing any gain as described in the preceding paragraph, a U.S. Holder may elect to include in income the all earnings and profits amount attributable to its SusGlobal Energy Canada common shares under Section 367(b). There are, however, strict conditions for making this election. This election must comply with applicable Treasury regulations and generally must include, among other things: (i) a statement that the transaction is a Section 367(b) exchange; (ii) a complete description of the transaction, (iii) a description of any stock, securities or other consideration transferred or received in the transaction, (iv) a statement describing the amounts required to be taken into account for U.S. federal income tax purposes, (v) a statement that the U.S. Holder is making the election that includes (A) a copy of the information that the U.S. Holder received from SusGlobal Energy establishing and substantiating the U.S. Holder’s all earnings and profits amount with respect to the U.S. Holder’s SusGlobal Energy Canada common shares, and (B) a representation that the U.S. Holder has notified SusGlobal Energy that the U.S. Holder is making the election, and (vi) certain other information required to be furnished with the U.S. Holder’s tax return or otherwise furnished pursuant to the Code or the Treasury regulations thereunder. In addition, the election must be attached by the U.S. Holder to its timely filed U.S. federal income tax return for the year of the Domestication and the U.S. Holder must send notice to SusGlobal Energy of the election no later than the date such tax return is filed. In connection with this election, SusGlobal Energy intends to provide each U.S. Holder eligible to make such an election with information regarding SusGlobal Energy Canada’s earnings and profits upon request.

SusGlobal Energy Canada does not expect that its cumulative earnings and profits will be greater than zero through the date of the Domestication and, if that proves to be the case, U.S. Holders who make this election should generally not have an income inclusion under Section 367(b), provided the U.S. Holder properly executes the election and complies with the applicable notice requirements. Thus, it is expected that the making of any election to include the all earnings and profits amount in income as a dividend would generally be advantageous to a U.S. Holder who would otherwise recognize gain with respect to its SusGlobal Energy Canada common shares in the Domestication. However, as noted above, if it were determined that SusGlobal Energy Canada had positive earnings and profits through the date of the Domestication, a U.S. Holder that makes the election described herein could have an all earnings and profits amount with respect to its SusGlobal Energy Canada common shares, and thus could be required to include that amount in income as a deemed dividend as a result of the Domestication.

U.S. HOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING WHEN AND WHETHER TO MAKE THIS ELECTION AND, IF THE ELECTION IS DETERMINED TO BE ADVISABLE, THE APPROPRIATE FILING REQUIREMENTS WITH RESPECT TO THIS ELECTION.

U.S. Holders That Own SusGlobal Energy Canada Common Shares with a Fair Market Value of Less Than $50,000

A U.S. Holder who, on the date of the Domestication, owns (or is considered to own) stock of SusGlobal Energy Canada with a fair market value less than $50,000 should not be required to recognize any gain or loss under Section 367 of the Code in connection with the Domestication, and generally should not be required to include any part of the all earnings and profits amount in income.

PFIC Considerations

In addition to the discussion under the heading “—Effects of Section 367” above, the Domestication might be a taxable event to U.S. Holders under the passive foreign investment company (“PFIC”) provisions under Section 1297 of the Code, to the extent that Section 1291(f) of the Code applies.

SusGlobal Energy Canada may be deemed to be a PFIC. Generally, a foreign corporation is a PFIC if 75% or more of its gross income for a taxable year is passive income or if, on average for such taxable year, 50% or more of the value of the assets held by the corporation during a taxable year produce or are held to produce passive income. Passive income includes dividends, interest, rents and royalties, but excludes rents and royalties that are derived in the active conduct of a trade or business and that are received from an unrelated person, as well as interest, dividends, rents and royalties received from a related person that are allocable to income of such related person other than passive income. For purposes of these rules, SusGlobal Energy Canada would be considered to own the assets of and recognize the income of any subsidiary corporations as to which it owns 25% or more of the value of their outstanding stock, in proportion to such ownership. If a foreign corporation is classified as a PFIC for any taxable year during which a U.S. person owns stock in the foreign corporation, the foreign corporation generally remains thereafter classified as a PFIC with respect to that person. Based on the composition of its assets (which has largely consisted of cash and cash equivalents), SusGlobal Energy Canada may have qualified as a PFIC for its taxable years ended December 31, 2013 through 2015, and it may qualify as a PFIC for its current taxable year. However, the determination of whether a foreign corporation is a PFIC is primarily factual and there is little administrative or judicial authority on which to rely to make a determination. Further, Blais, Halpert, Lieberman & Greene LLC expresses no opinion as to whether SusGlobal Energy Canada is or is not a PFIC.

