Exhibit 10.2
 
 
[fifththirdlogo.jpg]

Canadian Branch
20 Bay Street, 12th Floor
Toronto, Ontario
M5J 2N8 Canada

January 12, 2007
 
Private and Confidential
 
LSI Saco Technologies Inc.
7809 route Transcanadienne
Saint - Laurent, Quebec
H4S 1L3
 
Attention: President
 
Dear Sirs:
 
Fifth Third Bank (the "Bank") is pleased to offer, subject to the terms and
conditions set out in this Agreement, the credit facility described below (the
"Credit Facility").
 
1.  Standard Definitions, Terms and Conditions: Schedule 1 to this Agreement
sets out the standard definitions, terms and conditions ("Standard Terms and
Conditions") which apply to this Credit Facility. The Standard Terms and
Conditions are incorporated into and form part of this Agreement unless this
Agreement specifically states that one or more of the Standard Terms and
Conditions do not apply or are modified.
 
2.  Borrower:   LSI Saco Technologies Inc. (the "Borrower").
 
3.  Credit Facility: 
 

 
(a)
Amount and Type: The Bank makes a revolving demand facility in a principal
amount of up to US$7,000,000 or the Canadian Dollar Equivalent amount thereof in
Canadian Dollars (the "Maximum Amount") available to the Borrower by way of (i)
US Base Rate Loans (in US Dollars only), (ii) Libor Loans (in US Dollars only),
(iii) Canadian Prime Loans (in Canadian Dollars only), and (iv) FRT Loans (in
Canadian Dollars only). No more then five (5) separate Libor Loans or FRT Loans
may be outstanding at any one time.

 

 
(b)
Purpose: The purpose of this Credit Facility is to finance the ongoing working
capital requirements of the Borrower.

 

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(c)
Availability: This Credit Facility is made available at the sole discretion of
the Bank and the Bank may cancel or restrict availability of any unutilized
portion of this Credit Facility at any time and from time to time without notice
or demand.

 

 
(d)
Interest: Advances under this Credit Facility shall bear interest at the rates
and in respect of the particular types of Advances as set out in the pricing
grid below. For greater certainty, the pricing set out below is to be adjusted
quarterly based upon the rolling four quarter calculation of the consolidated
Total Fund Indebtedness to EBITDA ratio of LSI Industries Inc. (the “Guarantor”)
as defined and calculated from time to time in accordance with the credit
agreement dated March 30, 2001 by and among LSI Industries Inc., as borrower,
the lenders described therein and PNC Bank, National Association as the
Administrative Agent and the Syndication Agent (as the same may be amended,
varied, supplemented, restated, renewed or replaced from time to time, (the “US
Credit Agreement”))

 

 
 
Total Funded Indebtedness to EBITDA
 
Canadian Prime Rate plus
 
US Base Rate
less
LIBOR &/or FTB Fixed Rate
plus
 
 
< 1.00
0 bps
50 bps
100 bps
 
> 1.00x<1.50x
25 bps
25 bps
150 bps
 
> 1.50x
50 bps
0 bps
175 bps

 

 
(e)
Repayment: Notwithstanding compliance with the covenants, representations,
warranties and all other terms and conditions of this Agreement and all other
Documents, and regardless of the maturities of any outstanding instruments or
contracts, if any, Advances under this Credit Facility are repayable on demand
and the Bank may terminate this Credit Facility at any time and from time to
time, without notice or demand.

 

 
(f)
Repayment of Outstanding Amounts. Upon demand or termination, the Borrower shall
pay to the Bank all Advances and all other obligations outstanding under the
Credit Facility and the Documents.

