Document:

CONFIDENTIAL

                          ROYNAT MERCHANT CAPITAL INC.

                                      -AND-

                             THOMAS EQUIPMENT, INC.

                                      -AND-

                           THOMAS EQUIPMENT 2004 INC.
                              THOMAS VENTURES, INC.
                                  PNEUTECH INC.
                             ROUSSEAU CONTROLS INC.
                          HYDRAMEN FLUID POWER LIMITED

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                             SUBSCRIPTION AGREEMENT

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                                February 28, 2005

<PAGE>

                             SUBSCRIPTION AGREEMENT

                                TABLE OF CONTENTS

ARTICLE 1 INTERPRETATION......................................................4

   1.1    Definitions.........................................................4

   1.2    Schedules...........................................................4

   1.3    Headings and Table of Contents......................................4

   1.4    Gender and Number...................................................4

   1.5    Currency............................................................4

   1.6    Entire Agreement....................................................4

   1.7    Accounting Principles...............................................4

   1.8    Time of Essence.....................................................4

   1.9    Calculation of Time.................................................4

   1.10   Securities Laws.....................................................4

ARTICLE 2 SUBSCRIPTION FOR WARRANTS...........................................4

   2.1........................................................................4

ARTICLE 3 SHARES..............................................................4

   3.1    Reservation of Shares...............................................4

ARTICLE 4 ISSUANCE OF DEBENTURE...............................................4

ARTICLE 5 CLOSING ARRANGEMENTS................................................4

   5.1    Closing.............................................................4

   5.2    Delivery of Documents...............................................4

   5.3    Subscriber's Conditions.............................................4

   5.4    Corporation's Conditions............................................4

ARTICLE 6 REPRESENTATIONS, WARRANTIES AND COVENANTS...........................4

                                       -i-
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   6.1    Incorporation and Status of the Corporation and
           the Subsidiaries...................................................4

   6.2    Corporate Power and Due Authorization...............................4

   6.3    Capital of the Corporation and the Subsidiaries.....................4

   6.4    No Obligations to Issue Securities..................................4

   6.5    No Contravention....................................................4

   6.6    No Subsidiaries, Partnerships or Joint Ventures.....................4

   6.7    Financial Statements................................................4

   6.8    Receivables.........................................................4

   6.9    Inventories.........................................................4

   6.10   Dividends, Distributions............................................4

   6.11   Liabilities and Guarantees..........................................4

   6.12   Bankruptcy..........................................................4

   6.13   Indebtedness........................................................4

   6.14   Tax Matters.........................................................4

   6.15   Employment Matters..................................................4

   6.16   Employee Benefit Plans..............................................4

   6.17   Absence of Unusual Transactions and Events..........................4

   6.18   Non-Arm's Length Transactions.......................................4

   6.19   No Conflict of Interest.............................................4

   6.20   Customers and Suppliers.............................................4

   6.21   Permits.............................................................4

   6.22   No Default under Agreements.........................................4

   6.23   As to Certain Contracts In and Out of the Ordinary Course...........4

   6.24   Assets in Good Condition............................................4

   6.25   Title to Assets.....................................................4

                                      -ii-
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   6.26   Real Property.......................................................4

   6.27   Leases of Real Property.............................................4

   6.28   Leases of Personal Property.........................................4

   6.29   Intellectual Property...............................................4

   6.30   Data Processing.....................................................4

   6.31   Compliance with Laws, Permits and Licences..........................4

   6.32   Litigation and Other Proceedings....................................4

   6.33   Corporate Records...................................................4

   6.34   Books of Account....................................................4

   6.35   Environmental Matters...............................................4

   6.36   Insurance...........................................................4

   6.37   Warranties and Product Liabilities..................................4

   6.38   Orders and Notices..................................................4

   6.39   Business Plan.......................................................4

   6.40   Consents and Approvals..............................................4

   6.41   Use of Proceeds of Subscription Price...............................4

   6.42   Observer Status.....................................................4

   6.43   Material Facts Disclosed............................................4

ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER....................4

   7.1    Incorporation and Status of the Subscriber..........................4

   7.2    Capacity............................................................4

   7.3    Due Authorization...................................................4

   7.4    No Violation........................................................4

   7.5    Consents and Filings................................................4

ARTICLE 8 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS...............4

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   8.1    Representations and Warranties in favour of Subscriber..............4

   8.2    Representations and Warranties in Favour of Corporation.............4

   8.3    Survival of Covenants...............................................4

ARTICLE 9 INDEMNIFICATION.....................................................4

   9.1    Indemnification by the Corporation..................................4

   9.2    Indemnification by the Subscriber...................................4

   9.3    Third Party Claims..................................................4

   9.4    Survival of Indemnification.........................................4

ARTICLE 10 FURTHER ASSURANCES.................................................4

ARTICLE 11 SEVERABILITY.......................................................4

ARTICLE 12 WAIVER AND AMENDMENT...............................................4

ARTICLE 13 ANNOUNCEMENTS......................................................4

ARTICLE 14 COUNTERPARTS.......................................................4

ARTICLE 15 GOVERNING LAW......................................................4

ARTICLE 16 FEES AND EXPENSES..................................................4

ARTICLE 17 NOTICE.............................................................4

ARTICLE 18 SUCCESSORS AND ASSIGNS.............................................4

                                      -iv-
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                             SUBSCRIPTION AGREEMENT

This Agreement dated February ____, 2005, is made,

B E T W E E N:

                        ROYNAT  MERCHANT  CAPITAL INC., a  corporation  existing
                        under the laws of the State of Delaware
                        (the "Subscriber")

                                                              OF THE FIRST PART;

                        -and-

                        THOMAS EQUIPMENT, INC., a corporation incorporated under
                        the laws of the State of Delaware
                        (the "Corporation")

                                                             OF THE SECOND PART;

                        - and -

                        THOMAS  EQUIPMENT 2004 INC., a corporation  incorporated
                        under the laws of Canada
                        ("Thomas")

                                                              OF THE THIRD PART;

                        - and -

                        THOMAS VENTURES,  INC., a corporation incorporated under
                        the laws of the State of Delaware
                        ("Ventures")

                                                             OF THE FOURTH PART;

                        - and -

                        PNEUTECH INC., a corporation  amalgamated under the laws
                        of Canada
                        ("Pneutech")

                                                              OF THE FIFTH PART;

                           - and -

<PAGE>

                        ROUSSEAU CONTROLS INC., a corporation  amalgamated under
                        the laws of Canada
                        ("Rousseau")

                                                              OF THE SIXTH PART;

                        - and -

                        HYDRAMEN FLUID POWER LIMITED, a corporation incorporated
                        under the laws of the Province of Ontario
                        ("Hydramen")

                                                            OF THE SEVENTH PART;

                                    RECITALS

A.    The authorized capital of the Corporation consists of 200,000,000 common
      shares (the "Common Shares"), of which 20,000,000 Common Shares are
      presently issued and outstanding;

B.    The Subscriber has agreed to purchase from, and loan to, the Corporation a
      unit comprised of Warrants to purchase up to 1,000,000 Common Shares and
      the Debenture in the sum of Six Million Five Hundred Thousand Canadian
      Dollars (CDN$6,500,000).

      NOW THEREFORE in consideration of the covenants and agreements herein set
forth, the parties hereto agree as follows:

                                   ARTICLE 1
                                 INTERPRETATION

1.1 Definitions

      In this Agreement, unless something in the subject matter or context is
inconsistent therewith, all terms defined in the Act and not otherwise defined
herein shall have the meanings ascribed thereto herein on the date hereof, and
the following terms shall have the meanings set forth below:

      (a)   "Act" means Delaware General Corporation Law, as the same may be
            amended, restated or replaced from time to time and any successor
            legislation thereto, except where otherwise expressly provided;

      (b)   "Affiliate" means, with respect to a Person, any other Person (other
            than a wholly-owned Subsidiary) (i) which directly or indirectly
            through one or more intermediaries, controls, or is controlled by,
            or is under common control with, such Person, (ii) which owns 5% or
            more of the equity interests of such Person, (iii) 5% or more of the
            voting stock (or in the case of a Person that is not a corporation,
            5% or more of the equity interests of such Person) of which is owned
            by such Person or (iv) who is an executive officer or director of
            such Person. The term "control" means (a) the power to vote more
            than 50% of the securities or other equity interests of a Person
            having ordinary voting power (on a fully diluted basis), or (b) the
            possession, directly or indirectly, of any other power to direct or
            cause the direction of the management and policies of a Person,
            whether through ownership of voting securities, by contract or
            otherwise.

                                      -2-
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      (c)   "Agreement" means this agreement, including the Schedules to this
            agreement, as it or they may be amended or supplemented from time to
            time, and all instruments supplementing or amending or confirming
            this agreement and references to "Section" or "Schedule" mean the
            specified section or schedule of this agreement;

      (d)   "Applicable Date" has the meaning set forth in Section 6.11.2;

      (e)   "Audited Financial Statements" has the meaning set forth in Section
            6.7;

      (f)   "Benefit Plans" has the meaning set forth in Section 6.16;

      (g)   "Business" means the distribution and manufacturing of skid steer
            and related equipment and pneumatic components and all related and
            ancillary activities;

      (h)   "Business Day" means any day except Saturday, Sunday or any day on
            which banks are generally not open for business in the City of New
            York, New York and City of Toronto, Ontario;

      (i)   "Business Plan" means a detailed monthly financial and cash forecast
            of the projected business activities and operations of the
            Corporation, including estimates of proposed and committed
            expenditures (capital or otherwise) and assorted matter of each
            expenditure and all sources of revenue, cash and financing of the
            Corporation for the subject period and shall include a statement of
            strategic objectives and detailed plans with respect to each of
            research and development, marketing, distribution and licensing and
            plans with respect to the formation of subsidiaries and the
            activities thereof and any proposed acquisitions or divestitures,
            and which shall include complete financial statement format
            information (including balance sheet and income statement
            information by month) for the next calendar year;

      (j)   "Closing" means completion of the transactions contemplated by and
            in accordance with Article 5 of this Agreement and occurring on the
            date hereof;

      (k)   "Confidential Information" means confidential or proprietary
            information or data of or possessed by the Corporation, relating to
            the Corporation including such information (i) pertaining to
            research, development, engineering, production, sales, marketing,
            technical information, the Technology, financial information,
            operating information, costs, performance, business process or
            customers, and (ii) in a context in which the source of such
            information or data reasonably communicates, or the recipient of
            such information or data should reasonably have understood, that it
            should be treated as confidential or proprietary, whether or not the
            specific word "confidential" or "proprietary" is used;

                                      -3-
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      (l)   "Closing Date" has the meaning set forth in Article 5 hereof;

      (m)   "Closing Time" has the meaning set forth in Article 5 hereof;

      (n)   "Common Shares" means common shares in the capital of the
            Corporation, as constituted on the date hereof;

      (o)   "Debenture" has the meaning set forth in Article 4 hereof;

      (p)   "Employee Agreements" has the meaning set forth in Section 6.23.5;

      (q)   "Encumbrances" means any encumbrance, lien, charge, hypothec,
            pledge, mortgage, title retention agreement, security interest of
            any nature, adverse claim, exception, reservation, easement, right
            of occupation, any matter capable of registration against title,
            option, privilege or any contract to create any of the foregoing;

      (r)   "Financial Statements" has the meaning set forth in Section 6.7;

      (s)   "GAAP" shall have the meaning set forth in Section 1.7;

      (t)   "Governmental Body" means any government, parliament, legislature,
            regulatory authority, agency, commission, board or court or other
            law, rule, or regulation making entity having or purporting to have
            jurisdiction on behalf of any nation or state or province or other
            subdivision thereof including any municipality or district;

      (u)   "Guarantors" means each of Thomas, Ventures, Pneutech, Rousseau and
            Hydramen;

      (v)   "Insurance Agreement" means the agreement between Roynat, the
            Corporation and Clifford Rhee, relating to life insurance;

      (w)   "Intellectual Property" has the meaning set forth in Section 6.29;

      (x)   "Interim Financial Statements" has the meaning set forth in Section
            6.7;

      (y)   "Material Adverse Affect" means, with respect to the Corporation,
            any material adverse affect on the business, assets, condition
            (financial or otherwise), prospects or results of operations of the
            Corporation;

      (z)   "Permitted Encumbrances" means (i) liens arising from operation of
            law in the ordinary course of business that, individually and in the
            aggregate, do not in any material respect interfere with the use or
            value of any of the assets subject thereto (ii) minor imperfections
            of title which do not materially detract from the value of the
            property affected or materially impair the operations of the
            Corporation, (iii) liens for Taxes, fees, assessments, or other
            governmental charges that are not delinquent or remain payable
            without penalty, (iv) carriers', warehousemen's, mechanics',
            landlords', material person's, repairer's or other similar liens
            arising in the ordinary course of business that are not delinquent
            or remain payable without penalty, (v) liens consisting of pledges
            or deposits required in the ordinary course of business in
            connections with worker's compensation, employment insurance and
            other social security legislation, (vi) easements, rights of way and
            other similar encumbrances relating to real property incurred in the
            ordinary course of business; (vii) security interests granted to
            Laurus Master Fund, Ltd. ("Laurus") pursuant to agreements dated as
            of November 9, 2004 as amended, together with agreements dated the
            date hereof; and (viii) any security interest granted by the
            Corporation in favour of any lender, assumed or arising by operation
            of law after the date hereof to provide or to secure or to provide
            the Corporation with funds to pay the whole or part of the
            consideration for the acquisition of property and which are secured
            only by the property being acquired by the Corporation and includes
            the renewal, extension and refinancing of any such security interest
            and the debt thereby secured upon the same property;

                                      -4-
<PAGE>

      (aa)  "Person" means any individual, partnership, limited partnership,
            joint venture, syndicate, sole proprietorship, company or
            corporation with or without share capital, unincorporated
            association, trust, trustee, executor, administrator or other legal
            personal representative, regulatory body or agency, government or
            governmental agency, authority or entity however designated or
            constituted;

      (bb)  "Personal Property Leases" has the meaning set forth in Section
            6.28;

      (cc)  "Registration Rights Agreement" means the registration rights
            agreement between the Corporation and the Subscriber dated the date
            hereof;

      (dd)  "Securities Laws" means the securities laws, regulations, rules,
            rulings, policies, procedures and other instruments of the United
            Sates of America or any state thereof and the provinces of Canada,
            or the relevant offering province of Canada, as the context so
            requires;

      (ee)  "Subsidiaries" means the subsidiaries set forth in Schedule 6.6,
            including, without limitation, each of the Guarantors and Thomas
            Equipment Europe N.V.;

      (ff)  "Tax" or "Taxes" means all federal, state, provincial, municipal,
            local, foreign or other income, capital, gross receipts, profits,
            minimum, franchise, transfer, sales, use, import/export, customs,
            withholding, payroll, pension, occupation, transfer, health,
            business, property, school, water, development, business, excise,
            value added, or goods and services tax, surtax, fee, duty, rate,
            premium, levy, charge, assessment, withholding or governmental
            charge of any nature whatever, including interest, penalties, fines
            and additions thereto;

                                      -5-
<PAGE>

      (gg)  "Tax Return" means any return, declaration, report, estimate,
            information return, form, statement or other document required to be
            prepared or filed by or with respect to the Corporation in respect
            of any Taxes;

      (hh)  "Technology" means all technical information (including the
            Corporation's software, patents, invention disclosures, trade
            secrets and know how, design information, source listings, technical
            data, user, operation and maintenance manuals and documentation,
            servicing and installation instructions, test and inspection
            techniques and procedures, information pertaining to quality control
            of standards including inspection methods and standards) developed
            by or for the Corporation and used in the business of the
            Corporation, all right, title and interest in any and all copyright
            in the foregoing, and of any and all rights to register, patent or
            secure protection thereof, all licences or consents to use with
            respect thereto in favour of the Corporation and any and all rights
            of enforcement with respect thereto including any and all rights
            world wide to sue for the infringement or unauthorized use thereof
            and the recovery of damages or royalties related thereto;

      (ii)  "Transaction Agreements" means:

            (i)   this Agreement;

            (ii)  the Insurance Agreement;

            (iii) the Debenture;

            (iv)  the Warrant(s);

            (v)   the Registration Rights Agreement;

            (vi)  a pledge of shares in the capital of Thomas, Ventures and
                  Pneutech given by the Corporation;

            (vii) guarantees of the obligations of the Corporation under the
                  Debenture given by each of the Guarantors;

            (viii) a pledge of shares in the capital of Rousseau, Hydramen and
                  Samsung Industries Co. Ltd. given by Pneutech;

            (ix)  a general security agreement given by the Corporation and each
                  of the Guarantors;

            (x)   an assignment of intellectual property by the Corporation and
                  each of the guarantors;

            (xi)  an environmental indemnity by the Corporation and each of the
                  guarantors;

                                      -6-
<PAGE>

            (xii) a hypothec on moveables and immoveables given by Pneutech;

            (xiii) a hypothec on moveables given by Rousseau; and

            (xiv) any other documents supplementary or ancillary thereto;

            (jj)  "Warrant Subscription Price" has the meaning set forth in
                  Section 2.1; and

            (kk)  "Warrant(s)" has the meaning set forth in Section 2.1 hereof.

1.2      Schedules.

         The following are the schedules attached to this Agreement:

         Schedule 2.1          -      Stock Purchase Warrant

         Schedule 2.2          -      Registration Rights Agreement

         Schedule 4            -      Debenture

         Schedule 5.3(a)       -      Legal Opinion

         Schedule 6.1          -      Jurisdictions in which the Corporation
                                      is qualified

         Schedule 6.3          -      Capital of the Corporation and the
                                      Subsidiaries

         Schedule 6.6          -      Subsidiaries, Partnerships or Joint
                                      Ventures

         Schedule 6.7          -      Financial Statements

         Schedule 6.11         -      Liabilities and Guarantees

         Schedule 6.15         -      Employment Matters

         Schedule 6.16         -      Employee Benefit and Pension Plans

         Schedule 6.17         -      Absence of Unusual Transactions and Events

         Schedule 6.18         -      Non Arm's Length Transactions

         Schedule 6.20         -      Customers and Suppliers

         Schedule 6.21         -      Permits

         Schedule 6.22         -      No Default Under Agreements

         Schedule 6.23         -      As to Certain Contracts In and Out of
                                      the Ordinary Course

         Schedule 6.25         -      Title to Assets

                                      -7-
<PAGE>

         Schedule 6.26         -      Real Property

         Schedule 6.27         -      Leases of Real Property

         Schedule 6.28         -      Leases of Personal Property

         Schedule 6.29         -      Intellectual Property

         Schedule 6.32         -      Litigation and Other Proceedings

         Schedule 6.35         -      Environmental Disclosure

         Schedule 6.36         -      Insurance

         Schedule 6.37         -      Warranties and Discounts

         Schedule 6.39         -      Business Plan

1.3   Headings and Table of Contents.

      The inclusion of headings and a table of contents in this Agreement are
for convenience of reference only and shall not affect the construction or
interpretation hereof. The terms "this Agreement" "hereof", "hereunder" and
similar expressions refer to this Agreement and not to any particular section or
other portion hereof and include any agreement supplemental hereto.

