The Borrower may sell or buy foreign currencies through the Bank, giving prior notice thereof to the Bank, in accordance with the customs and practices of the market, specifying the amount, currency and effective date of delivery of the chosen currency;

The maximum amount of foreign currency which the Borrower may sell or buy by reason hereof shall not exceed the permitted amount, as determined hereinafter; the said permitted amount shall be determined by the Bank by multiplying the face value of the chosen currency by the level of risk, as per the schedule in effect at the Bank expressed as a percentage (for illustration purposes only: chosen currency $50,000 at a risk level of 10% equals a currency conversion risk amount of $5,000);

The Borrower undertakes to deposit in its US$ current account held at the Bank sufficient amounts to pay for the foreign currencies bought or sold, no later than on the date of their delivery, failing which, the Bank shall be authorized to make a variable-rate advance in Canadian dollars under Credit Facility E hereof for an amount equal to the US$ amount necessary to pay for said currencies and any fees and expenses incurred by the Bank due to insufficient funds in the Borrower’s US$ current account on the date of delivery.

The Borrower shall execute, upon presentation, any agreement, contract, document or other writing required by the Bank, including, without limitation, the International Swap and Derivatives Association (ISDA) contract, the International Foreign Exchange Master Agreement (IFEMA) and confirmation, as applicable, of such contract, in accordance with the documents in use at the Bank, providing for, inter alia, the terms and conditions, amount, currency and fees payable to the Bank;

Acceptance by the Bank of any request for the sale or purchase of foreign currencies is subject to the availability of such funds on the foreign exchange market and approval of each request is at the Bank’s discretion.

Term

This credit facility may be revised from time to time by the Bank and may be revoked by the Bank at any time.

Facilities “A & D”

First-ranking general movable hypothec of $2,600,000 on the universality of the Borrower’s inventory and accounts receivable, present and future, wherever the inventory and debtors of these receivables are located;

The security on all goods in inventory under section 427 of the Bank Act;

Facility “B”

First-ranking general immovable hypothec on the land and building of $2,300,000;

First-ranking general movable hypothec of $2,300,000 on all the customer’s equipment and office furniture, present and future

Fired Insurance policy on the building

Facilities “A” and ” B “

Commitment from the mother-company to refund losses if occurred within 30 days of the bank request.

Hypothecation of securities on a term deposit in the amount of CDN $250,000 held at the National Bank ;

First-ranking general movable hypothec of $ 4,800,000 on all the Client’s corporeal and incorporeal movable property (including intellectual property), present and future, regardless of the location of such property;

Subordination agreement of Stockeryale US’s advances.

It is a duly constituted or incorporated, and registered and organized business in compliance with the legislation governing it, and that it has the powers, permits and licenses required to operate its business or enterprise and to own, manage and administer its property;

It is not involved in any dispute or legal proceedings likely to materially affect its financial position or its capacity to operate its business;

It has valid title to all its goods and property, which have a good market value and are free and clear of any prior claims, mortgages, hypothecs, charges or other similar encumbrances other than the mortgages, hypothecs and other charges previously granted to the Bank;

It is not in default under the contracts to which it is a party or under the applicable legislation and regulations governing the operation of its business or its property, including, without limitation, all environmental requirements; and

Any taxes, assessments, deductions at source, income taxes or other levies, the payment of which is secured by a legal privilege, prior claim or legal hypothec, have been/will be paid by the Borrower without subrogation or consolidation.

The Borrower shall sign all documents that the Bank may reasonably request in order to give full effect to the provisions hereof;

The Borrower and the guarantors, as applicable, shall meet all of the conditions hereof and execute all documents that the Bank may reasonably request in order to give full effect to the provisions hereof;

All collateral security shall be duly published in accordance with the above-mentioned ranking and any other required formality shall be fulfilled, as applicable;

The Borrower shall furnish to the Bank any other document, certificate and opinion that it may reasonably require, including, but not limited to, any incorporating instrument related to the Borrower and the guarantor, and any other document and opinion related to the hypothecated property, as applicable;

The Borrower shall present its audited financial statements dated December 31, 2003 showing no material change compared to the in-house financial statements

Use the proceeds of the financing for the purposes provided for herein;

Operate its business in a diligent and continuous manner;

Keep and maintain proper books of account and other accounting records in accordance with generally accepted accounting principles;

Furnish to the Bank its internal quartely financial statements within 20 days of the end of each quarter;