 

 
(g)
Bank Accounts. The Borrower shall establish (i) a current account with the Bank
for the conduct of the Borrower’s day to day banking business in Canadian
Dollars (the “Canadian Account”) and (ii) a current account with the Bank for
the conduct of the Borrower’s day to day banking business in US Dollars (the “US
Account”). If the balance in either of the Canadian Account or the US Account,
as applicable:

 

 
(i)
is a credit, the Bank may apply, at any time in its discretion, the amount of
such credit or part thereof, rounded as applicable to the nearest Cdn$1,000

 

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or US$1,000, as a repayment of Advances outstanding in the relevant currency
under the Credit Facility, or

 

 
(ii)
is a debit, the Bank may, subject to availability, make available an Advance by
way of Canadian Prime Loan or US Base Rate Loan, as applicable, under the Credit
Facility in an amount rounded as applicable to the nearest Cdn$1,000 or
US$1,000, as is required to place the Canadian Account or the US Account at not
less than a zero balance. For the greater certainty for purposes of this Section
3(g), only Canadian Dollars may be credited or debited to the Canadian Account
and only US Dollars may be credited or debited to the US Account.

 
4.  Advance:  Each use of the Credit Facility is an "Advance" and all such
usages outstanding at any time are "Advances". The Standard Terms and Conditions
contain notice provisions and other relevant conditions applicable to all
Advances that must be complied with by the Borrower.
 
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) an unlimited guarantee of the indebtedness of the Borrower to the Bank,
executed by LSI Industries Inc.; and
 
(b) a promissory note executed by the Borrower.
 
6.  Conditions Precedent: In addition to the conditions specified in the
Standard Terms and Conditions attached hereto as Schedule 1 and without limiting
the discretion of the Bank pursuant to Section 3 hereof, the obligation of the
Bank to make available any Advance (including the initial Advance) is subject to
and conditional upon each of the conditions set out in Schedule 6 being
satisfied on the applicable Drawdown Date.
 
7.  Representations and Warranties: In addition to the representations and
warranties specified in the Standard Terms and Conditions attached hereto as
Schedule 1, the Borrower and the Guarantor, as applicable, makes the
representations and warranties set out in Schedule 7. All representations and
warranties shall be deemed to be continued repeated so long as any Advance
remains outstanding and unpaid under or in connection with this Agreement or the
Documents or so long as any commitment under this Agreement remains in effect.
 
8.  Reporting Covenants: Each of the Borrower and the Guarantor covenants and
agrees with the Bank, so long as any Advance remains outstanding under or in
connection with this Agreement or the Documents or so long as any commitment
under this Agreement remains in effect, to provide, as applicable, the Bank
with:
 
(a) quarterly Compliance Certificate, substantially in the form of
Schedule 8(a), within 45 days of each fiscal quarter end, certifying compliance
with this Agreement and the US Credit Agreement;
 

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(b) quarterly unaudited financial statements for the Borrower within 45 days of
the end of the each fiscal quarter for the Borrower;
 
(c) annual complied financial statements for the Borrower, within 90 days of
each fiscal year end of the Borrower;
 
(d) quarterly unaudited financial statements for the Guarantor within 45 days of
the end of each fiscal quarter for the Guarantor;
 
(e) annual audited financial statements for the Guarantor within 90 days of the
fiscal year end of Guarantor; and
 
(f) such other financial and operating statements and reports as and when the
Bank may reasonably require from time to time.
 
9.  General Covenants: In addition to the standard covenants set out in the
Standard Terms and Conditions, the Borrower and each Guarantor, as applicable,
covenants and agrees with the Bank, so long as any Advance remains outstanding
under or in connection with this Agreement or the Documents or so long as any
commitment under this Agreement remains in effect, that the Borrower and each
Guarantor, as applicable, will comply with the covenants set out in Schedule 9.
 
10.    Financial Covenants: The Borrower covenants and agrees with the Bank, so
long as any Advance remains outstanding under or in connection with this
Agreement or the Documents or so long as any commitment under this Agreement
remains in effect to maintain the financial covenants specified in Schedule 10.
 
