Exhibit 10.3

CREDIT AGREEMENT
dated as of
June 22, 2007
among
INTERNATIONAL CONDUITS LTD.
as Borrower
- and -
UNIVERSAL SECURITY INSTRUMENTS, INC.,
and 
USI ELECTRIC, INC.
as Guarantors
- and -
CIT FINANCIAL LTD.
as Lender

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CREDIT AGREEMENT

THIS CREDIT AGREEMENT is dated as of June 22, 2007 and is entered into among
International Conduits Ltd., as Borrower, Universal Security Instruments, Inc.
and USI Electric, Inc. as Guarantors, and CIT Financial Ltd., as Lender.

RECITALS

A.
The Lender has agreed to provide certain credit facilities to the Borrower.

 
B.
The Guarantors have agreed to guarantee the obligations of the Borrower in
connection herewith.

NOW THEREFORE, in consideration of the mutual conditions and agreements set
forth in this Agreement and for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1
DEFINITIONS
 
1.1 Defined Terms.  As used in this Agreement, the following terms have the
meanings specified below:
 
“Accounts” means, in respect of each Credit Party, all of such Credit Party’s
now existing and future: (a) accounts (as defined in the PPSA), and any and all
other receivables (whether or not specifically listed on schedules furnished to
the Lender), including all accounts created by, or arising from, all of such
Credit Party’s sales, leases, loans, rentals of goods or renditions of services
to its customers, including those accounts arising under any of such Credit
Party’s trade names or styles, or through any of such Credit Party’s divisions;
(b) any and all instruments, documents, chattel paper (including electronic
chattel paper) (all as defined in the PPSA); (c) unpaid seller’s or lessor’s
rights (including rescission, replevin, reclamation, repossession and stoppage
in transit) relating to the foregoing or arising therefrom; (d) rights to any
goods represented by any of the foregoing, including rights to returned,
reclaimed or repossessed goods; (e) reserves and credit balances arising in
connection with or pursuant hereto; (f) guarantees, indemnification rights,
supporting obligations, payment intangibles, tax refunds and letter of credit
rights; (g) insurance policies or rights relating to any of the foregoing;
(h) intangibles pertaining to any and all of the foregoing (including all rights
to payment, including those arising in connection with bank and non-bank credit
cards), and including books and records and any electronic media and software
relating thereto; (i) notes, deposits or property of borrowers or other account
debtors securing the obligations of any such borrowers or other account debtors
to such Credit Party; (j) cash and non cash proceeds (as defined in the PPSA) of
any and all of the foregoing; and (k) all monies and claims for monies now or
hereafter due and payable in connection with any and all of the foregoing or
otherwise.
 
“Action Request” means any request received by any Credit Party or any of its
Subsidiaries from any Governmental Authority under any Environmental Law whereby
such Governmental Authority requests that it take action or steps or do acts or
things in respect of any property or assets in its charge, management or control
to remediate a matter which is not or is alleged not to be in compliance with
all Environmental Laws.
 
“Acquisition” means any transaction, or any series of related transactions,
consummated after the Effective Date, by which any Credit Party, directly or
indirectly, by means of a take-over bid, tender offer, amalgamation, merger,
purchase of assets or otherwise (a) acquires any business or all or
substantially all of the assets of any Person engaged in any business,
(b) acquires control of securities of a Person engaged in a business
representing more than 50% of the ordinary voting power for the election of
directors or other governing position if the business affairs of such Person are
managed by a board of directors or other governing body, (c) acquires control of
more than 50% of the ownership interest in any Person engaged in any business
that is not managed by a board of directors or other governing body, or (d)
otherwise acquires Control of a Person engaged in a business.
 
“Adjusted Tangible Net Worth” means, for the Credit Parties on a consolidated
basis, the excess of total consolidated assets over total consolidated
liabilities, as determined in accordance with GAAP on a consistent basis,
provided, however, that the determination of total consolidated assets shall
exclude (i) all goodwill, organizational expenses, research and development
expenses, trade marks, trade mark applications, trade names, copyrights,
patents, patent applications, licenses and rights in any thereof, and other
similar intangibles, (ii) all prepaid expenses, deferred charges or unamortized
debt discount and expense, (iii) all reserves carried and not deducted from
consolidated assets, (iv) Equity Securities of, obligations or other securities
of, or capital contributions to, or investments in, any Subsidiary,
(v) securities which are not readily marketable, (vi) cash held in a sinking
fund or other analogous fund established for the purpose of redemption,
retirement or prepayment of Equity Securities or Indebtedness, (vii) any
write-up in the book value of any asset resulting from a revaluation thereof
after the acquisition thereof by the Borrower or a Restricted Subsidiary, as the
case may be, and (viii) any items not included in clauses (i) through (vii)
above which are treated as intangibles under GAAP.
 

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“Affiliate” means, (a) any Person which, directly or indirectly, Controls, is
Controlled by or is under common Control with any other Person; (b) any Person
which beneficially owns or holds, directly or indirectly, 10% or more of any
class of voting stock or equity interest (including partnership interests) of
any other Person; (c) any Person, 10% or more of any class of the voting stock
(or if such Person is not a corporation, 10% or more of the equity interest,
including partnership interests) of which is beneficially owned or held,
directly or indirectly, by any other Person; or (d) any Person related within
the meaning of the ITA to any such Person and includes any “Affiliate” within
the meaning specified in the Canada Business Corporations Act on the date
hereof. The term control (including the terms “controlled by” and “under common
control with”), means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of the Person in
question.
 
“Agreement” means this Credit Agreement, as it may be amended, modified,
supplemented or restated from time to time.
 
“Applicable Law” means all federal, provincial, municipal, foreign and
international statutes, acts, codes, ordinances, decrees, treaties, rules,
regulations, municipal by-laws, judicial or arbitral or administrative or
ministerial or departmental or regulatory judgments, orders, decisions, rulings
or awards or any provisions of the foregoing, including general principles of
common and civil law and equity, and all policies, practices and guidelines of
any Governmental Authority binding on or affecting the Person referred to in the
context in which such word is used (including, in the case of tax matters, any
accepted practice or application or official interpretation of any relevant
taxation authority).
 
“Assignment and Assumption” means an assignment and assumption entered into by
the Lender and an assignee (with the consent of any party whose consent is
required by Section 8.4), and accepted by the Lender.
 
“Availability Reserves” means, as of any date of determination, such amounts as
the Lender may from time to time establish and revise in its sole discretion
reducing the Borrowing Base which would otherwise be available to the Borrower
under the lending formulas provided for herein (a) to reflect criteria, events,
conditions, contingencies or risks which, as determined by the Lender in its
sole discretion, do or may affect either (i) any component of the Borrowing Base
or its value, (ii) the assets, business, operations, industry, financial
performance, financial condition or prospects of the Credit Parties, or
(iii) the security interests and other rights of the Lender in the Collateral
(including the enforceability, perfection and priority thereof), or (b) to
reflect the Lender’s customary practice or its reasonable belief that any
collateral report or financial information furnished by or on behalf of the
Borrower to the Lender is or may have been incomplete, inaccurate or misleading,
or (c) in respect of any state of facts which the Lender determines constitutes
a Default or an Event of Default. Without limiting the foregoing, the Lender, in
its sole discretion, may establish and/or increase Availability Reserves in
respect of: (a) (i) three months rental payments or similar charges for any of
the Borrower’s leased premises or other collateral locations for which the
Borrower has not delivered to the Lender a landlord’s waiver or bailee’s letter
substantially in the form attached hereto as Exhibits C and D, respectively,
plus (ii) three months estimated payments plus any other fees or charges owing
by the Borrower to any applicable warehousemen or third party processor (as
determined by the Lender in its reasonable business judgement), provided that
any of the foregoing amounts shall be adjusted from time to time hereafter upon
(x) delivery to the Lender of any such acceptable waiver, (y) the opening or
closing of a collateral location and/or (z) any change in the amount of rental,
storage or processor payments or similar charges; (b) any reserve established by
the Lender on account of statutory claims, deemed trusts, or inventory subject
to rights of suppliers under Section 81.1 of the BIA (generally known as the
“30-day goods” rule), any amendments to the BIA to the extent such become
Applicable Law and which have the effect of implementing any aspect of Bill C-55
as of the date hereof, or any other Applicable Law; (c) liabilities of any
Credit Party under any Blocked Account Agreement, or swap, cap, floor, collar,
futures contract or option designed to hedge against fluctuations in commodity
prices, securities prices or other financial market conditions, (d) employee or
employee benefit related liabilities, (e) any other claims which may have
priority over the claims of the Lender, including Priority Payables; and
(f) such other reserves as the Lender may at any time or times deem necessary in
its reasonable judgment as a result of (x) negative forecasts and/or trends in
the Borrower’s business, operations, industry, prospects, profits, operations or
financial condition or assets or (y) other issues, circumstances or facts that
could otherwise negatively impact the Borrower, its business, operations,
industry, prospects, profits, operations or financial condition or assets.
 
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“Authorization” means, with respect to any Person, any authorization, order,
permit, approval, grant, licence, consent, right, franchise, privilege,
certificate, judgment, writ, injunction, award, determination, direction,
decree, by-law, rule or regulation of any Governmental Authority having
jurisdiction over such Person, whether or not having the force of Law.
 
“BIA” means the Bankruptcy and Insolvency Act (Canada).
 
“Blocked Account Agreement” has the meaning set out in Section 2.14(d).
 
“Blocked Accounts” has the meaning set out in Section 2.14(d).
 
“Borrower” means International Conduits Ltd., an Ontario corporation.
 
“Borrowing” means any availment of the Credit, which includes a Loan.
 
“Borrowing Base” means, at any time, the lesser at such time of (a) Maximum
Revolving Line of Credit; and (b) an amount (which may not be less than zero)
equal to the sum of (i) 85% of the aggregate amount of all Eligible Accounts of
the Credit Parties, plus (ii) 50% of the appraised net orderly liquidation value
of all Eligible Inventory of the Credit Parties, minus (iii) an amount equal to
all Priority Payables, and minus (iv) an amount equal to all other Availability
Reserves.
 
“Borrowing Base Report” means the report of the Borrower concerning the amount
of the Borrowing Base, to be delivered pursuant to Section 4.2, substantially in
the form attached as Exhibit A.
 
“Borrowing Request” means a request by the Borrower for a Borrowing
substantially in the form of Exhibit B.
 
“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in Toronto, Ontario or New York, New York are authorized
or required by Applicable Law to remain closed.
 
“Canadian Dollars” and “Cdn.$” refer to lawful money of Canada.
 
“Canadian $ Equivalent” means, on any day, the amount of Canadian Dollars that
the Lender could purchase, in accordance with its normal practice, with a
specified amount of U.S. Dollars based on the Bank of Canada noon spot rate on
such date.
 
“Canadian Prime Borrowing” means a Borrowing comprised of one or more Canadian
Prime Loans.
 
“Canadian Prime Loan” means a Loan denominated in Canadian Dollars made by the
Lender to the Borrower hereunder pursuant to a drawdown of a Loan which bears
interest at a rate based upon the Canadian Prime Rate.
 
“Canadian Prime Rate” shall mean a fluctuating interest rate per annum equal at
all times to the rate of interest announced publicly from time to time by
publication as the Bloomberg PRIMECAN Screen (base rate); provided, that such
rate is not necessarily the best rate offered to its customers by the Lender,
and, should the Lender be unable to determine such rate, such other indication
of the prevailing prime rate of interest as may reasonably be chosen by the
Lender; provided, further, that each change in the Canadian Prime Rate shall
take effect simultaneously with the corresponding change in the Bloomberg
PRIMECAN Screen (base rate) or the other reasonably chosen prevailing prime rate
of interest.
 
“Canadian Resident Lender” means, in respect of a particular Loan, (i) a Lender
which holds such Loan and which is resident in Canada for the purposes of the
ITA, or (ii) a Lender which is an “authorized foreign bank”, as defined in
section 2 of the Bank Act (Canada) and in section 248(1) of the ITA, and which
holds the Loan as part of its “Canadian banking business”, as defined in
subsection 248(1) of the ITA.
 
“Capital Expenditures” means all payments due or accruing due (whether or not
paid) during a Fiscal Year in respect of the cost (including expenditures on
materials, contract labour and direct labour, but excluding expenditures
properly chargeable to repairs and maintenance in accordance with GAAP) of any
fixed asset or improvement, or replacement, substitution, or addition thereto,
which have a useful life of more than one (1) year, including, without
limitation, those arising in connection with the direct or indirect acquisition
of such assets by way of increased product or service charges or offset items or
in connection with Capital Leases all as required to be capitalized in
accordance with GAAP.
 
“Capital Lease Obligations” of any Person means the obligations of such Person
to pay rent or other amounts under any lease of (or other arrangement conveying
the right to use) real or personal property, or a combination thereof, which
obligations are required to be classified and accounted for as capital leases on
a balance sheet of such Person under GAAP, and the amount of such obligations
shall be the capitalized amount thereof determined in accordance with GAAP.
 
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“Change in Control” means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group of Persons acting
jointly or otherwise in concert, other than Universal Security Instruments, Inc.
or its Affiliates, of Equity Securities representing more than 50% of the
aggregate ordinary voting power represented by the issued and outstanding Equity
Securities of the Borrower; (b) the occupation of a majority of the seats (other
than vacant seats) on the board of directors of the Borrower by Persons who were
neither (i) nominated by the board of directors of the Borrower nor
(ii) appointed by directors so nominated; or (c) the acquisition of direct or
indirect Control of the Borrower by any Person or group of Persons acting
jointly or otherwise in concert, other than Universal Security Instruments, Inc.
or its Affiliates.
 
“Change in Law” means (i) the adoption of any new Applicable Law after the date
of this Agreement, (ii) any change in any existing Applicable Law or in the
interpretation or application thereof by any Governmental Authority after the
date of this Agreement, or (iii) compliance by the Lender (or, for purposes of
Section 2.10(b), by any lending office of the Lender or by the Lender’s holding
company, if any) with any request, guideline or directive (whether or not having
the force of law, but in the case of a request, guideline or directive not
having the force of law, being a request, guideline or directive with which
persons customarily comply) of any Governmental Authority made or issued after
the date of this Agreement.
 
“Collateral” means the property described in and subject to the Liens,
privileges, priorities and security interests purported to be created by any
Security Document.
 
“Consolidated Net Income” means, for any period, the net income on a
consolidated basis of the Borrower and its consolidated Subsidiaries in
accordance with GAAP; provided, however, that Consolidated Net Income shall not
include or take into account:
 

 
(i)
any net income (or loss) of any Unrestricted Subsidiary, except that (subject to
the exclusions contained in clauses (iii) and  (iv) below), the Borrower’s
equity in the net income of any such Person for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Borrower or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (ii) below);

     

 
(ii)
any net income of any Restricted Subsidiary which is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions, directly or indirectly, to the Borrower, except that (A) subject
to the exclusion contained in clauses (iii) and (iv) below, the Borrower’s
equity in the net income of any such Restricted Subsidiary for such period shall
be included in such Consolidated Net Income up to the aggregate amount of cash
that could have been distributed by such Restricted Subsidiary consistent with
such restriction during such period to the Borrower or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to another Restricted Subsidiary, to the
limitation contained in this clause), and (B) the Borrower’s equity in a net
loss of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income;

     

 
(iii)
any gain (or loss) realized upon the sale or other disposition of any assets of
the Borrower or any Subsidiary (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary course
of business and any gain (or loss) realized upon the sale or other disposition
of any capital stock of any Person;

     

 
(iv)
extraordinary or nonrecurring gains or non-cash losses; and

     

 
(v)
the effect of a change in GAAP.

 
“Control” means, in respect of a particular Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ability to exercise voting power,
by contract or otherwise. “Controlling” and “Controlled” have meanings
correlative thereto.
 
“Credit Party” means the Borrower and each Restricted Subsidiary.
 
“Credits” means the Revolving Credit and the Term Credit.
 
“Default” means any event or condition which constitutes an Event of Default or
which, upon notice, lapse of time or both, would, unless cured or waived, become
an Event of Default.
 
“Disclosed Matters” means the actions, suits and proceedings and the
environmental matters disclosed in Schedule A.
 
“EDC” means Export Development Corporation (Canada) and its successors and
assigns.
 
“Effective Date” means the date on which all of the conditions specified in
Section 4.1 are satisfied or waived in accordance with Section 8.2, as confirmed
in a written notice from the Lender to the Borrower.
 
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“Eligible Account” means, at any time, the invoice amount (which shall be the
Canadian $ Equivalent at such time of any amount denominated in U.S.$) owing on
each Account of a Credit Party (net of any credit balance, returns, trade
discounts, contras unapplied cash, unbilled amounts, tax refunds that have not
yet been received or retention or finance charges) which meet such standards of
eligibility as the Lender shall establish from time to time in its reasonable
discretion; provided that, in any event, no account shall be deemed an Eligible
Account unless each of the following statements is accurate and complete (and by
including such Account in any computation of the applicable Borrowing Base, the
Borrower shall be deemed to represent and warrant to the Lender the accuracy and
completeness of such statements and the compliance of each such Account with
each such other eligibility standard established by the Lender):
 
(1) Such Account is a binding and valid obligation of the obligor thereon and is
in full force and effect;
 
(2) Such Account is evidenced by an invoice and is payable in either Canadian
Dollars or U.S. Dollars;
 
(3) Such Account is genuine as appearing on its face or as represented in the
books and records of the Borrower and the applicable Credit Party;
 
(4) Such Account is free from claims regarding rescission, cancellation or
avoidance, whether by operation of Applicable Law or otherwise;
 
(5) Payment of such Account is less than 90 days past the original invoice date
thereof and less than 60 days past the original due date thereof;
 
(6) Such Account is net of concessions, offset, deduction, contras, returns,
chargebacks or understandings with the obligor thereon that in any way could
reasonably be expected to adversely affect the payment of, or the amount of,
such Account;
 
(7) The Lender, has a first-priority perfected Lien covering such Account and
such Account is, and at all times will be, free and clear of all Liens other
than Permitted Liens;
 
(8) The obligor on such Account is not an Affiliate or a director, officer or
employee of any Credit Party;
 
(9) Such Account arose in the ordinary course of business of the Credit Party
out of the sale of goods or services by the Credit Party;
 
(10) Such Account is not payable by an obligor in respect of which 50% or more
(by amount) of the total aggregate Accounts owed to the Credit Party by such
obligor or any of its Affiliates are more than 90 days past the original invoice
date thereof or more than 60 days past the original due date thereof;
 
(11) All consents, licenses, approvals or authorizations of, or registrations or
declarations with, any Governmental Authority required to be obtained, effected
or given in connection with the execution, delivery and performance of such
Account by each party obligated thereunder, or in connection with the
enforcement and collection thereof by the Lender, have been duly obtained,
effected or given and are in full force and effect;
 
(12) The obligor on such Account is not an individual, and is not the subject of
any bankruptcy or insolvency proceeding, does not have a trustee or receiver
appointed for all or a substantial part of its property, has not made an
assignment for the benefit of creditors, admitted its inability to pay its debts
as they mature, suspended its business or initiated negotiations regarding a
compromise of its debt with its creditors, and the Lender, in its reasonable
discretion, is otherwise satisfied with the credit standing of such obligor;
 
(13) The chief executive office of the obligor of such Account is located in the
United States of America or Canada and the obligor of such Account is organized
and existing under the laws of the United States of America or a state thereof
or the federal laws of Canada, a province or territory thereof, or if the
obligor is not so organized and existing, such Account is covered under letters
of credit or export/import insurance provided by the EDC on terms and in a
manner reasonably satisfactory to the Lender;
 
(14) The obligor of such Account is not a Governmental Authority, if the
enforceability or effectiveness against such Governmental Authority of an
assignment of such Account is subject to any precondition which has not been
fulfilled;
 
(15) In the case of the sale of goods, the subject goods have been completed,
sold and shipped, on a true sale basis on open account, or subject to contract,
and not on consignment, on approval, on a “sale or return” basis, or on a “bill
and hold” or “pre-sale” basis or subject to any other repurchase or return
agreement; no material part of the subject goods has been returned, rejected,
lost or damaged; and such Account is not evidenced by chattel paper or a
promissory note or an instrument of any kind, unless such chattel paper,
promissory note or other instrument has been delivered to the Lender and is
subject to a Lien under the Security Documents;
 
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(16) Each of the representations and warranties set forth herein and in the Loan
Documents with respect to such Account is true and correct on such date;
 
(17) A cheque, promissory note, draft, trade acceptance or other instrument has
not been received with respect to such Account (or with respect to any other
account due from the same account debtor), presented for payment and returned
uncollected for any reason;
 
(18) Such Account is not in respect of a volume rebate; and
 
(19) The Lender does not believe, in the exercise of its reasonable discretion,
that the prospect of collection of such Account is impaired or that the Account
may not be paid because of the account debtor’s inability to pay;
 
(20) Such Account is not a pre-billed account or an account arising from
progress billing; and
 
(21) The assignment (whether absolutely or by way of security) of such Account
is not limited or restricted by the terms of the contract evidencing or relating
to such Account or, if assignment of such Account is so restricted, such
limitation or restriction has been complied with and the laws of the
jurisdiction(s) governing the validity of such assignment do not provide that
such limitation or restriction is ineffective as against the secured creditor
with a security interest therein;
 
(22) Such Account is not an Account which the Lender, in the exercise of its
good faith credit discretion, determines to be ineligible for any other reasons
deemed necessary by Lender in its reasonable business judgment, including those
which are customary either in the commercial lending industry or in the lending
practices of the Lender.
provided that, if at any time the aggregate amount of all Eligible Accounts owed
to a Credit Party by a particular obligor or its Affiliates exceeds 10% of the
aggregate amount of all Eligible Accounts at such time owed to such Credit Party
(determined without giving effect to any reduction in Eligible Accounts pursuant
to this proviso), then, unless the Accounts of such obligors and its Affiliates
are insured pursuant to credit insurance acceptable to the Lender which has been
assigned to the Lender in form acceptable to the Lender, the amount of such
Accounts in excess of 10% of such aggregate amount of all Eligible Accounts
shall be excluded in determining the aggregate amount of all Eligible Accounts
at such time.
 
“Eligible Assignee” means (a) another Lender, (b) with respect to any Lender,
any Affiliate of that Lender, (c) any commercial bank having total assets of
$25,000,000,000 or more, (d) any (i) trust company, savings bank, savings and
loan association or similar financial institution, or (ii) insurance company
engaged in the business of writing insurance which, in either case (A) has total
assets of $25,000,000,000 or more, (B) is engaged in the business of lending
money and extending credit under credit facilities substantially similar to
those extended under this Agreement, (C) is operationally and procedurally able
to meet the obligations of a Lender hereunder to the same degree as a commercial
bank, and (e) any other financial institution (including a mutual fund or other
fund) having total assets of $25,000,000,000 or more which meets the
requirements set forth in subclauses (B) and (C) of clause (d) above.
 
