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•	we received approval from the provincial regulatory authorities in Prince Edward Island for the construction of a broodstock facility to house our non-transgenic Atlantic salmon stock and a 250-metric-ton recirculating aquaculture system (“RAS”) facility to grow out our AquAdvantage Salmon, and both facilities are currently under construction;

•	we have completed our first sales of AquAdvantage Salmon to Canada from our farm site in Panama; and

▪	we purchased certain assets of the aquaculture facility of Bell Fish Company LLC, which we intend to use to grow out our AquAdvantage Salmon for sale and consumption in the United States.

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•	salaries and related overhead expenses for personnel in research and development functions;

•	fees paid to contract research organizations, Intrexon, and consultants who perform research for us;

•	costs related to laboratory supplies used in our research and development efforts;

•	costs related to the operation of our field trials; and

•	costs related to the grow-out of fish at the Panama site that are not capitalized in inventory.

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•	the timing of additional regulatory approvals and permits for AquAdvantage Salmon, if any;

•	the cost to complete construction activities at our Rollo Bay site;

•	the cost to raise fish at our Indiana site; and

•	the timing of costs related to the FDA legal challenge (see “Legal Proceedings,” below).

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1.1	A term loan (hereinafter collectively called the “Loan”) of up to Two Million Seven Hundred Thousand Dollars ($2,700,000), the proceeds of which are to be used to finance the construction of 2 buildings in Fortune, PEI;

1.2	The Borrower agrees to assume all project cost overruns without prejudice to the security held by the Lender;

2.1	The Loan has a term of five years from the date of first disbursement with a 20 year amortization period. If any portion of the Loan remains outstanding at maturity, the Loan, and any unpaid accrued interest, shall be immediately due and payable in full;

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2.2	The Loan will bear interest at the fixed rate of four percent (4.0%) per annum on the principal balance outstanding to maturity. Interest is calculated daily, commencing on first disbursement, and is due and payable on the first day of each month thereafter during the term of the Loan until maturity;

2.3	Repayment shall be by way of monthly, blended principal and interest installments of $16,314.66 commencing on the 1st day of each month immediately following first disbursement and continuing on the 1st day of each month thereafter during the term of the Loan until maturity;

2.4	All payments will be applied firstly to unpaid interest and then to principal;

2.5	To facilitate ease of administration, the Borrower agrees that payments will be set-up on the Lender’s pre-authorized payment system.

3.1	Advances made under this Loan may be repaid in whole, or in part, at any time, without penalty;

3.2	Prepayment effects a permanent reduction of the Loan, which may not be re-advanced to the Borrower thereafter;

3.3	Partial prepayments shall be applied regressively on the last maturing installments of principal.

4.1	A Promissory Note from the Borrower for the full amount of the Loan.

4.2	A registered General Security Agreement from the Borrower conveying a first security interest in all present and after acquired personal property of the borrower.

4.3	An open ended collateral mortgage conveying a first fixed charge on buildings and land (PID #849505) located at 1300 Rte 2, Souris, Prince Edward Island.

4.4	An open ended collateral mortgage conveying a first fixed charge on buildings and land (PlD #151639) located at 0718 Bay Fortune, Souris, Prince Edward Island.

4.5	An open ended collateral mortgage conveying a first fixed charge on buildings and land (PID #1022300) located in Souris, Prince Edward Island.

4.6	Assignment of Fire Insurance confirming the Agency’s interest as first loss payee on all assets / personal property / real property.

4.7	The Corporate Guarantee from Aqua Bounty Technologies Inc (the “Guarantor”) for the full amount of the Loan.

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5.1	The Borrower agrees to keep all personal property assigned, mortgaged or pledged as security for the Loan insured for physical damages and losses on an all risk basis for their replacement cost and have the Lender named as first loss payee;

5.2	The Borrower agrees to assign insurance proceeds to the Lender for an amount equal to the balance of the Loan;

5.3

The Lender agrees that where insurance proceeds are payable to the Borrower and the Lender, such proceeds shall be used either to repair, rebuild, or replace any lost or damaged personal property and/or equipment with respect to which the claim is made, or shall be applied as a reduction of principal on the Loan without notice, bonus or penalty, unless otherwise agreed to in writing by the Lender;

5.4	The Borrower shall notify the Lender immediately of any loss or damage to the Borrower’s property held as security;

5.5	If the Borrower does not maintain insurance as required, the Lender may purchase insurance to protect its own interest and the Borrower will pay the premiums.

6.1	Undertake capital expenditures or lease purchase agreements in excess of $100,000 per annum that are not contemplated in the Borrower’s business plan;

6.2	Pay any compensation or benefit in excess of $100,000 per year (including the declaration or payment of dividends on any class of shares; and/or taxable benefits for personal use of corporate assets) to the shareholder and all persons related to the shareholder;

6.3	Undertake transactions between related businesses other than in the normal course of business and at normal market rates;

6.4	For the purposes hereof, related persons shall have the same meaning as that set out in Section 251 of the Income Tax Act of Canada;

6.5	Change the capital structure or ownership of the borrowing company or redeem any of its shares. There shall be no amalgamation, merger, acquisition, or any other business combination; nor sale of the business or any of its assets; nor the creation of an affiliated company, nor granting of any operating license;

7.1	Confirmation of other project financing in the amount of $750,000 from ACOA and $9,250,000 from the shareholders of Aqua Bounty Canada Inc.

