Document:

exv10w59

Exhibit 10.59

NUCRYST PHARMACEUTICALS CORP.

1998 Equity Incentive Plan

(as amended)

	1.	 	Purpose of the Plan

The purpose of this Stock Option Plan is to encourage equity ownership in Nucryst Pharmaceuticals
Corp. (the “Company”) and to develop the interest and incentive of eligible Employees, Directors
and other Service Providers (each as hereinafter defined) of the Company and Subsidiaries in the
Company’s growth and development and the growth and development of its Subsidiaries (as hereinafter
defined). It is believed that giving eligible Employees, Directors and other Service Providers an
opportunity to benefit from increases in value of the Common Shares will advance the interests of
the Company, align the interests of such persons with the interests of the Company’s shareholders,
enhance the value of the Common Shares for the benefit of all the Company’s shareholders and
increase the ability of the Company to attract and retain skilled and motivated individuals in the
service of the Company.

	2.	 	Definitions

In this Plan:

	 	(a)	 	“Amendment Date” means May 8, 2008;
	 
	 	(b)	 	“Award” means any award or benefit granted under the Plan, including,
without limitation, the grant of Options, Stock Appreciation Rights, and Full Value
Awards (including Stock Unit Awards and Restricted Stock Unit Awards);
	 
	 	(c)	 	“Award Agreement” means a written agreement between the Company and a
Participant evidencing the terms and conditions of an individual Award grant, in such
form and containing such terms and conditions as may be approved by the Committee from
time to time, provided that each Award Agreement shall be subject to the terms and
conditions of the Plan;
	 
	 	(d)	 	“Blackout Period” means any interval of time during which trading in
securities of the Company by officers, directors and employees of the Company is
prohibited pursuant to the Company’s Insider Trading Policy;
	 
	 	(e)	 	“Board of Directors” means the board of directors of the Company;
	 
	 	(f)	 	“Code” means the United States Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference to any
successor provision of the Code;
	 
	 	(g)	 	“Committee” means the appropriate committee(s) appointed by the Board
of Directors to administer the Plan. All references in the Plan to the Committee means
the Board of Directors if no Committee has been appointed;
	 
	 	(h)	 	“Common Shares” means the common shares of the Company or, upon the
occurrence of an event contemplated in Section 8 hereof, such other common shares to
which a Participant may be entitled upon the exercise of an Option as a result of such
event;
	 
	 	(i)	 	“Company” means Nucryst Pharmaceuticals Corp.;
	 
	 	(j)	 	“Date of Grant” means the date on which the Committee or Board of
Directors, as applicable, authorizes the grant of an Award to a Participant or such
other date as the may be specified by the Committee or Board of Directors, as
applicable, at the time of such authorization;
	 
	 	(k)	 	“Director” means a person occupying the position of director on the
Board of Directors;

 

 

	 	(l)	 	“Disability” for purposes of this Plan, means the mental or physical
state of the Participant such that:

	 	(i)	 	the Committee determines that the Participant has been unable,
due to illness, disease, mental or physical disability or similar cause, to
fulfill his or her obligations as an employee either for any consecutive six
month period or for any period of twelve months (whether or not consecutive) in
any consecutive 24 month period; or
	 
	 	(ii)	 	a court of competent jurisdiction has declared the Participant
to be mentally incompetent or incapable of managing his or her affairs.

	 	(m)	 	“Employee” means an officer or employee of the Company or its
Subsidiaries;
	 
	 	(n)	 	“Exchange” means the NASDAQ Stock Market or, if the Common Shares are
not then listed and posted for trading on the NASDAQ Stock Market, on such stock
exchange or quotation system on which such shares are listed, posted for trading or
quoted. In the event the Common Shares are listed, posted for trading or quoted on
more than one such stock exchange or quotation system, the Committee shall, where
required, designate one exchange or quotation system as the relevant Exchange for
purposes of the Plan;
	 
	 	(o)	 	“Fair Market Price” per Common Share at any date shall be the closing
price of the Common Shares of the Company on the Exchange for the trading day
immediately preceding the date on which the granting of the Option is approved by the
Committee. In the event that the Common Shares are not listed and posted for trading
on any stock exchange, the Fair Market Price shall be determined in accordance with the
provisions in section 409A of the Code;
	 
	 	(p)	 	“Full Value Award” means the grant of one or more Common Shares or a
right to receive one or more Common Shares in the future as described in Section 7;
	 
	 	(q)	 	“Incentive Stock Option” means an Option that is intended to satisfy
the requirements applicable to an “incentive stock option” described in section 422(b)
of the Code;
	 
	 	(r)	 	“Non-Blackout Trading Day” means a day on which (i) a Trading Session
occurs, and (ii) no Blackout Period is in place;
	 
	 	(s)	 	“Nonqualified Option” means an Option that is not intended to be an
“incentive stock option” as that term is described in section 422(b) of the Code;
	 
	 	(t)	 	“Option” means an option to purchase Common Shares from the treasury of
the Company granted to a Participant pursuant to the Plan. An Option granted under the
Plan may be either an Incentive Stock Option or a Nonqualified Option;
	 
	 	(u)	 	“Option Price” means the price per Common Share at which a Participant
may purchase Option Shares or, in respect of an Independent Right (as defined in
Section 6 hereof), means the exercise price of such Independent Right; provided,
however, that under no circumstances shall the Option Price be less than the Fair
Market Price;
	 
	 	(v)	 	“Option Shares” or “Optioned Shares” means the underlying
Common Shares of the Company which a Participant is entitled to purchase under the Plan
upon the exercise of an Option;
	 
	 	(w)	 	“Outstanding Issue” means the total number of issued and outstanding
Common Shares of the Company from time to time, calculated on a non-diluted basis;

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	 	(x)	 	“Participants” means eligible Directors, Employees and Service
Providers to whom Options or Stock Appreciation Rights are granted pursuant to the Plan
and which remain unexercised, or to whom Full Value Awards are granted pursuant to the
Plan.
	 
	 	(y)	 	“Performance-Based Compensation” shall have the meaning ascribed to it
under Code section 162(m) and the regulations thereunder;
	 
	 	(z)	 	“Performance Measures” shall be based on any one or more of the
following Company, Subsidiary, operating unit or division performance measures: net
investment income; operating expenses; cash flow(s); operating income; earnings before
interest and taxes; net income; stock price; dividends; strategic business objectives,
consisting of one or more objectives based on meeting specified cost targets, business
expansion goals, and goals relating to acquisitions or divestitures; or any combination
thereof. Each goal may be expressed on an absolute and/or relative basis, may be based
on or otherwise employ comparisons based on internal targets, the past performance of
the Company and/or the past or current performance of other companies, and in the case
of earnings-based measures, may use or employ comparisons relating to capital,
shareholders equity and/or shares outstanding, investments or to assets or net assets;
	 
	 	(aa)	 	“Plan” means this Stock Option Plan;
	 
	 	(bb)	 	“Restricted Stock Unit” means the grant of a Stock Unit subject to a
substantial risk of forfeiture or other restrictions such as the achievement of certain
milestones (based on performance or passage of time);
	 
	 	(cc)	 	“Securities Act” means the Securities Act, R.S.O. 1990, c.S.5, as
amended from time to time;
	 
	 	(dd)	 	“Service Provider” means a person or company engaged by the Company to
provide services to the Company of an ongoing or recurring nature;
	 
	 	(ee)	 	“Stock Appreciation Right” shall, as the context prescribes, mean the
applicable stock appreciation right as referred to in Section 6 hereof;
	 
	 	(ff)	 	“Stock Unit” means the grant of a right to receive Common Shares in the future;
	 
	 	(gg)	 	“Subsidiary” shall have the meaning attributed to such word by applicable securities legislation;
	 
	 	(hh)	 	“Termination Date” means the date which is the earlier of:

	 	(i)	 	the effective date on which the Participant’s employment with
the Company or any Subsidiary is terminated or ceases, a Director ceases to be
a Director, or a Service Provider ceases to provide services to the Company;
and
	 
	 	(ii)	 	the date the Company notifies the Participant or the
Participant notifies the Company of such termination of employment,
directorship or service provision, as the case may be; and

	 	(ii)	 	“Trading Session” means a trading session on a day which the applicable
Exchange is open for trading;
	 
	 	(jj)	 	“Vesting Period” means the period, as determined by the Committee and
stipulated in the Award Agreement, over which an Option or Stock Appreciation Right
becomes exercisable.

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	3.	 	Eligibility

Participation in the Plan shall be limited to Participants who are designated from time to time by
the Committee in its sole discretion. Participation shall be voluntary and the extent to which any
Participant shall be entitled to participate in the Plan shall be determined by the Committee.

Each Award granted under the Plan shall be evidenced by an Award Agreement, the terms and
conditions of which need not be the same for all Participants. Any such Award Agreement may be
supplemented or amended in writing from time to time as approved by the Participant and the
Committee, provided that the terms of such agreement as amended or supplemented conform to the
provisions of the Plan and provided that Awards granted under the Plan shall be contingent on
shareholder approval of the Plan to the extent required by applicable law or the applicable rules
of any stock exchange. A prospective Participant shall not, with respect to any Award, have any
rights with respect to such Award unless and until such prospective Participant shall have executed
an Award Agreement or other instrument evidencing the Award and has otherwise complied with the
applicable terms and conditions of the Award, the Plan, and the Agreement.

	4.	 	Common Shares Subject to the Plan and Limitations on Issuance

	 	(a)	 	The aggregate number of Common Shares which may be reserved for issuance
pursuant to Awards shall not exceed such number which represents 15% of the issued and
outstanding Common Shares of the Company at any given time. This prescribed maximum
may be subsequently increased to any other specified amount, subject to the approval of
the Exchange and any requisite regulatory approvals and such shareholder approvals as
may be required by the Exchange. For purposes of this paragraph (a), if an Option is
in tandem with a Stock Appreciation Right, such that the exercise of the Option or
Stock Appreciation Right with respect to a Common Share cancels the tandem Stock
Appreciation Right or Option right, respectively, with respect to such Common Share,
the tandem Option and Stock Appreciation Rights with respect to each Common Share shall
be counted as covering but one Common Share for purposes of applying the limitations of
this paragraph (a). Subject to proper payment of the Option Price, all Common Shares
issued pursuant to Awards will be issued as fully paid and non-assessable. The total
number of Common Shares remaining reserved from time to time shall be adjusted in
accordance with Section 8 hereof. The following restrictions shall also apply to this
Plan:

	 	(i)	 	no Participant together with such Participant’s associates, as
defined under the Alberta Business Corporations Act, shall be issued, within
any one year period, a number of Options or Stock Appreciation Rights which
exceeds 5% of the Outstanding Issue;
	 
	 	(ii)	 	the number of Common Shares reserved for issuance pursuant to
Options and Stock Appreciation Rights granted to any one Participant shall not
exceed 7% of the Outstanding Issue; and
	 
	 	(iii)	 	the maximum number of Common Shares that may be issued under
the Plan through Incentive Stock Options shall be 2,200,000.