“Eligible Inventory” means, at any time with respect to a Credit Party, all
Inventory of such Credit Party valued in Canadian Dollars on a lower of cost (on
a first-in, first out basis and excluding any component of cost representing
intercompany profit in the case of Inventory acquired from an Affiliate) or
market basis in accordance with GAAP, with detailed calculations of lower of
cost or market to occur on at least a monthly basis, which meets such standards
of eligibility as the Lender shall establish from time to time in its reasonable
discretion; provided that, in any event, no Inventory shall be deemed Eligible
Inventory unless each of the following statements is accurate and complete (and
by including such Inventory in any computation of the applicable Borrowing Base,
the Borrower shall be deemed to represent and warrant to the Lender the accuracy
and completeness of such statements and the compliance of such Inventory with
each such other eligibility standard established by the Lender):
 
(1) Such Inventory is in good condition, merchantable, meets all standards
imposed by any Governmental Authority having regulatory authority over it or its
use and/or sale and is not obsolete and is either currently usable or currently
saleable in the normal course of business of a Credit Party;
 
(2) Such Inventory is
 

 
(a)
in possession of such Credit Party and located on real property owned or leased
by such Credit Party within the United States of America or Canada (provided
that if such Inventory is located on real property leased by such Credit Party,
the landlord of such real property shall have executed and delivered to the
Lender a landlord waiver substantially in the form attached hereto as Exhibit
C), or

 
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(b)
in the possession of a bailee within Canada and such bailee shall have executed
and delivered to the Lender, a bailee letter substantially in the form attached
hereto as Exhibit D, or

     

 
(c)
in transit within the United States of America or Canada and between Credit
Parties, and upon arrival at its destination, will comply with either
paragraph (a) or (b) above until title to such Inventory passes to purchaser;

 
(3) Each of the representations and warranties set forth in the Loan Documents
with respect to such Inventory is true and correct on such date;
 
(4) The Lender has a first-priority perfected Lien covering such Inventory, and
such Inventory is, and at all times will be, free and clear of all Liens other
than Permitted Liens;
 
(5) Such Inventory does not include goods (i) that are not owned by such Credit
Party, (ii) that are held by such Credit Party pursuant to a consignment
agreement, or (iii) that are special order goods or discontinued goods;
 
(6) Such Inventory is not subject to repossession under the BIA except to the
extent the applicable vendor has entered into an agreement with the Lender, in
form and substance reasonably satisfactory to the Lender, waiving its right to
repossession;
 
(7) Such Inventory does not consist of work-in-process, store room materials,
supplies, parts, samples, prototypes, or packing and shipping materials;
 
(8) Such Inventory does not consist of goods that are discontinued, obsolete,
slow-moving or returned or repossessed or used goods taken in trade;
 
(9) Any portion of the value of such Inventory which results from a profit or
gain resulting from an inter-company sale or other disposition of such inventory
shall be excluded;
 
(10) Such Inventory is not evidenced by negotiable documents of title unless
delivered to the Lender with endorsements;
 
(11) Such Inventory does not constitute Hazardous Materials;
 
(12) Such Inventory is covered by casualty insurance;
 
(13) Such Inventory is located on real property where there is Inventory of such
Credit Party in the aggregate amount of at least Cdn.$100,000;
 
(14) Such Inventory is not Inventory which the Lender has determined in the
exercise of its reasonable discretion that the Lender may not sell or otherwise
dispose of in accordance with the terms of the applicable Security Documents
without infringing upon the rights of another Person or violating any contract
with any other Person; and
 
(15) Such Inventory is not Inventory which the Lender, in the exercise of its
good faith credit discretion, determines to be not acceptable for any other
reasons, including those which are customary either in the commercial lending
industry or in the lending practices of the Lender.
 
“Environmental Laws” means all Applicable Laws relating in any way to the
environment, preservation or reclamation of natural resources, the generation,
use, handling, collection, treatment, storage, transportation, recovery,
recycling, release, threatened release or disposal of any Hazardous Material, or
to health and safety matters.
 
“Environmental Liability” means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of any Credit Party directly or indirectly resulting
from or based upon (a) violation of any Environmental Laws, (b) the generation,
use, handling, collection, treatment, storage, transportation, recovery,
recycling or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the Release or threatened Release of any Hazardous Materials into
the environment, or (d) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
 
“Equity Securities” means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting and non-voting) of, such Person’s capital, whether
outstanding on the date hereof or issued after the date hereof, including any
interest in a partnership, limited partnership or other similar Person and any
beneficial interest in a trust, and any and all rights, warrants, debt
securities, options or other rights exchangeable for or convertible into any of
the foregoing.
 
“ETA” means Part IX of the Excise Tax Act (Canada).
 
“Event of Default” has the meaning set out in Section 7.1.
 
“Excess Availability” means, as of any date, the remainder of (a) the Borrowing
Base as of such date, less (b) the aggregate outstanding balance of the
Indebtedness of the Borrower hereunder as of such date and the aggregate face
amount of undrawn Letters of Credit as of such date. Excess Availability shall
always be determined on the basis that all debts and obligations shall be
current, and all accounts payable shall be handled in the normal course of the
Borrower’s business consistent with its past practices.
 
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“Excluded Taxes” means, with respect to the Lender or any other recipient of any
payment to be made by or on account of any obligation of the Borrower hereunder,
income or franchise Taxes imposed on (or measured by) its taxable income or
capital Taxes imposed on (or measured by) its taxable capital, in each case by
Canada, or by the jurisdiction under the Applicable Laws of which such recipient
is organized, in which the recipient is resident for tax purposes or in which
its principal office is located or in which it is otherwise deemed to be engaged
in a trade or business for Tax purposes, or any subdivision thereof or therein,
and any branch profits taxes imposed by Canada, the United States of America or
any similar tax imposed by any jurisdiction on the recipient.
 
“Exposure” means, with respect to the Lender at any time, the sum of the
outstanding principal amount of the Lender’s Revolving Loans at such time.
 
“Financial Officer” means the chief financial officer, principal accounting
officer, treasurer or controller of the Borrower.
 
“Fiscal Quarter” means any fiscal quarter of the Borrower.
 
“Fiscal Year” means any fiscal year of the Borrower.
 
“Foreign Lender” means any Lender that is not a Canadian Resident Lender.
 
“GAAP” means at any particular time with respect to any Credit Party, generally
accepted accounting principles as in effect at such time in Canada, consistently
applied; provided, however, that, if employment of more than one principle shall
be permissible at such time in respect of a particular accounting matter, “GAAP”
shall refer to the principle which is then employed by the applicable Credit
Party with the concurrence of its independent public or chartered accountants,
who are acceptable to the Lender provided further that, for the purposes of
determining compliance with the financial covenants herein, “GAAP” means GAAP as
at the date hereof.
 
“Governmental Authority” means the government of Canada, any other nation or any
political subdivision thereof, whether provincial, state, territorial or local,
and any agency, authority, instrumentality, regulatory body, court, central
bank, fiscal or monetary authority or other authority regulating financial
institutions, and any other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government, including the Bank Committee on Banking Regulation and Supervisory
Practices of the Bank of International Settlements.
 
“GST” means all amounts payable under the ETA or any similar legislation in any
other jurisdiction of Canada, including QST and HST.
 
“Guarantee” of or by any Person (in this definition, the “guarantor”) means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (in this definition, the “primary credit party”) in any manner,
whether directly or indirectly, and including any obligation of the guarantor,
direct or indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation or to purchase (or
to advance or supply funds for the purchase of) any security for the payment
thereof (whether in the form of a loan, advance, stock purchase, capital
contribution or otherwise), (b) to purchase or lease property, securities or
services for the purpose of assuring the owner of such Indebtedness or other
obligation of the payment thereof, (c) to maintain working capital, equity
capital solvency, or any other balance sheet, income statement or other
financial statement condition or liquidity of the primary credit party so as to
enable the primary credit party to pay such Indebtedness or other obligation,
(d) as an account party in respect of any letter of credit or letter of
guarantee issued to support such Indebtedness or other obligation, or (e) to
purchase, sell or lease (as lessor or lessee) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment of
such Indebtedness or to assure the holder of such Indebtedness against loss.
 
“Guarantor” means Universal Security Instruments, Inc. and USI Electric, Inc.
and each other Person (other than a Credit Party) which has executed and
delivered to the Lender, a guarantee of the obligations of the Borrower
hereunder.
 
“Hazardous Materials” means any substance, product, liquid, waste, pollutant,
chemical, contaminant, insecticide, pesticide, gaseous or solid matter, organic
or inorganic matter, fuel, micro-organism, ray, odour, radiation, energy,
vector, plasma, constituent or material which (a) is or becomes listed,
regulated or addressed under any Environmental Laws, or (b) is, or is deemed to
be, alone or in any combination, hazardous, hazardous waste, toxic, a pollutant,
a deleterious substance, a contaminant or a source of pollution or contamination
under any Environmental Laws, including petroleum or petroleum distillates,
asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes and all other substances or wastes of any nature
regulated pursuant to any Environmental Laws.
 
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“HST” means all amounts payable as harmonised sales tax in the Provinces of Nova
Scotia, Newfoundland and New Brunswick under the ETA.
 
“Indebtedness” of any Person means, without duplication, (a) all obligations of
such Person for borrowed money or with respect to deposits or advances of any
kind, (b) all obligations of such Person evidenced by bonds, debentures, notes
or similar instruments, (c) all obligations of such Person upon which interest
charges are customarily paid, (d) all obligations of such Person under
conditional sale or other title retention agreements relating to property
acquired by such Person, (e) all obligations of such Person in respect of the
deferred purchase price of property or services (excluding current accounts
payable incurred in the ordinary course of business), (f) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed, (g) all Guarantees by such Person of Indebtedness of others,
(h) all Capital Lease Obligations of such Person, (i) all obligations,
contingent or otherwise, of such Person as an account party in respect of
letters of credit and letters of guarantee, (j) all obligations, contingent or
otherwise, of such Person in respect of bankers’ acceptances, (k) the net amount
of obligations of such Person (determined on a mark-to-market basis) under Swap
Agreements, and (l) all obligations of such Person to purchase, redeem, retire,
defease or otherwise acquire for value (other than for other Equity Securities)
any Equity Securities of such Person, valued, in the case of redeemable Equity
Securities, at the greater of voluntary or involuntary liquidation preference,
plus accrued and unpaid dividends. The Indebtedness of any Person shall include
the Indebtedness of any other entity (including any partnership in which such
Person is a general or limited partner) to the extent such Person is liable
therefor as a result of such Person’s ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
 
“Indemnified Taxes” means all Taxes other than Excluded Taxes.
 
“Indemnitee” has the meaning set out in Section 8.3(b).
 
“Interest Payment Date” means the first Business Day of each calendar month.
 
“Inventory” means, in respect of each Credit Party, all of such Credit Party’s
present and hereafter acquired inventory (as defined in the PPSA) and including
all merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials
used or usable in manufacturing, processing, packaging or shipping same in all
stages of production from raw materials through work in process to finished
goods, and all “stores” inventory or “operating and maintenance supplies”
inventory, and all proceeds of any thereof (of whatever sort).
 
“Investment” means, as applied to any Person (the “investor”), any direct or
indirect purchase or other acquisition by the investor of, or a beneficial
interest in, Equity Securities of any other Person, including any exchange of
Equity Securities for Indebtedness, or any direct or indirect loan, advance
(other than advances to employees for moving and travel expenses, drawing
accounts and similar expenditures in the ordinary course of business) or capital
contribution by the investor to any other Person, including all Indebtedness and
Accounts owing to the investor from such other Person that did not arise from
sales or services rendered to such other Person in the ordinary course of the
investor’s business, or any direct or indirect purchase or other acquisition of
bonds, notes, debentures or other debt securities of, any other Person. The
amount of any Investment shall be the original cost of such Investment plus the
cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment minus any amounts (a) realized upon the disposition of assets
comprising an Investment (including the value of any liabilities assumed by any
Person other than the Borrower or any Restricted Subsidiary in connection with
such disposition), (b) constituting repayments of Investments that are loans or
advances or (c) constituting cash returns of principal or capital thereon
(including any dividend, redemption or repurchase of equity that is accounted
for, in accordance with GAAP, as a return of principal or capital).
 
“ITA” means the Income Tax Act (Canada).
 
“Lender” means CIT Financial Ltd. and any other Person that shall have become a
party hereto pursuant to an Assignment and Assumption, other than any such
Person that ceases to be a party hereto pursuant to an Assignment and
Assumption.
 
“Lender Affiliate” means, with respect to any Lender, an Affiliate of such
Lender.
 
“Lien” means, (a) with respect to any asset, any mortgage, deed of trust, lien,
pledge, hypothec, hypothecation, encumbrance, charge, security interest, royalty
interest, adverse claim, defect of title or right of set off in, on or of such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease, title retention agreement or consignment agreement (or
any financing lease having substantially the same economic effect as any of the
foregoing) relating to any asset, (c) in the case of securities, any purchase
option, call or similar right of a third party with respect to such securities,
(d) any netting arrangement, defeasance arrangement or reciprocal fee
arrangement, and (e) any other arrangement having the effect of providing
security.
 
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“Loan” means any loan made by the Lender to the Borrower pursuant to this
Agreement, including the Revolving Loans and the Term Loan.
 
“Loan Documents” means this Agreement, the Security Documents, the Blocked
Account Agreement, the Borrowing Requests, and the Borrowing Base Reports,
together with any other document, instrument or agreement (other than
participation, agency or similar agreements among the Lender or between the
Lender and any other bank or creditor with respect to any indebtedness or
obligations of any Credit Party hereunder or thereunder) now or hereafter
entered into in connection with this Agreement, as such documents, instruments
or agreements may be amended, modified or supplemented from time to time.
 
“Material Adverse Change” means any event, development or circumstance that has
had or could reasonably be expected to have a Material Adverse Effect.
 
“Material Adverse Effect” means a material adverse effect on (a) the business,
assets, operations, prospects or condition, financial or otherwise, of the
Credit Parties, or (b) the validity or enforceability of any of the Loan
Documents, the priority of the Liens created thereby or the rights and remedies
of the Lender thereunder or (c) any Material Contract, or (d) the amount which
the Lender would be likely to receive (after giving effect to delays in payment
and costs of enforcement) upon the liquidation of the Collateral.
 
“Material Contract” means (a) the contracts, licences and agreements listed and
described on Schedule B, and (b) any other contract, licence or agreement (i) to
which any Credit Party is a party or bound, (ii) which is material to, or
necessary in, the operation of the business of any Credit Party, and (iii) which
a Credit Party cannot promptly replace by an alternative and comparable contract
with comparable commercial terms.
 
“Material Indebtedness” means (a) the obligations of Universal Security
Instruments, Inc. to The CIT Group/Commercial Services Inc. pursuant to the
amended and restated factoring agreement dated as of the date hereof between The
CIT Group/Commercial Services Inc. and Universal Security Instruments, Inc. and
all ancillary documents connected therewith, which obligations have been
guaranteed by the Credit Parties, and (b) any Indebtedness of any one or more of
the Credit Parties in an aggregate principal amount exceeding
Cdn.$250,000. “Maturity Date” means initially the first day following the third
anniversary of the Effective Date (or, if such day is not a Business Day, the
next Business Day thereafter), and thereafter such other date in the future as
may be agreed to in accordance with Section 2.6.
 
“Maximum Revolving Line of Credit” means the Canadian $ Equivalent of
US$7,000,000.
 
“Obligations” means all obligations, liabilities and indebtedness of the
Borrower to the Lender with respect to the principal of and interest on the
Loans and the payment or performance of all other obligations, liabilities and
indebtedness of the Borrower to the Lender hereunder or arising under or
pursuant to any one or more of the other Loan Documents or with respect to the
Loans, including, without limitation, all reimbursement and indemnity
obligations of the Borrower to the Lender hereunder.
 
“Operating Account” means the bank account maintained by the Borrower at a
financial institution acceptable to the Lender, acting reasonably.
 
“Out-of-Pocket Expenses” means all of the Lender’s present and future expenses
incurred relative to this Agreement or any other Loan Documents, whether
incurred heretofore or hereafter, which expenses shall include, without being
limited to: the reasonable cost of retaining external legal counsel, record
searches, all costs and expenses incurred by the Lender in opening bank
accounts, depositing cheques, receiving and transferring funds, and wire
transfer charges, any charges imposed on the Lender due to returned items and
“insufficient funds” of deposited cheques and the Lender’s standard fees
relating thereto, reasonable travel, lodging and similar expenses of the
Lender’s personnel (or any of its agents) in connection with inspecting and
monitoring the Collateral from time to time at reasonable intervals hereunder,
any applicable reasonable counsel fees and disbursements, fees and taxes
relative to the filing of financing statements, and all expenses, costs and fees
set forth incurred by or imposed on the Lender by reason of the exercise of any
of its rights and remedies under this Agreement or any of the other Loan
Documents.
 
“Participant” has the meaning set out in Section 8.4.
 
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“Payment Office” means the Lender’s office located at 207 Queen’s Quay West,
Toronto, Ontario, M5J 1A7, Attention: Chief Credit Officer (or such other office
or individual as the Lender may hereafter designate in writing to the other
parties hereto).
 
“Pension Plan” means any pension benefit plan within the meaning of the Pension
Benefits Act (Ontario) in respect of which any Credit Party makes or has made
contributions in respect of its employees.
 
“Permitted Investments” means:
 

 
(a)
direct obligations of, or obligations the principal of and interest on which are
unconditionally guaranteed by, the Government of Canada or of any Canadian
province (or by any agency thereof to the extent such obligations are backed by
the full faith and credit of the Government of Canada or of such Canadian
province), in each case maturing within one year from the date of acquisition
thereof;

 

 
(b)
investments in commercial paper maturing within 270 days from the date of
acquisition thereof and having, at such date of acquisition, the highest credit
rating obtainable from any of Moody’s, S&P or DBRS;

 

 
(c)
investments in certificates of deposit, bankers’ acceptances and time deposits
maturing within 180 days from the date of acquisition thereof issued or
guaranteed by or placed with, and money market deposit accounts issued or
offered by, any Schedule I bank under the Bank Act (Canada).

 
“Permitted Liens” means:
 

 
(a)
Liens in favour of the Lender for the obligations of the Borrower or any other
Credit Party under or pursuant to the Loan Documents;

 

 
(b)
Liens granted by a Credit Party in favour of another Credit Party in order to
secure any of its indebtedness to such other Credit Party, provided that such
Liens are subject to assignment and postponement arrangements satisfactory to
the Lender;

 

 
(c)
Purchase Money Liens securing Indebtedness and Liens to secure Capital Lease
Obligations, in each case only to the extent permitted by Section 6.1(e);

 

 
(d)
Liens imposed by any Governmental Authority for Taxes not yet due and delinquent
or which are being contested in good faith in compliance with Section 5.3, and,
during such period during which such Liens are being so contested, such Liens
shall not be executed on or enforced against any of the assets of any Credit
Party;

 

 
(e)
carrier’s, warehousemen’s, mechanics’, materialmen’s, repairmen’s, construction
and other like Liens arising by operation of Applicable Law, arising in the
ordinary course of business, which are not overdue for a period of more than 30
days or which are being contested in good faith and by appropriate proceedings,
and, during such period during which such Liens are being so contested, such
Liens shall not be executed on or enforced against any of the assets of the
Credit Party, provided that the Credit Party shall have set aside on its books
reserves deemed adequate therefor and not resulting in qualification by
auditors;

 

 
(f)
statutory Liens incurred or pledges or deposits made under employment standards,
pension benefits, worker’s compensation, unemployment insurance and other social
security legislation;

 

 
(g)
Liens or deposits to secure the performance of bids, tenders, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature (other than for borrowed money) incurred in
the ordinary course of business;

 

 
(h)
Liens of or resulting from any judgement or award, the time for the appeal or
petition for rehearing of which shall not have expired, or in respect of which
the Credit Parties shall at any time in good faith be prosecuting an appeal or
proceeding for review and in respect of which a stay of execution pending such
appeal or proceeding for review shall have been secured;

 
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(i)
undetermined or inchoate Liens and charges arising or potentially arising under
statutory provisions which have not at the time been filed or registered in
accordance with Applicable Law or of which written notice has not been duly
given in accordance with Applicable Law or which although filed or registered,
relate to obligations not due or delinquent;

 

 
(j)
statutory Liens incurred or pledges or deposits made in favour of a Governmental
Authority to secure the performance of obligations of a Credit Party under
Environmental Laws to which any assets of such Credit Party are subject,
provided that no Default or Event of Default shall have occurred and be
continuing;

 

 
(k)
a Lien granted by a Credit Party to a landlord to secure the payment of arrears
of rent in respect of leased properties in the Province of Quebec leased from
such landlord, provided that such Lien is limited to the assets located at or
about such leased properties;

 

 
(l)
any Lien on any owned real property of a Credit Party existing on the date
hereof and set forth in Schedule 3.9;

 

 
(m)
any Lien on any property or asset of a Credit Party existing on the date hereof
and set forth in Schedule 3.10; provided that (i) such Lien shall not apply to
any other property or asset of such Credit Party, and (ii) such Lien shall
secure only those obligations which it secures on the date hereof;

 

 
(n)
any Lien existing on any property or asset prior to the acquisition thereof by a
Credit Party or existing on any property or asset of any Person that becomes a
Credit Party after the date hereof prior to the time such Person becomes a
Credit Party; provided that (i) such Lien is not created in contemplation of or
in connection with such acquisition or such Person becoming a Credit Party, as
the case may be, (ii) such Lien shall not apply to any other property or assets
of such Credit Party, and (iii) such Lien shall secure only those obligations
which it secures on the date of such acquisition or the date such Person becomes
a Credit Party, as the case may be; and

 

 
(o)
any extension, renewal or replacement of any of the foregoing; provided,
however, that the Liens permitted hereunder shall not be extended to cover any
additional Indebtedness of the Credit Parties or their property (other than a
substitution of like property), except Liens in respect of Capital Lease
Obligations and Purchase Money Liens as permitted by (c) above.

 
“Person” includes any natural person, corporation, company, limited liability
company, trust, joint venture, association, incorporated organization,
partnership, Governmental Authority or other entity.
 
“PPSA” means the Personal Property Security Act (Ontario), as amended from time
to time.
 
“Priority Payables” means, with respect to any Person, any amount payable by
such Person which is secured by a Lien in favour of a Governmental Authority
which ranks or is capable of ranking prior to or pari passu with the Liens
created by the Security Documents in respect of any Eligible Accounts or
Eligible Inventory, including amounts owing for wages, vacation pay, severance
pay, employee deductions, sales tax, excise tax, Tax payable pursuant to Part IX
of the Excise Tax Act (Canada) (net of GST input credits), income tax, workers
compensation, government royalties, pension fund obligations, and other
statutory or other claims that have or may have priority over, or rank pari
passu with, such Liens created by the Security Documents.
 
“PST” means all taxes payable under the Retail Sales Tax Act (Ontario) or any
similar statute of another jurisdiction of Canada.
 
“Purchase Money Lien” means a Lien taken or reserved in personal property to
secure payment of all or part of its purchase price, provided that such Lien
(i) secures an amount not exceeding the purchase price of such personal
property, (ii) extends only to such personal property and its proceeds, and
(iii) is granted prior to or within 30 days after the purchase of such personal
property.
 
“QST” means the Quebec sales tax imposed pursuant to an Act respecting the
Québec sales tax.
 
“Related Parties” means, with respect to any Person, such Person’s Affiliates
and the respective directors, officers, employees, agents and advisors of such
Person and of such Person’s Affiliates.
 