7.2	Confirmation that property tax ownership and assessment data on PID’s #849505, #151639 and #1022300 is current and any taxes owing are fully paid.

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7.3	Sub search to be completed on PIO #849505 and #151639 to ensure IIDI maintains a valid first charge over both properties.

7.4	The Borrower is to cover the cost of any financial shortfalls related to this project.

8.1	Upon satisfaction of the contingent conditions to this offer in their entirety, and satisfactory completion and registration of the security documents, the Loan proceeds shall be disbursed:

8.1.1	The Borrower’s presentation, satisfactory to the Lender, of paid invoices (complete with serial numbers where applicable);

8.1.2	Where unpaid invoices are presented for disbursement, the Borrower authorizes and hereby directs the Lender to remit payment directly to the equipment vendor.

8.2	Drawdown of all undisbursed funds shall occur no later than 24 months past the date of this Letter of Offer, after which any undisbursed portion of the Loan may be cancelled by the Lender.

9.1	If an Event of Default has occurred or an event which, with the lapse of time or with notice and lapse of time specified herein would become an Event of Default, shall have occurred and be continuing; or

9.2	If, in the opinion of the Lender, there has been any material adverse change in the business, assets or financial condition of the Borrower; or

9.3	If there is any action, proceeding or investigation pending or threatened against the Borrower which would, in the opinion of the Lender, if successful, have a material adverse effect on the Borrower; or

9.4	If there has been any material discrepancy or inaccuracy in any written or oral representations, statements or information made or furnished to the Lender at any time; or

9.5	If, in the opinion of the Lender, any money loaned has not been or is not being applied for the purpose for which it was advanced, or if the security materially depreciates in value.

10.1	Within 180 days of its year-end, annual financial statements of the Borrower, prepared on a “Review Engagement” basis by an external firm of professional accountants in accordance with generally accepted accounting principles;

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10.2	Within 180 days of its year-end, annual financial statements of the Guarantor, prepared on a “Review Engagement” basis by an external firm of professional accountants in accordance with generally accepted accounting principles;

10.3	In the event of late filing of the Borrower’s Financial Statements or inventory reports, a $100 fee will be levied at the first of each week, starting 14 days after the statements were otherwise due. Waiver of this will be at the sole discretion of the Lender;

10.4	Upon the request of the Lender, the Borrower shall submit the Borrower’s internally prepared financial statements and other such information in respect of the financial operations of the Borrower as may be deemed necessary by the Lender acting reasonably, from time to time.

11.1	To comply with all applicable laws and regulations, and with the decisions, orders, instructions, directives, permits, authorizations or licenses given or issued pursuant to said laws and regulations;

11.2	To carry on its business in a manner that is appropriate, effective and consistent with generally accepted and recognized practices; to maintain in force the permits, authorizations or licenses required for that purpose;

11.3	To maintain in good repair, working order and condition, all material properties used in the business of the Borrower and to keep all property taxes paid current;

11.4	To notify the Lender immediately of any emission, spill or discovery of any pollutant in connection with its assets or those of its subsidiaries, its activities evidencing a real or potential violation of environmental legislation or environmental permits;

11.5	In the case of the deposit, release or discharge of a pollutant into the environment contrary to any law, to contain the emission, deposit, release or discharge and immediately repair the damage caused;

11.6

Not to acquire businesses or interests in businesses or make investments in an entity that is not the Borrower and to ensure that the Borrower does not acquire businesses or interests in businesses or invest directly or indirectly, whether through the purchase of securities, assets or otherwise, in spheres of activity other than those in which the Borrower currently operates, without having first obtained the Lender’s written consent;

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12.1	If the Borrower makes default in the payment of any sum which is due and owing to the Lender hereunder and such default shall have continued for a period of fifteen (15) days;

12.2	If the Borrower shall neglect to observe or perform any other covenant or condition herein contained on its part to be observed or performed; and if the same is capable of being cured, after notice in writing has been given by the Lender specifying such default and requiring the Borrower to cure same, the Borrower shall have failed to cure same within a period of fifteen (15) days;

12.3	A default on this Loan, or any other loan that the Borrower has with the Lender, shall constitute a default on all loans that the Borrower has with the Lender;

12.4	If an order shall be made or an effective resolution be passed for the winding-up or the liquidation of the Borrower or Guarantor;

12.5	If the Borrower, or Guarantor, shall make an assignment for the benefit of its creditors or shall be declared bankrupt or make a proposal or assignment under the Bankruptcy and Insolvency Act or if a custodian or sequestrator or receiver or a receiver and manager or any other officer with similar powers shall be appointed of the Borrower or of its property;

12.6	If an encumbrancer shall take possession of the property of the Borrower or any substantial part thereof or if a distress or execution or any similar process be levied or enforced against such property and remain unsatisfied for such period as would permit such property or such part thereof to be sold thereunder;

12.7	If the Borrower, or Guarantor, shall make an application to any court for an order under the Companies Creditors Arrangement Act;

12.8	If the Lender in good faith believes that the ability to pay any monies hereby secured or to perform any covenant or condition hereof is impaired or that the assets pledged as security for the Loan are in danger of being lost, damaged or confiscated;

12.9	If the Borrower ceases to carry on its business in the Province of Prince Edward Island;

12.10	The making of any representation or warranty by the Borrower, or Guarantor, or the application in any document or certificate furnished to the Lender in connection herewith or pursuant hereto which shall prove at any time to be materially incorrect, as of the date made.