	 	(b)	 	Subject to the foregoing provisions of Section 4, the following additional
maximums are imposed under the Plan:

	 	(i)	 	The maximum number of Common Shares that may be covered by
Awards granted to any one Participant during any one calendar-year period
pursuant to Sections 5 and 6 (relating to Options and Stock Appreciation
Rights) shall be 15% of all issued and outstanding Common Shares.
	 
	 	(ii)	 	The maximum number of Common Shares that may be issued in
conjunction with Awards granted pursuant to Section 7 (relating to Full Value
Awards) shall be 15% of all issued and outstanding Common Shares.

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	 	(iii)	 	For Full Value Awards that are intended to be
Performance-Based Compensation, no more than 15% of all issued and outstanding
Common Shares may be delivered pursuant to such Awards granted to any one
Participant during any one calendar-year period (regardless of whether
settlement of the Award is to occur prior to, at the time of, or after the time
of vesting); provided that Awards described in this paragraph (iii) that are
intended to be Performance-Based Compensation shall be subject to the
following:

	 	(A)	 	If the Awards are denominated in Common Shares
but an equivalent amount of cash is delivered in lieu of delivery of
Common Shares, the foregoing limit shall be applied based on the
methodology used by the Committee to convert the number of Common
Shares into cash.
	 
	 	(B)	 	If delivery of Common Shares is deferred until
after Common Shares have been earned, any adjustment in the amount
delivered to reflect actual or deemed investment experience after the
date the shares are earned shall be disregarded.

No fractional shares may be purchased or issued hereunder. To the extent any Common Shares covered
by an Award are not delivered to a Participant or beneficiary because the Award (or portion
thereof) is forfeited, expired, surrendered, cancelled, or otherwise terminated prior to the
3 issuance or transfer of such Common Shares or the Common Shares are not delivered on an
unrestricted basis (including, without limitation, by reason of the Award being settled in cash or
used to satisfy the applicable tax withholding obligation), such Common Shares shall not be deemed
to have been delivered for purposes of the determinations to be made pursuant to this Section 4 and
shall be again available for grant under this Plan. Common Shares that have been issued pursuant
to the exercise of Awards under this Plan shall, upon issuance to the Participant, again become
available for grant under this Plan. If the exercise price of any Option or Stock Appreciation
Right granted under the Plan, or the tax withholding obligation with respect to any Award granted
under the Plan, is satisfied by tendering Common Shares to the Company, only the number of Common
Shares issued net of the Common Shares tendered shall be deemed delivered for purposes of
determining the number of Common Shares available for delivery under the Plan.

Payments or transfers to be made upon the exercise or settlement of an Award may, in the discretion
of the Committee, be made in: (i) Common Shares currently authorized but unissued, or (ii) to the
extent permitted by applicable law, Common Shares purchased in the open market or in private
transactions. At the discretion of the Committee, an Award under the Plan may be settled in cash
rather than Common Shares.

Subject to the foregoing, the number of Awards that a Participant is entitled to under the Plan
will be determined by the Committee.

	5.	 	Option Provisions

	 	(a)	 	Number and Price of Option Shares and Vesting Period
	 
	 	 	 	The Committee shall advise each Participant designated to receive Options in writing
of the number of Option Shares such Participant is entitled to purchase, the Option
Price at which the Option Shares may be purchased and the Vesting Period. The Option
Price at which the Option Shares may be purchased under the Plan shall be fixed by
the Committee, but under no circumstances shall the Option Price be less than the
Fair Market Price on the Date of Grant. The Committee may impose performance
thresholds or any other conditions which will need to be met prior to vesting of any
Options granted.
	 
	 	(b)	 	Exercise
	 
	 	 	 	Options granted under the Plan must be exercised, subject always to the Vesting
Period, within a period as determined by the Committee in its sole discretion,
acting reasonably and set forth in the Award Agreement, subject to a maximum of 10
years from the Date of Grant, failing which the Participant’s right to purchase such
Option Shares lapses. No Option in respect of which
shareholder approval is required under the rules of the Exchange shall be
exercisable until such time as the Option has been approved by the shareholders of
the Company.

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	 	(c)	 	Payment
	 
	 	 	 	The Participant, from time to time, and at any time after the vesting of any Options
and prior to the lapse of such Options, may elect to purchase all or a portion of
the Option Shares, corresponding to the then vested Options, available for purchase
by delivering to the Company at its registered office, or such other address as the
Company may specify from time to time, a completed stock option purchase form
substantially in the form attached hereto as Appendix “A.1” or such other form as
the Company may specify. Payment may be made by cash, certified cheque, bank draft,
money order or the equivalent payable to the order of “Nucryst Pharmaceuticals
Corp.”, or other form of payment acceptable to the Company.
	 
	 	(d)	 	Share Certificates
	 
	 	 	 	Upon exercise of the Option and payment in full of the purchase price the Company
shall cause to be delivered to the Participant within a reasonable period of time a
certificate or certificates in the name of the Participant representing the number
of Option Shares the Participant has purchased.

	6.	 	Stock Appreciation Rights

	 	(a)	 	Authorized Rights
	 
	 	 	 	The following three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:

	 	(i)	 	Tandem Rights. A “Tandem Right” means a Stock
Appreciation Right granted appurtenant to an Option which is subject to the
same terms and conditions applicable to the particular Option grant to which it
pertains with the following exceptions. The Tandem Right shall require the
holder to elect between the exercise of the underlying Option to purchase the
Option Shares and the surrender, in whole or in part, of such Option for an
appreciation distribution. The appreciation distribution payable by the
Company to the Participant on the exercised Tandem Right shall be in cash (or,
if so provided in the Award Agreement, at the option of the Company in an
equivalent number of shares of Common Shares based on Fair Market Price on the
date of the Option surrender) in an amount equal to the excess of (A) the Fair
Market Price (on the date of the Option surrender) of the number of Common
Shares covered by that portion of the surrendered Option in which the Option
holder is vested over (B) the aggregate Option Price payable for such vested shares.
	 
	 	(ii)	 	Concurrent Rights. A “Concurrent Right” means a Stock
Appreciation Right granted appurtenant to an Option which applies to all or a
portion of Option Shares subject to the underlying Option and which is subject
to the same terms and conditions applicable to the particular Option grant to
which it pertains with the following exceptions: A Concurrent Right shall be
exercised automatically at the same time the underlying Option is exercised
with respect to the particular Option Shares to which the Concurrent Right
pertains. The appreciation distribution payable by the Company to the
Participant on an exercised Concurrent Right shall be in cash (or, if so
provided in the Award Agreement, at the option of the Company in an equivalent
number of Common Shares based on the Fair Market Price on the date of the
exercise of the Concurrent Right) in an amount equal to such portion as
determined by the Board of Directors at the time of the grant of the excess of
(A) the aggregate Fair Market Price (on the date of the exercise of the
Concurrent Right) of the vested Option Shares purchased under the underlying
Option which have Concurrent Rights appurtenant to them over (B) the aggregate
Option Price paid for such shares.

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	 	(iii)	 	Independent Rights. An “Independent Right” means a
Stock Appreciation Right granted independently of any Option but which is
subject to the same terms and conditions applicable to an Option (including the
applicable provisions of Section 5) with the following exceptions: An
Independent Right shall be denominated in share equivalents. The appreciation
distribution payable by the Company to the Participant on the exercised
Independent Right shall be an amount equal to the excess of (A) the aggregate
Fair Market Price (on the date of the exercise of the Independent Right) of a
number of Common Shares equal to the number of share equivalents in which the
holder is vested under such Independent Right, and with respect to which the
holder is exercising the Independent Right on such date, over (B) the aggregate
Option Price for the Independent Rights exercised. The appreciation
distribution payable on the exercised Independent Right shall be in cash or, if
so provided in the Award Agreement, at the option of the Company in an
equivalent number of Common Shares based on the Fair Market Price on the date
of the exercise of the Independent Right. The number and/or Option Price of
share equivalents contained in the grant of an Independent Right shall be
subject to adjustment in accordance with the provisions of Section 8, mutatis
mutandis.

	 	(b)	 	Exercise
	 
	 	 	 	To exercise any outstanding Stock Appreciation Right, the holder shall provide
written notice of exercise to the Company in compliance with the provisions of the
Award Agreement evidencing such right.
	 
	 	(c)	 	No Rights of Shareholders
	 
	 	 	 	Neither a Participant nor his personal representative shall be, or have any of the
rights and privileges of, a shareholder of the Company by virtue of receiving or
exercising a grant of Stock Appreciation Rights under the Plan.
	 
	 	(d)	 	Issuance of Shares
	 
	 	 	 	Any Common Shares issued pursuant to this Section 6 will be issued as fully paid and
non-assessable.

	7.	 	Full Value Awards

	 	(a)	 	Full Value Awards (including Stock Unit Awards and Restricted Stock Unit
Awards) may be granted by the Committee subject to one or more of the following, as
determined by the Committee:

	 	(i)	 	The grant shall be in consideration of a Participant’s
previously performed services, or surrender of other compensation that may be
due.
	 
	 	(ii)	 	The grant shall be contingent on the achievement of Performance
Measures or other objectives during a specified period.
	 
	 	(iii)	 	The grant shall be subject to a risk of forfeiture or other
restrictions that will lapse upon the achievement of Performance Measures or
other objectives (including the passage of time).

	 	 	 	The grant of Full Value Awards may also be subject to such other conditions,
restrictions and contingencies, as determined by the Committee.

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	 	(b)	 	The Committee may designate a Full Value Award granted to any Participant as
Performance-Based Compensation. To the extent required by Code section 162(m), any
Full Value Award so designated shall be conditioned on the achievement of one or more
performance objectives. The performance objectives shall be based on the Performance
Measures selected by the Committee. For Awards under this Section 7 intended to be
Performance-Based Compensation, the grant of the Awards and the establishment of the
Performance Measures shall be made during the period required under Code section
162(m).