11.  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, upon the occurrence of any of the Events of Default
set out in the Standard Terms and Conditions or any of the events listed in
Schedule 11, the Bank may accelerate the payment of principal and interest under
any committed term credit facility hereunder, if any, and cancel any undrawn
portion of any committed credit facility hereunder, if any. For greater
certainty, upon the occurrence of an Event of Default, the ability of the
Borrower to obtain further Advances under any credit facility which is a term
facility under this Agreement shall immediately terminate and the Bank may, by
written notice to the Borrower, declare the Advances outstanding under any such
credit facility to be immediately due and payable. Upon receipt of such written
notice, the Borrower shall immediately pay to the Bank all Advances outstanding
under any credit facility which is a term facility under this Agreement and all
other obligations of the Borrower to the Bank in connection with any such credit
facility under this Agreement including, without limitation, an amount equal to
the aggregate of face amount of all Discount Notes, LCs and LGs which are
unmatured or unexpired, which amount shall be held by the Bank as security for
the Borrower's obligations to the Bank in respect of such instruments or
contracts. The Bank may enforce its rights to realize upon its security and
retain an amount sufficient to secure the Bank for the Borrower's obligations to
the Bank in respect of such contracts or instruments. Whether or not any Default
or Event of Default shall occur and be continuing, this shall in no way limit
any right of the Bank under this Agreement to terminate or demand payment of, or
cancel or restrict the availability of any unutilized portion of, any demand or
other discretionary credit
 

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facility made available under this Agreement. The Borrower and the Guarantor
acknowledge and agree that the Credit Facility provided to the Borrower
hereunder is a demand credit facility and that the Bank may demand repayment at
any time notwithstanding the Borrower’s compliance or not with the provisions of
this Agreement and the Documents.
 
12.  Acceptance: This offer is open for acceptance until the 15th day of
January, 2007, after which date it will be null and void, unless extended in
writing by the Bank.
 
Please confirm your acceptance of this Agreement by signing the attached copy of
this Agreement in the space provided below and returning it to the undersigned.
 

 
Yours truly,
 
20 Bay Street
12th Floor
Toronto, Ontario
M5J 2N8
 
Attention: Vice President
Fax:  647-436-1156
FIFTH THIRD BANK
 
 
 By:_/s/Stephen Pepper_____________
      Name:  Stephen Pepper
      Title:  Vice President
:
 
By:_/s/Jeremiah Hynes______________
         Name: Jeremiah Hynes
     Title:  Vice President & Principal Officer
:

 

 

 

 

 

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The undersigned acknowledges, accepts and agrees to the foregoing terms and
conditions set out in this Agreement, as Borrower, as of the 12th day of
January, 2007.
 
 
7809 route Transcanadienne (TransCanada Highway)
Saint Laurent, Quebec
H4S 1L3
 
Attention:  President
Fax:  
LSI SACO TECHNOLOGIES INC.
 
   
 
 
By:_/s/Ronald S. Stowell__________
 
     Name:  Ronald S. Stowell
     Title:     Secretary and Treasurer
 
 
   
 
 
By:_/s/Scott D. Ready_____________
 
 
     Name:  Scott D. Ready
     Title:     Vice President
 
   
I/We have authority to bind the corporation.

 
The undersigned acknowledges, accepts and confirms its agreement with the
foregoing terms and conditions set out in this Agreement, as Guarantor, as of
the 12th day of January, 2007.
 

   
LSI INDUSTRIES INC.
   
 
By:
 
  /s/Ronald S. Stowell
     
Name:  Ronald S. Stowell
Title:    Vice President, Chief Executive Officer
            and Treasurer
   
 
By:
 
 /s/James P. Sferra
     
Name:  James P. Sferra
Title:     Secretary
 
I/We have authority to bind the corporation

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Schedules and Exhibits forming part of this Agreement:
 
Schedule 1
-
Standard Definitions, Terms and Conditions
Schedule 1 - Exhibit 1
-
Notice of Advance
Schedule 1 - Exhibit 2
-
Notice of Conversion and Rollover
Schedule 6
-
Specific Conditions Precedent
Schedule 7
-
Specific Representations and Warranties
Schedule 8(a)
-
Compliance Certificate
Schedule 9
-
Specific Covenants
Schedule 10
-
Specific Financial Covenants
Schedule 11
-
Specific Events of Default