13.1	The Borrower acknowledges that it has independently satisfied itself respecting the feasibility of the project and has not relied in any way upon any oral or written representations by the Lender or the fact the Loan is being made;

13.2	The Borrower acknowledges that it recognizes that, although the Lender is a Crown corporation, it operates on the basis of an independent body for the purpose of dealing with applications for financial assistance made to it. Applications are considered strictly

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13.3	The Borrower further acknowledges that the Lender is not involved or responsible for any representations or warranties undertaken by other government departments or agencies in conjunction with the Borrower and also acknowledges that there are no undertakings between the Borrower and the Lender except those that appear in these documents;

13.4

The Borrower expressly waives the right to receive a copy of any financing statement or financing change statement which may be registered by the Lender in connection with any security interest taken by the Lender from the Borrower arising from this Letter of Offer, and also waives the right to receive a copy of any verification statement issued with respect thereto, where such waiver is not otherwise prohibited by law.

14.1

The Borrower consents to public announcements of the Project, by or on behalf of the Lender. The Borrower shall also acknowledge the Lender’s Contribution in any public communications of the Project and shall obtain the approval of the Lender before preparing any announcements, brochures, advertisements, web content or other materials that will display the Lender’s logo or otherwise make reference to the Lender.

14.2

The Lender shall inform the Borrower of the date on which the announcement is to be made and the Borrower shall keep this Agreement confidential until such date. After official announcement of the Project by the Lender or at first disbursement of Loan proceeds, whichever is earlier, information appearing in Schedule A – Loan Fact Sheet for Public Disclosure, herein, will be considered to be in the public domain.

14.3

The Borrower will advise the Lender at least thirty (30) calendar days in advance of any special event such as, but not limited to, an official opening, ribbon cutting or other like event that the Borrower organizes in connection with the Project. A ceremony shall be held on a date that is mutually acceptable to the Lender and the Borrower. The Borrower consents to having the Minister responsible for the Lender, or a designate, participate in any such ceremony.

14.4	The Borrower agrees to the distribution by the Lender of information about the Project as part of public communication initiatives including, but not limited to, feature stories, news releases, speeches, web content, Lender promotional materials and special publications.

14.5	The Lender may, at its sole discretion, withdraw the requirement of the Borrower’s acknowledgment of the Lender’s Contribution in all public communications of the Project.

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15.1	Information in this Letter of Offer will be treated in accordance with the Prince Edward Island Freedom of Information and Protection of Privacy Act. For additional information see: www.gov.pe.ca/foipp.

15.2	Notwithstanding the provisions of the Freedom of Information and Protection of Privacy Act, it is acknowledged that acceptance of this letter of offer constitutes, in the event of any

(a)	classification of the loan balance by the Lender as uncollectible, or

(b)	write-off, cancellation, discharge, or release of any loan balance owing by the Borrower to the Lender,

16.1	Any notice or correspondence to the Lender, including all inquiries with respect to this Agreement, should be directed to:

16.2	Any notice or correspondence to the Borrower, including all inquiries with respect to this Agreement, should be directed to:

17.1	This letter of offer may be executed in one or more counterparts and by the different parties to it on separate counterparts, each of which, when so executed will be deemed to be an original; such counterparts, together, will constitute one and the same agreement. This letter of offer may be executed and delivered by fax or email pdf transmission of a manually signed counterpart.

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(a)	if an event of default has occurred or an event which, with the lapse of time or with notice and lapse of time specified herein would become an event of default, shall have occurred and be continuing;

(b)	if, in the opinion of the Mortgagee, there has been any material adverse change in the business, assets or financial condition of the Mortgagor;

(c)	if there is any action, proceeding or investigation pending or threatened against the Mortgagor, which would in the opinion of the Mortgagee, if successful, have a material adverse effect on the Mortgagor;

(d)	if there is or has been any material discrepancy or inaccuracy in any written or oral representations, statements or information made or furnished to the Mortgagee at any time;

(e)	if, in the opinion of the Mortgagee, any money loaned has not been, or is not being applied for the purpose to which it was advance, or if the security materially depreciates in value.

(a)	the failure by the Mortgagor to make any payment within fifteen (15) days after its due date;

(b)	the failure by the Mortgagor to repay the balance outstanding of any principal sum on its maturity date;

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(c)	the failure by the Mortgagor to perform or observe any of the covenants, conditions or agreements to be performed or observed by the Mortgagor under the terms hereof;

(d)	default by the Mortgagor hereunder, which default shall continue unremedied for a period of fifteen (15) days after written notice thereof by the Mortgagee to the Mortgagor;

(e)	the making of any representation or warranty by the Mortgagor in the application or under any document or certificate furnished to the Mortgagee in connection herewith or pursuant hereto which shall prove at any time to be materially incorrect, as of the date made;

(f)	the making by the Mortgagor of a proposal or general assignment for the benefit of their creditors or other acknowledgement of the Mortgagor’s insolvency;

