FIRST AMENDMENT TO LOAN AGREEMENT AND GUARANTY

This First Amendment to Loan Agreement and Guaranty (this “Amendment”) is made
as of June 8, 2007 (“Effective Date”) among LSI SACO TECHNOLOGIES INC., a
corporation incorporated and existing under the federal laws of Canada
(“Borrower”), LSI INDUSTRIES INC., a corporation organized and existing under
the laws of the State of Ohio (“Guarantor”) and FIFTH THIRD BANK (“Bank”), an
Ohio banking corporation and authorized foreign bank under the Bank Act
(Canada).

RECITALS

A.           Borrower, Guarantor and Bank, are parties to the Letter Loan
Agreement dated as of January 12, 2007 (as amended from time to time, the “Loan
Agreement”).

B.           Guarantor guaranteed the indebtedness of Borrower for the benefit
of Bank pursuant to a Continuing and Unlimited Guaranty Agreement of the
indebtedness of Borrower dated January 12, 2007 (the “Guaranty”).

C.           Borrower has requested a standby letter of credit sublimit under
the revolving demand facility,  Bank agrees based upon the terms and conditions
hereof.

AGREEMENT

NOW, THEREFORE, Borrower, Guarantor and Bank agree as follows:

1.           AMENDMENT TO LOAN AGREEMENT.
 
1.1           In this Section 1 of the Amendment, capitalized terms that are
used without separate definition shall have the meanings given to them in Loan
Agreement.
 
1.2           The following Paragraph (h) is hereby added to Section 3 of the
Loan Agreement, immediately following paragraph (g):
 
“(h)           Mandatory Repayment.  Borrower shall pay to Bank the amount, if
any, by which the aggregate unpaid principal amount of all Advances (including
Deemed Advances) from time to time exceeds the Maximum Amount, together with all
interest accrued and unpaid on the amount of such excess.  Such payment shall be
immediately due and owing without notice or demand upon the occurrence of any
such excess.”

1.3           The following Paragraph (i) is hereby added to Section 3 of the
Loan Agreement, immediately following paragraph (h):
 
 “(i)           Letters of Credit.  In reliance on the representations and
warranties of Borrower set forth herein and the Standard Terms and Conditions
attached hereto as Schedule 1, at any time and from time to time from the date
hereof prior to demand, Bank may issue for the account of Borrower such Letters
of Credit as Borrower may request by delivering to Bank a duly executed letter
of credit application on Bank’s standard form; provided, however, that the
outstanding and undrawn amounts under all such Letters of Credit shall not at
any time exceed the Letter of Credit Maximum.  All Letters of Credit shall be in
form and substance acceptable to Bank in its sole discretion and shall be
subject to the terms and conditions of Bank’s form application and Letter of
Credit Agreement.  Borrower will pay any standard issuance and other fees that
Bank notifies Borrower it will charge for issuing and processing Letters of
Credit.”

            
                  

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1.4           Section 5 of the Loan Agreement is hereby amended and restated in
its entirety as follows:
 
“5.           Ancillary Documents: The liability, indebtedness and obligations
of the Borrower under the Credit Facility and this Agreement shall be evidenced,
governed and secured, as applicable and without limitation by the following
documents:

 
(a)
a limited guarantee of the indebtedness of the Borrower to Bank, executed by LSI
Industries Inc.; as same may  be amended from time to time;

 
(b)
a promissory note executed by the Borrower, as same may be amended, restated or
modified from time to time; and

(c)           the Letter of Credit Agreements executed from time to time.”

1.5           Schedule 1 to the Loan Agreement is hereby amended and restated in
its entirety, replaced by the attached Schedule 1.
 
2.           AMENDMENT TO GUARANTY.
 
2.1           In this Section 2 of the Amendment, capitalized terms that are
used without separate definition shall have the meanings given to them in the
Guaranty.
 
2.2           Guarantor acknowledges and consents to the execution, delivery and
performance of the Amendment Agreement and agrees that the Guaranty remains in
full force and effect with respect to all Indebtedness including, without
limitation, Indebtedness arising under or related to the Loan Agreement.
 
2.3            The first recital contained on page 1 of the Guaranty is
hereby  amended and restated in its entirety as follows:
 
“WHEREAS Beneficiary has agreed to extend credit and financial accommodations to
LSI Saco Technologies Inc., a corporation incorporated under the federal laws of
Canada with its primary offices located at 7801 TransCanada Highway, Montreal,
Quebec H4S1L3 (the “Borrower”), pursuant to  that certain promissory note, dated
as of January 12, 2007 in the maximum principal amount of USD$7,000,000.00 and
made payable to the Beneficiary, (the “Note”) and the Letter Loan Agreement by
and among Borrower, Guarantor and the Beneficiary, dated as of January 12, 2007,
as amended from time to time (the “Loan Agreement”) and all agreements,
instruments, standby letter of credit agreements and documents executed or
delivered in connection with any of the foregoing or otherwise related thereto
(together with any amendments, modifications, or restatements thereof, the “Loan
Documents”); and”

3.           REPRESENTATIONS AND WARRANTIES.  The Borrower represents, warrants,
and agrees that:
 
3.1           Except as expressly modified in this Amendment, the
representations, warranties, and covenants set forth in the Loan Agreement,
Guaranty and in each related document, agreement, and instrument remain true and
correct, continue to be satisfied in all respects, and are legal, valid and
binding obligations with the same force and effect as if entirely restated in
this Amendment.
 
3.2            When executed, this Amendment will be a duly authorized, legal,
valid, and binding obligation of each of the Borrower and the Guarantor
enforceable in accordance with its terms.  The Loan
 

                        
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Agreement, and Guaranty as amended by this Amendment, are ratified and confirmed
and shall remain in full force and effect.
 
3.3            There is no default continuing under the Loan Agreement, or
Guaranty, or any related document, agreement, or instrument, and no event has
occurred or condition exists that is or, with the giving of notice or lapse of
time or both, would be such a default.
 
3.4            The Articles of Incorporation, Bylaws, Code of Regulations and
Resolutions and Incumbency Certificate of each the Borrower and Guarantor
delivered to Bank in connection with the Loan Agreement and Guaranty on or about
January 12, 2007, have not been repealed, amended or modified since the date of
delivery thereof and that same remain in full force and effect.
 
4.           MISCELLANEOUS.
 
4.1           No Other Changes.  Except as specifically provided in this
Amendment or the documents described on the Closing Checklist, this Amendment
does not vary the terms and provisions of any of the promissory note, security
agreements, and all other instruments, documents and agreements entered into in
connection with the Loan Agreement or the Guaranty (“Documents”).  This
Amendment shall not impair the rights, remedies, and security given in and by
the Documents.  The terms of this Amendment shall control any conflict between
its terms and those of the Loan Agreement and Guaranty.
 
4.2           Successors and Assigns.  This Amendment shall inure to the benefit
of and be binding upon the parties and their respective successors and assigns.
 
4.3           Other Modification.  This Amendment may be altered or modified
only by written instrument duly executed by the Borrower, the Guarantor and the
Bank.  In executing this Amendment, the Borrower and the Guarantor are not
relying on any promise or commitment of the Bank that is not in writing signed
by the Bank.
 
4.4           Governing Law.  The parties agree that the terms and provisions of
this Amendment shall be governed by and construed in accordance with the laws of
the Province of Ontario and the federal laws of Canada applicable therein and
the parties attorn to the non-exclusive jurisdiction of the courts of the
Province of Ontario.
 
4.5           Ratification.  Except for the modifications under this Amendment,
the parties ratify and confirm the Loan Agreement, Guaranty and Documents and
agree that they remain in full force and effect.
 
4.6           No Defenses.  The Borrower and Guarantor acknowledge, confirm, and
warrant to the Bank that as of the date hereof each of the Borrower and the
Guarantor have absolutely no defenses, claims, rights of set-off, or
counterclaims against the Bank under, arising out of, or in connection with,
this Amendment, the Loan Agreement, the Guaranty, the Documents and/or the
individual advances under the Obligations, or against any of the indebtedness
evidenced or secured thereby.
 
4.7           Expenses.  The Borrowers shall promptly pay all out-of-pocket
fees, costs, charges, expenses, and disbursements of the Bank incurred in
connection with the preparation, execution, and delivery of this Amendment, and
the other documents contemplated by this Amendment.
 
4.8           Counterparts; Effectiveness.  This Amendment may be executed in as
many counterparts the Bank, the Borrower and the Guarantor deem convenient, and
shall become effective upon (a) delivery to Bank of all executed counterparts
hereof; and (b) delivery to Bank, in form and substance
 

                        
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satisfactory to the Bank, of each of the documents and instruments listed on the
Closing Checklist attached as Exhibit “A” hereto.
 
