3. CApABILITY: RESOURCES AND CORE  COMpETENCIES 3.1 LIqUIDITy AND CAPITAL RESOURCES Debt High Liner has both the financial and operational resources  to achieve our objectives.  Highlights for 2011 are as follows: High Liner entered into long-term funded debt agreement  late in 2007. All real property and equipment and personal  property have been pledged as collateral for this debt. For  the first 24 months of the term, only interest was payable.  Repayments were based on a 12-year amortization schedule,  with the full repayment due on December 20, 2012. This  funded debt was repaid as part of the refinancing for the  Icelandic USA Acquisition. As a result of the payment, we  incurred and paid a prepayment penalty for foregone interest  in the amount of $2.4 million. High Liner obtained a new US$250.0 million senior  secured term loan facility (“Term Loan”) in December  2011. Substantially all tangible and intangible assets of  the Company are pledged as collateral for the Term Loan.  Minimum repayments of US$2.5 million are required on an  annual basis, plus 50% of defined excess, cash beginning  in 2013, based on the previous year’s cash flow. The Term  Loan bears interest at 5.50% plus LIBOR (floor of 1.5%) with  standard covenants, including required interest coverage and leverage ratios.  The terms of the new long-term debt facility require us to  swap 50% of the variable interest rate for a fixed rate for  the first two years. This was completed after year-end, and  results in 50% of the US$250.0 million facility bearing a fixed  effective interest rate of 7%, with the other 50% at variable  rates. As such, we expect 1  that there will be fluctuations in  interest expense due to changes in interest rates once LIBOR  is higher than the floor of 150 BPS in addition to that on our  working capital facility as discussed below.  We entered into a new US$120.0 million asset-based working  capital facility in November 2010 with the Royal Bank of  Canada as collateral and administrative agent. This facility  was amended in December 2011 as part of the Icelandic USA  Acquisition. The amended facility is now a US$180.0 million  asset-based working capital facility, which expires in 2017,  and provides for the following: The above rates/spreads charged are based on Funded Debt  to EBITDA ratios. At the end of 2011 we were borrowing at the  high end of the rate structure as our leverage increased due  to the recent Icelandic USA Acquisition. We expect leverage  will decrease to more normal levels over the next few years  as we pay-down loans with our cash flow from operations  and realize synergies from the Acquisition. The asset-based working capital facility will 1  be sufficient to fund all of the Company’s current cash requirements for 2012.  Full details of the financing arrangements are included in  Notes 12 and 13 to the 2011 financial statements. Prior to the Icelandic USA Acquisition in December 2011,  average short-term borrowings in 2011 were approximately  $57 million compared to $18 million in 2010. In 2011, our  short-term bank loans increased US$31.5 million as a result  of the Viking Acquisition that closed in December 2010, which  was funded from our short-term bank loan facility. During  2011, we generated cash that allowed us to pay down current  bank loans, while the stronger Canadian dollar reduced  the conversion of U.S. denominated debt to Canadian  dollars. At December 31, 2011, our bank loans increased  by approximately $60 million, due to the Icelandic USA  Acquisition, to $121.0 million. Our unused available credit on  pre-arranged short-term working capital borrowing facilities  was approximately $40 million at year-end, based on margin  calculations. We expect 1  available credit in 2012 to be lower  than in 2011 due to the additional borrowing and expected  higher average loan balances due to projected increases in  the cost of inventory.  The Company’s line of credit of US$180.0 million is a U.S. dollar line, of which US$120.0 million is allocated to our U.S. operations and the remainder is allocated to our  Canadian operations.  On January 1, 2011, we had letters of credit outstanding  in the amount of US$3.5 million to secure obligations for  the purchase of seafood, US$0.2 million to secure lease  obligations with respect to a leased cold storage facility,  and CAD$7.5 million to secure certain obligations under the  Company’s supplemental executive retirement plan, for a  total of CAD$11.2 million. These were extinguished during  • Increased short-term debt by $78.3 million to finance the  Icelandic USA Acquisition; • Long-term debt and capital lease obligations, including  current portion, of $243.6 million, up from the $52.4 million  at the end of 2010 due to the Icelandic USA Acquisition; • Cash on hand at year-end of $3.3 million; • Net interest-bearing debt that is 70% of total capitalization; • US$180.0 million in committed lines of credit (more than  US$40 million available at the end of 2011). Canadian dollar Prime Rate loans and U.S. Base Rate loans  •  in U.S. dollars at Prime or Base Rate plus 0.00% to 1.00%; Bankers’ Acceptances (BA) loans at BA rates plus 1.75% •  to 2.50%;  LIBOR advances at LIBOR plus 1.75% to 2.50%; and •  Unused line fees of 0.25% to 0.50%. •  22 HIGH LINER FOODS INCORPORATED