(g)	the appointment of a receiver, receiver-manager or receiver and manager of the Mortgagor or any part of its property or assets;

(h)

the enforceability of any execution, sequestration, judgment or any other process of any court against the Mortgagor or the levy of a distress or analogous process upon the Mortgagor’s property or assets or any part thereof unless the execution, sequestration, judgment or other process, against the Mortgagor or distress or analogous process is in good faith contested by the Mortgagor and the Mortgagor gives adequate security to the Mortgagee to pay in full the amount claimed;

(i)	if the Mortgagee is of the reasonable opinion that the security is in danger of being sold or removed, except as permitted hereunder, or if the Mortgagee is of the reasonable opinion that the security is not adequate for the purposes of security the loan hereunder;

(j)	the failure by the Mortgagor to perform or observe any of the covenants, conditions or agreement to be performed or observed by the Mortgagor pursuant to any letters of offer and/or loan agreements entered into between the Mortgagor and the Mortgagee in respect of the Indebtedness.

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(a)	if an event of default has occurred or an event which, with the lapse of time or with notice and lapse of time specified herein would become an event of default, shall have occurred and be continuing;

(b)	if, in the opinion of the Mortgagee, there has been any material adverse change in the business, assets or financial condition of the Mortgagor;

(c)	if there is any action, proceeding or investigation pending or threatened against the Mortgagor, which would in the opinion of the Mortgagee, if successful, have a material adverse effect on the Mortgagor;

(d)	if there is or has been any material discrepancy or inaccuracy in any written or oral representations, statements or information made or furnished to the Mortgagee at any time;

(e)	if, in the opinion of the Mortgagee, any money loaned has not been, or is not being applied for the purpose to which it was advance, or if the security materially depreciates in value.

(a)	the failure by the Mortgagor to make any payment within fifteen (15) days after its due date;

(b)	the failure by the Mortgagor to repay the balance outstanding of any principal sum on its maturity date;

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(c)	the failure by the Mortgagor to perform or observe any of the covenants, conditions or agreements to be performed or observed by the Mortgagor under the terms hereof;

(d)	default by the Mortgagor hereunder, which default shall continue unremedied for a period of fifteen (15) days after written notice thereof by the Mortgagee to the Mortgagor;

(e)	the making of any representation or warranty by the Mortgagor in the application or under any document or certificate furnished to the Mortgagee in connection herewith or pursuant hereto which shall prove at any time to be materially incorrect, as of the date made;

(f)	the making by the Mortgagor of a proposal or general assignment for the benefit of their creditors or other acknowledgement of the Mortgagor’s insolvency;

(g)	the appointment of a receiver, receiver-manager or receiver and manager of the Mortgagor or any part of its property or assets;

(h)

the enforceability of any execution, sequestration, judgment or any other process of any court against the Mortgagor or the levy of a distress or analogous process upon the Mortgagor’s property or assets or any part thereof unless the execution, sequestration, judgment or other process, against the Mortgagor or distress or analogous process is in good faith contested by the Mortgagor and the Mortgagor gives adequate security to the Mortgagee to pay in full the amount claimed;

(i)	if the Mortgagee is of the reasonable opinion that the security is in danger of being sold or removed, except as permitted hereunder, or if the Mortgagee is of the reasonable opinion that the security is not adequate for the purposes of security the loan hereunder;

(j)	the failure by the Mortgagor to perform or observe any of the covenants, conditions or agreement to be performed or observed by the Mortgagor pursuant to any letters of offer and/or loan agreements entered into between the Mortgagor and the Mortgagee in respect of the Indebtedness;

(k)	The occurrence of any event of default set out in the letter of offer dated July 10, 2018, from Island Investment Development Inc. to the Mortgagor.

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1.	SECURITY INTEREST

(a)

Equipment: all equipment, including, without limiting the generality of the foregoing, machinery, tools, fixtures, furniture, furnishings, chattels, motor vehicles, vessels and other tangible personal property that is not Inventory, and all parts, components, attachments, accessories, accessions, replacements, substitutions, additions and improvements to any of the foregoing (all of which is hereinafter collectively called the “Equipment”);

(b)

Inventory: all inventory of the Debtor, including, without limiting the generality of the foregoing, goods acquired or held for sale or lease or furnished or to be furnished under contracts of rental or service, all raw materials, work in process, finished goods, returned goods, repossessed goods, and all packaging materials, supplies and containers relating to or used or consumed in connection with any of the foregoing (all of which is hereinafter collectively called the “Inventory”);

(c)

Accounts: all debts, accounts, claims, monies and choses in action which now are, or which may at any time hereafter be, due or owing to or owned by the Debtor and all books, records, documents, papers and electronically recorded data recording, evidencing or relating to the said debts, accounts, claims, monies and choses in action or any part thereof (all of which is hereinafter collectively called the “Accounts”);

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(d)	Other Personal Property: all documents of title, chattel paper, instruments, securities and money, and all other goods of the Debtor that are not Equipment, Inventory or Accounts; and

(e)

Intangibles: all contractual rights, licenses, goodwill, patents, trademarks, trade names, copyrights and other intellectual property of the Debtor, all other choses in action of the Debtor of every kind which now are, or which may at any time hereafter be, due or owing to or owned by the Debtor, and all other intangible property of the Debtor which is not Accounts, chattel paper, instruments, documents of title, securities or money.