1.4   Gender and Number.

      Words importing the singular number only shall include the plural and vice
versa, and words importing the masculine gender shall include the feminine
gender and neuter.

1.5   Currency.

      All payments contemplated herein shall be paid in Canadian funds, by
certified cheque, bank draft or wire transfer of immediately available funds.

1.6   Entire Agreement.

      This Agreement and the Offer of Finance dated January 18, 2005 between the
Subscriber and the Corporation constitute the entire agreement between the
parties hereto pertaining to the subject matter hereof and thereof and supersede
any prior understandings and agreements between the parties hereto with respect
thereto. There are no representations, warranties, terms, conditions,
undertakings or collateral agreements, expressed, implied or statutory, between
the parties other than as expressly set forth or referred to in this Agreement
or in any documents delivered by the parties pursuant to this Agreement. No
reliance is placed on any representation, warranty, opinion, advice or assertion
of fact made by any party hereto or its directors, officers, employees, legal
counsel, accountants or other representatives, to any other party hereto or its
directors, officers, employees, legal counsel, accountants or other
representatives, except to the extent that the same has been reduced to writing
and included as a term of this Agreement or included as a term of any other
document delivered by the parties pursuant to this Agreement.

                                      -8-
<PAGE>

1.7   Accounting Principles.

      References in this Agreement to generally accepted accounting principles
("GAAP") shall be, in connection with any Canadian entities, to GAAP from time
to time established by the Canadian Institute of Chartered Accountants, or any
successor institute, in the "CICA Handbook", and in connection with any United
States entities, generally accepted accounting principals in the United States,
in each applicable as of the date on which such calculation is made or required
to be made in accordance with generally accepted accounting principles,
consistently applied.

1.8   Time of Essence.

      Time shall be of the essence of this Agreement and of every part hereof
and no extension or variation of this Agreement shall operate as a waiver of
this provision.

1.9   Calculation of Time.

      Whenever any payment to be made hereunder shall be stated to be due, any
period of time hereunder shall be stated to end, any calculation shall be stated
to be made hereunder or any other action to be taken hereunder shall be stated
to be required to be taken on or as of a day other than a Business Day, such
payment shall be due, such period of time shall end, such calculation shall be
made or such action shall be required to be taken on or as of the next
succeeding Business Day unless the next succeeding Business Day, shall fall in
the next calendar month, in which case such payment shall be due, such period of
time shall end, such calculation shall be made or such action shall be required
to be taken on or as of the next preceding Business Day and, in the case of any
payment of interest pursuant to the terms of this Agreement, any such adjustment
shall be taken into account in determining the amount of such interest payment.

1.10  Securities Laws.

      The sale of the Warrants is conditional upon such sale being exempt from
the registration and prospectus requirements of Securities Laws or that such
Warrants and the Common Shares issuable thereunder are qualified under the
Securities Laws.

                                   ARTICLE 2
                           SUBSCRIPTION FOR WARRANTS.

2.1   The Subscriber agrees to take up and pay for a warrant to purchase one
million of the Common Shares, on a fully diluted basis (the "Warrants") of the
Corporation for the aggregate subscription price of One Dollar ($1.00) (the
"Warrant Subscription Price") against payment to the Corporation of the purchase
price therefore by wire transfer, certified cheque or other method mutually
acceptable to the Corporation and the Subscriber. The Corporation agrees to
execute and deliver to the Subscriber a Stock Purchase Warrant in the form
annexed hereto as Schedule 2.1 and a Registration Rights Agreement in the form
annexed hereto as Schedule 2.2, in each case with such amendments as may be
agreed upon by the Corporation and the Subscriber.

                                      -9-
<PAGE>

                                    ARTICLE 3
                                     SHARES.

3.1   Reservation of Shares.

      The Corporation agrees to reserve and set aside for issuance a sufficient
number of common shares in the capital of the Corporation and, upon the due and
timely exercise of the Warrants, to allot and issue to the holder thereof that
number of common shares of the Corporation issuable in connection therewith as
fully paid and non assessable shares.

                                   ARTICLE 4
                             ISSUANCE OF DEBENTURE.

      The Subscriber agrees to loan the principal amount of Six Million Five
Hundred Thousand Canadian Dollars ($6,500,000) to the Corporation, and the
Corporation agrees, upon payment of such amount by the Subscriber to the
Corporation, to execute and deliver to the Subscriber a debenture (the
"Debenture") in the form attached hereto as Schedule 4, together with such
amendments as may be agreed upon by the Corporation and the Subscriber.

                                   ARTICLE 5
                              CLOSING ARRANGEMENTS.

5.1   Closing.

      The transactions contemplated by this Agreement shall be completed on or
before February ___, 2005 (the "Closing Date") at which time the Corporation
shall execute and deliver to the Subscriber the Debenture and the Warrant
certificate registered in the name of the Subscriber or in such other name as
the Subscriber may in writing direct, representing the loan and the Warrant,
against delivery to the Corporation of a certified cheque or bank draft in the
amount of Six Million Five Hundred Thousand and One Canadian Dollars
(CDN$6,500,001) payable to the Corporation or to such other person as the
Corporation may in writing direct. The completion of the subscription will take
place at a closing to be held at the offices of Chaitons LLP, Barristers and
Solicitors, 185 Sheppard Ave. West, Toronto, Ontario, M2N 1M9 at 10:00 a.m.,
Toronto time (the "Closing Time") on the Closing Date or at such other time on
that date or such other date as may be mutually agreed upon by the Corporation
and the Subscriber.

5.2   Delivery of Documents.

      At the Closing Time, the Corporation shall execute and deliver, or cause
to be executed and delivered to the Subscriber the following:

      5.2.1 the Transaction Agreements; and

                                      -10-
<PAGE>

      5.2.2 a certificate signed by the appropriate officers of the Corporation
            with respect to the articles and by laws of the Corporation,
            resolutions of the board of directors of the Corporation relevant to
            the transactions contemplated herein, the incumbency and signatures
            of the signing officers of the Corporation and with respect to such
            other matters as the Subscriber may request, acting reasonably.

5.3   Subscriber's Conditions.

      The obligation of the Subscriber to complete the subscription for the
Debenture and the Warrants is subject to fulfilment at the Closing Time of the
following conditions:

      (a)   the Subscriber shall have received a favourable opinion acceptable
            to the Subscriber, acting reasonably, dated the Closing Date from
            counsel to the Corporation and the Subsidiaries, with respect to
            such matters as the Subscriber may request, acting reasonably,
            relating to the Corporation and the Subsidiaries and the
            subscription and issuance of the Debenture and the Warrants. In
            providing such opinion, counsel may, where appropriate, rely on
            certificates of senior officers of the Corporation and the
            Subsidiaries as to factual matters;

      (b)   at the Closing Time, there shall not have developed, occurred, come
            into effect or existence any event, action, state, condition or
            financial occurrence of significant consequence or any law,
            regulation or policy which in the Subscriber's opinion, acting
            reasonably, Materially Adversely Affects, or involves, or will
            Materially Adversely Affect or involve the financial markets or the
            business, operations or affairs of the Corporation and the
            Subsidiaries;

      (c)   all proceedings shall have been taken and all documentation executed
            in connection with the transactions contemplated by this Agreement
            shall be satisfactory to the Subscriber;

      (d)   the representations and warranties of the Corporation and the
            Subsidiaries contained in Article 6 hereof shall be true and correct
            at the Closing Time with the same effect as if such representations
            and warranties had been made at such time;

      (e)   the Corporation and the Subsidiaries shall have performed and
            complied with all of its material obligations hereunder to be
            performed at or prior to the Closing Time;

      (f)   the parties to the Transaction Agreements, other than the
            Subscriber, shall have executed and delivered such agreements to the
            Subscriber and, where draft forms of same are annexed hereto,
            substantially in the form of drafts annexed;

      (g)   the Subscriber shall be satisfied with the insurance maintained by
            the Corporation and the Subsidiaries;

                                      -11-
<PAGE>

      (h)   the Subscriber shall have received confirmation of the program
            expenditures with respect to the use of the proceeds of the sale of
            the Debenture and the Warrants by the Corporation satisfactory to
            the Subscriber, acting reasonably;

      (i)   there shall not be any injunction, order or claim, pending or
            threatened, respecting the Corporation or the issuance and sale to
            the Subscriber of the Warrants;

      (j)   Mr. Clifford Rhee shall have entered into an employment contract
            with the Corporation which shall include confidentiality, non
            competition and non solicitation provisions, in form and substance
            satisfactory to the Subscriber and its legal counsel;

      (k)   the Subscriber shall have completed its due diligence and the review
            and examination by the Subscriber of all information, agreements,
            documents, books and records of or relating to the Corporation,
            whether written or oral, has been, in the sole discretion of the
            Subscriber, completed to the satisfaction of the Subscriber;

      (l)   the Corporation shall have entered into working capital facilities
            satisfactory to the Subscriber;

      (m)   Pneutech shall have paid all outstanding accrued dividends in the
            amount of $300,000 to Roynat Capital Inc.;

      (n)   Pneutech shall have retracted all preferred shares in the capital
            stock of Pneutech held by Roynat Capital Inc.;

      (o)   Pneutech shall have purchased for cancellation all warrants issued
            to Roynat Capital Inc. to purchase common shares in the capital of
            Pneutech in exchange for $1,250,000;

      (p)   all of the shareholders of Pneutech shall have consented to the
            amalgamation of Pneutech with 4274458 Canada Inc. pursuant to an
            Agreement and Plan of Amalgamation where all the shares in Pneutech
            shall be cancelled and new shares of the Corporation will be issued
            to the shareholders of Pneutech immediately prior to the
            amalgamtaion and Pneutech shall be a wholly owned subsidiary of the
            Corporation; and

      (q)   the Subscriber shall have entered into satisfactory inter creditor
            and subordination agreements with other creditors of the Corporation
            and the Guarantors.

      The foregoing conditions are for the exclusive benefit of the Subscriber,
provided that any of the said conditions may be waived in whole or in part by
the Subscriber without prejudice to its rights of rescission in the event of the
non fulfilment and/or non performance of any other conditions, any such waiver
to be binding on the Subscriber only if the same is in writing.

      In case any of the foregoing conditions hereinbefore declared to be for
the benefit of the Subscriber shall not be satisfied at the Closing Time, the
Subscriber may:

                                      -12-
<PAGE>

            (i)   refuse to complete the transactions contemplated herein by
                  notice in writing to the Corporation and in such event, the
                  Subscriber and the Corporation shall be released from all
                  obligations hereunder (except for the obligation of the
                  Corporation to pay certain fees and expenses as contemplated
                  in Article 16 hereof); or

            (ii)  complete the transaction contemplated herein, it being
                  expressly understood and agreed that the Subscriber may rely,
                  notwithstanding such completion, upon the Corporation's
                  representations, warranties, covenants and conditions (unless
                  waived) contained in this Agreement.

5.4   Corporation's Conditions.

      The obligation of the Corporation to complete the subscription for the
Debenture and the Warrants is subject to fulfillment at the Closing Time of the
following conditions:

      (a)   the Subscriber shall have performed and complied with all of its
            material obligations hereunder to be performed at or prior to the
            Closing Time; and

      (b)   the Subscriber shall have executed and delivered the Transaction
            Agreements to which it is a party to the other parties thereto.

      The foregoing conditions are for the exclusive benefit of the Corporation,
provided that any of the said conditions may be waived in whole or in part by
the Corporation without prejudice to its rights of rescission in the event of
the non fulfilment and/or non-performance of any other condition or conditions,
any such waiver to be binding on the Corporation only if the same is in writing.

      In case any of the foregoing conditions hereinbefore declared to be for
the benefit of the Corporation shall not be satisfied at the Closing Time, the
Corporation may:

            (i)   refuse to complete the transactions contemplated herein by
                  notice in writing to the Subscriber and in such event, the
                  Corporation and the Subscriber shall be released from all
                  obligations hereunder (except for the obligations of the
                  Corporation to pay certain fees and expenses as contemplated
                  in Article 16 hereof); or

            (ii)  complete the transaction contemplated herein, it being
                  expressly understood and agreed that the Corporation may rely,
                  notwithstanding such completion, upon the Subscriber's
                  representations, warranties, covenants and conditions (unless
                  waived) contained in this Agreement.

                                   ARTICLE 6
                   REPRESENTATIONS, WARRANTIES AND COVENANTS.

      Each of the Corporation and the Subsidiaries, jointly and severally
represent, warrant and covenant to the Subscriber as follows and acknowledges
that the Subscriber is relying upon the following representations, warranties
and covenants in connection with its subscription for the Debenture and the
Warrants:

                                      -13-
<PAGE>

6.1   Incorporation and Status of the Corporation and the Subsidiaries.

      Each of the Corporation and the Subsidiaries is duly incorporated and
organized and validly existing under its jurisdiction of incorporation, is in
good standing in each jurisdiction where, by reason of its business or assets,
it is required to be qualified or licenced, except to the extent any lack of
such registration, licensing or qualification would not cause a Material Adverse
Affect, and it has all powers, licences, franchises and permits (collectively,
"permits") required to own or lease its assets and carry on its business as the
same is presently carried on. Except for permits, the lack of possession of
which by the Corporation would not cause a Material Adverse Affect, each of the
Corporation and the Subsidiaries is in compliance in all material respects with
all the terms and conditions relating to such permits and there are no
proceedings in progress, pending or threatened which may result in the
revocation, cancellation, suspension or any adverse modification of any such
permits. Each of the Corporation and the Subsidiaries is duly qualified to do
business in each jurisdiction in which the nature of the business or the
property and assets owned or leased by it makes such qualification necessary.
All the issued and outstanding shares, membership interests or partnership
interests of each Subsidiary have been duly and validly issued, are fully paid
and non assessable, and were issued in accordance with all applicable Securities
Laws and regulations. Except for 1,000 Preference shares in the capital stock of
Thomas issued to McCain Foods Limited, all of such shares, membership interests
or partnership interests of each Subsidiary are owned, directly or indirectly,
by the Corporation, free and clear of any mortgage, pledge, lien, encumbrance,
claim or equity. The Corporation has furnished (or will furnish at or prior to
the Closing) counsel to the Subscriber with a true and complete copy of each of
the Subsidiaries' organizational documents as amended and in effect on the date
hereof, certified by the President and/or Secretary of the Corporation, and each
of the Subsidiaries' by laws, as amended and in effect on the date hereof.

6.2   Corporate Power and Due Authorization.

      The Corporation has the corporate power and capacity to enter into, and to
perform its obligations under, the Transaction Agreements. Each of the
Transaction Agreements has been duly authorized, executed and delivered by the
Corporation and is a valid and binding obligation of the Corporation enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency,
moratorium, reorganization and other laws relating to or affecting the
enforcement of creditors' rights generally, and the fact that equitable
remedies, including the remedies of specific performance and injunction, may
only be granted in the discretion of a court. This Agreement and the Insurance
Agreement have been duly executed and delivered by the Corporation and are valid
and binding obligations of the Corporation, enforceable against it in accordance
with their terms, subject to bankruptcy, insolvency, moratorium, reorganization
and other laws relating to or affecting the enforcement of creditors' rights
generally, and the fact that equitable remedies, including the remedies of
specific performance and injunction, may only be granted in the discretion of a
court.

                                      -14-
<PAGE>

6.3   Capital of the Corporation and the Subsidiaries.

      6.3.1 The authorized capital of the Corporation consists of 200,000,000
            Common Shares, of which 20,000,000 Common Shares have been duly
            issued and are outstanding as fully paid and non-assessable.

      6.3.2 The authorized and issued capital (including the identity of all
            shareholders) of each of the Subsidiaries is set forth in Schedule
            6.3.

      6.3.3 The rights, privileges, restrictions and conditions attached to the
            shares of the Corporation and each Subsidiary are as set out in
            Schedule 6.3 annexed hereto.

      6.3.4 The Corporation is, directly or indirectly, the registered and
            beneficial owner of all of the issued and outstanding shares of the
            Subsidiaries, except for 1,000 preference shares of the capital
            stock of Thomas owned by McCain Foods Limited, with good and
            marketable title thereto, free and clear of all Encumbrances.

6.4   No Obligations to Issue Securities.

      Other than as set forth or described in this Agreement or any Schedules
hereto and as listed on Schedule 1 to the Registration Rights Agreement there
are no agreements, options, warrants, rights of conversion or other rights
pursuant to which any of the Corporation or the Subsidiaries is or may become
obligated to issue any shares or any securities convertible or exchangeable,
directly or indirectly, into shares. There are no outstanding contracts of the
Corporation to repurchase, redeem or otherwise acquire any of its outstanding
Common Shares (or Shares in the capital of the Corporation which may be created)
or restricting its ability to issue securities.

6.5   No Contravention.

      None of the entering into of this Agreement and/or the Transactions
Agreements, the issuance of the Debenture or the Warrants, and the performance
by the Corporation of any of its obligations under the Transaction Agreements
will contravene, breach or result in any default under the articles, by-laws,
constating documents or other organizational documents of the Corporation or any
of the Subsidiaries or under any mortgage, lease, agreement, other legally
binding instrument, licence, permit, statute, regulation, order, judgment,
decree or law or other restriction of any government, governmental agency or
court to which the Corporation or any of the Subsidiaries is a party or by which
it may be bound.

6.6   No Subsidiaries, Partnerships or Joint Ventures.

      The Corporation has no subsidiaries other than the Subsidiaries, the names
and governing jurisdictions of which are set forth in Schedule 6.6 nor any
agreement of any nature to acquire any subsidiary. Neither the Corporation nor
any Subsidiary is a partner or participant in any partnership, joint venture or
any other profit sharing arrangement of any kind nor a party to any agreement
under which they or any of them agrees to carry on any part of its business or
any other activity in such manner or by which the Corporation or the
Subsidiaries agrees to share any revenue or profit with any Person.

                                      -15-
<PAGE>

6.7   Financial Statements.

      The audited financial statements (the "Audited Financial Statements") of
the Corporation and its subsidiaries, other than Thomas Equipment 2004 Inc.
(other than the financial statements of Hydramen Fluid Power Limited, which are
unaudited) and of Thomas Equipment Ltd. (the assets of which were acquired by
Thomas Equipment 2004 Inc. in October, 2004) are as set out in Schedule 6.7
hereto as at and for the year ended set out therein and the unaudited interim
financial statements (the "Interim Financial Statements") of the Corporation and
its subsidiaries, other than Thomas Equipment 2004 Inc. but including Thomas
Equipment Ltd. are as set out in Schedule 6.7 as at and for the period ended set
out therein (collectively, the "Financial Statements"), are true and correct,
and fairly, completely and accurately present the financial position of the
Corporation and the Subsidiaries and the results of its operations as of the
dates and throughout the periods indicated and there has been no material
adverse change in the financial position of the Corporation and the Subsidiaries
from that reflected in the Financial Statements. The Audited Financial
Statements have been prepared in accordance with GAAP consistently applied. The
Financial Statements accurately and fairly disclose the assets and liabilities
(whether accrued, absolute, contingent or otherwise of the Corporation). The
Financial Statements reflect all material accruals as at the date thereof and
for the periods covered thereby of all amounts and other employment arrangements
for current employees of the Corporation (including employee incentives) which,
though not payable until a time after the end of the relevant period, are
attributable to activities undertaken during that period. The Financial
Statements do not contain any extraordinary items or items of special or non
recurring income or any other income not earned in the ordinary course of
business, except as expressly specified therein. The Financial Statements
reflect all of the costs incurred in the operation of the business of the
Corporation.