	8.	 	Adjustments

	 	(a)	 	Subject to the applicable provisions of Code section 409A, appropriate
adjustments in the number of Common Shares subject to the Plan and, with respect to
Awards granted or to be granted, in the number of Awards granted and in the Option
Price and in the securities which shall be deemed to be Common Shares for purposes of
the Plan, shall be made by the Committee acting reasonably to give effect to the
adjustments in the number, character and value of Common Shares resulting from
sub-divisions, consolidations or re-classification of the Common Shares or other
relevant changes in the authorized or issued capital of the Company, or the payment of
stock dividends or other dividends-in-kind by the Company, all as determined by the
Committee in its sole discretion acting reasonably.
	 
	 	(b)	 	Subject to the applicable provisions of Code section 409A, appropriate
adjustments in the number of Awards and the securities which shall be deemed to be
Common Shares for purposes of this Agreement, shall be made by the Committee in its
sole discretion acting reasonably, to give effect to adjustments in the number,
character and value of outstanding Common Shares of the Company resulting from any
reorganization, amalgamation, arrangement, merger, transfer or sale of all or
substantially all of the assets of the Company, or similar transactions affecting the
Company or its assets or the Common Shares, including such transactions as may be
undertaken in conjunction with or in anticipation of an initial public offering of the
securities of the Company. For greater certainty, the Committee may determine in its
sole discretion acting reasonably, that each Award shall be exchangeable for a Award of
such other corporation resulting from such transactions, having such terms and
conditions which in the Committee’s sole opinion are economically equivalent to the
Awards exchanged.

	9.	 	Cessation of Employment or Directorship or Services

In the event that an Employee’s employment with the Company or any of its Subsidiaries ceases or is
terminated for any reason (other than death or Disability), a Director ceases to be a Director for
any reason (other than death or Disability) or a Service Provider ceases to provide services to the
Company or any Subsidiary for any reason (other than death or Disability), the Participant may
elect to exercise all or a portion of the remaining Options and Stock Appreciation Rights that have
vested on the Termination Date, at any time during the 30 day period following the Termination
Date, or such later date as specified in the Participant’s Award Agreement or, subject to the
applicable provisions of Code section 409A, as may be subsequently agreed to in writing by the
Company and the Participant, but in no event after the lapse of any Options or Stock Appreciation
Rights held. For the purposes of this Plan, the transfer of the Employee’s employment to or from
the Company to or from any Subsidiary of the Company shall not be considered a cessation or a
termination of employment and the Employee’s rights under any Options or Stock Appreciation Rights
shall be the same as if such transfer had not occurred.

	10.	 	Death or Disability of Participant

In the event of the death or Disability of a Participant, the personal legal representative (or, in
the case of Disability, the Participant himself or herself if he or she is competent to do so) may
at any time during the 180 day period following the date of death or Disability, or such later date
as specified in the Participant’s Award Agreement, but in no event after the lapse of any Options
or Stock Appreciation Rights held, exercise all or any portion of such Participant’s Options or
Stock Appreciation Rights that have vested as of the date of death or Disability. At the end of
such period or the term of the applicable Options or Stock Appreciation Rights, whichever is
earlier, the Options or Stock Appreciation Rights shall forthwith terminate and be of no further
force or effect whatsoever.

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	11.	 	Transfer and Assignment

Except as provided for in Section 10 or as otherwise provided by the Committee in its sole
discretion, the Participant’s rights under Awards granted under the Plan are not assignable or
transferable by the Participant or subject to any other alienation, sale, pledge or encumbrance by
such Participant during the Participant’s lifetime. The obligations of each Participant shall be
binding on his or her heirs, executors and administrators.

	12.	 	Employment and Board of Directors Position Non-Contractual

The granting of an Award to a Participant under the Plan does not confer upon the Participant any
right to continue in the employment of the Company or any Subsidiary of the Company or as a member
of the Board of Directors or as a Service Provider, as the case may be, nor does it interfere in
any way with the rights of an Employee or of the Company’s rights to terminate an Employee’s
employment at any time or of the shareholders’ right to elect Directors.

	13.	 	Rights As Shareholders

Participants shall not have any rights as a shareholder with respect to Options until, in the case
of an Option which has been duly and properly exercised, full payment of the Option Price for the
number of Option Shares purchased has been made to the Company. Participants receiving a grant of
a Stock Appreciation Right shall have no rights or privileges whatsoever as a shareholder of the
Company.

	14.	 	Administration of the Plan

The Plan shall be administered by one or more Committees. The Committee(s) shall have the power
and discretion to interpret and construe the terms and conditions of the Plan and the Awards; to
establish, amend or waive rules and regulations for the administration of the Plan (provided that
no such action shall, however, without the consent of the Participant, in any manner materially
adversely affect his rights under any Awards previously granted under the Plan); and to correct
errors, omissions or inconsistencies in the Plan or any Awards granted pursuant to the Plan.

Any determination by the Committee shall be final and conclusive on all persons affected thereby
unless otherwise determined by the Board of Directors, and subject to any applicable arbitration
provisions contained in an Award Agreement. The day-to-day administration of the Plan may be
delegated to such persons as the Committee(s) may determine.

Members of the Committee shall be eligible to receive Awards under the Plan, so long as a member of
the Committee does not participate in any discussion or decision as to the grant of any Awards to
such member. If stipulated by the Board of Directors, a grant of Awards under the Plan shall be
subject to the approval of the Board of Directors. Members of the Board of Directors shall be
eligible to receive Awards under the Plan, so long as a member of the Board of Directors does not
participate in any discussion or decision as to the grant of any Awards to such member. A majority
of the members of the Board of Directors participating in any decisions as to any grant of Awards
under the Plan shall be persons who are not Employees of the Company.

	15.	 	Stock Exchange Rules

The Plan and any Award Agreements entered into hereunder shall comply with the requirements from
time to time of the Exchange.

	16.	 	Right to Issue Other Shares

The Company shall not by virtue of this Plan be in any way restricted from declaring and paying
stock dividends, issuing further Common Shares, varying or amending its share capital or corporate
structure or conducting its business in any way whatsoever.

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	17.	 	Notices

Unless otherwise specified in a Participant’s Award Agreement, all written notices to be given by
the Participant to the Company may be delivered personally or by registered mail, postage prepaid,
addressed as follows:

NUCRYST Pharmaceuticals Corp.

10102 – 114 Street

Fort Saskatchewan, AB T8L 3W4

Canada

Attention: President

with a copy to:

NUCRYST Pharmaceuticals Corp.

50 Audubon Road, Suite B

Wakefield, MA 01880

USA

Attention: President

Any notice given by the Participant pursuant to the terms of an Award shall not be effective until
actually received by the Company at the above address. Any notice to be given to the Participant
shall be sufficiently given if delivered personally or by postage prepaid mail to the last address
of the Participant on the records of the Company and shall be effective seven days after mailing.

	18.	 	Corporate Action

Nothing contained in the Plan or in an Award shall be construed so as to prevent the Company or any
Subsidiary from taking corporate action which is deemed by the Company or any Subsidiary, acting in
good faith, to be appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan, provided that the Company shall not undertake any such corporate action
with the intent to adversely prejudice any Award previously granted to a Participant. For greater
certainty, but not to restrict the generality of the foregoing, the Company shall, in their sole
and unfettered discretion, have the right and ability to issue shares and other securities,
purchase and sell assets and enter into corporate and commercial agreements (including without
limitation joint ventures, partnerships and development agreements) without the consent of any
Participant.

	19.	 	Conflicts and Amendments

	 	(a)	 	The Board of Directors shall have the right, in its sole discretion and without
the approval of shareholders, to alter, amend, suspend or discontinue the Plan and
amend any Award Agreements from time to time and at any time, subject to, as
applicable, the approval of the Exchange and any requisite regulatory approvals and,
subject to Section 19(b).
	 
	 	(b)	 	In exercising the rights pursuant to Section 19(a), the Board of Directors will
not have the right to:

	 	(i)	 	without the prior approval of shareholders and except as
permitted by Section 8: (A) extend the term of an Option or Tandem Right held
by a Participant; or (B) reduce the Option Price per Common Share under any
Option held by a Participant;
	 
	 	(ii)	 	affect in a manner that is adverse or prejudicial to, or that
impairs, the benefits and rights of any Participant under any Award previously
granted under this Plan (except as permitted by Section 8 and except for the
purpose of complying with applicable securities laws or the bylaws, rules and
regulations of any regulatory authority to which the Company is subject,
including the Exchange);

10

 

	 	(iii)	 	without the prior approval of shareholders, materially expand
the class of Participants eligible to participate under the Plan;
	 
	 	(iv)	 	reduce the Option Price per Common Share under any Option held
by a Participant or replace such Option with a lower Option Price per Common
share under such replacement Option, without shareholder approval except as
permitted by Section 8 and except for the purpose of complying with applicable
securities laws or the bylaws, rules and regulations of any regulatory
authority to which the Company is subject, including the Exchange;
	 
	 	(v)	 	decrease the number of Common Shares which may be purchased
pursuant to any Option (except as permitted pursuant to Section 8) without the
consent of the Participant;
	 
	 	(vi)	 	set the Option Price of any Option below the Fair Market Value
of such Option on the Grant Date; or
	 
	 	(vii)	 	extend the term of any Option beyond a period of ten years or
the latest date permitted under the applicable rules and regulations of all
regulatory authorities to which the Company is subject, including the Exchange.

	20.	 	Governing Law

The Plan is established under the laws of the Province of Alberta and the rights of all parties and
the construction and effect of each provision of the Plan shall be according to the laws of the
Province of Alberta and the laws of Canada applicable therein.

	21.	 	Acceleration of Options

Without limiting the generality of the powers and discretions granted to the Committee herein, the
Committee may determine that any Option granted under the Plan shall include provisions which
accelerate the date on which any Option shall become exercisable, upon the happening of such events
as the Committee may determine and as may be prescribed in the applicable Award Agreement. Without
limiting the generality of the foregoing, and subject to the terms and provisions of the individual
Award Agreement, the Committee may determine that such acceleration should occur in the event of an
actual or anticipated change of effective control of the Company, or in the event of other
fundamental changes to the Company or its business or affairs.

	22.	 	Tax Withholding Requirements

Whenever the Company is required to issue Common Shares or make a payment under the Plan, the
Company may require the Participant to remit to the Company an amount sufficient to satisfy any
Federal, Provincial/State and local tax withholding requirements prior to the delivery of any
certificate for such shares or, in the discretion of the Committee, the Company may withhold from
the shares or payment to be delivered, shares or cash sufficient to satisfy all or a portion of
such tax withholding requirements.

