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HSBC BANK USA, NATIONAL ASSOCIATION

AND

LUMINESCENT SYSTEMS, INC.

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LETTER OF CREDIT
REIMBURSEMENT AGREEMENT
 

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Dated as of April 1, 2007

$6,000,000
Erie County Industrial Development Agency
Variable Rate Demand Industrial Development Revenue Bonds
(Luminescent Systems, Inc. Project - Letter of Credit Secured)
Series 2007
 

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TABLE OF CONTENTS

   
Page
SECTION 1.
DEFINITIONS
1
1.1
Defined Terms
1
1.2
Accounting Terms
1
   
 
SECTION 2.
APPLICATION
1
   
 
SECTION 3.
REIMBURSEMENT AND OTHER PAYMENTS
1
3.1
Letter of Credit Draws
1
3.2
Letter of Credit Fees
2
3.3
Interest
2
3.4
Expenses
2
3.5
Additional Costs
2
3.6
Other Amounts
3
3.7
Form of Payments
3
   
 
SECTION 4.
INTEREST PAYMENTS AND PREPAYMENTS
4
4.1
Interest Payments
4
4.2
Mandatory Prepayments
4
4.3
Optional Prepayments
4
   
 
SECTION 5.
CONDITIONS
4
5.1
Corporate Action
4
5.2
Bond Documents
5
5.3
Collateral Documents
5
5.4
Opinions
5
5.5
Other
5
5.6
Costs
6
   
 
SECTION 6.
REPRESENTATIONS
6
6.1
Organization; Power and Authority
6
6.2
Valid and Binding Obligation
6
6.3
Approvals
6
6.4
Other Documents
6
6.5
Litigation
7
6.6
Financial Statements
7
6.7
ERISA Matters
7
6.8
Environmental Matters
7
6.9
Leases and Management Agreements
8
6.10
Good Title
8
6.11
No Violations
9
6.12
Tax Returns
9
6.13
Federal Regulations
9
6.14
Subsidiaries; Affiliates
9

 
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6.15
Fiscal Year
9
6.16
Securities
9
6.17
Anti-Terrorism Laws
10
   
 
SECTION 7.
AFFIRMATIVE COVENANTS
10
7.1
Certain Agreements
10
7.2
Reporting Requirements
11
7.3
Taxes
12
7.4
Insurance
12
7.5
Existence; Conduct of Business
12
7.6
Maintenance of Properties; Books and Records
12
7.7
Compliance with Law
13
7.8
Litigation
13
7.9
Judgments
13
7.10
Notice
13
7.11
Pension Default
14
7.12
Inspections
14
7.13
Environmental Compliance
14
7.14
Equity Contribution
14
7.15
Other Acts
14
   
 
SECTION 8.
NEGATIVE COVENANTS
15
8.1
Bond Documents
15
8.2
Borrowed Money
15
8.3
Encumbrances
15
8.4
Guaranties
16
8.5
Sale of Assets
16
8.6
Investments and Loans
16
8.7
Merger
16
8.8
Disposal of Hazardous Substances
16
8.9
Change Fiscal Year
16
   
 
SECTION 9.
EVENTS OF DEFAULT AND REMEDIES.
17
9.1
Events
17
9.2
Remedies
19
   
 
SECTION 10.
MISCELLANEOUS
20
10.1
Entire Agreement; Amendments
20
10.2
Additional Bonds
20
10.3
Delays and Omissions
20
10.4
Notices
20
10.5
Governing Laws
21
10.6
Term
21
10.7
Joint and Several
21
10.8
Counterparts
21
   
 
SECTION 11.
INDEMNIFICATION
21

 
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SECTION 12.
LIMITATION OF LIABILITY
22
   
 
SECTION 13.
JURY TRIAL WAIVER
22
   
 
SECTION 14.
CONSENT TO JURISDICTION
22

EXHIBIT A
LETTER OF CREDIT
EXHIBIT B
COMPLIANCE CERTIFICATE
   
SCHEDULE 1
DEFINITIONS
SCHEDULE 2
PENSION PLANS
SCHEDULE 3
LIABILITIES
SCHEDULE 4
PERMITTED ENCUMBRANCES

 
 
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LETTER OF CREDIT REIMBURSEMENT AGREEMENT

THIS LETTER OF CREDIT REIMBURSEMENT AGREEMENT (“Letter of Credit Reimbursement
Agreement”) dated as of April 1, 2007 is between HSBC BANK USA, NATIONAL
ASSOCIATION, a bank organized under the laws of the United States of America
(“Bank”), and LUMINESCENT SYSTEMS, INC., a business corporation organized under
the laws of the State of New York, having an office at 130 Commerce Way, East
Aurora, New York 14052 (“Applicant”).

RECITALS

The Applicant has requested the Agency to issue its Variable Rate Demand
Industrial Development Revenue Bonds (Luminescent Systems, Inc. Project - Letter
of Credit Secured) Series 2007 (collectively, “Bonds”) to finance a portion of
the costs of the Project. As a condition precedent to the issuance and sale of
the Bonds, the Applicant has requested the Bank to issue its irrevocable direct
pay letter of credit in accordance with the terms and conditions of this Letter
of Credit Reimbursement Agreement.
 
SECTION 1.   DEFINITIONS.
 
1.1  Defined Terms. Terms used and not otherwise defined in this Letter of
Credit Reimbursement Agreement are defined in Schedule 1 annexed hereto and
shall have the meanings specified therein or in the Indenture or the Letter of
Credit unless the context otherwise requires.
 
1.2  Accounting Terms. Each accounting term not defined in Schedule 1 annexed
hereto, and each accounting term partly defined therein to the extent not
defined, shall have the meaning given to it under generally accepted accounting
principles consistent with those applied in the preparation of the financial
statements referred to in Section 6.6 hereof.
 
SECTION 2.   APPLICATION.
 
The Applicant hereby applies to the Bank and requests the Bank to issue, execute
and deliver on the date of the issuance of the Bonds to the Trustee for its
account an Irrevocable Direct Pay Letter of Credit in substantially the form
attached hereto as Exhibit A (“Letter of Credit”). The initial term of the
Letter of Credit shall be approximately ten (10) years. The Applicant may
request the Bank to extend the expiration date of the Letter of Credit with
respect to any period following such initial term, which request the Bank may
approve, reject or condition, in its sole and absolute discretion. In the event
that the Bank agrees, in its sole and absolute discretion, to extend the
expiration date of the Letter of Credit, each of the terms, covenants and
conditions of this Letter of Credit Reimbursement Agreement shall apply to each
such extension, absent written agreement to the contrary.
 
 
SECTION 3.   REIMBURSEMENT AND OTHER PAYMENTS.
 
The Applicant hereby agrees to pay the Bank (collectively, “Indebtedness”):
 
3.1  Letter of Credit Draws. A sum equal to any and all amounts which are drawn
under the Letter of Credit, payable (a) with respect to each portion of the
total Indebtedness resulting from a Bond Purchase Drawing - Principal (as
defined in the Letter of Credit) on the earliest of (i) the stated expiration of
the Letter of Credit, (ii) any earlier date on which the Bank, pursuant to
Section 9.2 hereof, has declared such Indebtedness or portion thereof to be
immediately due and payable, or (iii) any earlier date on which such
Indebtedness or portion thereof is subject to prepayment pursuant to
Sections 4.2 or 4.3 hereof, and (b) with respect to all other draws on the
Letter of Credit, on the same Business Day on which the Bank honors any Bond
Purchase Drawing - Interest, Interest Drawing or Principal Drawing (as those
terms are defined in the Letter of Credit).
 

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3.2  Letter of Credit Fees. A sum equal to (a) the Bank’s reasonable and
customary administrative, issuance, amendment, drawing and negotiation charges
in connection with letters of credit, which shall be payable upon demand, and
(b) a letter of credit fee computed from the date of issuance of the Letter of
Credit at the rate of seven-tenths of one percent (0.70%) per annum of the
Stated Amount (as defined in the Letter of Credit), payable in advance for a
one-year period on the date of the issuance of the Letter of Credit and annually
in advance on each anniversary of such date while the Letter of Credit remains
in existence, which fee shall be fully earned upon payment thereof and shall be
non-refundable (“Letter of Credit Fee”). Such Letter of Credit Fee shall be
computed on the basis of a 360-day year for the actual number of days elapsed
and is subject to adjustment as provided in Section 9.2(v). Upon the occurrence
and during the continuance of an Event of Default (as hereinafter defined), the
Letter of Credit Fee shall be increased to two percent (2%) per annum of the
Stated Amount, payable as aforesaid.
 
3.3  Interest. Interest on Indebtedness (a) with respect to any Bond Purchase
Drawing from the date such Indebtedness is incurred until payment (unless such
Indebtedness is paid to the Bank on the same Business Day as incurred, in which
case no interest is payable) at a rate per annum equal to the Bank’s Prime Rate,
payable when and as interest is due and payable on the Bonds, and (b) with
respect to all other Indebtedness from the date such Indebtedness is incurred
(unless such Indebtedness is paid to the Bank on the same Business Day as
incurred, in which case no interest is payable) at a per annum rate equal to the
Bank’s Prime Rate plus two percent (2%), payable on demand.
 
3.4  Expenses. Any and all out-of-pocket costs and expenses reasonably incurred
by or on behalf of the Bank in connection with the preparation, negotiation,
administration or enforcement of this Letter of Credit Reimbursement Agreement,
the Letter of Credit, the Bond Documents and the Collateral Documents, any sale
or other disposition of the collateral granted to the Bank pursuant to the
Collateral Documents, and any consent or action requested or necessitated by the
Applicant, the Agency, the Trustee or any other party in connection with the
subject transaction, including, without limitation, reasonable attorneys’ fees
and disbursements, title examination and insurance fees, UCC search fees,
appraisal, inspecting engineer, environmental report and survey costs, mortgage
taxes, and recording and filing fees, all payable on demand.
 
3.5  Additional Costs. If any law, regulation, guideline or change in any law or
regulation or in the interpretation thereof or any ruling, decree, judgment or
recommendation by any regulatory body, court or any administrative or
governmental authority charged or claiming to be charged with the administration
thereof, shall either (i) impose upon, modify, require, make or deem applicable
to the Bank or any of its affiliates any reserve requirement based upon the
deeming of letters of credit to be deposits held by the Bank, special deposit
requirement, insurance assessment or similar costs or requirements against or
affecting letters of credit issued or to be issued hereunder or (ii) subject the
Bank or any of its affiliates to any tax (other than taxes based on the overall
net income of the Bank), charge, fee, deduction, withholding or similar costs of
any kind whatsoever or (iii) impose any condition upon or cause in any manner
the addition of any supplement to or increase of any kind to the Bank’s or an
affiliate’s capital or cost base for issuing such letters of credit which
results in an increase in the capital requirement supporting such letters of
credit or (iv) impose upon, modify, require, make or deem applicable to the Bank
or any of its affiliates any capital requirement, increased capital requirement
or similar requirement such as the deeming of such letters of credit to be
assets held by the Bank or any of its affiliates for capital calculation or
other purposes, and the result of any events referred to in (i), (ii), (iii) or
(iv) above shall be to increase the costs or decrease the benefit in any way to
the Bank or any affiliate of issuing, maintaining or participating in such
letters of credit, then the Applicant shall, thirty (30) days after the mailing
of written notice of such increased costs or decreased benefits or both to the
Applicant by the Bank, pay to the Bank all such additional amounts which in the
Bank’s sole good faith calculation, as allocated to such letters of credit,
 
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(a)  in the case of events referred to in (i) and (ii) above, shall be
sufficient to compensate the Bank for all such increased costs, decreased
benefits or both, and/or
 
(b)  in the case of events referred to in (iii) and (iv) above, shall be an
amount as the Bank shall reasonably determine is necessary to compensate the
Bank for any decreased benefit caused by such events.
 