6.8   Receivables.

      All accounts receivable reflected on the balance sheets forming part of
the Financial Statements and all accounts receivable arising since the date of
the Financial Statements are bona fide and collectible in full within one
hundred and twenty (120) days or, if such receivable is related to floor plan
financing between Thomas and a customer, then within eighteen (18) months, other
than those accounts receivable which are doubtful accounts and in respect of
which a reasonable allowance, consistent with past practice, has been made, and
are not subject to any set off or counter claims; and from the date of the
Financial Statements until the date hereof, no such accounts receivable or other
amounts owing to the Corporation and its Subsidiaries have been assigned by the
Corporation and the Subsidiaries or discharged or released by the Corporation
and the Subsidiaries for less than the amount of such account receivable or
other amount owing to the Corporation and the Subsidiaries and no other assets
have been transferred, sold, assigned or otherwise disposed of except, in each
case and in the aggregate, in the ordinary course of business of the
Corporation.

                                      -16-
<PAGE>

6.9   Inventories.

      The inventories of the Corporation and the Subsidiaries consist of items
of a quality and quantity useable and saleable in the ordinary course of
business, except for obsolete and slow moving items and materials below standard
quality which have been written down on the books of account of the Corporation
and the Subsidiaries to net realizable value, or adequate reserves have been
provided therefor. All items included in such inventories are owned by the
Corporation and the Subsidiaries except for items sold in the ordinary course of
business, for which either a purchaser has made full payment or a purchaser is
obligated to make payment, and each obligation is an asset of the Corporation
and the Subsidiaries in accordance with GAAP.

6.10  Dividends, Distributions.

      Since October 1, 2004, the Corporation has not declared or paid any
dividends or declared or made any other payments or distributions on or in
respect of any of its shares and has not, directly or indirectly, redeemed,
purchased or otherwise acquired any of its shares or agreed to do so or
otherwise effected any return of capital with respect to such shares.

6.11  Liabilities and Guarantees.

      Each of the Corporation and the Subsidiaries does not have any outstanding
liabilities, contingent or otherwise, and each of the Corporation and the
Subsidiaries is not a party to or bound by an agreement of guarantee, support,
indemnification, assumption or endorsement of, or any other similar commitment
with respect to, the obligations, liabilities (contingent or otherwise) or
indebtedness of any Person, other than:

      6.11.1 those set out in the Financial Statements and pursuant to the
            agreements with Laurus;

      6.11.2 liabilities in respect of trade or business obligations incurred
            after last year end date of each financial statement set out in
            Schedule 6.7 (the "Applicable Date") in the ordinary course of the
            business of the Corporation and the Subsidiaries consistent with
            past practice, none of which has been materially adverse to the
            nature, results of operations, assets or financial condition of, or
            manner of conducting, the business of the Corporation and the
            Subsidiaries; and

      6.11.3 those set out in Schedule 6.11.

6.12  Bankruptcy.

      Each of the Corporation and the Subsidiaries has not proposed a compromise
or arrangement to its creditors generally; had any petition for a receiving
order in bankruptcy filed against it; taken any proceeding with respect to a
compromise or arrangement; taken any proceeding to have itself declared bankrupt
or wound up; taken any proceeding to have a receiver appointed over its assets;
had any encumbrancer take possession of any of its property; or had any
execution or distress become enforceable or become levied upon any of its
property.

                                      -17-
<PAGE>

6.13  Indebtedness.

      Except as set out in the Financial Statements, agreements with Laurus and
except for the Debenture issued or to be issued in favour of the Subscriber, the
Corporation and the Subsidiaries does not have outstanding any bonds,
debentures, notes, mortgages or other indebtedness which mature more than one
(1) year after the date of their original creation or issuance and each of the
Corporation and the Subsidiaries has not agreed to create or issue any bonds,
debentures, notes, mortgages or other indebtedness which will mature more than
one (1) year after the date of their creation or issuance.

6.14  Tax Matters.

      Each of the Corporation and the Subsidiaries has filed all Tax Returns
required to be filed by it in all applicable jurisdictions and has paid all
Taxes, levies, assessments, reassessments, penalties, interest and fines due and
payable by it. All such Tax Returns properly reflect, and do not in any respect
understate, the taxable income or the liability for Taxes of each of the
Corporation and the Subsidiaries in the relevant Tax year or calendar year.
Adequate provision has been made in the Audited Financial Statements and the
Interim Financial Statements for all Taxes, governmental charges and
assessments, whether relating to income, sales, real or personal property, or
other types of Taxes, governmental charges or assessments, including interest
and penalties thereon, payable in respect of the business, assets or liabilities
of each of the Corporation and the Subsidiaries or otherwise for all periods up
to the date of the balance sheets comprising part of such financial statements.
All Canadian federal and provincial income Tax assessments and United States
federal and state income Tax assessments have been issued to each of the
Corporation and the Subsidiaries covering all past periods up to and including
the Applicable Date in respect of the Corporation and the Subsidiaries, and such
assessments, if any amounts were owing in respect thereof, have been paid.
Assessments for all other applicable federal, state and provincial Taxes and
levies have been issued and any amounts owing thereunder have been paid. There
are no actions, suits or other proceedings or investigations or claims in
progress, pending or threatened against each of the Corporation and the
Subsidiaries in respect of any Taxes, governmental charges or assessments and,
in particular, there are no currently outstanding reassessments or written
enquiries which have been issued or raised by any governmental authority
relating to any such Taxes, governmental charges and assessments. Each of the
Corporation and the Subsidiaries has withheld and remitted all amounts required
to be withheld and remitted by it in respect of any Taxes, governmental charges
or assessments. The Corporation has never had any Tax deficiency proposed or
assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any Tax or governmental charge.
Each of the Corporation and the Subsidiaries is properly registered and licensed
for the purposes of paying, collecting or remitting all applicable Taxes
relating to its business. Each of the Corporation and the Subsidiaries has
properly applied for and filed, or will properly apply for and file, claims for
all Tax refunds or rebates to which it is entitled, including without
limitation, any goods and services Tax rebates. Each of the Corporation and the
Subsidiaries has not filed or been party to any election pursuant to Section 85
of the Income Tax Act (Canada) or the corresponding provisions of any provincial
statute at any time since October 30, 2002. Each of the Corporation and the
Subsidiaries has not at any time benefited from a forgiveness of debt or entered
into any transaction or arrangement (including conversion of debt into shares of
its share capital) which could have resulted in the application of Section 80 of
the Income Tax Act (Canada). The Corporation has withheld or collected from each
payment made to each of its employees, the amount of all Taxes required to be
withheld or collected therefrom, and has paid the same to the proper Tax
Authority.

                                      -18-
<PAGE>

6.15  Employment Matters.

      Except as set out in Schedule 6.15, each of the Corporation and the
Subsidiaries is not a party to and is not bound by any:

      6.15.1 written contract or commitment for the employment of any employee,
            officer or agent;

      6.15.2 oral contract or commitment for the employment of any employee,
            officer or agent, except for contracts of indefinite hire terminable
            by the Corporation and the Subsidiaries without cause on reasonable
            notice;

      6.15.3 contract with or commitment to any labor union or employee
            association and the Corporation and the Subsidiaries has not
            conducted negotiations with respect to any such future contracts or
            commitments and there are no current or, to the knowledge of the
            Corporation and the Subsidiaries after appropriate enquiry,
            threatened attempts to organize or establish any labour union or
            employee association with respect to the Corporation and the
            Subsidiaries.

      Schedule 6.15 contains a complete list of all permanent and full time
employees of the Corporation and the Subsidiaries earning in excess of One
Hundred Thousand Dollars ($100,000) per annum, their salaries and wage rates,
bonus arrangements, benefits, positions and length of service.

      There is no work stoppage or other concerted action, grievance or dispute
existing or, to the best of the knowledge of the Corporation and the
Subsidiaries after appropriate enquiry, threatened against the Corporation and
the Subsidiaries.

      The Corporation has complied with all applicable laws, rules, regulations
and orders relating to employment in the business, including those relating to
wages, hours, collective bargaining, occupational health and safety, employment
standards, pay equity and workers' compensation. There are no outstanding
charges or complaints against the Corporation relating to unfair labour
practices or discrimination or under any legislation relating to employees. The
Corporation has paid in full all amounts owing under any applicable workers'
compensation legislation.

      Each of the Corporation and the Subsidiaries has not paid or agreed to pay
any bonus, fee, distribution, remuneration or other compensation to any Person
(other than salaries, wages or bonuses paid or payable to employees of each of
the Corporation and the Subsidiaries in the ordinary course of business in
accordance with current compensation levels and practices).

                                      -19-
<PAGE>

6.16  Employee Benefit Plans.

      6.16.1 Except as listed in Schedule 6.16 attached hereto, the Corporation
            has not, and is not, subject to any present or future obligation or
            liability under any pension plan, deferred compensation plan,
            retirement income plan, stock option or stock purchase plan, profit
            sharing plan, bonus plan or policy, employee group insurance plan,
            hospitalization plan, disability plan or other employee benefit
            plan, program, policy or practice, formal or informal, with respect
            to any of the employees of the business, other than the Canada
            Pension Plan and other similar plans established pursuant to
            statute. Schedule 6.16 also lists the general policies, procedures
            and work-related rules in effect with respect to employees of the
            Corporation's business, whether written or oral, including but not
            limited to policies regarding holidays, sick leave, vacation,
            disability and death benefits, termination and severance pay,
            automobile allowances and rights to company-provided automobiles and
            expense reimbursements. (The plans, programs, policies, practices
            and procedures listed in Schedule 6.16 are collectively called the
            "Benefit Plans"). A complete and accurate list of all Benefit Plans
            is set out in Schedule 6.16.

      6.16.2 The pension plans included in the Benefit Plans are registered
            under and are in compliance with all applicable federal and
            provincial legislation and all reports, returns and filings required
            to be made thereunder have been made. Such pension plans have been
            administered in accordance with their terms and the provisions of
            applicable law. Each pension plan has been funded in accordance with
            the requirements of such plans and based on actuarial assumptions
            which are appropriate to the employees of the Corporation. Based on
            such assumptions, there is no unfunded liability under any such
            pension plan. To the best of the knowledge of the Corporation no
            changes have occurred since the date of the most recent actuarial
            report provided to the Subscriber in respect of such pension plans
            which makes such report misleading in any material respect and,
            since the date of such report, the Corporation has not made or
            granted or committed to make or grant any benefit improvements to
            which members of the pension plans are or may become entitled which
            are not reflected in such actuarial report. No funds have been
            withdrawn by the Corporation from any such pension plan or other
            Benefit Plans.

      6.16.3 To the best of the knowledge of the Corporation, there are no
            pending claims by any employee covered under the Benefit Plans or by
            any other person which allege a breach of fiduciary duties or
            violation of governing law or which may result in liability to the
            employer and, to the best of the knowledge of the Corporation, there
            is no basis for such a claim. There are no employees or former
            employees of the business who are receiving from the Corporation any
            pension or retirement payments or who are entitled to receive any
            such payments not covered by a pension plan to which the Corporation
            is a party.

                                      -20-
<PAGE>

6.17  Absence of Unusual Transactions and Events.

      Except as set out in Schedule 6.17, or in connection with the transactions
with Laurus, since the Applicable Dates, each of the Corporation and the
Subsidiaries has not:

      6.17.1 paid or satisfied any obligation or liability, absolute or
            contingent, other than current liabilities or obligations disclosed
            in the Financial Statements and current liabilities or obligations
            incurred since the Applicable Dates in the ordinary course of the
            business of each of the Corporation and the Subsidiaries, consistent
            with past practice;

      6.17.2 waived or omitted to take any action in respect of any rights of
            substantial value, or enter into any commitment or transaction not
            in the ordinary and usual course of the business of the Corporation
            or such waiver, omission, commitment or transaction is or would be
            material to the Corporation;

      6.17.3 mortgaged, pledged, subjected to lien, hypothecated, granted a
            security interest in or otherwise encumbered any of its assets or
            property, whether tangible or intangible;

      6.17.4 written off as un collectible any notes or accounts receivable
            exceeding Fifty Thousand Dollars ($50,000) in the aggregate;

      6.17.5 settled any liability, claim, dispute, proceedings, suit or appeal
            pending against it or against any of the Corporation's assets,
            except in the ordinary course of business;

      6.17.6 changed its accounting practices or policies;

      6.17.7 become aware of the passing of any law that might reasonably be
            excepted to have a Material Adverse Affect;

      6.17.8 sold or otherwise disposed of any fixed or capital assets having a
            fair market value, in the case of any single sale or disposition, in
            excess of One Hundred Thousand Dollars ($100,000) and, in the case
            of all sales and dispositions, in excess of One Hundred Thousand
            Dollars ($100,000) in the aggregate;

      6.17.9 made any capital expenditures, in the case of any single capital
            expenditure, in excess of One Hundred Thousand Dollars ($100,000)
            and, in the case of all capital expenditures, in excess of One
            Hundred Thousand Dollars ($100,000) in the aggregate;

      6.17.10 made or suffered any change or changes in its financial condition,
            assets, liabilities or business which, singly or in the aggregate,
            have Materially Adversely Affected or could Materially Adversely
            Affect its financial condition, assets, liabilities or business;

                                      -21-
<PAGE>

      6.17.11 suffered or incurred any damage, destruction or loss, whether or
            not covered by insurance, which has Materially Adversely Affected or
            could Materially Adversely Affect its financial condition, assets or
            business;

      6.17.12 made any increase in the compensation or other benefits payable or
            to become payable to its employees or any of them, other than
            general salary increases in the ordinary course of the business of
            the Corporation, consistent with past practice, or any increase in
            the compensation or other benefits payable or to become payable to
            any officer or director or any increase in the benefits provided
            under any of its pension plans or other employee benefit plans;

      6.17.13 declared or paid any dividend or made any distribution, whether in
            cash, stock or in specie, in respect of any of its shares or
            repurchased, redeemed or otherwise acquired any of its securities;

      6.17.14 entered into or become bound by any contract, agreement or
            arrangement, written or oral, not in the ordinary course of its
            business;

      6.17.15 amended or changed or taken any action to amend or change its
            articles or by laws;

      6.17.16 made any payments of any nature to any shareholder or any
            affiliate or associate of any of them other than payments of salary
            and employment benefits consistent with past practice;

      6.17.17 authorized or agreed or otherwise become committed to do any of
            the foregoing.

6.18  Non-Arm's Length Transactions.

      6.18.1 Except for a loan in the amount of $148,000 by 4237901 Canada Inc.,
            a corporation controlled by Clifford Rhee, to Pneutech Inc. made as
            of October 28, 2004 each of the Corporation and the Subsidiaries has
            not made any payment or loan to, has not borrowed any monies from
            and is not otherwise indebted to, any officer, director, employee,
            shareholder or any Person not dealing at arm's length with the
            Corporation or any affiliate of any of the foregoing, except as
            disclosed in the Financial Statements or the Interim Financial
            Statements and except for usual compensation paid in the ordinary
            course of its business, consistent with past practice.

      6.18.2 Except as disclosed in Schedule 6.18 and except for contracts of
            employment, each of the Corporation and the Subsidiaries is not a
            party to any contract or agreement with any officer, director,
            employee, shareholder or any Person not dealing at arm's length
            (within the meaning of the Income Tax Act (Canada)) with the
            Corporation or any affiliate of any of the foregoing.

      6.18.3 There are no outstanding obligations on the part of the Corporation
            to provide future bonuses, adjustments to compensation or issue
            additional share options to any of its officers, directors or
            employees although the Board of Directors of the Corporation has the
            discretion to issue options to acquire Common Shares in accordance
            with the terms of its employee stock option plan.

                                      -22-
<PAGE>

6.19  No Conflict of Interest.

      Except for the loan referred to in Section 6.18 above and for a loan in
the amount of $700,000 by 3156176 Canada Inc., a corporation controlled by
Clifford M. Rhee, to Pneutech Inc. as set out on the Financial Statements, the
Corporation is not indebted, directly or indirectly, to any of its officers or
directors or to their respective spouses or children, in any amount whatsoever
other than in connection with expenses or advances of expenses incurred in the
ordinary course of business or relocation expenses of employees. None of the
Corporation's officers or directors, or any members of their immediate families,
are, directly or indirectly, indebted to the Corporation (other than in
connection with purchases of the Corporation's stock) or have any direct or
indirect ownership interest in any firm or corporation with which the
Corporation is affiliated or with which the Corporation has a business
relationship, or any firm or corporation which competes with the Corporation
except that officers, directors and/or shareholders of the Corporation may own
shares in (but not exceeding two percent (2%) of the outstanding capital of) any
publicly traded company that may compete with the Corporation. None of the
Corporation's officers or directors or any members of their immediate families
are, directly or indirectly, interested in any material contract with the
Corporation.

6.20  Customers and Suppliers.

      Since the Applicable Dates, and except as set out in Schedule 6.20, there
has been no termination or cancellation of, and no material modification or
change in, the business relationship with any major customer or group of major
customers or major suppliers of either the Corporation or the Subsidiaries.
Except as set out Schedule 6.20, the Corporation and the Subsidiaries has no
reason to believe that the benefits of any relationship with any of the
customers or suppliers of the Corporation and the Subsidiaries will not continue
after the closing of the transaction in substantially the same manner as prior
to the date hereof. No information has been brought to the attention of the
Corporation or the Subsidiaries which might reasonably lead the Corporation or
the Subsidiaries to believe that any customer or supplier of the Corporation or
the Subsidiaries intends to cease dealing with the Corporation or the
Subsidiaries, or intends to alter in any material respect the amount of such
customer's or supplier's dealings with the Corporation or the Subsidiaries or
would alter in any material respect such dealings in the event of the
consummation of the transactions contemplated hereby. The Corporation and the
Subsidiaries are not aware of increased competitive activities or plans for such
increased activities, in markets for the Corporation's and the Subsidiaries
products or services as compared to the level of competitive activities
experienced by the Corporation and the Subsidiaries in the past twelve (12)
months. For these purposes, major customers are those customers of the business
accounting for more than five percent (5%) of sales for the twelve (12) months
ended June 30, 2004 and major suppliers are those suppliers accounting for more
than five percent (5%) of purchases for the twelve (12) months ended June 30,
2004.

                                      -23-
<PAGE>

6.21  Permits.

      Each of the Corporation and the Subsidiaries holds all permits required to
operate its business. All permits other than standard municipal permits required
to carry on business in such municipalities, including details as to whether or
not such permits are transferable, are described in Schedule 6.21. Such rights
are in full force and effect and each of the Corporation and the Subsidiaries is
not in violation of any term or provision or requirement of any such licences
and permits, none of which are now being challenged or threatened in any way.