Furnish to the Bank two copies of its audited annual financial statements within 90 days of the end of its fiscal year;

At all times, give the Bank’s representatives the right to inspect its establishments and provide access thereto, and further permit the Bank’s representatives to examine its books of account and other records, and take excerpts therefrom or make copies thereof;

Maintain, at all times, insurance coverage on its property against loss or damage caused by fire and any other risk as is customarily maintained by companies carrying on a similar business;

Maintain, at the end of each quarter for the duration of this financing agreement, the following financial ratios:

a working capital ratio greater than 1.1:1 at all time and 1.50:1.00 at September 30, 2004 and thereafter; this is defined as total current assets over total current liabilities;

net worth greater than or equal to $8,000,000 at all time and greater than or equal to $10,000,000 at September 30, 2004 and thereafter and a ratio of total debt to tangible network of less than 1.0.1; net worth is defined as total shareholder equity and advances subordinated to the Bank less advances to directors and affiliated companies, less intangible assets;

maximum of $ 75,000 in capital expenditures;

a minimum coverage ratio of 1.1 ( EBITDA – non financed CAPEX – Dividends / Capital + interest) at December 31, 2005 and thereafter;

The Borrower shall respect the cumulative net profit indicated in the budgeted income statement for the year ending December 31, 2004 up to a maximum deviation of $150,000 CAN. If not respected, this event will constitute a default.

Pay, when due, all taxes, assessments, deductions at source, income tax or levies for which payment is guaranteed by legal privilege or legal hypothec, without subrogation or consolidation;

Furnish to the Bank any other document that it may reasonably require;

Conduct all or the greater part of its banking business with the Bank;

Obtain and maintain in effect the permits and licences required for the operation of its company;

Notify the Bank forthwith of any default or event which, following a notice or on expiry of a deadline, could constitute an event of default.

Materially change the nature of its operations or business;

Change the control of the company, merge with another company, dissolve or wind up the company;

Create or permit the existence of security interests in property granted as security to the Bank;

Grant advances to its officers, directors, shareholders or persons with no relation to the normal course of its business;

Grant financial assistance, an investment or a guarantee on behalf a third party;

Declare or pay out dividends on its shares, purchase or sell its shares, or otherwise reduce its capital.

The Borrower shall comply with the requirements of all legislative and regulatory environmental provisions (the “Environmental Requirements”) and shall at all times maintain the authorizations, permits and certificates required under these provisions.

The Borrower shall immediately notify the Bank in the event a contaminant spill or emission occurs or is discovered with respect to its property, operations or those of any neighbouring property. In addition, it shall report to the Bank forthwith any notice, order, decree or fine that it may receive or be ordered to pay with respect to the Environmental Requirements relating to its business or property.

At the request of and in accordance with the conditions set forth by the Bank, the Borrower shall, at its own cost, provide any information or document which the Bank may require with respect to its environmental situation, including any study or report prepared by a firm acceptable to the Bank. In the event that such studies or reports reveal that any Environmental Requirements are not being respected, the Borrower shall effect the necessary work to ensure that its business and property comply with the Environmental Requirements within a period acceptable to the Bank.

The Borrower undertakes to indemnify the Bank for any damage which the Bank may suffer or any liability which it may incur as a result of any non-compliance with Environmental Requirements.

The provisions, undertakings and indemnification set out in this section shall survive the satisfaction and release of the security, and payment and satisfaction of the indebtedness and liability of the Borrower to the Bank pursuant to the terms hereof.

Events of Default

If the Borrower fails to make a payment of principal, interest, fees, incidental charges or any other amount which may become due hereunder or under any of the security documents, when they become due and payable;

If the Borrower and/or the guarantors fail to perform or otherwise breach any obligation hereunder or pursuant to any of the security documents or any other related document;

If the Borrower and/or any guarantor, if applicable, becomes insolvent, bankrupt or is in the process of winding up, assigns its assets for the benefit of its creditors, files a proposal or gives notice of its intention to file such proposal or if a material, adverse change occurs in the financial position or operations of the Borrower;

If proceedings are instituted by the Borrower and/or any guarantor, if applicable, or a third party for the Borrower’s and/or any guarantor’s dissolution, winding-up or reorganization of its operations or the arrangement or readjustment of its debts;