For any amounts arising under (a) and (b) above, the Bank shall deliver to the
Applicant a certificate as to such increased costs or decreased benefit incurred
or suffered by the Bank as a result of such event or events, setting forth in
reasonable detail the basis therefor and the manner of calculation thereof, as
soon as practicable after the Bank becomes aware of such event or events, which
certificate shall be conclusive, absent manifest error, as to any amounts set
forth therein. In determining such amounts, the Bank may use any reasonable
averaging and attribution methods.
 
3.6  Other Amounts. All amounts due to the Bank pursuant to any of the Bond
Documents, Collateral Documents or SWAP Documents, payable as provided for
therein.
 
3.7  Form of Payments. All payments under this Letter of Credit Reimbursement
Agreement shall be in lawful currency of the United States and in immediately
available funds at the Bank’s office at One HSBC Center, Buffalo, New York 14203
(or such other office or address as Bank shall direct), with interest calculated
on the basis of a 360-day year for the actual number of days elapsed, which will
result in a higher effective annual rate.
 
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SECTION 4.   INTEREST PAYMENTS AND PREPAYMENTS.
 
4.1  Interest Payments. Whenever a payment of interest is due pursuant to
Section 3.3 on Indebtedness with respect to a Bond Purchase Drawing - Principal,
the Applicant shall be deemed to have made such payment in full so long as the
payment of interest due on the Bonds held pursuant to the pledge created
pursuant to the Pledge Agreement has been made and received by the Bank on a
timely basis, and the Applicant has paid to the Bank the difference between the
interest payable pursuant to Section 3.3 and the interest received by the Bank
on such Bonds.
 
4.2  Mandatory Prepayments. On each and every date on which principal is
payable, whether by means of a redemption pursuant to Section 3.1 of the
Indenture or otherwise, on any Bonds pledged to the Bank pursuant to the Pledge
Agreement in connection with Bond Purchase Drawings, the Applicant will prepay
Indebtedness in an amount equal to the total of such principal due and payable
on such Bonds, together with accrued interest to the date of such prepayment.
The Bank shall release to the Applicant or its designee from the security
interest created under the Pledge Agreement a principal amount of Bonds equal to
the amount of such prepayment and deliver such Bonds or, if the Bonds are in
book-entry form, cause the beneficial ownership of such Bonds to be reflected in
the records of DTC or other designated securities depository, pursuant to the
instructions of the Applicant.
 
4.3  Optional Prepayments. Indebtedness payable pursuant to Section 3.1(a)
hereof, and interest thereon, arising from Bond Purchase Drawings may be prepaid
by the Applicant or its designee at any time on three (3) Business Days’ notice
to the Bank stating the amount to be prepaid (which shall be $100,000 or
increments of $5,000 in excess thereof ) upon payment of immediately available
funds to the Bank of the amount to be prepaid, together with accrued interest to
the date of such prepayment on the amount to be prepaid. The Bank shall release
to the Applicant or its designee from the security interest created under the
Pledge Agreement a principal amount of Bonds equal to the amount of such
prepayment and deliver such Bonds or, if the Bonds are in book-entry form, cause
the beneficial ownership of such Bonds to be reflected in the records of DTC or
other designated securities depository, pursuant to the instructions of the
Applicant.
 
SECTION 5.   CONDITIONS.
 
The Bank’s agreement to issue the Letter of Credit shall be effective only upon
the fulfillment of the following conditions precedent:
 
5.1  Corporate Action. The Applicant shall have taken all necessary and
appropriate corporate action and the Board of Directors of the Applicant shall
have authorized the execution and delivery of this Letter of Credit
Reimbursement Agreement, the form and content of the Letter of Credit, the Bond
Documents, the Collateral Documents and the taking of all action required of the
Applicant by this Letter of Credit Reimbursement Agreement; and the Applicant
shall have furnished to the Bank certified copies of such corporate action and
such other corporate documents as the Bank shall reasonably request.
 
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5.2  Bond Documents. The Applicant shall have executed and delivered to the Bank
the Bond Documents to which the Applicant is a party, all in form and content
satisfactory to the Bank.
 
5.3  Collateral Documents. The Applicant shall have executed and delivered to
the Bank the Collateral Documents in form and content satisfactory to the Bank.
 
5.4  Opinions. Counsel to the Applicant and the Guarantor shall have executed
and delivered to the Bank a favorable opinion in form and content satisfactory
to the Bank and its counsel as to such matters as the Bank may reasonably
request.
 
5.5  Other. The Applicant shall have delivered to the Bank such other documents,
instruments and approvals as the Bank may reasonably request, including, but not
limited to:
 

 
(a)
Evidence of insurance policies in amounts and form and with insurers acceptable
to the Bank, including (i) Extended coverage casualty insurance in the form of a
“Builder’s Risk” nonreporting policy in an amount to be determined by the Bank
as the insurable value of the improvements to the Premises, with a New York
Mortgagee endorsement or its equivalent, naming the Bank as mortgagee and loss
payee, without subjecting the mortgagee to defenses which may be available
against the Applicant and providing for mandatory 30-day notice to the Bank of
cancellation; (ii) Public liability and property damage insurance in amounts
acceptable to the Bank naming the Bank as an additional insured party;
(iii) Worker’s Compensation insurance; (iv) Flood Insurance, naming the Bank as
mortgagee, if required; and (v) such other coverage as the Bank may require,
including such coverage as is available for similar projects in the same
locality;
       
(b)
A Mortgagee title insurance policy in a minimum amount not less than $4,815,484,
insuring the Building Loan Mortgage and the Project Loan Mortgage as a
$1,184,516 priority lien on the Premises subject only to existing liens and
encumbrances satisfactory to the Bank;
       
(c)
A current “As-Built” survey of the Premises acceptable to the Bank, which survey
shall be certified to the Bank, together with evidence satisfactory to the Bank
that the Premises contains no designated “wetlands;”
       
(d)
A current site plan of the Premises illustrating the Project and showing all
required municipal approvals;
       
(e)
A completed Environmental Questionnaire, in form and content satisfactory to the
Bank;

 
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(f)
Evidence from the Agency that the Applicant and the Project have been approved
by the Agency;
       
(g)
Receipt and approval by the Bank and its counsel of the terms of the Bonds and
all Bond documentation; and
       
(h)
The other matters and documents described in the Bank’s November 22, 2006
commitment letter to the Applicant.

5.6  Costs. The Applicant shall have reimbursed the Bank for or paid all costs
and expenses incurred by the Bank in connection with the preparation, execution
and delivery of this Letter of Credit Reimbursement Agreement, the Bond
Documents and the Collateral Documents, including, without limitation,
reasonable attorneys’ fees and disbursements, title examination and insurance
fees, UCC search fees, appraisal, inspecting engineer, survey costs, mortgage
taxes, and recording and filing fees.
 
SECTION 6.   REPRESENTATIONS.
 
The Applicant hereby represents and warrants as follows:
 
6.1  Organization; Power and Authority. The Applicant is a business corporation
duly organized, validly existing and in good standing under the laws of the
State of New York. The Applicant is qualified and in good standing in each state
where the nature of its business or ownership of its property requires such
qualification, except where failure to qualify would not reasonably be expected
to have a Material Adverse Effect; and has all necessary power and authority to
execute and perform, and to consummate all transactions contemplated by this
Letter of Credit Reimbursement Agreement, and each of the Bond Documents and
Collateral Documents, all of which have been duly authorized by all proper and
necessary corporate and shareholder action.
 
6.2  Valid and Binding Obligation. This Letter of Credit Reimbursement Agreement
and each of the Bond Documents and the Collateral Documents to which the
Applicant is a party have been duly executed and delivered by the Applicant,
constitute the legal, valid and binding obligations of the Applicant,
enforceable against the Applicant in accordance with their respective terms.
 
6.3  Approvals. All authorizations, approvals, notices and filings required for
the Applicant to enter into this Letter of Credit Reimbursement Agreement and
each of the Bond Documents and the Collateral Documents and to take all actions
contemplated hereby or thereby or in connection herewith or therewith, have been
obtained, copies thereof have been delivered to the Bank, and such
authorizations, approvals, notices and filings remain in full force and effect.
 
6.4  Other Documents. The execution, delivery and performance by the Applicant
of this Letter of Credit Reimbursement Agreement do not and will not contravene,
conflict with or constitute a breach of or default under (i) the Applicant’s
organizational documents, or (ii) any note, mortgage, borrowing agreement or
other material instrument or agreement binding on the Applicant, or (iii) any
order, writ, judgment, injunction or decree of any court of competent
jurisdiction to which the Applicant is a party or by which the Applicant is
otherwise bound.
 
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6.5  Litigation. There are not any actions, suits, proceedings (whether or not
purportedly on behalf of the Applicant) or investigations pending or, to the
knowledge of the Applicant, threatened against the Applicant or any basis
therefor, which, reasonably could be expected to have a Material Adverse Effect,
or which question the validity of this Letter of Credit Reimbursement Agreement,
the Bonds or any of the Bond Documents or the Collateral Documents.
 
6.6  Financial Statements. All financial statements of the Applicant heretofore
given and hereafter to be given to the Bank are and will be true and complete in
all material respects as of their respective dates and prepared in accordance
with generally accepted accounting principles consistently applied, and fairly
represent the financial conditions of the business to which they pertain, and no
materially adverse change has occurred in the financial conditions reflected
therein since the respective dates thereof. None of the property or assets shown
in the financial statements heretofore delivered to the Bank has been materially
adversely affected as a result of any fire, explosion, accident, flood, drought,
storm, earthquake, condemnation, requisition, statutory or regulatory change,
act of God, or act of public enemy or other casualty, whether or not insured.
 
6.7  ERISA Matters. All Plans to which the Applicant or any Subsidiary is a
party are listed on Schedule 2 annexed hereto; no Plan has been terminated or
partially terminated or is insolvent or in reorganization, nor have any
proceedings been instituted to terminate or reorganize any Plan; neither the
Applicant nor any Subsidiary has withdrawn from any Plan in a complete or
partial withdrawal, nor has a condition occurred which if continued would result
in a complete or partial withdrawal; neither the Applicant nor any Subsidiary
has incurred any withdrawal liability, including contingent withdrawal
liability, to any Plan pursuant to Title IV of ERISA; neither the Applicant nor
any Subsidiary has incurred any liability to the Pension Benefit Guaranty
Corporation other than for required insurance premiums which have been paid when
due; no Reportable Event has occurred and no Plan or other “employee pension
benefit plan”, as defined in Section 3(2) of ERISA to which the Applicant or any
Subsidiary is a party has an “accumulated funding deficiency” (whether or not
waived) as defined in Section 302 of ERISA or in Section 412 of the Code. Each
Plan and each other “employee benefit plan” as defined in Section 3(3) of ERISA
to which the Applicant or any Subsidiary is a party is in substantial compliance
with ERISA, and no such plan, nor any administrator, trustee or fiduciary
thereof, to the best knowledge of the Applicant, has engaged in a prohibited
transaction described in Section 406 of ERISA or in Section 4975 of the Code.
 