[signatures on following page]
 
 
-4-

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This First Amendment to Loan Agreement and Guaranty is executed and delivered on
the Effective Date.
 

 
LSI SACO TECHNOLOGIES INC., a Canadian corporation, as Borrower
 
By:___________________________
      Print Name:
Its:___________________________
 
 
LSI INDUSTRIES INC., an Ohio corporation, as Guarantor
 
By:___________________________
      Print Name:
Its:___________________________
 
 
FIFTH THIRD BANK
 
By:___________________________
      Print Name:  Steve Pepper, P. Eng.
Its:  Vice President
 
 
   

 

      
        
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SCHEDULE 1
 
STANDARD DEFINITIONS, TERMS AND CONDITIONS
 
1.           Definitions:   For the purpose of this Agreement, the terms defined
below shall have the indicated meanings unless the context expressly or by
necessary implication requires otherwise:
 
“Agreement” means this letter loan agreement, including all attached Schedules
and Exhibits thereto and hereto, as the same may be amended, varied,
supplemented, restated, renewed or replaced at any time and from time to time;
 
“Applicable Law” means, at any time, in respect of any Person, property,
transaction or event, all laws, statutes, regulations, treaties, judgments and
decrees applicable to that Person, property, transaction or event (whether or
not having the force of law with respect to regulatory matters applicable to the
Bank) and all applicable requirements, requests, official directives, consents,
approvals, authorizations, guidelines, decisions, rules, orders and policies of
any Governmental Authority having or purporting to have authority over such
Person, property, transaction or event;
 
“Basis Point” and “bp” each means one one-hundredth of one percent (.01%);
 
“Branch of Account” means the branch of the Bank at which the Borrower’s
accounts are maintained.  As at the date of this Agreement, the “Branch of
Account” is the Bank’s branch at 20 Bay Street, 12th Floor, Toronto, Ontario M5J
2N8;
 
“Business Day” means a day on which chartered banks are open for
over-the-counter business in Toronto, Ontario and Cincinnati, Ohio and excludes
(a) Saturday, Sunday and any other day which is a statutory holiday in Toronto,
Ontario or Cincinnati, Ohio, and (b) in respect of Libor Loans, any other day on
which transactions cannot be carried out by and between banks in the London
Interbank Market;
 
“Canadian Dollars” and the symbols “$” and “Cdn$” each means lawful money of
Canada;
 
“Canadian Dollar Equivalent” means at any time on any date in relation to any
amount in a currency other than Canadian Dollars, the amount of Canadian Dollars
required for the Borrower to purchase that amount of such other currency at the
rate of exchange quoted by the Bank at or about 12:00 p.m. (noon) Toronto,
Ontario time on such date, including all premiums and costs of exchange;
 
“Canadian Overdraft” means subject to the terms hereof, any draw by the Borrower
by way of overdraft on any of its Canadian Dollar current accounts maintained
with or through the Bank;
 
“Canadian Prime Loans” means Canadian Prime Rate based loans, which for greater
certainty includes loans made by way of Canadian Overdraft;
 
“Canadian Prime Rate” means, in connection with Canadian Prime Loans, on any
day, the greater of:  (a) the variable annual rate of interest established and
adjusted by Royal Bank of Canada from time to time as being Royal Bank of
Canada’s reference rate then in effect for
 

      
        
      
      
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determining interest rates on Canadian Dollar denominated commercial loans made
by Royal Bank of Canada in Canada; and (b) the CDOR Rate in effect from time to
time, plus 100 bps per annum.  Any change in the Canadian Prime Rate shall be
effective on the date the change becomes effective generally without the
necessity for any notice to the Borrower;
 
“CDOR Rate” means, on any day, the annual rate of interest which is the
arithmetic average of the “BA 1 month” rates applicable to Canadian Dollar
banker’s acceptances identified as such on the Reuters Screen CDOR Page at
approximately 10:00 a.m. on such day (as adjusted by the Bank after 10:00 am. to
reflect any error in any posted rate or in the posted average annual rate) or if
such date is not a Business Day then on the immediately preceding Business
Day.  If the rate does not appear on the Reuters Screen CDOR Page as
contemplated above, then the CDOR Rate shall be the rate per annum quoted from
time to time by the Bank as being its reference rate then in effect for
determining fees on Canadian Dollar denominated bills of exchange accepted by
the Bank;
 
“Contaminant” includes, without limitation, any pollutant, dangerous substance,
liquid waste, industrial waste, hazardous material, hazardous substance or
contaminant including any of the foregoing as defined in any Environmental Law;
 
“Contract Period” means the period selected by the Borrower in accordance with
the Standard Terms and Conditions commencing on the Drawdown Date, Issuance
Date, Rollover Date or Conversion Date, as applicable, and expiring on a
Business Day, in respect of an Advance during which the interest rate with
respect to any Advance is established in accordance with and subject to Section
4 of this Schedule with respect to Libor Loans or Section 5 of this Schedule
with respect to FRT Loans;
 
“Conversion” means the conversion of an outstanding Advance, or a portion of an
outstanding Advance, into an alternate type of Advance in accordance with this
Agreement;
 
“Conversion Date” means the Business Day that the Borrower elects as the date on
which a Conversion is to occur;
 
“Drawdown Date” means any Business Day on which an Advance is made or is deemed
to be made;
 
“Default” means an event, circumstance or omission which is an Event of Default
or which, with any or all of the giving of notice, lapse of time, or a failure
to remedy the event, circumstance or omission within a period of time, would be
an Event of Default;
 
“Documents” means this Agreement, the Guaranty, the Promissory Note, Letter of
Credit Agreement and all certificates, instruments, agreements and other
documents delivered, or to be delivered to the Bank under or in connection with
this Agreement and, when used in relation to any Person, “Documents” means the
Documents executed and delivered by such Person;
 
“Environmental Activity” means any activity, event or circumstance in respect of
a Contaminant, including, without limitation, its storage, use, holding,
collection, purchase, accumulation, assessment, generation, manufacture,
construction, processing, treatment,
 

      
        
      
      
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stabilization disposition, handling or transportation, or its Release into the
natural environment, including movement through or in the air, soil, surface
water or groundwater;
 
“Environmental Laws” means all Applicable Laws relating to the environment or
occupational health and safety, or any Environmental Activity;
 
“Excluded Taxes” means, in relation to the Bank, any Taxes imposed on the net
income or capital of the Bank by any Governmental Authority as a result of the
Bank (a) carrying on a trade or business or having a permanent establishment in
any jurisdiction or political subdivision thereof, (b) being organized under the
laws of such jurisdiction or any political subdivision thereof, or (c) being or
being deemed to be resident in such jurisdiction or political subdivision
thereof;
 
“FRT Loans” means FTB Fixed Rate term loans;
 
“FTB Fixed Rate” means, with respect to each Contract Period applicable to an
FRT Loan, the annual fixed rate of interest offered by the Bank and accepted by
the Borrower for the requested funds for a period of 30 days or such other
period of time as the Borrower and the Bank agree to in the circumstances (but
maturing not later than the final date for payment of the subject FRT Loan(s),
in any event);
 
“GAAP” means generally accepted accounting principles in effect from time to
time in the United States of America, applicable to the relevant Person, applied
in a consistent manner from period to period;
 
“Governmental Approvals” means, with respect to any Person, all licenses,
permits, consents, authorization and approvals from any and all Governmental
Authorities required for the conduct of that Person’s business as presently
conducted;
 
“Governmental Authority” means any domestic or foreign governmental,
legislative, or regulatory authority, agency, commission, board or court,
tribunal or other law, regulation or rule making entity having or purporting to
have jurisdiction on behalf of any nation, province, state, territory, region,
municipality or city;
 
“Guarantor(s)” means the Person or Persons who have or are to execute a
guarantee or guarantees of the Obligations of the Borrower under or in
connection with this Agreement and the Documents;
 
“Guaranty” means a guaranty in form and substance satisfactory to Bank pursuant
to which Guarantor (jointly and severally if more than one) unconditionally
guarantees repayment to Bank of all of the Obligations;
 
“Letter(s) of Credit” shall mean any standby or commercial letters of credit
issued by Bank at the request of or for the account of Borrower pursuant to
Section 3(i) to this Agreement;
 
“Letter of Credit Agreement” means in respect of each Letter of Credit issued
pursuant to this Agreement, the application of Borrower requesting Bank to issue
such Letter of Credit (including the terms and conditions on the reverse side
thereof or otherwise provided therein and including
 