2.	EXCEPTIONS

(a)	The last day of the term created by any lease or agreement therefor is hereby excepted out of any mortgage, charge, assignment or security interest created by this Security Agreement, but the Debtor shall stand possessed of the reversion thereby remaining upon trust to assign and dispose thereof to any third party as the Secured Party shall direct; and

(b)	There shall be excluded from the security interests hereby created any consumer goods of the Debtor.

3.	OBLIGATIONS SECURED

4.	PROHIBITIONS

(a)	create or permit to exist any mortgage, charge, assignment or security interest in, charge, encumbrance or lien over, or claim against any of its property, assets, or undertakings which ranks or could in any event rank in priority to or pari passu with any security interest created by this Security Agreement; or

(b)	grant, sell, or otherwise assign its chattel paper.

5.	ATTACHMENT

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6.	REPRESENTATIONS AND WARRANTIES

(a)

The Debtor, if a company or a partnership, represents and warrants that this Security Agreement is granted in accordance with resolutions of the directors (and of the shareholders as applicable) or of the partners, as the case may be, of the Debtor and all other matters and things have been done and performed so as to authorize and make the execution and delivery of this Security Agreement, and the performance of the Debtor’s obligations hereunder, legal, valid and binding; and

(b)

The Debtor represents and warrants that the Debtor lawfully owns and possesses all presently held Collateral and has good title thereto, free from all security interests, charges, encumbrances, liens and claims, save only the charges or security interests, if any, shown in the Schedule hereto and those consented to in writing by the Secured Party, and the Debtor has good right and lawful authority to grant a Security Interest in the Collateral as provided by this Security Agreement.

7.	COVENANTS OF THE DEBTOR

(a)	The Debtor covenants that at all times while this Security Agreement remains in effect the Debtor will:

(i)	defend the title to the Collateral for the benefit of the Secured Party against the claims and demands of all persons;

(ii)	fully and effectually maintain and keep maintained the security interests hereby created valid and effective;

(iii)	maintain insurance on the Collateral with an insurer, of kinds, for amounts and payable to such person or persons, all as of the Secured Party may require;

(iv)	maintain the Collateral in good order and repair;

(v)	forthwith pay:

(A)	all taxes, assessments, rates, duties, levies, government fees, claims and dues lawfully levied, assessed or imposed upon it or the Collateral when due, unless the Debtor shall in good faith contest its obligations so to pay and shall furnish such security as the Secured Party may require; and

(B)	all security interests, charges, encumbrances, liens and claims which rank or could in any event rank in priority to or pari pasu with any security interest created by this Security Agreement, other than the charges or security interests, if any, shown in the Schedule hereto and those consented to in writing by the Secured Party;

(vi)	forthwith pay all costs, charges, expenses and legal fees and disbursements (on a solicitor and his own client basis) which may be incurred by the Secured Party in:

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(A)	inspecting the Collateral;

(B)	negotiating, preparing, perfecting and registering this Security Agreement and other documents, whether or not relating to this Security Agreement;

(C)	investigating title to the Collateral;

(D)	taking, recovering, keeping possession of and insuring the Collateral; and

(E)	all other actions and proceedings taken in connection with the preservation of the Collateral and the enforcement of this Security Agreement and of any other security interest held by the Secured Party as security for the Obligations;

(vii)	at the Secured Party’s request at any time and from time to time execute and deliver such further and other documents and instruments and do all acts and things as the Secured Party in its absolute discretion requires in order to confirm and perfect, and maintain perfection of, the security interests and charges hereby created in favour of the Secured Party upon any of the Collateral;

(viii)	notify the Secured Party promptly of:

(A)	any change in the information contained herein relating to the Debtor, its address, its business or the Collateral;

(B)	the details of any material acquisition of Collateral;

(C)	any material loss of or damage to the Collateral;

(D)	any material default by any account debtor in payment or other performance of his obligations to the Debtor with respect to any Accounts; and

(E)	the return to or repossession by the Debtor of the Collateral where such return or repossession of the Collateral is material in relation to the business of the Debtor;

(ix)	prevent the Collateral, other than Inventory sold, leased, or otherwise disposed of as permitted hereby, from being or becoming an accession to other property not covered by this Security Agreement;

(x)	permit the Secured Party and its representatives, at all reasonable times, access to all its property, assets and undertakings and to all its books of account and records for the purpose of inspection and render all assistance necessary for such inspection; and

(xi)	deliver to the Secured Party from time to time promptly upon request:

(A)	any documents of title, insurance, securities and chattel paper constituting, representing or relating to Collateral;

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(B)	all books of account and all records, ledgers, reports, correspondence, schedules, documents, statements, lists and other writings relating to the Collateral for the purpose of inspecting, auditing or copying the same;

(C)	all financial statements prepared by or for the Debtor regarding the Debtor’s business;

(D)	all policies and certificates of insurance relating to the Collateral; and

(E)	such information concerning the Collateral, the Debtor and the Debtor’s business and affairs as the Secured Party may require;

(b)	The Debtor, if a company, covenants that at all times while this Security Agreement remains in effect, without the prior written consent of the Secured Party, it will not:

(i)	declare or pay any dividends;

(ii)	purchase or redeem any of its shares or otherwise reduce its share capital;

(iii)	become guarantor of any obligation; or

(iv)	become an endorser in respect of any obligation or otherwise become liable upon any note or other obligation other than bills of exchange deposited to the bank account of the Debtor.