6.8  Environmental Matters. To the best of Applicant’s knowledge, after due
inquiry and investigation:
 
(a)  Any Environmental Questionnaire previously provided to the Bank was and is
accurate and complete and does not omit any material fact the omission of which
would make the information contained therein materially misleading;
 
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(b)  No above ground or underground storage tanks containing Hazardous
Substances are or have been located on any property owned, leased or operated by
the Applicant or any Subsidiary, except for storage tanks containing diesel
fuel, gasoline or waste oil, which tanks are in material compliance with all
applicable laws, rules and regulations;
 
(c)  No property owned, leased or operated by the Applicant or any Subsidiary is
or has been used for the storage or Disposal of any Hazardous Substance, except
in the ordinary course of its business in material compliance with applicable
Environmental Laws, or for the treatment or Disposal of Hazardous Substances;
 
(d)  No unpermitted Release of a Hazardous Substance has occurred or is
threatened on, at, from or near any property owned, leased or operated by the
Applicant or any Subsidiary, except where such unpermitted Release does not
have, and could not reasonably be expected to have, a Material Adverse Effect;
 
(e)  Neither the Applicant nor any Subsidiary is subject to any existing,
pending or threatened suit, claim, notice of material violation or request for
information under any Environmental Law;
 
(f)  The Applicant and each Subsidiary are in compliance with all Environmental
Laws, except where noncompliance does not have, and could not be reasonably
expected to have, a Material Adverse Effect;
 
(g)  All Environmental Permits have been obtained and are in full force and
effect, except where the failure to obtain such Environmental Permit is not
likely to have a Material Adverse Effect; and
 
(h)  There are no agreements, consents, orders, decrees, judgment, license or
permit conditions or other orders or directives of any federal, state or local
court, governmental agency or authority relating to the past, present or future
ownership, use, operation, sale, transfer or conveyance of any property owned,
leased or operated by the Applicant or any Subsidiary which required any change
in condition or any work, repairs, construction, containment, clean up,
investigation, study, removal or other remedial action or capital expenditures.
 
6.9  Leases and Management Agreements. The Applicant has not entered into
(i) any lease with respect to all or any portion of the Project, or (ii) any
management agreement with respect to the operation or management of the Project.
 
6.10  Good Title. Each of the Applicant and each Subsidiary has good and
marketable title to all of its assets, none of which is subject to any mortgage,
indenture, pledge, lien, conditional sale contract, security interest,
encumbrance, claim, trust or charge except as set forth on Schedule 4 annexed
hereto or in favor of the Bank or HSBC Bank Canada.
 
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6.11  No Violations. Neither the Applicant nor any Subsidiary is in violation of
any term of its certificate of incorporation or by-laws, or of any mortgage,
borrowing agreement or other instrument or agreement pertaining to indebtedness
for borrowed money which might reasonably be expected to result in a Material
Adverse Effect. Neither the Applicant nor any Subsidiary is in violation of any
term of any other indenture, instrument, or agreement to which it is a party or
by which it may be bound, resulting, or which might reasonably be expected to
result, in a Material Adverse Effect. Neither the Applicant nor any Subsidiary
is in violation of any order, writ, judgment, injunction or decree of any court
of competent jurisdiction or of any statute, rule or regulation of any competent
governmental authority which might reasonably be expected to result in a
Material Adverse Effect. The execution and delivery of this Letter of Credit
Reimbursement Agreement and other documents required by this Letter of Credit
Reimbursement Agreement and the performance of all of the same is and will be in
compliance with the foregoing and will not result in any violation or result in
the creation of any mortgage, lien, security interest, charge or encumbrance
upon any properties or assets except in favor of the Bank. There exists no fact
or circumstance not disclosed in this Letter of Credit Reimbursement Agreement,
in the documents furnished in connection herewith, the Applicant’s filings under
the Securities Exchange Act of 1934, or in the financial projections furnished
to the Bank which has, or could reasonably be expected to have, a Material
Adverse Effect, except those facts and circumstances which generally affect all
Persons engaged in the Applicant’s lines of business.
 
6.12  Tax Returns. The Applicant has duly filed all federal and other tax
returns required to be filed for itself and all Subsidiaries except where an
extension has been obtained and has duly paid all taxes required by such returns
through its fiscal year ending [December 31, 2006]. Federal income tax liability
of the Applicant and the Subsidiaries has been reviewed by the United States
Internal Revenue Service through its fiscal year ending December 31, 2003, and
the Applicant has not received any assessments by the Internal Revenue Service
or other taxing authority for additional unpaid taxes.
 
6.13  Federal Regulations. Neither the Applicant nor any Subsidiary is engaged
principally, or as one of its important activities, in the business of extending
or arranging for the extension of credit for the purpose of purchasing or
carrying “margin stock” (as defined in Regulation U issued by the Board of
Governors of the Federal Reserve System). Neither the Applicant nor any
Subsidiary owns nor intends to carry or purchase any such “margin stock”, and
the Applicant will not use the proceeds of the Letter of Credit to purchase or
carry (or refinance any borrowing the proceeds of which were used to purchase or
carry) any such “margin stock”. Neither the Applicant nor any Subsidiary is an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended, or a “holding company,” or a “subsidiary company” of a “holding
company” or of a “subsidiary company” of a “holding company,” within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
 
6.14  Subsidiaries; Affiliates. The Applicant has no Subsidiaries except
Luminescent Systems of Canada Inc.
 
6.15  Fiscal Year. The fiscal year of the Applicant is the year ending
December 31.
 
6.16  Securities. Each outstanding share of stock, debenture, bond, note and
other security of the Applicant has been validly issued in full compliance with
each statute, regulation and other law, and, if a share of stock, is fully paid
and nonassessable.
 
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6.17  Anti-Terrorism Laws.
 
(a)  General. Neither the Applicant, the Guarantor, nor any of their
Subsidiaries, is in violation of any Anti-Terrorism Law or engages in or
conspires to engage in any transaction that evades or avoids, or has the purpose
of evading or avoiding, or attempts to violate, any of the prohibitions set
forth in any Anti-Terrorism Law.
 
(b)  Executive Order No. 13224. Neither the Applicant, the Guarantor nor any of
their Subsidiaries or their respective agents acting or benefiting in any
capacity in connection with the Letter of Credit or other transactions
hereunder, is any of the following (each a “Blocked Person”):
 
(1) a Person that is listed in the annex to, or is otherwise subject to the
provisions of, the Executive Order No. 13224;

(2) a Person owned or controlled by, or acting for or on behalf of, any Person
that is listed in the annex to, or is otherwise subject to the provisions of,
the Executive Order No. 13224;

(3) a Person or entity with which any bank is prohibited from dealing or
otherwise engaging in any transaction by any Anti-Terrorism Law;

(4) a Person or entity that commits, threatens or conspires to commit or
supports “terrorism” as defined in the Executive Order No. 13224;

(5) a Person or entity that is named as a “specially designated national” on the
most current list published by the U.S. Treasury Department Office of Foreign
Asset Control at its official website or any replacement website or other
replacement official publication of such list; or

(6) a Person or entity who is affiliated or associated with a Person or entity
listed above.

Neither the Applicant, the Guarantor nor any Subsidiary of the Applicant or, to
the knowledge of the Applicant, any of its agents acting in any capacity in
connection with the Letter of Credit or other transactions hereunder (i)
conducts any business or engages in making or receiving any contributions of
funds, goods or services to or for the benefit of any Blocked Person, or
(ii) deals in, or otherwise engages in any transaction relating to, any property
or interests in property blocked pursuant to the Executive Order No. 13224.
 
SECTION 7.   AFFIRMATIVE COVENANTS.
 
Until the expiration of the Letter of Credit and the payment in full of all sums
due under this Letter of Credit Reimbursement Agreement, the Applicant will:
 
7.1  Certain Agreements. Perform and comply with all terms, covenants and
conditions of each of the Bond Documents and the Collateral Documents.
 
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7.2  Reporting Requirements. Furnish, or cause the Trustee or the Guarantor, as
applicable, to furnish, to the Bank the following:
 
(i)  as soon as possible and in any event within ten (10) days after the
occurrence of any default or Event of Default, notice of such default or Event
of Default together with a statement of the Applicant describing the facts
giving rise to the occurrence(s) and the action which the Applicant proposes to
take with respect thereto;
 
(ii)  as soon as such notices are required to be given, copies of each of the
notices, reports and certificates which are required to be given (a) to the
Trustee by the Applicant under any of the Bond Documents and (b) to the
Bondholders under the Indenture by the Trustee;
 
(iii)  as soon as available, and in any event within ninety (90) days after the
end of each fiscal year of the Guarantor, a consolidating and consolidated
statement of financial position for the Guarantor and its Subsidiaries for such
fiscal year, including statements of activities and cash flows through the end
of such fiscal year, all audited by Ernst & Young LLP, Certified Public
Accountants, or such other independent certified public accountants as may from
time to time be selected by the Guarantor and reasonably approved by the Bank,
together with a satisfactory, unqualified opinion of such accountants;
 
(iv)  within forty-five (45) days after the end of each quarter of each of its
fiscal years, unaudited financial statements of the Guarantor and its
Subsidiaries, which statements shall consist of Consolidated and summary
consolidating balance sheets as of the end of such quarter, and related
statements of income, covering the period from the end of the Guarantor’s
immediately preceding fiscal year to the end of such quarter certified to be
correct by the President or chief fiscal officer of the Guarantor;
 
(v)  within twenty-five (25) days after each month-end which is not the end of a
fiscal quarter of Guarantor, monthly year-to-date consolidating internally
prepared financial statements of Guarantor and its Subsidiaries;
 
(vi)  accompanying each set of financial statements specified in (iii) and (iv)
above, a certificate of a responsible officer of the Applicant substantially in
the form of Exhibit B attached hereto to the effect that (a) the Applicant has
complied with and is in compliance with all the terms and covenants of this
Letter of Credit Reimbursement Agreement binding upon it, including, without
limitation, demonstration of compliance with the financial covenants set forth
in the Parent Guaranty, and (b) there exists no Event of Default, and no event
which with the giving of notice or passage of time, or both, would constitute
such an Event of Default has occurred or if this is not the case, that one or
more specified Events of Default has occurred or is occurring and the specific
steps the Applicant is taking to cure same;
 
(vii)  promptly after their preparation, copies of all such proxy statements,
financial statements and reports which the Applicant sends to its stockholders,
and copies of all regular, periodic and special reports, as well as all
registration statements, which the Applicant files with the Securities and
Exchange Commission;
 
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(viii)  promptly after the filing thereof with the Pension Benefit Guaranty
Corporation, a copy of each annual report filed with respect to each Plan;
 
(ix)  by the end of each of its fiscal years, a forecast of the statements of
income and cash flows as of and through the close of the following fiscal year
of the Applicant and its Subsidiaries; and
 
(x)  such other information respecting the business or the condition or
operations, financial or otherwise, of the Applicant as the Bank may from time
to time reasonably request.
 
7.3  Taxes. Promptly pay and discharge all of its taxes, assessments and other
governmental charges (including any charged or assessed on the issuance of the
Bonds) prior to the date on which penalties are attached thereto, establish
adequate reserves for the payment of taxes and assessments and make all required
withholding and other tax deposits; provided, however, that nothing herein
contained shall be interpreted to require the payment of any tax, assessment or
charge so long as its validity is being contested in good faith and by
appropriate proceedings diligently conducted.
 
7.4  Insurance. (a) Keep, and cause any Subsidiary to keep, all its property
insured at all times with responsible insurance carriers against fire, theft and
other risks in coverage, in form and amount consistent with industry standards
and reasonably satisfactory to the Bank; (b) keep, and cause any Subsidiary to
keep, adequately insured at all times in reasonable amounts with responsible
insurance carriers against liability on account of damage to persons or
property, and under all applicable worker’s compensation laws; (c) promptly
deliver to the Bank certificates of insurance or any of those insurance policies
required to be carried by the Applicant pursuant hereto, with appropriate
endorsements designating the Bank as a named insured, mortgagee and loss payee
as requested by the Bank; (d) deliver to the Bank evidence of flood insurance,
if the Project is located in an area identified as a special flood hazard area,
naming the Bank as mortgagee and an additional insured; and (e) cause each such
insurance policy to contain a notice of cancellation clause providing for a
mandatory 30-day notice to the Bank of cancellation, in form satisfactory to the
Bank.
 
7.5  Existence; Conduct of Business. Preserve and maintain, and cause any
Subsidiary to preserve and maintain, its corporate existence, in good standing
and all of its rights, privileges and franchises necessary or desirable in the
normal conduct of its operations, except where failure to preserve and maintain
any such right, privilege or franchise would not have a Material Adverse Effect.
 
