Document:

Exhibit 10.63

Exhibit 10.63

SEPARATION AGREEMENT

This Separation Agreement (the “Agreement”) is made between (1) James D. Royston (“Royston”)
and (2) Astrotech Corporation, f/k/a SPACEHAB Incorporated (the “Company”). Royston and the
Company are sometimes collectively referred to as the “Parties.” This Agreement is effective eight
(8) days after the date of Royston’s signature below so long as Royston has not exercised his right
to revoke this Agreement prior to such time (the “Effective Date”).

WHEREAS, the Company employed Royston pursuant to an Employment Agreement, dated October 6,
2008 (the “Employment Agreement”), which is attached as Exhibit A;

WHEREAS, the Company terminated Royston from all positions with the Company or any of its
affiliates effective July 13, 2010 (“Date of Termination”); and

WHEREAS, the Parties desire to have no further obligations to each other, except as
specifically provided herein.

NOW, THEREFORE, in consideration of the promises, covenants and undertakings set forth herein,
and in full compromise, release and settlement, accord and satisfaction and discharge of all claims
or causes of action, known or unknown, the Parties agree as follows:

1. Termination.

Royston’s employment with the Company and any its affiliates ended, effective July 13, 2010,
and Royston ceased to perform services for the Company as of such date.

2. Severance/Tax Obligation.

In exchange for the agreements made by Royston as set forth below, and for other valuable
consideration, the receipt and sufficiency of which Royston and the Company acknowledge, the
parties have agreed that certain severance payments are owed to Royston. The parties also
acknowledge and agree that Royston owes the Company certain payments to fulfill Royston’s tax
obligations. After comparing the payments both parties owe to each other, the parties agree that
the net result is that Royston owes the Company $3,312.53 and that he will issue a check in that
amount of $3,312.53 made out to Astrotech Corporation on the Effective Date of this Agreement. The
Company will not make any payments to Royston under this Agreement, except as set forth in Section
3 and 4. For accounting purposes, the parties’ obligations to each other are set forth below.

(a) The Company has previously paid Royston $18,714.23, less usual withholdings, as payment
for Royston’s unused paid time off (“PTO”) of 185.36 hours. Royston acknowledges receipt of this
payment and agrees that this payment is in satisfaction of all unused PTO owed to Royston and that
no further amounts of PTO are due.

 

 

 

(b) To the extent permitted under the applicable plans, programs or policies, if any
maintained by the Company, including any pension, disability and life insurance plans, policies or
programs (collectively the “Plans”), the Company will pay Royston (or direct that payment be made
to Royston) all previously earned, accrued, vested and unpaid benefits from the Plans, which
benefits, if any, will be payable as provided pursuant to the terms of the applicable Plans and any
applicable benefit election forms or related documentation. The parties agree and acknowledge that
Royston is owed $18,000.00, less usual withholdings, under the Company’s Long Term Incentive
Compensation program.

(c) The parties acknowledge and agree that the Company owes to Royston as severance
$157,500.00, less usual withholdings (the “Severance Payment”). If Royston is a “specified
employee,” as defined in section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”), except to the extent that any amounts payable to Royston as a Severance Payment are not
treated as deferred compensation under Code section 409A, the Severance Payment will not be made
until the earlier of (i) the expiration of the six (6) month period measured from the Termination
Date and (ii) the date of Royston’s death.

(d) The parties acknowledge and agree that the Company owes Royston $6,461.53, less usual
withholdings, as payment for the continuation of Royston’s base salary during the payroll period
containing the Date of Termination.

(e) The parties acknowledge and agree that the Company is entitled to withhold $123,329.54
from the amounts due to Royston under this Agreement in satisfaction of Royston’s obligation
pursuant to the restricted stock agreements entered into between Royston and the Company on July
18, 2008 and November 13, 2009 to remit to the Company the amount necessary for the Company to meet
its tax withholding obligations with respect to the fifty thousand (50,000) shares of restricted
stock that vested on January 15, 2010 and the one hundred, fifty thousand (150,000) shares of
restricted stock that vested as of July 13, 2010.

(f) The Parties agree that the severance obligations referenced in this Paragraph 2 are in
full and complete satisfaction of any obligations on the part of the Company. The Parties agree
that no additional amounts are due under the Employment Agreement.

3. Expense Payments.

The Company will reimburse Royston for any reasonable and customary business expenses incurred
by him before the Date of Termination, which will be paid in accordance with Company policy,
provided that such expenses are submitted on an expense report within ten (10) days of the
Effective Date of this Agreement. Payment for such expenses will be made within fifteen (15)
business days after the Company’s receipt of such expense report.

 

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4. Additional Severance Obligation (COBRA Payments).

During the twelve-month period after Royston’s employee insurance coverage ends (“Severance
Period”), the Company shall pay for the premium costs for Royston and Royston’s enrolled
dependants’ at the time of the Date of Termination to continue group health insurance coverage,
including medical, dental and vision coverage under the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended (“COBRA”), provided that (i) Royston makes a timely election to continue
such coverage under COBRA and timely completes all necessary paperwork and (ii) Royston reimburses
the Company $154.48 per month for the employee-paid portion of Royston’s and his dependents’
insurance premiums as of the Date of Termination; such reimbursement will be made in the form of a
check payable to Astrotech Corporation and shall be mailed to the attention of Barbara Cory,
Astrotech Corporation, 907 Gemini, Houston, TX 77058 on or before the fifth day of each month (such
premium payment is referred to as the “Subsidized Continued Coverage”). The Subsidized Continued
Coverage will be treated as and counted against Royston’s and his dependents’ statutorily mandated
period of continuation coverage under COBRA. In the event that Royston secures other employment
providing health insurance coverage during the Severance Period, the Company’s obligations under
this Section 4 will cease as of the date on which Royston’s new health insurance coverage becomes
effective, and Royston hereby agrees promptly to notify the Company of such coverage. Upon
completion of the Severance Period, a breach of this Agreement, or Royston’s acquisition of new
health insurance coverage, whichever occurs first, Royston and/or his dependents may, at his/their
option, be eligible to elect to continue to receive continuation coverage under COBRA at his/their
sole expense for the remainder of the applicable COBRA continuation coverage period in accordance
with the eligibility requirements of COBRA. The amount of any such premium expenses paid in one
year will not affect the premium expenses eligible for payment in any subsequent year, and
Royston’s right to such payment will not be subject to liquidation or exchange for any other
benefit. The payment of premium expenses pursuant to this Section 4 will also satisfy all other
requirements of the regulations under Code section 409A with respect to any such reimbursements.

5. Vesting of Restricted Stock.

Effective as of his Date of Termination, the Company shall grant to Royston 150,000 shares of
restricted stock in accordance with the terms and conditions set forth in the restricted stock
agreements entered into between Royston and the Company on July 18, 2008 and November 13, 2009.

6. Release.

Royston settles, releases and waives all claims, counter claims, liens, demands, causes of
action, obligations, damages and liabilities, expenses, costs, attorneys’ fees, damages,
indemnities, obligations and/or liabilities of any nature whatsoever, whether known or unknown,
that Royston ever had, now has or may hereafter claim to have against the Company and their
stockholders, investors, officers, agents, directors, employees, affiliates, parents, subsidiaries,
divisions, predecessors, successors or assigns thereof, including, but not limited to, all claims
of unlawful discrimination, harassment or retaliation under state, local or federal law (including
but not limited to, Title I of the Americans With Disabilities Act of 1990, Title VII of the Civil
Rights Act of 1964, as amended, the Civil Rights Act of 1991, Older Workers’ Benefit Protection
Act, the Age Discrimination in Employment Act, the Texas Labor Code, or 42 U.S.C. § 1981); any
claim for stock options, equity awards, stock repurchases, unpaid wages, bonuses, severance,
vacation, expenses, relocation expenses or commissions; any claim for breach of the Employment
Agreement or any employment contract or other agreement; any claims for any violation of any other
federal, state or local statute, ordinance or regulation, or the Constitution of the United States
or the State of Texas; any claims of personal injury or other tort; any and every other claim
arising under federal or state common law; and all claims for attorneys’ fees.

 

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This release, however, does not waive any rights or claims that may arise after the date
Royston signs this agreement and this release will not operate to extinguish any rights of Royston
to receive workers’ compensation benefits or benefits under the Company’s employee benefits plans,
which shall be due and payable in accordance with the terms and conditions of such plans.

7. Covenant Not to Sue.

Royston warrants and covenants that he shall never institute, maintain or prosecute, or induce
or assist in the instigation, commencement, maintenance or prosecution of any action, suit,
proceeding or administrative charge in any forum that has or could have been asserted as of the
Effective Date of this Agreement against the Company or any of its owners, officers, agents,
directors, employees, affiliates, parents, subsidiaries, divisions, predecessors, successors or
assigns thereof.

Royston further agrees and covenants that he will not seek or accept any personal, equitable
or monetary relief in any action, suit, proceeding or administrative charge filed by one party on
his behalf by any person, organization or other entity against the Company.

8. Company Property.

Royston agrees to return all property belonging to the Company as of the date Royston signs
this Agreement. Royston acknowledges and agrees that he will perform a complete search of
Royston’s home(s), office(s), automobile(s), computers, electronic devices, and cellular and other
phones for any property, including trade secrets and confidential information, that may belong to
the Company. Royston acknowledge and agrees that he will search for, amongst other things, hard
copy documents, email, telephone numbers, contact information, equipment, devices and computer
files, and that Royston will return all such property to the Company, and will no longer retain any
such property.

9. Confidentiality.

The Parties agree that the existence and terms of this Agreement are strictly confidential.
Unless otherwise required by law or as may be required to be reflected in financial statements by
generally accepted accounting principles, the Parties shall limit disclosure of this Agreement to
legal counsel, immediate family, accountants, financial and tax advisors and officials with
responsibility for determining tax liability or corporate valuation. With the exception noted in
Section 10, Royston further agrees that he will keep confidential all aspects of his employment and
other involvement with the Company, such that if any third party asks about the Company, Royston’s
employment with the Company, or Royston’s departure from the Company, Royston will state that “all
matters have been resolved amicably” and “no further comment is permitted.”

 

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10. Non-disparagement and Non-acquisition.