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“Release” means an actual or potential discharge, deposit, spill, leak, pumping,
pouring, emission, emptying, injection, escape, leaching, seepage or disposal of
a Hazardous Materials which is in breach of any Environmental Laws.
 
“Responsible Officer” means, with respect to any Person, the chairman, the
president, any vice president, the chief executive officer or the chief
operating officer, and, in respect of financial or accounting matters, any
Financial Officer of such Person; unless otherwise specified, all references
herein to a Responsible Officer mean a Responsible Officer of the Borrower.
 
“Restricted Payment” shall mean, with respect to any Person, any payment by such
Person (i) of any dividends on any of its Equity Securities, (ii) on account of,
or for the purpose of setting apart any property for a sinking or other
analogous fund for, the purchase, redemption, retirement or other acquisition of
any of its Equity Securities or any warrants, options or rights to acquire any
such shares, or the making by such Person of any other distribution in respect
of any of its Equity Securities, (iii) of any principal of or interest or
premium on or of any amount in respect of a sinking or analogous fund or
defeasance fund for any Indebtedness of such Person ranking in right of payment
subordinate to any liability of such Person under the Loan Documents, (iv) of
any principal of or interest or premium on or of any amount in respect of a
sinking or analogous fund or defeasance fund for any Indebtedness of such Person
to a shareholder of such Person or to an Affiliate of a shareholder of such
Person, (v) in respect of an Investment, or (vi) of any management, consulting
or similar fee or any bonus payment or comparable payment, or by way of gift or
other gratuity, to any Affiliate of such Person or to any director or officer
thereof.
 
“Restricted Subsidiary” means each Subsidiary of the Borrower which is not an
Unrestricted Subsidiary.
 
“Revolving Credit” means the revolving credit facility in the Canadian $
Equivalent of US$7,000,000 established by the Lender pursuant to this Agreement.
 
“Revolving Loan” has the meaning set out in Section 2.1.
 
“Rolling Period” means, as at the end of any calendar month such calendar month
taken together with the eleven immediately preceding calendar months.
 
“Security Documents” means the agreements, documents or instruments described or
referred to in Section 4.1(h) and Section 5.11 (including, to the extent such
Section describes an amendment, the agreement, document or instrument amended
thereby) and any and all other agreements, documents or instruments now or
hereafter executed and delivered by any Credit Party or any other Person as
security for the payment or performance of all or part of the obligations of the
Borrower (or such Credit Party or other Person) hereunder or under any other
Loan Documents, as any of the foregoing may have been, or may hereafter be,
amended, modified or supplemented.
 
“Subsidiary” means, with respect to any Person (in this definition, the
“parent”) at any date, any other Person the accounts of which would be
consolidated with those of the parent in the parent’s consolidated financial
statements if such financial statements were prepared in accordance with GAAP as
of such date, as well as any other Person (a) of which securities or other
ownership interests representing more than 50% of the equity or more than 50% of
the ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, controlled or held,
or (b) that is, as of such date, otherwise Controlled, by the parent or one or
more Subsidiaries of the parent or by the parent and one or more Subsidiaries of
the parent.
 
“Taxes” means all taxes, charges, fees, levies, imposts and other assessments,
including all income, sales, use, goods and services, value added, capital,
capital gains, alternative, net worth, transfer, profits, withholding, payroll,
employer health, excise, real property and personal property taxes, and any
other taxes, customs duties, fees, assessments, or similar charges in the nature
of a tax, including Canada Pension Plan and provincial pension plan
contributions, unemployment insurance payments and workers’ compensation
premiums, together with any instalments with respect thereto, and any interest,
fines and penalties with respect thereto, imposed by any Governmental Authority
(including federal, state, provincial, municipal and foreign Governmental
Authorities), and whether disputed or not.
 
“Term Credit” means the term loan credit facility in the Canadian $ Equivalent
(as of June 20, 2007) of US$3,000,000 (which is Canadian $3,207,330) established
by the Lender pursuant to this Agreement.
 
“Term Loan” means a loan made pursuant to Section 2.1(b).
 
“Termination Date” means, with respect to any Credit, the date that such Credit
is terminated, whether or not such date is the Maturity Date.
 
“Transactions” means the execution, delivery and performance by the Borrower of
this Agreement and the other Loan Documents, the borrowing of Loans and the use
of the proceeds thereof.
 
“Unrestricted Subsidiary” means any Subsidiary of the Borrower which, together
with its Subsidiaries, represents less than 5% of the consolidated assets or
consolidated gross revenues of the Borrower.
 
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“U.S. Dollars” and “U.S.$” refer to lawful money of the United States of
America.
 
“U.S.$ Equivalent” means, on any day, the amount of U.S. Dollars that the Lender
could purchase, in accordance with its normal practice, with a specified amount
of Canadian Dollars based on the Bank of Canada noon spot rate on such date.
 
“Violation Notice” means any notice received by any Obligor from any
Governmental Authority under any Environmental Law that the applicable Obligor
or any of its property and assets is not in compliance with the requirements of
any Environmental Law.
 
1.2 Terms Generally. The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words “include”, “includes” and “including” shall be deemed to
be followed by the phrase “without limitation”. The word “will” shall be
construed to have the same meaning and effect as the word ‘shall”. The word “or”
is disjunctive; the word “and” is conjunctive. The word “shall” is mandatory;
the word “may” is permissive. The words “to the knowledge of” means, when
modifying a representation, warranty or other statement of any Person, that the
fact or situation described therein is known by the Person (or, in the case or a
Person other than a natural Person, known by the Responsible Officer of that
Person) making the representation, warranty or other statement, or with the
exercise of reasonable due diligence under the circumstances (in accordance with
the standard of what a reasonable Person in similar circumstances would have
done) would have been known by the Person (or, in the case of a Person other
than a natural Person, would have been known by such Responsible Officer of that
Person). Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any statute or any section thereof shall, unless
otherwise expressly stated, be deemed to be a reference to such statute or
section as amended, restated or re-enacted from time to time, (c) any reference
herein to any Person shall be construed to include such Person’s successors and
permitted assigns, (d) the words “herein”, “hereof” and “hereunder”, and words
of similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (e) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement, and
(f) the words “asset” and “property” shall be construed to have the same meaning
and effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights.
 
1.3 Accounting Terms; GAAP. Any accounting term used in this Agreement shall
have, unless otherwise specifically provided herein, the meaning customarily
given in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
as consistently applied and using the same method for inventory valuation as
used in the preparation of the Financial Statements.
 
1.4 Time. All time references herein shall, unless otherwise specified, be
references to local time in Toronto, Ontario. Time is of the essence of this
Agreement and the other Loan Documents.
 
1.5 Permitted Liens. Any reference in any of the Loan Documents to a Permitted
Lien is not intended to subordinate or postpone, and shall not be interpreted as
subordinating or postponing, or as any agreement to subordinate or postpone, any
Lien created by any of the Loan Documents to any Permitted Lien.
 
ARTICLE 2
THE CREDITS
 
2.1 Credits. 
 
(a) Subject to the terms and conditions set forth herein, the Lender agrees to
make Loans (each such Loan made under this Section 2.1(a), a “Revolving Loan”)
to the Borrower, solely in the Lender’s discretion and not on a committed basis,
from time to time during the period commencing on the Effective Date and ending
on the Termination Date in an aggregate principal amount no greater than the
Maximum Revolving Line of Credit, provided that any Revolving Loan made by the
Lender as requested by the Borrower will not result in the Lender’s Exposure
exceeding the Borrowing Base. Within the foregoing limit and subject to the
terms and conditions set forth herein, the Borrower may borrow, repay and
reborrow Revolving Loans.
 
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(b) Subject to the terms and conditions set forth herein, the Lender commits to
make a Loan (such Loan made under this Section 2.1(b), the “Term Loan”) to the
Borrower in a single Borrowing on the Effective Date in a principal amount equal
to the Canadian $ Equivalent of US$3,000,000.
 
2.2 Loans and Borrowings. 
 
Subject to the Borrowing Base limitations and the other limitations on Loans and
Borrowings as provided in this Agreement, each Borrowing shall be comprised
entirely of Canadian Prime Loans, as the Borrower may request in accordance
herewith.
 
2.3 Requests for Borrowings.
 
(a) To request a Borrowing of a Revolving Loan, the Borrower shall notify the
Lender of such request by written Borrowing Request not later than 10:00 a.m.,
Toronto time, on the date of the proposed Borrowing. The Lender is entitled to
rely and act upon any written Borrowing Request given or purportedly given by
the Borrower, and the Borrower hereby waives the right to dispute the
authenticity and validity of any such request or resulting transaction once the
Lender has advanced funds based on such written Borrowing Request. Each such
written Borrowing Request shall be substantially in the form of Exhibit B and
shall specify the following information:
 

 
(i)
the aggregate amount of the requested Borrowing;

 

 
(ii)
the date of such Borrowing, which shall be a Business Day; and

 

 
(iii)
the location and number of the Borrower’s account to which funds are to be
disbursed, which shall comply with the requirements of this Agreement.

 
(b) Each Borrowing shall be denominated in Canadian dollars.
 
(c) The Term Loan shall be made in one advance on the Effective Date.
 
2.4 Funding of Borrowings.
 
The Lender shall make each Loan to be made by it hereunder on the proposed date
thereof by wire transfer of immediately available funds by 12:00 noon, Toronto
time, to the account of the Borrower designated by the Borrower in the
applicable Borrowing Request.
 
2.5 Interest.
 
(a) The Loans comprising each Canadian Prime Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 365
days or 366 days, as the case may be) at a rate per annum equal to the Canadian
Prime Rate from time to time in effect.
 
(b) If there is a Default or an Event of Default has occurred and is continuing,
all amounts outstanding hereunder shall bear interest, after as well as before
judgment, at a rate per annum equal to 2% plus the rate otherwise applicable to
such Loan or, in the case of any amount not constituting principal or interest
on a Loan, at a rate equal to 2% plus the rate otherwise applicable to Canadian
Prime Loans.
 
(c) Accrued interest on each Loan shall be payable in arrears on the earlier of
(i) each Interest Payment Date, and (ii) the date of termination of the Credits.
In addition, in the event of any repayment or prepayment of any Loan, accrued
interest on the principal amount repaid or prepaid shall be payable on the date
of such repayment or prepayment.
 
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(d) All interest hereunder shall be payable for the actual number of days
elapsed (including the first day but excluding the last day). Any Loan that is
repaid on the same day on which it is made shall bear interest for one day. The
Canadian Prime Rate shall be determined by the Lender, and such determination
shall be conclusive absent manifest error.
 
(e) 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 365-day or 366-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 365 or 366, as applicable. The
rates of interest under this Agreement 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 Agreement.
 
(f) If any provision of this Agreement would oblige the Borrower to make any
payment of interest or other amount payable to the Lender in an amount or
calculated at a rate which would be prohibited by any Applicable Law or would
result in a receipt by that Lender of “interest” at a “criminal rate” (as such
terms are construed under the Criminal Code (Canada)), then, notwithstanding
such provision, such amount or rate shall be deemed to have been adjusted with
retroactive effect to the maximum amount or rate of interest, as the case may
be, as would not be so prohibited by Applicable Law or so result in a receipt by
the Lender of “interest” at a “criminal rate”, such adjustment to be effected,
to the extent permitted by Applicable Laws, as follows:
 

 
(i)
first, by reducing the amount or rate of interest required to be paid to the
affected Lender under Section 2.5; and

 

 
(ii)
thereafter, by reducing any fees, commissions, costs, expenses, premiums and
other amounts required to be paid to the Lender which would constitute interest
for purposes of section 347 of the Criminal Code (Canada).

 
2.6 Termination and Reduction of Credits.
 
Unless previously terminated, the Credits shall terminate on the Maturity Date.
The Revolving Loan Credit may be terminated at any time by the Lender upon sixty
(60) days prior written notice to the Borrower. The Credit Facility is an
extendible credit for the period (the “Initial Period”) from the Effective Date
to the Maturity Date. The Initial Period may, but need not, be extended from
time to time for a period not exceeding 364 days at the option of the Lender
provided a written request for such an extension is made by the Borrower to the
Lender not more than 60 days and not less than 30 days prior to the Maturity
Date and, with respect to each 364 day period after the Maturity Date not more
than 60 days and not less than 30 days prior to the end of each such 364 day
period. If the Lender has not responded to a request made by the Borrower under
this Section prior to the 10th day before the end of the applicable 364 day
period, the request shall, in the absence of a written agreement between the
Lender and the Borrower to the contrary, be deemed to have been denied. If the
request is granted by the Lender, the Initial Period shall be extended from the
Maturity Date to the day 364 days after the Maturity Date with respect to the
first extension and, to the day 364 days after the end of the first extension,
with respect to the second extension and in each subsequent year with respect to
further extensions, to the day 364 days after the end of the immediately
previous period.
 
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2.7 Repayment of Loans. The Borrower hereby unconditionally promises to pay to
the Lender the then unpaid principal amount of each Loan and all interest
thereon on the earlier of the Maturity Date and the applicable Termination Date.
 
2.8 Evidence of Debt.
 
(a) The Lender shall maintain in accordance with its usual practice an account
or accounts evidencing the Indebtedness of the Borrower to the Lender resulting
from each Borrowing made by the Lender hereunder, including the amounts of
principal and interest payable and paid to the Lender from time to time
hereunder.
 
(b) The Lender shall maintain accounts in which it shall record (i) the amount
of each Borrowing made hereunder, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to the Lender
hereunder, and (iii) the amount of any sum received by the Lender hereunder.
 
(c) The entries made in the accounts maintained pursuant to Sections 2.8(a) and
(b) shall be conclusive evidence (absent manifest error) of the existence and
amounts of the obligations recorded therein; provided that the failure of the
Lender to maintain such accounts or any error therein shall not in any manner
affect the obligation of the Borrower to repay the Borrowings in accordance with
the terms of this Agreement.
 
(d) The Lender may request that Loans made by it be evidenced by a promissory
note. In such event, the Borrower shall prepare, execute and deliver to the
Lender a promissory note payable to the order of the Lender (or, if requested by
such Lender, to such Lender and its registered assigns) and in a form approved
by the Lender. Thereafter, the Loans evidenced by such promissory note and
interest thereon shall at all times be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
 
2.9 Prepayments.
 
(a) Mandatory Borrowing Base Prepayments. If at any time the aggregate Exposure
of the Lender is in excess of the Borrowing Base, the Borrower shall immediately
pay to the Lender, the amount of such excess to be applied as a prepayment of
the Revolving Loans.
 
(b) Currency Fluctuations. If, at any time, the US $ Equivalent of the Exposure
exceeds US$7,000,000, or the US $ Equivalent of the outstanding Term Loan
exceeds US$3,000,000 (any such excess being referred to in this Section as an
“Excess Amount”), then the Borrower will repay to the Lender, an amount equal to
the Excess Amount. If the amount of any Excess Amount is equal to or greater
than 3% of the applicable Credit, then the repayment of the Excess Amount to the
Lender shall be made by the Borrower within one Business Day after the Lender
requests such repayment. If the amount of any Excess Amount is less than 3% of
the applicable Credit, then the repayment of the Excess Amount to the Lender
shall be made on the next Interest Payment Date. As of June 20, 2007, the
Canadian $ Equivalent is agreed to be 1.06911.
 
(c) Voluntary Prepayment. The Borrower may, upon delivery of written notice to
the Lender (delivered in accordance with the notice periods applicable to
delivery of a Borrowing Request under Section 2.3(a)), prepay all or any part of
a Canadian Prime Borrowing. Each notice delivered pursuant to this Section
2.9(c) shall be irrevocable. No prepayment under this Section 2.9(c) shall
permanently reduce or terminate any of the Revolving Credit, but prepayment of a
Term Loan shall permanently reduce the Term Credit which may not be re-borrowed.
 
(d) Mandatory Term Loan Principal Payments. The principal amount of the
Borrowing under the Term Loan shall be repaid by the Borrower in equal monthly
instalments of the Canadian $ Equivalent as at the Effective Dateof
U.S.$83,333.33 (i.e., Canadian $ $89,092.50) on each Interest Payment Date,
commencing on the first Interest Payment Date following the Effective Date, with
any unpaid amount paid in accordance with Section 2.7.
 
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2.10 Increased Costs; Illegality.
 
(a) If any Change in Law shall impose, modify or deem applicable any reserve,
special deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, the Lender, and the result of any of the
foregoing shall be to increase the cost to the Lender of making or maintaining
any Loan (or of maintaining its obligation to make any such Loan) or to increase
the cost to the Lender of participating in, issuing or maintaining any Letter of
Credit or any Loan or to reduce the amount of any sum received or receivable by
the Lender hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to the Lender, such additional amount or amounts as will
compensate the Lender, for such additional costs incurred or reduction suffered.
 
(b) If the Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on the
Lender’s capital or on the capital of the Lender’s, if any, as a consequence of
this Agreement or the Loans made hereby, to a level below that which the Lender
or the Lender’s holding company could have achieved but for such Change in Law
(taking into consideration the Lender’s policies and the policies of the
Lender’s holding company with respect to capital adequacy) and the Lender’s
desired return on capital, then from time to time the Borrower will pay to the
Lender, such additional amount or amounts as will compensate the Lender or the
Lender’s holding company for any such reduction suffered.
 
(c) A certificate of the Lender setting forth amount or amounts necessary to
compensate the Lender as specified in Sections 2.10(a) or (b), together with a
brief description of the Change of Law, shall be delivered to the Borrower, and
shall be conclusive absent manifest error. In preparing any such certificate,
the Lender shall be entitled to use averages and to make reasonable estimates,
and shall not be required to “match contracts” or to isolate particular
transactions. The Borrower shall pay the Lender the amount shown as due on any
such certificate within 10 days after receipt thereof.
 
(d) Failure or delay on the part of the Lender to demand compensation pursuant
to this Section 2.10 shall not constitute a waiver of the Lender’s right to
demand such compensation.
 
(e) In the event that the Lender shall have determined (which determination
shall be reasonably exercised and shall, absent manifest error, be final,
conclusive and binding upon all parties) at any time that the current or
reasonably expected foreign currency markets are unusually unstable or that the
making or continuance of any Loan denominated in a currency other than Canadian
Dollars has become unlawful or materially restricted as a result of compliance
by the Lender in good faith with any Applicable Law, or by any applicable
guideline or order (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful), then, in any such event, the
Lender shall give prompt notice (by telephone and confirmed in writing) to the
Borrower of such determination. Upon the giving of the notice to the Borrower
referred to in this Section 2.10(e), the Borrower’s right to request (by
continuation, conversion or otherwise), and the Lender’s obligation to make,
Loans denominated in a currency other than Canadian Dollars shall be immediately
suspended, and thereafter any requested Borrowing of Loans denominated in a
currency other than Canadian Dollars shall be deemed to be a request for a
Canadian Prime Loan, and if the affected Loan or Loans are then outstanding, the
Borrower shall immediately, or if permitted by Applicable Law, no later than the
date permitted thereby, upon at least one Business Day prior written notice to
the Lender, convert each such Loan denominated in a currency other than Canadian
Dollars into a Canadian Prime Loan.
 
2.11 Taxes.
 
(a) Any and all payments by or on account of any obligation of the Borrower
hereunder shall be made free and clear of and without deduction or withholding
for any Indemnified Taxes; provided that if the Borrower shall be required to
deduct or withhold any Indemnified Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that, after making all required
deductions or withholdings (including deductions or withholdings applicable to
additional sums payable under this Section 2.11), the Lender receives an amount
equal to the sum it would have received had no such deduction or withholding
been made, (ii) the Borrower shall make such deduction or withholding, and
(iii) the Borrower shall pay to the relevant Governmental Authority in
accordance with Applicable Law the full amount deducted or withheld.
 
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(b) In addition to the payments by the Borrower required by Section 2.11(a), the
Borrower shall pay any and all present or future stamp or documentary Taxes or
any other excise or property Taxes, charges or similar levies arising from any
payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement to the relevant Governmental Authority
in accordance with Applicable Law.
 
(c) The Borrower shall indemnify the Lender, within 10 days after written demand
therefor, for the full amount of any Indemnified Taxes paid by the Lender on or
with respect to any payment by or on account of any obligation of the Borrower
hereunder (including Indemnified Taxes imposed or asserted on or attributable to
amounts payable under this Section 2.11) and any penalties, interest and
reasonable expenses arising therefrom or with respect thereto, whether or not
such Indemnified Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority. A certificate as to the amount of such payment
or liability delivered to the Borrower by the Lender shall be conclusive absent
manifest error.
 
(d) As soon as practicable after any payment of Indemnified Taxes by the
Borrower to a Governmental Authority, the Borrower shall deliver to the Lender
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Lender.
 
(e) If the Lender determines, in its sole discretion, that it has received a
refund of any Taxes as to which it has been indemnified by the Borrower or with
respect to which the Borrower has paid additional amounts pursuant to this
Section 2.11 and, in the Lender’s opinion, such refund amount is both reasonably
identifiable and quantifiable by it without involving it in an unacceptable
administrative burden, it shall pay over such refund amount to the Borrower (but
only to the extent of indemnity payments made, or additional amounts paid, by
the Borrower under this Section 2.11 with respect to the Taxes giving rise to
such refund, and only to the extent that the Lender is satisfied that it may do
so without prejudice to its right, as against the relevant Governmental
Authority, to retain such refund), net of all out-of-pocket expenses of the
Lender and without interest (other than any interest paid by the relevant
Governmental Authority with respect to such refund); provided, that the
Borrower, upon the request of the Lender, agrees to repay the amount paid over
to the Borrower (plus any penalties, interest or other charges imposed by the
relevant Governmental Authority) to the Lender if the Lender is required to
repay such refund to such Governmental Authority. Nothing herein contained shall
(i) interfere with the right of the Lender to arrange its affairs in whatever
manner it thinks fit and, in particular, the Lender shall not be under any
obligation to claim relief for tax purposes on its corporate profits or
otherwise, or to claim such relief in priority to any other claims, reliefs,
credits or deductions available to it, or (ii) require the Lender to make
available its tax returns (or any other information relating to its Taxes which
it deems confidential) to the Borrower or any other Person.
 
2.12 Payments Generally .
 
The Borrower shall make each payment required to be made by it hereunder
(whether of principal, interest, fees or amounts payable in respect of
Reimbursement Obligations, amounts payable under any of Sections 2.10, or 2.11,
or amounts otherwise payable hereunder) prior to 12:00 noon, Toronto time, on
the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Lender, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Lender at the Payment Office, except that payments pursuant
to any indemnities contained herein shall be made directly to the Persons
entitled thereto. The Lender shall distribute any such payments received by it
for the account of any other Person to the appropriate recipient promptly
following receipt thereof. If any payment hereunder shall be due on a day that
is not a Business Day, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments
under this Section 2.12 shall be made in Canadian dollars.
 