8.	PERFORMANCE OF OBLIGATIONS

9.	RESTRICTIONS ON SALE OR DISPOSAL OF COLLATERAL

(a)	Except as herein provided, without the prior written consent of the Secured party the Debtor will not:

(i)	sell, lease or otherwise dispose of the Collateral;

(ii)	release, surrender or abandon possession of the Collateral; or

(iii)	move or transfer the Collateral from its present location.

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(b)	Provided that the Debtor is not in default under this Security Agreement, at any time without the consent of the Secured Party the Debtor may lease, sell, license, consign or otherwise deal with items of Inventory in the ordinary course of business and for the purposes of carrying on its business.

10.	DEFAULT

(a)	the Debtor makes default in payment when due of any indebtedness or liability of the Debtor to the Secured Party;

(b)	the Debtor is in breach of any term, condition, obligation or covenant to the Secured Party, or any representation or warranty to the Secured Party is untrue, whether or not contained in this Security Agreement;

(c)	the Debtor makes an assignment for the benefit of its creditors, is declared bankrupt, makes a proposal or otherwise takes advantage of provisions for relief under the Bankruptcy and Insolvency Act (Canada), the Companies Creditors’ Arrangement Act (Canada) or similar legislation in any jurisdiction, or makes an authorized assignment;

(d)	a receiver, receiver and manager or receiver-manager of all or any part of the Collateral is appointed;

(e)	an order of execution against the Collateral or any part thereof remains unsatisfied for a period of 10 days;

(f)	without the prior written consent of the Secured Party, the Debtor creates or permits to exist any charge, encumbrance or lien on or claim against or any security interest in, any of the Collateral which ranks or could in any event rank in priority to or pari passu with any security interest created by this Security Agreement;

(g)	the holder of any other charge, encumbrance or lien on or claim against, or security interest in, any of the Collateral does anything to enforce or realize on such charge, encumbrance, lien, claim or security interest;

(h)	if the Debtor is a company or a partnership, an order is made or an effective resolution is passed for winding up the Debtor;

(i)	the Debtor, if a company, enters into any reconstruction, reorganization, amalgamation, merger or other similar arrangement with any other person;

(j)	the Debtor, if an individual, dies or is declared incompetent by a court of competent jurisdiction; or

(k)	the Secured Party in good faith believes and has commercially reasonable grounds to believe that the prospect of payment or performance of any of the Obligations is impaired or that any of the Collateral is or is about to be placed in jeopardy;

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11.	ENFORCEMENT

(a)

Upon any default under this Security Agreement, the Secured Party may declare any or all of the Obligations to become immediately due and payable and the security hereby constituted will immediately become enforceable. To enforce and realize on the security constituted by this Security Agreement the Secured Party may take any action permitted by law or in equity, as it may deem expedient, and in particular without limiting the generality of the foregoing, the Secured Party may do any of the following:

(i)	appoint by instrument a receiver, a receiver and manager or receiver-manager (the person so appointed is hereinafter called the “Receiver”) of the Collateral, with or without bond as the Secured Party may determine, and from time to time in its absolute discretion remove such Receiver and appoint another in its stead;

(ii)	enter upon any premises of the Debtor and take possession of the Collateral with power to exclude the Debtor, its agents and its servants therefrom, without becoming liable as a mortgagee in possession;

(iii)	preserve, protect and maintain the Collateral and make such replacements thereof and repairs and additions thereto as the Secured Party may deem advisable;

(iv)

sell, lease or otherwise dispose of all or any part of the Collateral, whether by public or private sale or lease or otherwise, in such manner, at such price as can be reasonably obtained therefor and on such terms as to credit and with such conditions of sale and stipulations as to title or conveyance or evidence of title or otherwise as to the Secured Party may seem reasonable, provided that if any sale is on credit the Debtor will not be entitled to be credited with the proceeds of any such sale, lease or other disposition until the monies therefor are actually received; and

(v)	exercise all of the rights and remedies of a secured party under the Act.

(b)

A Receiver appointed pursuant to this Security Agreement shall be the agent of the Debtor and not of the Secured Party and, to the extent permitted by law or to such lesser extent permitted by its appointment, shall have all the powers of the Secured Party hereunder, and in addition, shall have power to carry on the business of the Debtor and for such purpose from time to time to borrow money on the security of any of the Collateral; such security interest may rank before or pari passu with or behind any security interest created by this Security Agreement, and if it does not so specify such security interest shall rank before the security interests created by this Security Agreement.

(c)	Without prejudice to the ability of the Secured Party to dispose of the Collateral in any manner which is commercially reasonable, the Debtor acknowledges that a disposition of the Collateral by the Secured Party which takes place substantially in accordance with the following provisions shall be deemed to be commercially reasonable:

(i)	the Collateral may be disposed of whether or not the Secured Party has taken possession thereof;

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(ii)	the Collateral may be disposed of in whole or in part;

(iii)	the Collateral may be disposed of by public auction, public tender or private contract, with or without advertising and without any other formality;

(iv)	any purchaser or lessee of the Collateral may be a customer of or related person to the Secured Party;

(v)	a disposition of the Collateral may be on such terms and conditions as to credit, deferred payment or otherwise as the Secured Party, in its sole discretion, may deem advantageous;

(vi)	the Secured Party may establish an upset or reserve bid or price in respect of the Collateral; and

(vii)	the Secured Party may buy in, rescind or vary any contract for the disposition of the Collateral and may dispose of any Collateral again without being obligated to account or answer for any gain or loss occasioned thereby.