Section 1291(f) of the Code generally requires that, to the extent provided in Treasury regulations, a United States person who disposes of stock of a PFIC must recognize gain notwithstanding any other provision of the Code. No final Treasury regulations have been promulgated under this statute. Proposed Treasury regulations were promulgated in 1992 with a retroactive effective date. If finalized in their current form, these regulations generally would require gain recognition by U.S. Holders exchanging common shares of SusGlobal Energy Canada for common stock of SusGlobal Energy Delaware if SusGlobal Energy Canada were classified as a PFIC at any time during such U.S. Holder’s holding period in such common shares and such person had not made either (i) a “mark-to-market” election under Section 1296 of the Code, or (ii) a “qualified electing fund” election under Section 1295 of the Code for the first taxable year in which such U.S. Holder owned common shares of SusGlobal Energy Canada or in which SusGlobal Energy Canada was a PFIC, whichever is later. Any such gain would be allocated ratably over the U.S. Holder’s holding period for the SusGlobal Energy Canada common shares surrendered in the Domestication—the amount of gain allocated to the current taxable year would be treated as ordinary income, and the amount of gain allocated to each other year would be subject to the highest tax rate in effect for that year, and an interest charge would be imposed to recover the deemed benefit of the deferred payment of tax. However, it is not possible to predict at this time whether, in what form, and with what effective date, final Treasury regulations under Section 1291(f) of the Code will be adopted.

Consequences to Non-U.S. Holders

The exchange of common shares of SusGlobal Energy Canada for common stock of SusGlobal Energy Delaware by a Non-U.S. Holder will not be a taxable transaction for such holder for United States federal income tax purposes.

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Dividends

A distribution of cash or other property (other than certain distributions of SusGlobal Energy stock) in respect of SusGlobal Energy Delaware common stock generally will be treated as a dividend to the extent that the amount of such distribution does not exceed SusGlobal Energy’s current and accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent that the amount of such distribution exceeds SusGlobal Energy’s current and accumulated earnings and profits, such distribution generally will be treated first as a return of capital, reducing a Non-U.S. Holder’s adjusted tax basis in such holder’s SusGlobal Energy Delaware common stock, with any excess treated as capital gain.

Dividends paid by SusGlobal Energy Delaware to Non-U.S. Holders generally would be subject to withholding of United States federal income tax at the rate of 30%, or such lower rate as may be specified by an applicable income tax treaty, provided that SusGlobal Energy has received proper certification of the application of such income tax treaty (on an applicable IRS Form W-8). A Non-U.S. Holder that is eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS. Pursuant to the income tax treaty between the United States and Canada (the “Treaty”), dividends paid by a U.S. corporation to a Canadian resident where each qualifies for benefits under the Treaty are subject to U.S. federal withholding tax at a maximum rate of 15%. Non-U.S. Holders should consult their own tax advisors regarding their eligibility for claiming benefits under the Treaty and regarding their particular circumstances to claim a tax credit or tax deduction against their Canadian (or other) tax liability for any U.S. federal withholding tax.

Dividends that are effectively connected with a Non-U.S. Holder’s conduct of a trade or business in the United States or, if provided in an applicable income tax treaty, dividends that are attributable to a Non-U.S. Holder’s permanent establishment in the United States, are not subject to the U.S. withholding tax, but are instead taxed in the manner applicable to U.S. Holders. In that case, SusGlobal Energy will not have to withhold United States federal withholding tax if the Non-U.S. Holder complies with applicable certification and disclosure requirements (generally on IRS Form W-8ECI). In addition, dividends received by a foreign corporation that are effectively connected with the conduct of a trade or business in the United States may be subject to a branch profits tax at a 30% rate, or a lower rate specified in an applicable income tax treaty.