	23.	 	Government Regulation

Notwithstanding any other provision contained herein, the Company’s obligation to issue and deliver
Common Shares under any Option is subject to:

	 	(a)	 	the satisfaction of all requirements under applicable securities law in respect
thereof and obtaining all regulatory approvals as the Company shall determine to be
necessary or advisable in connection with the authorization, issuance or sale thereof,
including shareholder approval, if required;
	 
	 	(b)	 	the requirements of any Exchange on which the Common Shares are or may become
listed;

11

 

	 	(c)	 	the admission of such Common Shares to listing on any Exchange on which Common
Shares may then be listed; and
	 
	 	(d)	 	the receipt from the Participant of such representations, agreements and
undertakings as to future dealings in such Common Shares as the Company reasonably
determines to be necessary or advisable in order to safeguard against the violation of
the securities law of any jurisdiction.

In this connection, the Company shall take all reasonable steps to obtain such approvals and
registrations as may be necessary for the issuance of such Common Shares in compliance with
applicable securities law and for the listing of such Common Shares on any stock exchange on which
such Common Shares are then listed.

	24.	 	Exercise and Settlement of Awards During Blackout Periods

Where the expiry date of an Option or Tandem Right occurs during a Blackout Period or within ten
Non Blackout Trading Days following the end of a Blackout Period, the expiry date for such Option
or Tandem Right shall be the date which is ten Non-Blackout Trading Days following the end of such
Blackout Period. Where the date for the settlement of Restricted Stock Units or Full Value Awards
occurs during a Blackout Period, the Company shall make such settlement to the holder of such Award
within ten Non-Blackout Trading Days following the end of such Blackout Period.

	25.	 	Termination of Plan

This Plan will terminate on the tenth anniversary of the Amendment Date, unless terminated earlier
pursuant to Section 19. The full powers of the Committee and the Board of Directors as provided for
in this Plan shall survive the termination of this Plan until all Awards have been exercised or
settled in full or have otherwise expired.

DATED as of the 2nd day of January, 1998.

AMENDED as of the 16th day of April, 2001.

AMENDED as of the 19th day of December, 2005.

AMENDED as of the 8th day of May, 2008.

AMENDED further as of the 8th day of May, 2008.

..

12

 

Appendix “A.1”

NUCRYST Pharmaceuticals Corp.

1998 Equity Incentive Plan (as amended)

Option Exercise Form

Part 1: Identification

	 	 	 
	 
Name of Participant

	 	 
Office Phone Number
	 
	 	 
	 
Address
	 
	 	 
	 
Social Insurance/Security Number

	 	 
Home Phone Number

Part 2: Option

I hereby exercise my Option to purchase                 
    
    
    
     common shares of NUCRYST Pharmaceuticals Corp.
(“NUCRYST”) pursuant to the following option grants:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Number of	 	 	 	 	 	 	Aggregate	 
	Grant Date	 	Common Shares	 	 	Exercise Price	 	 	Consideration	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

I will deliver to you a bank draft payable to NUCRYST Pharmaceuticals Corp. in the amount of

$                    , equivalent to the full exercise price, on                     , 2007.

I direct that the shares be issued in the name of and delivered to:

[name

address]

I hereby acknowledge that I have read, understood and accepted each and all the conditions

described in a document called “NUCRYST Pharmaceuticals Corp. 1998 Equity Incentive Plan

(as amended)”.

Given at                     , this            day of                     , 2007.

        
                                                                       
     

Signature

13EXHIBIT 10.1

                             FORBEARANCE AGREEMENT

          THIS  AGREEMENT  made  as  of  the  29th  day  of  May,  2008.

A  M  O  N  G:

ROYAL  BANK  OF  CANADA
(hereinafter  referred  to  as  the  "BANK")

-  and  -

SENTRY  TECHNOLOGY  CANADA  INC.
(hereinafter  referred  to  as  the  "BORROWER")

-  and  -

SENTRY  TECHNOLOGY  CORPORATION
(hereinafter  referred  to  as  the  "SENTRY")

-  and  -

CUSTOM  SECURITY  INDUSTRIES  INC.
(hereinafter  referred  to  as  "CSI")

WHEREAS:

1.   the  Bank has made available certain Credit Facilities to the Borrower on
     the  terms  and  conditions  established  under  the  Loan  Agreement;

2.   the Guarantors have executed and delivered the Guarantees to the Bank for
     the purpose of guaranteeing the payment and performance of some or all of
     the debts, liabilities and obligations of the Borrower to the Bank;

3.   the Borrower is currently in default of its obligations to the Bank under
     the Loan Agreement;

4.   the Borrower is in breach of certain covenants contained in the Loan
     Agreement, including borrowing in excess of the allowable margin deficit as
     provided for in the Loan Agreement;

5.   the Borrower is in the process of seeking financing to facilitate an equity
     injection and/or negotiating with various third parties to obtain
     refinancing in order to repay the Indebtedness;

6.   the Bank has had, and continues to have, serious concerns with respect to
     the financial viability of the Borrower;

<PAGE>
7.   the Borrower and each of the Guarantors have requested that the Bank
     forbear from making demand for the repayment of the Indebtedness and
     enforcing its rights and remedies under the Security so as to permit the
     Borrower the opportunity to secure the financing and/or equity injection
     referred to above; and

8.   as an inducement to the Bank agreeing to so forbear, the Borrower and the
     Guarantors have agreed to enter into this Agreement and to comply with the
     terms and provisions contained herein, including, without limitation, the
     terms and provisions of the Repayment Plan.

NOW THEREFORE in consideration of the acknowledgements, confirmations, covenants
and  agreements contained herein, and other good and valuable consideration (the
receipt  and sufficiency of which are hereby acknowledged by each of the Parties
hereto),  each  of  the  Parties hereto hereby agree with each other as follows:

                                    ARTICLE1
                                    --------
                                 INTERPRETATION
                                 --------------
1.01     DEFINITIONS:     Unless  otherwise  specifically  defined  in  this
         ------------
Agreement,  all capitalized terms used in this Agreement shall have the meanings
ascribed  to  them  in  the  Loan Agreement.  The following terms shall have the
following  meanings:

(a)     "ASSETS"  means all of the personal property, tangible or intangible and
undertakings  of  the  Borrower  in  respect  of  which the Bank holds Security;

(b)     "BIA" means the Bankruptcy and Insolvency Act (Canada);

(c)     "BUSINESS DAY" means a day other than a Saturday, Sunday, statutory
holiday in the Province of Ontario, or any other day on which the Schedule 1
Canadian Chartered Banks located in the City of Toronto are not open for
business during normal banking hours;

(d)     "CREDIT FACILITIES" means the credit facilities established by the Bank
in favour of the Borrower pursuant to the Loan Agreement;

(e)     "CSI GUARANTEE" means a guarantee and postponement of claim limited to
the sum of $1,000,000 dated May 3, 2005 executed and delivered by CSI to the
Bank in connection with the Indebtedness;

(f)     "EVENT OF DEFAULT" means the occurrence of any one or more of the events
set forth in Article 10 of this Agreement;

(g)     "GUARANTEES" means collectively the Sentry Guarantee and CSI Guarantee
and "GUARANTEE" means any one thereof;

(h)     "GUARANTORS" means collectively Sentry and CSI and "GUARANTOR" means any
one of them;

<PAGE>
(i)     "INDEBTEDNESS" means the amounts set forth in sections 2.01 and 2.02
hereof;

(j)     "LOAN AGREEMENT" means the Confirmation of Credit Facilities Letter
dated May 15, 2006, accepted by the Borrower and Guarantors on May 15, 2006, as
amended, revised, restated, replaced and supplemented from time to time;

(k)     "PARTIES" means any one or more of the parties referred to in this
Agreement, as the context may require;

(l)     "PRIME RATE" means the annual rate of interest announced by the Bank
from time to time as being a reference rate then in effect for determining
interest rates on Canadian Dollar commercial loans in Canada;

(m)     "PRIORITY PAYABLES" shall have the meaning ascribed thereto in
subsection 6.01(f);

(n)     "PRIORITY PAYABLE AUTHORIZATIONS" shall have the meaning ascribed
thereto in subsection 6.01(f)

(o)     "REPAYMENT PLAN" means the Repayment Plan set forth in Article 5 of this
Agreement;

(p)     "SECURITY" means collectively all of the security delivered by the
Borrower to the Bank as security for the Indebtedness and obligations of the
Borrower to the Bank pursuant to the Loan Agreement, or otherwise, or that may
be delivered by the Borrower to the Bank to secure the Indebtedness and
obligations of the Borrower to the Bank;

(q)     "SENTRY ASSETS" means all of the personal property, tangible and
intangible, and undertakings of Sentry in respect of which the Bank holds
security;

(r)     "SENTRY GUARANTEE" means a guarantee and postponement of claim limited
to the sum of $5,000,000 dated May 9, 2005 executed and delivered by Sentry
Technology Corporation to the Bank in connection with the Indebtedness;

(s)     "SENTRY SECURITY" means the General Security Agreement dated May 9, 2005
delivered by Sentry to the Bank;

(t)     "US PRIORITY PAYABLES" shall have the meaning ascribed thereto in
subsection 6.01(g); and

(u)     "US PRIORITY PAYABLE AUTHORIZATIONS" shall have the meaning ascribed
thereto in subsection 6.01(g).

                                   ARTICLE 2
                                   ---------
                               CREDIT FACILITIES
                               -----------------

2.01     ACKNOWLEDGEMENT OF INDEBTEDNESS:  The Borrower acknowledges that, as at
         --------------------------------
May  29,  2008,  the  Borrower  is  indebted  to  the  Bank:

<PAGE>
(a)     in  respect  of a demand operating loan, in the amount of $3,072,864.32,
comprising  principal  in  the  amount of $3,071,000 and accrued interest to and
including May 29, 2008, in the amount of $1,864.32. Interest continues to accrue
on the aforesaid principal amount at the Bank's prime rate plus 2.75% per annum.
The  per diem amount on the aforesaid principal amount, given the Bank's current
prime  rate  is  $631.03.

2.02     INTEREST,  ETC.:  The  Borrower  and each of the Guarantors acknowledge
         ----------------
that  interest  on  the  amounts set forth in section 2.01 above, as well as all
costs,  fees,  expenses and other monies incurred by the Bank in connection with
the  Security  and  the  Indebtedness,  including,  without  limitation,  the
Forbearance  Fee  referred  to in section 5.04 hereof, further advances, if any,
made  by  the  Bank under the Loan Agreement or hereunder, the collection of the
Indebtedness,  any  appraisals and investigation of the Assets and the Security,
enforcement  of  the  Security,  the negotiation, preparation and enforcement of
this  Agreement  and any amendments hereto, and the disbursements and legal fees
incurred  by  the Bank on a solicitor and client basis in connection with all of
the  same  shall  be  added  to and are deemed to form part of the Indebtedness.