If a creditor, trustee in bankruptcy, sequestrator, receiver or trustee takes possession of the Borrower’s and/or any guarantor’s assets or, in the opinion of the Bank, a major portion thereof or if such assets are subject to a prior notice of the exercise of a hypothecary right or a notice to withdraw authorization to collect claims or are seized;

If the Borrower and/or any guarantor is in default under the terms of any other contracts, agreements or writings with the Bank or any other bank or financial institution or any other creditor with rights to the assets of the Borrower and/or any guarantor, as applicable;

If any representation or warranty made by the Borrower and/or any guarantor herein or in a security document or any other document furnished to the Bank in connection herewith proves to be incorrect or erroneous; or

If the Bank receives from any present or future guarantor a notice proposing to terminate, limit or otherwise modify such guarantor’s liability hereunder, under a security document, or under any other related document.

Rights and Remedies of the Bank in the Event of Default

The Bank may declare due and payable all of the Borrower’s monetary obligations that have not matured and may claim from the Borrower and/or any guarantor, without any other notice, the immediate payment of principal, interest, fees and incidental charges, including all the expenses incurred by the Bank for the purposes of collecting or protecting the debt, and the execution of any other obligation of the Borrower and/or any guarantor;

The Borrower shall lose all rights and privileges hereunder, including, but not limited to, the right to receive additional advances;

The Bank may charge the Borrower reasonable fees for analysis, administration and follow-up and may even incur and pay any reasonable sum for services rendered (including legal, accounting and any other professional fees for which services may be required or deemed necessary) in relation to the realization, sale, transfer, delivery or payment to be made with respect to exercising all security held by the Bank and may retain such fees and disbursements from the proceeds of the realization of security;

Any amount collected or received by the Bank, including the balance of the proceeds of any security realized, may be retained by the Bank and may, at the Bank’s option, be applied to any part of the debt owed by the Borrower to the Bank;

Any sum incurred and paid by the Bank in order to realize, protect or preserve any security pledged by the Borrower to the Bank under this agreement or required by law shall bear interest at the Canadian Prime rate of the Bank, plus 3% annually until said sum is paid;

The foregoing provisions shall be applied regardless of whether any of the bearers of bankers’ acceptances, issued under the terms and conditions hereof, has requested full or partial payment or has requested only partial payment from the Bank.

Waiver, Omission and Cumulative Remedies

The Bank may set deadlines, take or waive security, accept compromises, grant a discharge and recognition of cancellation and do business with the Borrower as it deems appropriate without such action reducing the Borrower’s responsibility or affecting the rights of the Bank with respect to the security provided hereunder.

Any omission on the part of the Bank to notify the Borrower and/or any guarantor of any case of default under the terms and conditions hereof or to exercise its rights hereunder shall not be considered a waiver on the part of the Bank of its right to exercise its recourse in such case of default or to exercise any right.

Acceptance by the Bank, following a default by the Borrower, of an amount owed to it, or the exercise by the Bank of any recourse or right shall not prevent the Bank from exercising any other right or recourse, the rights and recourses of the Bank being cumulative and non-interchangeable, and in addition to and not in substitution of, any other right or recourse by the Bank, whether by agreement or otherwise provided for by law.

Definitions

Accounting Terms

Currency and Place of Payment

Calculation of Interest and Arrears

Unless otherwise provided for herein, interest on any amount due hereunder shall be calculated daily and not in advance on the basis of a 365-day year.

For the purposes of the Interest Act (Canada) in the case of a leap year, the annual interest rate corresponding to the interest calculated on the basis of a 365-day year is equal to the interest rate thus calculated multiplied by 366 and divided by 365.

Any amount of principal, interest, commission or discount or an amount of any other nature remaining unpaid at maturity shall bear interest at the rate provided for herein, it being understood that said interest rate on arrears shall not exceed the maximum rate provided for by law, if applicable.

Interest on arrears shall be compounded monthly and payable on demand.

Additional Charges

In the event that a law, regulation, administrative policy or guideline results in an increase in the cost of credit for the Bank (particularly as a result of the imposition of reserves, taxes or requirements with respect to the Bank’s capital adequacy), the Borrower shall pay this additional cost on demand; and

The Borrower shall pay all taxes or additional charges that could result from the application of the goods and services tax (Canada), the provincial sales tax (Quebec), or any other similar federal, provincial or municipal law.

Assignment

Records

Account Debits

Non-Business Day

Final Agreement

Other Documents

Joint and Several Liability/Solidarity <

Validity of Provisions Hereof

Review

Amendments

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