Gain on Disposition

A Non-U.S. Holder generally will not be subject to U.S. federal income tax, including by way of withholding, on gain recognized on a sale or other disposition of stock of SusGlobal Energy Delaware unless any one of the following is true:

(i)           the Non-U.S. Holder is an individual who is present in the United States for 183 or more days in the taxable year of the sale, exchange or other disposition and certain other requirements are met;

(ii)          the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States and, if an applicable income tax treaty requires, attributable to a U.S. permanent establishment maintained by such Non- U.S. Holder; or

(iii)          SusGlobal Energy Canada or SusGlobal Energy Delaware is or has been a U.S. real property holding corporation at any time within the five-year period preceding the disposition or the non-U.S. Holder’s holding period, whichever period is shorter, and, in the event of common stock that is regularly traded on an established securities market for tax purposes, the Non-U.S. Holder held, directly or indirectly, at any time within the five-year period preceding such disposition, more than 5% of such regularly traded common stock.

SusGlobal Energy Canada has not been and is not, and SusGlobal Energy Delaware does not anticipate becoming, a U.S. real property holding corporation for U.S. federal income tax purposes. However, the determination of whether a corporation is a U.S. real property holding corporation is primarily factual and there can be no assurance whether such facts will not change or whether the IRS or a court will agree with our determination.

Information Reporting and Backup Withholding

A Non-U.S. Holder may have to comply with specific certification procedures to establish that the holder is not a U.S. person as described above (generally on an applicable IRS Form W-8) or otherwise establish an exemption in order to avoid backup withholding and information reporting tax requirements with respect to payments of dividends on the stock of SusGlobal Energy Delaware.

The payment of the proceeds of the disposition of stock by a Non-U.S. Holder to or through the U.S. office of a broker generally will be reported to the IRS and reduced by backup withholding unless the Non-U.S. Holder either certifies its status as a Non-U.S. Holder under penalties of perjury or otherwise establishes an exemption and the broker has no actual knowledge to the contrary. Information reporting requirements, but not backup withholding, will also apply to payments of the proceeds from sales of SusGlobal Energy Delaware stock by foreign offices of U.S. brokers or foreign brokers with certain types of relationships to the United States, unless the broker has documentary evidence in its records that the holder is a Non-U.S. Holder and certain other conditions are met, or the holder otherwise establishes an exemption.

Backup withholding is not an additional tax. Any amounts that are withheld under the backup withholding rules will be refunded or credited against the Non-U.S. Holder’s U.S. federal income tax liability if certain required information is furnished to the IRS. Non-U.S. Holders should consult their own tax advisors regarding application of backup withholding in their particular circumstance and the availability of and procedure for obtaining an exemption from backup withholding under current U.S. Treasury regulations.

Related Party Transactions

Loan Payable to Related Party

On November 20, 2015, Travellers loaned the Company $59,245 ($82,000 CAD), with interest payable monthly at 12% per annum, unsecured and due on demand. There is no written agreement evidencing this loan.

During the year, the Company incurred $46,998 ($60,000 CAD) (2014-$14,959; $16,677 CAD) in management fees charged by Travellers and $46,998 ($60,000 CAD) (2014-$4,050; $4,677 CAD) in management fees charged by Landfill Gas Canada Limited (“LFGC”), an Ontario company controlled by a director and chief executive officer of the Company. The balance of the management fees, in the amount of $37,598 ($48,000 CAD) (2014-$3,241; $3,742 CAD), were charged by the Company’s chief financial officer. As at December 31, 2015, unpaid remuneration and unpaid expenses in the amount of $38,150 ($52,802 CAD) (2014-$1,861; $2,159 CAD) is included in accounts payable and $18,261 (2014-$4,710; $5,464 CAD) is included in accrued liabilities.

During the year, the Company incurred $28,199 ($36,000 CAD) (2014-$2,430; $2,806CAD) in rent paid under a rental agreement to a company, Haute Inc., controlled by a director and president of the Company. Included in prepaid expenses and deposit, is a rental deposit of $nil (2014-$2,586; $3,000 CAD), in connection with this rental agreement. There are no other material terms of the lease arrangement.

During the year, the Company issued 8,100,000 common shares of the Company to certain directors and officers for services provided, determined to be valued at $810,000. These amounts are disclosed as stock-based compensation in the consolidated statements of operations and comprehensive loss.

