On May 25, 2007 Connacher issued senior unsecured subordinated Convertible Debentures with a face value of $100,050,000. The Convertible

Debentures mature June 30, 2012 unless converted prior to that date and bear interest at an annual rate of 4.75 percent payable semiannually on June 30 and December 31. The Convertible Debentures are convertible at any time into common shares at the option of the holder at a conversion price of $5.00 per share.

The Convertible Debentures are redeemable or after June 30, 2010 by the company, in whole or in part at a redemption price equal to 100 percent of the principal amount of the Convertible Debentures to be redeemed plus accrued and unpaid interest provided that the market price of the company’s common shares is at least 120 percent of the conversion price of the Convertible Debentures.

The conversion feature of the Convertible Debentures has been accounted for as a separate component of equity in the amount of $16,823,000. The remainder of the net proceeds of the Convertible Debentures of $79,187,000 was recorded as long-term debt, which will be accreted up to the face value of $100,050,000 over the five-year term of the Convertible Debentures. Accretion and interest paid are recorded as finance charges on the consolidated statement of operations. If the Convertible Debentures are converted to common shares, the value of the conversion feature will be reclassified to share capital along with the principal amounts converted.

At December 31, 2008, the fair value of the Convertible Debentures was $45 million (December 31, 2007 – $96.5 million). This amount was determined by reference to the quoted market price for the Convertible Debenture.