      
        
      
      
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any separate indemnity agreement delivered in connection therewith), including
but not limited to the letter of credit reimbursement agreement, the telefax
authorization and any separate agreement required by Bank, each in the form and
substance acceptable to Bank;
 
“Letter of Credit Fees” shall mean the fees payable to Bank in connection with
letters of credit issued by it pursuant to Section 4(d) of Schedule 1 to this
Agreement;
 
“Letter of Credit Maximum” means US$1,000,000 or the Canadian Dollar Equivalent
amount thereof in Canadian Dollars;
 
“Letter of Credit Obligations” shall mean the obligations of Borrower hereunder
and under each Letter of Credit Agreement to reimburse Bank for each payment
made by Bank upon drawing made under a letter of credit issued pursuant to such
Letter of Credit Agreement, together with all other sums, fees, charges and
amounts which may be owing under such Letter of Credit Agreement;
 
“Libor” means, with respect to each Contract Period applicable to a Libor Loan,
the annual rate of interest (rounded upwards, if necessary, to the nearest whole
multiple of one sixteenth of one percent (1/16th%), at which the Bank, in
accordance with its normal practice, would be prepared to offer deposits of US
Dollars to leading banks in the London Interbank Market for delivery on the
first day of each such Contract Period, for a period equal to each such Contract
Period, such deposits being in comparable amounts to be outstanding during such
Contract Period, at or about 11:00 a.m. (London, England time) two Business Days
prior to the relevant Drawdown Date or Rollover Date;
 
“Libor Interest Date” means, with respect to any Libor Loan, the last day of
each Contract Period applicable to the Libor Loan and, if the applicable
Contract Period is longer than 3 months, the date falling every 3 months after
the beginning of the Contract Period and the last day of the Contract Period;
 
“Libor Loans” means Libor based loans in US Dollars;
 
“Lien” means any mortgage, charge, lien, hypothec or encumbrance, whether fixed
or floating on, or any security interest in, any property, whether real,
personal or mixed, tangible or intangible, any pledge or hypothecation of any
property, any deposit arrangement, priority, conditional sale agreement, other
title retention agreement or equipment trust, capital lease or other security
arrangement of any kind;
 
“Obligations” means all loans, advances, debts, liabilities and obligations for
the performance of covenants, tasks or duties or for the payment of monetary
amounts (whether or not performance is then required or contingent, or whether
or not those amounts are liquidated or determinable) owing by the Borrower
and/or any Guarantor to the Bank under any or all of the Documents and all
covenants and duties regarding those amounts, of any kind or nature, present or
future, whether or not evidenced by any agreement or other instrument, owing
under any or all of the Documents including all obligations owed by the Borrower
to the Bank under the Credit Facilities;
 
“Overdraft” means Canadian Overdraft or US Overdraft, as applicable;
 

      
        
      
      
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“Person” includes an individual, a partnership, a joint venture, a trust, an
unincorporated organization, a company, a corporation, an association, a
government or any department or agency thereof, and any other incorporated or
unincorporated entity of whatsoever nature or kind;
 
“Priority Claims” means all amounts owing or required to be paid, where the
failure to pay any such amount could give rise to a claim pursuant to any
Applicable Law or otherwise, which ranks or is capable of ranking in priority to
the Bank’s Lien or otherwise in priority to any claim by the Bank for repayment
of any amounts owing under or in connection with this Agreement or the
Documents;
 
“Promissory Note” means a promissory note in favor of Bank, executed and
delivered by Borrower on or about January 12, 2007, in form and substance
satisfactory to Bank, as same may be amended, restated and/or modified from time
to time.
 
“Release” includes discharge, spray, inject, inoculate, abandon, deposit, spill,
leak, seep, pour, emit, empty, throw, dump, place and exhaust, and when used as
a noun has a similar meaning;
 
“Rollover” means the rollover of an Advance by way of Libor Loan or FRT Loan for
an additional Contract Period under Section 4 or Section 5 of this Schedule, as
applicable;
 
“Rollover Date” means the Business Day on which a Rollover occurs;
 
“Stated Amount” means, on any date of determination, the maximum amount which
may be drawn under a Letter of Credit.
 
“Subsidiary” of a Person means (a) any corporation of which the Person and/or
any one of its affiliates holds, directly or indirectly, other than by way of
security only, securities to which are attached more than 50% of the votes that
may be cast to elect directors of such corporation, (b) any corporation of which
the Person and/or any one of its affiliates has, through operation of law or
otherwise, the ability to elect or cause the election of a majority of the
directors of such corporation, (c) any partnership, limited liability company,
unlimited liability company or joint venture in which such Person and/or one or
more of its affiliates has, directly or indirectly, more than 50% of the votes
that may be cast to elect the governing body of such entity or otherwise control
its activity, and (d) any partnership, limited liability company, unlimited
liability company or joint venture in which such Person and/or one or more of
its affiliates has, through operation of law or otherwise, the ability to elect
or cause the election of a majority of the members of the governing body of such
entity or otherwise control its activity;
 
“Tax” and “Taxes” include, at any time, all taxes, surtaxes, duties, levies,
imposts, rates, fees, assessments, withholdings, dues and other charges of any
nature imposed by any Governmental Authority (including income, capital
(including large corporations), withholding, consumption, sales, use, transfer,
goods and services or other value-added, excise, customs, anti-dumping,
countervail, net worth, stamp, registration, franchise, payroll, employment,
health, education, business, school, property, local improvement, development,
education development and occupation taxes, surtaxes, duties, levies, imposts,
rates, fees, assessments, withholdings, dues and charges) together with all
fines, interest, penalties on or in respect of, or in lieu of or for non
 

      
        
      
      
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collection of, those taxes, surtaxes, duties, levies, imposts, rates, fees,
assessments, withholdings, dues and other charges;
 
“US Base Rate” means the variable annual rate of interest established and
adjusted by the Bank from time to time as being its reference rate then in
effect for determining interest rates on US Dollar denominated commercial loans
made by it in Canada.  Any change in the US Base Rate shall be effective on the
date the change becomes effective generally without the necessity for any notice
to the Borrower;
 
“US Base Rate Loans” means US Base Rate based loans in US Dollars, which for
greater certainty includes loans made by way of US Overdraft;
 
“US Dollar Equivalent” means at any time on any date in relation to any amount
in a currency other than US Dollars, the amount of US Dollars required for the
Borrower to purchase that amount of such other currency at the rate of exchange
quoted by the Bank at or about 12:00 p.m. (noon) Toronto, Ontario time on such
date, including all premiums and costs of exchange;
 
“US Dollars” and the symbol “US$” each means lawful money of the United States
of America; and
 
“US Overdraft” means subject to the terms hereof, any draw by the Borrower by
way of overdraft on any of its US Dollar current accounts maintained with or
through the Bank.
 
2.           Representations and Warranties:  If a corporation, the Borrower and
each Guarantor, as applicable, represents and warrants, on each Drawdown Date,
Rollover Date and Conversion Date, that:
 
 
(a)
Corporate Status.  It (i) is a duly organized and validly existing corporation
in good standing under the laws of the jurisdiction of its incorporation, (ii)
has the power and authority to own its property and assets and to transact the
business in which it is engaged and presently proposes to engage, and (iii) is
duly qualified as a foreign corporation or an extra-provincial corporation and
is in good standing in each jurisdiction where the ownership, leasing or
operation of its property or the conduct of its business requires such
qualification except where the failure to be qualified would not materially
affect its business.

 
 
(b)
Power and Authority.  It has the corporate power to execute, deliver and perform
the terms and provisions of each of the Documents to which it is a party and has
taken all necessary action to authorize the execution, delivery and performance
by it of each of such Documents.  It has duly executed and delivered each of the
Documents to which it is a party, and each such Document constitutes its legal,
valid and binding obligation enforceable against it in accordance with its
terms, subject to (i) applicable bankruptcy, reorganization, moratorium or
similar laws affecting creditors’ generally, (ii) the fact that specific
performance and injunctive relief may only be given at the discretion of the
courts, and (iii) the equitable or statutory powers of the courts to stay
proceedings before them and to stay the execution of judgments.

 

      
        
      
      
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(c)
No Violation.  Neither the execution, delivery or performance by it of the
Documents to which it is a party, nor compliance by it with the terms and
provisions thereof, (i) will contravene any Applicable Law, (ii) will conflict
with or result in any breach of any of the terms, covenants, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien upon any of its
property or assets pursuant to the terms of any indenture, mortgage, deed of
trust, credit agreement, loan agreement or any other agreement, contract or
instrument to which it is a party or by which it or any of its property or
assets is bound or to which it may be subject, or (iii) will violate any
provision of its constating documents.