7.6  Maintenance of Properties; Books and Records. Keep all of its properties in
good working condition, keep proper books and records in accordance with GAAP,
and permit representatives of the Bank to inspect such properties and to examine
and make reasonable extracts from its books and records during normal business
hours upon reasonable prior notice, and notify the Bank promptly in writing of
any proposed change in the location at which such books and records are
maintained.
 
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7.7  Compliance with Law. Comply with all applicable laws, rules, regulations
and orders of all governmental authorities, except where failure to so comply
does not have, and would not reasonably be expected to have, a Material Adverse
Effect. Maintain all licenses, approvals, etc., necessary or proper for the
Applicant to construct and operate the Project consistent with the Applicant’s
past operations.
 
7.8  Litigation. Promptly notify the Bank in writing as soon as the Applicant
has knowledge thereof, of the institution or filing of any litigation, action,
suit, claim, counterclaim, or administrative proceeding against, or
investigation of, the Applicant or any Subsidiary or to which the Applicant or
any Subsidiary is a party by or before any regulatory body or governmental
agency (i) the outcome of which (A) could reasonably be expected to have a
Material Adverse Effect or could reasonably be expected to materially and
adversely affect the Applicant’s ability to fulfill its obligations hereunder,
or (B) involves more than $1,000,000 and is not covered by insurance carried by
Applicant in accordance with Section 7.4 hereof, or (ii) which questions the
validity of this Letter of Credit Reimbursement Agreement, the Letter of Credit,
the Bonds, the Bond Documents or the Collateral Documents, or any action taken
or to be taken pursuant to the foregoing; and furnish or cause to be furnished
to the Bank such information regarding the same as the Bank may request from
time to time.
 
7.9  Judgments. Promptly notify the Bank in writing as soon as the Applicant has
knowledge thereof, of any judgment, order or award of any court, agency or other
governmental agency or any arbitrator, (a) the outcome of which could reasonably
be expected to have a Material Adverse Effect or could reasonably be expected to
materially and adversely affect the Applicant’s ability to fulfill its
obligations hereunder or which involves more than $1,000,000 unless adequately
covered by insurance, or (b) renders invalid this Letter of Credit Reimbursement
Agreement, the Letter of Credit or any action taken or to be taken pursuant to
any of the foregoing, and furnish or cause to be furnished to the Bank such
information regarding the same as the Bank may request.
 
7.10  Notice. Promptly notify the Bank in writing of (a) any pending or future
audits of the Applicant’s or any Subsidiary’s federal income tax returns by the
Internal Revenue Service as soon as the Applicant has knowledge thereof, and the
results of each such audit upon its completion; (b) any default by the Applicant
or any Subsidiary in the performance of, or any material modifications of, any
of the terms or conditions contained in any agreement, mortgage, indenture or
instrument relating to borrowed money to which the Applicant or any Subsidiary
is a party or which is binding upon the Applicant or any Subsidiary and of any
default by the Applicant or any Subsidiary in the payment of any of its
indebtedness; (c) any default by the Applicant in the performance of any of the
terms or conditions contained in any of the Collateral Documents or any of the
Bond Documents. The Applicant shall not, however, be required to so notify the
Bank of potential or actual defaults under, or of modifications of terms or
provisions of, those documents or agreements pertaining to its transactions in
the ordinary course of business which do not have a Material Adverse Effect or
constitute a Potential Default or an Event of Default.
 
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7.11  Pension Default. With respect to each Plan, the Applicant will furnish the
following to the Bank as soon as possible and in any event within thirty (30)
days after the Applicant knows or has reason to know of (a) the occurrence of
any Reportable Event with respect to such Plan or (b) the institution of
proceedings or the taking of any other action by the Pension Benefit Guaranty
Corporation or the Applicant or any Subsidiary to terminate, withdraw or
partially withdraw from any Plan and, with respect to a Multiemployer Plan, the
reorganization (as defined in Section 4241 of ERISA) or insolvency (as defined
in Section 4245 of ERISA) of such Plan, and in addition to such notice, deliver
to the Bank whichever of the following may be applicable: (i) a certificate of
the President or chief fiscal officer of the Applicant setting forth details
known to the Applicant as to such Reportable Event, together with a copy of any
notice thereof that is required to be filed with the Pension Benefit Guaranty
Corporation, or (ii) any notice delivered by the Pension Benefit Guaranty
Corporation evidencing its intent to institute such proceedings or any notice to
the Pension Benefit Guaranty Corporation that such Plan is to be terminated, as
the case may be.
 
7.12  Inspections. Upon request of the Bank, permit any officer, employee,
accountant, attorney or other agent of the Bank upon reasonable notice and
during regular business hours to (a) visit and inspect each of the premises of
the Applicant and each Subsidiary, (b) examine, audit, copy and make extracts
from each accounting record of the Applicant, and (c) discuss the business,
operations, assets, affairs and condition (financial or other) of the Applicant
and each Subsidiary with a responsible officer of the Applicant and with the
independent accountants of the Applicant.
 
7.13  Environmental Compliance.
 
(a) Comply with all Environmental Laws except where the failure to comply could
not reasonably be expected to have a Material Adverse Effect.

(b) Promptly notify the Bank in the event of the Disposal of any Hazardous
Substance at any property owned, leased or operated by the Applicant or any
Subsidiary, or in the event of any Release, or threatened Release, of a
Hazardous Substance, on, at or from any such Property, except when such Disposal
or Release is in the ordinary course of the Applicant’s business and in
compliance with all applicable Environmental Laws or could not reasonably be
expected to have a Material Adverse Effect.

(c) Deliver promptly to the Bank (i) copies of any non-routine, material
documents received from the United States Environmental Protection Agency or any
state, county or municipal environmental or health agency concerning the
Applicant’s operations except documents of general applicability; and (ii)
copies of any documents submitted by the Applicant to the United States
Environmental Protection Agency or any state, county or municipal environmental
or health agency concerning its operations, except submissions in the ordinary
course of business.

7.14  Equity Contribution. Agrees to make an equity contribution to the Project
equal to the difference between the total cost of the Project and the aggregate
amount of the Bonds and the Mortgage Loan with such equity contributions to be
made not later than the date the Project is completed.

7.15  Other Acts. Execute and deliver, or cause to be executed and delivered, to
the Bank all further documents and perform all other acts and things which the
Bank deems necessary or appropriate to protect or perfect any mortgage or
security interests in any property directly or indirectly securing payment of
any indebtedness, or other obligations of the Applicant to the Bank, or to
otherwise carry out the intent hereof.
 
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SECTION 8.   NEGATIVE COVENANTS.
 
Until the expiration of the Letter of Credit and the payment in full of all sums
due under this Letter of Credit Reimbursement Agreement, the Applicant shall
not, and it shall cause each Subsidiary of the Applicant not to, without the
prior written consent of the Bank, in each instance:
 
8.1  Bond Documents. Enter into or consent to any amendments, modifications or
changes to any of the Bond Documents or any of the Collateral Documents.
 
8.2  Borrowed Money. Create, incur, assume or suffer to exist any liability for
borrowed money except (i) to the Bank or HSBC Bank Canada, (ii) the Bonds and
the Existing Bonds, (iii) the liabilities set forth on Schedule 3 annexed
hereto, (iv) indebtedness owed by a Subsidiary of the Applicant or the Applicant
to the Guarantor or any of the Guarantor’s Subsidiaries, (v) indebtedness which
when aggregated with the indebtedness of the Subsidiaries of Applicant and the
Guarantor and the Guarantor’s Subsidiaries will not be in excess of $3,000,000
outstanding at any one time incurred for capital leases of fixed assets or fixed
asset purchases, and (vi) unsecured indebtedness that is subordinated to the
Indebtedness of the Applicant to the Bank under this Letter of Credit
Reimbursement Agreement in a manner reasonably satisfactory to the Bank.
 
8.3  Encumbrances. Create, incur, assume or suffer to exist any mortgage, lien,
security interest, pledge or other encumbrance on any of its property or assets,
whether now owned or hereafter owned or acquired, except in favor of the Bank or
a trustee for the benefit of the Bank and except for (a) any lease of any asset
as a lessor in the ordinary course of its business and without interference with
the conduct of its business or operations, (b) any pledge or deposit made by the
Applicant or any Subsidiary of the Applicant in the ordinary course of its
business (i) in connection with any workers’ compensation, unemployment
insurance, social security or similar statute, regulation or other law or
(ii) to secure the payment of any indebtedness, liability or obligation in
connection with any letter of credit, bid, tender, trade or government contract,
lease, surety, appeal or performance bond or statute, regulation or other law,
or of any similar indebtedness, liability or obligation, not incurred in
connection with the borrowing of any money or in connection with the deferral of
the payment of the purchase price of any asset, (c) any attachment, levy or
similar lien with respect to the Applicant or any Subsidiary of the Applicant
arising in connection with any action or other legal proceeding so long as
(i) the validity of the claim or judgment secured thereby is being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted, (ii) adequate reserves have been appropriately established for such
claim or judgment, (iii) the execution or other enforcement of such attachment,
levy or similar lien is effectively stayed and (iv) neither such claim or
judgment nor such attachment, levy or similar lien has a Material Adverse
Effect, (d) any statutory lien in favor of the United States for any amount paid
to the Applicant or any Subsidiary of the Applicant as a progress payment
pursuant to any government contract, (e) any statutory lien securing the payment
of any tax, assessment, fee, charge, fine or penalty imposed by any government
or political subdivision upon the Applicant or any Subsidiary of the Applicant
or upon any of its respective assets but not yet due to be paid (excluding any
lien arising under ERISA), (f) any statutory lien securing the payment of any
claim or demand of any materialman, mechanic, carrier, warehouseman, garageman
or landlord against the Applicant or any Subsidiary of the Applicant, but not
yet due to be paid, (g) any reservation, exception, encroachment, easement,
right-of-way, covenant, condition, restriction, lease or similar title exception
or encumbrance affecting title to any real property of the Applicant or any
Subsidiary of the Applicant but not interfering with the conduct of its business
or operations, (h) liens listed on Schedule 4 hereto and (i) liens securing
indebtedness permitted by clause (v) of Section 8.2 hereof.
 
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8.4  Guaranties. Become a guarantor, surety or otherwise liable for the debts or
other obligations of any other Person, whether by agreement to purchase the
indebtedness of any other Person, or agreement for the furnishing of funds to
any other Person through the purchase of goods, supplies or services (or by way
of stock purchase, capital contribution, advance or loan) for the purpose of
paying or discharging the indebtedness of any other Person or otherwise, except
(i) as an endorser of instruments for the payment of money deposited to its bank
account for collection in the ordinary course of business, (ii) as related to
this transaction, (iii) guaranties of indebtedness to the Bank, and
(iv) guaranties granted in the ordinary course of business by the Applicant in
connection with ordinary course of business purchase or sale obligations of
Applicant’s Subsidiaries under contracts for the purchase or sale of goods.
 
8.5  Sale of Assets. Convey, sell, transfer, lease, lease and buyback, or sell
and lease back during the term of this Letter of Credit Reimbursement Agreement
the Project Facility (as defined within the definition of Project) or more than
five percent (5%) in the aggregate of other property, assets or business of the
Guarantor and its Subsidiaries on a Consolidated basis to any other Person
except for the sales of inventory in the ordinary course of business, and sales
of fixed assets no longer needed or in use.
 
8.6  Investments and Loans. Make or suffer to exist any investments in, or loans
or advances to, any other person, firm or corporation, including, without
limitation, loans or advances to members, shareholders, directors, officers or
employees, except (i) investments in the form of obligations of the United
States of America or any agency thereof, (ii) advance payments or deposits for
purchases in the ordinary course of business, (iii) any existing investments in,
or existing or future advances to, any Subsidiary, and (iv) investments which
are classified as Cash or Cash Equivalents under GAAP.
 