6.22  No Default under Agreements.

      Except as disclosed in Schedule 6.22, each of the Corporation and the
Subsidiaries is not in default or breach in any material respect of any
contract, agreement, lease or other instrument to which it is a party or by
which it may be bound and there exists no state of facts which after notice or
the passage of time, or both, would constitute such a default or breach, and all
such contracts, agreements, leases and other instruments are now in good
standing and each of the Corporation and the Subsidiaries is entitled to all
benefits, rights and privileges thereunder.

6.23  As to Certain Contracts In and Out of the Ordinary Course.

      Except as set out in Schedule 6.23 and except as disclosed in any other
Schedule to this Agreement, each of the Corporation and the Subsidiaries is not
a party to or bound by any:

      6.23.1 contract, agreement or commitment which expires or may expire, if
            the same is renewed or extended at the unilateral option of any
            other person, more than one (1) year after the date hereof;

      6.23.2 contract, agreement or commitment for the purchase of materials,
            supplies or services which requires payment of more than Two Hundred
            and Fifty Thousand Dollars ($250,000), in the case of any single
            contract, agreement or commitment, or, in the case of all such
            contracts, agreements or commitments, in excess of Two Hundred and
            Fifty Thousand Dollars ($250,000) in the aggregate, except for
            purchases of inventories in the ordinary course of the business of
            the Corporation and the Subsidiaries, consistent with past practice
            and upon terms and conditions not more onerous than those usual and
            customary in the hydraulic and pneumatic components industry;

      6.23.3 contract, agreement or commitment for the purchase or sale of any
            equipment or fixed or capital assets having a fair market value in
            excess of One Hundred Thousand Dollars ($100,000);

      6.23.4 pension, profit sharing, stock option, employee share purchase or
            other plan or arrangement providing for deferred or other
            compensation to employees or any other employee benefit plan or
            arrangement or any collective bargaining agreement or severance
            agreements, programs, policies or arrangements;

      6.23.5 contract for the employment or engagement of any present
            Shareholder, officer, director or other Person on a full time or
            part time basis whether as an employee or as an independent
            contractor ("Employee Agreements"), other than any written or oral
            employment agreement terminable by the Corporation at will without
            the payment of any amount in excess of unpaid compensation for any
            applicable notice period that does not exceed thirty (30) days
            (except to the extent required by law in the jurisdiction wherein
            the employee resides) at the normal rate thereunder through the date
            of such termination;

                                      -24-
<PAGE>

      6.23.6 contract in which the Corporation has advanced or loaned any other
            Person amounts;

      6.23.7 agreement or indenture relating to borrowed money or other
            indebtedness where the mortgaging, pledging or otherwise placing an
            encumbrance or lien on any material asset or material group of
            assets of the Corporation or the Subsidiaries;

      6.23.8 guarantee of any obligation of any other person by the Corporation
            or any commitment by which it is, or is contingently, responsible
            for any obligations of any other persons;

      6.23.9 warranty agreement with respect to its services rendered (other
            than any implied warranty arising by operation of law);

      6.23.10 except as set out in Schedule 1 to the Registration Rights
            Agreement, agreement under which it has granted any Person any
            registration rights (including, without limitation, demand and piggy
            back registration rights);

      6.23.11 material sales, distribution or franchise agreement;

      6.23.12 licence or royalty agreement relating to Intellectual Property (as
            such term is defined in subsection 6.29);

      6.23.13 contract, agreement or commitment to make any gift of any of its
            property, other than donations made in the ordinary course of the
            business of the Corporation and the Subsidiaries, consistent with
            past practice;

      6.23.14 contract, agreement or commitment which Materially Adversely
            Affects or could Materially Adversely Affect the business of the
            Corporation and the Subsidiaries or its financial condition or any
            of its assets or is or could be materially burdensome to it;

      6.23.15 agreement, contract or commitment with any Person prohibiting,
            limiting or restraining the Corporation or any of its employees from
            engaging or competing in any lines of business with any Person,
            other than an agreement by an employee in favour of the Corporation;

      6.23.16 Material Contract (as defined below);

      6.23.17 lease, agreement in the nature of a lease or agreement to lease
            whether as lessor or lessee, and whether in respect of real property
            or personal property, except for any lease or agreement in the
            nature of a lease relating to personal property where the aggregate
            annual payments under such lease or agreement and under any related
            service or maintenance or similar contract do not exceed Twenty-Five
            Thousand Dollars ($25,000); or

                                      -25-
<PAGE>

      6.23.18 material contract, agreement or commitment which was not made in
            the ordinary course of the business of the Corporation and the
            Subsidiaries, consistent with past practice.

      For the purposes of the foregoing, if a particular contract, agreement or
commitment falls within more than one of the categories established by Sections
6.23.1 through 6.23.10, it need not be set out more than once in Schedule 6.23.

      For purposes of this Agreement, a "Material Contract" means any contract,
agreement or commitment made in the ordinary course of the business of the
Corporation and the Subsidiaries, such that it requires or may require the
provision by the Corporation and the Subsidiaries to any Person of goods or
services having a fair market value in excess of Two Hundred and Fifty Thousand
Dollars ($250,000).

      The contracts listed in Schedule 6.23 are in good standing and in full
force and effect with no amendments except as disclosed in Schedule 6.23. To the
best of the knowledge of the Corporation, all of the Material Contracts are
valid and binding obligations of the parties thereto enforceable in accordance
with their respective terms. The Corporation has complied with all material
terms thereof and does not have reason to believe it will not do so in the
future, has not waived any rights thereunder and, to the best of the knowledge
of the Corporation, no material default or breach exists in respect thereof or
is anticipated in the future on the part of any of the parties thereto and no
event has occurred which, after the giving of notice or the lapse of time or
both, would constitute such a default or breach. All amounts payable to the
Corporation under the Material Contracts are due and owing to the Corporation
without any right of set off which has been claimed or, based on the facts in
existence, is capable of being claimed.

      Correct and complete copies of all of the contracts, agreements and
commitments set out in Schedule 6.23, or, where such contracts are oral, correct
and complete written summaries of the terms thereof, have been provided to the
Subscriber.

6.24  Assets in Good Condition.

      All the physical assets of the Corporation and the Subsidiaries are in
good operating condition and in a state of good maintenance and repair,
reasonable wear and tear excepted, and are adequate and sufficient for the
continuing conduct of the business of the Corporation and the Subsidiaries as
presently conducted. The physical assets of the Corporation and the Subsidiaries
comply with all applicable governmental agency standards or approvals.

6.25  Title to Assets.

      Except for Permitted Liens, including liens in favour of Laurus, the
Corporation and the Subsidiaries owns and has good and marketable title, free
and clear of all Encumbrances (except as disclosed in the Financial Statements
and liens for current Taxes not yet due), to all assets used in connection with
its business, including, without limitation, all assets reflected on the balance
sheets included in the Financial Statements or acquired by it after the date of
such balance sheets, except for changes in such assets in the ordinary course of
business subsequent to that date. The assets are sufficient to permit the
continued operation of the business of the Corporation and the Subsidiaries in
substantially the same manner as conducted in the year prior to the date hereof.
All licences and leases to which the Corporation and the Subsidiaries is a party
relating to the Technology are in good standing, binding and enforceable in
accordance with their respective terms.

                                      -26-
<PAGE>

6.26  Real Property.

      6.26.1 Except as set forth in Schedule 6.26, neither the Corporation nor
            any Subsidiary beneficially or legally owns any real property. There
            are no agreements, options, contracts or commitments to sell,
            transfer or otherwise dispose of any real property or which would
            restrict the ability of the Corporation or any Subsidiary to
            transfer any real property.

      6.26.2 The Corporation any its Subsidiaries, as the case may be, is the
            absolute beneficial owner of, and has good and marketable title in
            fee simple to, the real property, free and clear of any and all
            liens and encumbrances except for

            (i)   the liens and encumbrances described in Schedule 6.25 attached
                  hereto, and

            (ii)  rights of parties in possession, zoning restrictions,
                  easements, encroachments, rights-of-way, reservations and
                  restrictions that run with the land and minor title defects
                  (if any) which do not, in the aggregate, Materially Adversely
                  Affect the validity of title to or the value or marketability
                  of the real property or Materially Adversely Affect the use of
                  any of the real property as they are presently used by the
                  Corporation in connection with its business.

            (iii) To the knowledge of the Corporation, the real property
                  described in Schedule 6.26 and all buildings and structures
                  located thereon and the conduct of the business of the
                  Corporation as presently conducted do not violate, and the use
                  thereof in the manner in which presently used is not adversely
                  affected by, any zoning or building laws, ordinances,
                  regulations, covenants or official plans. The Corporation has
                  not received any notification alleging any such violation.
                  Such buildings and structures do not encroach upon any lands
                  not owned by the Corporation. There are no expropriation,
                  condemnation or similar proceedings pending or, to the best of
                  the knowledge of the Corporation, threatened, with respect to
                  the real property or any part thereof.

6.27  Leases of Real Property.

      Except as set forth in Schedule 6.27, none of the Corporation or the
Subsidiaries owns or has any leasehold interest in any real property or any
buildings or structures thereon. The leases for the Corporation's and the
Subsidiaries' premises are valid and in good standing, and all rent and all
other payments payable under such leases has been paid in full and the
Corporation or the Subsidiary, as the case may be, is not in default under or in
breach of such leases. All rental and other payments and other obligations
required to be paid and performed by the Corporation pursuant to any lease have
been duly paid and performed. The use by the Corporation or any Subsidiary of
any leased premises does not breach any building, zoning or other statute, by
law, ordinance, regulation, covenant, restriction or official plan.

                                      -27-
<PAGE>

6.28  Leases of Personal Property.

      Schedule 6.28 attached hereto describes all leases of equipment used in or
relating to the business of the Corporation or the Subsidiaries requiring annual
lease payments in excess of Twenty-Five Thousand Dollars ($25,000) (the
"Personal Property Leases"). The Corporation or the Subsidiaries, as the case
may be, is entitled to all rights and benefits as lessee under such Personal
Property Leases, and has not sublet, assigned, licensed or otherwise conveyed
any rights in those licenses or in the property leased thereunder to any other
person. All payments and other obligations required to be paid and performed by
the Corporation or the Subsidiaries under the Personal Property Leases have been
duly paid and performed; neither the Corporation nor any Subsidiary is in
default of any of its obligations under the Personal Property Leases; and, to
the best of their knowledge, none of the lessors or any other parties to the
Personal Property Leases are in default of any of their obligations under the
Personal Property Leases.

6.29  Intellectual Property.

      6.29.1 All trade marks and trade mark applications, trade names,
            certification marks, patents and patent applications, copyrights,
            internet domain names, know-how, formulae, processes, inventions,
            computer systems, application software, technical expertise,
            research data, trade secrets, industrial designs and other similar
            property, whether registered or unregistered (collectively,
            "Intellectual Property"), domestic or foreign which are used by the
            Corporation and the Subsidiaries in its business are owned by the
            Corporation and the Subsidiaries with the sole and exclusive right
            to use the same. Schedule 6.29 is a list of all Intellectual
            Property which is comprised of trade marks and trade mark
            applications, trade names, certification marks, patent and patent
            applications, copyrights and industrial designs which are used by
            each of the Corporation and the Subsidiaries in its business and the
            offices (if any) in which the same are registered (being the only
            offices where such registration is necessary to preserve the rights
            thereto) and the applicable expiry dates of any registrations.

      6.29.2 Each of the Corporation and the Subsidiaries has good and valid
            title to all of the Intellectual Property, free and clear of any and
            all liens and encumbrances except as disclosed on Schedule 6.29,
            except in the case of any Intellectual Property licensed to the
            Corporation or the Subsidiaries as disclosed in Schedule 6.29.
            Complete and correct copies of all agreements whereby any rights in
            any of the Intellectual Property have been granted or licensed to
            the Corporation or the Subsidiaries has been provided to the
            Subscriber. No royalty or other fee is required to be paid by the
            Corporation or the Subsidiaries to any other person in respect of
            the use of any of the Intellectual Property except as disclosed in
            Schedule 6.29. There are no restrictions on the ability of the
            Corporation or the Subsidiaries or any successor to or assignee from
            the Corporation or the Subsidiaries to use and exploit all rights in
            the Intellectual Property.

                                      -28-
<PAGE>

      6.29.3 All authors, inventors, contributors or creators of the Technology
            and trade marks used by the Corporation and the Subsidiaries have
            waived all their non assignable rights therein for the benefit of
            the Corporation and the Subsidiaries and such authors, inventors,
            contributors or creators have duly assigned, transferred and sold
            all their right, the title and interest therein and thereto in
            favour of the Corporation and the Subsidiaries.

      6.29.4 No notice has been received by the Corporation and the Subsidiaries
            that any rights in the Technology or the trade marks of the
            Corporation and the Subsidiaries are invalid or unenforceable or
            that any infringement or misappropriation thereof, in whole or in
            part, by any Person has occurred.

      6.29.5 The operation of the Business and the creation, development and use
            of the Technology or the trade marks of the Corporation and the
            Subsidiaries or the Confidential Information do not cause or involve
            the infringement, misuse or misappropriation of any intellectual
            property rights of any Person including any proprietary, literary,
            artistic, musical, audio visual, technical or other information or
            trade secrets.

      6.29.6 The Corporation and the Subsidiaries has taken commercially
            reasonably precautions and made commercially reasonably efforts to
            protect its Technology, trade marks, Confidential Information and
            its other intellectual property rights.

      6.29.7 The Corporation and the Subsidiaries has not appointed any
            distributors, dealers, agents or similar entities in respect of the
            Technology.

      6.29.8 The Corporation and the Subsidiaries has not made available to any
            third party any source code for the software included within the
            Technology.

6.30  Data Processing.

      The data processing systems used by each of the Corporation and the
Subsidiaries adequately meet the data processing needs of the business and
operations of the Corporation and the Subsidiaries as presently conducted. Each
of the Corporation and the Subsidiaries has taken appropriate action by
instruction, agreement or otherwise with its employees or other persons
permitted access to system application programs and data files used in the data
processing systems to protect against unauthorized access, use, copying,
modification, theft and destruction of such programs and files. The data
processing and data storage facilities of the Corporation and the Subsidiaries
are adequate and properly protected.

                                      -29-
<PAGE>

6.31  Compliance with Laws, Permits and Licences.

      Each of the Corporation and the Subsidiaries has conducted and is
conducting the Business in compliance, in all material respects, with all
applicable laws, rules, regulations, by laws, ordinances and governmental
authorizations or orders. The Corporation and the Subsidiaries is not in breach
of such laws, regulations, approvals and governmental authorizations or orders
and each of the Corporation and the Subsidiaries is duly licensed, registered or
qualified and duly possesses all material licences, registrations,
qualifications, consents, clearances and approvals, permits and quotas required
in those jurisdictions in which it carries on its business to enable the
business to be carried on as now conducted and the assets to be owned, leased
and operated. All such material licences, registrations, qualifications,
consents, clearances, approvals, permits and quotas necessary to the conduct of
the business or for each of the Corporation and the Subsidiaries to own, lease
and operate the assets are valid and subsisting and in good standing and none of
the same contains or is subject to any term, provision, condition or limitation
which may materially adversely change or terminate such licence, registration,
qualification, permit or quota by virtue of the Closing and there is no
proceeding, action or notice pending or threatened which may result in the
revocation, cancellation, suspension or any material adverse modification
thereof. The Corporation and the Subsidiaries have made all filings with the
U.S. Securities and Exchange Commission required of them under the Securities
Laws including, but not limited to, the Securities Exchange Act of 1934, as
amended. All such filings were timely made and none of such filings contained
any untrue statement of a material fact (either directly or incorporated by
reference) or omitted to state any material fact necessary to make the statement
made, in light of the circumstances under which it was made, not misleading.

6.32  Litigation and Other Proceedings.

      Except as disclosed in Schedule 6.32, there is no court, administrative,
regulatory or similar proceeding (whether civil, quasi-criminal or criminal);
arbitration or other dispute settlement procedure; investigation or inquiry by
any governmental, administrative, regulatory or similar body; or any similar
matter or proceeding (collectively "proceedings") against or involving the
Corporation or the Subsidiaries(whether in progress or threatened) and no event
has occurred which might give rise to any proceedings and there is no judgment,
decree, injunction, rule, award or order of any court, government department,
board, commission, agency, arbitrator or similar body outstanding against the
Corporation or the Subsidiaries. No complaint, grievance, claim, work order or
investigation has been filed, made or commenced against the Corporation or the
Subsidiaries pursuant to the Ontario Human Rights Code, the Occupational Health
& Safety Act, the Pay Equity Act, the Pension Benefits Act, the Workplace Safety
and Insurance Act or the Employment Standards Act, in each case of the Province
of Ontario, or any similar legislation of Canada or of any other jurisdiction.
Neither the Corporation nor the Subsidiaries has received any opinion or
memorandum or legal advice to the effect that the Corporation or any Subsidiary
is exposed to any liability or disadvantage. Neither the Corporation nor any
Subsidiary is in default with respect to any order, writ, injunction, or decree
known to or served upon it of any court or of any federal, provincial,
municipal, or other governmental department, commission, board, bureau, agency,
or instrumentality, domestic or foreign. There is no action or suit by the
Corporation or any Subsidiary pending or threatened against others.

                                      -30-
<PAGE>

6.33  Corporate Records.

      The corporate records and minute books of each of the Corporation and the
Subsidiaries contain complete and accurate minutes of all meetings of directors
and committees thereof and shareholders held since its date of incorporation,
and all such meetings were duly called and held. The minute books contain all
written resolutions passed by the directors and shareholders of the Corporation.
The share certificate books, registers of shareholders, registers of transfers
and registers of directors of each of the Corporation and the Subsidiaries are
complete and accurate in all material respects. There are no outstanding
applications or filings which would alter in any way the corporate status of
each of the Corporation or any of the Subsidiaries.

6.34  Books of Account.

      The financial books and records of the Corporation and the Subsidiaries
fairly present and disclose, in accordance with generally accepted accounting
principles, the results and the financial position of the Corporation and the
Subsidiaries as at the relevant dates and all material financial transactions of
the Corporation and the Subsidiaries have been accurately recorded in such books
and records.

6.35  Environmental Matters.

      6.35.1 For the purposes of this Section 6.35, the following words and
            phrases shall have the following meanings set out below:

      (a)   "Environmental Law" means any federal, provincial or local law or
            regulation or certificates of approval or permits issued thereunder
            relating to pollution or protection of health, safety or the
            environment, including without limitation, laws and regulations
            relating to emissions, discharges, releases or threatened releases
            of Materials of Environmental Concern or otherwise relating to the
            manufacturing, processing, distribution, use, treatment, storage,
            disposal or transport of Materials of Environmental Concern.

      (b)   "Material of Environmental Concern" means any dangerous substance,
            toxic substance, hazardous material, hazardous substance or any item
            of similar import including a contaminant under any Environmental
            Law; and

      (c)   "Release" means any discharge, spray, injection, deposit, disposal,
            spill, leaking, seeping, dumping, emission, exhausting, leaching or
            migrating into the indoor or outdoor environment, including the
            movement of any Material of Environmental Concern through the air,
            soil, surface water or ground water that is in contravention of any
            Environmental Law.