Royston agrees that he will not make any statements, written or verbal, or cause, participate
or encourage others to make any statements, written or verbal, that defame or disparage the
personal or business reputation, practices or conduct of the Company, its employees, directors and
stockholders. Royston also agrees not to contact, communicate with, cooperate with or assist any
person or entity (or their counsel) making or threatening to make any legal claim against the
Company; provided however, nothing herein shall prohibit Royston from providing truthful testimony
pursuant to any validly issued subpoena or court order. Royston agrees to provide the Company a
copy of such subpoena or court order within three business days of receipt of any such subpoena or
court order. Royston shall not speak with Company employees or any third party about the Company
unless specifically in writing directed by the Company’s Board of Directors; provided however, that
Royston may communicate with potential employers about duties, responsibilities, and achievements
during his employment with the Company, subject to this Section 10 and his confidentiality
obligations to the Company.

The Company, through its directors and executive officers, acting within the scope of their
duties and authority, agrees not to, directly or indirectly, disclose, communicate, or publish any
non-factual information concerning or related to Royston.

Royston agrees that he and his affiliates (as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) will not (and he and they will not assist,
provide or arrange financing to or for others or encourage others to), directly or indirectly,
acting alone or in concert with others, unless specifically requested in writing in advance by the
Company’s Board of Directors:

(a) acquire or agree, offer, seek or propose to acquire (or request permission to do so),
ownership (including, but not limited to, beneficial ownership as defined in Rule 13d-3 under the
Exchange Act) of any of the assets or businesses of the Company or any securities, bank debt or
trade debt issued by the Company, or any rights or options to acquire such ownership (including
from a third party), other than the acquisition or holding of an interest in a mutual fund
registered as an open-end management investment company under the Investment Company Act of 1940
with assets under management of at least $500 million, that holds not more than 2% of the
outstanding common stock of the Company.

(b) seek or propose to influence or control the management or the policies of the Company or
to obtain representation on the Company’s Board of Directors, or solicit, or participate in the
solicitation of, any proxies, consents or votes with respect to any securities of the Company or
with respect to any plan of reorganization filed by the Company or any other person in connection
with a bankruptcy or similar proceeding under state or federal law involving the Company or any of
its subsidiaries,

(c) enter into any discussions, negotiations, arrangements or understandings with any third
party with respect to any of the foregoing, or

(d) seek or request permission to do any of the foregoing or make or seek permission to make
any public announcement with respect to any of the foregoing.

If at any time during such period Royston is approached by any third party concerning his or
their participation in a transaction involving the assets or businesses of the Company or
securities issued by the Company, Royston will promptly inform the Company of the nature of such
contact and the parties thereto.

 

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11. Remedies for Violation of Certain Covenants.

In the event Royston breaches Sections 9 or 10 of this Agreement or Sections 11, 12, 15, 16 or
17 of his Employment Agreement (together, the “Covenants”), all payments due pursuant this
Agreement shall cease and no further payments shall be due. In addition, any payments made by the
Company pursuant to this Agreement while Royston was in breach of any of the Covenants shall be
returned to the Company plus interest at the prime rate as quoted from time to time during the
relevant period in the Southwest Edition of The Wall Street Journal.

The Company will be entitled to bring suit to recover any and all damages, both direct and
consequential, that may be sustained as a result of Royston’s breach or threatened breach of the
Covenants. In addition, the Company will be entitled to specific performance and/or a temporary or
permanent injunction prohibiting and enjoining Royston from violating the Covenants. For purposes
of obtaining equitable relief, the Company need not prove, and Royston hereby admits, that
irreparable harm or injury will have occurred as a result of any breach of the Covenants. The
Company retains all its rights under the Employment Agreement to enforce Sections 11, 12, 15, 16 or
17 of the Employment Agreement.

12. Future Cooperation.

In the event that the Company becomes involved in any civil or criminal litigation,
administrative proceeding or governmental investigation, Executive shall, upon request, provide
reasonable cooperation and assistance to the Company, including without limitation, furnishing
relevant information, attending meetings and providing statements and testimony. The Company will
reimburse Executive for all reasonable and necessary expenses Executive incurs in complying with
this Section 12.

13. Denial of Liability.

No provision contained herein shall be construed as an admission by Royston or the Company of
improper conduct, omissions or liability.

14. Adequacy of Consideration.

The Parties agree that the consideration given by the other pursuant to this Agreement is
adequate and sufficient to make their respective obligations under this Agreement final and
binding.

15. No Right to Future Employment.

Royston hereby waives all rights to recall, reinstatement, employment, reemployment, and past
or future wages from the Company or any the Company Affiliate. Royston further agrees not to apply
for employment with the Company or any the Company Affiliate.

 

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16. Miscellaneous.

A. Entire Agreement.

With the exceptions of Royston’s surviving obligations in the Employment Agreement, including
Sections 11, 12, 15, 16, 17, 18, 19, 22, and 29 the Parties agree that this Agreement sets forth
the entire agreement of the Parties on this subject matter and supersedes and extinguishes any and
all prior statements, agreements, representations (including any oral representations) or
understandings by or among the Parties, and may not be modified or amended except in writing,
executed by all of the Parties. The Parties also agree and acknowledge that all obligations under
the Employment Agreement have been satisfied.

B. Validity of Remaining Terms.

Should any provision of this Agreement be determined to be illegal, invalid, or otherwise
unenforceable, the validity of the remaining terms and provisions hereof will not be affected
thereby but such will remain valid and enforceable, and the illegal or invalid terms or provisions
shall be deemed not to be a part of this Agreement.

C. Choice of Law/Interpretation.

This Agreement is entered into in the State of Texas, and shall in all respects be
interpreted, enforced, and governed by the laws of the State of Texas, without regard to its
principles governing the conflicts of laws. The language of this Agreement shall be construed as a
whole, according to its fair meaning, and shall not be construed strictly for or against either of
the Parties. The headings used herein are used for reference only and shall not affect the
construction of this Agreement.

D. Advice to Consult Attorney.

Royston represents that he has been advised to consult with an attorney before signing this
Agreement and that he is relying solely on his own judgment and the advice of his own counsel in
making this Agreement.

E. Revocation Period.

For a period of seven (7) days following Royston’s signing this Agreement, Royston may revoke
this Agreement (“Revocation Period”) by ensuring receipt of written notice of revocation by John M.
Porter, Senior Vice President & Chief Financial Officer, 401 Congress Ave., Suite 1650, Austin, TX
78701 by 5:00 pm, Central Standard Time on the seventh day after Royston signs this Agreement.
This Agreement shall not become effective or enforceable until the Revocation Period has expired.
Any obligations on the part of the Company are contingent upon Royston not exercising his right to
revoke.

F. No Waiver.

One or more waivers of a breach of any covenant, term or provision of this Agreement by any
party shall not operate or be construed as a waiver of any subsequent breach of the same covenant,
term or provision, nor shall it be considered a waiver of any other then existing or subsequent
breach of a different covenant, term or provision.

 

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G. 21 Days to Review.

Royston warrants and represents that he has had at least twenty-one (21) days to review this
Agreement to decide whether to sign this Agreement and be bound by its terms.

AGREED:

	 	 	 	 	 	 	 	 	 
	Date:
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	James D. Royston
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Astrotech Corporation
	 
	 	 	 	 	 	 	 	 
	Date:
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Title:  	 	 	 	 
	 

	 	 	 	 	 	 

 

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Exhibit 10.1

DEBENTURE

FENWICK AUTOMOTIVE PRODUCTS LIMITED

Issued to: MOTORCAR PARTS OF AMERICA, INC.

Issued by: FENWICK AUTOMOTIVE PRODUCTS LIMITED

1,894,034.09 (USD).

(Aggregate Principal Amount)

ARTICLE 1

PROMISE TO PAY

Section 1.1 Promise to Pay

     FENWICK AUTOMOTIVE PRODUCTS LIMITED (the “Corporation”), a corporation incorporated under the
laws of Ontario and having its chief executive office at 1100 Caledonia Road, Toronto, Ontario M6A
2W5, for value received, hereby promises to pay to or to the order of MOTORCAR PARTS OF AMERICA,
INC., its successors and permitted assigns (the “Holder”), at 2929 California Street, Torrance
California 90503, United States of America, or at such other place as the Holder may direct at any
time and from time to time, the amount of $1,894,034.09 (USD.) (the “Loan Amount”) on the Maturity
Date (as hereinafter defined) (or such other date as amounts owing hereunder may become due and
payable in accordance with the terms hereof) and to pay interest, calculated annually and payable
in cash quarterly (in arrears), on the last day of each calendar quarter (beginning on September
30, 2010) on the principal amount outstanding and on all other amounts now or hereafter owing
hereunder (including accrued and unpaid interest), at the Prime Rate plus 8.75% per annum
(calculated monthly and not in advance) until and including the Maturity Date (or such other date
as amounts owing hereunder may become due and payable in accordance with the terms hereof). The
principal amount owing from time to time, any interest payable thereon and all other amounts now or
hereafter payable hereunder, and at any time outstanding hereunder, shall be referred to herein as
the “Obligations”.

Section 1.2 Transfer and Assignment

     The Holder may, at any time, transfer and assign this Debenture to any Person, provided that
the terms and conditions of this Debenture shall enure to the benefit of and be binding upon the
Holder’s successors and permitted assigns. Prior to an Event of Default, the Holder may, with the
prior written consent of the Corporation (such consent not to be unreasonably withheld), disclose
to potential or actual transferees or assignees any confidential information regarding the
Corporation, the Parent and the Subsidiaries (including, any such information provided by the
Corporation to the Holder), subject to such reasonable confidentiality restrictions as the
Corporation may require, and shall not be liable for any such disclosure. For greater certainty
and notwithstanding anything else to the contrary in any other agreement between the Holder and the
Corporation or the Parent, no such consent of the Parent or the Corporation will be necessary to
disclose such

 

 

confidential information upon the occurrence and during the continuance of an Event of
Default.