                                   ARTICLE 3
                                   ---------
                                ACKNOWLEDGEMENTS
                                ----------------

3.01     ACKNOWLEDGEMENTS  BY  THE  BORROWER:  The  Borrower hereby confirms and
         ------------------------------------
acknowledges  to  the  Bank  that:

(a)     each  of  the foregoing recitals are true and accurate both in substance
and  in  fact;

(b)     it is in default of certain covenants and obligations under the Loan
Agreement;

(c)     the Indebtedness is due and owing to the Bank and the Borrower has no
right or claim of set-off or any similar right or claim against the Bank in
connection with the Indebtedness;

(d)     the Bank has the right to demand repayment of the Indebtedness and to
enforce the Security;

(e)     the Security is, and any other security delivered by the Borrower to the
Bank to secure the Indebtedness after the date hereof will be, in full force and
effect, constitute legal, valid and binding obligations of the Borrower,
enforceable against the Borrower, and the Borrower hereby waives and agrees not
to assert or cause to be asserted on its behalf, and is hereby estopped from
asserting or causing to be asserted on its behalf, any defences or rights with
respect to the legal effect of the Security or the legality, validity or binding
effect of the obligations of the Borrower thereunder and the enforceability of
same;

<PAGE>
(f)     except as provided in this Agreement, the Bank (either by itself or
through its employees or agents) has made no promises, nor has it taken any
action or omitted to take any action which would constitute a waiver of its
right to make demand for the repayment of the Indebtedness and to take any
enforcement action in connection with the enforcement of the Security, or which
would estop it from so doing and that no statement, representation, promise, act
or omission by the Bank or its employees or agents shall create such a waiver or
estoppel unless the Bank executes and delivers to the Borrower a written waiver
of any such rights; and

(g)     the Borrower has been provided with a reasonable opportunity to seek
legal advice with respect to the execution and delivery of this Agreement.

3.02     ACKNOWLEDGEMENTS  BY  THE  GUARANTORS:  Each  of  the Guarantors hereby
         --------------------------------------
acknowledges  and  confirms  that  each  of  the foregoing recitals are true and
accurate  both  in  substance  and  in  fact;

(a)     each  of  the foregoing recitals are true and accurate both in substance
and  in  fact;

(b)     the Indebtedness is due and owing to the Bank and the Borrower has no
right or claim of set-off or any similar right or claim against the Bank in
connection with the Indebtedness;

(c)     the Bank has the right to demand repayment of the Indebtedness and to
enforce the Security;

(d)     the Security is, and any other security delivered by the Borrower to the
Bank to secure the Indebtedness after the date hereof will be, in full force and
effect, constitute legal, valid and binding obligations of the Borrower,
enforceable against the Borrower, and the Guarantors hereby waive and agree not
to assert or cause to be asserted on behalf of any or all of them, and are
hereby estopped from asserting or causing to be asserted on behalf of any or all
of them, any defences or rights in relation to any matter, cause or thing
whatsoever existing to the date hereof with respect to the legal effect of the
Security or the legality, validity or binding effect of the obligations of the
Borrower thereunder and the enforceability of same;

(e)     there is no dispute respecting the liability of the Guarantors in
connection with the Indebtedness and the obligations of the Guarantors to repay
the Indebtedness according to the provisions of the Guarantees;

(f)     the Guarantees are in full force and effect, constitute legal, valid and
binding obligations of each of the Guarantors, are enforceable against the
Guarantors and the Guarantors hereby waive and agree not to assert or cause to
be asserted on behalf of any or all of them, and are hereby estopped from
asserting or causing to be asserted on behalf of any or all of them, any
defences or rights with respect to the legal effect of the Guarantees or the
legality, validity or binding effect of the obligations of the Guarantors
thereunder and the enforceability of same;

(g)     they each consent to the Borrower entering into this Agreement;

<PAGE>
(h)     notwithstanding the terms of the Guarantees, the Loan Agreement, this
Agreement, or of any other agreement, whether written or oral, between the Bank
and the Guarantors or any one of them, the Bank shall be entitled to reply upon
the Guarantees in respect of any amounts comprising the Indebtedness;

(i)     except as provided in this Agreement, the Bank (either by itself or
through its employees or agents) has made no promises, nor has it taken any
action or omitted to take any action which would constitute a waiver of its
right to take any enforcement action in connection with the enforcement of its
Security, or which would estop it from so doing and that no statement,
representation, promise, act or omission by the Bank or its employees or agents
shall create such a waiver or estoppel unless the Bank executes and delivers to
the Borrower a written waiver of any such rights; and

(j)     the Guarantors have been provided with a reasonable opportunity to seek
legal advice with respect to the execution and delivery of this Agreement.

3.03     ACKNOWLEDGMENTS  BYSENTRY:  Sentry  acknowledges  that:  (i) the Sentry
         --------------------------
Security  constitutes  legal,  valid  and  binding  obligations  of  Sentry,  is
enforceable against Sentry, and Sentry hereby waives and agrees not to assert or
cause  to  be  asserted  on its behalf, and is hereby estopped from asserting or
causing  to be asserted on its behalf, any defences or rights in relation to any
matter,  cause  or  thing whatsoever existing to the date hereof with respect to
the legal effect of such Security or the legality, validity or binding effect of
the  obligations  of Sentry thereunder and the enforceability of same; (ii) that
the  Credit  Facilities  have  been,  are,  and will continue to be, utilized to
finance  its  business  operations;  and  (iii)  that the Credit Facilities were
utilized to repay the sum of $1,189,535.31 owing by Sentry to CIT, in May, 2005.

                                   ARTICLE 4
                                   ---------
                               WAIVER AND RELEASE
                               ------------------

4.01     WAIVER  AND  RELEASE:  The  Borrower  and  each  of  the  Guarantors
         ---------------------
acknowledge and agree that, to the date hereof, the Bank's administration of the
Credit  Facilities,  and  its actions in entering into this Agreement, have been
fair  and  reasonable  and  hereby  waive and agree not to assert or cause to be
asserted  on its behalf, and are hereby estopped from asserting or causing to be
asserted  on  its  behalf,  any  defences,  rights or claims with respect to the
foregoing,  and  hereby  release  and  remise  the Bank (including any director,
officer,  employee  or legal agent thereof) from any and all claims with respect
thereto.  Further,  in executing and delivering this Agreement, the Borrower and
each  of  the  Guarantors  acknowledge and agree that they are acting freely and
without  duress.

<PAGE>
                                   ARTICLE 5
                                   ---------
                         FORBEARANCE AND REPAYMENT PLAN
                         ------------------------------

5.01     IMPLEMENTATION:  The  Borrower  and  each  of  the  Guarantors  hereby
         ---------------
covenant  and  agree to and with the Bank that they shall, and each shall ensure
that  the  other,  honours and fulfils the terms and provisions of the Repayment
Plan  set  forth  in  this  Article  5.

5.02     FORBEARANCE PERIOD:  Subject to the terms and conditions of this
         -------------------
Agreement, the Bank agrees that it will forbear from the exercise of its rights
and remedies under the Security and Sentry Security in respect of the
Indebtedness for the period of time ("FORBEARANCE PERIOD") commencing with the
execution and delivery of this Agreement until the earlier of:

(a)     October  31,  2008;  and

(b)     the occurrence of an Event of Default;

and  reserves all of its rights and remedies against the Borrower under the Loan
Agreement  and  the  Security  with  respect  to any Event of Default thereunder
arising  after  the  date  of  this  Agreement,  or  any  Event  of  Default.

The  Borrower and each of the Guarantors acknowledge that the Bank shall have no
obligation  to  continue  to  forbear  after  the  expiration of the Forbearance
Period.

5.03     REPAYMENT OF THE INDEBTEDNESS:  Notwithstanding any other provisions of
         ------------------------------
this  Agreement,  the  Borrower  shall  cause the Indebtedness to be permanently
reduced  as  follows:

(a)     the  proceeds  from  all  sales,  transfers  or other disposition of the
Assets, or any portion thereof, outside of the ordinary course of the Borrower's
business,  shall  be  paid  directly  to  the  Bank  to  permanently  reduce the
Indebtedness;  and

(b)     the Indebtedness shall be repaid in full on or before October 31, 2008.

5.04     FORBEARANCE  FEE:  A  forbearance  fee  in  the  sum  of  $10,000  (the
         -----------------
"FORBEARANCE  FEE")  shall  be  paid to the Bank in consideration for the Bank's
agreement  to  forbear as set out herein and to compensate the Bank for the time
and  expense  incurred,  and  to  be  incurred,  by  it  in  connection with the
administration  of  the Credit Facilities during the Forbearance Period and such
Forbearance Fee is deemed to have been earned by the Bank upon the execution and
delivery  of  this Agreement.  The Forbearance Fee shall be and is hereby deemed
to  form  part  of  the  Indebtedness  and  secured  by  the Security and Sentry
Security.  The  Borrower  and each of the Guarantors authorize the Bank to debit
the  accounts  of  the  Borrower  maintained  at  the  Bank  in  payment  of the
Forbearance  Fee  immediately  upon  the  execution  of  this  Agreement.

<PAGE>
5.05     CONDITIONS TO FORBEARANCE:  The agreement of the Bank to forbear from
         --------------------------
the exercise of its rights and remedies against the Borrower pursuant to this
Article 5 is conditional upon: (i) Brascan Technology Fund ("BRASCAN") providing
to the Bank, by no later than June 4, 2008, with written confirmation that it
has agreed to extend the due date for the repayment of the indebtedness owing to
it by the Borrower to December 31, 2008, in form and content satisfactory to the
Bank; and (ii) the Borrower providing to the Bank, by no later than June 4,
2008, with written confirmation, in form and content satisfactory to the Bank,
from Tradition Capital Bank ("TRADITION") that the revolving credit agreement
made as of September 26, 2007 between Sentry and Tradition has been extended to
at least October 31, 2008.

5.06     AMENDMENTS TO LOAN AGREEMENT:  The Borrower and each of the Guarantors
         -----------------------------
acknowledge that, effective as at and from the execution of this Agreement by
the Borrower, the Loan Agreement is deemed to have been amended as follows:
(a)     the  applicable  rate  of  interest  on  the  Credit Facilities shall be
increased  to  the  Bank's  Prime  Rate  plus  3  %  per  annum.