2.13 Currency Indemnity. If, for the purposes of obtaining judgment in any court
in any jurisdiction with respect to this Agreement or any other Loan Document,
it becomes necessary to convert into a particular currency (the “Judgment
Currency”) any amount due under this Agreement or under any other Loan Document
in any currency other than the Judgment Currency (the “Currency Due”), then
conversion shall be made at the rate of exchange prevailing on the Business Day
before the day on which judgment is given. For this purpose “rate of exchange”
means the rate at which the Lender is able, on the relevant date, to purchase
the Currency Due with the Judgment Currency in accordance with its normal
practice at its head office in Toronto, Ontario. In the event that there is a
change in the rate of exchange prevailing between the Business Day before the
day on which the judgment is given and the date of receipt by the Lender of the
amount due, the Borrower will, on the date of receipt by the Lender, pay such
additional amounts, if any, or be entitled to receive reimbursement of such
amount, if any, as may be necessary to ensure that the amount received by the
Lender on such date is the amount in the Judgment Currency which when converted
at the rate of exchange prevailing on the date of receipt by the Lender is the
amount then due under this Agreement or such other Loan Document in the Currency
Due. If the amount of the Currency Due which the Lender is so able to purchase
is less than the amount of the Currency Due originally due to it, the Borrower
shall indemnify and save the Lender harmless from and against all loss or damage
arising as a result of such deficiency. This indemnity shall constitute an
obligation separate and independent from the other obligations contained in this
Agreement and the other Loan Documents, shall give rise to a separate and
independent cause of action, shall apply irrespective of any indulgence granted
by the Lender from time to time and shall continue in full force and effect
notwithstanding any judgment or order for a liquidated sum in respect of an
amount due under this Agreement or any other Loan Document or under any judgment
or order.
 
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2.14 Collection of Accounts.
 
(a) The Borrower shall, and shall cause each other Credit Party to, at its
expense, enforce, collect and receive all amounts owing on its Accounts in the
ordinary course of its business and any proceeds it so receives shall be subject
to the terms hereof. Any proceeds received by a Credit Party in respect of
Accounts, and any cheques, cash, credit card sales and receipts, notes or other
instruments or property received by a Credit Party with respect to any
Collateral, shall be held by such Credit Party in trust for the Lender, separate
from such Credit Party’s own property and funds, and promptly turned over to the
Lender with proper assignments or endorsements by deposit to the Blocked
Accounts.
 
(b) The Borrower shall, and shall cause each other Credit Party to:
(i) irrevocably authorize and direct any bank which maintains any Credit Party’s
initial receipt of cash, cheques and other items to promptly wire transfer all
available funds to a Blocked Account; and (ii) advise all such banks of the
Lender’s security interest in such funds. The Borrower shall, and shall cause
each other Credit Party to, provide the Lender with prior written notice of any
and all deposit accounts opened or to be opened subsequent to the Effective
Date. All amounts received by the Lender in payment of Accounts will be credited
to the Operating Account when the Lender is advised by its bank of its receipt
of “collected funds” at the Lender’s bank account in Toronto, Ontario on the
Business Day of such advise if advised no later than 12:00 noon, Toronto time,
or on the next succeeding Business Day if so advised after 12:00 noon, Toronto
time. Amounts received in U.S. Dollars will be converted into Canadian Dollars
by the Lender and the Canadian $ Equivalent shall be credited against
outstanding Loans. No cheques, drafts or other instrument received by the Lender
shall constitute final payment to the Lender unless and until such instruments
have actually been collected.
 
(c) The Borrower shall, and shall cause each Credit Party to: (i) indicate on
all of its invoices that funds should be delivered to and deposited in a lock
box or a Blocked Account, as applicable; and (ii) direct all of its account
debotors to deposit any and all proceeds of Collateral into the lock boxes or
the Blocked Accounts, as applicable.
 
(d) The Borrower shall, and shall cause each other Credit Party to, establish
and maintain, in its own respective name and at its expense, deposit accounts
and lock boxes with such banks as are acceptable to the Lender (the “Blocked
Accounts”) into which the Borrower shall promptly cause to be deposited: (i) all
proceeds of Collateral received by any Credit Party, including all amounts
payable to any Credit Party from credit card issuers and credit card processors,
and (ii) all amounts on deposit in deposit accounts used by any Credit Party at
each of its locations, all as further provided in Section 2.14(b). The banks at
which the Blocked Accounts are established and the applicable Credit Parties
shall enter into three-party agreements, in form and substance satisfactory to
the Lender (the “Blocked Account Agreements”), providing that, among other
things, all cash, cheques and items received or deposited in the Blocked
Accounts are subject to Liens in favour of the Lender, that the depository bank
has no Lien upon, or right of set off against, the Blocked Accounts and any
cash, cheques, items, wires or other funds from time to time on deposit therein,
except as otherwise provided in the Blocked Account Agreements, and that on a
daily basis the depository bank will wire, or otherwise transfer, in immediately
available funds, all funds received or deposited into the Blocked Accounts to
such bank account as the Lender may from time to time designate for such
purpose. The Borrower hereby confirms and agrees that all amounts deposited in
such Blocked Accounts and any other funds received and collected by the Lender,
whether as proceeds of Inventory or other Collateral or otherwise, shall be
subject to the Liens in favour of the Lender.
 
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
 
In order to induce the Lender to enter into this Agreement, to make any Loans
hereunder and to issue any Letters of Credit hereunder, each Credit Party hereby
represents and warrants to the Lender that each statement set forth in this
Article 3 is true and correct on the date hereof, and will be true and correct
on the date of each Borrowing (except where such representation or warranty
refers to a different date):
 
3.1 Organization; Powers. The Borrower and each other Credit Party is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority to carry
on its business as now and formerly conducted and, except where the failure to
do so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect, is qualified to do business in, and is in
good standing in, every jurisdiction where such qualification is required.
 
3.2 Authorization; Enforceability. The Transactions are within each Credit
Party’s corporate powers and have been duly authorized by all necessary
corporate and, if required, shareholder action. This Agreement and the other
Loan Documents have been duly executed and delivered by the Borrower and each
other Credit Party party thereto and constitute legal, valid and binding
obligations of the Borrower and each other Credit Party party thereto,
enforceable in accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganisation, moratorium or other Applicable Laws affecting
creditors’ rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.
 
3.3 Governmental Approvals; No Conflicts. The Transactions (a) do not require
any consent or approval of, registration or filing with, or any other action by,
any Governmental Authority, except as disclosed in Schedule 3.3, (b) will not
violate any Applicable Law or the charter, by-laws or other organizational
documents of the Borrower or any other Credit Party or any order of any
Governmental Authority, (c) will not violate or result in a default under any
indenture, agreement or other instrument binding upon the Borrower or any other
Credit Party or their respective assets, or give rise to a right thereunder to
require any payment to be made by the Borrower or any other Credit Party, and
(d) will not result in the creation or imposition of any Lien on any asset of
the Borrower or any other Credit Party, except for any Lien arising in favour of
the Lender under the Loan Documents.
 
3.4 Financial Condition; No Material Adverse Effect.
 
(a) Universal Security Instruments, Inc. has furnished to the Lender its
consolidated balance sheets and statements of income, retained earnings and
changes in financial position (i) as of and for its fiscal years ended March 31,
2005, March 31, 2006 and March 31, 2007, reported on by its auditors. Such
financial statements present fairly, in all material respects, the consolidated
financial position and results of operations and cash flows of the Borrower as
of such dates and for such periods in accordance with GAAP, subject to year end
audit adjustments and the absence of footnotes in the case of the statements
referred to in clause (ii) above. The Borrower has furnished to the Lender its
12 month projection of monthly balance sheets, income statements and cash flow
projections in respect of the 12 month period following the Effective Date.
 
(b) Since March 31, 2007, there has been no event, development or circumstance
that has had or could reasonably be expected to have a Material Adverse Effect.
 
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(c) All information (including that disclosed in all financial statements)
pertaining to the Borrower and its Subsidiaries (other than projections) (in
this Section 3.4(c), the “Information”) that has been or will be made available
to the Lender by the Borrower or any representative of the Borrower and the
other Credit Parties, taken as a whole, is or will be, when furnished, complete
and correct in all material respects and does not or will not, when furnished,
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not materially
misleading in light of the circumstances under which such statements are made.
The projections that have been or will be made available to the Lender by the
Borrower or any representative of the Borrower have been or will be prepared in
good faith based upon reasonable assumptions.
 
3.5 Litigation.
 
(a) Except as disclosed in Schedule 3.5, there are no actions, suits,
counterclaims or proceedings (including any Tax-related matter) by any Person or
investigation by any Governmental Authority pending against or, to the knowledge
of the Borrower, threatened against or affecting the Borrower or any of the
other Credit Parties (i) as to which there is a reasonable possibility of an
adverse determination and that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
Effect (other than the Disclosed Matters), or (ii) that involve this Agreement,
any other Loan Document, or the Transactions.
 
(b) Since the date of this Agreement, there has been no change in the status of
the Disclosed Matters that, individually or in the aggregate, has resulted in,
or materially increased the likelihood of, a Material Adverse Effect.
 
3.6 Compliance with Applicable Laws and Agreements. The Borrower and each other
Credit Party is in compliance with all Applicable Laws applicable to it or its
property and all indentures, agreements and other instruments binding upon it or
its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect. Neither the Borrower nor any other Credit Party has violated or failed
to obtain any Authorization necessary to the ownership of any of its property or
assets or the conduct of its business, which violation or failure could
reasonably be expected to have (in the event that such a violation or failure
were asserted by any Person through appropriate action) a Material Adverse
Effect.
 
3.7 Ownership. As at the Effective Date, the registered and beneficial holders
of all of the Equity Securities of the Borrower are as set out on Schedule 3.7.
 
3.8 Taxes. The Borrower and each other Credit Party has timely filed or caused
to be filed all Tax returns and reports required to have been filed and has paid
or caused to be paid all Taxes required to have been paid by it (including all
instalments with respect to the current period) and has made adequate provision
for Taxes for the current period, except Taxes that are being contested in good
faith by appropriate proceedings and for which the Borrower or such other Credit
Party, as applicable, has set aside on its books adequate reserves.
 
3.9 Titles to Real Property. The Borrower and each other Credit Party have
indefeasible fee simple title to their respective owned real properties (or in
Quebec, immoveable properties), and with respect to leased real properties,
indefeasible title to the leasehold estate with respect thereto, pursuant to
valid and enforceable leases, free and clear of all Liens except Permitted
Liens, including the Permitted Liens disclosed in Schedule 3.9.
 
3.10 Titles to Personal Property. The Borrower and each other Credit Party have
title to their respective owned personal properties (or, in Quebec, moveable
properties), and with respect to leased personal properties, title to the
leasehold estate with respect thereto, pursuant to valid and enforceable leases,
free and clear of all Liens except Permitted Liens, including the Permitted
Liens disclosed in Schedule 3.10.
 
3.11 Pension Plans. The Pension Plans are duly registered under the ITA and any
other Applicable Laws which require registration, have been administered in
accordance with the ITA and such other Applicable Laws and no event has occurred
which could reasonably be expected to cause the loss of such registered status,
except to the extent that any failure to do so could not reasonably be expected
to have a Material Adverse Effect. All material obligations of the Borrower and
each other Credit Party (including fiduciary, funding, investment and
administration obligations) required to be performed in connection with the
Pension Plans and the funding agreements therefor have been performed on a
timely basis, except to the extent that any failure to do so could not
reasonably be expected to have a Material Adverse Effect. No promises of benefit
improvements under the Pension Plans or any benefit plans have been made except
where such improvement could not reasonably be expected to have a Material
Adverse Effect. All contributions or premiums required to be made or paid by the
Borrower and each other Credit Party to the Pension Plans have been made on a
timely basis in accordance with the terms of such plans and all Applicable Laws.
There have been no improper withdrawals or applications of the assets of the
Pension Plans or any benefit plans. Any assessments owed to the Pension Benefits
Guarantee Fund established under the Pension Benefits Act (Ontario), or other
assessments or payments required under similar legislation in any other
jurisdiction, have been paid when due. Except as disclosed in Schedule 3.11, as
of the date hereof, each of the Pension Plans is fully funded on a solvency
basis and going concern basis (using actuarial methods and assumptions which are
consistent with the valuations last filed with the applicable Governmental
Authorities.
 
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3.12 Disclosure. The Borrower has disclosed to the Lender all agreements,
instruments and corporate or other restrictions to which it or any other Credit
Party is subject, and all other matters known to it, that, individually or in
the aggregate, could reasonably be expected to result in a Material Adverse
Effect.
 
3.13 [Intentionally Deleted.]. 
 
3.14 Casualties; Taking of Properties. Since March 31, 2007, neither the
business nor the properties of the Borrower or any other Credit Party have been
affected in a manner that has had, or could reasonably be expected to have, a
Material Adverse Effect as a result of any fire, explosion, earthquake, flood,
drought, windstorm, accident, strike or other labour disturbance, embargo,
requisition or taking of property or cancellation of contracts, permits or
concessions by any domestic or foreign Governmental Authority, riot, activities
of armed forces, or acts of God or of any public enemy.
 
3.15 Subsidiaries. As of the Effective Date, Schedule 3.15 correctly sets forth
the (i) names, (ii) form of legal entity, (iii) Equity Securities issued and
outstanding, (iv) Equity Securities owned by the Borrower or a Subsidiary of the
Borrower (and specifying such owner), and (v) jurisdictions of organization of
all Subsidiaries of the Borrower. Except as described in Schedule 3.15, as of
the Effective Date, the Borrower does not own any Equity Securities or debt
security which is convertible, or exchangeable, for Equity Securities of any
other Person. Unless otherwise indicated in Schedule 3.15, as of the Effective
Date, all of the outstanding Equity Securities of each Restricted Subsidiary is
owned of record and beneficially by the Borrower, there are no outstanding
options, warrants or other rights to purchase Equity Securities of any such
Restricted Subsidiary, and all such Equity Securities so owned are duly
authorized, validly issued, fully paid and non-assessable, and were issued in
compliance with all applicable federal, provincial or foreign securities and
other Applicable Laws, and are free and clear of all Liens, except for Permitted
Liens.
 
3.16 Insurance. All policies of fire, liability, workers’ compensation,
casualty, flood, business interruption and other forms of insurance owned or
held by the Borrower or any other Credit Party are (a) sufficient for compliance
with all requirements of Applicable Law and of all agreements to which the
Borrower or any other Credit Party is a party, (b) are valid, outstanding and
enforceable policies, (c) provide adequate insurance coverage in at least such
amounts and against at least such risks (but including in any event public
liability) as are usually insured against in the same general area by Persons
engaged in the same or a similar business to the assets and operations of the
Borrower and each other Credit Party, and (d) will not in any way be adversely
affected by, or terminate or lapse by reason of, the Transactions. All such
material policies are in full force and effect, all premiums with respect
thereto have been paid in accordance with their respective terms, and no notice
of cancellation or termination has been received with respect to any such
policy. Neither the Borrower nor any other Credit Party maintains any formalized
self-insurance program with respect to its assets or operations or material
risks with respect thereto. The certificate of insurance delivered to the Lender
pursuant to Section 4.1(e) contains an accurate and complete description of all
material policies of insurance owned or held by the Borrower and each other
Credit Party on the Effective Date.
 
3.17 Solvency. Neither the Borrower nor any other Credit Party is an “insolvent
person” within the meaning of the BIA.
 
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3.18 Material Contracts. Schedule B sets out all Material Contracts as of the
Effective Date. A true and complete copy of each Material Contract has been
delivered to the Lender as of the Effective Date. Each of the Material Contracts
is in full force and effect. Neither the Borrower nor any Restricted Subsidiary
is in default under or in breach of any term or condition of any Material
Contract that would have, either individually or in the aggregate, a Material
Adverse Effect, nor is the Borrower or any Restricted Subsidiary aware of any
default under or breach of any term or condition of any Material Contract by any
other party thereto that would have a Material Adverse Effect, except as
disclosed to the Lender in Schedule 3.13.
 
3.19 Environmental Matters. Except as disclosed to the Lenders in the Disclosed
Matters:
 
(a) Environmental Laws. Neither any property of the Borrower or its Subsidiaries
nor the operations conducted thereon violate any applicable order of any court
or Governmental Authority or any Environmental Laws, which violation could
reasonably be expected to result in remedial obligations having a Material
Adverse Effect, assuming disclosure to the applicable Governmental Authority of
all material relevant facts, conditions and circumstances, if any, pertaining to
the relevant property.
 
(b) Notices and Permits. All notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed by the Borrower or its
Subsidiaries in connection with the operation or use of any and all property of
the Borrower or its Subsidiaries , including but not limited to past or present
treatment, transportation, storage, disposal or Release of Hazardous Materials
into the environment, have been duly obtained or filed, except to the extent the
failure to obtain or file such notices, permits, licenses or similar
authorizations could not reasonably be expected to have a Material Adverse
Effect, or which could not reasonably be expected to result in remedial
obligations having a Material Adverse Effect, assuming disclosure to the
applicable Governmental Authority of all material relevant facts, conditions and
circumstances, if any, pertaining to the relevant property.
 
(c) Hazardous Substances Carriers. All Hazardous Materials generated at any and
all property of the Borrower or its Subsidiaries have been treated, transported,
stored and disposed of only in accordance with all Environmental Laws applicable
to them, except to the extent the failure to have such Hazardous Materials
transported, treated or disposed by such carriers could not reasonably be
expected to have a Material Adverse Effect, and only at treatment, storage and
disposal facilities maintaining valid permits under applicable Environmental
Laws, which carriers and facilities, to the knowledge of the Borrower, have been
and are operating in compliance with such permits, except to the extent the
failure to have such Hazardous Materials treated, transported, stored or
disposed at such facilities could not reasonably be expected to have a Material
Adverse Effect or which could not reasonably be expected to result in remedial
obligations having a Material Adverse Effect, assuming disclosure to the
applicable Governmental Authority of all material relevant facts, conditions and
circumstances, if any, pertaining to the relevant property.
 
(d) Hazardous Materials Disposal. The Borrower and its Subsidiaries have taken
all reasonable steps necessary to determine and have determined that no
Hazardous Materials have been disposed of or otherwise released and there has
been no threatened Release of any Hazardous Materials on or to any property of
the Borrower or its Subsidiaries other than in compliance with Environmental
Laws, except to the extent the failure to do so could not reasonably be expected
to have a Material Adverse Effect or which could not reasonably be expected to
result in remedial obligations having a Material Adverse Effect, assuming
disclosure to the applicable Governmental Authority of all material relevant
facts, conditions and circumstances, if any, pertaining to the relevant
property.
 
(e) No Contingent Liability. The Borrower and its Subsidiaries have no material
contingent liability in connection with any Release or threatened Release of any
Hazardous Materials into the environment which could reasonably be expected to
result in remedial obligations having a Material Adverse Effect, assuming
disclosure to the applicable Governmental Authority of all relevant facts,
conditions and circumstances, if any, pertaining to such Release or threatened
Release.
 
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3.20 Employee Matters.
 
(a) Except as set forth on Schedule 3.20 as of the Effective Date, none of the
Borrower or any of the other Credit Parties, nor any of their respective
employees, is subject to any collective bargaining agreement. There are no
strikes, slowdowns or work stoppages pending or, to the best knowledge of the
Borrower, threatened against the Borrower or any other Credit Party, which could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. Except as set forth in Schedule 3.20 as of the
Effective Date, none of the Borrower nor any other Credit Party is subject to an
employment contract providing for a fixed term of employment or providing for
payments other than severance in respect of termination of employment.
 
(b) Each of the Borrower and the other Credit Parties has withheld from each
payment to each of their respective officers, directors and employees the amount
of all Taxes, including income tax, Canada pension plan, employment insurance
and other payments and deductions required to be withheld therefrom, and has
paid the same to the proper taxation or other receiving authority in accordance
with Applicable Law. None of the Borrower nor any other Credit Party is subject
to any claim by or liability to any of their respective officers, directors or
employees for salary (including vacation pay) or benefits which would rank in
whole or in part pari passu with or prior to the Liens created by the Security
Documents, other than Permitted Liens to the extent reserved for as Priority
Payables.
 
(c) Neither the Borrower nor any Restricted Subsidiary is subject to the United
States Employee Retirement Income Security Act of 1974, as amended.
 
3.21 Fiscal Year. The Fiscal Year of the Borrower ends on March 31 of each
calendar year.
 
3.22 Intellectual Property Rights. The Borrower and each Restricted Subsidiary
is the registered and beneficial owner of, with good and marketable title, free
of all licenses, franchises and Liens other than Permitted Liens, to all
patents, patent applications, trade marks, trade mark applications, trade names,
service marks, copyrights, industrial designs, integrated circuit topographies,
or other rights with respect to the foregoing and other similar property, used
in or necessary for the present and planned future conduct of its business,
without any conflict with the rights of any other Person, other than as listed
on Schedule 3.22, or other than for such conflicts as could not reasonably be
expected to have a Material Adverse Effect. All material patents, trade marks,
trade names, service marks, copyrights, industrial designs, integrated circuit
topographies, and other similar rights owned or licensed by the Borrower or any
Restricted Subsidiary, and all rights of the Borrower and each
Restricted Subsidiary to the use of any patents, trade marks, trade names,
service marks, copyrights, industrial designs, integrated circuit topographies,
or other similar rights, are described in Schedule 3.22 (collectively, the
“Intellectual Property Rights”). Except as set forth in Schedule 3.22, no
material claim has been asserted and is pending by any Person with respect to
the use by the Borrower or any Restricted Subsidiary of any intellectual
property or challenging or questioning the validity, enforceability or
effectiveness of any intellectual property necessary for the conduct of the
business of the Borrower or any Restricted Subsidiary. Except as disclosed in
Schedule 3.22 or except as could not reasonably be expected to have a Material
Adverse Effect, (i) the Borrower and each Restricted Subsidiary has the
exclusive right to use the intellectual property which the Borrower (or each
Restricted Subsidiary) owns, (ii) all applications and registrations for such
intellectual property are current, and (iii) to the knowledge of the Borrower,
the conduct of the Borrower’s and each Restricted Subsidiary’s business does not
infringe the intellectual property rights of any other Person.
 
3.23 Residency of Borrower for Tax Purposes. The Borrower is a resident of
Canada for tax purposes.
 
3.24 Distributions. From and after the Effective Date, no Distribution has been
declared, paid, or made upon or in respect of Equity Securities in any Credit
Party except as expressly permitted hereby.
 
3.25 Debt. None of the Credit Parties nor any of their Subsidiaries has any
Indebtedness except (a) the Obligations, (b) the Indebtedness set forth in the
most recent financial statements delivered to the Lender, or the notes thereto,
(c) Tax obligations (including deferred Taxes), trade payables and other
contractual obligations arising in the ordinary course of business as carried on
by the Credit Parties and their Subsidiaries since the date of such financial
statements, and (d) Indebtedness created in accordance with Section 6.1.
 
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3.26 Workers’ Compensation. None of the Credit Parties has any unpaid workers’
compensation or like obligations except as are being incurred, and paid on a
current basis in the ordinary course of business, and there are no proceedings,
claims, actions, orders or investigations of any Governmental Authority relating
to workers’ compensation outstanding, pending or, to their knowledge, threatened
relating to them or any of their employees or former employees which could
reasonably be expected to have a Material Adverse Effect.
 
3.27 Bank Accounts. Schedule 3.27 contains as of the Effective Date a complete
and accurate list of all bank accounts maintained by the Credit Parties with any
bank or other financial institution.
 
