Document:

EX-10.10.1

Exhibit 10.10.1

Unless permitted under securities legislation, the holder of this security must not trade the
security before December 30, 2007.

The securities represented hereby have not been registered under the United States Securities Act
of 1933, as amended (the “U.S. Securities Act”). The Holder hereof, by purchasing such
securities, agrees for the benefit of Ceramic Protection Corporation (the “Corporation”) that
such securities may be offered, sold, pledged or otherwise transferred only (A) to the
Corporation, (B) outside the United States in accordance with Rule 904 of Regulation S under the
U.S. Securities Act, or (C) in a transaction that does not otherwise require registration under
the U.S. Securities Act or any applicable state securities laws and, in the case of transfer
pursuant to clause C above, the seller has furnished to the Corporation an opinion to such effect
from counsel of recognized standing reasonably satisfactory to the Corporation prior to such
transfer.

CERAMIC PROTECTION CORPORATION

SECURED, SUBORDINATED DEBENTURE

	 	 	 
	Principal Sum:

	 	US$1,700,000
	 
	 	 
	Interest Rate:

	 	12% per annum, payable monthly
	 
	 	 
	Due:

	 	August 29, 2009

ARTICLE 1

PROMISE TO PAY

1.1 Ceramic Protection Corporation (the “Corporation”), a corporation incorporated under the laws
of Alberta, for value received hereby acknowledges itself indebted and promises to pay to:

The Stephen Giordanella Revocable Trust
dated October 8, 2004

(the “Holder”) the principal sum of US$1,700,000 on August 29, 2009 (the “Stated Maturity
Date”), or on such earlier date as such principal sum may become due in accordance with the
terms and conditions hereof, on presentation and surrender of this Debenture to the principal
office of the Corporation in Calgary, Alberta, and to pay interest on such principal sum at 12%
per annum for the period commencing on the date hereof and ending on the Stated Maturity Date
(the “Indebtedness”).

1.2 Interest on the principal sum of this Debenture and interest on overdue interest shall be
due and payable monthly in arrears on the last business day of each month until the Stated
Maturity Date, on which date any remaining unpaid interest shall be due and payable.

1.3 The principal sum of and all interest under this Debenture shall be payable in lawful money
of Canada to the Holder at the address set forth in Section 7.4 hereof or at such other place
as the Holder may designate in writing from time to time.

1.4 This Debenture is a direct and unconditional obligation of the Corporation.

ARTICLE 2

SECURITY FOR INDEBTEDNESS

2.1 As security for the due payment of the Indebtedness and the performance by the Corporation of
its
obligations and covenants hereunder, the Corporation hereby charges as and by way of a floating
charge, to and in favour of the Holder and its successors and assigns, all of the undertaking,
business, property and assets of the

 

 

Corporation, both present and future, of every nature and kind and wherever situate including,
without limitation, all of its present and future personal and real property, goodwill,
trademarks, inventions, processes, patents and patent rights, materials, supplies, inventories,
motor vehicles, trucks, trailers, machinery, implements, equipment and apparatus of every kind,
furniture, rent, revenues, income, money, rights, powers, privileges, franchises, benefits,
amenities, contracts, agreements, leases of real and personal property, licenses, permits, book
debts, accounts receivable, negotiable and non-negotiable instruments, judgments, securities,
choses in action, unpaid capital and all other property and things of value of every kind and
nature, tangible and intangible, legal or equitable, which the Corporation now has, may be
possessed of, entitled to, or acquire, by way of amalgamation or otherwise, now or hereafter and
any and all proceeds of any of the foregoing.

          In
this Debenture, the charge created and provided for is called the
“Charge ” and the subject
matter of the Charge is called the “Charged Premises”

          The Corporation acknowledges that value has been given and agrees that: (i) the Charge shall
attach when the Corporation signs this Debenture; and (ii) the Corporation has rights in the
Charged Premises.

2.2 Until there shall occur an Event of Default or the Charge becomes enforceable, and subject to
the express provisions of this Debenture, the Corporation may dispose of or deal with the Charged
Premises in the ordinary course of business and for the purpose of carrying on the same, so that
purchasers thereof or parties dealing with the Corporation take title thereto free and clear of
the Charge, provided that in each case such action is in the ordinary course of its business and
for the purpose of carrying on the same and is not in breach of any express provision hereof.

2.3 The Charge shall not extend or apply to the last day of the term of any lease or agreement to
lease but upon the enforcement of the Charge the Corporation shall stand possessed of such last
day in trust for the Holder to assign the same to any person acquiring such term in the course of
enforcement of the Charge.

2.4 The Charge does not and shall not extend to, and the Charged Premises shall not include, any
agreement, right, franchise, licence or permit (the “Contractual Rights”) to which the
Corporation is a party or of which the Corporation has the benefit, to the extent that the
creation of the Charge herein would constitute a breach of the terms of or permit any person to
terminate the Contractual Rights, but the Corporation shall hold its interest therein in trust
for the Holder.

2.5 Upon the occurrence of an Event of Default as described in Article 5 hereof, the Charge
shall immediately become enforceable.

2.6

	 	(a)	 	Whenever the Charge has become enforceable, the Holder may realize upon the Charged
Premises
and shall have the following rights and remedies, which rights and remedies may be
exercised from time to time separately or in combination:

	 	(i)	 	the Holder may by appointment in writing appoint a receiver or
receiver and
manager (each herein referred to as the “Receiver”) of all or any part of
the Charged Premises and of the rents, incomes, royalties and profits
therefrom and may remove or replace such Receiver from time to time or may
institute proceedings in any court of competent jurisdiction for the
appointment of a Receiver of the Charged Premises or any part thereof; and
the term “Holder” when used in this Section 2.6 shall include any Receiver
so appointed and the Holders, officers and employees of such Receiver;
	 
	 	(ii)	 	take all such steps as the Holder may consider necessary or
desirable for the purpose of preserving, maintaining and completing all or
any part of the Charged Premises and making such replacements thereof and
improvements and additions thereto as the Holder shall consider expedient;

 

 

	 	(iii)	 	the Holder may take possession of the Charged Premises with power to
exclude the Corporation and its officers, employees and agents therefrom;
	 
	 	(iv)	 	the Holder may carry on or concur in the carrying on of all or
any part of the business of the Corporation relating to the Charged Premises;
	 
	 	(v)	 	enjoy and exercise all of the powers of the Corporation as the Holder considers
necessary
or desirable for the exercise of any and all of the remedies of the Holder
provided herein, including, without limitation, the power to make any
arrangement or compromise on behalf and in the name of the Corporation which
the Holder considers expedient;
	 
	 	(vi)	 	the Holder may, with or without taking possession, sell, lease or
otherwise dispose of, either as a whole or in separate parcels, the Charged Premises
at public auction, by private tender or by private sale at such times and places
either for cash or upon credit upon such terms and conditions as the Holder may
determine and without notice to the Corporation unless required by law and may
execute and deliver to the purchaser or purchasers of the Charged Premises or any
part thereof a good and sufficient deed or conveyance or deeds or conveyances for
the same, any officer of the Holder being hereby constituted the irrevocable
attorney of the Corporation for the purpose of making such sale and executing such
deeds or conveyances, and any such sale made as aforesaid shall be a perpetual bar
both in law and in equity against the Corporation and all other persons claiming all
or any part of the Charged Premises by, from, through or under the Corporation, the
Holder or any of its agents or affiliates may be a purchaser or otherwise acquire
the right, title and interest in all or any of the Charged Premises at any such sale
or disposition;
	 
	 	(vii)	 	the Holder may accept the Charged Premises in satisfaction or partial
satisfaction of the Charge upon notice to the Corporation of its intention to do
so in the manner required by law;
	 
	 	(viii)	 	the Holder may borrow money on the security of the Charged Premises for the
purpose of the carrying on of the business of the Corporation or for the
maintenance, preservation, protection or realization of the Charged Premises in
priority to the Charge;
	 
	 	(ix)	 	the Holder may receive the rents, royalties, incomes and profits of any
kind whatsoever from the Charged Premises and pay therefrom (i) any expenses of
preserving, maintaining and completing the Charged Premises, of making such
replacements thereof and improvements and additions thereto as the Holder may
consider expedient and of carrying on all or any part of the business of the
Corporation relating to the Charged Premises, and (ii) any charges against the
Charged premises ranking in priority to the security created by this debenture or
the payment of which may be necessary or desirable to preserve or protect all or
any part of the Charged Premises or the interest of the Holder therein,
	 
	 	(x)	 	the Holder may exercise any other right or remedy permitted by law or equity,
including,
without limitation, all rights and remedies of a secured party under the
Personal Property Security Act (Alberta),

	 	(b)	 	The Corporation further agrees with the Holder that:

	 	(i)	 	the Holder shall not be liable or responsible for any failure to seize, collect,
realize, sell
or obtain payment of all or any part of the Charged Premises and shall not be
bound to institute proceedings or to take other steps for the purpose of
seizing, collecting, realizing or obtaining possession or payment of all or any
part of the Charged Premises or for the

 

 

	 	 	 	purpose of preserving any rights of the Holder, the Corporation or any other
person, firm or corporation in respect of the Charged Premises;
	 
	 	(ii)	 	the Holder may grant extensions of time, take, abstain from taking and
perfecting and give up securities, accept compositions, grant releases and
discharges, release any part of the Charged Premises and otherwise deal with the
Corporation, creditors of the Corporation, sureties and others and with the
Charged Premises and other securities as the Holder may see fit without prejudice
to the liability of the Corporation to the Holder or the Holder’s rights
hereunder;
	 