                                   ARTICLE 6
                                   ---------
                                   COVENANTS
                                   ---------

6.01     The  Borrower  and  each of the Guarantors hereby jointly and severally
covenant  and  agree  with  the  Bank  as  follows:

(a)     MAINTAIN  CORPORATE  STATUS:  Each  of  the  Borrower  and  Sentry shall
        ---------------------------
maintain, and the Guarantors shall ensure that the Borrower and Sentry maintain,
their  corporate  existence  as  valid  and  subsisting  corporate  entities;

(b)     NO CORPORATE CHANGES:  Neither the Borrower nor Sentry shall merge,
        ---------------------
amalgamate or consolidate, and the Guarantors shall ensure that neither the
Borrower nor Sentry merges, amalgamates or consolidates, with any other
corporation except with the prior written consent of the Bank;

(c)     NO FURTHER OBLIGATIONS:  Neither the Borrower nor Sentry shall incur or
        -----------------------
become liable for, and the Guarantors shall ensure that neither the Borrower nor
Sentry incurs or becomes liable for, any borrowed money, or for the purchase
price of assets, obligations and leases, obligations under letters of credit or
guarantees or indemnities, obligations given pursuant to bankers' acceptances or
indemnities in connection therewith, or any contingent obligation, including,
without limitation, guarantees, endorsements or bills of exchange, obligations
to purchase assets and obligations to make advances or otherwise provide
financial assistance to any other entity without the prior written consent of
the Bank, except any of the same which is in the ordinary course of the business
of the Borrower, provided, however, that nothing herein shall preclude the
Borrower or Sentry from incurring and becoming liable for borrowed money
provided the same is used by the Borrower or Sentry to repay the Indebtedness in
accordance with and pursuant to this Agreement;

(d)     NOTICE OF PROCEEDINGS:  The Borrower shall give to the Bank prompt
        ----------------------
notice, and the Guarantors shall ensure that the Borrower gives to the Bank
prompt notice of any litigation, arbitration or administrative proceedings
before or of any court, arbitration, tribunal or governmental authority or
dispute affecting any of the Assets and Sentry Assets;

(e)     PRIORITY OF SECURITY:  The Borrower shall not do anything to affect, and
        ---------------------
the Guarantors shall ensure that the Borrower does not do anything to affect the
ranking of the Security or Sentry Security held by the Bank, without the prior
written consent of the Bank;

<PAGE>
(f)     STATUTORY REMITTANCES:  The Borrower shall, and the Guarantors shall
        ----------------------
cause the Borrower to, keep current all amounts owing by the Borrower to the
Crown, including, without limitation, amounts owing under the Income Tax Act
(Canada), the Excise Tax Act (Canada), the Retail Sales Tax Act (Ontario) and
any other federal or provincial laws which could give rise to a claim against
the Bank in priority to the Security held by the Bank against the Assets (as the
case may be) (collectively, the "PRIORITY PAYABLES"). The Borrower hereby
authorizes and directs any entity having information in respect of the Priority
Payables to release such information to the Bank or its agents, including,
without limitation, the Consultant to assist the Bank in evaluating the
existence and extent of any indebtedness owing by the Borrower to such entity
and the Borrower shall execute and deliver, forthwith at the request of the
Bank, such authorizations and consents as the Bank may require in respect of
same (the "PRIORITY PAYABLE AUTHORIZATIONS");

(g)     STATUTORY REMITTANCES - US: The Borrower shall, and the Guarantors shall
        ---------------------------
cause the Borrower to, keep current all amounts owing by the Borrower to the
United States of America, any State or Commonwealth thereof, any city, county,
township, municipality or other governmental authority, such amounts including,
without limitation, all federal, state, local, franchise, employment, property,
sales, withholding, stamp or documentary taxes, and any other excise taxes,
assessments, contributions, levies required of it by law, which could give rise
to a claim against the Bank in priority to the Security held by the Bank against
the Assets (as the case may be) (collectively, the "US PRIORITY PAYABLES"). The
Borrower hereby authorizes and directs any entity having information in respect
of the Priority Payables to release such information to the Bank or its agents,
including, without limitation, the Consultant to assist the Bank in evaluating
the existence and extent of any indebtedness owing by the Borrower to such
entity and the Borrower shall execute and deliver, forthwith at the request of
the Bank, such authorizations and consents as the Bank may require in respect of
same (the "US PRIORITY PAYABLE AUTHORIZATIONS");

(h)     EQUIPMENT SUPPLIERS:  The Borrower and Sentry shall keep current all of
        --------------------
its obligations to third parties that have or may be granted a lien, charge or
security interest in any equipment forming part of the Assets and Sentry Assets;

(i)     NO AGREEMENTS:  Except as expressly permitted herein, the Borrower and
        --------------
Sentry shall not, and the Guarantors shall ensure that the Borrower and Sentry
do not, enter into any agreement or employ any strategy, either directly or
indirectly, which would encumber, restrict or otherwise impair the Assets and
Sentry Assets or the marketability thereof and the Borrower and Sentry shall
work diligently, toward the overall implementation of this Agreement, including,
without limitation, the Repayment Plan;

(j)     NOTICE OF EVENT OF DEFAULT:  The Borrower shall give the Bank prompt
        ---------------------------
notice of, and the Guarantors shall ensure that the Borrower gives to the Bank
prompt notice of any Event of Default or any event which, with notice or lapse
of time or both, would constitute an Event of Default;

<PAGE>
(k)     NO FURTHER SECURITY:  The Borrower and Sentry shall not, and the
        --------------------
Guarantors shall ensure that the Borrower and Sentry do not, grant, execute or
deliver any security interests, mortgages, hypothecs, liens, charges, pledges or
other encumbrances whatsoever to any person, firm, corporation or other legal
entity without the prior written consent of the Bank;

(l)     PAYMENT  OF  BONUSES,  ETC.:  The Borrower and Sentry shall not, and the
        ----------------------------
Guarantors shall not cause or allow the Borrower or Sentry to, without the prior
written  consent  of  the  Bank,  incur  any  capital  expenditures, or make any
payments,  whether  directly  or indirectly, to any of their shareholders or any
other  persons,  whether  by  way of dividends, capital dividends, redemption or
retraction  of  shares,  bonuses  or  otherwise;

(m)     NO  REPAYMENT  TO  RELATED PERSONS:  Until the Indebtedness is repaid in
        -----------------------------------
full, there shall be no repayment of any amounts owing by the Borrower or Sentry
to  any  "related person" as such term is defined under the BIA, save and except
payments  to  employees of the Borrower and Sentry in the ordinary course of the
Borrower's  and  Sentry's  businesses,  without the prior written consent of the
Bank;

(n)     COMPLIANCE:  Each of the Borrower and the Guarantors shall comply, and
        -----------
each shall ensure that the other complies in all respects with all terms and
provisions of this Agreement, the Loan Agreement and the Security;

(o)     FINANCIAL REPORTING:  The Borrower shall honour, and the Guarantors
        --------------------
shall cause the Borrower to honour, all financial reporting covenants contained
in this Agreement, and the Loan Agreement;

(p)     BANK ACCOUNT:  The Borrower shall, and the Guarantors shall ensure that
        -------------
all monies generated by the Borrower in the course of its business operations
are deposited into the bank accounts of the Borrower maintained at the Bank and
the Borrower and Sentry shall only maintain accounts at the Bank, with the
exception of account #2517-00-3103 maintained in the name of Sentry with the
Bank of America, at its branch located at 4400 Veterans Memorial Highway,
Holbrook, New York ("BANK OF AMERICA ACCOUNT");

(q)     CO-OPERATION ON ENFORCEMENT:  Should an Event of Default occur and the
        ----------------------------
Bank exercise its rights and remedies under this Agreement, the Security, the
Sentry Security and the Loan Agreement, the Borrower and Sentry shall assist,
and the Guarantors shall ensure that the Borrower and Sentry assists, the Bank
in the exercise of such rights and remedies, including, without limitation,
assisting the Bank in securing possession of the Assets and Sentry Assets and
providing such assistance as is requested in the sale of same;

(r)     STATUS REPORTS:  The Borrower and Sentry shall provide to the Bank, and
        ---------------
the Guarantors shall ensure that the Borrower provides to the Bank, written
status reports acceptable to the Bank, in its sole and absolute discretion, on a
bi-weekly basis, commencing on the third Business Day following the execution of
this Agreement by the Borrower, and every two weeks thereafter, with respect to
(i) their efforts to raise financing to facilitate an equity injection and/or
refinancing; (ii) the status of the contracts between Sentry and/or the Borrower
with Telvent Mexico, Steve & Barry's Distribution Centre, Dallas Public Library
and Fed-Ex Smart Post; and (iii) a list of all new customer contracts entered
into by the Borrower and/or Sentry US in excess of $250,000. The Borrower shall
deliver to the Bank copies of all commitments, loan applications, term sheets,
offers to finance and other documentation with respect to the efforts described
in (i) above requested by the Bank;

<PAGE>
(s)     MONTHLY FINANCIAL STATEMENTS:  Within 15 days from the date of this
        -----------------------------
Agreement, the Borrower shall provide to the Bank, and the Guarantors shall
ensure that the Borrower provides to the Bank, consolidated and unconsolidated
financial statements for the Borrower, Sentry and CSI for January, February and
March, 2008;

(t)     CASH FLOW PROJECTIONS:  By no later than June 11, 2008, the Borrower
        ----------------------
shall provide to the Bank, and the Guarantors shall ensure that the Borrower
provides to the Bank, a monthly balance sheet, monthly income statement and
monthly cash flow projection, on a consolidated and unconsolidated basis for the
Borrower, Sentry and CSI, for the period ending December 31, 2008, in form
satisfactory to the Bank;

(u)     NET BORROWING POSITION:  The Borrower and Guarantors shall not allow its
        -----------------------
net borrowing position (being the loans advanced by the Bank less the deposits
in the Bank of America Account and less deposits in the accounts maintained by
the Borrower with the Bank) to exceed, at each week end to July 25, 2008, the
sums provided for in Schedule "A" annexed hereto. The Borrower shall provide to
the Bank, by no later than June 11, 2008, its net borrowing position projections
for the weeks of July 7 - July 21, 2008, for the Bank's consideration. The
Borrower and Guarantors acknowledge that the Bank is not obliged to accept such
net borrowing positions; and

(v)     BANK OF AMERICA CONTROL AGREEMENT:  The Borrower and Sentry shall use
        ----------------------------------
commercially reasonable efforts to cause the Bank of America to enter into a
control agreement with the Bank, on such terms and conditions as are
satisfactory to the Bank, by no later than July 31, 2008.