ARTICLE 2

INTERPRETATION

Section 2.1 Definitions

     In this Debenture:

“Business Day” means a day other than a Saturday, Sunday or any other day on which the
principal commercial banks located in the City of Toronto, Province of Ontario are not open
for business during normal banking hours;

“Change of Control” means (a) any sale of all or substantially all of the assets of the
Parent or the Corporation; (b) any merger or other business consolidation in which the
current shareholders of the Parent or the Corporation do not own more than 50% of the
surviving entity; or (c) the acquisition by a purchaser or group of purchasers who are not
current shareholders (or related to any existing shareholder) at the time of such
acquisition of securities exchangeable for or convertible into voting securities of the
Parent or the Corporation resulting in the purchaser(s) of such securities owning more than
50% of all of the outstanding voting securities of the Parent or the Corporation on a fully
diluted basis; or (d) any Person or group of Persons, other than those existing
shareholders as of the date hereof, gaining effective control of the board of directors of
the Parent or the Corporation, but in any event shall exclude the consequences of the
exercise by the Holder of the Option;

“Corporation” has the meaning attributed thereto in Section 1.1;

“Debenture”, “hereto”, “herein”, “hereof’, “hereby”, “hereunder”, and any similar
expressions refer to this secured debenture of the Corporation and the schedules attached
hereto and not to any particular article, Section or other portion hereof, and include any
and every instrument supplemental hereto or amending any part hereof;

“Debt” of the Corporation means, without duplication:

	 	(a)	 	all indebtedness of the Corporation for or in respect of borrowed money,
credit or other financial accommodation, including liabilities and obligations
(whether contingent or otherwise) with respect to letters of credit, letters of
guarantee, bankers’ acceptances or similar instruments issued or accepted by banks and
other financial institutions for the account of the Corporation;
	 
	 	(b)	 	all indebtedness of the Corporation for or in respect of the purchase or
acquisition price of property or services, whether or not recourse is limited to the
repossession and sale of any such property;
	 
	 	(c)	 	all obligations under any lease entered into by the Corporation as lessee
which would be classified as a capital lease in accordance with GAAP;

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	 	(d)	 	all obligations of the Corporation to purchase, redeem, retract or otherwise
acquire any securities issued by the Corporation; and
	 
	 	(e)	 	all Debt (as hereinbefore defined) or any other debt which is directly or
indirectly guaranteed by the Corporation or which the Corporation has agreed to
purchase or otherwise acquire or in respect of which the Corporation has otherwise
assured a creditor against loss;

but “Debt” shall not include unsecured trade debt incurred in the ordinary course of
business consistent with past practice, nor any contingent liabilities (other than
guarantees) in connection with contracts entered into in the ordinary course of business;

“Event of Default” has the meaning attributed thereto in Section 8.1;

“Forbearance Agreement” means the forbearance agreement dated as of July 6, 2010 among
Royal Bank of Canada, the Corporation, the Parent, the Subsidiaries, Gordon Fenwick, Paul
Fenwick, and Joel Fenwick, as amended by the forbearance amending agreement dated August
23, 2010 and as may be further amended from time to time;

“New Forbearance Deadline” has the meaning specified in the Forbearance Agreement;

“Forbearance Terminating Event” has the meaning specified in the Forbearance Agreement;

“GAAP” means, at any time, the generally accepted accounting principles in Canada, applied
on a consistent basis, and statements and interpretations (if applicable) issued by the
Canadian Institute of Chartered Accountants or any successor body in effect from time to
time;

“Governmental Charges” means all taxes, levies, assessments, reassessments and other
charges together with all related penalties, interest and fines, due and payable to any
domestic or foreign government (federal, provincial, municipal or otherwise) or to any
regulatory authority, agency, commission or board of any domestic or foreign government, or
imposed by any court or any other law, regulation or rulemaking entity having jurisdiction
in relevant circumstances if failure to pay could reasonably be expected to have a material
adverse effect on the Parent, the Corporation or the Subsidiaries;

“Holder” has the meaning attributed thereto in Section 1.1;

“Indebtedness” has the meaning specified in the Forbearance Agreement;

“Intellectual Property” means domestic and foreign intellectual property rights including:
(i) patents, applications for patents and reissues, divisions, continuations, renewals,
extensions and continuations-in-part of patents or patent applications; (ii) copyrights,
copyright registrations and applications for copyright registration; (iii)

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mask works, mask work registrations and applications for mask work registrations; (iv)
designs, design registrations, design registration applications and integrated circuit
topographies and (v) trade names, business names, corporate names, domain names, website
names and world wide web addresses, common law trade-marks, trade-mark registrations, trade
mark applications, trade dress and logos, and the goodwill associated with any of the
foregoing;

“Lien” means any lien, mortgage, charge, hypothec, pledge, security interest, prior
assignment, option, warrant, lease, sublease, right to possession, encumbrance, claim,
right or restriction which affects, by way of a conflicting ownership interest or
otherwise, the right, title or interest in or to any particular property;

“Material Agreements” means all agreements to which the Parent, the Corporation or any of
the Subsidiaries is a party with a value of greater than $175,000;

“Maturity Date” means the later of:

(a) the New Forbearance Deadline; and

(b) July 31, 2012 provided that the Indebtedness is fully renewed or fully
replaced prior to the expiry of the New Forbearance Deadline;

“Motorcar Equity Purchase” has the meaning specified in the Forbearance Agreement;

“Obligations” has the meaning attributed thereto in Section 1.1;

“Option” means the option granted to the Holder to purchase 51% of all outstanding shares
in the capital of the Parent as more fully documented in the USA.

“Parent” means FAPL Holdings Inc. and its successors;

“Permitted Debt” means this Debenture, the Indebtedness, the indebtedness secured by
Permitted Encumbrances, indebtedness due by any Subsidiaries to the Corporation or among
any of the Subsidiaries and the Corporation, accounts payable, accrued liabilities, income
tax, deferred revenues, operating leases incurred in the ordinary course of business,
consistent with past practice, and capital lease obligations incurred in the ordinary
course of business (such existing capital lease obligations being subject to a limit of
$806,000.00 and additional capital leases entered into after the date hereof being subject
to a limit of $200,000.00), consistent with past practice, and includes, without
limitation, the Corporation’s obligations under its existing and future real property
leases;

“Permitted Encumbrances” has the meaning attributed thereto in Schedule “A” hereto;

“Person” means any individual, partnership, limited partnership, joint venture, syndicate,
sole proprietorship, company or corporation with or without share

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capital, unincorporated association, trust, trustee, executor, administrator or other legal
personal representative, regulatory body or agency, government or governmental agency,
authority or entity however designated or constituted;

“Prime Rate” means the Wall Street Journal Prime Rate as published in the Wall Street
Journal from time to time;

“Secured Property” has the meaning attributed thereto in Section 4.1;

“Security Documents” has the meaning attributed thereto in Section 4.1;

“Shareholder Advances” means amounts owing from the Corporation or the Parent to their
shareholders or related parties, respectively, on account of loans advanced by such
shareholders to the Corporation or the Parent and as more particularly described in
Schedule “B”;

“Shareholder Security” means the security granted by the Corporation with respect to
Shareholder Advances;

“Subsidiaries” means Autocat Catalogue Services, Inc., 778355 Ontario Inc., Introcan Inc.,
Rafko Enterprises Inc., Rafko Holdings Inc., LH Distribution Inc., Flo-Pro Inc. and Fapco
S.A. DE C.V.;

“Transaction Documents” means this Debenture and the Security Documents; and

“USA” means the unanimous shareholders agreement dated July 2, 2010 among Fenwick
Enterprises Inc., Escal Holdings Inc., Fencity Holdings Inc., Jofen Holdings Inc., Gordon
Fenwick, Paul Fenwick, Joel Fenwick, Stanley Fenwick, Karen Fenwick, Jack Shuster and FAPL
Holdings Inc, as amended by the addendum dated August 24, 2010.

Section 2.2 Headings

     The inclusion of headings in this Debenture is for convenience of reference only and shall not
affect the construction or interpretation hereof.

Section 2.3 References to Sections

     Whenever in this Debenture a particular article, section or other portion thereof is referred
to, such reference pertains to the particular article, section or portion thereof contained herein,
unless otherwise indicated.

Section 2.4 Currency

     Except where otherwise expressly provided, all amounts in this Debenture are stated and shall
be paid in Canadian currency.

Section 2.5 Gender and Number

     In this Debenture, unless the context otherwise requires, words importing the singular include
the plural and vice versa and words importing gender include all genders.

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Section 2.6 Invalidity of Provisions

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

Section 2.7 Amendment or Waiver

     No amendment or waiver of this Debenture shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any provision of this Debenture shall constitute a waiver
of any other provision nor shall any waiver of any provision of this Debenture constitute a
continuing waiver unless otherwise expressly provided.

Section 2.8 Governing Law; Attornment

     This Debenture shall be governed by and construed in accordance with the laws of the Province
of Ontario and the laws of Canada applicable therein. Each of the Corporation, and, by its
acceptance hereof, the Holder hereby irrevocably attorns to the non-exclusive jurisdiction of the
courts of the Province of Ontario with respect to any matter arising under or relating to this
Debenture.

Section 2.9 Non-Business Days

     If any date on which any payment is due or any action is required to be taken is not a
Business Day, the date for payment or taking such action shall be the next Business Day following
the date specified for such payment or action.

Section 2.10 Interest Act (Canada)

     For the purposes of the Interest Act (Canada) and disclosure thereunder, whenever any interest
or any fee to be paid hereunder or in connection herewith is to be calculated on the basis of a
360-day or 365-day year, the yearly rate of interest to which the rate used in such calculation is
equivalent is the rate so used multiplied by the actual number of days in the calendar year in
which the same is to be ascertained and divided by 360 or 365, as applicable. The rates of
interest under this Debenture are nominal rates, and not effective rates or yields. The principle
of deemed reinvestment of interest does not apply to any interest calculation under this Debenture.

Section 2.11 Certain Phrases, etc.

     In this Debenture (i) the words “including”, “includes” and “include” mean “including (or
includes or include) without limitation”, and (ii) the phrase “the aggregate of”, “the total of”,
“the sum of”, or a phrase of similar meaning means “the aggregate (or total or sum), without
duplication, of”. Unless otherwise specified, the words “Article” and “Section” followed by a
number mean and refer to the specified Article or Section of this Debenture. In the computation of
periods of time from a specified date to a later specified date, unless otherwise expressly stated,
the word “from” means “from and including” and the words “to” and “until” each mean “to but
excluding”.