8.7  Merger. Merge or consolidate with or into any other Person unless the
Applicant or the Guarantor is the entity surviving after the merger or
consolidation, or enter into any joint venture or partnership with any other
Person.
 
8.8  Disposal of Hazardous Substances. Suffer, cause or permit the Disposal of
Hazardous Substances at any property owned, leased or operated by the Applicant
or any Subsidiary of Applicant, except in the ordinary course of business in
accordance with applicable Environmental Laws.
 
8.9  Change Fiscal Year. Change the fiscal year of the Applicant.
 
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SECTION 9.   EVENTS OF DEFAULT AND REMEDIES.
 
9.1  Events. Any of the following events or conditions shall constitute an Event
of Default hereunder:
 
(i)  Nonpayment. Nonpayment within ten (10) days after the same becomes due,
whether by acceleration or otherwise, of (A) principal of or interest on the
Indebtedness or, (B) any fees, expenses or other amounts payable under this
Letter of Credit Reimbursement Agreement.
 
(ii)  Certain Covenants. A default by the Applicant in the observance of any of
the covenants or agreements set forth in Section 8 of this Letter of Credit
Reimbursement Agreement.
 
(iii)  Insurance. A default by the Applicant in the performance of any
obligation, term or condition set forth in Section 7.4 of this Letter of Credit
Reimbursement Agreement.
 
(iv)  Noncompliance. Other than as set forth in subparagraphs (i), (ii) and
(iii) above, default by the Applicant in the performance of any obligation, term
or condition of this Letter of Credit Reimbursement Agreement which is not
remedied within thirty (30) days after notice thereof by the Bank to the
Applicant.
 
(v)  Voluntary Insolvency Proceedings. If the Applicant or any Subsidiary (i)
shall file a petition or request for liquidation, reorganization, arrangement,
adjudication as a bankrupt, relief as a debtor or other relief under the
bankruptcy, insolvency or similar laws of the United States of America or any
state or territory thereof or any foreign jurisdiction, now or hereafter in
effect; (ii) shall make a general assignment for the benefit of creditors;
(iii) shall consent to the appointment of a receiver or trustee for the
Applicant or any Subsidiary or any of the Applicant’s or any Subsidiary’s
assets, including, without limitation, the appointment of or taking possession
by a “custodian” as defined in the federal Bankruptcy Code; (iv) shall make any,
or send notice of any intended, bulk sale; or (v) shall execute a consent to any
other type of insolvency proceeding (under the federal Bankruptcy Code or
otherwise) or any formal or informal proceeding for the dissolution or
liquidation of, or settlement of claims against or winding up of affairs of, the
Applicant or any Subsidiary.
 
(vi)  Involuntary Insolvency Proceedings. The appointment of a receiver,
trustee, custodian or officer performing similar functions for the Applicant or
any Subsidiary or any of the Applicant’s or any Subsidiary’s assets, including,
without limitation, the appointment of or taking possession by a “custodian” as
defined in the federal Bankruptcy Code; or the filing against the Applicant or
any Subsidiary of a request or petition for liquidation, reorganization,
arrangement, adjudication as a bankrupt or other relief under the bankruptcy,
insolvency or similar laws of the United States of America or any state or
territory thereof or any foreign jurisdiction, now or hereafter in effect; or
the institution against the Applicant or any Subsidiary of any other type of
insolvency proceeding (under the federal Bankruptcy Code or otherwise) or of any
formal or informal proceeding for the dissolution or liquidation of, settlement
of claims against or winding up of affairs of the Applicant or any Subsidiary,
and the failure to have such appointment vacated or such filing, petition or
proceeding dismissed within ninety (90) days after such appointment, filing or
institution.
 
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(vii)  Sale. The sale, assignment, transfer or delivery of all or substantially
all of the assets of the Applicant; or the cessation by the Applicant as a going
business concern.
 
(viii)  Other Indebtedness. Nonpayment by the Applicant or the Guarantor when
due of any indebtedness for borrowed money owing to the Bank or any indebtedness
owing to any third party by the Applicant or any Subsidiary or the Guarantor in
an amount equal to or exceeding $1,000,000 when due (or, if permitted by the
terms of the applicable document, within any applicable grace period), whether
such indebtedness shall become due by scheduled maturity, by required
prepayment, by acceleration, by demand or otherwise, or the failure to perform
any term, covenant or agreement on its part to be performed under any agreement
or instrument (other than this Letter of Credit Reimbursement Agreement)
evidencing or securing or relating to any indebtedness owing by the Applicant or
any Subsidiary or the Guarantor in an amount equal to or exceeding $1,000,000
when required to be performed if the effect of such failure is to permit the
holder to accelerate the maturity of such indebtedness.
 
(ix)  Bond and Mortgage Loan Documents. The occurrence of an Event of Default
under, or as defined in, any of the Bond Documents, any of the Existing Bond
Documents, or under any mortgage loan documents hereafter entered into between
the Applicant and the Bank providing for a three-year term loan secured, in
whole or in part, by liens on the Project Facility (as defined within the
definition of “Project”).
 
(x)  Collateral, SWAP and Guaranty Documents. The occurrence of an Event of
Default as defined in any of the Collateral Documents, any of the SWAP
Documents, or the Parent Guaranty or termination of the Parent Guaranty.
 
(xi)  Pension Default.
 
(i) the Applicant or any of its Subsidiaries (or any officer or director
thereof) shall engage in any “prohibited transaction” (as defined in Section 406
of ERISA or Section 4975 of the Code) involving any Plan,

(ii) any “accumulated funding deficiency” (as defined in Section 302 of ERISA),
shall exist with respect to any Plan,

(iii) with respect to any Multiemployer Plan, the Applicant or any Commonly
Controlled Entity fails to make a contribution required to be made thereto, or
withdraws therefrom, where in either event the liability of Applicant or such
Commonly Controlled Entity is in excess of $100,000.00,

(iv) a Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Plan which is not a Multiemployer Plan, which
Reportable Event or institution of proceedings is, in the reasonable opinion of
the Bank, likely to result in the termination of such Plan for purposes of
Title IV of ERISA and, in the case of a Reportable Event, the continuance of
such Reportable Event unremedied for ten (10) days after notice of such
Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given or
the continuance of such proceedings for ten (10) days after commencement
thereof, as the case may be,
 
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(v) any Plan shall terminate for purposes of Title IV or ERISA, or

(vi) any other similar event or condition shall exist which, together with all
other events or conditions in clauses (i) through (v) above, if any, would
subject Applicant or any of its Subsidiaries to any tax, penalty or other
liabilities under ERISA which, in the aggregate, are material in relation to the
business, operations, property or financial or other condition of Applicant and
its Subsidiaries taken as a whole.

(xii)  Representations. If any certificate, statement, representation, warranty
or financial statement furnished by or on behalf of the Applicant or any
Subsidiary pursuant to or in connection with this Letter of Credit Reimbursement
Agreement or as an inducement to the Bank to enter into this Letter of Credit
Reimbursement Agreement or any other lending agreement with the Applicant shall
prove to have been false in any material respect at the time as of which the
facts therein set forth were represented, or to have omitted any substantial
contingent or unliquidated liability or claim against the Applicant or any
Subsidiary required to be stated therein, or if on the date of the execution of
this Letter of Credit Reimbursement Agreement there shall have been any
materially adverse change in any of the facts disclosed by any such statement or
certificate, which change shall not have been disclosed by the Applicant to the
Bank at or prior to the time of such execution.
 
(xiii)  Judgments. If any judgment or judgments (other than any judgment for
which it is fully insured) against the Applicant or any Subsidiary in an
aggregate amount in excess of $1,000,000 remains unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of thirty (30) days after
entry thereof.
 
9.2  Remedies. Upon the happening of any Event of Default:
 
(i)  The Bank may deliver to the Trustee, with a copy to the Applicant, a notice
stating that an Event of Default has occurred and has not been cured by the
Applicant or waived by the Bank, which notice will cause the acceleration of the
Bonds.
 
(ii)  The Bank may, in its sole discretion, by notice to the Applicant, declare
all amounts in respect of the Indebtedness not then payable to be forthwith due
and payable, and the same shall be due and payable without demand, presentment,
protest or further notice of any kind, all of which are hereby expressly waived
by the Applicant.
 
(iii)  Upon the happening of an Event of Default under Section 9.1(v) or 9.1(vi)
hereof, all amounts in respect of the Indebtedness shall immediately become due
and payable without demand, presentment, protest or further notice of any kind,
all of which are hereby expressly waived by the Applicant.
 
-19-

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(iv)  The Bank’s rights and remedies with respect to the collateral granted to
the Bank pursuant to the Collateral Documents shall be those of a secured party
under the Uniform Commercial Code and under any other applicable law, as the
same may from time to time be in effect, in addition to those rights granted
herein and in any other agreement now or hereafter in effect between the
Applicant and the Bank or relating to such collateral.
 
(v)  The letter of credit fee specified in Section 3.2 of this Letter of Credit
Reimbursement Agreement shall be increased to two percent (2%) of the Stated
Amount effective as of the date of the occurrence of the Event of Default and
without further notice to the Applicant by the Bank.
 
SECTION 10.   MISCELLANEOUS.
 
10.1  Entire Agreement; Amendments. This Letter of Credit Reimbursement
Agreement constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof and no modification, rescission, waiver, release or
amendment of any provision of this Letter of Credit Reimbursement Agreement
shall be made except by written agreement subscribed by duly authorized officers
of the Applicant and the Bank.
 
10.2  Additional Bonds. The Applicant shall not permit the issuance of any
additional bonds under the Indenture without the prior written consent of the
Bank.
 
10.3  Delays and Omissions. No course of dealing and no delay or omission by the
Bank in exercising any right or remedy hereunder or with respect to any
Indebtedness shall operate as a waiver thereof or of any other right or remedy.
The Bank may remedy any default by the Applicant hereunder or with respect to
any other person, firm or corporation in a reasonable manner without waiving the
default remedied and without waiving any other prior or subsequent default by
the Applicant and shall be reimbursed for its expenses in so remedying such
default. All rights and remedies of the Bank hereunder are cumulative and shall
be in addition to any other remedy given under this Letter of Credit
Reimbursement Agreement, any Bond Document or Collateral Document, or now or
hereafter existing at law or in equity or by statute.
 
10.4  Notices. Any notice or demand to be given hereunder shall be duly given if
delivered or mailed as follows:
 

To the Applicant -
Luminescent Systems, Inc.
130 Commerce Way
East Aurora, NY 14052
Attn: David C. Burney
         Vice President-Finance and Treasurer

 

with a copy to -
Hodgson Russ LLP
One M&T Plaza, Suite 2000
Buffalo, NY 14203
Attn: Victoria J. Saxon

-20-

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To the Bank -
HSBC Bank USA, National Association
One HSBC Center, Lobby Level
Buffalo, NY 14203
Attn: Mark F. Zeis
          Senior Vice President

 

with a copy to -
Phillips Lytle LLP
3400 HSBC Center
Buffalo, NY 14203
Attn: Raymond H. Seitz

 
and shall be deemed effective, if delivered, upon delivery, three (3) Business
Days after being delivered to a courier for overnight delivery, or, if mailed,
five (5) Business Days after deposit in an official depository maintained by the
United States Post Office for the collection of mail.
 
10.5  Governing Laws. This Letter of Credit Reimbursement Agreement, the
transaction described herein and the obligations of the Bank and the Applicant
shall be governed by, and construed and interpreted in accordance with, the laws
of the State of New York, as in effect from time to time, without regard to
principles of conflicts of law.
 
10.6  Term. This Letter of Credit Reimbursement Agreement shall remain in full
force and effect until the later of the payment in full of the Bonds, the
Indebtedness, any accrued and unpaid interest and all costs and expenses
incurred by the Bank in connection with this Letter of Credit Reimbursement
Agreement or the expiration of the Letter of Credit.
 
