Document:

ex101060607.htm

    FIRST
      AMENDMENT TO LOAN AGREEMENT AND GUARANTY

    

    This
      First Amendment to Loan Agreement
      and Guaranty (this “Amendment”) is made as of June 8, 2007 (“Effective Date”)
      among LSI SACO TECHNOLOGIES INC., a corporation incorporated and existing under
      the federal laws of Canada (“Borrower”), LSI INDUSTRIES INC., a corporation
      organized and existing under the laws of the State of Ohio (“Guarantor”) and
      FIFTH THIRD BANK (“Bank”), an Ohio banking corporation and authorized foreign
      bank under the Bank Act (Canada).

    

    RECITALS

    

    A.           Borrower,
      Guarantor and Bank, are parties to the Letter Loan Agreement dated as of January
      12, 2007 (as amended from time to time, the “Loan Agreement”).

    

    B.           Guarantor
      guaranteed the indebtedness of Borrower for the benefit of Bank pursuant to
      a
      Continuing and Unlimited Guaranty Agreement of the indebtedness of Borrower
      dated January 12, 2007 (the “Guaranty”).

    

    C.           Borrower
      has requested a standby letter of credit sublimit under the revolving demand
      facility,  Bank agrees based upon the terms and conditions
      hereof.

    

    AGREEMENT

    

    NOW,
      THEREFORE, Borrower, Guarantor and
      Bank agree as follows:

    

    1.           AMENDMENT
      TO LOAN AGREEMENT.

     

    1.1           In
      this Section 1 of the Amendment, capitalized terms that are used without
      separate definition shall have the meanings given to them in Loan
      Agreement.

     

    1.2           The
      following Paragraph (h) is hereby added to Section 3 of the Loan Agreement,
      immediately following paragraph (g):

     

    “(h)           Mandatory
      Repayment.  Borrower shall pay to Bank the amount, if any, by
      which the aggregate unpaid principal amount of all Advances (including Deemed
      Advances) from time to time exceeds the Maximum Amount, together with all
      interest accrued and unpaid on the amount of such excess.  Such
      payment shall be immediately due and owing without notice or demand upon the
      occurrence of any such excess.”

    

    1.3           The
      following Paragraph (i) is hereby added to Section 3 of the Loan Agreement,
      immediately following paragraph (h):

     

     “(i)           Letters
      of Credit.  In reliance on the representations and warranties
      of Borrower set forth herein and the Standard Terms and Conditions attached
      hereto as Schedule 1, at any time and from time to time from the date hereof
      prior to demand, Bank may issue for the account of Borrower such Letters of
      Credit as Borrower may request by delivering to Bank a duly executed letter
      of
      credit application on Bank’s standard form; provided, however, that the
      outstanding and undrawn amounts under all such Letters of Credit shall not
      at
      any time exceed the Letter of Credit Maximum.  All Letters of Credit
      shall be in form and substance acceptable to Bank in its sole discretion and
      shall be subject to the terms and conditions of Bank’s form application and
      Letter of Credit Agreement.  Borrower will pay any standard issuance
      and other fees that Bank notifies Borrower it will charge for issuing and
      processing Letters of Credit.”

    
      
                    
                  

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    1.4           Section
      5 of the Loan Agreement is hereby amended and restated in its entirety as
      follows:

     

    “5.           Ancillary
      Documents: The liability, indebtedness and obligations of the
      Borrower under the Credit Facility and this Agreement shall be evidenced,
      governed and secured, as applicable and without limitation by the following
      documents:

    

    
      	
               

            	
              (a)

            	
              a
                limited guarantee of the indebtedness of the Borrower to Bank, executed
                by
                LSI Industries Inc.; as same may  be amended from time to
                time;

            

    

    

    
      	
               

            	
              (b)

            	
              a
                promissory note executed by the Borrower, as same may be amended,
                restated
                or modified from time to time; and

            

    

    

    (c)           the
      Letter of Credit Agreements executed from time to time.”

    

    1.5           Schedule
      1 to the Loan Agreement is hereby amended and restated in its entirety, replaced
      by the attached Schedule 1.

     

    2.           AMENDMENT
      TO GUARANTY.

     

    2.1           In
      this Section 2 of the Amendment, capitalized terms that are used without
      separate definition shall have the meanings given to them in the
      Guaranty.

     

    2.2           Guarantor
      acknowledges and consents to the execution, delivery and performance of the
      Amendment Agreement and agrees that the Guaranty remains in full force and
      effect with respect to all Indebtedness including, without limitation,
      Indebtedness arising under or related to the Loan Agreement.

     

    2.3           
      The first recital contained on page 1 of the Guaranty is
      hereby  amended and restated in its entirety as follows:

     

    “WHEREAS
      Beneficiary has agreed to extend credit and financial accommodations to LSI
      Saco
      Technologies Inc., a corporation incorporated under the federal laws of Canada
      with its primary offices located at 7801 TransCanada Highway, Montreal, Quebec
      H4S1L3 (the “Borrower”), pursuant to  that certain promissory note,
      dated as of January 12, 2007 in the maximum principal amount of USD$7,000,000.00
      and made payable to the Beneficiary, (the “Note”) and the Letter Loan Agreement
      by and among Borrower, Guarantor and the Beneficiary, dated as of January 12,
      2007, as amended from time to time (the “Loan Agreement”) and all agreements,
      instruments, standby letter of credit agreements and documents executed or
      delivered in connection with any of the foregoing or otherwise related thereto
      (together with any amendments, modifications, or restatements thereof, the
“Loan
      Documents”); and”

    

    3.           REPRESENTATIONS
      AND WARRANTIES.  The Borrower represents, warrants, and
      agrees that:

     

    3.1           Except
      as expressly modified in this Amendment, the representations, warranties, and
      covenants set forth in the Loan Agreement, Guaranty and in each related
      document, agreement, and instrument remain true and correct, continue to be
      satisfied in all respects, and are legal, valid and binding obligations with
      the
      same force and effect as if entirely restated in this Amendment.

     

    3.2           
      When executed, this Amendment will be a duly authorized, legal, valid, and
      binding obligation of each of the Borrower and the Guarantor enforceable in
      accordance with its terms.  The Loan

     

    
      
                                

                  -2 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Agreement,
      and Guaranty as amended by this Amendment, are ratified and confirmed and shall
      remain in full force and effect.

     

    3.3           
      There is no default continuing under the Loan Agreement, or Guaranty, or any
      related document, agreement, or instrument, and no event has occurred or
      condition exists that is or, with the giving of notice or lapse of time or
      both,
      would be such a default.

     

    3.4           
      The Articles of Incorporation, Bylaws, Code of Regulations and Resolutions
      and
      Incumbency Certificate of each the Borrower and Guarantor delivered to Bank
      in
      connection with the Loan Agreement and Guaranty on or about January 12, 2007,
      have not been repealed, amended or modified since the date of delivery thereof
      and that same remain in full force and effect.

     

    4.           MISCELLANEOUS.

     

    4.1           No
      Other Changes.  Except as specifically provided in this
      Amendment or the documents described on the Closing Checklist, this Amendment
      does not vary the terms and provisions of any of the promissory note, security
      agreements, and all other instruments, documents and agreements entered into
      in
      connection with the Loan Agreement or the Guaranty
      (“Documents”).  This Amendment shall not impair the rights, remedies,
      and security given in and by the Documents.  The terms of this
      Amendment shall control any conflict between its terms and those of the Loan
      Agreement and Guaranty.

     

    4.2           Successors
      and Assigns.  This Amendment shall inure to the benefit
      of and be binding upon the parties and their respective successors and
      assigns.

     

    4.3           Other
      Modification.  This Amendment may be altered or modified
      only by written instrument duly executed by the Borrower, the Guarantor and
      the
      Bank.  In executing this Amendment, the Borrower and the Guarantor are
      not relying on any promise or commitment of the Bank that is not in writing
      signed by the Bank.

     

    4.4           Governing
      Law.  The parties agree that the terms and provisions of
      this Amendment shall be governed by and construed in accordance with the laws
      of
      the Province of Ontario and the federal laws of Canada applicable therein and
      the parties attorn to the non-exclusive jurisdiction of the courts of the
      Province of Ontario.

     

    4.5           Ratification.  Except
      for the modifications under this Amendment, the parties ratify and confirm
      the
      Loan Agreement, Guaranty and Documents and agree that they remain in full force
      and effect.

     

    4.6           No
      Defenses.  The Borrower and Guarantor acknowledge,
      confirm, and warrant to the Bank that as of the date hereof each of the Borrower
      and the Guarantor have absolutely no defenses, claims, rights of set-off, or
      counterclaims against the Bank under, arising out of, or in connection with,
      this Amendment, the Loan Agreement, the Guaranty, the Documents and/or the
      individual advances under the Obligations, or against any of the indebtedness
      evidenced or secured thereby.

     

    4.7           Expenses.  The
      Borrowers shall promptly pay all out-of-pocket fees, costs, charges, expenses,
      and disbursements of the Bank incurred in connection with the preparation,
      execution, and delivery of this Amendment, and the other documents contemplated
      by this Amendment.

     

    4.8           Counterparts;
      Effectiveness.  This Amendment may be executed in as many
      counterparts the Bank, the Borrower and the Guarantor deem convenient, and
      shall
      become effective upon (a) delivery to Bank of all executed counterparts hereof;
      and (b) delivery to Bank, in form and substance

     

    
      
                                

                  - 3 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    satisfactory
      to the Bank, of each of the documents and instruments listed on the Closing
      Checklist attached as Exhibit “A” hereto.

     

    [signatures
      on following page]

     

     

    
      
        -4-

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    This
      First Amendment to Loan Agreement and Guaranty is executed and delivered on
      the
      Effective Date.

     

    

     

    
      	
              LSI
                SACO TECHNOLOGIES INC., a Canadian corporation, as
                Borrower

               

              By:___________________________

                    Print
                Name:

              Its:___________________________

               

            	 	
              LSI
                INDUSTRIES INC., an Ohio corporation, as Guarantor

               

              By:___________________________

                    Print
                Name:

              Its:___________________________

               

               

            
	
              FIFTH
                THIRD BANK

               

              By:___________________________

                    Print
                Name:  Steve Pepper, P. Eng.

              Its:  Vice
                President

               

               

            	 	 

    

    

     

    
      
              
        

                  -5 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      1

     

    STANDARD
      DEFINITIONS, TERMS AND CONDITIONS

     

    1.           Definitions:  
      For the purpose of this Agreement, the terms defined below shall have the
      indicated meanings unless the context expressly or by necessary implication
      requires otherwise:

     

    “Agreement”
      means this letter loan agreement, including all attached Schedules and Exhibits
      thereto and hereto, as the same may be amended, varied, supplemented, restated,
      renewed or replaced at any time and from time to time;

     

    “Applicable
      Law”
means, at any time, in respect of any Person, property, transaction
      or event,
      all laws, statutes, regulations, treaties, judgments and decrees applicable
      to
      that Person, property, transaction or event (whether or not having the force
      of
      law with respect to regulatory matters applicable to the Bank) and all
      applicable requirements, requests, official directives, consents, approvals,
      authorizations, guidelines, decisions, rules, orders and policies of any
      Governmental Authority having or purporting to have authority over such Person,
      property, transaction or event;

     

    “Basis
      Point”
and “bp” each means one one-hundredth of one percent
      (.01%);

     

    “Branch
      of Account” means the branch of the Bank at which the Borrower’s
      accounts are maintained.  As at the date of this Agreement, the
“Branch of Account” is the Bank’s branch at 20 Bay Street, 12th
      Floor, Toronto, Ontario M5J 2N8;

     

    “Business
      Day” means a day on which chartered banks are open for over-the-counter
      business in Toronto, Ontario and Cincinnati, Ohio and excludes (a) Saturday,
      Sunday and any other day which is a statutory holiday in Toronto, Ontario or
      Cincinnati, Ohio, and (b) in respect of Libor Loans, any other day on which
      transactions cannot be carried out by and between banks in the London Interbank
      Market;

     

    “Canadian
      Dollars” and the symbols “$” and
“Cdn$” each means lawful money of Canada;

     