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ARTICLE 3

PAYMENT

Section 3.1 Repayment

     The outstanding amount of the Obligations shall become due and payable by the Corporation on
the Maturity Date and the Corporation shall repay the outstanding amount of the Obligations in cash
to the Holder on the Maturity Date.

ARTICLE 4

SECURITY

Section 4.1 Security in favour of the Holder

     As continuing security for the payment of the Obligations, the Corporation, the Parent and the
Subsidiaries shall execute and deliver in favour of the Holder a general security agreement,
collateral mortgage and pledge agreement (collectively, the “Security Documents”), granting the
Holder a security interest in and to all present and after-acquired undertakings, property and
assets of the Parent, the Corporation and the Subsidiaries including any and all securities owned
by the Parent, the Corporation and any Subsidiaries, in form and substance satisfactory to the
Holder and its counsel (the “Secured Property”). In addition, the Holder shall have the continuing
right to obtain, at its election, a mortgage creating on any real property of the Parent, the
Corporation or the Subsidiaries a perfected lien on such real property as additional security for
the payment of the Obligations.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES

Section 5.1 The Parent and the Corporation jointly and severally represent, warrant and covenant to
the Holder that:

	(1)	 	Incorporation and Status. Each of the Parent, the Corporation and the Subsidiaries is duly
incorporated and organized, and is validly existing under its jurisdiction of organization.
Each of the Parent, the Corporation and the Subsidiaries is duly registered, licensed or
qualified as an extra-provincial or foreign corporation, and is up to date in the filing of
all corporate and similar returns under the laws of those jurisdictions where it operates and
where failure to be so registered, licensed, qualified or up to date would have a material
adverse effect on it.
	 
	(2)	 	Ownership. The Parent is the registered and beneficial owner of all of the issued and
outstanding shares in the capital of the Corporation.
	 
	(3)	 	Corporate Power and Due Authorization. The Parent and the Corporation has the corporate
power and capacity to enter into, and to perform its obligations under this Debenture, the
Security Documents and the USA. Each of this Debenture, the Security Documents and the USA
has been duly authorized, executed and delivered by the Corporation (including, without
limitation, receipt of all requisite director and

- 7 -

 

	 	 	shareholder approvals) and is a valid and binding obligation of the Corporation enforceable
in accordance with its terms, subject to the usual exceptions as to bankruptcy and the
availability of equitable remedies.
	 
	(4)	 	Business of the Corporation. Each of the Parent, the Corporation and the Subsidiaries has
the corporate power and capacity to own, lease or license its assets and to carry on its
business.
	 
	(5)	 	No Contravention. None of the entering into of this Debenture, the Security Documents or the
USA or the issuance, and/or exercise by the Holder, of the Option, or the performance by the
Parent or the Corporation of any of its other obligations hereunder or thereunder will
contravene, breach, result in any default or result in any acceleration, bonus or benefit to
any other party under the articles, by-laws, constating documents or other organizational
documents of the Corporation or under any mortgage, lease, license agreement, agreement, other
legally binding instrument, license, permit, statute, regulation, order, judgment, decree or
law to which it is a party or by which it may be bound.
	 
	(6)	 	Approvals and Consents. Except for those that have already been duly obtained, given or made
and are in full force and effect, no authorization, consent or approval of, or filing with or
notice to, any governmental agency, regulatory body, court or other person is required in
connection with the execution, delivery or performance and compliance with the terms of this
Debenture and the Security Documents nor will such performance and compliance contravene any
statute, rule or regulation binding on the Corporation.
	 
	(7)	 	As to Certain Contracts In and Out of the Ordinary Course. The Corporation is not a party to
nor is it bound by any contract, agreement or commitment that materially adversely affects or
could reasonably be expected to materially adversely affect the Corporation’s business or its
financial condition or any of its assets. Additionally, since March 31, 2010, the Corporation
has not:

	 	(a)	 	other than in the ordinary course and consistent with past practices of the
Corporation, sold, transferred or otherwise disposed of, or created, assumed or
permitted any encumbrance on or in respect of, its property or assets or any part
thereof;
	 
	 	(b)	 	incurred, assumed or become subject to any material liability except in the
ordinary course of business other than:

	 	(i)	 	professional fees and other expenses incurred in respect of
the Indebtedness and efforts to replace the Indebtedness; and
	 
	 	(ii)	 	those Shareholder Advances made between March 31, 2010 and
July 6, 2010;

	 	(c)	 	amended its articles, by-laws or other governing documents; and

- 8 -

 

	 	(d)	 	conducted its business, in all material respects, other than in the ordinary
course;
	 
	 	(e)	 	cancelled or released any debts or claims or waived or surrendered any rights
which, in the aggregate, are material; or
	 
	 	(f)	 	except as described in the Corporation’s financial statements, made any
change in its accounting principles and practices as theretofore applied including,
without limitation, the basis upon which its assets and liabilities are recorded on
its books and its earnings, profits and losses are ascertained.

	(8)	 	No Default Under Agreements. Except for the Indebtedness, the Corporation is not in default
or breach under any term or provision of its constating documents, by-laws or resolutions or
of any contract, agreement, lease or other instrument to which it is a party which default or
breach has had or could reasonably be expected to have a material adverse effect on the
Corporation taken as a whole and there exists no state of facts that after notice or the
passage of time, or both, would constitute such a default or breach and all those contracts,
agreements, leases and other instruments are now in good standing in all material respects,
and the Corporation is entitled to all benefits, rights and privileges thereunder.
	 
	(9)	 	Title to Assets. The Parent, the Corporation and each of the Subsidiaries is the absolute
beneficial owner of and has good and marketable title, free of all charges except for
Permitted Encumbrances, to all the assets owned by it (including all Investments) and used in
connection with the Corporation’s business.
	 
	(10)	 	Financial Matters. The audited consolidated financial statements of the Parent and notes
thereto as at and for the year ended March 31, 2009 present fairly in all material respects
the consolidated financial position of the Corporation as at the dates indicated and the
results of its operations and changes in its financial position for the periods specified and
reflect all material liabilities (absolute, accrued, contingent or otherwise) of the
Corporation as of the dates thereof and such financial statements have been prepared in
conformity with GAAP applied, except as otherwise stated therein, on a consistent basis.
	 
	(11)	 	Assets in Good Condition. All the material physical assets of the Parent, the Corporation
and the Subsidiaries and is in good operating condition and in a state of good maintenance and
repair subject to the usual wear and tear for assets of that age.
	 
	(12)	 	Licences and Agreements. Each of the material licenses and agreements to which the
Corporation is a party is in good standing and in full force and effect, and the Corporation,
to the best of the knowledge, information and belief of the Corporation, after due inquiry,
any other party thereto, is not in breach of any material covenants, conditions or obligations
contained therein.
	 
	(13)	 	Tax Matters. The Corporation has filed or caused to be filed all tax returns required to be
filed in all applicable jurisdictions and has paid all Governmental Charges. There are no
proceedings in progress, pending or, to the best of the knowledge,

- 9 -

 

	 	 	information and belief of the Corporation, after due inquiry, threatened in respect of any
Governmental Charges and, in particular, there are no currently outstanding reassessments
or written enquiries that have been issued or raised by any governmental authority relating
to any Governmental Charges. The Corporation has withheld or collected and remitted all
amounts required to be withheld or collected and remitted by them in respect of any
Governmental Charges.
	 
	(14)	 	Insurance. All physical assets of the Corporation are covered by insurance which is, to the
best of the knowledge, information and belief of the Corporation, after due inquiry, with
responsible insurers against such risks and in such amounts as are reasonable for prudent
owners of comparable assets. The Corporation is not in default with respect to any of the
material provisions contained in any current insurance policy nor has it failed to give any
notice or pay any premium or present any unsettled claim under any current insurance policy in
a due and timely fashion.
	 
	(15)	 	Intellectual Property. All registrations with and applications to governmental authorities in
respect of the Intellectual Property are valid and in full force and effect and as of the date
hereof are not subject to the payment of any taxes or maintenance fees or the taking of any
other actions by the Corporation to maintain their validity or effectiveness, other than
routine filings and payments applicable to registrations of that kind. All Intellectual
Property used by the Corporation is owned by or, where necessary, licensed to, the Corporation
and the Corporation has all rights, licenses, permits, authorizations and other approvals
necessary to use that Intellectual Property. As of the date hereof, no notice has been
received by the Corporation that its rights to any Intellectual Property owned or licensed by
it or otherwise used in the conduct of its business are invalid or unenforceable or that any
infringement or misappropriation thereof, in whole or in part, by any Person has occurred, and
no legal proceedings alleging any infringement of the Intellectual Property owned, licensed or
used by the Corporation in the conduct of its business have been initiated or, to the best of
the knowledge, information and belief of the Corporation, threatened. To the best of the
knowledge, information and belief of the Corporation, the conduct of the business of the
Corporation does not infringe the intellectual property rights of any Person.
	 
	(16)	 	Permits, Registrations and Elections. The Corporation holds all permits, licenses,
approvals, consents, authorizations, registrations, certificates and franchises of
governmental agencies or regulatory bodies required to own its properties and assets and to
carry on its business (collectively, the “Permits”) except where the failure to hold such
Permits would not have a material adverse effect on the Corporation. All the Permits are in
full force and effect; the Corporation is in compliance in all material respects with all the
terms and conditions relating to the Permits; and there are no proceedings in progress,
pending or, to the best of the knowledge, information and belief of the Corporation, after due
inquiry, threatened that may result in revocation, cancellation, suspension, rescission or any
adverse modification of any of the Permits nor, to the best of the knowledge, information and
belief of the Corporation, after due inquiry, are there any facts upon which proceedings could
reasonably be based.

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	(17)	 	Compliance with Laws and Litigation.