 
 
(d)
Governmental Approvals.  Except as otherwise advised by the Borrower to the Bank
in writing, no order, consent, certificate, approval, permit, license,
authorization or validation of, or filing, recording or registration with or
exemption by (except as have been obtained or made prior to the date hereof or
exist and are in full force and effect) any Person (including any Governmental
Authority), is required to authorize, or is required in connection with (i) the
execution, delivery and performance by it of any Document to which it is a
party, or (ii) the legality, validity, binding effect or enforceability with
respect to it of any such Document.

 
 
(e)
True and Complete Disclosure.  All factual information heretofore or
contemporaneously furnished by or on behalf of it in writing to the Bank
(including all information contained in the Documents) for purposes of or in
connection with this Agreement or any transaction contemplated herein, is true
and accurate in all material respects on the date as of which such information
is dated or certified and is not incomplete by omitting to state any fact
necessary to make such information (taken as a whole) not misleading at such
time in light of the circumstances under which such information was provided.

 
 
(f)
Compliance with Applicable Laws, etc.  It (i) has obtained and is in compliance
with all material Governmental Approvals which are necessary for the conduct of
its business as presently conducted and the use of its property and assets (both
real and personal), each of which is in full force and effect, is a good, valid
and subsisting approval which has not been surrendered, forfeited or become void
or voidable and is unamended, and (ii) is in compliance with all Applicable Laws
in all material respects, including Environmental Laws in all material respects.

 
 
(g)
Representations and Warranties in Other Documents.  All representations and
warranties made by it in the Documents other than this Agreement are true and
correct in all material respects as of the time as of which such representations
and warranties were made.

 
3.           Notice of Borrowing:  All Advances, other than Advances by way of
Overdraft, or Deemed Advances, require the delivery of prior notice.  To request
an Advance, the Borrower shall give to the Bank written notice substantially in
the form attached as Exhibit l to this
 

      
        
      
      
        - 7 -      
    

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Schedule, indicating the amount of the requested Advance, at or before the time
set out below opposite the type of Advance that the Borrower wishes to request:
 
Type of Advance
Time of Notice
 
Canadian Prime Loans and US
Before 11:00 a.m. one Business
   
Base Rate Loans less than $10 million
Day prior to the requested date of the Advance.
   
Libor Loans
Before 11:00 a.m. three Business Days prior to the requested date of the
Advance.
   
FRT Loans
Before 11:00 a.m. five Business Days prior to the requested date of the Advance

Each notice given in respect of an Advance by way of Canadian Prime Loan, US
Base Rate Loan, Libor Loan and FRT Loan shall indicate the amount of the
required Advance and the date funds are required.
 
4.           Letters of Credit.
 
 
(a)
Expiration.  Each Letter of Credit shall have an initial expiration date not
later than one (1) year from its date of issuance (subject to renewals).

 
 
(b)
Conditions to Issuance.  No Letter of Credit shall be issued pursuant to Section
3 (i) of this Agreement unless, as of the requested date for issuance:

 
 
(i)
the Stated Amount of the Letter of Credit requested, plus the Stated Amounts of
all other outstanding Letters of Credit plus the amount of all unreimbursed
drawings and payments made on Letters of Credit will not exceed the Letter of
Credit Maximum;

 
 
(ii)
the execution of the Letter of Credit Agreement with respect to the Letter of
Credit requested will not violate the terms and conditions of any contract,
agreement or other borrowing of Borrower;

 
 
(iii)
Borrower shall have delivered to Bank, not less than five (5) Business Days
prior to the requested date for issuance, the Letter of Credit Agreement related
thereto, together with such other documents and materials as may be required
pursuant to the terms thereof, and the terms of the proposed Letter of Credit
shall be satisfactory to Bank;

 
 
(iv)
no order, judgment or decree of any court, arbitrator or governmental authority
shall purport by its terms to enjoin or restrain Bank from issuing the Letter of
Credit, and no law, rule, regulation, request or directive

 

      
        
      
      
        - 8 -      
    

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(whether or not having the force of law) of or from any governmental authority
shall prohibit or request that Bank refrain from issuing, the Letter of Credit
requested or Letters of Credit generally;

 
 
(v)
Bank shall have received the issuance fee required in connection with the
issuance of such Letter of Credit pursuant to Section 4 (c) of Schedule 1; and

 
 
(vi)
all of the conditions set forth in Section 10 of Schedule 1, are satisfied as of
the date of such request and shall be satisfied as of the date requested for
issuance of such Letter of Credit.

 
Each Letter of Credit Agreement submitted to Bank pursuant hereto shall
constitute the certification by Borrower of the matters set forth in this
Section 4(b).
 
 
(c)
Letter of Credit Fees.  Borrower shall pay to Bank letter of credit fees upon
the date of issuance of each Letter of Credit in the amount(s) set forth in the
Letter of Credit Agreement.

 
 
(d)
Standard Fees.  In connection with the Letters of Credit, Borrower will pay Bank
letter of credit issuance fees and standard administration, payment and
cancellation charges assessed by Bank, in the amounts customarily charged by
Bank at such time with respect to its letters of credit generally.

 
 
(e)
Draws Under Letters of Credit.  The Borrower agrees to pay to Bank, on the day
on which Bank shall honor a draft or other demand for payment presented or made
under any Letter of Credit, an amount equal to the amount paid by the Bank and
in the same currency as paid by Bank in respect of such draft or other demand
under such Letter of Credit and all reasonable expenses paid or incurred by the
Bank relative thereto.  Unless the Borrower shall have made such payment to Bank
on such day, upon each such payment by the Bank, the Borrower shall be deemed to
have elected to substitute for its reimbursement obligation a Canadian Prime
Rate Loan (for Letters of Credit denominated in Canadian Dollars) or a US Base
Rate Loan (for Letters of Credit denominated in US Dollars) from the Bank in
each case in an amount equal to the amount so paid by the Bank in respect of
such draft or other demand under such Letter of Credit (each, a “Deemed
Advance”).  Each Deemed Advance shall be charged as an Advance against the
Revolving Line, regardless of (i) the existence of an Event of Default, (ii)
whether the conditions precedent set forth in Section 10 of Schedule 1 or
elsewhere in this Agreement have been satisfied and (iii) whether such Deemed
Advance will cause the total of all Advances outstanding under the revolving
demand facility to exceed the Maximum Amount.  To the extent of the Deemed
Advance so disbursed, the reimbursement obligation of the Borrower to the Bank
under this Section 4(e) shall be deemed satisfied.

 
 
(f)
Obligations Irrevocable.  The obligations of Borrower to make payments with
respect to Letter of Credit Obligations under Section 4(e) of Schedule 1, shall
be

 

      
        
      
      
        - 9 -      
    

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absolute, unconditional and irrevocable and not subject to any qualification or
exception whatsoever, including without limitation:

 
 
(i)
invalidity or unenforceability of this Agreement or any of the other Documents
or any of their provisions;

 
 
(ii)
the existence of any claim, set-off, defense or other right which Borrower may
have against a beneficiary named in a Letter of Credit, or any other Person;

 
 
(iii)
any draft, certificate or any other document presented in connection with a
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect,
except to the extent resulting from the willful misconduct or gross negligence
on the part of Bank;

 
 
(iv)
the occurrence of any Default or Event of Default;

 
 
(v)
payment by Bank under any Letter of Credit against presentation of a draft or
accompanying certificate which does not strictly comply with the terms of the
Letter of Credit;

 
 
(vi)
any failure, omission, delay or lack on the part of Bank or any party to this
Agreement or any of the Documents to enforce, assert or exercise any right,
power or remedy conferred upon Bank or any such party under this Agreement or
any Documents, or any other acts or omissions on the part of Bank or any such
party;

 
 
(vii)
the voluntary or involuntary liquidation, dissolution, sale or other disposition
of all or substantially all the assets of Borrower; the receivership,
insolvency, bankruptcy, assignment for the benefit of creditors, reorganization,
arrangements, composition with creditors or readjustment or other similar
proceedings affecting Borrower, or any of its assets, or any allegation or
contest of the validity of this Agreement or any of the Documents, in any such
proceedings; and

 
 
(viii)
any other circumstance or happening whatsoever, whether or not similar to any of
the foregoing, and any other event or action that would, in the absence of this
clause and other than as a result of the misconduct or gross negligence of Bank,
result in the release or discharge by operation of law of Borrower from the
performance or observance of any obligation, covenant or agreement contained in
this Agreement or any of the Documents.