    “Canadian
      Dollar Equivalent” means at any time on any date in relation to any
      amount in a currency other than Canadian Dollars, the amount of Canadian Dollars
      required for the Borrower
      to purchase that amount of such other currency at the rate of exchange quoted
      by
      the Bank at or about 12:00 p.m. (noon) Toronto, Ontario time on such date,
      including all premiums and costs of exchange;

     

    “Canadian
      Overdraft” means subject to the terms hereof, any draw by the Borrower
      by way of overdraft on any of its Canadian Dollar current accounts maintained
      with or through the Bank;

     

    “Canadian
      Prime Loans” means Canadian Prime Rate based loans, which for greater
      certainty includes loans made by way of Canadian Overdraft;

     

    “Canadian
      Prime Rate” means, in connection with Canadian Prime Loans, on any day,
      the greater of:  (a) the variable annual rate of interest established
      and adjusted by Royal Bank of Canada from time to time as being Royal Bank
      of
      Canada’s reference rate then in effect for

     

    
      
              

                  
      
      

                  -  -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    determining
      interest rates on Canadian Dollar denominated commercial loans made by Royal
      Bank of Canada in Canada; and (b) the CDOR Rate in effect from time to time,
      plus 100 bps per annum.  Any change in the Canadian Prime Rate shall
      be effective on the date the change becomes effective generally without the
      necessity for any notice to the Borrower;

     

    “CDOR
      Rate” means, on any day, the annual rate of interest which is the
      arithmetic average of the “BA 1 month” rates applicable to Canadian Dollar
      banker’s acceptances identified as such on the Reuters Screen CDOR Page at
      approximately 10:00 a.m. on such day (as adjusted by the Bank after 10:00 am.
      to
      reflect any error in any posted rate or in the posted average annual rate)
      or if
      such date is not a Business Day then on the immediately preceding Business
      Day.  If the rate does not appear on the Reuters Screen CDOR Page as
      contemplated above, then the CDOR Rate shall be the rate per annum quoted from
      time to time by the Bank as being its reference rate then in effect for
      determining fees on Canadian Dollar denominated bills of exchange accepted
      by
      the Bank;

     

    “Contaminant”
      includes, without limitation, any pollutant, dangerous substance, liquid waste,
      industrial waste, hazardous material, hazardous substance or contaminant
      including any of the foregoing as defined in any Environmental Law;

     

    “Contract
      Period” means the period selected by the Borrower in accordance with
      the Standard Terms and Conditions commencing on the Drawdown Date, Issuance
      Date, Rollover Date or Conversion Date, as applicable, and expiring on a
      Business Day, in respect of an Advance during which the interest rate with
      respect to any Advance is established in accordance with and subject to Section
      4 of this Schedule with respect to Libor Loans or Section 5 of this Schedule
      with respect to FRT Loans;

     

    “Conversion”
      means the conversion of an outstanding Advance, or a portion of an outstanding
      Advance, into an alternate type of Advance in accordance with this
      Agreement;

     

    “Conversion
      Date” means the Business Day that the Borrower elects as the date on
      which a Conversion is to occur;

     

    “Drawdown
      Date” means any Business Day on which an Advance is made or is deemed
      to be made;

     

    “Default”
      means an event, circumstance or omission which is an Event of Default or which,
      with any or all of the giving of notice, lapse of time, or a failure to remedy
      the event, circumstance or omission within a period of time, would be an Event
      of Default;

     

    “Documents”
      means this Agreement, the Guaranty, the Promissory Note, Letter of Credit
      Agreement and all certificates, instruments, agreements and other documents
      delivered, or to be delivered to the Bank under or in connection with this
      Agreement and, when used in relation to any Person, “Documents”
means the Documents executed and delivered by such Person;

     

    “Environmental
      Activity” means any activity, event or circumstance in respect of a
      Contaminant, including, without limitation, its storage, use, holding,
      collection, purchase, accumulation, assessment, generation, manufacture,
      construction, processing, treatment,

     

    
      
              

                  
      
      

                  - 2 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    stabilization
      disposition, handling or transportation, or its Release into the natural
      environment, including movement through or in the air, soil, surface water
      or
      groundwater;

     

    “Environmental
      Laws” means all Applicable Laws relating to the environment or
      occupational health and safety, or any Environmental Activity;

     

    “Excluded
      Taxes” means, in relation to the Bank, any Taxes imposed on the net
      income or capital of the Bank by any Governmental Authority as a result of
      the
      Bank (a) carrying on a trade or business or having a permanent establishment
      in
      any jurisdiction or political subdivision thereof, (b) being organized under
      the
      laws of such jurisdiction or any political subdivision thereof, or (c) being
      or
      being deemed to be resident in such jurisdiction or political subdivision
      thereof;

     

    “FRT
      Loans” means FTB Fixed Rate term
      loans;

     

    “FTB
      Fixed Rate” means, with respect to each Contract Period applicable to
      an FRT Loan, the annual fixed rate of interest offered by the Bank and accepted
      by the Borrower for the requested funds for a period of 30 days or such other
      period of time as the Borrower and the Bank agree to in the circumstances (but
      maturing not later than the final date for payment of the subject FRT Loan(s),
      in any event);

     

    “GAAP”
      means generally accepted accounting principles in effect from time to time
      in
      the United States of America, applicable to the relevant Person, applied in
      a
      consistent manner from period to period;

     

    “Governmental
      Approvals” means, with respect to any Person, all licenses, permits,
      consents, authorization and approvals from any and all Governmental Authorities
      required for the conduct of that Person’s business as presently
      conducted;

     

    “Governmental
      Authority” means any domestic or foreign governmental, legislative, or
      regulatory authority, agency, commission, board or court, tribunal or other
      law,
      regulation or rule making entity having or purporting to have jurisdiction
      on
      behalf of any nation, province, state, territory, region, municipality or
      city;

     

    “Guarantor(s)”
      means the Person or Persons who have or are to execute a guarantee or guarantees
      of the Obligations of the Borrower under or in connection with this Agreement
      and the Documents;

     

    “Guaranty”
      means a guaranty in form and substance satisfactory to Bank pursuant to which
      Guarantor (jointly and severally if more than one) unconditionally guarantees
      repayment to Bank of all of the Obligations;

     

    “Letter(s)
      of Credit” shall mean any standby or commercial letters of credit
      issued by Bank at the request of or for the account of Borrower pursuant to
      Section 3(i) to this Agreement;

     

    “Letter
      of Credit Agreement” means in respect of each Letter of Credit issued
      pursuant to this Agreement, the application of Borrower requesting Bank to
      issue
      such Letter of Credit (including the terms and conditions on the reverse side
      thereof or otherwise provided therein and including

     

    
      
              

                  
      
      

                  - 3 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    any
      separate indemnity agreement delivered in connection therewith), including
      but
      not limited to the letter of credit reimbursement agreement, the telefax
      authorization and any separate agreement required by Bank, each in the form
      and
      substance acceptable to Bank;

     

    “Letter
      of Credit Fees” shall mean the fees payable to Bank in connection with
      letters of credit issued by it pursuant to Section 4(d) of Schedule 1 to this
      Agreement;

     

    “Letter
      of Credit Maximum” means US$1,000,000 or the Canadian Dollar Equivalent
      amount thereof in Canadian Dollars;

     

    “Letter
      of Credit Obligations” shall mean the obligations of Borrower hereunder
      and under each Letter of Credit Agreement to reimburse Bank for each payment
      made by Bank upon drawing made under a letter of credit issued pursuant to
      such
      Letter of Credit Agreement, together with all other sums, fees, charges and
      amounts which may be owing under such Letter of Credit Agreement;

     

    “Libor”
means,
      with respect to each Contract
      Period applicable to a Libor Loan, the annual rate of interest (rounded upwards,
      if necessary, to the nearest whole multiple of one sixteenth of one percent
      (1/16th%), at which the Bank, in accordance with its normal practice,
      would be prepared to offer deposits of US Dollars to leading banks in the London
      Interbank Market for delivery on the first day of each such Contract Period,
      for
      a period equal to each such Contract Period, such deposits being in comparable
      amounts to be outstanding during such Contract Period, at or about 11:00 a.m.
      (London, England time) two Business Days prior to the relevant Drawdown Date
      or
      Rollover Date;

     

    “Libor
      Interest Date” means, with respect to any Libor Loan, the last day of
      each Contract Period applicable to the Libor Loan and, if the applicable
      Contract Period is longer than 3 months, the date falling every 3 months after
      the beginning of the Contract Period and the last day of the Contract
      Period;

     

    “Libor
      Loans” means Libor based loans in US Dollars;

     

    “Lien”
      means any mortgage, charge, lien, hypothec or encumbrance, whether fixed or
      floating on, or any security interest in, any property, whether real, personal
      or mixed, tangible or intangible, any pledge or hypothecation of any property,
      any deposit arrangement, priority, conditional sale agreement, other title
      retention agreement or equipment trust, capital lease or other security
      arrangement of any kind;

     

    “Obligations”
      means all loans, advances, debts, liabilities and obligations for the
      performance of covenants, tasks or duties or for the payment of monetary amounts
      (whether or not performance is then required or contingent, or whether or not
      those amounts are liquidated or determinable) owing by the Borrower and/or
      any
      Guarantor to the Bank under any or all of the Documents and all covenants and
      duties regarding those amounts, of any kind or nature, present or future,
      whether or not evidenced by any agreement or other instrument, owing under
      any
      or all of the Documents including all obligations owed by the Borrower to the
      Bank under the Credit Facilities;

     

    “Overdraft”
      means Canadian Overdraft or US Overdraft, as applicable;

     

    
      
              

                  
      
      

                  - 4 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Person”
      includes an individual, a partnership, a joint venture, a trust, an
      unincorporated organization, a company, a corporation, an association, a
      government or any department or agency thereof, and any other incorporated
      or
      unincorporated entity of whatsoever nature or kind;

     

    “Priority
      Claims” means all amounts owing or required to be paid, where the
      failure to pay any such amount could give rise to a claim pursuant to any
      Applicable Law or otherwise, which ranks or is capable of ranking in priority
      to
      the Bank’s Lien or otherwise in priority to any claim by the Bank for repayment
      of any amounts owing under or in connection with this Agreement or the
      Documents;

     

    “Promissory
      Note” means a promissory note in favor of Bank, executed and delivered
      by Borrower on or about January 12, 2007, in form and substance satisfactory
      to
      Bank, as same may be amended, restated and/or modified from time to
      time.

     

    “Release”
      includes discharge, spray, inject, inoculate, abandon, deposit, spill, leak,
      seep, pour, emit, empty, throw, dump, place and exhaust, and when used as a
      noun
      has a similar meaning;

     

    “Rollover”
      means the rollover of an Advance by way of Libor Loan or FRT Loan for an
      additional Contract Period under Section 4 or Section 5 of this Schedule, as
      applicable;

     

    “Rollover
      Date” means the Business Day on which a Rollover occurs;

     

    “Stated
      Amount” means, on any date of determination, the maximum amount which
      may be drawn under a Letter of Credit.