	 	(a)	 	The Corporation is conducting its business in compliance with all applicable
laws, regulations, by-laws and ordinances of each jurisdiction in which its business
is carried on, except where the failure to be in such compliance would not have a
material adverse effect on the Corporation;
	 
	 	(b)	 	There is no court, administrative, regulatory or similar proceeding (whether
civil, quasi-criminal or criminal); arbitration or other dispute settlement procedure;
investigation or enquiry by any governmental, administrative, regulatory or similar
body; or any similar matter or proceeding (collectively, “Proceedings”) against or
involving the Corporation or any of its officers or directors (whether in progress,
pending or, to the best of the knowledge, information and belief of the Corporation
after due inquiry, threatened); no event has occurred that might give rise to any
Proceedings and the Corporation is not aware of any existing grounds on which such
Proceedings might be commenced and there is no judgment, decree, injunction, rule,
award or order of any court, government department, board, commission, agency,
arbitrator or similar body outstanding against the Corporation, officers, directors or
its Subsidiaries.

	(18)	 	Material Facts Disclosed. None of the statements, documents, certificates or other items
prepared or supplied by the Corporation with respect to the transactions contemplated hereby
contains an untrue statement of a material fact, or fails to disclose a fact that is necessary
to be made in order for any material statement not to be misleading.

	(19)	 	No Rights to Acquire Assets or Shares. Except for the Holder, no person has any agreement or
option or right or privilege (whether pre-emptive or contractual) capable of becoming an
agreement for the purchase of any assets (other than the sale of inventory in the ordinary
course of business) or shares (from treasury or otherwise) of the Parent or the Corporation.

	(20)	 	Debt. The Corporation has no Debt senior to the indebtedness represented by this Debenture
other than Permitted Debt. Neither the Corporation nor any of its Subsidiaries has any other
direct or contingent Debt other than Permitted Debt.

	(21)	 	Location of Assets. There is no location at which the Parent, the Corporation or the
Subsidiaries has any assets (except for inventory or products in transit) other than those
locations listed on Schedule 5.1(21). Schedule 5.1(21) contains a true, correct and complete
list, as of the date hereof, of each place of business and the chief executive office of the
Parent, the Corporation and the Subsidiaries.

	(22)	 	Material Agreements. True, correct and complete copies of all Material Agreements have been
delivered to the Holder. The Corporation has performed all of the obligations required to be
performed by it and is entitled to all benefits under the Material Agreements. The
Corporation is not alleged to be in default of any Material Agreement other than those
Material Agreements related to the Indebtedness. Each

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		 	of the Material Agreements is in full force and effect, unamended, and there exists no
default or event of default or event, occurrence, condition or act which, with the giving
of notice, the lapse of time or the happening of any other event or condition, would become
a default or event of default under any Material Agreement other than those Material
Agreements related to the Indebtedness.

     All provisions contained herein which are qualified by or require any person or entity to make
a determination or assessment of any event or circumstance or other matter to its knowledge shall
be a reference to the knowledge of such person or entity and shall be deemed to require such person
or entity to make all due inquiries and investigations as may be necessary or prudent in the
circumstances before making any such determination or assessment. The Holder will be entitled to
rely on the representations and warranties of the Corporation contained in this Debenture
notwithstanding any investigation which the Purchaser may undertake or which may be undertaken on
the Holder’s behalf.

ARTICLE 6

COVENANTS OF THE CORPORATION

Section 6.1 General Covenants

     For as long as this Debenture remains outstanding, the Corporation and the Parent declare,
covenant and agree as follows:

	(1)	 	Use of Proceeds. The Corporation shall use the aggregate principal amount for general
corporate purposes;

	(2)	 	To Pay Principal and Interest. The Corporation will duly and punctually pay the principal and
interest accrued on this Debenture at the time and in the manner specified herein;

	(3)	 	Maintain Corporate Existence. The Parent and the Corporation shall (and shall cause the
Subsidiaries to) maintain its corporate existence, carry on and conduct its business in a
proper and business-like manner, take all reasonable action to maintain all rights, privileges
and franchises necessary or desirable in the normal conduct of its business and comply with
all applicable legal requirements;

	(4)	 	Delivery of Security and Perfection. The Parent and the Corporation shall (and shall cause
the Subsidiaries to) effect such registrations and obtain such consents and give such other
security, at the sole cost and expense of the Corporation, as may be required or desirable to
preserve, protect or perfect the security interests to be created with respect to the Secured
Property;

	(5)	 	No Encumbrances. Neither the Parent, the Corporation nor the Subsidiaries shall create,
assume or suffer to exist any Lien (other than Permitted Encumbrances), including, without
limitation, any agreement to give any of the foregoing or any conditional sale or other title
retention agreement, upon all or any part of the Secured Property. The Corporation will
defend the Secured Property against, and will take such other action as is necessary to
remove, any and all security interests on

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	 	 	and claims in respect of the Secured Property other than the security interests created by
the Security Documents and Permitted Encumbrances, and the Corporation will defend the
right, title and interest of the Holder in and to the Secured Property against the claims
and demands of all Persons;
	 
	(6)	 	Operating Leases. None of the Parent, the Corporation or the Subsidiaries will enter into or
maintain operating leases (other than real property leases) such that the aggregate annual
expenditure on such operating leases would be greater than $100,000.00;
	 
	(7)	 	Insurance. The Corporation shall keep its assets fully insured against such perils and in
such manner as would be customarily insured by companies carrying on a similar business or
owning similar assets;
	 
	(8)	 	Non-arm’s Length Transactions. The Parent and the Corporation shall not enter into any
transaction with any officer, director, employee, shareholder or any Person not dealing at
arm’s length (within the meaning of the Income Tax Act (Canada)) or any affiliate of any of
the foregoing, specifically excluding (a) any employment or option agreement, and (b) any
transaction for which prior written evidence, satisfactory to the Holder, is provided that
such transaction will be on terms equal to or greater than fair market value;
	 
	(9)	 	Certificate of Compliance. The Corporation covenants that at any time if requested by the
Holder, and at least on a monthly basis, the Corporation shall furnish to the Holder a current
certificate of a senior officer of the Corporation stating that the Corporation and its
Subsidiaries have complied with all covenants, conditions and other requirements contained in
any document, instrument or agreement executed and delivered by any of them to the Holder and
there has not occurred any Event of Default or non-compliance with any covenant, condition or
other requirement contained in the Transaction Documents and any other document, instrument or
agreement (including any Material Agreement) which would constitute an Event of Default or
event which with the giving of notice or the lapse of time or both or, if such is not the
case, specifying the covenant, condition or other requirement which has not been complied with
and giving particulars of such non-compliance and the action, if any, the Corporation or any
of its Subsidiaries proposes to take with respect thereto;
	 
	(10)	 	Additional Reporting. The Corporation covenants that, not later than the time furnished to
either Royal Bank of Canada under or in connection with the Indebtedness or the Forbearance
Agreement or to any other lender in accordance with the terms of any other Debt permitted in
accordance with the terms hereof, it shall deliver to the Holder copies of each report,
certificate, statement or notice furnished to Royal Bank of Canada or to such other lender,
and, promptly following the effectiveness thereof, a copy of each amendment of, supplement to
or waiver with respect to any of the Indebtedness or the Forbearance Agreement;
	 
	(11)	 	Certificate of Representations and Warranties. The Corporation covenants that at any time if
requested by the Holder, and at least on a quarterly basis, the

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	 	 	Corporation shall furnish to the Holder a current certificate of a senior officer of the
Corporation stating that the representations and warranties contained herein are true and
correct as of the date of the certificate with the same force and effect as if such
representations and warranties had been made on and as of such time except for such
representations and warranties stated to be true as of a specific date or, if such is not
the case, specifying the representation or warranty which is not true or correct and giving
particulars of such representation and warranty and the action, if any, the Corporation or
any of its Subsidiaries proposes to take with respect thereto;
	 
	(12)	 	Annual Business Plan. The Corporation shall prepare a draft annual business plan before the
start of each financial year (and shall prepare a draft business plan for the remainder of the
current financial year, as of July 1, 2010). The draft annual business plan must contain a
detailed monthly consolidated financial budget prepared in accordance with GAAP. The budget
must (i) include a pro forma balance sheet, income statement and statement of changes in
financial position of the Corporation for such financial year, (ii) include comparison
statements from the previous financial year, (iii) be accompanied by a statement of the nature
and amount of all capital expenditures to be incurred during such financial year, and (iv) be
supported by the explanations, notes and information upon which the projections underlying the
annual business plan have been based. The Corporation must deliver the draft annual business
plan to the Holder at least 60 days prior to the start of the applicable financial year. The
Holder will review the draft annual business plan and make such amendments and modifications
it determines appropriate, acting reasonably. Upon approval by the Holder, the draft annual
business plan becomes the “Annual Business Plan” for the applicable financial year. In the
event that the Holder, acting reasonably, does not approve any annual business plan in whole
or in part prior to the start of a financial year, the financial budget contained in the
Annual Business Plan for the preceding financial year will continue to apply to the extent of
such disagreement until a complete annual business plan is approved;

	(13)	 	Information Rights. The Corporation shall maintain proper, complete and accurate books and
accounts in accordance with GAAP consistently applied and in effect from time to time. The
Corporation shall provide on a timely basis the following to the Holder:

	 	(a)	 	one copy of its audited consolidated financial statements within 90 days
following the end of each financial year. The annual financial statements will be
audited by the auditors of the Corporation and will include the balance sheet and
statements of income, retained earnings and changes in financial position, together
with all supporting schedules, and the auditors’ report;
	 
	 	(b)	 	a monthly financial report within 30 days after the end of each month. The
report will consist of the monthly and year-to-date financial statements on a
consolidated basis in a form consistent with the Annual Business Plan and as normally
prepared by management for its own use. The report will also contain a comparison of
budget to actual and to the prior year for the same period;

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	 	(c)	 	such other information and documents respecting the Corporation’s business
and affairs which the Holder may reasonably request including a copy of any minutes of
board meetings or other materials provided to directors at the same time as are
circulated to the directors; and
	 
	 	(d)	 	copies of all written reports and information provided to the Parent’s or the
Corporation’s lenders.