The Company had one year consulting contracts with each of its three officers, which expired on October 31, 2015. The monthly payments for the three officers total $10,115 ($14,000 CAD). The Company extended the consulting contracts, at the same monthly amounts, on a month to month basis until new consulting contracts are completed.

On November 1, 2014, the Company entered into a one year premises lease agreement with Haute Inc., an Ontario company controlled by a director and president of the Company, expiring October 31, 2015. The monthly minimum payment was $2,248 ($3,000 CAD). The Company’s last month rental commitment was included in prepaid expenses and deposit on December 31, 2014 included on the consolidated balance sheets. The Company’s monthly rent continued at the same amount through December 2015. Subsequent to the year-end and effective January 1, 2016, the Company signed a new premises lease agreement with Haute Inc., for a period of one year at a minimum monthly amount of $2,529 ($3,500 CAD). Effective January 1, 2017, the Company entered into a three year premises lease agreement with Haute Inc., at a monthly amount of $3,050 ($4,000 CAD) for 2017, $ 3,812 ($5,000 CAD) for 2018 and $4,574 ($6,000 CAD) for 2019. The Company is also responsible for all expenses and outlays in connection with its occupancy of the leased premises, including, but not limited to utilities, realty taxes and maintenance.

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RELATED PARTY TRANSACTIONS

Loans payable in the amount of $45,744 ($60,000 CAD) (December 31, 2015-$nil), owing Silver Dragon Resources Ltd., an Ontario company in which a director of the Company is also a director and chief executive officer, bear interest at the rate of 12% per annum are due on demand and unsecured. As at September 30, 2016, $813 (December 31, 2015-$nil), in interest is included in accrued liabilities. On December 5, 2016, the loans were repaid in full, on an interest free basis. There is no written agreement evidencing these loans.

Loans payable in the amount of $222,621 ($292,000 CAD) (December 31, 2015-$59,245; $82,000 CAD), owing to Travellers, bear interest at the rate of 12% per annum are due on demand and unsecured. As at September 30, 2016, $8,685 (December 31, 2015-$682), in interest is included in accrued liabilities. There is no written agreement evidencing these loans.

During the nine month period ended September 30, 2016, the Company incurred $34,083 ($45,000 CAD) (September 30, 2015-$35,721; $45,000 CAD) in management fees paid to Travellers International Inc. (“Travellers”), an Ontario company controlled by a director and president of the Company and $34,083 ($45,000 CAD) (September 30, 2015-$35,721; $45,000 CAD) in management fees paid to Landfill Gas Canada Limited (“LFGC”), an Ontario company controlled by a director and chief executive officer of the Company. The balance of the management fees, in the amount of $27,266 ($36,000 CAD) (September 30, 2015-$28,577; $36,000 CAD), were paid to the Company’s chief financial officer. As at September 30, 2016, unpaid remuneration and unpaid expenses in the amount of $56,654 ($74,310 CAD) (December 31, 2015-$38,150; $52,802 CAD) is included in accounts payable and $44,982 ($59,000 CAD) (December 31, 2015-$18,261; $25,275 CAD) is included in accrued liabilities.

During the period, the Company incurred $23,858 ($31,500 CAD) (September 30, 2015-$21,433; $27,000 CAD) in rent paid to a company, Haute Inc., controlled by a director and president of the Company. Included in prepaid expenses and deposit, is a rental deposit of $2,668 ($3,500 CAD) (December 31, 2015-$nil). There are no other material terms of the lease arrangement.

The Company had one year consulting contracts with each of its three officers, which expired on October 31, 2015. The monthly payments for the three officers total $10,604 ($14,000 CAD). The Company extended the consulting contracts, at the same monthly amounts, on a month to month basis until new consulting contracts are completed.

Effective January 1, 2017, new consulting agreements were finalized for the services of the executive chairman and president and for the chief executive officer. The consulting agreements are for a period of three years, commencing January 1, 2017. For each of these two executive officers, the monthly fees will be as follows: $3,812 ($5,000 CAD) for 2017 and $11,436 ($15,000 CAD) for 2018 and 2019. In addition, the chief executive officer will be granted 3,000,000 Restricted Stock Units (“RSU”). The RSU’s will vest in three equal installments annually on January 1, 2018, 2019 and 2020. The Company has also agreed to reimburse each for certain out-of-pocket expenses incurred by each executive officer.