(d)	Subject to the claims, if any, of the creditors of the Debtor ranking in priority to this Security Agreement, all amounts realized from the disposition of Collateral pursuant to this Security Agreement will be applied as the Secured Party, in its absolute discretion, may direct as follows:

(i)	in payment of all costs, charges and expenses (including legal fees and disbursements on a solicitor and his own client basis) incurred by the Secured Party in connection with or incidental to:

(A)	the exercise by the Secured Party of all or any of the powers granted to it pursuant to this Security Agreement; and

(B)	the appointment of the Receiver and the exercise by the Receiver of all or any of the powers granted to it pursuant to this Security Agreement, including the Receiver’s reasonable remuneration and all outgoings properly payable by the Receiver;

(ii)	in or toward payment to the Secured Party of all principal and other monies (except interest) due in respect of the Obligations; and

(iii)	in or toward payment to the Secured Party of all interest remaining unpaid in respect of the Obligations.

12.	DEFICIENCY

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13.	RIGHTS CUMULATIVE

14.	LIABILITY OF SECURED PARTY

15.	APPOINTMENT OF ATTORNEY

16.	ACCOUNTS

17.	APPROPRIATION OF PAYMENTS

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18.	LIABILITY TO ADVANCE

19.	WAIVER

20.	NOTICE

21.	EXTENSIONS

22.	NO MERGER

23.	ASSIGNMENT

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24.	SATISFACTION AND DISCHARGE

25.	ENUREMENT

26.	INTERPRETATION

(a)	In this Security Agreement:

(i)	“Collateral” has the meaning set out in Clause 1 hereof and any reference to Collateral shall, unless the context otherwise requires, be deemed a reference to Collateral as a whole or any part thereof;

(ii)	“Debtor” and the personal pronoun “it” or “its” and any verb relating thereto and used therewith shall be read and construed as required by and in accordance with the context in which such words are used depending upon whether the Debtor is one or more individuals, corporations or partnerships and, if more than one, shall apply and be binding upon each of them severally;

(iii)	the “Act” means the Personal Property Security Act of Prince Edward Island and all regulations thereunder as amended from time to time.

(b)	words and expressions used herein that have been defined in the Act shall be interpreted in accordance with their respective meanings given in the Act unless otherwise defined herein or unless the context otherwise requires;

(c)	the invalidity or unenforceability of the whole or any part of any clause of this Security Agreement shall not affect the validity or enforceability of any other clause or the remainder of such clause;

(d)	the headings of the clauses of this Security Agreement have been inserted for reference only and do not define, limit, alter or enlarge the meaning of any provision of this Security Agreement;

(e)	this Security Agreement shall be governed by the laws of the Province of Prince Edward Island.

27.	COPY OF AGREEMENT AND FINANCING STATEMENT

(a)	acknowledges receiving a copy of this Security Agreement; and

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(b)	waives all rights to receive from the Secured Party a copy of any financing statement, financing change statement or verification statement filed at any time in respect of this Security Agreement.

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1.	In this Guarantee, the word Guarantor shall mean the undersigned and if there is more than one, it shall mean each of them.

2.

This Guarantee shall not be affected by the death or loss or diminution of capacity of the Borrower or of the Guarantor or by any change in the name of the Borrower or in the membership of the firm of the Borrower or through the death or retirement of one or more partners or the introduction of one or more partners or otherwise, or by the acquisition of the business of the Borrower by a corporation, firm or person or by any change whatsoever in the objects, capital structure or constitution of the Borrower, or by the Borrower, or the business of the Borrower, being amalgamated with a corporation but shall, notwithstanding the happening of any such event, continue to exist and apply to the full extent as if such event had not happened, and shall apply to all the liabilities whether theretofore or thereafter incurred or arising and in this instrument the word “Borrower” shall include every such firm and corporation.

3.

All monies, advances renewal and credits in fact borrowed or obtained from the Lender shall be deemed to form part of the liabilities, notwithstanding any lack or limitation of status or of power, incapacity or disability of the Borrower or of the directors, partners or agents thereof, or that the Borrower may not be a legal or suable entity, or any irregularity, defect or informality in the borrowing or obtaining of such monies, advances, renewals or credits, the whole whether known to the Lender or not; and any sum which may not be recoverable from the Guarantor on the footing of a guarantee shall be recoverable from the Guarantor as sole and principal debtor in respect thereof and shall be paid to the Lender on demand with interest and accessories as herein provided.

4.	It is further agreed that this shall be a continuing Guarantee, and shall cover and secure any ultimate balance owing to the Lender.

5.