     

    “Subsidiary”
      of a Person means (a) any corporation of which the Person and/or any one of
      its
      affiliates holds, directly or indirectly, other than by way of security only,
      securities to which are attached more than 50% of the votes that may be cast
      to
      elect directors of such corporation, (b) any corporation of which the Person
      and/or any one of its affiliates has, through operation of law or otherwise,
      the
      ability to elect or cause the election of a majority of the directors of such
      corporation, (c) any partnership, limited liability company, unlimited liability
      company or joint venture in which such Person and/or one or more of its
      affiliates has, directly or indirectly, more than 50% of the votes that may
      be
      cast to elect the governing body of such entity or otherwise control its
      activity, and (d) any partnership, limited liability company, unlimited
      liability company or joint venture in which such Person and/or one or more
      of
      its affiliates has, through operation of law or otherwise, the ability to elect
      or cause the election of a majority of the members of the governing body of
      such
      entity or otherwise control its activity;

     

    “Tax”
      and “Taxes” include, at any time, all taxes, surtaxes, duties,
      levies, imposts, rates, fees, assessments, withholdings, dues and other charges
      of any nature imposed by any Governmental Authority (including income, capital
      (including large corporations), withholding, consumption, sales, use, transfer,
      goods and services or other value-added, excise, customs, anti-dumping,
      countervail, net worth, stamp, registration, franchise, payroll, employment,
      health, education, business, school, property, local improvement, development,
      education development and occupation taxes, surtaxes, duties, levies, imposts,
      rates, fees, assessments, withholdings, dues and charges) together with all
      fines, interest, penalties on or in respect of, or in lieu of or for
      non

     

    
      
              

                  
      
      

                  - 5 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    collection
      of, those taxes, surtaxes, duties, levies, imposts, rates, fees, assessments,
      withholdings, dues and other charges;

     

    “US
      Base Rate” means the variable annual rate of interest established and
      adjusted by the Bank from time to time as being its reference rate then in
      effect for determining interest rates on US Dollar denominated commercial loans
      made by it in Canada.  Any change in the US Base Rate shall be
      effective on the date the change becomes effective generally without the
      necessity for any notice to the Borrower;

     

    “US
      Base Rate Loans” means US Base Rate based loans in US Dollars, which
      for greater certainty includes loans made by way of US Overdraft;

     

    “US
      Dollar Equivalent” means at any time on any date in relation to any
      amount in a currency other than US Dollars, the amount of US Dollars required
      for the Borrower to purchase that amount of such other currency at the rate
      of
      exchange quoted by the Bank at or about 12:00 p.m. (noon) Toronto, Ontario
      time
      on such date, including all premiums and costs of exchange;

     

    “US
      Dollars” and the symbol “US$” each means lawful money
      of the United States of America; and

     

    “US
      Overdraft” means subject to the terms hereof, any draw by the Borrower
      by way of overdraft on any of its US Dollar current accounts maintained with
      or
      through the Bank.

     

    2.           Representations
      and Warranties:  If a corporation, the
      Borrower and each Guarantor, as applicable, represents and warrants, on each
      Drawdown Date, Rollover Date and Conversion Date, that:

     

    
      	
               

            	
              (a)

            	
              Corporate
                Status.  It (i) is a duly organized and validly
                existing corporation in good standing under the laws of the jurisdiction
                of its incorporation, (ii) has the power and authority to own its
                property
                and assets and to transact the business in which it is engaged and
                presently proposes to engage, and (iii) is duly qualified as a foreign
                corporation or an extra-provincial corporation and is in good standing
                in
                each jurisdiction where the ownership, leasing or operation of its
                property or the conduct of its business requires such qualification
                except
                where the failure to be qualified would not materially affect its
                business.

            

    

     

    
      	
               

            	
              (b)

            	
              Power
                and Authority.  It has the corporate power to
                execute, deliver and perform the terms and provisions of each of
                the
                Documents to which it is a party and has taken all necessary action
                to
                authorize the execution, delivery and performance by it of each of
                such
                Documents.  It has duly executed and delivered each of the
                Documents to which it is a party, and each such Document constitutes
                its
                legal, valid and binding obligation enforceable against it in accordance
                with its terms, subject to (i) applicable bankruptcy, reorganization,
                moratorium or similar laws affecting creditors’ generally, (ii) the fact
                that specific performance and injunctive relief may only be given
                at the
                discretion of the courts, and (iii) the equitable or statutory powers
                of
                the courts to stay proceedings before them and to stay the execution
                of
                judgments.

            

    

     

    
      
              

                  
      
      

                  - 6 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              (c)

            	
              No
                Violation.  Neither the execution, delivery or
                performance by it of the Documents to which it is a party, nor compliance
                by it with the terms and provisions thereof, (i) will contravene
                any
                Applicable Law, (ii) will conflict with or result in any breach of
                any of
                the terms, covenants, conditions or provisions of, or constitute
                a default
                under, or result in the creation or imposition of (or the obligation
                to
                create or impose) any Lien upon any of its property or assets pursuant
                to
                the terms of any indenture, mortgage, deed of trust, credit agreement,
                loan agreement or any other agreement, contract or instrument to
                which it
                is a party or by which it or any of its property or assets is bound
                or to
                which it may be subject, or (iii) will violate any provision of its
                constating documents.

            

    

     

    
      	
               

            	
              (d)

            	
              Governmental
                Approvals.  Except as otherwise advised by the
                Borrower to the Bank in writing, no order, consent, certificate,
                approval,
                permit, license, authorization or validation of, or filing, recording
                or
                registration with or exemption by (except as have been obtained or
                made
                prior to the date hereof or exist and are in full force and effect)
                any
                Person (including any Governmental Authority), is required to authorize,
                or is required in connection with (i) the execution, delivery and
                performance by it of any Document to which it is a party, or (ii)
                the
                legality, validity, binding effect or enforceability with respect
                to it of
                any such Document.

            

    

     

    
      	
               

            	
              (e)

            	
              True
                and Complete Disclosure.  All factual information
                heretofore or contemporaneously furnished by or on behalf of it in
                writing
                to the Bank (including all information contained in the Documents)
                for
                purposes of or in connection with this Agreement or any transaction
                contemplated herein, is true and accurate in all material respects
                on the
                date as of which such information is dated or certified and is not
                incomplete by omitting to state any fact necessary to make such
                information (taken as a whole) not misleading at such time in light
                of the
                circumstances under which such information was
                provided.

            

    

     

    
      	
               

            	
              (f)

            	
              Compliance
                with Applicable Laws, etc.  It (i) has obtained
                and is in compliance with all material Governmental Approvals which
                are
                necessary for the conduct of its business as presently conducted
                and the
                use of its property and assets (both real and personal), each of
                which is
                in full force and effect, is a good, valid and subsisting approval
                which
                has not been surrendered, forfeited or become void or voidable and
                is
                unamended, and (ii) is in compliance with all Applicable Laws in
                all
                material respects, including Environmental Laws in all material
                respects.

            

    

     

    
      	
               

            	
              (g)

            	
              Representations
                and Warranties in Other Documents.  All
                representations and warranties made by it in the Documents other
                than this
                Agreement are true and correct in all material respects as of the
                time as
                of which such representations and warranties were
                made.

            

    

     

    3.           Notice
      of Borrowing:  All Advances, other than Advances by way
      of Overdraft, or Deemed Advances, require the delivery of prior
      notice.  To request an Advance, the Borrower shall give to the Bank
      written notice substantially in the form attached as Exhibit l to
      this

     

    
      
              

                  
      
      

                  - 7 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Schedule,
      indicating the amount
      of the requested Advance, at or before the time set out below opposite the
      type
      of Advance that the Borrower wishes to request:

     

    
      
        	
                Type
                  of Advance

              	
                Time
                  of Notice

              
	
                 

                Canadian
                  Prime Loans and US

              	
                Before
                  11:00 a.m. one Business

              
	 	 
	
                Base
                  Rate Loans less than $10 million

              	
                Day
                  prior to the requested date of the Advance.

              
	 	 
	
                Libor
                  Loans

              	
                Before
                  11:00 a.m. three Business Days prior to the requested date of the
                  Advance.

              
	 	 
	
                FRT
                  Loans

              	
                Before
                  11:00 a.m. five Business Days prior to the requested date of the
                  Advance

              

      

Each
      notice given in respect of an Advance by way of Canadian Prime Loan, US Base
      Rate Loan, Libor Loan and FRT Loan shall indicate the amount of the required
      Advance and the date funds are required.

     

    4.           Letters
      of Credit.

     

    
      	
               

            	
              (a)

            	
              Expiration.  Each
                Letter of Credit shall have an initial expiration date not later
                than one
                (1) year from its date of issuance (subject to
                renewals).

            

    

     

    
      	
               

            	
              (b)

            	
              Conditions
                to Issuance.  No Letter of Credit shall be issued
                pursuant to Section 3 (i) of this Agreement unless, as of the requested
                date for issuance:

            

    

     

    
      	
               

            	
              (i)

            	
              the
                Stated Amount of the Letter of Credit requested, plus the Stated
                Amounts
                of all other outstanding Letters of Credit plus the amount of all
                unreimbursed drawings and payments made on Letters of Credit will
                not
                exceed the Letter of Credit
                Maximum;

            

    

     

    
      	
               

            	
              (ii)

            	
              the
                execution of the Letter of Credit Agreement with respect to the Letter
                of
                Credit requested will not violate the terms and conditions of any
                contract, agreement or other borrowing of
                Borrower;

            

    

     

    
      	
               

            	
              (iii)

            	
              Borrower
                shall have delivered to Bank, not less than five (5) Business Days
                prior
                to the requested date for issuance, the Letter of Credit Agreement
                related
                thereto, together with such other documents and materials as may
                be
                required pursuant to the terms thereof, and the terms of the proposed
                Letter of Credit shall be satisfactory to
                Bank;

            

    

     

    
      	
               

            	
              (iv)

            	
              no
                order, judgment or decree of any court, arbitrator or governmental
                authority shall purport by its terms to enjoin or restrain Bank from
                issuing the Letter of Credit, and no law, rule, regulation, request
                or
                directive

            

    

     

    
      
              

                  
      
      

                  - 8 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              (whether
                or not having the force of law) of or from any governmental authority
                shall prohibit or request that Bank refrain from issuing, the Letter
                of
                Credit requested or Letters of Credit
                generally;

            

    

     

    
      	
               

            	
              (v)

            	
              Bank
                shall have received the issuance fee required in connection with
                the
                issuance of such Letter of Credit pursuant to Section 4 (c) of Schedule
                1;
                and

            

    

     

    
      	
               

            	
              (vi)

            	
              all
                of the conditions set forth in Section 10 of Schedule 1, are satisfied
                as
                of the date of such request and shall be satisfied as of the date
                requested for issuance of such Letter of
                Credit.

            

    

     

    Each
      Letter of Credit Agreement submitted to Bank pursuant hereto shall constitute
      the certification by Borrower of the matters set forth in this Section
      4(b).

     

    
      	
               

            	
              (c)

            	
              Letter
                of Credit Fees.  Borrower shall pay to Bank letter
                of credit fees upon the date of issuance of each Letter of Credit
                in the
                amount(s) set forth in the Letter of Credit
                Agreement.

            

    

     

    
      	
               

            	
              (d)

            	
              Standard
                Fees.  In connection with the Letters of Credit,
                Borrower will pay Bank letter of credit issuance fees and standard
                administration, payment and cancellation charges assessed by Bank,
                in the
                amounts customarily charged by Bank at such time with respect to
                its
                letters of credit generally.

            

    

     

    
      	
               

            	
              (e)

            	
              Draws
                Under Letters of Credit.  The Borrower agrees to
                pay to Bank, on the day on which Bank shall honor a draft or other
                demand
                for payment presented or made under any Letter of Credit, an amount
                equal
                to the amount paid by the Bank and in the same currency as paid by
                Bank in
                respect of such draft or other demand under such Letter of Credit
                and all
                reasonable expenses paid or incurred by the Bank relative
                thereto.  Unless the Borrower shall have made such payment to
                Bank on such day, upon each such payment by the Bank, the Borrower
                shall
                be deemed to have elected to substitute for its reimbursement obligation
                a
                Canadian Prime Rate Loan (for Letters of Credit denominated in Canadian
                Dollars) or a US Base Rate Loan (for Letters of Credit denominated
                in US
                Dollars) from the Bank in each case in an amount equal to the amount
                so
                paid by the Bank in respect of such draft or other demand under such
                Letter of Credit (each, a “Deemed Advance”).  Each Deemed
                Advance shall be charged as an Advance against the Revolving Line,
                regardless of (i) the existence of an Event of Default, (ii) whether
                the
                conditions precedent set forth in Section 10 of Schedule 1 or elsewhere
                in
                this Agreement have been satisfied and (iii) whether such Deemed
                Advance
                will cause the total of all Advances outstanding under the revolving
                demand facility to exceed the Maximum Amount.  To the extent of
                the Deemed Advance so disbursed, the reimbursement obligation of
                the
                Borrower to the Bank under this Section 4(e) shall be deemed
                satisfied.