10.7  Joint and Several. If more than one entity executes this Letter of Credit
Reimbursement Agreement as the Applicant, any and all obligations hereunder
shall be joint and several.
 
10.8  Counterparts. This Letter of Credit Reimbursement Agreement may be
executed simultaneously in two or more counterparts, each of which shall be
deemed an original, and it shall not be necessary in making proof of this Letter
of Credit Reimbursement Agreement to produce or account for more than one such
counterpart.
 
SECTION 11.   INDEMNIFICATION.
 
The Applicant hereby agrees to indemnify the Bank and hold the Bank harmless
from and against any and all claims, damages, losses, liabilities, costs or
expenses which may arise or be asserted against the Bank in connection with the
Letter of Credit, other than claims, damages, losses, liabilities, costs and
expenses arising from the Bank’s gross negligence or willful misconduct or
arising out of a material misrepresentation or omission by the Bank with respect
to the information set forth under the caption “THE LETTER OF CREDIT” in the
Official Statement or in Appendix A to the Official Statement. The Applicant has
reviewed and approved the Official Statement prepared by Prager, Sealy & Co. LLC
and certifies to the Bank and Prager, Sealy & Co. LLC that such Official
Statement contains no material errors or omissions with respect to the Company
or the Project.
 
-21-

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SECTION 12.   LIMITATION OF LIABILITY.
 
The Bank shall not be liable for:
 
(i)  the validity, sufficiency or genuineness of any document or instrument
presented to the Bank in connection with the Letter of Credit, even if such
document or instrument should in fact prove to be in any or all respects
invalid, insufficient, fraudulent or forged; or
 
(ii)  any action taken or omitted by the Bank in good faith in connection with
making or not making payment under the Letter of Credit, except if the Bank pays
a materially non-conforming draw under the Letter of Credit.
 
SECTION 13.   JURY TRIAL WAIVER.
 
THE APPLICANT AND THE BANK HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHT TO TRIAL BY JURY THAT THE APPLICANT OR THE BANK MAY HAVE IN ANY ACTION
OR PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THIS LETTER OF CREDIT
REIMBURSEMENT AGREEMENT OR THE TRANSACTIONS RELATED HERETO. THE APPLICANT
REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF THE BANK HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WILL NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THIS JURY TRIAL WAIVER. THE APPLICANT ACKNOWLEDGES
THAT THE BANK HAS BEEN INDUCED TO ENTER INTO THIS LETTER OF CREDIT REIMBURSEMENT
AGREEMENT BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION 13.
 
SECTION 14.   CONSENT TO JURISDICTION.
 
THE APPLICANT AND THE BANK AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR
ARISING OUT OF THIS AGREEMENT MAY BE COMMENCED IN THE SUPREME COURT OF NEW YORK
IN ERIE COUNTY, OR IN THE DISTRICT COURT OF THE UNITED STATES IN THE WESTERN
DISTRICT OF NEW YORK, AND THE APPLICANT WAIVES PERSONAL SERVICE OF PROCESS AND
AGREES THAT A SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN ANY
SUCH COURT SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF
SERVED BY REGISTERED OR CERTIFIED MAIL TO THE APPLICANT, OR AS OTHERWISE
PROVIDED BY THE LAWS OF THE STATE OF NEW YORK OR THE UNITED STATES.
 
[This Space Intentionally Left Blank]

-22-

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IN WITNESS WHEREOF, the parties hereto have caused this Letter of Credit
Reimbursement Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first above written.
 

       
LUMINESCENT SYSTEMS, INC.
 
   
   
  By:    

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

Name: David C. Burney
Title: Vice President-Finance and Treasurer

 

       
HSBC BANK USA, NATIONAL ASSOCIATION
 
   
   
  By:    

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

Name: Mark F. Zeis
Title: Senior Vice President

 
-23-

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EXHIBIT A
 
HSBC BANK USA, NATIONAL ASSOCIATION
452 Fifth Avenue, 15th Floor
New York, NY 10018
ATTN: TRADE SERVICES

IRREVOCABLE DIRECT PAY LETTER OF CREDIT NO. SDCMTN552148

April     , 2007
 
HSBC Bank USA, National Association,
as Trustee under Trust Indenture
with the Erie County Industrial Development Agency
dated as of April 1, 2007
452 Fifth Avenue
New York, NY 10018-2706
Attn: Issuer Services

(hereinafter “you” or “your”)

Dear Sirs:

At the request and on the instructions of our customer, Luminescent
Systems, Inc. (“Applicant”), as account party, HSBC Bank USA, National
Association (hereinafter “we” or “us”) hereby establishes this irrevocable
letter of credit (“Letter of Credit”) in your favor as the trustee for the
benefit of the holders of $6,000,000 Variable Rate Demand Industrial Development
Revenue Bonds (Luminescent Systems, Inc. Project - Letter of Credit Secured)
Series 2007 (“Bonds”), issued by the Erie County Industrial Development Agency
(“Issuer”) pursuant to a Trust Indenture, dated as of April 1, 2007 between the
Issuer and HSBC Bank USA, National Association, as Trustee (“Indenture”). All
capitalized terms used but not defined herein shall have the meanings set forth
in the Indenture.

We hereby irrevocably authorize you to draw on us in accordance with the terms
and conditions hereinafter set forth, by one or more sight drafts in the form of
Exhibit 1 (“Draft(s)”) in an aggregate amount not exceeding $6,084,000 as
reduced and reinstated from time to time in accordance with the provisions
hereof (“Stated Amount”), of which an aggregate amount not exceeding
(i) $6,000,000 may be drawn with respect to (a) the unpaid principal amount of
Bonds Outstanding, whether at maturity, acceleration or upon redemption
(“Principal Drawing”) or (b) that portion of the purchase price corresponding to
principal of Bonds Outstanding tendered for purchase or subject to mandatory
purchase pursuant to Section 4.1 or 4.2 of the Indenture (“Bond Purchase Drawing
- Principal”) and (ii) $84,000 may be drawn with respect to (a) the payment of
up to fifty-one (51) days accrued interest on Bonds Outstanding calculated at
the maximum interest rate of 10% based on a 365 or 366-day year for the actual
number of days elapsed (“Interest Drawing”) or (b) that portion of the purchase
price corresponding to interest on Bonds Outstanding tendered for purchase or
subject to mandatory purchase pursuant to the Indenture (individually, a “Bond
Purchase Drawing - Interest”, and collectively, with a Bond Purchase
Drawing - Principal, a “Bond Purchase Drawing”).
 

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

 
Each drawing honored by us shall reduce the Stated Amount, subject only to
reinstatement with respect to drawings as hereinafter provided.

The Stated Amount with respect to an Interest Drawing shall be automatically and
irrevocably reinstated by the amount of a Draft so drawn so long as you have not
received from us, within seven (7) days from the date of the presentation to us
of a Draft, written notice to the effect that an Event of Default under the
Letter of Credit Reimbursement Agreement dated as of April 1, 2007, between the
Applicant and us (“Reimbursement Agreement”), has occurred, and that the Stated
Amount is not being reinstated.

Upon receipt by us or by the Trustee as our agent of Bonds pledged in connection
with any Bond Purchase Drawing pursuant to Section 4.1 or 4.2 of the Indenture,
the Stated Amount shall be automatically and irrevocably reinstated by the
amount of such Bond Purchase Drawing, and we will send you written notice
confirming such receipt and reinstatement.

The Stated Amount shall be decreased, and not reinstated, from time to time upon
payment under this Letter of Credit for the redemption of the Bonds as provided
in Article III of the Indenture by (i) with respect to principal, the aggregate
principal amount of the Bonds so redeemed, and (ii) with respect to interest,
the amount that bears the same proportion to $6,084,000 as the amount specified
in the immediately preceding clause (i) bears to $6,000,000.

Each Draft for each drawing under this Letter of Credit must bear on its face
the clause “Drawn under HSBC Bank USA, National Association Irrevocable Direct
Pay Letter of Credit No. SDCMTN552148,” be dated the Business Day of
presentation and be accompanied by (i) if the drawing being made is a Bond
Purchase Drawing pursuant to the Indenture, your completed and signed
certificate in the form of Exhibit 2, dated the date of the accompanying Draft;
or (ii) if the drawing being made is a Principal Drawing or an Interest Drawing,
your completed and signed certificate in the form of Exhibit 3, dated the date
of the accompanying Draft. Presentation of Draft(s) and such Certificate(s)
shall be made at our office specified above or at any other office as may be
designated by us by written notice delivered to you. Notwithstanding the
provisions of applicable law, if you draw on this Letter of Credit at or prior
to 1:00 p.m., New York City time, on a Business Day, and provided that such
drawing conforms to the terms and conditions hereof, we shall pay you the amount
specified, in immediately available funds, not later than 1:00 p.m., New York
City time, on the immediately following Business Day. If you draw on this Letter
of Credit after 1:00 p.m., New York City time, on a Business Day, and provided
that such drawing conforms to the terms and conditions hereof, we shall pay you
the amount specified, in immediately available funds, not later than 1:00 p.m.
on the second succeeding Business Day. Provided, however, if a drawing is a Bond
Purchase Drawing, and is made by 11:00 a.m., New York City time, on a Business
Day, and conforms to the terms and conditions hereof, we shall pay you the
amount specified, in immediately available funds, not later than 2:00 p.m. on
the same Business Day.
 
-2-

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

 
Your Drafts and Certificates may be presented to us by telecopier if sent to
telecopier number (212) 525-2186 (or to such other number as may be designated
by us by written notice to you).

This Letter of Credit shall automatically terminate at our aforesaid address on
the close of business on the first to occur of the following dates (“Termination
Date”): (i) the Stated Expiration Date, (ii) the date of the receipt of a
certificate signed by the Trustee and the Applicant that none of the Bonds are
Outstanding under the Indenture, (iii) the date a Substitute Letter of Credit is
delivered to and accepted by the Trustee or (iv) fifteen (15) calendar days
after the final maturity date of the Bonds. The Stated Expiration Date shall
initially be April 1, 2017 and may be extended by us in our sole discretion at
any time or from time to time, by our giving written notice of such extension to
you specifying a new Stated Expiration Date.

If a drawing by you hereunder does not, in any instance, conform to the terms
and conditions of this Letter of Credit, we shall attempt to give you prompt
notice that the purported drawing was not effected in accordance with the terms
and conditions of this Letter of Credit, stating the reasons therefor and that
we are holding the documents at your disposal or are returning the same to you,
as we may elect. Upon being notified that the purported drawing was not effected
in accordance with this Letter of Credit, you may attempt to correct any such
nonconforming drawing if, and to the extent that, you are entitled (without
regard to the provisions of this sentence) and able to do so.

All payments by us hereunder will be with our own funds.

This Letter of Credit sets forth in full the terms of our undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein or in
which this Letter of Credit is referred to or to which this Letter of Credit
relates, except for the draft certificates referred to herein (Exhibits 1, 2, 3
and 4) and, for the purpose of certain definitions, the Indenture, and any such
reference shall not be deemed to incorporate herein by reference, any document,
instrument or agreement except for such draft certificates and definitions.

This Letter of Credit is transferable in its entirety (but not in part) to any
transferee who has succeeded you as Trustee under the Indenture. Transfer of
this Letter of Credit to such transferee shall be evidenced by the presentation
to us of this Letter of Credit accompanied by a certificate substantially in the
form of Exhibit 4.
 
Only you (or a transferee as permitted by the terms of this Letter of Credit)
may make a drawing under this Letter of Credit.

This Letter of Credit is subject to the Uniform Customs and Practice for
Documentary Credits, (1993 Revision) International Chamber of Commerce
Publication No. 500 (“UCP”) and, to the extent not in conflict with the UCP, by
the laws of the State of New York (including, without limitation, the provisions
of the Uniform Commercial Code) from time to time in effect.
 