This Guarantee will not be diminished or modified on account of any act of the Lender which would prevent subrogation operating in favour of the Guarantor. It is agreed that the Lender without exonerating in whole or in part the Guarantor, may grant time, renewals, extensions, indulgences, releases and discharges to, may take securities from, and give up or release any or part of the securities held, may abstain from taking, perfecting, registering or renewing securities or from realizing on securities, may accept compositions and otherwise deal with the borrower and with any other person or persons, including any of the Guarantors, and dispose of any securities held by the Lender as it may see fit and that all dividends, compositions and monies received by the Lender from the Borrower or from any other person or estate, capable of being applied by the Lender in reduction of the liabilities hereby guaranteed, shall be considered for all purposes as payment in gross which the Lender shall have the right to apply as it may see fit, not being bound by the law of imputation, and the Lender shall be entitled to prove against the estate of the Borrower upon any insolvency or winding up, in respect of the whole of the said liabilities. The Guarantor shall have no right to be subrogated to the Lender until the Lender shall have received payment in full of its claims against the Borrower with interest and costs.

6.	The Lender shall not be obligated to exhaust its recourse against the Borrower or other persons or the securities it may hold before being entitled to payment from the Guarantor of all and every of the liabilities hereby guaranteed and it shall not be obliged to offer or deliver its securities before its whole claim has been paid. The Guarantor renounces all benefits of discussion and division.

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7.

It is further hereby expressly declared that if there is more than one Guarantor of the liabilities or any part thereof, the release of any of the Guarantors from his or their liability thereunder shall not affect the liability of the remaining Guarantor or Guarantors which shall remain unimpaired and still in full force and effect as if the Guarantor or Guarantors so released had not been a Guarantor of the said liabilities or any part thereof.

8.	All indebtedness and liability, present and future of the Borrower to the Guarantor are hereby assigned to the Lender and postponed to the liabilities of the Borrower to the Lender, present and future. All monies received by the Guarantor or his representatives shall be held as trustee for the Lender and shall be paid over to the Lender.

9.

The Guarantor shall make payment to the Lender of the amount of his liability forthwith after demand therefore is made in writing. Such demand shall be deemed to have been effectually made when an envelope containing it addressed to the Guarantor at his last address known to the Lender is deposited postage prepaid in the Post Office. The liability of the Guarantor shall bear interest from the date of such demand at the rate or rates then applicable to the liabilities of the Borrower to the Lender. All payments to the Lender hereunder shall be made to the Lender at its Head Office.

10.

Notwithstanding anything set out in any security, taken from the Borrower, the Lender will not in any way be responsible for either the holding or the supervision of insurance of insurance policies required to be maintained under any covenants to insure contained in any said security or the verification of the compliance with respect to any such covenants to insure and the Lender’s permissive power to place insurance on any assets mortgaged to it by the Borrower and contained in any such security is in its sole and absolute discretion. The Guarantor acknowledges that the Lender’s action or lack of action in such holding, supervision, verification, or in its permissive powers shall in no way diminish the Guarantor’s liability hereunder.

11.

This Guarantee shall be operative and binding upon every signatory hereof notwithstanding the nonexecution hereof by and other proposed signatory or signatories, and the undersigned acknowledges that this Guarantee has been delivered free of any conditions and that no representations have been made to the undersigned affecting the liability of the undersigned under this Guarantee save as may be specifically embodied herein, and agrees that this Guarantee is in addition to and not in substitution for any other guarantees held or which may hereafter be held by the Lender, by whomsoever given, and any present or future obligation to the Lender incurred or arising otherwise than under a Guarantee or the undersigned or any of them, or of any other obligant, whether bound with or apart from the Borrower; excepting, any Guarantee accepted for cancellation on delivery of this instrument.

12.	This Guarantee shall be binding upon the undersigned and any of them, if more than one, jointly and severally between themselves and with the Borrower and also upon the heirs, executors, administrators and successors and assigns of the Guarantor and will extend to the benefit of the successors and assigns of the Lender.

13.

The undersigned and each of them shall be bound by any accounts settled between the Lender and the Borrower, and if no such account has been so settled immediately before demand of payment under this Guarantee any account stated by the Lender shall be accepted by the undersigned and each of them as conclusive evidence of the amount which at the date of the account so stated is due by the Borrower to the Lender or remains unpaid by the Borrower to the Lender.

14.

This Guarantee shall be construed in accordance with the laws of the Province of Prince Edward Island and the Guarantor agrees that any legal suit, action or proceeding arising out of or relating to this Guarantee may be instituted in the Courts of such province, and the Guarantor hereby accepts and irrevocably submits to the jurisdiction of the said Courts, and acknowledges their competence and agrees to be bound by any judgment thereof, provided that nothing herein shall limit the Lender’s right to bring proceedings against the Guarantor elsewhere.

15.

The undersigned or any of them may, by notice in writing delivered to the Lender determine their or his liability under this Guarantee in respect of liabilities thereafter incurred or arising but not in respect of any liabilities theretofore incurred or arising even though not then matured, provided, however, that notwithstanding receipt of any such notice the Lender may fulfill any requirements of the Borrower based on agreements expressed or implied made prior to the receipt of such notice and any resulting liabilities shall be covered by this Guarantee; and provided further that in the event of the

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16.	The undersigned and each of them if more than one, acknowledges having read the contents of this Guarantee before signing it and declares that he or they, if more than one, understands the terms, conditions and undertakings contained herein.