	(14)	 	Approval Rights. From and after the advance by the Holder of the Loan Amount and until the
expiry of the Option exercise period, neither the Parent nor the Corporation may make a
decision about, take action on, or implement any of the following (for itself or any of the
Subsidiaries) without the prior written consent of the Holder, in addition to any other
approval required by law:

	 	(a)	 	incur, issue or make any request for or permit to exist Debt, except for the
Permitted Debt;
	 
	 	(b)	 	grant or permit the existence of any security for Debt of the Corporation
other than the Permitted Encumbrances;
	 
	 	(c)	 	keep, locate, or maintain assets outside of Canada, the United States of
America or Mexico;
	 
	 	(d)	 	make any prepayment of any Debt that is subordinate to or pari passu with the
Obligations (for the purposes of this Debenture, any conversion of Debt into equity of
the Corporation shall not be considered to be a prepayment);
	 
	 	(e)	 	make any amendment to the articles or by-laws of the Parent or the
Corporation in a manner which may prejudice the Holder or potentially result in a
material adverse change to the Corporation at the sole discretion of the Holder,
acting reasonably;
	 
	 	(f)	 	provide or permit a guarantee in respect of the obligations of any Person,
other than guarantees given in respect of indebtedness secured by a Permitted
Encumbrance or in respect of Permitted Debt;
	 
	 	(g)	 	acquire or commence any business other than the business currently conducted
by the Parent or the Corporation or effect any material change in the business or take
any action which may reasonably lead to or result in such material change;
	 
	 	(h)	 	sell, lease, exchange, transfer or dispose of all or a substantial part of
the assets and undertaking of the Parent, the Corporation or the Subsidiaries;
	 
	 	(i)	 	amend or vary the articles or by-laws of the Parent, the Corporation or the
Subsidiaries;

- 15 -

 

	 	(j)	 	dissolve, liquidate or wind-up the Parent, the Corporation or the
Subsidiaries or otherwise distribute the assets of the Parent, the Corporation or the
Subsidiaries for the purpose of winding-up its affairs, whether voluntary or
involuntary;
	 
	 	(k)	 	issue any security or sell, transfer or otherwise dispose of any securities
or other ownership, equity or proprietary interest in any other Person, including
securities held by the Parent in the Corporation or by the Corporation in any of its
Subsidiaries, except as contemplated by an Annual Business Plan;
	 
	 	(l)	 	purchase, lease or otherwise acquire any property or assets, which
individually or in the aggregate exceed $100,000, or make any commitment to do so,
except as contemplated by an Annual Business Plan;
	 
	 	(m)	 	purchase or otherwise acquire any securities or other ownership, equity or
proprietary interests in any other Person, or incorporate or create any subsidiary,
except as contemplated by an Annual Business Plan;
	 
	 	(n)	 	make any loan or advance to any person in excess of $25,000, except as
contemplated by an Annual Business Plan;
	 
	 	(o)	 	amalgamate, merge or enter into an arrangement or other corporate
reorganization involving the Parent or the Corporation or continue the Parent or the
Corporation into any other jurisdiction;
	 
	 	(p)	 	enter into any transaction between the Parent or the Corporation and any
person not dealing at arm’s length with the Parent or the Corporation, or enter into
any transactions by the Parent or the Corporation for the benefit of any person not
dealing at arm’s length with the Parent or the Corporation; provided, however, that
the Parent or the Corporation may enter into management and/or services agreements
with its managers and/or service providers in the ordinary course of business;
	 
	 	(q)	 	change the auditors of the Parent or the Corporation;
	 
	 	(r)	 	change the number of directors on the board of directors of the Parent or the
Corporation;
	 
	 	(s)	 	declare or pay any dividend or other distribution on or in respect of any
shares or other securities of the Parent or the Corporation;
	 
	 	(t)	 	purchase, redeem or acquire any shares or other securities of the Parent or
the Corporation, except as expressly permitted in writing by the Holder;
	 
	 	(u)	 	pay or distribute amounts out of any stated capital account, reduce any
stated capital account, distribute any surplus or earnings, or return any capital;

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	 	(v)	 	save for the replacement of Royal Bank of Canada as lead banker to the
Corporation, mortgage, charge, grant a security interest in or encumber any of its
assets, except for purchase money security interests incurred in the ordinary course
of business or otherwise provided for in an approved Annual Business Plan;
	 
	 	(w)	 	save for the replacement of Royal Bank of Canada as lead banker to the
Corporation, enter into any borrowing of funds, or incur any indebtedness, obligation
or liability in excess of or make any expenditure of any amount in excess of an amount
stipulated in an approved Annual Business Plan;
	 
	 	(x)	 	enter into any transfer, purchase, redemption, split, conversion or exchange
of shares, other securities or the granting of any option or right (including
convertible securities, warrants, or convertible obligations of any nature) for the
purchase or issuance of any shares or other securities of the Parent or the
Corporation or any agreement in the foregoing regards;
	 
	 	(y)	 	except as may be required in connection with the replacement of Royal Bank of
Canada as lead banker to the Corporation, enter into any guarantee howsoever of the
indebtedness or obligations of any person;
	 
	 	(z)	 	make any payment of any management or administration fees in excess of an
amount stipulated in an approved Annual Business Plan;
	 
	 	(aa)	 	establish any executive committee or delegate any power, right or duty of the
directors;
	 
	 	(bb)	 	enter into a transaction for the incorporation or acquisition of any person;
	 
	 	(cc)	 	make or file any material tax election;
	 
	 	(dd)	 	replace its current chief financial officer or any successor thereto;
	 
	 	(ee)	 	enter into any Material Agreement;
	 
	 	(ff)	 	agree or otherwise commit to take any action described in paragraphs (i) -
(ee) above; or
	 
	 	(gg)	 	hold assets in Quebec having a value in the aggregate of greater than
$200,000.

	(15)	 	Other Interests. The Parent, the Corporation and the Subsidiaries shall not permit those
entities in which they have a controlling interest to incur liabilities (other than Permitted
Debt) or to grant any security for Debt of that entity without the prior written consent of
the Holder.
	 
	(16)	 	Further Documentation. The Corporation will from time to time at its expense promptly and
duly authorize, execute and deliver such further instruments and

- 17 -

 

	 	 	documents, and take such further action, as the Holder may reasonably request for the
purpose of preserving the Secured Property, and full benefits of, and the rights and powers
granted by, the Security Documents (including the filing of any financing statements or
financing change statements under any applicable legislation, application for the
registration or an application for the registration of a rectification with respect to the
Secured Property and including any steps required to register security on real property if
necessary). Accordingly, the Corporation agrees that the Holder will have the right to
require that the Security Documents be amended, supplemented or replaced, and that the
Corporation will immediately on request by the Holder authorize, execute and deliver any
such amendment, supplement or replacement (i) to reflect any changes in such laws, whether
arising as a result of statutory amendments, court decisions or otherwise, (ii) to
facilitate the creation and registration of appropriate security in all appropriate
jurisdictions, or (iii) if the Corporation merges or amalgamates with any other Person or
enters into any corporate reorganization, in each case in order to confer on the Holder
security interests similar to, and having the same effect as, the security interests
created by the Security Documents.
	 
	(17)	 	Delivery and Pledge of Certain Collateral. Promptly upon request from time to time by the
Holder and immediately (without any request by the Holder being necessary) upon the occurrence
and during the continuance of any Event of Default, the Parent and the Corporation will
deliver (or cause to be delivered) to the Holder, endorsed and/or accompanied by such
instruments of assignment and transfer in such form and substance as the Holder may reasonably
request, any and all instruments, securities, documents of title and chattel paper included in
or relating to the Secured Property as the Holder may specify in its request (other than
Secured Property to which the holder of a Permitted Encumbrance holds a prior ranking charge).
	 
	(18)	 	Payment of Expenses; Indemnification. The Parent and the Corporation will pay within thirty
(30) days of demand therefor, and will indemnify and save the Holder harmless from, any and
all liabilities, reasonable costs and expenses (including reasonable legal fees (without
reduction for tariff rates or similar reductions) and expenses and any sales, goods and
services or other similar taxes payable to any governmental authority with respect to any such
liabilities, costs and expenses) (i) incurred by the Holder in the enforcement of the Security
Documents, (ii) with respect to, or resulting from, any failure or delay by the Corporation in
performing or observing any of its obligations under the Security Documents, or (iii) incurred
by the Holder in performing or observing any of the other covenants of the Corporation under
the Security Documents.
	 
	(19)	 	Maintenance of Records. The Corporation will keep and maintain accurate and complete records
of the Secured Property.
	 
	(20)	 	Right of Inspection. The Holder (or any agent of the Holder) may, at any time during normal
business hours, upon reasonable notice, without charge, examine all books and records
evidencing or relating to the Secured Property, and may discuss

- 18 -

 

	 	 	the affairs, finances and accounts of the Parent and the Corporation with its officers and
accountants in the presence of such representatives of the Corporation as the Corporation
may designate. The Holder (or any agent of the Holder) may also, upon reasonable notice,
without charge, enter the premises of the Parent, the Corporation or the Subsidiaries where
any of the Secured Property is located for the purpose of inspecting the Secured Property,
observing its use or otherwise protecting its interests in the Secured Property. The
Corporation, at its expense, will prepare and provide the Holder (or any agent of the
Holder) with such documentation and analysis, including, without limitation, the delivery
of copies, electronic or otherwise, of all books and records evidencing or relating to the
Secured Property and provide such clerical and other assistance as may be reasonably
requested by the Holder (or any agent of the Holder) to exercise any of its rights under
this paragraph.
	 
	(21)	 	Limitations on Dispositions of Collateral. Other than in the ordinary course of business,
the Parent and the Corporation will not (and will cause the Subsidiaries not to), without the
Holder’s prior written consent, sell, lease or otherwise dispose of any of the Secured
Property, except that inventory may be sold, leased or otherwise disposed of, equipment may be
replaced that is obsolete or requires replacement and accounts may be collected. Following
the occurrence and during the continuance of any Event of Default, all proceeds of the Secured
Property (including all amounts received in respect of accounts receivable), whether or not
arising in the ordinary course of the Corporation’s business, will, subject to the rights of
Royal Bank of Canada or any replacement lender to Royal Bank of Canada as lead banker to the
Corporation, be received by the Corporation as trustee and agent of the Holder and will be
immediately paid over to the Holder.
	 