                                  ARTICLE 7
                                  ---------
                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

7.01     REPRESENTATIONS  AND  WARRANTIES:  The  Borrower  and  each  of  the
         ---------------------------------
Guarantors  represent  and  warrant to and in favour of the Bank and acknowledge
that  the  Bank  is relying upon such representations and warranties in entering
into  this  Agreement  as  follows:

(a)     the  Borrower  and  Sentry are corporations duly incorporated, organized
and  subsisting under the laws of the Province of Ontario and State of Delaware,
respectively;

(b)     each of the Borrower and the Guarantors have all necessary power and
authority and are duly qualified and hold all necessary licenses and/or
registrations to carry on their respective businesses as now conducted and to
enter into and perform their respective obligations under this Agreement;

<PAGE>
(c)     the execution, delivery and performance of this Agreement by the
Borrower and each of the Guarantors and the performance of their respective
obligations hereunder:

        (i)   have been duly  authorized  by all necessary corporate  actions;

        (ii)  do not conflict with or result in a breach or violation of or
              constitute a default under;

              A.     the  constating  documents  or  by-laws  of  the  Borrower;

              B.     any  law,  rule,  regulation, order, judgment, writ,
                     injunction or decree applicable  to  the Borrower and each
                     of  the  Guarantors;  and

              C.     any  commitment,  agreement  or  other  instrument  to
                     which the Borrower and/or  any  of  the Guarantors are now
                     a  party  or  otherwise  bound;  and

       (iii)  does  not  require  the  consent  or  approval  of  any  third
              party;

(d)     there is no matter, fact or event which is known to the Borrower and the
Guarantors  that  has  not  been disclosed to the Bank which is likely to have a
material adverse affect on the performance of their respective obligations under
this  Agreement,  or have a material adverse affect on the Assets, Sentry Assets
or  the  operations  of  the  Borrower  or  the Guarantors and each of them have
conducted such investigations as they consider reasonably necessary to make this
representation  and  warranty;

(e)     all amounts owing by the Borrowers and the Guarantors under the Income
Tax Act (Canada), Excise Tax Act (Canada), Retail Sales Tax Act (Ontario) and
any other federal or provincial laws, or to any taxing authority in the United
States of America, which could give rise to a claim against the Bank in priority
to the Security or the Sentry Security, are current, including, without
limitation, in respect of source deductions, goods and services tax, provincial
sales tax or any state or federal tax in the United States of America; and

(f)     there  are  no  amounts  owing to Canada Revenue Agency, the Province of
Ontario,  or  any  other  federal or provincial government agency or body or any
state  or  federal taxing authority in the United States of America, as a result
of  arrears  of monies owing by the Borrowers and/or the Guarantors, such as may
give  rise  to  the  issuance of a third party requirement to pay or any similar
demand  notice.

7.02     NON-MERGER:  The  representations and warranties set forth herein shall
         -----------
survive the execution and delivery of this Agreement, and shall continue in full
force  and  effect  until  the  repayment  of  the  Indebtedness.

<PAGE>
                                    ARTICLE 8
                                    ---------
                                    SECURITY
                                    --------

8.01     SECURITY:  The  Security  and Sentry Security shall continue to be held
         ---------
by  the  Bank  hereunder.

8.02     CROSS COLLATERALIZATION:  The Security and Sentry Security held by the
         ------------------------
Bank shall be held as security for all Indebtedness.  For greater certainty, the
Borrower and the Guarantors  hereby acknowledge and agree that upon the
occurrence of an Event of Default, the Bank shall be entitled to enforce its
rights under the Security and Sentry Security, or any part thereof, against the
Assets and the Sentry Assets, or any portion thereof, to the extent of the
Indebtedness.

8.03     ACCESS TO ASSETS AND SENTRY ASSETS:  The Borrower and Sentry shall, and
         -----------------------------------
the Guarantors shall ensure that the Borrower and Sentry shall, provide access
to the Bank or its agents during normal business hours, to enter upon the
premises or any property where the Assets and Sentry Assets are located to
inspect the Assets and Sentry Assets or to have appraisals made of the Assets
and Sentry Assets, and to examine and make copies of all books and records
relating thereto including any books and records required by the Bank, its
representatives or agents to confirm, among other things, that the Priority
Payables are current.  All costs in connection with such appraisals, testing and
enquires shall form and are hereby deemed to form part of the Indebtedness.

                                   ARTICLE 9
                                   ---------
                           APPOINTMENT OF CONSULTANT

9.01     APPOINTMENT OF CONSULTANT:  The Borrower and Guarantors acknowledge and
         --------------------------
agree  that  the Bank may appoint PricewaterhouseCoopers Inc. ("CONSULTANT") for
the  purposes of, among other things, reviewing and assessing all business plans
and  contracts  of  the  Borrower  and  Sentry, the financial performance of the
Borrower  and Sentry and any and all financial and other reports relating to the
Borrower  and  Sentry and all other documentation required to be provided by the
Borrower  and Guarantors to the Bank under the Loan Agreement, the Security, the
Sentry  Security, this Agreement or otherwise, as well as all audits, appraisals
and  valuations of the Assets and Sentry Assets obtained by the Bank, including,
without  limitation,  the reports required to be delivered to the Bank hereunder
and  under  the  Loan  Agreement.  The Borrower and each of the Guarantors shall
provide  to the Consultant access to the Assets and Sentry Assets, and the books
and  records  of  the  Borrower  and Sentry, and shall co-operate fully with the
Consultant  in  order  that  it  may  fulfil  the  terms of its appointment. The
Borrower  and  each  of  the  Guarantors  acknowledge that the engagement of the
Consultant  by the Bank shall not and does not in any way constitute the Bank or
the  Consultant  to  be  in  control  of  the Assets or the Sentry Assets or the
business operations of the Borrower or Sentry. The Borrower shall be responsible
for  all  fees  and  disbursements of the Consultant, plus its disbursements and
goods  and  services tax, and the Bank is hereby authorized to debit the account
of  the  Borrower  for  such fees, disbursements and taxes. The Borrower and the
Guarantors  each hereby acknowledge, confirm and agree that the Bank may appoint
the  Consultant  as  the  interim  receiver  and/or  receiver and manager of the
Borrower, and that the Consultant may also be named as the trustee in bankruptcy
of  the Borrower in the event that the Bank files a bankruptcy application for a
bankruptcy order against the Borrower. By their execution of this Agreement, the
Borrower  and  each  of  the  Guarantors  confirm their respective agreement and
consent  to  the  appointment  of  the  Consultant.

<PAGE>

                                  ARTICLE 10
                                  ----------
                                    DEFAULT
                                    -------

10.01     EVENTS  OF  DEFAULT:  Each of the following events shall constitute an
          --------------------
Event  of  Default  under  this  Agreement:

(a)     any  default  or failure in the observance or performance of any payment
or  covenant, obligation or agreement contained herein and/or under the Security
and/or  under  the  Loan  Agreement  by  the  Borrower  and/or  the  Guarantors;

(b)     the occurrence of any Event of Default hereunder and/or under the
Security and/or under the Loan Agreement;

(c)     any representation, warranty or statement contained herein and/or in the
Security and/or in the Loan Agreement which is or proves to be untrue or
incorrect;

(d)     the receipt by the Bank of a demand or requirement for payment from the
Canada Revenue Agency, the Province of Ontario, or any federal or provincial or
state governmental agency or body, as a result of arrears of monies owing by the
Borrower or Sentry including, without limitation, on account of employee source
deductions, goods and services tax, provincial sales tax, state sales tax,
corporate tax, employee health tax, employee vacation pay, pension contributions
or municipal property taxes;

(e)     the Bank determining, in its sole and absolute discretion, that any
adverse change has occurred in the financial affairs of the Borrower or Sentry;

(f)     the Borrower taking any action or commencing any proceeding or any
action or proceeding being taken or commenced by another person or persons
against the Borrower in respect of the liquidation, dissolution or winding-up of
the Borrower, including, without limitation, any action or proceeding under the
Winding Up and Restructuring Act, the Business Corporations Act (Ontario), or
other similar legislation whether now or hereinafter in effect;

(g)     Sentry taking any action or commencing any proceeding or any action or
proceeding being taken or commenced by another person or persons against Sentry
in respect of the liquidation, dissolution or winding up of Sentry, including,
without limitation, any action or proceeding under the Bankruptcy Code (United
States);

<PAGE>
(h)     the Borrower or Sentry taking any action or commencing any proceeding or
any action or proceeding being taken or commenced by another person or persons
against the Borrower relating to the reorganization, readjustment, compromise or
settlement of the debts owed by the Borrower to its respective creditors where
such reorganization, readjustment, compromise or settlement shall affect a
substantial portion of the Assets or Sentry Assets, including, without
limitation, the filing of a notice of intention to make a proposal or the filing
of a proposal pursuant to the provisions of the BIA, the making of an order
under the Companies Creditors Arrangements Act (Canada) or Bankruptcy Code
(United States) or the commencement of any similar action or proceeding by the
Borrower or Sentry;

(i)     the Borrower committing or threatening to commit any act of bankruptcy
pursuant to or set out under the provisions of the BIA;

(j)     the filing of a Bankruptcy Application for a Bankruptcy Order against
the Borrower pursuant to the provisions of the BIA;

(k)     any execution, sequestration or other process of any court or other
tribunal becoming enforceable against the Borrower or Sentry or a distress or
analogous action or proceeding being taken, commenced or issued against the
Borrower or Sentry or levied upon or in respect of the Assets or Sentry Assets
or any part thereof, or any lien, trust claim or any other right or entitlement
against or in respect of the Assets or Sentry Assets or any part thereof
becoming effective, including, without limitation, a warrant of distress of any
rent in respect of any premises occupied by the Borrower or Sentry, including,
without limitation, any premises in or upon which the Assets or Sentry Assets or
any part thereof may at any time be situate;

(l)     a receiver, receiver and manager, agent, liquidator or other similar
administrator being appointed in respect of the Assets or Sentry Assets, or any
part thereof, or the taking by a secured party, lien claimant, other
encumbrancer, judgment creditor or a person asserting similar rights of
possession to the Assets or Sentry Assets or any part thereof;

(m)     the Bank receiving notice from First Caribbean Intl Bk (Cayman) Ltd.,
that it will not renew a letter of credit in the amount of $600,000 issued by it
in favour of the Bank;

(n)     demand being made on the Borrower, Sentry or CSI by Brascan or
Tradition, or Brascan or Tradition taking any steps to enforce any security
delivered to either of them by the Borrower, Sentry or CSI; and

(o)     the failure of Bank of America to enter into the control agreement
referred to in section 6.01(v) hereof on or before July 31, 2008.