 
 
(g)
Cash Collateralization.  Upon an Event of Default and the subsequent demand for
cash collateral by Bank, Borrower agrees to deposit into an account with the
Bank (the “Cash Collateral Account”) cash in an amount equal to the aggregate
amount of all outstanding Letters of Credit.  Borrower hereby grants to Bank a

 

      
        
      
      
        - 10 -      
    

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security interest in the Cash Collateral Account to secure all of its
Obligations to the Bank.  Borrower shall not withdraw any amounts from the Cash
Collateral Account if such withdrawal will result in the aggregate amount of all
outstanding Letters of Credit exceeding the balance of the Cash Collateral
Account.

 
 
(h)
Indemnification.  Borrower agrees to indemnify, defend and hold Bank harmless
from and against any and all claims, damages, losses, liabilities, costs or
expenses whatsoever which Bank may incur (or which may be claimed against Bank
by any Person) by reason of or in connection with the execution and delivery or
transfer of, or payment or failure to pay under, any Letter of Credit; provided,
however, that Borrower shall not be required to indemnify Bank pursuant to this
Section 4(g) for claims, damages, losses, liabilities, costs or expenses to the
extent, but only to the extent, caused by the willful and wrongful failure or
willful and wrongful misconduct or gross negligence of Bank.  Nothing in this
Section 4(g) is intended nor shall be deemed to limit, reduce or otherwise
affect in any manner whatsoever the reimbursement obligations of Borrower
contained in Section 4(e) hereof.

 
 
(i)
Conflict with Letter of Credit Agreement.  In the event of any conflict between
the terms of this Agreement and the terms of any Letter of credit Agreement, the
terms of this Agreement shall control.

 
5.           Libor Loan Conditions:  The following terms and conditions apply to
Libor Loans:
 
 
(a)
Minimum Advance.  Each Advance by way of Libor Loan shall be in a minimum
aggregate amount of US $500,000 and larger whole multiples of US $ 100,000.

 
 
(b)
Term.  Each Libor Loan shall have a Contract Period of one month (each month
being a period of 30 days for purposes of this Section) or such longer period of
time in whole months as the Borrower may request and the Bank in its sole
discretion may agree, subject to availability.  No Contract Period shall extend
beyond the maturity date of the relevant Credit Facility.

 
 
(c)
Rollover of Libor Loans.  At least three Business Days before the expiry of the
Contract Period of each Libor Loan, the Borrower shall notify the Bank by
irrevocable telephone notice, followed by written confirmation on the same day
in form and substance substantially in accordance with Exhibit 2, if it intends
to enter into a new Contract Period with respect to the maturing Libor Loan, or
repay the maturing Libor Loan.  If the Borrower fails to provide the foregoing
notice or make the required payment, then payment of its obligations to the Bank
with respect to that maturing Libor Loan shall be funded with an Advance under a
US Base Rate Loan in the amount outstanding under that Libor Loan.

 
 
(d)
Indemnity.  The Borrower shall indemnify and hold the Bank harmless against any
loss, cost or expense (including without limitation, any loss incurred by the
Bank in liquidating or redeploying deposits acquired to hind or maintain any
Libor Loan) incurred by the Bank as a result of repayments, prepayments,

 

      
        
      
      
        - 11 -      
    

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Conversions, Rollovers or cancellations of a Libor Loan other than on the last
day of the Contract Period applicable to such Libor Loan, or failure to draw
down a Libor Loan on the first day of the Contract Period selected by the
Borrower.

 
 
(e)
Substitute Basis of Advance.  If, at any time during the term of this Agreement,
the Bank acting in good faith determines (which determination is final,
conclusive and binding upon the Borrower) that:

 
 
(i)
adequate and fair means do not exist for ascertaining the rate of interest on a
Libor Loan,

 
 
(ii)
the making or the continuance of a Libor Loan has become impracticable by reason
of circumstances which materially and adversely affect the London Interbank
Market,

 
 
(iii)
deposits in US Dollars are not available to the Bank in the London Interbank
Market in sufficient amounts in the ordinary course of business for the
applicable Contract Period to make or maintain a Libor Loan during such Contract
Period, or

 
 
(iv)
the cost to the Bank of making or maintaining a Libor Loan does not accurately
reflect the effective cost to the Bank thereof or the costs to the Bank are
increased or the income receivable by the Bank is reduced in respect of a Libor
Loan,

 
then the Bank shall promptly notify the Borrower of such determination and the
Borrower hereby instructs the Bank to repay the affected Libor Loan with the
proceeds of a US Base Rate Loan in the amount of the Libor Loan to be drawn down
on the last day of the then current Contract Period.  The Bank shall not be
required to make any further Libor Loans available under this Agreement so long
as any of the circumstances referred to in this clause continue.
 
6.           FRT Loan Conditions:  The following terms and conditions apply to
FRT Loans:
 
 
(a)
Amount.  Each FRT Loan shall be in a minimum aggregate amount Cdn$500,000 and
larger whole multiples of Cdn$100,000.

 
 
(b)
Term.  Each FRT Loan shall be for a term of 30 days or such other period of time
as may be agreed to by the Bank at its sole discretion and the Borrower in the
circumstances, provided that the maturity date of any FRT Loan issued under any
relevant term Credit Facility shall not extend beyond the maturity date of the
relevant term Credit Facility.

 
 
(c)
Repayment.  FRT Loans may not be repaid, prepaid, converted or rolled over prior
to their maturity.

 
 
(d)
Rollover of FRT Loans.  At least seven (7) Business Days before the expiry of
the Contract Period of each FRT Loan, the Borrower shall notify the Bank by

 

      
        
      
      
        -12 -      
    

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

 
irrevocable telephone notice, followed by written confirmation on the same day
in form and substance substantially in accordance with Exhibit 2, if it intends
to enter into a new Contract Period with respect to the maturing FRT Loan, or
repay the maturing FRT Loan.  If the Borrower fails to provide the foregoing
notice or make the required payment, then payment of its obligations to the Bank
with respect to that maturing FRT Loan shall be funded with an Advance under a
Canadian Prime Loan in the amount outstanding under that FRT Loan.

 
 
(e)
Indemnity.  The Borrower shall indemnify and hold the Bank harmless against any
loss, cost or expense (including without limitation, any loss incurred by the
Bank in liquidating or redeploying deposits acquired to fund or maintain any FRT
Loan) incurred by the Bank as a result of repayments, prepayments, Conversions,
Rollovers or cancellations of a FRT Loan other than on the last day of the
Contract Period applicable to such FRT Loan, or failure to draw down a FRT Loan
on the first day of the Contract Period selected by Borrower.

 
7.           Conversion Option and Conditions:  Subject to this Agreement, the
Borrower may, during the term of this Agreement, effective on any Business Day,
convert, in whole or in part, an outstanding Advance into another type of
Advance permitted under the relevant Credit Facility upon giving written notice
to the Bank in substantially the form attached hereto as Exhibit 2, the notice
period being that which would be applicable to the type of Advance into which
the outstanding Advance is to be converted under Section 3 of the Standard Terms
and Conditions.  Conversions under this Agreement may only be made provided
that:
 
 
(a)
Currency.  Notwithstanding any other term in this Agreement, no Advance
denominated in Cdn$ may be converted into an Advance denominated in US$ and no
Advance denominated in US$ may be converted into an Advance denominated in Cdn$.

 
 
(b)
Amounts.  Each conversion into an Advance shall be for minimum aggregate amounts
and whole multiples in excess thereof as are specified in respect of that type
of Advance pursuant to this Agreement.

 
 
(c)
Libor Loans.  An Advance by way of Libor Loan may be converted only on the last
day of the relevant Contract Period; if less than all of the Libor Loan is
converted, after the conversion not less than US$100,000 shall remain as a Libor
Loan.

 
 
(d)
Other Conditions.  A conversion into an Advance by way of Libor Loan shall only
be made to the extent that the conditions outlined in Section 4 of the Standard
Terms and Conditions shall not exist on the relevant Conversion Date.

 
 
(e)
No Demands.  No demand shall have been made and no Default or Event of Default
shall have occurred and be continuing on the relevant Conversion Date or after
giving effect to the conversion of the Advance to be made on the Conversion
Date.

 

      
        
      
      
        -13 -      
    

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(f)
No Repayment.  No Conversion or Rollover shall constitute a repayment of any
Advance or new Advance.

 
 
(g)
Default.  Subject to the ability of the Bank to accelerate payment obligations
in respect of a term Credit Facility upon the occurrence of an Event of Default,
if a Default or Event of Default has occurred and is continuing on the last day
of a Contract Period, as regards a Libor Loan, in respect of an Advance by way
of a Libor Loan, the Borrower shall be deemed to have converted the Advance into
a US Base Rate Loan as of the last day of the applicable Contract Period.