On November 1, 2014, the Company entered into a one year premises lease agreement with Haute Inc., an Ontario company controlled by a director and president of the Company, expiring October 31, 2015. The monthly minimum payment was $2,287 ($3,000 CAD). The Company’s last month rental commitment was included in prepaid expenses and deposit on December 31, 2014 included on the consolidated balance sheets. The Company’s monthly rent continued at the same amount through December 2015. Subsequent to the year-end and effective January 1, 2016, the Company signed a new premises lease agreement with Haute Inc., for a period of one year at a minimum monthly amount of $2,668 ($3,500 CAD). Effective January 1, 2017, the Company entered into a three year premises lease agreement with Haute Inc., at a monthly amount of $3,050 ($4,000 CAD) for 2017, $ 3,812 ($5,000 CAD) for 2018 and $4,574 ($6,000 CAD) for 2019. The Company is also responsible for all expenses and outlays in connection with its occupancy of the leased premises, including, but not limited to utilities, realty taxes and maintenance.
 

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2016, the Company had a cash balance of $nil and current debt obligations in the amount of $647,960 (December 31, 2015-$285,491). We do not currently have sufficient funds to satisfy our current debt obligations. Should our creditors seek or demand payment, we do not have the resources to pay or satisfy any such claims currently.

To pay our debts and to fund any future operations, we require significant new funds, which we may not be able to obtain. In addition to the funds we require to liquidate our $647,960 in current debt obligations, we estimate that we must raise approximately $900,000 to fund capital requirements and general corporate expenses for the next 12 months and $5,767,5000 ($7,500,000 CAD) in capital costs for our new agreement with the BioGrid Project.

On July 16, 2016, the Company finalized a financing commitment with Phoenix Capital of up to $7,000,000 for its BioGrid Project on a best efforts basis, but the Company was unsuccessful in re-negotiating new funding amounts and dates with Phoenix Capital before the agreement with Phoenix Capital expired, on December 31, 2016. As a result, the Company pursued other sources of financing to meet its capital costs for the BioGrid Project and for general corporate services. On February 6, 2017, the Company announced that it has entered into an agreement with PACE, for a Line of Credit of $4,193,200 ($5,500,000 CAD). The first tranche was received on February 3, 2017, in the amount of $1,219,800 ($1,600,000 CAD).

GOING CONCERN

These interim condensed consolidated financial statements have been prepared in accordance with US GAAP, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months.

As at September 30, 2016, the Company had a working capital deficit of $596,505 (December 31, 2015-$262,070), incurred a net loss of $337,330 for the nine month period ended September 30, 2016 (2015- $1,154,523) and had an accumulated deficit of $2,233,616 (December 31, 2015-$1,896,286) and expects to incur further losses in the development of its business. These factors cast doubt as to the Company’s ability to continue as a going concern, which is dependent upon its ability to obtain the necessary financing to further the development of its business and upon achieving profitable operations. Management believes that the Company will be able to obtain the necessary funding by equity or debt; however, there is no assurance of funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.

On July 16, 2016, the Company finalized a financing commitment with Phoenix Capital up to an amount of $7,000,000, on a best efforts basis, for its BioGrid Project, but the Company was unsuccessful in re-negotiating new funding amounts and dates with Phoenix Capital before the agreement with Phoenix Capital expired, on December 31, 2016. As a result, the Company pursued other sources of financing to meet its capital costs for the BioGrid Project and for general corporate services. On February 6, 2017, the Company announced that it has entered into an agreement with PACE, for a Line of Credit of $4,193,200 ($5,500,000 CAD).

These interim condensed consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company was unable to continue as a going concern.

2016 SHARE ISSUANCES

At September 30, 2016, the Company had an unlimited number of common shares authorized, without par value, and 33,446,346 (December 31, 2015-31,547,346) common shares issued and outstanding. On the date of this filing, the Company had 35,818,910 common shares issued and outstanding.

STOCK OPTIONS AND WARRANTS

The Company has no stock options or warrants outstanding as at the date of this filing and as at September 30, 2016 and December 31, 2015.