3.28 Real Property and Leases. Schedule 3.28 hereto is a correct and complete
list, of all real property owned by each Credit Party, all leases and subleases
of real property or movable or personal property by any Credit Party, as lessee
or sublessee, and all leases and subleases of real property or movable or
personal property by any Credit Party, as lessor or sublessor. Each of such
leases and subleases is valid and enforceable in accordance with its terms and
is in full force and effect, and no default by any party to any such lease or
sublease exists which could reasonably be expected to have a Material Adverse
Effect.
 
3.29 Further Real Property Matters.
 
(a) Except as advised in writing to the Lender, no investigation or proceeding
of any Governmental Authority is pending in respect of real property owned by
any of the Credit Parties. No part of any such real property has been condemned,
taken or expropriated by any Governmental Authority, federal, state, provincial,
municipal or any other competent authority.
 
(b) Except as advised in writing to the Lender, all present uses in respect of
any real property of the Credit Parties may lawfully be continued and all
permitted uses are satisfactory for the Credit Parties’ current and intended
purposes; and
 
(c) No Inventory is located at any leased real property of the Credit Parties
except as indicated in Schedule 3.28.
 
3.30 Jurisdictions of Credit Parties. Schedule 3.30 sets out the various
jurisdictions in which the Borrower and each other Credit Party carries on
business or has tangible assets having an aggregate value in excess of
Cdn.$100,000.
 
ARTICLE 4
CONDITIONS
 
4.1 Effective Date. The right of the Borrower to request Borrowings hereunder
shall not become effective until the date on which each of the following
conditions is satisfied (or waived in accordance with Section 8.2):
 
(a) Credit Agreement. The Lender (or its counsel) shall have received from each
party hereto either (i) a counterpart of this Agreement signed on behalf of each
party hereto, or (ii) written evidence satisfactory to the Lender (which may
include facsimile or other electronic transmission of a signed signature page of
this Agreement) that each such party has signed a counterpart of this Agreement.
 
(b) Legal Opinions. The Lender shall have received a favourable written opinion
of counsel to the Borrower covering such matters relating to the Borrower, the
Credit Parties, this Agreement, the other Loan Documents, or the Transactions as
the Lender shall reasonably request (together with copies of all factual
certificates and legal opinions delivered to such counsel in connection with
such opinion upon which counsel has relied). All opinions and certificates
referred to in this Section 4.1(b) shall be addressed to the Lender and dated
the Effective Date.
 
(c) Corporate Certificates. The Lender shall have received:
 

 
(i)
certified copies of the resolutions of the Board of Directors of the Borrower,
and any other Credit Party which is a party to any Loan Document, dated as of
the Effective Date, and approving, as appropriate, the Loans, this Agreement and
the other Loan Documents, and all other documents, if any, to which the Borrower
or such other Credit Party is a party and evidencing corporate authorization
with respect to such documents; and

 
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(ii)
a certificate of an officer of the Borrower, and any other Credit Party which is
a party to any Loan Document, dated as of the Effective Date, and certifying
(A) the name, title and true signature of each officer of such Person authorized
to execute this Agreement and the other Loan Documents to which it is a party,
(B) the name, title and true signature of each officer of such Person authorized
to provide the certifications required pursuant to this Agreement, including
certifications required pursuant to Section 5.1 and Borrowing Requests, and
(C) that attached thereto is a true and complete copy of the articles of
incorporation and bylaws of the Borrower, and any other Credit Party which is a
party to any Loan Document, as amended to date, and a recent certificate of
status, certificate of compliance, good standing certificate or analogous
certificate.

 
(d) Fees. The Lender shall have received all fees and other amounts due and
payable on or prior to the Effective Date, including, to the extent invoiced,
reimbursement or payment of all legal fees and other Out-of-Pocket Expenses
required to be reimbursed or paid by the Borrower hereunder or under any other
Loan Document.
 
(e) Insurance. The Lender shall have received a certificate of insurance
coverage, naming the Lender, as first loss payee dated not more than 30 days
prior to the Effective Date, evidencing that the Borrower and its Restricted
Subsidiaries are carrying insurance in accordance with Section 5.9 hereof.
 
(f) Inventory Control Systems; Appraisal; Field Audit; Opening Availability. The
Lender shall have reviewed and be satisfied with the Collateral, the inventory
control systems, the books and records and the reporting capability of the
Credit Parties. In addition, the Lender shall have received the results of an
updated field audit, and the Borrowing Base on the Effective Date shall be
sufficient in value, as determined by Lender, to provide Borrower with a
Borrowing Base, after giving effect to the extensions of credit to be made
hereunder on the Effective Date, in an amount satisfactory to Lender in its sole
discretion.
 
(g) Execution and Delivery of Documentation. The Borrower and any other Credit
Party which is a party to any Loan Document shall have duly authorized, executed
and delivered all documents, including Loan Documents, required hereunder, all
in form and substance satisfactory to the Lender, acting reasonably, and all of
the Security Documents shall have been registered in all offices in which, in
the opinion of the Lender or its counsel, registration is necessary or of
advantage to preserve the priority of the Liens intended to be created thereby,
and duplicate copies of such Security Documents bearing or accompanied by
appropriate endorsements or certificates of registration shall have been
delivered to the Lender. The Lender shall have received and be satisfied with
the results of all personal property, pending litigation, judgment, bankruptcy,
execution and other searches conducted by the Lender and its counsel with
respect to the Borrower and any other Credit Party in all jurisdictions selected
by the Lender and its counsel.
 
(h) Security Documents. The Lender shall have received:
 

 
(i)
a guarantee executed by each Guarantor in favour of the Lender dated as of the
Effective Date; and

 

 
(ii)
a general security agreement executed by each Credit Party in favour of the
Lender dated as of the Effective Date, constituting a first-priority Lien on all
property from time to time of each Credit Party, subject only to Permitted
Liens;

 
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provided that if any of the foregoing documents are not suitable for use in any
jurisdiction, the applicable Credit Party shall provide to the Lender
alternative documents with substantially equivalent substantive effect and which
are suitable for use in such jurisdiction.
 
(i) Landlord Waivers; Bailee Letters. The Lender shall have received (i)
executed copies of a landlord waiver, in form and substance satisfactory to the
Lender, acting reasonably, from each landlord of Real Property where any
Collateral of any of the Credit Parties is located and (ii) bailee letters, in
form and substance reasonably satisfactory to the Lender, from each bailee who
is in possession of any Collateral of any of the Credit Parties.
 
(j) Regulatory Approval; Consents; Waivers. The Lender shall be satisfied,
acting reasonably, that all material Authorizations required in connection with
the Transactions contemplated hereby have been obtained and are in full force
and effect (including all approvals listed in Schedule 3.3), and that all
consents and waivers required to consummate the Transactions have been obtained,
to the extent that consummation of the Transactions would otherwise be
restricted or prohibited under the terms of any Material Contract to which the
Borrower or any other Credit Party is a party, or by which it is bound, in each
case without the imposition of any burdensome provisions.
 
(k) Delivery of Financial Statements. The Lender shall have received and be
satisfied with the financial statements described in Section 3.4(a) and
unaudited consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries (pro forma as of the Effective Date).
 
(l) No Material Adverse Change. The Lender shall be satisfied that, since March
31, 2007, there has not been a Material Adverse Change.
 
(m) Indebtedness. The Transactions contemplated in this Agreement and the other
Loan Documents shall not have caused any event or condition to occur which has
resulted, or which will result, in any Material Indebtedness becoming due prior
to its scheduled maturity or that permits (with or without the giving of notice,
the lapse of time, or both) the holder or holders of any Material Indebtedness
or any trustee or Lender on its or their behalf to cause any Material
Indebtedness to become due, or to require the prepayment, repurchase, redemption
or defeasance thereof, prior to its scheduled maturity, or which will result in
the creation of any Liens under any Indebtedness.
 
(n) Blocked Account/Cash Management Systems. The Lender shall have received
evidence satisfactory to the Lender that, as of the Effective Date, blocked
account and cash management systems complying with Section 2.14 have been
established and are currently being maintained in the manner set forth in such
Section 2.14, and the Lender shall have received copies of duly executed
tri-party blocked account, lockbox and other control agreements satisfactory to
the Lender, acting reasonably.
 
(o) Material Contracts. The Lender shall be satisfied with the terms and
conditions of each of the Material Contracts.
 
(p) Cancellation of Existing Credit Lines. The Borrower shall have repaid all
amounts outstanding under its existing credit lines with HSBC Bank Canada, and
all such existing credit lines shall have been cancelled permanently.
 
(q) Capitalization Arrangement. The Lender shall be satisfied with the capital
structure of the Borrower, that the Borrower is solvent, and that the Borrower
has sufficient working capital to pay its debts as they become due.
 
(r) Background Checks. The Lender shall have received and be satisfied with the
results of the background checks conducted on the key senior management and
principals of the Credit Parties.
 
(s) Other Documentation. The Lender shall have received such other documents and
instruments as are customary for transactions of this type or as they may
reasonably request.
 
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The right of the Borrower to request a borrowing hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 8.2) at or prior to 3:00 p.m., Toronto time, on July 15,
2007 (and, in the event such conditions are not so satisfied or waived by such
time, the such right shall terminate at such time).
 
4.2 Each Credit Event. The right of the Borrower to request a Borrowing,
(including on the occasions of the initial Borrowings hereunder), is subject to
the satisfaction of the following conditions:
 
(a) the representations and warranties of the Borrower set forth in this
Agreement shall be true and correct on and as of the date of each such Borrowing
as if made on such date (except where such representation or warranty refers to
a different date);
 
(b) at the time of and immediately after giving effect to such Borrowing, no
Default shall have occurred and be continuing;
 
(c) the Lender shall have received a Borrowing Request in the manner and within
the time period required by Section 2.3;
 
(d) the Lender shall have received a Borrowing Base Report dated one day prior
to the date of the requested Borrowing; and
 
(e) except as may be otherwise agreed to from time to time by the Lender and the
Borrower in writing, after giving effect to the extension of credit requested to
be made by the Borrower on such date, the aggregate Exposure will not exceed the
lesser of (i) the Maximum Revolving Line of Credit, or (ii) an amount equal to
the Borrowing Base.
 
Each Borrowing, shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the accuracy of the matters specified in
paragraphs (a) and (b) above. This requirement does not apply on the conversion
or rollover of an existing Borrowing provided that the aggregate outstanding
Borrowings will not be increased as a consequence thereof.
 
ARTICLE 5
AFFIRMATIVE COVENANTS
 
From (and including) the Effective Date until the Credits have expired or been
terminated and the principal of and interest on each Loan and all fees payable
hereunder shall have been paid in full, the Borrower and each other Credit Party
covenants and agrees with the Lender that:
 
5.1 Financial Statements and Other Information. The Borrower will furnish to the
Lender:
 
(a) as soon as available and in any event within 90 days after the end of each
Fiscal Year of the Borrower, its reviewed consolidated balance sheet and related
statements of income, retained earnings and changes in financial position as of
the end of and for such Fiscal Year, setting forth in each case in comparative
form the figures for the previous Fiscal Year all reported on by Segal LLP or
other independent auditors of recognized national standing to the effect that
such consolidated financial statements present fairly in all material respects
the financial condition and results of operations of the Borrower and its
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied;
 
(b) as soon as available and in any event within  30 days after the end of each
six month period, its unaudited consolidated balance sheet and related
statements of income, retained earnings and changes in financial position as of
the end of such month and the then elapsed portion of the Fiscal Year which
includes such calendar month, setting forth in each case in comparative form the
figures for the corresponding period or periods of (or, in the case of the
balance sheet, as of the end of) the previous Fiscal Year, all certified by a
Responsible Officer as presenting fairly in all material respects the financial
condition and results of operations of the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments;
 
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(c) concurrently with the financial statements required pursuant to Sections
5.1(a) and (b) above, a certificate of the Borrower substantially in the form of
Exhibit E, signed by a Responsible Officer (i) stating that a review of such
financial statements during the period covered thereby and of the activities of
the Borrower and the Subsidiaries has been made under such Responsible Officer’s
supervision with a view to determining whether the Borrower and the Subsidiaries
have fulfilled all of their obligations under this Agreement and the other Loan
Documents, (ii) stating that the Borrower and the Subsidiaries have fulfilled
their obligations under this Agreement and the other Loan Documents and that all
representations made in this Agreement continue to be true and correct as if
made on the date of such certification (or specifying the nature of any change),
except where such representation or warranty refers to a different date, or, if
there shall be a Default or Event of Default, specifying the nature and status
thereof and the Borrower’s proposed response thereto, and (iii) containing or
accompanied by such financial or other details, information and material as the
Lender may reasonably request to evidence such compliance;
 
(d) promptly upon the request of the Lender, and in any event no less frequently
than the 15th Business Day of each calendar month (together with a copy of all
or any part of the following reports (requested by the Lender in writing after
the Effective Date), a Borrowing Base Report as of the last day of the
immediately preceding calendar month accompanied by such supporting detail and
documentation as shall be requested by the Lender it is reasonable discretion
including but not limited to:
 

 
(i)
an accounts receivable aging (including both summary and detail format) showing
Accounts outstanding aged from invoice date as follows: 1 to 30 days past due,
31 to 60 days past due, 61 to 90 days past due, and 91 days or more past due,
accompanied by such supporting detail and documentation as shall be requested by
the Lender in its reasonable discretion, including the ledger for disputed/legal
accounts;

 

 
(ii)
a copy of the internally generated month end cash receipts and collections
journal;

 

 
(iii)
a detailed, monthly, Inventory listing of the Borrower and each Restricted
Subsidiary by location, type and product group with a supporting perpetual
Inventory report, in each case, accompanied by such supporting detail and
documentation as shall be requested by the Lender in its reasonable discretion;
such summaries and reports shall include the dollar value thereof both at cost,
determined on a first in, first out basis, and at fair market value; and

 

 
(iv)
detailed monthly accounts payable aging.

 
(e) such other reports designating, identifying and describing the Accounts and
Inventory as required by the Lender and on a more frequent basis as the Lender
may reasonably request in its reasonable credit discretion.
 
(f) the results of each physical verification, if any, that the Borrower may
have made, or caused any other Person to have made on its behalf, of all or any
portion of its Inventory, within 10 Business Days of completion of any such
physical verification (and, if a Default or an Event of Default has occurred and
be continuing, the Borrower shall, upon the request of the Lender, conduct, and
deliver the results of, such physical verifications as the Lender may require);
 
(g) promptly after the Borrower learns of the receipt or occurrence of any of
the following, a certificate of the Borrower, signed by a Responsible Officer,
specifying (i) any official notice of any violation, possible violation,
non-compliance or possible non-compliance, or claim made by any Governmental
Authority pertaining to all or any part of the properties of the Borrower or any
of the Subsidiaries which could reasonably be expected to have a Material
Adverse Effect, (ii) any event which constitutes a Default or Event of Default,
together with a detailed statement specifying the nature thereof and the steps
being taken to cure such Default or Event of Default, (iii) the receipt of any
notice from, or the taking of any other action by, the holder of any promissory
note, debenture or other evidence of Indebtedness of the Borrower or any of the
Subsidiaries in an amount in excess of Cdn.$100,000 with respect to an actual or
alleged default, together with a detailed statement specifying the notice given
or other action taken by such holder and the nature of the claimed default and
what action the Borrower or the relevant Subsidiary is taking or proposes to
take with respect thereto, (iv) any default or non-compliance of any party to
any of the Loan Documents with any of the terms and conditions thereof or any
notice of termination or other proceedings or actions which could reasonably be
expected to adversely affect any of the Loan Documents, (v) the creation,
dissolution, merger or acquisition of any Restricted Subsidiary, (vi) any event
or condition not previously disclosed to the Lender, which violates any
Environmental Law and which could potentially, in the Borrower’s reasonable
judgment, have a Material Adverse Effect, (vii) any material amendment to,
termination of, or material default under a Material Contract or any execution
of, or material amendment to, termination of, or material default under, any
material collective bargaining agreement, and (viii) any other event,
development or condition which may reasonably be expected to have a Material
Adverse Effect;
 
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(h) promptly after the occurrence thereof, notice of the institution of or any
material adverse development in any action, suit or proceeding or any
governmental investigation or any arbitration before any court or arbitrator or
any Governmental Authority or official against the Borrower or any Restricted
Subsidiary or any material property of any thereof which could reasonably be
expected to have a Material Adverse Effect;
 
(i) promptly after the filing thereof with any Governmental Authority (if
requested by the Lender), copies of each annual and other report (including
applicable schedules) with respect to each Pension Plan of the Borrower or
any Restricted Subsidiary or any trust created thereunder;
 
(j) at the cost of the Borrower, a report or reports of an independent
collateral field examiner (which collateral field examiner may be the Lender or
an Affiliate thereof) approved (i) by the Borrower, whose approval shall not be
unreasonably withheld, and (ii) by the Lender with respect to the Eligible
Accounts and Eligible Inventory components included in the Borrowing Base. The
Lender may request such reports or additional reports as it shall reasonably
deem necessary. Fees for such examinations shall be limited to US$25,000,00 in
any year on a combined basis for the Credit Parties and the Guarantors;
 
(k) upon request by the Lender, a summary of the insurance coverages of the
Borrower and the other Credit Parties, in form and substance reasonably
satisfactory to the Lender, and upon renewal of any insurance policy, a copy of
an insurance certificate summarizing the terms of such policy, and upon request
by the Lender, copies of the applicable policies;
 
(l) on or before the earlier of the 10th day after approval by the Board of
Directors of the Borrower and the 30th day before each Fiscal Year end, an
annual budget of the Borrower and each Restricted Subsidiary (consolidating on
the basis of principal lines of business of the Borrower and its Subsidiaries ),
approved by the Board of Directors of the Borrower, setting forth in reasonable
detail and on a monthly basis the projected revenues and expenses of the
Borrower for the following Fiscal Year, it being recognized by the Lender that
projections as to future results are not to be viewed as fact and that the
actual results for the period or periods covered by such projections may differ
from the projected results; and
 
(m) concurrently with any delivery of financial statements under Section 5.1 (a)
or (b) above, a certificate of a Responsible Officer of the Borrower (i) stating
whether any change in GAAP or in the application thereof has occurred since the
date of the audited financial statements referred to in Section 5.1(a) and, if
any such change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate, (ii) identifying all its
Subsidiaries existing on the date of such certificate and indicating, for each
such Subsidiary, whether such Subsidiary is a Restricted Subsidiary and whether
such Subsidiary was formed or acquired since the end of the previous calendar
month, (iii) identifying any parcels of real property or improvements thereto
that have been acquired by any Credit Party since the end of the previous
calendar month, and (iv) identifying any Permitted Acquisitions that have been
completed since the end of the previous calendar month, including the date on
which each such Permitted Acquisition was completed and the consideration
therefor.
 
5.2 Existence; Conduct of Business.  The Borrower will, and will cause each
Restricted Subsidiary to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence (subject
only to Section 6.3), and obtain, preserve, renew and keep in full force and
effect any and all rights, licenses, permits, privileges and franchises material
to the conduct of its business.
 
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5.3 Payment of Obligations.  The Borrower will, and will cause each Restricted
Subsidiary to, pay its obligations, including Tax liabilities, that, if not
paid, could result in a Material Adverse Effect before the same shall become
delinquent or in default, except where (a) the validity or amount thereof is
being contested in good faith by appropriate proceedings, (b) the Borrower or
such Restricted Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP, and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.
 
5.4 Maintenance of Properties.  The Borrower will, and will cause each
Restricted Subsidiary to, keep and maintain all property material to the conduct
of its business in good working order and condition, ordinary wear and tear
excepted, except to the extent that the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
 
5.5 Books and Records; Inspection Rights.  The Borrower will, and will cause
Restricted Subsidiary to, keep proper books of record and account in which full,
true and correct entries are made of all dealings and transactions in relation
to its business and activities. The Borrower will, and will cause each
Restricted Subsidiary to, permit any representatives designated by the Lender,
upon reasonable prior notice, to visit and inspect its properties, to examine
and make extracts from its books and records, and to discuss its affairs,
finances and condition with its officers and independent accountants, all at
such reasonable times and as often as reasonably requested.
 
5.6 Compliance with Applicable Laws and Material Contracts. The Borrower will,
and will cause each Restricted Subsidiary to, comply with all Applicable Laws
and orders of any Governmental Authority applicable to it or its property and
with all of its material contractual obligations, except where the failure to do
so, individually or in the aggregate, could not reasonably be expected to result
in a Material Adverse Effect. The Borrower shall not modify, amend or alter its
certificate or articles of incorporation other than in a manner which does not
adversely affect the rights of the Lender.
 
5.7 Use of Proceeds. The proceeds of the Revolving Loans will be used for
working capital and other general corporate purposes of the Borrower. The
proceeds of the Term Loan will be used to repay existing Indebtedness of the
Borrower owing to 2113824 Ontario Inc. in the amount of US$1,912,533 and owing
to Universal Security Instruments, Inc. in the amount of US$1,087,467.
 
5.8 Further Assurances. The Borrower will and will cause each other Credit Party
to cure promptly any defects in the execution and delivery of the Loan
Documents, including this Agreement. Upon request, the Borrower will, at its
expense, as promptly as practical, execute and deliver to the Lender, all such
other and further documents, agreements and instruments (and cause each other
Credit Party to take such action) in compliance with or performance of the
covenants and agreements of the Borrower or any other Credit Party in any of the
Loan Documents, including this Agreement, or to further evidence and more fully
describe the Collateral, or to correct any omissions in any of the Loan
Documents, or more fully to state the security obligations set out herein or in
any of the Loan Documents, or to perfect, protect or preserve any Liens created
pursuant to any of the Loan Documents, or to make any recordings, to file any
notices, or obtain any consents, all as may be necessary or appropriate in
connection therewith, in the judgment of the Lender, acting reasonably.
 