 

 

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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 "$" and "C$" 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 determining interest rates on
Canadian Dollar denominated commercial loans made by Royal
 

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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 a.m.
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 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, stabilization, disposition, handling or
transportation, or its Release into the natural environment, including movement
through or in the air, soil, surface water or groundwater;
 

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"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, authorizations 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;
 
"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; 
 

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"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;
 
"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;
 
"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 0 of this Schedule, as
applicable;
 
"Rollover Date" means the Business Day on which a Rollover occurs;
 
"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
 

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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-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

 

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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.

 
(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

 

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-7-

 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,
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 1
to this 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 Base Rate Loans less than $10 million
 
Before 11:00 a.m. one Business 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.   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.

 

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

-8-

(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 fund or maintain any
Libor Loan) incurred by the Bank as a result of repayments, prepayments,
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.
 
5.   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
irrevocable

 

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

-9-

 
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 the Borrower.

 
6.   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 C$ may be converted into an Advance denominated in US$ and no
Advance denominated in US$ may be converted into an Advance denominated in C$.

 
(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.

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

 

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

-10 -

 

  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.

 
7.   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 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.

 
(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
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.

 
8.   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 cheque of the Borrower which is
honoured 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

 

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

-11-

 

  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, defence 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.

 
(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

 

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

-12 -

 

  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 judgement.

 
(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 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.

 
9.   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/or other agency reports on the financial
position of the Borrower, any Guarantor and such customers of the Borrower as
the Bank may specify from time 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.

 

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

-13 -

(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.

 
10.   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.

 
(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, labour 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

 

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

-14 -

 

  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 Bank.

 
(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.

 
11.   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 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

 

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

-15 -

 

  bankruptcy, insolvency, debt restructuring, reorganization, 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.

 
(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)
Judgements. 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.

 
12.   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

 

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

-16 -

  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
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)
Judgement Currency. If for the purpose of obtaining judgement 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 "Judgement
Currency") any amount due hereunder in any currency other than the Judgement
Currency, then conversion shall be made at the rate of exchange prevailing on
the Business Day before the day on which judgement 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 Judgement 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 judgement 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 Judgement 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
judgement being obtained for any other sums due under or in respect of this
Agreement.

 
(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

 

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

-17 -

 

  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 at 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 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 cancelling 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.

 

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(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 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.

 

 

 

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EXHIBIT 1
 
NOTICE OF ADVANCE
 
Date: _____________________
 
To: Fifth Third Bank
 
Ladies and Gentlemen:
 
The undersigned LSI Saco Technologies Inc. (the "Borrower") refers to the letter
loan agreement dated as of January _____, 2007 (as the same may be amended,
restated or replaced from time to time, (the "Agreement")), among, inter alia,
the Borrower and Fifth Third Bank, as Bank. Capitalized terms used but not
defined herein have the meaning assigned to such terms in the Agreement. The
Borrower hereby notifies you, pursuant to the Agreement, of its request for the
following Advance:
 
1.
Credit Facility:
_______________________
2.
Amount and Currency:
_______________________
3.
Drawdown Date/Issuance Date:
_______________________
4.
Type of Loan
(Canadian Prime Loan,
US Base Rate Loan, LIBOR
Loan, FRT Loan)
_______________________
5.
Contract Period
for LIBOR Loan or
FRT Loan
_______________________

The undersigned hereby certifies that the following statements are true on the
date hereof, and will be true on the Drawdown Date, immediately after the
Advance and the application of the proceeds therefrom:
 

 
(a)
immediately after such Advance, the sum in US Dollars of the aggregate
outstanding principal amount of all Advances outstanding from the Bank under
that Credit Facility shall not exceed the maximum aggregate principal amount
available under that Credit Facility;

 
 
(b)
no Default or Event of Default shall have occurred and be continuing;  and

 

 
(c)
the representations and warranties of the Borrower and the Guarantor contained
in the Credit Agreement are and will be accurate in all material respects.