 
8.           Calculation and Payment of Interest And Fees:
 
 
(a)
Canadian Prime Loans.  The Borrower shall pay to the Bank interest on each
Canadian Prime Loan, monthly in arrears at the rates set out in this Agreement,
on the last Business Day each month.  Such interest will be calculated monthly
and will accrue daily on the basis of the actual number of days elapsed and a
year of 365 or 366 days, as applicable.

 
 
(b)
US Base Rate Loans.  The Borrower shall pay to the Bank interest on each US Base
Rate Loan, monthly in arrears at the rates set out in this Agreement, on the
last Business Day of each month.  Such interest will be calculated monthly and
will accrue daily on the basis of the actual number of days elapsed and a year
of 365 or 366 days, as applicable.

 
 
(c)
Libor Loans.  The Borrower shall pay to the Bank interest on Libor Loans
outstanding to the Bank at the rates set out in this Agreement.  Interest on
each Libor Loan shall be payable on each Libor Interest Date applicable to the
Libor Loan, for the period commencing from and including the first day of the
Contract Period or the immediately preceding Libor Interest Date, as the case
may be, applicable to the Libor Loan, to but excluding the first mentioned Libor
Interest Date, and shall be calculated daily on the principal amount of each
Libor Loan remaining unpaid on the basis of the actual number of days elapsed in
a year of 360 days.

 
 
(d)
FRT Loans.  The Borrower shall pay to the Bank interest on each FRT Loan monthly
in arrears at the applicable interest rate set out in the Agreement on the last
Business Day of each month or such other date as may be agreed upon between the
Bank and the Borrower.  Such interest will be calculated monthly and will accrue
daily on the basis of the actual number of days elapsed and a year of 365 or 366
days, as applicable.

 
 
(e)
Limits on Interest.  The Borrower shall not be obligated to pay any interest,
fees or costs under or in connection with this Agreement or the Documents in
excess of what is permitted by Applicable Law.  For purposes of the Interest Act
(Canada), the annual rates of interest or fees to which the rates calculated in
accordance with this Agreement are equivalent, are the rates so calculated

 

      
        
      
      
        -14 -      
    

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

 
multiplied by the actual number of days in the calendar year in which such
calculation is made and divided by 365 or 366, as applicable.

 
9.           Fees, Payment and Rights:
 
 
(a)
Additional Fees.  In addition to the fees previously described in other
provisions of this Agreement, the Borrower shall, at the discretion of the Bank,
pay to the Bank a fee of $25.00 for each check of the Borrower which is honored
by the Bank, in its discretion, in excess of the authorized amount of any Credit
Facility.

 
 
(b)
Consideration.  The fees collected by the Bank shall be its property as
consideration for the time, effort and expense incurred by it in the review and
administration of documents and financial statements, and the Borrower
acknowledges and agrees that the determination of these costs is not feasible
and that the fees set out in the Agreement represent a reasonable estimate of
such costs.

 
 
(c)
Discretionary Advance.  Notwithstanding anything to the contrary contained in
the Agreement, the Bank may, in its discretion, make an Advance under any
applicable Credit Facility to pay any unpaid interest or fees which have become
due under the terms of the Agreement.

 
 
(d)
Evidence of Obligations.  The Borrower and each Guarantor acknowledges that the
actual recording of the amount of any Advance or repayment thereof under the
Credit Facilities, and interest, fees and other amounts due in connection with
the Credit Facilities, in an account of the Borrower maintained by the Bank
shall constitute prima facie evidence of the Borrower’s indebtedness, liability
and Obligations from time to time under and in connection with the Agreement and
the Documents; provided that the obligation of the Borrower to pay or repay any
indebtedness and liability in accordance with the terms and conditions of the
Agreement shall not be affected by the failure of the Bank to make such
recording.  The Borrower also acknowledges being indebted to the Bank for
principal amounts shown as outstanding from time to time in the Bank’s account
records, and all accrued and unpaid interest in respect of such amounts, in
accordance with the terms and conditions of this Agreement.

 
 
(e)
Absolute Obligations.  The obligation of the Borrower and each Guarantor, as
applicable, to make all payments under and in connection with the Agreement and
the Documents shall be absolute and unconditional and shall not be limited or
affected by any circumstance, including, without limitation:  (i) any set-off,
compensation, counterclaim, recoupment, defense or other right which the
Borrower or any Guarantor, as applicable, may have against the Bank or any other
Persons for any reason whatsoever; or (ii) any insolvency, bankruptcy,
reorganization or similar proceedings by or against the Borrower or any
Guarantor, as applicable.

 

      
        
      
      
        - 15 -      
    

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(f)
Set-Off.  In addition to and not in limitation of any rights now or hereafter
available to the Bank whether pursuant to Applicable Law or arising in the
Documents, the Bank is authorized, at any time and from time to time, upon
delivery of written notice to the Borrower to set-off and appropriate and to
apply any and all deposits (general and special) and any other indebtedness at
any time held by or owing by the Bank to or for the credit of the Borrower
against and on account of the obligations and liabilities of the Borrower to the
Bank under or in connection with this Agreement or the Documents.  The Bank
agrees to provide written notice of the exercise of any of the rights under this
section immediately after the exercise of such rights.

 
 
(g)
Cumulative Rights.  The remedies, rights and powers of the Bank under this
Agreement, the Documents and at law and in equity are cumulative and not
alternative and are not in substitution for any other remedies, rights or powers
of the Bank and no delay or omission in exercise of such remedy, right, or power
shall exhaust such remedies, rights or powers or be construed as a waiver of any
of them.

 
 
(h)
Overdue Amounts.  Any amount that is not paid when due hereunder shall, unless
interest is otherwise payable in respect thereof in accordance with the terms of
this Agreement or the relevant instrument or contract governing same, bear
interest until paid at the rate of Canadian Prime Rate plus 2.0% per annum or,
in the case of an amount denominated in US Dollars, at the rate of US Base Rate
plus 2.0% per annum.

 
 
(i)
Place of Payment.  Amounts payable by the Borrower under or in connection with
the Agreement and the Documents shall be paid at the Branch of Account in the
applicable currency.  Amounts due on a day other than a Business Day shall be
deemed to be due on the Business Day next following such day.  Any payment
delivered or made to the Bank by 1:00 local time at the Branch of Account shall
be credited as of that date, but if made afterwards shall be credited as of the
next Business Day.  Interest and fees payable under or in connection with this
Agreement and the Documents are payable both before and after any or all of
Default, maturity date, demand and judgment.

 
 
(j)
Taxes.  All payments to be made by or on behalf of the Borrower or any Guarantor
under or with respect to this Agreement or the Documents are to be made free and
clear of and without deduction or withholding for, or on account of, any present
or future Taxes, unless such deduction or withholding is required by Applicable
Law.  If the Borrower or any Guarantor is required to deduct or withhold any
Taxes from any amount payable to the Bank (i) the amount payable shall be
increased as may be necessary so that after making all required deductions or
withholdings (including deductions and withholdings applicable to, and taking
into account all Taxes on, or arising by reason of the payment of, additional
amounts under this clause), the Bank receives and retains an amount equal to the
amount that it would have received had no such deductions or withholdings been
required, (ii) the Borrower and any Guarantor shall make such

 

      
        
      
      
        -16 -      
    

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

 
deductions or withholdings, and (iii) the Borrower and any Guarantor shall remit
the full amount deducted or withheld to the relevant taxing authority in
accordance with Applicable Laws.  Notwithstanding the foregoing, neither the
Borrower nor any Guarantor shall be required to pay additional amounts in
respect of Excluded Taxes.

 
 
(k)
Exchange Rate Fluctuations.  If, for any reason, the amount of Advances
outstanding under any Credit Facility, when converted to the US Dollar
Equivalent, exceeds the amount available in US Dollars under such Credit
Facility, the Borrower shall immediately repay such excess or shall secure such
excess to the satisfaction of the Bank.

 
10.           Conditions Precedent:  Without limiting the discretion of the Bank
pursuant to Section 3 of the Agreement, the obligation of the Bank to make
available any Advance, Rollover or Conversion is subject to and conditional upon
each of the conditions below being satisfied on or before the applicable
Drawdown Date, Issuance Date, Rollover Date or Conversion Date:
 
 
(a)
Execution.  The Documents completed and, where necessary, registered in form and
manner satisfactory to the Bank, together with such certificates,
authorizations, resolutions and legal opinions as the Bank may reasonably
require.