10.02     WAIVER:  The  Bank  may  waive in writing any Event of Default, in its
          -------
sole  and  absolute  discretion, but no such waiver shall constitute a waiver of
any  or  other  subsequent  Event  of  Default.

<PAGE>
                                  ARTICLE 11
                                  ----------
                             REMEDIES ON DEFAULT
                             -------------------

11.01     ENFORCEMENT:  Upon  the  occurrence  of  an  Event  of  Default:
          ------------

(a)     the Bank may immediately terminate its agreement to forbear as set forth
in  section  5.02  hereof;

(b)     the Borrower shall assist, and the Guarantors covenant they will ensure
that the Borrower assists, the Bank in the exercise of such rights and remedies,
including, without limitation, assisting the Bank in securing possession of the
Assets and Sentry Assets, or any part thereof, and providing such assistance as
is requested in the sale of same;

(c)     the Borrower and Sentry hereby consent to the Bank immediately enforcing
its rights under this Agreement, the Loan Agreement, the Security and the Sentry
Security, including, without limitation, the appointment of a receiver or
receiver and manager, by way of private appointment or on an application to the
Superior Court of Justice (Ontario) (Commercial List), and commence proceedings
in the applicable Courts in the United States of America, against the Assets and
Sentry Assets;

(d)     the Borrower shall, immediately upon receipt from the Bank or its
counsel of a Notice of Intention to Enforce Security pursuant to the provisions
of subsection 244(1) of the BIA, consent to the immediate enforcement of the
Security by the Bank and should the Borrower and Sentry fail to execute such
consent when requested to do so by the Bank, the agreement of the Borrower
and/or Sentry to do so herein shall be deemed to constitute the irrevocable
consent of the Borrower and the Guarantors to immediate enforcement by the Bank
of the Security; and

(e)     the Borrower shall, immediately upon receipt from the Bank or its
counsel of a Notice of Disposition pursuant to the provisions of subsection
63(4) of the Personal Property Security Act (Ontario), consent to the immediate
disposition of the Assets by the Bank and should the Borrower and/or the
Guarantors or any one of them, fail to execute such consent when requested to do
so by the Bank, the agreement of the Borrower and/or the Guarantors to do so
herein shall be deemed to constitute the irrevocable consent of the Borrower and
the Guarantors to the immediate disposition of the Assets by the Bank.

                                   ARTICLE 12
                                   ----------
                                    GENERAL
                                    -------

12.01     ENTIRE  AGREEMENT:  This  Agreement  constitutes  the entire agreement
          ------------------
between  the  Parties  with  respect to the subject matter hereof and supersedes
all prior agreements or discussions between the Parties whether written or oral.

<PAGE>
12.02     HEADINGS:  The headings in this Agreement are provided for convenience
          ---------
of reference only and should not be considered to form part hereof for the
purpose of interpreting or construing or applying this Agreement and such
headings shall not define, limit, extend or describe the scope of this Agreement
or any of its terms and conditions.

12.03     SCHEDULES:  Schedule "A" attached hereto forms an integral part of
          ----------
this Agreement.

12.04     SEVERABILITY:  If any provision of this Agreement is found by a court
          -------------
of competent jurisdiction to be invalid or unenforceable, the remaining
provisions of this Agreement shall not be affected thereby and shall remain
valid and enforceable.

12.05     NOTICES:  Any notice required or permitted to be given hereunder or
          --------
any tender or delivery of documents may be given in writing by personal delivery
or by facsimile transmission to the Borrower and the Bank at the following
addresses:

TO  THE  BORROWER,  SENTRY  AND  CSI  AT:

37  Voyager  Court  North
Etobicoke,  ON  M9W  4Y2

Attention:          Peter  Murdoch
Fax:               (416)  674-5075

WITH  A  COURTESY  COPY  TO:

     Beard  Winter  LLP
     130  Adelaide  Street  West
     Suite  701
     Toronto,  ON  M5H  2K4

     Attention:     Erick  J.  Fish
     Fax:          (416)  593-7760

TO  THE  BANK  AT:

20  King  Street  West
9th  Floor
Toronto,  ON  M5H  1C4

     Attention:     Colin  Cochrane
     Fax:           (416)  955-2562

<PAGE>
WITH  A  COURTESY  COPY  TO:

Minden  Gross  LLP
145  King  Street  West
Suite  2200
Toronto,  ON  M5H  4G2

     Attention:     Kenneth  L.  Kallish
     Fax:          (416)  864-9223

The  date  of receipt of such notice shall be the date of the actual delivery to
the  address  specified  if  delivered or the date of actual transmission to the
telecopier  number  if  telecopied,  unless  such date is not a Business Day, in
which  event  the  date  of  receipt  shall be the next Business Day immediately
following  the  date  of  such  delivery  or  transmission.

12.06     NO  PREJUDICE:  The  provisions hereof shall operate and apply without
          --------------
prejudice  to any rights which the Bank may now or in the future have in respect
of  the  Indebtedness,  or  other  liabilities or obligations, whether direct or
indirect,  matured or not, contingent or otherwise, of the Borrower to the Bank.

12.07     SUCCESSORS AND ASSIGNS:  This Agreement may be assigned by the Bank in
          -----------------------
its sole and absolute discretion, but shall not be assigned by the Borrower
unless authorized by the Bank in writing and this Agreement shall enure to the
benefit of and be binding upon the Parties hereto and their respective
successors and permitted assigns.

12.08     TIMELY PERFORMANCE:  It is intended by all Parties to this Agreement
          -------------------
that all obligations hereunder will be performed strictly in accordance with the
provisions of this Agreement and in a timely manner, with time being of the
essence hereof. Accordingly, should default occur in the timely performance of
any of the obligations by the Borrower for any reason, whether within or beyond
its control, the Bank shall upon the occurrence of such default be entitled to
rely strictly on its rights and remedies as set forth in this Agreement and
under the Loan Agreement and the Security.

12.09     RELATIONSHIP OF PARTIES:  Nothing in this Agreement shall be construed
          ------------------------
to  change  the  relationship  existing between the Borrower and the Bank to one
other than the debtor/creditor relationship as it now exists.  This Agreement is
not  entered  into,  nor shall it create, a partnership, joint venture or agency
relationship  between  the  Bank  and  any  of  the  Parties  hereto.

12.10     COUNTERPARTS:  This  Agreement  may  be  executed  in  one  or  more
          -------------
counterparts,  each of which shall be deemed to be an original, and all of which
taken  together  shall  be  deemed  to  constitute  one  and the same agreement.

12.11     FACSIMILE TRANSMISSION:  A facsimile transmission received by each
          -----------------------
Party of the other Parties signatures shall serve to confirm the execution
thereof by each such party.  The Parties hereto hereby agree that an original
executed copy of this Agreement shall be delivered to and by each Party within
two (2) Business Days of receiving the facsimile transmission copy of the
executed Agreement.

<PAGE>
12.12     GOVERNING LAW:  This Agreement shall be governed by the laws of the
          --------------
Province of Ontario and the laws of Canada as are applicable therein.

12.13     NO  AMENDMENT:  This  Agreement  shall  not  be  amended  unless  such
          --------------
amendments  are  in  writing  and  signed  by  all  Parties.

12.14     FURTHER ASSURANCES:  Each of the Borrower and the Guarantors hereby
          -------------------
agree to sign or execute all such other documents and do such other things as
may be necessary or desirable for more completely and effectively carrying out
the terms and intentions of this Agreement.

12.15     ACCEPTANCE:  Each of the Borrower and the Guarantors hereby
          -----------
acknowledge and agree to and with the Bank that on or before 5:00 p.m. on June
4, 2008, the Bank shall have received: (i) an original Forbearance Agreement
executed by the Borrower and each of the Guarantors; (ii) payment of the
Forbearance Fee required under section 5.04 hereof; and (iii) delivery of the
confirmation and agreements contemplated in section 5.05 hereof.  In the event
either of these conditions precedent to the Bank agreeing to forbear have not
been satisfied, the Bank may elect to rely upon its rights and remedies under
the Loan Agreement, the Security or otherwise.

IN  WITNESS  WHEREOF  the  Parties hereto have duly executed this Agreement with
effect  as  and  from  the  date  first  written  above.

                            ROYAL  BANK  OF  CANADA

                            Per:  /s/ Colin Cochrane
                                 ----------------------------------
                                  Name:  Colin  Cochrane
                                  Title: Manager, Special Loans Group - Ontario

                                  I  Have  Authority  to  Bind  the  Bank

                            SENTRY  TECHNOLOGY  CANADA  INC.

                            Per:  /s/ Peter L. Murdoch
                                 ----------------------------------
                                 Name:  Peter L. Murdoch
                                 Title: Authorized  Signing  Officer

                                 I  Have  Authority  to  Bind  the  Corporation

                            SENTRY  TECHNOLOGY  CORPORATION

                            Per:  /s/ Peter L. Murdoch
                                 -------------------------------------
                                 Name:  Peter L. Murdoch
                                 Title:     Authorized  Signing  Officer

                                 I  Have  Authority  to  Bind  the  Corporation

<PAGE>

                           CUSTOM  SECURITY  INDUSTRIES  INC.

                           Per:  /s/ Morton Roseman
                                --------------------------------------
                                Name: Morton Roseman
                                Title:     Authorized  Signing  Officer

                                I  Have  Authority  to  Bind  the  Corporation

<PAGE>

                                  SCHEDULE "A"
                                  ------------

                 Week ended May 2, 2008          $2,164,018
                 Week ended May 9, 2008          $2,332,798
                 Week ended May 16, 2008         $2,522,130
                 Week ended May 23, 2008         $2,426,640
                 Week ended May 30, 2008         $2,720,446
                 Week ended June 6, 2008         $3,121,000
                 Week ended June 13, 2008        $3,121,000
                 Week ended June 20, 2008        $3,121,000
                 Week ended June 27, 2008        $3,121,000
                 Week ended July 4, 2008         Borrower to complete
                 Week ended July 11, 2008        Borrower to complete
                 Week ended July 18, 2008        Borrower to complete
                 Week ended July 25, 2008        Borrower to complete

#1333913

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