            

    

     

    
      	
               

            	
              (f)

            	
              Obligations
                Irrevocable.  The obligations of Borrower to make
                payments with respect to Letter of Credit Obligations under Section
                4(e)
                of Schedule 1, shall be

            

    

     

    
      
              

                  
      
      

                  - 9 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              absolute,
                unconditional and irrevocable and not subject to any qualification
                or
                exception whatsoever, including without
                limitation:

            

    

     

    
      	
               

            	
              (i)

            	
              invalidity
                or unenforceability of this Agreement or any of the other Documents
                or any
                of their provisions;

            

    

     

    
      	
               

            	
              (ii)

            	
              the
                existence of any claim, set-off, defense or other right which Borrower
                may
                have against a beneficiary named in a Letter of Credit, or any other
                Person;

            

    

     

    
      	
               

            	
              (iii)

            	
              any
                draft, certificate or any other document presented in connection
                with a
                Letter of Credit proving to be forged, fraudulent, invalid or insufficient
                in any respect or any statement therein being untrue or inaccurate
                in any
                respect, except to the extent resulting from the willful misconduct
                or
                gross negligence on the part of
                Bank;

            

    

     

    
      	
               

            	
              (iv)

            	
              the
                occurrence of any Default or Event of
                Default;

            

    

     

    
      	
               

            	
              (v)

            	
              payment
                by Bank under any Letter of Credit against presentation of a draft
                or
                accompanying certificate which does not strictly comply with the
                terms of
                the Letter of Credit;

            

    

     

    
      	
               

            	
              (vi)

            	
              any
                failure, omission, delay or lack on the part of Bank or any party
                to this
                Agreement or any of the Documents to enforce, assert or exercise
                any
                right, power or remedy conferred upon Bank or any such party under
                this
                Agreement or any Documents, or any other acts or omissions on the
                part of
                Bank or any such party;

            

    

     

    
      	
               

            	
              (vii)

            	
              the
                voluntary or involuntary liquidation, dissolution, sale or other
                disposition of all or substantially all the assets of Borrower; the
                receivership, insolvency, bankruptcy, assignment for the benefit
                of
                creditors, reorganization, arrangements, composition with creditors
                or
                readjustment or other similar proceedings affecting Borrower, or
                any of
                its assets, or any allegation or contest of the validity of this
                Agreement
                or any of the Documents, in any such proceedings;
                and

            

    

     

    
      	
               

            	
              (viii)

            	
              any
                other circumstance or happening whatsoever, whether or not similar
                to any
                of the foregoing, and any other event or action that would, in the
                absence
                of this clause and other than as a result of the misconduct or gross
                negligence of Bank, result in the release or discharge by operation
                of law
                of Borrower from the performance or observance of any obligation,
                covenant
                or agreement contained in this Agreement or any of the
                Documents.

            

    

     

    
      	
               

            	
              (g)

            	
              Cash
                Collateralization.  Upon an Event of Default and
                the subsequent demand for cash collateral by Bank, Borrower agrees
                to
                deposit into an account with the Bank (the “Cash Collateral Account”) cash
                in an amount equal to the aggregate amount of all outstanding Letters
                of
                Credit.  Borrower hereby grants to Bank
                a

            

    

     

    
      
              

                  
      
      

                  -
            10 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              security
                interest in the Cash Collateral Account to secure all of its Obligations
                to the Bank.  Borrower shall not withdraw any amounts from the
                Cash Collateral Account if such withdrawal will result in the aggregate
                amount of all outstanding Letters of Credit exceeding the balance
                of the
                Cash Collateral Account.

            

    

     

    
      	
               

            	
              (h)

            	
              Indemnification.  Borrower
                agrees to indemnify, defend and hold Bank harmless from and against
                any
                and all claims, damages, losses, liabilities, costs or expenses whatsoever
                which Bank may incur (or which may be claimed against Bank by any
                Person)
                by reason of or in connection with the execution and delivery or
                transfer
                of, or payment or failure to pay under, any Letter of Credit; provided,
                however, that Borrower shall not be required to indemnify Bank pursuant
                to
                this Section 4(g) for claims, damages, losses, liabilities, costs
                or
                expenses to the extent, but only to the extent, caused by the willful
                and
                wrongful failure or willful and wrongful misconduct or gross negligence
                of
                Bank.  Nothing in this Section 4(g) is intended nor shall be
                deemed to limit, reduce or otherwise affect in any manner whatsoever
                the
                reimbursement obligations of Borrower contained in Section 4(e)
                hereof.

            

    

     

    
      	
               

            	
              (i)

            	
              Conflict
                with Letter of Credit Agreement.  In the event of
                any conflict between the terms of this Agreement and the terms of
                any
                Letter of credit Agreement, the terms of this Agreement shall
                control.

            

    

     

    5.           Libor
      Loan Conditions:  The following terms and conditions
      apply to Libor Loans:

     

    
      	
               

            	
              (a)

            	
              Minimum
                Advance.  Each Advance by way of Libor Loan shall
                be in a minimum aggregate amount of US $500,000 and larger whole
                multiples
                of US $ 100,000.

            

    

     

    
      	
               

            	
              (b)

            	
              Term.  Each
                Libor Loan shall have a Contract Period of one month (each month
                being a
                period of 30 days for purposes of this Section) or such longer period
                of
                time in whole months as the Borrower may request and the Bank in
                its sole
                discretion may agree, subject to availability.  No Contract
                Period shall extend beyond the maturity date of the relevant Credit
                Facility.

            

    

     

    
      	
               

            	
              (c)

            	
              Rollover
                of Libor Loans.  At least three Business Days
                before the expiry of the Contract Period of each Libor Loan, the
                Borrower
                shall notify the Bank by irrevocable telephone notice, followed by
                written
                confirmation on the same day in form and substance substantially
                in
                accordance with Exhibit 2, if it intends to enter into a new Contract
                Period with respect to the maturing Libor Loan, or repay the maturing
                Libor Loan.  If the Borrower fails to provide the foregoing
                notice or make the required payment, then payment of its obligations
                to
                the Bank with respect to that maturing Libor Loan shall be funded
                with an
                Advance under a US Base Rate Loan in the amount outstanding under
                that
                Libor Loan.

            

    

     

    
      	
               

            	
              (d)

            	
              Indemnity.  The
                Borrower shall indemnify and hold the Bank harmless against any loss,
                cost
                or expense (including without limitation, any loss incurred by the
                Bank in
                liquidating or redeploying deposits acquired to hind or maintain
                any Libor
                Loan) incurred by the Bank as a result of repayments,
                prepayments,

            

    

     

    
      
              

                  
      
      

                  -
            11 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              Conversions,
                Rollovers or cancellations of a Libor Loan other than on the last
                day of
                the Contract Period applicable to such Libor Loan, or failure to
                draw down
                a Libor Loan on the first day of the Contract Period selected by
                the
                Borrower.

            

    

     

    
      	
               

            	
              (e)

            	
              Substitute
                Basis of Advance.  If, at any time during the term
                of this Agreement, the Bank acting in good faith determines (which
                determination is final, conclusive and binding upon the Borrower)
                that:

            

    

     

    
      	
               

            	
              (i)

            	
              adequate
                and fair means do not exist for ascertaining the rate of interest
                on a
                Libor Loan,

            

    

     

    
      	
               

            	
              (ii)

            	
              the
                making or the continuance of a Libor Loan has become impracticable
                by
                reason of circumstances which materially and adversely affect the
                London
                Interbank Market,

            

    

     

    
      	
               

            	
              (iii)

            	
              deposits
                in US Dollars are not available to the Bank in the London Interbank
                Market
                in sufficient amounts in the ordinary course of business for the
                applicable Contract Period to make or maintain a Libor Loan during
                such
                Contract Period, or

            

    

     

    
      	
               

            	
              (iv)

            	
              the
                cost to the Bank of making or maintaining a Libor Loan does not accurately
                reflect the effective cost to the Bank thereof or the costs to the
                Bank
                are increased or the income receivable by the Bank is reduced in
                respect
                of a Libor Loan,

            

    

     

    then
      the
      Bank shall promptly notify the Borrower of such determination and the Borrower
      hereby instructs the Bank to repay the affected Libor Loan with the proceeds
      of
      a US Base Rate Loan in the amount of the Libor Loan to be drawn down on the
      last
      day of the then current Contract Period.  The Bank shall not be
      required to make any further Libor Loans available under this Agreement so
      long
      as any of the circumstances referred to in this clause continue.

     

    6.           FRT
      Loan Conditions:  The following terms and conditions
      apply to FRT Loans:

     

    
      	
               

            	
              (a)

            	
              Amount.  Each
                FRT Loan shall be in a minimum aggregate amount Cdn$500,000 and larger
                whole multiples of Cdn$100,000.

            

    

     

    
      	
               

            	
              (b)

            	
              Term.  Each
                FRT Loan shall
                be for a term of 30 days or such other period of time as may be agreed
                to
                by the Bank at its sole discretion and the Borrower in the circumstances,
                provided that the maturity date of any FRT Loan issued under any
                relevant term Credit Facility shall not extend beyond the maturity
                date of
                the relevant term Credit Facility.

            

    

     

    
      	
               

            	
              (c)

            	
              Repayment.  FRT
                Loans may not be repaid, prepaid, converted or rolled over prior
                to their
                maturity.

            

    

     

    
      	
               

            	
              (d)

            	
              Rollover
                of FRT Loans.  At least seven (7) Business Days
                before the expiry of the Contract Period of each FRT Loan, the Borrower
                shall notify the Bank by

            

    

     

    
      
              

                  
      
      

                  -12 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              irrevocable
                telephone notice, followed by written confirmation on the same day
                in form
                and substance substantially in accordance with Exhibit 2, if it intends
                to
                enter into a new Contract Period with respect to the maturing FRT
                Loan, or
                repay the maturing FRT Loan.  If the Borrower fails to provide
                the foregoing notice or make the required payment, then payment of
                its
                obligations to the Bank with respect to that maturing FRT Loan shall
                be
                funded with an Advance under a Canadian Prime Loan in the amount
                outstanding under that FRT Loan.

            

    

     

    
      	
               

            	
              (e)

            	
              Indemnity.  The
                Borrower shall indemnify and hold the Bank harmless against any loss,
                cost
                or expense (including without limitation, any loss incurred by the
                Bank in
                liquidating or redeploying deposits acquired to fund or maintain
                any FRT
                Loan) incurred by the Bank as a result of repayments, prepayments,
                Conversions, Rollovers or cancellations of a FRT Loan other than
                on the
                last day of the Contract Period applicable to such FRT Loan, or failure
                to
                draw down a FRT Loan on the first day of the Contract Period selected
                by
                Borrower.

            

    

     

    7.           Conversion
      Option and Conditions:  Subject to this Agreement, the
      Borrower may, during the term of this Agreement, effective on any Business
      Day,
      convert, in whole or in part, an outstanding Advance into another type of
      Advance permitted under the relevant Credit Facility upon giving written notice
      to the Bank in substantially the form attached hereto as Exhibit 2, the notice
      period being that which would be applicable to the type of Advance into which
      the outstanding Advance is to be converted under Section 3 of the Standard
      Terms
      and Conditions.  Conversions under this Agreement may only be made
      provided that:

     

    
      	
               

            	
              (a)

            	
              Currency.  Notwithstanding
                any other term in this Agreement, no Advance denominated in Cdn$
                may be
                converted into an Advance denominated in US$ and no Advance denominated
                in
                US$ may be converted into an Advance denominated in
                Cdn$.

            

    

     

    
      	
               

            	
              (b)

            	
              Amounts.  Each
                conversion into an Advance shall be for minimum aggregate amounts
                and
                whole multiples in excess thereof as are specified in respect of
                that type
                of Advance pursuant to this
                Agreement.

            

    

     

    
      	
               

            	
              (c)

            	
              Libor
                Loans.  An Advance by way of Libor Loan may be
                converted only on the last day of the relevant Contract Period; if
                less
                than all of the Libor Loan is converted, after the conversion not
                less
                than US$100,000 shall remain as a Libor
                Loan.

            

    

     

    
      	
               

            	
              (d)

            	
              Other
                Conditions.  A conversion into an Advance by way
                of Libor Loan shall only be made to the extent that the conditions
                outlined in Section 4 of the Standard Terms and Conditions shall
                not exist
                on the relevant Conversion Date.