 
 
(b)
Reports.  Satisfactory banker’s and other agency reports on the financial
position of the Borrower, any Guarantor and such customers of the Borrower as
the Bank may specify from to time.

 
 
(c)
Default.  No Default or Event of Default shall exist hereunder and no default or
event of default shall exist under the US Credit Agreement.

 
 
(d)
Accuracy.  The representations and warranties contained in this Agreement and
the Documents shall be true and correct on each Drawdown Date, Issuance Date,
Rollover Date or Conversion Date as if made on that date.

 
 
(e)
Notice.  The Borrower shall have provided any notice required in respect of an
Advance, Rollover or Conversion.

 
 
(f)
Documentation.  The Borrower executing and delivering to the Bank customary
documentation required by the Bank from time to time for purposes of extending
Advances by way of FRT Loan.

 
 
(g)
Compliance.  Confirmation that the Borrower is in compliance with each of the
terms and conditions of the Agreement.

 
11.           Covenants:  The Borrower covenants and agrees with the Bank, while
this Agreement is in effect or any Obligations are outstanding that it will, and
it will cause its Subsidiaries, as applicable, to:
 
 
(a)
Payment.  Pay all sums of money when due under or in connection with this
Agreement or the Documents.

 

      
        
      
      
        -17 -      
    

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

 
(b)
Status.  Maintain its corporate existence and status.

 
 
(c)
Notice.  Without limitation to the demand nature of any Credit Facility, give
the Bank prompt notice of any Default or Event of Default.

 
 
(d)
Insurance.  Insure and keep insured all properties customarily insured by
Persons carrying on a similar business in similar locations, or owning or
operating similar properties, against all risks.

 
 
(e)
Taxes.  File all material income tax returns which are or will be required to be
filed, to pay or make provision for payment of all Taxes (including interest and
penalties) which are or will become due and payable and to provide adequate
reserves for the payment of any Tax the payment of which is being contested.

 
 
(f)
Property.  Cause its properties and assets to be maintained and operated in good
working condition in accordance with industry practice, and permit the Bank or
its agents to enter on and inspect each of its assets and properties, including
operating and manufacturing facilities as the Bank may require upon reasonable
advance notice to the Borrower.

 
 
(g)
Applicable Laws.  Comply, in all material respects, with all Applicable Laws and
all Government Approvals required in respect of its business, properties, or any
activities or operations carried out thereon including health, safety and
employment standards, labor codes and Environmental Laws.

 
 
(h)
Rank.  Not do anything to adversely affect the ranking of its Obligations to the
Bank.

 
 
(i)
No Liens.  Not grant, create, assume or suffer to exist any Lien affecting any
of its properties, assets or other rights without the prior written consent of
the Bank which consent shall not be unreasonably withheld, provided, however,
that, notwithstanding the foregoing, in any fiscal year the Borrower may incur
Liens securing an aggregate indebtedness not exceeding Cdn$50,000 in connection
with purchase money security interests and/or capital leases.

 
 
(j)
No Dispositions.  Not to sell, transfer, convey, lease or otherwise dispose of
any part of its property or assets, outside of its normal course of business
without the prior written consent of the Bank if the proceeds of any such
transaction are not completely used to repay the Bank.

 
 
(k)
Corporate Changes.  Not liquidate, dissolve or merge, amalgamate or consolidate
with any other Person, without the prior written consent of the Bark.

 
 
(l)
Indebtedness.  Not issue, create, incur, assume, permit to exist any
indebtedness other than indebtedness under this Agreement and the Documents,
trade payables, or guarantees or capital leases incurred in the ordinary course
of business and in any event not exceeding $200,000 in aggregate, without the
prior written consent of the Bank.

 

      
        
      
      
        - 18 -      
    

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12.
Events of Default:  Without limiting the right of the Bank to demand payment of
the Credit Facility at any time and from time to time notwithstanding the
compliance or non-compliance by the Borrower with any or all of the terms and
conditions of the Documents, the occurrence of any one or more of the following
events shall constitute an “Event of Default” and the Bank may, without
limitation, exercise any of its rights pursuant to the Documents and/or
Applicable Law:

 
 
(a)
Payment.  The non-payment when due of principal, interest, fee, or any other
amounts due under this Agreement or the Documents (including without limitation
reimbursement for any draws under a Letter of Credit) and such default shall
continue unremedied for a period of 5 Business Days after written notice.

 
 
(b)
Breach.  The breach by the Borrower, any Guarantor or any Subsidiary of the
Borrower, as applicable, of any material provision of this Agreement, the
Documents or any other agreement with the Bank and such default (other than a
default under paragraph (a) above) shall continue unremedied for a period of 30
Business Days after written notice.

 
 
(c)
Other Indebtedness.  The default by the Borrower, the Guarantor or any
Subsidiary of the Borrower under any obligation or obligations to repay borrowed
money, or in the performance or observance of any agreement or condition in
respect of such borrowed money (beyond any applicable grace period), or demand
by any creditor or creditors for payment of indebtedness payable on demand
where, following such default or demand, indebtedness having an aggregate
principal amount in excess of $500,000 is due and payable or the maturity of
such obligations is accelerated.

 
 
(d)
Representation.  If any representation or warranty made herein or in any
Document, agreement or certificate delivered pursuant hereto shall be false or
inaccurate in any material respect and such default (other than a default under
paragraph (a)) above shall continue unremedied for a period of 30 Business Days
after written notice.

 
 
(e)
Involuntary Proceeding.  If (a) a petition shall be filed or an involuntary
proceeding, case or proposal shall be commenced against the Borrower or the
Guarantor under any bankruptcy, insolvency, debt restructuring, reorganization,
in incorporation, readjustment of debt, dissolution, liquidation, winding up or
similar law now or hereafter in effect, seeking the liquidation, reorganization,
dissolution, winding-up composition or readjustment of debts of the Borrower or
the Guarantor, the appointment of a trustee, receiver, receiver and manager,
custodian, liquidator, administrator or the like for the Borrower or the
Guarantor or all or any material part of the Borrower’s assets or the
Guarantor’s assets, or any similar relief, and (b) such proceeding or petition
shall continue undismissed for 60 days.

 

      
        
      
      
        - 19 -      
    

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(f)
Voluntary Proceeding.  The commencement by the Borrower or any Guarantor of, or
the making of any order for substantive relief against the Borrower or any
Guarantor in, any bankruptcy, insolvency, debt restructuring, reorganization,
incorporation, readjustment of debt, dissolution, liquidation or other similar
proceedings (including without limitation proceedings under the Bankruptcy and
Insolvency Act, the Winding-Up and Restructuring Act, the Companies’ Creditors
Arrangement Act, the corporation statute under which the Borrower or any
Guarantor is organized or other similar legislation) or proceedings for the
appointment of an interim receiver, receiver, receiver manager, liquidator,
provisional liquidator, trustee in bankruptcy, sequestrator or other like
official with respect to the Borrower or any Guarantor or all or any material
part of the Borrower’s assets or the Guarantor’s assets.

 
 
(g)
Seizure.  The seizure of all or any material part of the Borrower’s assets or
the Guarantor’s assets by any creditor or creditor’s representative, including
without limitation, a privately appointed receiver or sheriff.

 
 
(h)
Judgments.  Judgments are made against the Borrower, any Guarantor, any
Subsidiary of the Borrower or any one of them in excess of $50,000 by any court
of competent jurisdiction and either (i) a writ, execution or attachment or
similar process is levied against the property of any of them in respect of such
judgment, or (ii) the judgment is not actively and diligently appealed and
execution thereof stayed pending appeal within 30 days of the rendering of the
judgment, or (iii) the judgment is not paid or otherwise satisfied within 30
days of the rendering of the judgment.

 
13.           General:  The following terms and conditions apply:
 
 
(a)
Successors and Assigns.  This Agreement shall be binding upon and enure to the
benefit of the parties and their respective successors and permitted
assigns.  The Bank may not assign all or part of its rights and obligations
under this Agreement and the Documents to any Person without the prior written
consent of the Borrower.  Notwithstanding the foregoing and for greater
certainty, where a demand for payment, Default or an Event of Default has
occurred, the consent of the Borrower shall not be required with respect to the
assignment to any Person of all or any part of the rights and obligations of the
Bank under this Agreement and the Documents.  The rights and obligations of the
Borrower and any Guarantor under this Agreement and the Documents may not be
assigned without the prior written consent of the Bank.  The Bank may disclose
(with the consent of the Borrower in circumstances where a demand for payment,
Default or Event of Default has not occurred) to potential or actual assignees
confidential information regarding the Borrower and the Guarantor (including,
any such information provided by the Borrower and/or the Guarantor to the Bank)
and shall not be liable for any such disclosure.

