8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Act of 1934

Date of Report (Date of earliest event reported) June 26, 2006

LSI INDUSTRIES INC.

(Exact name of Registrant as specified in its Charter)

Ohio	0-13375	31-0888951
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No. )

10000 Alliance Road, Cincinnati, Ohio	45242
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code (513) 793-3200

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

Stock Purchase Agreement.

On June 26, 2006 the registrant simultaneously entered into and closed the transactions contemplated by a Stock Purchase Agreement (the “Purchase Agreement”) with Jalbout Holdings Inc. (“Holdings”), 3970957 Canada, Inc. (“Canco”), Saco Technologies Inc. (“Saco”), 4349466 Canada Inc. (“Acquired Company”), Fred Jalbout and Bassam Jalbout. Each of Holdings, Canco, Saco and the Acquired Company is incorporated under the Canada Business Corporation Act; Holdings, Canco and Saco each is referred to herein as a “Seller” or collectively as “Sellers.” Each of the Jalbouts owns fifty percent of the outstanding capital stock of Holdings. Holdings owns 100% of the capital stock of each of the Sellers. Pursuant to the Purchase Agreement, the registrant acquired all of the stock of the Acquired Company on June 26, 2006. The Acquired Company is in the business of developing, designing, manufacturing and selling large-format video screens and high-performance light engine devices derived from light emitting diode (LED) technology. The purchase price for the acquisition of the Acquired Company was 1,419,355 LSI Common Shares plus $23 million and the assumption of approximately $7,500,000 in indebtedness. The registrant renamed the Acquired Company “LSI Saco Technologies Inc.”

Escrow Agreement.

Also as part of the purchase price the registrant deposited with The Bank of New York Trust Company, N.A., as escrow agent (“BONY”), 1,419,355 Common Shares of the registrant to satisfy any amounts owed by Holdings, Canco, Saco, Fred Jalbout and/or Bassam Jalbout to the registrant to cover post-closing indemnification claims. Pursuant to the Escrow Agreement dated June 26, 2006 among the registrant, BONY and Saco, escrow shares are to be released on September 30, 2006, 2007 and 2008 in increments described therein to the extent the registrant has not delivered any notice of claim that it is asserting indemnification against the Sellers and/or the Jalbouts pursuant to the Purchase Agreement. The escrow shares are subject to earlier release if certain conditions are met.

Registration Rights Agreement.

Pursuant to the Registration Rights Agreement dated June 26, 2006 between the registrant and Saco, the registrant agreed to file a registration statement on Form S-3 with the Securities and Exchange Commission to effect the registration under the Securities Act of 1933, as amended, of the 1,419,355 Common Shares described above for resale by Saco. The registrant is required to pay all registration expenses but is not required to pay any underwriting fees, discounts or commissions attributable to the sale of the Shares.

Employment Agreement.

On June 26, 2006 the Acquired Company and Fred Jalbout entered into an employment agreement pursuant to which Fred Jalbout has agreed to serve as President of LSI Technology Solutions Plus and President and Chief Executive Officer of the Acquired Company. Mr. Jalbout’s annual base salary, less deductions shall be approximately $200,000. In addition, Jalbout received a grant of options to purchase 20,000 Common Shares at a purchase price equal to the fair market value of such shares on the date of grant. Mr. Jalbout is also entitled to participate in the 2003 LSI Industries Inc. Equity Compensation Plan, to receive a bonus equal to between 20% and 50% of his annual base salary and to participate in a deferred compensation plan.

Lease Agreement.

On June 26, 2006 the Acquired Company entered into a Lease Agreement with Canco with respect to approximately 31,900 square feet of office space located at 7809 Trans-Canada Highway, Montreal, Quebec. The Property serves as the principal place of operations of the Acquired Company. The initial term of the Lease Agreement is three years commencing on June 26, 2006 and ending June 26, 2009, which the Acquired Company may renew for three additional terms of three years, subject to rental adjustments as described therein. The annual base rent under the Lease Agreement will be a minimum of CAN $16,615.66 per month. In addition to the base rent, the Acquired Company will be responsible for certain of the building’s operating expenses and real estate taxes as specified in the Lease Agreement. The base rent was determined to be the market rental value of such property by an independent thirty party valuation firm. The registrant believes that the terms of the Lease Agreement are no more favorable to Canco as would be otherwise obtained in an arms-length transaction.

The foregoing description of the Purchase Agreement, Escrow Agreement, Registration Rights Agreement, Employment Agreement and Lease Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the respective exhibits filed herewith and incorporated herein by reference. The Purchase Agreement has been included to provide investors and stockholders with information regarding its terms. It is not intended to provide any other factual information about the registrant or the Acquired Company. The Purchase Agreement contains representations and warranties that the parties to the Purchase Agreement made to and solely for the benefit of each other for, among other reasons, to allocate certain risks among the parties. The assertions embodied in such representations and warranties are qualified by information contained in confidential disclosure schedules that the parties exchanged in connection with signing the Purchase Agreement. Accordingly, investors and stockholders should not rely on such representations and warranties as characterizations of the actual state of facts or circumstances, since they are only made as of the date of the Purchase Agreement, are modified in important part by the underlying disclosure schedules and, in some instances, are intended merely as a method of risk allocation.

Item 2.01 Completion of Acquisition or Disposition of Assets.

The information set forth in Items 1.01 and 2.03 is incorporated herein by reference.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant.

On June 26, 2006 the registrant entered into an Amendment to Credit Agreement with PNC Bank, National Association and Fifth Third Bank for the purpose of amending tangible net worth requirements. In order to finance the acquisition described in Item 1.01 above, the registrant borrowed under the Credit Agreement approximately $16,000,000. The Credit Agreement, as amended, provides that the registrant shall pay an interest rate on the balance of the loan at a rate equal to an increment over the LIBOR rate, an increment over the Federal Funds rate, or the base lending rate which PNC Bank announces from time to time, at the registrant’s option. Pursuant to the terms of the Credit Agreement, as amended, the registrant must repay the loan and all accrued interest thereon by March 23, 2009, unless the credit facility is extended. If the registrant fails to pay such amounts when due, the Credit Agreement, as amended, provides that such amounts become immediately due and payable.

The foregoing description of the Amendment to Credit Agreement and the Credit Agreement, as amended, does not purport to be complete and is qualified in its entirety by reference to the full text of such documents. The Amendment to Credit Agreement is filed herewith and incorporated herein by reference. The Credit Agreement is filed as Exhibit 4 to the registrant’s Annual Report on Form 10-K for the fiscal year-ended June 30, 2001 and was amended by the Amendment to Credit Agreement filed by registrant as Exhibit 10.1 on Form 8-K filed March 23, 2006, which documents are incorporated herein by reference.

Item 3.02. Unregistered Sales of Equity Securities.

In connection with the acquisition described in Item 1.01 above, the registrant issued 1,419,355 Common Shares on June 26, 2006. The registrant issued these Common Shares as partial consideration for the acquisition of the Acquired Company and deposited them with BONY pursuant to the Escrow Agreement described above. The Common Shares were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended.

Item 8.01 Other Events.

On June 27, 2006 the registrant issued a press release announcing its acquisition of all of the capital stock of the Acquired Company. A copy of the press release is attached as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(d)

Exhibits.

2.1

Stock Purchase Agreement dated as of June 26, 2006 among LSI Industries Inc., Jalbout Holdings Inc., 3970957 Canada, Inc., Saco Technologies Inc., 4349466 Canada Inc., Fred Jalbout and Bassam Jalbout. (The schedules to this agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish copies of any schedules to the Securities and Exchange Commission upon request.)

10.1	Escrow Agreement dated as of June 26, 2006 among LSI Industries Inc., Saco Technologies Inc., and The Bank of New York Trust Company, N.A.
10.2	Registrant Rights Agreement dated as of June 26, 2006 by and between LSI Industries Inc. and Saco Technologies Inc.
10.3	Employment Agreement dated as of June 26, 2006 by and between 4349466 Canada Inc. and Fred Jalbout
10.4	Lease Agreement between 3970957 Canada, Inc. and 4349466 Canada Inc.
10.5	Amendment to Credit Agreement dated as of June 26, 2006 among LSI Industries Inc., PNC Bank, National Association and The Fifth Third Bank
99.1	Press Release dated June 27, 2006

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

LSI INDUSTRIES INC.

/s/ Ronald S. Stowell

Ronald S. Stowell

Vice President, Chief Financial Officer

and Treasurer

(Principal Accounting Officer)

June 28, 2006

EX-2.1

Exhibit 2.1

STOCK PURCHASE AGREEMENT

DATED AS OF JUNE 26, 2006

AMONG

LSI INDUSTRIES INC.,

JALBOUT HOLDINGS, INC,

SACO TECHNOLOGIES INC.,

3970957 CANADA, INC.,

4349466 CANADA INC.

AND

FRED JALBOUT AND BASSAM JALBOUT

TABLE OF CONTENTS

			Page
ARTICLE I    DEFINITIONS.			1
	Section 1.1	Provisions Pertaining to Definitions	1
	Section 1.2	Certain Defined Terms	2
ARTICLE II    PURCHASE AND SALE.			9
	Section 2.1	Purchase and Sale of Shares	9
	Section 2.2	Purchase Price	9
	Section 2.3	Closing	9
ARTICLE III    REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND SELLERS.			9
	Section 3.1	Corporate Existence	9
	Section 3.2	Corporate Power; Authorization; Enforceable Obligations	10
	Section 3.3	Capital Stock and Ownership of Shares; Subsidiaries	10
	Section 3.4	Validity of Contemplated Transactions, Needed Consents, etc	10
	Section 3.5	Financial Information	10
	Section 3.6	Undisclosed Liability	11
	Section 3.7	Tax and Other Returns and Reports.	11
	Section 3.8	Title to and Condition of Properties	12
	Section 3.9	Litigation	12
	Section 3.10	Insurance	13
	Section 3.11	Contracts and Commitments.	13
	Section 3.12	Customers and Suppliers.	15
	Section 3.13	Employees.	15
	Section 3.14	Employee Benefit Plans and Arrangements	17
	Section 3.15	Environmental Matters.	17
	Section 3.16	Compliance With Laws; Operating Permits, etc	18
	Section 3.17	Intellectual Property.	18
	Section 3.18	Sufficiency of the Assets	21
	Section 3.19	Inventory	22
	Section 3.20	Product Liability	22
	Section 3.21	Product Warranty	22
	Section 3.22	Notes and Accounts Receivable	23
	Section 3.23	Conduct of Business	23
	Section 3.24	Investments	25
	Section 3.25	Affiliate Transactions	25
	Section 3.26	Reorganization	25

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Table of Contents

(continued)

			Page
	Section 3.27	Guaranties	25
	Section 3.28	Powers of Attorney	25
	Section 3.29	Brokers	25
	Section 3.30	Sale of Fixed Assets	25
	Section 3.31	Investment Purpose	25
	Section 3.32	Disclosure	26
ARTICLE IV    REPRESENTATIONS AND WARRANTIES OF LSI.			26
	Section 4.1	Corporate Existence	26
	Section 4.2	Corporate Power and Authorization	26
	Section 4.3	Validity of Contemplated Transactions, etc	26
	Section 4.4	Authorized Capital	27
	Section 4.5	Stock Consideration Deliver to Saco	27
	Section 4.6	SEC Reports.	27
	Section 4.7	Brokers	28
	Section 4.8	Disclosure	28
ARTICLE V    SURVIVAL OF REPRESENTATIONS AND WARRANTIES.			28
	Section 5.1	Survival of Representations and Warranties	28
ARTICLE VI    STOCK CONSIDERATION			28
	Section 6.1	LSI Common Shares to be Issued	28
	Section 6.2	Restrictive Legend	28
	Section 6.3	Information	29
	Section 6.4	Restricted Securities	29
ARTICLE VII    CONDITIONS PRECEDENT TO THE CLOSING			29
	Section 7.1	Conditions Precedent to LSI’s Obligations	29
	Section 7.2	Conditions Precedent to the Obligations of Sellers	31
	Section 7.3	Consummation of Agreement	32
	Section 7.4	Further Assurances	32
	Section 7.5	Amendment to Articles	32
ARTICLE VIII    SHAREHOLDER RESTRICTIVE COVENANTS			32
	Section 8.1	Unfair Competition	32
	Section 8.2	Confidential Information.	34
	Section 8.3	Remedy for Breach	34
	Section 8.4	Non-Exclusivity	35
ARTICLE IX    INDEMNIFICATION			35
	Section 9.1	General Indemnification Obligation of the Sellers and the Shareholders	35

ii

Table of Contents

(continued)

			Page
	Section 9.2	General Indemnification Obligation of LSI	36
	Section 9.3	Third Party Claims - Indemnification.	37
	Section 9.4	Provisions Regarding Indemnity.	38
	Section 9.5	Payment	38
ARTICLE X    MISCELLANEOUS			38
	Section 10.1	Payment of Bank Debt	38
	Section 10.2	Further Action	39
	Section 10.3	Access to Information	39
	Section 10.4	Press Releases	39
	Section 10.5	Expenses	39
	Section 10.6	Waiver	39
	Section 10.7	Notices	39
	Section 10.8	Headings	41
	Section 10.9	Schedules and Exhibits	41
	Section 10.10	Severability	41
	Section 10.11	Governing Language	41
	Section 10.12	Counterparts	41
	Section 10.13	Entire Agreement	41
	Section 10.14	Amendments	41
	Section 10.15	Assignment and Binding Effect	42
	Section 10.16	Exclusive Benefits	42
	Section 10.17	Delays or Omissions	42
	Section 10.18	Construction	42
	Section 10.19	Governing Law	42
	Section 10.20	Submission to Jurisdiction; Waiver	42
	Section 10.21	Waiver of Jury Trial	43

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STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (“Agreement”) is entered into as of June 26, 2006 by and among LSI INDUSTRIES INC., an Ohio corporation (“LSI”), JALBOUT HOLDINGS INC., a corporation incorporated under the Canada Business Corporation Act, (“Holdings”), 3970957 CANADA, INC., a corporation incorporated under the Canada Business Corporation Act (“Canco”), SACO TECHNOLOGIES INC., a corporation incorporated under the Canada Business Corporation Act, (“Saco”), 4349466 CANADA INC., a corporation incorporated under the Canada Business Corporation Act, (the “Company”) and FRED JALBOUT and BASSAM JALBOUT (collectively, the “Shareholders”). Holdings, Canco and Saco are collectively referred to herein as the “Sellers”.

RECITALS:

A. The Sellers are in the business of developing, designing, manufacturing and selling large-format video screens and high-performance light engine devices derived from light emitting diode (LED) technology (the “Business”);

B. Immediately prior to the consummation of the transactions contemplated by this Agreement, Saco, a wholly owned subsidiary of Holdings, and its Affiliates transferred substantially all of their assets used or useable in the operation of the Business and certain defined Liabilities to the Company (the “Reorganization”).

C. Saco owns all of the issued and outstanding Capital Stock of the Company, consisting of 19,734,673 Class A common shares (the “Purchased Shares”).

D. Subject only to the limitations and exclusions contained in this Agreement and on the terms and conditions hereinafter set forth, Saco desires to sell to LSI and LSI desires to purchase at the Closing all of the Purchased Shares.

E. The Shareholders are the beneficial owners of each of the Sellers and the Company prior to the Closing Date and will receive substantial benefit as a result of this transaction, and as a result, the Shareholders and the Sellers are willing to guaranty the obligations of Saco and the other entities parties hereto

NOW, THEREFORE, in consideration of the recitals and of the respective covenants, representations, warranties and agreements herein contained, and intending to be legally bound hereby, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS.

Section 1.1 Provisions Pertaining to Definitions. For all purposes of this Agreement (except where such interpretations would be inconsistent with the context or the subject matter):

(a) Where appropriate, words importing the singular only shall include the plural and vice versa, and all references to dollars shall be United States Dollars; and

(b) Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine, or neuter, as the context requires.

(c) Accounting terms not otherwise defined herein shall have the meanings customarily given in accordance with GAAP (as hereinafter defined) and all financial computations or determinations to be made under this Agreement shall, unless otherwise specifically provided herein, be applied in a manner consistent with the Financial Statements.

Section 1.2 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings, unless otherwise expressly provided or unless the context clearly requires otherwise:

“Action” means any charge, demand, notice, hearing, claim, order, action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority or any Person.

“Affiliate” means, as to any Person (the “Subject Person”), any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, the Subject Person. For purposes of this definition, “control” of a Person means the power, direct or indirect, (i) to vote 10% or more of the Capital Stock having voting power for the election of directors (or managers in the case of a limited liability company) of the Person or (ii) otherwise to direct or cause the direction of the management and policies of the Person, whether by contract or otherwise. Without limiting the generality of the foregoing, each of the Sellers and the Shareholders will be deemed to be an Affiliate of the Company for purposes of this Agreement.

“Agreement” means this Stock Purchase Agreement among LSI, the Sellers, the Company and the Shareholders (including all of the Schedules hereto), and all amendments hereto made in accordance with the provisions hereof.

“Business” has the meaning set forth in the first recital to this Agreement.

“Business Day” means any day that is not a Saturday, a Sunday or any other day on which banks are required or authorized by applicable Law to be closed in Cincinnati, Ohio or Montreal, Quebec.

“Capital Stock” means any and all shares, interests, participations, rights or other equivalents (however designated) or stock, whether common or preferred in a corporation, limited liability company, unlimited liability company, partnership or other entity.

“Closing” has the meaning specified in Section 2.3.

“Closing Conditions” means the conditions to the Closing specified in Article VII hereof.

“Closing Date” has the meaning specified in Section 2.3.

“Commission” means the Securities and Exchange Commission or any successor agency.

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“Company” has the meaning specified in the preamble to this Agreement.

“Conflicting Business” shall mean the business of development, design, manufacture, sale, distribution or leasing of large-format video screens or high-performance light engine devices derived from light emitting diode technology.

“Consolidated” means, with respect to any accounting matter or amount, such matter or amount computed on a consolidated basis for Holdings and Saco in accordance with GAAP.

“Dollars” and “$” means the lawful currency of the United States of America, except where expressly denoted otherwise.

“Employee Benefit Plans” means all compensation, bonus, deferred compensation, incentive compensation, share purchase, share appreciation, share option, severance or termination pay, vacation pay, hospitalization or other medical, health and welfare benefits, life or other insurance, dental, eye care, disability, salary continuation, supplemental unemployment benefits, profit-sharing, mortgage assistance, employee loan, employee discount, employee assistance, counseling, pension, retirement or supplemental retirement benefit plan, arrangement or agreement, including any defined benefit or defined contribution pension plan and any group registered retirement savings plan, and any other similar employee benefit plan, arrangement or agreement, whether oral or written, funded or unfunded, including policies with respect to holidays, sick leave, long-term disability, vacations, expense reimbursements and automobile allowances and rights to company-provided automobiles, that are sponsored or maintained or contributed or required to be contributed to, by the Company for the benefit of any of its personnel, employees, former employees or beneficiaries of any of them, whether or not insured and whether or not subject to any Law, except that the term “Employee Benefit Plans” shall not include any statutory plans with which the Sellers are required to comply, including the Canada and Quebec Pension Plan or plans administered pursuant to applicable federal or provincial health tax, workers’ compensation, workers’ safety and insurance and employment insurance legislation.

“Employment Agreement” means the employment agreements between the Company and the Key Employees, in form and substance acceptable to LSI and the Key Employees.

“Environment” means the natural environment (including, without limitation), surface waters, groundwaters, soil, subsurface strata and ambient air and all sewer systems.

“Environmental Claims” means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of non-compliance or violation, investigations, proceedings, consent orders or consent agreements relating in any way to any Environmental Laws or Environmental Permits (hereafter “Claims”), including, without limitation, (a) any and all Claims or judgments by Governmental Authorities for enforcement, cleanup, removal, response, remediation or other actions or damages pursuant to any applicable Environmental Law and (b) any and all Claims by any Person seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Substances or arising from alleged injury or threat of injury to health, safety or the Environment.

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“Environmental Laws” means any applicable federal, provincial, municipal or local statute, law, regulation, rule, order, by-law, standard, judgment, consent, Environmental Permit, and any policy, guideline or other directive of any Governmental Authority which, although not actually having the force of law is considered by such Governmental Authority as requiring compliance as if having the force of Law, or other legal requirement or civil responsibility for acts or omissions with respect to the Environment in each case now in effect, pertaining to (i) the protection of health, safety and the Environment, (ii) the conservation, management, or use of natural resources and wildlife, (iii) the management, use, generation, transportation, shipment, treatment, storage, disposal, release, threatened release, removal, remediation, or handling of, or exposure to, Hazardous Substances and (iv) the regulation of storage tanks or otherwise relating to pollution (including any release to air, land, surface water and groundwater).

“Environmental Liabilities” means any and all debts, Liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, arising under any Environmental Law or Action and those arising under any Environmental Permits.

“Environmental Permits” means all permits, certificates, approvals, registration, identification numbers, licenses and other authorizations issued or required under any applicable Environmental Laws.

“Escrow Agent” has the meaning specified in Section 2.2.

“Escrow Agreement” means an Escrow Agreement in form and substance reasonably acceptable to Saco, LSI and the Escrow Agent executed by Saco and LSI on the Closing Date.

“Escrow Fund” has the meaning specified in the Escrow Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Financial Statements” has the meaning specified in Section 3.5.

“GAAP” means generally accepted accounting principles and practices as in effect in Canada from time to time and applied consistently throughout the periods involved.

“Governmental Authority” means any Canadian or United States federal, state, provincial or local or any foreign government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.

“Hazardous Substances” means all petroleum and petroleum products and all substances, wastes, pollutants, contaminants and materials regulated or defined or designated as hazardous, extremely or imminently hazardous, dangerous, or toxic pursuant to any law, by any local, state, territorial or Governmental Authority, or with respect to which such a Governmental Authority otherwise requires environmental investigation, monitoring, reporting, or remediation; including but not limited to, all substances, wastes, pollutants, contaminants and materials regulated, or defined or designated as hazardous, dangerous or toxic, or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, radioactivity, carcinogenicity or toxicity under any Environmental Laws.

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“Indebtedness” means, with respect to any Person, the following, without duplication, (a) all indebtedness for borrowed money of such Person, whether or not contingent, (b) all obligations of such Person for the deferred purchase price of property or services except trade accounts payable and accrued Liabilities that arise in the ordinary course of business, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been, in accordance with GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire or otherwise acquire for value any Capital Stock of such Person or any warrants, rights or options to acquire such Capital Stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends but only to the extent such obligation is payable (i) at a fixed or determinable date, whether by operation of a sinking fund or otherwise, (ii) at the option of any Person other than such Person or (iii) upon the occurrence of a condition not solely within the Control of such Person, such as a redemption required to be made out of future earnings, (h) all Indebtedness of others referred to in clauses (a) through (f) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (A) all Indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness.

“Intellectual Property” means (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical

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data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including data and related documentation), (g) all other proprietary rights, and (h) all copies and tangible embodiments thereof (in whatever form or medium).

“Inventory” means all raw materials, spare parts and other items of inventory, and similar property owned by the Sellers and related to the Business maintained, held or stored by or for the Sellers as of the Closing Date and any prepaid deposits for any of the same at such date.

“Key Employees” shall mean each of Fred Jalbout, Bassam Dib Jalbout, and Jonathan Labbée.

“Knowledge”, as used in this Agreement, the terms “to the Knowledge” or “to the best Knowledge” of a party, or similar phrases, shall mean to the knowledge of any officer or Key Employee of such party, or, with respect to the Company, any officer or Key Employee of the Predecessors, or such individual, as applicable, in each case after due inquiry.

“Law” means any applicable United States or Canadian federal, state, provincial, local or foreign statute, law, ordinance, regulation, rule, executive order, code or other requirement of law, excluding Environmental Laws.

“Liabilities” means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured or determined or determinable, including, without limitation, those arising under any Law or Action and those arising under any contract, lease, Operating Permit, agreement, arrangement, commitment or undertaking.

“Lien(s)” means any security interest, pledge, mortgage, lien, hypothec, charge, encumbrance, adverse claim, or preferential arrangement with a creditor.

“LSI” has the meaning set forth in the preamble to this Agreement.

“LSI Common Shares” means common shares, without par value, of LSI.

“LSI SEC Reports” has the meaning set forth in Section 4.6.

“Material Adverse Effect” means any change in, or effect on, the Business, or the prospects of the Business or the Company, that has an adverse effect on the financial condition of the Business or the Company of $100,000 or more or is otherwise materially adverse to the Business, results of operations, financial condition or prospects of the Business or the Company taken as a whole.

“Material Contracts” has the meaning specified in Section 3.11.

“Non-Disclosure Agreement” means that certain Non-Disclosure Agreement dated June 1, 2004 by and between Saco and LSI.

“Opening Balance Sheet” has the meaning specified in Section 3.5.

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“Operating Permits” means all permits, licenses, authorizations, certificates, exemptions and approvals of Governmental Authorities, except for Environmental Permits.

“Ordinary Course of Business” means with respect to any action taken by a Person that such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person.

“Permitted Liens” means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for Taxes, assessments and governmental charges or levies not yet due and payable; (b) Liens imposed by law, such as a legal hypothec in favour of an architect, engineer, supplier of materials, workman and contractor or sub-contractor and other similar Liens arising in the Ordinary Course of Business securing obligations that are: (i) are not overdue for a period of more than 30 days and (ii) are not in excess of $10,000 in the aggregate at any time; (c) minor survey exceptions, reciprocal easement agreements and other customary encumbrances on title to real property that (i) were not incurred in connection with any Indebtedness, (ii) do not render title to the property encumbered thereby unmarketable and (iii) do not, individually or in the aggregate, have a Material Adverse Effect on such property; and (d) the Liens set forth on Schedule 1 hereof.

“Person” means any individual, partnership, firm, corporation, association, trust, unincorporated organization, company or other entity.

“Predecessors” means each of the Sellers and each Affiliate of the Sellers or the Company who (a) own or possess any of the assets used or useable in the Business, or (b) have owned or possessed any of the assets used or useable in the Business.

“Promissory Note” means that certain promissory note in the original principal amount of $25,000,000 issued on the Closing Date by the Company to Saco, in connection with the Reorganization.

“Purchase Price” has the meaning specified in Section 2.2.

“Purchase Price Value” means the aggregate fair market value as of the Closing Date of the Cash Consideration and the Stock Consideration, plus the amount of Repayable Debt as of the Closing.

“Purchased Shares” has the meaning specified in the Recitals to this Agreement.

“Real Property” has the meaning set forth in Section 3.8.

“Receivables” means any and all accounts receivable, notes and other amounts receivable by the Sellers relating to the Business, or the Company, from third parties, including, without limitation, customers, arising before the Closing Date.

“Registration Rights Agreement” means a Registration Rights Agreement in form and substance reasonably acceptable to the parties thereto executed by LSI and Saco on the Closing Date.

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“Repayable Debt” means: (a) all Indebtedness of Saco owed to the National Bank of Canada in the aggregate amount of CAN$3,998,990.07 and USD$3,740,831.86 (collectively, the “Bank Debt”), and (b) all Indebtedness of Saco to Affiliates of Saco in the aggregate amount of CAN$409,387.00, all as further described in Schedule 1.2 (collectively, the “Related Party Debt”).

“Reorganization” shall have the meaning set forth in the first recital to this Agreement.

“Reorganization Documents” shall mean that certain Asset Purchase Agreement dated of even date herewith and the other agreements, documents and instruments required to effect the Reorganization.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Sellers” has the meaning specified in the preamble to this Agreement.

“Subsidiary” means, as to any Person, a corporation, limited liability company, partnership or other entity of which shares of stock or other Capital Stock having ordinary voting power (other than stock or such other Capital Stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such Person are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.

“Tax” or “Taxes” means (a) all federal, state, provincial, local, foreign and other taxes, or assessments including, without limitation, income, estimated income, business, occupation, franchise, property, sales, employment, gross receipts, use, transfer, ad valorem, profits, license, capital, payroll, excise, goods and services, severance, stamp, and including interest, penalties and additions in connection therewith for which the Company or the Sellers are or may be liable, and (b) any liability for the payment of any amounts of the type described in item (a) above as a result of any express or implied obligation to indemnify any other Person or as a result of any obligations under any agreements or arrangements with any other Person with respect to such amounts and including any liability for Taxes of a predecessor entity.

“Tax Liabilities” means any and all liabilities for Taxes accrued on the books of Saco as of the Closing, except to the extent such Tax liabilities arise out of the Reorganization or the transactions contemplated by this Agreement.

“Tax Receivables” means all prepayments, credits, refunds, causes of action, rights of recovery, rights of set off, and rights of recoupment with respect to the Taxes of Saco, arising as a result of or relating to the ownership or operation of the Business, including without limitations refundable and non-refundable research and development tax credits.

“Transaction Documents” means this Agreement, the Escrow Agreement, the Employment Agreements and the other agreements, documents and instruments entered into among the parties to this Agreement in order to effectuate the transactions contemplated hereby.

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“USTs” means underground storage tanks, as such term is defined in the Resource Conservation and Recovery Act, as amended, and the regulations promulgated thereunder or any state equivalent thereof.

ARTICLE II

PURCHASE AND SALE.

Section 2.1 Purchase and Sale of Shares. At the Closing, Saco shall grant, sell, convey, assign, transfer and deliver to LSI, and LSI shall purchase, upon and subject to the terms and conditions of this Agreement, (a) the Purchased Shares and, (b) the Promissory Note, each free and clear of all Liens of any nature whatsoever.

Section 2.2 Purchase Price. At the Closing, in consideration of the purchase by LSI from Saco of the Purchased Shares and the Promissory Note, LSI shall pay to Saco Twenty Three Million One Hundred Seventy One Thousand Nine Hundred Fifty Nine Dollars and Seven Cents (US$23,171,959.07) payable by the wire transfer of immediately available funds on the Closing Date (the “Cash Consideration”). LSI agrees to deliver to The Bank of New York Trust Company, N.A., as escrow agent (the “Escrow Agent”), at the Closing the 1,419,355 LSI Common Shares (the “Stock Consideration,” and collectively with the Cash Consideration, the “Purchase Price”) for deposit into the escrow account. The Stock Consideration will be available to satisfy any amounts owed by Sellers or the Shareholders to LSI under this Agreement in accordance with the terms of the Escrow Agreement.

Section 2.3 Closing. The closing (the “Closing”) of the purchase and sale of the Purchased Shares shall take place at the law offices of Stikeman Elliott LLP; 1155 Rene-Levesque Blvd. West; Montreal, QC H3B3V2 shall be effective as of the Closing Date immediately subsequent to the transactions contemplated by the Reorganization Documents. The date of the Closing is sometimes referred to herein as the “Closing Date.” The Closing may also occur on the date of this Agreement by means of electronic data transmission methods including facsimile transmission and PDF e-mail transmission of executed signature pages among the parties, with original executed signature pages to be distributed by overnight courier.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND SELLERS.

Each Seller and each Shareholder, jointly and severally, hereby represents and warrants to LSI as follows:

Section 3.1 Corporate Existence. Each of the Sellers and the Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has the corporate power and lawful authority to own its properties and to transact the business in which it is currently engaged. The minute books containing records of meetings of the Sellers and the Company, their respective shareholders and board of directors, share certificates and share transfer registers are true, accurate and complete. Neither the Sellers nor the Company is in default or in violation of any provision of its articles or bylaws.

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Section 3.2 Corporate Power; Authorization; Enforceable Obligations. Each Seller, the Shareholders and the Company have the power, authority and legal right to execute, deliver and perform their obligations under this Agreement and the Reorganization Documents. The execution, delivery and performance of this Agreement and the Reorganization Documents by each of the Sellers and the Company have been duly authorized by all necessary corporate and shareholder action. This Agreement and the Reorganization Documents have been, and the other agreements, documents and instruments required to be delivered by the Company, the Sellers or the Company in accordance with the provisions hereof will be, duly executed and delivered on behalf of each such party, and this Agreement and the Reorganization Documents constitute, and such documents when executed and delivered will constitute, the legal, valid and binding obligations of each such party, enforceable against such party in accordance with their respective terms, except to the extent that such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect relating to creditors’ rights generally.

Section 3.3 Capital Stock and Ownership of Shares; Subsidiaries. The total number of shares of Capital Stock, and the classes and par values thereof, which the Sellers and the Company are authorized to issue, the number of such shares which are issued and outstanding and the number of such outstanding shares owned by each shareholders of each entity is set forth in Schedule 3.3 attached hereto. Except as set forth on Schedule 3.3, there are no outstanding subscriptions, options, warrants, preemptive rights, voting trust agreements or other contracts, agreements or arrangements restricting voting or dividend rights or transferability or other rights entitling any third party to acquire from the Sellers or the Company any shares of Capital Stock or other securities of such party. The Capital Stock of each of the Sellers and the Company have been duly and validly issued, are fully paid and non-assessable and are owned by the Person set forth in Schedule 3.3 free and clear of any Liens. The Company does not hold any of its shares of Capital Stock in its treasury. The Company has no Subsidiaries.

Section 3.4 Validity of Contemplated Transactions, Needed Consents, etc. Except as set forth on Schedule 3.4, neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated hereby violates, conflicts with or results in the breach of any term, condition or provision of, or requires the consent of any other Person or accelerates the performance required by, or results in the creation of any Lien upon any of the properties or assets of the Sellers or the Company under (a) any existing law, ordinance, or governmental rule or regulation to which any Seller or the Company is subject, (b) any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or authority which is applicable to the Sellers or the Company, or (c) the articles or by-laws of the Sellers or the Company or any securities issued by the Sellers or the Company, or any contract or agreement or gives any party with rights thereunder the right to terminate, modify, accelerate or otherwise change the existing rights or obligations of the Sellers thereunder. No authorization, approval or consent of, and no registration or filing with, any Governmental Authority is required in connection with the execution, delivery or performance of this Agreement by the Company, the Sellers or Shareholders.

Section 3.5 Financial Information. The Sellers have delivered to LSI true and complete copies of each of the following (collectively, the “Financial Statements”): (a) the audited Consolidated balance sheet of Holdings and Saco for the fiscal years ended on or about

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December 31 in the years 2004 and 2005 and the related statements of income, cash flow and shareholders’ equity for the fiscal years then ended, (b) the unaudited balance sheet of Canco for the fiscal years ended on or about December 31 in the years 2004 and 2005 (c) the unaudited consolidated and consolidating balance sheets and the related statements of income, changes in stockholders’ equity, and cash flow for each of the Sellers as of and for the four months ended April 30, 2006 (the “Most Recent Balance Sheets”); and (d) the unaudited opening balance sheet of the Company reflecting the assets and Liabilities of the Company as of the Closing (the “Opening Balance Sheet”). The Financial Statements, including the related notes, fairly present the financial position of the Sellers, the Company and the Business at the dates indicated and the results of operations, cash flow and shareholder’s equity of the Sellers for the periods then ended, in conformity with GAAP, and correct and complete and are consistent with the books and records of the Sellers; provided however, that to the extent the Financial Statements have not been audited, such Financial Statements may not contain all footnotes required by GAAP.

Section 3.6 Undisclosed Liability. The Company does not have any Liabilities and there is no basis for any pending or future suit, action, proceeding, hearing, investigation, charge, complaint, demand or claim against the Company giving rise to any Liabilities, except for (i) Liabilities set forth on the Opening Balance Sheet, and (ii) those Liabilities and obligations of the Sellers arising under the agreements, contracts and commitments set forth on Schedules 3.11 and 3.17. Notwithstanding anything in this Agreement to the contrary, the Company is not liable for any Liabilities or obligations of Sellers relating to any tort, product liability, environmental liability, taxes, or breach of contract. Without limiting the generality of the foregoing and notwithstanding any other provision hereof, each of the following is a Liability of the Sellers for which the Company is not liable:

(a) any of the Sellers’ or Shareholders’ obligations under the Reorganization Documents;

(b) any claims or actions alleging or relating to any tort, product liability, environmental liability, or breach of contract arising as a result of Sellers’ operation of the Business;

(c) any liability of the Sellers for Taxes;

(d) any liability or obligation of the Sellers under any agreement or contract which is not listed on Schedules 3.11 and 3.17;

(e) any liability arising out of the employment or termination of employment, in either case prior to the Closing Date, of any person employed in the Business; and

(f) any liability arising out of the litigation set forth on Schedule 3.9.

Section 3.7 Tax and Other Returns and Reports.

(a) The Sellers and the Company have timely filed with the appropriate taxing authorities all returns (including, without limitation, information returns and other material information) in respect of Taxes required to be filed through the date hereof. At the time they were filed, all such returns were complete and accurate in all material respects. For purposes of

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this Section 3.7, the term the “Company” shall be deemed to include any predecessor of the Company or any persons or entity from which the Company incurs a liability for Taxes as a result of transferee liability. Neither the Sellers, the Company nor any group of which the Sellers or the Company are now or were a member has requested any extension of time within which to file returns (including, without limitation, information returns) in respect of any Taxes.

(b) All Taxes, in respect of periods beginning before the Closing Date, have been paid, or an adequate reserve has been established therefor, and neither the Sellers nor the Company has any Liability for Taxes in excess of the amounts so paid or reserves so established.

(c) No material deficiencies for Taxes have been claimed, proposed or assessed by any taxing or other Governmental Authority, which deficiencies have not been paid. There are no pending or, to the best of the Sellers’ Knowledge, threatened audits, investigations or claims for or relating to any liability in respect of Taxes, and there are no matters under discussion with any Governmental Authorities with respect to Taxes that, in the reasonable judgment of the Sellers or the Shareholders is likely to result in an obligation by the Sellers, the Company or LSI to pay any additional amount of Taxes. The Sellers have not received written notice that any taxing authority intends to audit a return for any period. No extension of a statute of limitations relating to Taxes is in effect with respect to any Seller or the Company.

(d) Each Seller and the Company have withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party

Section 3.8 Title to and Condition of Properties. Schedule 3.8 hereto contains a true and complete list of all of the real (or immoveable) property used or useable by the Company or its Predecessors in the operation of the Business (the “Real Property”). Canco has good, valid and marketable title to all of the Real Property. Without limiting the generality of the foregoing, the Company has good and marketable title to all of the assets shown on the Opening Balance Sheet, free and clear of any Liens. Copies of any existing title insurance policies have been, or shall be, delivered to LSI upon execution of this Agreement. All of the Real Property and the buildings located thereon are in material compliance with applicable zoning laws and regulations. The Real Property and the structures and buildings owned or leased by the Company, and the mechanical components (including HVAC systems), roofs, fixtures and equipment located therein or thereon, are now, and at the Closing Date will be, in good operating condition and repair, subject only to normal maintenance and repair, fit for the uses for which they are intended, and no necessary repairs will need to be made as of the Closing Date to continue the use of such buildings and structures as presently used. There are no outstanding options, rights of first refusal to purchase any Real Property, and there are no leases, subleases, licenses, or other agreements granting to any party or parties the right of use or occupancy of any portion of the Real Property.

Section 3.9 Litigation. Except for those matters set forth on Schedule 3.9, no litigation, arbitration, action, suit, investigation or other proceeding of or before any court, arbitrator or Governmental Authority, is pending or, to the Knowledge of the Sellers, threatened against the Shareholders, the Sellers, or the Company, at law or in equity. To the Sellers’

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Knowledge, each product manufactured, sold, leased or distributed by the Sellers was (at the time of its sale, manufacture, lease or distribution) conformity in all material respects with all applicable contractual commitments and all expressed and implied warranties. The Company does not have any Liabilities in excess of the Liabilities set forth in the Opening Balance Sheet for any guaranty, warranty or other indemnity arising from products manufactured, sold, leased or distributed by the Sellers.

Section 3.10 Insurance. Schedule 3.10 sets forth a list of each insurance policy (including policies providing property, casualty, liability, workers’ compensation, and bond and surety arrangements) under which any of the Predecessors was previously insured and under which the Company is presently an insured, a named insured or otherwise a principal beneficiary of coverage, including all bonds and letters of credit whether provided by the Shareholders or the Predecessors. With respect to each such insurance policy, bond or letter of credit:

(a) the policy, bond or letter of credit is legal, valid, binding and enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy and insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and, except for policies that have expired under their terms in the ordinary course, and each such policy, bond or letter of credit is in full force and effect;

(b) neither the Predecessors or the Company are in breach or default of such policy, bond or letter of credit (including any breach or default with respect to the payment of premiums or the giving of notice), and no event has occurred which, with notice or the lapse of time, would constitute such a material breach or material default or permit termination or modification under the policy; and

(c) no party to the policy, bond or letter of credit has, to the Sellers’ Knowledge repudiated, or given notice of an intent to repudiate, any provision thereof.

Section 3.11 Contracts and Commitments.

(a) Schedule 3.11 contains a complete and accurate list of each material contract and agreement related to the Business, whether oral or in writing, (such contracts and agreements, together with all agreements relating to Intellectual Property set forth in Schedule 3.17, being herein referred to as “Material Contracts”), including without limitation each of the following:

(i) each contract and agreement for the purchase of Inventory under the terms of which the Company: (A) is required to pay or otherwise give consideration of more than $10,000 in the aggregate after the Closing Date, and (B) which cannot be cancelled by the Company without penalty and without more than 30 days’ notice;

(ii) each contract and agreement for the sale of products or for the furnishing of services by the Company: (A) pursuant to which the Company is to receive consideration of more than $10,000 in the aggregate after the Closing Date, and (B) which cannot be cancelled by the Company without penalty and without more than 30 days’ notice;

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(iii) all employment agreements, service agreements or other contracts (including without limitation severance agreements and arrangements) with employees, independent contractors, consultants or similar individuals or entities to which the Company is a party or is bound;

(iv) all contracts and agreements relating to Indebtedness or Liabilities of the Company;

(v) all contracts and agreements with any Governmental Authority to which the Company is a party, including record retention agreements and powers of attorney;

(vi) all contracts and agreements that limit or purport to limit the ability of the Company to compete in any line of business or with any Person or in any geographic area or during any period of time;

(vii) all contracts and agreements between or among the Company and any Shareholder or any Affiliate of a Shareholder; and

(viii) all agreements for the purchase, sale, lease or improvements of real property, and capital expenditures.

(b) Except as disclosed in Schedule 3.11, each Material Contract:

(i) is valid and binding on and enforceable against the Company and, to the Sellers’ Knowledge, on the other respective parties thereto and is in full force and effect, and all of the rights of the Predecessors in such Material Contracts have been or will be prior to the Closing validly assigned to the Company; and

(ii) neither the Sellers nor the Company are in breach of, or in default under, any Material Contract and no event or action has occurred, is pending, or to the Knowledge of the Sellers, is threatened, which after the giving of notice, or the lapse of time, or otherwise, will constitute or result in a breach or default by the Company.

(iii) to the best of the Sellers’ Knowledge, no other party to any Material Contract is in material breach thereof or material default thereunder.

(c) There is no contract, agreement or other arrangement granting any Person any preferential right to purchase, other than in the ordinary course of business consistent with past practice, any of the properties or assets of the Company.

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Section 3.12 Customers and Suppliers.

(a) Schedule 3.12(a) lists the five (5) largest customers of the Sellers in connection with the Business (on a consolidated basis) for each of the two most recent fiscal years and sets forth opposite the name of each such customer the percentage of consolidated net sales of the Sellers in connection with the Business attributable to such customer. Schedule 3.12(a) also lists any additional current customers that the Sellers anticipate shall be among the five (5) largest customers of the Company for the current fiscal year (it being agreed that neither the Sellers nor the Company shall be liable for any failure of such customers to meet such expectation).

(b) Schedule 3.12(b) lists (a) all material suppliers of products used, sold, or distributed by the Predecessors and the Company, (b) all agreements, contracts or arrangements for such products, (c) any rebate arrangements which exist between the Company and such suppliers; and (d) all notifications of price increases or rebate reductions or discount reductions from such suppliers.

(c) Except as set forth on Schedule 3.12(c):

(i) There has not been any material adverse change since December 31, 2005 and, to the Knowledge of Sellers, there are no facts which would reasonably be expected to indicate that any material adverse change will occur in the business relationship of the Sellers or the Company with any customer or supplier named on Schedules 3.12(a) or 3.12(b).

(ii) Neither the Company nor any Seller is engaged in any material disputes with any customer or supplier and, to Sellers’ Knowledge, there is no reason to believe that any customer or supplier intends to discontinue or adversely modify its relationship with the Business after the Closing Date. In addition, no Seller has any Knowledge that any customer or group of customers is materially dissatisfied with the services provided by the Business as operated by the Sellers or the Company.

Section 3.13 Employees.

(a) To the Knowledge of the Sellers, the Company and its Predecessors have complied, and are in compliance, with all applicable Laws relating to employment and labour matters, including any provision thereof relating to wages, hours of work, vacation pay, pay equity, overtime pay, occupational health and safety and employment standards. Except as set forth in Schedule 3.13:

(i) there is no collective agreement in force with respect to the employees of the Company, no collective agreement is currently being negotiated by the Company, no union or employee bargaining agent holds bargaining rights with respect to any employees of the Company, and there are no current or, to the Sellers’ Knowledge, threatened attempts to organize or establish any trade union or employee association with respect to the Company, nor have there been any such attempts with respect to any of the Predecessors within the past three (3) years;

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(ii) neither the Company nor its Predecessors have engaged in any unfair labour practice. There is no unfair labour practice complaint pending or, to the Sellers’ Knowledge, threatened against the Company and there is no labour strike, slow down, work stoppage or lockout in effect, or to the Sellers’ Knowledge, threatened against the Company or its Predecessors, nor has there been any such event within the past three (3) years;

(iii) all amounts due and owing or accrued as due but not yet owing for all salary, wages, bonuses, commissions, vacation pay, pension benefits or other employee benefits have been paid or, if accrued, are reflected in the books and records of the Sellers and the Company;

(iv) neither the Sellers nor the Company are subject to any claim for wrongful dismissal, constructive dismissal or any other claim, grievance, complaint or litigation relating to employment, discrimination or termination of employment of any of their employees or former employees, or relating to any failure to hire a candidate for employment;

(v) no order has been issued against the Sellers or the Company pursuant to any Law requiring the taking of any action or the refraining from taking any action in respect of any employee or former employee of the Sellers or the Company;

(vi) there are no outstanding loans made by the Sellers or the Company to any employee or former employee of the Sellers or the Company; and

(vii) to the Sellers’ Knowledge, no managerial or other employee of the Sellers or the Company has any plans to terminate his, her or their employment with the Sellers or the Company.

(b) Schedule 3.13 contains for all employees, directors, managers, officers, contractors, consultants and agents of the Predecessors and the Company, the following correct and complete lists on a no-name basis:

(i) a list of all salaries, wage rates, hourly pay rates, commissions and consulting fees, incentive compensation, bonus arrangements, deferred compensation and benefits in effect;

(ii) a list of their job titles;

(iii) their status as full-time, part-time or consultant;

(iv) their employer immediately prior to the Reorganization;

(v) a list of their number of years of service; and

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(vi) a list indicating how many individuals are, as of the Closing Date, laid-off or on a leave of absence with the reasons for any such leave of absence.

Section 3.14 Employee Benefit Plans and Arrangements. Except as set forth on Schedule 3.14, neither the Sellers or the Company maintain any Employee Benefit Plans. The Sellers have furnished to LSI true, correct and complete copies of all such Employee Benefit Plans as amended as of the date hereof. All of the Employee Benefit Plans are and have been established, registered, qualified, invested and administered, in all respects, in accordance with their terms and all Laws, including all tax Laws where same is required for preferential tax treatment. To the Knowledge of the Sellers, no fact or circumstance exists that could adversely affect the preferential tax treatment ordinarily accorded to any such Employee Benefit Plan. No commitments to improve or otherwise amend any Employee Benefit Plan have been made except as required by applicable Laws. None of the Employee Benefit Plans provide post-employment benefits or benefits to retired employees or to the beneficiaries or dependants of retired employees. No Employee Benefit Plan exists that could, as a result of the transactions contemplated by this Agreement, result in (i) the payment to any Person of any money, benefits or other property, (ii) accelerated or increased funding requirements for any Employee Benefit Plan or (iii) the acceleration or provision of any other increased rights or benefits to any person.

Section 3.15 Environmental Matters.

(a) Schedule 3.15 lists all Environmental Permits presently held by the Company and those Environmental Permits held by the Sellers immediately prior to the Reorganization. The Company currently holds all Environmental Permits necessary or proper for the conduct of the Business and the operation and use of the assets of the Business where the failure to have and maintain such Environmental Permits would have a Material Adverse Effect on the Business and all such Environmental Permits are in full force and effect. The Sellers have not received any notice from any Governmental Authority revoking, canceling, rescinding, modifying, refusing to renew or threatening to revoke, cancel, rescind, modify or refuse to renew any Environmental Permit or providing written notice of violations under any Environmental Laws. The Company is presently in compliance with the Environmental Permits and the requirements of the Environmental Permits.

(b) Except as disclosed in Schedule 3.15:

(i) Hazardous Substances, during the ownership (or occupation, as applicable) of the Real Property (1) have not been released on, at, in, under or from any Real Property and to the Sellers’ Knowledge any real property owned, leased or used by the Predecessors in the operation of the Business, except in material compliance with all Environmental Laws, and (2) have not been generated, used, handled or stored on, or transported to or from, any Real Property, except in material compliance with all Environmental Laws.

(ii) no part of the Real Property contains any Hazardous Substance which exceeds an applicable soil, groundwater or other environmental, health or safety criteria or standard published or enacted by a Governmental Authority having jurisdiction over the Real Property, whether or not such criteria or standard constitutes Environmental Law;

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(iii) the Predecessors and the Company have disposed of all Hazardous Substances in compliance with all applicable Environmental Laws and Environmental Permits;

(iv) there are no pending or, to the Sellers’ Knowledge, threatened Environmental Claims against the Predecessors or the Company or any Real Property and neither the Predecessors nor the Company have received any written notice and to the Sellers’ Knowledge, there are no facts that could reasonably be expected to give rise to any notice of any such Environmental Claims;

(c) to the Sellers’ Knowledge, there are not currently any USTs located on any Real Property, asbestos containing material in any form, materials or equipment containing polychlorinated biphenyls or landfills or disposal areas.

(d) the Sellers have provided LSI with copies of all audits, studies, reports, analysis and other documents with respect to the Business, the assets of the Business and the Real Property and relating to environmental matters obtained by, or in the possession or control of the Predecessors and all such audits, studies, reports, analysis and documents are set forth in Schedule 3.15(d).

Section 3.16 Compliance With Laws; Operating Permits, etc. The Predecessors and the Company have complied with all applicable Laws and no Action has been filed or commenced against any of them alleging any failure so to comply. Schedule 3.16 lists all Operating Permits, presently held by the Company and those Operating Permits held by the Sellers immediately prior to the Reorganization. Except as set forth on Schedule 3.16 hereof, neither the Predecessors, the Company nor the Business have been operated in violation of any Law, including Environmental Laws. The Company currently holds all Operating Permits necessary or proper for the conduct of the Business as currently conducted and the operation and use of its assets as currently used and operated and all such Operating Permits are in full force and effect. Neither the Sellers, the Shareholders nor the Company have received any written notice from any Governmental Authority revoking, canceling, rescinding, materially modifying or refusing to renew any Operating Permit, or providing written notice of violations under any Law. The Business has been and continues to be operated in compliance with the Operating Permits.

Section 3.17 Intellectual Property.

(a) The Company owns or possesses or has the right to use pursuant to a valid and enforceable, written license, sublicense, agreement, or permission all Intellectual Property necessary or desirable for the operation of the Business as presently conducted, as presently proposed to be conducted. Each item of Intellectual Property owned or used by the Predecessors immediately prior to the Reorganization will be owned or available for use by the Company on identical terms and conditions immediately subsequent to the Closing hereunder. The Predecessors and the Company have taken all necessary and desirable action to maintain and protect each item of Intellectual Property that it owns or uses.

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(b) Neither the Predecessors or the Company have interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of third parties, and no Shareholder and no director or officer (or employee with responsibility for Intellectual Property matters) of any Seller has ever received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation (including any claim that a Seller must license or refrain from using any Intellectual Property rights of any third party). To the Knowledge of any Seller, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of the Sellers or the Company.

(c) Schedule 3.17(c) identifies each patent, trademark, tradename or other registration which has been issued to a Seller or the Company with respect to any of its Intellectual Property, identifies each pending patent application or application for registration which any Seller has made with respect to any of its Intellectual Property, and identifies each license, sublicense, agreement, or other permission which any Seller has granted to any third party with respect to any of its Intellectual Property (together with any exceptions). The Sellers have delivered to LSI correct and complete copies of all such patents, registrations, applications, licenses, sublicenses, agreements, and permissions (as amended to date) and has made available to LSI correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such item. Schedule 3.17(c) also identifies each material unregistered trademark, service mark, trade name, corporate name or Internet domain name, computer software item (other than commercially available off-the-shelf software purchased or licensed for less than $1,000 per license) and each material unregistered copyright used by the Sellers. With respect to each item of Intellectual Property required to be identified in Schedule 3.17(c):

(i) the Sellers own and possess all right, title, and interest in and to the item, free and clear of any Lien, license, or other restriction or limitation regarding use or disclosure;

(ii) the item is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge;

(iii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or, to the Sellers’ Knowledge, is threatened which challenges the legality, validity, enforceability, use, or ownership of the item, and there are no grounds for the same;

(iv) the Sellers have not ever agreed to indemnify any Person for or against any interference, infringement, misappropriation, or other conflict with respect to the item; and

(v) no loss or expiration of the item is pending, or reasonably foreseeable or to the Sellers’ Knowledge threatened, except for patents expiring at the end of their statutory terms (and not as a result of any act or omission by the Shareholders, the Sellers or the Company, including without limitation, a failure by the Shareholders, the Sellers or the Company to pay any required maintenance fees).

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(d) Schedule 3.17(c) identifies each item of Intellectual Property that any third party owns and that the Predecessors have used or the Company uses pursuant to license, sublicense, agreement, or permission. The Sellers have delivered to LSI correct and complete copies of all such licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each item of Intellectual Property required to be identified in Schedule 3.17(c):

(i) the license, sublicense, agreement, or permission covering the item is legal, valid, binding, enforceable, and in full force and effect;

(ii) the license, sublicense, agreement, or permission will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following consummation of the transactions contemplated hereby;

(iii) none of the Sellers and the Company are, and to the Sellers’ Knowledge no other party to the license, sublicense, agreement, or permission is in breach or default and no event has occurred to the Sellers’ Knowledge which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration thereunder;

(iv) no party to the license, sublicense, agreement, or permission has to the Sellers’ Knowledge repudiated any provision thereof;

(v) to the Sellers’ Knowledge, with respect to each sublicense, the representations and warranties set forth in subsections (i) through (iv) above are true and correct with respect to the underlying license;

(vi) the underlying item of Intellectual Property is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge;

(vii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or is to the Sellers’ Knowledge threatened that challenges the legality, validity, or enforceability of the underlying item of Intellectual Property, and there are no grounds for the same; and

(viii) the Sellers have not granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission.

(e) The Sellers have not in the past nor will the Company in the future interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any Intellectual Property rights of third parties as a result of the continued operation of the Business as presently conducted and, as of the Closing Date, proposed by the Sellers or the Shareholders to be conducted after the Closing Date. There are no facts that indicate a likelihood of any of the foregoing. No notices regarding any of the foregoing (including, without limitation, any demands or offers to license any Intellectual Property from any third party) have been received by the Sellers or the Shareholders.

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(f) The Company and the Sellers have taken all necessary and desirable action to maintain and protect all of the Intellectual Property of the Sellers and the Company and will continue to maintain and protect all of the Intellectual Property of the Company prior to Closing so as not to adversely affect the validity or enforceability thereof. To the Knowledge of Sellers, the owners of any of the Intellectual Property licensed to the Company have taken all necessary and desirable action to maintain and protect the Intellectual Property covered by such license.

(g) The Sellers have complied in all material respects with and the Company is presently in compliance with all Laws applicable to any Intellectual Property and the Sellers and the Company shall take all steps necessary to ensure such compliance until Closing.

(h) No Governmental Authority has any right, title or interest in or to the Intellectual Property used by the Company.

Section 3.18 Sufficiency of the Assets. The assets of the Company: (a) constitute all of the assets, tangible and intangible, of any nature whatsoever, necessary to operate the Business in the manner operated by the Sellers; and (b) include all of the operating assets of the Predecessors that are or have been used in the Business (other than (i) the Tax Receivables; and (ii) the Real Property). Each such tangible asset is free from material defects (patent and latent), has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it presently is used and presently is proposed to be used. The Company has good, valid and marketable title to all of the properties and assets, real, personal and mixed, reflected on the Opening Balance Sheet except for Permitted Liens.

(a) Without limitation to the foregoing, the assets of the Company include each of the following:

(i) all cash and cash equivalents of Saco immediately prior to the Reorganization;

(ii) all Receivables (other than the Tax Receivables) of Saco immediately prior to the Reorganization;

(iii) all office, warehouse and other equipment, machinery, vehicles, fixtures, office materials and supplies, spare parts and other tangible (or movable) personal property of every kind and description owned as of the Closing Date by each Predecessor used or useable in connection with the Business, including without limitation those fixed assets listed on Schedule 3.18(a)(iii);

(iv) all agreements, contracts, indentures, mortgages, instruments, Liens, guaranties, other similar arrangements, and rights thereunder to which any Predecessor is a party used or useable in connection with the Business, including, without limitation those listed on Schedule 3.11;

(v) all of the Predecessors’ right, title and interest in and to Intellectual Property used or useable in connection with the Business, including, without

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limitation, all goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, and rights to protection of interests therein under the laws of all jurisdictions and the right to the name “Saco” or any derivation thereof;

(vi) all customer files and records of the Predecessors related to the Business, including, without limitation, all written technical information, employment records, data, specifications, research and development information, engineering drawings, manuals, computer programs, tapes and software;

(vii) claims, deposits, prepayments, credits, refunds, causes of action, choses in action, rights of recovery, rights of set off, and rights of recoupment (other than the Tax Receivables);

(viii) all of the Predecessors’ goodwill in and going concern value of the Business, and

(ix) all of the Predecessors’ rights to insurance proceeds relating to the assets of the Business.

Section 3.19 Inventory. All items included in the Inventory consist of a quality and quantity usable and, with respect to finished goods, saleable, in the ordinary course of the Business except for obsolete items and items of below-standard quality, all of which have been written off or written down to net realizable value in the Financial Statements or on the accounting books and records of the Sellers as of the Closing Date, as the case may be. The Financial Statements do not count as Inventory, any item of Inventory not owned by the Company, including goods already sold. All of the Inventory has been valued at replacement cost. Inventory now on hand that were purchased after the date of the Financial Statements were purchased in the Ordinary Course of Business of the Sellers or its predecessors at a cost not exceeding market prices prevailing at the time of purchase. The quantities of each item of Inventory (whether raw materials, work-in-process or finished goods) are not excessive but are reasonable in the present circumstances of the Sellers.

Section 3.20 Product Liability. There are no Liabilities (and, to the Knowledge of Sellers, there is no basis for any present action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Predecessors giving rise to any Liabilities) arising out of any injury to any individual or property as a result of ownership, possession, or use of any product manufactured, sold, leased or delivered by the Predecessors. There is no basis for any present action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Company giving rise to any Liability arising out of any injury to any individual or property as a result of ownership, possession, or use of any product manufactured, sold, leased or delivered by the Predecessors.

Section 3.21 Product Warranty. Each product manufactured, sold, leased or delivered by the Sellers have been in conformity to all applicable contractual commitments and all express or implied warranties and the Predecessors do not have any Liabilities (and there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or

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demand giving rise to any Liabilities) for replacement or repair thereunder or other damages in connection therewith. No product manufactured, sold, leased or delivered by the Predecessors is subject to any current warranty or other indemnity beyond the applicable standard terms and conditions of sale or lease.

Section 3.22 Notes and Accounts Receivable. All Receivables of the Company are reflected properly on its books and records in accordance with GAAP, are valid Receivables subject to no setoffs or counterclaims and are collectible and will be collected in accordance with their terms, subject only to the reserve for bad debts on the Opening Balance Sheet. No Receivables are subject to Export Development Canada Accounts Receivables Insurance, nor were any Receivables subject to such insurance in the hands of the Sellers.

Section 3.23 Conduct of Business. Since December 31, 2005, the Business has been conducted only in the ordinary course, and, except as contemplated by this Agreement or as set forth on Schedule 3.23:

(a) there has not been any event which has had a Material Adverse Effect;

(b) other than the Reorganization, there has not been any sale, assignment, transfer, mortgage, pledge, hypothec or lease of any assets of the Predecessors except in the Ordinary Course of Business;

(c) there has not been any issuance, sale or other disposition by the Company or the Predecessors of any shares (other than in connection with the Reorganization), share options, bonds, notes or other securities of the Company or the Predecessors;

(d) there has not been any increase in the rates of direct compensation payable or to become payable by the Sellers or the Company to any officer, employee, agent or consultant, other than routine increases made in the Ordinary Course of Business, or any bonus, percentage compensation, service award or other like benefit, granted, made or agreed to for any such officer, employee, agent or consultant, or any welfare, pension, retirement or similar payment or arrangement made or agreed to which is greater than any such bonus, percentage compensation, service award or other like benefit or any welfare, pension, retirement or similar payment or arrangement existing or made pursuant to arrangements, agreements, or plans existing at December 31, 2005, except as required by existing agreements or laws;

(e) no contract, lease, or license (or series of related agreements, contracts, leases, and licenses) has been entered into by the Company or the Predecessors either involving more than $100,000 or outside the Ordinary Course of Business;

(f) there has not been any acceleration, termination, modification, or cancellation of any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) by any party thereto (including any Predecessor) involving more than $100,000 to which any Predecessor or the Company is a party or by which any of them is bound;

(g) no Lien has been imposed or permitted to exist upon any of Predecessor’s assets, tangible or intangible;

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(h) there has not been any capital expenditure (or series of related capital expenditures) by any Predecessor or the Company either involving more than $100,000 or outside the Ordinary Course of Business;

(i) there has not been any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) made by any Predecessor or the Company;

(j) no Predecessor or the Company has entered into any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation either involving more than $50,000 singly or $100,000 in the aggregate;

(k) no payments of accounts payable and other Liabilities has been delayed by any Predecessor or the Company;

(l) none of the Predecessors or the Company have cancelled, compromised, waived, or released any right or claim (or series of related rights and claims) either involving more than $100,000 or outside the Ordinary Course of Business;

(m) none of the Predecessors or the Company have transferred, assigned, or granted any license or sublicense of any rights under or with respect to any Intellectual Property;

(n) there has not been any change made or authorized in the articles or bylaws of any Predecessor or the Company;

(o) none of the Predecessors or (other than in connection with the Reorganization) the Company have issued, sold, or otherwise disposed of any of its Capital Stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its Capital Stock;

(p) none of the Predecessors or the Company have declared, set aside, or paid any dividend or made any distribution with respect to its Capital Stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its Capital Stock;

(q) there has not been any damage, destruction or loss affecting the properties or business (whether or not covered by insurance) of the Predecessors or the Company having a Material Adverse Effect.

(r) other than the Reorganization, there has not been any other material occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving any Predecessor or the Company; or

(s) none of the Predecessors or the Company have committed to any of the foregoing.

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Section 3.24 Investments. Except as listed on Schedule 3.24, the Company does not own, and the Predecessors have not owned, any Capital Stock or other securities or any other direct or indirect interest or investment in any firm, corporation or other entity (including any joint venture or partnership).

Section 3.25 Affiliate Transactions. Except as disclosed on Schedule 3.25, neither the Shareholders, the Sellers or the Company have, since January 1, 2003, had, directly or indirectly (a) any interest in any Person which purchases from or sells or furnishes to the Business any goods or services; (b) a beneficial interest in any contract, commitment or agreement to which the Sellers were a party, the Company is a party, or by which a Company may be bound or affected; or (c) any interest or claim against the assets of the Company, the Predecessors or the Business.

Section 3.26 Reorganization. The Reorganization has been completed in accordance with the terms and conditions of the Reorganization Documents and the parties’ rights and obligations under the Reorganization Documents with respect to the transactions contemplated by the Reorganization Documents are as fully set forth therein. The Reorganization Documents have not been rescinded, modified or amended since their execution. LSI and its Affiliates are third party beneficiaries to the Sellers’ obligations under the Reorganization Documents.

Section 3.27 Guaranties. The Company is not a guarantor or otherwise responsible for any Liability or obligation (including Indebtedness) of any other Person.

Section 3.28 Powers of Attorney. To the Knowledge of the Sellers, there are no material outstanding powers of attorney executed on behalf of the Company.

Section 3.29 Brokers. All negotiations relative to this Agreement have been carried on by the Shareholders, the Sellers, the Company and their representatives without the intervention of any other Person engaged by it who may be entitled to any brokerage or finder’s fee or other commission in respect of this Agreement or the consummation of the transactions contemplated hereby, except Deloitte Financial Advisory Services, which such fee shall be paid by the Shareholders or Holdings.

Section 3.30 Sale of Fixed Assets. The Transportable Screen and V9 Rental Units set forth as Fixed Assets on Schedule 3.18(a)(iii) will be sold by the Company prior to the first anniversary of the Closing Date on commercially reasonable terms for cash consideration an amount not less than the net book value of such Fixed Assets on such schedule.

Section 3.31 Investment Purpose. Saco and the Shareholders acknowledge that they have had the opportunity to ask questions of and receive information from LSI regarding the purchase of the Stock Consideration and LSI. Saco is accepting the Stock Consideration for investment only and not with a view to resale or other distribution in violation of the Securities Act or other applicable securities laws. Saco and the Shareholders acknowledge that the Stock Consideration is not registered under the securities laws of the United States or Canada or any state or province thereof and is being transferred to such Seller in reliance upon one or more exemptions from the registration requirements made available under such laws, and that the statutory basis for such exemptions may not be present if such Seller has a present intent to

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acquire the Stock Consideration with a view to the distribution thereof in violation of the Securities Act or other applicable securities laws. Neither LSI or its advisors, agents or representatives has made any representations or warranties regarding the future stock price of the Stock Consideration or the future financial performance of LSI.

Section 3.32 Disclosure. No statement of fact by the Sellers or the Shareholders contained in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein contained, in the light of the circumstances under which they were made, not misleading as of the date of which it speaks. There is no fact Known to the Sellers that has not been disclosed in this Agreement, including the Disclosure Schedules hereto, that is reasonably likely to have a Material Adverse Effect on the Company or the Business.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF LSI.

LSI represents and warrants to the Sellers and Shareholders as follows:

Section 4.1 Corporate Existence. LSI is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio.

Section 4.2 Corporate Power and Authorization. LSI has the corporate power, authority and legal right to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by LSI have been duly authorized by all necessary corporate action. This Agreement has been, and the other agreements, documents and instruments required to be delivered by LSI in accordance with the provisions hereof will be, duly executed and delivered by LSI and this Agreement constitutes and when executed and delivered will constitute, the legal, valid and binding obligations of LSI enforceable against LSI in accordance with their respective terms except to the extent that such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect relating to creditors’ rights generally.

Section 4.3 Validity of Contemplated Transactions, etc. Neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated hereby violates, conflicts with or results in the breach of any term, condition or provision of, or requires the consent of any other Person or accelerates the performance required by, or results in the creation of any Lien upon any of the properties or assets of LSI, under (i) any existing law, ordinance, or governmental rule or regulation to which LSI is subject, (ii) any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or authority which is applicable to LSI, (iii) the Articles of Incorporation or Code of Regulations of, or any securities issued by LSI, or (iv) any mortgage, indenture, agreement, contract, commitment, lease, plan or other instrument, document or understanding, oral or written, to which LSI is a party or by which LSI is otherwise bound. No authorization, approval or consent of, and no registration or filing with, any governmental or regulatory official, body or authority is required in connection with the execution, delivery and performance of this Agreement by LSI.

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Section 4.4 Authorized Capital. As of May 1, 2006, there were 30,000,000 LSI Common Shares authorized, of which 20,019,741 LSI Common Shares were issued and outstanding.

Section 4.5 Stock Consideration Deliver to Saco. The Stock Consideration delivered to Saco pursuant to Section 2.2, at the time of such delivery by LSI, will be duly and validly issued and, upon receipt by LSI at the Closing of the share certificates and other transfer documentation representing the Purchased Shares and the Promissory Note pursuant to the terms of this Agreement, will be fully paid and non-assessable.

Section 4.6 SEC Reports.

(a) LSI has timely filed with the Commission all materials and documents required to be filed subsequent to January 1, 2005 by LSI under the Securities Act and under the Exchange Act. All the materials and documents filed by LSI since January 1, 2005 are hereinafter referred to as the “LSI SEC Reports.” The LSI SEC Reports, copies of which have been delivered to the Sellers, are true and correct in all material respects, including the financial statements and the related notes, and other financial information contained therein, and do not omit to state any material fact necessary to make the statements in such LSI SEC Reports, in light of the circumstances in which they were made, not misleading. The financial statements included in the LSI SEC Reports fairly present the financial condition and the results of operations, changes in shareholders’ equity and cash flow of LSI and its subsidiaries as at the respective dates of and for the periods referred to in such financial statements, all in accordance with United States generally accepted accounting principles.

(b) LSI has been and is in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder (the “Sarbanes-Oxley Act”). No officer or director of LSI is currently indebted to LSI or any of its Subsidiaries, except as permitted by applicable Law.

(c) LSI has designed and maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) to ensure that material information relating to it and its consolidated Subsidiaries is made known to its principal executive officer and principal financial officer by others within those entities.

(d) LSI has designed and maintains a system of internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (within the meaning of such terms under the Sarbanes-Oxley Act). LSI’s chief executive officer and chief financial officer have disclosed, based on their most recent evaluation, to LSI’s auditors and the audit committee of LSI’s Board of Directors (i) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect in any material respect LSI’s ability to record, process, summarize and report financial information and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in its internal controls over financial reporting.

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Section 4.7 Brokers. All negotiations relative to this Agreement have been carried on by it directly without the intervention of any Person engaged by it who may be entitled to any brokerage or finder’s fee or other commission in respect of this Agreement or the consummation of the transactions contemplated hereby except J. Jeffrey Brausch & Company, which such fee shall be paid by LSI.

Section 4.8 Disclosure. No statement of fact by LSI contained in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein contained, in the light of the circumstances under which they were made, not misleading as of the date of which it speaks.

ARTICLE V

SURVIVAL OF REPRESENTATIONS AND WARRANTIES.

Section 5.1 Survival of Representations and Warranties. Except for the representations and warranties contained in Sections 3.1, 3.2, 3.3 and 3.4 which shall survive indefinitely and Sections 3.7, 3.14 and 3.15 hereof which shall survive until the expiration of the applicable statute of limitations (giving effect to any waiver or extensions thereof) plus 30 days, all representations and warranties made by the parties in this Agreement or in any certificate, schedule, document or instrument furnished pursuant to the terms of this Agreement, shall terminate eighteen (18) months from the Closing Date. The decision of any party to complete the Closing shall not act as a waiver of the right of such party to rely upon the representations and warranties or any other right set forth herein.

ARTICLE VI

STOCK CONSIDERATION

Section 6.1 LSI Common Shares to be Issued. The Stock Consideration will not be registered under the Securities Act at the time of issuance and will be issued pursuant to an exemption from registration. As a result, such shares must be held indefinitely unless subsequently registered under the Act or unless an exemption from such registration is available. Except as provided by the Registration Rights Agreement, LSI assumes no obligation to register the Stock Consideration. Sales of the Stock Consideration may be made in reliance upon Commission Rules 145 and 144 under the Securities Act pursuant to the terms and conditions of those rules. LSI will supply the holders of such Stock Consideration with such information as is necessary to enable them to make sales of the Stock Consideration under Commission Rules 145 and 144 under the Securities Act.

Section 6.2 Restrictive Legend. The certificates for the Stock Consideration will each bear a legend substantially as follows:

The securities represented by this Certificate have not been registered under the Securities Act of 1933 or the laws of any state and may not be transferred in the absence of (a) an effective registration statement for the securities under the Securities Act of 1933 and applicable state laws or (b) an opinion of counsel acceptable to the Sellers that such registration is not required.

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Section 6.3 Information. The Sellers and the Shareholders acknowledge receipt of the LSI SEC Reports. The Sellers and the Shareholders acknowledge the willingness of LSI to provide appropriate officers to answer any questions that the Shareholders or Sellers may have with respect to the contents of such documents.

Section 6.4 Restricted Securities. The Stock Consideration will cease to be restricted when they have been effectively registered under the Act and disposed of in accordance with that registration or sold pursuant to Rules 144 or 145 under the Securities Act or they have been otherwise transferred and new certificates representing such securities have been delivered which do not bear any legend restricting their transfer and such securities are not subject to any stop transfer order or other restriction on transfer.

ARTICLE VII

CONDITIONS PRECEDENT TO THE CLOSING

Section 7.1 Conditions Precedent to LSI’s Obligations. All obligations of LSI under this Agreement are subject to the fulfillment or satisfaction, prior to or at the Closing, of each of the following conditions precedent:

(a) Representations and Warranties True as of the Closing Date. The representations and warranties of the Shareholders and the Sellers contained in this Agreement or in any schedule, certificate or document delivered by the Shareholders or Sellers to LSI pursuant to the provisions hereof shall be true and correct on the Closing Date with the same effect as though such representations and warranties were made as of such date.

(b) Compliance with this Agreement. The Sellers shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing.

(c) No Pending Litigation. On the Closing Date, no suit, action, investigation or other proceeding, or injunction or final judgment relating thereto, shall be pending or threatened by any governmental or regulatory commission, agency, body or authority or by any other Person before any court or governmental or regulatory official, body or authority in which it is sought to restrain, prohibit or challenge the consummation of the transactions contemplated hereby and the operation of the Sellers.

(d) Third Party Consents. The Sellers and the Company shall have procured all of the third-party consents specified on Schedule 3.4, except for the consents required by National Bank of Canada and ANC Sports Enterprises, LLC.

(e) Items to be Delivered at Closing by Sellers. At the Closing and subject to the terms and conditions herein contained, the Shareholders and the Sellers shall deliver to LSI the following:

(i) certificates evidencing the Purchased Shares duly endorsed in blank or with stock powers duly executed by Saco;

(ii) the Promissory Note duly endorsed for transfer to LSI;

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(iii) true, accurate and complete copies of the Reorganization Documents, certified as such by the Sellers and the Shareholders;

(iv) articles of incorporation, bylaws and any other constating documents of the Sellers, certified as of a date not earlier than ten days prior to the Closing Date by the Secretary of such Seller;

(v) certified copies of minutes or unanimous written consents of the shareholders of the Sellers and the Board of Directors of the Sellers, respectively, approving the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated under this Agreement;

(vi) certificate from the Sellers dated the Closing Date, certifying in such detail as LSI may reasonably request that the conditions specified in Sections 7.1(a), 7.1(b) and 7.1(c) hereof have been fulfilled;

(vii) opinion of Davies Ward Phillips & Vineberg LLP, counsel for the Shareholders and the Sellers, dated the Closing Date, in form and substance satisfactory to LSI and its counsel regarding the effects of the transaction contemplated by this Agreement; and

(viii) such other documents to be delivered by Sellers hereunder or as LSI or its counsel may reasonably request to carry out the purpose of this Agreement.

(f) Management. The Company shall have entered into the Employment Agreements with the Key Employees, which terms and conditions shall include an agreement not to compete with LSI or its Affiliates and an agreement not to solicit their customers or employees for a minimum term of two years after the termination of employment with LSI or its Affiliates.

(g) Lease Agreement. The Company shall have entered into a Lease Agreement for the Real Property with Canco on terms and conditions reasonably satisfactory to LSI and Canco.

(h) Escrow Agreement. LSI, Saco and the Escrow Agent shall have entered into an Escrow Agreement on terms and conditions reasonably satisfactory to such parties, and Saco shall have delivered to the Escrow Agent stock transfer powers duly executed by Saco in blank.

(i) Registration Rights Agreement. LSI and Saco shall have entered into a Registration Rights Agreement on terms and conditions reasonably satisfactory to the parties thereto.

LSI shall have the right to waive any of the foregoing conditions precedent.

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Section 7.2 Conditions Precedent to the Obligations of Sellers. All obligations of the Shareholders and Sellers under this Agreement are subject to the fulfillment or satisfaction, prior to or at the Closing, of each of the following conditions precedent:

(a) Representations and Warranties True as of the Closing Date. The representations and warranties of LSI contained in this Agreement or in any list, certificate or document delivered by LSI to Sellers pursuant to the provisions hereof shall be true and correct on the Closing Date with the same effect as though such representations and warranties were made as of such date.

(b) Compliance with this Agreement. LSI shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing.

(c) No Pending Litigation. On the Closing Date, no suit, action or other proceeding, or injunction or final judgment relating thereto, shall be pending or threatened before any court or governmental or regulatory official, body or authority in which it is sought to restrain or prohibit the consummation of the transactions contemplated hereby.

(d) Items to be Delivered at Closing by LSI. LSI shall deliver the following to Saco:

(i) the Cash Consideration;

(ii) certified copies of minutes or unanimous written consents of the Board of Directors of LSI approving the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated under this Agreement;

(iii) certificate from LSI dated the Closing Date certifying in such detail as Sellers may reasonably request that the conditions specified in Sections 7.2(a), 7.2(b) and 7.2(c) hereof have been fulfilled; and

(iv) such other documents to be delivered by LSI hereunder or as Sellers or its counsel may reasonably request to carry out the purposes of this Agreement.

(e) Escrow Agreement. LSI, Saco and the Escrow Agent shall have entered into an Escrow Agreement on terms and conditions satisfactory to such parties, and LSI shall have delivered to the Escrow Agent duly executed certificates evidencing the Stock Consideration, in definitive form and registered in the name of Saco.

(f) Registration Rights Agreement. LSI and Saco shall have entered into a Registration Rights Agreement on terms and conditions reasonably satisfactory to the parties thereto.

(g) Legal Opinion. Saco shall have received an opinion dated as of the Closing Date from Keating Muething & Klekamp PLL, in such form as Saco or its counsel may

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reasonably request, that the Stock Consideration delivered by LSI to Saco at the Closing pursuant to Sections 2.2 and 7.2(d) are, at the time of such delivery by LSI, duly and validly issued and, upon receipt by LSI at the Closing of the share certificates and other transfer documentation representing the Purchased Shares pursuant to Sections 2.1 and 7.1(e), are fully paid and non-assessable.

The Shareholders and the Sellers shall have the right to waive any of the foregoing conditions precedent.

Section 7.3 Consummation of Agreement. The Shareholders, the Sellers and LSI shall each use their respective best efforts to perform and fulfill all obligations on each of their parts to be performed and fulfilled under this Agreement, and to cause all of the conditions precedent to the consummation of the transactions contemplated by this Agreement to be met.

Section 7.4 Further Assurances. After the Closing, each of the parties hereto will cooperate with the other and execute and deliver to the other parties hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party hereto as necessary to carry out, evidence and confirm the intended purposes of this Agreement.

Section 7.5 Amendment to Articles. Promptly after Closing, the Shareholders shall cause Saco to file an amendment to the Articles of Incorporation and other organizational documents of Saco changing its name to a name dissimilar from “Saco” or “Saco Technologies”.

ARTICLE VIII

SHAREHOLDER RESTRICTIVE COVENANTS

Section 8.1 Unfair Competition. Each Shareholder and Saco warrants and agrees that beginning on the Closing Date and ending on the seventh (7^th) anniversary of the Closing Date (together, the “Non-Competition Period”), that such Person shall not:

(a) directly or indirectly, for himself or on behalf of or in conjunction with any other Person, without the prior written consent of LSI:

(i) acquire or have any interest in, whether as a proprietor, partner, co-venturer, financier, or investor, any person, firm, partnership, corporation, association, limited liability company, or other entity that directly or through an Affiliate, either (A) offers, solicits, provides, or engages in a Conflicting Business or (B) to the Shareholder’s Knowledge, intends to offer, solicit, provide or engage in Conflicting Business; or

(ii) be employed by or accept new employment, to serve as director, officer, servant, agent, representative or otherwise to any Person that directly or through an Affiliate, either (A) offers, solicits, provides, or engages in Conflicting Business or (B) to the Shareholder’s Knowledge, intends to offer, solicit, provide or engage in a Conflicting Business. However, nothing contained herein shall be deemed to prevent a Shareholder from acquiring through market purchases and owning, solely as an investment, less than two percent (2%) in the aggregate of

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any publicly-traded equity securities, provided that (i) the ownership interest in such entity is passive, and (ii) the Shareholder does not directly or indirectly participate in the management or operations of such entity. Each Shareholder agrees that the Business is conducted worldwide, and that this Section 8.1 applies to the Shareholders’ activities in the United States, Canada and any other country in which the Sellers’ products have been sold, leased or distributed in the 12 months preceding the Closing Date.

(iii) without the prior written consent of LSI, directly, indirectly, or in concert with any other Person, whether as a proprietor, partner, co-venturer, financier, investor, director, officer, employer, employee, servant, agent, representative or otherwise (A) request, induce, or attempt to induce any customer or supplier of LSI or any of its Affiliates to terminate its relationship with LSI or any of its Affiliates; (B) solicit, contact, participate in or offer to participate any Conflicting Business for any customer of LSI or any of its Affiliates; or (C) interfere with or disrupt, or attempt to interfere with or disrupt, the relationship, contractual or otherwise, between LSI or its Affiliates and any customer, supplier or employee of LSI or its Affiliates;

(iv) without the prior written consent of LSI, directly, indirectly, or in concert with any other Person, whether as a proprietor, partner, co-venturer, financier, investor, director, officer, employer, employee, servant, agent, representative or otherwise offer employment to or solicit (directly or indirectly, individually or in connection with any new employer or other business partner) any individual who is an employee of LSI or its Affiliates regardless of who initiates the contact or how the Person comes to the Shareholder’s attention.

(b) It is agreed by the parties that the foregoing covenants in this Section 8.1 impose a reasonable restraint on the Shareholders in light of the activities and business of LSI and its Affiliates on the date of the execution of this Agreement and the current plans of LSI. The Shareholders acknowledge that, in light of the significant benefit received by the Shareholders as a result of the parties entering into this Agreement, the covenants in this Section 8.1 shall not prevent the Shareholders from earning a livelihood upon the termination of employment hereunder, but merely prevents unfair competition with LSI and its Affiliates for a limited period of time.

(c) The covenants in this Section 8.1 are severable and separate, and the unenforceability of any specific covenant shall not affect the provisions of any other covenant. In the event any court of competent jurisdiction shall determine that the scope, time or territorial restrictions set forth herein are unreasonable, then it is the intention of the parties that such restrictions be enforced to the fullest extent that such court deems reasonable, and this Agreement shall thereby be reformed.

(d) All of the covenants in this Section 8.1 shall be construed as an agreement independent of any other provision in this Agreement, and the existence of any claim or cause of action of the Shareholders against LSI or its Affiliates, whether predicated in this Agreement or otherwise, shall not constitute a defense to the enforcement by LSI of such covenants.

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Section 8.2 Confidential Information.

(a) Each Shareholder acknowledges that, by reason of the Shareholder’s association with the Business, the Shareholders had access to confidential information which shall be owned by the Company, LSI and their Affiliates upon consummation of the transactions contemplated by this Agreement, including, without limitation, information and knowledge pertaining to products, services, benefits, policies, inventions, discoveries, improvements, innovations, designs, ideas, trade secrets, proprietary information, advertising, marketing, distribution and sales methods, sales and profit figures, customer and client lists and relationships between LSI and its Affiliates and regulators, sales representatives, distributors, customers, clients, business partners, suppliers and others who have business dealings with them (collectively, “Confidential Information”). Each Shareholder acknowledges that any information and materials received by LSI and its Affiliates from third parties in confidence (or subject to nondisclosure or similar covenants) shall be deemed to be and shall be Confidential Information within the meaning of this Section 8.2. Each Shareholder further acknowledges that upon Closing such Confidential Information shall be a valuable and unique asset of the Company and its Affiliates and covenants that, both during and after the Non-Competition Period, such Shareholder will not disclose any Confidential Information to any third party without the prior written authorization of the Chief Executive Officer of LSI. The obligation of confidentiality imposed by this Section 8.2 shall not apply to Confidential Information that otherwise becomes generally known to the public through no act of the Shareholders in breach of this Agreement. If any person or authority makes a demand on a Shareholder purporting to legally compel him to divulge any Confidential Information, such Shareholder promptly shall give notice of the demand to LSI so that LSI or the Company may first assess whether to challenge the demand prior to the Shareholder divulging such Confidential Information. The Shareholder shall not divulge such Confidential Information until LSI and the Company either have concluded not to challenge the demand, or has exhausted its challenge, including appeals, if any; and thereafter shall divulge only such Confidential Information which is legally required.

(b) All records, designs, business plans, financial statements, customer lists, manuals, memoranda, lists, research and development plans, Intellectual Property and other property delivered to or compiled by the Shareholders by or on behalf of the Company, its Predecessors and their Affiliates or business partners, clients or customers that pertain to the Business, shall be and remain the property of the Company, LSI and their Affiliates and be subject at all times to their discretion and control. Likewise, all correspondence, reports, records, charts, advertising materials and other similar data pertaining to the business, activities, research and development, Intellectual Property or future plans of LSI, the Company and their Affiliates (including the Business) that was collected by the Shareholders shall be delivered promptly to the Company without request by it on or before the Closing Date.

Section 8.3 Remedy for Breach. The Shareholders agree that in the event of any breach or threatened breach by the Shareholders of any covenant, obligation or other provision contained in this Agreement, LSI and the Company shall be entitled (in addition to any other remedy that may be available to them) to (a) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision, (b) an injunction restraining such breach or threatened breach and (c) any other relief which a court deems just and equitable, all of which remedies shall be available without

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requiring LSI or the Company to post a bond or any other similar requirement, which are hereby waived by the Shareholders. The Shareholders further acknowledge that the restrictions contained in this Article VIII are intended to be, and shall be, for the benefit of and shall be enforceable by, LSI’s successors and assigns.

Section 8.4 Non-Exclusivity. The rights and remedies of LSI and the Company provided in this Article VIII are not exclusive of or limited by any other rights or remedies which LSI or the Company may have, whether at law, in equity, by contract or otherwise, all of which shall be cumulative (and not alternative). Without limiting the generality of the foregoing, the rights and remedies of LSI or the Company hereunder, and the obligations and Liabilities of the Shareholders hereunder, are in addition to their respective rights, remedies, obligations and Liabilities under the law of unfair competition, misappropriation of trade secrets and the like. This Agreement does not limit, and is not limited by, the terms of their Employment Agreements or any other agreement between the Shareholders and the Company, LSI or any Affiliate of LSI.

ARTICLE IX

INDEMNIFICATION

Section 9.1 General Indemnification Obligation of the Sellers and the Shareholders. The Sellers and the Shareholders, jointly and severally, will reimburse, indemnify and hold harmless LSI, its officers, directors, employees, agents, and successors and assigns (each an “Indemnified LSI Party”) against and in respect of:

(a) any and all damages, losses, deficiencies, Liabilities, costs and expenses incurred or suffered by any Indemnified LSI Party that result from, relate to or arise out of any misrepresentation, breach of warranty, or non-fulfillment of any agreement or covenant on the part of the Sellers and the Shareholders under this Agreement, unless waived in writing by LSI, or from any misrepresentation in or omission from any certificate, schedule, document or instrument furnished to LSI pursuant to this Agreement;

(b) any and all damages, losses, deficiencies, Liabilities, costs and expenses incurred or suffered by any Indemnified LSI Party that result from, relate to or arise out of any claim that the Sellers have or that the Company has or is infringing upon, misappropriating, or otherwise coming into conflict with, any Intellectual Property rights of third parties as a result of the Seller’s past operation of the Business or the Company’s continued operation of the Business as presently conducted and, as of the Closing Date, proposed by the Sellers or the Shareholders to be conducted after the Closing Date;

(c) any and all damages, losses, deficiencies, Liabilities, costs and expenses incurred or suffered by any Indemnified LSI Party or the Company that result from, relate to or arise out of any misrepresentation, breach of warranty, or non-fulfillment of any agreement or covenant on the part of the Sellers and the Shareholders under the Reorganization Documents, or from any misrepresentation in or omission from any certificate, schedule, document or instrument furnished to LSI pursuant to this Reorganization Documents;

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(d) any and all damages, losses, deficiencies, Liabilities, costs and expenses incurred or suffered by any Indemnified LSI Party or the Company that result from, relate to or arise out of the facts or circumstances set forth on Schedule 3.9; and

(e) any and all actions, suits, claims, or legal, administrative, arbitration, governmental or other proceedings or investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including, without limitation, reasonable legal fees and expenses) incident to the foregoing or to the enforcement of this Section 9.1;

provided however, that neither the Shareholders nor the Sellers shall have any obligation to indemnify any Indemnified LSI Party under this Agreement for an aggregate amount (for the total of all claims) in excess of 50% of the Purchase Price Value except to the extent such claim arises out of or relates to (i) fraud or any intentional breach of the representations or warranties under this Agreement or the Reorganization Documents; or (ii) any covenant or agreement contained in this Agreement or the Reorganization Documents in which case there shall be no limitation on the amount for which the Shareholders and Sellers shall be obligated; provided further, that neither the Shareholders nor the Sellers shall have any obligation to indemnify any Indemnified LSI Parties under this Agreement after September 30, 2006 for an aggregate amount (for the total of all claims) in excess of 25% of the Purchase Price Value plus the amount arising from or related to the facts or circumstances specified in any Claims Notice (subject to the aforesaid 50% limitation) which has been delivered to the Sellers prior to September 30, 2006, except to the extent any such claim arises out of or relates to (i) fraud or any intentional breach of the representations or warranties under this Agreement or the Reorganization Documents; or (ii) any covenant or agreement contained in this Agreement or the Reorganization Documents in which case there shall be no limitation on the amount to which the Shareholders and Sellers shall be obligated. Notwithstanding anything in the foregoing provisos to the contrary, the Shareholders and the Sellers shall be liable for an amount equal to the Escrow Fund held by the Escrow Agent pursuant to the terms of the Escrow Agreement for any Claims Notice delivered with respect to any matter governed by Sections 9.1(b) or 9.1(e)(to the extent applicable to Section 9.1(b)) of this Agreement at the time such Claims Notice is delivered to the Sellers or the Shareholders. The parties acknowledge that to the extent any Indemnified LSI Party is entitled to indemnification by the penultimate sentence of this Section 9.1 exceeds the amount to which such Indemnified LSI Party otherwise would be entitled under this Agreement, such indemnification shall only be enforceable by disbursement of that portion of the Escrow Fund to which such Indemnified LSI Party is entitled pursuant to the terms of the Escrow Agreement.

Section 9.2 General Indemnification Obligation of LSI. LSI will reimburse, indemnify and hold harmless the Shareholders and the Sellers, their officers, directors, employees, agents and successors or assigns (each an “Indemnified Sellers Party”) against and in respect of:

(a) any and all damages, losses, deficiencies, Liabilities, costs and expenses incurred or suffered by any Indemnified Sellers Party that result from, relate to or arise out of any misrepresentation, breach of warranty or, non-fulfillment of any agreement or covenant on the part of LSI under this Agreement, unless waived by the Shareholders and the Sellers, or from any misrepresentation in or omission from any certificate, schedule, document or instrument furnished to the Shareholders or Sellers pursuant to this Agreement;

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(b) any and all actions, suits, claims, proceedings, investigations, demands, assessments, audits, fines, judgments, costs and other expenses (including, without limitation, reasonable legal fees and expenses) incident to any of the foregoing or to the enforcement of this Section 9.2;

provided however, that LSI shall not have any obligation to indemnify any Indemnified Seller Parties under this Agreement for an aggregate amount (for the total of all claims) in excess of 50% of the Purchase Price Value except to the extent any such amount arises out of or relates to (i) fraud or any intentional breach of the representations or warranties under this Agreement or (ii) any covenant or agreement contained herein in which case there shall be no limitation on the amount to which LSI shall be obligated; provided further, that LSI shall have any obligation to indemnify any Indemnified Seller Parties under this Agreement after September 30, 2006 for an aggregate amount (for the total of all claims) in excess of 25% of the Purchase Price Value plus the amount arising from or related to the facts or circumstances specified in any Claims Notice (subject to the aforesaid 50% limitation) which has been delivered to LSI prior to September 30, 2006, except to the extent any such claim arises out of or relates to (i) fraud or any intentional breach of the representations or warranties under this Agreement or (ii) any covenant or agreement contained herein in which case there shall be no limitation on the amount to which LSI shall be obligated.

Section 9.3 Third Party Claims - Indemnification.

(a) If any claim or demand for which the Shareholders or Sellers would be liable to an Indemnified LSI Party hereunder is asserted against or sought to be collected from an Indemnified LSI Party by a third party, the Indemnified LSI Party shall promptly notify the Shareholders and the Sellers of such claim or demand, specifying the nature of such claim or demand and the amount or the estimated amount thereof to the extent then feasible (which estimate shall not be conclusive of the final amount of such claim and demand) (the “Claim Notice”). The Shareholders and the Sellers shall have ten days from the personal delivery or mailing of the Claim Notice (the “Notice Period”) to notify the Indemnified LSI Party, (i) whether or not it disputes its liability to the Indemnified LSI Party hereunder with respect to such claim or demand and (ii) notwithstanding any such dispute, whether or not it desires, at its sole cost and expense, to defend the Indemnified LSI Party against such claims or demand.

(b) If such claim, demand, action or proceeding is a third party claim, demand, action or proceeding, the Shareholders and the Sellers will have the right at their expense to assume the defense thereof using counsel reasonably acceptable to the Indemnified LSI Party. The Indemnified LSI Party shall have the right to participate, at their own expense, with respect to any such third party claim, demand, action or proceeding. In connection with any such third party claim, demand, action or proceeding, the parties shall cooperate with each other and provide each other with access to relevant books and records in their possession. No such third party claim, demand, action or proceeding shall be settled without the prior written consent of the Indemnified LSI Party, which consent shall not be unreasonably withheld.

(c) In the event an Indemnified LSI Party should have a claim against the Shareholders or Sellers hereunder that does not involve a claim or demand being asserted against or sought to be collected from it by a third party, the Indemnified LSI Party shall

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promptly send a Claim Notice with respect to such claim to the Shareholders and Sellers. If the Shareholders and Sellers do not notify the Indemnified LSI Party within the Notice Period that they dispute such claim, the amount of such claim shall be conclusively deemed a liability of the Shareholders and Sellers hereunder.

Section 9.4 Provisions Regarding Indemnity.

(a) None of the Indemnified LSI Parties nor the Indemnified Seller Parties will have a right to indemnification under this Agreement and under the Reorganization Documents unless and until the aggregate indemnifiable amount to which all such parties shall be entitled to exceed $100,000 (the “Basket”), at which time the indemnifying party shall be responsible for the entire amount for which it otherwise would have been responsible beginning at dollar one and not just the amount in excess of the Basket.

(b) The amounts for which the Shareholders or Sellers shall be liable under Sections 9.1 and 9.2 of this Agreement shall be net of any insurance proceeds received by the Indemnified LSI Party (retroactively, if necessary) in connection with the facts giving rise to the right of indemnification.

All claims for indemnification by an Indemnified Sellers Party under this Agreement shall be asserted and resolved under the procedures set forth above substituting in the appropriate place “Indemnified Sellers Party” for “Indemnified LSI Party” and variations thereof and “LSI” for “Sellers and/or Shareholders”.

Section 9.5 Payment. Upon the determination of the liability under Article IX hereof and after exhaustion of insurance coverage as required by Section 9.4, the appropriate party shall pay to the other, as the case may be, within ten days after such determination, the amount of any claim for indemnification made hereunder. All amounts owed under this Article IX by the Sellers or Shareholders to LSI shall first be satisfied by any amounts held by the Escrow Agent under the Escrow Agreement to the extent available. To the extent the estimated amount set forth in a Claim Notice exceeds the amount then held in escrow LSI may seek indemnification against any Seller or Shareholder. If the Indemnified LSI Party is not paid in full for any such claim pursuant to the foregoing provisions promptly after the other party’s obligation to indemnify has been determined in accordance herewith, it shall have the right, notwithstanding any other rights that it may have against any other Person, to setoff the unpaid amount of any such claim against any amounts owed by it under any agreements entered into pursuant to this Agreement or otherwise. Upon the payment in full of any claim, either by setoff or otherwise, the entity making payment shall be subrogated to the rights of the Indemnified LSI Party against any Person with respect to the subject matter of such claim.

ARTICLE X

MISCELLANEOUS

Section 10.1 Payment of Repayable Debt. Promptly upon Closing, LSI shall cause to be paid to the National Bank of Canada an amount equal to the Bank Debt outstanding as of the Closing and, as directed by Saco, to the applicable Affiliate of Saco, the Related Party Debt.

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Section 10.2 Further Action. Each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things necessary, proper or advisable under applicable Law, and to execute and deliver such documents and other instruments or papers as may be required to carry out the provisions of this Agreement and to consummate and render effective the transactions contemplated by this Agreement.

Section 10.3 Access to Information. Upon reasonable notice, the Shareholders and the Sellers shall and shall cause such party’s officers, directors, employees, agents, representatives, accountants and counsel to afford the officers, employees, agents, representatives, accountants, counsel and lenders of LSI and the Company such audited and unaudited financial statements and any other financial or other information available to such parties and which is reasonably necessary for LSI’s compliance with its legal obligations, the financing of the transactions contemplated by this Agreement or the operation of the Business.

Section 10.4 Press Releases. No party shall make any public statement or issue any press release concerning the transaction referenced herein without the prior approval of all other parties hereto, which approval shall not be unreasonably withheld or delayed; provided, however, that any party may make any public disclosure it believes in good faith is required by applicable Law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing party will advise the other party prior to making the disclosure and afford the other party reasonable time to approve and comment upon the disclosure).

Section 10.5 Expenses. Except as otherwise provided in this Agreement, LSI, the Sellers and the Shareholders shall each pay their own expenses and Saco shall pay the expenses of the Company, incidental to the preparation of this Agreement, the carrying out of the provisions of this Agreement and the consummation of the transactions contemplated hereby out of the proceeds received by Saco pursuant to the terms of this Agreement. To the extent any of the foregoing expenses have been paid by Saco prior to the Closing, Saco will promptly reimburse the Company for such expenses promptly after Closing.

Section 10.6 Waiver. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party.

Section 10.7 Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if (i) delivered personally, (ii) sent by registered or certified mail, postage prepaid, (iii) sent by confirmed facsimile with the original to follow by first class mail, postage prepaid, (iv) sent by an internationally recognized overnight courier service with next day delivery guaranteed and delivery charges prepaid, as follows:

If to LSI, to:

LSI Industries Inc.

P.O. Box 42728

10000 Alliance Road

Cincinnati, Ohio 45242

Attention: Ronald S. Stowell

Facsimile No.: (513) 791-0813

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With a required copy to:

Keating Muething & Klekamp PLL

One East Fourth Street, Suite 1400

Cincinnati, Ohio 45202

Attention: Paul V. Muething

Facsimile No.: (513) 579-6457

If to the Shareholders or the Sellers:

Fred Jalbout

260 Strathcona

Mont-Royal, QC

H3R 1E7

Facsimile No.: (514) 745-1299

and:

Bassam Jalbout

260 Strathcona

Mont-Royal, QC

H3R 1E7

Facsimile No.: (514) 745-1299

With a required copy to:

Davies Ward Phillips & Vineberg LLP

1501 McGill College Avenue, 26th Floor

Montréal QC Canada H3A 3N9

Attention: Denis Ferland

Facsimile No.: (514) 841-6499

or to such other address as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have been given as of the date so delivered, mailed or received by facsimile transmission.

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Section 10.8 Headings. All section headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement.

Section 10.9 Schedules and Exhibits. Contemporaneously with the execution and delivery of this Agreement, the Shareholders and the Sellers have delivered the Disclosure Schedules to LSI. All Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. All capitalized terms used in any Exhibit to this Agreement or in the Schedule shall have the definitions specified in this Agreement.

Section 10.10 Severability. Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties further agree to replace such invalid or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable provision.

Section 10.11 Governing Language. The parties hereto acknowledge that they have requested this Agreement and all related documents to be drawn up in the English language. Les parties aux présentes reconnaissent qu’elles ont exigé que la présente convention et tout document s’y rattachant soient rédigés en anglais. In the event any translation of this Agreement is prepared for convenience or any other purpose, the provisions of the English version shall prevail.

Section 10.12 Counterparts. This Agreement may be executed in any number of counterparts and any party hereto may execute any such counterpart, each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. This Agreement shall become binding when one or more counterparts taken together shall have been executed and delivered by the parties. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts.

Section 10.13 Entire Agreement. This Agreement, including the Exhibits, Schedules and other documents referred to herein which form a part hereof, including the Employment Agreements, the Lease Agreement, the Registration Rights Agreement and the Non-Disclosure Agreement, contain the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. Such agreements, documents and instruments supersede all prior agreements and understandings between the parties with respect to such subject matter.

Section 10.14 Amendments. This Agreement may not be changed orally, but only by an agreement in writing signed by each of the parties hereto. Any provision of this Agreement can be waived, amended, supplemented or modified by written agreement of each of the parties hereto.

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Section 10.15 Assignment and Binding Effect. This Agreement may not be assigned by any party hereto without the prior written consent of the other parties, except by LSI to any of its Affiliates or in connection with the merger, consolidation or sale of all or substantially all of its business or assets. Subject to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties and their successors and permitted assigns and their respective, executors, heirs, legal representatives. The parties expressly acknowledge and agree that LSI may designate one or more of its Affiliates to acquire the Purchased Shares or portion of the Purchased Shares, provided however, LSI shall continue to remain responsible for its obligations under Article IX.

Section 10.16 Exclusive Benefits. Nothing in this Agreement, express or implied, is intended to confer any rights or remedies, whether express or implied, under or by reason of this Agreement, on any persons other than the parties hereto and their respective successors and permitted assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement.

Section 10.17 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party hereto, upon any breach or default of any other party hereto, under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring.

Section 10.18 Construction. This Agreement is to be deemed to have been prepared jointly by the parties hereto after arms-length negotiations, and any uncertainty or ambiguity existing herein shall not be interpreted against any party, but according to the application of the rules of interpretation of contracts.

Section 10.19 Governing Law. The Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to its conflict of law provisions.

Section 10.20 Submission to Jurisdiction; Waiver. Each of the parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement or for the recognition and enforcement of any judgment in respect hereof brought by the other party hereto or its, his or her executors, heirs, legal representatives, successors or permitted assigns may be brought and determined in any federal or state court located in New York, New York, and each of the parties hereby irrevocably submits with regard to any action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the parties hereby irrevocably waives and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to lawfully serve process, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (c) to the fullest extent permitted by applicable law, that (i) the suite, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper and (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.

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Section 10.21 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT, DOCUMENT OR INSTRUMENT EXECUTED OR DELIVERED PURSUANT TO THIS AGREEMENT OR ANY RELATED DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENT OF ACTION RELATED HERETO OR THERETO.

[Remainder of page intentionally left blank. Signature page to follow.]

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IN WITNESS WHEREOF, the parties hereto have duly executed this Stock Purchase Agreement on the date first written.

LSI INDUSTRIES INC.
By:	/s/ Ronald S. Stowell
Name:	Ronald S. Stowell
Title:	Vice President, Chief Financial Officer
	and Treasurer
SACO TECHNOLOGIES INC.
By:	/s/ Fred Jalbout
Name:	Fred Jalbout
Title:	President
3970957 CANADA, INC.
By:	/s/ Fred Jalbout
Name:	Fred Jalbout
Title:	President
JALBOUT HOLDINGS INC.
By:	/s/ Fred Jalbout
Name:	Fred Jalbout
Title:	President
4349466 CANADA INC.
By:	/s/ Fred Jalbout
Name:	Fred Jalbout
Title:	President
/s/ FRED JALBOUT FRED JALBOUT
/s/ BASSAM JALBOUT BASSAM JALBOUT

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EX-10.1

Exhibit 10.1

ESCROW AGREEMENT

This Escrow Agreement (“Escrow Agreement”) is dated as of the 26th day of June, 2006 among SACO TECHNOLOGIES INC., a corporation incorporated under the Canada Business Corporation Act, (“Saco”), LSI INDUSTRIES INC., an Ohio corporation (“LSI”), and THE BANK OF NEW YORK TRUST COMPANY, N.A., as escrow agent (the “Escrow Agent”).

BACKGROUND

WHEREAS, LSI, Saco and certain Affiliates of Saco have entered into a Stock Purchase Agreement dated as of even date herewith (the “Purchase Agreement”) pursuant to which LSI has purchased all of the issued and outstanding stock of 4349466 Canada, Inc., a corporation incorporated under the Canada Business Corporation Act;

WHEREAS, pursuant to the terms of the Purchase Agreement, LSI and Saco have agreed that One Million Four Hundred and Nineteen Thousand Three Hundred Fifty Five (1,419,355) LSI Common Shares (the “Escrow Shares”) issued to Saco pursuant to the Purchase Agreement shall be held in escrow pursuant to the terms of this Escrow Agreement to be released, subject to the terms of this Escrow Agreement, on or before September 30, 2008, and to serve, in the interim, as security for the “Sellers’” and the “Shareholders’” obligations under the Purchase Agreement; and

WHEREAS, in accordance with the provisions of the Purchase Agreement, Escrow Agent is designated to act as the escrow agent for the parties hereto under the terms of this Escrow Agreement.

NOW, THEREFORE, in consideration of the mutual covenants set forth below and other good and valuable consideration, the parties hereto agree as follows:

1. Designation and Delivery. LSI and Saco hereby designate The Bank of New York Trust Company, N.A. as “Escrow Agent” under this Escrow Agreement. LSI and Saco have delivered to the Escrow Agent a copy of the Purchase Agreement, which agreement is attached hereto as Exhibit A. LSI, in accordance with the terms of Section 2.2 of the Purchase Agreement, hereby delivers to the Escrow Agent certificates in the name of Saco evidencing the Escrow Shares (the “Deposit”). Saco hereby delivers to the Escrow Agent duly executed stock powers of Saco covering the Escrow Shares (the “Stock Transfer Powers”).

2. Cash Portion of Escrow Fund. The Escrow Agent shall cause all stock dividends, distributions in the form of securities (including shares distributed in a stock split), proceeds from any sale or liquidation, or other income (excluding cash dividends) earned on or with respect to the Escrow Shares and received by the Escrow Agent, to be added to the Deposit. Such deposited dividends, distributions or other income, together with the Deposit, shall constitute the “Escrow Fund” to be distributed as provided in Section 7 hereof. Notwithstanding the foregoing, any and all cash dividends earned on or with respect to the Escrow Shares and received by the Escrow Agent prior to the receipt by Escrow Agent of any Notice of Claim shall be paid promptly to Saco and shall not become part of the Escrow Fund; provided further, after the receipt by Escrow Agent of any Notice of Claim, all cash dividends earned on or with respect to the Escrow Shares received by the

Escrow Agent shall be added to the Deposit. Upon written request of Saco, the Escrow Agent shall sell all or a portion of the Escrow Shares pursuant to instructions providing the number of Escrow Shares to be sold and any other conditions applicable to the sale of such Escrow Shares. The proceeds of such sale shall become part of the Escrow Fund to be distributed as provided in Section 7 hereof. The Escrow Agent will invest the cash portion of the Escrow Fund that are not distributed pursuant to the terms of this Escrow Agreement in money market funds rated AAA or better which are authorized to invest in short term securities issued, or guaranteed as to principal and interest, by the U.S. Government and repurchase agreements with respect to such securities (including any money market fund managed by the Escrow Agent and any of its affiliates) (collectively, the “Permitted Investments”) as directed by Saco in writing.

3. Escrow Agent as Custodian; Expenses. The Escrow Agent, for all purposes of this Escrow Agreement, shall be treated as and considered legally a custodian. Except as otherwise provided herein and in the Purchase Agreement, Saco shall retain all of its rights as a stockholder of LSI while the Escrow Shares are held in escrow hereunder, including the right to vote such Escrow Shares. The Escrow Agent shall be entitled to rely conclusively upon the written notice provided in Section 7 and may assume the genuineness of all signatures and documents and the authority of all signatories. Except for its obligation to keep the Escrow Fund safely in its custody (subject to the terms and provisions of this Agreement), the Escrow Agent shall have no liability except for gross negligence or willful misconduct in the performance of its duties under this Escrow Agreement for any action taken (or any failure to act) in good faith.

4. Escrow Account Statements. The Escrow Agent is hereby authorized to execute purchases and sales of Permitted Investments through the facilities of its own trading or capital markets operations or those of any affiliated entity. The Escrow Agent shall send statements to LSI and Saco on a monthly basis reflecting activity in the Escrow Fund for the preceding month. In doing so, the Escrow Agent may provide a statement containing information regarding any deposits and disbursements and a separate statement reflecting the investment detail, including the balance, purchases, sales, and interest postings. However, absent a specific request by either LSI or Saco to the contrary, no statement need be rendered pursuant to this Escrow Agreement if no activity occurred for such month. LSI and Saco each acknowledge and agree that the delivery of the escrowed property is subject to the sale and final settlement of investments described herein. Proceeds of a sale of investments will be delivered on the business day on which the appropriate instructions are delivered to the Escrow Agent if received prior to the deadline for same day sale of such investments. If such instructions are received after the applicable deadline, proceeds will be delivered on the next succeeding business day.

5. Compensation of Escrow Agent. The Escrow Agent shall be entitled to reasonable fees and reimbursement for reasonable expenses including, but not by way of limitation, the reasonable fees and costs of attorneys or agents which it may find necessary to engage in performance of its duties hereunder, in accordance with the fee schedule attached hereto as Exhibit B; provided, however, that the Escrow Agent shall, to the extent practicable, give reasonable prior written notice of its intention to engage counsel to Saco and LSI. Such fees and expenses shall, to the extent required to be paid at the Closing, be paid, at the Closing, and any remaining amounts shall be invoiced on an annual basis and, in each case, shall be paid one-half by LSI and one-half by Saco. The Escrow Agent shall have, and is hereby granted, a prior lien upon any property, cash, or

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assets of the Escrow Fund, with respect to its unpaid fees and nonreimbursed expenses, superior to the interests of any other persons or entities, and shall be entitled and is hereby granted the right to set off and deduct any unpaid fees and/or nonreimbursed expenses from amounts on deposit in the Escrow Fund.

6. Resignation; Disagreements.

(a) The Escrow Agent may resign from all further duties and liabilities hereunder as escrow agent by giving to Saco and LSI written notice of such resignation at least 60 days prior to the effective date thereof, or such shorter notice as Saco and LSI may accept as sufficient. Saco and LSI shall have the power by mutual agreement at any time to remove the Escrow Agent and to appoint a new escrow agent. In the event of the Escrow Agent’s resignation or removal as aforesaid, Saco and LSI may appoint a new escrow agent, and, failing such appointment, the retiring escrow agent may apply to any court of competent jurisdiction in the State of New York for the appointment of a new escrow agent. Upon the appointment of a new escrow agent, the Escrow Agent shall transfer the Escrow Fund to such new escrow agent.

(b) In the event of any disagreement between the other parties hereto resulting in adverse claims or demands being made in connection with the Escrow Fund or in the event that Escrow Agent is in doubt as to what action it should take hereunder, Escrow Agent shall be entitled to (i) interplead all of the assets held hereunder into a court of competent jurisdiction, and thereafter be fully relieved from any and all liability or obligation with respect to such interpleaded assets or (ii) retain the Escrow Fund until Escrow Agent shall have received (A) a final non-appealable order of a court of competent jurisdiction directing delivery of the Escrow Fund, or (B) a written agreement executed by both Saco and LSI hereto directing delivery of the Escrow Fund, in which event Escrow Agent shall disburse the Escrow Fund in accordance with such order or agreement. Any court order shall be accompanied by a legal opinion by counsel for the party seeking distribution of the Escrow Fund satisfactory to Escrow Agent to the effect that the order is final and non-appealable. Escrow Agent shall act on such court order and legal opinion without further question or delay.

7. Termination and Distribution of Escrow Fund.

(a) Except as set forth in Section 7(d), this Escrow Agreement shall terminate upon the earlier of (i) September 30, 2008 or (ii) the date upon which the Escrow Agent shall have distributed all of the Escrow Fund as provided herein.

(b) If, on or prior to September 30, 2008, LSI shall not have delivered to the Escrow Agent and Saco a Notice of Claim (as defined in Section 7(g)below), with respect to the Escrow Fund, the Escrow Fund shall be promptly released and delivered in its entirety to Saco by the Escrow Agent.

(c) If, on or prior to September 30, 2008, LSI shall have delivered a Notice of Claim to the Escrow Agent and Saco, and Saco shall not have disputed the Notice of Claim

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in writing within 15 business days after its receipt of the Notice of Claim, the amount of the indemnity claim specified in LSI’s Notice of Claim shall promptly be released and delivered to LSI by the Escrow Agent. For purposes of determining the number of Escrow Shares to be released to LSI pursuant to this Section 7(c) in satisfaction of indemnity claims and the amount received by LSI in satisfaction of the indemnity claims, the value of the Escrow Shares shall be based upon the average of the closing sale price of LSI’s common stock as reported on the NASDAQ National Market System (or such other market where LSI Common Shares may then be traded) for the 5 trading days immediately preceding the second trading day immediately preceding the date on which the Escrow Shares (or portion thereof) are released. The balance of the Escrow Fund not so released shall continue to be held in escrow by the Escrow Agent pursuant to the terms of this Escrow Agreement.

(d) If, on or prior to September 30, 2008, LSI shall have delivered a Notice of Claim to Saco and the Escrow Agent and Saco shall have disputed the Notice of Claim in writing within 15 business days after its receipt of the Notice of Claim, the Escrow Agent shall retain that portion of the Escrow Fund equal to the amount of the indemnity claim specified in the Notice of Claim until the dispute is resolved by a final, binding and non-appealable order of a court of competent jurisdiction or by agreement between LSI and Saco even if the resolution of the dispute occurs after September 30, 2008 and shall distribute the portion so retained either pursuant to joint written instructions from LSI and Saco or pursuant to such court order. For purposes of determining the number of Escrow Shares to be retained under this Section 7(d) and Section 7(e) by the Escrow Agent upon receipt of the Notice of Claim, the value of the Escrow Shares shall be based upon the average of the closing sale price of LSI’s common stock as reported on the NASDAQ National Market System (or other applicable market) for the five (5) trading days immediately preceding the second trading day immediately preceding the date on which the Escrow Agent receives notice from Saco that the Notice of Claim is being disputed.

(e) On each of the dates set forth below, the Escrow Agent shall release such number of LSI Common Shares constituting Escrow Shares set forth opposite such date (each, a “Release Date”):

Release Date	Escrow Shares to be Released
September 30, 2006	419,355
September 30, 2007	500,000
September 30, 2008	500,000

; provided, however, if a Notice of Claim has been delivered to the Escrow Agent prior to the applicable Release Date the Escrow Agent shall release only those number of Escrow Shares less (i) the number of Escrow Shares equal to the amount of indemnity claims specified in any and all Notice of Claims delivered to the Escrow Agent prior to the applicable Release

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Date and (ii) the number of Escrow Shares previously released to Saco pursuant to Section 7(f). Once the dispute is resolved by a final, binding and non-appealable order of a court of competent jurisdiction or by agreement between LSI and Saco, the Escrow Agent shall distribute to Saco the portion of the Escrow Fund equal to the amount of indemnity claims specified in any and all Notice of Claims delivered to the Escrow Agent prior to the applicable Release Date, less the amount which is finally determined as due and owing to LSI.

(f) Notwithstanding anything in this Escrow Agreement to the contrary, if at any time prior to September 30, 2008, LSI concludes, based on the determination of LSI’s Board of Directors, after consulting with legal counsel and other experts retained by LSI, that no claim for indemnification by any Indemnified LSI Party is likely to arise out of the Sellers’ or the Company’s infringement upon, misappropriation of, or conflict with the Intellectual Property rights of third parties, LSI shall give written notice to the Escrow Agent of such determination and authorize the release of the entire amount of the Escrow Fund, except for 290,000 LSI Common Shares which such amount shall remain subject to the terms of this Escrow Agreement until September 30, 2008.

(g) For purposes of this Escrow Agreement, a “Notice of Claim” is a written notice by LSI to Escrow Agent, with a copy thereof to Saco, stating (i) that LSI is asserting a claim for indemnification in respect of the Escrow Fund against the Sellers and/or the Shareholders pursuant to the indemnification provisions contained in the Purchase Agreement, (ii) the nature of the claim, and (iii) LSI’s reasonable estimate of the amount of damages expected to be incurred in conjunction with the claim for which indemnification is available to LSI under the Purchase Agreement.

(h) Any release or disbursement of Escrow Shares in accordance with this Section 7 shall be made by delivering the share certificates representing such Escrow Shares to the designated party. In the event of disbursement to LSI, the Escrow Agent shall also deliver to LSI an appropriate Stock Transfer Power, completed with the amount of Escrow Shares being disbursed to LSI. Upon receipt thereof, LSI shall deliver to the Escrow Agent, as soon as practicable thereafter, new share certificates relating to the balance of Escrow Shares remaining in the hands of the Escrow Agent. Saco hereby appoints the Escrow Agent, as Saco’s attorney-in-fact to act, in the name, place and stead of Saco to (i) execute and complete additional Stock Transfer Powers, (ii) to take any actions or exercising any rights, powers or privileges that Saco is entitled or required to take or exercise under the terms of any of this Escrow Agreement and (iii) to do or cause to be done any or all things necessary or, in the determination of the Escrow Agent, desirable to observe or perform the terms, conditions, covenants and agreements to be observed or performed by Saco to transfer Saco’s right, title and interest in and to the LSI Common Shares. Notwithstanding anything to the contrary, a disbursement of any Escrow Shares to LSI shall, if accompanied by delivery of the share certificates, be valid and shall have full force and effect even in the absence of delivery of Stock Transfer Powers to LSI. Any disbursement of Escrow Shares to LSI shall be deemed to be a redemption of such Escrow Shares.

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(i) If LSI at any time or from time to time effects a stock-split, reclassification, reorganization, reverse reclassification, or other change in the number of outstanding number of LSI Common Shares into a larger or smaller number of shares, the number of Escrow Shares to be released pursuant to Section 7 shall be proportionately adjusted.

(j) Notwithstanding any obligation of the Escrow Agent to disburse Escrow Shares to LSI pursuant to this Escrow Agreement, the Escrow Agent is hereby authorized by Saco and LSI to sell any Escrow Shares to any third party on commercially reasonable terms and conditions and remit to the LSI, instead of the Escrow Shares to which LSI is entitled, the consideration received by the Escrow Agent with respect to such shares; provided that the Escrow Agent shall have received from counsel to LSI a legal opinion providing that such sale is registered or exempt from registration under applicable securities laws.

(k) The parties hereto acknowledge and agree that the delivery of the proceeds of the sale of Escrow Shares is subject to the sale and final settlement of such Escrow Shares. Proceeds of a sale of Escrow Shares will be delivered on the business day on which the sale of such Shares is settled. If written instructions to sell Escrow Shares are received by the Escrow Agent pursuant to Section 2 after the applicable deadline on a Business Day, such Escrow Shares will be sold (to the extent commercially reasonable) on the next succeeding Business Day. The Escrow Agent shall not be responsible for any losses incurred due to market price fluctuations occurring between the time of receipt by the Escrow Agent of a written instruction to sell Escrow Shares and the time of the actual sale of such Escrow Shares, provided that such sale takes place within a reasonable time.

8. Duties of Escrow Agent. The duties of the Escrow Agent under this Escrow Agreement shall be entirely administrative and, except for a breach of its obligation to keep the Escrow Fund safely in its custody (subject, however, to the terms and conditions of this Agreement), the Escrow Agent shall not be liable to any third party as a result of any action or omission taken or made by it in performing its duties hereunder, if taken in good faith, except for gross negligence, willful misconduct or fraud. LSI and Saco shall severally (each being responsible for 50% of the indemnity amount claimed by the Escrow Agent) indemnify, defend and hold harmless the Escrow Agent from and against and reimburse the Escrow Agent for any and all liability, costs and expenses the Escrow Agent may suffer or incur by reason of its execution and performance of this Escrow Agreement except to the extent caused by or arising out of Escrow Agent’s gross negligence, willful misconduct or fraud or except for a failure to comply with its obligation to keep the Escrow Fund in its custody (subject, however, to the terms and conditions of this Agreement). The Escrow Agent shall have no duties except those which are expressly set forth herein, and, except as otherwise expressly set forth herein, it shall not be bound by any notice of a claim, or demand with respect thereto, or any waiver, modification, amendment, termination or rescission of this Escrow Agreement, unless in writing received by it and signed by the parties hereto and otherwise conforming to any requirements contained herein.

If the Escrow Agent shall find it necessary to consult with counsel of its own choosing in connection with this Escrow Agreement, the Escrow Agent shall not incur any liability for any action taken in good faith in accordance with such advice except to the extent caused by or arising out of Escrow Agent’s gross negligence, willful misconduct or fraud or except for a failure to comply with

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its obligation to keep the Escrow Funds in its custody (subject, however, to the terms and conditions of this Agreement). The foregoing indemnification shall survive termination of this Escrow Agreement.

Escrow Agent is not a party to, and is not bound by, any other agreements with the parties hereto regarding the subject matter hereof. In the event that any of the terms and provisions of any other agreement (excluding any amendment to this Escrow Agreement) between any of the parties hereto, conflict or are inconsistent with any of the provisions of this Escrow Agreement, the terms and provisions of this Escrow Agreement shall govern and control in all respects.

The Escrow Agent shall neither be responsible for, nor chargeable with, knowledge of the terms and conditions of any other agreement, instrument or document between the other parties hereto, in connection herewith, including without limitation the Purchase Agreement. This Agreement sets forth all matters pertinent to the escrow contemplated hereunder, and no additional obligations of the Escrow Agent shall be inferred from the terms of this Agreement or any other agreement. IN NO EVENT SHALL THE ESCROW AGENT BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (i) DAMAGES OR EXPENSES ARISING OUT OF THE SERVICES PROVIDED HEREUNDER, OTHER THAN DAMAGES WHICH RESULT FROM THE ESCROW AGENT’S FAILURE TO ACT IN ACCORDANCE WITH THE STANDARDS SET FORTH IN THIS AGREEMENT, OR (ii) SPECIAL OR CONSEQUENTIAL DAMAGES, EVEN IF THE ESCROW AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

The Escrow Agent shall have the right to perform any of its duties hereunder through agents, attorneys, custodians or nominees.

Any banking association or corporation into which the Escrow Agent may be merged, converted or with which the Escrow Agent may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Escrow Agent shall be a party, or any banking association or corporation to which all or substantially all of the corporate trust business of the Escrow Agent shall be transferred, shall succeed to all the Escrow Agent’s rights, obligations and immunities hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding.

9. Notices. All notices, consents or other communications required or permitted to be given under this Escrow Agreement shall be in writing and shall be deemed given only if (i) delivered personally or (ii) sent by registered or certified mail, postage prepaid, or (iii) sent by an internationally recognized overnight courier service with next day delivery guaranteed and delivery charges prepaid, or (iv) sent by confirmed facsimile with the original to follow by first class mail, postage prepaid, as follows:

If to Saco:	Saco Technologies Inc.
	260 Strathcona
	Mont-Royal, QC
	H3R 1E7
	Facsimile No.: (514) 745-1299

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with a copy to:	Davies Ward Phillips & Vineberg LLP
	1501 McGill College Avenue, 26th Floor
	Montréal QC Canada H3A 3N9
	Attention: Denis Ferland, Esq.
	Facsimile No.: (514) 841-6499
If to LSI:	LSI Industries Inc.
	10000 Alliance Road
	Cincinnati, Ohio 45242
	Attention: Ronald S. Stowell
	Facsimile No.: (513) 791-0813
with a copy to:	Keating Muething & Klekamp PLL
	One East Fourth Street, Suite 1400
	Cincinnati, Ohio 45202
	Attention: Paul V. Muething, Esq.
	Facsimile No.: (513) 579-6457
If to Escrow Agent:	The Bank of New York Trust Company, N.A.
	525 Vine Street, Suite 900
	Cincinnati, Ohio 45202
	Attention: Geoffrey Anderson
	Facsimile No.: (513) 721-3240

or to such other address as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have been given as of the date so delivered, mailed or received by facsimile transmission.

10. Ownership for Tax Purposes. Saco agrees that, for purposes of federal and other taxes based on income, Saco will be treated as the owner of the Escrow Shares and that Saco will report all income, if any, that is earned on, or derived from the Escrow Shares as its income in the taxable year or years in which such income is properly includible and pay any taxes attributable thereto.

11. Amendment. No amendment or modification of this Escrow Agreement shall be effective unless in writing and signed by the parties. This Escrow Agreement may not be terminated except in a written document signed by the parties.

12. Parties in Interest. This Escrow Agreement shall bind, benefit, and be enforceable by and against each party hereto and their successors, assigns, heirs and personal representatives. Except as otherwise expressly authorized herein or in the Purchase Agreement, no party shall in any manner assign any of its rights or obligations under this Escrow Agreement without the express prior written consent of the other parties; provided however, LSI may assign its rights hereunder to any permitted assignee of any of LSI’s rights under the Purchase Agreement and such transferee shall be subject to LSI’s obligations hereunder. No assignment or transfer permitted hereunder shall relieve or release any such transferor from any liability or obligation hereunder.

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13. No Waivers. No waiver with respect to this Escrow Agreement shall be enforceable unless in writing and signed by the party against whom enforcement is sought. Except as otherwise expressly provided herein, no failure to exercise, delay in exercising, or single or partial exercise of any right, power or remedy by any party, and no course of dealing between or among any of the parties, shall constitute a waiver of, or shall preclude any other or further exercise of the same or any other right, power or remedy.

14. Entire Agreement. This Escrow Agreement supersedes all prior agreements among the parties with respect to its subject matter and constitutes (along with the documents referred to in this Escrow Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter.

15. Severability. If any provision of this Escrow Agreement is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto.

16. Counterparts. This Escrow Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall constitute an original hereof, and it shall not be necessary in making proof of this Escrow Agreement to produce or account for more than one original counterpart hereof. Facsimile signatures shall be treated as original signatures and shall be binding upon the parties.

17. Controlling Law. This Escrow Agreement is made under, and shall be construed and enforced in accordance with, the laws of the State of New York applicable to agreements made and to be performed solely therein, without giving effect to principles of conflicts of law.

18. Definitions. To the extent not specifically defined herein, all terms used herein shall have the meanings ascribed to them in the Purchase Agreement.

19. WAIVER OF JURY. THE PARTIES HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.

[Remainder of Page Intentionally Left Blank; Signature Page to Follow]

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IN WITNESS WHEREOF, the parties have executed, or caused their duly authorized representatives to execute, this Escrow Agreement on the date first written above.

LSI INDUSTRIES INC.
By:	/s/ Ronald S. Stowell
Name: Title:	Ronald S. Stowell Vice President, Chief Financial Officer and Treasurer
SACO TECHNOLOGIES INC.
By:	/s/ Fred Jalbout
Name: Title:	Fred Jalbout President
THE BANK OF NEW YORK TRUST COMPANY, N.A.
By:	/s/ Geoffrey D. Anderson
Name:	Geoffrey D. Anderson
Title:	Assistant Vice President

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EXHIBIT “A”

Purchase Agreement

11

EXHIBIT “B”

Escrow Agent Fees

THE BANK OF NEW YORK TRUST COMPANY, N.A.

Proposal to serve as Escrow Agent for

LSI Industries, Inc./Saco Technologies Inc.

Escrow Deposit Agreement

Fee Schedule

Upon appointment of BNY as Escrow Agent, LSI Industries, Inc. and Saco Technologies Inc. shall be responsible for their prorata share (50%) of the fees, expenses and charges as set forth in this Fee Schedule.

ACCEPTANCE FEE:	$	2,500
ANNUAL FEE:	$	2,500

The acceptance fee is a one-time charge (nonrecurring fees unless considered extraordinary see below) per issue and is payable at the time of closing and includes:

• Initial Review of Escrow Deposit Agreement including that of internal counsel

• Initial Escrow Trust Account Set-up

• Initial Receipt and Investment of escrowed funds or escrowed holdings

The annual fee includes the following and is billed in annually in advance:

• Statements of Account/Trust Reports when applicable

• Asset Principal and Income Collection

• Audit Confirmations when applicable

• Distribution of Funds or escrowed holdings as directed in the escrow agreement

INVESTMENT FEES:

We will charge a 25 basis point fee for investment management. BNYTC may also receive compensation (12b1 fee) from the money fund provider. The 12b1 fee compensates BNYTC for handling the record keeping activities associated with any deposits held. We offer a variety of U.S. Treasury, Government and Prime Money Funds from fund families such as Fifth Third Bank, BNY Hamilton, Goldman Sachs, Federated to name a few.

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EX-10.2

Exhibit 10.2

REGISTRATION RIGHTS AGREEMENT

DATED AS OF JUNE 26, 2006

BY AND BETWEEN

LSI INDUSTRIES INC.

AND

SACO TECHNOLOGIES INC.

TABLE OF CONTENTS

ARTICLE 1 DEFINITIONS		1
ARTICLE 2 REGISTRATION RIGHTS		2
2.1	Mandatory Registration.	2
ARTICLE 3 REGISTRATION PROCEDURES		3
3.1	Filings; Information.	3
3.2	Registration Expenses.	5
ARTICLE 4 INDEMNIFICATION AND CONTRIBUTION		5
4.1	Indemnification by the Company.	5
4.2	Indemnification by the Holder.	6
4.3	Conduct of Indemnification Proceedings.	7
4.4	Contribution.	7
ARTICLE 5 MISCELLANEOUS		8
5.1	Rule 144 and Rule 145.	8
5.2	No Inconsistent Agreements.	8
5.3	Successors and Assigns.	8
5.4	No Waivers, Amendments.	9
5.5	Notices.	9
5.6	Terms of Agreement.	10
5.7	Governing Law; Submission to Jurisdiction.	10
5.8	Section Headings.	11
5.9	Entire Agreement.	11
5.10	Severability.	11
5.11	Counterparts.	11
5.12	Parties in Interest.	11
5.13	Enforcement; Further Assurances.	12

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REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is entered into as of June 26, 2006 by and between LSI INDUSTRIES INC., an Ohio corporation (the “Company”), and SACO TECHNOLOGIES INC., a corporation incorporated under the Canada Business Corporation Act (the “Holder”). Capitalized terms used but not otherwise defined herein have the meanings given to them in the Stock Purchase Agreement (as hereinafter defined).

WITNESSETH:

WHEREAS, pursuant to that certain Stock Purchase Agreement (the “Stock Purchase Agreement”), dated as of even date herewith, by and among the Company, Jalbout Holdings Inc., 3970957 Canada, Inc., the Holder, 4349466 Canada Inc. (the “Acquired Company”), Fred Jalbout and Bassam Jalbout, the Holder sold the Purchased Shares and the Promissory Note to the Company in consideration for the Purchase Price; and

WHEREAS, the Holder was induced in part to enter into the Stock Purchase Agreement by the Company’s agreement to enter into this Agreement.

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

As used in this Agreement, the following terms have the following meanings:

(a) “Affiliate”, as applied to any Person, shall mean any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities (the ownership of more than 50% of the voting securities of an entity shall for purposes of this definition be deemed to be “control”), by contract or otherwise;

(b) “Agreement” shall have the meaning set forth in the preamble of this Agreement;

(c) “Company” shall have the meaning set forth in the preamble of this Agreement;

(d) “Exchange Act” shall mean the United States Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder;

(e) “Holder” shall have the meaning set forth in the preamble of this Agreement;

(f) “Indemnified Party” has the meaning set forth in Section 4.3;

(g) “Indemnifying Party” has the meaning set forth in Section 4.3;

(h) “Mandatory Registration” has the meaning set forth in Section 2.1(a);

(i) “Registrable Security” means any LSI Common Shares constituting the stock consideration pursuant to the Stock Purchase Agreement (including such LSI Common Shares held in escrow pursuant to the Stock Purchase Agreement and the Escrow Agreement) and held by the Holder.

(j) “Registration Expenses” has the meaning set forth in Section 3.2;

(k) “Securities Act” shall mean the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder;

(l) “Stock Purchase Agreement” has the meaning set forth in the recitals to this Agreement; and

ARTICLE 2

REGISTRATION RIGHTS

2.1 Mandatory Registration.

(a) Registration Requirement. The Company hereby agrees to file a registration statement on Form S-3 (or any successor or similar short-form registration) with the Commission to effect the registration under the Securities Act of all of the Registrable Securities for resale by the Holder no later than thirty (30) days after the date on which the Company files with the Commission its annual report on Form 10-K with respect to the fiscal year ended June 30, 2006 (the “Mandatory Registration”); provided, however, in any event, the Company shall file the registration statement with respect to the Mandatory Registration with the Commission pursuant to Section 3.1 no later than October 15, 2006.

(b) Effective Registration Statement. A registration effected pursuant to Section 2.1 and Section 3.1 will not be deemed to have been effected unless it has become effective and has remained continuously effective until the earliest to occur of (such date being referred to herein as the “Termination Date”): (i) a registration statement covering the Registrable Securities in accordance with this Agreement has been declared effective by the Commission and such Registrable Securities have been disposed of pursuant to such effective registration statement, (ii) the Registrable Securities are sold pursuant to Rule 144 or Rule 145 (or any similar provisions then in force) under the Securities Act or (iii) the Registrable Securities held by the Holder can be sold pursuant to Rule 144 or Rule 145 (or any similar provisions then in force) without regard to the volume limitations set forth in Rule 144 or Rule 145 (or any similar provisions then in force), as applicable.

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ARTICLE 3

REGISTRATION PROCEDURES

3.1 Filings; Information.

Whenever any Registrable Securities are to be registered pursuant to this Agreement:

(a) The Company will as expeditiously as possible in accordance with Section 2.1(a) (i) prepare and file with the Commission a registration statement on (i) Form S-3 with respect to the Mandatory Registration or (ii) if Form S-3 is not available, any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution reasonably acceptably to the Holder and the Company (provided such distribution shall not consist of an underwritten public offering), and the Company shall use its best efforts to cause such filed registration statement to become effective as soon as practicable in accordance with this Agreement.

(b) The Company will prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement in accordance with the intended method of distribution in accordance with Section 3.1(a) until the Termination Date.

(c) The Company will, prior to filing a registration statement or prospectus or any amendment or supplement thereto, furnish to the Holder and its counsel copies of such registration statement as proposed to be filed, together with exhibits thereto, which documents will be subject to review by the foregoing within three (3) Business Days after delivery, and thereafter furnish to the Holder and its counsel such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as the Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by the Holder.

(d) After the filing of the registration statement, the Company will promptly notify the Holder covered by such registration statement of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered.

(e) The Company will use its best efforts to (i) register or qualify the Registrable Securities under such other securities or blue sky laws of such jurisdictions in the

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United States and such other jurisdictions (including in Canada) as the Holder reasonably (in light of the Holder’s intended plan of distribution) requests and (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities in the United States and Canada as may be necessary by virtue of the business and operations of the Company and the Holder’s intended plan of distribution and do any and all other acts and things that may be reasonably necessary or advisable to enable the Holder to consummate the disposition of the Registrable Securities owned by the Holder.

(f) The Company will immediately notify the Holder of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and will promptly make available to the Holder any such supplement or amendment.

(g) The Company will deliver promptly to the Holder, subject to restrictions imposed by the United States federal government or any agency or instrumentality thereof, copies of all correspondence between the Commission and the Company and its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement. The Company will make available to the Holder appropriate officers of the Company to answer any questions that the Holder may have with respect to the contents of the registration statement to the extent reasonably necessary to conduct reasonable due diligence on the Company and the matters addressed in the registration statement.

(h) The Company will use its best efforts to comply with all applicable rules and regulations of the Commission and under all applicable securities laws in Canada and the rules and regulations of all securities regulatory authorities in Canada and, and make available to its securityholders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder and laws and rules of similar effect in Canada.

(i) The Company will use its best efforts to cause all Registrable Securities to be listed on the NASDAQ National Market or, upon, The Nasdaq Stock Market, Inc.’s registration as a national securities exchange, the NASDAQ Global Market (which will be the successor to the NASDAQ National Market).

(j) The Company may require the Holder to promptly furnish in writing to the Company such information regarding the distribution of the Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration.

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(k) The Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.1(g) hereof, the Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until the Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3.1(g) hereof, and, if so directed by the Company the Holder will deliver to the Company all copies, other than permanent file copies then in the Holder’s possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 3.1(b) hereof) by the number of days during the period from and including the date of the giving of notice pursuant to Section 3.1(g) hereof to the date when the Company shall make available to the Holder covered by such registration statement a prospectus supplemented or amended to conform with the requirements of Section 3.1(g) hereof.

3.2 Registration Expenses.

In connection with any registration statement filed pursuant to Section 2.1, the Company shall pay the following registration expenses incurred in connection with any registration hereunder (the “Registration Expenses”): (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), (iii) printing expenses, (iv) the Company’s internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) fees and expenses incurred in connection with the listing of the Registrable Securities, (vi) reasonable fees and disbursements of counsel for the Company and not more than one counsel for the Holder, as may be chosen by the Holder, and customary fees and expenses for independent certified public accountants retained by the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letters requested pursuant to Section 3.1 hereof), and (vii) reasonable fees and expenses of any special experts retained by the Company in connection with such registration.

The Company shall have no obligation to pay any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities.

ARTICLE 4

INDEMNIFICATION AND CONTRIBUTION

4.1 Indemnification by the Company.

To the fullest extent permitted by law, the Company agrees to indemnify and hold harmless the Holder, its officers, directors, employees and agents, and each person, if any, who controls the Holder within the meaning of the Securities Act from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to,

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any loss, claim, damage, liability or action relating to purchases and sales of LSI Common Shares) to which the Holder, officer, director, employee or agent or controlling Person may become subject under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement, preliminary prospectus or final prospectus or any amendment or supplement thereto relating to the Registrable Securities or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and shall reimburse the Holder and each such officer, director, employee, agent and controlling Person for any legal and other expenses reasonably incurred by the Holder, officer, director, employee, agent or controlling Person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred, except insofar as the same are contained in any information furnished in writing to the Company by the Holder expressly for use therein; provided, however, that the Company shall not be liable to the Holder or such Person’s directors, officers, agents or controlling Persons, in any such case for any such loss, claim, damage or liability to the extent that it arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in connection with such registration statement, preliminary prospectus, final prospectus or amendments or supplements thereto, in conformity with written information relating to the Holder furnished to the Company by the Holder expressly for inclusion therein in connection with such registration; and, provided, further, that as to any preliminary prospectus or any final prospectus, this indemnity agreement shall not inure to the benefit of the Holder or such Person’s directors, officers, agents or controlling Persons, on account of any loss, claim, damage or liability arising from the sale of Registrable Securities to any Person by the Holder if the Holder or its representatives failed to send or give a copy of the final prospectus or a prospectus supplement, as the case may be (excluding documents incorporated by reference therein), as the same may be amended or supplemented, to that Person within the time required by the Securities Act, and the untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in such preliminary prospectus or final prospectus was corrected in the final prospectus or such prospectus supplement, as the case may be (excluding documents incorporated by reference therein), unless such failure resulted from the non-compliance by the Company with Section 3.1(f). The indemnities provided by this Section 4.1 shall remain in full force and effect regardless of any investigation made by or on behalf of the Holder. Notwithstanding the foregoing, the indemnity set forth in this Section 4.1 shall not apply to amounts paid in settlement effected without the consent of the Holder (which consent shall not be unreasonably withheld or delayed).

4.2 Indemnification by the Holder.

To the fullest extent permitted by law, the Holder agrees to indemnify and hold harmless the Company its officers, directors and agents and each Person, if any, who controls the Company within the meaning of the Securities Act to the same extent as the indemnity from the Company to the Holder pursuant to clauses (i) and (ii) of Section 4.1, but only with reference to information related to the Holder furnished in writing by the Holder or on the Holder’s behalf expressly for use in any registration statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus; provided will be limited to the net amount of proceeds received by the Holder from the sale of Registrable

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Securities pursuant to such Registration Statement. Notwithstanding the foregoing, the indemnity set forth in this Section 4.2, shall not apply to amounts paid in settlements effected without the consent of the Holder (which consent shall not be unreasonably withheld or delayed).

4.3 Conduct of Indemnification Proceedings.

Promptly after receipt by any person in respect of which indemnity may be sought pursuant to Section 4.1 or 4.2 (an “Indemnified Party”) of notice of any claim or the commencement of any action, the Indemnified Party shall, if a claim in respect thereof is to be made against the person against whom such indemnity may be sought (an “Indemnifying Party”) notify the Indemnifying Party in writing of the claim or the commencement of such action, provided that the failure to notify the Indemnifying Party shall not relieve it from any liability which it may have to an Indemnified Party otherwise than under Section 4.1 or 4.2, except to the extent of any actual prejudice resulting therefrom. If any such claim or action shall be brought against an Indemnified Party, and it shall notify the Indemnifying Party thereof, the Indemnifying Party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified Indemnifying Party, to assume the defense thereof with counsel satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party of its election to assume the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided that the Indemnified Party shall have the right to employ separate counsel to represent the Indemnified Party and its controlling Persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, but the fees and expenses of such counsel shall be for the account of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of such Indemnified Party representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding.

4.4 Contribution.

If the indemnification provided for in this Article 4 is unavailable to the Indemnified Parties in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, liabilities or expenses as between the Company, on the one hand, and the Holder, on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of the Holder in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Holder, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state

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a material fact relates to information supplied by such party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

The Company and the Holder agree that it would not be just and equitable if contribution pursuant to this Section 4.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.4, the Holder shall not be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities were offered to the public (less underwriting discounts and commissions) exceeds the amount of any damages which the Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

ARTICLE 5

MISCELLANEOUS

5.1 Rule 144 and Rule 145.

The Company covenants that it will file any reports required to be filed by it under the Securities Act and the Exchange Act and that it will take such further action as the Holder may reasonably request, all to the extent required from time to time to enable the Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 or Rule 145 under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of the Holder, the Company will deliver to the Holder a written statement as to whether it has complied with such requirements.

5.2 No Inconsistent Agreements.

The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holder in this Agreement.

5.3 Successors and Assigns.

(a) Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities) who shall, upon such successions or assignment, as the case may be, be entitled to the rights of the Holder hereunder and shall be deemed a “Holder” for this Agreement; provided further the rights to cause the Company to register Registrable Securities pursuant to Article 2 may only be assigned pursuant to the terms of Section 5.3(b). Nothing in this Agreement, express or implied, is intended to

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confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. In addition, the Holder shall be entitled to transfer any rights hereunder to any Affiliate, subject solely to the obligation that such member notify the Company of such assignment in writing and agree in writing to be bound by the terms of this Agreement.

(b) The rights to cause the Company to register Registrable Securities pursuant to Article 2 may be assigned (but only with all related obligations) by the Holder to Fred Jalbout or Bassam Jalbout, their immediate family members, or any entity which is wholly owned by such person or a trust established solely for the benefit of one or more such persons, upon the transfer to such Person(s) of Registrable Securities, provided that: (a) the Company is, at the time of or within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the securities with respect to which such registration rights are being assigned; and (b) such transferee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including the execution of an Adoption Agreement in the form attached hereto as Exhibit A.

5.4 No Waivers, Amendments.

(a) Except as expressly set forth herein, no failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

(b) Any amendment, modification or supplement to this Agreement shall not be enforced against any party hereto unless such amendment, modification or supplement is signed by the Company and the Holder.

(c) Any provision of this Agreement may be waived if, but only if, such waiver is in writing and is signed by the party against whom the enforcement of such waiver is sought.

5.5 Notices.

All notices, requests and other communications to any party hereunder shall be in writing (including telex, telecopier or similar writing) and shall be given to such party at its address or telecopier number set forth below, or such other address or telecopier number as such party may hereinafter specify for the purpose to the party giving such notice. Each such notice, request or other communication shall be effective (a) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and the appropriate answerback is received or, (b) if given by overnight courier or express mail service, when delivery is confirmed or, (c) if given by any other means, when delivered at the address specified in this Section 5.5. In each case, notice shall be sent to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

(i) if to the Company:

LSI Industries Inc.

P.O. Box 42728

10000 Alliance Road

Cincinnati, Ohio 45242

Attention: Ronald S. Stowell

Facsimile No.: (513) 791-0813

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with a copy to:

Keating Muething & Klekamp PLL

One East Fourth Street, Suite 1400

Cincinnati, Ohio 45202

Attention: Paul V. Muething

Facsimile No.:(513) 579-6457

(ii) if to the Holder:

Saco Technologies Inc.

260 Strathcona

Mont-Royal, QC

H3R 1E7

Attention: Fred Jalbout

Facsimile No.: (514) 745-1299

with a copy to:

Davies Ward Phillips & Vineberg LLP

1501 McGill College Avenue, 26^th Floor

Montreal, Quebec, Canada H3A 3N9

Attention: Denis Ferland

Facsimile No.: (514) 841-6499

5.6 Terms of Agreement.

This Agreement shall terminate at such time as the Holder ceases to beneficially own any Registrable Securities; provided that any termination pursuant to this Section 5.6 will not relieve any party for any liability arising from a breach of representation, warranty, covenant or agreement occurring prior to such termination.

5.7 Governing Law; Submission to Jurisdiction.

The Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to its conflict of law provisions. Each of the parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement or for the recognition and enforcement of any judgment in respect hereof brought by the other party hereto or its, his or her executors, heirs, legal representatives, successors or permitted assigns

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may be brought and determined in any federal or state court located in New York, New York, and each of the parties hereby irrevocably submits with regard to any action or proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each of the parties hereby irrevocably waives and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to lawfully serve process, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (c) to the fullest extent permitted by applicable law, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper and (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.

5.8 Section Headings.

The section headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

5.9 Entire Agreement.

This Agreement and the Exhibit attached hereto constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, written or oral, relating to the subject matter hereof.

5.10 Severability.

Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdictions, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.

5.11 Counterparts.

This Agreement may be signed in counterparts, each of which shall constitute an original and which together shall constitute one and the same agreement.

5.12 Parties in Interest.

This Agreement and all the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors. Except as expressly set forth herein, neither this Agreement nor any of their rights hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties.

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5.13 Enforcement; Further Assurances.

(a) The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms. It is accordingly agreed that the parties shall be entitled to specific performance of the terms hereof, this being in addition to any other remedy to which they are entitled at law or in equity.

(b) The parties hereto agree to execute, acknowledge, deliver, file and record such further certificates, amendments, instruments, agreements and documents, and to do all such other acts and things, as may be required by law or as may be necessary or advisable to carry out the intent and purposes of this Agreement.

[Remainder of this page intentionally left blank.]

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above.

LSI INDUSTRIES INC.
By:	/s/ Ronald S. Stowell
Name:	Ronald S. Stowell
Title:	Vice President, Chief Financial Officer, and Treasurer
SACO TECHNOLOGIES INC.
By:	/s/ Fred Jalbout
Name:	Fred Jalbout
Title:	President

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EXHIBIT A

ADOPTION AGREEMENT

This Adoption Agreement (“Adoption Agreement”) is executed by the undersigned (the “Transferee”) pursuant to the terms of that certain Registration Rights Agreement, dated as of June 26, 2006 (the “Agreement”), by and between LSI Industries Inc. and Saco Technologies Inc. Capitalized terms used but not defined herein shall have the respective meanings ascribed to such terms in the Agreement. By the execution of this Adoption Agreement, the Transferee agrees as follows:

1. Acknowledgement. Transferee acknowledges that Transferee is acquiring certain shares of the capital stock of the Company (the “Stock”), which shares are subject to the terms and conditions of the Agreement.

2. Agreement. As partial consideration for such transfer, Transferee (i) agrees that the Stock acquired by Transferee shall be bound by and subject to the terms of the Agreement, to the same extent and with the same rights and obligations as the person(s) from which such Stock is received and (ii) hereby agrees to become a party to the Agreement with the same force and effect as if Transferee were originally a party thereto.

3. Notice. Any notice required or permitted by the Agreement shall be given to Transferee at the address listed beside Transferee’s signature below.

4. Joinder. The spouse of the undersigned Transferee, if applicable, executes this Adoption to acknowledge its fairness and that it is in such spouse’s best interests and to bind to the terms of the Agreement such spouse’s community interest, if any, in the Stock.

EXECUTED AND DATED this      day of                 ,         .

TRANSFEREE:

Title:

Address:

Fax:

Spouse: (if applicable):

Name:

Acknowledged and accepted on                                 ,                     .

LSI INDUSTRIES INC.

By:

Name:

Title:

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EX-10.3

Exhibit 10.3

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of the 26th day of June, 2006, by and between 4349466 CANADA, INC., a corporation duly incorporated under the Canadian Business Corporations Act (the “Company”), and FRED JALBOUT (the “Employee”).

WHEREAS LSI Industries Inc. (“LSI”) has agreed to purchase from Saco Technologies Inc. (the “Seller”) all of the issued and outstanding Common Stock of the Company and to carry on the Business (as hereinafter defined) as LSI Saco Technologies Inc. pursuant to a Stock Purchase Agreement dated of even date herewith (the “Purchase Agreement”);

WHEREAS it is a condition precedent to LSI and the Company entering into the Purchase Agreement that the Employee enter into this Agreement with the Company in the form hereof;

WHEREAS the Employee shall become employed by the Company from and after the Closing Date;

WHEREAS the parties agree that the Company requires the protection of its legitimate business interests;

WHEREAS the parties consequently desire to enter into this Agreement setting forth the terms and conditions of the employment of the Employee with the Company and the benefits attaching thereto.

1. ENTIRE AGREEMENT

This Agreement (including any attachments and exhibits hereto, and any ancillary agreements, as the case may be), contains the entire agreement as to the terms of the Employee’s employment with the Company and replaces and supersedes all previous negotiations, understandings, arrangements and agreements, whether written or verbal, express or implied between the parties. No other representations, covenants, undertakings or other prior or contemporaneous agreements, oral or written, relating to the Employee’s employment will be deemed to exist or to bind either the Employee or the Company. Both the Company and the Employee understand and agree that they have not relied on any statement or representation by the other party or any of its representatives in entering into this Agreement, except where such statements and representations are set forth herein. This Agreement shall not in any way limit or restrict the scope of the undertakings of the Employee contained, as the case may be, in the Purchase Agreement as seller or owner thereunder.

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2. DEFINITIONS

For the purposes of this Agreement, the following terms have the meanings set out below:

“Affiliate” means with respect to any Person, any other Person directly or indirectly controlled, by or under common control with that other Person, including any subsidiaries or other entities controlled by that other Person.

“Business” means the development, design, manufacture and sale of large-format video screens and high-performance light engine devices derived from light emitting diode technology.

“Person” means an individual, corporation, company, co-operative, partnership, trust, unincorporated association, entity with juridical personality, governmental authority or governmental body.

“Territory” means the United States, Canada and any other country in which products of the Company’s Business have been sold, leased or distributed in the 12 months preceding the date of this Agreement.

3. TERM OF AGREEMENT

The term of this Agreement shall be for an initial three (3) year term commencing effective as of the date first set forth above and terminating on third anniversary of such date (the “Term”). Thereafter, this Agreement may be renewed at the election of the Company, in its sole discretion, for successive one year periods by giving sixty (60) days written notice of such renewal prior to the end of the then current Term; provided the Employee may elect not to renew this Agreement by giving the Company written notice of such election within fifteen (15) days of receipt of such notice.

4. DUTIES AND RESPONSIBILITIES

4.1 During the Term, the Employee shall:

(a) Serve as President of LSI Technology Solutions Plus and President and Chief Executive Officer of the Company and perform all duties customarily attendant to such position and such other duties as may be assigned from time-to-time by the Chief Executive Officer or the Chairman of the Board of LSI;

(b) Do all that is reasonably within the Employee’s power to promote, develop and extend the operations and favourable reputation of the Company;

(c) Devote the Employee’s full time effort, skill, attention and energies to the performance of the Employee’s duties of employment under this Agreement and in all respects carry out the objectives of the Company as well as diligently and faithfully serve the Company and promote its

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interests in all matters to the best of the Employee’s ability and judgment; and

(d) Furnish, in a timely manner, all information, reports, disclosures, assistance and explanations in connection with the performance of the Employee’s duties under this Agreement as may be required from time to time.

5. COMPENSATION

5.1 The Company agrees to pay the Employee an annual base salary, less deductions properly withheld by law, for all services provided under this Agreement of CAN$227,000.00, payable in accordance with the normal payroll practices of the Company. The Board of Directors of LSI shall conduct an annual review of the services rendered by the Employee hereunder for the preceding year and may, at its sole discretion, determine to increase the Employee’s base salary in such amount as the Board may determine.

5.2 On the date of execution of this Agreement, Employee shall receive a one time grant of options to purchase 20,000 shares of LSI’s Common Stock at a purchase price equal to the fair market value of the stock on the date of grant. Such options will be granted pursuant to the 2003 LSI Industries Inc. Equity Compensation Plan, as amended November 6, 2003, as such shall be amended from time to time (the “Plan”). During the Term, the Employee shall be eligible to participate in the Plan, subject to the terms and conditions of the Plan.

5.3 Commencing on July 1, 2007, the Employee shall be eligible to receive a bonus equal to between 20% and 50% of the Employee’s annual base salary as stated in Section 5.1 which shall be paid at the sole discretion of the Board of Directors of LSI. Such bonus shall be an amount determined by the Board of Directors of LSI in their sole discretion.

5.4 The Employee shall be eligible to participate in a Deferred Compensation Plan, subject to its terms, and shall receive an annual contribution in an amount equivalent to that amount contributed to other similarly situated employees of LSI pursuant to LSI’s Retirement Plan.

6. EXPENSES

The Company shall reimburse the Employee for reasonable expenses incurred in the course of performing his duties pursuant to this Agreement, the whole subject to Company policy for reimbursement of such expenses, which policy may be amended from time to time by the Company.

7. BENEFITS AND VACATION

7.1 The Employee shall be entitled to participate in such group [RRSP], medical, dental, visual and/or disability plans, if any, as may be provided (and amended or

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replaced) by the Company for its employees, subject to the Employee meeting and sustaining qualification and eligibility requirements for such plans.

7.2 During the Term, the Employee will be entitled to an annual vacation of four (4) weeks, to be taken at times mutually agreed upon between the Employee and the Company. The Employee shall not be entitled to carry forward any days of vacation beyond the year in which the Employee became entitled to such vacation.

8. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION

8.1 The Employee agrees that, during the Term and thereafter, the Employee will not, directly or indirectly, disclose to any Person or entity, or use for the benefit of the Employee or any Person or entity, any confidential, non-public, secret or proprietary information relating to the Business, prospects, or plans of the Company or its Affiliates (“Confidential Information”). The Employee shall not be in violation of this section for a disclosure pursuant to a court action or governmental rule, regulation, or other proceeding (“Ordered Disclosure”) provided that the Employee has notified the Company of the Ordered Disclosure within two business days of being notified of the request for Ordered Disclosure. The Employee agrees to cooperate in good faith with the Company in responding to the Ordered Disclosure in order to prevent, limit or impose restrictions on the Ordered Disclosure. In no event, however, shall this section require the Employee to take action or otherwise be in violation of any law relating to the Ordered Disclosure.

8.2 On cessation of the Employee’s employment with the Company for whatever reason, the Employee shall immediately provide to the Company all working papers, reports, manuals, documents, and the like (including all originals and copies) in the Employee’s possession which contain Confidential Information (which are acknowledged by the Employee as being the property of the Company) and any other property belonging to the Company or its Affiliates in the Employee’s possession.

8.3 The Employee agrees that, during the Term and thereafter, the Employee will not disclose, or cause to be disclosed, any negative, adverse or derogatory comments or information of a substantial nature about:

(a) the Company or its Affiliates, or any management member of the Company or its Affiliates;

(b) any products or services provided by the Company or its Affiliates; or

(c) the prospects for the future of the Company or its Affiliates.

8.4 Subsequent to the cessation of the Employee’s employment with the Company, for whatever reason, the Company may seek the assistance, cooperation or testimony of the Employee in connection with any investigation, litigation or

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proceeding arising out of matters within the knowledge of the Employee and related to the Employee’s position with the Company. The Employee shall provide assistance, cooperation or testimony as reasonably required by the Company. If such assistance, cooperation or testimony requires more than a nominal commitment of the Employee’s time, the Company will compensate the Employee for such time at a per diem rate derived from the Employee’s salary at the time of the Employee’s employment with the Company ended as well as all other reasonable costs and expenses incurred by the Employee, acting reasonably, associated with the Employee’s assistance pursuant to this section.

9. COVENANT NOT TO SOLICIT OR COMPETE WITH THE BUSINESS

9.1 The Employee agrees that during the Term and for a period of twenty-four (24) months following the cessation of the Employee’s employment for whatever reason, the Employee shall not, directly or indirectly, on his own behalf or on behalf of, or in connection with, any other Person, as principal, agent, creditor, advisor, consultant, owner, partner, independent contractor, employee, shareholder, director, officer or in any capacity whatsoever:

(a) employ, offer employment to, solicit the employment or service of, or procure or assist any Person to employ, offer employment to, solicit the employment or service of, or otherwise entice away from the employment or service of the Company or its Affiliates, any Person who is employed by the Company or its Affiliates;

(b) canvas or solicit or accept or interfere with the business of any Customer, or procure or assist in the canvassing or soliciting of the business of any Customer, or canvas or solicit or accept the business of any Prospective Customer, or procure or assist in the canvassing or soliciting of any Prospective Customer.

9.2 The Employee and the Company agree that the following terms shall have the following meanings:

(a) “Customer” shall mean any and all Persons having, to the knowledge of the Employee, purchased services from the Company or its Affiliates at any time during the twelve (12) months preceding the termination of the Employee’s employment;

(b) “Prospective Customer” shall mean any Person canvassed or solicited by the Company or its Affiliates, to the knowledge of the Employee, at any time during the twelve (12) months preceding the termination of the Employee’s employment, irrespective of whether or not such Person thereafter purchased services from the Company or its Affiliates.

9.3 The Employee acknowledges that the Employee is a key employee occupying a special relationship with the Company and consequently the Employee, during the Term, will receive from the Company, special knowledge and Confidential

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Information of the Company, including, but not limited to, corporate books and records, financial information, personnel information, lists of customers and suppliers, processes or dealings, patents, inventions, discoveries, information, data, programs, know-how, knowledge and other trade secrets. The Employee also acknowledges that this special knowledge and Confidential Information are valuable to the Company and, therefore, their protection and maintenance constitute a legitimate interest to be protected by the Company by the enforcement of a covenant not to compete. Consequently, the Employee agrees that during the Term and for a period of twenty-four (24) months after the Employee’s resignation or the termination of the Employee’s employment with the Company, as the case may be, on his own behalf, or on behalf of, or in connection with, any Person, whether directly or indirectly, as principal, agent, creditor, advisor, consultant, owner, partner, independent contractor, employee, shareholder, director, officer, or in any capacity whatsoever, carry on or be engaged in or have any financial or other interest in, or be otherwise commercially involved in any endeavour, activity or business in all or part of the Territory, which is substantially the same or is in competition, in whole or in part, with the Business.

9.4 The Employee shall not be in breach of this Section 9 by virtue of his holding, as a passive investor, not more than 5% of the issued and outstanding shares of a corporation which is listed on a recognized stock exchange or by reason of providing part-time services to a charity, not-for-profit organization or educational institution for which the Employee does not receive any compensation or remuneration.

9.5 The Employee acknowledges that a remedy at law for any breach or attempted breach of this Section 9 will be inadequate and that any breach of this Section 9 will result in irreparable harm to the Company. Accordingly, the Company shall, in addition to any other remedy that may be available, be entitled to specific performance and injunctive and other equitable relief in case of any such breach or attempted breach.

9.6 The Employee acknowledges that this Section 9 contains reasonable limitations as to time, geographical area and scope of activity to be restrained that do not impose a greater restraint than is reasonable or necessary to protect the goodwill or other legitimate business interests of the Company.

10. TERMINATION OF AGREEMENT BY THE COMPANY

10.1 “Cause” shall mean the following events or conditions:

(a) the Employee’s commission of a criminal act or other indictable offence (other than minor misdemeanors) pursuant to the provisions of the Criminal Code (Canada) or any other criminal or penal statute of any jurisdiction, which the Company reasonably determines may have an

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adverse effect upon the reputation or goodwill of the Company or its Affiliates or on the performance of the Employee’s duties;

(b) a breach by the Employee of, or the Employee’s failure or refusal to perform, in any material respect, any of the Employee’s obligations under this Agreement or any other agreement between the Employee and the Company, where the Employee fails to cure such deficiency within ten (10) days after receipt of notice thereof (provided, however, that no notice shall be given in the event of a breach by the Employee, of any of the restrictive covenants which are set forth in Section 9);

(c) the Employee’s commission of any immoral act that would bring disrepute to LSI, the Company or the Business;

(d) a material breach by the Employee of his duties towards the Company or its Affiliates, where the Employee fails to cure such deficiency in all material respects within ten (10) days after receipt of notice thereof;

(e) theft, fraud, embezzlement from the Company or its Affiliates or any other material act of dishonesty relating to the Employee’s employment;

(f) gross negligence or willful misconduct or fraud by the Employee in the performance of his duties; and

(g) any other matter which, pursuant to applicable law, constitutes serious reason for termination without either notice or payment in lieu of notice.

10.2 Termination of Agreement for Cause.

The Company may terminate this Agreement for Cause, upon simple notice from the Company to the Employee, without providing the Employee other notice, severance pay, pay in lieu of notice, or any indemnity whatsoever, except as may otherwise be required by applicable law.

10.3 Termination of Agreement Without Cause.

The Company may terminate this Agreement without Cause at any time upon written notice, provided the Company shall be obligated to the Employee, at its election, either (a) continue to pay the Employee the Employee’s base salary payable in accordance with the normal payroll practices of the Company for the remainder of the then current Term, or (b) provide the Employee with a lump sum payment representing the Employee’s then monthly base salary, less deductions required to be withheld by law, for the remainder of the then current Term. In exchange for this payment, the Employee undertakes to execute a full and complete release of all claims against the Company, its Affiliates and their employees, officers, directors, agents and shareholders, in a form to be determined by the Company, the whole at the Company’s sole discretion.

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10.4 Termination of Agreement Due to Death of the Employee.

This Agreement shall automatically terminate on the death of the Employee and the Company shall have no further obligations to the Employee or to the Employee’ estate pursuant to this Agreement. Any entitlements under this Agreement or otherwise accrued by the Employee at the time of the Employee’s death not yet paid to the Employee will be paid to the appropriate legal designate of the Employee.

11. NOTICES

The parties agree that any notice to be given pursuant to this Agreement, shall be deemed to have been adequately given if such notice is (a) mailed by prepaid, registered post to the party for whom the notice is intended, (b) delivered personally, (c) sent by an internationally recognized overnight courier service with next day delivery guaranteed and delivery charges prepaid, to the following address:

To the Company:

LSI Industries

10000 Alliance Road

Cincinnati, Ohio 45242

Attention: Ronald S. Stowell

With a required copy to:

Keating Muething Klekamp PLL

One East Fourth Street, Suite 1400

Cincinnati, Ohio 45202

Attention: Paul V. Muething

To the Employee:

Fred Jalbout

260 Strathcona

Mont-Royal, QC

H3R 1E7

With a required copy to:

Davies Ward Phillips & Vineberg LLP

1501 McGill College Avenue, 26^th Floor

Montreal, Canada H3A 3N9

Attention: Denis Ferland

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12. GENERAL

12.1 If any part or parts of this Agreement shall be held illegal or null and void by any Court or administrative body of competent jurisdiction, such determination shall not affect the remaining parts of this Agreement and they shall remain in full force and effect as if such part of parts determined illegal or void had not been included in the Agreement.

12.2 All dollar amounts referred to in this Agreement, unless otherwise specified, are in Canadian funds.

12.3 All payments in this Agreement will be subject to applicable income tax and other deductions normally made by the Company and required by law.

12.4 This Agreement shall be governed and construed under and in accordance with the laws of the Province of Quebec.

12.5 This Agreement may not be modified or amended except by instrument in writing signed by the parties to this Agreement.

12.6 Any party to this Agreement may change its address for notice set out in Section 11 in this Agreement by notice of the change of address to the other party.

12.7 This Agreement is personal to the Employee and shall not be assigned by him. The Employee shall not hypothecate, delegate, encumber, alienate, transfer, or otherwise dispose of the Employee’s rights and duties under this Agreement. The Company may assign this Agreement without the Employee’s consent to any other entity and on such assignment, the provisions of this Agreement applicable to the Company shall be construed as being applicable to the entity to which this Agreement has been assigned. This Agreement shall enure to the benefit of and be binding on the successors and permitted assigns of the Company.

12.8 Waiver of any breach of this Agreement is not a waiver of any subsequent breach of this Agreement, nor is any forbearance to seek a remedy for any breach a waiver of any rights and remedies with respect to any subsequent breach.

12.9 If any clause, section, phrase, provision, or portion of this Agreement or its application to any person or circumstance shall be held invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Agreement and shall not affect the application of any clause, provision, or portion to other persons or circumstances.

12.10 The Employee agrees that Sections 8 and 9 of this Agreement shall survive any change, modification, or alteration to any of the terms of the Employee’s employment as well as the termination of the Employee’s employment for any reason whatsoever.

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12.11 The Employee acknowledges that he has had full opportunity to review and consider the content of this Agreement and to obtain adequate and independent legal advice with respect to this Agreement, prior to its execution by the Employee. Further, the Employee acknowledges and represents that the Employee does execute this Agreement voluntarily with full knowledge of its terms and conditions.

12.12 The parties hereto acknowledge that they have requested and are satisfied that this Agreement and all related documents be drawn up in the English language. Les parties aux présentes reconnaissent avoir requis que la présente entente et les documents qui y sont relatifs soient rédigés en anglais.

SIGNATURE PAGE TO FOLLOW.

4349466 CANADA, INC.		FRED JALBOUT
Per:	/s/ Ronald S. Stowell		/s/ Fred Jalbout
	Authorized Signatory		Fred Jalbout
			Witness

EX-10.4

Exhibit 10.4

LEASE AGREEMENT

BETWEEN:	3970957 Canada Inc., a corporation incorporated under the laws of Canada (the “Landlord”);
AND:	4349466 Canada Inc., a corporation incorporated under the laws of Canada, which immediately after the Commencement Date shall be renamed LSI Saco Technologies Inc. (the “Tenant”).

1. LEASED PREMISES

1.1 By these presents, the Landlord leases to the Tenant and the Tenant accepts to lease from the Landlord (the present agreement being hereinafter referred to as the “Lease”), under the terms and conditions hereinafter provided, premises (the “Leased Premises”) composed of approximately thirty-one thousand nine hundred (31,900) square feet, bearing civic numbers 7809 and 7815 Trans Canada Highway, City of Montréal (Borough of Saint-Laurent), Province of Québec, H4S 1L3 (the “Building”), erected on the Land described as lot one million one hundred sixty-four thousand two hundred and thirty-six (1,164,236) of the Cadastre du Québec, Registration Division of Montréal (the “Land”), the Land and the Building erected thereon are hereinafter referred to as the “Property”) , the whole as the Leased Premises are more fully outlined in red on Schedule “A” attached hereto.

1.2 The area of the Leased Premises is to be measured prior to the Commencement Date by an architect appointed by the Landlord, at its sole expense, in accordance with the National Association of Building Owners and Managers Standard Method of Floor Measurement as approved in June 7, 1996. Such measurement shall be final an binding all parties.

2. TERM

2.1 The term of the Lease shall be for three (3) years (such initial term is hereinafter referred to the “Initial Term” and the Initial Term and any renewal thereof is hereinafter referred to as the “Term”) commencing on June 26, 2006 (herein the “Commencement Date”) and ending on June 26, 2009.

2.2 Provided the Tenant is not in material default under the Lease, the Tenant shall have three (3) options to renew the Term for an additional period of three (3) years each, upon prior written notice to the Landlord of its intention to renew the Lease not less than six (6) months prior to the expiration of the Term, on the same terms and conditions as are contained in this Lease, except that (i) there will be no further option to renew (other than the options contemplated herein) and (ii) the Minimum Rent (as such term is defined

hereunder) shall be adjusted, for the first, second and third renewal period, based upon the percentage difference in the CPI (as such term is defined hereunder) between (a) the CPI on the day of the beginning of the then current three (3) year period Term and (b) the CPI on the day that is three (3) months prior to the date of the exercise of the Tenant’s right to renew the Term.

2.3 For the purpose of this Section, “CPI” means the Consumer Price Index (all items) for the region of Montréal as published by Statistics Canada or any successor body or, in the absence of such index or successor body, the index most closely corresponding thereto, subject to appropriate adjustments if the method of calculation or basis of comparison differs.

3. NET RENTAL

3.1 In consideration of the rental of the Leased Premises, the Tenant covenants and agrees to pay to the Landlord throughout the Term, the sum of CAD$16,615.66 per month, payable in advance on the first day of each month (the “Minimum Rent”) (as determined to be the market rental value of such property pursuant to the summary report attached hereto as Exhibit A). In the event that the first day or the last day of the Term is not the first or the last day of a calendar month, as the case may be, the Minimum Rent shall be calculated on a “per diem” basis for those months. All payments will be payable to the Landlord in Canadian Dollars, at its offices located at 260 Strathcona; Mont-Royal, QC; H3R 1E7, or at any other location or to any other person that the Landlord may from time to time reasonably request in writing.

3.2 It is the intention of the parties and the Tenant acknowledges that the Minimum Rent is entirely “net” to the landlord, and the Tenant shall be responsible for all costs, charges or expenses of any kind whatsoever arising from or relating to the Leased Premises, the contents thereof or the business carried on therein or thereon and the Lessee shall pay all such costs, charges and expenses to the Landlord’s complete and entire exoneration. Any cost, charge or expense contemplated herein paid or payable by the Tenant and which is recovered by the Landlord under or in respect of any insurance policy, legal or contractual warranty or guaranty or claim for damages or indemnification against a third person shall be reimbursed to the Tenant.

3.3 In addition to the Minimum Rent, throughout the term, the Tenant shall pay the following:

(a) all real estate taxes, rates, duties, assessments and other charges that are levied, rated, charged or assessed against or in respect of the Leased Premises and all improvements, equipment and facilities of the Tenant on or in the Leased Premises or any part thereof;

(b) every tax and license fee which is levied, rated, charged or assessed against or in respect of every business carried on in the Leased Premises or in respect of the use or occupancy thereof or any part of the Leased Premises by the Tenant; and

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(c) the full amount of any taxes in the nature of a business transfer tax, value added tax, sales tax or any other tax levied, rated, charged or assessed against the Landlord or the Tenant in respect of the Rent (as such term is defined hereunder) payable by the Tenant under this Lease or in respect of the rental of space under this Lease, whether characterized as a goods and services tax, sales tax, value added tax, business transfer tax or otherwise.

Taxes payable pursuant to paragraphs (i) and (ii) shall be paid by the Tenant to the lawful taxing authority when due, and within thirty (30) days of written request of the Landlord Tenant shall produce evidence of such payment to the Landlord. Taxes payable pursuant to paragraph (iii) shall be paid to the Landlord at the time required by applicable Law (as such term is defined hereunder). Without limiting the generality of the foregoing, the Tenant shall be solely responsible for and pay the Goods and Services Tax (GST) and Quebec Sales Tax (QST) payable on the Minimum Rent referred to in Section 3.1 above and any Additional Rent, as well as any new (future) business tax that might be levied by any taxing authority, and which business tax would normally be paid by a tenant during the Term of the Lease, and any capital tax pursuant to any taxation legislation, payable by the Landlord with respect to the Property. Notwithstanding anything in this Lease to the contrary, Tenant shall not have any obligation to pay Landlord’s federal and provincial income and other taxes, nor shall they include any taxes on capital or large corporations’ taxes not related to the ownership by the Landlord of the Property.

Throughout the Term, Tenant shall be entitled, at its expense to contest or appeal the levy or imposition of any tax for which Tenant is obligated under this Lease and any evaluation imposed with respect thereto provided such contestation or appeal is prosecuted in good faith and with reasonable diligence. Tenant may settle, compromise, consent to, waive or otherwise determine at its sole discretion all matters and things relating to such contestation or appeal. If Tenant withholds payment of any taxes (which Tenant shall only do if so permitted by law), Tenant shall give the Landlord and its hypothecate creditors, if any, such security and undertaking as they reasonable request to ensure that Tenant will pay such taxes and Tenant will indemnify and hold Landlord harmless from any costs, expenses, prosecutions, fines or other liabilities in respect to such contestations or appeals. Tenant may file contestations or appeals in Tenant’s own name, or in the name of the Landlord, should this be necessary, and Landlord agrees to execute, at the reasonable request of Tenant and at Tenant’s expense all necessary deeds and documents for the purpose thereof. Tenant shall keep landlord fully informed as to the status of any contestations or appeals.

3.4 The Tenant shall pay all costs, charges and expenses of every kind relating to the Leased Premises, and the repair, replacement, operation and management of the Leased Premises, including without limitation and by way of example only, roof replacements, entire mechanical repairs and replacements (including heating, and air conditioning systems), structural repairs, repairs to foundations and bearing walls and all other repairs and replacements both minor and major repairs, which are from time to time required to be made to the Leased Premises, as a reasonable owner who himself owns or occupies the Leased Premises for the purposes contemplated in this Lease would do. In addition, the Tenant shall be solely responsible for utilities, water taxes, heating costs, exterior and

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interior maintenance, and all other charges in respect of the Leased Premises. The Tenant shall pay as and when due all water taxes, business tax and similar rates and taxes which may be levies or imposed upon the Leased Premises or upon the business carried on therein as well as any other rates or taxes which may be payable by the Tenant as tenant or occupant thereof. If the mode of collecting such taxes be so altered as to make the Landlord liable therefore instead of the Tenant, the Landlord will pay such accounts and Tenant will repay those as additional rent on demand the amounts so paid.

3.5 The Tenant shall pay the costs of all utilities consumed or used within the Leased Premises including without limitation, the cost of water, gas electricity, fuel and/or other energy. Such utilities shall be separately metered and paid by the Tenant directly to their supplier. The Tenant shall for the costs of all fittings, machines, meters or other things leased in respect thereof and for all works and services performed by any corporation in commission in connection with any such utilities.

3.6 All sums and amounts payable by the Tenant to the Landlord pursuant to this Lease other than Minimum Rent shall constitute an “Additional Rent”. The Minimum Rent and any Additional Rent payable are herein collectively referred to as the “Rent”.

4. USE OF LEASED PREMISES

4.1 The Tenant shall use and occupy the Leased Premises for the purposes of manufacture and assembly of video screens, offices, warehousing and shipping, and for any other legal purpose.

5. ASSIGNMENT AND SUBLETTING

5.1 The Tenant may not assign or transfer this Lease or sublet the Leased Premises or a part thereof, or permit the use by a third party, (individually, a “Transfer”) without having beforehand obtained the written consent of the Landlord, which consent may not be unreasonably withheld.

5.2 Notwithstanding the foregoing, the Tenant shall be entitled to Transfer in whole or in part the Lease or the Leased Premises, as the case may be, without having to obtain the Landlord’s consent (but upon notice as hereinafter provided), in the case of any Transfer to a transferee who is an entity:

(a) affiliated to the Tenant; provided that if the transferee ceases to be an entity affiliated to the Tenant, then on the day of such event, a Transfer shall be deemed to have occurred for which the Landlord’s consent shall be required as per the terms of Section 5.1; or

(b) acquiring all or substantially all the assets of the Tenant;

(said transferee is referred to as a “Permitted Transferee” and said Transfer is referred to as a “Permitted Transfer”).

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For the purpose of this Section 5, an “entity affiliated to the Tenant” means, with respect to any specified entity, an entity that directly or indirectly controls, is controlled by, or is under common control with, the Tenant, its partners or shareholders. For purpose of this definition, “control,” when used in connection with any specified entity, means the power to direct the management or policies of such entity, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

The Tenant must notify the Landlord in writing that a Permitted Transfer has taken place no later than twenty (20) days after the effective date of the Permitted Transfer and provide the Landlord with evidence satisfactory to the Landlord, acting reasonably, that the Transfer is a Permitted Transfer.

The Tenant and the Permitted Transferee shall promptly execute after the effective date of the Permitted Transfer an agreement in writing, pursuant to which the Permitted Transferee agrees to be bound by the terms and conditions of the Lease, to the extent related to the Permitted Transfer.

In all cases, the Tenant shall continue to be bound by this Lease as a solidary debtor, notwithstanding any Transfer or Permitted Transfer, and notwithstanding the Landlord’s consent, unless the Landlord has expressly agreed otherwise in writing.

5.3 If Landlord shall sell, assign or transfer (a “Landlord Transfer”) all or any part of its interest in the Property, in the Leased Premises or in the Lease to a successor in interest which expressly assumes in writing the obligations of Landlord hereunder, from and after the date of such Landlord Transfer, the Landlord shall thereupon be released or discharged from all covenants and obligations which thereafter arise hereunder, and Tenant shall look solely to such successor in interest for performance of all such obligations of Landlord from and after the date of such Landlord Transfer.

6. ACCESS TO LEASED PREMISES

6.1 The Landlord, its agents and representatives may enter the Leased Premises during normal business hours of a business day to make such verification of the condition of the Leased Premises or to make maintenance and repair work if necessary. The Landlord will be required to notify the Tenant by giving the Tenant at least a business day prior notice, except in emergency cases in which case no notice shall be required. An “emergency case” shall be an instance in which the Landlord has reason to reasonably believe that there is imminent danger of harm to human life or physical property. The Landlord and its agents and representatives shall conduct such inspections and repairs in a manner so as not to unreasonably disturb the Tenant’s use and enjoyment of the Leased Premises.