            

    

     

    
      	
               

            	
              (e)

            	
              No
                Demands.  No demand shall have been made and no
                Default or Event of Default shall have occurred and be continuing
                on the
                relevant Conversion Date or after giving effect to the conversion
                of the
                Advance to be made on the Conversion
                Date.

            

    

     

    
      
              

                  
      
      

                  -13 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              (f)

            	
              No
                Repayment.  No Conversion or Rollover shall
                constitute a repayment of any Advance or new
                Advance.

            

    

     

    
      	
               

            	
              (g)

            	
              Default.  Subject
                to the ability of the Bank to accelerate payment obligations in respect
                of
                a term Credit Facility upon the occurrence of an Event of Default,
                if a
                Default or Event of Default has occurred and is continuing on the
                last day
                of a Contract Period, as regards a Libor Loan, in respect of an Advance
                by
                way of a Libor Loan, the Borrower shall be deemed to have converted
                the
                Advance into a US Base Rate Loan as of the last day of the applicable
                Contract Period.

            

    

     

    8.           Calculation
      and Payment of Interest And Fees:

     

    
      	
               

            	
              (a)

            	
              Canadian
                Prime Loans.  The Borrower shall pay to the Bank
                interest on each Canadian Prime Loan, monthly in arrears at the rates
                set
                out in this Agreement, on the last Business Day each
                month.  Such interest will be calculated monthly and will accrue
                daily on the basis of the actual number of days elapsed and a year
                of 365
                or 366 days, as applicable.

            

    

     

    
      	
               

            	
              (b)

            	
              US
                Base Rate Loans.  The Borrower shall pay to the
                Bank interest on each US Base Rate Loan, monthly in arrears at the
                rates
                set out in this Agreement, on the last Business Day of each
                month.  Such interest will be calculated monthly and will accrue
                daily on the basis of the actual number of days elapsed and a year
                of 365
                or 366 days, as applicable.

            

    

     

    
      	
               

            	
              (c)

            	
              Libor
                Loans.  The Borrower shall pay to the Bank
                interest on Libor Loans outstanding to the Bank at the rates set
                out in
                this Agreement.  Interest on each Libor Loan shall be payable on
                each Libor Interest Date applicable to the Libor Loan, for the period
                commencing from and including the first day of the Contract Period
                or the
                immediately preceding Libor Interest Date, as the case may be, applicable
                to the Libor Loan, to but excluding the first mentioned Libor Interest
                Date, and shall be calculated daily on the principal amount of each
                Libor
                Loan remaining unpaid on the basis of the actual number of days elapsed
                in
                a year of 360 days.

            

    

     

    
      	
               

            	
              (d)

            	
              FRT
                Loans.  The Borrower shall pay to the Bank
                interest on each FRT Loan monthly in arrears at the applicable interest
                rate set out in the Agreement on the last Business Day of each month
                or
                such other date as may be agreed upon between the Bank and the
                Borrower.  Such interest will be calculated monthly and will
                accrue daily on the basis of the actual number of days elapsed and
                a year
                of 365 or 366 days, as applicable.

            

    

     

    
      	
               

            	
              (e)

            	
              Limits
                on Interest.  The Borrower shall not be obligated
                to pay any interest, fees or costs under or in connection with this
                Agreement or the Documents in excess of what is permitted by Applicable
                Law.  For purposes of the Interest Act (Canada), the
                annual rates of interest or fees to which the rates calculated in
                accordance with this Agreement are equivalent, are the rates so
                calculated

            

    

     

    
      
              

                  
      
      

                  -14 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              multiplied
                by the actual number of days in the calendar year in which such
                calculation is made and divided by 365 or 366, as
                applicable.

            

    

     

    9.           Fees,
      Payment and Rights:

     

    
      	
               

            	
              (a)

            	
              Additional
                Fees.  In addition to the fees previously
                described in other provisions of this Agreement, the Borrower shall,
                at
                the discretion of the Bank, pay to the Bank a fee of $25.00 for each
                check
                of the Borrower which is honored by the Bank, in its discretion,
                in excess
                of the authorized amount of any Credit
                Facility.

            

    

     

    
      	
               

            	
              (b)

            	
              Consideration.  The
                fees collected by the Bank shall be its property as consideration
                for the
                time, effort and expense incurred by it in the review and administration
                of documents and financial statements, and the Borrower acknowledges
                and
                agrees that the determination of these costs is not feasible and
                that the
                fees set out in the Agreement represent a reasonable estimate of
                such
                costs.

            

    

     

    
      	
               

            	
              (c)

            	
              Discretionary
                Advance.  Notwithstanding anything to the contrary
                contained in the Agreement, the Bank may, in its discretion, make
                an
                Advance under any applicable Credit Facility to pay any unpaid interest
                or
                fees which have become due under the terms of the
                Agreement.

            

    

     

    
      	
               

            	
              (d)

            	
              Evidence
                of Obligations.  The Borrower and each Guarantor
                acknowledges that the actual recording of the amount of any Advance
                or
                repayment thereof under the Credit Facilities, and interest, fees
                and
                other amounts due in connection with the Credit Facilities, in an
                account
                of the Borrower maintained by the Bank shall constitute prima facie
                evidence of the Borrower’s indebtedness, liability and Obligations from
                time to time under and in connection with the Agreement and the Documents;
                provided that the obligation of the Borrower to pay or repay any
                indebtedness and liability in accordance with the terms and conditions
                of
                the Agreement shall not be affected by the failure of the Bank to
                make
                such recording.  The Borrower also acknowledges being indebted
                to the Bank for principal amounts shown as outstanding from time
                to time
                in the Bank’s account records, and all accrued and unpaid interest in
                respect of such amounts, in accordance with the terms and conditions
                of
                this Agreement.

            

    

     

    
      	
               

            	
              (e)

            	
              Absolute
                Obligations.  The obligation of the Borrower and
                each Guarantor, as applicable, to make all payments under and in
                connection with the Agreement and the Documents shall be absolute
                and
                unconditional and shall not be limited or affected by any circumstance,
                including, without limitation:  (i) any set-off, compensation,
                counterclaim, recoupment, defense or other right which the Borrower
                or any
                Guarantor, as applicable, may have against the Bank or any other
                Persons
                for any reason whatsoever; or (ii) any insolvency, bankruptcy,
                reorganization or similar proceedings by or against the Borrower
                or any
                Guarantor, as applicable.

            

    

     

    
      
              

                  
      
      

                  -
            15 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              (f)

            	
              Set-Off.  In
                addition to and not in limitation of any rights now or hereafter
                available
                to the Bank whether pursuant to Applicable Law or arising in the
                Documents, the Bank is authorized, at any time and from time to time,
                upon
                delivery of written notice to the Borrower to set-off and appropriate
                and
                to apply any and all deposits (general and special) and any other
                indebtedness at any time held by or owing by the Bank to or for the
                credit
                of the Borrower against and on account of the obligations and liabilities
                of the Borrower to the Bank under or in connection with this Agreement
                or
                the Documents.  The Bank agrees to provide written notice of the
                exercise of any of the rights under this section immediately after
                the
                exercise of such rights.

            

    

     

    
      	
               

            	
              (g)

            	
              Cumulative
                Rights.  The remedies, rights and powers of the
                Bank under this Agreement, the Documents and at law and in equity
                are
                cumulative and not alternative and are not in substitution for any
                other
                remedies, rights or powers of the Bank and no delay or omission in
                exercise of such remedy, right, or power shall exhaust such remedies,
                rights or powers or be construed as a waiver of any of
                them.

            

    

     

    
      	
               

            	
              (h)

            	
              Overdue
                Amounts.  Any amount that is not paid when due
                hereunder shall, unless interest is otherwise payable in respect
                thereof
                in accordance with the terms of this Agreement or the relevant instrument
                or contract governing same, bear interest until paid at the rate
                of
                Canadian Prime Rate plus 2.0% per annum or, in the case of an amount
                denominated in US Dollars, at the rate of US Base Rate plus 2.0%
                per
                annum.

            

    

     

    
      	
               

            	
              (i)

            	
              Place
                of Payment.  Amounts payable by the Borrower under
                or in connection with the Agreement and the Documents shall be paid
                at the
                Branch of Account in the applicable currency.  Amounts due on a
                day other than a Business Day shall be deemed to be due on the Business
                Day next following such day.  Any payment delivered or made to
                the Bank by 1:00 local time at the Branch of Account shall be credited
                as
                of that date, but if made afterwards shall be credited as of the
                next
                Business Day.  Interest and fees payable under or in connection
                with this Agreement and the Documents are payable both before and
                after
                any or all of Default, maturity date, demand and
                judgment.

            

    

     

    
      	
               

            	
              (j)

            	
              Taxes.  All
                payments to be made by or on behalf of the Borrower or any Guarantor
                under
                or with respect to this Agreement or the Documents are to be made
                free and
                clear of and without deduction or withholding for, or on account
                of, any
                present or future Taxes, unless such deduction or withholding is
                required
                by Applicable Law.  If the Borrower or any Guarantor is required
                to deduct or withhold any Taxes from any amount payable to the Bank
                (i)
                the amount payable shall be increased as may be necessary so that
                after
                making all required deductions or withholdings (including deductions
                and
                withholdings applicable to, and taking into account all Taxes on,
                or
                arising by reason of the payment of, additional amounts under this
                clause), the Bank receives and retains an amount equal to the amount
                that
                it would have received had no such deductions or withholdings been
                required, (ii) the Borrower and any Guarantor shall make
                such

            

    

     

    
      
              

                  
      
      

                  -16 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              deductions
                or withholdings, and (iii) the Borrower and any Guarantor shall remit
                the
                full amount deducted or withheld to the relevant taxing authority
                in
                accordance with Applicable Laws.  Notwithstanding the foregoing,
                neither the Borrower nor any Guarantor shall be required to pay additional
                amounts in respect of Excluded
                Taxes.

            

    

     

    
      	
               

            	
              (k)

            	
              Exchange
                Rate Fluctuations.  If, for any reason, the amount
                of Advances outstanding under any Credit Facility, when converted
                to the
                US Dollar Equivalent, exceeds the amount available in US Dollars
                under
                such Credit Facility, the Borrower shall immediately repay such excess
                or
                shall secure such excess to the satisfaction of the
                Bank.

            

    

     

    10.           Conditions
      Precedent:  Without limiting the discretion of the Bank
      pursuant to Section 3 of the Agreement, the obligation of the Bank to make
      available any Advance, Rollover or Conversion is subject to and conditional
      upon
      each of the conditions below being satisfied on or before the applicable
      Drawdown Date, Issuance Date, Rollover Date or Conversion Date:

     

    
      	
               

            	
              (a)

            	
              Execution.  The
                Documents completed and, where necessary, registered in form and
                manner
                satisfactory to the Bank, together with such certificates, authorizations,
                resolutions and legal opinions as the Bank may reasonably
                require.

            

    

     

    
      	
               

            	
              (b)

            	
              Reports.  Satisfactory
                banker’s and other agency reports on the financial position of the
                Borrower, any Guarantor and such customers of the Borrower as the
                Bank may
                specify from to time.

            

    

     

    
      	
               

            	
              (c)

            	
              Default.  No
                Default or Event of Default shall exist hereunder and no default
                or event
                of default shall exist under the US Credit
                Agreement.

            

    

     

    
      	
               

            	
              (d)

            	
              Accuracy.  The
                representations and warranties contained in this Agreement and the
                Documents shall be true and correct on each Drawdown Date, Issuance
                Date,
                Rollover Date or Conversion Date as if made on that
                date.

            

    

     

    
      	
               

            	
              (e)

            	
              Notice.  The
                Borrower shall have provided any notice required in respect of an
                Advance,
                Rollover or Conversion.

            

    

     

    
      	
               

            	
              (f)

            	
              Documentation.  The
                Borrower executing and delivering to the Bank customary documentation
                required by the Bank from time to time for purposes of extending
                Advances
                by way of FRT Loan.

            

    

     

    
      	
               

            	
              (g)

            	
              Compliance.  Confirmation
                that the Borrower is in compliance with each of the terms and conditions
                of the Agreement.