	(22)	 	Compliance with Laws, etc. The Parent and the Corporation will comply and cause the
Subsidiaries to comply with the requirements of all applicable laws (including environmental
laws) , judgments, orders, decisions and awards.
	 
	(23)	 	Notices. The Corporation will provide immediate notice to the Holder in accordance with
Section 10.5 hereof, upon becoming aware of (i) any security interest (other than the security
interests created by the Security Documents and Permitted Encumbrances) on, or claim asserted
against, any of the Secured Property, (ii) the occurrence of any event, claim or occurrence
that is or could reasonably be expected to have a material adverse effect on the value of the
Secured Property, or (iii) any material loss of or damage to any of the Secured Property. The
Corporation will provide thirty (30) days notice to the Holder in accordance with Section 10.5
hereof of (i) any change in the location of the chief executive office of the Corporation,
(ii) any change in the location of any of the corporeal or tangible material Secured Property
(including additional locations) and (iii) any proposed Change of Control.
	 
	(24)	 	Limitations on Modifications, Waivers, Extensions. Other than in the ordinary course of
business, the Parent and the Corporation will not and will cause the Subsidiaries not to (i)
amend, modify, terminate or waive any provision of any permit, contract or any agreement
giving rise to an account owing to the Corporation

- 19 -

 

	 	 	or a Subsidiaries in any manner which is or could reasonably be expected to be materially
adverse to the Corporation or the Holder or (ii) fail to exercise promptly and diligently
its rights under each permit, contract and agreement giving rise to an account owing to the
Corporation or a Subsidiaries if such failure is or could reasonably be expected to be
materially adverse to the Corporation or a Subsidiaries or the Holder.
	 
	(25)	 	Quebec Assets. The Parent and the Corporation agree (i) to notify the Holder promptly if and
when the total value of the assets in Quebec owned by the Parent, the Corporation or any
Subsidiary, in the aggregate, exceeds $200,000 (the “Threshold”); and (ii) the Parent or the
Corporation shall or shall cause a Subsidiary, as applicable, to take all actions reasonably
necessary to provide security in Quebec within ten (10) days of such notification, together
with all additional documents, security, registrations and legal opinions of the Parent, the
Corporation and the Subsidiaries’ counsel, as applicable, as the Holder may reasonably
require.

ARTICLE 7

DELIVERIES AT CLOSING

	(1)	 	Concurrently herewith, and as a condition of closing in favour of the Holder, the Corporation
shall deliver the following documents to the Holder:

	 	(a)	 	favourable legal opinions, in form and substance satisfactory to the Holder,
acting reasonably, from counsel to the Parent, the Corporation and the Subsidiaries,
addressing, among other things (without limitation) the due authorization of the
Debenture, the Security Documents and related instruments and agreements, the
enforceability (subject to customary limitations) of the Debenture, the Security
Documents and related instruments and agreements and search results in respect of the
Corporation and its Subsidiaries, subject to customary qualifications, assumptions and
reliances and the authenticity of all signatures of all individuals;
	 
	 	(b)	 	certificates signed by appropriate officers of the Parent, the Corporation
and the Subsidiaries, addressed to the Holder and its counsel, with respect to their
articles and by-laws, all resolutions of their directors and other corporate action
relating to this Debenture and the Security Documents and with respect to such other
matters as the Holder may reasonably request;
	 
	 	(c)	 	the Security Documents;
	 
	 	(d)	 	the receipt by the Corporation of all approvals and consents reasonably
required by the Holder, in form and substance reasonably satisfactory to the Holder;
and
	 
	 	(e)	 	such other documents as the Holder may reasonably request.

- 20 -

 

	(2)	 	Concurrently herewith, and as a condition of closing, the Corporation shall pay to the Holder
a non-refundable fee of US$75,000.00 which the Holder shall satisfy out of the Loan Amount
advanced to the Corporation by the Holder.

ARTICLE 8

EVENTS OF DEFAULT

Section 8.1 Events of Default

     Any of the following shall constitute an Event of Default under this Debenture:

	 	(a)	 	failure by the Corporation to pay in cash all or any part of the Obligations
when due and payable;
	 
	 	(b)	 	the Parent, the Corporation or the Subsidiaries ceases to carry on business
in the normal course or any material part of its business;
	 
	 	(c)	 	the Parent, the Corporation or the Subsidiaries becomes unable to satisfy its
liabilities as they become due and/or the realizable value of the Corporation’s assets
is less than the aggregate sum of its liabilities;
	 
	 	(d)	 	the Parent, the Corporation, the Subsidiaries, any creditor of the Parent,
the Corporation or any Subsidiaries or any other Person institutes any proceeding or
takes any corporate action or executes any agreement in connection with the
commencement of any proceeding:

	 	(i)	 	seeking to adjudicate the Parent, the Corporation or the
Subsidiaries a bankrupt or insolvent;
	 
	 	(ii)	 	seeking liquidation, dissolution, winding-up, reorganization,
arrangement (including any plan of arrangement involving or affecting its
creditors under applicable corporate law), protection, relief or composition
of the Parent, the Corporation or the Subsidiaries or any material part of
their property or debt, or making a proposal with respect to the Parent, the
Corporation or the Subsidiaries under any law relating to bankruptcy,
insolvency, reorganization or compromise of debts or other similar laws; or
	 
	 	(iii)	 	seeking appointment of a receiver, trustee, agent,
custodian, monitor or other similar official for the Parent, the Corporation
or the Subsidiaries or for any material part of their properties and assets or
for any part of the Secured Property;

	 	(e)	 	any creditor of the Parent, the Corporation or the Subsidiaries, or any other
Person privately appoints a receiver, trustee or similar official for any material
part of the properties or assets of the Parent, the Corporation or any Subsidiaries;

- 21 -

 

	 	(f)	 	any execution, distress or other enforcement process, whether by court order
or other formal proceeding becomes enforceable (it being acknowledged and agreed that
the making of a demand by a third party without court or other formal sanction shall
not in itself constitute an Event of Default hereunder) against any material
properties of assets of the Parent, the Corporation or the Subsidiaries which could
have a material adverse effect on the business of the Corporation on a consolidated
basis;
	 
	 	(g)	 	the occurrence of any default in payment of monies or otherwise, or any event
or condition which, with the giving of notice or passage of time, or both, would
constitute a default in payment of monies or otherwise by the Parent, the Corporation
or the Subsidiaries under the terms of any other Debt permitted in accordance with the
terms hereof;
	 
	 	(h)	 	if any representation or warranty made by the Parent, the Corporation or the
Subsidiaries to the Holder in this Debenture or the Security Documents is untrue or
incorrect in any material respect as of the date on which it is made;
	 
	 	(i)	 	the occurrence of a Forbearance Terminating Event;
	 
	 	(j)	 	the Parent, the Corporation or any of the Subsidiaries fails to observe in
any material respect, any other term, covenant or agreement contained in this
Debenture, the Security Documents, the Indebtedness, the terms of any other Debt
permitted in accordance with the terms hereof, the Forbearance Agreement or the USA
(including the failure to preserve the ranking of the security interests created by
the Security Documents);
	 
	 	(k)	 	with respect to Debt of the Parent, the Corporation or the Subsidiaries under
any agreement with a third party (other than agreements entered into with customers in
the ordinary course of business), the Parent, the Corporation or any of the
Subsidiaries, as the case may be, fails to pay any principal, interest or other amount
pursuant to such agreement when such amount becomes due and payable (whether by
scheduled maturity, required repayment, acceleration, demand or otherwise), other than
the extension of the payment of trade and accounts payable in the ordinary course
consistent with the past practice of the Corporation or Subsidiaries, as the case may
be, provided such extension has no material adverse effect upon the Corporation on a
consolidated basis;
	 
	 	(l)	 	a notice is sent to or received by the Parent, the Corporation or the
Subsidiaries from any creditor with respect to the intention of such creditor to
enforce its Lien on any of the property of the Parent, the Corporation or
Subsidiaries, as the case may be, unless such notice is being contested in good faith
by appropriate legal proceedings and such notice has not resulted in, or does not
involve, any immediate prospect of the sale or forfeiture or loss of any of the
property of the Parent, the Corporation or Subsidiaries, as the case may be, that is
subject to such notice;

- 22 -

 

	 	(m)	 	the Parent, the Corporation or the Subsidiaries challenges the validity or
enforceability of this Debenture or the Security Documents or terminates or repudiates
any of them or attempts to do so;
	 
	 	(n)	 	any occurrence, development or change (other than an occurrence, development
or change to which the Holder consents), which would result in the Debenture ceasing
to have priority over all other Debt except for Permitted Encumbrances;
	 
	 	(o)	 	any holder of any Lien enforces against, or becomes entitled to enforce
against, or otherwise takes possession, management or control of the Secured Property
or the interest of the Corporation in such Secured Property, or any part of such
Secured Property or interest;
	 
	 	(p)	 	a distress, execution, warrant, garnishment, attachment, sequestration, levy,
writ, or any similar process is issued or enforced upon or against all or any part of
the Secured Property, or any third party demand is issued by the Crown, governmental
authority, administrative body or any taxation authority in respect of the Corporation
or all or any part of the Secured Property, or any other seizure is made in respect of
all or any part of the Secured Property;
	 
	 	(q)	 	the termination or resignation of the auditor of the Corporation provided
that such auditor is not replaced with an auditor from one of the four largest
accounting firms in Canada or such other accounting firm agreed to by the Holder;
	 
	 	(r)	 	any claim, action, litigation, arbitration or proceeding against the Parent,
the Corporation or the Subsidiaries results in a judgment against or settlement by the
Parent, the Corporation or the Subsidiaries which, if enforced or paid in accordance
with its terms, could have a material adverse effect on the business of the
Corporation on a consolidated basis or on the Parent, the Corporation or the
Subsidiaries;
	 
	 	(s)	 	any material portion of the Secured Property is damaged or destroyed, and
such loss is not covered by insurance;
	 
	 	(t)	 	the security interest created under any of the Security Documents ceases to
be a valid and perfected security interest;
	 
	 	(u)	 	any resolution is passed for, the winding up, dissolution or liquidation or
amalgamation of the Parent, the Corporation or any of its Subsidiaries other than with
or into the Parent, the Corporation or another Subsidiary or if the Corporation or any
of its Subsidiaries loses its charter by expiration, cancellation, forfeiture or
otherwise;
	 
	 	(v)	 	there occurs any change, condition, event or occurrence which, when
considered individually or together with all other changes, conditions, events

- 23 -

 

	 	 	 	or occurrences, could reasonably be expected to have a material adverse effect (or
a series of adverse effects, none of which is material in of itself but which,
cumulatively, results in a material adverse effect) on: (A) the business,
operations, assets, financial condition or prospects of the Parent, the Corporation
or its Subsidiaries taken as a whole; or (B) to the extent applicable, the ability
of the Parent or the Corporation to perform any of its obligations under this
Debenture, any other Material Agreement or any document, instrument or agreement
executed and delivered by the Parent, the Corporation or any of its Subsidiaries at
any time to or in favour of the Holder; or (C) the ability of the Holder to enforce
any of the obligations of the Parent, the Corporation or its Subsidiaries under
this Debenture or any other of the Transaction Documents; or (D) the priority of
the Security Documents against the Secured Property;
	 
	 	(w)	 	there is an adverse qualification to any of the audited financial statements
of the Corporation or its Subsidiaries by its auditors; or
	 
	 	(x)	 	a Change of Control of the Parent or the Corporation occurs.