 
 
(b)
Expenses.  The Borrower and each Guarantor agrees to pay on demand all fees
(including reasonable legal fees), costs and expenses incurred by the Bank in

 

      
        
      
      
        -20 -      
    

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connection with the preparation, negotiation and documentation of this Agreement
and the Documents and the operation or enforcement of this Agreement and the
Documents.

 
 
(c)
Review.  The Bank may conduct periodic reviews of the affairs of the Borrower,
as and when determined by the Bank, for the purpose of evaluating the financial
condition of the Borrower.  The Borrower shall make available to the Bank such
financial statements and other information and documentation as the Bank may
reasonably require and shall do all things reasonably necessary to facilitate
such review by the Bank.

 
 
(d)
Priority Claims.  The Borrower hereby grants its consent (such grant to remain
in force as long as this Agreement is in effect or any Advances are outstanding)
to any Person having information relating to any Priority Claim arising by any
Applicable Law or otherwise and including, without limitation, claims by or on
behalf of any Governmental Authority to release such information to the Bank at
any time upon its written request for the purpose of assisting the Bank to
evaluate the financial condition of the Borrower.

 
 
(e)
Amendments and Waivers.  No amendment or waiver of any provision of this
Agreements and the Documents will be effective unless it is in writing signed by
the Borrower, the Guarantor and the Bank.  No failure or delay, on the part of
the Bank, in exercising any right or power hereunder or under any security
document shall operate as a waiver thereof.

 
 
(f)
Judgment Currency.  If for the purpose of obtaining judgment in any court in any
jurisdiction with respect to this Agreement or the Documents, it is necessary to
convert into the currency of such jurisdiction (the “Judgment Currency”) any
amount due hereunder in any currency other than the Judgment Currency, 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 Bank would, on the relevant date, be prepared to
sell a similar amount of such currency in the Toronto foreign exchange market,
against the Judgment Currency, in accordance with normal banking procedures.  In
the event that there is a change in the rate of exchange prevailing between the
Business Day before the day on which judgment is given and the date of payment
of the amount due, the Borrower will, on the date of payment, pay such
additional amounts as may be necessary to ensure that the amount paid on such
date is the amount in the Judgment Currency which, when converted at the rate of
exchange prevailing on the date of payment, is the amount then due under this
Agreement in such other currency together with interest at the Canadian Prime
Rate and expenses (including legal fees on a solicitor and client basis).  Any
additional amount due from the Borrower under this section will be due as a
separate debt and shall not be affected by judgment being obtained for any other
sums due under or in respect of this Agreement.

 

      
        
      
      
        - 21 -      
    

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(g)
Whole Agreement.  This Agreement, the Documents and any other written agreement
delivered pursuant to or referred to in this Agreement constitute the whole and
entire agreement between the parties in respect of the Credit Facilities.  There
are no verbal agreements, undertakings or representations in connection with the
Credit Facilities.

 
 
(h)
Joint and Several.  Where more than one Person is liable as Borrower or
Guarantor for any obligation under this Agreement or the Documents, then the
liability of each such Person for such obligation is joint and several with each
other such Person.

 
 
(i)
Visit.  Representatives of the Bank shall be entitled to attend at the
Borrower’s business premises and to view all financial and other records of the
Borrower at any time, on reasonable notice.

 
 
(j)
References.  Time shall be of the essence in all provisions of this
Agreement.  Unless otherwise expressly provided, all accounting terms used in
this Agreement shall be interpreted, all financial information shall be prepared
and all financial calculations shall be made in accordance with GAAP,
consistently applied.  The division of this Agreement into sections and the
insertion of headings are for convenience of reference only and are not to
affect the construction or interpretation of this Agreement.  Unless otherwise
specified, words importing the singular include the plural and vice versa and
words importing gender include all genders.  Unless otherwise specified,
references in this Agreement to Sections, Schedules and Exhibits are to sections
of, schedules to and exhibits to, this Agreement.

 
 
(k)
No Merger.  This Agreement shall, on execution by the Borrower and each
Guarantor, replace all previous letter loan agreements from the Bank to the
Borrower with respect to the Credit Facilities.  Any existing loan to the
Borrower shall be modified, not refinanced, without novation of the Borrower’s
existing facilities or obligations, by virtue of the Agreement unless otherwise
provided in the Agreement.  The terms and conditions of the Agreement shall not
be merged by and shall survive the execution of the Documents.  In the event of
a conflict between the terms of this Agreement and the terms of the Documents,
the terms of this Agreement shall prevail to the extent of such conflict.

 
 
(l)
Disclosure of Information.  The Bank shall, in accordance with and subject to
Applicable Law, maintain the confidentiality of all of the Borrower’s and
Guarantor’s confidential information.  When it is necessary for providing
products and services to the Borrower or any Guarantor, the Borrower and each
Guarantor, as applicable, consents to the Bank obtaining from any credit
reporting agency or from any Person any information (including personal
information) that the Bank may require it any time.  The Borrower and each
Guarantor, as applicable, also consent to the disclosure at any time by the Bank
any information concerning the Borrower and any Guarantor to any credit grantor,
to any credit reporting agency, or to the Bank’s subsidiaries and
affiliates.  If applicable, the

 

      
        
      
      
        - 22 -      
    

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Borrower also authorizes the Bank to release the information contemplated by any
builder’s lien or similar legislation to all persons claiming a right to such
information under such legislation.  The Borrower and each Guarantor may refuse
or withdraw these consents; however this may result in the Bank canceling or
withholding products or services for which these consents are necessary.  Unless
each Guarantor advises the Bank otherwise, the Bank may use the each Guarantor’s
social insurance number, if applicable, to help ensure accurate credit
enquiries.

 
 
(m)
Increased Costs.  The Borrower shall reimburse the Bank for any additional cost
or reduction in income arising as a result of (i) the imposition of, or increase
in, taxes on payments due to the Bank hereunder (other than taxes on the overall
net income of the Bank), (ii) the imposition of, or increase in, any reserve or
other similar requirement, (iii) the imposition of or change in, any other
condition affecting the Credit Facilities imposed by any Applicable Law or the
interpretation thereof.

 
 
(n)
Severability.  If any provision of this Agreement is or becomes prohibited or
unenforceable in any jurisdiction, such prohibition or unenforceability shall
not invalidate or render unenforceable the provision concerned in any other
jurisdiction nor shall it invalidate, affect or impair any of the remaining
provisions.

 
 
(o)
Counterparts.  This Agreement and the Documents may be executed and delivered in
any number of counterparts, each of which when executed and delivered is an
original but all of which taken together constitute, as applicable, one and the
same instrument.

 
 
(p)
Governing Law.  This Agreement shall be construed in accordance with and
governed by the laws of the Province of Ontario and the federal laws of Canada
applicable therein and the parties attorn to the non-exclusive jurisdiction of
the courts of the Province of Ontario.

 
 
(q)
Notice.  Unless otherwise specified, any notice or other communication required
or permitted to be given to a party under this Agreement shall be in writing and
may be delivered personally or sent by overnight delivery service or by
facsimile, to the address or facsimile number of the party set out beside its
name at the foot of this Agreement to the attention of the Person there
indicated or to such other address, facsimile number or other Person’s attention
as the party may have specified by notice in writing given under this
Section.  Any notice or other communication shall be deemed to have been
given:  (i) if delivered personally, when received; (ii) if sent by overnight
delivery service, on the first Business Day following the date of mailing; (iii)
if sent by facsimile, on the Business Day when the appropriate confirmation of
receipt has been received if the confirmation of receipt has been received
before 3:00 p.m. on that Business Day or, if the confirmation of receipt has
been received after 3:00 p.m. on that Business Day, on the next succeeding
Business Day; and (iv) if sent by facsimile on a day which is

 

      
        
      
      
        -23 -      
    

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not a Business Day, on the next succeeding Business Day on which confirmation of
receipt has been received.  If a notice has been sent by prepaid registered mail
and before the fifth Business Day after the mailing there is a discontinuance or
interruption of regular postal service so that the notice cannot reasonably be
expected to be delivered within 5 Business Days after the mailing, the notice
will be deemed to have been given when it is actually received.

 
 
(r)
Language.  The parties hereby confirm their express wish that this Agreement and
all documents, agreements or notices directly or indirectly related hereto be
drawn up in the English language.  Les parties reconnaissent leur volonté
expresse que le présent contrat ainsi que tous les documents, conventions ou
avis s’y rattachant directement ou indirectement soient rédigés en langue
anglaise.