      6.35.2 Except as disclosed in Schedule 6.35, the business carried on by
            each of the Corporation and the Subsidiaries complies with and has
            at all times complied with all Environmental Laws in connection with
            the ownership, use, maintenance or operation of the assets of each
            of the Corporation and the Subsidiaries and the conduct of the
            business of each of the Corporation and the Subsidiaries.

                                      -31-
<PAGE>

      6.35.3 Each of the Corporation and the Subsidiaries is not in
            contravention of, nor do any circumstances currently exist which
            could give rise to a contravention of any Environmental Law by each
            of the Corporation and the Subsidiaries, the non compliance with
            which could reasonably be expected to have a Material Adverse Affect
            on the business, operations, properties, assets or condition
            (financial or otherwise) of each of the Corporation and the
            Subsidiaries.

      6.35.4 All of the Corporation's and the Subsidiaries' properties and
            assets are free (i) from Materials of Environmental Concern and
            there has not been thereon a release or threat of a release; and
            (ii) of underground storage tanks, landfill, land disposals and
            dumps. None of the Corporation's and the Subsidiaries' properties
            and assets nor its business operations are the subject of federal or
            provincial investigation evaluating whether any remedial action is
            needed to respond to a Release. Each of the Corporation and the
            Subsidiaries has not filed any notice under any federal, provincial
            or local law indicating past or present treatment, storage or
            disposal on the property of the Corporation and the Subsidiaries of
            Material of Environmental Concern or reporting a Release.

      6.35.5 Each of the Corporation and the Subsidiaries has not used any of
            its facilities, or permitted them to be used, to manufacture,
            refine, treat, transport, store, handle, dispose or process any
            hazardous or toxic substances, pollutants, wastes or contaminants
            except in compliance with all applicable Environmental Laws. Each of
            the Corporation and the Subsidiaries has not used any of its
            facilities, or permitted them to be used, to manufacture, refine,
            treat, transport, store, handle, dispose or process any hazardous or
            toxic substances, pollutants, wastes or contaminants except in
            compliance with all applicable Environmental Laws.

6.36  Insurance.

      All physical assets of the Corporation and the Subsidiaries are covered by
fire and other insurance with responsible insurers against such risks and in
such amounts as are reasonable for prudent owners of comparable assets. Schedule
6.36 sets out particulars of all the insurance policies held by the Corporation
and the Subsidiaries, including the name of the insurer, the risks insured
against and the amount of coverage. No other insurance is necessary to the
conduct of the business of the Corporation and the Subsidiaries or would be
considered to be desirable by a prudent person operating a business similar to
the business of the Corporation and the Subsidiaries. Each of the Corporation
and the Subsidiaries is not in default with respect to any of the provisions
contained in any such policies of insurance and has not failed to give any
notice or pay any premium or present any claim under any such insurance policy.
The Corporation has no reason to believe that any of the insurance policies
listed in Schedule 6.36 will not be renewed by the insurer only on the basis
that there will be a material increase in the premiums payable in respect of the
policy. Correct and complete copies of all of the insurance policies set out in
Schedule 6.36 have been provided to the Subscriber. The Corporation has obtained
insurance on the life of Clifford Rhee as required by the Insurance Agreement.

                                      -32-
<PAGE>

6.37  Warranties and Product Liabilities.

      Except as described in Schedule 6.37 attached hereto, the Corporation has
not given any guarantee or warranty in respect of any of the products sold or
the services provided as part of its business, except warranties made in the
ordinary course of business and for warranties implied by law. Except as
disclosed in Schedule 6.32, there is and there has not been during the past
three (3) years any action, suit, inquiry, proceeding or investigation by or
before any governmental authority pending or, to the knowledge of the
Corporation or the Subsidiaries, threatened against or involving the Corporation
or the Subsidiaries relating to any product alleged to have been manufactured or
sold by the Corporation or the Subsidiaries and alleged to have been defective,
or improperly designed or manufactured and the Corporation and the Subsidiaries
know of no reason for any such action, proceeding or investigation.

6.38  Orders and Notices.

      There are no outstanding orders, notices or similar requirements relating
to the Corporation issued by any building, environmental, fire, health, labour
or police authorities or from any other federal, provincial or municipal
authority which could reasonably be expected to have a Material Adverse Affect
on the Corporation or a Subsidiary or its respective business and there are no
matters under discussion with any such authorities relating to any such orders,
notices or similar requirements.

6.39  Business Plan.

      The Business Plan has been prepared in good faith and on a proper basis
having regard to all known factors which are likely to affect earnings to a
material degree, and to the knowledge of the Corporation as of the date hereof,
the forecast results referred to in the Business Plan are achievable based on
current trends and performance and a complete copy of such Business Plan is
attached hereto as Schedule 6.39.

6.40  Consents and Approvals.

      The Corporation has obtained or will have obtained prior to the Closing
Time on the Closing Date all requisite director, shareholder and regulatory
approvals to the transactions contemplated hereby.

6.41  Use of Proceeds of Subscription Price.

      The Corporation shall apply all of the proceeds of the Subscription Price
paid by the Subscriber in accordance with the provisions of the Offer of Finance
between the Subscriber and the Corporation dated January 18, 2005.

6.42  Observer Status.

      The Corporation agrees that so long as the Debenture remains outstanding,
the Subscriber shall have the right to have an observer or representative attend
all meetings of the board of directors or shareholders of the Corporation and
each of the Subsidiaries and to receive copies of all documentation or other
information provided to the directors or shareholders, as the case may be in
connection with such meetings. Roynat shall receive not less than one (1)
Business Days prior notice of such meetings, along with copies of all documents
and information required for such meeting.

                                      -33-
<PAGE>

6.43  Material Facts Disclosed.

      None of the foregoing representations, warranties and statements of fact
and no other statement furnished by or on behalf of each of the Corporation and
the Subsidiaries to the Subscriber in connection with the negotiation of the
transactions contemplated by this Agreement contain any untrue statement of a
material fact or omit to state any material fact necessary to make such
statement or representation not misleading to a prospective purchaser of shares,
debentures and/or warrants of the Corporation seeking full information as to the
Corporation and the Subsidiaries and its properties, businesses and affairs.
Save and except for those matters disclosed in this Agreement, neither the
Corporation nor the Subsidiaries has any knowledge of any facts which should
reasonably be known to any of them relating to the business of the Corporation
and the Subsidiaries not disclosed in this Agreement, which might be reasonably
expected to materially diminish the Subscriber's appreciation of the worth or
profitability of the business of the Corporation and the Subsidiaries or which,
if known by the Subscriber, might be reasonably expected to deter the Subscriber
from completing the transactions contemplated by this Agreement on the terms of
this Agreement.

                                   ARTICLE 7
                REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER.

      The Subscriber represents and warrants to the Corporation, and
acknowledges that the Corporation is relying upon representations and warranties
in connection with the transactions contemplated hereby as follows:

7.1   Incorporation and Status of the Subscriber.

      The Subscriber is duly incorporated and organized and validly existing
under the laws of the State of Delaware and is in good standing in each
jurisdiction where, by reason of its business or assets, it is required to be
qualified or licensed.

7.2   Capacity.

      The Subscriber has the power and capacity to enter into and deliver its
obligations under this Agreement.

7.3   Due Authorization.

      This Agreement and each of the agreements, contracts, instruments and
actions required to be delivered or performed by the Subscriber hereunder have
been duly authorized by all necessary corporate action of the Subscriber. This
Agreement has been duly executed and delivered by the Subscriber and is a valid
and binding obligation of the Subscriber, enforceable in accordance with its
terms, subject to the usual exceptions as to bankruptcy and the availability of
equitable remedies.

                                      -34-
<PAGE>

7.4   No Violation.

      Neither the entering into nor the delivery of this Agreement nor the
completion of the transactions contemplated hereby by the Subscriber will, to
the best of its knowledge, in any material respect, conflict with or result in
the breach or violation of any of the terms, conditions or provisions of, or
constitute a default under or result in the creation of an Encumbrance under or
relieve any other person from its obligations under any of the provisions of the
articles or by laws of the Subscriber, any material agreement or other material
instrument to which the Subscriber is a party or by which the Subscriber or any
of its property or assets are bound or any applicable law, rule, regulation,
order, decree, judgement, injunction or other restriction of any government,
governmental agency or court to which the Subscriber is subject.

7.5   Consents and Filings.

      No consents or approvals are required by the Subscriber as such from any
person whatsoever in connection with the transactions contemplated hereby. No
approvals of or filings with any federal, provincial or local court, authority
or administrative agency are necessary on the part of the Subscriber to
authorize the execution and delivery of this Agreement or the consummation by
the Subscriber of the transactions contemplated hereby.

                                   ARTICLE 8
             SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.

8.1   Representations and Warranties in favour of Subscriber.

      All representations and warranties contained herein in favour of the
Subscriber, in any certificates or other documents delivered by any of the
parties hereto pursuant to the provisions hereof, or otherwise with respect to
this Agreement and the transactions contemplated herein, shall survive the
closing of the purchase and sale of the Debenture the Subscribed Shares and the
Warrants herein provided for and, notwithstanding such closing, or any
investigation made by or on behalf of the Subscriber:

      (a)   the representations and warranties of the Corporation relating to
            the Tax liability of the Corporation including, without limiting the
            generality of the foregoing, those set forth in Section 6.14 shall,
            unless such representations and warranties prove to be false as a
            result of any misrepresentation made or fraud committed in the
            filing of returns or supplying information for the purposes of the
            Income Tax Act (Canada) or any other legislation imposing Tax on the
            Corporation, continue in full force and effect for the benefit of
            the Subscriber until sixty (60) days after (i) the expiration of the
            last of the limitation periods contained in the Income Tax Act
            (Canada) and (ii) any other legislation imposing Tax on the
            Corporation subsequent to the expiration of which an assessment,
            reassessment or other form of recognized document assessing
            liability for Tax, interest or penalties thereunder for the period
            ending on the Closing Date cannot be issued to the Corporation; and

                                      -35-
<PAGE>

      (b)   the representations and warranties of the Corporation set forth in
            Sections 6.1, 6.2 and 6.3 shall continue in full force and affect
            for the benefit of the Subscriber forever; and

      (c)   all other representations and warranties of the Corporation and the
            Subsidiaries set forth in Article 6 (other than Section 6.14) shall
            continue in full force and effect for the benefit of the Subscriber
            for a period of three (3) years from the Closing Date.

8.2   Representations and Warranties in Favour of Corporation.

      All representations and warranties contained herein in favour of the
Corporation, in any certificates or other documents delivered by any of the
parties hereto pursuant to the provisions hereof or otherwise with respect to
this Agreement and the transactions contemplated herein shall survive the
closing of the purchase and sale of the Debenture, the Subscribed Shares and
Warrants herein provided for and notwithstanding such closing, or any
investigation made by or on behalf of the Corporation, the representations and
warranties of the Subscriber set forth in Article 7 shall continue in full force
and effect for the benefit of the Corporation for a period of three (3) years
from the Closing Date.

8.3   Survival of Covenants.

      The covenants of the parties set forth in this Agreement shall survive the
completion of the transactions herein provided for and, notwithstanding such
completion, shall continue in full force and effect for the benefit of the
person to whom they are made.

                                   ARTICLE 9
                                INDEMNIFICATION.

9.1   Indemnification by the Corporation.

      The Corporation shall indemnify the Subscriber from and against all
losses, costs, damages, expenses and liabilities including reasonable legal
fees, which may be suffered or incurred by them arising out of, as a result of
or relating in any manner whatsoever to any misrepresentation or breach of
warranty made by the Corporation in this Agreement, which indemnification shall
continue in full force and effect for the benefit of the Subscriber for the
periods set forth in Article 8.

9.2   Indemnification by the Subscriber.

      The Subscriber shall indemnify the Corporation from and against all
losses, costs, damages, expenses and liabilities including reasonable legal
fees, which may be suffered or incurred by the Corporation arising out of, as a
result of or relating in any manner whatsoever to any misrepresentation or
breach of warranty made by such Subscriber in this Agreement, which
indemnification shall continue in full force and effect for the benefit of the
Corporation for the periods set forth in Article 8.

                                      -36-
<PAGE>

9.3   Third Party Claims.

      If any legal proceedings shall be instituted or any claim is asserted by
any third party in respect of which the Corporation or Subscriber may be
entitled to indemnity hereunder, the party asserting such right to indemnity
shall give the party from whom indemnity is sought written notice. The party
from whom indemnity is sought shall have the right, at its option and expense,
to participate in the defense of such a proceeding or claim, but not to control
the defense, negotiation or settlement thereof, which control shall at all times
rest with the party asserting such right to indemnity.

9.4   Survival of Indemnification.

      Where a Subscriber or the Corporation makes a written claim or claims
pursuant to either Article 6 or Article 7 within the time period applicable to
such claim or claims, the right to indemnification in respect of such claim or
claims shall continue in full force and effect until the claim is finally
settled or adjudicated and all payments to be made in respect of any settlement
or adjudication have been made.

                                   ARTICLE 10
                               FURTHER ASSURANCES.

      Each of the parties hereto shall promptly do, make, execute, deliver or
cause to be done, made, executed or delivered, all such further acts, documents
and things as the other parties hereto may require, acting reasonably, from time
to time for the purpose of giving effect to this Agreement and shall use
reasonable efforts and take all such steps as may be reasonably within its power
to implement to the full extent the provisions of this Agreement.

                                   ARTICLE 11
                                  SEVERABILITY.

      If any provision hereof is illegal, invalid or unenforceable, such
provision shall be deemed to be severed and deleted herefrom and such
illegality, invalidity or unenforceability shall not in any manner affect the
validity or enforceability of the remainder hereof.

                                   ARTICLE 12
                              WAIVER AND AMENDMENT.

      No modification of or amendment to this Agreement shall be valid or
binding unless set forth in writing and duly executed by each of the parties
hereto. A waiver of any default, breach or non compliance under this Agreement
is not effective unless in writing and signed by the party to be bound by the
waiver. No waiver shall be inferred from or implied by any act or delay in
acting by a party in respect of any default, breach or non observance or by
anything done or omitted to be done by the other party. The waiver by a party of
any default, breach or non compliance under this Agreement shall not operate as
a waiver of that party's rights under this Agreement in respect of any
continuing or subsequent default, breach or non observance (whether of the same
or any other nature).

                                      -37-
<PAGE>

                                   ARTICLE 13
                                 ANNOUNCEMENTS.

      Any public announcement or press release with respect to this Agreement by
any party shall be submitted in advance for the comments of the other parties
hereto. No public announcement or press release with respect to this Agreement
shall be made by any party without the prior written approval of the other
parties hereto, except as may be required in order for the parties hereto to
comply with any applicable Securities Laws.

                                   ARTICLE 14
                                  COUNTERPARTS.

      This Agreement may be signed in counterparts and each of such counterparts
shall constitute an original document and such counterparts, taken together,
shall constitute one and the same instrument. Counterparts may be executed
either in original or faxed form and the parties adopt any signatures received
by a receiving fax machine as original signatures of the parties; provided,
however, that any party providing its signature in such manner will promptly
forward to the other party an original of the signed copy of this Agreement
which was so faxed.

                                   ARTICLE 15
                                 GOVERNING LAW.

      This Agreement shall be governed by and construed in accordance with the
laws of the State of New York and the federal laws of the United States of
America applicable therein, without regard to any conflict of law principles.
Each party irrevocably submits to the non exclusive jurisdiction of the courts
of the State of New York and all courts competent to hear appeals from those
courts with respect to any matter related to this Agreement.

                                   ARTICLE 16
                               FEES AND EXPENSES.

      The Corporation agrees to reimburse the Subscriber with respect to all
reasonable and customary third party expenses, including legal fees, due
diligence fees and out-of-pocket expenses, incurred by the Subscriber in
connection with this transaction including the preparation, execution and
delivery of this Agreement and all documents and instruments executed pursuant
to this Agreement, and the Subscriber shall be entitled to deduct such amount
from the Subscription Price.

                                   ARTICLE 17
                                     NOTICE.

      Any notice or other communication required or permitted to be given by
this Agreement shall be in writing and shall be effectively given and made if
(i) delivered personally; or (ii) sent by prepaid courier service; or (iii) sent
by registered mail; or (iv) sent prepaid by fax or other similar means of
electronic communication, in each case to the applicable address set out below:

                                      -38-
<PAGE>

            (a)   to the Corporation and the Subsidiaries:

                  1818 North Farwell Avenue
                  Milwaukee, Wisconsin, 52202

                  Attention: Mr. David Marks
                  Fax No. (312) 873-3739

                  with a copy to Corporation's counsel at:

                  Sichenzia Ross Friedman Ference LLP
                  1065 Avenue of the Americas
                  New York, New York 10018

                  Attention: Mr. Thomas Rose
                  Fax 212-930-9725

            (b)   to the Subscriber:

                  Roynat Merchant Capital Inc.
                  100 Tryon Street
                  Suite 3720
                  Charlotte, North Carolina, 28202

                  Attention:        President
                  Fax No.: (704) 334-5719

                  with a copy to:

                  Roynat Capital Inc.
                  201 City Centre Drive
                  Suite 406
                  Mississauga, Ontario, L5B 2T4

                  Attention:        Iain Munro
                  Fax No.: (905) 276-5726

                  with a copy to Subscriber's counsel at:

                  Chaitons LLP
                  185 Sheppard Ave. West
                  Toronto, Ontario, M2N 1M9

                  Attention: Harvey Tanzer
                  Fax No. (416) 218-1838

or at such other address or facsimile transmission number as may be given by any
of them to the others in writing from time to time. All such notices, requests
or other communications shall be deemed to have been received when delivered or
transmitted, or, if mailed, four (4) Business Days after the date of mailing
thereof.

                                      -39-
<PAGE>

                                   ARTICLE 18
                             SUCCESSORS AND ASSIGNS.

      This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. Neither
this Agreement nor any rights and obligations under it shall be assignable by
any party hereto without the prior written consent of the other parties hereto,
subject to the terms hereof.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

                                      -40-
<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                                              ROYNAT MERCHANT CAPITAL INC.

                                              By:     /s/ DAVID SWAINE
                                                      ----------------
                                              Name:   David Swaine
                                              Title:  President

                                              THOMAS EQUIPMENT, INC.

                                              By:     /s/ CLIFFORD RHEE
                                                      -----------------
                                              Name:   Clifford Rhee
                                              Title:  President

                                              THOMAS EQUIPMENT 2004 INC.

                                              By:     /s/ CLIFFORD RHEE
                                                      -----------------
                                              Name:   Clifford Rhee
                                              Title:  President

                                              THOMAS VENTURES, INC.

                                              By:     /s/ CLIFFORD RHEE
                                                      -----------------
                                              Name:   Clifford Rhee
                                              Title:  President

                                              PNEUTECH INC.

                                              By:     /s/ CLIFFORD RHEE
                                                      -----------------
                                              Name:   Clifford Rhee
                                              Title:  President

                                              ROUSSEAU CONTROLS INC.