-3-

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

 
Communications and notices with respect to this Letter of Credit shall be in
writing and shall be addressed to us at our office specified above, specifically
referring to the Irrevocable Direct Pay Letter of Credit Number of this Letter
of Credit, and shall be addressed to you at your address specified above.

We hereby agree with the drawer that each Draft drawn in compliance with the
terms of this Letter of Credit will be duly honored on delivery of documents as
specified herein if presented at our office indicated above on or before the
Termination Date.
 

       
Very truly yours,

HSBC BANK USA, NATIONAL ASSOCIATION
 
   
   
  By:    

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

Name:    
Title: 

 

       
and
 
   
   
  By:    

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

Name:    
Title: 

 
-4-

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 EXHIBIT 1

SIGHT DRAFT

TO:
HSBC Bank USA, National Association
452 Fifth Avenue, 15th Floor
New York, NY 10018
 
 
_____________________, ________

 
For Value Received

Pay on sight to
__________________________________________________________________________________
U.S. ______________________________________________ Dollars (U.S. $_____).

Drawn under HSBC Bank USA, National Association Irrevocable Direct Pay Letter of
Credit No. SDCMTN552148 dated April __, 2007.
 

       

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

as Trustee
 
   
   
  By:    

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

Authorized Trust Officer

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

 

EXHIBIT 2

CERTIFICATE FOR PURCHASE OF BONDS OUTSTANDING TENDERED FOR PURCHASE OR SUBJECT
TO MANDATORY PURCHASE PURSUANT TO THE TRUST INDENTURE DATED AS OF APRIL 1, 2007
OF THE ERIE COUNTY INDUSTRIAL DEVELOPMENT AGENCY WITH RESPECT TO ITS VARIABLE
RATE DEMAND INDUSTRIAL DEVELOPMENT REVENUE BONDS (LUMINESCENT SYSTEMS, INC.
PROJECT - LETTER OF CREDIT SECURED) SERIES 2007, UNDER IRREVOCABLE DIRECT PAY
LETTER OF CREDIT NO. SDCMTN552148
 

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

Any capitalized term used, but not defined herein, shall have its respective
meaning as set forth in the Letter of Credit referred to above.

The undersigned, a duly authorized trust officer of
________________________________, Trustee under the Trust Indenture (the
“Trustee”, hereby certifies to HSBC Bank USA, National Association, as issuer of
the Letter of Credit referred to above (“Bank”), that:

 
(a)
The Trustee is the Trustee under the Trust Indenture for the holders of the
Bonds.

 
(b)
The Trustee is making a drawing under the Letter of Credit in the amount of
(i) $______ with respect to payment of the principal portion of, and
(ii) $______ with respect to payment of the interest portion of, the purchase
price of Bonds tendered for purchase or subject to mandatory purchase pursuant
to the Indenture.

 
(c)
The amount of the Draft accompanying this Certificate does not exceed the Stated
Amount in respect of principal or interest as set forth in this Certificate.

 
(d)
The amount of the Draft accompanying this Certificate was computed in accordance
with the terms and conditions of the Bonds and the Indenture.

 
(e)
The Letter of Credit referred to above has not expired pursuant to its terms.

 

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

 
IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate,
dated the___ day of ______________, 20___.
 

       

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

 
   
   
  By:    

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

[Name and Title]

* Trustee shall send a copy of each certificate to the Applicant at the address
specified in the Reimbursement Agreement.
 
-2-

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EXHIBIT 3

CERTIFICATE FOR PAYMENT OF PRINCIPAL OR INTEREST ON THE ERIE COUNTY INDUSTRIAL
DEVELOPMENT AGENCY VARIABLE RATE DEMAND INDUSTRIAL DEVELOPMENT REVENUE BONDS
(LUMINESCENT SYSTEMS, INC. PROJECT - LETTER OF CREDIT SECURED) SERIES 2007,
UNDER IRREVOCABLE DIRECT PAY LETTER OF CREDIT NO. SDCMTN552148
 

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

 
Any capitalized term used, but not defined herein, shall have its respective
meaning as set forth in the Letter of Credit referred to above.

The undersigned, a duly authorized trust officer of
______________________________, as Trustee under the Trust Indenture (the
“Trustee”), hereby certifies to HSBC Bank USA, National Association, as issuer
of the Letter of Credit referred to above (“Bank”), that:

(a) The Trustee is the Trustee under the Trust Indenture for the holders of the
Bonds.

(b) [Complete the applicable Section(s) below and strike the inapplicable
Sections]

A. Periodic Interest Drawing. The amount of the Interest Drawing is $_______
which equals the amount of interest on the Bonds which is due and payable with
Letter of Credit proceeds on the payment date specified in the Draft
accompanying this Certificate.

B. Default Interest Drawing. An Event of Default as defined in the Indenture has
occurred, and the amount of the Interest Drawing is $_________, which is the
[lesser of (1) the amount of interest that is unpaid on the Bonds or (2)] the
maximum amount permitted under the Letter of Credit for the payment of interest
on Bonds outstanding on the date of the Draft.

C. Periodic Principal Drawing. The amount of the Principal Drawing is
$________,which equals the amount of principal of the Bonds which is due and
payable on the payment date specified in the Draft accompanying this
Certificate.

D. Default Principal Drawing. An Event of Default as defined in the Indenture
has occurred, and the amount of Principal Drawing is $___________, which is the
amount of the principal of the Bonds which is due and unpaid.

(c) The amount of the Draft accompanying this Certificate does not exceed the
Stated Amount in respect of principal or interest as set forth in this
Certificate.

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

 

(d) The amount of the Draft accompanying this Certificate was computed in
accordance with the terms and conditions of the Bonds and the Indenture.

(e) The Letter of Credit referred to above has not expired pursuant to its
terms.

IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate,
dated the date of the accompanying Draft, to wit the _________ day of 20__.
 

       

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

 
   
   
  By  

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

[Name and Title]

 

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

*  Trustee shall send a copy of each certificate to the Applicant at the address
specified in the Reimbursement Agreement.

-2-

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EXHIBIT 4

NOTICE OF TRANSFER TO SUCCESSOR TRUSTEE
OF IRREVOCABLE DIRECT PAY LETTER
OF CREDIT NO. SDCMTN552148

HSBC Bank USA, National Association
452 Fifth Avenue, 15th Floor
New York, NY 10018

Attention: Trade Services Department

Ladies/Gentlemen:

Reference is made to that certain Irrevocable Direct Pay Letter of Credit
No. SDCMTN552148 dated April __, 2007 which has been established by HSBC Bank
USA, National Association, in favor of HSBC Bank USA, National Association, as
Trustee (“Transferor”).

The undersigned Transferor has transferred (and hereby confirms to you said
transfer) all of its rights and obligations in and under said Letter of Credit
to [Name and Address of Transferee] and confirms that Transferor no longer has
any rights under or interest in said Letter of Credit.

Transferor and Transferee have attached the dated, completed and signed
instrument of transfer to the Letter of Credit and a copy of said instrument of
transfer is attached hereto.

Transferee hereby certifies that it is a duly authorized transferee under the
terms of said Letter of Credit and is accordingly entitled, upon presentation of
the documents called for therein, to receive payment thereunder.
 

       

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

[Name of Transferor]
 
   
   
  Dated:________________ By:  

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

[Name and Title of authorized
 Trust Officer of Transferor]

 

       

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

[Name of Transferee]
 
   
   
  Dated:________________ By:  

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

[Name and Title of authorized
 Trust Officer of Transferee]

 

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

 
EXHIBIT B

COMPLIANCE CERTIFICATE

LUMINESCENT SYSTEMS, INC. (“Applicant’) hereby certifies to HSBC BANK USA,
NATIONAL ASSOCIATION (“Bank”) pursuant to the Letter of Credit Reimbursement
Agreement between the Applicant and the Bank dated as of April 1, 2007
(“Agreement”), that:

1. Capitalized terms not defined herein shall have the meanings set forth in the
Agreement.

2. The Applicant has complied with all the terms, covenants and conditions to be
performed or observed by it contained in the Agreement.

3. There exists no Potential Default or Event of Default on the date hereof.

4. The representations and warranties contained in the Agreement, or in any
certificate, document or financial or other statement furnished at any time
thereunder are true, correct and complete in all material respects with the same
effect as though such representations and warranties had been made on the date
hereof, except to the extent that any such representation and warranty relates
solely to an earlier date (in which case such representation and warranty shall
be true, correct and complete on and as of such earlier date).

5. There is no unsatisfied reimbursement obligation of the Applicant in
connection with the Letter of Credit.

6. As of the date hereof and for the period ending date set forth below, the
computations, ratios and calculations set forth in this Certificate (which are
the financial covenants set forth in the Parent Guaranty) are true and correct:
 
Period Ending Date: _____________

Minimum Debt Service Coverage Ratio
         
Guarantor’s Debt Service Coverage Ratio
 
= _____:1.0
     
Required:  lesser [lesser.jpg]  2.50 to 1.0
         
Maximum Debt-to-Worth Ratio
         
Consolidated Debt-to-Worth Ratio of the
 
= _____:1.0
Guarantor and its Subsidiaries
         
Required:  greater [greater.jpg]  2.75 to 1.0
   

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

Minimum Interest Coverage Ratio
         
Ratio of Guarantor’s EBITDA to
   
Consolidated interest expense
 
= _____:1.0
 
   
Required:  lesser [lesser.jpg]  4.00 to 1.0
         
Minimum Current Ratio
         
Ratio of the Guarantor’s Consolidated Current
 
= _____:1.0
Assets to Consolidated Current Liabilities
         
Required:  lesser [lesser.jpg]  1.25 to 1.0
         
Maximum Capital Expenditures
         
Capital expenditures in the in the aggregate for the
 
$__________
Guarantor and its Subsidiaries
         
Required:  greater [greater.jpg]  In Guarantor’s fiscal year 2007: $10,000,000;
and in fiscal years 2008 and thereafter: $5,000,000 in any one year
         
Maximum Leverage Ratio
         
Guarantor’s Leverage Ratio
 
= _____:1.0
     
 Required:  greater [greater.jpg]  2.50 to 1.0
   

 
WITNESS the signature of a duly authorized officer of the Applicant on
__________, 20__.
 

       
LUMINESCENT SYSTEMS, INC.
 
   
   
  By  

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Name:  

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Title:

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SCHEDULE 1

to
Letter of Credit Reimbursement Agreement
between
HSBC BANK USA, NATIONAL ASSOCIATION
and
LUMINESCENT SYTEMS, INC.

Definitions

The following terms shall, for all purposes of this Letter of Credit
Reimbursement Agreement, have the following meanings unless the context
otherwise requires another meaning:

“Agency” - Erie County Industrial Development Agency, a corporate governmental
agency constituting a body corporate and politic and a public benefit
corporation of the State.

“Agency Mortgage” - collectively, the Building Loan Mortgage and the Project
Loan Mortgage.

“Anti-Terrorism Laws” - any laws relating to terrorism or money laundering,
including Executive Order No. 13224, the USA Patriot Act, the laws comprising or
implementing the Bank Secrecy Act, and the laws administered by the United
States Treasury Department’s Office of Foreign Asset Control (as any of the
forgoing laws may from time to time be amended, renewed, extended or replaced).

“Assignment of Agreements” - the Assignment of Agreements made as of April 1,
2007 from the Applicant to the Bank, together with any modifications or
amendments thereto.

“Bank” - HSBC Bank USA, National Association, and its successors and/or assigns.

“Bank’s Prime Rate” - the rate of interest publicly announced by the Bank from
time to time as its prime rate and as a base rate for calculating interest on
certain loans. The Bank’s Prime Rate may or may not be the most favorable rate
charged by the Bank to its customers from time to time.