Section 8.2 Notice of Event of Default

     The Corporation will give notice in writing to the Holder of the occurrence of any Event of
Default or other event which, with the lapse of time or giving of notice or otherwise, would be an
Event of Default, forthwith upon becoming aware thereof. Such written notice shall specify the
nature of such default or Event of Default and the steps taken to remedy the same.

Section 8.3 Default under Other Encumbrances

     Any amount paid by the Holder after the occurrence of an Event of Default on account of monies
payable under any encumbrance upon the Secured Property or any part thereof shall:

	 	(a)	 	be added to the Obligations and constitute a charge upon the Secured
Property;
	 
	 	(b)	 	be repaid by the Corporation to the Holder on demand.

Section 8.4 Judgment

     Neither the taking of any judgment nor the exercise of any power of seizure or sale shall
operate to extinguish the liability of the Corporation to perform the Obligations nor shall such
operate as a merger of any covenant or affect the right of the Holder to receive interest at the
specified rate, and any judgment shall bear interest at such rate.

- 24 -

 

ARTICLE 9

REMEDIES

Section 9.1 Consequences of an Event of Default

     Upon the occurrence of an Event of Default and during the continuance, the Holder may provide
written notice to the Corporation declaring the Obligations to be immediately due and payable by
the Corporation to the Holder. Without the necessity of any further act or formality, but subject
to applicable law, the security hereby created and created by the Security Documents shall become
enforceable.

Section 9.2 Limitation of Liability

     The Holder shall not be liable by reason of any entry into or taking possession of any of the
Secured Property hereby charged or intended so to be or any part thereof, to account as mortgagee
in possession or for anything except actual receipts or be liable for any loss on realization or
any act or omission for which a secured party in possession might be liable. The Holder shall not,
by virtue of these presents, be deemed to be a mortgagee in possession of the Secured Property.
The Holder shall not be liable or accountable for any failure to exercise its remedies, take
possession of, seize, collect, realize, sell, lease or otherwise dispose of or obtain payment for
the Secured Property and shall not be bound to institute proceedings for such purposes or for the
purpose of preserving any rights, remedies or powers of the Holder, the Corporation or any other
person in respect of same. The Corporation hereby releases and discharges the Holder from every
claim of every nature, whether sounding in damages or not, which may arise or be caused to the
Corporation or any person claiming through or under the Corporation by reason or as a result of
anything done or omitted to be done, as the case may be, by the Holder or any successor or assign
claiming through or under the Holder under the provisions of this Debenture, unless such claim is
the result of gross negligence or wilful misconduct.

ARTICLE 10

GENERAL

Section 10.1 Motorcar Equity Purchase.

     The Holder agrees that (1) it shall have no recourse against Royal Bank of Canada in respect
of the Motorcar Equity Purchase and shall provide Royal Bank of Canada confirmation of same if so
requested by either the Corporation or Royal Bank of Canada, and (2) any recourse which the Holder
may have against the Parent, the Corporation or the Subsidiaries in respect of the Motorcar Equity
Purchase shall be fully subordinated to the Indebtedness in accordance with the terms of a
subordination agreement to be entered into between the Holder and Royal Bank of Canada.

Section 10.2 Releases

     The Holder may in its discretion from time to time release any part of the Secured Property or
any other security either with or without any sufficient consideration therefor, without
responsibility therefor and without thereby releasing any other part of the Secured Property or any
other security or any Person from the security created by this Debenture or the Security Documents
or from any of the covenants herein contained. Each and every

- 25 -

 

portion into which the Secured Property is or may hereafter be divided does and shall stay
charged with the Obligations. No Person shall have the right to require the Obligations to be
apportioned and the Holder shall not be accountable to the Corporation for any moneys except those
actually received by the Holder.

Section 10.3 Expenses

     The Corporation shall pay to the Holder on demand all of the Holder’s reasonable costs,
charges and expenses in connection with the enforcement by any means of any provisions hereof or
the exercise of any rights, powers or remedies hereunder, including, without limitation, all such
costs, charges and expenses in connection with taking possession, maintaining, completing,
preserving, protecting, collecting or realizing upon all or any part of the Secured Property.

Section 10.4 Discharge of Debenture

     After the Obligations have been irrevocably repaid in full, the Holder shall return the
Secured Property to the Corporation, cancel and discharge this Debenture with respect to any
Obligations that are payable by the Corporation to the Holder and execute and deliver to the
Corporation such instruments as shall be necessary to discharge this Debenture and the Security
Documents.

Section 10.5 Communication

     Any notice or other communication required or permitted to be given hereunder shall be in
writing and shall be given by prepaid first-class mail, by facsimile or other means of electronic
communication or by hand-delivery as hereinafter provided. Any such notice or other communication,
if mailed by prepaid first-class mail at any time other than during, or within three (3) Business
Days prior to, a general discontinuance of postal service due to strike, lockout or otherwise,
shall be deemed to have been received on the fourth Business Day after the postmarked date thereof,
or if sent by facsimile or other means of electronic communication, shall be deemed to have been
received on the Business Day of the sending (provided it was sent before 4:30 p.m. Toronto time)
and the applicable printed facsimile record shall be definitive evidence of the time and date of
such facsimile transmission, or if delivered by hand shall be deemed to have been received at the
time it is delivered to the applicable address noted below either to the individual designated
below or to an employee of the addressee at such address with responsibility for matters to which
the information relates. Notice of change of address shall also be governed by this Section 10.5.
In the event of a general discontinuance of postal service due to strike, lock-out or otherwise,
notices or other communications shall be delivered by hand or sent by facsimile or other means of
electronic communication and shall be deemed to have been received in accordance with the
foregoing. Notices and other communications shall be addressed as follows:

	 	(a)	 	if to the Corporation:

1100 Caledonia Road

Toronto, Ontario

M6A 2W5

Attention: President

- 26 -

 

Facsimile: (416) 784-1197

with a copy (that does not constitute notice) to:

Wisebrod/Zeliger Associates

245 Fairview Mall Drive

Suite 510

Toronto, Ontario

M2J 4T1

Attention: Avi Wisebrod

Facsimile: (416) 496-1708

	 	(b)	 	if to the Holder:

2929 California Street

Torrance CA 9053

United States of America

Attention: General Counsel

Facsimile: (310) 212-6315

with a copy (that does not constitute notice) to:

Stikeman Elliott LLP

5300 Commerce Court West

199 Bay Street

Toronto, Ontario

M5L 1B9

Attention:Martin Langlois

Facsimile: (416) 947-0866

Section 10.6 Successors and Assigns

     This Debenture shall be binding on the Corporation and its successors and shall enure to the
benefit of the Holder and its successors and permitted assigns.

Section 10.7 No Set-Off

     The Obligations secured by this Debenture shall be paid by the Corporation without regard to
any set-off, counterclaim or equities between the Corporation and the Holder.

Section 10.8 Judgment Currency.

	(1)	 	If for the purposes of obtaining judgment in any court it is necessary to convert all or any
part of the Obligations or any other amount due to the Holder in respect of the Corporation’s
obligations under this Debenture in any currency (the “Original

- 27 -

 

	 	 	Currency”) into another currency (the “Other Currency”), the Corporation, to the fullest
extent that it may effectively do so, agrees that the rate of exchange used shall be that
at which, in accordance with normal banking procedures, the Holder could purchase the
Original Currency with the Other Currency on the Business Day preceding that on which final
judgment is paid or satisfied.

	(2)	 	The obligations of the Corporation in respect of any sum due in the Original Currency from it
to the Holder shall, notwithstanding any judgment in any Other Currency, be discharged only to
the extent that on the Business Day following receipt by the Holder, of any sum adjudged to be
so due in such Other Currency the Holder may, in accordance with its normal banking
procedures, purchase the Original Currency with such Other Currency. If the amount of the
Original Currency so purchased is less than the sum originally due to the Holder in the
Original Currency, the Corporation agrees, as a separate obligation and notwithstanding any
such judgment, to indemnify the Holder against such loss, and if the amount of the Original
Currency so purchased exceeds the sum originally due to the Secured Creditor in the Original
Currency, the Holder agrees to remit such excess to the Corporation.

Section 10.9 Permitted Encumbrance

     Notwithstanding any other provision in this Debenture, the parties confirm their intent that
the references to Permitted Encumbrances herein are not intended to imply the subordination by the
Holder to any person.

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     IN WITNESS WHEREOF the Corporation has executed this Debenture on the                      day of
                     , 2010.

	 	 	 	 	 
	 	FENWICK AUTOMOTIVE PRODUCTS LIMITED

 	 
	 	By:  	 	 
	 	 	Authorized Signing Officer 	 
	 
	 	I have the authority to bind the corporation 	 
	 

ACKNOWLEDGED AND AGREED to on the                      day of                      , 2010.

	 	 	 	 	 
	 	FAPL HOLDINGS INC.

 	 
	 	By:  	 	 
	 	 	Authorized Signing Officer 	 
	 
	 	I have the authority to bind the corporation 	 

-29-

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