            

    

     

    11.           Covenants:  The
      Borrower covenants and agrees with the Bank, while this Agreement is in effect
      or any Obligations are outstanding that it will, and it will cause its
      Subsidiaries, as applicable, to:

     

    
      	
               

            	
              (a)

            	
              Payment.  Pay
                all sums of money when due under or in connection with this Agreement
                or
                the Documents.

            

    

     

    
      
              

                  
      
      

                  -17 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              (b)

            	
              Status.  Maintain
                its corporate existence and status.

            

    

     

    
      	
               

            	
              (c)

            	
              Notice.  Without
                limitation to the demand nature of any Credit Facility, give the
                Bank
                prompt notice of any Default or Event of
                Default.

            

    

     

    
      	
               

            	
              (d)

            	
              Insurance.  Insure
                and keep insured all properties customarily insured by Persons carrying
                on
                a similar business in similar locations, or owning or operating similar
                properties, against all risks.

            

    

     

    
      	
               

            	
              (e)

            	
              Taxes.  File
                all material income tax returns which are or will be required to
                be filed,
                to pay or make provision for payment of all Taxes (including interest
                and
                penalties) which are or will become due and payable and to provide
                adequate reserves for the payment of any Tax the payment of which
                is being
                contested.

            

    

     

    
      	
               

            	
              (f)

            	
              Property.  Cause
                its properties and assets to be maintained and operated in good working
                condition in accordance with industry practice, and permit the Bank
                or its
                agents to enter on and inspect each of its assets and properties,
                including operating and manufacturing facilities as the Bank may
                require
                upon reasonable advance notice to the
                Borrower.

            

    

     

    
      	
               

            	
              (g)

            	
              Applicable
                Laws.  Comply, in all material respects, with all
                Applicable Laws and all Government Approvals required in respect
                of its
                business, properties, or any activities or operations carried out
                thereon
                including health, safety and employment standards, labor codes and
                Environmental Laws.

            

    

     

    
      	
               

            	
              (h)

            	
              Rank.  Not
                do anything to adversely affect the ranking of its Obligations to
                the
                Bank.

            

    

     

    
      	
               

            	
              (i)

            	
              No
                Liens.  Not grant, create, assume or suffer to
                exist any Lien affecting any of its properties, assets or other rights
                without the prior written consent of the Bank which consent shall
                not be
                unreasonably withheld, provided, however, that, notwithstanding the
                foregoing, in any fiscal year the Borrower may incur Liens securing
                an
                aggregate indebtedness not exceeding Cdn$50,000 in connection with
                purchase money security interests and/or capital
                leases.

            

    

     

    
      	
               

            	
              (j)

            	
              No
                Dispositions.  Not to sell, transfer, convey,
                lease or otherwise dispose of any part of its property or assets,
                outside
                of its normal course of business without the prior written consent
                of the
                Bank if the proceeds of any such transaction are not completely used
                to
                repay the Bank.

            

    

     

    
      	
               

            	
              (k)

            	
              Corporate
                Changes.  Not liquidate, dissolve or merge,
                amalgamate or consolidate with any other Person, without the prior
                written
                consent of the Bark.

            

    

     

    
      	
               

            	
              (l)

            	
              Indebtedness.  Not
                issue, create, incur, assume, permit to exist any indebtedness other
                than
                indebtedness under this Agreement and the Documents, trade payables,
                or
                guarantees or capital leases incurred in the ordinary course of business
                and in any event not exceeding $200,000 in aggregate, without the
                prior
                written consent of the Bank.

            

    

     

    
      
              

                  
      
      

                  - 18 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              12.

            	
              Events
                of Default:  Without limiting the right of the Bank
                to demand payment of the Credit Facility at any time and from time
                to time
                notwithstanding the compliance or non-compliance by the Borrower
                with any
                or all of the terms and conditions of the Documents, the occurrence
                of any
                one or more of the following events shall constitute an “Event of Default”
                and the Bank may, without limitation, exercise any of its rights
                pursuant
                to the Documents and/or Applicable
                Law:

            

    

     

    
      	
               

            	
              (a)

            	
              Payment.  The
                non-payment when due of principal, interest, fee, or any other amounts
                due
                under this Agreement or the Documents (including without limitation
                reimbursement for any draws under a Letter of Credit) and such default
                shall continue unremedied for a period of 5 Business Days after written
                notice.

            

    

     

    
      	
               

            	
              (b)

            	
              Breach.  The
                breach by the Borrower, any Guarantor or any Subsidiary of the Borrower,
                as applicable, of any material provision of this Agreement, the Documents
                or any other agreement with the Bank and such default (other than
                a
                default under paragraph (a) above) shall continue unremedied for
                a period
                of 30 Business Days after written
                notice.

            

    

     

    
      	
               

            	
              (c)

            	
              Other
                Indebtedness.  The default by the Borrower, the
                Guarantor or any Subsidiary of the Borrower under any obligation
                or
                obligations to repay borrowed money, or in the performance or observance
                of any agreement or condition in respect of such borrowed money (beyond
                any applicable grace period), or demand by any creditor or creditors
                for
                payment of indebtedness payable on demand where, following such default
                or
                demand, indebtedness having an aggregate principal amount in excess
                of
                $500,000 is due and payable or the maturity of such obligations is
                accelerated.

            

    

     

    
      	
               

            	
              (d)

            	
              Representation.  If
                any representation or warranty made herein or in any Document, agreement
                or certificate delivered pursuant hereto shall be false or inaccurate
                in
                any material respect and such default (other than a default under
                paragraph (a)) above shall continue unremedied for a period of 30
                Business
                Days after written notice.

            

    

     

    
      	
               

            	
              (e)

            	
              Involuntary
                Proceeding.  If (a) a petition shall be filed or
                an involuntary proceeding, case or proposal shall be commenced against
                the
                Borrower or the Guarantor under any bankruptcy, insolvency, debt
                restructuring, reorganization, in incorporation, readjustment of
                debt,
                dissolution, liquidation, winding up or similar law now or hereafter
                in
                effect, seeking the liquidation, reorganization, dissolution, winding-up
                composition or readjustment of debts of the Borrower or the Guarantor,
                the
                appointment of a trustee, receiver, receiver and manager, custodian,
                liquidator, administrator or the like for the Borrower or the Guarantor
                or
                all or any material part of the Borrower’s assets or the Guarantor’s
                assets, or any similar relief, and (b) such proceeding or petition
                shall
                continue undismissed for 60 days.

            

    

     

    
      
              

                  
      
      

                  - 19 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              (f)

            	
              Voluntary
                Proceeding.  The commencement by the Borrower or
                any Guarantor of, or the making of any order for substantive relief
                against the Borrower or any Guarantor in, any bankruptcy, insolvency,
                debt
                restructuring, reorganization, incorporation, readjustment of debt,
                dissolution, liquidation or other similar proceedings (including
                without
                limitation proceedings under the Bankruptcy and Insolvency Act, the
                Winding-Up and Restructuring Act, the Companies’ Creditors Arrangement
                Act, the corporation statute under which the Borrower or any Guarantor
                is
                organized or other similar legislation) or proceedings for the appointment
                of an interim receiver, receiver, receiver manager, liquidator,
                provisional liquidator, trustee in bankruptcy, sequestrator or other
                like
                official with respect to the Borrower or any Guarantor or all or
                any
                material part of the Borrower’s assets or the Guarantor’s
                assets.

            

    

     

    
      	
               

            	
              (g)

            	
              Seizure.  The
                seizure of all or any material part of the Borrower’s assets or the
                Guarantor’s assets by any creditor or creditor’s representative, including
                without limitation, a privately appointed receiver or
                sheriff.

            

    

     

    
      	
               

            	
              (h)

            	
              Judgments.  Judgments
                are made against the Borrower, any Guarantor, any Subsidiary of the
                Borrower or any one of them in excess of $50,000 by any court of
                competent
                jurisdiction and either (i) a writ, execution or attachment or similar
                process is levied against the property of any of them in respect
                of such
                judgment, or (ii) the judgment is not actively and diligently appealed
                and
                execution thereof stayed pending appeal within 30 days of the rendering
                of
                the judgment, or (iii) the judgment is not paid or otherwise satisfied
                within 30 days of the rendering of the
                judgment.

            

    

     

    13.           General:  The
      following terms and conditions apply:

     

    
      	
               

            	
              (a)

            	
              Successors
                and Assigns.  This Agreement shall be binding upon
                and enure to the benefit of the parties and their respective successors
                and permitted assigns.  The Bank may not assign all or part of
                its rights and obligations under this Agreement and the Documents
                to any
                Person without the prior written consent of the
                Borrower.  Notwithstanding the foregoing and for greater
                certainty, where a demand for payment, Default or an Event of Default
                has
                occurred, the consent of the Borrower shall not be required with
                respect
                to the assignment to any Person of all or any part of the rights
                and
                obligations of the Bank under this Agreement and the
                Documents.  The rights and obligations of the Borrower and any
                Guarantor under this Agreement and the Documents may not be assigned
                without the prior written consent of the Bank.  The Bank may
                disclose (with the consent of the Borrower in circumstances where
                a demand
                for payment, Default or Event of Default has not occurred) to potential
                or
                actual assignees confidential information regarding the Borrower
                and the
                Guarantor (including, any such information provided by the Borrower
                and/or
                the Guarantor to the Bank) and shall not be liable for any such
                disclosure.

            

    

     

    
      	
               

            	
              (b)

            	
              Expenses.  The
                Borrower and each Guarantor agrees to pay on demand all fees (including
                reasonable legal fees), costs and expenses incurred by the Bank
                in

            

    

     

    
      
              

                  
      
      

                  -20 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              connection
                with the preparation, negotiation and documentation of this Agreement
                and
                the Documents and the operation or enforcement of this Agreement
                and the
                Documents.

            

    

     

    
      	
               

            	
              (c)

            	
              Review.  The
                Bank may conduct periodic reviews of the affairs of the Borrower,
                as and
                when determined by the Bank, for the purpose of evaluating the financial
                condition of the Borrower.  The Borrower shall make available to
                the Bank such financial statements and other information and documentation
                as the Bank may reasonably require and shall do all things reasonably
                necessary to facilitate such review by the
                Bank.

            

    

     

    
      	
               

            	
              (d)

            	
              Priority
                Claims.  The Borrower hereby grants its consent
                (such grant to remain in force as long as this Agreement is in effect
                or
                any Advances are outstanding) to any Person having information relating
                to
                any Priority Claim arising by any Applicable Law or otherwise and
                including, without limitation, claims by or on behalf of any Governmental
                Authority to release such information to the Bank at any time upon
                its
                written request for the purpose of assisting the Bank to evaluate
                the
                financial condition of the
                Borrower.

            

    

     

    
      	
               

            	
              (e)

            	
              Amendments
                and Waivers.  No amendment or waiver of any
                provision of this Agreements and the Documents will be effective
                unless it
                is in writing signed by the Borrower, the Guarantor and the
                Bank.  No failure or delay, on the part of the Bank, in
                exercising any right or power hereunder or under any security document
                shall operate as a waiver thereof.

            

    

     

    
      	
               

            	
              (f)

            	
              Judgment
                Currency.  If for the purpose of obtaining
                judgment in any court in any jurisdiction with respect to this Agreement
                or the Documents, it is necessary to convert into the currency of
                such
                jurisdiction (the “Judgment Currency”) any amount due hereunder in any
                currency other than the Judgment Currency, then conversion shall
                be made
                at the rate of exchange prevailing on the Business Day before the
                day on
                which judgment is given.  For this purpose “rate of exchange”
                means the rate at which the Bank would, on the relevant date, be
                prepared
                to sell a similar amount of such currency in the Toronto foreign
                exchange
                market, against the Judgment Currency, in accordance with normal
                banking
                procedures.  In the event that there is a change in the rate of
                exchange prevailing between the Business Day before the day on which
                judgment is given and the date of payment of the amount due, the
                Borrower
                will, on the date of payment, pay such additional amounts as may
                be
                necessary to ensure that the amount paid on such date is the amount
                in the
                Judgment Currency which, when converted at the rate of exchange prevailing
                on the date of payment, is the amount then due under this Agreement
                in
                such other currency together with interest at the Canadian Prime
                Rate and
                expenses (including legal fees on a solicitor and client
                basis).  Any additional amount due from the Borrower under this
                section will be due as a separate debt and shall not be affected
                by
                judgment being obtained for any other sums due under or in respect
                of this
                Agreement.