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5.9 Insurance.  The Borrower shall, and shall cause each other Credit Party to,
maintain insurance on its property and assets under such policies of insurance,
with such insurance companies, in such reasonable amounts and covering such
insurable risks as are at all times reasonably satisfactory to the Lender. All
such policies are subject to the rights of any holders of Permitted Liens
holding claims senior to the Lender, to be made payable to the Lender, to the
extent required herein, in case of loss, under a standard non contributory
“mortgagee”, “lender” or “secured party” clause and are to contain such other
provisions as the Lender may require to fully protect the Lender’s interest in
the property and assets subject to the Liens in favour of the Lender and to any
payments to be made under such policies. All original policies or true copies
thereof are to be delivered to the Lender, premium prepaid, with the loss
payable endorsement in the Lender’s favour, and shall provide for not less than
thirty (30) days prior written notice to the Lender of the exercise of any right
of cancellation. Upon the occurrence and continuance of an Event of Default
which is not waived in writing by the Lender, the Lender shall, subject to the
rights of any holders of Permitted Liens holding claims senior to the Lender,
have the sole right, in the name of the Lender, the Borrower or any other
applicable Credit Party, to file claims under any insurance policies, to
receive, receipt and give acquittance for any payments that may be payable
thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any claims under any such insurance
policies. If any part of the Collateral is lost or damaged by fire or other
casualty and the insurance proceeds for such loss or damage is less than or
equal to $100,000, such insurance proceeds shall be paid to the applicable
Credit Party. Notwithstanding the foregoing, to the extent such insurance
proceeds are received by the Lender, the Lender shall promptly, and in any event
within one (1) Business Day of receipt, remit such insurance proceeds to the
applicable Credit Party. If any part of the Collateral is lost or damaged by
fire or other casualty and the insurance proceeds for such loss or damage is
greater than $100,000, such insurance proceeds shall be paid to the Borrower,
the Borrower may irrevocably elect (by delivering written notice to the Lender)
to replace, repair or restore such Collateral to substantially the equivalent
condition prior to such fire or other casualty as set forth herein. If such
election is not made by the Borrower, insurance proceeds shall be used by the
Borrower to repay outstanding Revolving Loans. Notwithstanding the foregoing, to
the extent that such insurance proceeds are received by the Lender, the Lender
shall promptly, and in any event within one (1) Business Day of receipt, remit
such insurance proceeds to the Borrower to be applied in accordance with this
Section 5.9. If the Borrower does not, or cannot, elect to use the insurance
proceeds as set forth above, or if the Lender believes that the applicable
Credit Party will not be able to timely replace, repair or restore such
Collateral to substantially the equivalent condition prior to such fire or other
casualty, the Lender may, subject to the rights of any holders of Permitted
Liens holding claims senior to the Lender in respect of such insurance proceeds,
(i) if no Event of Default has occurred and is continuing, apply the insurance
proceeds to the payment of any Revolving Loans until paid in full and (b) if an
Event of Default has occurred and is continuing, apply the insurance proceeds to
the Obligations in such manner and in such order as the Lender may reasonably
elect. Upon the occurrence and during the continuance of an Event of Default,
all insurance proceeds in respect of any Collateral shall be paid to the Lender.
The Lender may apply such insurance proceeds to the Obligations in such manner
as it may deem advisable in its sole discretion. In the event the Borrower fails
to provide the Lender with timely evidence, acceptable to the Lender, of the
maintenance of insurance coverage required pursuant to this Section 5.9, or in
the event that any Credit Party fails to maintain such insurance, the Lender may
purchase or otherwise arrange for such insurance, but at the Borrower’s expense
and without any responsibility on the Lender’s part for: (i) obtaining the
insurance; (ii) the solvency of the insurance companies; (iii) the adequacy of
the coverage; or (iv) the collection of claims. The insurance acquired by the
Lender may, but need not, protect the Borrower’s or any other Credit Party’s
interest in the Collateral, and therefore such insurance may not pay claims
which the Borrower may have with respect to the Collateral or pay any claim
which may be made against the Borrower in connection with the Collateral. In the
event the Lender purchases, obtains or acquires insurance covering all or any
portion of the Collateral, the Borrower shall be responsible for all of the
applicable costs of such insurance, including premiums, interest (at the
applicable interest rate for Revolving Loans set forth in Section 2.5), fees and
any other charges with respect thereto, until the effective date of the
cancellation or the expiration of such insurance. The Lender may charge all of
such premiums, fees, costs, interest and other charges to the Borrower’s
Operating Account. The Borrower hereby acknowledges that the costs of the
premiums of any insurance acquired by the Lender may exceed the costs of
insurance which the Borrower may be able to purchase on its own. In the event
that the Lender purchases such insurance, the Lender will promptly, and in any
event within fifteen (15) days, notify the Borrower of said purchase.
 
5.10 Operation and Maintenance of Property.  The Borrower will, and will cause
each other Credit Party to, manage and operate its business or cause its
business to be managed and operated (i) in accordance with prudent industry
practice in all material respects and in compliance in all material respects
with the terms and provisions of all applicable licenses, leases, contracts and
agreements, and (ii) in compliance with all Applicable Laws of the jurisdiction
in which such businesses are carried on, and all Applicable Laws of every other
Governmental Authority from time to time constituted to regulate the ownership,
management and operation of such businesses, except where a failure to so manage
and operate would not have a Material Adverse Effect.
 
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ARTICLE 6
NEGATIVE COVENANTS
 
From (and including) the Effective Date until the Credits have expired or been
terminated and the principal of and interest on each Loan and all fees payable
hereunder shall have been paid in full, the Borrower and each Credit Party
covenants and agrees with the Lender that:
 
6.1 Indebtedness. No Credit Party will, and no Credit Party will permit any
Restricted Subsidiary to, create, incur, assume or permit to exist any
Indebtedness, except:
 
(a) any Indebtedness created hereunder;
 
(b) any Indebtedness existing on the date hereof and set forth in Schedule 6.1
(including, any extensions or renewals of any such Indebtedness but excluding
any replacements of any such Indebtedness);
 
(c) any Indebtedness of one Credit Party to another Credit Party;
 
(d) any Guarantee by a Credit Party of Indebtedness of any other Credit Party;
 
(e) any Indebtedness of the Credit Parties incurred under Purchase Money Liens
or to Capital Lease Obligations in an aggregate amount not exceeding
Cdn.$250,000 for all Credit Parties;
 
(f) any Indebtedness of any Person that becomes a Credit Party after the date
hereof, provided that (i) such Indebtedness exists at the time such Person
becomes a Credit Party and is not created in contemplation of or in connection
with such Person becoming a Credit Party, and (ii) the aggregate principal
amount of Indebtedness permitted by this clause (f) shall not exceed
Cdn.$250,000 at any time outstanding; and
 
(g) any Indebtedness in respect of trade letters of credit.
 
6.2 Liens. No Credit Party will, and no Credit Party will permit any
Restricted Subsidiary to, create, incur, assume or permit to exist any Lien on
any property or asset now owned or hereafter acquired by the Credit Party or any
Restricted Subsidiary, or assign or sell any income or revenues (including
Receivables) or rights in respect of any thereof, except Permitted Liens.
 
6.3 Fundamental Changes.
 
(a) No Credit Party will, and no Credit Party will permit any
Restricted Subsidiary to, merge into or amalgamate or consolidate with any other
Person, or permit any other Person to merge into or amalgamate or consolidate
with it, or sell, transfer, lease or otherwise dispose of (in one transaction or
in a series of transactions) all or substantially all of its assets, or all or
any of the Equity Securities of any of its Subsidiaries (in each case, whether
now owned or hereafter acquired), or liquidate or dissolve, except that, if at
the time thereof and immediately after giving effect thereto no Default shall
have occurred and be continuing, (i) any Restricted Subsidiary may amalgamate
with the Borrower, (ii) any Restricted Subsidiary may amalgamate with any other
Restricted Subsidiary, (iii) any Restricted Subsidiary may sell, transfer, lease
or otherwise dispose of its assets to the Borrower or to another
Restricted Subsidiary, and (iv) any Restricted Subsidiary may liquidate or
dissolve if the Borrower determines in good faith that such liquidation or
dissolution is in the best interests of the Borrower and the Lender determines
that such liquidation or dissolution is not disadvantageous to the Lender;
provided that any amalgamation pursuant to Sections 6.3(a)(i) or (ii) shall not
be permitted unless permitted by Section 6.4 and unless the amalgamated
corporation confirms to the Lender in writing that the amalgamated corporation
is liable, by operation of law or otherwise, for the obligations of the Borrower
under this Agreement.
 
(b) No Credit Party will, and no Credit Party will permit any
Restricted Subsidiary to, engage to any material extent in any material business
other than businesses of the type conducted by the Credit Party on the date of
execution of this Agreement and businesses reasonably related thereto.
 
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6.4 Investments, Loans, Advances, Guarantees and Acquisitions. No Credit Party
will, and no Credit Party will permit any Restricted Subsidiary to, purchase,
hold or acquire (including pursuant to any amalgamation with any Person that was
not a wholly-owned Restricted Subsidiary prior to such amalgamation) any Equity
Securities, evidences of indebtedness or other securities (including any option,
warrant or other right to acquire any of the foregoing) of, make or permit to
exist any loans or advances to, Guarantee any obligations of, or make or permit
to exist any investment or any other interest in, any other Person, or purchase
or otherwise acquire (in one transaction or a series of transactions) any assets
of any other Person or otherwise make an Acquisition, except:
 
(a) investments by a Credit Party in the Equity Securities of any other Credit
Party;
 
(b) loans or advances made by one Credit Party to any other Credit Party;
 
(c) Guarantees constituting Indebtedness permitted by Section 6.1; and
 
(d) Permitted Investments.
 
6.5 Restricted Payments. No Credit Party will, and no Credit Party will permit
any Restricted Subsidiary to, declare, pay or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except (a) the Borrower may
declare and pay dividends with respect to its Equity Securities payable solely
in additional Equity Securities, (b) any Restricted Subsidiary may declare and
pay dividends to the Borrower or any wholly-owned Restricted Subsidiary and any
wholly-owned Restricted Subsidiary may redeem or repurchase its own Equity
Securities, (c) the Borrower may make Restricted Payments pursuant to and in
accordance with stock option plans, profit sharing plans and/or other benefit
plans for management or employees of the Borrower and its Subsidiaries ,
provided that the aggregate amount of cash payments made by the Borrower and the
Subsidiaries in any Fiscal Year pursuant to all such stock option plans, profit
sharing plans and other compensation benefit plans shall not exceed
Cdn.$100,000.  
 
6.6 Transactions with Affiliates. No Credit Party will, and no Credit Party will
permit any Restricted Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase, lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) in the ordinary course of business at prices and on terms
and conditions not less favourable to the Credit Party than could be obtained on
an arm’s-length basis from unrelated third parties, (b) transactions between or
among the Credit Parties not involving any other Affiliate and (c) any
Restricted Payment permitted by Section 6.5. The foregoing restrictions shall
not apply to: (i) the payment of reasonable and customary fees to directors of
the Credit Party, (ii) any other transaction with any employee, officer or
director of a Credit Party pursuant to employee profit sharing and/or benefit
plans and compensation and non-competition arrangements in amounts customary for
corporations similarly situated to the Credit Party and entered into in the
ordinary course of business and approved by the board of directors of the Credit
Party, or (iii) any reimbursement of reasonable out-of-pocket costs incurred by
an Affiliate of the Credit Party on behalf of or for the account of the Credit
Party.
 
6.7 Repayment of Debt. No Credit Party will, and no Credit Party will permit any
Restricted Subsidiary to, repay, prepay, redeem, repurchase, defease or
otherwise make any payment on account of any Indebtedness for borrowed money
except for (a) payment on account of Indebtedness owing to the Lender or the
Lenders under this Agreement, (b) any payment consented to in writing by the
Required Lenders, and (c) payment on account of Indebtedness for borrowed money
permitted by Section 6.1.
 
6.8 Restrictive Agreements. No Credit Party will, and no Credit Party will
permit any Restricted Subsidiary to, directly or indirectly, enter into, incur
or permit to exist any agreement or other arrangement that prohibits, restricts
or imposes any condition upon (a) the ability of the Borrower or any
Restricted Subsidiary to create, incur or permit to exist any Lien upon any of
its property or assets, (b) the ability of any Restricted Subsidiary to pay
dividends or other distributions with respect to any Equity Securities or with
respect to, or measured by, its profits or to make or repay loans or advances to
the Borrower or any Restricted Subsidiary or to provide a Guarantee of any
Indebtedness of the Borrower or any Restricted Subsidiary, (c) the ability of
the Borrower or any Restricted Subsidiary to make any loan or advance to the
Borrower or any of the Subsidiaries , or (d) the ability of the Borrower or any
Restricted Subsidiary to sell, lease or transfer any of its property to the
Borrower or any of the Subsidiaries; provided that (i) the foregoing shall not
apply to restrictions and conditions imposed by Applicable Law or by this
Agreement, (ii) the foregoing shall not apply to restrictions and condition
existing on the date hereof identified on Schedule 6.8 (but shall apply to any
extension or renewal of, or any amendment or modification expanding the scope
of, any such restriction or condition), (iii) the foregoing shall not apply to
customary restrictions and conditions contained in agreements relating to the
sale of an Restricted Subsidiary pending such sale, provided such restrictions
and conditions apply only to the Restricted Subsidiary that is to be sold and
such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not
apply to restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the property or assets securing such Indebtedness, and (v) clause
(a) of the foregoing shall not apply to customary provisions in leases and other
ordinary course contracts restricting the assignment thereof.
 
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6.9 Capital Lease Obligations. No Credit Party will, and no Credit Party will
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist,
any Capital Lease Obligations, whether directly or as a guarantor, if, after
giving effect thereto, the aggregate amount of all payments required to be made
by the Credit Parties on a consolidated basis pursuant to such Capital Lease
Obligations would exceed Cdn.$250,000 in any Fiscal Year.
 
6.10 Sales and Leasebacks. No Credit Party will, and no Credit Party will permit
any Restricted Subsidiary to, enter into any arrangement, directly or
indirectly, with any Person whereby the Credit Party or any such
Restricted Subsidiary shall sell or transfer any property, whether now owned or
hereafter acquired, and whereby the Credit Party or any such
Restricted Subsidiary shall then or thereafter rent or lease as lessee such
property or any part thereof or other property which the Credit Party or any
such Restricted Subsidiary intends to use for substantially the same purpose or
purposes as the property sold or transferred.
 
6.11 Pension Plan Compliance. No Credit Party will (a) terminate, or permit any
Restricted Subsidiary to terminate, any Pension Plan in a manner, or take any
other action with respect to any Pension Plan, which could reasonably be
expected to result in any Material Adverse Effect, (b) fail to make, or permit
any Restricted Subsidiary to fail to make, full payment when due of all amounts
which, under the provisions of any Pension Plan, agreement relating thereto or
Applicable Law, the Credit Party or any Restricted Subsidiary is required to pay
as contributions thereto, except where the failure to make such payments could
not reasonably be expected to have a Material Adverse Effect, (c) permit to
exist, or allow any Restricted Subsidiary to permit to exist, a going-concern or
solvency deficiency, with respect to any Pension Plan in an amount which could
reasonably be expected to cause a Material Adverse Effect.
 
6.12 Sale or Discount of Receivables. No Credit Party will, and no Credit Party
will permit any Restricted Subsidiary to, discount or sell (with or without
recourse) any of its or the Restricted Subsidiaries’ Accounts.
 
6.13 Unconditional Purchase Obligations. No Credit Party will, and no Credit
Party will permit any Restricted Subsidiary to, enter into or be a party to, any
material contract for the purchase of materials, supplies or other property or
services, if such contract requires that payment be made by it regardless of
whether or not delivery of such materials, supplies or other property or
services is ever made, provided that this Section 6.13 shall not restrict the
ability of any Credit Party or any Restricted Subsidiary to enter into any such
contract in the ordinary course of its business to the extent that the
materials, supplies or other property or services which are the subject matter
of such contract are reasonably expected to be used by the applicable Credit
Party in the ordinary course of its business.
 
6.14 No Amendments to Material Contracts. No Credit Party will, and no Credit
Party will permit any Restricted Subsidiary to, amend, modify or terminate (or
waive any provision of or provide any consent under), any Material Contract in a
manner which may reasonably be expected to have a Material Adverse Effect.
 
6.15 Environmental Laws. Each of the Credit Parties shall conduct its business
in compliance in all material respects with all Environmental Laws applicable to
it or them, including, without limitation, those relating to the Credit Parties’
generation, handling, use, storage and disposal of Hazardous Materials. The
Credit Parties shall take prompt and appropriate action to respond to any
non-compliance or alleged non-compliance with Environmental Laws, and shall
regularly report to the Lender on any response which relates to any
non-compliance or alleged non-compliance which could reasonably be expected to
result in a Material Adverse Effect. Without limiting the generality of the
foregoing, whenever any Credit Party gives notice to the Lender pursuant to
5.1(l)(vi) and the Lender so requests, the Credit Parties shall, at the
applicable Credit Party’s expense:
 

 
(i)
Cause an independent environmental engineer acceptable to the Lender in its
reasonable discretion to conduct such tests of the site where the non-compliance
or alleged non-compliance with Environmental Laws has occurred, and prepare and
deliver to the Lender a report setting forth the results of such tests, a
proposed plan for responding to any environmental problems described therein,
and an estimate of the costs thereof; and

 
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(ii)
Provide to the Lender a supplemental report of such engineer whenever the scope
of the environmental problems, or the Credit Party’s, and any other Person’s
response thereto or the estimated costs thereof, shall change. Such reports
shall also be addressed to the Lender and the Lenders and shall, as requested by
the Lender, set out the results of such engineers’ review of, inter alia:

 

 
A.
progress of compliance satisfaction, capital expenditures required to effect
remedial steps and compliance deficiencies;

 

 
B.
all other environmental audit reports which the Credit Parties or any
predecessor has commissioned in the normal conduct of its business; and

 

 
C.
all environmental reports which have been commissioned by or made available to a
Credit Party in connection with new acquisitions, and the engineers’ report and
recommendations on results of tests performed or samples taken by it during the
course of its review, irregularities or steps which may be taken to ensure
continued compliance, as well as such other matters as the Borrower and/or the
Lender may reasonably request from time to time.

 
ARTICLE 7
EVENTS OF DEFAULT
 
7.1 Events of Default. If any of the following events (“Events of Default”)
shall occur:
 
(a) the Borrower shall fail to pay any principal of any Loan when and as the
same shall become due and payable, whether at the due date thereof or at a date
fixed for prepayment thereof or otherwise;
 
(b) the Borrower shall fail to pay any interest on any Loan or any fee or any
other amount (other than an amount referred to in clause (a) above) payable
under this Agreement, when and as the same shall become due and payable;
 
(c) any representation or warranty made or deemed made by or on behalf of any
Credit Party in or in connection with any Loan Document or any amendment or
modification thereof or waiver thereunder, or in any report, certificate,
financial statement or other document furnished pursuant to or in connection
with any Loan Document or any amendment or modification thereof or waiver
thereunder, shall prove to have been materially incorrect when made or deemed to
be made and, if the circumstances giving rise to the incorrect representation or
warranty are capable of modification or rectification (such that, thereafter the
representation or warranty would be correct), the representation or warranty
remains uncorrected for a period of 10 days;
 
(d) any Credit Party shall fail to observe or perform any covenant, condition or
agreement contained in Section 5.1(g)(ii) (notices of Defaults or Events of
Default), 5.2 (with respect to the Credit Party’s existence), 5.7, or in Article
6 (or in any comparable provision of any other Loan Document);
 
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(e) any Credit Party shall fail to observe or perform any covenant, condition or
agreement contained in this Agreement (other than those specified in clauses
(a), (b) or (d) above) or any other Loan Document, and such failure shall
continue unremedied for a period of 30 days after notice thereof from the Lender
to the Borrower;
 
(f) any Credit Party or Guarantor shall fail to make any payment whether of
principal or interest, and regardless of amount, in respect of any Material
Indebtedness, when and as the same shall become due and payable;
 
(g) any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits (with or
without the giving of notice, the lapse of time or both) the holder or holders
of any Material Indebtedness or any trustee or Lender on its or their behalf to
cause any Material Indebtedness to become due, or to require the prepayment,
repurchase, redemption or defeasance thereof, prior to its scheduled maturity;
provided that this Section 7.1(g) shall not apply to secured Indebtedness that
becomes due as a result of the voluntary sale or transfer of the property or
assets securing such Indebtedness so long as the proceeds of such sale or
transfer are sufficient to, and are applied to, reduce such secured Indebtedness
to nil;
 
(h) any Credit Party or Guarantor:
 

 
(i)
becomes insolvent, or generally does not or becomes unable to pay its debts or
meet its liabilities as the same become due, or admits in writing its inability
to pay its debts generally, or declares any general moratorium on its
indebtedness, or proposes a compromise or arrangement between it and any class
of its creditors;

 

 
(ii)
commits an act of bankruptcy under the BIA, or makes an assignment of its
property for the general benefit of its creditors under the BIA, or makes a
proposal (or files a notice of its intention to do so) under the BIA;

 

 
(iii)
institutes any proceeding seeking to adjudicate it an insolvent, or seeking
liquidation, dissolution, winding-up, reorganization, compromise, arrangement,
adjustment, protection, moratorium, relief, stay of proceedings of creditors
generally (or any class of creditors), or composition of it or its debts or any
other relief, under any federal, provincial or foreign Applicable Law now or
hereafter in effect relating to bankruptcy, winding-up, insolvency,
reorganization, receivership, plans of arrangement or relief or protection of
debtors (including the BIA, the Companies’ Creditors Arrangement Act (Canada),
the United States Bankruptcy Code and any applicable corporations legislation)
or at common law or in equity, or files an answer admitting the material
allegations of a petition filed against it in any such proceeding;

 

 
(iv)
applies for the appointment of, or the taking of possession by, a receiver,
interim receiver, receiver/manager, sequestrator, conservator, custodian,
administrator, trustee, liquidator or other similar official for it or any
substantial part of its property; or

 

 
(v)
threatens to do any of the foregoing, or takes any action, corporate or
otherwise, to approve, effect, consent to or authorize any of the actions
described in this Section 7.1(h) or in Section 7.1(i), or otherwise acts in
furtherance thereof or fails to act in a timely and appropriate manner in
defense thereof,

 
(i) any petition is filed, application made or other proceeding instituted
against or in respect of any Credit Party or Guarantor:
 

 
(i)
seeking to adjudicate it an insolvent;

 

 
(ii)
seeking a receiving order against it under the BIA;

 
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(iii)
seeking liquidation, dissolution, winding-up, reorganization, compromise,
arrangement, adjustment, protection, moratorium, relief, stay of proceedings of
creditors generally (or any class of creditors), or composition of it or its
debts or any other relief under any federal, provincial or foreign Applicable
Law now or hereafter in effect relating to bankruptcy, winding-up, insolvency,
reorganization, receivership, plans of arrangement or relief or protection of
debtors (including the BIA, the Companies’ Creditors Arrangement Act (Canada) or
the United States Bankruptcy Code and any applicable corporations legislation)
or at common law or in equity; or

 

 
(iv)
seeking the entry of an order for relief or the appointment of, or the taking of
possession by, a receiver, interim receiver, receiver/manager, sequestrator,
conservator, custodian, administrator, trustee, liquidator or other similar
official for it or any substantial part of its property;

 
and such petition, application or proceeding continues undismissed, or unstayed
and in effect, for a period of 30 days after the institution thereof, provided
that if an order, decree or judgment is granted or entered (whether or not
entered or subject to appeal) against the Credit Party thereunder in the
interim, such grace period will cease to apply, and provided further that if the
Credit Party files an answer admitting the material allegations of a petition
filed against it in any such proceeding, such grace period will cease to apply;
(j) any other event occurs which, under the Applicable Laws of any applicable
jurisdiction, has an effect equivalent to any of the events referred to in
either of Sections 7.1(h) or (i);
 
(k) one or more judgments for the payment of money in a cumulative amount in
excess of Cdn.$50,000 (or its then equivalent in any other currency) in the
aggregate is rendered against the Borrower, any other Credit Party or any
combination thereof and the Borrower or the other Credit Party has not
(i) provided for its discharge in accordance with its terms within 30 days from
the date of entry thereof, or (ii) procured a stay of execution thereof within
30 days from the date of entry thereof and within such period, or such longer
period during which execution of such judgment has not been stayed, appealed
such judgment and caused the execution thereof to be stayed during such appeal,
provided that if enforcement and/or realization proceedings are lawfully
commenced in respect thereof in the interim, such grace period will cease to
apply;
 