                                              By:     /s/ CLIFFORD RHEE
                                                      -----------------
                                              Name:   Clifford Rhee
                                              Title:  President

                                              HYDRAMEN FLUID POWER LIMITED

                                              By:     /s/ CLIFFORD RHEE
                                                      -----------------
                                              Name:   Clifford Rhee
                                              Title:  President

                                      -41-Issued to:

Roynat Merchant Capital Inc.
Suite 3720, 100 North Tryon Street
Charlotte, North Carolina, 28202

Facsimile No.  (704) 334-5719

                             Thomas Equipment, Inc.
                            1818 North Farwell Avenue
                              Millwaukee, Wisconsin
                                      53202
                          Facsimile No. (312) 873-3739

                                    DEBENTURE

CDN$6,500,000.00                                               February 28, 2005

1.    Thomas Equipment, Inc. (the "Company") for value received hereby promises
to pay to Roynat Merchant Capital Inc. ("Roynat"), at its address specified
above, the principal amount of Six Million, Five Hundred Thousand Dollars
($6,500,000.00) in lawful money of Canada in the manner hereinafter provided,
together with all other moneys which may from time to time be owing hereunder or
pursuant hereto. At the option of Roynat the principal amount outstanding
hereunder may be converted to United States Dollars at a rate to be agreed
between the Company and Roynat, and upon such conversion, notwithstanding any
other terms and conditions set out herein, all payments to be made in connection
herewith shall be made in lawful money of the United States.

2.    Principal Payments. Subject to the provisions of this Debenture, the
principal amount of this Debenture shall become due and payable in one
instalment, together with interest thereon and all other moneys owing hereunder,
on the 30th day of December, 2005.

3.    Interest. Interest shall be payable on the 15th day of each month on the
balance from time to time outstanding of the principal amount of this Debenture,
any overdue interest and any other moneys due and payable hereunder, both before
and after maturity, default or judgment, at fifteen percent (15%) per annum (the
"Loan Rate") calculated and compounded monthly, computed from the respective
dates of advance of the moneys by Roynat to the Company until payment in full of
all moneys owing hereunder. The first interest payment date shall be the 15th
day of the month in which the first advance is made by Roynat hereunder or, if
the first advance is made after the 15th day of a month, the first interest
payment date shall be the 15th day of the next succeeding month.

In addition to the foregoing, if the principal amount of this Debenture is not
repaid in full on the 30th day of December, 2005 then on December 31, 2005 and
the last day of each month thereafter until payment in full, the Company agrees
to pay additional interest to Roynat in the amount of One Hundred Thousand
Dollars ($100,000) in lawful money of Canada. Such additional interest is not
liquidated damages.

At the option of Roynat, interest accrued may be deducted from proceeds of
advances hereunder.

At the option of the Company, upon not less than five (5) days prior written
notice to Roynat, up to one-fifth (1/5) of any particular interest payment
hereunder due and payable prior to December 30, 2005 may be accrued rather than
paid on such interest payment date and the amount so accrued shall be added to
the principal amount hereunder and interest shall be payable thereon at the Loan
Rate from the date of such accrual until paid in full.

4.    Redemption, The Company may redeem this Debenture prior to maturity either
in whole at any time or, when not in default hereunder, in part from time to
time on not less than 30 days' written notice at a price equal to the principal
amount being redeemed together in each case with accrued and unpaid interest on
such principal amount to the date fixed for redemption and, in the case of
redemption in whole, all other moneys owing hereunder.

5.    Partial Payments . The amounts received by Roynat in respect of any
particular repayment (other than a partial redemption under Paragraph 4 above)
shall be applied as follows: (a) firstly, in payment of accrued but unpaid
interest, (b) secondly, in payment of the then outstanding principal
obligations; and (c) the balance thereof, in payment of all other amounts
secured by this Debenture. In case less than the total principal amount of this
Debenture is redeemed at any time, the principal amount so redeemed shall be
credited against the principal payable hereunder in inverse order of maturity
and the amount of instalments of principal hereunder shall be adjusted
accordingly.

<PAGE>

6.    Security. As security for the payment of the principal, interest and all
other moneys from time to time payable under this Debenture or otherwise payable
to Roynat, and the performance by the Company of all its obligations hereunder
and of any other obligations to or in favour of Roynat and to better secure the
principal, interest and other monies from time to time secured hereunder, but
subject to Permitted Encumbrances and to the exception as to leaseholds
hereinafter contained, the Company hereby grants a security interest in and
grants, assigns, mortgages and charges, as and by way of a fixed and specific
mortgage and charge to and in favour of Roynat:

      a.    all real and immoveable property, both freehold and leasehold, now
            owned or hereafter acquired by the Company, together with all
            buildings, erections, fixed machinery and fixed equipment presently
            situated thereon or which may at any time hereafter be constructed
            or placed thereon or used in connection therewith, including without
            limitation the property described in Schedule "B" hereto;

      b.    all furniture, machinery, equipment, vehicles, accessories and other
            tangible personal property (other than Inventory) now owned or
            hereafter acquired by the Company or in respect of which the Company
            now or hereafter has any right, title or interest, together with any
            proceeds of sale or disposition thereof; and

      c.    by way of a sublease,

            (i)   the leasehold interest of the Company in the lands and all
                  buildings and other improvements thereon and all appurtenances
                  therewith and all other premises comprised therein which have
                  been demised by the Lease (the "Lands");

            (ii)  the Lease and leasehold estate created by the Lease;

            (iii) any and all interest of the Company in any and all buildings
                  and improvements located on the Lands; and

            (iv)  all of the Company's rights and benefits of any kind
                  whatsoever granted by the Lease and the unexpired residue of
                  the said term thereof and all other estate, term, rights of
                  renewal and purchase and other interests of the Company in and
                  to the Lease;

      but excepting always the last day of the term of the Lease or any renewal
      thereof or any agreement with respect thereto; all of which property
      charged hereunder shall be hereinafter collectively referred to as the
      "Leasehold Interest".

And for the same consideration and purposes and subject to the same exceptions,
the Company hereby charges as and by way of a first floating charge to and in
favour of Roynat the undertaking of the Company and all its property and assets
for the time being, both present and future, and of whatsoever nature and
wherever situate (other than property and assets from time to time effectively
subjected to the fixed and specific mortgages and charges created hereby or by
any instrument supplemental hereto).

Provided that such floating charge shall not prevent the Company from time to
time until the security hereby constituted shall have become enforceable from
selling, leasing or otherwise disposing of the property, rights and assets
included in such floating charge or from making expenditures with a view to the
expansion of its business or from giving security constituting Permitted
Encumbrances, all in the ordinary course of its business and subject to the
provisions of this Debenture. In particular, the Company may give security to
Laurus Master Fund, Ltd. ("Laurus") on any and all of the Company's assets and
such security if validly perfected shall rank prior to the lien hereof on such
assets without further action by Roynat. Notwithstanding any other provision of
this Debenture except as provided in the foregoing sentence, the security
interests constituted hereby and by any supplemental security granted to Roynat
shall not be subordinate to, nor is there any intention to subordinate such
security interests to, any Permitted Encumbrances or security interests held by
others.

All security interests created by this Debenture attach immediately upon
execution of the Debenture. The attachment of the floating charge has not been
postponed and the floating charge shall attach to any particular property
intended to be subject to it as soon as the Company has rights in such property.
Roynat shall be authorized to file such financing statements or other documents
in the public records indicating that it has a security interest in all of the
assets, property and undertaking of the Company.

All property and assets of the Company whether specifically charged or subjected
to the floating charge are hereinafter referred to as the "Mortgaged Premises".

<PAGE>

7.    Exception as to Leaseholds. It is hereby declared that the last day of any
term of years reserved by any lease or sublease, verbal or written, or any
agreement therefor, now held or hereafter acquired by the Company is excepted
out of the Mortgaged Premises, but the Company shall stand possessed of any such
reversion upon trust to assign and dispose thereof as Roynat may direct.

8.    Payments and Notice. Any payments not received by Roynat by two o'clock
p.m. on a Business Day shall be deemed to have been received on the next
Business Day. Any notice required or desired to be given hereunder or under any
Offer of Finance or under any instrument supplemental hereto shall be in writing
and may be given by personal delivery, by facsimile or other means of electronic
communication or by sending the same by registered mail, postage prepaid, to
Roynat or to the Company at their respective addresses set out above and, in the
case of electronic communication, to the facsimile numbers set out above. Any
notice so delivered shall be conclusively deemed given when personally delivered
and any notice sent by facsimile or other means of electronic transmission shall
be deemed to have been delivered on the Business Day following the sending of
the notice, and any notice so mailed shall be conclusively deemed given on the
third Business Day following the day of mailing, provided that in the event of a
known disruption of postal service, notice shall not be given by mail. Any
address for notice or payments herein referred to may be changed by notice in
writing given pursuant hereto.

9.    Covenants.

            a.    This Debenture is issued subject to and with the benefit of
                  all the covenants, terms and conditions in Schedule "A" hereto
                  which Schedule forms a part hereof.

            b.    The Company covenants and agrees that it shall not, nor shall
                  it allow any of its subsidiaries to, make any payments in
                  respect of any shareholder loans except as permitted herein or
                  otherwise agreed to.

            c.    In addition to such covenants, terms and conditions, the
                  Company covenants with Roynat that so long as this Debenture
                  remains outstanding the Company shall:

            (i)   execute and deliver all such documents as may be necessary to
                  maintain in force the pre-authorized payment system specified
                  in the Offer of Finance;

            (ii)  comply, and shall cause its subsidiaries to comply, with all
                  applicable laws, rules, regulations and policies applicable
                  thereto including applicable securities regulatory
                  requirements;

            (iii) provide, and shall cause its subsidiaries to provide, Roynat
                  will full, complete and timely disclosure of all matters
                  pertaining to its business and the financial condition thereof
                  and the Mortgaged Premises and shall allow Roynat to inspect
                  such business and financial records upon request;

            (iv)  firstly, from the proceeds of any public offering of shares or
                  other securities of the Company, repay all amounts outstanding
                  hereunder, prior to the payment of any other creditor of the
                  Company, whether ranking senior or junior to Roynat, and prior
                  to using such proceeds for the operation of the Company and
                  its subsidiaries;

            (v)   not make any payments in respect of any shareholder loans
                  except as permitted herein;

            (vi)  not, and shall not permit any of its subsidiaries to, repay
                  the principal amount of any debt other than scheduled
                  repayments or payments to Laurus by delivery of the Company's
                  securities, whether senior or junior to this Debenture,
                  without the prior consent of Roynat until such time as all
                  amounts payable hereunder have been paid in full;

            (vii) not permit the breach of any financial or other material
                  covenant of the Company or any subsidiary made in favour of
                  any senior operating lender of the Company or any subsidiary,
                  as the case may be;

            (viii) not enter into any transaction (whether by way of
                  reconstruction, reorganization, consolidation, amalgamation,
                  merger, transfer, sale, lease or otherwise) whereby all or
                  substantially all of its undertaking or assets (including all
                  or part of the Mortgaged Premises) would become the property
                  of any other person or any person resulting or continuing from
                  such transaction without the prior written consent of Roynat.;

            (ix)  not allow any subsidiary to enter into any transaction
                  (whether by way of reconstruction, reorganization,
                  consolidation, amalgamation, merger, transfer, sale, lease or
                  otherwise) whereby all or substantially all of such
                  subsidiary's undertaking or assets would become the property
                  of any other person or any person resulting or continuing from
                  such transaction without the prior written consent of Roynat;

            (x)   maintain directly or indirectly (through the ownership of a
                  wholly-owned incorporated entity) ownership of all of the
                  issued and outstanding shares of each of its subsidiaries;

            (xi)  not, and shall not permit any of its subsidiaries, to acquire
                  or create any subsidiary, affiliate or non-arms length person
                  without the prior written consent of Roynat;

            (xii) not, and shall not permit any subsidiary to, acquire any
                  business, whether by way of assets or shares;

            (xiii) not, and shall not permit any of its subsidiaries to, make
                  any capital expenditures in excess of CDN$5,000,000 per year;

<PAGE>

            (xiv) not, and shall not permit any of its subsidiaries to, incur
                  any funded debt or enter into any capital lease obligations in
                  excess of CDN$3,000,000 in the aggregate;

            (xv)  not, and shall not permit any of its subsidiaries to, enter
                  into any arrangement with any person providing for the leasing
                  by any of the Company or any of its subsidiaries, as lessee,
                  of property which has been or is to be sold or transferred by
                  the Company or any of its subsidiaries to such person or to
                  any other person to whom funds have been or are to be advanced
                  by such person on the security of such property or the lease
                  obligation of the Company or any of its subsidiaries;

            (xvi) not, and shall not permit any of its subsidiaries to,
                  guarantee, endorse, indemnify a person in respect of or
                  otherwise become a surety for or upon the obligations or
                  liabilities of any person;

            (xvii) not, and shall not permit any of its subsidiaries to, declare
                  or pay any dividends or pay any management compensation of any
                  kind including, without limitation, a bonus or bonuses of any
                  kind or make any other payment or distribution in respect of
                  any share of the capital of the Company or any of its
                  subsidiaries without the prior written consent of Roynat;

            (xviii) not, and shall not permit any of its subsidiaries to, make
                  any change whatsoever in the issued or authorized share
                  capital or issue any rights, warrants, options or other
                  similar instruments of any kind without the prior written
                  consent of Roynat, except that the Company shall be permitted
                  to issue an aggregate of up to 3,000,000 shares of common
                  stock or options to purchase up to 3,000,000 shares of common
                  stock in each case for fair market value or as set out on
                  Schedule "D" attached hereto;

            (xix) not, and shall not permit any of its subsidiaries to, directly
                  or indirectly enter into any transactions with, provide
                  services to, receive services from, or make payments, with, to
                  or from any person who does not deal at arm's length with the
                  Company or any of its subsidiaries without the prior written
                  consent of Roynat;

            (xx)  not, issue any shares or redeem any shares of the Company or
                  any subsidiaries, except that the Company shall be permitted
                  to issue an aggregate of up to 3,000,000 shares of common
                  stock or options to purchase up to 3,000,000 shares of common
                  stock in each case for fair market value or as set out on
                  Schedule "D" attached hereto;

            (xxi) not change the fiscal year end of the Company or any of its
                  subsidiaries or change its auditors or the accounting
                  principals it applies in preparing its financial statements;
                  and

            (xxii) not amend the articles of incorporation or other constating
                  documents of the Company or any of its subsidiaries.

10.   Offer of Finance. This Debenture is being issued by the Company to Roynat
pursuant to the terms of a certain letter agreement between the Company and
Roynat dated January 18, 2005 (such letter agreement including any amendments
thereto being herein called the "Offer of Finance"). All terms and conditions of
the Offer of Finance shall remain in full force and effect, except to the extent
inconsistent with the provisions of this Debenture, and the Company shall abide
by such terms and conditions.

11.   Maximum Recovery . If any amounts, whether on account of interest, fees,
bonus or additional consideration, becomes payable to or is received by Roynat
pursuant to this Debenture, the Offer of Finance, any other security document or
other agreement which would exceed the maximum amount recoverable under
applicable law on moneys advanced by Roynat:

            a.    any amounts so payable shall be reduced and are hereby limited
                  to the maximum amount recoverable under applicable law;

            b.    any amounts so received by Roynat shall, at Roynat's option,
                  either be returned to the Company or, notwithstanding Section
                  4 hereof, be deemed to have been received by Roynat as a
                  partial redemption of this Debenture and shall be credited
                  against principal payable hereunder in inverse order of
                  maturity; and

            c.    if paragraph (a) requires the reduction in an amount or
                  amounts payable to Roynat, Roynat in its sole discretion shall
                  determine which amount or amounts shall be reduced to ensure
                  compliance with this Section 11.

12.   Extensions and Amendments. Any agreement for the extension of the time of
payment of the moneys hereby secured or any part thereof made at, before or
after maturity, and prior to the execution of a discharge or release of this
Debenture, or any agreement for altering the term, rate of interest (whether
increased or decreased), the amount of the principal payments hereunder or any
other covenant or condition hereof, need not be registered in any office of
public record but shall be effectual and binding upon the Company and upon every
subsequent mortgagee, chargee, encumbrancer or other person claiming an interest
in the Mortgaged Premises or any part thereof when executed by the Company and
delivered to Roynat.

13.   Receipt. The Company hereby acknowledges receipt of a true copy of this
Debenture and, to the extent permitted by law, waives all rights to receive from
Roynat a copy of any financing statement or financing change statement filed, or
any verification statement received, at any time in respect of this Debenture or
any supplemental or collateral security granted to Roynat.

<PAGE>

14.   Binding Effect, Governing Law and Headings. These presents
are binding upon the parties hereto and their respective successors and assigns.
This Debenture shall be governed by and construed in accordance with the laws of
the State of New York and the federal laws of the United States of America
applicable therein, without regard to any conflict of law principles. Each of
the Company and Roynat irrevocably submits to the non exclusive jurisdiction of
the courts of the State of New York and all courts competent to hear appeals
from those courts with respect to any matter related to this Debenture. The
division of this Debenture into sections and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Debenture.

15.   Invalidity, etc. Each of the provisions contained in this
Debenture is distinct and severable and a declaration of invalidity, illegality
or unenforceability of any such provision or part thereof by a court of
competent jurisdiction shall not affect the validity or enforceability of any
other provision of Debenture.

16.   Interest Calculations. Interest payable on the Debenture shall
be payable both before and after demand, default and judgement at the Loan Rate
with interest on overdue interest at the same rate. The yearly rate of interest
to which the rate of interest per annum is payable on or is in respect of
amounts owing on the Debenture shall be calculated on the basis of a 365 day
year.

17.   Transfers. This Debenture and the rights hereunder are transferable by
Roynat without the consent of the Company. In the event that Roynat effects a
partial transfer of this Debenture, Roynat shall advise the Company of the name,
address and facsimile number of the transferee, the portion of this Debenture
transferred and the date of transfer and the Company shall forthwith thereafter
issue Roynat and the transferee a replacement Debenture with terms identical to
this Debenture (save for the principal amount owing) without cost or charge to
Roynat or the transferee, and this Debenture shall thereafter be deemed
surrendered. Roynat and any transferee hereof shall be entitled to the rights
evidenced by this Debenture free from all equities or rights of set-off or
counterclaim between the Company and the original or any intermediate holder of
this Debenture.

        IN WITNESS WHEREOF the Company has executed this Debenture.

        THOMAS EQUIPMENT, INC.

