LightPath Technologies, Inc. 10-Q [lpth-10q_123114.htm]

 

Exhibit 10.1

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) dated
as of December 23, 2014 is between AVIDBANK (“Bank”), and LIGHTPATH
TECHNOLOGIES, INC., a Delaware corporation (“Borrower”).

RECITALS

Borrower and Bank are party to that certain Loan and Security Agreement dated as
of September 30, 2013 and as amended from time to time (the “Original
Agreement”). The parties desire to amend and restate the Original Agreement in
accordance with the terms of this Agreement, and set forth the terms on which
Bank will advance credit to Borrowers, and Borrowers will repay the amounts
owing to Bank.

AGREEMENT

The parties agree as follows:

1.

Definitions, Accounting and Other Terms; Amendment and restatement

1.1

Definitions. As used in this Agreement, the following terms shall have the
following definitions:

“Account” means any “account” as defined in the Code with such additions to such
term as may hereafter be made, and includes, without limitation, all accounts
receivable and other sums owing to Borrower.

“Account Balance” means, at any time, the aggregate of the Receivable Amounts of
all Financed Receivables at such time, as reflected on the records maintained by
Bank.

“Account Debtor” means as defined in the Code and shall include, without
limitation, any person liable on any Financed Receivable, such as, a guarantor
of the Financed Receivable and any issuer of a letter of credit or banker’s
acceptance.

“Adjustment” means all discounts, allowances, disputes, offsets, defenses,
rights of recoupment, rights of return, warranty claims, or short payments,
asserted by or on behalf of any Account Debtor with respect to any Financed
Receivable.

“Administrative Fee” shall have the meaning set forth in Section 2.4(b) of this
Agreement.

“Advance” shall have the meaning set forth in Section 2.1(a)(i) of this
Agreement.

“Advance Rate” means eighty percent (80%), net of any offsets related to each
specific Account Debtor, or such other percentage as Bank may determine in its
sole discretion.

“Affiliate” of any Person means a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person’s senior executive
officers, directors, and, for any Person that is a limited liability company,
that Person’s managers and officers.

“Applicable Rate” means the per annum rate equal to the Prime Rate plus three
percent (3.0%).

“Bancontrol Account” shall have the meaning set forth in Section 2.1(a)(v) of
this Agreement.

 

 

 

 

“Bank Expenses” means all: reasonable costs or expenses (including reasonable
attorneys’ fees and expenses) incurred in connection with the preparation,
negotiation, administration, and enforcement of the Loan Documents; reasonable
Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses
incurred in amending, enforcing or defending the Loan Documents (including fees
and expenses of appeal), incurred before, during and after an Insolvency
Proceeding, whether or not suit is brought.

“Borrower’s Books” means all of Borrower’s books and records including: ledgers;
records concerning Borrower’s assets or liabilities, the Collateral, business
operations or financial condition; and all computer programs, or tape files, and
the equipment, containing such information.

“Borrower’s Knowledge” and terms and phrases of similar import, whether or not
capitalized, means (i) actual knowledge, awareness or belief possessed by the
executive officers and directors of Borrower, and (ii) the knowledge, awareness
or belief that the executive officers and directors would have possessed by
using reasonable care and diligence under the circumstances.

“Business Day” means any day that is not a Saturday, Sunday or a day on which
Bank is closed.

“Cash Reserve” means for any Financed Receivable which has been paid in full
during any particular month, the amount by which the amount(s) paid on such
Financed Receivable exceeds the Advance made on such Financed Receivable.

“Change in Control” shall mean a transaction in which any “person” or “group”
(within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of a sufficient number
of shares of all classes of stock then outstanding of Borrower ordinarily
entitled to vote in the election of directors, empowering such “person” or
“group” to elect a majority of the Board of Directors of Borrower, who did not
have such power before such transaction..

“Closing Date” means the date of this Agreement.

“Code” means the California Uniform Commercial Code.

“Collateral” means the properties, rights and assets of Borrower described on
Exhibit A.

“Collections” means all funds received by Bank from or on behalf of an Account
Debtor with respect to any Accounts.

“Contingent Obligation” means, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another;
(ii) any obligations with respect to undrawn letters of credit, corporate credit
cards, or merchant services issued or provided for the account of that Person;
and (iii) all obligations arising under any agreement or arrangement designed to
protect such Person against fluctuation in interest rates, currency exchange
rates or commodity prices; provided, however, that the term “Contingent
Obligation” shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by Bank in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.

“Copyrights” means any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or authorship and
derivative work thereof.

“Credit Extension” means any Advance or any other extension of credit by Bank
for Borrower’s benefit.

 

2

 

 

“Eligible Accounts” means those Accounts that arise in the ordinary course of
Borrower’s business that comply with all of Borrower’s representations and
warranties to Bank set forth in Section 5.4; provided, that standards of
eligibility may be fixed and revised from time to time by Bank in Bank’s
reasonable judgment and upon notification thereof to Borrower in accordance with
the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts
shall not include the following:

(a)

Accounts that the Account Debtor has failed to pay within ninety (90) days of
invoice date;

(b)

Accounts with respect to which the Account Debtor is an officer, employee, or
agent of Borrower;

(c)

Accounts with respect to which goods are placed on consignment, guaranteed sale,
sale or return, sale on approval, bill and hold, demo or promotional, or other
terms by reason of which the payment by the Account Debtor may be conditional;

(d)

Accounts with respect to which the Account Debtor is an Affiliate of Borrower;

(e)

Accounts with respect to which the Account Debtor does not have its principal
place of business in the United States, except for Eligible Foreign Accounts;

(f)

Accounts with respect to which the account debtor is the United States or any
department, agency, or instrumentality of the United States, except for Accounts
of the United States if the payee has assigned its payment rights to Bank, the
assignment has been acknowledged under the Assignment of Claims Act of 1940 (31
U.S.C. Section 3727), and such assignment otherwise complies with the Assignment
of Claims Act to Bank’s reasonable satisfaction in the exercise of its
reasonable credit judgment;

(g)

Accounts with respect to which Borrower is liable to the Account Debtor for
goods sold or services rendered by the Account Debtor to Borrower or for
deposits or other property of the Account Debtor held by Borrower;

(h)

Accounts that have not yet been billed to the Account Debtor or that relate to
deposits (such as good faith deposits) or other property of the Account Debtor
held by Borrower for the performance of services or delivery of goods which
Borrower has not yet performed or delivered;

(i)

Prebillings, retention billings, progress billings or bonded receivables;

(j)

Accounts with respect to which the Account Debtor disputes liability or makes
any claim with respect thereto as to which Bank believes, in its sole
discretion, that there may be a basis for dispute (but only to the extent of the
amount subject to such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business;

(k)

Accounts for which the Account Debtor has not been invoiced; or

(l)

Accounts which Bank reasonably determines to be unsatisfactory for inclusion as
an Eligible Account.

“Eligible Foreign Accounts” means Accounts with respect to which the Account
Debtor does not have its principal place of business in the United States and
that (i) are supported by one or more letters of credit in an amount and of a
tenor, and issued by a financial institution, reasonably acceptable to Bank,
(ii) covered in full by credit insurance reasonably satisfactory to Bank, or
(iii) that Bank approves on a case-by-case basis.

“Equipment” means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

 

3

 

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the regulations thereunder.

“Event of Default” has the meaning set forth in Section 8 of this Agreement.

“Facility Amount” means One Million Dollars ($1,000,000).

“Fees” means the Finance Charges, the Facility Fee, Administrative Fees,
Recovery Fees, and any other fees and charges set forth in Section 2 of this
Agreement.

“Finance Charge” has the meaning as set forth in Section 2.3(a) of this
Agreement.

“Financed Receivables” means all those Eligible Accounts and any other Accounts
which Bank finances and makes an Advance, as set forth in Section 2.1 of this
Agreement, including their proceeds. A Financed Receivable stops being a
Financed Receivable (but remains Collateral) when the Advance made for the
Financed Receivable has been fully paid.

“Financed Receivable Balance” means the total outstanding gross face amount of
the Eligible Account underlying any Financed Receivable, at any time.

“GAAP” means generally accepted accounting principles as in effect from time to
time.

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred
purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.

 

“Insolvency Proceeding” means any proceeding commenced by or against any person
or entity under any provision of the United States Bankruptcy Code, as amended,
or under any other bankruptcy or insolvency law, including assignments for the
benefit of creditors, formal or informal moratoria, compositions, extension
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

 

“Intellectual Property” means all of Borrower’s right, title, and interest in
and to the following: Copyrights, Trademarks and Patents; all trade secrets, all
design rights, claims for damages by way of past, present and future
infringement of any of the rights included above, all licenses or other rights
to use any of the Copyrights, Patents or Trademarks, and all license fees and
royalties arising from such use to the extent permitted by such license or
rights; all amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and all proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.

“Inventory” means all inventory in which Borrower has or acquires any interest,
including work in process and finished products intended for sale or lease or to
be furnished under a contract of service, of every kind and description now or
at any time hereafter owned by or in the custody or possession, actual or
constructive, of Borrower, including such inventory as is temporarily out of its
custody or possession or in transit and including any returns upon any accounts
or other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing any
of the above, and Borrower’s Books relating to any of the foregoing.

“Investment” means any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.

“Lien” means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

 

4

 

 

“Loan Documents” means, collectively, this Agreement, any note or notes executed
by Borrower, any guarantees by third parties, and any other present or future
agreement entered into in connection with this Agreement (including the Lockbox
Agreement), or any other credit facilities or services provided by Bank to
Borrower (including pursuant), all as amended, restated, or otherwise modified
from time to time.

“Lockbox Agreement” means that certain Lockbox Service Agreement between
Borrower and Bank dated as of August 6, 2013, as amended, restated or otherwise
modified from time to time.

“Material Adverse Effect” means a material adverse effect on (i) the business
operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents or
(iii) the value or priority of Bank’s security interests in the Collateral.

“Negotiable Collateral” means all letters of credit of which Borrower is a
beneficiary, notes, drafts, instruments, securities, documents of title, and
chattel paper, and Borrower’s Books relating to any of the foregoing.

“Obligations” means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.

“Patents” means all patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.

“Periodic Payments” means all installments or similar recurring payments that
Borrower may now or hereafter become obligated to pay to Bank pursuant to the
terms and provisions of any instrument, or agreement now or hereafter in
existence between Borrower and Bank.

“Permitted Indebtedness” means:

(a)

Indebtedness of Borrower in favor of Bank arising under this Agreement or any
other Loan Document;

(b)

Indebtedness existing on the Closing Date and disclosed in the Schedule;

(c)

Indebtedness secured by a lien described in clause (c) of the defined term
“Permitted Liens,” provided (i) such Indebtedness does not exceed the lesser of
the cost or fair market value of the equipment financed with such Indebtedness
and (ii) such Indebtedness (excluding such Indebtedness in favor of Bank) does
not exceed $250,000 in the aggregate at any given time;

(d)

Subordinated Debt;

(e)

Indebtedness incurred in connection with the terms of any lease agreement for
facilities to which Borrower or its foreign Subsidiary is currently a party to
or any lease agreement hereinafter entered into by Borrower or its foreign
Subsidiary in the ordinary course of business, including, but not limited to any
tenant improvements; and

(f)

Indebtedness incurred in connection with the extension, renewal or refinancing
of the Indebtedness described in clauses (a) through (e) above, provided that
the principal amount of the indebtedness being extended, renewed or refinanced
does not increase or the terms modified do not impose more burdensome terms upon
Borrower or its Subsidiary, as the case may be.

5

 

 

“Permitted Investment” means:

(a)

Investments, including the ownership of Shares, existing on the Closing Date and
disclosed in the Schedule; and

(b)

(i) marketable direct obligations issued or unconditionally guaranteed by the
United States of America or any agency or any State thereof maturing within one
(1) year from the date of acquisition thereof, (ii) commercial paper maturing no
more than one (1) year from the date of creation thereof and currently having
rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or
Moody’s Investors Service, (iii) certificates of deposit maturing no more than
one (1) year from the date of investment therein issued by Bank and (iv)
Borrower’s money market accounts at Bank or disclosed in the Schedule (provided
that such accounts are subject to account control agreement(s) in form and
substance satisfactory to Bank).

“Permitted Liens” means the following:

(a)

Any Liens existing on the Closing Date and disclosed in the Schedule or arising
under this Agreement or the other Loan Documents;

 

(b)

Liens for taxes, fees, assessments or other governmental charges or levies,
either not delinquent or being contested in good faith by appropriate
proceedings, provided the same have no priority over any of Bank’s security
interests;

 

(c)

Liens (i) upon or in any equipment which was not financed by Bank acquired or
held by Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment or (iii)
upon or in any equipment which was leased by Borrower as disclosed in the
Schedule or is leased hereafter; and

 

(d)

Liens incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clauses (a) through (c)
above, provided that any extension, renewal or replacement Lien shall be limited
to the property encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase.

 

“Person” means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.

“Prime Rate” means the variable rate of interest, per annum, that appears in The
Wall Street Journal from time to time, whether or not such announced rate is the
lowest rate available from Bank. If the Prime Rate is no longer published in the
Wall Street Journal or is otherwise no longer available, Bank will choose a new
index within its reasonable discretion that is determined by the Bank to be
based upon comparable information.

“Receivable Amount” means the amount due from the Account Debtor with respect to
an Eligible Account after deducting all discounts, credits, offsets, payments or
other deductions of any nature whatsoever, whether or not claimed by the Account
Debtor.

“Recovery Fee” means for each item of Collections which Borrower has failed to
remit as required by the Agreement, a fee equal to the lesser of $5,000 or 5% of
the amount of such item, but in no case less than $1,000.

“Refundable Reserve” means, for any month end, the sum of (i) the total of the
Cash Reserves as to all Financed Receivables as of such month end, plus (ii) the
amount of Collections received by Bank during such month with respect to
Accounts other than Financed Receivables and not previously remitted to
Borrower, minus (iii) the total of all outstanding Fees, Adjustments, any
overadvanced amount, Bank Expenses, and all Collections received by Borrower
that were not in compliance remitted to Bank pursuant to Section 2.1(a)(v). The
Refundable Reserve is a book balance maintained on the records of Bank (and not
a segregated fund, or the property of Borrower).

 

6

 

 

“Responsible Officer” means any of the Chief Executive Officer, President, Chief
Financial Officer or Controller of Borrower.

“Revolving Maturity Date” means the first anniversary of the Closing Date.

“Schedule” means the schedule of exceptions attached hereto and approved by
Bank, if any.

“Shares” is the issued and outstanding capital stock, membership units or other
securities owned or held of record by Borrower or any Subsidiary of Borrower, in
any direct or indirect Subsidiary.

“Subordinated Debt” means any debt incurred by Borrower that is subordinated to
the debt owing by Borrower to Bank on terms acceptable to Bank (and identified
as being such by Borrower and Bank).

“Subsidiary” means any corporation, company or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock or other units
of ownership which by the terms thereof has the ordinary voting power to elect
the Board of Directors, managers or trustees of the entity, at the time as of
which any determination is being made, is owned by Borrower, either directly or
through an Affiliate.

“Trademarks” means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.

“Transfer” shall have the meaning set forth in Section 7.1 of this Agreement.

1.2

Accounting and Other Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP and all calculations made hereunder
shall be made in accordance with GAAP. When used herein, the terms “financial
statements” shall include the notes and schedules thereto. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meaning
provided by the Code to the extent such terms are defined therein.

1.3

Amendment and Restatement. This Agreement is intended to and does completely
amend and restate, without novation, the Original Agreement. All security
interests granted under the Original Agreement and all security agreements
entered into in connection therewith are hereby confirmed and ratified and shall
continue to secure all Obligations under this Agreement; provided however the
parties acknowledge and agree that that certain Intellectual Property Security
Agreement between Borrower and Bank dated as of September 30, 2013 is, upon the
effectiveness of this Agreement, terminated and of no further force or effect;
and Bank shall return to Borrower any pledged Shares in Bank’s possession to
Borrower. All filings and financing statements filed in connection with the
Original Agreement and continue to perfect Bank’s Lien in the Collateral. All
promissory notes and other instruments delivered to Bank in connection with the
Original Agreement are hereby confirmed and ratified and shall continue to apply
to all Obligations under this Agreement. Borrower acknowledges and agrees that
the Lockbox Agreement is in full force and effect as of the date hereof, and
Section 12 of the Lockbox Agreement is deleted in its entirety and of no further
force or effect.

2.

Loan and Terms of Payment

2.1

Promise to Pay. Borrower hereby unconditionally promises to pay Bank the
outstanding principal amount of all Credit Extensions and accrued and unpaid
interest thereon together with any fees and Finance Charges as and when due in
accordance with this Agreement. Borrower shall use, and authorizes Bank to
apply, the proceeds from the initial Advance to repay the existing obligations
owing under the Original Loan Agreement.

 

7

 

 

(a)

Financing of Accounts.

(i)

Availability. Subject to the terms of this Agreement, Borrower may request that
Bank finance specific Eligible Accounts. Bank may, in its sole discretion in
each instance, finance such Eligible Accounts by extending credit to Borrower in
an amount equal to the result of the Advance Rate multiplied by the Receivable
Amount (the “Advance”). Bank may, in its sole discretion, change the percentage
of the Advance Rate for a particular Eligible Account on a case by case basis.
When Bank makes an Advance, the Eligible Account becomes a “Financed
Receivable.” The aggregate face amount of all Advances outstanding at any time
may not exceed the Facility Amount. Amounts borrowed pursuant to this
Section 2.1(a) may be repaid and reborrowed at any time prior to the Revolving
Maturity Date, at which time all Advances and all Obligations related thereto
under this Section 2.1(a) shall be immediately due and payable. Borrower may
prepay any Advances.

(ii)

Borrowing Procedure. Whenever Borrower desires an Advance, Borrower will notify
Bank by facsimile transmission or email no later than 2:00 p.m. Pacific Time, on
the Business Day that is one day before the Business Day the Advance is to be
made. Each such notification shall include an Advance Request Form in
substantially the form of Exhibit B hereto. Borrower will deliver copies of
invoices with respect to each Eligible Account being requested for financing
(including the Account Debtor’s, name, address, invoice amount, invoice date and
invoice number), and all supporting documents and agreements, plus transaction
files for all invoices and a payment application in an electronic format
reasonably acceptable to Bank for processing. In addition, upon Bank’s request,
Borrower shall deliver to Bank any contracts, purchase orders, or other
underlying supporting documentation with respect to such Eligible Account.
Documents received by 2:00 p.m. Pacific Time on accounts acceptable to Bank will
be processed on the following Business Day. Documents received after then will
be processed within two Business Days. Bank is authorized to make Advances under
this Agreement, based upon instructions received from a Responsible Officer or a
designee of a Responsible Officer. Bank shall be entitled to rely on any
facsimile or email notice given by a person who Bank reasonably believes to be a
Responsible Officer or a designee thereof, and Borrower shall indemnify and hold
Bank harmless for any damages or loss suffered by Bank as a result of such
reliance. Bank will credit the amount of Advances made under this Section 2.1 to
Borrower’s deposit account at Bank.

(iii)

Account Verification; Notification/Collection. Bank may, at its option, conduct
a credit check of the Account Debtor for each Eligible Account requested by
Borrower for financing hereunder to approve any such Account Debtor’s credit
before agreeing to finance such Eligible Account. Bank may also verify directly
with the respective Account Debtors the validity, amount and other matters
relating to the Accounts (including confirmations of Borrower’s representations
in Section 5.4 of this Agreement) by means of mail, telephone or otherwise,
either in the name of Borrower or Bank from time to time in its sole discretion.
Bank may notify any Account Debtor of Bank’s security interest in the Borrower’s
Accounts and verify and/or collect them.

(iv)

Bank’s Discretion. Notwithstanding anything to the contrary contained herein,
this Agreement may be terminated by Bank at any time, and Bank is not obligated
to finance any Eligible Accounts. Bank and Borrower hereby acknowledge and agree
that Bank’s agreement to finance Eligible Accounts hereunder is discretionary in
each instance. Accordingly, there shall not be any recourse to Bank, nor
liability of Bank, on account of any delay in Bank’s making of, and/or any
decline by Bank to make, any loan or advance requested hereunder. Bank may
deduct fees, Bank Expenses, Advances which become due, and other amounts due
pursuant to this Agreement from any Advances made or Collections received by
Bank.

(v)

Lockbox. Borrower shall cause all Account Debtors to wire any amounts owing to
Borrower to one or more restricted accounts (each, a “Bancontrol Account”) as
Bank shall specify, and to mail all payments made by check to a post office box
under Bank’s control. All invoices shall specify such post office box as the
payment address. Bank shall have sole authority to collect such payments and
deposit them to the Bancontrol Account.

 

8

 

 

(vi)

Application of Collections. Within two (2) Business Days of Bank’s receipt of
any Collections, Bank will credit Collections with respect to Financed
Receivables to the Account Balance. If no Event of Default has occurred and is
continuing, Bank agrees to credit the Refundable Reserve with the amount of
Collections it receives with respect to Accounts other than Financed
Receivables; provided that upon the occurrence and during the continuance of any
Event of Default, Bank may apply all Collections to the Obligations in such
order and manner as Bank may determine. Bank has no duty to do any act other
than to turnover such amounts as required above. If an item of Collections is
not honored or Bank does not receive good funds for any reason, the amount shall
be included in the Account Balance as if the Collections had not been received
and Finance Charges shall accrue thereon. Unless an Event of Default has
occurred and is continuing, Bank shall refund to Borrower after the end of each
month, the Refundable Reserve, if positive, calculated for such month end. If
the Refundable Reserve is negative, Borrower shall immediately pay such amount.

(vii)

Adjustments. In the event the representations and warranties in Section 5.4 with
respect to a Financed Receivable is breached or in the event any Adjustment or
dispute is asserted by any Account Debtor, Borrower shall promptly advise Bank
and shall resolve such disputes and advise Bank of any Adjustments; provided
that in no case will the aggregate Adjustments made with respect to any Financed
Receivable exceed 2% of its original Receivable Amount unless Borrower has
obtained the prior written consent of Bank. Unless the Advance for the disputed
Financed Receivable is repaid in full, Bank shall have the right, at any time,
to take possession of any rejected, returned, or recovered personal property. If
such possession is not taken by Bank, Borrower is to resell it for Bank’s
account at Borrower’s expense with the proceeds made payable to Bank. While
Borrower retains possession of any returned goods, Borrower shall segregate said
goods and mark them as property of Bank.

(viii)

Repayment. Borrower will repay each Advance, and all Obligations related
thereto, on the earliest of: (a) the date on which payment is received on the
Financed Receivable with respect to which the Advance was made, (b) the date on
which the Financed Receivable is no longer an Eligible Account or the
representations and warranties in Section 5.4 with respect to such Financed
Receivable is breached, (c) the Maturity Date, (d) Bank’s demand for payment
following an Event of Default, or (e) upon the occurrence of an Event of Default
under Section 8.5 of this Agreement, immediately without notice or demand from
Bank.

2.2

Power of Attorney. Borrower irrevocably appoints Bank and its successors and
assigns as attorney-in-fact and authorizes Bank and its successors and assigns,
regardless of whether there has been an Event of Default, to: (a) sell, assign,
transfer, pledge, compromise, or discharge all or any part of the Financed
Receivables; (b) demand, collect, sue, and give releases to any Account Debtor
for monies due and compromise, prosecute, or defend any action, claim, case or
proceeding about the Financed Receivables, including filing a claim or voting a
claim in any bankruptcy case in Bank’s or Borrower’s name, as Bank chooses; (c)
prepare, file and sign Borrower’s name on any notice, claim, assignment, demand,
draft, or notice of or satisfaction of lien or mechanics’ lien or similar
document; (d) sign Borrower’s name on any invoice or bill of lading relating to
any Account, drafts against account debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to account debtors and notify
all Account Debtors to pay Bank directly; (e) receive, open, and dispose of mail
addressed to Borrower; (f) endorse Borrower’s name on checks or other
instruments (to the extent necessary to pay amounts owed pursuant to this
Agreement); and (g) execute on Borrower’s behalf any instruments, documents,
financing statements to perfect Bank’s interests in the Financed Receivables and
Collateral and do all acts and things necessary or prudent, as determined solely
and exclusively by Bank, to protect, preserve, and otherwise enforce Bank’s
rights and remedies under the Loan Documents, as directed by Bank.

2.3

Finance Charges, Payments, and Calculations.

(a)

Finance Charges. Borrower will pay an interest amount on each Financed
Receivable Balance (each, a “Finance Charge” and collectively, the “Finance
Charges”) which is equal to the Applicable Rate divided by 360 multiplied by the
number of days each such Financed Receivable is outstanding multiplied by the
outstanding Financed Receivable Balance. Immediately upon the occurrence of an
Event of Default, the Applicable Rate will increase an additional five percent
(5.0%) per annum. In the event the Prime Rate is changed from time to time
hereafter, the Applicable Rate shall be increased or decreased, effective as of
the day the Prime Rate is changed, by an amount equal to such change in the
Prime Rate. Bank may deduct the accrued Finance Charges in calculating the
Refundable Reserve.

 

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(b)

Payments. Bank may debit any of Borrower’s deposit accounts for payments or any
amounts Borrower owes Bank hereunder, which shall not constitute a set-off. Any
interest, fees or other charges not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder. All payments shall be free and
clear of any taxes, withholdings, duties, impositions or other charges, to the
end that Bank will receive the entire amount of any Obligations payable
hereunder, regardless of source of payment.

2.4

Fees and Expenses.

(a)

Facility Fee. On the Closing Date, Borrower shall, pay to Bank a facility fee
equal to $9,375.00, which shall be fully earned and nonrefundable.

(b)

Administrative Fee. Borrower shall pay to Bank an administrative fee equal to
twenty basis points (0.20%) of the face amount of each Eligible Account being
financed (the “Administrative Fee”). The Administrative Fee is fully earned and
nonrefundable when the Advance made based on such Eligible Account, and payable
on the date Collections with respect to such Financed Receivable is received.

(c)

Late Fee. If any payment required hereunder is not made within ten (10) days
after the date such payment is due, Borrower shall pay Bank a late fee equal to
the lesser of (i) five percent (5%) of the amount of such unpaid amount or
(ii) the maximum amount permitted to be charged under applicable law.

(d)

Recovery Fee. If Borrower fails to remit any Collections to Bank pursuant to
Section 2.1(a)(v), Borrower shall in each case pay to Bank the Recovery Fee for
such Collections, and shall immediately deliver such payment to Bank in the form
received, except for an endorsement to the order of Bank and, pending such
delivery, shall hold such payment in trust for Bank.

(e)

Bank Expenses. On the Closing Date, all Bank Expenses incurred through the
Closing Date, including reasonable attorneys’ fees and expenses and, after the
Closing Date, all Bank Expenses, including reasonable attorneys’ fees and
expenses, as and when they are incurred by Bank.

3.

Conditions of Loans

3.1

Conditions Precedent to Effectiveness. The effectiveness of this Agreement is
subject to the condition precedent that Bank shall have received, in form and
substance satisfactory to Bank, such documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate, including,
without limitation:

(a)

this Agreement;

(b)

a certificate of the Secretary of Borrower with respect to incumbency and
resolutions authorizing the execution and delivery of this Agreement, along with
certified copies of Borrower’s current formation documents;

(c)

good standing certificate(s) of Borrower;

(d)

an amendment filing with respect to Bank’s existing UCC National Form Financing
Statement;

(e)

affirmation of guarantee duly executed by Geltech Inc.; and;

(f)

payment of the fees and Bank Expenses then due specified in Section 2.4 hereof;

(g)

such other documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.

 

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3.2

Conditions Precedent to all Credit Extensions. