Form 10-K

0001021408-01-506994.txt : 20011008 0001021408-01-506994.hdr.sgml : 20011008 ACCESSION NUMBER: 0001021408-01-506994 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010919 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LSI INDUSTRIES INC CENTRAL INDEX KEY: 0000763532 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 310888951 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13375 FILM NUMBER: 1740431 BUSINESS ADDRESS: STREET 1: 10000 ALLIANCE RD STREET 2: P O BOX 42728 CITY: CINCINNATI STATE: OH ZIP: 45242 BUSINESS PHONE: 5135796411 MAIL ADDRESS: STREET 1: 10000 ALLIANCE RD STREET 2: P O BOX 42728 CITY: CINCINNATI STATE: OH ZIP: 45242 FORMER COMPANY: FORMER CONFORMED NAME: LSI LIGHTING SYSTEMS INC DATE OF NAME CHANGE: 19891121 10-K 1 d10k.htm FORM 10-K Form 10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

	x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2001.

		OR

	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________.

Commission File No. 0-13375

LSI Industries Inc.

State of Incorporation - Ohio

IRS Employer I.D. No. 31-0888951

10000 Alliance Road

Cincinnati, Ohio 45242

(513) 793-3200

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Shares
(No par value)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Aggregate market value of the voting stock held by non-affiliates of the registrant at September 5, 2001 was approximately $241,719,000, based on a closing price of $25.03. At September 5, 2001 there were 10,456,108 shares of no par value Common Shares issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement filed with the Commission for its 2001 annual meeting are incorporated by reference in Part III, as specified.

LSI INDUSTRIES INC.
2001 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

		Begins on
		Page

PART I

ITEM 1.	BUSINESS	1
ITEM 2.	PROPERTIES	3
ITEM 3.	LEGAL PROCEEDINGS	4
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	4

PART II

ITEM 5.	MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS	4
ITEM 6.	SELECTED FINANCIAL DATA	5
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	5
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	5
ITEM 9.	DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	6

PART III

ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	6
ITEM 11.	EXECUTIVE COMPENSATION	6
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	6
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	6

PART IV

ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K	6

SIGNATURES		8

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995

This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve substantial risks and uncertainties that could cause actual results to differ materially from those expected. These include, but are not limited to, the impact of competitive products, product demand and market acceptance risks, reliance on key customers, unexpected difficulties in integrating acquired businesses, and fluctuations in operating results or costs.

PART I

ITEM 1. BUSINESS

The Company's two business segments are the Image Segment and the Commercial / Industrial Lighting Segment. Net sales by segment are as follows (in thousands):

	2001		2000		1999

Image Segment	$	147,021	$	159,257	$	162,299
Commercial / Industrial
Lighting Segment		86,919		80,725		69,423

Total Net Sales	$	233,940	$	239,982	$	231,722

The Image Segment manufactures and sells exterior and interior visual image elements (lighting, graphics, and menu board systems) for the petroleum / convenience store market and for multi-site retail operations. The Image Segment includes the operations of LSI Petroleum Lighting, LSI Automotive, LSI IMAGES, LSI Metal Fabrication, SGI Integrated Graphic Systems, Grady McCauley, LSI Retail Graphics and LSI Adapt (acquired in the third quarter of fiscal year 2001). The Commercial / Industrial Lighting Segment manufactures and sells outdoor, indoor, and landscape lighting for the commercial / industrial and multi-site retail markets. The Commercial / Industrial Lighting Segment includes the operations of LSI Lighting Systems, Courtsider Sports Lighting, Greenlee Lighting, LSI Marcole, LSI MidWest Lighting and LSI Lightron (acquired in the second quarter of fiscal year 2001). The Company's most significant market is the petroleum / convenience store market with approximately 36%, 38% and 43% of net sales concentrated in this market in the fiscal years ended June 30, 2001, June 30, 2000, and June 30, 1999, respectively. See Note 3 of Notes to Consolidated Financial Statements beginning on page S-15 of this Form 10-K for additional information on business segments.

The decrease in Image Segment net sales is attributed to several factors. Net sales to the petroleum / convenience store market continued to be adversely impacted by the temporary affects of mergers of major petroleum companies. The Company reported decreased menu board business in fiscal 2001 as compared to last year as a significant roll out program in fiscal 2000 with one customer neither repeated nor was it replaced with a program with another customer in fiscal 2001. These decreases were partially offset by increased interior graphics business in other markets, and by the inclusion of the results of LSI Adapt, acquired in January 2001 and representing approximately 2% of Image Segment net sales. The Company believes it is likely that net sales of the Image Segment will increase in fiscal 2002. Significant customers in the petroleum / convenience store market and a menu board system customer in the quick service restaurant market have indicated their intent to reimage their retail sites over a multi-year time period and have released some orders in the fourth quarter of fiscal 2001 to initiate roll out of their re-image programs.

The increase in Commercial / Industrial Lighting Segment net sales is attributed to the November 2000 acquisition of LSI Lightron (approximately 14% of net sales of this Segment). Excluding the acquisition of LSI Lightron, net sales in this segment decreased approximately 8% due to competitive markets and down economic conditions in the North American market.

operate in the New Windsor, New York area in the business of designing, manufacturing, and selling a line of high-end fluorescent, metal halide, halogen, recessed, surface, and high bay lighting fixtures, and LED exit signs for the commercial, industrial and retail markets. When the Company completes construction of a new facility in the first half of fiscal year 2002, the manufacturing assets, inventory, and remaining related acquired liabilities of Lightron of Cornwall will be transferred to LSI Lightron. Until such transfer of assets, a portion of the purchase price will remain in escrow and Lightron of Cornwall will be exclusively a manufacturer of light fixtures and products for LSI Lightron. Results of LSI Lightron are included in the Company's Commercial / Industrial Lighting Segment. The acquisition has been accounted for as a purchase, effective on the date of acquisition. An additional approximate $3 million of cash was used immediately following the acquisition to reduce acquired liabilities. The purchase price exceeded the estimated fair value of net assets acquired by approximately $16.5 million, which is recorded as goodwill and is being amortized over forty years.

The Company acquired substantially all of the net assets of ADaPT Engineering, Inc. effective January 1, 2001. The initial consideration for this purchase, exclusive of acquisition costs, was $4.5 million, consisting of $2.25 million in cash and 109,430 common shares of LSI Industries valued at $2.25 million, plus the assumption of certain liabilities related to ADaPT Engineering's business. In addition, a contingent "earn-out" having a maximum value of $2.0 million, payable in cash, could be earned during the first eighteen months after acquisition based upon achievement of certain financial performance. The performance in the first earn-out period ended June 30, 2001 was above the target and an earn-out payment of $0.5 million was made in the first quarter of fiscal year 2002. The new subsidiary, LSI Adapt Inc., is a multi-discipline service firm primarily focused on the retail petroleum / convenience store branded image programs, as well as other national retail customers. LSI Adapt specializes in integrated design, site engineering, permitting, project and construction management of national retail sites. Results of LSI Adapt are included in the Company's Image Segment. The acquisition has been accounted for as a purchase, effective on the date of acquisition. The initial purchase price, plus the earn-out consideration achieved to date, exceeded the estimated fair value of net assets acquired by approximately $3.2 million, which has been recorded as goodwill and is being amortized over fifteen years.

See Note 11 of Notes to Consolidated Financial Statements beginning on page S-22 of this Form 10-K for additional information on these acquisitions.

The Company believes that it is a low-cost producer for its types of products, and as such, is in a position to promote its product lines with substantial marketing and sales activities.

The Company is not dependent on any one supplier for any of its component parts.

The Company's sales are partially seasonal as installation of outdoor lighting and graphic systems in the northern states lessens during the harshest winter months. The Company had a backlog of orders, believed by it to be firm, of $34.1 million and $19.5 million at June 30, 2001 and 2000, respectively. All orders are believed to be shippable within twelve months.

The Company has approximately 1,500 full-time and 140 temporary employees. The Company has a comprehensive compensation and benefit program for most employees, including competitive wages, a discretionary bonus plan, a profit-sharing plan and retirement plan, a 401(k) savings plan, a non-qualified deferred compensation plan (for certain employees), a stock option plan, and medical and dental insurance.

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The Company sells its products throughout the United States and Canada.

In the first quarter of fiscal 2002 the Company announced a partnership with a company based in Australia that will market LSI lighting systems in both the Australian and New Zealand markets. This was not an acquisition but rather a true marketing partnership with a company that will operate as LSI Hamilton Lighting.

LSI Industries encounters strong competition in all markets served by the Company's product lines. The Company has many competitors, some of which have greater financial and other resources. The Company considers product quality and performance, price, customer service, prompt delivery, and reputation to be important competitive factors.

The Company has several product and process patents which it has obtained in the normal course of business. The Company in general does not believe that patent protection is critical to its business, however it does believe that patent protection is important for a few select products.

ITEM 2.

PROPERTIES

The Company has sixteen facilities:

		Description	Size	Location	Status



1	)	LSI Industries Corporate	243,000 sq. ft.,	Cincinnati, OH	Owned
		Headquarters, and	(includes 56,000
		lighting fixture and	sq. ft. of office
		graphics manufacturing	space)


2	)	LSI Industries pole	131,000 sq. ft.	Cincinnati, OH	Owned
		manufacturing and dry
		powder-coat painting


3	)	LSI Metal Fabrication	99,000 sq. ft.	Independence, KY	Owned
		and LSI Images manu-	(includes 5,000
		facturing and dry	sq. ft. of office
		powder-coat painting	space)


4	)	SGI Integrated Graphic	198,000 sq. ft.	Houston, TX	Leased
		Systems office; screen	(includes 34,000
		printing manufacturing;	sq. ft. of office space)
		and architectural graphics
		manufacturing


5	)	Greenlee Lighting office	40,000 sq. ft.	Dallas, TX	Leased
		and manufacturing	(includes 4,000 sq. ft.
			of office space)


6	)	Grady McCauley office	212,000 sq. ft.	North Canton, OH	Owned
		and manufacturing	(includes 20,000
			sq. ft. of office space)

-3-

7	)	LSI Marcole office and	61,000 sq. ft.	Manchester, TN	Owned
		manufacturing of electrical	(includes 5,000 sq. ft.
		wire harnesses; contract	of office space)
		assembly services

8	)	LSI MidWest Lighting	145,000 sq. ft.	Kansas City, KS	Owned
		office and manufacturing	(includes 6,000 sq. ft.
			of office space and
			8,000 sq. ft. of leased
			warehouse space)

9	)	LSI Retail Graphics office	29,000 sq. ft.	Woonsocket, RI	Owned
		and manufacturing	(includes 5,000 sq. ft.
			of office space and
			9,000 sq. ft. of leased
			warehouse space)

10	)	LSI Lightron office	4,000 sq. ft.	New Windsor, NY	Leased

11	)	LSI West Coast	16,000 sq. ft.	Anaheim, CA	Leased
		Distribution Center

12	)	LSI Adapt offices	12,000 sq. ft.	Westlake, OH	Leased
				Atlanta, GA	Leased
				Seattle, WA	Leased
				Portland, OR	Leased
				Fort Mill, SC	Leased

The Company considers these facilities (total of 1,190,000 square feet) plus the 224,000 sq. ft. facility under construction in New Windsor, NY for LSI Lightron adequate for its current level of operations.

ITEM 3.

LEGAL PROCEEDINGS

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of the year covered by this report.

PART II

ITEM 5.

MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS

A. Common share information appears in Note 12 – SUMMARY OF QUARTERLY RESULTS (UNAUDITED) under “Range of share prices” on page S-24 of this Form 10-K. Information related to “Earnings per share from continuing operations” and

-4-

	“Cash dividends paid per share” appears in SELECTED FINANCIAL DATA on page S-26 of this Form 10-K.


	The Company’s policy with respect to dividends is to pay a quarterly cash dividend representing a payout ratio of between 10% and 20% of the then current fiscal year net income forecast. In addition to the four quarterly dividend payments, the Company may declare a special year-end cash and/or stock dividend that, in conjunction with the regular quarterly cash dividends, would achieve a target payout ratio of between 20% and 40% of reported net income. The Company has paid annual dividends since fiscal 1987 and quarterly dividends since fiscal 1995.


	At August 22, 2001, there were 424 shareholders of record. The Company believes this represents approximately 3,000 beneficial shareholders. The Company’s common shares are traded on the Nasdaq National Market under the symbol LYTS.


B.	Change in Securities


		During the quarterly period ended June 30, 2001, the Company issued 3,769 Common Shares pursuant to an Earn Out Agreement to an owner of a company which was acquired in fiscal year 1999. This issuance was exempt from the registration requirements of the Securities Act of 1933 as a private offering pursuant to Section 4(2) of that Act.

ITEM 6. SELECTED FINANCIAL DATA

"Selected Financial Data" appears on page S-26 of this Form 10-K.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

"Management's Discussion and Analysis of Financial Condition and Results of Operations" appears on pages S-1 through S-5 of this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See ITEM 1. BUSINESS on page 1 and MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS beginning on page S-1 of this Form 10-K. In addition, see the information set forth in NOTE 1 under “Fair value of financial instruments” beginning on page S-13 of this Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements				Begins on Page


	Financial Statements:
		Report of Independent Public Accountants		S-6


		Consolidated Income Statements for the years ended June 30, 2001, 2000, and 1999		S-7
		Consolidated Balance Sheets at June 30, 2001 and 2000		S-8
		Consolidated Statements of Shareholders' Equity for the years ended June 30, 2001, 2000, and 1999		S-10
		Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000, and 1999		S-11
		Notes to Consolidated Financial Statements		S-12


	Financial Statement Schedules:


		II -	Valuation and Qualifying Accounts for the years ended June 30, 2001, 2000, and 1999	S-27

Schedules other than those listed above are omitted for the reason(s) that they are either not applicable or not required or because the information required is contained in the financial statements or notes thereto. Selected quarterly financial data appears on page S-24 in NOTE 12 of the accompanying consolidated financial statements.

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ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

PART III

ITEMS 10, 11, 12 and 13 of Part III are incorporated by reference to the LSI Industries Inc. Proxy Statement for its Annual Meeting of Shareholders to be held November 15, 2001, as filed with the Commission pursuant to Regulation 14A.

PART IV

ITEM 14.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

(1) Financial Statements
   Appear as part of Item 8 of this Form 10-K.

(2) Financial Statement Schedules
   Appear as part of Item 8 of this Form 10-K.

(3) Exhibit list - listing of exhibits required to be filed with Form 10-K incorporated by reference to
Exhibit(s) filed as part of:

10K-96          = Annual Report on Form 10-K for the fiscal year ended June 30, 1996

10Q-9/99      = Quarterly Report on Form 10-Q for the quarter ended September 30, 1999

S-3 (96)         = Form S-3 Registration Statement No. 33-65043

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			S-8 (95-2) =	Form S-8 Registration Statement No. 33-64723 for the LSI Industries Inc. 1995 Directors’ Stock Option Plan

			S-8 (99) =	Form S-8 Registration Statement No. 333-91531 for the LSI Industries Inc. 1995 Stock Option Plan

			or filed herewith where so noted.

EXHIBIT INDEX

Current
Form 10-K			Report/	Exhibit
Exhibit No.		Description of Exhibit	Document	Number



3.1		Articles of Incorporation of LSI Industries Inc.	S-3 (96)	3.1


3.2		Code of Regulations of LSI Industries Inc.	S-3 (96)	3.2


4		CREDIT AGREEMENT By and Among LSI	Filed herewith
		INDUSTRIES INC. as the Borrower, THE
		BANKS PARTY HERETO as the Lenders hereunder,
		PNC BANK NATIONAL ASSOCIATION as the
		Administrative Agent and the Syndication Agent,
		Dated as of March 30, 2001


10.1	*	LSI Industries Inc. Retirement Plan	10Q-9/99	10.1
		(Amended and Restated as of October 1, 1999)


10.2	*	LSI Industries Inc. 1995 Stock Option Plan	S-8 (99)	4.1
		(Amended as of November 13, 1997)


10.3	*	LSI Industries Inc. 1995 Directors’ Stock
		Option Plan	S-8 (95-2)	4.1


10.4	*	LSI Industries Inc. Nonqualified Deferred	10K-96	10.5
		Compensation Plan, and Rabbi Trust
		Agreement


22		Subsidiaries of the Registrant	Filed herewith


23		Consent of Independent Public Accountants	Filed herewith


24		Powers of Attorney (5)	Filed herewith


		*Management Compensatory Agreements

(b) Form 8-K:

There have been no reports on Form 8-K filed during the last quarter of fiscal year 2001.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	LSI INDUSTRIES INC.

September 14, 2001	BY:	/s/ Robert J. Ready

Date		Robert J. Ready
		Chairman of the Board and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature		Title

/s/ Robert J. Ready		Chairman of the Board, Chief Executive

Robert J. Ready		Officer, and President
Date: September 14, 2001		(Principal Executive Officer)



/s/ Ronald S. Stowell		Vice President, Chief Financial Officer, and

Ronald S. Stowell		Treasurer
Date: September 14, 2001		(Principal Financial and Accounting Officer)



*Michael J. Burke		Director

Michael J. Burke


*Allen L. Davis		Director

Allen L. Davis


*Dennis B. Meyer		Director

Dennis B. Meyer


*Wilfred T. O’Gara		Director

Wilfred T. O’Gara


*James P. Sferra		Secretary; Executive Vice President

James P. Sferra		- Manufacturing; and Director

*The undersigned, by signing his name hereto, executed this Annual Report on Form 10-K on September 14, 2001, pursuant to Powers of Attorney executed by the above named Directors of the Registrant and filed with the Securities and Exchange Commission as Exhibit 24 hereto.

September 14, 2001	By:	/s/ Ronald S. Stowell

Date		Attorney-in-Fact

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Sales by Business Segment
	(In thousands)			2001	2000	1999

		Image Segment		$ 147,021	$ 159,257	$ 162,299
		Commercial / Industrial
			Lighting Segment	86,919	80,725	69,423

				$233,940	$ 239,982	$ 231,722

Results of Operations

2001 COMPARED TO 2000

Net sales of $233,940,000 in fiscal 2001 decreased 3% compared to fiscal 2000 net sales of $239,982,000. Results of the Commercial / Industrial Lighting Segment in fiscal 2001 include the operations of LSI Lightron (acquired November 2000), and results of the Image Segment in fiscal 2001 include the operations of LSI Adapt (acquired January 2001). Commercial / Industrial Lighting Segment net sales increased 8% and Image Segment net sales decreased 8% in fiscal 2001 as compared to the prior year. The increase in Commercial / Industrial Lighting Segment is attributed to the November 2000 acquisition of LSI Lightron (approximately 14% of net sales of this Segment). Excluding the acquisition of LSI Lightron, net sales in this segment decreased approximately 8% due to competitive markets and down economic conditions in the North American market. The decrease in Image Segment net sales is attributed to several factors. Net sales to the petroleum / convenience store market continued to be adversely impacted by the temporary affects of mergers of major petroleum companies. The Company reported decreased menu board business in fiscal 2001 as compared to last year as a significant roll out program in fiscal 2000 with one customer neither repeated nor was it replaced with a program with another customer in fiscal 2001. These decreases were partially offset by increased interior graphics business in other markets, and by the inclusion of the results of LSI Adapt, acquired in January 2001 and representing approximately 2% of Image Segment net sales. The Company believes it is likely that net sales of the Image Segment will increase in fiscal 2002. Significant customers in the petroleum / convenience store market and a menu board system customer in the quick service restaurant market have indicated their intent to reimage their retail sites over a multi-year time period and have released some orders in the fourth quarter of fiscal 2001 to initiate roll out of their re-image programs. Net sales of the Image Segment to the petroleum / convenience store market represented 36% and 38% of total net sales in fiscal 2001 and fiscal 2000, respectively. Sales to this market declined 9% in fiscal 2001 as compared to last year. While sales prices were increased, inflation did not have a significant impact on sales in fiscal 2001 as competitive pricing pressures held price increases to a minimum.

Gross profit of $65,411,000 decreased 11% from last year's gross profit of $73,775,000, and decreased as a percentage of net sales to 28.0% in fiscal year 2001 as compared to 30.7%

S-1

in the prior year. The decrease in amount of gross profit is due primarily to the Company's lighting product lines that experienced lower sales volumes, related under absorbed manufacturing overhead and competitive pricing pressures. This decrease was partially offset by the added gross profit related to the two FY 2001 acquisitions. Selling and administrative expenses increased 7% to $48,175,000 from $45,219,000. The increase was caused primarily by the additions of LSI Lightron and LSI Adapt. As a percentage of net sales, selling and administrative expenses were at 20.6% in fiscal 2001 as compared to 18.8% in the prior year. The Company continued the task of converting its business operating software and systems company-wide. Total implementation costs expensed were $960,000 ($0.06 per share, diluted) in fiscal 2001 as compared to $1,030,000 ($0.06 per share, diluted) in fiscal 2000. Expenditures are expected to continue through fiscal 2003.

The Company reported interest income of $630,000 in fiscal 2001 as compared to interest income of $1,057,000 in fiscal 2000 primarily reflective of the Company being in a net borrowing position through the second half of fiscal 2001. Due to the cash acquisition of LSI Lightron, the Company became a net borrower and reported $607,000 of interest expense in fiscal 2001 as compared to $189,000 in the prior year. The Company's effective tax rate increased to 38.8% in fiscal 2001 as compared to 37.8% in fiscal 2000 primarily due to the tax treatment of goodwill and other items.

Income from continuing operations of $10,601,000 in fiscal 2001 decreased 42% from $18,279,000 last year. The decreased net income resulted from decreased gross profit on decreased net sales, increased selling and administrative expenses, increased interest expense and decreased interest income, partially offset by decreased income tax expense in fiscal 2001 as compared to 2000. Diluted earnings per share of $1.01 in fiscal 2001 decreased 43% from $1.77 per share reported in fiscal 2000. The weighted average common shares outstanding for purposes of computing diluted earnings per share increased 2% in fiscal 2001 to 10,523,000 shares from 10,354,000 shares in 2000 as a result of common shares issued both for the exercise of stock options and for an acquisition during the year.

The Company recorded a $0.7 million ($0.07 per share) discontinued operations charge, net of taxes, in the fourth quarter of fiscal 2001 to increase its loss contingency related to a lease guaranty in connection with its European operations which were discontinued in 1992. A settlement agreement was signed releasing the Company from all remaining obligations. Payment of the loss contingency of approximately $1.1 million was made in the first quarter of fiscal 2002. A similar discontinued operations charge of $1.0 million ($0.10 per share), net of taxes, was recorded in the fourth quarter of fiscal 2000 in connection with the lease guaranty.

Net income of $9,878,000 ($0.94 per share) in fiscal 2001 compares to net income of $17,279,000 ($1.67 per share) in fiscal 2000. The reduction is primarily the result of decreased income from continuing operations, partially offset by a decreased charge to discontinued operations in fiscal 2001.

2000 COMPARED TO 1999

Net sales of $239,982,000 in fiscal 2000 increased 4% over fiscal 1999 net sales of $231,722,000. Results of the Image Segment in fiscal 2000 include the operations of LSI Retail Graphics (acquired April 1999; approximately 2% of net sales in fiscal 2000). Results of the Commercial / Industrial Lighting Segment in fiscal 2000 include the operations of LSI MidWest Lighting (acquired January 1999; approximately 8% of net sales in fiscal 2000). Commercial /

S-2

Industrial Lighting Segment net sales increased 16% and Image Segment net sales decreased 2% in fiscal 2000 as compared to the prior year. The increase in the Commercial / Industrial Lighting Segment is attributed primarily to the full year effect of the acquisition of LSI MidWest Lighting, in addition to an approximate 2% sales increase in this segment. The decrease in Image Segment net sales is attributed primarily to softness in the petroleum / convenience store market. Net sales to this significant market were adversely impacted by the temporary affects of mergers of major petroleum companies. The Company's graphics and petroleum lighting sales volume, both components of the Image Segment, were down approximately 2% and 11%, respectively, as compared to the prior year. Net sales of the Image Segment to the petroleum / convenience store market represented 38% and 43% of net sales in fiscal 2000 and fiscal 1999, respectively. While sales prices were increased, inflation did not have a significant impact on sales in 2000 as competitive pricing pressures held price increases to a minimum.

Gross profit of $73,775,000 increased 2% over last year's gross profit of $72,577,000, and decreased as a percentage of net sales to 30.7% in fiscal year 2000 as compared to 31.3% in the prior year. The decrease in amount of gross profit is due primarily to product mix changes between years and competitive pricing in several markets, partially offset by the 4% increase in net sales and improved efficiencies. Selling and administrative expenses decreased to $45,219,000 from $45,349,000, a decrease of 0.3%. As a percentage of net sales, selling and administrative expenses were at 18.8% in fiscal 2000 as compared to 19.6% in the prior year.

During fiscal year 1999 the Company began the task of converting its business operating software and systems company-wide. In addition, work was started on an e-business strategy in Fiscal Year 2000. Total implementation costs expensed were $1,030,000 ($0.06 per share, diluted) in fiscal 2000 and $227,000 ($0.02 per share, diluted) in fiscal 1999.

The Company reported net interest income of $868,000 in fiscal 2000 as compared to net interest income of $253,000 in fiscal 1999 primarily reflective of an increased amount of short-term cash investments at slightly increased rates of return. The Company's effective tax rate increased to 37.8% in fiscal 2000 as compared to 37.6% in fiscal 1999 primarily due to increased amortization of goodwill which is not deductible for tax purposes.

Income from continuing operations of $18,279,000 increased 7% over $17,101,000 in fiscal 1999. The increased income from continuing operations resulted from increased gross profit on increased net sales, and from the reporting of a larger amount of net interest income in fiscal 2000 as compared to 1999, partially offset by increased operating expenses and income taxes. Diluted earnings per share from continuing operations of $1.77 increased 4% in fiscal 2000 from $1.70 per share in fiscal 1999. The weighted average common shares outstanding for purposes of computing diluted earnings per share increased 3% in fiscal 2000 to 10,354,000 shares from 10,088,000 shares in 1999 primarily as a result of common shares issued for the exercise of stock options during the year.

The Company recorded a $1.0 million ($0.10 per share) discontinued operations charge, net of taxes, in the fourth quarter of fiscal 2000 for an increase in the loss contingency related to a lease guaranty in connection with its European operations which were discontinued in 1992. No charge to discontinued operations was recorded in fiscal 1999.

Net income of $17,279,000 increased 1% over $17,101,000 in fiscal 1999 primarily as a result of increased income from continuing operations, partially offset by the charge to discontinued operations in fiscal 2000.

S-3

Liquidity and Capital Resources

The Company considers its level of cash on hand, its current ratio and working capital levels to be its most important measures of short-term liquidity. For long-term liquidity indicators, the Company believes its ratio of long-term debt to equity and its historical levels of net cash flows from operating activities to be the most important measures.

At June 30, 2001 the Company had working capital of $62.1 million, compared to $61.1 million at June 30, 2000. The ratio of current assets to current liabilities decreased to 3.09 to 1 from 3.36 to 1. The increased working capital is primarily attributed to increased accounts receivables and inventories, and decreased liabilities from discontinued operations, partially offset by decreased cash and cash equivalents, increased notes payable to bank, increased accounts payable, and increased accrued expenses. The Company's balance of cash and cash equivalents was substantially lower at June 30, 2001 as compared to June 30, 2000 primarily due to the acquisition of Lightron of Cornwall, Inc. for $25.9 million in November 2000, and due to the increased amount of accounts receivable.

The Company used $2.8 million of cash in operating activities in fiscal 2001 as compared to a generation of $19.8 million in fiscal 2000. The decrease in net cash flows from operating activities in fiscal 2001 is primarily the net result of a decrease in net income, increased accounts receivable and inventories, decreased accrued expenses, and fiscal 2001 payments related to the Company's discontinued operations liabilities, partially offset by increased refundable and deferred income taxes. As of June 2001, the Company's days sales outstanding were at approximately 73 days, increased from 55 days at June 30, 2000 due to slower collection cycles from several customers.

In addition to cash generated from operations, the Company's primary source of liquidity continues to be its line of credit. The Company has an unsecured $50 million revolving line of credit with its bank group. As of August 22, 2001 there was $29 million available on this line of credit. This line of credit is composed of a $30 million three year committed credit facility expiring in fiscal 2004 and a $20 million credit facility with an annual renewal in the third quarter of fiscal 2002. The Company believes that the total of available lines of credit plus cash flows from operating activities is adequate for the Company's fiscal 2002 operational and capital expenditure needs. The Company is in compliance with all of its loan covenants. Capital expenditures, exclusive of business acquisitions, of $6.5 million in fiscal 2001 compare to $9.0 million in fiscal 2000. Spending in fiscal year 2001 was primarily related to expansion of the Company's facilities, and to capitalization of Company-wide enterprise resource planning software and related implementation costs. Capital expenditures totaling approximately $12 million are planned for fiscal 2002, exclusive of business acquisitions.

The Company utilized significantly more cash flows from investing activities than the prior year due to the acquisition of substantially all of the net assets of Lightron of Cornwall, Inc. in the second quarter and substantially all of the net assets of ADaPT Engineering Inc. at the beginning of the third quarter. The cash purchase price of Lightron, exclusive of acquisition costs, was $25.9 million, a portion of which is subject to achievement of certain financial objectives over the first ten months subsequent to acquisition. The acquisition was accounted for as a purchase, effective on the date of acquisition. An additional approximately $3 million was used immediately following the acquisition to reduce acquired liabilities. The purchase price exceeded the estimated fair value of net assets acquired by approximately $16.5 million, which is recorded as goodwill and is being amortized over a period not to exceed forty years.

S-4

The purchase price allocation was based upon preliminary estimates of fair value of assets acquired and may be revised at a later date pending the achievement of certain financial objectives and other analysis.

The Company acquired substantially all of the net assets of ADaPT Engineering, Inc. effective January 1, 2001. The consideration for this purchase, exclusive of acquisition costs, was $4.5 million, consisting of $2.25 million in cash and 109,430 common shares of LSI Industries valued at $2.25 million, and the assumption of certain liabilities related to ADaPT Engineering's business. In addition, a contingent "earn-out" having a maximum value of $2.0 million, payable in cash, could be earned during the first eighteen months after acquisition. The performance in the first earn-out period ended June 30, 2001 was above the target and an earn-out payment of $0.5 million will be made in the first quarter of fiscal 2002. The acquisition has been accounted for as a purchase, effective on the date of acquisition. The purchase price, plus the earn-out consideration achieved, exceeded the estimated fair value of net assets acquired by approximately $3.2 million, which has been recorded as goodwill and will be amortized over a period not to exceed fifteen years. The purchase price allocation was based upon preliminary estimates of fair value of assets acquired and may be revised at a later date pending the completion of appraisals and other analysis.

On August 15, 2001 the Board of Directors declared a regular quarterly cash dividend of $0.085 per share (approximately $889,000), to be paid September 11, 2001 to shareholders of record on September 4, 2001. During fiscal 2001, the Company paid cash dividends in the amount of $4.0 million, essentially level the same amount as fiscal 2000.

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (SFAS No. 141), "Business Combinations," and issued Statement of Financial Accounting Standards No. 142 (SFAS No. 142), "Goodwill and Other Intangible Assets." SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and requires that all business combinations be accounted for as purchases. In addition, SFAS No. 141 establishes new rules concerning recognition of intangible assets arising in a purchase business combination and requires enhanced disclosure of information in the period in which a business combination is completed. SFAS No. 142 establishes new rules on accounting for goodwill whereby goodwill will no longer be amortized to expense, but rather will be subject to impairment review. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001, and the Company has the option of adopting SFAS No. 142 either July 1, 2001 or July 1, 2002. Net income will increase when the amortization of goodwill to expense is stopped. The Company is currently evaluating the impact to its financial statements, financial position, results of operations and cash flows related to the implementation of these two Statements, and has not yet determined when SFAS No. 142 will be adopted.

The Company continues to seek opportunities to invest in new products and markets, and in acquisitions which fit its strategic growth plans in the lighting and graphics markets. The Company believes that adequate financing for any such investments or acquisitions will be available through future borrowings or through the issuance of common or preferred shares in payment for acquired businesses.

S-5

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of LSI Industries Inc.:

We have audited the accompanying consolidated balance sheets of LSI Industries Inc. (an Ohio corporation) and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended June 30, 2001. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LSI Industries Inc. and subsidiaries as of June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001 in conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to the financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

	/s/ Arthur Andersen LLP
	Arthur Andersen LLP

Cincinnati, Ohio
August 15, 2001

S-6

LSI INDUSTRIES INC.
CONSOLIDATED INCOME STATEMENTS
For the years ended June 30, 2001, 2000, and 1999
(In thousands, except per share)

			2001			2000			1999

Net sales			$	233,940		$	239,982		$	231,722
Cost of products sold				168,529			166,207			159,145


	Gross profit			65,411			73,775			72,577

Selling and administrative expenses				48,175			45,219			45,349


	Operating income			17,236			28,556			27,228

Interest (income)				(630	)		(1,057	)		(477	)

Interest expense				607			189			224

Other (income) expense				(58	)		15			95


	Income from continuing operations
		before income taxes		17,317			29,409			27,386

Income tax expense				6,716			11,130			10,285


	Income from continuing operations			10,601			18,279			17,101

Discontinued operations, net of tax
	benefit of $387 and $538, respectively			723			1,000			—


		Net income	$	9,878		$	17,279		$	17,101


Earnings per common share from
	continuing operations

	Basic earnings per share		$	1.02		$	1.79		$	1.73

	Diluted earnings per share		$	1.01		$	1.77		$	1.70


Earnings per common share

	Basic earnings per share		$	0.95		$	1.69		$	1.73

	Diluted earnings per share		$	0.94		$	1.67		$	1.70


Weighted average common shares outstanding

	Basic			10,358			10,195			9,883

	Diluted			10,523			10,354			10,088

The accompanying notes are an
integral part of these financial statements.

S-7

LSI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2001 and 2000
(In thousands, except shares)

			2001			2000

ASSETS

Current Assets			$	340		$	21,966
	Cash and cash equivalents
	Accounts receivable, less allowance
		for doubtful accounts of $1,745
		and $1,239, respectively		51,609			35,424

	Inventories			35,079			25,293

	Refundable income taxes			854			1,160

	Other current assets		3,898			3,237

		Total current assets		91,780			87,080

Property, Plant and Equipment, at cost
	Land			3,967			3,947
	Buildings			22,992			20,522
	Machinery and equipment			35,874			32,436
	Construction in progress		7,820			4,842
				70,653			61,747
	Less accumulated depreciation			(28,412	)		(24,625	)

		Net property, plant and equipment		42,241			37,122

Goodwill, net				41,572			22,581
Other Assets, net			6,166			—

			$	181,759		$	146,783

The accompanying notes are an
integral part of these financial statements.

S-8

				2001		2000

LIABILITIES & SHAREHOLDERS' EQUITY

Current Liabilities
	Notes payable to bank			$	552	$	—
	Current maturities of long-term debt				352		203
	Accounts payable				15,268		12,349
	Accrued expenses				12,778		11,606
	Net liabilities from discontinued operations				711		1,783

		Total current liabilities			29,661		25,941

Long-Term Debt					23,638		1,498

Deferred Income Taxes					1,267		1,132

Shareholders' Equity
	Preferred shares, without par value;
		Authorized 1,000,000 shares, none issued			—		—
	Common shares, without par value;
		Authorized 30,000,000 shares;
		Outstanding 10,438,469 and 10,291,730
			shares respectively		50,808		47,719
	Retained earnings			76,385		70,493

		Total shareholders' equity		127,193		118,212

				$	181,759	$	146,783

The accompanying notes are an
integral part of these financial statements.

S-9

LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended June 30, 2001, 2000, and 1999
(In thousands, except per share)

	Common Shares
	Number of Shares		Amount			Retained Earnings			Total

Balance at June 30, 1998	9,635		$35,368			$43,289			$ 78,657

Net income	—		—			17,101			17,101

Purchase of treasury shares	(12	)	(224	)		—			(224	)

Deferred stock compensation	—		334		—				334

Stock options exercised, net	124		1,285		—				1,285

Common shares issued for
acquisitions	405		8,825		—				8,825

Dividends – $.33 per share	—		—			(3,226	)		(3,226	)


Balance at June 30, 1999	10,152		45,588			57,164		102,752

Net income	—		—			17,279			17,279

Purchase of treasury shares	(14	)	(349	)		—			(349	)

Deferred stock compensation	—		338		—				338

Stock options exercised, net	154		2,142		—				2,142

Dividends – $.39 per share	—		—			(3,950	)		(3,950	)


Balance at June 30, 2000	10,292		47,719			70,493		118,212

Net income	—		—			9,878			9,878

Purchase of treasury shares	(15	)	(305	)	—				(305	)

Deferred stock compensation	—		248		—				248

Stock options exercised, net	48		821		—				821

Common shares issued for
acquisitions	113		2,325		—				2,325

Dividends – $.39 per share	—		—			(3,986	)		(3,986	)


Balance at June 30, 2001	10,438		$50,808			$76,385			$127,193


The accompanying notes are an integral part of these financial statements.

S-10

LSI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 2001, 2000, and 1999
(In thousands)

	2001			2000			1999
Cash Flows From Operating Activities

Net income	$	9,878		$	17,279		$	17,101

Non-cash items included in income
Depreciation and amortization		5,558			5,511			4,813
Deferred income taxes		1,023			(566	)		(84	)
Deferred compensation plan		248			338			334
(Gain) loss on disposition of fixed assets		(58	)		15			95

Change (excluding effects of acquisitions) in
Accounts receivable		(12,107	)		4,206			(4,075	)
Inventories		(5,450	)		(32	)		2,273
Refundable income taxes		306			(1,003	)		117
Accounts payable		504			(2,279	)		(262	)
Accrued expenses and other		(1,581			(4,966	)		348
Net liabilities from discontinued operations		(1,072	)		1,292			(70	)


Net cash flows from operating activities		(2,751	)		19,795			20,590


Cash Flows From Investing Activities

Purchase of property, plant, and equipment		(6,492	)		(8,977	)		(4,455	)
Proceeds from sale of fixed assets		155			3			14
Acquisition of businesses, net of cash received		(29,163	)		—			(8,657	)


Net cash flows from investing activities		(35,500	)		(8,974	)		(13,098	)


Cash Flows From Financing Activities

Increase (decrease) of borrowings under line of credit		552			(379	)		379
Proceeds from issuance of long-term debt		22,000			—			919
Payment of long-term debt		(2,457	)		(200	)		(2,082	)
Cash dividends paid		(3,986	)		(3,950	)		(3,226	)
Exercise of stock options		821			2,142			1,285
Purchase of treasury shares		(305	)		(349	)		(224	)


Net cash flows from financing activities		16,625			(2,736	)		(2,949	)


Increase (decrease) in cash and cash equivalents		(21,626	)		8,085			4,543

Cash and cash equivalents at beginning of year		21,966			13,881			9,338


Cash and cash equivalents at end of year	$	340		$	21,966		$	13,881



The accompanying notes are an integral part of these financial statements.

S-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation:

The consolidated financial statements include the accounts of LSI Industries Inc. (an Ohio corporation) and its subsidiaries, all of which are wholly owned. All significant intercompany transactions and balances have been eliminated.

Revenue recognition:

Revenue is recognized when the customer accepts title and the resultant risks and rewards of ownership. Generally this occurs upon shipment of goods or shortly thereafter. Amounts received from customers prior to the recognition of revenue are accounted for as customer pre-payments and are included in accrued expenses.

Cash and cash equivalents:

The cash balance includes cash and cash equivalents which have original maturities of less than three months.

Inventories:

Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out basis.

Property, plant and equipment and related depreciation:

Property, plant and equipment are stated at cost. Major additions and betterments are capitalized while maintenance and repairs are expensed. For financial reporting purposes, depreciation is computed on the straight-line method over the estimated useful lives of the assets as follows:

Buildings	31 - 40 years
Machinery and equipment	3 - 10 years
Computer software	5 - 8 years

Intangible assets:

Intangible assets consisting of customer lists, trade names, patents and trademarks are recorded on the Company's balance sheet and are being amortized to expense over periods ranging between two and seventeen years. The Company recorded intangibles amortization expense of $284,000 in fiscal 2001. As of June 30, 2001, accumulated amortization of intangible assets is $284,000. The excess of cost over fair value of assets acquired ("goodwill") is amortized to expense over periods ranging between fifteen and forty years. As of June 30, 2001 and 2000, accumulated amortization of goodwill was $2,849,000 and $1,827,000, respectively. The Company recorded goodwill amortization expense of $1,022,000, $689,000 and $476,000 in fiscal years 2001, 2000 and 1999, respectively. The Company periodically evaluates intangible assets, goodwill and other long-lived assets for permanent impairment based upon anticipated cash flows. To date no impairments have been recorded, nor are any anticipated.

S-12

Fair value of financial instruments:

The Company has financial instruments consisting primarily of cash and cash equivalents, revolving lines of credit, and long-term debt. The fair value of these financial instruments approximates carrying value because of their short-term maturity and/or variable, market-driven interest rates. The Company has no financial instruments with off-balance sheet risk.

Employee benefit plans:

The Company has a defined contribution retirement plan and a discretionary profit sharing plan covering substantially all of its employees, a second discretionary profit sharing plan covering employees of one subsidiary, and a non-qualified deferred compensation plan covering certain employees. The costs of employee benefit plans are charged to expense and funded annually. Total costs were $1,581,000 in 2001, $2,052,000 in 2000, and $1,937,000 in 1999.

Income taxes:

Deferred income taxes are provided on items reported in income in different periods for financial reporting and tax purposes.

Earnings per common share:

The computation of basic earnings per common share is based on the weighted average common shares outstanding for the period. The computation of diluted earnings per share includes common share equivalents. Common share equivalents include the dilutive effect of stock options, contingently issuable shares (for which issuance has been determined to be probable), and common shares to be issued under a deferred compensation plan, all of which totaled 165,000 shares in 2001, 159,000 shares in 2000, and 205,000 shares in 1999. See also Notes 4 and 7.

Recent pronouncements:

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and for Hedging Activities," which establishes standards for reporting and disclosure of derivative and hedging instruments. The Company adopted SFAS No. 133 in fiscal year 2001, but its financial statements were not affected by this new standard because the Company has no derivative or hedging financial instruments.

S-13

evaluating the impact to its financial statements, financial position, results of operations and cash flows related to the implementation of these two Statements, and has not yet determined when SFAS No. 142 will be adopted.

Reclassification:

Certain reclassifications have been made to prior year amounts in order to be consistent with the presentation for the current year. The most significant reclassification was related to the reclassification of shipping and handling revenue into net sales with related effects to cost of products sold and to selling and administrative expenses. As a result of implementing the Emerging Issues Task Force Issue 00-10 (Accounting for Shipping and Handling Fees and Costs), net sales increased $5,759,000, $4,381,000, and $3,933,000, cost of products sold increased $11,079,000, $9,601,000, and $8,464,000, and selling and administrative expenses decreased $5,320,000, $5,220,000, and $4,531,000, respectively for fiscal years 2001, 2000 and 1999.

Use of estimates:

The preparation of the financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

NOTE 2 - DISCONTINUED OPERATIONS

In 1992 the Company sold the assets and operations of its U.K. subsidiary, Duramark, to its management and reported a loss from discontinued operations. Consideration received included cash and assumption of liabilities by management. The remaining liabilities, including those associated with the lease on the U.K. facility, which were not assumed by the management buy-out group of the discontinued operations, net of related taxes, were retained by the Company. The lease on the now vacant facility was guaranteed by the Company through its expiration in March 2001. For the past several years the Company has been involved in both litigation and negotiations related to lease payments (unpaid since 1995), to maintenance of the facility, and to the remaining lease obligation through March 2001 with the various entities associated with this lease. In the fourth quarter of fiscal year 2000 the Company settled all outstanding lease matters with a sublessee at less than amounts previously anticipated. The $608,000 settlement payment received was added to the Company's reserve for discontinued operations.

In the fourth quarter of fiscal year 2000 the Company recorded a charge to discontinued operations of $1.5 million ($1.0 million net of income taxes or $0.10 per share) to increase its reserve for remaining liabilities associated with the lease. During the fourth quarter of fiscal year 2001 the Company concluded lengthy negotiations related to the maintenance and repairs of the facility and recorded a charge to discontinued operations of $1.1 million ($0.7 million net of income taxes or $0.07 per share). The resultant reserve balance of $1.1 million as of June 30, 2001 is adequate to cover all remaining obligations of the Company with respect to this facility. Payment of these obligations is expected to occur in the first quarter of fiscal year 2002.

S-14

A summary of the activity in the reserve for discontinued operations during fiscal years 2001 and 2000 is as follows:

(In thousands)	2001			2000


Balance beginning of year	$	2,745		$	755

less: Payments made		(2,764	)		(156	)

plus: Settlement received		—			608

plus: Charge to discontinued operations		1,110			1,538

Balance end of year	$	1,091		$	2,745

The Company's reserve for discontinued operations, net of related taxes, is included in current liabilities in the amounts of $711,000 and $1,783,000 as of June 30, 2001 and 2000, respectively.

NOTE 3 - BUSINESS SEGMENT INFORMATION

LSI operates in two business segments - the Image Segment and the Commercial / Industrial Lighting Segment. The Image Segment manufactures and sells exterior and interior visual image elements (lighting, graphics, and menu board systems) for the petroleum / convenience store market and for multi-site retail operations. The Image Segment includes the operations of LSI Petroleum Lighting, LSI Automotive Lighting, LSI Images, LSI Metal Fabrication, LSI SGI Integrated Graphic Systems, LSI Grady McCauley, LSI Retail Graphics, and LSI Adapt. The Commercial / Industrial Lighting Segment manufactures and sells primarily outdoor, indoor, and landscape lighting for the commercial / industrial and multi-site retail markets. The Commercial / Industrial Lighting Segment includes the operations of LSI Lighting Systems, LSI Courtsider Lighting, LSI Greenlee Lighting, LSI Marcole, LSI MidWest Lighting and LSI Lightron. The Company's most significant market is the petroleum / convenience store market with approximately 36%, 38%, and 43% of net sales concentrated in this market in fiscal 2001, 2000, and 1999, respectively.

The following information is provided for the following periods:

(In thousands)		2001		2000		1999

Net sales:
Image Segment	$	147,021	$	159,257	$	162,299
Commercial / Industrial Lighting Segment		86,919		80,725		69,423

	$	233,940	$	239,982	$	231,722


Operating income:
Image Segment	$	14,690	$	21,024	$	19,848
Commercial / Industrial Lighting Segment		2,546		7,532		7,380

	$	17,236	$	28,556	$	27,228

S-15

Identifiable assets:
Image Segment	$	105,072	$	84,513	$	86,011
Commercial / Industrial Lighting Segment	75,416		38,588		37,645
		180,488	$	123,101	$	123,656
Corporate	1,271		23,682		14,058
	$	181,759	$	146,783	$	137,714


Capital expenditures:
Image Segment	$	3,926	$	6,279	$	3,214
Commercial / Industrial Lighting Segment		2,566		2,698		1,241

	$	6,492	$	8,977	$	4,455


Depreciation and amortization:
Image Segment	$	3,139	$	3,687	$	3,425
Commercial / Industrial Lighting Segment	2,419		1,824		1,388
	$	5,558	$	5,511	$	4,813

Operating income of the business segments includes net sales less all operating expenses, including allocations of corporate expense. Sales between business segments are immaterial.

Identifiable assets are those assets used by each segment in its operations, including allocations of shared assets. Corporate assets consist primarily of cash and cash equivalents, and refundable income taxes. The increase in identifiable assets in fiscal 2001 is primarily related to the two acquisitions made during the year (see footnote 11) and to increased levels of accounts receivable and inventories.

NOTE 4 - EARNINGS PER COMMON SHARE

The following table presents the amounts used to compute earnings per common share and the effect of dilutive potential common shares on net income and weighted average shares outstanding:

*(In thousands, except per share)*		2001		2000		1999

BASIC EARNINGS PER SHARE

Income from continuing operations	$	10,601	$	18,279	$	17,101

Net income	$	9,878	$	17,279	$	17,101


Weighted average shares outstanding
during the period, net
of treasury shares		10,358		10,195		9,883


Basic earnings per share from continuing
operations	$	1.02	$	1.79	$	1.73


Basic earnings per share	$	.95	$	1.69	$	1.73

S-16

DILUTED EARNINGS PER SHARE

Income from continuing operations	$	10,601	$	18,279	$	17,101


Net income	$	9,878	$	17,279	$	17,101


Weighted average shares outstanding
during the period, net of
treasury shares		10,358		10,195		9,883

Effect of dilutive securities (A):
Impact of common shares to be
issued under stock option plans,
a deferred compensation plan,
and contingently issuable shares		165		159		205


Weighted average shares
outstanding (B)		10,523		10,354		10,088


Diluted earnings per share from
continuing operations	$	1.01	$	1.77	$	1.70


Diluted earnings per share	$	.94	$	1.67	$	1.70


(A)	Calculated using the “Treasury Stock” method as if dilutive securities were exercised and the funds were used to purchase common shares at the average market price during the period.

(B)	Options to purchase 49,817 common shares, 36,105 common shares, and 14,359 common shares at June 30, 2001, 2000, and 1999, respectively, were not included in the computation of diluted earnings per share because the exercise price was greater than the average fair market value of the common shares.

NOTE 5 - BALANCE SHEET DATA

The following information is provided as of June 30:

(In thousands)		2001		2000

Inventories:
Raw materials	$	16,485	$	11,824
Work-in-process and
finished goods		18,594		13,469

	$	35,079	$	25,293


Accrued Expenses:
Compensation and benefits	$	6,119	$	5,725
Customer prepayments	$	1,729	$	1,144

S-17

NOTE 6 - REVOLVING LINES OF CREDIT AND LONG-TERM DEBT

The Company has an unsecured $50 million revolving line of credit with its bank group. As of June 30, 2001 the available portion of this line of credit was $27.4 million. A portion of this credit facility is a $20 million line of credit that expires in the third quarter of fiscal 2002. The remainder of the credit facility is a $30 million three year committed line of credit that expires in fiscal 2004 and that has an annual renewal for the third year of commitment in the third quarter of fiscal 2002. Interest on the revolving lines of credit is charged based upon an increment over the LIBOR rate as periodically determined, an increment over the Federal Funds Rate as periodically determined, or at the bank’s base lending rate, at the Company’s option. The increment over the LIBOR borrowing rate, as periodically determined, fluctuates between 50 and 75 basis points depending upon the ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (EBITDA). The increment over the Federal Funds borrowing rate, as periodically determined, fluctuates between 150 and 200 basis points, and the commitment fee on the unused balance of the $30 million committed portion of the line of credit fluctuates between 15 and 25 basis points based upon the same leverage ratio. At June 30, 2001 the average interest rate on borrowings under this revolving line of credit was 4.4%. Under terms of these agreements, the Company has agreed to a negative pledge of assets, to maintain minimum levels of profitability and net worth, and is subject to certain maximum levels of leverage. The Company's borrowings under its bank credit facilities during fiscal year 2001 averaged approximately $8.3 million at an approximate average borrowing rate of 5.7%. The Company did not borrow under its revolving lines of credit during fiscal year 2000.

The Company has an Industrial Revenue Development Bond (IRB) borrowing in the amount of $860,000 associated with its facility in Northern Kentucky. The term of this IRB is 15 years with semi-annual interest payments and annual principal payments for retirement of bond principal in increasing amounts over the term of the bonds through fiscal 2010. The IRB interest rate, which is reestablished semi-annually, is currently 4.5%, plus a 75 basis point letter of credit fee. The IRB is secured by the Company’s Kentucky real estate, which has a net carrying value of $1.6 million.

The Company has equipment loans outstanding totaling $1,130,000 with monthly principal and interest payments extending through fiscal 2006. The weighted average interest rate of these loans is 5.9% and they are secured by specified equipment which has a net carrying value of $1,420,000. With one of these loans the Company is committed to specified job growth in its facility in Northeast Ohio.

Long-term debt: (In thousands)		2001		2000


Revolving Line of Credit (3 year committed line)	$	22,552	$	—
Industrial Revenue Development Bond at 4.5%		860		935
Equipment loans (average rate of 5.9%)		1,130		766

		24,542		1,701

Less notes payable to bank		552	—

Total long-term debt		23,990		1,701

Less current maturities of long-term debt		352		203

Long-term debt	$	23,638	$	1,498

S-18

Future maturities of long-term debt at June 30, 2001 are as follows (in thousands):

2002
$352

2003
$365

2004
$22,385

2005
$240

2006
$218

2007and after
$430

NOTE 7 - SHAREHOLDERS' EQUITY

The Company has stock option plans which cover all of its full-time employees and has a plan covering all non-employee directors. The options granted pursuant to these plans are granted at fair market value at date of grant. Options granted to non-employee directors are immediately exercisable and options granted to employees generally become exercisable 25% per year (cumulative) beginning one year after the date of grant. The number of shares reserved for issuance is 890,126, of which 119,225 shares were available for future grant as of June 30, 2001. The plans allow for the grant of both incentive stock options and non-qualified stock options.

Statement of Financial Accounting Standards No. 123 (SFAS No. 123) requires, at a minimum, pro forma disclosures of expense for stock-based awards based on their fair values. The fair value of each option on the date of grant has been estimated using the Black-Scholes option pricing model. The following weighted average assumptions were used for grants in fiscal 2001, 2000, and 1999.

	2001		2000		1999


Dividend yield	1.81	%	1.25	%	1.25	%
Expected volatility	40	%	42	%	44	%
Risk-free interest rate	4.54% - 6.50	%	6.14% - 6.90	%	4.45% - 6.24	%
Expected life	4-8 yrs.		4-8 yrs.		4-8 yrs.

At June 30, 2001, the 220,300 options granted during fiscal 2001 to employees and non-employee directors have exercise prices ranging from $15.44 to $22.05, fair values ranging from $4.24 to $8.93 per option, and remaining contractual lives of four to nine years. The 18,800 options granted during fiscal 2000 to employees and non-employee directors have exercise prices ranging from $17.69 to $23.25, fair values ranging from $7.49 to $11.84 per option, and remaining contractual lives of four to nine years. The 56,900 options granted during fiscal 1999 to employees and non-employee directors had, at June 30, 1999, exercise prices ranging from $16.88 to $23.00, fair values ranging from $8.49 to $11.89 per option, and remaining contractual lives of four to nine years.

If the Company had adopted the expense recognition provisions of SFAS No. 123, net income and earnings per share for the years ended June 30, 2001, 2000, and 1999 would have been as follows:

(In thousands except earnings per share)		2001	2000	1999

	Net income
	As reported	$ 9,878	$17,279	$17,101
	Pro forma	$ 9,380	$17,035	$16,629

S-19

Earnings per common share
Basic
As reported	$	.95	$	1.69	$	1.73
Pro forma	$	.91	$	1.67	$	1.68
Diluted
As reported	$	.94	$	1.67	$	1.70
Pro forma	$	.91	$	1.65	$	1.66

Since SFAS No. 123 has not been applied to options granted prior to December 15, 1994, the resulting compensation cost shown above may not be representative of that expected in future years.

Information involving the stock option plans for the years ended June 30, 2001, 2000, and 1999 is shown in the table below:

		2001				2000					1999

					Weighted					Weighted					Weighted
					Average					Average					Average
					Exercise					Exercise					Exercise
(Shares in thousands)		Shares			Price		Shares			Price		Shares			Price

Outstanding at beginning of year		242		$	16.13		408		$	14.41		500		$	12.70

	Granted	220		$	16.10		19		$	21.74		57		$	19.82
	Terminated	(11	)	$	15.69		(7	)	$	16.03		(8	)	$	16.23
	Exercised	(48	)	$	14.00		(178	)	$	12.79		(141	)	$	10.33


Outstanding at end of year		403		$	16.38		242		$	16.13		408		$	14.41


Exercisable at end of year		109		$	16.39		109		$	15.00		129		$	12.92

The Company implemented a non-qualified Deferred Compensation Plan in fiscal 1997. All Plan investments are in common shares of the Company. A total of 74,261 and 59,566 common shares were held in the Plan as of June 30, 2001 and 2000, respectively, and, accordingly, have been recorded as treasury shares.

On the dates indicated, the Company issued the following amounts of common shares as a portion of the purchase price for acquired businesses (see further discussion in Note 11):

	Number of	Stated
Date	Common Shares	Value


1/1/99	357,143	$	8,000,000
4/9/99	47,578	$	825,000
1/10/01	109,430	$	2,250,000
6/8/01	3,769	$	75,000

On August 15, 2001, the Board of Directors declared a cash dividend of $0.085 per share to be paid September 11, 2001 to shareholders of record on September 4, 2001. Annual cash dividend payments made during fiscal years 2001, 2000, and 1999 were $0.39, $0.39, and $0.33 per share, respectively.

S-20

NOTE 8 - LEASES

The Company leases certain of its facilities and equipment under operating lease arrangements. Rental expense was $1,536,000 in 2001, $1,385,000 in 2000, and $1,174,000 in 1999. Minimum annual rental commitments under non-cancelable operating leases are: $1,410,000 in 2002, $1,277,000 in 2003, $1,153,000 in 2004, $963,000 in 2005, $925,000 in 2006, and $2,049,000 in 2007 and beyond.

NOTE 9 - INCOME TAXES

The following information is provided for the years ended June 30:

(In thousands)	2001			2000			1999

Provision (benefit) for income taxes:
Current federal	$	5,190		$	10,773		$	9,466
Current state and local		588			923			903
Deferred		938			(566	)		(84	)

	$	6,716		$	11,130		$	10,285


Reconciliation to federal statutory rate:
Federal statutory tax rate		34.8	%		35.0	%		35.0	%
State and local taxes		2.2			2.0			2.1
Goodwill and other		1.8		.8			.5

Effective tax rate		38.8	%		37.8	%		37.6	%

The components of deferred income tax assets and (liabilities) at June 30, 2001 and 2000 are as follows:

(In thousands)	2001			2000


Reserves against current assets	$	1,054		$	818
Prepaid expenses		(1,241	)		(707	)
Accrued expenses		960			882
Depreciation		(1,944	)		(1,694	)
Goodwill and acquisition costs		160			132
Deferred compensation		516			430
Net liabilities from discontinued operations		380			962


Net deferred income tax asset (liability)	$	(115	)	$	823

Reconciliation to the balance sheets as of June 30, 2001 and 2000:

(In thousands)	2001			2000

Deferred income tax asset (liability) included in:
Other current assets	$	772		$	993
Net liabilities from discontinued operations		380			962
Long-term deferred income tax liability		(1,267	)		(1,132	)


Net deferred income tax asset (liability)	$	(115	)	$	823

S-21

NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION

(In thousands)		2001			2000		1999
Cash payments:
Interest	$	526		$	160	$	148
Income taxes	$	5,124		$	12,520	$	10,034

Non-cash investing and financing activities:
Value of common shares issued for acquisitions	$	2,325		$	—	$	8,825

Details of acquisitions:
Working capital, less cash	$	2,948		$	—	$	2,417
Property, plant & equipment		2,976			—		5,241
Other assets, net		5,551			—		(947	)
Excess of purchase price paid over estimated
net assets of acquired businesses		20,013			—		10,771

		31,488			—		17,482
Less fair value of common shares issued		(2,325	)		—		(8,825	)

Cash paid for acquisitions	$	29,163		$	—	$	8,657

NOTE 11 - ACQUISITIONS

The Company acquired substantially all of the net assets of Lightron of Cornwall, Inc. on November 21, 2000. The purchase price, exclusive of acquisition costs, was $25.9 million, a portion of which is subject to achievement of certain financial objectives over the first ten months subsequent to acquisition. The new subsidiary, LSI Lightron Inc., will continue to operate in the New Windsor, New York area in the business of designing, manufacturing, and selling a line of high-end fluorescent, metal halide, halogen, recessed, surface, and high bay lighting fixtures, and LED exit signs for the commercial, industrial and retail markets. When the Company completes construction of a new facility in the first half of fiscal year 2002, the manufacturing assets, inventory, and remaining related acquired liabilities of Lightron of Cornwall will be transferred to LSI Lightron. Until such transfer of assets, a portion of the purchase price will remain in escrow and Lightron of Cornwall will be exclusively a manufacturer of light fixtures and products for LSI Lightron. Results of LSI Lightron are included in the Company's Commercial / Industrial Lighting Segment. The acquisition has been accounted for as a purchase, effective on the date of acquisition. An additional approximate $3 million of cash was used immediately following the acquisition to reduce acquired liabilities. The purchase price exceeded the estimated fair value of net assets acquired by approximately $16.5 million, which is recorded as goodwill and is being amortized over forty years. The purchase price allocation was based upon preliminary estimates of fair value of assets acquired and may be revised at a later date pending the completion of appraisals and other analysis.

S-22

ended June 30, 2001 was above the target and an earn-out payment of $0.5 million was made in the first quarter of fiscal year 2002. The new subsidiary, LSI Adapt Inc., is a multi-discipline service firm primarily focused on the retail petroleum / convenience store branded image programs, as well as other national retail customers. LSI Adapt specializes in integrated design, site engineering, permitting, project and construction management of national retail sites. Results of LSI Adapt are included in the Company's Image Segment. The acquisition has been accounted for as a purchase, effective on the date of acquisition. The initial purchase price, plus the earn-out consideration achieved to date, exceeded the estimated fair value of net assets acquired by approximately $3.2 million, which has been recorded as goodwill and is being amortized over fifteen years. The purchase price allocation was based on preliminary estimates of fair value of assets acquired and may be revised at a later date pending the completion of appraisals and other analyses.

On April 9, 1999, the Company acquired substantially all assets and assumed certain liabilities of Retail Graphics, Inc., a privately owned manufacturer of interior graphics primarily for the retail store market. For financial statement purposes the acquisition was accounted for as a purchase with operating results of LSI Retail Graphics first included in the Company's fourth quarter fiscal 1999 results in the Image Segment. The initial purchase price for the business, exclusive of acquisition costs, was $3,300,000, consisting of $2,475,000 in cash and 47,578 common shares of the Company (valued at $825,000). The acquisition provided for a contingent "earn-out" having a maximum value of $600,000, payable in similar percentages of cash and common shares, which could be earned during the first two years after acquisition providing certain minimum net sales and earnings thresholds are exceeded. An earn-out payment was made in the fourth quarter of fiscal year 2001 in the amount of $300,000 consisting of $225,000 cash and 3,769 common shares of LSI Industries valued at $75,000. The earn-out payment has been recorded as additional goodwill to be amortized over the remaining life of the original goodwill related to this acquisition. An additional approximate $1 million was used immediately following the acquisition to reduce acquired liabilities. The total purchase price exceeded the estimated fair value of net assets acquired by $3.5 million, which is recorded as goodwill and is being amortized over twenty years.

The Company completed the acquisition of Mid-West Chandelier Company and Fairfax Lighting, Inc., two privately owned manufacturers of interior fluorescent lighting fixtures, effective January 1, 1999. For financial statement purposes these acquisitions were accounted for as purchases with operating results of LSI MidWest Lighting first included in the Company's third quarter fiscal 1999 results in the Commercial / Industrial Lighting Segment. The total purchase price for the two companies was $16,000,000, exclusive of acquisition costs, consisting of $8,000,000 in cash and 357,143 common shares of the Company (valued at $8,000,000). The acquisition provides for a contingent "earn-out" having a maximum value of $1 million in cash and $1 million in stock which could be earned during the three years subsequent to the merger providing certain minimum earnings thresholds are exceeded. There was no earn-out paid at the conclusion of either of the first two years. An additional approximate $1 million was used immediately following the acquisition to reduce acquired liabilities. The purchase price exceeded the estimated fair value of net assets acquired by $7.7 million, which is recorded as goodwill and is being amortized over forty years.

S-23

NOTE 12 – SUMMARY OF QUARTERLY RESULTS (UNAUDITED)

(In thousands except per share data)
	Quarter Ended				Fiscal
	Sept. 30	Dec. 31	March 31	June 30	Year

2001

Net sales	$53,609	$59,839	$53,935	$66,557	$233,940
Gross profit	15,399	17,040	13,975	18,997	65,411
Income from continuing
operations	2,981	3,028	1,225	3,367	10,601

Earnings per share from
continuing operations
Basic	$ .29	$ .29	$ .12	$ .32	1.02
Diluted	$ .29	$ .29	$ .12	$ .32	1.01	(a)

Range of share prices
High	$ 22.94	$ 22.00	$ 22.00	$ 26.95	$ 26.95
Low	$ 14.50	$ 16.50	$ 17.75	$ 18.01	$ 14.50

2000

Net sales	$64,967	$64,221	$53,396	$57,398	$239,982
Gross profit	20,115	20,348	15,934	17,378	73,775
Income from continuing
operations	5,357	5,646	3,170	4,106	18,279

Earnings per share from
continuing operations
Basic	$ .53	$ .55	$ .31	$ .40	$ 1.79
Diluted	$ .52	$ .55	$ .31	$ .40	$ 1.77	(a)

Range of share prices
High	$ 25.25	$ 25.50	$ 21.56	$ 22.16	$ 25.50
Low	$ 22.63	$ 19.13	$ 14.69	$ 12.50	$ 12.50

1999
Net sales	$54,447	$57,074	$54,304	$65,897	$231,722
Gross profit	17,035	18,573	16,010	20,959	72,577
Income from continuing
operations	3,912	4,668	3,083	5,438	17,101

Earnings per share
Basic	$ .41	$ .48	$ .31	$ .54	$ 1.73	(a)
Diluted	$ .40	$ .47	$ .30	$ .53	$ 1.70

Range of share prices
High	$ 22.00	$ 23.00	$ 22.75	$ 24.38	$ 24.38
Low	$ 17.25	$ 15.75	$ 15.88	$ 17.25	$ 15.75

S-24

(a)	The total of the earnings per share for each of the four quarters does not equal the total earnings per share for the full year because the calculations are based on the average shares outstanding during each of the individual periods.

At August 22, 2001, there were 424 shareholders of record. The Company believes this represents approximately 3,000 beneficial shareholders.

S-25

LSI INDUSTRIES INC. SELECTED FINANCIAL DATA (In thousands except per share)

The following data has been selected from the Consolidated Financial Statements of the Company for the periods and dates indicated:

Income Statement Data:

	2001		2000		1999		1998			1997

Net sales	$233,940		$239,982		$231,722		$193,439			$148,188
Cost of products sold	168,529		166,207		159,145		132,872		103,116
Operating expenses	48,175		45,219		45,349		40,373			31,363


Operating income	17,236		28,556		27,228		20,194			13,709
Interest (income)	(630	)	(1,057	)	(477	)	(143	)		(528	)
Interest expense	607		189		224		106			41
Other (income) expense	(58	)	15		95		108			114


Income from continuing opera-
tions before income taxes	17,317		29,409		27,386		20,123			14,082
Income taxes	6,716		11,130		10,285		7,536			5,210


Income from continuing
operations	$ 10,601		$ 18,279		$ 17,101		$ 12,587			$ 8,872


Net income	$ 9,878		$ 17,279		$ 17,101		$ 12,587			$ 8,872


Earnings per common share from
continuing operations
Basic	$ 1.02		$ 1.79		$ 1.73		$ 1.32			$ .99
Diluted	$ 1.01		$ 1.77		$ 1.70		$ 1.29			$ .97

Cash dividends paid per share	$ .39		$ .39		$ .33		$ .29			$ .23

Weighted average common shares
Basic	10,358		10,195		9,883		9,559			9,004
Diluted	10,523		10,354		10,088		9,790			9,188

Balance Sheet Data:
(At June 30)	2001		2000		1999		1998			1997

Working capital	$ 62,119		$ 61,139		$ 49,615		$ 40,237			$ 30,192

Total assets	181,759		146,783		137,714		110,316			95,189
Long-term debt,
including current
maturities	23,990		1,701		1,901		1,195			1,382

Shareholders' equity	127,193		118,212		102,752		78,657			67,968

S-26

LSI INDUSTRIES INC. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2001, 2000, AND 1999

(In Thousands)

	COLUMN A	COLUMN B		COLUMN C			COLUMN D			COLUMN E
Description			Balance Beginning of Period		Additions Charged to Costs and Expenses			(a) Deductions			Balance End of Period

Allowance for Doubtful Accounts:

	Year Ended June 30, 2001	$	1,239	$	996	(b)	$	(490)		$	1,745
	Year Ended June 30, 2000	$	1,213	$	97		$	(71)		$	1,239
	Year Ended June 30, 1999	$	560	$	1,133	(c)	$	(480)		$	1,213

Inventory Obsolescence Reserve:

	Year Ended June 30, 2001	$	794	$	608	(d)	$	(352)		$	1,050
	Year Ended June 30, 2000	$	1,083	$	194		$	(483)		$	794
	Year Ended June 30, 1999	$	841	$	982		$	(740)		$	1,083

Liabilities from Discontinued Operations:

	Year Ended June 30, 2001	$	2,745	$	1,110		$	(2,764)		$	1,091
	Year Ended June 30, 2000	$	755	$	1,538		$	452	(e)	$	2,745
	Year Ended June 30, 1999	$	864	$	—		$	(109)		$	755

(a) For Allowance for Doubtful Accounts, deductions are uncollectible accounts charged off, less recoveries.

(b) Includes $274 resulting from net assets purchased in fiscal year 2001.

(d) Includes $83 resulting from net assets purchased in fiscal year 2001.

(e) Represents settlement received of $608 less payments made of $156.

S-27

EX-4 3 dex4.txt CREDIT AGREEMENT EXHIBIT 4 ================================================================================ CREDIT AGREEMENT By and Among LSI INDUSTRIES INC. as the Borrower, THE BANKS PARTY HERETO as the Lenders hereunder, PNC BANK, NATIONAL ASSOCIATION as the Administrative Agent and the Syndication Agent Dated as of March 30, 2001 ================================================================================ SCHEDULES --------- Schedule Designation Schedule and -------- Principal Section ------- Reference --------- 3.2 Subsidiaries; Ownership Interests in Other Persons 3.6 Material Changes 3.7 Litigation and Other Matters 3.21 Intellectual Property 5.1 Existing Indebtedness Permitted to Remain Outstanding i CREDIT AGREEMENT ---------------- This CREDIT AGREEMENT, dated as of March 30, 2001 (as more fully defined below, the "Agreement"), is entered into by and among LSI INDUSTRIES INC., an Ohio corporation (the "Borrower"), the financial institutions listed on the signature pages hereto, and each other financial institution which, from time to time becomes a party hereto in accordance with Subsection 9.6a (individually a "Lender" and collectively the "Lenders"), and PNC BANK, NATIONAL ASSOCIATION as the administrative agent and the syndication agent (in such capacity the "Administrative Agent" or "Agent"). WITNESSETH: WHEREAS, the Borrower desires to obtain a Commitment (as defined below) from each of the Lenders pursuant to which Loans will be made to the Borrower from time to time prior to the Revolving Credit Termination Date (as defined below); and WHEREAS, the Lenders are willing, on the terms and subject to the conditions hereinafter set forth, to extend such Commitment and make such Loans to the Borrower. NOW, THEREFORE, in consideration of the premises (each of which is incorporated herein by reference) and the mutual promises contained herein and other valuable consideration, the receipt and adequacy of which are hereby acknowledged, and with the intent to be legally bound hereby, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS .1 Defined Terms. As used in this Agreement, including the preamble and ------------- recitals hereto, the following terms shall have the meanings set forth below or in the Section or Subsection of this Agreement referred to, unless the context otherwise requires: ARTICLE 2. Administrative Agent or Agent. PNC Bank, National ----------------------------- Association, in its capacity as the administrative agent and the syndication agent. ARTICLE 3. Administrative Agent's Fee. The fee payable to the -------------------------- Administrative Agent pursuant to the side letter agreement between Borrower and Administrative Agent dated March 28, 2001. ARTICLE 4. Affiliate: As to any Person, any other Person directly or --------- indirectly through one or more intermediaries Controlling, Controlled by, or under direct or indirect common Control with such Person. A Person shall be deemed to Control another Person if the Controlling Person owns twenty percent (20%) or more of any class of voting securities, partnership interests or other equity interests of the Controlled Person or possesses, indirectly or directly, the power to direct or cause the direction of the management or policies of the Controlled Person, whether through the ownership of voting securities, by contract or otherwise. ARTICLE 5. Agreement: This Credit Agreement, together with all --------- exhibits and schedules hereto and all extensions, renewals, amendments, substitutions and replacements hereto and hereof. ARTICLE 6. Applicable Unused Fee: A fee per annum with respect to the --------------------- Three Year Facility (i) from the Closing Date until June 30, 2001 at a rate of 15 basis points and (ii) thereafter at the number of basis points based upon the Borrower's Leverage Ratio as at the end of the most recently completed Fiscal Quarter, all as set forth below.

ARTICLE 1. Applicable Euro-Rate Margin: (i) From the Closing Date --------------------------- until June 30, 2001 50 basis points and (ii) thereafter the number of basis points based upon the Borrower's Leverage Ratio as at the end of the most recently completed Fiscal Quarter, all as set forth below.

ARTICLE 1. Applicable Federal Funds Rate Margin: (i) From the Closing ------------------------------------ Date until June 30, 2001 150 basis points and (ii) thereafter the number of basis points 2 based upon the Borrower's Leverage Ratio as at the end of the most recently completed Fiscal Quarter, all as set forth below.

ARTICLE 1. Application for Letter of Credit: Any application and -------------------------------- agreement for irrevocable letter of credit executed on behalf of the Borrower in connection with the issuance by the Issuing Bank of a Letter of Credit hereunder. ARTICLE 2. Assignment and Assumption Agreement: An Assignment and ----------------------------------- Assumption Agreement in the form delivered in connection with the Closing. ARTICLE 3. Authorized Officer: Any of the (i) President and Chief ------------------ Executive Officer, (ii) Vice President, Chief Financial Officer and Treasurer and (iii) Vice President-Manufacturing of the Borrower. The Agent and the Lenders shall be entitled to rely on the incumbency certificate delivered pursuant hereto for the initial designation of each Authorized Officer. Additions or deletions to the list of Authorized Officers may be made by the Borrower at any time by delivering to the Administrative Agent a revised, fully executed incumbency certificate. ARTICLE 4. Base Rate: For any day, the Prime Rate. --------- ARTICLE 5. Base Rate Loan: A Loan under the Commitment bearing -------------- interest at the Base Rate Option. ARTICLE 6. Base Rate Option: The ability of the Borrower to elect ---------------- Base Rate Loans, as set forth in Section 2.2. ARTICLE 7. Benefit Arrangement: An "employee benefit plan", within ------------------- the meaning of Section 3(3) of ERISA, which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by the Borrower or any ERISA Affiliate for the benefit of employees of the Borrower or any ERISA Affiliate. ARTICLE 8. Borrower: LSI INDUSTRIES INC., an Ohio corporation, and -------- its successors and permitted assigns. 3 ARTICLE 9. Borrowing Date: With respect to any Loan, the date for the -------------- making thereof, which shall be a Business Day. ARTICLE 10. Borrowing Tranche: Each portion of the Loans bearing ----------------- interest at a discrete Euro-Rate Option and that portion of the Loans bearing interest at the Base Rate Option. ARTICLE 11. Business Day: With respect to any borrowing or payment of ------------ Euro- Rate Loans or a selection of the Euro-Rate Option, a day other than a Saturday or a Sunday on which banks are open for business in Cincinnati, Ohio and on which dealings in Dollars are carried on in the London interbank market; and for all other purposes, a day other than a Saturday or a Sunday on which commercial banks in Cincinnati, Ohio are open for business. ARTICLE 12. Capital Adequacy Event: This term shall have the meaning ---------------------- given it in Section 2.8. ARTICLE 13. Capital Compensation Amount: This term shall have the --------------------------- meaning given it in Section 2.8. ARTICLE 14. Capitalized Lease: Any lease of property by the Borrower ----------------- or a Subsidiary of the Borrower, as lessee, which would be capitalized in accordance with GAAP. ARTICLE 15. Capitalized Lease Obligations: The amount of the ----------------------------- obligations of the Borrower and its Subsidiaries under Capitalized Leases which would be shown as a liability of the Borrower or such Subsidiary in accordance with GAAP. ARTICLE 16. Change of Control: Within a period of twelve (12) ----------------- consecutive calendar months (i) individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower, or (ii) a Person or group of Persons acting in concert and who is not (a) an Affiliate of shareholders of the Borrower on the first day of such period or (b) a Person who is eligible to report their ownership of capital stock of the Borrower on Form 13G filed with the Securities and Exchange Commission shall acquire twenty percent (20%) or more of the issued and outstanding capital stock of the Borrower. ARTICLE 17. Closing. The execution and delivery of this Agreement and ------- related documents. ARTICLE 18. Closing Date: March 30, or such later date as is mutually ------------ agreeable to the parties hereto. ARTICLE 19. Commitment: As to each Lender, the obligation of such ---------- Lender to make Loans available to the Borrower pursuant to Section 2.1 in an aggregate principal amount not to exceed the amount set forth opposite such Lender's name on the signature pages hereto (as the same may be reduced at any time or from time to time pursuant to 4 Subsection 2.1f and Subsection 2.3a) and, as to all Lenders, the obligation of the Lenders to make Loans available to the Borrower in a maximum aggregate amount not to exceed the Revolving Credit Commitment, the Three Year Commitment and the 364 Day Commitment, respectively, as set forth and defined in Section 2.1. ARTICLE 20. Commitment Percentage: The proportion that a Lender's --------------------- Commitment bears to the Commitments of all of the Lenders, collectively. ARTICLE 21. Compliance Certificate: A certificate substantially in the ---------------------- form of delivered at the Closing which has been executed by an Authorized ------------ Officer and delivered to the Administrative Agent. ARTICLE 22. Consolidated: The consolidation in accordance with GAAP of ------------ the items as to which such term applies. ARTICLE 23. Consolidated EBITDA: For the relevant period, the sum of ------------------- the Borrower's (i) Consolidated net income, (ii) Consolidated income tax expense, (iii) Consolidated interest expense, (iv) Consolidated depreciation and amortization expenses and (v) other Consolidated non-cash expenses for the Borrower, all determined in accordance with GAAP; provided -------- that there shall be excluded from Consolidated net income any extraordinary items of gain or loss (including, without limitation, those items created by mandated changes in GAAP). ARTICLE 24. Consolidated Indebtedness. All of Borrower's Indebtedness ------------------------- determined on a Consolidated basis. ARTICLE 25. Consolidated Tangible Net Worth: For the relevant period, ------------------------------- on a Consolidated basis: (i) the sum of the amounts appearing on the balance sheet of such entity as (a) the stated value of all outstanding stock and (b) capital, paid-in and earned surplus; less (ii) the sum of (a) the deficit in any surplus or capital account, including treasury stock, (b) the amount of any write-up subsequent to 1999 in the book value of any asset owned on such date resulting from the revaluation thereof subsequent to such date or any write up of any asset in excess of the costs of the assets acquired, (c) any amounts by which patents, trademarks, trade names, organizational expenses and other intangible items of similar nature and good will appear on the asset side of such balance sheet, (d) any amounts at which shares of the capital stock of Borrower appear on the asset side of such balance sheet, all as of the last day of the month previous to such particular time, and (e) any amounts for advances to shareholders, directors, officers, employees or Affiliates of Borrower which appear on the asset side of the balance sheet, except those made in the ordinary course of business. ARTICLE 26. Contamination: The uncontained presence of Hazardous ------------- Substances at any real property of the Borrower or any Subsidiary, whether owned or leased, which may require clean-up or remediation under any Environmental Law. 5 ARTICLE 27. Control and its Derivatives: The possession, directly or --------------------------- indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, partnership interests or other equity interests, by contract or otherwise, including the power to elect a majority of the directors of a corporation or trustees of a trust, as the case may be. ARTICLE 28. Default: Any condition, event, omission or act which with ------- the giving of notice, the passage of time or both would constitute an Event of Default. ARTICLE 29. Disbursement: Each advance of funds hereunder as a Loan or ------------ outstanding Letter of Credit. ARTICLE 30. Dollars or $: The legal tender of the United States of ------------ America. ARTICLE 31. Environmental Claim: Any claim, suit, notice, order, ------------------- demand or other communication made by any Person with respect to the Borrower or any Subsidiary or any of their respective properties, whether owned or leased, that: (i) asserts a violation of an Environmental Law; (ii) asserts a liability under an Environmental Law; (iii) orders investigation, corrective action, remediation or other response under an Environmental Law; (iv) demands information under an Environmental Law; (v) alleges personal injury or property damage resulting from Hazardous Substances; or (vi) alleges that there is or may be Contamination. ARTICLE 32. Environmental Law: Any Governmental Rule, permit, license, ----------------- writ, injunction, decree, award or standard concerning health, safety and protection of, or regulation of the discharge of substances into, the environment, whether now in existence or hereafter enacted, agreed to, issued or otherwise becoming effective. ARTICLE 33. Equity Offering: The public or private issuance of capital --------------- stock of the Borrower other than that: (i) pursuant to an employee or director stock option plan, employee stock purchase plan, 401(k) plan, or other Benefit Arrangement, or (ii) issued solely for acquiring a Person as permitted hereunder. ARTICLE 34. ERISA: The Employee Retirement Income Security Act of 1974 ----- as it may from time to time be amended, supplemented or otherwise modified, or any successor statute, and the rules and regulations promulgated thereunder. ARTICLE 35. ERISA Affiliate: At any time any member of a controlled --------------- group of corporations under Section 414(b) of the Internal Revenue Code of which the Borrower is a member, and any trade or business (whether or not incorporated) under common control with the Borrower under Section 414(c) of the Internal Revenue Code, and all other entities which, together with the Borrower, are or were treated as a single employer under Sections 414(m) or 414(o) of the Internal Revenue Code. ARTICLE 36. Euro-Rate: With respect to Borrowing Tranches to which the --------- Euro- Rate Option applies for any Euro-Rate Interest Period, the interest rate per annum 6 determined by the Administrative Agent by dividing (the resulting quotient rounded upward to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Administrative Agent in accordance with its usual procedures (which determination shall be conclusive, absent manifest error) to be equal to the average of the London interbank offered rates for U.S. Dollars quoted by the British Bankers' Association set forth on Dow Jones Market Service (formerly known as Telerate) display page 3750 (or an appropriate successor, or, if the British Bankers' Association or its successor ceases to provide such quotes, a comparable replacement determined by the Administrative Agent), two (2) Business Days prior to the first day of such Euro-Rate Interest Period for an amount comparable to such Borrowing Tranche and having a borrowing date and a maturity comparable to such Euro-Rate Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by the following formula: Average of London interbank offered rates on Dow Euro-Rate = Jones Markets Service display page 3750 as quoted by BBA -------------------------------------------------------- 1.00 - Euro-Rate Reserve Percentage ARTICLE 37. Euro-Rate Interest Period: Any individual period of one, ------------------------- two, three or six, months, commencing on the date a Euro-Rate Option is exercised with respect to a Euro-Rate Loan; provided, however, that (i) any -------- ------- Euro-Rate Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next Business Day unless such Business Day falls in the succeeding calendar month, in which case such Euro-Rate Interest Period shall end on the next preceding Business Day, (ii) any Euro-Rate Interest Period which begins on the last day of a calendar month or on a day for which there is no numerically corresponding day in the subsequent calendar month during which such Euro-Rate Interest Period is to end shall end on the last Business Day of such subsequent month, and (iii) no Euro-Rate Interest Period may end after the Revolving Credit Termination Date. ARTICLE 38. Euro-Rate Loan: A Loan bearing interest under the -------------- Euro-Rate Option, as set forth in Subsection 2.2. ARTICLE 39. Euro-Rate Option: The ability of the Borrower to elect ---------------- Euro-Rate Loans, as set forth in Subsection 2.2. ARTICLE 40. Euro-Rate Reserve Percentage: For each Euro-Rate Interest ---------------------------- Period, that percentage (expressed as a decimal), as determined by the Administrative Agent as to the Euro-Rate Loan as to which the rate is then being set, which is in effect on the first day of such Euro-Rate Interest Period, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining the maximum reserve requirements (including without limitation supplemental, marginal or emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a member bank in such system. 7 ARTICLE 41. Euro-Rate Tranche: Each portion of the Loans bearing ----------------- interest at a discrete Euro-Rate Option. ARTICLE 42. Event of Default: Any of the events specified in Section ---------------- 7.1. ARTICLE 43. Existing Letter of Credit: Those outstanding Letters of ------------------------- Credit set forth on Schedule 5.1. ------------ ARTICLE 44. Federal Funds Rate: For any day, the interest rate per ------------------ annum (rounded upward, if necessary, to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor thereto) as being the weighted average of rates on overnight federal funds transactions arranged by Federal funds brokers with members of the Federal Reserve System as published on the succeeding Business Day; provided, however, that -------- ------- if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate for such transactions on the immediately preceding Business Day or (ii) if such rate shall not be published by such Federal Reserve Bank, such rate as determined by the Administrative Agent in accordance with its usual procedures (which determination shall be conclusive absent manifest error). ARTICLE 45. Federal Funds Rate Loan: A Loan bearing interest under the ----------------------- Federal Funds Rate Option, as set forth in Subsection 2.2. ARTICLE 46. Federal Funds Rate Option: The ability of the Borrower to ------------------------- elect Federal Funds Rate Loans, as set forth in Subsection 2.2. ARTICLE 47. Federal Funds Rate Tranche: Each portion of the Loans ------------------------- bearing interest at the Federal Funds Rate. ARTICLE 48. Fee: Any fee payable by the Borrower to the Agent, the --- Lenders hereunder, or under any of the other Loan Documents, including but not limited to the Administrative Agent's Fee. ARTICLE 49. Fiscal Quarter: Each three-month fiscal period of the -------------- Borrower beginning respectively on each successive July 1, October 1, January 1 and April 1 during the term hereof and ending on the immediately succeeding September 30, December 31, March 31 and June 30. ARTICLE 50. Fiscal Year: Each annual fiscal period of the Borrower ----------- beginning July 1 and ending on the immediately succeeding June 30. ARTICLE 51. GAAP: Generally accepted accounting principles which are ---- consistent with the principles promulgated or adopted by the Financial Accounting Standards Board, its predecessors and its successors, including any official interpretations thereof. ARTICLE 52. Governmental Approval: Any order, consent, authorization, --------------------- license, validation, approval and permit, issued to or required to be obtained by the 8 Borrower or any of its Subsidiaries in connection with the ownership, construction, erection, installation, operation and maintenance of their respective properties, and the conduct of their respective present businesses. ARTICLE 53. Governmental Authority: The government of the United ---------------------- States or the government of any state or locality therein, any political subdivision or any governmental, quasi-governmental, judicial, public or statutory instrumentality, court, arbitrator, authority, body or entity or other regulatory bureau, authority, body or entity of the United States or any state or locality therein, including but not limited to the Federal Deposit Insurance Corporation, the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, any central bank or any comparable authority, and any successor to any of the foregoing. ARTICLE 54. Governmental Rule: Any law, statute, rule, regulation, ----------------- treaty, ordinance, order, writ, injunction, decree, judgment, guideline, directive or decision of any Governmental Authority, including without limitation Environmental Laws, all whether in existence on the Closing Date or whether issued, enacted or adopted after the Closing Date, and any change therein or in the interpretation or application thereof following the Closing Date. ARTICLE 55. Guarantor: Each Subsidiary of the Borrower in existence on --------- the Closing Date (other than GIBT Ltd. and LSI Industries Foreign Sales Corporation) and each Person which becomes a Subsidiary of the Borrower on and after the Closing Date. ARTICLE 56. Guaranty: As to any Person, any obligation, direct or -------- indirect, by which such Person undertakes to guaranty, assume or remain liable for the payment of a second Person's obligations, including but not limited to (i) endorsements of negotiable instruments, (ii) discounts with recourse, (iii) agreements to pay or perform upon a second Person's failure to pay or perform, (iv) agreements to remain liable on obligations assumed by a second Person, (v) agreements to maintain the capital, working capital, solvency or general financial condition of a second Person and (vi) agreements for the purchase or other acquisition of products, materials, supplies or services, if in any case payment therefor is to be made regardless of the nondelivery of such products, materials or supplies or the nonfurnishing of such services. ARTICLE 57. Guaranty Agreement: A Guaranty Agreement substantially in ------------------ the form delivered in connection with the Closing hereto, together with all extensions, renewals, amendments, supplements, substitutions and replacements thereof and thereto. ARTICLE 58. Hazardous Substance: Any (i) substance which is defined as ------------------- such or regulated in any manner by any Environmental Law and (ii) petroleum products. ARTICLE 59. Indebtedness: Individually and collectively, (i) ------------ obligations and indebtedness for borrowed money, including but not limited to the Obligations; (ii) obligations evidenced by bonds, debentures, notes, including but not limited to all notes 9 issued hereunder, or similar instruments; (iii) obligations under conditional sale or other title retention agreements relating to property purchased; (iv) obligations issued or assumed as the deferred purchase price of property or services; (v) Capitalized Lease Obligations; (vi) obligations with respect to letters of credit, whether matured or contingent; (vii) obligations with respect to any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate insurance or any other agreement or arrangement designed to provide protection against fluctuations in interest rates; (viii) obligations of others secured by any Lien on property or assets owned or acquired by the affected Person, whether or not the obligations secured thereby have been assumed; (ix) Guarantees; and (x) all extensions, renewals, amendments, substitutions and replacements to and of any of the foregoing; provided, however, that Indebtedness shall not include accounts -------- ------- payable incurred in the ordinary course of business or accruals, made in accordance with GAAP, for liabilities for expenses incurred in the ordinary course of business, if those accounts payable or accrued liabilities do not constitute or represent obligations to repay borrowed money. ARTICLE 60. Interest Rate Option: The Base Rate Option, the Federal -------------------- Funds Rate Option or the Euro-Rate Option. ARTICLE 61. Internal Revenue Code: The Internal Revenue Code of 1986 --------------------- or any successor legislation thereto, and the rules and regulations issued or promulgated thereunder, including any amendments to any of the foregoing. ARTICLE 62. Issuing Bank: PNC Bank, in its capacity as the issuer of ------------ Letters of Credit hereunder. ARTICLE 63. Lender: As more fully defined in the preamble to this ------ Agreement. ARTICLE 64. Letter of Credit: Any irrevocable stand-by or commercial ---------------- letter of credit, including, without limitation, the Existing Letters of Credit, issued by the Issuing Bank hereunder, as each such letter of credit may, from time to time, be amended, renewed, extended, supplemented or replaced. ARTICLE 65. Letter of Credit Commitment: The Commitment of the Issuing --------------------------- Bank to issue Letters of Credit, all as set forth in Article 2 hereof, up to a maximum amount of $5,000,000. ARTICLE 66. Letter of Credit Fee: The fee due the Lenders set forth in -------------------- Section (i) of Subsection 2.3c. ARTICLE 67. Leverage Ratio: As of any date of determination the ratio -------------- of (i) the Borrower's Consolidated Indebtedness to (ii) the Borrower's Consolidated EBITDA for the immediately preceding four Fiscal Quarters treated as a single accounting period. 10 ARTICLE 68. Lien: Any security interest, mortgage, charge, pledge, ---- hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any capitalized lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code), in, upon or against any asset of the affected Person, whether or not voluntarily given. ARTICLE 69. Loan: As to any Lender as of any date the aggregate amount ---- of all Disbursements made by such Lender under such Lender's Commitment. ARTICLE 70. Loan Account: Any loan account referred to in Section 2.5. ------------ ARTICLE 71. Loan Document: Any of this Agreement, the Revolving Credit ------------- Notes, the Guaranty Agreements and all other agreements, documents and instruments executed and delivered from time to time to govern, evidence or secure the Obligations or any of the foregoing documents and instruments, and the statements, reports, certificates and other documents required by, or related to, any of the foregoing, together with all extensions, renewals, amendments, substitutions and replacements to and of any of the foregoing. ARTICLE 72. Loan Party: The Borrower and each Guarantor. ---------- ARTICLE 73. Material Adverse Change: Any set of circumstances or ----------------------- events which (i) has any material adverse effect upon the validity or enforceability of this Agreement or any of the other Loan Documents; (ii) is material and adverse to the business, properties, assets, financial condition, results of operations or prospects of the Borrower or any of its Subsidiaries taken as a whole; (iii) impairs materially the ability of any Loan Party to duly and punctually pay or perform its Obligations; or (iv) impairs materially the ability of the Agent or the Lenders, to the extent permitted, to enforce legal remedies pursuant to this Agreement and the other Loan Documents. ARTICLE 74. Material Adverse Effect: An effect that results in or ----------------------- causes a Material Adverse Change. ARTICLE 75. Multiemployer Plan: A "multiemployer plan" as defined in ------------------ Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions or has within any of the preceding five plan years made or accrued an obligation to make contributions. ARTICLE 76. Net Proceeds: The net proceeds of any Equity Offering ------------ after having deducted from the gross proceeds of such Equity Offering all costs and fees associated therewith. ARTICLE 77. Obligations: Collectively, (i) all unpaid principal of, ----------- and accrued and unpaid interest on, the Loans, (ii) all accrued and unpaid Fees, (iii) any other 11 amounts due hereunder or under any of the other Loan Documents, including any and all reimbursements, indemnities, Fees, costs, expenses, prepayment premiums, break-funding costs and other obligations the Borrower to the Agent or the Lenders or any indemnified party hereunder and thereunder, and (iv) all reasonable out-of-pocket costs and expenses incurred by the Administrative Agent in connection with this Agreement and the other Loan Documents, including but not limited to the reasonable fees and expenses of the Administrative Agent's counsel, which the Borrower is responsible to pay pursuant to the terms of this Agreement and the other Loan Documents. ARTICLE 78. Participant: Any bank or financial institution which ----------- acquires from a Lender an undivided interest in such Lender's Commitment and Loans, pursuant to Subsection 9.6c. ARTICLE 79. PBGC: The Pension Benefit Guaranty Corporation established ---- pursuant to ERISA, or any entity succeeding to any or all of its functions under ERISA. Permitted Lien: Any of the following: -------------- (i) liens securing the payment of taxes, either not yet due or the validity of which is being contested in good faith by appropriate proceedings, and as to which Borrower has set aside on its books adequate reserves to the extent required by generally accepted accounting principles; (ii) deposits under workers' compensation, unemployment insurance and social security laws, or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or to secure statutory obligations or surety or appeal bonds, or to secure indemnity, performance or other similar bonds in the ordinary course of business; (iii) liens imposed by law, such as carrier's, warehousemen's or mechanics' liens, incurred by Borrower in good faith in the ordinary course of business, and liens arising out of a judgment or award against Borrower with respect to which Borrower will currently be prosecuting an appeal, a stay of execution pending such appeal having been secured; (iv) liens in favor of Lender; (v) reservations, exceptions, encroachments and other similar title exceptions or encumbrances affecting real properties, provided such do not materially detract from the use or value thereof as used by the owner thereof; (vi) attachment, judgment, and similar liens provided that execution is effectively stayed pending a good faith contest; 12 (vii) liens created by purchase money security interests or related to the leasing of equipment limited to the capital assets financed not to exceed $2,000,000; (viii) liens on equipment, machinery, and/or real property that: (a) are related to the assumption of liabilities by Borrower in connection with merger and acquisition activities not to exceed $15,000,000 in the aggregate; (b) are limited to the equipment, machinery, and/or real property acquired; and (c) are not created at the time of or in contemplation of such merger or acquisition; (ix) the following liens: (a) lien on real estate located in Independence, Kentucky that secures a stand-by letter of credit with the Fifth Third Bank for an Industrial Revenue Bond in the original principal amount of $1,250,000; (b) lien on specific equipment that secures a note to the State of Ohio in the original principal amount of $350,000 and a note to The Fifth Third Bank in the original principal amount of approximately $570,000 (iii) lien on specific equipment that secures a note to KeyCorp Leasing, a division of Key Corporate Capital, Inc., in the principal amount of approximately $470,000, (iv) lien on specific equipment that secures a note to KeyCorp Leasing, a division of Key Corporate Capital, Inc., in the principal amount of approximately $47,000 and (v) lien on specific equipment that secures a note to G.M.A.C. in the principal amount of approximately $10,000. (x) liens that are satisfied or intended to be satisfied at the time of the closing or no longer than thirty (30) days thereafter on a merger or acquisition by Borrower permitted hereunder. ARTICLE 80. Person: Any individual, partnership, corporation, trust, ------ joint venture, unincorporated organization, association, limited liability company, entity or Governmental Authority. ARTICLE 81. Plan: As to any Person, any employee pension benefit plan ---- other than a Multiemployer Plan which is covered by Title IV of ERISA and which either (i) is maintained by such Person and/or any ERISA Affiliate of such Person for employees of such Person and/or any ERISA Affiliate or (ii) has at any time within the preceding five years been maintained by such Person and/or any entity which was an ERISA Affiliate at such time for their respective employees. ARTICLE 82. PNC Bank: PNC Bank, National Association, a national -------- banking association. ARTICLE 83. Prime Rate: For any day, a fluctuating interest rate per ---------- annum equal to the rate of interest which PNC Bank announces from time to time as its prime 13 lending rate, which rate may not be the lowest rate then being charged by PNC Bank to commercial borrowers. ARTICLE 84. Prohibited Transaction: A "prohibited transaction" as ---------------------- defined under Section 406 of ERISA or Section 4975 of the Internal Revenue Code. ARTICLE 85. Purchasing Lender: Shall have the meaning given it in ----------------- Subsection 9.6a. ARTICLE 86. Register: Shall have the meaning given it in Subsection -------- 9.6b. ARTICLE 87. Regulations T, U and X: Regulations T, U and X promulgated ---------------------- by the Board of Governors of the Federal Reserve System 12 C.F.R. Part 220 et seq., 12 C.F.R. Part 221 et seq. and 12 C.F.R. Part 224 et seq., respectively), as such regulations are now in effect and as may hereafter be amended. ARTICLE 88. Reportable Event: A "reportable event" described in ---------------- Section 4043(b) of ERISA and in 29 C.F.R. Part 2615. ARTICLE 89. Required Lenders: As of a particular day (i) prior to the ---------------- termination of the Commitments, the Lenders whose Commitment Percentages aggregate at least sixty-six and two-thirds (66-2/3%) of the aggregate Commitment Percentages of all the Lenders and (ii) after the termination of the Commitments, the Lenders whose Loans outstanding aggregate at least sixty-six and two-thirds percent (66-2/3%) of the aggregate principal amount of the Loans at the particular time outstanding. ARTICLE 90. Revolving Credit Commitment: Shall have the meaning given --------------------------- to it in Section 2.1. ARTICLE 91. Revolving Credit Note: Any of the several promissory notes --------------------- of the Borrower evidencing Indebtedness of the Borrower under the Commitment together with all extensions, renewals, amendments, substitutions and replacements thereto and thereof. ARTICLE 92. Revolving Credit Termination Date: March 29, 2004 as to ---------------------------------- the Three Year Notes and the Swingline Note and March 28, 2002 as to the 364 Day Notes. ARTICLE 93. S&P: Standard & Poor's Rating Group, a division of --- McGraw-Hill, Inc., or any successor thereto. ARTICLE 94. Stated Amount: The amount available to beneficiaries of ------------- Letters of Credit for one or more drawings thereunder as such amount is increased, reduced or reinstated from time to time in accordance with the provisions of any Letter of Credit and this Agreement. ARTICLE 95. Subsidiary: Either (i) any corporation more than 50% of ---------- the outstanding voting securities of which shall at the time be owned or controlled, directly or 14 indirectly, by the affected Person or one or more Subsidiaries or such Person, or by the affected Person and one or more Subsidiaries, or (ii) any other Person which is so owned or controlled. Borrower's Subsidiaries existing on the date hereof are listed on Schedule 3.3. ARTICLE 96. Swingline Commitment shall mean the credit facility in an -------------------- amount not to exceed $7,000,000 from PNC Bank. ARTICLE 97. Swingline Documents shall mean the Swingline Note and all ------------------- riders and other documents relating to money management services provided by Agent to the Borrower executed in connection with the Swingline Note. ARTICLE 98. Swingline Loan(s) shall mean the advances made pursuant to ----------------- Section 2.2j below. ------------ ARTICLE 99. Swingline Note shall mean the promissory note evidencing -------------- the Swingline Loan(s), and will include all amendments, extensions and renewals made thereto from time to time. ARTICLE 100. Swingline Subfacility shall mean the credit facility --------------------- described in Section 2.2j, below. ------------ ARTICLE 101. Three-Year Commitment: The commitment of the Lenders to --------------------- make the Three-Year Facility available to Borrower. ARTICLE 102. Three-Year Facility: shall mean the $30,000,000 credit ------------------- facility extended pursuant to the Three-Year Commitment. ARTICLE 103. Three Year Note: Any of the several promissory notes of --------------- the Borrower evidencing Indebtedness of the Borrower under the Commitment in the total principal amount of $30,000,000 having an initial term of three years together with all extensions, renewals, amendments, substitutions and replacements thereto and thereof. ARTICLE 104. 364-Day Commitment: The commitment of the Lenders to make ------------------ the 364-Day Facility available to Borrower. ARTICLE 105. 364-Day Facility: shall mean the $20,000,000 credit ----------------- facility extended pursuant to the 364-Day Commitment. ARTICLE 106. 364 Day Note: Any of the several promissory notes of the ------------ Borrower evidencing Indebtedness of the Borrower under the Commitment in the total principal amount of $20,000,000 having an initial term of 364 days together with all extensions, renewals, amendments, substitutions and replacements thereto and thereof. ARTICLE 107. Transfer Effective Date: This term shall have the meaning ----------------------- ascribed to it in the applicable Assignment and Assumption Agreement. 15 ARTICLE 108. Transferor Lender: Shall have the meaning given it in ----------------- Subsection 9.6a. ARTICLE 109. Unreimbursed Amount: This term shall have the meaning ------------------- given it in Subsection 2.3d. ARTICLE 110. Unused Fee: The fee payable to the Lenders set forth in ---------- Section 2.7. .1 Accounting Terms. Each accounting term not defined herein and each ---------------- accounting term partly defined herein, to the extent not defined, shall have the meaning given it under GAAP. .2 Rules of Construction. In this Agreement and the other Loan Documents --------------------- (except as otherwise expressly provided or unless the context otherwise requires) (i) terms defined in the singular shall have comparable meanings when used in the plural, and vice versa, unless otherwise specified, (ii) any pronoun used shall be deemed to cover all genders, (iii) the words "hereof", "herein" and "hereunder" and words of similar import shall refer to this Agreement as a whole and not to any particular provision of this Agreement and (iv) all references to particular Articles, Sections, items, clauses, exhibits and schedules are references to the Articles, Sections, items, exhibits and schedules of and to this Agreement. ARTICLE 111. THE CREDIT FACILITY .1 Revolving Credit Commitment. --------------------------- .1a Loans. The Lenders hereby severally establish, upon the terms and ----- conditions hereinafter set forth and relying upon the representations and warranties herein set forth, a revolving credit in favor of the Borrower in the maximum aggregate amount of FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00) (the "Revolving Credit Commitment") consisting of the Three Year Commitment and the 364 Day Commitment. The Borrower shall have the right to borrow, repay and reborrow from the Lenders from the date hereof until the Revolving Credit Termination Date pursuant to draws upon the Revolving Credit Commitment the principal amount of which shall not exceed $50,000,000 in the aggregate at any one time outstanding and which shall not exceed the Three Year Commitment and the 364 Day Commitment, respectively. .1b Commitment of Each Lender. Each Lender agrees, for itself only, and ------------------------- subject to the terms and conditions of this Agreement, to make Loans to the Borrower from time to time not to exceed an aggregate principal amount at any one time outstanding equal to (i) the amount of its respective Commitment Percentage of the Revolving Credit Commitment, and (ii) the amount of its respective Commitment Percentage of the Three Year Commitment and the 364 Day Commitment. 16 .1c Notes. The obligation of the Borrower to repay, on or before the ----- Revolving Credit Termination Date, the aggregate unpaid principal amount of all Loans shall be evidenced by the Swingline Note, the several Three Year Notes and the 364 Day Notes, drawn by the Borrower to the order of a Lender in the total maximum amount of such Lender's Commitment. The principal amount actually due and owing to a Lender at any time shall be the then aggregate unpaid principal amount of all Loans made by such Lender as shown on the Loan Account established and maintained by such Lender in accordance with Section 2.5. .1d Disbursements. The amount of any Disbursement to bear interest at the ------------- Euro-Rate Option shall be in the minimum aggregate principal amount of $1,000,000; provided, however that each incremental unit in excess of -------- ------- $1,000,000 shall be $100,000 or an integral multiple thereof. .1e Method of Making Disbursements. ------------------------------ (i) Each request for Disbursements under the Commitment shall be made by an Authorized Officer to the Administrative Agent orally or in writing (A) in the case of Disbursements to bear interest at the Base Rate Option or the Federal Funds Rate Option, by 12:00 Noon (Eastern Time) on the Borrowing Date, and (B) in the case of Disbursements to bear interest at the Euro- Rate Option, by 12:00 Noon. (Eastern Time) at least three (3) Business Days prior to the Borrowing Date. Each such request shall (i) specify the Borrowing Date, (ii) specify the amount of the Disbursements, (iii) select the Interest Rate Option(s) therefor and (iv) in the case of Disbursements which will bear interest at the Euro-Rate Option, the Euro-Rate Interest Period therefor. Any oral request for Disbursements hereunder shall be followed by the Borrower's written confirmation of such request promptly thereafter. A request from the Borrower with respect to any Disbursements bearing interest at the Euro-Rate Option shall irrevocably commit the Borrower to take such Disbursements on the Borrowing Date specified in the request. The Borrower may, without liability or cost hereunder, cancel any request for Disbursements bearing interest at the Base Rate or Federal Funds Rate at any time prior to the funding thereof by each of the Lenders by delivering notice of such cancellation to the Administrative Agent. (ii) The Administrative Agent shall promptly notify the Lenders of each request for a Disbursement. (iii) Not later than 2:00 P.M. (eastern time) on the Borrowing Date, each Lender shall make available to the Administrative Agent in immediately available funds at the principal office of the Administrative Agent such Lender's pro-rata share of the Disbursements, for the account of the Borrower. No Lender's obligation to make a Disbursement shall be affected by any other Lender's failure to make funds available for the same 17 or any other Disbursement, provided that, upon such failure the remaining Lenders shall collectively fund the amount of such unavailable funds up to the maximum amount of their respective Commitments. Nothing in this Subsection 2.1e shall be deemed to relieve any Lender from its obligation to fulfill its obligations to the Borrower under this Agreement or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender under this Agreement. .1f Voluntary Reductions of Commitment; Voluntary Principal Payments. ---------------------------------------------------------------- (i) Voluntary Reductions. Upon two (2) Business Days' written notice -------------------- to the Administrative Agent, the Borrower may from time to time voluntarily permanently reduce the Commitment. Each voluntary reduction shall be in a minimum amount of $1,000,000 or, if greater than $1,000,000, in integral multiples of $100,000. (ii) Effect of Reductions. Simultaneously with each voluntary -------------------- permanent reduction, the Borrower shall make a payment of the outstanding Loans equal to the excess, if any, of (A) the aggregate principal amount of the outstanding Loans over (B) the Commitment, as so reduced. Notice of a reduction, once given, shall be irrevocable. All such reductions shall be without penalty or premium (except for amounts owing pursuant to Subsection 2.2e, if any). (iii) Application of Reductions and Payments. Any principal payments -------------------------------------- shall be accompanied by all accrued and unpaid interest due thereon, all amounts due pursuant to Section 2.2, if any, and, in the case of a permanent reduction of the Commitment to zero, any other outstanding Obligations which are then due and payable. All such payments shall be applied by the Administrative Agent to repay Base Rate Loans first, and then to repay Euro-Rate Loans. .2 Interest. -------- .2a Interest Rates. During the term hereof the Borrower, in accordance with the provisions of this Section 2.2, shall have the option of electing from time to time one or more of the Interest Rate Options to be applied by the Administrative Agent to outstanding Loans, as follows: interest (i) under the Base Rate Option shall accrue at a rate per annum equal to the Base Rate, (ii) under the Euro-Rate Option shall accrue at a rate per annum equal to the sum of (A) the Euro-Rate plus (B) the Applicable Euro-Rate Margin and (iii) ) under the Federal Funds Rate Option shall accrue at a rate per annum equal to the sum of (A) the Federal Funds Rate plus (B) the Applicable Federal Funds Rate Margin. .2b Adjustments to Interest Rates. ----------------------------- 18 (i) Changes in Base Rate and Federal Funds Rate. The Base Rate ------------------------------------------- Option and the Federal Funds Rate Option shall be adjusted from time to time, without notice to the Borrower, as necessary to reflect any changes in the Base Rate and the Federal Funds Rate, respectively, which adjustments shall be automatically effective on the day of any such change. (ii) Changes in the Applicable Euro-Rate Margin and the Applicable ------------------------------------------------------------- Federal Funds Rate Margin. On and after [July 1, 2001], the ------------------------- Applicable Euro-Rate Margin and the Applicable Federal Funds Rate Margin for each then outstanding Euro-Rate Tranche and Federal Funds Rate Tranche, respectively, shall be adjusted quarterly and automatically, from time to time effective on the first day of the month following delivery to the Lenders of the financial statements for the prior quarter or year to reflect any change in the Borrower's Leverage Ratio. (iii) Changes in Euro-Rate Reserve Percentage. The Euro-Rate shall be --------------------------------------- adjusted from time to time, with respect to Euro-Rate Loans, without notice to the Borrower, as necessary to reflect any changes in the Euro-Rate Reserve Percentage, which adjustments shall be automatically effective on the day of such change. (iv) Event of Default. After the occurrence of and during the ---------------- continuance of an Event of Default until the same is cured and whether or not judgment has been entered against the Borrower on the Revolving Credit Notes, the Loans shall bear interest at a rate per annum which shall be two hundred (200) basis points (2%) per annum above the rate otherwise in effect under the Base Rate Option, such interest rate to change automatically from time to time, effective as of the effective date of each change in the Base Rate. (v) Notice of Changes. The Administrative Agent will promptly notify ----------------- the Borrower and the Lenders of any changes of rates set forth in items (i), (ii), (iii) and (iv) above which notice, in all cases, will be after such changes become effective. Failure of the Administrative Agent to notify the Borrower and the Lenders of any such change shall not impair the validity of any such rate change, provided Borrower will not be obligated to pay any increased rate until notified of such change. .2c Interest Rate Option Elections, Renewals and Conversions. Subject to -------------------------------------------------------- the remaining provisions of this Agreement, the Borrower shall have the option to elect to have all or any Loans bear interest at any of the Interest Rate Options and shall have the right to renew elections of Interest Rate Options and convert Loans to other Interest Rate Options. Notice of the Borrower's election shall be made in accordance with Section 2.1. Elections of, conversions to or renewals of the Base Rate Option and the Federal Funds rate Option shall continue in effect until converted to another option. Elections of, conversions to or renewals of the Euro-Rate Option shall expire as to each such Euro-Rate Option at the expiration of the 19 applicable Euro-Rate Interest Period unless Borrower has elected to continue such Loan at an Euro-Rate Option and given notice under Section 2.1. Any Loans outstanding for which no elections have been made shall bear interest under the Base Rate Option. .2d Limitation on Election of Euro-Rate Options. Each election of the ------------------------------------------- Euro- Rate Option or the prepayment of all or any Euro-Rate Loans shall be in the minimum principal amount of $100,000 or, if in excess of $100,000, in integral multiples of $100,000. At no time during the term hereof may there be more than a total of eight (8) separate Euro-Rate Tranches in effect. Upon the occurrence and during the continuance of an Event of Default, all Federal Funds Rate Loans will be converted to Base Rate Loans and the Borrower's right to elect, renew or convert to Euro-Rate Loans or Federal Funds Rate Loans shall be suspended, but no Euro-Rate Loan then outstanding will not be converted to a Base Rate Loan until the expiration of the applicable Interest Period. .2E Special Provisions Relating to Euro-Rate Option. ----------------------------------------------- (i) Euro-Rate Unascertainable. In the event that on any date on ------------------------- which a Euro- Rate would otherwise be set the Administrative Agent shall have determined in good faith (which determination shall be final and conclusive) that, by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the Euro-Rate, the Administrative Agent shall give prompt notice of such determination to the Borrower and the Lenders and until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such determination no longer exist, the right of the Borrower to borrow under, renew or convert to the Euro-Rate Option shall be treated as a request to borrow under, renew or convert to the Base Rate Option. (ii) Illegality of Offering Euro-Rate. If a Lender shall determine in -------------------------------- good faith (which determination shall be final and conclusive) that compliance by such Lender with any applicable Governmental Rule (whether or not having the force of law), or the interpretation or application thereof by any Governmental Authority has made it unlawful for such Lender to make or maintain Euro-Rate Loans generally, such Lender shall give notice of such determination to the Borrower. Notwithstanding any provision of this Agreement to the contrary, unless and until such Lender shall give notice to the Borrower that the circumstances giving rise to such determination no longer apply: (A) with respect to any Euro-Rate Interest Periods thereafter commencing, interest on the corresponding Euro-Rate Loans (whichever one or more have been determined by the affected 20 Lender to be unlawful) shall be computed and payable under the Base Rate Option; and (B) on such date, if any, as shall be required by law, any Euro-Rate Loans then outstanding shall be automatically converted to the Base Rate Option; and the Borrower shall pay to the affected Lender the accrued and unpaid interest on such Euro-Rate Loans to (but not including) such renewal date. (iii) Indemnity. In addition to the other provisions of this Section --------- 2.2e, the Borrower hereby agrees to indemnify each Lender against any loss or expense which such Lender may sustain or incur as a consequence of any default by the Borrower in failing to make any borrowing, conversion or renewal hereunder to bear interest at the Euro-Rate Option on the scheduled date, in failing to make when due (whether by declaration, acceleration or otherwise) any payment of any Euro-Rate Loan or in making any payment or prepayment of any Euro-Rate Loan or any part thereof on any day other than the last day of the relevant Euro-Rate Interest Period, including but not limited to any loss of profit, premium or penalty incurred by each such Lender in respect of funds borrowed by it for the purpose of making or maintaining any Euro-Rate Loan as determined in good faith by each such Lender in the exercise of its sole but reasonable discretion. Each Lender shall furnish to the Borrower a certificate showing the calculation of the amount of any such loss or expense (which certificate, absent manifest error, shall be conclusive), and the Borrower shall pay such amount to each Lender within ten (10) days of the Borrower's receipt of such certificate. .2f Yield Protection. If any Governmental Rule or the interpretation or ---------------- application thereof by any court, any Governmental Authority charged with the administration thereof or the compliance with any guideline or request from any central bank or other Governmental Authority, whether or not having the force of law: (i) subjects any Lender to any tax, levy, impost, charge, fee, duty, deduction or withholding of any kind hereunder (other than any tax imposed or based upon the income of such Lender and payable to any Governmental Authority or taxing authority of the United States of America or any state thereof) or changes the basis of taxation of such Lender generally with respect to payments by the borrowers of principal, interest or other amounts due from borrowers (other than any change which affects, and to the extent that it affects, the taxation by the United States of America or any state thereof of the total net income of such Lender); or (ii) imposes, modifies or deems applicable any reserve, special deposit, special assessment or similar requirements generally against assets held by, deposits with or for the account of or credit extended by any Lender with 21 respect to loans to the Borrower (other than such requirements which are included in the determination of the Euro-Rate hereunder); or (iii) imposes upon any Lender any other condition with respect to this Agreement; and the result of any of the foregoing is to increase the cost to such Lender, reduce the income receivable by such Lender, reduce the rate of return on such Lender's capital or impose any expense upon such Lender by an amount which such Lender in its sole but reasonable discretion deems to be material, such Lender shall from time to time notify the Borrower and the Administrative Agent of the amount determined by such Lender (which determination, absent manifest error, shall be conclusive) to be reasonably necessary to compensate for such increase in cost, reduction in income, reduction in rate of return or additional expense, and setting forth the calculations therefor. The Borrower shall pay such amount to such Lender, as additional consideration hereunder, within ten (10) days of the Borrower's receipt of such notice from such Lender. No Lender or Issuing Bank shall demand compensation for any increased cost or reduction in amounts received referred to above if it shall not at the time be the general policy or practice of such Lender or Issuing Bank to demand such compensation in similar circumstances under comparable provisions of other credit agreements. .2g Method of Calculation. In determining the amount due any Lender --------------------- hereunder by reason of the application of this Section 2.2, such Lender may use any reasonable averaging or attribution method; provided, however, that such Lender must use reasonable efforts to -------- ------- minimize such losses and costs. .2h Interest Payment Dates. Interest due on all outstanding Base Rate ---------------------- Loans shall be payable quarterly in arrears on the last day of each fiscal quarter for the fiscal quarter just ended (March, June, September and December) beginning on June 30, 2001. Interest due on all outstanding Euro-Rate Loans shall be payable on the last day of each Euro-Rate Interest Period and, for Euro-Rate Interest Periods of six months, also on the day which is three months after the first day of such Euro-Rate Interest Period. All accrued and unpaid interest on the Loans shall be due and payable on the Revolving Credit Termination Date. In addition, all accrued and unpaid interest on all of the Obligations shall be due and payable after any maturity of the notes issued hereunder or the Obligations, whether by acceleration or otherwise, on demand until all amounts due hereunder are paid in full. .2i Calculation of Interest. Interest under the Euro-Rate Option and the ----------------------- Base Rate Option shall be calculated on the basis of the actual number of days elapsed, using a year of 360 days. Interest for any period shall be calculated from and including the first day thereof to but not including the last day thereof. .2j Swingline Loans Subfacility. --------------------------- 2.2j.1 Agent hereby agrees, on the terms and subject to the conditions set forth herein and in the other Loan Documents, to make loans to the Borrower at 22 any time and from time to time during the period from and including the Closing Date to but not including the Revolving Credit Termination Date (each such loan, a "Swingline Loan" and collectively, the "Swingline Loans"); provided that (i) the aggregate principal amount of the Swingline Loans outstanding at any one time shall not exceed the Swingline Commitment, (ii) the aggregate amount of Swingline Loans outstanding plus the aggregate amount of Revolving Credit Loans outstanding plus the stated amount of all Letters of Credit shall not exceed the Commitment (iii) all Swingline Loans shall accrue interest at the rate set forth in the Swingline Documents and (iv) Disbursements under the Swingline Note will reduce the availability under PNC Bank, National Association's Three Year Note. Prior to the Revolving Credit Termination Date, Swingline Loans may be repaid and reborrowed by the Borrower in accordance with the provisions of this Agreement, the Swingline Note and the Swingline Documents. 2.2j.2 The Borrower agrees to repay all Swingline Loans within one (1) Business Day of demand therefor by Agent If the Borrower shall fail to timely repay any Swingline Loan, and in any event upon (i) a request by Agent, (ii) the occurrence of an Event of Default or (iii) the acceleration of any Obligations or termination of any Commitment pursuant to Section 7.2, each ----------- other Lender shall irrevocably and unconditionally purchase from Agent, without recourse or warranty, an undivided interest and participation in such Swingline Loan in an amount equal to such other Lender's Commitment Percentage, by directly purchasing a participation in such Swingline Loan in such amount (regardless of (A) whether the conditions precedent thereto set forth in Section 6 hereof are then --------- satisfied, (B) whether or not the Borrower has submitted a written request for a Disbursement and whether or not the Commitments are then in effect, (C) whether any Event of Default exists or (D) whether all the Obligations have been accelerated) and paying the proceeds thereof to Agent at such address as Agent may designate, in Dollars and in immediately available funds. If such amount is not in fact made available to Agent by any Lender, Agent shall be entitled to recover such amount on demand from such Lender, together with accrued interest thereon for each day from the date of demand thereof, if paid within two Business Days after demand at the Federal Funds Rate and thereafter at the Base Rate. If such Lender does not pay such amount forthwith upon Agent's demand therefor, and until such time as such Lender makes the required payment, Agent shall be deemed to continue to have outstanding Swingline Loans in the amount of such unpaid participation obligation for all purposes of the Loan Documents other than those provisions requiring the other Lenders to purchase a participation therein. Further, such Lender shall be deemed to have assigned any and all payments made of principal and interest on its Loans, and any other amounts due to it hereunder, to Agent to fund 23 Swingline Loans in the amount of the participation in Swingline Loans that such Lender failed to purchase pursuant to this Section 2.2; until such amount has been purchased (as ----------- a result of such assignment or otherwise). 2.2j.3 The Swingline Loans shall be evidenced by the Swingline Note. Swingline Loans may be subject to automated money management procedures as set forth in the PNC Bank's Swingline Documents. .3 Letter of Credit Commitment. --------------------------- .3a Issuance of Letters of Credit. Subject to the further terms and ----------------------------- conditions of this Agreement and in reliance upon the representations and warranties set forth herein, the Issuing Bank agrees to issue upon the request of the Borrower to the Issuing Bank, Letters of Credit for the account of the Borrower or a Subsidiary of the Borrower in an aggregate Stated Amount not to exceed FIVE MILLION DOLLARS ($5,000,000) at any one time outstanding (as may be increased or reduced and reinstated from time to time in accordance with the terms and provisions hereof). The Stated Amount of each Letter of Credit, while the same is issued and outstanding, shall be deducted from the maximum amount otherwise available under the Commitment. By way of illustration, if there are outstanding at any one time Letters of Credit having an aggregate Stated Amount of $2,000,000, the maximum availability under the Commitment, without accounting for reductions which are a function of voluntary permanent reductions, would be $48,000,000. No Letters of Credit may be issued hereunder to the extent the Stated Amount thereof together with the aggregate amount of Disbursements made under Subsection 2.1a, would exceed the maximum availability under the Commitment (as may be reduced pursuant to the terms of this Subsection 2.3a or Subsection 2.1f hereof). No Letter of Credit issued pursuant hereto shall have an initial term which exceeds one year from the date of issuance (except the Existing Letters of Credit) nor have an expiration date later than fifteen (15) days prior to the Revolving Credit Termination Date. At least three (3) Business Days prior to the issuance of any Letter of Credit hereunder the Borrower shall complete and deliver to the Issuing Bank the Issuing Bank's then current form of Application for Letter of Credit. The issuance of each Letter of Credit in accordance with the provisions of this Subsection 2.3a shall require the satisfaction of each condition set forth in Sections 6.1 and 6.2 hereof. .3b Payment of Amounts Drawn Under Letters of Credit. Upon each request ------------------------------------------------ for a draw under a Letter of Credit by the beneficiary thereof, the Issuing Bank shall immediately notify the Borrower and the Administrative Agent and the Borrower shall reimburse, or cause the reimbursement of, the Issuing Bank on demand in an amount in same day funds equal to the amount of such draw; provided, however, that any -------- ------- failure of the Issuing Bank to notify the Borrower and the Administrative Agent prior to honoring any such draw shall not affect the Borrower's obligation to reimburse the Issuing Bank. Unless the Borrower shall have notified the Issuing Bank prior to such time that the Borrower intends to reimburse the Issuing 24 Bank for all or a portion of the amount of such draw with funds other than the proceeds of Loans, the Borrower shall conclusively be deemed to have given a request for a Loan under Section 2.1 hereof to the Administrative Agent requesting the Lender to make Revolving Credit Loans at the Base Rate Option on the first Business Day immediately following the date on which such draw is honored in an aggregate amount equal to the excess of the amount of such draw over the amount theretofore received by the Issuing Bank in reimbursement thereof (the "Unreimbursed Amount"), plus accrued interest on such amount at the ---- rate set forth in Subsection 2.3c hereof. If the Borrower shall be deemed to have given a request for a Loan under Section 2.1 hereof to the Administrative Agent pursuant to this Subsection 2.3b, then, notwithstanding: (i) the failure of Borrower to satisfy the conditions specified in Section 6 hereof, (ii) the occurrence of an Event of Default or (iii) the acceleration of any Obligations or termination of any Commitment pursuant to Section 7.2, the Lenders shall, on the ----------- first Business Day immediately following the date of such draw, make a Loan at the Base Rate Option in the aggregate amount of the Unreimbursed Amount, plus accrued interest on such amount at the rate ---- set forth in Subsection 2.3c hereof. The proceeds of any such Loan shall be applied directly by the Issuing Bank, to reimburse the Issuing Bank for the Unreimbursed Amount, plus accrued interest on ---- such amount. The foregoing shall not limit or impair the obligation of the Borrower to reimburse the Issuing Bank on demand for any Unreimbursed Amount. The Issuing Bank hereby sells, and each Lender hereby purchases, on a continuing basis, a participation and an undivided interest in (i) the obligations of the Issuing Bank to honor any drawing under any Letter of Credit and (ii) the Indebtedness of the Borrower to the Issuing Bank under this Agreement in respect of each Letter of Credit, such participation being in the amount of such Lender's Commitment Percentage of such obligations and Indebtedness. .3c Letter of Credit Fees and Related Charges. ----------------------------------------- (i) Letter of Credit Fees. The Borrower agrees to pay (a) as to --------------------- the standby Letters of Credit, in arrears to the Administrative Agent for the benefit of the Lenders, a fee per annum equal to the then current Applicable Euro- Rate Margin on the Stated Amount (or of any increase or decrease thereof) of each Letter of Credit, at the end of the first Fiscal Quarter after the issuance of each Letter of Credit and continuing quarterly thereafter during the term of each Letter of Credit or any subsequent amendment, renewal or extension thereof and at the expiration, surrender or final payment thereof and (b) as to commercial Letters of Credit, the Issuing Bank's then current standard fees for commercial Letters of Credit, which fees shall be paid in accordance with the Issuing Bank's then current practice for the payment of fees and costs relating to commercial Letters of Credit (collectively, "Letter of Credit Fees"); and 25 (ii) Interest. With respect to draws made under any Letter of -------- Credit not paid as provided herein on the same day that the draws were made, the Borrower shall pay interest, payable on demand, on the amount paid by the Issuing Bank in respect of each such draw from the Business Day of the draw through the date such amount is reimbursed by the Borrower (including any such reimbursement out of the proceeds of Loans pursuant to Subsection 2.3b hereof) at a rate which is at all times equal to two percent (2.00%) per annum in excess of the interest rate applicable under the Base Rate Option for Loans. .3d Duty to Review Demands; Obligation Absolute. The obligation of the ------------------------------------------- Borrower to reimburse the Issuing Bank for draws made under the Letters of Credit shall be absolute, unconditional and irrevocable and shall be paid directly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: (i) the existence of any claim, set-off, defense or other right which the Borrower may have at any time against a beneficiary or any transferee of the Letters of Credit (or any Persons for whom any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between the Borrower and the beneficiaries of the Letters of Credit); (ii) any draft, demand, certificate or any other document presented under the Letters of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit except as the result of gross negligence or willful misconduct of the Issuing Bank; (iv) any other circumstance or happening whatsoever, which is similar to any of the foregoing; and (v) the fact that an Event of Default shall have occurred and be continuing. .3e Additional Payments. If by reason of (i) any change in any ------------------- Governmental Rule or any change in the interpretation or application by any judicial or regulatory authority of any Governmental Rule or (ii) compliance by the Issuing Bank with any direction, request or requirement (whether or not having the force of law) of any Governmental Authority: 26 (i) the Issuing Bank shall be subject to any tax, levy, charge or withholding of any nature or to any variation thereof or to any penalty with respect to the maintenance or fulfillment of its obligations under this Section 2.3, whether directly or by such being imposed on or suffered by the Issuing Bank; (ii) any reserve, deposit or similar requirement is or shall be applicable, imposed or modified in respect of the Letters of Credit; (iii) there shall be imposed on the Issuing Bank any other condition regarding this Section 2.3 or the Letters of Credit; and if the result of any of the foregoing is to directly or indirectly increase the cost to the Issuing Bank of issuing or maintaining any Letter of Credit, or to reduce the amount receivable in respect thereof by, the Issuing Bank, then and in any such case the Issuing Bank may, at any time after the additional cost is incurred or the amount receivable is reduced, notify the Borrower and the Administrative Agent, and the Borrower shall pay on demand such amounts as the Issuing Bank may specify to be necessary to compensate the Issuing Bank for such additional cost or reduced receipt, together with interest on such amount from the date of the notice of such event which results in such increased cost or reduction in amount receivable until payment in full thereof at a rate equal at all times to the Base Rate. The determination by the Issuing Bank of any amount due pursuant to this Subsection 2.3e, as set forth in a certificate setting forth the calculation thereof, shall, in the absence of manifest error, be final and conclusive and binding on all of the parties hereto. No Lender or Issuing Bank shall demand compensation for any increased cost or reduction in amount received referred to above if it shall not at the time be the general policy or practice of such Lender or Issuing Bank to demand such compensation in similar circumstances under comparable provisions of other credit agreements. .4 Method of Payments. All payments of principal, interest, Fees, costs ------------------ and other amounts due hereunder and under the other Loan Documents shall be made by the Borrower to the Administrative Agent at the Administrative Agent's principal office at One PNC Plaza, 249 Fifth Avenue, Pittsburgh Pennsylvania 15222 not later than 2:00 p.m. (Eastern time) on the due date. All such payments shall be made in immediately available funds delivered by the Borrower to the Administrative Agent. .5 Loan Account. Each Lender shall open and maintain on its books a Loan ------------ Account in the Borrower's name with respect to Loans made, repayments, prepayments, the computation and payment of interest and other amounts due and sums paid to such Lender hereunder and under the other Loan Documents. Except in the case of manifest error in computation, such records shall be conclusive and binding on the Borrower as to the amount at any time due to the Lender by the Borrower. .6 Payment From Accounts Maintained by Borrower. For ease of -------------------------------------------- administration, in the event that any payment of principal, interest, Fees, other expenses or 27 amounts due the Lenders or the Agent under any of the Loan Documents is not paid when due, the Administrative Agent is hereby authorized to effect such payment by debiting any demand deposit account of the Borrower now or in the future maintained with PNC Bank other than accounts maintained in trust for the benefit of third parties. This right to debit accounts of the Borrower is in addition to any right of setoff accorded the Lenders hereunder or by operation of law. .7 Unused Fee. Beginning on last day of each March, June, September and ---------- December until the Revolving Credit Termination Date and on the Revolving Credit Termination Date, the Borrower shall pay a Unused Fee to the Administrative Agent for the benefit of the Lenders, in arrears, at the Applicable Unused Fee on the average daily unused portion of the Commitment during the fiscal quarter or period then ended. The Unused Fee shall be computed on the basis of the year of 360 days and paid on the actual number of days elapsed. The Unused Fee shall be calculated from the Closing Date. The Applicable Unused Fee shall be adjusted as appropriate on the first day of the month following the delivery of Borrower's financial statements for the prior quarter or year to reflect any change in the Borrower's Leverage Ratio. .8 Capital Adequacy. If (i) any adoption of, change in or interpretation ---------------- of any Governmental Rule, or (ii) compliance with any guideline, request or directive of any central bank or other Governmental Authority exercising control over banks or financial institutions generally, including but not limited to regulations set forth at 12 C.F.R. Part 3 (Appendix A), 12 C.F.R. Part 208 (Appendix A), 12 C.F.R. Part 225 (Appendix A) and 12 C.F.R. Part 325 (Appendix A), or any court requires that the Commitment or the Letter of Credit Commitment be treated as an asset or otherwise be included for purposes of calculating the appropriate amount of capital to be maintained by any Lender or any corporation controlling any Lender (a "Capital Adequacy Event"), the result of which is to reduce the rate of return on such Lender's capital as a consequence of the Commitment or such Issuing Bank's capital as a consequence of the Letter of Credit Commitment to a level below that which such Lender could have achieved but for such Capital Adequacy Event, taking into consideration such Person's policies with respect to capital adequacy, by an amount which such Person deems to be material, such Lender shall promptly deliver to the Borrower a certificate of the amount necessary to compensate such Person for the reduction in the rate of return on its capital attributable to the Commitment or the Letter of Credit Commitment (the "Capital Compensation Amount"), calculated in good faith, using reasonable attribution and averaging methods, which certificate, absent manifest error, shall be presumed to be correct. Such amount shall be due and payable by the Borrower to such Lender, as the case may be, ten (10) days after such notice is given. .9 Extensions. By January 31 of each year beginning January 31, 2002, ---------- each Lender in its sole discretion may agree to extend its Commitment and each of its Revolving Credit Notes for one additional year from its Revolving Credit 28 Termination Date by written notice from Lender to Agent. Each Lender may, in its sole discretion, agree to extend the Revolving Credit Termination Date with respect to either of the Three Year Facility or the 364 Day Facility without extending both facilities. If a Lender fails to provide such notice on or before January 31, such Lender will be deemed to have elected not to extend its Commitment with respect to the Three Year Facility or the 364 Day Facility, or both facilities, as applicable. In no event will any Lender be under any obligation to extend its Commitment or any of its Revolving Credit Notes beyond the initial term or any extended term thereof. If less than all Lenders agree to extend their Commitment for the Three Year Facility or the 364 Day Facility, as applicable, the Revolving Credit Termination Date of such Three Year Facility or 364 Day Facility, as applicable, will not be extended. The Agent will notify the Borrower by February 15 of each year, as applicable, whether the Three Year Facility or 364 Day Facility will be extended by all Lenders; provided, however, that any failure to provide such notice shall be deemed to be an election not to extend such Three Year Facility or 364 Day Facility. ARTICLE 112. REPRESENTATIONS AND WARRANTIES To induce Agent and the Lenders to enter into this Agreement and to make the Loans and other extensions of credit herein provided for, the Borrower makes the following representations and warranties to the Agent and the Lenders, all of which shall survive the execution and delivery of this Agreement and the making of the Loans and other extensions of credit: .1 Existence. The Borrower is a corporation duly organized, validly --------- existing and in good standing under the laws of the State of its incorporation; each Subsidiary of the Borrower is duly organized, validly existing and in good standing under the laws of the state of its incorporation or organization; and the Borrower and each Subsidiary of the Borrower are in good standing as foreign corporations authorized to do business in each jurisdiction where the nature of their respective activities or the ownership of their respective properties makes such qualification or licensing necessary, other than jurisdictions in which failure to be so qualified would not have a Material Adverse Effect. .2 Subsidiaries and Other Investments. The Borrower does not have any ---------------------------------- Subsidiaries or any ownership interests in any other Person, except as shown on Schedule 3.2. Neither GIBT Ltd. or LSI Industries Foreign ------------ Sales Corporation has assets that have a fair market value in excess of $50,000. .3 Power and Authority. The Borrower and each of its Subsidiaries have ------------------- the lawful power to own or lease their properties and to engage in the business they now conduct or propose to conduct, in all material respects. Each Loan Party is duly authorized to enter into, execute, deliver and perform all of the terms and provisions of the Loan Documents to which it is a party, to incur the Obligations and to perform its obligations under the Loan Documents to which it is a party. All necessary corporate action required to authorize the execution, delivery and 29 performance of this Agreement, the notes issued hereunder and the other Loan Documents has been properly taken by the Loan Parties. .4 Validity; Binding Effect and Enforceability. The Loan Documents to ------------------------------------------- which each Loan Party is a party have been duly executed and delivered by such Loan Party. The Loan Documents, when delivered by the Loan Parties, will constitute legal, valid and binding obligations of the Loan Party executing the same, enforceable against such Loan Party in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors' rights generally and except as such enforceability may be limited by the availability of equitable remedies. .5 No Conflict. Neither the execution and delivery of the Loan Documents ----------- by the Loan Parties, nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof by them will conflict with, constitute a default under or result in any breach of (i) the terms and conditions of the such Loan Party's articles or certificate of incorporation, by-laws, or other organizational documents, (ii) any Governmental Rule or (iii) any material agreement, instrument, order, writ, judgment, injunction or decree, to which the such Loan Party is a party or by which it is bound or to which it is subject, or will result in the creation or enforcement of any Lien whatsoever upon any property, whether now owned or hereafter acquired, of such Loan Party, except for Permitted Liens. .6 Financial Matters; No Material Adverse Change. The Borrower has --------------------------------------------- delivered to the Administrative Agent its unaudited quarterly financial statements for the Fiscal Quarter ended December 31, 2000. Such financial statements are complete and correct in all material respects, subject to year-end adjustments, and fairly present the financial condition of the Borrower and its Subsidiaries, on a consolidated basis, in all material respects and the results of its operations as of the dates and for the periods referred to, and have been prepared in accordance with GAAP consistently applied throughout the periods involved (except that such financial statements do not contain all of the footnote disclosures required by GAAP). The Borrower and its Subsidiaries have no material liabilities, whether direct or indirect, fixed or contingent, and no liability for taxes, long-term leases or unusual forward or long-term commitments as of the date of such financial statements which are not reflected in such financial statements or in any notes thereto or on Schedule 3.6. ------------ Except as set forth in Schedule 3.6, since September 30, 2000, no ------------ Material Adverse Change has occurred. .7 Litigation. Except as set forth on Schedule 3.7 and in the Borrower's ---------- ------------ annual report on Form 10-K for the Fiscal Year ended June 30, 2000 and the Borrower's quarterly report on Form 10-Q for the Fiscal Quarter ended September 30, 2000, there are no actions, suits, proceedings or investigations pending or, to the Borrower's knowledge, threatened against the Borrower or any of its Subsidiaries 30 or any of their respective businesses, operations, properties, prospects, profits or condition (financial or otherwise), at law or in equity, before any Governmental Authority which, individually or in the aggregate, if adversely determined, could reasonably be expected to have a Material Adverse Effect, or which purport to affect the rights and remedies of the Agent or the Lenders, pursuant to this Agreement and the other Loan Documents or which purport to restrain or enjoin (either temporarily, preliminarily or permanently) the performance by the Borrower of any action contemplated by any of the Loan Documents. All pending and, to the Borrower's knowledge, threatened actions, suits, proceedings and investigations affecting the Borrower or any of its Subsidiaries in existence on the Closing Date which are material are set forth in the annual or quarterly reports referred to above or on Schedule 3.7. ------------ .8 Compliance with Laws. Each Loan Party has duly complied with, and its -------------------- properties, business operations and leaseholds are in compliance in all material respects with all Governmental Rules applicable to it, its properties and the conduct of its business, except where the failure to comply will not have a Material Adverse Effect. .9 Fiscal Year. The Fiscal Year of the Borrower ends on June 30 of each ---------- year. .10 Condition of and Title to Assets. The Borrower and each of its -------------------------------- Subsidiaries have good title to their properties and assets except for Permitted Liens and defects in title which, taken as a whole, are not material. None of the assets of the Borrower or any Subsidiary of the Borrower are subject to any Liens except for Permitted Liens. Substantially all of the material assets and properties of the Borrower and its Subsidiaries that are necessary for the operation of their respective businesses are in good working condition, ordinary wear and tear excepted, and are able to serve the functions for which they are currently being used. .11 Tax Returns and Payments. The Borrower and its Subsidiaries have filed ------------------------ all federal, state, local and other tax returns required by law to be filed in which the failure to do so would have a Material Adverse Effect. The Borrower and its Subsidiaries have paid all taxes, assessments and other governmental charges levied upon them or any of their respective properties, assets, income or franchises which are due and payable, other than (i) those presently payable without penalty or interest, (ii) those which are being contested in good faith by appropriate proceedings and (iii) those which, if not paid, would not, in the aggregate, have a Material Adverse Effect; and as to items (i), (ii) and (iii) the Borrower or such Subsidiary has set aside on its books general or specific reserves for such claim as are determined to be adequate by application of GAAP consistently applied. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of federal, state, local and other taxes and assessments for all fiscal periods to date are adequate, and the Borrower knows of 31 no unpaid assessments for additional federal, state, local or other taxes for any such fiscal period or any basis therefor. .12 Insurance. The Borrower and its Subsidiaries currently maintain --------- insurance of such types and at least in such amounts as are customarily carried by, and insures against such risks as are customarily insured against by similar businesses similarly situated and owning, leasing and operating similar properties to those owned, leased and operated by the Borrower and its Subsidiaries. All of such insurance policies are valid and in full force and effect. No notice has been given or claim made and no grounds exist to cancel or void any of such policies or to reduce the coverage provided thereby. .13 Consents and Approvals. No order, authorization, consent, license, ---------------------- validation or approval of, or notice to, filing, recording, or registration with any Governmental Authority, or the exemption by any such Governmental Authority, is required to authorize, or is required in connection with, (i) the execution, delivery and performance of any of the Loan Documents or (ii) the legality, binding effect or enforceability of any such Loan Document. .14 No Defaults. No event has occurred and is continuing and no condition ----------- exists or will exist after giving effect to the Loans to be made on the Closing Date which constitutes a Default or an Event of Default. No Loan Party is in violation of (i) any term or provision of its articles of incorporation, by- laws, or other organizational documents or (ii) any material agreement or instrument to which it is a party or by which it or any of its properties may be bound or subject, which violation would have a Material Adverse Effect. .15 Plans and Benefit Arrangements. It and each of its Subsidiaries are in ------------------------------ compliance in all material respects with the applicable provisions of ERISA and the regulations and published interpretations thereunder. Neither it, nor any of its Subsidiaries maintains a Plan to which Reportable Events exist nor does it or any ERISA Affiliate participate in a Multiemployer Plan. .16 Senior Debt Status. From and after the Closing Date, all Obligations ------------------ outstanding under the Loan Documents will constitute senior Indebtedness of the Borrower and will rank at least pari passu in priority of payment with all other Indebtedness owed by the Borrower from time to time, except other Indebtedness to the extent secured by Permitted Liens. .17 Environmental Matters. --------------------- (i) To the best of Borrower's knowledge, Borrower and the activities or operations on any of the real estate that Borrower owns or occupies (the "Property") are in substantial compliance with all applicable Environmental Laws. 32 (ii) To the best of Borrower's knowledge, Borrower has obtained all approvals, permits, licenses, certificates, or satisfactory clearances from all governmental authorities required under Environmental Laws with respect to the Property and any activities or operations at the Property. (iii) To the best of Borrower's knowledge, there have not been and are not now any release or disposal of solid waste, hazardous waste, hazardous or toxic substances, pollutants, contaminants, or petroleum in, on, under or about the Property in violation of any Environmental Laws. To the best of Borrower's knowledge, the use which Borrower makes and intends to make of the Property will not result in the deposit or other release of any hazardous or toxic substances, solid waste, pollutants, contaminants or petroleum on, to or from the Property, in violation of any Environmental laws. (iv) To the best of Borrower's knowledge, there have been no material Environmental Claims made or delivered to, pending or served on, or anticipated by Borrower or Borrower's agents (i) issued by any governmental department or agency having jurisdiction over the Property or the activities or operations at the Property, or (ii) issued or claimed by any third party relating to the Property or the activities or operations at the Property. .18 Margin Stock. The Borrower and its Subsidiaries are not engaged ------------ principally or as one of their important activities in the business of extending credit for the purpose, immediately, incidentally or ultimately, of purchasing or carrying margin stock (within the meaning of Regulation U). No Loan will be used, immediately, incidentally or ultimately, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock, or for any other purpose which would violate or be inconsistent with any of the regulations of the Board of Governors of the Federal Reserve System. .19 Intentionally Omitted. --------------------- .20 Full Disclosure. Neither this Agreement nor any other document, --------------- certificate or statement furnished to the Administrative Agent by or on behalf of the Borrower or any Subsidiary pursuant to this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. There is no fact known to the Borrower which materially and adversely affects the business, property, assets, financial condition, results of operations or prospects of the Borrower or any Subsidiary which has not been set forth in the Loan Documents or in the other documents, certificates and statements (financial or otherwise including, without limitation, all reports filed by the Borrower with the Securities and Exchange Commission pursuant to the Securities and Exchange Act of 1934, as amended, and all press releases issued by 33 the Borrower) furnished to the Administrative Agent by or on behalf of the Borrower or any Subsidiary prior to or on the date hereof in connection with the transactions contemplated hereby. .21 Intellectual Property. Except as set forth on Schedule 3.21, the --------------------- ------------- Borrower and each of its Subsidiaries own, are licensed or otherwise possess the right to use all patents, patent rights, trademarks, trade names, service marks, copyrights, intellectual property, technology, know-how and processes necessary for the conduct of their respective business, as currently conducted, that are material to the condition (financial or otherwise), business or operations of the Borrower on a Consolidated basis. ARTICLE 113. AFFIRMATIVE COVENANTS From the date hereof and thereafter until the termination of the Commitment and until the Loans and the other Obligations of the Borrower hereunder are paid in full, the Borrower agrees, for the benefit of the Agent and the Lenders, that it will comply with each of the following affirmative covenants: .1 Use of Proceeds. The Loans shall be used by the Borrower for general --------------- working corporate purposes including mergers and acquisitions permitted hereunder. .2 Delivery of Financial Statements and Other Information. During the ------------------------------------------------------ term hereof, the Borrower shall deliver or cause to be delivered to the Administrative Agent for redelivery to the Lenders the following financial statements and other information: .2a Financial Statements. The Borrower shall: -------------------- (i) Furnish each Lender within forty-five (45) days after the end of each fiscal quarter internally prepared financial statements of Borrower with respect to such calendar quarter, which financial statements will: (a) include the Form 10-Q or Form 10-QSB filed by Borrower with the Securities and Exchange Commission; (b) be in reasonable detail and in form reasonably satisfactory to Lender, (c) be accompanied by a Compliance Certificate, (d) include a balance sheet as of the end of such period, an income statement for such period and a statement of cash flows for such period, (e) include prior year comparisons and (f) be on a consolidating and consolidated basis for Borrower and its Subsidiaries. (ii) Furnish each Lender within ninety (90) days after the end of each fiscal year of Borrower annual audited financial statements which will: (a) include the Form 10-K or Form 10- KSB filed by Borrower with the Securities and Exchange Commission; (b) include a balance sheet as of the end of such year, an income statement for such year, and a statement of cash flows for such year; (c) be on a consolidated basis with Borrower, its 34 Subsidiaries, if any, and any entity into which Borrower's financial information is consolidated in accordance with generally accepted accounting principles; (d) be accompanied by a Compliance Certificate, and (e) contain the unqualified opinion of an independent certified public accountant acceptable to Required Lenders and its examination will have been made in accordance with generally accepted auditing standards. In addition, Borrower will provide to each Lender with the foregoing audited statements, internally prepared consolidating statements for Borrower, and its Subsidiaries. .2b Intentionally Omitted. --------------------- .2c Other Reports, Information and Notices. The Borrower: -------------------------------------- (i) promptly after any Authorized Officer of the Borrower has learned of the occurrence or existence of a Default, an Event of Default, an event or set of circumstances which has had or which is reasonably likely to have a Material Adverse Effect or which has caused or which is reasonably likely to cause a Material Adverse Change, or any Reportable Event or Prohibited Transaction shall deliver telephonic or written (including a copy of a press release issued by the Borrower) notice thereof to the Administrative Agent for redelivery to the Lenders, specifying the details thereof, the anticipated effect thereof and the action which the Borrower has taken, is taking or proposes to take with respect thereto, which notice shall be promptly confirmed in writing within five (5) days by an Authorized Officer; and (ii) promptly deliver to the Administrative Agent for redelivery to the Lenders, notice of and any other information reasonably requested by the Administrative Agent from time to time relating to planned or actual acquisitions by the Borrower or any Subsidiary, by purchase, lease or otherwise, of all or substantially all of the assets of, or a Controlling interest in, any Person. .2d Additional Information; Visitation. The Borrower shall promptly ---------------------------------- deliver to the Administrative Agent for redelivery to the Lenders such additional financial statements, reports, financial projections and other information, whether or not financial in nature, as the Administrative Agent may reasonably request from time to time. The Borrower will permit the Lenders and their designated employees and Agent to have access at Lender's cost, at any time and from time to time, upon five (5) Business Days prior notice and during normal business hours, to visit any of the properties of the Borrower and its Subsidiaries, to examine and make copies of their respective books of record and account and such reports and returns as the Borrower and its Subsidiaries may file with any Governmental Authority and discuss their respective affairs and accounts with, and be advised about them by, any Authorized Officer and the Borrower's internal accountants. 35 .3 Preservation of Existence; Qualification. At its own cost and expense, ---------------------------------------- the Borrower shall and shall cause each Subsidiary, except as set forth in Section 5.4, to do all things necessary to preserve and keep in full force and effect their respective corporate existences and qualifications under the laws of the state of their respective formation and each state where, due to the nature of their respective activities or the ownership of their respective properties, qualification to do business is required and where the failure to be so qualified would have a Material Adverse Effect. .4 Compliance with Laws, Contracts and Licenses. The Borrower shall and -------------------------------------------- shall cause its Subsidiaries to comply in all material respects with all applicable Governmental Rules. The Borrower shall and shall cause its Subsidiaries to comply with all material provisions of each material contract and agreement to which they are parties. The Borrower shall and shall cause its Subsidiaries to maintain in full force and effect all Governmental Approvals and other material agreements which are necessary or advisable for the conduct of their respective businesses in compliance with all applicable Governmental Rules. .5 Continuance of Business. The Borrower shall and shall cause its ----------------------- Subsidiaries to do or cause to be done all things reasonably necessary to preserve and keep in full force and effect all permits, rights and privileges necessary for the proper conduct of their respective businesses. .6 Accounting System; Books and Records. The Borrower shall and shall ------------------------------------ cause its Subsidiaries to maintain a system of accounting established and administered in accordance with GAAP consistently applied and will cause its Subsidiaries to set aside on their books all such proper reserves as shall be required by GAAP (provided that, in the case of foreign Subsidiaries, such books and records shall be maintained in accordance with generally accepted accounting principles as established in the applicable jurisdiction which shall, in any event, be sufficient to permit the Borrower to prepare Consolidated financial statements in accordance with GAAP). The Borrower shall and shall cause its Subsidiaries to maintain proper books of record and account in accordance with GAAP in which full, true and correct entries shall be made of all of their respective properties and assets and their respective dealings and business affairs. .7 Payment of Taxes and Other Liabilities. The Borrower shall and shall -------------------------------------- cause its Subsidiaries to promptly pay and discharge all obligations, accounts and liabilities which are owed by them, to which they are subject or which are asserted against them, including but not limited to all taxes, assessments and governmental charges and levies upon them or upon any of their respective income, profits or property prior to the date on which penalties attach thereto; provided, however, that -------- ------- for purposes of this Agreement, the Borrower and its Subsidiaries shall not be required to pay any tax, assessment, charge or levy (i) the payment of which is being contested in good faith by appropriate and lawful proceedings diligently conducted and (ii) as to which the Borrower or the affected Subsidiary shall have 36 set aside on its books reserves for such claim as are determined to be adequate by the application of GAAP consistently applied, but only to the extent that failure to discharge any such liabilities would not result in any additional liability which would have a Material Adverse Effect; and provided, further, that the Borrower shall pay and shall -------- ------- cause its Subsidiaries to pay all such contested liabilities forthwith upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor. .8 Insurance. The Borrower shall and shall cause its Subsidiaries to --------- maintain at all times adequate insurance to the satisfaction of the Administrative Agent with financially sound and reputable insurers acceptable to the Administrative Agent, in its sole but reasonable judgment, against such risks of loss as are customarily insured against and in amounts customarily carried by Persons owning, leasing or operating similar properties, including, but not limited to, fire and theft and extended coverage insurance in an amount at least equal to the total full insurable value of their respective insurable property. The Borrower shall and shall cause its Subsidiaries to be adequately insured at all times against liability on account of injury to persons or property and to comply with the insurance provisions of all applicable workers' compensation and similar laws and will effect all such insurance under valid and enforceable policies with insurers satisfactory to the Administrative Agent, in its sole but reasonable judgment. .9 Maintenance of Properties. The Borrower shall and shall cause its ------------------------- Subsidiaries to maintain, preserve, protect and keep their respective material properties and assets in good repair, working order and condition (ordinary wear and tear excepted), and make all necessary and proper repairs, renewals and replacements so that their business carried on in connection therewith may be properly and advantageously conducted at all times. .10 Plans and Benefit Arrangements. The Borrower shall, and shall cause ------------------------------ each ERISA Affiliate to, comply in all material respects with ERISA, the Internal Revenue Code and all other Governmental Rules which are applicable to Plans and Benefit Arrangements. .11 Environmental Indemnification. The Borrower shall defend and indemnify ----------------------------- the Agent and the Lenders and hold each harmless from and against all loss, liability, damage, expense, claims, costs, fines, penalties, assessments (including interest on any of the foregoing) and reasonable attorneys' fees, suffered or incurred by the Agent or the Lenders which arise, result from or in any way relate to a breach or violation by the Borrower or any other Loan Party of any Environmental Law, either prior to or subsequent to the date hereof, including the assertion or imposition of any Lien on the Borrower's or its Subsidiaries' assets, or which relate to or arise out of an Environmental Claim, except to the extent that the subject of indemnification is caused by or arises out of the gross negligence or willful misconduct of Administrative Agent or Lenders, or any of their respective 37 agents or employees. The Borrower's obligations hereunder shall survive the termination of this Agreement and the repayment of the Obligations. .12 Intentionally Omitted. --------------------- .13 Subsidiaries Becoming Guarantors. The Borrower promptly shall cause -------------------------------- each Subsidiary which becomes a Subsidiary after the Closing Date to execute and deliver to the Administrative Agent a Guaranty Agreement. In addition, Borrower will not permit or suffer assets having a fair market value in excess of $50,000 to be held by GIBT Ltd. or LSI Industries Foreign Sales Corporation unless GIBT Ltd. and/or LSI Industries Foreign Sales Corporation as the case may be, delivers a Guaranty of the Obligations to Lender. ARTICLE 114. NEGATIVE COVENANTS From the date hereof and thereafter until the termination of the Commitment and until the Loans and the other Obligations of the Borrower hereunder are paid in full, the Borrower agrees, for the benefit of the Agent and the Lenders, that it will comply with each of the following negative covenants: .1 Indebtedness. The Borrower shall not and shall not permit its ------------ Subsidiaries to create, incur, assume or permit to exist or remain outstanding any Indebtedness, except for: (i) Any Indebtedness owed by the Borrower to the Lenders; (ii) Consolidated Indebtedness of the Borrower and its Subsidiaries existing on the Closing Date to remain outstanding and unpaid after the Closing Date and listed on Schedule 5.1 and any ------------ extensions, renewals or refinancings thereof, in outstanding principal amounts not greater than those shown on Schedule -------- 5.1; --- (iii) Rental and lease payments for real or personal property whose aggregate annual rental payments would exceed $5,000,000 in the aggregate for Borrower and Guarantors combined when added to their combined rental or lease agreements existing on the date hereof; (iv) Indebtedness secured by Permitted Liens; (v) Indebtedness assumed by Borrower in connection with merger and acquisition activities permitted hereunder that do not exceed $15,000,000 in the aggregate outstanding at any one time or that are satisfied by Borrower at the time of the closing of the related merger or acquisition. .2 Liens; Negative Pledge. The Borrower shall not and shall not permit ---------------------- its Subsidiaries to create, assume, incur or suffer to exist any Lien upon any of their respective assets and properties, whether tangible or intangible, whether now 38 owned or in existence or hereafter acquired or created and wherever located, nor acquire nor agree to acquire any assets or properties subject to a Lien, except for Permitted Liens. The Borrower shall not and shall not permit its Subsidiaries to make or enter into any agreement (other than agreements with the Administrative Agent for the benefit of the Agent and the Lenders) for the benefit of any Person not to grant Liens, except for such agreements existing on the date hereof and relating to the Liens set forth in Schedule 1.1 and the ------------ Indebtedness set forth on Schedule 5.1. ------------ .3 No Limitation on Dividends and Distributions. The Borrower shall not -------------------------------------------- permit its Subsidiaries to enter into or otherwise be bound by any agreement not to pay dividends to the Borrower. .4 Liquidations, Mergers, Consolidations, Etc. The Borrower shall not and ------------------------------------------- shall not permit its Subsidiaries to dissolve, liquidate or wind up their respective affairs, or become a party to any merger or consolidation; provided, however, (a) GIBT Ltd. and LSI Industries -------- ------- Foreign Sales Corporation may be liquidated and (b) any Subsidiary may merge into or consolidate with any other Subsidiary and any Subsidiary may merge into or consolidate with the Borrower, with the Borrower being the surviving Person; and provided, further, the Borrower or any -------- ------- Subsidiary may merge or consolidate with any other Person which is not a Subsidiary so long as (i) the Borrower or such Subsidiary, as the case may be, is the surviving Person, (ii) at the time of such merger or consolidation, no Default or Event of Default hereunder has occurred and is continuing; (iii) such merger or consolidation shall not itself cause there to be a Default or Event of Default hereunder; (iv) such merger or acquisition is related to lines or areas of business not substantially different from the business or activities in which Borrower or such Subsidiary is presently engaged; and (v) for any such merger or acquisition involving the expenditure of consideration having a value of $20,000,000 by Borrower (including the assumption of liabilities), Borrower provides prior written notice to Agent and demonstrates to Agent, that such merger or acquisition will not cause Borrower to violate any term of this Agreement. .5 Dispositions of Assets. The Borrower shall not and shall not permit ---------------------- its Subsidiaries to sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily, any of their respective properties or assets, whether tangible or intangible, except for (i) sales, conveyances, assignments, leases or transfers in the ordinary course of their respective businesses (ii) the sales, conveyances, assignments, leases or transfers of assets which are obsolete, of immaterial value, or no longer utilized in the business of the Borrower and (iii) sales conveyances, assignments, leases or transfers not covered by items (i) or (ii) above, provided that the aggregate proceeds of all such sales, transfers or other dispositions permitted by this item (iii) shall not exceed, on the aggregate in any one Fiscal Year of the Borrower $5,000,000. .6 Financial Covenants. ------------------- 39 (a) Net Worth. At the end of each Fiscal Quarter hereunder, the --------- Borrower shall maintain Consolidated Tangible Net Worth greater than or equal to the sum of $57,000,000 plus (i) an amount equal ---- to 50% of the Borrower's Consolidated net income (if positive) for each Fiscal Quarter ending after September 30, 2000 plus (ii) ---- one hundred percent (100%) of the Net Proceeds of each Equity Offering occurring after the Closing Date. (b) Leverage Ratio. At the end of each Fiscal Quarter hereunder, the -------------- Borrower's Leverage Ratio shall not be more than 2.00 to 1.00. ARTICLE 115. CONDITIONS TO MAKING ADVANCES .1 All Loans and Letters of Credit. The obligation of the Lenders to ------------------------------- make each Loan and the Issuing Bank to issue each Letter of Credit is subject to the satisfaction of each of the following conditions precedent: .1a Request for Loan or Letter of Credit. Receipt by (i) the ------------------------------------ Administrative Agent, as to each Loan, of a request substantially in the form delivered in connection with the Closing and satisfying the requirements of Section 2.1 and (ii) by the Issuing Bank, as to each Letter of Credit, of an Application for Letter of Credit. No such request will be required for a Swingline Loan. .1b No Default or Event of Default. The Borrower shall have performed and ------------------------------ complied with all agreements and conditions herein required to be performed or complied with by it prior to any Loan or Letter of Credit being made or issued and, at the time such Loan or Letter of Credit is made or as a result of making such Loan or issuing such Letter of Credit, no Default or Event of Default has occurred and is continuing or will be caused by the making of such Loan or issuing such Letter of Credit. .1c Representations Correct. The representations and warranties contained ----------------------- in Article 3 hereof and otherwise made in writing by or on behalf of the Borrower in connection with the transactions contemplated by the Loan Documents shall be (i) correct when made and (ii) correct in all material respects at the time of each Loan. .1d No Material Adverse Change. At the time of making such Loan or issuing -------------------------- such Letter of Credit, no Material Adverse Change has occurred and is continuing. Each request for a Loan or a Letter of Credit, whether made orally or in writing, shall be deemed to be, as of the time made, a representation and warranty by the Borrower as to the accuracy of the matters set forth in Sections 6.1b, 6.1c and 6.1d. .2 Initial Loan. The obligation of the Lenders to make the first Loan is ------------ subject to the satisfaction of each of the following conditions precedent, each of which must 40 be satisfactory to the Agent and the Lenders, in addition to the applicable conditions precedent set forth in Section 6.1: .2a Credit Agreement. Receipt by the Administrative Agent of fully ---------------- executed counterparts of this Agreement. .2b Schedules to Credit Agreement. Receipt by the Administrative Agent of ----------------------------- all schedules to this Agreement and the other Loan Documents prepared by the Borrower, in form and substance satisfactory to the Administrative Agent. .2c Notes. Receipt by the Administrative Agent of each Revolving Credit ----- Note executed by the Borrower payable to the applicable Lender in the amount of such Lender's Commitment. .2d Guaranty Agreements. Receipt by the Administrative Agent of Guaranty ------------------- Agreements executed by each of the Guarantors. .2e Corporate Documents for Borrower. Receipt by the Administrative Agent -------------------------------- of the following corporate documents for the Borrower: (i) resolutions of the board of directors, in form and substance reasonably satisfactory to the Administrative Agent, authorizing the execution of the Loan Documents to be executed by the Borrower and the performance by the Borrower pursuant thereto, certified by the secretary of the Borrower as being true, correct, complete and in effect; and (ii) an incumbency certificate for the Borrower, showing the names of the officers of the Borrower, their titles and containing their true signatures. .2f Corporate Documents for Guarantors. Receipt by the Administrative ---------------------------------- Agent of the following corporate documents for each Guarantor. (i) resolution of the board of directors, in form and substance satisfactory to the Administrative Agent, authorizing the execution of the Loan Documents to which such Guarantor is a party and performance by such Guarantor pursuant thereto, certified by the secretary of such Guarantor as being true, correct complete and in effect; and (ii) an incumbency certificate for such Guarantor showing the names of the officers of such Guarantor, their titles and containing their true signature. .2g Intentionally Omitted. --------------------- .2h Request for Initial Loans. Receipt by the Administrative Agent of ------------------------- written instructions addressed to the Administrative Agent and executed by the Borrower, instructing the Administrative Agent as to the disbursement of the Loan to be made on the Closing Date. 41 .2i Adequacy of Legal Matters. All legal matters incident to the Loans and ------------------------- the Loan Documents shall be reasonably satisfactory to the Administrative Agent and its counsel. .2j Opinion of Counsel. Receipt by the Administrative Agent of a ------------------ satisfactory opinion of Keating, Muething & Klekamp, L.L.P., counsel to the Loan Parties, addressed to the Agent and the Lenders. In rendering such opinion, Keating, Muething & Klekamp, L.L.P., may rely on certificates from officers of the Borrower and its Subsidiaries, the Agent and the Lenders as to factual matters on which such opinion is based. .2k Fees. Payment by the Borrower of all Fees which are to be paid on the ---- Closing Date. ARTICLE 116. EVENTS OF DEFAULT; REMEDIES .1 Events of Default. Each of the following events shall constitute an ----------------- Event of Default: .1a Payment Defaults. ---------------- (i) Payment Defaults Under Loan Documents. The Borrower shall ------------------------------------- default in the payment of principal or interest on the Loans when due, or in the payment of any of the Fees, expenses or other amounts due hereunder or under any of the other Loan Documents when due, and such default in payment of interest, principal, Fees, expenses or other amounts shall have continued for a period of five (5) Business Days after such due date. (ii) Payment Defaults Under Other Indebtedness Documents. Any Loan --------------------------------------------------- Party shall default in the payment of any Indebtedness (other than the Obligations owed under this Agreement), which Indebtedness has an aggregate outstanding principal balance of $1,000,000 or more when such payment is due (whether by acceleration or otherwise after) after giving effect to any grace or cure period, or default by any Loan Party in the performance of any term of any agreement or instrument under which any such Indebtedness is created or by which it is governed or evidenced, if the effect of any such default is to cause such Indebtedness to become, or to permit the holder or holders of such Indebtedness (or any Person on behalf of such holder) to declare such Indebtedness, due prior to its expressed maturity; .1b Insolvency, Etc. --------------- (i) Involuntary Proceedings. A proceeding shall have been ----------------------- instituted in a court having jurisdiction seeking a decree or order for relief in respect of any Loan Party in an involuntary case under the Federal bankruptcy laws, or any other similar applicable Federal or state law, now or hereafter in 42 effect, or for the appointment of a receiver, liquidator, trustee, sequestrator or similar official for such Loan Party or for a substantial part of their respective property, or for the winding up or liquidation of their respective affairs, and such shall remain uncontested for a period of fifteen (15) days or, if contested, remain undismissed or unstayed and in effect for a period of sixty (60) days. (ii) Voluntary Proceedings. Any Loan Party shall institute --------------------- proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization under the Federal bankruptcy laws, or any other similar applicable Federal or state law now or hereafter in effect, or shall consent or acquiesce to the filing of any such petition, or shall consent to or acquiesce in the appointment of a receiver, liquidator, trustee, sequestrator or similar official for any Loan Party or for a substantial part of its respective property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or action shall be taken by any Loan Party in furtherance of any of the foregoing. .1c Dissolution; Cessation of Business. Any Loan Party other than GIBT ---------------------------------- Ltd. or LSI Industries Foreign Sales Corporation shall terminate its existence, dissolve, liquidate substantially all of its assets, cease to exist or permanently cease operations except as provided in Section 5.4. .1d Change of Control. The occurrence of a Change of Control. ----------------- .1e Adverse Judgments. The aggregate amount of unbonded or unstayed final ----------------- judgments against any Loan Party for which no further appellate review exists shall, at any one time, exceed, by $2,000,000 or more, the aggregate amount of insurance proceeds available to pay such judgments. .1f Failure to Comply with Loan Documents. Any Loan Party shall default in ------------------------------------- the due performance or observance of any covenant, condition or provision set forth in this Agreement or any of the other Loan Documents to which it is a party which is not set forth elsewhere in this Section 7.1, and such default described in this item (ii) shall not be remedied to the satisfaction of the Lenders for a period of thirty (30) days after the earlier of (A) such default becoming known to any Authorized Officer or (B) notice of such default being delivered by the Administrative Agent to the Borrower. .1g Misrepresentation. Any representation or warranty made by any Loan ----------------- Party in any Loan Document to which it is a party is untrue in any material respect as of the date made, or any schedule, statement, report, notice, certificate or other writing furnished by the Borrower to the Administrative Agent is untrue in any 43 material respect on the date as of which the facts set forth therein are stated or certified. .1h Invalidity, Etc. of Loan Documents. Any material provision of any Loan ---------------------------------- Document shall at any time for any reason cease to be valid and binding on Loan Party to such Loan Document, or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by any Loan Party or any Governmental Authority, or any Loan Party shall deny that it has any or further liability or obligation under any Loan Document to which it is a party. .2 Remedies. -------- .2a Events of Default Under Sections 7.1b and 7.1c. Upon the occurrence of ---------------------------------------------- an Event of Default set forth in Sections 7.1b and 7.1c, the Commitment and the Letter of Credit Commitment shall automatically terminate, and the Loans, the Revolving Credit Notes, interest accrued thereon and all other Obligations of the Borrower to the Agents, the Lenders and the Issuing Bank shall become immediately due and payable, without the necessity of demand, presentation, protest, notice of dishonor or notice of default, all of which are hereby expressly waived by the Borrower. Thereafter, the Lenders shall have no further obligation to make any additional Loans hereunder nor shall the Issuing Bank have any obligation to issue any additional Letters of Credit. In addition, during any sixty (60)-day period described in Section 7.1b(i), the Lenders shall not have any obligation to make any additional Loans hereunder nor shall the Issuing Bank have any obligation to issue any additional Letters of Credit. .2b Remaining Events of Default. Upon the occurrence and during the --------------------------- continuance of any Event of Default set forth in Sections 7.1a, 7.1d, 7.1e, 7.1f, 7.1g or 7.1h. and after the expiration of any applicable cure period, the Required Lenders may, at their option, declare the Commitment and the Letter of Credit Commitment terminated, and the Loans, the Revolving Credit Notes, interest accrued thereon and all other Obligations of the Borrower to the Agent, the Lenders to be due and payable, without the necessity of demand, presentation, protest, notice of dishonor or notice of default, all of which are hereby expressly waived by the Borrower. After any such declaration, the Lenders shall have no further obligation to make any additional Loans hereunder. .2c Additional Remedies. In addition to the remedies set forth above, upon ------------------- the occurrence of any Event of Default, (i) the Issuing Bank shall have the right to require the Borrower establish with the Issuing Bank and fund a cash collateral account to cash collateralize the Stated Amount of each outstanding Letter of Credit, and (ii) the Agents, the Lenders and the Issuing Bank shall have all of the rights and remedies granted to them under this Agreement and the other Loan Documents and all other rights and remedies granted by law to creditors. 44 .2d Exercise of Remedies; Remedies Cumulative. No delay on the part of the ----------------------------------------- Agent, the Lenders or failure by the Agent and the Lenders to exercise any power, right or remedy under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any power, right or remedy or any abandonment or discontinuance of steps to enforce such right, power or remedy preclude other or further exercises thereof, or the exercise of any other power, right or remedy. The rights and remedies in this Agreement and the other Loan Documents are cumulative and not exclusive of any rights or remedies (including, without limitation, the right of specific performance) which the Agent and the Lenders would otherwise have. ARTICLE 117. ADMINISTRATIVE AGENT. .1 Appointment and Grant of Authority. Each of the Lenders hereby ---------------------------------- appoints PNC Bank, and PNC Bank hereby agrees to act as, the Administrative Agent under this Agreement, the Revolving Credit Notes and the other Loan Documents. As such Agent, the Agent shall have and may exercise such powers under this Agreement as are specifically delegated to them in their respective capacities, by the terms hereof, of the Revolving Credit Notes or of the other Loan Documents, together with such other powers as are incidental thereto. Without limiting the foregoing, the Administrative Agent, on behalf of the Lenders, is authorized to execute all of the Loan Documents (other than this Agreement) and to accept all of the Loan Documents and all other agreements, documents or instruments reasonably required to carry out the intent of the parties to this Agreement. .2 Non-Reliance on Agent. Each Lender agrees that it has, independently --------------------- and without reliance on the Agent and based on such documents and information as it has deemed appropriate, made its own credit analysis and evaluation of the Loan Parties and their operations and independently made its own decision to enter into this Agreement. Each Lender further agrees that it will, independently and without reliance upon the Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. Except as otherwise provided herein, the Agent shall have no duty to keep the Lenders informed as to the performance or observance by the Loan Parties of this Agreement or the other Loan Documents, nor shall the Agent be required to inspect the properties or books of the Loan Parties. The Agent, in the absence of gross negligence or willful misconduct, shall not be liable to any Lender for any failure to relay or furnish to such Lender any information. The preceding provisions of this Section 8.2 to the contrary notwithstanding, the Administrative Agent shall notify each of the Lenders as soon as practicable after it receives a notice of an Event of Default from the Borrower. .3 Responsibility of Agent and Other Matters. ----------------------------------------- 45 .3a Ministerial Nature of Duties. As among the Lenders and the Agent, the ---------------------------- Agent shall have no duties or responsibilities except those expressly set forth in this Agreement, the Revolving Credit Notes or in the other Loan Documents, and those duties and responsibilities shall be subject to the limitations and qualifications set forth in this Article 8. The duties of the Agent shall be ministerial and administrative in nature. .3b Limitation of Liability. As among the Lenders and the Agent, neither ----------------------- the Agent nor any of their respective directors, officers, employees or Agent shall be liable for any action taken or omitted (whether or not such action taken or omitted is within or without the Agent' respective responsibilities and duties expressly set forth in this Agreement) under or in connection with this Agreement or any other instrument or document in connection herewith except for gross negligence or willful misconduct. Without limiting the foregoing, neither the Agent nor any of their respective directors, officers or employees shall be responsible for, or have any duty to examine (i) the genuineness, execution, validity, effectiveness, enforceability, value or sufficiency of (A) this Agreement, the Revolving Credit Notes or any of the other Loan Documents or (B) any other document or instrument furnished pursuant to or in connection with this Agreement, (ii) the collectibility of any amounts owed by the Borrower to the Lenders, (iii) the truthfulness of any recitals, statements, representations or warranties made to the Agent or the Lenders in connection with this Agreement, (iv) any failure of any party to this Agreement to receive any communication sent, including any telegram, teletype, electronic data transmission, facsimile transmission or telephone message or any writing, application, notice, report, statement, certificate, resolution, request, order, consent letter or other instrument or paper or communication entrusted to the mails or to a delivery service, or (v) the assets, liabilities, financial condition, results of operations or business, or creditworthiness of the Borrower or any Guarantor. .3c Reliance. The Agent shall be entitled to act, and shall be fully -------- protected in acting upon, any telegram, teletype, electronic data transmission, facsimile transmission or any writing, application, notice, report, statement, certificate, resolution, request, order, consent, letter or other instrument, paper or communication believed by the Agent in good faith to be genuine and correct and to have been signed or sent or made by a proper Person. The Agent may consult counsel and shall be entitled to act, and shall be fully protected in any action taken in good faith, in accordance with advice given by counsel. The Agent may employ agents and attorneys-in-fact and shall not be liable for the default or misconduct of any such agents or attorneys-in-fact selected by the Agent with reasonable care. The Agent shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the other Loan Documents on the part of the Borrower or any other party thereto. .4 Action on Instructions. The Agent shall be required to act and shall ---------------------- be fully protected in so acting and shall be entitled to refrain from acting, and shall be 46 fully protected in refraining from so acting, under this Agreement, the Revolving Credit Notes, the other Loan Documents or any other instrument or document executed or delivered in connection herewith or therewith, in accordance with written instructions from the Required Lenders or, in the case of the matters set forth in items (i) through (vii) of Section 9.2, from all of the Lenders. .5 Indemnification. To the extent the Borrower does not reimburse and --------------- save harmless the Agent according to the terms hereof for and from all costs, expenses and disbursements in connection herewith, such costs, expenses and disbursements shall be borne by the Lenders ratably in accordance with their respective Commitment Percentages. Each Lender hereby agrees on such basis (i) to reimburse the Agent for such Lender's pro rata share of all such reasonable costs, expenses and disbursements on request and (ii) to the extent of each such Lender's pro rata share, to indemnify and save harmless the Agent against and from any and all losses, obligations, penalties, actions, judgments and suits and other costs, expenses and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent, other than as a consequence of gross negligence or willful misconduct on the part of the Agent, arising out of or in connection with (i) this Agreement, the Revolving Credit Notes, the other Loan Documents or any other agreement, instrument or document executed or delivered in connection herewith or therewith, or (ii) any action taken at the request of the Required Lenders or all of the Lenders hereunder, as the case may be, including without limitation the reasonable costs, expenses and disbursements in connection with defending themselves against any claim or liability, or answering any subpoena or other process related to the exercise or performance of any of their powers or duties under this Agreement, the other Loan Documents, or any of the other agreements, instruments or documents executed or delivered in connection herewith or the taking or refraining from any action under or in connection with any of the foregoing. .6 Agent's Rights as a Lender. With respect to the Commitments of the ------------------------- Agent as a Lender hereunder, and any Loans of the Agent under this Agreement, the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto and any other amounts due to the Agent under this Agreement, the Agent shall have the same rights and powers, duties and obligations under this Agreement, the Revolving Credit Notes, the other Loan Documents or other agreement, instrument or document as any Lender and may exercise such rights and powers and shall perform such duties and fulfill such obligations as though it were not an Agent hereunder. The Agent may accept deposits from, lend money to, and generally engage, and continue to engage, in any kind of business with the Borrower as if it were not an Agent hereunder. .7 Payment to Lenders. Promptly after receipt from the Borrower of any ------------------ principal repayment of the Loans, interest due on the Loans and any Fees owing to the Lenders or other amounts due under any of the Loan Documents (except for such amounts which are payable for the sole account of any Lender or the Agent), the 47 Administrative Agent shall distribute to each Lender that Lender's share of the funds so received. .8 Pro Rata Sharing. All interest and principal payments on the Loans, ---------------- Letter of Credit Fees and all Unused Fees are to be divided pro rata among the Lenders in accordance with their respective Commitment Percentages. Any sums obtained from the Borrower by any Lender by reason of the exercise of its rights of set-off, banker's lien or in collection shall be shared (net of costs) pro rata among the Lenders on the basis of the principal amount of Loans outstanding. Nothing in this Section 8.8 shall be deemed to require the sharing among the Lenders of collections specifically relating to, or of the proceeds of any collateral securing, any other Indebtedness of the Borrower to any Lender. .9 Successor Agent. --------------- .9a Resignation of Agent. The Agent may resign as Agent hereunder by -------------------- giving ninety (90) days prior written notice to the Lenders and the Borrower. If such notice shall be given, the Lenders shall appoint a successor agent for the Lenders, during such ninety (90) day period, which successor agent shall be reasonably satisfactory to the Borrower, such consent not to be unreasonably withheld, to serve as agent hereunder and under the several Loan Documents. If at the end of such ninety (90) day period, the Lenders have not appointed such a successor, the resigning Agent shall use reasonable commercial efforts to procure a successor reasonably satisfactory to the Lenders and the Borrower, to serve as a successor agent for the Lenders hereunder and under the several Loan Documents; and the resigning Agent shall continue to serve as Agent until a successor Agent is appointed, but not longer than an additional one hundred twenty (120) days. Any such successor agent shall succeed to the rights, powers and duties of the resigning Agent. .9b Rights of the Former Agent. Upon the appointment of such successor -------------------------- agent or upon the expiration of such ninety (90) day period (or any longer period to which the resigning Agent has agreed), the resigning Agent's rights, powers and duties hereunder shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. After any resigning Agent's resignation hereunder as an Agent hereunder, the provisions of this Article 8 shall inure to the benefit of such retiring Agent as to any actions taken or omitted to be taken by it while it was an Agent under this Agreement. ARTICLE 118. GENERAL PROVISIONS .1 Set-Off. If the unpaid principal amount of the Revolving Credit Notes, ------- interest accrued on the unpaid principal amount of the Revolving Credit Notes or other amount owing by the Borrower under this Agreement, the Revolving Credit Notes or the other Loan Documents shall have become due and payable (at maturity, by acceleration or otherwise), each Lender will have the right, in addition to all other 48 rights and remedies available to it, to set-off against and to appropriate and apply to such due and payable amounts any debt owing to, and any other funds held in any manner for the account of, the Borrower by such Lender including, without limitation, all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credit, or otherwise) now or in the future maintained by the Borrower with such Lender (but excluding in any event accounts held by such Lender in a fiduciary capacity or as trustee, such as Borrower's 401(k) Plan account). The Borrower consents to and confirms the foregoing arrangements and confirms each Lender's right of banker's lien and set-off. Nothing in this Agreement will be deemed a waiver or prohibition of or restriction on each Lender's rights of banker's lien or set-off. .2 Amendments and Waivers. Subject to the remaining provisions of this ---------------------- Section 9.2, the Agent, the Lenders and the Borrower may, from time to time, enter into amendments, extensions, renewals, modifications, supplements and replacements to and of this Agreement, the Revolving Credit Notes or the other Loan Documents and the Lenders or the Required Lenders, as the case may be, may, from time to time, waive compliance with a provision thereof. No amendment, renewal, modification, extension, supplement, replacement or waiver of any provision of the Agreement, the Revolving Credit Notes or the other Loan Documents or consent to any departure therefrom by the Borrower shall be effective unless it is in writing and is signed by the Required Lenders (or the Administrative Agent with the written consent of the Required Lenders), and then such waiver or consent shall be effective only for the specific instance and for the specific purpose for which it is given; provided, however, that no amendment, renewal, -------- modification, waiver or consent, unless in writing and signed by all of the Lenders (or the Administrative Agent with the written consent of all of the Lenders), shall do any of the following: (i) increase the Commitment of any Lender or subject any Lender to any additional obligations hereunder; (ii) except for changes permitted by Subsection 2.1f hereof or changes made pursuant to an Assignment and Assumption Agreement, change any Lender's Commitment Percentage or the aggregate or individual unpaid principal amount of the Revolving Credit Notes, or forgive the payment of the principal or interest payable on the Revolving Credit Notes; (iii) decrease the interest rate relating to the Loans; (iv) postpone any date fixed for any payment of principal of or interest on the Loans, the Letter of Credit Fee, the Unused Fee or any other obligations of the Borrower to the Lenders set forth in Article 2; (v) reduce the Unused Fee or the Letter of Credit Fee; 49 (vi) amend the definition of the term "Required Lenders" or amend or waive the provisions of Section 8.8 or this Section 9.2; or (vii) release all or substantially all the Guaranties. Any such supplemental agreement shall apply equally to the Borrower and each of the Lenders and shall be binding upon the Borrower, the Lenders, the Agent and all future holders of the Revolving Credit Notes. In the case of any waiver, the Borrower, the Lenders and the Agent shall be restored to their former positions and rights, and any Event of Default waived shall be deemed to be cured and not continuing, but no such waiver shall extend to any subsequent or other Event of Default, or impair any right consequent thereon. .3 Taxes. The Borrower shall pay any and all stamp, document, transfer ----- and recording taxes, filing fees and similar impositions payable or hereafter reasonably determined by the Administrative Agent to be payable in connection with this Agreement, the other Loan Documents and any other documents, instruments and transactions pursuant to or in connection with any of the Loan Documents other than for any tax which is measured on each Lender's net income. The Borrower agrees to save the Lenders harmless from and against any and all present and future claims or liabilities with respect to, or resulting from, any delay in paying or failure to pay any such taxes or similar impositions (other than taxes or similar impositions remitted by the Borrower to a Lender and which such Lender fails to pay in a timely or appropriate manner). The obligations of the Borrower pursuant to this Section 9.3 shall survive the termination of this Agreement and the repayment of the Obligations. .4 Expenses. The Borrower shall pay: -------- (i) All (A) reasonable out-of-pocket costs and expenses incurred by the Administrative Agent in connection with the preparation, execution and delivery of this Agreement, the other Loan Documents, and any and all other documents and instruments prepared in connection herewith, including the Administrative Agent's legal fees and expenses in connection therewith, and (B) reasonable costs and expenses of the Administrative Agent (including but not limited to reasonable fees and expenses of the Administrative Agent's counsel) in connection with all amendments, waivers, consents and other documents and instruments prepared or entered into from time to time in connection with this Agreement and the other Loan Documents, after the Closing Date; and (ii) All reasonable costs and expenses of the Agent and the Lenders (including without limitation the reasonable fees and disbursements of each such Person's counsel) in connection with (A) the enforcement of this Agreement and the other Loan Documents arising pursuant to a breach by Borrower of any of the terms, conditions, representations, warranties or covenants of any Loan Document to which it is a party including without 50 limitation workouts and renegotiations; or (B) defending or prosecuting any actions, suits or proceedings relating to any of the Loan Documents. All of such costs and expenses shall be payable by the Borrower to the Administrative Agent, upon demand or as otherwise agreed upon by the Administrative Agent and the Lenders, and shall constitute Obligations under this Agreement. The Borrower's obligations to pay such costs and expenses shall survive the termination of this Agreement and the repayment of the Obligations. .5 Notices. ------- .5a Notice to the Borrower. ---------------------- LSI INDUSTRIES INC. 10000 Alliance Road Cincinnati, Ohio 45242 Attention: Ronald S. Stowell, Vice President, Chief Financial Officer and Treasurer With a copy to: Keating, Muething & Klekamp. P.L.L. 1400 Provident Tower One East Fourth Street Cincinnati, Ohio 45202 Attention: James M. Jansing, Esq. .5b Notice to the Administrative Agent. ---------------------------------- PNC Bank, National Association PNC Agency Services One PNC Plaza - 22/nd/ Floor 249 Fifth Avenue Pittsburgh, Pennsylvania 15222-2707 Attention: Arlene M. Ohler Telephone: (412) 762-3627 Facsimile: (412) 762-8672 51 with a copy to: PNC Bank, National Association 201 East Fifth Street Cincinnati, Ohio 45202 Attention: Warren F. Weber Telephone: 513-651-8613 Facsimile: 513-651-8951 .5c Notice to the Lenders. All notices required to be delivered to the --------------------- Lenders pursuant to this Agreement shall be sent to the addresses and other information set forth on the signature pages of the Agreement. .5d In General. Any notice, request, demand, direction or other ---------- communication (for purposes of this Section only, a "Notice") to be given to or made upon any party hereto under any provision of this Agreement shall be given or made by telephone or in writing (which includes by means of electronic transmission (i.e., "e-mail") or facsimile transmission or by setting forth such Notice on a site on the World Wide Web (a "Website Posting") if Notice of such Website Posting (including the information necessary to access such site) has previously been delivered to the applicable parties hereto by another means set forth in this Section) in accordance with this Section. Any such Notice must be delivered to the applicable parties hereto at the addresses and numbers set forth under their respective names set forth above or in accordance with any subsequent unrevoked Notice from any such party that is given in accordance with this Section.. Any Notice shall be effective: (a) In the case of hand-delivery, when delivered; (b) If given by mail, four (4) days after such Notice is deposited with the United States Postal Service, with first-class postage prepaid, return receipt requested; (c) In the case of a telephonic Notice, when a party is contacted by telephone, if delivery of such telephonic Notice is confirmed no later than the next Business Day by hand delivery, a facsimile or electronic transmission, a Website Posting or an overnight courier delivery of a confirmatory Notice (received at or before noon on such next Business Day); (d) In the case of a facsimile transmission, when sent to the applicable party's facsimile machine's telephone number, if the party sending such Notice receives confirmation of the delivery thereof from its own facsimile machine; (e) In the case of electronic transmission, when actually received; 52 (f) In the case of a Website Posting, upon delivery of a Notice of such posting (including the information necessary to access such site) by another means set forth in this Section; and (g) If given by any other means (including by overnight courier), when actually received. Any Lender giving a Notice to a Loan Party shall concurrently send a copy thereof to the Agent, and the Agent shall promptly notify the other Lenders of its receipt of such Notice. .6 Assignments and Participations. .6a Assignments. Subject to the remaining provisions of this Subsection ----------- 9.6a, any Lender (a "Transferor Lender"), at any time, in the ordinary course of its commercial banking business and in accordance with applicable law, may sell to one or more financial institutions (individually a "Purchasing Lender"), a portion or all of its rights and obligations under this Agreement and the Revolving Credit Note then held by it, pursuant to an Assignment and Assumption Agreement delivered in connection with the Closing executed by the Transferor Lender, such Purchasing Lender and the Administrative Agent; subject, however to the following requirements: (i) Each such assignment must be in a minimum amount of $5,000,000, or, if in excess thereof, in integral multiples of $1,000,000, unless the Transferor Lender's Commitment is less than $5,000,000, in which case such assignment shall be in the full amount of the Transferor Lender's Commitment; (ii) During the first ninety (90) days following the Closing Date, each assignment made shall become effective only on a date which coincides with the expiration date of any Euro-Rate Interest Period then in effect, unless the Administrative Agent and the Borrower agree to waive this provision; (iii) The Borrower and the Administrative Agent shall consent in writing to each such assignment, which consent shall not be unreasonably withheld; and (iv) The Transferor Lender shall pay to the Administrative Agent a $3,500 service fee for each such transfer at the time of each such transfer. In addition, the Transferor Lender or Purchasing Lender shall pay to the Administrative Agent the additional service fees charged by the Administrative Agent attributable to having an additional Lender; provided, however, the restrictions set forth in item (i) above shall not apply -------- ------- (x) in the case of an assignment by a Lender to an Affiliate of such Lender or (y) in the case of any assignment by any Transferor Lender upon the occurrence and during the continuation of an Event of Default; 53 and provided, further, that upon the occurrence and during the continuance of an -------- ------- Event of Default the consent of the Borrower to any assignment shall not be required. Upon the execution, delivery, acceptance and recording of any such Assignment and Assumption Agreement, from and after the Transfer Effective Date determined pursuant to such Assignment and Assumption Agreement, all parties hereto agree that (a) the Purchasing Lender thereunder shall be a party hereto as a Lender and, to the extent provided in such Assignment and Assumption Agreement, shall have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (b) the Transferor Lender thereunder shall, to the extent provided in such Assignment and Assumption Agreement, be released from its obligations as a Lender under this Agreement. Such Assignment and Assumption Agreement shall be deemed to amend this Agreement (without further action) to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender as a Lender and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such Transferor Lender under this Agreement and its Revolving Credit Note. On or prior to the Transfer Effective Date, the Borrower shall execute and deliver to the Administrative Agent, in exchange for the surrendered Revolving Credit Note held by the Transferor Lender, to the order of such Purchasing Lender in an amount equal to the Commitment or the Loans assumed by it and purchased by it pursuant to such Assignment and Assumption Agreement, and a new Revolving Credit Note payable to the order of the Transferor Lender in an amount equal to the Commitment or the Loans retained by it hereunder. In addition to the assignments permitted above, any Lender may assign and pledge all or any portion of its Loans and Revolving Credit Note to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank at no extra cost, fee or expense of Borrower. No such assignment shall release the assigning Lender from its obligations and duties hereunder. .6b Assignment Register. The Administrative Agent shall maintain, at its ------------------- address referred to in Subsection 9.3b, a copy of each Assignment and Assumption Agreement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the amount of the Loans owing to each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loans recorded therein for all purposes of this Agreement. The Register shall be available at the office of the Administrative Agent set forth in Subsection 9.3b for inspection by either the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. .6c Participations. Each Lender, in the ordinary course of its commercial -------------- banking business, in accordance with applicable law and with Borrower's prior written consent which consent will not be unreasonably withheld or delayed, may sell to one or more Participants a participating interest in any Loan owing to such Lender, the interest of such Lender in any Revolving Credit Note or the 54 Commitment of such Lender. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of its Revolving Credit Note for all purposes under this Agreement and the Borrower, the other Lenders and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement or its Revolving Credit Note. .7 Withholding of Income Taxes. At least five (5) Business Days prior to --------------------------- the first date on which interest or fees are payable hereunder for the account of any Lender or Participant each Lender or Participant that is not incorporated under the laws of the United States or a state thereof shall deliver to the Borrower and the Administrative Agent two (2) duly completed copies of United States Internal Revenue Service Form W-9, 4224 or 1001 or other applicable form prescribed by the Internal Revenue Service. Such form shall certify that such Lender or Participant is entitled to receive payments under this Agreement and any applicable Revolving Credit Note without deduction or withholding of any United States Federal income taxes, or is subject to such tax at a reduced rate under an applicable tax treaty or under United States Internal Revenue Service Form W-8, or another applicable form or a certificate of such Lender or Participant indicating that no such exemption or reduced rate is allowable with respect to such payments. Each Lender or Participant which delivers a Form W-8, W-9, 4224 or 1001 further undertakes to deliver to the Borrower and the Administrative Agent two additional copies of such form (or a successor form) on or before the date that such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably required by the Borrower or the Administrative Agent, either certifying that such Lender or Participant is entitled to receive payments under this Agreement and the Revolving Credit Notes without deduction or withholding of any United States Federal income taxes or is subject to such tax at a reduced rate under an applicable tax treaty or stating that no such exemption or reduced rate is allowable. The Administrative Agent shall be entitled to withhold United States Federal income taxes at the full withholding rate, unless the Lender or Participant establishes an exemption, or at the applicable reduced rate, as established pursuant to the provisions of this Section 9.7. .8 Intentionally Omitted. --------------------- .9 Successors and Assigns. This Agreement shall be binding upon the ---------------------- Borrower, the Agent, the Lenders and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Agent, the Lenders and their respective successors and assigns; provided, -------- however, that the Borrower shall not assign its rights or duties ------- hereunder or under any of the other Loan Documents without the 55 prior written consent of all of the Lenders and the Lenders shall not assign their interest hereunder except in accordance with Section 9.6 hereof. .10 Confidentiality. The Agent and the Lenders shall keep confidential and --------------- not disclose to any Person, other than to its directors, officers, employees, Affiliates and Agent, and to actual and potential Purchasing Lenders or Participants, all non-public information concerning the Borrower and its Affiliates which comes into the possession of the Agent and the Lenders during the term hereof. Notwithstanding the foregoing, the Agent and the Lenders may disclose information concerning the Borrower (i) in accordance with normal banking practices and such Person's policies concerning disclosure of such information, (ii) pursuant to what any such Person believes to be the lawful requirements or request of any Governmental Authority regulating banks or banking, (iii) as required by Governmental Rule, judicial process or subpoena and (iv) to their respective attorneys, accountants and auditors. .11 Severability. Any provision of this Agreement which is prohibited or ------------ unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or enforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. .12 Survival. All representations, warranties, covenants and agreements of -------- the Borrower contained herein or in the other Loan Documents or made in writing in connection herewith shall survive the issuance of the Revolving Credit Notes and shall continue in full force and effect so long as the Borrower may borrow hereunder and so long thereafter until payment in full of the Loans, the Revolving Credit Notes and the Obligations is made. .13 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE ------------- GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, EXCEPTING APPLICABLE FEDERAL LAW. .14 FORUM. THE PARTIES HERETO AGREE THAT ANY ACTION OR PROCEEDING ARISING ----- OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS TO WHICH THE BORROWER IS A PARTY MAY BE COMMENCED IN THE COURT OF COMMON PLEAS OF HAMILTON COUNTY, OHIO OR IN THE DISTRICT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF OHIO, AND THE PARTIES HERETO AGREE THAT A SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN EITHER OF SUCH COURTS SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED PERSONALLY OR BY CERTIFIED MAIL TO THE PARTIES 56 AT THEIR ADDRESSES SET FORTH IN SECTION 9.5, OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE STATE OF OHIO. FURTHER, THE BORROWER HEREBY SPECIFICALLY CONSENTS TO THE PERSONAL JURISDICTION OF THE COURT OF COMMON PLEAS OF HAMILTON COUNTY, OHIO AND THE DISTRICT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF OHIO AND WAIVES AND HEREBY ACKNOWLEDGES THAT IT IS ESTOPPED FROM RAISING ANY OBJECTION BASED ON FORUM NON CONVENIENS, ANY CLAIM THAT EITHER SUCH COURT LACKS PROPER -------------------- VENUE OR ANY OBJECTION THAT EITHER SUCH COURT LACKS PERSONAL JURISDICTION OVER THE BORROWER SO AS TO PROHIBIT EITHER SUCH COURT FROM ADJUDICATING ANY ISSUES RAISED IN A COMPLAINT FILED WITH EITHER SUCH COURT AGAINST THE BORROWER BY THE AGENT OR THE LENDERS CONCERNING THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR PAYMENT TO THE AGENT OR THE LENDERS. THE BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT THE CHOICE OF FORUM CONTAINED IN THIS SECTION 9.14 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN ANY FORUM OR THE TAKING OF ANY ACTION UNDER THE LOAN DOCUMENTS TO ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION. .15 Non-Business Days. Whenever any payment under any of the Loan ----------------- Documents is due and payable on a day which is not a Business Day, except as otherwise provided in this Agreement, such payment may be made on the next succeeding Business Day, and such extension of time shall in each such case shall be included in computing interest in connection with such payment. .16 Integration. This Agreement is the entire agreement among the parties ----------- relating to this financing transaction and it supersedes all prior understandings and agreements, whether written or oral, between the parties hereto relating to the transactions provided for herein. .17 Headings. Article, Section, Subsection and other headings used in this -------- Agreement are intended for convenience only and shall not affect the meaning or construction of this Agreement. .18 Counterparts. This Agreement and any amendment hereto may be executed ------------ in several counterparts and by each party on a separate counterpart, each of which, when so executed and delivered, shall be an original, but all of which together shall constitute but one and the same instrument. In proving this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by the other party against whom enforcement is sought. 57 .19 WAIVER OF JURY TRIAL. EACH OF THE AGENT, THE LENDERS AND THE BORROWER -------------------- IRREVOCABLY WAIVE ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE AGENT, THE LENDERS AND THE BORROWER EACH ACKNOWLEDGE THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 58 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Credit Agreement to be executed by their respective duly authorized officers as of the date first written above. LSI INDUSTRIES INC. By: /s/ Ronald S. Stowell --------------------- Name: Ronald S. Stowell Title: Vice President, Chief Financial Officer and Treasurer PNC BANK, NATIONAL ASSOCIATION, in its capacity as the Administrative Agent, the Syndication Agent hereunder By: /s/ Warren F. Weber -------------------- Name: Warren F. Weber Title: Vice President [SIGNATURES CONTINUED ON FOLLOWING PAGE] 59 IN WITNESS WHEREOF, intending to be legally bound hereby, the undersigned Lender has caused this Agreement by and among LSI INDUSTRIES INC., the Lenders party hereto, PNC BANK, NATIONAL ASSOCIATION, as the Administrative Agent to be executed by its duly authorized officers as of the date first above written. Commitment: $30,000,000 PNC BANK, NATIONAL ASSOCIATION Commitment Percentage: 60% By: /s/ Warren F. Weber ------------------- Name: Warren F. Weber Title: Vice President Addresses for notice purposes: PNC Bank, National Association Multi-Bank Loan Administration One PNC Plaza - 4th Floor Annex 249 Fifth Avenue Pittsburgh, Pennsylvania 15222-2707 Attention: Lisa Pierce Telephone: 412-762-6442 Telecopier: 412-762-8672 PNC Bank, National Association 201 East Fifth Street Cincinnati, Ohio 45202 Attention: Warren F. Weber Telephone: 513-651-8613 Telecopier: 513-651-8951 [SIGNATURES CONTINUED ON FOLLOWING PAGE] 60 IN WITNESS WHEREOF, intending to be legally bound hereby, the undersigned Lender has caused this Agreement by and among LSI INDUSTRIES INC., the Lenders party hereto, PNC BANK, NATIONAL ASSOCIATION, as the Administrative Agent to be executed by its duly authorized officers as of the date first above written. Commitment: $20,000,000 FIFTH THIRD BANK Commitment Percentage: 40% By: /s/ Thomas Partridge -------------------- Print Name: Thomas Partridge Title: Vice President Addresses for notice purposes: Fifth Third Bank 38 Fountain Square Plaza Mail Drop 159811 Cincinnati, Ohio 45263 Attention: Thomas Partridge Telephone: 513-785-3714 Telecopier: 513-785-3723 61 EX-22 4 dex22.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 22 EXHIBIT 22 Subsidiaries of the Registrant ------------------------------

*Inactive Corporation to be liquidated in fiscal year 2002. EX-23 5 dex23.txt REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 EXHIBIT 23 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File No.'s 33-64721, 33-64723, 333-11503, 333-91531, 333- 72407, and 333-55808. /s/ Arthur Andersen LLP Arthur Andersen LLP Cincinnati, Ohio September 14, 2001 EX-24 6 dex24.txt POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of LSI Industries Inc., an Ohio corporation, which is about to file an annual report on Form 10-K for the fiscal year ended June 30, 2001, under provisions of the Securities Exchange Act of 1934, with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints Robert J. Ready or Ronald S. Stowell his true and lawful attorney-in-fact and agent, and each of them with full power to act without the other, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, with power where appropriate to affix the corporate seal of said corporation thereto and to attest to said seal, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents, in connection therewith, with the Securities and Exchange Commission, hereby grants unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all that said attorney-in-fact and agent, or either of them may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on this 13th day of September, 2001. /s/ Michael J. Burke ---------------------------------- Michael J. Burke EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of LSI Industries Inc., an Ohio corporation, which is about to file an annual report on Form 10-K for the fiscal year ended June 30, 2001, under provisions of the Securities Exchange Act of 1934, with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints Robert J. Ready or Ronald S. Stowell his true and lawful attorney-in-fact and agent, and each of them with full power to act without the other, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, with power where appropriate to affix the corporate seal of said corporation thereto and to attest to said seal, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents, in connection therewith, with the Securities and Exchange Commission, hereby grants unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all that said attorney-in-fact and agent, or either of them may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on this 13th day of September, 2001. /s/ Allen L. Davis ---------------------------- Allen L. Davis EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of LSI Industries Inc., an Ohio corporation, which is about to file an annual report on Form 10-K for the fiscal year ended June 30, 2001, under provisions of the Securities Exchange Act of 1934, with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints Robert J. Ready or Ronald S. Stowell his true and lawful attorney-in-fact and agent, and each of them with full power to act without the other, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, with power where appropriate to affix the corporate seal of said corporation thereto and to attest to said seal, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents, in connection therewith, with the Securities and Exchange Commission, hereby grants unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all that said attorney-in-fact and agent, or either of them may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on this 13th day of September, 2001. /s/ Dennis B. Meyer --------------------------------- Dennis B. Meyer EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of LSI Industries Inc., an Ohio corporation, which is about to file an annual report on Form 10-K for the fiscal year ended June 30, 2001, under provisions of the Securities Exchange Act of 1934, with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints Robert J. Ready or Ronald S. Stowell his true and lawful attorney-in-fact and agent, and each of them with full power to act without the other, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, with power where appropriate to affix the corporate seal of said corporation thereto and to attest to said seal, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents, in connection therewith, with the Securities and Exchange Commission, hereby grants unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all that said attorney-in-fact and agent, or either of them may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on this 13th day of September, 2001. /s/ Wilfred T. O'Gara ----------------------------------- Wilfred T. O'Gara EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of LSI Industries Inc., an Ohio corporation, which is about to file an annual report on Form 10-K for the fiscal year ended June 30, 2001, under provisions of the Securities Exchange Act of 1934, with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints Robert J. Ready or Ronald S. Stowell his true and lawful attorney-in-fact and agent, and each of them with full power to act without the other, his true and lawful attorney-in-fact and agent, for him and in his name, place and stead, in any and all capacities, to sign such Form 10-K and any and all amendments thereof, with power where appropriate to affix the corporate seal of said corporation thereto and to attest to said seal, and to file such Form 10-K and each such amendment, with all exhibits thereto, and any and all other documents, in connection therewith, with the Securities and Exchange Commission, hereby grants unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all that said attorney-in-fact and agent, or either of them may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand on this 13th day of September, 2001. /s/ James P. Sferra ------------------------------ James P. Sferra

ITEM 6.	SELECTED FINANCIAL DATA
	"Selected Financial Data" appears on page S-26 of this Form 10-K.

ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
	"Management's Discussion and Analysis of Financial Condition and Results of Operations" appears on pages S-1 through S-5 of this Form 10-K.

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

	See ITEM 1. BUSINESS on page 1 and MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS beginning on page S-1 of this Form 10-K. In addition, see the information set forth in NOTE 1 under “Fair value of financial instruments” beginning on page S-13 of this Form 10-K.

(a)	The following documents are filed as part of this report:

	(1)	Financial Statements Appear as part of Item 8 of this Form 10-K.

	(2)	Financial Statement Schedules Appear as part of Item 8 of this Form 10-K.

	(3)	Exhibit list - listing of exhibits required to be filed with Form 10-K incorporated by reference to Exhibit(s) filed as part of:

		10K-96 =	Annual Report on Form 10-K for the fiscal year ended June 30, 1996

		10Q-9/99 =	Quarterly Report on Form 10-Q for the quarter ended September 30, 1999

		S-3 (96) =	Form S-3 Registration Statement No. 33-65043