(l) any property of any Credit Party having a fair market value in excess of
Cdn.$50,000 (or its then equivalent in any other currency) in the aggregate is
seized (including by way of execution, attachment, garnishment, levy or
distraint), or any Lien thereon securing Indebtedness in excess of Cdn.$50,000
(or its then equivalent in any other currency) is enforced, or such property has
become subject to any charging order or equitable execution of a Governmental
Authority, or any writ of execution or distress warrant exists in respect of the
Borrower, any other Credit Party or the property of any of them, or any sheriff
or other Person becomes lawfully entitled by operation of law or otherwise to
seize or distrain upon such property and in any case such seizure, enforcement,
execution, attachment, garnishment, distraint, charging order or equitable
execution, or other seizure or right, continues in effect and is not released or
discharged for more than 45 days or such longer period during which entitlement
to the use of such property continues with the Credit Party (as the case may
be), and the Credit Party (as the case may be) is contesting the same in good
faith and by appropriate proceedings, provided that if the property is removed
from the use of the Credit Party (as the case may be), or is sold, in the
interim, such grace period will cease to apply;
 
(m) one or more final judgments, not involving the payment of money and not
otherwise specified in this Section 7.1(m), has been rendered against any Credit
Party, the result of which could reasonably be expected to result in a Material
Adverse Effect, so long as the Credit Party (as the case may be) has not
(i) provided for its discharge in accordance with its terms within 30 days from
the date of entry thereof, or (ii) procured a stay of execution thereof within
30 days from the date of entry thereof and within such period, or such longer
period during which execution of such judgment has been stayed, appealed such
judgment and caused the execution thereof to be stayed during such appeal,
provided that if enforcement and/or realization proceedings are lawfully
commenced in respect thereof in the interim, such grace period will cease to
apply;
 
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(n) this Agreement, any other Loan Document or any material obligation or other
provision hereof or thereof at any time for any reason terminates or ceases to
be in full force and effect and a legally valid, binding and enforceable
obligation of any Credit Party, is declared to be void or voidable or is
repudiated, or the validity, binding effect, legality or enforceability hereof
or thereof is at any time contested by any Credit Party, or any Credit Party
denies that it has any or any further liability or obligation hereunder or
thereunder or any action or proceeding is commenced to enjoin or restrain the
performance or observance by any Credit Party of any material terms hereof or
thereof or to question the validity or enforceability hereof or thereof, or at
any time it is unlawful or impossible for any Credit Party to perform any of its
material obligations hereunder or thereunder;
 
(o) any Lien purported to be created by any Security Document shall cease to be,
or shall be asserted by any Credit Party not to be, a valid, perfected, first
priority (except as otherwise expressly provided in this Agreement or such
Security Document) Lien in Collateral with a fair market value or book value
(whichever is greater) in excess, individually or in the aggregate, of
$1,000,000;
 
(p) a Material Adverse Change shall occur;
 
(q) a Change in Control shall occur;
 
(r) if any Credit Party or any of its Subsidiaries violates any Environmental
Law which results in an Action Request, Violation Notice or other notice or
control order or cancellation of any license or certificate or approval, that
could reasonably be expected to have a Material Adverse Effect;
 
(s) any event or condition shall occur or exist with respect to a Pension Plan
that could reasonably be expected to subject any Credit Party to any tax,
penalty or other liabilities under the Pension Benefits Act (Ontario) or any
other Applicable Laws which could reasonably be expected to give rise to a
Material Adverse Effect;
 
then, and in every such event, and at any time thereafter during the continuance
of such event or any other such event, the Lender may by notice to the Borrower,
take any or all of the following actions, at the same or different times:
(i) terminate the Credits, and thereupon the Credits shall terminate
immediately, (ii) declare the Loans then outstanding to be due and payable in
whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind except as set forth earlier in this
paragraph, all of which are hereby waived by the Borrower, (iii) apply any
amounts outstanding to the credit of the Borrower to repayment of all amounts
outstanding under this Agreement, and (iv) declare any or all of the Security
Documents to be immediately enforceable.
 
ARTICLE 8
MISCELLANEOUS
 
8.1 Notices.  (a) Except in the case of notices and other communications
expressly permitted to be given by telephone (and subject to paragraph (b)
below), all notices and other communications provided for herein shall be in
writing and shall be delivered by hand or overnight courier service, mailed by
certified or registered mail or sent by facsimile in each case to the addressee,
as follows:
 
(i)            if to the Borrower or any other Credit Party:
 
209 Brunel Road
Mississauga, Ontario
L4Z 1X3
 
Attention: Steven G. Kempf, President
Fax: 905- 501-9904

(ii)           with a copy to:

Universal Security Instruments, Inc.
7A Gwynns Mill Crt.
Owings Mill
Maryland, MD
21117
Attention: James B. Huff, Chief Financial Officer
Fax: 410-363-2218
 
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(ii)           if to the Lender:
 
CIT FINANCIAL LTD.
207 Queen’s Quay West,
Toronto, Ontario M5J 1A7
Attention: Legal Department
Facsimile:  (416) 507-5223
 
(b) The Lender or the Borrower may, in its discretion, agree to accept notices
and other communication to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may be
limited to particular notices or communications.
 
(c) Any party hereto may change its address or facsimile number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
 
8.2 Waivers; Amendments.
 
(a) No failure or delay by the Lender in exercising any right or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the Lender
hereunder are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by Section 8.2(b), and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. Without limiting the generality of the foregoing, the
making of a Loan or issuance of a Letter of Credit shall not be construed as a
waiver of any Default, regardless of whether the Lender may have had notice or
knowledge of such Default at the time.
 
(b) Neither this Agreement nor any other Loan Document (or any provision hereof
or thereof) may be waived, amended or modified except pursuant to an agreement
or agreements in writing entered into by the Borrower and the Lender (and for
greater certainty, any such waiver, amendment or modification shall not require
any consent or other agreement of any Credit Party other than the Borrower,
notwithstanding that any such Credit Party may be a party to this Agreement or
any other Loan Document).
 
8.3 Expenses; Indemnity; Damage Waiver.
 
(a) The Borrower shall pay (i) all reasonable Out-of-Pocket Expenses incurred by
the Lender and its Affiliates, including the reasonable fees, charges and
disbursements of counsel for the Lender and all applicable Taxes, in connection
with the syndication of the credit facilities provided for herein and the
preparation and administration of this Agreement and the other Loan Documents,
(ii) all reasonable Out-of-Pocket Expenses incurred by the Lender and its
Affiliates, including the reasonable fees, charges and disbursements of counsel
for the Lender and applicable Taxes, in connection with any amendments,
modifications or waivers of the provisions hereof or of any of the other Loan
Documents, (whether or not the transactions contemplated hereby or thereby shall
be consummated), and (iii) all Out-of-Pocket Expenses incurred by the Lender,
including the fees, charges and disbursements of any counsel for the Lender and
all applicable Taxes, in connection with the enforcement or protection of their
rights in connection with this Agreement, including its rights under this
Section, or in connection with the Loans made hereunder, including all such
Out-of-Pocket Expenses incurred during any workout, restructuring or
negotiations in respect of such Loans.
 
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(b) The Borrower shall indemnify the Lender, as well as each Related Party and
each assignee of any of the foregoing Persons (each such Person and each such
assignee being called an “Indemnitee”) against, and hold each Indemnitee
harmless from, any and all losses, claims, cost recovery actions, damages,
expenses and liabilities of whatsoever nature or kind and all Out-of-Pocket
Expenses and all applicable Taxes to which any Indemnitee may become subject
arising out of or in connection with (i) the execution or delivery of the Loan
Documents or any agreement or instrument contemplated thereby, the performance
by the parties thereto of their respective obligations thereunder, and the
consummation of the Transactions or any other transactions thereunder, (ii) any
Loan or any actual or proposed use of the proceeds therefrom, (iii) any presence
or release of Hazardous Materials on or from any property owned or operated by
the Borrower or any of its Subsidiaries, or any Environmental Liability related
in any way to the Borrower or any of its Subsidiaries, (iv) any actual claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto, (v) any other aspect of this Agreement and
the other Loan Documents, or (vi) the enforcement of any Indemnitee’s rights
hereunder and any related investigation, defence, preparation of defence,
litigation and enquiries, in each case regardless of whether or not the
Acquisition is consummated; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence (it being acknowledged that ordinary negligence does not necessarily
constitute gross negligence) or wilful misconduct of or material breach of this
Agreement by such Indemnitee.
 
(c) The Borrower shall not assert, and hereby waives (to the fullest extent
permitted by applicable Law), any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, any Loan Document, or any agreement or instrument contemplated thereby, the
Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.
 
(d) Any inspection of any property of the Borrower or any of its Subsidiaries
made by or through the Lender is for purposes of administration of the Credits
only, and neither the Borrower nor any of its Subsidiaries is entitled to rely
upon the same (whether or not such inspections are at the expense of the
Borrower).
 
(e) By accepting or approving anything required to be observed, performed,
fulfilled or given to the Lender pursuant to the Loan Documents, the Lender
shall not be deemed to have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision or
condition thereof, and such acceptance or approval thereof shall not constitute
a warranty or representation to anyone with respect thereto by the Lender.
 
(f) The relationship between the Borrower and the Lender is, and shall at all
times remain, solely that of borrowers and lender. The Lender shall not under
any circumstance be construed to be partners or joint venturers of the Borrower
or its Affiliates. The Lender shall not under any circumstance be deemed to be
in a relationship of confidence or trust or a fiduciary relationship with the
Borrower or its Affiliates, or to owe any fiduciary duty to the Borrower or its
Affiliates. The Lender does not undertake or assume any responsibility or duty
to the Borrower or its Affiliates to select, review, inspect, supervise, pass
judgment upon or inform the Borrower or its Affiliates of any matter in
connection with their property or the operations of the Borrower or its
Affiliates. The Borrower and its Affiliates shall rely entirely upon their own
judgment with respect to such matters, and any review, inspection, supervision,
exercise of judgment or supply of information undertaken or assumed by the
Lender in connection with such matters is solely for the protection of the
Lender, and neither the Borrower nor any other Person is entitled to rely
thereon.
 
(g) The Lender shall not be responsible or liable to any Person for any loss,
damage, liability or claim of any kind relating to injury or death to Persons or
damage to Property caused by the actions, inaction or negligence of the Borrower
or any Subsidiary and/or their Affiliates and the Borrower hereby indemnifies
and holds the Lender harmless from any such loss, damage, liability or claim.
 
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(h) This Agreement is made for the purpose of defining and setting forth certain
obligations, rights and duties of the Borrower and the Lender in connection with
the Loans, and is made for the sole benefit of the Borrower and the Lender, and
the Lender’s successors and assigns. Except as provided in Sections 8.3(b) and
8.4, no other Person shall have any rights of any nature hereunder or by reason
hereof.
 
(i) All amounts due under this Section 8.3 shall be payable not later than three
Business Days after written demand therefor.
 
8.4 Successors and Assigns.
 
(a) The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of the Lender (and any attempted assignment or transfer by the Borrower
without such consent shall be null and void), and (ii) the Lender may not assign
or otherwise transfer its rights or obligations hereunder except in accordance
with this Section. Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each of the Lender) any legal or
equitable right, remedy or claim under or by reason of this Agreement.
 
(b) The Lender may assign to one or more Eligible Assignees (treating any fund
that invests in bank loans and any other fund that invests in bank loans and is
managed by the same investment advisor of such fund or by an Affiliate of such
investment advisor as a single assignee) all or a portion of its rights and
obligations under this Agreement and the other Loan Documents (including all or
a portion of its Credits and the Loans at the time owing to it); provided that
(i) Borrower must give its prior written consent to such assignment (which
consent shall not be unreasonably withheld or delayed); and provided further
that (ii) the Borrower’s consent shall not be required with respect to any
assignment made at any time after the occurrence and during the continuance of
an Event of Default, (iii) each partial assignment in respect of a Credit and
the related Loans shall be made as an assignment of a proportionate part of all
the assigning Lender’s rights and obligations under this Agreement in respect of
such Credit and the related Loans, (iv) the parties to each assignment shall
execute and deliver to the Lender an Assignment and Assumption, together with
(except in the case of an assignment to a Lender or a Lender Affiliate) a
processing and recordation fee of Cdn.$3,500, payable by the assigning Lender,
and (v) in the case of an assignment to a Foreign Lender prior to the occurrence
of an Event of Default, such Foreign Lender shall not be entitled to require any
payment under Section 2.11(a)(b) or (c) as a result of any withholding tax
exigible in respect of any payment by the Borrower to such Foreign Lender
hereunder. From and after the effective date specified in each Assignment and
Assumption, the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned by such Assignment and Assumption, shall have all of
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Assumption, be released from its obligations under this Agreement
(and, in the case of an Assignment and Assumption covering all of the assigning
Lender’s rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.10, and 2.11 and 8.3). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this Section 8.4
shall be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations.
 
(c) The Lender may, without notice to the Borrower or the consent of the
Borrower, sell participations to one or more Persons (a “Participant”) in all or
a portion of the Lender’s rights and obligations under this Agreement and the
other Loan Documents (including all or a portion of its Commitment and the Loans
owing to it); provided that (i) the Lender’s obligations under this Agreement
shall remain unchanged, (ii) the Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, and (iii) the
Borrower shall continue to deal solely and directly with the Lender in
connection with the Lender’s rights and obligations under this Agreement. Any
agreement or instrument pursuant to which the Lender sells such a participation
shall provide that the Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may provide that
the Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to Section
8.2(b) that affects such Participant. Subject to Section 8.4(d), the Borrower
agrees that each Participant shall be entitled to the benefits of Sections 2.10
and 2.11 to the same extent as if it were a Lender and had acquired its interest
by assignment pursuant to Section 8.4(b). To the extent permitted by Applicable
Law, each Participant also shall be entitled to the benefits of Section 8.8 as
though it were a Lender.
 
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(d) A Participant shall not be entitled to receive any greater payment under
Section 2.11 than the applicable Lender would have been entitled to receive with
respect to the participation sold to such Participant, unless the sale of the
participation to such Participant is made with the Borrower’s prior written
consent. A Participant that would be a Foreign Lender if it were a Lender shall
not be entitled to the benefits of Section 2.11.
 
8.5 Survival. All covenants, agreements, representations and warranties made by
the Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Lender or any Lender may have had
notice or knowledge of any Default or incorrect representation or warranty at
the time any credit is extended hereunder, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
fee or any other amount payable under this Agreement is outstanding and unpaid
and so long as the Credits have not expired or terminated. Sections 2.10, 2.11
and 8.3 shall survive and remain in full force and effect, regardless of the
consummation of the Transactions, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the Credits or the termination of this
Agreement or any provision hereof.
 
8.6 Counterparts; Integration; Effectiveness. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original, but all of which when taken together
shall constitute a single contract. This Agreement, the other Loan Documents and
any separate letter agreements with respect to fees payable to the Lender,
constitute the entire contract among the parties relating to the subject matter
hereof and supersede any and all previous agreements and understandings, oral or
written, relating to the subject matter hereof. Except as provided in Section
4.1, this Agreement shall become effective when it shall have been executed by
the Lender and when the Lender shall have received counterparts hereof which,
when taken together, bear the signatures of each of the other parties hereto,
and thereafter shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Delivery of an executed
original counterpart of a signature page of this Agreement by facsimile or other
electronically scanned method of delivery shall be as effective as delivery of a
manually executed original counterpart of this Agreement.
 
8.7 Severability. Any provision of this Agreement held to be invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability without
affecting the validity, legality and enforceability of the remaining provisions
hereof, and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.
 
8.8 Right of Set-Off. If an Event of Default shall have occurred and be
continuing, the Lender and each of its Affiliates is hereby authorized at any
time and from time to time, to the fullest extent permitted by Applicable Law,
to set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations at any time owing
by the Lender or Affiliate to or for the credit or the account of the Borrower
against any of and all of the obligations of the Borrower now or hereafter
existing under this Agreement held by the Lender, irrespective of whether or not
the Lender shall have made any demand under this Agreement and although such
obligations may be unmatured. The rights of each Lender under this Section are
in addition to other rights and remedies (including other rights of set off)
which such Lender may have.
 
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8.9 Governing Law; Jurisdiction; Consent to Service of Process.
 
(a) This Agreement shall be construed in accordance with and governed by the
Laws of the Province of Ontario.
 
(b) The Borrower hereby irrevocably and unconditionally submits, for itself and
its property, to the non-exclusive jurisdiction of the Courts of the Province of
Ontario, and any appellate court thereof, in any action or proceeding arising
out of or relating to this Agreement, or any other Loan Document or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in Ontario. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by Applicable Law. Nothing in this
Agreement shall affect any right that the Lender or any Lender may otherwise
have to bring any action or proceeding relating to this Agreement or any other
Loan Document against the Borrower or its properties in the courts of any other
jurisdiction.
 
(c) The Borrower hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement in any court referred to in this Section
8.9. Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by Applicable Law, any forum non conveniens defence to the maintenance
of such action or proceeding in any such court.
 
(d) Each party to this Agreement irrevocably consents to service of process in
the manner provided for notices in Section 8.1. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by Applicable Law.
 
8.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, LENDER OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
 
8.11 Headings. Article and Section headings and the Table of Contents used
herein are for convenience of reference only, are not part of this Agreement and
shall not affect the construction of, or be taken into consideration in
interpreting, this Agreement.
 
8.12 Confidentiality. The Lender agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
each of its, and each of its Affiliates’, directors, officers, employees,
Lenders and advisors, including accountants, legal counsel and other advisors
(it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep
such Information confidential), (b) to the extent requested by any rating
agency, regulatory authority or other Governmental Authority, or their legal
counsel, (c) to the extent required by applicable laws or regulations or by any
subpoena or similar legal process, (d) to any other party to this Agreement,
(e) in connection with the exercise of any remedies under any Loan Document or
any suit, action or proceeding relating to any Loan Document or the enforcement
of rights thereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to (i) any actual or
prospective assignee of or Participant (or such assignee’s or Participant’s
advisors) in any of its rights or obligations under this Agreement, or (ii) any
actual or prospective counterparty (or its advisors) to any swap or derivative
transaction relating to the Borrower and its obligations, (g) any financial
institution, credit reporting agency or credit bureau, or (h) with the consent
of the Borrower. For the purposes of this Section, “Information” means all
information received from the Borrower or any Credit Party relating to the
Borrower, any of the Credit Parties, or their respective business, other than
Information that is (i) is or becomes publicly available other than as a result
of a breach of this Section, (ii) any such information that is or becomes
available to the Lender on a non-confidential basis prior to disclosure by the
Borrower, or (iii) was already in the possession of the Lender, prior to its
disclosure by the Borrower; provided that, in the case of information received
from the Borrower after the date hereof, such information is clearly identified
as confidential in writing at the time of delivery. Any Person required to
maintain the confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
 
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8.13 Press Releases and Related Materials.  Each Credit Party agrees that
neither it nor its Affiliates will in the future issue any press releases or
other public disclosure using the name of the Lender or referring to this
Agreement, or the other Loan Documents without at least two (2) Business Days’
prior notice to the Lender unless (and only to the extent that) such Credit
Party or Affiliate is required to do so under law and then, in any event, such
Credit Party or Affiliate will consult with the Lender before issuing such press
release or other public disclosure. Each Credit Party consents to the
publication by the Lender of advertising material relating to the financing
transactions contemplated by this Agreement using its name, product photographs,
logo or trademark. The Lender reserves the right to provide to industry trade
organizations information necessary and customary for inclusion in league table
measurements.
 
8.14 No Strict Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.
 
8.15 Paramountcy. In the event of any inconsistency between the provisions of
this Agreement and the provisions of any other Loan Document, the provisions of
this Agreement shall prevail.
 
8.16 Withholding Tax.
 
(a) The Lender represents and warrants to the Borrower that it is a Canadian
Resident Lender at all times and that no payments made to it by the Borrower are
subject to any deduction or reduction on account of withholding or other taxes;
and
 
(b) Notwithstanding paragraph (a) of this Section, subject to Article 8, the
Lender may assign or transfer its Loan to a Foreign Lender, provided that the
provisions of Section 2.11 shall not apply to Indemnified Taxes which arise
solely as a result of the fact such assignee or transferee is not a Canadian
Resident Lender.
 
[Remainder of this page intentionally left blank. Signature pages follow.]
 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
 

       
INTERNATIONAL CONDUITS LTD.
 
   
   
    By:   

--------------------------------------------------------------------------------

Name:
  Title:

 
SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF  JUNE 22, 2007 BETWEEN CIT
FINANCIAL LTD. AND INTERNATIONAL CONDUITS LTD.
 
S-1

--------------------------------------------------------------------------------

 

       
UNIVERSAL SECURITY INSTRUMENTS, INC.
 
   
   
    By:    

--------------------------------------------------------------------------------

Name:   Title: 

 
SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF  JUNE 22, 2007 BETWEEN CIT
FINANCIAL LTD. AND INTERNATIONAL CONDUITS LTD.
 
S-2

--------------------------------------------------------------------------------

 

       
USI ELECTRIC, INC.
 
   
   
    By:      

--------------------------------------------------------------------------------

Name:
  Title:

 
SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF  JUNE 22, 2007 BETWEEN CIT
FINANCIAL LTD. AND INTERNATIONAL CONDUITS LTD.
 
S-3

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        CIT FINANCIAL LTD., as Lender  
   
   
    By:      

--------------------------------------------------------------------------------

Name:   Title:

       
   
   
    By:      

--------------------------------------------------------------------------------

Name:   Title:

 
SIGNATURE PAGE TO CREDIT AGREEMENT DATED AS OF  JUNE 22, 2007 BETWEEN CIT
FINANCIAL LTD. AND INTERNATIONAL CONDUITS LTD.
 
S-4

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SCHEDULE A
DISCLOSURE MATTERS

Nil.
 
SCHEDULE B
MATERIAL CONTRACTS

 
Nil.
 
SCHEDULE 3.3
APPROVALS

None.
 
SCHEDULE 3.5
LITIGATION

None.

SCHEDULE 3.7
OWNERSHIP OF BORROWER

SHAREHOLDER:
NUMBER OF SHARES:
2113824 Ontario Inc.
Steven G. Kempf
22 Common Shares
11 Common Shares

 
SCHEDULE 3.9
LIENS ON REAL PROPERTY

Nil

SCHEDULE 3.10
LIENS ON PERSONAL PROPERTY
 
SCHEDULE 3.11
PENSION PLANS

Not applicable. Pension Plans are government sponsored.
 
SCHEDULE 3.13
DEFAULTS

None.
 

--------------------------------------------------------------------------------

 
SCHEDULE 3.15
SUBSIDIARIES

None.

SCHEDULE 3.20
EMPLOYEE MATTERS

Employment Contract - Steven G. Kempf
 
SCHEDULE 3.22
INTELLECTUAL PROPERTY MATTERS

None.
 
SCHEDULE 3.28
REAL PROPERTY AND LEASES

Operating lease for premises located at 209 Brunel Road, Mississauga, Ontario
between the Borrower and Philip Sherwood Developments Limited for 40,080 sq.
ft., expiring January 31, 2010.
 