OFF BALANCE SHEET TRANSACTIONS

During the nine month period ended September 30, 2016, and as of the date of this MD&A, the Company had no off-balance sheet arrangements. The Company has not entered into any specialized financial arrangements to minimize its interest rate and credit risk, liquidity risk and currency risk.

NEW ACCOUNTING POLICIES

During the nine month period ended September 30, 2016, the Company adopted the following new accounting policies:

Trade Receivables

Our receivables, which are recorded when billed, when services are performed or when cash is advanced, are claims against third parties that will be generally settled in cash. The carrying value of our receivables, net of allowance for doubtful accounts, represents the estimated realizable value. We estimate our allowance for doubtful accounts based on historical trends; type of customer, such as commercial or municipal; the age of outstanding receivables; and existing economic conditions. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due receivable balances are written off when our internal collection efforts have been unsuccessful.

Revenue Recognition

Our revenues are generated from the fees we charge for waste collection and from the sale of electricity. The fees charged for our services are generally defined in our service agreements and vary based on contract-specific terms such as frequency of service, weight, volume and the general market factors influencing a region’s rates. We recognize revenue as services are performed and collection is reasonably assured.

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CRITICAL ACCOUNTING POLICIES

A summary of our significant accounting policies are disclosed in note 3 to the audited consolidated financial statements for the years ended December 31, 2015 and 2014.

We have identified below certain accounting policies that we believe are most important for the portrayal of our current financial condition and results of operations.

Use of estimates

The preparation of the Company’s financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. The Company regularly evaluates estimates and assumptions related to accruals and to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that is not readily apparent from other sources. Actual results could differ materially and adversely from these estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become available.

Stock-based compensation

From time to time the Company grants options and/or warrants to management, directors, employees and consultants. The Company recognizes compensation expense at fair value. Under this method, the fair value of each warrant is estimated on the date of the grant and amortized over the vesting period, with the resulting amortization credited to accumulated paid in capital. The fair value of each grant is determined using the Black-Scholes option-pricing model. Consideration paid upon the exercise of stock options and/or warrants is recorded in equity as share capital.

FINANCIAL RISKS

Financial risk

The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk, market risk, interest rate risk and foreign currency risk.

Risk management is carried out by the Company’s management team with guidance from the Audit Committee under policies approved by the Board of Directors (the “Board”). The Board also provides regular guidance for overall risk management.

Credit risk

Credit risk is the risk of loss associated with counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash and receivables. Cash is held with a Canadian chartered bank, from which management believes the risk of loss to be minimal. In the opinion of management, the Company is not exposed to significant credit risks arising from its financial instruments. The Company also controls its exposure related to trade receivables by discontinuing service, to the extent allowable, to non-paying customers. As at September 30, 2016, we had two customers representing greater than 5% of total accounts receivable.

Liquidity risk

Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they become due. The Company’s liquidity and operating results may be adversely affected if its access to the capital markets is hindered, whether as a result of a downturn in stock market conditions generally or matters specific to the Company. The Company generates cash flow from its financing activities. As at September 30, 2016, the Company had bank indebtedness of $44,518 (December 31, 2015-bank indebtedness of $5,740, and did not have the ability to settle liabilities of $647,960 (December 31, 2015-$285,491). All of the Company’s financial liabilities have contractual maturities of less than thirty days and are subject to normal trade terms. The Company regularly evaluates its cash position in an effort to preserve and secure its capital as well as liquidity.

Market risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates and foreign exchange rates.

Interest rate risk

The Company has a term deposit and interest-bearing debt. The Company’s current policy is to invest excess cash in interest bearing accounts at major Canadian chartered banks. The Company periodically monitors the investments it makes and is satisfied with the creditworthiness of its Canadian chartered bank.

Foreign currency risk

The Company’s functional and reporting currency is the United States dollar (“USD”). The Company raises funds for its operations in both USD and Canadian dollars (“CAD”) and currently incurs operating and administrative expenses in USD and CAD. The Company maintains a USD and a CAD bank account along with a CAD term deposit in a Canadian chartered bank. The Company does not hedge its foreign currency risk, as management does not believe the foreign currency risk derived from currency conversions to be material. As at September 30, 2016, $445,096 (December 31, 2015-$224,269), of the Company’s net monetary liabilities are denominated in CAD.

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RECENT ACCOUNTING PRONOUNCEMENTS

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by us as of the specified date or possibly early adopted, where permitted. Where it is determined that a new accounting standard or interpretation affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financial statements properly reflect the change. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position, results of operations or cash flows.

CAPITAL RISK MANAGEMENT

The Company manages its capital with the following objectives:

The Company monitors its capital structure and makes adjustments according to market conditions in an effort to meet its objectives given the current outlook of the business and industry in general. The Company may manage its capital structures by issuing new shares, repurchasing outstanding shares, adjusting capital spending, or disposal of assets. The capital structure is reviewed by management and the Board on an ongoing basis.

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The Company considers its capital to be stockholders’ deficiency, which comprises common stock, accumulated deficit and comprehensive loss.

The Company manages capital through its financial and operational forecasting processes. The Company reviews its working capital and forecasts its future cash flows based on operating expenditures, and other investing and financing activities. The forecast is updated based on its activities. Selected information is provided to the Board. The Company’s capital management objectives, policies and processes have remained unchanged during the nine months ended September 30, 2016.

The Company is not subject to any capital requirements impose by a lending institution or regulatory body.

Trend

There are significant uncertainties regarding the world financial markets and the availability of equity financing for the purpose of funding potential ongoing projects. The future performance of the Company is tied to the overall financial markets as well as identifying new projects. Apart from the risk noted hereunder, management is not aware of any other trends, commitments, events or uncertainties that would have a material adverse effect on the Company’s business, financial condition or results of operations.

No active business operations

The Company is focused on identifying new projects, immediately, in municipalities of Ontario and subsequently, across the Country. The Company cannot offer any assurances that it will ever find another business opportunity that management determines to be worth pursuing. The Company can also offer no assurance that if it identifies a new project and/or completes the acquisition of another business, it will be able to do so on commercially reasonable terms in a manner that is advantageous to its shareholders.

The Company has never engaged in the profitable operation of a business, and there can be no assurance that it will ever be able to do so. There is no guarantee that the Company will develop and sustain a suitable business operation.

Failure to obtain additional financing and going concern uncertainty

To date, the Company has not had positive cash flow from operations. The Company’s available cash has been used and will continue to be used to fund negative cash flow. No assurance can be given that the Company will ever generate a positive cash flow from operations.

Currently, the Company has an agreement with PACE for a $4,193,200 ($5,500,000 CAD) Line of Credit and has received its first tranche of $1,219,800 ($1,600,000 CAD). Further financing will be required to fund its ongoing operations and working capital deficiency. While there is no assurance that these funds can be raised, the Company believes such financing will be available as required. The Company’s ability to continue operations is dependent on the Company’s ability to secure additional financing., Additional financing may not be available when needed or, even, if available, the terms of such financing might not be favorable to the Company and might involve substantial dilution to existing shareholders. The Company has submitted and is in the process of submitting applications to both Provincial and Federal programs offering funds in the form of grants and/or low interest loans, which support the Company’s initiatives. Failure to obtain additional financing on a timely basis could have a material adverse effect on the Company’s business and financial condition and affect its ability to continue as a going concern.

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Management

The success of the Company is largely dependent on the performance of its directors and officers. There is no assurance that the Company can maintain the services of its directors and officers or other qualified personnel required to operate the business. The loss of the services of these persons could have a material adverse effect on the Company and its prospects.

Dividends

The Company has not paid any dividends on its common shares since incorporation and does not anticipate paying any dividends on its common shares in the foreseeable future. The Company has a limited operating history and there can be no assurance of its ability to operate its projects profitably.

Related Party Transactions

During the year, the Company incurred $46,998 ($60,000 CAD) (2014-$14,959; $16,677 CAD) in management fees charged by Travellers and $46,998 ($60,000 CAD) (2014-$4,050; $4,677 CAD) in management fees charged by LFGC. The balance of the management fees, in the amount of $37,598 ($48,000 CAD) (2014-$3,241; $3,742 CAD), were charged by the Company’s chief financial officer. As at December 31, 2015, unpaid remuneration and unpaid expenses in the amount of $38,150 ($52,802 CAD) (2014-$1,861; $2,159 CAD) is included in accounts payable and $18,261 (2014-$4,710; $5,464 CAD) is included in accrued liabilities.

During the year, the Company incurred $28,199 ($36,000 CAD) (2014-$2,430; $2,806CAD) in rent paid under a rental agreement to Haute Inc., a company controlled by a director and president. Included in prepaid expenses and deposit, is a rental deposit of $nil (2014-$2,586; $3,000 CAD), in connection with this rental agreement.

During the year, the Company issued 8,100,000 common shares of the Company to certain directors and officers for services provided, determined to be valued at $810,000. These amounts are disclosed as stock-based compensation in the consolidated statements of operations and comprehensive loss.

These transactions were in the normal course of operations and have been recorded at the exchange amounts which the parties believe to be fair value.

In addition, a loan payable in the amount of $59,245 ($82,000 CAD), advanced to the Company on November 20, 2015, bearing interest payable at 12% per annum, is due on demand, unsecured and is payable to Travellers. As at December 31, 2015, $682 (2014-$nil), in interest is included in accrued liabilities. There is no written agreement evidencing this loan.

During the nine month period ended September 30, 2016, the Company incurred $34,083 ($45,000 CAD) (September 30, 2015-$35,721; $45,000 CAD) in management fees paid to Travellers International Inc. (“Travellers”), an Ontario company controlled by a director and president of the Company and $34,083 ($45,000 CAD) (September 30, 2015-$35,721; $45,000 CAD) in management fees paid to Landfill Gas Canada Limited (“LFGC”), an Ontario company controlled by a director and chief executive officer of the Company. The balance of the management fees, in the amount of $27,266 ($36,000 CAD) (September 30, 2015-$28,577; $36,000 CAD), were paid to the Company’s chief financial officer. As at September 30, 2016, unpaid remuneration and unpaid expenses in the amount of $56,654 ($74,310 CAD) (December 31, 2015-$38,150; $52,802 CAD) is included in accounts payable and $44,982 ($59,000 CAD) (December 31, 2015-$18,261; $25,275 CAD) is included in accrued liabilities.

During the nine month period ended September 30, 2016, the Company incurred $23,858 ($31,500 CAD) (September 30, 2015-$21,433; $27,000 CAD) in rent paid to a company controlled by a director and president of the Company. Included in prepaid expenses and deposit, is a rental deposit of $2,668 ($3,500 CAD) (December 31, 2015-$nil).

In addition, on August 19, 2016, Travellers International Inc. (“Travellers”), an Ontario company controlled by the president and director of the Company, provided a further loan in the amount of $160,104 ($210,000 CAD) which was required to initiate a letter of credit in the amount of $152,480 ($200,000 CAD), in favour of the Township of Georgian Bluffs and the Township of Chatsworth. The letter of credit was a requirement of the BioGrid agreement noted below. Fees for the letter of credit included $7,624 ($10,000 CAD) incurred and charged by Travellers and $2,287 ($3,000 CAD) charged by the Company’s chartered bank. As at September 30, 2016, loans payable in the amount of $222,621 ($292,000 CAD) (December 31, 2015-$59,245 ($82,000 CAD)), were outstanding. The loan from Travellers bears interest at 12% per annum, is due on demand and is unsecured. There is no written agreement evidencing this loan.

And, on August 2, 2016 $20,585 ($27,000 CAD) and on August 11, 2016 $25,159 ($33,000 CAD), was provided to the Company by Silver Dragon Resources Ltd., an Ontario company in which a director of the Company is also a director and chief executive officer, bear interest at the rate of 12% per annum are unsecured and due on demand. As at September 30, 2016, $813 (December 31, 2015-$nil), in interest is included in accrued liabilities. As at September 30, 2016, loans payable in the amount of $45,744 ($60,000 CAD) (December 31, 2015-$nil), were outstanding. On December 5, 2016, the loans were repaid in full, on an interest free basis. There is no written agreement evidencing these loans.

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Beneficial Ownership

The following table sets forth certain information regarding beneficial ownership of SusGlobal Energy Corp’s securities as of December 21, 2016:

The above-referenced table is based on 35,823,910 issued and outstanding shares of common stock on the date of this filing.