By:     /s/ CLIFFORD RHEE
        -----------------

Name:   Clifford Rhee

Title:  President

<PAGE>

                                  SCHEDULE "A"

1.    THE COMPANY HEREBY DECLARES, COVENANTS AND AGREES THAT IT:

      a)    As to Title - is the sole legal and beneficial owner of the
            Mortgaged Premises and owns the same free of all encumbrances other
            than Permitted Encumbrances;

      b)    Further Assurances - shall at its expense on the request of Roynat,
            execute and deliver to Roynat such further assurances and documents
            as Roynat may require to perfect Roynat's security on all or any
            part of the Mortgaged Premises, or to specifically charge any or all
            of the property then subject to the floating charge created hereby;

      c)    Pay Costs - shall pay all costs and expenses (including legal fees
            and disbursements on a attorney and own client basis) of Roynat
            incidental to or which in any way relates to this Debenture or its
            enforcement including (i) the preparation, execution and filing of
            this Debenture and any instruments postponing, discharging,
            amending, extending or supplemental to this Debenture or any
            security required by any Offer of Finance ("Roynat's Security");
            (ii) perfecting and keeping perfected Roynat's Security; (iii)
            maintaining the intended priority of Roynat's Security on all or any
            part of the Mortgaged Premises; (iv) taking, recovering or
            possessing the Mortgaged Premises; (v) taking any actions or other
            proceedings to enforce the remedies provided herein or otherwise in
            relation to this Debenture or the Mortgaged Premises, or by reason
            of a default hereunder or the non-payment of the moneys hereby
            secured; (vi) taking proceedings, giving notices and giving
            responses required under any applicable law concerning or relating
            to Roynat's Security, including compliance with the provisions of
            applicable bankruptcy, insolvency, personal property security and
            mortgage enforcement legislation; (vii) any inspections required to
            be made to the Mortgaged Premises, or the review of any plans,
            specifications or other documentation which may require the approval
            or consent of Roynat; (viii) responding to or participating in
            proceedings in the nature of those described in Sections 10(e), (f)
            and (g) hereof; and (ix) obtaining the advice of counsel and other
            advisors in relation to the foregoing;

            all such costs and expenses and other monies payable hereunder,
            together with interest at the Loan Rate, shall be payable on demand
            and shall upon being incurred by Roynat be secured hereby and
            constitute a charge on the Mortgaged Premises and any proceeds of
            realization;

      d)    To Pay Rents and Taxes - shall, and shall cause it subsidiaries to,
            pay all rents, taxes and assessments lawfully imposed upon the
            Mortgaged Premises or any part thereof and upon the income and
            profits of the Company when the same become due and payable, shall
            show to Roynat on request receipts for such payment;

      e)    To Maintain Corporate Existence and Security - shall, and shall
            cause it subsidiaries to, maintain its corporate existence, shall
            keep the Mortgaged Premises in good condition and repair, shall
            maintain the security hereby created as a valid and effective
            security at all times so long as any moneys are outstanding
            hereunder, shall carry on and conduct its business in a proper and
            efficient manner and in accordance with all applicable law, shall
            not materially alter the kind of business carried on by it, shall
            not change its name without providing ten (10) days prior written
            notice to Roynat, shall observe and perform all of its obligations
            under leases, licences and other agreements to which it is a party
            so as to preserve and protect the Mortgaged Premises and the income
            therefrom, and shall keep proper books of accounts with correct
            entries of all transactions in relation to its business. The Company
            acknowledges, covenants and agrees that if it amalgamates with any
            other company or companies, then (i) the Mortgaged Premises and the
            security interests created by this Debenture will extend to and
            include all property and assets of the amalgamated Company and to
            any property or assets of the amalgamated Company thereafter owned
            or acquired, (ii) the term "Company", where used in this Debenture,
            will extend to and include the amalgamated Company;

      f)    Not to Sell - shall not, and shall ensure that each of its
            subsidiaries does not, except as otherwise permitted hereunder,
            remove, destroy, lease, sell or otherwise dispose of any of the
            Mortgaged Premises; provided that the Company and its subsidiaries
            may sell or otherwise dispose of furniture, machinery, equipment,
            vehicles and accessories which have become worn out or damaged or
            otherwise unsuitable for their purposes on condition that it shall
            substitute therefor, subject to the lien hereof and free from prior
            liens or charges, property of equal value so that the security
            hereby constituted shall not thereby be in any way reduced or
            impaired;

      g)    No Other Liens - shall not, and shall ensure that each of its
            subsidiaries does not, create, assume or suffer to exist any charge,
            lien, security interest or encumbrance upon any Mortgaged Premises
            ranking or purporting to rank in priority to or pari passu with the
            security interest created hereunder, other than Permitted
            Encumbrances; provided that no provision hereof shall be construed
            as a subordination or postponement of the security interest created
            hereunder to or in favour of any other charge, lien, security
            interest or encumbrance, whether or not it is a Permitted
            Encumbrance;

<PAGE>

      h)    To Hold Proceeds of Unauthorized Sale in Trust - in the event the
            Mortgaged Premises or any part thereof are sold or disposed of prior
            to the full discharge of this Debenture by Roynat, in any manner not
            authorized by this Debenture, shall hold all proceeds of such sale
            or disposition received by the Company as trustee for Roynat until
            the Company has been fully released from this Debenture by Roynat;

      i)    To Insure - shall, and shall cause it subsidiaries to, keep insured
            the Mortgaged Premises with reputable insurers approved by Roynat in
            such amounts against loss or damage by fire and other causes or
            perils as Roynat may reasonably require and shall pay all premiums
            necessary for such purposes as the same shall become due. All
            policies of insurance issued in respect of the Mortgaged Premises
            and all proceeds thereof are hereby assigned to Roynat as security
            for the Company's obligations hereunder. Roynat shall be named as
            loss payee or mortgagee, as its interest may appear, and/or
            additional insured, as applicable, with respect to any such
            insurance providing coverage in respect of any of the Mortgaged
            Premises, and each provider of any such insurance shall agree, by
            endorsement upon the policy or policies issued by it or by
            independent instruments furnished to Roynat, that it will give
            Roynat thirty (30) days prior written notice before any such policy
            or policies shall be altered or cancelled;

      j)    To Furnish Proofs - shall, and shall cause it subsidiaries to,
            forthwith on the happening of any loss or damage furnish at its
            expense all necessary proofs and do all necessary acts to enable
            Roynat to obtain payment of the insurance moneys subject to the
            rights of holders of Permitted Encumbrances;

      k)    Inspection by Roynat - shall, and shall cause it subsidiaries to,
            allow any employees or third parties retained by Roynat at any
            reasonable time to enter the premises of the Company to inspect the
            Mortgaged Premises, including without limitation the right to
            undertake soil, ground water, environmental or other tests,
            measurements or surveys in, on or below the Mortgaged Premises, and
            to inspect the books and records of the Company and any of its
            subsidiaries and make extracts therefrom, and shall permit Roynat
            prompt access to such other persons as Roynat may deem necessary or
            desirable for the purposes of inspecting or verifying any matters
            relating to any part of the Mortgaged Premises or the books and
            records of the Company, provided that any information so obtained
            shall be kept confidential, save as required by Roynat in exercising
            its rights hereunder or pursuant to any applicable law or court
            order. The Company shall pay all costs and expenses of third parties
            (including legal fees and disbursements on a attorney and own client
            basis) retained by Roynat for purposes of inspection under this
            Section 1(k);

      l)    Deliver Financial Statements - shall, and shall cause it
            subsidiaries to, deliver to Roynat within 105 days of the close of
            each financial year of the Company one copy of the audited
            consolidated annual financial statements for that year, including
            the balance sheet and statements of income, retained earnings and
            changes in financial position accompanied by the report of the
            Company's auditors, and such other statements or reports as may be
            required by Roynat in the Offer of Finance, and within 30 days after
            the end each month, one copy of the interim consolidated financial
            statements signed by an authorized officer of the Company, all of
            which financial statements shall be prepared in accordance with
            generally accepted accounting principles; and shall at the same time
            deliver to Roynat copies of all management reports prepared by the
            auditors of the Company together with any other statements
            stipulated in the Offer of Finance;

      m)    Not to Create Certain Charges - without the prior written consent of
            Roynat, shall not create or suffer to exist any charge or
            encumbrance over all or any portion of the Mortgaged Premises
            ranking or purporting to rank prior to or pari passu with the
            charges hereof, other than Permitted Encumbrances, and shall not
            permit any subsidiary to mortgage, charge or otherwise encumber any
            of its property or assets or issue any bonds, debentures, shares or
            other securities, except to the Company;

      n)    Not to Remove - prior to the removal of any of the Mortgaged
            Premises from the state or province in which it is situated at the
            date of this Debenture or to leasehold property, the Company shall,
            and shall cause it subsidiaries to, effect such further
            registrations and obtain such other consents and give such other
            security, at the sole cost and expense of the Company, as may be
            required or desirable to protect or preserve the security hereby
            created, and the Company shall forthwith notify Roynat of the
            intended removal and the action proposed to be taken.

      o)    No Actions - has received no notice of and has no knowledge of any
            pending, potential or threatened litigation or claim for judicial or
            administrative action claiming an amount in excess of Cdn$500,000
            which would adversely affect the Mortgaged Premises or their use or
            market value;

      p)    Compliance with Environmental Laws -

            (i)   shall, and shall cause it subsidiaries to, conduct and
                  maintain its business, operations and the Mortgaged Premises
                  so as to comply in all respects with all applicable
                  Environmental Laws, including obtaining all necessary
                  licenses, permits, consents and approvals required to own or
                  operate the Mortgaged Premises and the business carried out
                  on, at or from the Mortgaged Premises;

<PAGE>

            (ii)  except as specifically permitted by Roynat in writing, the
                  Company shall not, and shall not permit any of its
                  subsidiaries to, permit or suffer to exist, Contaminants or
                  dangerous or potentially dangerous conditions in, on or below
                  the Mortgaged Premises including, without limitation, any
                  polychlorinated biphenyls, radio-active substances,
                  underground storage tanks, asbestos or urea formaldehyde foam
                  insulation;

            (iii) has no knowledge of the existence of Contaminants or dangerous
                  or potentially dangerous conditions at, on or under the
                  Mortgaged Premises or any properties in the vicinity of the
                  Mortgaged Premises which could affect the Mortgaged Premises
                  or the market value thereof or in levels that exceed the
                  standards in Environmental Laws;

            (iv)  has no knowledge of the Mortgaged Premises, or any portion
                  thereof, having been used for the disposal of waste;

            (v)   has not given or received, nor does it have an obligation to
                  give, any notice, claim, communication or information
                  regarding any past, present, planned or threatened treatment,
                  storage, disposal, presence, release or spill of any
                  Contaminant at, on, under or from the Mortgaged Premises or
                  any property in the vicinity of the Mortgaged Premises,
                  including any notice pursuant to any Environmental Laws or any
                  environmental report or audit. The Company shall notify Roynat
                  promptly and in reasonable detail upon receipt of any such
                  claim, notice, communication or information or if the Company
                  becomes aware of any violation or potential violation of the
                  Company of any Environmental Laws and shall describe therein
                  the action which the Company intends to take with respect to
                  such matter;

            (vi)  shall, and shall cause it subsidiaries to, at the Company's
                  expense establish and maintain a system to assure and monitor
                  continued compliance with, and to prevent the contravention
                  of, Environmental Laws, which system shall include periodic
                  reviews of such compliance system and the Company shall
                  provide an annual report to Roynat regarding the Company's and
                  each of its subsidiaries environmental performance, and the
                  effectiveness of such system;

            (vii) shall, and shall cause it subsidiaries to, promptly advise
                  Roynat in writing of any material adverse change in the
                  environmental or other legal requirements affecting the
                  Company or the Mortgaged Premises upon the Company becoming
                  aware of any such change, and the Company shall provide Roynat
                  with a copy of any of the orders, by-laws, agreements or other
                  documents pursuant to which any such change is effected or
                  documented;

            (viii) shall at the Company's expense, and shall cause it
                  subsidiaries to, promptly take or cause to be taken any and
                  all necessary remedial or clean-up action in response to the
                  presence, storage, use, disposal, transportation, release or
                  discharge of any Contaminant in, on, under or about any of the
                  Mortgaged Premises, or used by the Company, in compliance with
                  all material laws including, without limitation, Environmental
                  Laws, and in accordance with the orders and directions of all
                  applicable federal, state, provincial, municipal and local
                  governmental authorities;

            (ix)  shall deliver to Roynat a true and complete copy of all
                  environmental audits, evaluations, assessments, studies or
                  tests relating to the Mortgaged Premises or the Company now in
                  its possession or control or forthwith after the completion
                  thereof, or upon such materials coming into the Company's
                  possession or control;

            (x)   shall at the Company's expense, if reasonably requested by
                  Roynat in writing, retain an environmental consultant
                  acceptable to Roynat, acting reasonably, to undertake
                  environmental tests and to prepare a report or audit with
                  respect to the Mortgaged Premises and deliver same to Roynat
                  for its review; and

            (xi)  shall indemnify and save harmless Roynat, its officers,
                  directors, employees, agents and shareholders from and against
                  all losses, liabilities, damages or costs (including legal
                  fees and disbursements on a attorney and own client basis)
                  suffered including, without limitation, the cost or expense of
                  any environmental investigation, the preparation of any
                  environmental or similar report, and the costs of any
                  remediation arising from or relating to any breach of the
                  foregoing covenants of this Section 1(p), any breach by the
                  Company or any other person now or hereafter having an
                  interest in the Mortgaged Premises which is asserted or
                  claimed against Roynat; the presence, in any form, of any
                  Contaminant on or under the Mortgaged Premises, or the
                  discharge, release, spill or disposal of any contaminant by
                  the Company, which is asserted or claimed against any of these
                  indemnified persons. This indemnity shall survive the payment
                  in full of all amounts secured hereunder and the discharge of
                  this Debenture. Roynat shall hold the benefit of this
                  indemnity in trust for those indemnified persons who are not
                  parties to this Debenture;

<PAGE>

      q)    No Consents - has received all consents required in connection with
            the transactions contemplated hereby and the consummation of the
            transaction contemplated hereby will not result in any default under
            any agreement the Company or any of its subsidiaries are party to
            and will not result in the creation of any security interest or
            other encumbrance on the assets of the Company or any of its
            subsidiaries.

      r)    Correspondence - shall, within 10 business days of receipt or
            delivery as the case may be, deliver to Roynat copies of all
            correspondence from or to any securities regulatory authority
            including without limitation the Securities and Exchange Commission,
            any state securities regulator, any securities exchange or market
            including NASDAQ.

2.    Waiver of Covenants. Roynat may waive in writing any breach by the
Company of any of the provisions contained in this Debenture or any default by
the Company in the observance or performance of any covenant or condition
required to be observed or performed by the Company hereunder, provided that no
such waiver or any other act, failure to act or omission by Roynat shall extend
to or be taken in any manner to affect any subsequent breach or default or the
rights of Roynat resulting therefrom.

3.    Performance of Covenants by Roynat. If the Company shall fail to perform
any covenant on its part herein contained, Roynat may in its absolute discretion
perform any such covenant capable of being performed by it, but Roynat shall be
under no obligation to do so. If any such covenant requires the payment of money
or if the Mortgaged Premises or any part thereof shall become subject to any
charge ranking in priority to the lien hereof, Roynat may in its absolute
discretion make such payment and/or pay or discharge such charge, but shall be
under no obligation to do so. All sums so paid by Roynat, together with interest
at the Loan Rate, shall be payable by the Company on demand and shall constitute
a charge upon the Mortgaged Premises. No such performance or payment shall
relieve the Company from any default hereunder or any consequences of such
default.

4.    Appointment of Monitor. If in the opinion of Roynat, acting reasonably, a
material adverse change has occurred in the financial condition of the Company,
or if Roynat in good faith believes that the ability of the Company to pay any
of its obligations to Roynat or to perform any other covenant contained herein
has become impaired or if an event of default has occurred, Roynat may by
written notice to the Company, appoint a monitor (the "Monitor") to investigate
any or a particular aspect of the Company or its business and affairs for the
purpose of reporting to Roynat. The Company shall give the Monitor its full
co-operation, including full access to facilities, assets and records of the
Company and to its creditors, customers, contractors, officers, directors,
employees, auditors, legal counsel and agents. The Monitor shall have no
responsibility for the affairs of the Company nor shall it participate in the
management of the Company's affairs and shall incur no liability in respect
thereof or otherwise in connection with the Company, its business and affairs or
the Mortgaged Premises. The Monitor shall act solely on behalf of Roynat and
shall have no contractual relationship with the Company as a consultant or
otherwise. The appointment of a Monitor shall not be regarded as an act of
enforcement of this Debenture. All reasonable fees and expenses of the Monitor
(including legal fees and disbursements on a attorney and own client basis)
shall be paid by the Company upon submission to it of a written invoice
therefor. Roynat may at its option upon the occurrence of an event of default
appoint or seek to have appointed the Monitor as Receiver, receiver and manager,
liquidator, or trustee in bankruptcy of the Company or the Mortgaged Premises or
any part thereof.

5.    Application of Insurance Proceeds. Any insurance moneys received by Roynat
pursuant to Sections 1(i) and/or 1(j) above may at the option of Roynat be
applied to rebuilding or repairing the Mortgaged Premises, or be paid to the
Company, or any such moneys or any insurance moneys received by Roynat upon the
death of any person whose life is insured under any policy of insurance assigned
to Roynat as security for the obligations of the Company hereunder may be
applied in the sole discretion of Roynat, in whole or in part, to the repayment
of the principal amount hereby secured or any part thereof whether then due or
not, with any partial payments to be credited against principal instalments
payable hereunder in inverse order of their maturity dates.

6.    No Merger or Novation. The taking of any judgment or the exercise of any
power of seizure or sale shall not operate to extinguish the liability of the
Company to perform its obligations hereunder or to pay the moneys hereby
secured, shall not operate as a merger of any covenant herein contained or
affect the right of Roynat to interest at the Loan Rate in effect from time to
time hereunder, and the acceptance of any payment or other security shall not
constitute or create any novation. The execution and delivery of this Debenture
or of any instruments or documents supplemental hereto shall not operate as a
merger of any representation, warranty, term, condition or other provision
contained in any other obligation or indebtedness of the Company to Roynat or
under any Offer of Finance.

7.    Security in Addition. The security hereby constituted is in addition to
any other security now or hereafter held by Roynat. The taking of any action or
proceedings or refraining from so doing, or any other dealings with any other
security for the moneys secured hereby, shall not release or affect the charges
created hereby.