“Bond Documents” - collectively, the Indenture, the Tax Regulatory Agreement,
the Guaranty Agreement, the Sale Agreement, the Building Loan Agreement, the
Pledge Agreement, the Pledge and Assignment, the Agency Mortgage, the Letter of
Representation and Indemnity Agreement, the Tax Compliance Agreement, the
Official Statement, and the Bond Purchase Agreement and the Remarketing
Agreement.

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“Bond Purchase Agreement” - the Bond Purchase Agreement dated as of April 23,
2007 among the Agency, the Applicant and the Underwriter.

“Bonds” - Variable Rate Demand Industrial Development Revenue Bonds (Luminescent
Systems, Inc. Project - Letter of Credit Secured) Series 2007, issued by the
Agency in the aggregate principal amount of $6,000,000.00.

“Building Loan Agreement” - the Building Loan Agreement among the Agency, the
Trustee, the Bank and the Applicant, dated as of April 1, 2007, together with
any modifications or amendments thereto.

“Building Loan Mortgage” - the Building Loan Mortgage, Assignment of Rents and
Security Agreement, dated as of April 1, 2007, made by the Applicant and the
Agency in favor of the Bank, together with any modifications or amendments
thereto.

“Code” - the Internal Revenue Code of 1986, as amended.

“Collateral Documents” - the Pledge Agreement, the Agency Mortgage, the
Assignment of Agreements, the Environmental Compliance and Indemnification
Agreement and the Security Agreement.

“Commonly Controlled Equity” - an entity, whether or not incorporated, which is
under common control with the Applicant within the meaning of Section 414(b) or
(c) of the Code.

“Consolidated” - the consolidation of the accounts of the Guarantor and its
Subsidiaries in accordance with GAAP, including principles of consolidation,
consistent with those applied in the preparation of the Consolidated audited
financial statements heretofore provided to the Bank.

“Disposal” - the intentional or unintentional abandonment, discharge, deposit,
injection, dumping, spilling, leaking, storing, or placing of any Hazardous
Substance so that such Hazardous Substance or any related constituent thereof
may enter the Environment. The term “Disposal” also means the thermal
destruction of the Hazardous Substance and the burning of such fuel for the
purpose of recovering useable energy.

“EBITDA” - For the relevant period, the Guarantor’s Consolidated earnings before
interest, taxes, depreciation and amortization expenses.

“Environmental Questionnaire” - one or more questionnaires and all attachments
thereto prepared by the Applicant and heretofore delivered to the Bank
concerning (i) activities and conditions affecting the environment at the
Property or (ii) the enforcement or possible enforcement of any of the
Environmental Laws against the Applicant.

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“Environmental Compliance and Indemnification Agreement” - the Environmental
Compliance and Indemnification Agreement from the Applicant to the Bank and the
Trustee dated as of April 1, 2007, together with any modifications or amendments
thereto.

“Environmental Laws” - All federal, state and local environmental, land use,
zoning, health, chemical use, safety and sanitation laws, statutes, ordinances,
regulations, codes and rules relating to the protection of the Environment
and/or governing the use, storage, treatment, generation, transportation,
processing, handling, production or disposal of Hazardous Substances and the
policies, guidelines, procedures, interpretations, decisions, orders and
directives of federal, state and local governmental agencies and authorities
with respect thereto to the extent that such rules, regulations, policies,
guidelines, interpretations, decisions, orders and directives are published or
otherwise available to the public or are otherwise known by or available to the
Applicant or any of its Subsidiaries.

“Environmental Permits” - All licenses, permits, approvals, authorizations,
consents or registrations required by any applicable Environmental Laws and all
applicable judicial and administrative orders in connection with ownership,
lease, purchase, transfer, closure, use and/or operation of any property for the
storage, treatment, generation, transportation, processing, handling, production
or disposal of Hazardous Substances or the sale, transfer or conveyance of any
such property.

“ERISA” - Employee Retirement Income Security Act of 1974, as amended.

“Event of Default” - an event or condition as specified in Section 9.1 of this
Letter of Credit Reimbursement Agreement.

“Executive Order No. 13224” - the Executive Order No. 13224 on Terrorist
Financing, effective September 24, 2001, as the same has been, or shall
hereafter be, amended, renewed, extended or replaced.

“Existing Bonds” - the following currently outstanding bond issues:

 
(i)
The $7,000,000 Adjustable Rate Demand Industrial Development Revenue Bonds (1999
Luminescent Systems, Inc. Project) issued by the Erie County Industrial
Development Agency; and

 
(ii)
The $7,250,000 Industrial Facility Revenue Bonds (Luminescent Systems, Inc.
Issue - Series 1998) issued by the Business Finance Authority of the State of
New Hampshire.

“Existing Bond Documents” - the bond, collateral, letter of credit reimbursement
agreement and other documents executed and delivered in connection with the
issuance of the Existing Bonds.

“Facility” - the Premises together with the improvements made thereto and the
furniture, fixtures and equipment installed thereon in connection with the
Project.

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“GAAP” - as of the date of any determination, generally accepted accounting
principles as promulgated by the Financial Accounting Standard’s Board and/or
the American Institute of Certified Public Accountants, consistently applied and
maintained throughout the relevant periods and from period to period.

“Guarantor” - Astronics Corporation.

“Guaranty Agreement” - the Guaranty Agreement from the Applicant to the Trustee
dated as of April 1, 2007, together with any modifications or amendments
thereto.

“Hazardous Substance” - without limitation, any explosives, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
hazardous wastes, hazardous or toxic substances or related materials as defined
in the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. Section 9601, et seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Section 1801, et seq.), the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.),
Articles 15 and 27 of the New York State Environmental Conservation Act or any
other applicable Environmental Law, and in the regulations promulgated pursuant
thereto.

“Indenture” - the Trust Indenture dated as of April 1, 2007 between the Agency
and the Trustee entered into in connection with the issuance, delivery and
payment of the Bonds and the security for the Bonds, together with any
modifications or amendments thereto.

“Letter of Representation and Indemnity Agreement” - the Letter of
Representation and Indemnity Agreement dated the date of delivery of the Bonds
by the Applicant to the Agency, the Underwriter, the Trustee and the Bank.

“Material Adverse Effect” - A material adverse effect on the business,
operations or financial condition of the Applicant and its Subsidiaries taken as
a whole.

“Multiemployer Plan” - A Plan which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.

“Official Statement” - the Official Statement dated April 23, 2007 delivered in
connection with the issuance and delivery of the Bonds.

“Parent Guaranty” - The guaranty agreement from Astronics Corporation to the
Bank dated as of April 1, 2007, together with any modifications or amendments
thereto.

“Person” - Any individual, corporation, partnership, limited liability company,
joint venture, trust, unincorporated association, government or political
subdivision or other entity, body, organization or group.

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“Plan” - any employee benefits plan which is covered by Title IV of ERISA and in
respect of which the Applicant or a Common Controlled Entity is an “employer” as
defined in Section 3(5) of ERISA, each of which Plans is listed on Schedule 2 to
this Letter of Credit Reimbursement Agreement.

“Pledge Agreement” - the Pledge and Security Agreement given by the Applicant to
the Bank dated as of April 1, 2007, together with any modifications or
amendments thereto.

“Pledge and Assignment” - the Pledge and Assignment given by the Agency to the
Trustee and the Bank dated as of April 1, 2007, together with any modifications
or amendments thereto.

“Potential Default” - Any event or occurrence which with the giving of notice,
or passage of time, or both, constitutes an Event of Default.

“Premises” - the real property owned by the Agency, and in which Applicant has
an interest, located at 130 Commerce Way, East Aurora, Erie County, New York, as
more particularly described in Exhibit ”A” to the Agency Mortgage.

“Project” - (a) (i) the acquisition of an interest in a portion of an
approximately 14.9 acre parcel of improved real property (the “Land”) located at
130 Commerce Way, in the Village of East Aurora, Erie County, (ii) the
construction of an approximately 57,600 square foot addition to the existing
industrial facility located on the Land and expansion of parking areas for use
for the design and manufacturing of aerospace lighting and electronics and
related purposes (the “Facility”), and (iii) the acquisition of and installation
in the Facility of various machinery, equipment and furnishings (the
“Equipment”) (the Land, Facility and Equipment are hereinafter collectively
referred to as the “Project Facility”); (b) the financing of all or a portion of
the costs of the foregoing by the issuance of the Agency’s tax-exempt and
taxable industrial development revenue the bonds; (c) the granting of certain
other financial assistance in the form of exemptions from real property tax,
mortgage recording tax and sales and use tax (collectively with the bonds, the
“Financial Assistance”); and (d) the sale of the Project Facility to the
Applicant pursuant to an agreement, all for use by the Applicant in the
manufacture of aircraft lighting and keyboards.

“Project Loan Mortgage” - the Project Loan Mortgage, Assignment of Rents and
Security Agreement, dated as of April 1, 2007, made by the Applicant and the
Agency in favor of the Bank, together with any modifications or amendments
thereto.

“Release” - Release as defined in Section 101(22) of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601(22), and the regulations promulgated thereunder.

“Remarketing Agreement” - the Remarketing Agreement dated as of April 1, 2007
between the Applicant and the Underwriter.

-5-

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“Reportable Event” - any event described in Section 4043 of ERISA or in
regulations issued thereunder.

“Sale Agreement” - the Installment Sale Agreement dated as of April 1, 2007
between the Agency and the Applicant pursuant to which the Agency has agreed to
sell substantially all of its right, title and interest in the Facility to the
Applicant, together with any modifications or amendments thereto.

“Securities” - as defined in the Uniform Commercial Code of the State, as in
effect from time to time.

“Security Agreement” - the Security Agreement, dated as of April 1, 2007, made
by the Applicant in favor of the Bank, together with any modifications or
amendments thereto.

“State” - State of New York.

“Stated Amount” - as such term is defined in the Letter of Credit, a form of
which is attached hereto as Exhibit A.

“Subsidiary” - Any corporation of which at least 50% of the voting stock is
owned by a Person directly or indirectly through one or more Subsidiaries, and
any limited liability company of which at least 50% of the membership interests
are owned by a Person directly or indirectly through one or more Subsidiaries.

“SWAP Documents” - any SWAP Agreement now or hereafter entered into between the
Bank and the Applicant, together with the schedules, exhibits, confirmations and
other documents executed or delivered in connection therewith.

“Tax Compliance Agreement” - the Tax Compliance Agreement among the Agency, the
Applicant and the Trustee dated as of the date of issuance of the Bonds,
together with any modifications or amendments thereto.

“Trustee” - HSBC Bank USA, National Association, in its capacity as trustee.

“Underwriter” - Prager, Sealy & Co., LLC, in its capacity as remarketing agent.

“USA Patriot Act” - The Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Public Law 107-56, as the same has been, or shall hereafter be, renewed,
extended, amended or replaced.
 
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SCHEDULE 2

PENSION PLANS

Atro Companies Profit Sharing/401K Plan
 

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SCHEDULE 3

LIABILITIES

Unsecured loan owed by Astronics Corporation to Empire State Development
Corporation in the outstanding principal amount of $65,965.73.

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SCHEDULE 4

PERMITTED ENCUMBRANCES
 
“Permitted Encumbrances” means (A) exceptions to title set forth in the title
insurance policy delivered to the Bank on the date of issuance and delivery of
the Bonds including the liens securing the Existing Bonds; (B) the Agency
Mortgage; (C) the Sale Agreement; (D) the Pledge and Assignment; (E) utility,
access and other easements and rights-of-way, restrictions and exceptions that
do not materially impair the utility or the value of the property affected
thereby for the purposes for which it is intended; (F) mechanics’,
materialmen’s, warehousemen’s carriers’ and other similar liens to the extent
permitted by Section 6.8 of the Sale Agreement; (G) liens and encumbrances that
are approved in writing by the Bank; and (H) liens for taxes not yet delinquent.
 

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