            

    

     

    
      
              

                  
      
      

                  -
            21 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              (g)

            	
              Whole
                Agreement.  This Agreement, the Documents and any
                other written agreement delivered pursuant to or referred to in this
                Agreement constitute the whole and entire agreement between the parties
                in
                respect of the Credit Facilities.  There are no verbal
                agreements, undertakings or representations in connection with the
                Credit
                Facilities.

            

    

     

    
      	
               

            	
              (h)

            	
              Joint
                and Several.  Where more than one Person is liable
                as Borrower or Guarantor for any obligation under this Agreement
                or the
                Documents, then the liability of each such Person for such obligation
                is
                joint and several with each other such
                Person.

            

    

     

    
      	
               

            	
              (i)

            	
              Visit.  Representatives
                of the Bank shall be entitled to attend at the Borrower’s business
                premises and to view all financial and other records of the Borrower
                at
                any time, on reasonable notice.

            

    

     

    
      	
               

            	
              (j)

            	
              References.  Time
                shall be of the essence in all provisions of this
                Agreement.  Unless otherwise expressly provided, all accounting
                terms used in this Agreement shall be interpreted, all financial
                information shall be prepared and all financial calculations shall
                be made
                in accordance with GAAP, consistently applied.  The division of
                this Agreement into sections and the insertion of headings are for
                convenience of reference only and are not to affect the construction
                or
                interpretation of this Agreement.  Unless otherwise specified,
                words importing the singular include the plural and vice versa and
                words
                importing gender include all genders.  Unless otherwise
                specified, references in this Agreement to Sections, Schedules and
                Exhibits are to sections of, schedules to and exhibits to, this
                Agreement.

            

    

     

    
      	
               

            	
              (k)

            	
              No
                Merger.  This Agreement shall, on execution by the
                Borrower and each Guarantor, replace all previous letter loan agreements
                from the Bank to the Borrower with respect to the Credit
                Facilities.  Any existing loan to the Borrower shall be
                modified, not refinanced, without novation of the Borrower’s existing
                facilities or obligations, by virtue of the Agreement unless otherwise
                provided in the Agreement.  The terms and conditions of the
                Agreement shall not be merged by and shall survive the execution
                of the
                Documents.  In the event of a conflict between the terms of this
                Agreement and the terms of the Documents, the terms of this Agreement
                shall prevail to the extent of such
                conflict.

            

    

     

    
      	
               

            	
              (l)

            	
              Disclosure
                of
                Information.  The
                Bank shall, in
                accordance with and subject to Applicable Law, maintain the
                confidentiality of all of the Borrower’s and Guarantor’s confidential
                information.  When it is necessary for providing products
                and services to the Borrower or any Guarantor, the Borrower and each
                Guarantor, as applicable, consents to the Bank obtaining from any
                credit
                reporting agency or from any Person any information (including personal
                information) that the Bank may require it any time.  The
                Borrower and each Guarantor, as applicable, also consent to the disclosure
                at any time by the Bank any information concerning the Borrower and
                any
                Guarantor to any credit grantor, to any credit reporting agency,
                or to the
                Bank’s subsidiaries and affiliates.  If applicable,
                the

            

    

     

    
      
              

                  
      
      

                  - 22 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              Borrower
                also authorizes the Bank to release the information contemplated
                by any
                builder’s lien or similar legislation to all persons claiming a right to
                such information under such legislation.  The Borrower and each
                Guarantor may refuse or withdraw these consents; however this may
                result
                in the Bank canceling or withholding products or services for which
                these
                consents are necessary.  Unless each Guarantor advises the Bank
                otherwise, the Bank may use the each Guarantor’s social insurance number,
                if applicable, to help ensure accurate credit
                enquiries.

            

    

     

    
      	
               

            	
              (m)

            	
              Increased
                Costs.  The Borrower shall reimburse the Bank for
                any additional cost or reduction in income arising as a result of
                (i) the
                imposition of, or increase in, taxes on payments due to the Bank
                hereunder
                (other than taxes on the overall net income of the Bank), (ii) the
                imposition of, or increase in, any reserve or other similar requirement,
                (iii) the imposition of or change in, any other condition affecting
                the
                Credit Facilities imposed by any Applicable Law or the interpretation
                thereof.

            

    

     

    
      	
               

            	
              (n)

            	
              Severability.  If
                any provision of this Agreement is or becomes prohibited or unenforceable
                in any jurisdiction, such prohibition or unenforceability shall not
                invalidate or render unenforceable the provision concerned in any
                other
                jurisdiction nor shall it invalidate, affect or impair any of the
                remaining provisions.

            

    

     

    
      	
               

            	
              (o)

            	
              Counterparts.  This
                Agreement and the Documents may be executed and delivered in any
                number of
                counterparts, each of which when executed and delivered is an original
                but
                all of which taken together constitute, as applicable, one and the
                same
                instrument.

            

    

     

    
      	
               

            	
              (p)

            	
              Governing
                Law.  This Agreement shall be construed in
                accordance with and governed by the laws of the Province of Ontario
                and
                the federal laws of Canada applicable therein and the parties attorn
                to
                the non-exclusive jurisdiction of the courts of the Province of
                Ontario.

            

    

     

    
      	
               

            	
              (q)

            	
              Notice.  Unless
                otherwise specified, any notice or other communication required or
                permitted to be given to a party under this Agreement shall be in
                writing
                and may be delivered personally or sent by overnight delivery service
                or
                by facsimile, to the address or facsimile number of the party set
                out
                beside its name at the foot of this Agreement to the attention of
                the
                Person there indicated or to such other address, facsimile number
                or other
                Person’s attention as the party may have specified by notice in writing
                given under this Section.  Any notice or other communication
                shall be deemed to have been given:  (i) if delivered
                personally, when received; (ii) if sent by overnight delivery service,
                on
                the first Business Day following the date of mailing; (iii) if sent
                by
                facsimile, on the Business Day when the appropriate confirmation
                of
                receipt has been received if the confirmation of receipt has been
                received
                before 3:00 p.m. on that Business Day or, if the confirmation of
                receipt
                has been received after 3:00 p.m. on that Business Day, on the next
                succeeding Business Day; and (iv) if sent by facsimile on a day which
                is

            

    

     

    
      
              

                  
      
      

                  -23 -      
    

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

            	
              not
                a Business Day, on the next succeeding Business Day on which confirmation
                of receipt has been received.  If a notice has been sent by
                prepaid registered mail and before the fifth Business Day after the
                mailing there is a discontinuance or interruption of regular postal
                service so that the notice cannot reasonably be expected to be delivered
                within 5 Business Days after the mailing, the notice will be deemed
                to
                have been given when it is actually
                received.

            

    

     

    
      	
               

            	
              (r)

            	
              Language.  The
                parties hereby confirm their express wish that this Agreement and
                all
                documents, agreements or notices directly or indirectly related hereto
                be
                drawn up in the English language.  Les parties reconnaissent
                leur volonté expresse que le présent contrat ainsi que tous les documents,
                conventions ou avis s’y rattachant directement ou indirectement soient
                rédigés en langue anglaise.exv10w1

 

EXHIBIT 10.1

ENSTAR GROUP LIMITED

DEFERRED COMPENSATION AND ORDINARY SHARE PLAN

FOR NON-EMPLOYEE DIRECTORS

ARTICLE I

PURPOSE

     The purposes of the Enstar Group Limited Deferred Compensation and Ordinary Share Plan for
Non-Employee Directors (the “Plan”) are to enable Enstar Group Limited (“the Company”) to attract
and retain qualified persons to serve as Non-Employee Directors, to solidify the common interests
of its Non-Employee Directors and shareholders by enhancing the equity interests of Non-Employee
Directors in the Company, and to encourage the highest level of Non-Employee Director performance
by providing such Non-Employee Directors with a proprietary interest in the Company’s performance
by permitting Non-Employee Directors to receive all or a portion of their Retainer and Meeting Fees
in the form of Ordinary Shares and to defer all or a portion of their Retainer and Meeting Fees in
the form of Share Units.

ARTICLE II

EFFECTIVE DATE

     The Plan shall be effective as of June 5, 2007.

ARTICLE III

DEFINITIONS

     Whenever used in the Plan, the following terms shall have the respective meanings set forth
below:

     3.1 “Account” means, with respect to each Participant, the Participant’s separate individual
bookkeeping account established and maintained by the Company for the exclusive purpose of
accounting for the Participant’s Share Units hereunder.

     3.2 “Beneficiary” means, with respect to each Participant, the recipient or recipients
designated by the Participant who are, upon the Participant’s death, entitled in accordance with
the Plan’s terms to receive the benefits to be paid with respect to the Participant.

     3.3 “Board” means the Board of Directors of the Company.

     3.4 “Change in Control” means, with respect to the Company:

	 	(a)	 	the acquisition by any person, entity or “group” required to
file a Schedule 13D or Schedule 14D-1 under the Exchange Act (excluding, for
this purpose, the Company, its subsidiaries, any employee benefit plan of the
Company or its subsidiaries which acquire ownership of voting securities

 

 

	 	 	 	of the Company) of beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) of 50% or more of either the then outstanding
Ordinary Shares or the combined voting power of the Company’s then
outstanding voting securities entitled to vote generally in the election of
directors;

	 	(b)	 	the election or appointment to the Board, or resignation of or
removal from the Board, of directors with the result that the individuals who
as of the date hereof constituted the Board (the “Incumbent Board”) no longer
constitute at least a majority of the Board, provided that any person who
becomes a director subsequent to the date hereof whose appointment, election,
or nomination for election by the Company’s shareholders, was approved by a
vote of at least a majority of the Incumbent Board (other than an appointment,
election or nomination of an individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to the
election of the directors of the Company) shall be, for purposes of this Plan,
considered as though such person were a member of the Incumbent Board; or

	 	(c)	 	approval by the shareholders of the Company of:

	 	(i)	 	a reorganization, merger or consolidation by
reason of which persons who were the shareholders of the Company
immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 50% of the combined voting
power of the reorganized, merged or consolidated Company’s then
outstanding voting securities entitled to vote generally in the
election of directors, or
	 
	 	(ii)	 	a liquidation or dissolution of the Company or
the sale, transfer, lease or other disposition of all or substantially
all of the assets of the Company (whether such assets are held directly
or indirectly); and such transaction is consummated.

     Notwithstanding the foregoing, an event shall not constitute a Change in Control unless such
event constitutes a “change in control event” as defined in final regulation issued by the Internal
Revenue Service under Code Section 409A.

     3.5 “Code” means the United States Internal Revenue Code of 1986, as amended, including any
regulations promulgated by the Internal Revenue Service with respect to the provisions of the Code,
and any successor thereto.

     3.6 “Committee” means any committee of the Board.

     3.7 “Ordinary Shares” means the ordinary shares of the Company, par value $1.00 per share.

-2-

 

     3.8 “Company” means Enstar Group Limited (formerly known as Castlewood Holdings Limited), a
Bermuda corporation, and any successor thereto.

     3.9 “Director” means an individual who is a member of the Board.

     3.10 “Exchange Act” means the United States Securities Exchange Act of 1934, as amended.

     3.11 “Market Value” means the following, arrived at by a good faith determination of the
Board:

	 	(a)	 	The closing price of the Ordinary Shares on a registered
securities exchange or an over-the-counter market on the applicable date; or
	 
	 	(b)	 	Such other method of determining fair market value that
complies with Code Section 409A and that is adopted by the Board.

     3.12 “Non-Employee Director” means a Director who is not an officer or employee of the Company
or any of its subsidiaries.

     3.13 “Participant” means any Non-Employee Director who has made an election to receive all or
a portion of such Non-Employee Director’s Retainer and Meeting Fees in the form of Ordinary Shares
and/or to defer payment of all or a portion of such Retainer and Meeting Fees in the form of Share
Units.