<PAGE>

8.    Additional Leasehold Provisions.

      a.    The Company covenants and agrees that upon receipt of a written
            demand therefor from Roynat, it shall promptly pay to Roynat as the
            same fall due all rents, taxes and other charges payable by the
            Company or demanded by the Landlord pursuant to the provisions of
            the Lease, which Roynat shall pay to the Landlord or to the
            competent tax authority, as the case may be, in default whereof
            Roynat's power of sale hereby given and all other remedies hereunder
            shall be exercisable.

      b.    The Company covenants with Roynat that the Lease is, at the time of
            the sealing and delivery of these presents, a good, valid and
            subsisting lease in law and not surrendered, forfeited void or
            voidable, and that the rents and covenants therein reserved and
            contained have been duly paid and performed by the Company up to the
            date hereof, and that the Company has the right, full power and
            lawful and absolute authority to demise and sublet the said lands
            and buildings and to grant a new sublease in manner aforesaid and
            according to the true intent and meaning of these presents, subject
            only to the consent of the landlord.

      c.    The Company covenants and agrees that it will at all times fully
            perform and comply with all agreements, covenants, terms and
            conditions imposed upon or assumed by it as tenant under the Lease,
            and/or imposed upon or assumed by or agreed to by it pursuant to any
            prior encumbrance and that if the Company shall fail to do so Roynat
            may (but shall not be obliged to) take any action Roynat deems
            necessary or desirable to prevent or to cure any default by the
            Company in the performance of or compliance with any of the
            Company's covenants or obligations under the Lease and/or imposed
            upon or assumed by or agreed to by it pursuant to any prior
            encumbrance. Upon receipt by Roynat from the owner and or any prior
            encumbrancer of any written notice of default by the Company, Roynat
            may, upon notice to the Company, rely thereon and take any action as
            aforesaid to cure such default even though the existence of such
            default or the nature thereof be questioned or denied by the Company
            or by any party on behalf of the Company. The Company hereby
            expressly grants to Roynat and agrees that Roynat shall have the
            absolute and immediate right to enter in and upon the Leasehold
            Interest or any part thereof to such extent and as often as Roynat,
            in its sole discretion deems necessary or desirable, in order to
            prevent or to cure any such default by the Company. Roynat may pay
            and expend such sums of money as Roynat in its sole discretion deems
            necessary for any such purpose, and the Company hereby agrees to pay
            to Roynat, immediately upon notification by Roynat and without
            demand, all such sums so paid and expended by Roynat, together with
            interest thereon at the rate aforesaid from the date of each such
            payment. All sums so paid and expended by Roynat, and the interest
            thereon, shall stand charged upon the Leasehold Interest with
            interest at the rate aforesaid, shall be added to the principal
            moneys hereby secured in addition to all other moneys secured
            thereon, and shall be secured by the lien of this Debenture.

      d.    The Company covenants with Roynat that if this Debenture is or shall
            be outstanding at the expiration of the term of the Lease and the
            Company shall refuse or neglect to exercise its right, if any, to
            renew the Lease or any renewals thereof to be hereafter granted, and
            to pay the fees, costs, charges and expenses incidental to and
            payable upon such renewals, then, and as often as it shall happen,
            Roynat may, if it thinks proper, effect such renewals in its own
            name or otherwise, and in that case every such new lease less one
            day of the term thereof and the lands and buildings thereby demised
            shall remain and be a security to Roynat as well for the payment of
            all money paid to it for such renewal and its costs, charges and
            expenses, as for any other sums that may be due by virtue of this
            indenture.

      e.    For the consideration aforesaid, the Company will henceforth stand
            possessed of the Leasehold Interest for the residue of the term
            granted by the Lease in trust for Roynat, and will assign and
            dispose thereof as Roynat may direct, but subject to the same right
            of redemption as is hereby given to the Company with respect to the
            derivative term hereby granted; the Company hereby irrevocably
            appoints Roynat as the Company's substitute to be the Company's
            attorney during the continuance of this security and for and on
            behalf of the Company to assign the Lease and convey the Leasehold
            Interest and the said reversion as Roynat shall, in the event of
            default hereunder, direct, and in particular, upon any sale made by
            Roynat under the statutory power or powers of sale herein contained,
            to assign the Lease and convey the Leasehold Interest and the said
            reversion to the purchaser; and it is hereby declared that in the
            event of default hereunder Roynat or other person for the time being
            entitled to the money hereby secured may at any time, by deed,
            remove the Company or any other person from being a trustee of the
            Lease under the declaration of trust hereinbefore declared and on
            the removal of the Company, or any future trustee of the Lease may,
            by deed, appoint a new trustee or trustees in the Company's place.

      f.    The Company further covenants and agrees:

            (i)   that it will not surrender the Lease or the rights of renewal,
                  nor terminate or cancel the Lease, and that it will not
                  without the express written consent of Roynat modify, change,
                  supplement, alter or amend the Lease either orally or in
                  writing which consent shall not be unreasonably withheld;

<PAGE>

            (ii)  that no release or forbearance of any of the Company's
                  obligations under the Lease or under any prior encumbrance
                  shall release the Company from any of its obligations under
                  this Debenture, including the obligations with respect to the
                  payment of rent as provided for in the Lease and the
                  performance of all of the terms, provisions, covenants,
                  conditions and agreements contained in the Lease and any prior
                  encumbrance to be kept, performed and complied with by the
                  tenant in the Lease and by the Company in any prior
                  encumbrance;

            (iii) that unless Roynat shall otherwise expressly consent in
                  writing, the title in fee simple to the property demised by
                  the Lease and the leasehold estate shall not merge but shall
                  always remain separate and distinct, notwithstanding the union
                  of said estates by purchase or otherwise.

9.    Partial Discharges. Roynat may in its sole discretion grant partial
discharges or releases of security in respect of any of the Mortgaged Premises
on such terms and conditions as it shall deem fit and no such partial discharges
or releases shall affect the remainder of the security constituted hereby nor
shall it alter the obligations of the Company hereunder.

10.   Events of Default. The whole of the principal balance remaining unpaid
together with interest and all other moneys secured by this Debenture shall, at
the option of Roynat, become immediately due and payable and the security hereby
created shall become enforceable in each of the following events (each event
being herein called an "event of default"):

      a)    if the Company defaults in payment of the principal on this
            Debenture or on any other indebtedness of the Company to Roynat when
            the same becomes due;

      b)    if the Company defaults in payment of the interest on this Debenture
            or on any other indebtedness of the Company to Roynat, other than
            principal, when the same becomes due and such default is, in the
            reasonable opinion of Roynat, not capable of being cured or, if it
            is capable of being cured, is not cured within 5 days of default;

      c)    if the Company defaults in the performance or observance of any of
            the covenants contained in Section 9(b) of the Debenture or in
            Sections 1(f), (g), (k), (m) or (n) of this Schedule or Section 4 of
            this Schedule;

      d)    if the Company or any of its subsidiaries defaults in the
            performance or observance of any other covenant or condition herein
            contained or contained in any other agreement or instrument between
            the Company or any of its subsidiaries and, or in favour of, Roynat,
            including, without limitation, the warrants issued by the Company to
            Roynat or the related registration rights agreement (other than a
            default of the obligation of the Company to have a registration
            statement effective as of a particular date) or the Subscription
            Agreement, and such default shall continue for 10 days after written
            notice thereof to the Company by Roynat;

      e)    if there is any material misrepresentation or misstatement contained
            in any certificate or document delivered by an officer or director
            of the Company or any subsidiary in connection with this Debenture,
            or in connection with any other agreement, document, certificate or
            instrument of any kind whatsoever delivered at any time by the
            Company or any subsidiary to Roynat;

      f)    if the Company or any of its subsidiaries institutes any proceeding
            or takes any corporate action or executes any agreement or notice of
            intention to authorize its participation in or commencement of any
            proceeding (i) seeking to adjudicate it a bankrupt or insolvent, or
            (ii) seeking liquidation, dissolution, winding up, restructuring,
            reorganization, arrangement, protection, relief or composition of it
            or any of its property or debt or making a proposal with respect to
            it under any law relating to bankruptcy, insolvency, reorganization
            or compromise of debts or other similar laws (including, without
            limitation, any reorganization, arrangement or compromise of debt
            under the laws of its jurisdiction of incorporation or
            organization);

      g)    the Company or any of its subsidiaries becomes bankrupt or insolvent
            or commits an act of bankruptcy, or any proceeding is commenced
            against or affecting the Company or any of its subsidiaries:

            (i)   seeking to adjudicate it a bankrupt or insolvent;

            (ii)  seeking liquidation, dissolution, winding up, restructuring,
                  reorganization, arrangement, protection, relief or composition
                  of it or any of its property or debt or making a proposal with
                  respect to it under any law relating to bankruptcy,
                  insolvency, reorganization or compromise of debts or other
                  similar laws (including, without limitation, any
                  reorganization, arrangement or compromise of debt under the
                  laws of its jurisdiction of incorporation or organization); or

            (iii) seeking appointment of a receiver, receiver and manager,
                  liquidator, trustee, agent, custodian or other similar
                  official for it or for any part of its properties and assets,
                  including the Mortgaged Premises or any part thereof;

      h)    any order or judgment is issued by a court granting any of the
            relief referred to in Section 10(f) hereof;

<PAGE>

      i)    if an encumbrancer or secured creditor shall appoint a receiver or
            agent or other similar official over any part of the Mortgaged
            Premises, or take possession of any part of the Mortgaged Premises
            or if any execution, distress or other process of any court becomes
            enforceable against any of the property of the Company, or a
            distress or like process is levied upon any of such property;

      j)    if the Company takes any corporate proceedings for its dissolution,
            liquidation or amalgamation with another company or if the corporate
            existence of the Company shall be terminated by expiration,
            forfeiture or otherwise;

      k)    if a default occurs under any agreement supplemental hereto or under
            any other security previously, now or hereafter granted to Roynat by
            the Company or any guarantor of the obligations of the Company or
            should any party to any agreement supplemental or collateral hereto
            fail to carry out or observe any covenant or condition on its part
            to be observed or performed and such default continues for 10 days
            after written notice thereof to the Company by Roynat;

      l)    if voting control of the Company or any of its subsidiaries shall
            change without the prior written consent of Roynat;

      m)    if a default, breach material misrepresentation or material
            misstatement occurs or is made, or is permitted to occur or to be
            made under any agreement, promissory note, debt obligation,
            guarantee or otherwise now or hereafter granted by or entered into
            by the Company or any of its subsidiaries to or with Roynat, any
            other bank, financial institution, or other lender; or

      n)    if a default or acceleration occurs under any agreement, promissory
            note, debt obligation, guarantee or otherwise now or hereafter
            granted by the Company to any other bank or financial institution.

11.   Enforcement. Upon the happening of any event of default, Roynat may
exercise any rights, powers or remedies available to Roynat at law or in equity
or under applicable legislation and, in addition, shall have the following
rights, powers and remedies:

      a)    to enter upon and take possession of all or any part of the
            Mortgaged Premises;

      b)    to hold, use, repair, preserve and maintain all or any part of the
            Mortgaged Premises and make such replacements thereof and additions
            thereto as Roynat shall deem advisable;

      c)    to exercise all powers necessary to the performance of all functions
            provided for herein including without limitation the powers to
            purchase on credit, to borrow money in the Company's name or in its
            own name and to advance its own money to the Company at such rates
            of interest as it may deem reasonable;

      d)    to sell, for cash or credit or part cash and part credit, lease or
            dispose of or otherwise realize upon all or any part of the
            Mortgaged Premises whether by public auction or by private sale or
            lease in such manner as Roynat in its absolute discretion may
            determine, provided that it shall not be incumbent on Roynat to
            sell, lease or dispose of the said property but that it shall be
            lawful for Roynat peaceably to use and possess the same without
            hindrance or interruption by the Company, or any other person or
            persons whomsoever, and to receive income from such property and to
            convey, transfer and assign to a purchaser or purchasers the title
            to any undertaking, property and assets so sold and provided further
            that in the case of a sale on credit Roynat shall only be liable to
            account to the Company, any subsequent encumbrancers and others for
            moneys actually received by Roynat;

      e)    to appoint by instrument in writing any person or persons to be a
            Receiver of all or any portion of the undertaking, property and
            assets hereby charged, to fix the Receiver's remuneration and to
            remove any Receiver so appointed and appoint another or others in
            his stead; and

      f)    to apply to any court of competent jurisdiction for the appointment
            of a Receiver of all or any portion of the undertaking, property and
            assets hereby charged.

12.   Powers of Receiver.

      a)    Any Receiver shall have all of the powers of Roynat set out in
            Section 11 of this Schedule and, in addition, shall have the
            following powers:

            (i)   to carry on the business of the Company and to enter into any
                  compromise or arrangement on behalf of the Company; and

            (ii)  with the prior written consent of Roynat to borrow money in
                  his name or in the Company's name, for the purpose of carrying
                  on the business of the Company and for the preservation and
                  realization of the undertaking, property and assets of the
                  Company including, without limitation, the right to pay
                  persons having prior charges or encumbrances on properties on
                  which the Company may hold charges or encumbrances, with any
                  amount so borrowed and any interest thereon to be a charge
                  upon the Mortgaged Premises in priority to this Debenture;

<PAGE>

      b)    Any Receiver appointed pursuant to the provisions hereof shall be
            deemed to be an agent of the Company for the purposes of:

            (i)   carrying on and managing the business and affairs of the
                  Company, and

            (ii)  establishing liability for all of the acts or omissions of the
                  Receiver while acting in any capacity hereunder and Roynat
                  shall not be liable for such acts or omissions,

provided that, without restricting the generality of the foregoing, the Company
irrevocably authorizes Roynat to give instructions to the Receiver relating to
the performance of its duties as set out herein.

13.   Application of Moneys. All moneys actually received by Roynat or by the
Receiver pursuant to Sections 11 and 12 of this Schedule shall be applied:

      a)    first, in payment of claims, if any, of secured creditors of the
            Company, including any claim of the Receiver pursuant to Section
            12(a), ranking in priority to the charges created by this Debenture
            as directed by Roynat or the Receiver;

      b)    second, in payment of all costs, charges and expenses of and
            incidental to the appointment of the Receiver (including legal fees
            and disbursements on a attorney and its own client basis) and the
            exercise by the Receiver or Roynat of all or any of the powers
            granted to them under this Debenture, including the reasonable
            remuneration of the Receiver or any agent or employee of the
            Receiver or any agent of Roynat and all outgoings properly paid by
            the Receiver or Roynat in exercising their powers as aforesaid;

      c)    third, in or towards the payment to Roynat of all moneys due to it
            by the Company in such order as Roynat in its sole discretion may
            determine;

      d)    fourth, in or towards the payment of the obligation of the Company
            to persons, if any, with charges or security interests against the
            Mortgaged Premises ranking subsequent to those in favour of Roynat;
            and

      e)    fifth, subject to applicable law, any surplus shall be paid to the
            Company.

14.   Restriction on Company and its Officers and Directors. Upon the Company
receiving notice from Roynat of the taking of possession of the Mortgaged
Premises or the appointment of a Receiver, all the powers, functions, rights and
privileges of each of the directors and officers of the Company with respect to
the properties, business and undertaking of the Company shall cease unless
specifically continued by the written consent of Roynat.

15.   Discharge and Satisfaction. Upon payment by the Company to Roynat of
all moneys hereby secured, these presents shall cease and become null and void
and the charges and security interests granted by the Company herein shall cease
and be of no further effect without any acknowledgement or formality, but Roynat
shall upon the request and at the expense of the Company, execute and deliver to
the Company a full release and discharge.

16.   No Obligation to Advance. Neither the issue and delivery of this
Debenture nor the advance of any funds hereunder shall obligate Roynat to
advance any further funds hereunder or otherwise make credit available to the
Company, nor will Roynat have any liability for any failure or delay on its part
to exercise any rights hereunder.

17.   Limited Power of Attorney. The Company hereby appoints Roynat as the
Company's attorney, with full power of substitution, in the name and on behalf
of the Company, to execute, deliver and do all such acts, deeds, leases,
documents, transfers, demands, conveyances, assignments, contracts, assurances,
consents, financing statements and things as the Company has agreed to execute,
deliver and do hereunder, under any Offer of Finance or otherwise, or as may be
required by Roynat or any Receiver to give effect to this Debenture or in the
exercise of any rights, powers or remedies hereby conferred on Roynat or any
Receiver, and generally to use the name of the Company in the exercise of all or
any of the rights, powers or remedies hereby conferred on Roynat or any
Receiver. This appointment, being coupled with an interest, shall not be revoked
by the insolvency, bankruptcy, dissolution, liquidation or other termination of
the existence of the Company or for any other reason.

18.   Interpretation. As used herein the following expressions shall have the
      following meanings:

      a)    "Business Day" means any day except Saturday, Sunday or a statutory
            holiday.

<PAGE>

      b)    "Contaminant" means any solid, liquid, gas, odour, heat, sound,
            smoke, waste, vibration, radiation or combination of any of them
            resulting directly or indirectly from human activities that may
            cause: (i) impairment of the quality of the natural environment for
            any use that can be made of it, (ii) injury or damage to property or
            to plant or animal life, (iii) harm or material discomfort to any
            person, (iv) an adverse affect on the health of any person, (v)
            impairment of the safety of any person, (vi) rendering any property
            or plant or animal life unfit for use by man, (vii) loss of
            enjoyment of normal use of property, or (viii) interference with the
            normal conduct of business, and includes any pollutant or
            contaminant as defined in any applicable Environmental Laws and any
            biological, chemical or physical agent which is regulated,
            prohibited, restricted or controlled.

      c)    "Environmental Laws" means the common law and all applicable United
            States of America and Canadian federal, state, provincial, local,
            municipal, governmental or quasi-governmental laws, rules,
            regulations, licences, orders, permits, decisions or requirements
            concerning Contaminants, occupational or public health and safety or
            the environment and any other order, injunction, judgment,
            declaration, notice or demand issued thereunder;

      d)    "Inventory" means property of the Company held for sale including
            products purchased for resale, finished goods, work in process and
            raw materials but not including any property not intended to be
            directly incorporated in finished goods or products to be sold.

      e)    "Lease" means any lease entered into by the Company in respect of
            real property.

      f)    "Loan Rate" means the rate of interest specified in Section 3 of the
            Debenture.

      g)    "Permitted Encumbrances" means any of the following:

            (i)   liens for taxes, assessments, governmental charges or levies
                  not at the time due;

            (ii)  easements, rights of way or other similar rights in land
                  existing at the date of this Debenture which in the aggregate
                  do not materially impair the usefulness in the business of the
                  Company of the property subject thereto;

            (iii) rights reserved to or vested in any municipality or
                  governmental or other public authority by the terms of any
                  lease, licence, franchise, grant or permit, or by any
                  statutory provision, to terminate the same or to require
                  annual or other periodic payments as a condition to the
                  continuance thereof;

            (iv)  any lien or encumbrance the validity of which is being
                  contested by the Company in good faith and in respect of which
                  either there shall have been deposited with Roynat cash in an
                  amount sufficient to satisfy the same or Roynat shall be
                  otherwise satisfied that its interests are not prejudiced
                  thereby;

            (v)   any reservations, limitations, provisos and conditions
                  expressed in any original grant from the Crown;

            (vi)  title defects or irregularities which, in the opinion of
                  counsel to Roynat, are of a minor nature and in the aggregate
                  shall not materially impair the usefulness in the business of
                  the Company of the property subject thereto;

            (vii) validly perfected security given by the Company to the senior
                  lender of the Company listed in Schedule C to which this
                  Debenture has been subordinated on any assets of the Company;
                  and

            (viii) such other encumbrances as are set out in Schedule C.

      h)    "person' for the purposes of this Debenture, person is to be broadly
            interpreted and shall include an individual, a company, a
            partnership, a trust, an unincorporated organization, a joint
            venture or any other entity.

      i)    "Receiver" shall include one or more of a receiver, receiver-manager
            or receiver and manager of all or a portion of the undertaking,
            property and assets of the Company appointed by Roynat pursuant to
            this Debenture or by a court of competent jurisdiction.

      j)    "Roynat" means Roynat Merchant Capital Inc., its successors and
            assigns and, where applicable, includes those for whom it acts as
            nominee or agent.

      k)    "Subscription Agreement" means the subscription agreement dated the
            date hereof between the Company and Roynat.

      l)    "subsidiaries" means any subsidiary of the Company and for greater
            certainty includes Thomas Ventures, Inc., Thomas Equipment 2004
            Inc., Pneutech Inc., Rousseau Controls Inc. and Hydramen Fluid Power
            Limited.

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