7. REPRESENTATIONS AND WARRANTIES

7.1 Landlord has good, valid and marketable title to all of the Leased Premises, free and clear of any Liens. All of the Leased Premises and the buildings located thereon are in material compliance with applicable zoning laws and regulations. The Leased Premises and the structures and buildings owned or leased by the Landlord, and the mechanical components (including HVAC systems), roofs, fixtures and equipment located therein or

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thereon, are, as of the Commencement Date, in good operating condition and repair, subject only to normal maintenance and repair, fit for the uses for which they are intended, and no necessary repairs will need to be made as of the Commencement Date to continue the use of such buildings and structures as presently used. There are no outstanding options, rights of first refusal to purchase any of the Leased Premises, and there are no leases, subleases, licenses, or other agreements granting to any party or parties the right of use or occupancy of any portion of the Leased Premises.

8. COMPLIANCE WITH RULES, LAWS AND INDEMNIFICATION

8.1 The Landlord and Tenant shall comply with all Laws, including Environmental Laws, governing the business conducted in the Leased Premises.

8.2 Tenant shall indemnify and hold harmless Landlord and its successors, assigns and heirs from and against any and all claims, liabilities and losses arising from Tenant’s use or occupancy of the Leased Premises, or from the conduct of Tenant’s business, or from any activity, work, or things done, permitted or suffered by Tenant in or about the Premises and shall further indemnify and hold harmless Landlord from and against any and all claims, liabilities, and losses arising from any breach or default in the performance of any obligation on Tenant’s part to be performed under the terms of this Lease, or arising from any negligence of the Tenant, or any of the Tenant’s agents, contractors, or employees, and from and against all costs, attorneys’ fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding to be brought against Landlord by reason of any such claim. Tenant, upon notice from Landlord, shall defend the same at Tenant’s expense by counsel reasonably satisfactory to Landlord.

8.3 Landlord shall indemnify and hold harmless Tenant and its successors, assigns and heirs from and against any and all claims, liabilities, and losses arising from any breach or default in the performance of any obligation on Landlord’s part to be performed under the terms of this Lease, or arising from any negligence of the Landlord, or any of the Landlord’s agents, contractors, or employees, and from and against all costs, attorneys’ fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding to be brought against Tenant by reason of any such claim. Landlord, upon notice from Tenant, shall defend the same at Landlord’s expense by counsel reasonably satisfactory to Tenant.

8.4 The following terms have the following meaning:

(a) “Environment” means all components of the earth, including air (and all layers of the atmosphere), land (and all surface and subsurface soil, underground spaces and cavities and all land submerged under water) and water (and all surface and underground water), organic and inorganic matter and living organisms and any sewer system. For greater certainty, the interacting natural systems that include components referred to above are included in the definition of “Environment”;

(b) “Environmental Laws” means Laws relating to public health and safety, pollution or the protection of the Environment;

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(c) “Laws” means (i) all laws, statutes, codes, ordinances, decrees, rules, regulations and municipal by-laws; (ii) all judgments, orders, writs, injunctions, decisions, rulings, decrees, directions, instructions, penalties, sanctions and awards of any Governmental Entity; and (iii) all policies, practices and guidelines of, or contracts with, any Governmental Entity which, although not actually having the force of law, are considered by such Governmental Entity as requiring compliance as if having the force of law, in each case binding on or affecting the Party or Person referred to in the context in which such word is used.

9. INSURANCE

9.1 The Tenant shall, at its expense, maintain in force during the Term in the names of the Tenant, the Landlord and the Landlord’s mortgagee, if any, the following insurance:

(a) comprehensive general liability insurance against claims for personal injury, death or property damage arising out of all operations of the Tenant, (including Tenants’ legal liability, personal liability and property damage) with respect to the business carried, on in and from the Leased Premises; and

(b) property insurance covering loss or damage to the Leased Premises, in the amount of the full replacement value thereof, as the same may exist from time to time, which replacement value is now estimated to be CAD$2,250,000 but in no event less than the total amount required by lenders having liens on the Leased Premises, against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by lender having a lien on the Leased Premises), and special extended perils (“all risk” as such term is used in the insurance industry).

9.2 Without limiting the generality of the foregoing, Tenant shall use its commercially reasonable best efforts to ensure that Tenant’s policies of insurance required to be maintained in force pursuant to Section 9.1 contain the following clauses:

(a) a waiver of any subrogation rights which Tenant’s insurers may have against Landlord and its creditors and/or against those for whom Landlord is responsible in law;

(b) with respect to the general liability insurance policy, a severability of interests clause and a cross-liability clause;

(c) a clause stating that Tenant’s insurance policy will be considered as primary insurance and shall not call into contribution any other insurance that may be available to Landlord or to its creditors; and

(d) a joint loss endorsement or agreement, where applicable.

The Tenant agrees to furnish upon request from the Landlord verification of compliance with the provisions of this Section 9.1.

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10. DEFAULT BY TENANT

10.1 An “Event of Default” will be considered to have occurred when any one of the following happens:

(a) the Tenant fails to pay the Rent hereby reserved or any part thereof on the day appointed for payment thereof, and does not cure such default within ten (10) days after receipt of written notice thereof from the Landlord;

(b) the Tenant shall have breached or failed to comply with any of its covenants and agreements contained in this Lease (save for non-payment of Rent) and shall have failed to commence diligently to remedy such breach or non-compliance within fifteen (15) business days and failed to have fully remedied the breach or non-compliance within thirty (30) days (or such longer period as the Landlord may reasonably determine, having regard to the nature of the default) after written notice thereof given by the Landlord to the Tenant;

(c) the Tenant shall make any assignment for the benefit of creditors or become bankrupt or insolvent or take the benefit of any act now or hereinafter in force for bankrupt or insolvent debtors;

(d) the Tenant is a corporation and any order shall be made for the winding up of the Tenant or other termination of the corporate existence of the Tenant;

(e) a trustee, receiver, interim receiver, receiver and manager, custodian or liquidator is appointed for the business, property, affairs, or revenue of the Tenant;

(f) this Lease or any of the Tenant’s assets on the Leased Premises are taken or seized under writ of execution, an assignment, pledge, charge, debenture or other security instrument.

10.2 Each time that an Event of Default occurs, in addition to the other rights and recourses which are granted to the Landlord pursuant to the Lease or at law, the Landlord shall have the following rights and remedies, which shall be cumulative and not alternative:

(a) the right to terminate the Lease by notice to the Tenant;

(b) the right to remedy or attempt to remedy, at the expense of the Tenant any default of the Tenant pursuant to the Lease on behalf of the Tenant and to enter the Leased Premises for such purposes;

(c) the right to recover from the Tenant all damages suffered as well as all expenses incurred by the Landlord pursuant to the default of the Tenant; and

(d) if the resiliation of the Lease results from or is based on the bankruptcy or the insolvency, the right to recover from the Tenant the full amount of Rent for a period of three (3) months prior to the bankruptcy as well as Rent for the three (3) months following.

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11. RIGHT OF FIRST REFUSAL

11.1 If, at any time during the Term and provided that the Tenant is not in material default under the Lease, the Landlord receives an offer from a third party with which it deals at arm’s length within the meaning of the Income Tax Act (Canada) (the “Acquiror”) to purchase the Property (the “Offer”), which it is prepared to accept, the Landlord shall transmit to the Tenant, no later than five (5) business days after its receipt, a copy of said Offer.

11.2 The Tenant shall have twenty-one (21) days from the receipt of the notice given by the Landlord accompanied with the relevant documents within which to indicate in writing to the Landlord whether or not it intends to purchase the Property, at the price and under the same terms and conditions provided in the Offer (the “Response”).

11.3 Should the Tenant fail to give a written Response to the Landlord within the prescribed delay of twenty-one (21) days of its intention to purchase the Property, the Tenant shall be deemed to have refused to purchase the Property, and the Landlord shall have the right to sell the Property to the Acquiror at the price and under the same terms and conditions provided in the Offer no later than within sixty (60) days following (i) the Tenant’s written refusal to exercise its right of first refusal contemplated herein (the “Right of First Refusal”), or (ii) the expiry of the said delay of thirty (30) days. If the Landlord fails to finalize the sale of the Property within such delay, any sale envisaged after such period of sixty (60) days shall be subject to the Right of First Refusal provided for herein.

11.4 The Landlord may not accept an Offer unless the Acquiror agrees to assume the Landlord’s obligations during the Term of the Lease. The Offer shall not contain any other consideration that is not solely in relation to the transfer of the Leased Premises.

11.5 Without limiting the generality of the foregoing, the Landlord shall notify the Tenant if, at any time during the Term, it has the intention of selling the Property prior to giving effect to such intention to sale.

12. OPTION TO PURCHASE

12.1 The Landlord hereby grants to the Tenant an exclusive option to purchase all of the Landlord’s rights, title and interest in and to the Property at its fair market value (the “Option”) to be exercised by the Tenant at any time during the Term of this Lease. Such sale of the Property to the Tenant shall be made with legal warranty as to ownership only.

12.2 The fair market value of the Property shall be established and said purchase process shall be conducted in the following manner:

(a) concurrently with the delivery by the Tenant of the written notice advising the Landlord of its intention to exercise the Option, the Tenant shall submit to the Landlord by written notice, (i) a list of five (5) qualified real estate appraisers

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experienced in the appraisal (in accordance with the then current appraisal standards accepted by Canadian real estate institutional investors and lenders) of properties of a size and nature comparable to the Property, and (ii) its appraisal (the “Initial Appraisal”) of the prevailing fair market value for the Property;

(b) within ten (10) business days of its receipt of the Initial Appraisal, the Landlord shall either (i) accept the fair market value contained in the Initial Appraisal, or (ii) submit to the Tenant by written notice, (a) its own list of five (5) appraisers meeting the above-listed requirements, and (b) its own appraisal of the fair market value for the Property (the “Appraisal of the Landlord”); failure of the Landlord to either accept the Initial Appraisal or submit its own list of appraisers and its Appraisal of the Landlord within the delay herein provided shall be deemed to be a rejection of the Initial Appraisal as being the proper fair market value for the Property; and

(c) the first appraiser appearing on both lists shall be appointed by any party hereto as an arbitrator with an irrevocable mandate to select, within twenty (20) days of his (her) appointment, either the Initial Appraisal or the Appraisal of the Landlord as being the one which is the closest to his (her) own opinion of the fair market value for the Property; the appraisal chosen by said arbitrator shall constitute the applicable fair market value and shall be final, binding and not subject to any appeal; if no appraiser appears on both lists and the parties cannot jointly appoint an appraiser for the purpose of this Section, any of the parties may request the appropriate Court of the judicial district of Montreal, Canada, to nominate such an appraiser.

12.3 If Tenant exercises the Option and the terms of Section 12.2 are properly complied with by the Tenant, the Landlord shall convey marketable title to the Property to Tenant or Tenant’s designee by deed of sale before the Tenant’s notary, free, clear and unencumbered as of closing, except restrictions and easements of record and current real estate taxes on or before the later of (a) thirty (30) days after the exercise of the Option or (b) ten (10) days after the determination of the fair market value in accordance with Section 12.2, at such exact date, time, and location in Montreal, Quebec, as shall be agreed to between Landlord and Tenant at least two (2) days prior to such date. Simultaneously with closing of the purchase and sale of the Property, Landlord agrees to assign and transfer to Tenant all of its right, title and interest in and to the this Lease, as then in effect, and Tenant agrees to assume all of Landlord’s obligations thereunder. If for any reason the closing of the sale of the Property cannot take place on or before the last day of the Term, the Term shall be deemed to be renewed up and until the effective date of the sale.

13. MISCELLANEOUS

Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if (i) delivered personally, (ii) sent by registered or certified mail, postage prepaid, (iii) sent by confirmed facsimile with the original to follow by first class mail, postage prepaid, (iv) sent by

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an internationally recognized overnight courier service with next day delivery guaranteed and delivery charges prepaid, as follows:

(i) If to the Tenant, at:

LSI Industries Inc.

P.O. Box 42728

10000 Alliance Road

Cincinnati, Ohio 45242

Attention: Ronald S. Stowell

Facsimile No.: (513) 791-0813

With a required copy to:

Keating Muething & Klekamp PLL

One East Fourth Street, Suite 1400

Cincinnati, Ohio 45202

Attention: Paul V. Muething

Facsimile No.: (513) 579-6457

and:

Stikeman Elliott LLP

1155 René-Lévesque Blvd. West

Suite 4000

Montreal, Québec

H3B 3V2

Attention: William Rosenberg

Facsimile: (514) 397-3599

(ii) If to the Landlord, at:

260 Strathcona

Mont-Royal, QC

H3R 1E7

Attention: Fred Jalbout

Facsimile: (514) 745-1299

With a required copy to:

Davies Ward Phillips & Vineberg LLP

1501 McGill College Avenue

26^th Floor

Montreal, Québec

H3A 3N9

Attention:     Denis Ferland

Facsimile:     (514) 841-6499

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or to such other address as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed to have been given as of the date so delivered, mailed or received by facsimile transmission.

13.1 This Lease may only be amended, supplemented or otherwise modified by written agreement signed by all parties.

13.2 No waiver of any of the provisions of this Lease shall be deemed to constitute a waiver of any other provision (whether or not similar) or a future waiver of the same provisions, nor shall such waiver be binding unless executed in writing by the party to be bound by the waiver. No failure on the part of any party to exercise, and no delay in exercising any right under this Lease shall operate as a waiver of such right; nor shall any single or partial exercise of any such right preclude any other or further exercise of such right or the exercise of any other right.

13.3 This Lease constitutes the entire agreement between the parties with respect to the Leasing of the Leased Premises and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties.

13.4 This Lease shall be binding upon and ensure to the benefit of the parties and their respective successors and permitted assigns.

13.5 This Lease shall be governed by and interpreted and enforced in accordance with the Laws of the Province of Québec and the federal Laws of Canada applicable therein.

13.6 The parties hereto have requested that this Lease, its extension(s), amendment(s) as well as any notice, document, or proceeding relating to same be drawn up in English; Les parties aux présentes ont requis que le présent Bail, son(ses) renouvellement(s), amendement(s) ainsi que tout autre avis, documents ou procédures s’y rapportant soient rédigés en Anglais.

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IN WITNESS WHEREOF the parties hereto have executed this Lease Agreement on June 26, 2006.

3970957 CANADA INC.
Per:	/s/ Fred Jalbout
Name: Title:	Fred Jalbout President
4349466 CANADA INC.
Per:	/s/ Fred Jalbout
Name: Title:	Fred Jalbout President

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EX-10.5

Exhibit 10.5

AMENDMENT TO CREDIT AGREEMENT

LSI INDUSTRIES INC., an Ohio corporation (the “Borrower”), the financial institutions listed on the signature pages hereto (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”) hereby agree as follows:

1. Recitals.

1.1 On March 30, 2001, Agent, Borrower and Lenders entered into a Credit Agreement (as previously amended, the “Credit Agreement”). Capitalized terms used herein and not otherwise defined will have the meanings given such terms in the Credit Agreement.

1.2 Borrower, Agent and Lenders desire to amend the Credit Agreement pursuant to this Amendment to Credit Agreement (the “Amendment”).

2. Amendments.

2.1 Section 5.6(a) of the Credit Agreement is amended to provide as follows:

Net Worth. At the end of each Fiscal Quarter hereunder commencing June 30, 2006, the Borrower shall maintain Consolidated Tangible Net Worth greater than or equal to the sum of $90,000,000 plus (i) an amount equal to 50% of the Borrower’s Consolidated net income (if positive) for each Fiscal Quarter ending after June 30, 2006 plus (ii) one hundred percent (100%) of the Net Proceeds of each Equity Offering occurring after the Closing Date.

3. Representations and Warranties. To induce Lenders and Agent to enter into this Amendment, Borrower represents and warrants as follows:

3.1 The representations and warranties of Borrower contained in the Credit Agreement are deemed to have been made again on and as of the date of execution of this Amendment.

3.2 No Event of Default (as such term is defined in the Credit Agreement) or event or condition which with the lapse of time or giving of notice or both would constitute an Event of Default exists on the date hereof.

3.3 The person executing this Amendment and the loan documents to be executed in connection herewith is a duly elected and acting officer of Borrower and is duly authorized by the Board of Directors of Borrower to execute and deliver such documents on behalf of Borrower.

4. General.

4.1 Except as expressly modified herein, the Credit Agreement, as amended, is and remains in full force and effect.

4.2 Nothing contained herein will be construed as waiving any default or Event of Default under the Credit Agreement or will affect or impair any right, power or remedy of Lenders or Agent under or with respect to the Credit Agreement, as or any agreement or instrument guaranteeing, securing or otherwise relating to any of the Credit Agreement.

4.3 This Amendment will be binding upon and inure to the benefit of Borrower, Agent and Lenders and their respective successors and assigns.

4.4 All representations, warranties and covenants made by Borrower herein will survive the execution and delivery of this Amendment.

4.5 This Amendment will in all respects be governed and construed in accordance with the laws of the State of Ohio.

Executed as of June 26, 2006

LSI INDUSTRIES INC.
By:	/s/ Ronald S. Stowell
Name: Title:	Ronald S. Stowell Vice President, Chief Financial Officer and Treasurer
PNC BANK, NATIONAL ASSOCIATION, in its capacity as the Administrative Agent and the Syndication Agent hereunder
By:	/s/ Gregory S. Buchanan
Name: Title:	Gregory S. Buchanan Vice President
PNC BANK, NATIONAL ASSOCIATION, in its capacity as a Lender
By:	/s/ Gregory S. Buchanan
Name: Title:	Gregory S. Buchanan Vice President
THE FIFTH THIRD BANK, in its capacity as a Lender
By:	/s/ Christopher R. Ramos
Name: Title:	Christopher R. Ramos Vice President

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EX-99.1

Exhibit 99.1

	CONTACT:	BOB READY OR
FOR IMMEDIATE RELEASE		RON STOWELL
DATE: June 27, 2006		(513) 793-3200

LSI INDUSTRIES INC. ANNOUNCES MAJOR INITIATIVES

IN LED LIGHTING WITH SIGNIFICANT STRATEGIC IMPLICATIONS

Highlights

• Acquisition of SACO Technologies’ assets

• President of LSI Technology Solutions Plus Named

Cincinnati, June 27, 2006 – LSI Industries Inc. (Nasdaq:LYTS) today announced it has acquired substantially all the assets of SACO Technologies Inc., a leading technology developer and producer of LED (light emitting diode) products headquartered in Montreal, Canada. The purchase consideration consists of $23 million cash, 1,419,355 shares of LSI’s common stock, and assumption of certain indebtedness. SACO’s management team and employees will remain in place with operations continuing in Montreal. Fred Jalbout, CEO of SACO Technologies will become President of the LSI Technology Solutions Plus business segment.

SACO Technologies is a worldwide leader and pioneer in the design, production, and support of high-performance light engines and large format video screens using LED technology. State of the art technology, strong commitment to research and development, over 17 years of industry experience and success in markets throughout the world have earned SACO its place as a major player in the production of solid-state lighting and LED video systems. SACO’s proprietary SMARTVISION^® solid-state system has become a recognized brand name in both indoor and outdoor LED video displays.

Installed examples of SACO’s products include the largest video screen in the world (the Nasdaq Marketsite on Times Square), professional sports facilities and teams (Cincinnati Reds, Baltimore Ravens, Edmonton Oilers, Cleveland’s Quicken Loans Arena, Golden State Warriors, Houston Astros, Milwaukee Brewers, Minnesota Timberwolves), entertainment events (Madonna, U2, Janet Jackson, Celine Dion, Athens Olympics 2004, Paul McCartney, Robbie Williams, BonJovi), and commercial facilities (Mandalay Bay Hotel and Casino, Air Canada Center, Walt Disney, Mercedes, Toys “R” US).

As an innovator, SACO offers its customers expertise in developing and utilizing high-performance LED color and white lightsource solutions for both lighting and graphics applications. SACO’s established position and extensive capabilities in LEDs allow it to address the architectural, multimedia, industrial, entertainment and theatrical, digital signage, outdoor billboard, transportation, and custom lighting and graphics markets. Most recently, SACO produced the solid-state LED video screens for Madonna’s “Confessions” tour using its advanced SMARTVISION^® V9 technology, installed

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LSI Industries Inc. Announces Major Initiatives in LED Lighting

June 27, 2006

indoor and outdoor lighting at the Rexall Place (Edmonton Oilers, Edmonton Rush and Canadian Finals Rodeo), and has received purchase orders to design and manufacture digital billboards for outdoor advertising.

For calendar 2006, SACO expects net sales, EBITDA, and operating income of $26.4 million, $7.3 million, and $6.3 million, respectively, before giving effect to purchase accounting considerations. The acquisition is expected to be accretive to LSI’s earnings commencing fiscal 2007. This acquisition is of a highly strategic nature for LSI Industries from both a lighting and graphics viewpoint. As a light source, light emitting diodes are highly energy efficient and long lasting compared to conventional light sources. LEDs are also more durable and produce less heat than other sources of light. From a white light standpoint, solid-state lighting is rapidly becoming more attractive as costs decline and performance increases. Consequently, LSI believes that solid-state lighting will become increasingly important as it becomes more cost effective for an ever widening breadth of applications. For LSI, solid-state LED products mean substantial new opportunities to drive growth in both the lighting and graphics segments of the business.

Bob Ready, LSI’s President and CEO, commented, “This acquisition represents a very important strategic direction and capability for LSI as we continue to develop the technology element of our vision ‘Lighting + Graphics + Technology = Complete Image Solutions.’ The combination of the emerging importance of solid-state LEDs as a cost-effective, superior light source and LSI’s well established position in the lighting and graphics markets creates a very powerful growth platform.”

Mr. Ready went on to say, “SACO is not new to LSI, we have been working with this company over the past year on a number of important LED-based products. Development projects include white light products for municipal market applications as well as LSI’s core niche markets including commercial and industrial applications. In addition, on the graphics side, an interior display using color LEDs has been developed and is being proposed for one of LSI’s national retail customers. Another intersection between SACO and LSI involves the 3M Company. In April of 2005, SACO and 3M Light Management Solutions announced ‘By integrating our complementary expertise, we can offer solutions that far surpass traditional lighting systems by incorporating the full benefits of new technologies without sacrificing durability.’ In January of 2006, LSI and 3M Digital Signage announced a 2006 business development initiative to provide customers with distinctive digital signage solutions. LSI sees the clear opportunity to incorporate current and future technologies developed by SACO into our graphics segment.”

Mr. Ready continued, “We have enjoyed a fine working relationship with SACO and I am pleased our two companies are joining forces to enhance each other’s strengths. Fred Jalbout, President of SACO Technologies, will bring his considerable experience and skills to LSI as President of our Technology business unit.”

Mr. Ready concluded, “We believe LSI Industries has the resources and is positioned to become a leader in the commercialization of LEDs in both its lighting and graphics markets. The initiatives we have put in place will have a major impact on the growth of LSI for many years to come.”

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LSI Industries Inc. Announces Major Initiatives in LED Lighting

June 27, 2006

Fred Jalbout, President of SACO Technologies, stated, “This transaction is of great strategic value to both SACO and LSI. We are providing a high-quality solution that is right for today, but also the right investment for the future. Together, with the innovative, leading edge technology of SACO along with LSI’s top industry position we can more effectively serve the worldwide Lighting & Video markets. Our relationship with LSI has always been in complete synergy and is really about working together in innovative ways to improve the quality, creativity, and performance of all products offered. Our customers will have the assurance of two highly respected companies joining forces to take care of their needs. I look forward to the opportunities and challenges that are to come in creating an extremely bright future.”

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:

This document contains certain forward-looking statements that are subject to numerous assumptions, risks or uncertainties. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,” “believes,” “seeks,” “may,” “will,” “should” or the negative versions of those words and similar expressions, and by the context in which they are used. Such statements are based upon current expectations of the Company and speak only as of the date made. Actual results could differ materially from those contained in or implied by such forward-looking statements as a result of a variety of risks and uncertainties. These risks and uncertainties include, but are not limited to, the impact of competitive products and services, product demand and market acceptance risks, reliance on key customers, financial difficulties experienced by customers, the adequacy of reserves and allowances for doubtful accounts, fluctuations in operating results or costs, unexpected difficulties in integrating acquired businesses, and the ability to retain key employees of acquired businesses. The Company has no obligation to update any forward-looking statements to reflect subsequent events or circumstances.

About the Company

LSI Industries is an Image Solutions company, combining integrated design, manufacturing, and technology to supply its own high quality lighting fixtures and graphics elements for applications in the retail, specialty niche, and commercial markets. The Company’s Lighting Segment produces high performance products dedicated to the outdoor, architectural outdoor, indoor, architectural indoor and accent/downlight markets. The Graphics Segment provides a vast array of products and services including signage, menu board systems, active digital signage, decorative fixturing, design support, engineering and project management for custom programs for today’s retail environment. LSI’s major markets are the petroleum / convenience store, multi-site retail (including automobile dealerships, restaurants and national retail accounts) and the commercial / industrial lighting markets. LSI employs approximately 1,700 people in twelve facilities located in Ohio, California, New York, North Carolina, Kansas, Kentucky, Rhode Island, Tennessee, and Texas. The Company’s common shares are traded on the Nasdaq National Market under the symbol LYTS.

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LSI Industries Inc. Announces Major Initiatives in LED Lighting

June 27, 2006

Conference Call

LSI will hold a conference call at 3:00 P.M. Eastern Time today, June 27, 2006 to further discuss the Company’s move into LED-based lighting and graphics. Individuals interested in participating in this conference call hosted by Bob Ready should call 800-270-2092. Individuals calling from Canada should call 800-270-1634. The conference call will be webcast live, with access through the LSI web site at www.lsi-industries.com.

For further information, contact either Bob Ready, Chief Executive Officer and President, or Ron Stowell, Vice President, Chief Financial Officer, and Treasurer at (513) 793-3200.

Additional note: Today’s news release, along with past releases from LSI Industries, is available on the Company’s internet site at www.lsi-industries.com or by email or fax, by calling the Investor Relations Department at (513) 793-3200. SACO’s website can be accessed at www.smartvision.com.

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