     3.14 “Retainer and Meeting Fees” means the retainer and meeting fees payable to Non-Employee
Directors for service on the Board and attendance at Board and Committee meetings, as such retainer
and meetings fees shall be established from time-to-time by the Board, but excluding any
reimbursement received by Non-Employee Directors for expenses incurred in performance of service as
a Director.

     3.15 “Share Unit” means a measure of value, expressed as Ordinary Shares, credited to a
Participant under this Plan who has elected hereunder to receive all or a portion of such
Participant’s Retainer and Meeting Fees in the form of Ordinary Shares and has elected hereunder to
defer receipt of such Ordinary Shares in accordance with the provisions hereof. No certificates
shall be issued with respect to such Share Units, but the Company shall maintain an Account in the
name of the Participant to which the Share Units shall be credited.

     3.16 “Termination” means retirement from the Board or termination of service as a Director for
any other reason; provided, however, that no Termination shall be deemed to have occurred unless
such retirement or termination from service constitutes a “separation from service” with the
meaning of Code Section 409A(a)(2)(A)(i).

-3-

 

ARTICLE IV

ELECTION TO RECEIVE ORDINARY SHARES FOR RETAINER AND

MEETING FEES AND TO DEFER

RETAINER AND MEETING FEES IN SHARE UNITS

     4.1 Election. On or before December 31 of any Company fiscal year, a Non-Employee
Director may elect to: (a) receive all or a specified portion of his or her Retainer and Meeting
Fees for the following fiscal year in the form of Ordinary Shares; and (b) defer payment with
respect to all or a portion of his or her Retainer and Meeting Fees for the following fiscal year
in the form of Share Units which shall be payable only upon the Non-Employee Director’s
Termination. All such elections shall be made upon the form of election prescribed by the Company
for such purpose and shall be effective upon receipt by the Company of such election form duly
executed by the Participant.

     For the 2007 calendar year, a Non-Employee Director may choose to received Ordinary Shares
under the Plan only with respect to Retainer and Meeting Fees payable on or after June 30, 2007 and
may elect to defer payment with respect to Retainer and Meeting Fees payable for services rendered
on or after June 30, 2007, by filing an election to so participate on or before June 30, 2007. A
Non-Employee Director elected to fill a vacancy on the Company’s Board and who was not a
Non-Employee Director on the preceding December 31, or whose term of office as a Non-Employee
Director did not begin until after that date, may file an election to participate in the Plan and
commence deferral of receipt of Retainer and Meeting Fees payable to such Non-Employee Director
during the thirty (30)-day period following the date on which such Non-Employee Director joined the
Board as a Non-Employee Director, if so permitted by Code Section 409A. Such election shall only
apply to Retainer and Meeting Fees earned after the date on which such election is filed.

     4.2 Revocation or Modification of Election. An effective election made pursuant to
Section 4.1 may not be revoked or modified with respect to the Retainer and Meeting Fees payable
for a fiscal year or portion of a fiscal year for which such election is effective. An effective
election may be revoked or modified for any subsequent fiscal year by the filing of an election on
or before December 31 of the preceding fiscal year for which such revocation or modification is to
be effective. No such revocation or modification shall affect the deferral of receipt of Retainer
and Meeting Fees previously deferred hereunder.

     4.3 Ordinary Share Election. When a Participant elects pursuant to Section 4.1 to
receive all or a portion of the Participant’s Retainer and Meeting Fees in the form of Ordinary
Shares, the number of whole shares to be distributed to the Participant, with any fractional shares
to be paid in cash, as of the date the Retainer and Meeting Fee would otherwise have been payable
to the Participant, shall be equal to the dollar amount of the Retainer and Meeting Fee which
otherwise would have been payable to the Participant divided by the Market Value on such date.

     4.4 Deferred Retainer Election; Share Units. When a Participant elects pursuant to
Section 4.1 to defer all or a portion of the Participant’s Retainer and Meeting Fees in Share
Units, the number of whole and fractional Share Units, computed to three decimal places, to be

-4-

 

credited to the Participant’s Account, on the date the deferred Retainer and Meeting Fee would
otherwise have been payable to the Participant, shall be equal to the dollar amount of the deferred
Retainer and Meeting Fee which otherwise would have been payable to the Participant divided by the
Market Value on such date.

ARTICLE V

DIVIDENDS AND ADJUSTMENTS

     5.1 Dividends. To the extent the Company shall declare and pay any cash dividends on
the Ordinary Shares, the Account of a Participant shall be credited with an additional number of
whole and fractional Share Units, computed to three decimal places, equal to the product of the
dividend per share then payable, multiplied by the number of Share Units then credited to such
Account, divided by the Market Value on the dividend payment date.

     5.2 Adjustments. The number of Share Units credited to a Participant’s Account
pursuant to Article IV and the number of Ordinary Shares available for issuance hereunder pursuant
to Article VI shall be appropriately adjusted for any change in the Ordinary Shares by reason of
any merger, reclassification, consolidation, recapitalization, share dividend, share split or any
similar change affecting the Ordinary Shares.

ARTICLE VI

ISSUANCE OF ORDINARY SHARES

     6.1 Number Of Shares. The maximum number of Ordinary Shares available for issuance
hereunder shall be 100,000 shares, subject to adjustment as set forth in Article V.

     6.2 Securities Compliance; Restricted Securities. Any Ordinary Shares issued
hereunder shall constitute “restricted securities” under applicable securities laws and shall not
be transferable by the recipient thereof except pursuant to a registration statement filed under
the Securities Act of 1933, as amended, or in accordance with an exemption from such registration
requirements. Certificates evidencing Ordinary Shares issued hereunder shall bear a legend
reflecting such transfer restrictions and such other matters as the Board shall deem necessary and
appropriate to ensure compliance with applicable securities laws.

ARTICLE VII

PAYMENT OF SHARE UNITS

     7.1 Manner of Payment Upon Termination. All Share Units held in a Participant’s
Account shall be paid to the Participant as a lump sum distribution within thirty (30) days after
the Participant’s Termination. Payment with respect to Share Units shall be effected through the
issuance by the Company to the Participant of an equivalent number of whole Ordinary Shares, with
any fractional share paid in cash.

     7.2 Manner of Payment Upon Death. If a Participant dies while Share Units are held in
the Participant’s Account, such Share Units will be paid to the Beneficiary or the Participant’s
estate, as the case may be, within ninety (90) days from the date of the Participant’s

-5-

 

death. Payment with respect to such Share Units shall be effected through the issuance by the
Company to the Beneficiary or the Participant’s estate, as the case may be, of an equivalent number
of whole Ordinary Shares, with any fractional share paid in cash.

     7.3 Payments Upon Change in Control. Notwithstanding any provision of this Plan to
the contrary, if a Change in Control of the Company occurs, Share Units held in a Participant’s
Account will be paid in a lump sum distribution within fifteen (15) days after such Change in
Control. Payment with respect to such Share Units shall be effected through the issuance by the
Company to the Participant of an equivalent number of whole Ordinary Shares, with any fractional
share paid in cash. In addition, the Company shall reimburse a Participant for the legal fees and
expenses incurred if the Participant is required to seek to obtain or enforce any right to
distribution. Notwithstanding any provisions of this Plan to the contrary, the provisions of this
Section 7.3 may not be amended by an amendment effected within three years following a Change in
Control.

     7.4 No Acceleration of Payment. Notwithstanding any provision hereof to the contrary,
the acceleration of payment of Share Units is prohibited unless expressly permitted under Code
Section 409A.

ARTICLE VIII

BENEFICIARY DESIGNATION

     Each Participant shall be entitled to designate a Beneficiary or Beneficiaries (which may be
an entity other than a natural person) who, following the Participant’s death, will be entitled to
receive any payments to be made under this Plan. At any time, and from time to time, any
designation may be changed or canceled by the Participant without the consent of any Beneficiary.
Any designation, change, or cancellation must be by written notice filed with the Company and shall
not be effective until received by the Company. Payment shall be made in accordance with the last
unrevoked written designation of Beneficiary that has been signed by the Participant and delivered
by the Participant to the Company prior to the Participant’s death. If the Participant designates
more than one Beneficiary, any payments under this Plan to the Beneficiaries shall be made in equal
shares unless the Participant has designated otherwise, in which case the payments shall be made in
the proportions designated by the Participant. If no Beneficiary has been named by the Participant
or if all Beneficiaries predecease the Participant, payment shall be made to the Participant’s
estate.

ARTICLE IX

TRANSFERABILITY RESTRICTIONS

     The Plan shall not in any manner be liable for, or subject to, the debts and liabilities of
any Participant or Beneficiary. No payee may assign any payment due such party under the Plan. No
benefits at any time payable under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, attachment, garnishment, levy, execution, or other
legal or equitable process, or encumbrance of any kind.

-6-

 

ARTICLE X

FUNDING POLICY

     The Company’s obligations under the Plan shall be totally unfunded so that the Company is
under merely a contractual duty to make payments when due under the Plan. The promise to pay shall
not be represented by notes and shall not be secured in any way.

ARTICLE XI

ADMINISTRATION

     The Plan shall be administered by the Board. The Board shall have authority to interpret the
Plan, and to prescribe, amend and rescind rules and regulations relating to the administration of
the Plan, and all such interpretations, rules and regulations shall be conclusive and binding on
all Participants. The Board may employ agents, attorneys, accountants, or other persons and
allocate or delegate to them powers, rights, and duties, all as the Board may consider necessary or
advisable to properly carry out the administration of the Plan.

ARTICLE XII

AMENDMENT AND TERMINATION

     Subject to the limitations on amendments set forth in Section 7.3, the Company, by resolution
duly adopted by the Board, shall have the right, authority and power to alter, amend, modify,
revoke, or terminate the Plan; provided however, that shareholder approval shall be required for
any amendment for which shareholder approval is required under the rules of the exchange or market
on which the Ordinary Shares are listed and traded. No alteration, amendment, modification,
revocation or termination of the Plan shall adversely affect the rights of any Participant with
respect to any Share Units held in such Participant’s Account, unless the Participant shall consent
thereto in writing. Distribution of Share Units held in Participant’s Account may be distributed
upon a termination of the Plan at the discretion of the Board, provided that such distribution
satisfies the requirements of Code Section 409A.

ARTICLE XIII

MISCELLANEOUS

     13.1 No Right to Continue as a Director. Nothing in this Plan shall be construed as
conferring upon a Participant any right to continue as a member of the Board.

     13.2 No Interest as a Shareholder. Share Units do not give a Participant any rights
whatsoever with respect to Ordinary Shares until such time and to such extent that payment of Share
Units is made in Ordinary Shares upon the Participant’s Termination.

     13.3 No Right to Corporate Assets. Nothing in this Plan shall be construed as giving
the Participant, the Participant’s designated Beneficiaries or any other person any equity or
interest of any kind in the assets of the Company or any subsidiary or creating a trust of any kind
or a fiduciary relationship of any kind between the Company or any subsidiary and any person. As to
any claim for payments due under the provisions of the Plan, a Participant, Beneficiary and

-7-

 

any other persons having a claim for payments shall be general unsecured creditors of the
Company.

     13.4 Code Section 409A Compliance. The Plan is intended to be administered in a
manner consistent with the requirements, where applicable, of Code Section 409A. Where reasonably
possible and practicable, the Plan shall be administered in a manner to avoid the imposition on
Non-Employee Directors of immediate tax recognition and additional taxes under Code Section 409A.
Notwithstanding the foregoing, neither the Company nor the Board shall have any liability to any
person in the event that Code Section 409A applies under the Plan in a manner that results in
adverse tax consequences to the Non-Employee Director or his or her Beneficiaries.

     13.5 No Limit on Further Corporate Action. Nothing contained in the Plan shall be
construed so as to prevent the Company from taking any corporate action which is deemed by the
Company to be appropriate or in its best interest.

     13.6 Governing Law. The Plan shall be governed by the applicable Code provisions to
the maximum extent possible. Otherwise, the laws of Bermuda (without reference to principles of
conflicts of laws) shall govern the operation of, and the rights of Participants under, the Plan.

     13.7 Headings. The headings of articles, sections, subsections, paragraphs or other
parts of the Plan are for convenience of reference only and do not define, limit, construe, or
otherwise affect its contents.

-8-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00124-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00124-of-00352.parquet"}]]