	 	(iii)	 	to facilitate the realization of the Charged Premises, the Holder may
enter upon, occupy and use all or any of the premises, buildings and plant
comprising the Charged Premises and use all or any of the equipment and other
personal property of the Corporation for such time as the Holder requires to
facilitate such realization, free of charge (as between the Corporation and the
Holder), and the Holder shall not be liable to the Corporation for any neglect in
so doing or in respect of any rent, charges or depreciation in connection with such
actions;
	 
	 	(iv)	 	the Holder may charge on its own behalf and pay to others all
reasonable amounts for expenses incurred and for services rendered in connection
with the exercise of the rights and remedies of the Holder hereunder, including,
without limiting the generality of the foregoing, reasonable legal, Receiver and
accounting fees and expenses, and in every such case the amounts so paid together
with all costs, charges and expenses incurred in connection therewith shall be
added to the amounts due hereunder and shall be secured by the Charge;
	 
	 	(v)	 	the Holder may discharge any claim, lien, mortgage, charge, security
interest, encumbrance or any rights of others that may exist or be threatened
against the Charged Premises, and in every such case the amounts so paid together
with costs, charges and expenses incurred in connection therewith shall be added
to the amounts due hereunder and shall be secured by the Charge; and
	 
	 	(vi)	 	any proceeds of realization of the Charged Premises may be applied by the
Holder to the payment of expenses in connection with the preservation and
realization of the Charged Premises as above described and any balance of such
proceeds shall be applied by the Holder to payment of any amount owing by the
Corporation to the Holder in such order as the Holder may see fit; if there is any
surplus remaining, it may be paid to any person having a claim thereto in priority
to the Corporation of whom the Holder has knowledge and may be applied or retained
as reserves against potential claims that the Holder or the Receiver in good faith
believes should be maintained and the balance remaining, if any, shall (subject to
applicable law) be paid to the Corporation.

	 	(c)	 	Any Receiver shall be entitled to exercise all rights and powers of the Holder hereunder. To
the
extent permitted by law, any Receiver shall for all purposes be deemed to be the agent
of the Corporation and not of the Holder and the Corporation shall be solely
responsible for the Receiver’s acts or defaults and remuneration.
	 
	 	(d)	 	The Corporation hereby irrevocably appoints the Holder attorney on its behalf to sell or
transfer
the Charged Premises and to execute all instruments, and do all acts, matters and
things that may be necessary for carrying out the powers hereby given and for the
recovery of all rents and sums of money that may become or are now due or owing to the
Corporation in respect of the Charged Premises and for the enforcement of all
contracts, covenants or conditions binding on any lessee or occupier of the Charged
Premises or on any person in respect of it and this appointment shall take effect if
the Charge has become enforceable.

 

 

2.7 The Corporation shall pay to the Holder forthwith on demand all costs, charges and expenses,
including all legal fees, incurred by the Holder in connection with the recovery or enforcement
of payment of any moneys owing hereunder whether by realization or otherwise. All such sums not
paid in accordance with this Section 2.7 shall be added to the amount payable hereunder and
shall be secured by the Charge.

2.8 No failure on the part of the Holder to exercise, and no delay in exercising, any right
hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of any right
hereunder preclude the other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies provided by law or in
equity.

ARTICLE 3

COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE CORPORATION

3.1 The Corporation represents and warrants to the Holder, with the intention that the Holder
shall rely on those representations and warranties in connection with the purchase of this Debenture,
as follows:

	(a)	 	Corporate Status
	 
	 	 	That it:

	 	(i)	 	is duly incorporated and validly existing under the laws of Alberta; and
	 
	 	(ii)	 	has filed all annual reports and financial statements required of it to be filed in
the Province of Alberta; and
	 
	 	(iii)	 	has the power and authority to carry on its business as now being
conducted by it and the full power to perform its obligations set forth in this
agreement and in the security documents;

	 	 	and nothing contained in this Debenture or the security documents if performed by the
Corporation will result in any breach of or be in conflict with any term or provision of
its constating documents nor in any existing arrangement, agreement or contract, written
or verbal, to which it is a party nor, to the best of its information, knowledge and
belief, any statute, governmental order, judgment, decree or regulatory authority having
jurisdiction over the business of the Corporation.
	 
	(b)	 	Corporate Authorization
	 
	 	 	That all necessary resolutions have been enacted and proceedings taken to enable the
Corporation to execute and deliver this Debenture and to grant the security to the
Holder contemplated by this Debenture.
	 
	(c)	 	Capitalization
	 
	 	 	As at the date hereof, no securities in the capital of the Corporation are issued and
outstanding other than:

	 	(i)	 	10,225,891 common shares; and
	 
	 	(ii)	 	options to purchase an aggregate of 923,001 common shares under the
Corporation’s existing stock option plan, as amended from time to time.

	 	 	There are no other outstanding rights, options, warrants, conversion rights or
agreements for the purchase or acquisition from the Corporation of any shares of its
capital stock.
	 
	(d)	 	Exchange and Regulatory Approvals
	 
	 	 	That all consents, approvals, orders or authorizations which the Corporation is required
to obtain in connection with the execution and delivery of this Debenture, subject only
to the filing of certain customary documents and forms with the relevant securities
regulatory authorities under applicable securities laws.

 

 

	(e)	 	Binding Effect
	 
	 	 	That the obligations of the Corporation hereunder are valid and binding and enforceable
against the Corporation in accordance with their terms, subject only to bankruptcy,
insolvency or other laws of general application affecting the enforcement of creditor’s
rights generally, and to general principles of equity.
	 
	(f)	 	No Judgments
	 
	 	 	That there are no material judgments, writs of execution, work orders, injunctions or
directives outstanding against the Corporation or its properties or assets,
	 
	(g)	 	No Breach
	 
	 	 	That the Corporation is not in material breach of any material agreement to which it is a
party or by which it is bound.

3.2 The Corporation covenants in favour of the Holder that:

	(a)	 	Payment
	 
	 	 	It will duly and punctually pay or cause to be paid to the Holder all amounts payable in
respect of this Debenture including the principal at the places in the manner described
herein.
	 
	(b)	 	Notice of Default
	 
	 	 	The Corporation shall notify the holder of this Debenture immediately upon obtaining
knowledge of an Event of Default (as defined herein).
	 
	(c)	 	Conduct of Business
	 
	 	 	Subject to the express provisions hereof, the Corporation will carry on and conduct its
activities, and cause its subsidiaries to carry on and conduct their businesses, in a
proper and business-like manner, and will do or cause to be done all things necessary to
maintain its and their existence.
	 
	(d)	 	Books and Accounts
	 
	 	 	It will keep or cause to be kept proper books of record and accounts in accordance with
Canadian generally accepted accounting principles.
	 
	(e)	 	Maintenance of Status
	 
	 	 	It will use commercially reasonable efforts to maintain the listing of the Common Shares
on the Exchange and to maintain the Corporation’s status as a “reporting issuer” not in
default of the requirements of the securities legislation and regulations of each of the
provinces of British Columbia, Alberta, Manitoba and Ontario.
	 
	(f)	 	Financial Statements
	 
	 	 	It will furnish to the holder of this Debenture a copy of all consolidated financial
statements of the Corporation, whether annual or interim and the report, if any, of the
Corporation’s auditors thereon and all annual or periodic financial reports of the
Corporation, which are furnished to the holders of Common Shares promptly upon the
distribution thereof to the holders of Common Shares, provided that for so long as the
Corporation is a “reporting issuer” in good standing or the equivalent in any
jurisdiction in Canada, the Corporation’s obligation to deliver such financial
information shall be satisfied by filing such financial information on SEDAR in
accordance with applicable regulatory requirements.

 

 

	(g)	 	No Distributions
	 
	 	 	It shall not declare or make any distribution to the holders of its issued and
outstanding Common Shares after the occurrence of an Event of Default unless and until
such default shall have been cured or waived or shall have ceased to exist. In addition,
the Corporation shall not declare any distribution to the holders of its issued and
outstanding Common Shares if at the time the directors of the Corporation or a committee
thereof resolves to make the said declaration, the Corporation has actual knowledge that
the paying of said distribution on the applicable distribution payment date will result
in an Event of Default.
	 
	(h)	 	Maintenance of Property
	 
	 	 	It will at all times, repair and keep in repair and good order and condition, or cause to
be so repaired and kept in repair and good order and condition, all buildings, erections,
machinery, plant and equipment used in or in connection with its business which are
necessary for efficient operation up to a moderm standard of usage, and renew and replace
or cause to be renewed and replaced all and any of the same which may become worn,
dilapidated, unserviceable, inconvenient, obsolete or destroyed, even by a fortuitous
event, fire or other cause, and which are necessary for efficient operation, and, at all
reasonable times during normal business hours, allow the Holder or its duly authorized
agent access to its premises in order to view the state and condition of the same.
	 
	(i)	 	No Sale or Merger
	 
	 	 	It shall not:

	 	(i)	 	sell, lease or otherwise transfer the undertaking, property and assets of any
of its
operating divisions as an entirety or substantially as an entirety in one
or more transactions, or, sell, lease or otherwise dispose of its
undertaking, property and assets as an entirety or substantially as an
entirety in one or more transactions; or
	 
	 	(ii)	 	amalgamate or merge with any other corporation or effect any corporate
reorganization;
	 
	 	without the prior written consent of the Holder.

	(j)	 	Insurance
	 
	 	 	It will maintain insurance coverage on its property and assets in accordance with industry
practice.
	 
	(k)	 	Compliance with Law
	 
	 	 	It will:

	 	(i)	 	comply, in all material respects, with all applicable federal, provincial,
municipal or other
laws, regulations, ordinances, rules, codes, standards and directions
which may apply to the Charged Premises or its business including,
without limitation, those relating to the protection, preservation or
restoration of the environment; and
	 
	 	(ii)	 	obtain and maintain all necessary permits, licenses and authorizations necessary
for the lawful conduct of its business as carried on from time to time.

	(l)	 	Retain Charged Premises
	 
	 	 	Except in the ordinary course of business, it will not sell, dispose of part with
possession of all or substantially all of the Charged Premises without the prior written
consent of the Holder.

 

 

	(m)	 	Completing Security
	 
	 	 	It will perform all such acts and things as are reasonably necessary to complete any and
all security documents and supporting agreements identified or referred to herein.
	 
	(n)	 	Taxes
	 
	 	 	It will pay and discharge all taxes, accessions and governmental charges levied against
the Corporation or its property when due and payable.
	 
	(o)	 	Litigation
	 
	 	 	It will promptly give notice to the Holder of any litigation which could materially
adversely affect the business or financial condition of the Corporation.
	 
	(p)	 	Change of Name
	 
	 	 	It will give to the Holder written notification of any change of name of the Corporation
no later than 10 days before the effective date of that change.
	 
	(q)	 	Place of Business
	 
	 	 	If the Corporation changes its principal place of business or the location of its
inventory or equipment or the location of its offices where it keeps its records
respecting accounts receivable or acquires other places of business, it will promptly
notify the Holder.
	 
	(r)	 	Unpaid Amounts
	 
	 	 	It will pay duly and punctually all employees of the Corporation and all other amounts
which if unpaid might under any applicable provincial or federal law obtain or gain
priority over the security granted herein by the Corporation to the Holder.

ARTICLE 4

POSTPONEMENT AND SUBORDINATION

4.1 The payment of the principal on the Debentures (the “Subordinated Debt”) will be postponed
and subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as
that term is herein defined), whether outstanding on the date of the
Debenture or subsequently
incurred in the manner and to the extent herein set forth. “Senior Indebtedness” means the
principal amount of, premium, if any, and interest on any all obligations and liabilities of the
Corporation in respect of:

	 	(a)	 	indebtedness for money borrowed by the Corporation from the Canadian
Imperial Bank of Commerce “CIBC” pursuant to credit facilities for up to
US$55,000,000 million (the “CIBC Facilities”) and any future renewals, extensions or
other amendments to the CIBC Facilities on similar credit terms for the purposes of
financing the Corporation’s operations; or
	 
	 	(b)	 	any replacement of the CIBC Facilities, should the Corporation elect to
replace CIBC as its principal lender while the Corporation remains indebted to the
Holder under this Debenture, provided that the material terms to such facilities
shall in no way be amended.

4.2 So long as any Senior Indebtedness is outstanding and until the Senior Indebtedness shall have
been paid, performed and indefeasibly satisfied in full:

 

 

	 	(a)	 	upon the Holder receiving notice from the holder of the Senior Indebtedness (the
“Senior
Creditor”) of the occurrence of a default or an event of default under or in
respect of the Senior Indebtedness or any security provided therefor (the “Senior
Security”):

	 	(i)	 	the payment of all Subordinated Debt is postponed and subordinated to the
indefeasible
payment and performance in full and final satisfaction of all Senior
Indebtedness and the Holder will not thereafter directly or indirectly,
accept from the Corporation, in any manner, directly or indirectly, payment
of, or consideration for the reduction of, the whole or any part of the
Subordinated Debt and if any such payment is received or made on the
Subordinated Debt, the Holder will hold such payment in trust for the
benefit of, and shall forthwith pay over such payment in the form received
(duly endorsed, if necessary, to the Senior Creditor) to, the Senior
Creditor; and
	 
	 	(ii)	 	the Senior Security shall have priority over the security
constituted hereby, and the security constituted hereby is hereby postponed
and subordinated in all respects to the Senior Security;

	 	(b)	 	the Holder shall not dispute or contest in any manner the priority of any
of the Senior Security over the Subordinated Debt and any security therefor,
provided the Senior Security is duly perfected, valid and enforceable. The Holder
hereby consents to the Senior Security; and
	 
	 	(c)	 	the Holder shall not take or hold, directly or through any trustee or
nominee, any security interest as security for the payment or performance of any of
the Subordinated Debt other than the security constituted by this Debenture.

4.3 Notwithstanding any provision of this Debenture to the contrary, the Holder hereby covenants
and
agrees with the Corporation that it will at any time and from time to time, upon the request of
the Corporation, execute and deliver such agreements and instruments and/or provide such
acknowledgments and undertakings to any holder of Senior Indebtedness confirming the
subordination of the Holder’s rights under this Debenture (including the Charge) to such Senior
Indebtedness, all such agreements, instruments, acknowledgments and undertakings to be in form
reasonably satisfactory to the holder of such Senior Indebtedness.

ARTICLE 5

DEFAULT

5.1 Each of the following events is herein referred to as an “Event of Default”:

	 	(a)	 	if the Corporation (or any of its subsidiaries) is in default of any material
agreement or obligation imposed by contract, by law, or by regulatory authority and
such default is not remedied within 30 days of notice thereof to the Corporation from
the Holder;
	 
	 	(b)	 	if any distributions of cash or property are made to holders of Common Shares
without the prior written consent of the Holders;
	 
	 	(c)	 	if the Corporation fails to maintain its status as a reporting issuer in
Alberta or fails to maintain the listing of its Common Shares on the Exchange and
the Corporation fails to restore its status or its listing, as the
case may be
within 30 days of notice thereof to the Corporation from the Holder;
	 
	 	(d)	 	if a writ, execution, attachment or similar process is issued against all or
a substantial portion of the property and assets of the Corporation as a result of a
judgment against the Corporation, in an amount which materially affects the assets
of the Corporation and such writ, execution, attachment or similar process is not
released, satisfied, discharged, vacated or stayed within 30 days after its issue or
entry or the Corporation initiates any material litigation without the prior written
consent of the Holder;

 

 

	 	(e)	 	if the Corporation institutes proceedings to be adjudicated a bankrupt or insolvent,
or consents to
the institution of bankruptcy or insolvency proceedings, or consents to the
filing of any such petition or the petition commencing such proceedings is not
contested, or appoints or consents to the appointment of a receiver of all, or a
substantial part, of the property of the Corporation, or makes a general
assignment for the benefit of creditors, or admits in writing its inability to
pay its debts generally as they become due;
	 
	 	(f)	 	if a Change of Control (as defined herein) of the Corporation occurs, or
any material change to the Corporation’s senior management occurs as a result of
death, disability or termination in accordance with any applicable employment
agreements;
	 
	 	(g)	 	if there exists a provision in any agreement (other than a credit
agreement relating to the CIBC Facility) by which the Corporation is bound and
which conflicts with the terms of the Debentures in a material manner and such
conflict is not removed or corrected within 30 days of notice thereof to the
Corporation from the Holder;
	 
	 	(h)	 	if the Corporation mortgages, pledges or charges its properties or leasehold
interests to secure any
indebtedness, other than in the ordinary course of business where such
indebtedness individually or in the aggregate is not material or under the
Senior Indebtedness, without the prior written consent of the Holder, or if an
event of default under the Senior Indebtedness occurs and such mortgage, pledge
or charge, or such event of default under the Senior Indebtedness, is not
discharged or remedied, as applicable, within 10 days of notice thereof to the
Corporation from the Holder;
	 
	 	(i)	 	if the Corporation defaults in the payment of the principal of this Debenture when the
same
becomes due, whether at maturity or otherwise and such default continues for a
period of three business days;
	 
	 	(j)	 	if the Corporation, except as permitted hereby, ceases or threatens to cease, to carry
on its business
or any substantial portion thereof;
	 
	 	(k)	 	an encumbrancer taking possession of or appointing a receiver for all or substantially
all property
of the Corporation;
	 
	 	(1)	 	if the Corporation neglects to carry out or observe any other material covenant or
condition herein
contained to be carried out or observed on its part and such default continues
for 10 days after notice thereof to the Corporation from the Holder;
	 
	 	(m)	 	if a resolution is passed for the winding up or liquidation of the Corporation;
or
	 
	 	(n)	 	if any proceedings with respect to the Corporation are taken with respect to a
compromise or
arrangement with respect to creditors of the Corporation generally, under the
applicable legislation of any jurisdiction.

5.2 For the purposes of this Debenture, unless the context otherwise requires, “Change of
Control” means the acquisition of voting control or direction over 50.1% or more of the
aggregate voting rights attached to the issued share capital of the Corporation then
outstanding by a person or group of persons acting in concert other than the Holder or any of
its affiliates if such acquisition occurs without the consent or acquiescence of the Holder.

5.3 In case any Event of Default shall have occurred and is continuing, the principal amount
of this Debenture shall, at the option of, and upon written notice to the Corporation by, the
Holder, become immediately due and payable and the Charge shall become enforceable upon the
date that such written notice is given to the Corporation.

5.4 The Corporation acknowledges that if a stay of proceedings is issued against the
Corporation pursuant to the Bankruptcy and Insolvency Act (Canada), the Companies Creditors
Arrangements Act (Canada) or

 

 

otherwise, the Holder would be irreparably harmed and materially prejudiced if any proceeds from
the Charged Premises were used for any purpose other than the repayment of the debt secured by
this Debenture, and the Corporation hereby acknowledges and agrees that the proceeds from the
Charged Premises received by the Corporation while any such stay is in effect shall be received
and held by the Corporation in trust for the Holder.

5.5 Within 30 days following the occurrence of a Change of Control, and subject to the
provisions and
conditions of this Section 5.5, the Corporation shall be obligated to offer to purchase this
Debenture (“Change of Control Redemption”). The terms and conditions of such obligation are
set forth below:

	 	(a)	 	Within 30 days following the occurrence of a Change of Control, the Corporation shall
deliver to
the Holder a notice stating that there has been a Change of Control and specifying
the circumstances surrounding such event (a “Change of Control Notice”) together
with an offer in writing (the “Offer”) to purchase this Debenture made in
accordance with the requirements of applicable securities legislation at a price
equal to 105% of the principal amount thereof, on this Debenture up to, but
excluding, the date of acquisition by the Corporation or a related party of this
Debenture (the “Offer Price”). The Change of Control Notice shall specify (i)
that if this Debenture is validly tendered it will be accepted for payment; (ii)
the Offer Price and date of acquisition by the Corporation; (iii) that if the
Holder elects to have this Debenture purchased pursuant to the Offer it will be
required to surrender this Debenture to the Corporation at the address specified in
the Change of Control Notice prior to the close of business on the business day
immediately preceding the date of acquisition by the Corporation; and (iv) that the
Holder will be entitled to withdraw its election if the Corporation receives, not
later than the close of business on the third business day immediately preceding
the date of acquisition by the Corporation, a facsimile transmission or letter from
the Holder withdrawing its election to have this Debenture purchased.
	 
	 	(b)	 	If this Debenture is to be purchased or redeemed by the Corporation on
expiry of the Offer, the Corporation shall, on or before 11:00 a.m. (Calgary time)
on the date of the expiry of the Offer, pay to the Holder by electronic transfer or
certified cheque, such sums of money as may be sufficient to pay the aggregate
Offer Price for this Debenture.
	 
	 	(c)	 	In the event that this Debenture is being purchased or redeemed by the
Corporation on expiry of the Offer in part only, upon surrender of this Debenture
for payment of the Offer Price, the Corporation shall execute and deliver without
charge to the Holder, one or more new debentures in the form hereof for the portion
of the principal amount of this Debenture not purchased.
	 
	 	(d)	 	In case the Holder of any Debenture to be purchased or redeemed in accordance
with this
Section 5.5 of this Debenture shall fail on or before the date specified in paragraph (b) above to
surrender this Debenture or shall not within such time accept payment of the monies payable, or
give such receipt therefor, if any, as the Corporation may reasonably require, such monies may be
set aside in trust in a chartered bank, and such setting aside shall for all purposes be deemed a
payment to the Holder of the sum so set aside and the Holder shall have no other right except to
receive payment of the monies so paid and deposited, upon surrender and delivery up of this
Debenture. In the event that any such monies remain so deposited for a period of six years from
the date of expiry of the Offer, then such monies, together with any accumulated interest thereon,
shall at the end of such period be paid over to the Corporation and the Corporation shall not be
responsible to the Holder for any amounts owing to it hereunder.

5.6 Except as provided below, the Corporation shall not enter into any transaction or series of
transactions whereby all or substantially all of its undertaking, property or assets would
become the property of any other Person (herein called a “Successor”) whether by way of
reorganization, consolidation, amalgamation, arrangement, merger, conveyance, lease, sale or
otherwise, unless:

	 	(a)	 	prior to or contemporaneously with the consummation of such transaction the Corporation
and the
Successor shall have executed such instruments and done such things as, in the
opinion of counsel, are necessary or advisable to establish that upon the
consummation of such transaction:

 

 

	 	(i)	 	the Successor will have assumed in writing all the covenants and obligations
of the
Corporation under this Debenture;
	 
	 	(ii)	 	this Debenture will be valid and binding
obligations of the Successor entitling the Holder, as against the
Successor, to all the rights of the Holder hereunder;
	 
	 	(iii)	 	the Successor is a corporation, partnership, limited
liability company or trust organized or existing under the laws of Canada
or any province or territory thereof, and
	 
	 	(iv)	 	in the case of an entity organized otherwise than under
the laws of the Province of Alberta, the Successor shall attorn to the
jurisdiction of the courts of the Province of Alberta;

	 	(b)	 	such transaction shall be on such terms as to substantially preserve and
not impair any of the rights and powers of the Holder hereunder;
	 
	 	(c)	 	no condition or event shall exist as to the Corporation (at the time of
such transaction) or the Successor (immediately after such transaction), and after
giving full effect thereto or immediately after the Successor shall become liable
to pay the principal monies and other monies due or which may become due hereunder,
which constitutes or would with the giving of notice or lapse of time constitute an
Event of Default hereunder; and
	 
	 	(d)	 	the Corporation shall have delivered to the Holder an officer’s
certificate confirming that all requirements of this Section 5.6 have been complied
with in respect of such transaction or series of transactions.

Whenever the conditions of this Section 5.6 shall have been duly observed and performed, any
Successor formed by or resulting from such transaction or series of transactions shall succeed
to, and be substituted for, and may exercise every right and power of the Corporation under this
Debenture with the same effect as though the Successor had been named as the Corporation herein
and thereafter, except in the case of a lease or other similar disposition of property to the
Successor, the Corporation shall be relieved of all obligations and covenants under this
Debenture forthwith upon the Corporation delivering to the Holder an opinion of counsel to the
effect that the transaction or series of transactions shall not result in any material adverse
tax consequences to the Corporation or the Successor. The Holder will, at the expense of the
Successor, execute any documents which it may be advised by counsel are necessary or advisable
for effecting or evidencing such release and discharge.

ARTICLE 6

REGISTRATION, TRANSFER, EXCHANGE AND OWNERSHIP OF DEBENTURE

6.1 With respect to this Debenture, the Corporation shall maintain at its principal office in
the City of Calgary or at such other place in Canada as it may designate by notice in writing, a
register in which shall be entered the names and addresses of the Holders (the “Register”). Such
registration shall be noted on this Debenture by an officer of the Corporation.

6.2 The person in whose name this Debenture is registered shall for all purposes be and be
deemed to be the owner thereof and payment of or on account of the principal of this Debenture
shall be made only to or upon the order in writing of such Holder.

6.3 No transfer of this Debenture shall be valid unless (i) made by
the Holder or his executors
or administrators or other legal representatives or his or their attorney duly appointed by an
instrument in writing in such form as is satisfactory to the Corporation and (ii) such transfer
shall have been duly entered in the Register.

6.4 A Holder may at any time and from time to time have a transfer of this Debenture entered in the
Register pursuant to the provisions of this Article 6 in accordance with such reasonable
regulations as the

 

 

Corporation may prescribe; provided, however, that the Corporation shall not be required to
accept any transfer of this Debenture within five business days of a scheduled interest payment
date.

6.5 The Corporation shall not be bound to take notice of or see to the execution of any trust,
whether express, implied or constructive, in respect of this Debenture and may transfer the
same on the direction of the Holder, whether named as trustee or otherwise, as though the
Holder were the beneficial owner thereof.

6.6 The Holder for the time being of this Debenture shall be entitled to the principal
evidenced by this Debenture free from all equities or rights of set-off or counter-claim
between the Corporation and the Holder and all persons may act accordingly. The receipt of any
such Holder for any such principal shall be a good discharge to the Corporation for the same
and the Corporation shall not be bound to inquire into the title or authority of any such
Holder.

ARTICLE 7

MISCELLANEOUS

7.1 In case this Debenture shall at any time become mutilated, destroyed, stolen or lost and this
Debenture, or evidence of the loss, theft or destruction thereof (together With the indemnity
hereinafter referred to and such other documents or proof as may be required in the premises)
shall be delivered to the Corporation, a new Debenture of like tenor and date will be issued by
the Corporation in exchange for this Debenture, but, in case this Debenture has been destroyed,
stolen or lost, only upon receipt of evidence satisfactory to the Corporation that this
Debenture was destroyed or stolen or lost, and in any case, if required by the Corporation,
upon receipt also of indemnity satisfactory to the Corporation. All expenses and reasonable
charges associated with obtaining such indemnity and with the preparation, authentication and
delivery of a new Debenture shall be borne by the Holder.

7.2 The Corporation hereby certifies and warrants that all acts, conditions and things required
to be done and performed and to have happened in respect of the creation and issuance of and to
constitute the same the valid and legally binding obligation of the Corporation enforceable in
accordance with its terms, have been done and performed and have happened in due and strict
compliance with all applicable laws.

7.3 No failure on the part of the Holder to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder preclude the other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any remedies provided
by law or in equity.

7.4 Any demand, notice or other communication (a “Communication”) to be given in connection
with this Debenture shall be given in writing and may be given by personal delivery or by
registered mail addressed to the Corporation as follows:

Ceramic Protection Corporation.

530 Sawgrass Parkway

Sunrise, Florida 33325

Attention: Mr. Stephen Giordanella

or such other address as may be designated by notice by the Corporation to the Holder and, if to
the Holder, to it at:

The Stephen Giordanella Revocable Trust
dated October 8, 2004

c/o Protective Products International

530 Sawgrass Corporate Parkway

Sunrise, Florida 33325

Attention: Mr. Stephen Giordanella

The Corporation or the Holder may change its address at any time by giving notice thereof in
accordance with this Section 7.4. Any Communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof and, if given by
registered mail, on the third day following the deposit thereof in

 

 

the mail. If the party giving any Communication knows or ought reasonably to know of any
difficulties with the postal system which might affect the delivery of mail, any such Communication
shall not be mailed but shall be given by personal delivery.

7.5 This Debenture shall be governed by and construed in accordance with the laws applicable in
the Province of Alberta.

7.6 This Debenture may be amended only by an agreement in writing signed by the Corporation and
the Holder.

          IN WITNESS WHEREOF the Corporation has caused this Debenture to be signed by its duly
authorized officer as of the            day of                     , 2007.

	 	 	 	 	 
	 	CERAMIC PROTECTION CORPORATION

 	 
	 	Per:  	/s/ Randall Paulfus
 	 
	 	 	Name:  	RANDALL PAULFUS 	 
	 	 	Title:  	CHIEF FINANCIAL OFFICEREX-10.10.2

Exhibit 10.10.2

Unless permitted under securities legislation, the holder of this security must not trade the
security before December 30, 2007.

The securities represented hereby have not been registered under the United States Securities Act
of 1933, as amended (the “U.S. Securities Act”). The Holder hereof, by purchasing such
securities, agrees for the benefit of Ceramic Protection Corporation (the “Corporation”) that
such securities may be offered, sold, pledged or otherwise transferred only (A) to the
Corporation, (B) outside the United States in accordance with Rule 904 of Regulation S under the
U.S. Securities Act, or (C) in a transaction that does not otherwise require registration under
the U.S. Securities Act or any applicable state securities laws and, in the case of transfer
pursuant to clause C above, the seller has furnished to the Corporation an opinion to such effect
from counsel of recognized standing reasonably satisfactory to the Corporation prior to such
transfer.

CERAMIC PROTECTION CORPORATION

SECURED, SUBORDINATED DEBENTURE

	 	 	 
	Principal Sum:

	 	US$1,700,000
	 
	 	 
	Interest Rate:

	 	12% per annum, payable monthly
	 
	 	 
	Due:

	 	August 29, 2009

ARTICLE 1

PROMISE TO PAY

1.1 Ceramic Protection Corporation (the “Corporation”), a corporation incorporated under the laws
of Alberta, for value received hereby acknowledges itself indebted and promises to pay to:

Ballinhard Capital Corporation

(the “Holder”) the principal sum of US$1,700,000 on August 29, 2009 (the “Stated Maturity
Date”), or on such earlier date as such principal sum may become due in accordance with the
terms and conditions hereof, on presentation and surrender of this Debenture to the principal
office of the Corporation in Calgary, Alberta, and to pay interest on such principal sum at 12%
per annum for the period commencing on the date hereof and ending on the Stated Maturity Date
(the “Indebtedness”).

1.2 Interest on the principal sum of this Debenture and interest on overdue interest shall be
due and payable monthly in arrears on the last business day of each month until the Stated
Maturity Date, on which date any remaining unpaid interest shall be due and payable.

1.3 The principal sum of and all interest under this Debenture shall be payable in lawful money
of Canada to the Holder at the address set forth in Section 7.4 hereof or at such other place
as the Holder may designate in writing from time to time.

1.4 This Debenture is a direct and unconditional obligation of the Corporation.

ARTICLE 2

SECURITY FOR INDEBTEDNESS

2.1 As security for the due payment of the Indebtedness and the performance by the Corporation of
its
obligations and covenants hereunder, the Corporation hereby charges as and by way of a floating
charge, to and in favour of the Holder and its successors and assigns, all of the undertaking,
business, property and assets of the

 

 

Corporation, both present and future, of every nature and kind and wherever situate including,
without limitation, all of its present and future personal and real property, goodwill,
trademarks, inventions, processes, patents and patent rights, materials, supplies, inventories,
motor vehicles, trucks, trailers, machinery, implements, equipment and apparatus of every kind,
furniture, rent, revenues, income, money, rights, powers, privileges, franchises, benefits,
amenities, contracts, agreements, leases of real and personal property, licenses, permits, book
debts, accounts receivable, negotiable and non-negotiable instruments, judgments, securities,
choses in action, unpaid capital and all other property and things of value of every kind and
nature, tangible and intangible, legal or equitable, which the Corporation now has, may be
possessed of, entitled to, or acquire, by way of amalgamation or otherwise, now or hereafter and
any and all proceeds of any of the foregoing.

          In this Debenture, the charge created and provided for is called the “Charge” and the subject
matter of the Charge is called the “Charged
Premises”.

          The Corporation acknowledges that value has been given and agrees that: (i) the Charge shall
attach when the Corporation signs this Debenture; and (ii) the Corporation has rights in the
Charged Premises.

2.2 Until there shall occur an Event of Default or the Charge becomes enforceable, and subject to
the express provisions of this Debenture, the Corporation may dispose of or deal with the Charged
Premises in the ordinary course of business and for the purpose of carrying on the same, so that
purchasers thereof or parties dealing with the Corporation take title thereto free and clear of
the Charge, provided that in each case such action is in the ordinary course of its business and
for the purpose of carrying on the same and is not in breach of any express provision hereof.

2.3 The Charge shall not extend or apply to the last day of the term of any lease or agreement to
lease but upon the enforcement of the Charge the Corporation shall stand possessed of such last
day in trust for the Holder to assign the same to any person acquiring such term in the course of
enforcement of the Charge.

2.4 The Charge does not and shall not extend to, and the Charged Premises shall not include, any
agreement, right, franchise, licence or permit (the “Contractual Rights”) to which the
Corporation is a party or of which the Corporation has the benefit, to the extent that the
creation of the Charge herein would constitute a breach of the terms of or permit any person to
terminate the Contractual Rights, but the Corporation shall hold its interest therein in trust
for the Holder.

2.5 Upon the occurrence of an Event of Default as described in Article 5 hereof, the Charge
shall immediately become enforceable.

2.6

	 	(a)	 	Whenever the Charge has become enforceable, the Holder may realize upon the Charged
Premises
and shall have the following rights and remedies, which rights and remedies may be
exercised from time to time separately or in combination:

	 	(i)	 	the Holder may by appointment in writing appoint a receiver or
receiver and
manager (each herein referred to as the “Receiver”) of all or any part of
the Charged Premises and of the rents, incomes, royalties and profits
therefrom and may remove or replace such Receiver from time to time or may
institute proceedings in any court of competent jurisdiction for the
appointment of a Receiver of the Charged Premises or any part thereof; and
the term “Holder” when used in this Section 2.6 shall include any Receiver
so appointed and the Holders, officers and employees of such Receiver;
	 
	 	(ii)	 	take all such steps as the Holder may consider necessary or
desirable for the purpose of preserving, maintaining and completing all or
any part of the Charged Premises and making such replacements thereof and
improvements and additions thereto as the Holder shall consider expedient;

 

 

	 	(iii)	 	the Holder may take possession of the Charged Premises with power to
exclude the Corporation and its officers, employees and agents therefrom;
	 
	 	(iv)	 	the Holder may carry on or concur in the carrying on of all or
any part of the business of the Corporation relating to the Charged Premises;
	 
	 	(v)	 	enjoy and exercise all of the powers of the Corporation as the Holder considers
necessary
or desirable for the exercise of any and all of the remedies of the Holder
provided herein, including, without limitation, the power to make any
arrangement or compromise on behalf and in the name of the Corporation which
the Holder considers expedient;
	 
	 	(vi)	 	the Holder may, with or without taking possession, sell, lease or
otherwise dispose of, either as a whole or in separate parcels, the Charged Premises
at public auction, by private tender or by private sale at such times and places
either for cash or upon credit upon such terms and conditions as the Holder may
determine and without notice to the Corporation unless required by law and may
execute and deliver to the purchaser or purchasers of the Charged Premises or any
part thereof a good and sufficient deed or conveyance or deeds or conveyances for
the same, any officer of the Holder being hereby constituted the irrevocable
attorney of the Corporation for the purpose of making such sale and executing such
deeds or conveyances, and any such sale made as aforesaid shall be a perpetual bar
both in law and in equity against the Corporation and all other persons claiming all
or any part of the Charged Premises by, from, through or under the Corporation, the
Holder or any of its agents or affiliates may be a purchaser or otherwise acquire
the right, title and interest in all or any of the Charged Premises at any such sale
or disposition;
	 
	 	(vii)	 	the Holder may accept the Charged Premises in satisfaction or partial
satisfaction of the Charge upon notice to the Corporation of its intention to do
so in the manner required by law;
	 
	 	(viii)	 	the Holder may borrow money on the security of the Charged Premises for the
purpose of the carrying on of the business of the Corporation or for the
maintenance, preservation, protection or realization of the Charged Premises in
priority to the Charge;
	 
	 	(ix)	 	the Holder may receive the rents, royalties, incomes and profits of any
kind whatsoever from the Charged Premises and pay therefrom (i) any expenses of
preserving, maintaining and completing the Charged Premises, of making such
replacements thereof and improvements and additions thereto as the Holder may
consider expedient and of carrying on all or any part of the business of the
Corporation relating to the Charged Premises, and (ii) any charges against the
Charged premises ranking in priority to the security created by this debenture or
the payment of which may be necessary or desirable to preserve or protect all or
any part of the Charged Premises or the interest of the Holder therein,
	 
	 	(x)	 	the Holder may exercise any other right or remedy permitted by law or equity,
including,
without limitation, all rights and remedies of a secured party under the
Personal Property Security Act (Alberta),

	 	(b)	 	The Corporation further agrees with the Holder that:

	 	(i)	 	the Holder shall not be liable or responsible for any failure to seize, collect,
realize, sell
or obtain payment of all or any part of the Charged Premises and shall not be
bound to institute proceedings or to take other steps for the purpose of
seizing, collecting, realizing or obtaining possession or payment of all or any
part of the Charged Premises or for the

 

 

	 	 	 	purpose of preserving any rights of the Holder, the Corporation or any other
person, firm or corporation in respect of the Charged Premises;
	 
	 	(ii)	 	the Holder may grant extensions of time, take, abstain from taking and
perfecting and give up securities, accept compositions, grant releases and
discharges, release any part of the Charged Premises and otherwise deal with the
Corporation, creditors of the Corporation, sureties and others and with the
Charged Premises and other securities as the Holder may see fit without prejudice
to the liability of the Corporation to the Holder or the Holder’s rights
hereunder;
	 
	 	(iii)	 	to facilitate the realization of the Charged Premises, the Holder may
enter upon, occupy and use all or any of the premises, buildings and plant
comprising the Charged Premises and use all or any of the equipment and other
personal property of the Corporation for such time as the Holder requires to
facilitate such realization, free of charge (as between the Corporation and the
Holder), and the Holder shall not be liable to the Corporation for any neglect in
so doing or in respect of any rent, charges or depreciation in connection with such
actions;
	 
	 	(iv)	 	the Holder may charge on its own behalf and pay to others all
reasonable amounts for expenses incurred and for services rendered in connection
with the exercise of the rights and remedies of the Holder hereunder, including,
without limiting the generality of the foregoing, reasonable legal, Receiver and
accounting fees and expenses, and in every such case the amounts so paid together
with all costs, charges and expenses incurred in connection therewith shall be
added to the amounts due hereunder and shall be secured by the Charge;
	 
	 	(v)	 	the Holder may discharge any claim, lien, mortgage, charge, security
interest, encumbrance or any rights of others that may exist or be threatened
against the Charged Premises, and in every such case the amounts so paid together
with costs, charges and expenses incurred in connection therewith shall be added
to the amounts due hereunder and shall be secured by the Charge; and
	 
	 	(vi)	 	any proceeds of realization of the Charged Premises may be applied by the
Holder to the payment of expenses in connection with the preservation and
realization of the Charged Premises as above described and any balance of such
proceeds shall be applied by the Holder to payment of any amount owing by the
Corporation to the Holder in such order as the Holder may see fit; if there is any
surplus remaining, it may be paid to any person having a claim thereto in priority
to the Corporation of whom the Holder has knowledge and may be applied or retained
as reserves against potential claims that the Holder or the Receiver in good faith
believes should be maintained and the balance remaining, if any, shall (subject to
applicable law) be paid to the Corporation.

	 	(c)	 	Any Receiver shall be entitled to exercise all rights and powers of the Holder hereunder. To
the
extent permitted by law, any Receiver shall for all purposes be deemed to be the agent
of the Corporation and not of the Holder and the Corporation shall be solely
responsible for the Receiver’s acts or defaults and remuneration.
	 
	 	(d)	 	The Corporation hereby irrevocably appoints the Holder attorney on its behalf to sell or
transfer
the Charged Premises and to execute all instruments, and do all acts, matters and
things that may be necessary for carrying out the powers hereby given and for the
recovery of all rents and sums of money that may become or are now due or owing to the
Corporation in respect of the Charged Premises and for the enforcement of all
contracts, covenants or conditions binding on any lessee or occupier of the Charged
Premises or on any person in respect of it and this appointment shall take effect if
the Charge has become enforceable.

 

 

2.7 The
Corporation shall pay to the Holder forthwith on demand all costs, charges and expenses,
including all legal fees, incurred by the Holder in connection with the recovery or enforcement
of payment of any moneys owing hereunder whether by realization or
otherwise. All such sums not
paid in accordance with this Section 2.7 shall be added to the amount payable hereunder and
shall be secured by the Charge,

2.8 No failure on the part of the Holder to exercise, and no delay in exercising, any right
hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of any right
hereunder preclude the other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies provided by law or in
equity.

ARTICLE 3

COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE CORPORATION

3.1 The Corporation represents and warrants to the Holder, with the intention that the Holder
shall rely on those representations and warranties in connection with the purchase of this Debenture,
as follows:

	(a)	 	Corporate Status
	 
	 	 	That it:

	 	(i)	 	is duly incorporated and validly existing under the laws of Alberta; and
	 
	 	(ii)	 	has filed all annual reports and financial statements required of it to be filed in
the Province of Alberta; and
	 
	 	(iii)	 	has the power and authority to carry on its business as now being
conducted by it and the full power to perform its obligations set forth in this
agreement and in the security documents;

	 	 	and nothing contained in this Debenture or the security documents if performed by the
Corporation will result in any breach of or be in conflict with any term or provision of
its constating documents nor in any existing arrangement, agreement or contract, written
or verbal, to which it is a party nor, to the best of its information, knowledge and
belief, any statute, governmental order, judgment, decree or regulatory authority having
jurisdiction over the business of the Corporation.
	 
	(b)	 	Corporate Authorization
	 
	 	 	That all necessary resolutions have been enacted and proceedings taken to enable the
Corporation to execute and deliver this Debenture and to grant the security to the
Holder contemplated by this Debenture.
	 
	(c)	 	Capitalization
	 
	 	 	As at the date hereof, no securities in the capital of the Corporation are issued and
outstanding other than.

	 	(i)	 	10,225,891 common shares; and
	 
	 	(ii)	 	options to purchase an aggregate of 923,001 common shares under the
Corporation’s existing stock option plan, as amended from time to time.

	 	 	There are no other outstanding rights, options, warrants, conversion rights or
agreements for the purchase or acquisition from the Corporation of any shares of its
capital stock.
	 
	(d)	 	Exchange and Regulatory Approvals
	 
	 	 	That all consents, approvals, orders or authorizations which the Corporation is required
to obtain in connection with the execution and delivery of this Debenture, subject only
to the filing of certain customary documents and forms with the relevant securities
regulatory authorities under applicable securities laws.

 

 

	(e)	 	Binding Effect
	 
	 	 	That the obligations of the Corporation hereunder are valid and binding and enforceable
against the Corporation in accordance with their terms, subject only to bankruptcy,
insolvency or other laws of general application affecting the enforcement of creditor’s
rights generally, and to general principles of equity.
	 
	(f)	 	No Judgments
	 
	 	 	That there are no material judgments, writs of execution, work orders, injunctions or
directives outstanding against the Corporation or its properties or assets,
	 
	(g)	 	No Breach
	 
	 	 	That the Corporation is not in material breach of any material agreement to which it is a
party or by which it is bound.

3.2 The Corporation covenants in favour of the Holder that:

	(a)	 	Payment
	 
	 	 	It will duly and punctually pay or cause to be paid to the Holder all amounts payable in
respect of this Debenture including the principal at the places in the manner described
herein.
	 
	(b)	 	Notice of Default
	 
	 	 	The Corporation shall notify the holder of this Debenture immediately upon obtaining
knowledge of an Event of Default (as defined herein).
	 
	(c)	 	Conduct of Business
	 
	 	 	Subject to the express provisions hereof, the Corporation will carry on and conduct its
activities, and cause its subsidiaries to carry on and conduct their businesses, in a
proper and business-like manner, and will do or cause to be done all things necessary to
maintain its and their existence.
	 
	(d)	 	Books and Accounts
	 
	 	 	It will keep or cause to be kept proper books of record and accounts in accordance with
Canadian generally accepted accounting principles.
	 
	(e)	 	Maintenance of Status
	 
	 	 	It will use commercially reasonable efforts to maintain the listing of the Common Shares
on the Exchange and to maintain the Corporation’s status as a “reporting issuer” not in
default of the requirements of the securities legislation and regulations of each of the
provinces of British Columbia, Alberta, Manitoba and Ontario.
	 
	(f)	 	Financial Statements
	 
	 	 	It will furnish to the holder of this Debenture a copy of all consolidated financial
statements of the Corporation, whether annual or interim and the report, if any, of the
Corporation’s auditors thereon and all annual or periodic financial reports of the
Corporation, which are furnished to the holders of Common Shares promptly upon the
distribution thereof to the holders of Common Shares, provided that for so long as the
Corporation is a “reporting issuer” in good standing or the equivalent in any
jurisdiction in Canada, the Corporation’s obligation to deliver such financial
information shall be satisfied by filing such financial information on SEDAR. in
accordance with applicable regulatory requirements.

 

 

	(g)	 	No Distributions
	 
	 	 	It shall not declare or make any distribution to the holders of its issued and
outstanding Common Shares after the occurrence of an Event of Default unless and until
such default shall have been cured or waived or shall have ceased to exist. In addition,
the Corporation shall not declare any distribution to the holders of its issued and
outstanding Common Shares if at the time the directors of the Corporation or a committee
thereof resolves to make the said declaration, the Corporation has actual knowledge that
the paying of said distribution on the applicable distribution payment date will result
in an Event of Default.
	 
	(h)	 	Maintenance of Property
	 
	 	 	It will at all times, repair and keep in repair and good order and condition, or cause to
be so repaired and kept in repair and good order and condition, all buildings, erections,
machinery, plant and equipment used in or in connection with its business which are
necessary for efficient operation up to a modem standard of usage, and renew and replace
or cause to be renewed and replaced all and any of the same which may become worn,
dilapidated, unserviceable, inconvenient, obsolete or destroyed, even by a fortuitous
event, fire or other cause, and which are necessary for efficient operation, and, at all
reasonable times during normal business hours, allow the Holder or its duly authorized
agent access to its premises in order to view the state and condition of the same.
	 
	(i)	 	No Sale or Merger
	 
	 	 	It shall not;

	 	(i)	 	sell, lease or otherwise transfer the undertaking, property and assets of any
of its
operating divisions as an entirety or substantially as an entirety in one
or more transactions, or, sell, lease or otherwise dispose of its
undertaking, property and assets as an entirety or substantially as an
entirety in one or more transactions; or
	 
	 	(ii)	 	amalgamate or merge with any other corporation or effect any corporate
reorganization;
	 
	 	without the prior written consent of the Holder.

	(j)	 	Insurance
	 
	 	 	It will maintain insurance coverage on its property and assets in accordance with industry
practice.
	 
	(k)	 	Compliance with Law
	 
	 	 	It will:

	 	(i)	 	comply, in all material respects, with all applicable federal, provincial,
municipal or other
laws, regulations, ordinances, rules, codes, standards and directions
which may apply to the Charged Premises or its business including,
without limitation, those relating to the protection, preservation or
restoration of the environment; and
	 
	 	(ii)	 	obtain and maintain all necessary permits, licenses and authorizations necessary
for the lawful conduct of its business as carried on from time to time.

	(l)	 	Retain Charged Premises
	 
	 	 	Except in the ordinary course of business, it will not sell, dispose of or part with
possession of all or substantially all of the Charged Premises without the prior written
consent of the Holder.

 

 

	(m)	 	Completing Security
	 
	 	 	It will perform all such acts and things as are reasonably necessary to complete any and
all security documents and supporting agreements identified or referred to herein.
	 
	(n)	 	Taxes
	 
	 	 	It will pay and discharge all taxes, accessions and governmental charges levied against
the Corporation or its property when due and payable.
	 
	(o)	 	Litigation
	 
	 	 	It will promptly give notice to the Holder of any litigation which could materially
adversely affect the business or financial condition of the Corporation.
	 
	(p)	 	Change of Name
	 
	 	 	It will give to the Holder written notification of any change of name of the Corporation
no later than 10 days before the effective date of that change.
	 
	(q)	 	Place of Business
	 
	 	 	If the Corporation changes its principal place of business or the location of its
inventory or equipment or the location of its offices where it keeps its records
respecting accounts receivable or acquires other places of business, it will promptly
notify the Holder.
	 
	(r)	 	Unpaid Amounts
	 
	 	 	It will pay duly and punctually all employees of the Corporation and all other amounts
which if unpaid might under any applicable provincial or federal law obtain or gain
priority over the security granted herein by the Corporation to the Holder.

ARTICLE 4

POSTPONEMENT AND SUBORDINATION

4.1 The payment of the principal on the
Debentures (the “Subordinated Debt”) will be postponed
and subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as
that term is herein defined), whether outstanding on the date of the Debenture or subsequently
incurred in the manner and to the extent herein set forth. “Senior Indebtedness” means the
principal amount of, premium, if any, and interest on any all obligations and liabilities of the
Corporation in respect of:

	 	(a)	 	indebtedness for money borrowed by the Corporation from the Canadian
Imperial Bank of Commerce “CIBC” pursuant to credit facilities for up to
US$55,000,000 million (the “CIBC Facilities”) and any future renewals, extensions or
other amendments to the CIBC Facilities on similar credit terms for the purposes of
financing the Corporation’s operations; or
	 
	 	(b)	 	any replacement of the CIBC Facilities, should the Corporation elect to
replace CIBC as its principal lender while the Corporation remains indebted to the
Holder under this Debenture, provided that the material terms to such facilities
shall in no way be amended.

4.2 So
long as any Senior Indebtedness is outstanding and until the Senior Indebtedness shall have
been paid, performed and indefeasibly satisfied in full:

 

 

	 	(a)	 	upon the Holder receiving notice from the holder of the Senior Indebtedness (the
“Senior
Creditor”) of the occurrence of a default or an event of default under or in
respect of the Senior Indebtedness or any security provided therefor (the “Senior
Security”):

	 	(i)	 	the payment of all Subordinated Debt is postponed and subordinated to the
indefeasible
payment and performance in full and final satisfaction of all Senior
Indebtedness and the Holder will not thereafter directly or indirectly,
accept from the Corporation, in any manner, directly or indirectly, payment
of, or consideration for the reduction of, the whole or any part of the
Subordinated Debt and if any such payment is received or made on the
Subordinated Debt, the Holder will hold such payment in trust for the
benefit of, and shall forthwith pay over such payment in the form received
(duly endorsed, if necessary, to the Senior Creditor) to, the Senior
Creditor; and
	 
	 	(ii)	 	the Senior Security shall have priority over the security
constituted hereby, and the security constituted hereby is hereby postponed
and subordinated in all respects to the Senior Security;

	 	(b)	 	the Holder shall not dispute or contest in any manner the priority of any
of the Senior Security over the Subordinated Debt and any security therefor,
provided the Senior Security is duly perfected, valid and enforceable. The Holder
hereby consents to the Senior Security; and
	 
	 	(c)	 	the Holder shall not take or hold, directly or through any trustee or
nominee, any security interest as security for the payment or performance of any of
the Subordinated Debt other than the security constituted by this Debenture.

4.3 Notwithstanding any provision of this Debenture to the contrary, the Holder hereby covenants
and
agrees with the Corporation that it will at any time and from time to time, upon the request of
the Corporation, execute and deliver such agreements and instruments and/or provide such
acknowledgments and undertakings to any holder of Senior Indebtedness confirming the
subordination of the Holder’s rights under this Debenture (including the Charge) to such Senior
Indebtedness, all such agreements, instruments, acknowledgments and undertakings to be in form
reasonably satisfactory to the holder of such Senior Indebtedness.

ARTICLE 5

DEFAULT

5.1 Each of the following events is herein referred to as an “Event of Default”:

	 	(a)	 	if the Corporation (or any of its subsidiaries) is in default of any material
agreement or obligation imposed by contract, by law, or by regulatory authority and
such default is not remedied within 30 days of notice thereof to the Corporation from
the Holder;
	 
	 	(b)	 	if any distributions of cash or property are made to holders of Common Shares
without the prior written consent of the Holders;
	 
	 	(c)	 	if the Corporation fails to maintain its status as a reporting issuer in
Alberta or fails to maintain the listing of its Common Shares on the Exchange and
the Corporation fails to restore its status or its listing, as the
case may be,
within 30 days of notice thereof to the Corporation from the Holder;
	 
	 	(d)	 	if a writ, execution, attachment or similar process is issued against all or
a substantial portion of the property and assets of the Corporation as a result of a
judgment against the Corporation, in an amount which materially affects the assets
of the Corporation and such writ, execution, attachment or similar process is not
released, satisfied, discharged, vacated or stayed within 30 days after its issue or
entry or the Corporation initiates any material litigation without the prior written
consent of the Holder;

 

 

	 	(e)	 	if the Corporation institutes proceedings to be adjudicated a bankrupt or insolvent,
or consents to
the institution of bankruptcy or insolvency proceedings, or consents to the
filing of any such petition or the petition commencing such proceedings is not
contested, or appoints or consents to the appointment of a receiver of all, or a
substantial part, of the property of the Corporation, or makes a general
assignment for the benefit of creditors, or admits in writing its inability to
pay its debts generally as they become due;
	 
	 	(f)	 	if a Change of Control (as defined herein) of the Corporation occurs, or
any material change to the Corporation’s senior management occurs as a result of
death, disability or termination in accordance with any applicable employment
agreements;
	 
	 	(g)	 	if there exists a provision in any agreement (other than a credit
agreement relating to the CIBC Facility) by which the Corporation is bound and
which conflicts with the terms of the Debentures in a material manner and such
conflict is not removed or corrected within 30 days of notice thereof to the
Corporation from the Holder;
	 
	 	(h)	 	if the Corporation mortgages, pledges or charges its properties or leasehold
interests to secure any
indebtedness, other than in the ordinary course of business where such
indebtedness individually or in the aggregate is not material or under the
Senior Indebtedness, without the prior written consent of the Holder, or if an
event of default under the Senior Indebtedness occurs and such mortgage, pledge
or charge, or such event of default under the Senior Indebtedness, is not
discharged or remedied, as applicable, within 10 days of notice thereof to the
Corporation from the Holder;
	 
	 	(i)	 	if the Corporation defaults in the payment of the principal of this Debenture when the
same
becomes due, whether at maturity or otherwise and such default continues for a
period of three business days;
	 
	 	(j)	 	if the Corporation, except as permitted hereby, ceases or threatens to cease, to carry
on its business
or any substantial portion thereof;
	 
	 	(k)	 	an encumbrancer taking possession of or appointing a receiver for all or substantially
all property
of the Corporation;
	 
	 	(l)	 	if the Corporation neglects to carry out or observe any other material covenant or
condition herein
contained to be carried out or observed on its part and such default continues
for 10 days after notice thereof to the Corporation from the Holder;
	 
	 	(m)	 	if a resolution is passed for the winding up or liquidation of the Corporation;
or
	 
	 	(n)	 	if any proceedings with respect to the Corporation are taken with respect to a
compromise or
arrangement with respect to creditors of the Corporation generally, under the
applicable legislation of any jurisdiction.

5.2 For the purposes of this Debenture, unless the context otherwise requires, “Change of
Control” means the acquisition of voting control or direction over 50.1% or more of the
aggregate voting rights attached to the issued share capital of the Corporation then
outstanding by a person or group of persons acting in concert other than the Holder or any of
its affiliates if such acquisition occurs without the consent or acquiescence of the Holder.

5.3 In case any Event of Default shall have occurred and is continuing, the principal amount
of this Debenture shall, at the option of, and upon written notice to the Corporation by, the
Holder, become immediately due and payable and the Charge shall become enforceable upon the
date that such written notice is given to the Corporation.

5.4 The Corporation acknowledges that if a stay of proceedings is issued against the
Corporation pursuant to the Bankruptcy and Insolvency Act (Canada), the Companies Creditors
Arrangements Act (Canada) or

 

 

otherwise, the Holder would be irreparably harmed and materially prejudiced if any proceeds from
the Charged Premises were used for any purpose other than the repayment of the debt secured by
this Debenture, and the Corporation hereby acknowledges and, agrees that the proceeds from the
Charged Premises received by the Corporation while any such stay is in effect shall be received
and held by the Corporation in trust for the Holder.

5.5 Within 30 days following the occurrence of a Change of Control, and subject to the
provisions and
conditions of this Section 5.5, the Corporation shall be obligated to offer to purchase this
Debenture. (“Change of Control Redemption”). The terms and conditions of such obligation are
set forth below:

	 	(a)	 	Within 30 days following the occurrence of a Change of Control, the Corporation shall
deliver to
the Holder a notice stating that there has been a Change of Control and specifying
the circumstances surrounding such event (a “Change of Control Notice”) together
with an offer in writing (the “Offer”) to purchase this Debenture made in
accordance with the requirements of applicable securities legislation at a price
equal to 105% of the principal amount thereof, on this Debenture up to, but
excluding, the date of acquisition by the Corporation or a related party of this
Debenture (the “Offer Price”). The Change of Control Notice shall specify (i)
that if this Debenture is validly tendered it will be accepted for payment; (ii)
the Offer Price and date of acquisition by the Corporation; (iii) that if the
Holder elects to have this Debenture purchased pursuant to the Offer it will be
required to surrender this Debenture to the Corporation at the address specified in
the Change of Control Notice prior to the close of business on the business day
immediately preceding the date of acquisition by the Corporation; and (iv) that the
Holder will be entitled to withdraw its election if the Corporation receives, not
later than the close of business on the third business day immediately preceding
the date of acquisition by the Corporation, a facsimile transmission or letter from
the Holder withdrawing its election to have this Debenture purchased.
	 
	 	(b)	 	If this Debenture is to be purchased or redeemed by the Corporation on
expiry of the Offer, the Corporation shall, on or before 11:00 a.m. (Calgary time)
on the date of the expiry of the Offer, pay to the Holder by electronic transfer or
certified cheque, such sums of money as may be sufficient to pay the aggregate
Offer Price for this Debenture.
	 
	 	(c)	 	In the event that this Debenture is being purchased or redeemed by the
Corporation on expiry of the Offer in part only, upon surrender of this Debenture
for payment of the Offer Price, the Corporation shall execute and deliver without
charge to the Holder, one or more new debentures in the form hereof for the portion
of the principal amount of this Debenture not purchased.
	 
	 	(d)	 	In case the Holder of any Debenture to be purchased or redeemed in accordance
with this
Section 5.5 of this Debenture shall fail on or before the date specified in paragraph (b) above to
surrender this Debenture or shall not within such time accept payment of the monies payable, or
give such receipt therefor, if any, as the Corporation may reasonably require, such monies may be
set aside in trust in a chartered bank, and such setting aside shall for all purposes be deemed a
payment to the Holder of the sum so set aside and the Holder shall have no other right except to
receive payment of the monies so paid and deposited, upon surrender and delivery up of this
Debenture. In the event that any such monies remain so deposited for a period of six years from
the date of expiry of the Offer, then such monies, together with any accumulated interest thereon,
shall at the end of such period be paid over to the Corporation and the Corporation shall not be
responsible to the Holder for any amounts owing to it hereunder.

5.6 Except as provided below, the Corporation shall not enter into any transaction or series of
transactions whereby all or substantially all of its undertaking, property or assets would
become the property of any other Person (herein called a “Successor”) whether by way of
reorganization, consolidation, amalgamation, arrangement, merger, conveyance, lease, sale or
otherwise, unless:

	 	(a)	 	prior to or contemporaneously with the consummation of such transaction the Corporation
and the
Successor shall have executed such instruments and done such things
as, in the
opinion of counsel. are necessary or advisable to establish that upon the
consummation of such transaction:

 

 

	 	(i)	 	the Successor will have assumed in writing all the covenants and obligations
of the
Corporation under this Debenture;
	 
	 	(ii)	 	this Debenture will be valid and binding
obligations of the Successor entitling the Holder, as against the
Successor, to all the rights of the Holder hereunder;
	 
	 	(iii)	 	the Successor is a corporation, partnership, limited
liability company or trust organized or existing under the laws of Canada
or any province or territory thereof, and
	 
	 	(iv)	 	in the case of an entity organized otherwise than under
the laws of the Province of Alberta, the Successor shall attorn to the
jurisdiction of the courts of the Province of Alberta;

	 	(b)	 	such transaction shall be on such terms as to substantially preserve and
not impair any of the rights and powers of the Holder hereunder;
	 
	 	(c)	 	no condition or event shall exist as to the Corporation (at the time of
such transaction) or the Successor (immediately after such transaction), and after
giving full effect thereto or immediately after the Successor shall become liable
to pay the principal monies and other monies due or which may become due hereunder,
which constitutes or would with the giving of notice or lapse of time constitute an
Event of Default hereunder; and
	 
	 	(d)	 	the Corporation shall have delivered to the Holder an officer’s
certificate confirming that all requirements of this Section 5.6 have been complied
with in respect of such transaction or series of transactions.

Whenever the conditions of this Section 5.6 shall have been duly observed and performed, any
Successor formed by or resulting from such transaction or series of transactions shall succeed
to, and be substituted for, and may exercise every right and power of the Corporation under this
Debenture with the same effect as though the Successor had been named as the Corporation herein
and thereafter, except in the case of a lease or other similar disposition of property to the
Successor, the Corporation shall be relieved of all obligations and covenants under this
Debenture forthwith upon the Corporation delivering to the Holder an opinion of counsel to the
effect that the transaction or series of transactions shall not result in any material adverse
tax consequences to the Corporation or the Successor. The Holder will, at the expense of the
Successor, execute any documents which it may be advised by counsel are necessary or advisable
for effecting or evidencing such release and discharge.

ARTICLE 6

REGISTRATION, TRANSFER, EXCHANGE AND OWNERSHIP OF DEBENTURE

6.1 With respect to this Debenture, the Corporation shall maintain at its principal office in
the City of Calgary or at such other place in Canada as it may designate by notice in writing, a
register in which shall be entered the names and addresses of the
Holders (the “Register”). Such
registration shall be noted on this Debenture by an officer of the Corporation.

6.2 The person in whose name this Debenture is registered shall for all purposes be and be
deemed to be the owner thereof and payment of or on account of the principal of this Debenture
shall be made only to or upon the order in writing of such Holder.

6.3 No transfer of this Debenture shall be valid unless (i) made by
the Holder or his executors
or administrators or other legal representatives or his or their attorney duly appointed by an
instrument in writing in such form as is satisfactory to the Corporation and (ii) such transfer
shall have been duly entered in the Register.

6.4 A Holder may at any time and from time to time have a transfer of this Debenture entered in the
Register pursuant to the provisions of this Article 6 in accordance with such reasonable
regulations as the

 

 

Corporation may prescribe; provided, however, that the Corporation shall not be required to
accept any transfer of this Debenture within five business days of a scheduled interest payment
date.

6.5 The Corporation shall not be bound to take notice of or see to the execution of any trust,
whether express, implied or constructive, in respect of this Debenture and may transfer the
same on the direction of the Holder, whether named as trustee or otherwise, as though the
Holder were the beneficial owner thereof.

6.6 The Holder for the time being of this Debenture shall be entitled to the principal
evidenced by this Debenture free from all equities or rights of set-off or counter-claim
between the Corporation and the Holder and all persons may act accordingly. The receipt of any
such Holder for any such principal shall be a good discharge to the Corporation for the same
and the Corporation shall not be bound to inquire into the title or authority of any such
Holder.

ARTICLE 7

MISCELLANEOUS

7.1 In case this Debenture shall at any time become mutilated, destroyed, stolen or lost and this
Debenture, or evidence of the loss, theft or destruction thereof (together with the indemnity
hereinafter referred to and such other documents or proof as may be required in the premises)
shall be delivered to the Corporation, a new Debenture of like tenor and date will be issued by
the Corporation in exchange for this Debenture, but, in case this Debenture has been destroyed,
stolen or lost, only upon receipt of evidence satisfactory to the Corporation that this
Debenture was destroyed or stolen or lost, and in any case, if required by the Corporation,
upon receipt also of indemnity satisfactory to the Corporation. All expenses and reasonable
charges associated with obtaining such indemnity and with the preparation, authentication and
delivery of a new Debenture shall be borne by the Holder.

7.2 The Corporation hereby certifies and warrants that all acts, conditions and things required
to be done and performed and to have happened in respect of the creation and issuance of and to
constitute the same the valid and legally binding obligation of the Corporation enforceable in
accordance with its terms, have been done and performed and have happened in due and strict
compliance with all applicable laws.

7.3 No failure on the part of the Holder to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder preclude the other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any remedies provided
by law or in equity.

7.4 Any demand, notice or other communication (a “Communication”) to be given in connection
with this Debenture shall be given in writing and may be given by personal delivery or by
registered mail addressed to the Corporation as follows.

Ceramic Protection Corporation.

530 Sawgrass Parkway

Sunrise, Florida 33325

Attention: Mr. Stephen Giordanella

or such other address as may be designated by notice by the Corporation to the Holder and, if to
the Holder, to it at:

Ballinhard Capital Corporation

c/o Edco Financial Holdings Ltd.

3220, 255 — 5th Avenue S.W.

Calgary, Alberta T2G 3G6

Attention: Mr. Larry Moeller

The Corporation or the Holder may change its address at any time by giving notice thereof in
accordance with this Section 7.4. Any Communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof and, if given by
registered mail, on the third day following the deposit thereof in

 

 

the mail. If the party giving any Communication knows or ought reasonably to know of any
difficulties with the postal system which might affect the delivery of mail, any such Communication
shall not be mailed but shall be given by personal delivery.

7.5 This Debenture shall be governed by and construed in accordance with the laws applicable in
the Province of Alberta.

7.6 This Debenture may be amended only by an agreement in writing signed by the Corporation and
the Holder.

          IN WITNESS WHEREOF the Corporation has caused this Debenture to be signed by its duly
authorized officer as of the       day of                          , 2007.

	 	 	 	 	 
	 	CERAMIC PROTECTION CORPORATION

 	 
	 	Per:  	/s/ Randall Paulfus
 	 
	 	 	Name:  	RANDALL PAULFUS 	 
	 	 	Title:  	CHIEF FINANCIAL OFFICER

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