Substantially all of the Inventory is located at 209 Brunel Road, however small
amounts of Inventory may, from time to tome, be located with sales
representatives throughout Canada and possibly the U.S.
 
SCHEDULE 3.30
JURISDICTIONS

Ontario *

*At this time all assets are located in Ontario. Small amounts of Inventory may,
from time to time, be located with sales representatives throughout Canada and
possibly the U.S.
 
SCHEDULE 6.1
EXISTING INDEBTEDNESS

Indebtedness owing the Borrower to 2113824 Ontario Inc. in the amount of
U.S.$1,912,533.
 
Indebtedness owing by the Borrower to Universal Security Instruments, Inc. in
the amount of U.S.$1,087,467.
 
Indebtedness owing by each of Jill O’Neil, Michael O’Neil and Stephen Kleynhans.
See attached amortization schedules.
 
See Schedule 3.10.
 
SCHEDULE 6.8
RESTRICTIVE AGREEMENTS

Nil
 

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EXHIBIT A
FORM OF
BORROWING BASE REPORT
 
[Please see attached CIT form of report]
 
EXHIBIT B
Form of Notice of Borrowing
 
(Letter to be typed on Borrower's Letterhead)

 [•], 200__

CIT FINANCIAL LTD.
207 Queens Quay West,
Toronto, Ontario, M5J 1A7

Attention:     Collateral Analyst
FAX:     (416) 507-5223

BORROWING NOTICE
Gentlemen:

We refer to the credit agreement dated as of [•], 200__ (as amended, restated,
supplemented, replaced or otherwise modified from time to time the “Credit
Agreement”; capitalized terms used herein but not otherwise defined shall have
the meanings set forth in the Credit Agreement), between International Conduits
Ltd., as borrower (the “Borrower”) and CIT Financial Ltd. (the “Lender”).

We hereby instruct and authorize the Lender to make advances to our disbursement
account(s), subject to and in accordance with the terms and provisions of the
Credit Agreement to the account numbers specified below and to charge the
Borrower’s loan account as Revolving Loans with each such advance(s).

The Borrower hereby requests an advance (the “Advance”) be made under the
Revolving Credit Facility as follows:

A.
the Borrowing Amount :

Prime Rate Loan (Cdn$): _______________

B. the Drawdown Date: 

Notice requirements as stated in the Credit Agreement are:
 

 
-
10:00 AM (Toronto time) on the requested Drawdown Date for Prime Rate Loans

Proceeds of the Advance are to be directed as follows:

Bank Name:               _______________
Account Name:        _______________
Branch #:                   _______________
Account Number:     CAD#
 

--------------------------------------------------------------------------------

 
The Borrower hereby acknowledges that the Lender will make payments strictly on
the basis of the account number furnished herein even if such account number
identifies a party other than the name of the account listed above. In the event
the above account number is incorrect, we hereby agree to be fully liable for
any and all losses, costs, and expenses arising therefrom.

The Borrower hereby confirms as follows:

(a)
Each of the representations and warranties made by the Borrower in or pursuant
to the Credit Agreement and the other Loan Documents are true and correct in all
material respects on and as of the date hereof as if made on and as of such
date, except as the Borrower and the Lender have otherwise agreed herein or in a
separate writing.

(b)
No Default or Event of Default has occurred and is continuing on the date hereof
or will occur after the making of the Advance(s) requested hereunder.

(c)
Except as may have been otherwise agreed to from time to time by the Lender and
the Borrower in writing, after making the Advance(s) requested to be made by the
Borrower hereunder, the aggregate outstanding balance of the Revolving Loans
will not exceed the lesser of (i) the Maximum Revolving Credit Line, and (ii)
the Borrowing Base.

 

DATED this ___ day of _______, 200_               Yours truly,              
INTERNATIONAL CONDUITS LTD.
                      By:        

--------------------------------------------------------------------------------

Name:
   
Title:
   

 

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EXHIBIT C
FORM OF
LANDLORD WAIVER
 
The undersigned is the owner of the premises known as
_____________________________________________________________________________ (the
“Premises”), which Premises are leased by the undersigned to [NAME OF CREDIT
PARTY], a [JURISDICTION] corporation, or one of its affiliates (collectively,
the “Obligors”) pursuant to a lease agreement dated as of
_________________________________ (as it may be amended, restated, supplemented,
replaced or otherwise modified from time to time, the “Lease”). The undersigned
understands that the Obligors will enter (or have entered) into a credit
facility with CIT Financial Ltd., in its capacity as Lender (the “Lender”) for
certain lenders (the “Lenders”), pursuant to which (a) the Lenders may make
loans to certain of the Obligors from time to time, and (b) the Obligors will
grant (or have granted) to the Lender, a security interest on all of the
Obligors' present and after-acquired accounts receivable, Inventory, general
intangibles (including, without limitation, trademarks and intellectual property
rights), capital assets, documents of title, collateral proceeds accounts and
capital stock (collectively, the “Collateral”).

1. The undersigned hereby waives and relinquishes in favour of the Lender any
landlord's lien, all rights of levy or distraint, security interest or other
interest that the undersigned may now or hereafter have, whether by statute,
contract (including the Lease) or by common law, in any of the Collateral (the
“Landlord's Liens”), whether for rent or otherwise, and agrees that the Lender's
security interests and liens in the Collateral, now existing or hereafter
arising, shall have priority over and rank senior to any and all of the
Landlord’s Liens. The undersigned disclaims any interest in the Collateral and
agrees not to assert any claim to the Collateral while the Obligors are indebted
to the Lenders.

2. In order to exercise any rights as a secured party holding a security
interest in the Collateral, the Lender is expressly authorized and privileged at
any time to enter the Premises and inspect, remove or repossess the Collateral
and may advertise and conduct a public auction or private sale of the
Collateral; provided, however, that the Lender will repair, or pay the
reasonable cost to repair, any injury to the realty resulting from such
inspection, removal, repossession, auction or sale.

3. If the Lease is terminated by the undersigned whether by reason of any
default by the Obligors or otherwise, or if the Obligors default under any of
their agreements with the Lender or any Lender, and in any such case the Lender,
on behalf of itself or the Lenders, desires to exercise its rights as a secured
party holding a security interest in any of the Collateral, then the Lender may
thereafter at its option occupy the Premises for up to 90 days and may keep
thereon such property as it determines appropriate, provided that the Lender
shall pay rent for its period of occupancy (pro-rated on a daily basis and
computed on the basis of a 30-day month) at the rate provided in the Lease based
on the rate in effect just prior to such termination or default, without
incurring any other obligations of the Obligors.

4. The undersigned hereby consents to the acquisition by the Lender, at the
Lender’s option, of the absolute ownership of the Obligors' interest in the
Lease and agrees that if the Lender, at its option, takes possession of the
Obligors’ leasehold estate in the Premises, the Lender will thereupon, be
recognized as the tenant under the Lease. If the Lender shall become the tenant
under the Lease, it may, on behalf of the Lenders, sublease or assign the Lease
for any lawful purpose with the express written consent of the undersigned and
the assignment of the Lease shall release and relieve the Lender of all
obligations thereunder. The undersigned agrees to give notice within 5 days of
any default by any Obligor of any of the provisions of the Lease, such notice to
be provided to:
 

--------------------------------------------------------------------------------

 
CIT Financial Ltd.
207 Queens Quay West,
Toronto, Ontario
M5J 1A7
Attn: Credit Manager

5. All of the Lender's rights and privileges hereunder shall inure to the
benefit of its successors and assigns and shall bind the undersigned's
successors or assigns. 
 
IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed
this _____ day of _________________, 200_.
 

       
[NAME OF LANDLORD]
 
   
   
    By:      

--------------------------------------------------------------------------------

Name:   Title:

 

--------------------------------------------------------------------------------

 
EXHIBIT D

FORM OF
BAILEE LETTER
 
___________ ____, 200_
 
[NAME OF BAILEE]
[ADDRESS OF BAILEE]
_______________________
_______________________
 
Re: [NAME OF CREDIT PARTY] (the “Bailor”)
 
Ladies and Gentlemen:
 
This letter (the “Letter”) is to advise _________________ (the “Bailee”) that
the Bailor executed and delivered to CIT Financial Ltd., in its capacity as
Lender for certain lenders (the “Lender”) a Credit Agreement (as may be
modified, amended, renewed, extended, restated, or replaced from time to time,
the “Credit Agreement”), pursuant to which the Bailor granted to the Lender a
security interest in, among other things, all inventory of the Bailor, some of
which is in possession of the Bailee from time to time (the “Controlled
Inventory”). By executing this Letter, the Bailee acknowledges that from time to
time the Bailee is in possession of Controlled Inventory and that, because of
the Lender’s interest in the Controlled Inventory, the instructions contained in
this Letter are irrevocable and cannot be altered or amended without the prior
written consent of the Lender. The Bailor’s execution of this Letter is
conclusive evidence to the Bailee of its confirmation of and agreement to the
foregoing and of its agreement to be bound by all terms of this Letter on which
the Bailee is entitled to rely for all purposes until written notice of
termination of this Letter is given to the Bailee by the Lender.
 
The Bailee recognizes the Lender’s continuing security interest in the
Controlled Inventory and in the proceeds thereof. The Bailee covenants and
agrees that the Controlled Inventory is and shall remain owned by the Bailor,
and that the Lender may at any time and from time to time inspect, remove and/or
repossess the Controlled Inventory while in possession of the Bailee without
accountability to the Bailee therefor and free of any lien, security interest,
right or claim which the Bailee may now or hereafter have, such right of the
Lender being independent of any other right or remedy the Lender may have. The
Bailee hereby authorizes and empowers the Lender to access the premises where
the Controlled Inventory is located for the purposes of guarding and maintaining
the Controlled Inventory, preparing and showing the same for sale and/or
conducting a sale thereof. The Bailee hereby waives and releases, for the
benefit of the Lender, its successors and assigns, any and all liens, security
interests, rights and claims of every kind, whether statutory, contractual or by
law, which the Bailee may now or hereafter have with respect to the Controlled
Inventory, including, without limitation, any rights to seize, hold, restrain,
levy upon, take possession of, sell or otherwise transfer or dispose of the
Controlled Inventory and the Bailee further acknowledges and agrees that no
negotiable warehouse receipts or documents of title will be issued covering the
Controlled Inventory.
 
So long as no Default Period (hereinafter defined) is continuing, the Bailor may
control the Controlled Inventory. From the date on which the Lender notifies the
Bailee that an “Event of Default” (as defined in the Credit Agreement) has
occurred and thereafter until the Bailee receives notice from the Lender that
such Event of Default is no longer continuing and that no other Event of Default
is continuing (such period being referred to herein as a “Default Period”), the
Bailee, the Bailor and the Lender agree that the Lender shall have the exclusive
right to direct the Bailee as to control of the Controlled Inventory, which
includes, without limitation, the right to dispose of, repossess or remove the
Controlled Inventory, and the Bailee shall not comply in any respect with any
request or direction by the Bailor in connection with the Controlled Inventory,
unless consented to in writing by the Lender.
 

--------------------------------------------------------------------------------

 
At any time when the Bailee has possession of the Controlled Inventory, the
Bailee agrees to prevent the commingling of the Controlled Inventory in its
possession with other Inventory, goods or items in the Bailee’s possession by
clearly separating, dividing or otherwise isolating the Controlled Inventory
from all such other items in the Bailee’s possession. The Bailee will also
clearly identify the Controlled Inventory as belonging to the Bailor, through
the use of labels, tags, or other similar coding methods.
 
The Bailee will from time to time deliver to the Lender, upon the written
request of the Lender (which request may be by facsimile transmission) and at
the Bailor’s cost and expense, such information regarding the Controlled
Inventory as may be reasonably requested by the Lender, and the Bailee will
notify the Lender promptly if the Bailee acquires knowledge that the Controlled
Inventory shall become subject to any injunction, writ or warrant of attachment
or garnishment, judgment, levy and execution, or similar process. The Bailee
confirms in favour of the Lender that it has not, prior to the date hereof,
executed in favour of any third party any document, instrument or agreement
pursuant to which (a) the Bailee has acknowledged a security interest in the
Controlled Inventory in favour of such third party, or (b) the Bailee has agreed
to follow the instructions of such third party in respect of the Controlled
Inventory.
 
The Bailor agrees that the Bailee shall be fully protected in acting on any
notice or direction by the Lender relating to the Controlled Inventory without
making any inquiry whatsoever as to the Lender’s right or authority to give such
notice or direction. Further, the Bailee shall have no liabilities to the Bailor
or the Lender other than those imposed upon it by law for its own lack of good
faith, gross negligence or wilful misconduct. The Bailee shall not be liable for
consequential, indirect or special damages, even if the Bailee has been advised
of the possibility of such damages. The Bailee shall not be liable for any
failure or delay in performing any service under this Letter in the event and to
the extent that such failure arises out of causes beyond the Bailee’s control,
including but not limited to war, civil commotion, an Act of God, fire, flood,
explosion, sabotage, failure or interruption of electrical or other power
supplies or of transportation services, compliance with governmental laws,
regulations or orders, and strikes and lockouts.
 
The Bailor agrees to pay the Bailee’s costs and expenses, including reasonable
legal fees, in connection with the execution, delivery and administration of
this Letter.
 
The Bailor and the Lender, jointly and severally, hereby agree to indemnify and
save the Bailee harmless from and against any and all losses, costs and expenses
arising out of the compliance by the Bailee with the terms of the instructions
contained herein.
 
If the Bailor is unable to fulfill its obligations to the Bailee in respect of
warehouse fees and other expenses payable by the Bailor to the Bailee in
connection with the storage, handling and delivery of the Controlled Inventory
(collectively, the “Storage Fees”), the Lender agrees that, as a condition to
the Lender’s rights of access to the Controlled Inventory and the Lender’s
rights of inspection, removal and/or repossession of the Controlled Inventory
provided for in this Letter, it will pay to the Bailee all Storage Fees which
remain unpaid as at the commencement of any Default Period together with any
Storage Fees incurred during the continuance of a Default Period.
 
The Bailor acknowledges and agrees that (a) any amounts paid by the Lender to
the Bailee hereunder shall constitute “Obligations” of the Bailor for purposes
of the Credit Agreement, and (b) that this Letter is a “Loan Document” as such
term is defined in the Credit Agreement dated ______________________ between the
Lender and the Bailor, as borrower.
 
This Letter may only be terminated by the Lender upon written notice to the
Bailee.
 
This Letter may be execute in one or more counterparts by facsimile
transmission, each of which shall be deemed to be an original and all of which,
when taken together, shall constitute one and the same agreement.
 

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If the foregoing instructions, terms and agreements are acceptable to the
Bailee, please indicate the Bailee’s acceptance by signing this letter in the
space provided below and returning it to the Bailor.
 

  Sincerely,        
[NAME OF CREDIT PARTY]
 
   
   
    By:      

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Name:    Title:

 

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AGREED AND ACCEPTED:
 

CIT FINANCIAL LTD.     Address for Notice:         By:      207 Queens Quay
West,

--------------------------------------------------------------------------------

Name:
   
Toronto, Ontario
M5J 1A7
Title: 
    Attention: Credit Manager

 
 

[BAILEE]               By:      

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Name:
   
Title:
   

 

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EXHIBIT E
 
FORM OF RESPONSIBLE OFFICER’S CERTIFICATE
 
TO:
CIT Financial Ltd., as Lender

The undersigned, ____________________ [TITLE of AUTHORIZED SIGNING OFFICER], of
l (the “Borrower”), pursuant to Section 5.1 of the credit agreement dated as of
May •, 2007, between, amongst others, CIT Financial Ltd., as Lender, and the
Borrower (as amended, restated, supplemented, replaced or otherwise modified
from time to time the “Credit Agreement”), DOES HEREBY CERTIFY in [his/her]
capacity as an authorized signing officer of the Borrower and not in [his/her]
personal capacity that:
1. The financial statements attached hereto fairly and accurately represent the
Borrower’s financial condition at the end of the particular accounting period
set out in such financial statements, as well as the Borrower’s and its
Subsidiaries’ operating results during such accounting period, subject to
year-end audit adjustments;

2. A review of such financial statements and of the activities of the Borrower
and its Subsidiaries during the period covered by such financial statements has
been made under my supervision has been made with a view to determining whether
the Borrower and the Subsidiaries have fulfilled all of their obligations;

3. During the accounting period set out in such financial statements:

(a) each of the Borrower and the Subsidiaries have fulfilled each of its
respective obligations under each of the Loan Documents to which it is a party;

(b) there has been no Default or Event of Default under the Credit Agreement,

(c) the Borrower is not aware of any event or circumstance which could
reasonably have or could reasonably have had a Material Adverse Effect (as such
term is defined in the Credit Agreement);

(d) the representation and warranties contained in the Credit Agreement and the
other Loan Documents are correct in all material respects on and as of the date
hereof as though made on and as of such date, other than any such representation
or warranty which relates to a specified prior date and except to the extent
that the Lender has been notified in writing by the Borrower that any
representation or warranty is not correct and the Lenders have explicitly waived
in writing compliance with such representation or warranty;

(e) the Borrower has been in full compliance with all covenants set out in the
Credit Agreement;

(f) Annex B hereto sets out all Subsidiaries and indicates, for each such
Subsidiary, whether such Subsidiary is a Restricted Subsidiary and the date of
the formation or acquisition of each Subsidiary was formed or acquired since the
end of the previous calendar month;

(g) no change in GAAP or in the application thereof has occurred since the date
of the most recent audited annual financial statements of the Borrower delivered
to the Lender [Note to Draft: - If a change has occurred, specify the details of
the change and its effect on the accompanying financial statements]; and

(h) the Borrower and the other Credit Parties have been in compliance with
Section 6.4 of the Credit Agreement and Annex C hereto sets out details of all
transactions contemplated by Section 6.4 of the Credit Agreement and the details
of such compliance.
 
[Note to Draft: if any of the foregoing is incorrect, revise wording accordingly
to include particulars of any variation.]

4. Capitalized terms used herein and not otherwise defined shall have the
meanings given to such terms in the Credit Agreement.
 

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IN WITNESS WHEREOF, the undersigned has executed this Responsible Officer’s
certificate on behalf of the Borrower as of the _______ day of ________________,
20l.
 

        By:    

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Name:
 
Title:

 

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ANNEX 1
 
ARTICLE 1
 
DEFINITIONS
 
1
1.1
 
Defined Terms
 
1
1.2
 
Terms Generally
 
21
1.3
 
Accounting Terms; GAAP
 
22
1.4
 
Time
 
22
1.5
 
Permitted Liens
 
22
ARTICLE 2
 
THE CREDITS
 
22
2.1
 
Credits
 
22
2.2
 
Loans and Borrowings
 
23
2.3
 
Requests for Borrowings
 
23
2.4
 
Funding of Borrowings
 
23
2.5
 
Interest
 
24
2.6
 
Termination and Reduction of Credits
 
25
2.7
 
Repayment of Loans
 
25
2.8
 
Evidence of Debt
 
25
2.9
 
Prepayments
 
26
2.10
 
Increased Costs; Illegality
 
27
2.11
 
Taxes
 
28
2.12
 
Payments Generally
 
29
2.13
 
Currency Indemnity
 
29
2.14
 
Collection of Accounts
 
30
ARTICLE 3
 
REPRESENTATIONS AND WARRANTIES
 
31
3.1
 
Organization; Powers
 
31
3.2
 
Authorization; Enforceability
 
31
3.3
 
Governmental Approvals; No Conflicts
 
31
3.4
 
Financial Condition; No Material Adverse Effect
 
32
3.5
 
Litigation
 
32
3.6
 
Compliance with Applicable Laws and Agreements
 
32
3.7
 
Ownership
 
33
3.8
 
Taxes
 
33
3.9
 
Titles to Real Property
 
33
3.10
 
Titles to Personal Property
 
33
3.11
 
Pension Plans
 
33
3.12
 
Disclosure
 
34
3.13
 
[Intentionally Deleted.]
 
34
3.14
 
Casualties; Taking of Properties
 
34
3.15
 
Subsidiaries
 
34
3.16
 
Insurance
 
34
3.17
 
Solvency
 
35
3.18
 
Material Contracts
 
35
3.19
 
Environmental Matters
 
35
3.20
 
Employee Matters
 
36
3.21
 
Fiscal Year
 
36
3.22
 
Intellectual Property Rights
 
37
3.23
 
Residency of Borrower for Tax Purposes
 
37
3.24
 
Distributions
 
37
3.25
 
Debt
 
37
3.26
 
Workers’ Compensation
 
37
3.27
 
Bank Accounts
 
38
3.28
 
Real Property and Leases
 
38
3.29
 
Further Real Property Matters
 
38
3.30
 
Jurisdictions of Credit Parties
 
38
ARTICLE 4
 
CONDITIONS
 
38
4.1
 
Effective Date
 
38
4.2
 
Each Credit Event
 
42
ARTICLE 5
 
AFFIRMATIVE COVENANTS
 
42

 

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5.1
 
Financial Statements and Other Information
 
42
5.2
 
Existence; Conduct of Business
 
47
5.3
 
Payment of Obligations
 
47
5.4
 
Maintenance of Properties
 
47
5.5
 
Books and Records; Inspection Rights
 
47
5.6
 
Compliance with Applicable Laws and Material Contracts
 
47
5.7
 
Use of Proceeds
 
48
5.8
 
Further Assurances
 
48
5.9
 
Insurance
 
48
5.10
 
Operation and Maintenance of Property
 
49
5.11
 
Additional Subsidiaries; Additional Liens
 
50
ARTICLE 6
 
NEGATIVE COVENANTS
 
50
6.1
 
Indebtedness
 
50
6.2
 
Liens
 
51
6.3
 
Fundamental Changes
 
51
6.4
 
Investments, Loans, Advances, Guarantees and Acquisitions
 
52
6.5
 
Restricted Payments
 
52
6.6
 
Transactions with Affiliates
 
52
6.7
 
Repayment of Debt
 
53
6.8
 
Restrictive Agreements
 
53
6.9
 
Capital Lease Obligations
 
53
6.10
 
Sales and Leasebacks
 
53
6.11
 
Pension Plan Compliance
 
54
6.12
 
Sale or Discount of Receivables
 
54
6.13
 
Unconditional Purchase Obligations
 
54
6.14
 
No Amendments to Material Contracts
 
54
6.15
 
Environmental Laws
 
54
ARTICLE 7
 
EVENTS OF DEFAULT
 
55
7.1
 
Events of Default
 
55
ARTICLE 8
 
MISCELLANEOUS
 
59
8.1
 
Notices
 
59
8.2
 
Waivers; Amendments
 
60
8.3
 
Expenses; Indemnity; Damage Waiver
 
61
8.4
 
Successors and Assigns
 
63
8.5
 
Survival
 
64
8.6
 
Counterparts; Integration; Effectiveness
 
64
8.7
 
Severability
 
65
8.8
 
Right of Set-Off
 
65
8.9
 
Governing Law; Jurisdiction; Consent to Service of Process
 
65
8.10
 
WAIVER OF JURY TRIAL
 
66
8.11
 
Headings
 
66
8.12
 
Confidentiality
 
66
8.13
 
Press Releases and Related Materials
 
67
8.14
 
No Strict Construction
 
67
8.15
 
Paramountcy
 
67
8.16
 
Withholding Tax.
 
67

 

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