 

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-2 -

 

 

 
Per:
LSI SACO TECHNOLOGIES INC.
 
 
   Name:
 Title:
   
Per:
 
       Name:
 Title:

 

 

 

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EXHIBIT 2
 
NOTICE OF CONVERSION AND ROLLOVER
 
Date: _____________________
 
To: Fifth Third Bank
 
Ladies and Gentlemen:
 
The undersigned LSI Saco Technologies Inc. (the "Borrower") refers to the letter
loan agreement dated as of January _____, 2007 (as the same may be amended,
restated or replaced from time to time, the "Agreement"), among, inter alia, the
Borrower and Fifth Third Bank, as Bank. Capitalized terms used but not defined
herein have the meaning assigned to such terms in the Agreement. The Borrower
hereby notifies you, pursuant to the applicable provision of the Agreement, of
the following:
 
1.
Group of Advances (or portion thereof) to which notice applies
 
2.
Date of Conversion or Rollover
 
3.
New type of Advance [if Advances are to be converted] or repayment
 
4.
Next succeeding Contract Period [if Advances are converted or rolled over to
Libor Loans or FRT Loans]
 

 
The undersigned hereby certifies that the following statements are true on the
date hereof, and will be true on the Rollover Date or Conversion Date, as
applicable, immediately after the Rollover or Conversion, as applicable, and the
application of the proceeds therefrom:
 

 
(a)
immediately after such Rollover or Conversion, (i) the sum in US Dollars of the
aggregate outstanding principal amount of all Advances outstanding from the Bank
under that Credit Facility shall not exceed the maximum aggregate principal
amount available under that Credit Facility and (ii) no Advance under any Credit
Facility shall have a Contract Period that extends beyond, if applicable, the
maturity date of that Credit Facility;

 

 
(b)
  no Default or Event of Default shall have occurred and be continuing; and

 

 
(c)
the representations and warranties of the Borrower and the Guarantor contained
in the Credit Agreement are and will be accurate in all material respects.

 

   
 
 
Per:
LSI SACO TECHNOLOGIES INC.
 
 
 
   Name:
Title:
   
Per:
 
       Name:
Title:

 

 

 

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

 

SCHEDULE 6
 
to the Agreement dated as of January _____, 2007, among, inter alia, LSI Saco
Technologies Inc., as Borrower, and Fifth Third Bank, as the Bank.
 
SPECIFIC CONDITIONS PRECEDENT
 
The obligation of the Bank to make available any Advance is subject to and
conditional upon each of the conditions below being satisfied on or before the
applicable Drawdown Date:
 
1.
receipt from the Guarantor of a true and complete copy of the US Credit
Agreement, together with all amendments thereto, including an amendment which
confirms the lenders consent to the Guarantor providing an unlimited guarantee
in favor of the Bank;

 
2.
the Guarantor is in compliance with the terms and conditions of the US Credit
Agreement and no Event of Default (as defined therein) has occurred and is
continuing thereunder;

 
3.
a certificate of the Borrower dated the closing date certifying [Note to Draft:
FTB US counsel to confirm if something similar is to be obtained from US
Guarantor];

 
a) that its constating documents and the by-laws, which shall be attached
thereto or referenced therein, as applicable, are complete and correct copies
and are in full force and effect;
 

 
b) all resolutions and all other authorizations necessary to authorize the
execution and delivery of and the performance by it of its obligations under
this Agreement and the other Documents to which it is a party and all the
transactions contemplated thereby have been taken and/or completed; and

 

 
c) all representations and warranties contained in this Agreement are true and
correct as if made on the date of the certificate.

 
4.
a legal opinion from Canadian counsel to the Borrower and the Guarantor in form
and substance satisfactory to the Bank and its counsel; and

 
5.
a legal opinion from United States counsel to the Guarantor in form and
substance satisfactory to the Bank and its counsel.

 
 

 

 

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

SCHEDULE 7
 
to the Agreement dated as of January _____, 2007, among, inter alia, LSI Saco
Technologies Inc., as Borrower, and Fifth Third Bank, as the Bank.
 
SPECIFIC REPRESENTATIONS AND WARRANTIES
 
1.
The Guarantor is in compliance with all terms and conditions of the US Credit
Agreement and no Event of Default (as defined therein) has occurred and is
continuing thereunder.

 
2.
The Borrower is a wholly-owned subsidiary of the Guarantor.

 

 

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

SCHEDULE 8(a)
 
to the Agreement dated as of January ____, 2007, among, inter alia, LSI Saco
Technologies
Inc. as Borrower, and Fifth Third Bank, as the Bank.
 
COMPLIANCE CERTIFICATE
 
I, ___________________________________, the [insert title] of LSI Industries
Inc. (the "Guarantor") hereby certify as of [insert last day of fiscal
quarter/fiscal year, as applicable] on behalf of each of the Borrower and the
Guarantor as follows:
 
1.
I am familiar with and have examined the provisions of the letter loan agreement
(the "Agreement") dated January ____, 2007, among, inter alia, LSI Saco
Technologies Inc., as Borrower, LSI Industries Inc., as Guarantor, and Fifth
Third Bank and have made reasonable investigations of corporate records and
inquiries of other officers and senior personnel of the Borrower and the
Guarantor. Terms defined in the Agreement have the same meanings when used in
this certificate.

 
2.
The representations and warranties contained in the Agreement are true and
correct in all material respects.

 
3.
No event or circumstance has occurred which constitutes or which, with the
giving of notice, lapse of time, or both, would constitute a Default or an Event
of Default under the Agreement and there is no reason to believe that during the
next fiscal quarter of the Borrower and the Guarantor, any such event or
circumstance will occur.

 
4.
The Guarantor is in compliance with all terms and conditions of the US Credit
Agreement and no Event of Default (as defined therein) has occurred and is
continuing thereunder and there is no reason to believe that during the next
fiscal quarter of the Guarantor any Event of Default (as defined therein) will
occur under the US Credit Agreement.

 
Dated as of this _____ day of _____________, 20___.
 
Per:  
Name:
Title:
 

 

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SCHEDULE 9
 
to the Agreement dated as of January ____, 2007, among, inter alia, LSI Saco
Technologies
Inc. as Borrower, and Fifth Third Bank, as the Bank.
 
SPECIFIC COVENANTS
 
While any amount owing under this Agreement or any of the other Documents
remains unpaid, or the Bank has any obligations under this Agreement or any of
the other Documents, the Guarantor covenants and agrees with the Bank that the
Guarantor will at all times remain in compliance with the terms and conditions
of the US Credit Agreement unless such non-compliance is waived by the lenders
or the agent pursuant to the terms of the US Credit Agreement. The Guarantor
will immediately notify the Bank in writing in the event that (i) the Guarantor
or any affiliated or related Person is required to provide security or other
collateral to the Lenders under and in connection with the US Credit Agreement,
or (ii) a default or an event of default occurs under or in connection with the
US Credit Agreement unless such non-compliance is waived by the lenders or the
agent pursuant to the terms of the US Credit Agreement.
 

 

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SCHEDULE 10
 
to the Agreement dated as of January ____, 2007, among, inter alia, LSI Saco
Technologies
Inc. as Borrower, and Fifth Third Bank, as the Bank.
 
FINANCIAL COVENANTS
 
Not Applicable
 

 

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SCHEDULE 11
 
to the Agreement dated as of January ____, 2007, among, inter alia, LSI Saco
Technologies
Inc. as Borrower, and Fifth Third Bank, as the Bank.
 
SPECIFIC EVENTS OF DEFAULT
 
The occurrence of a default or an event of default under the US Credit
Agreement.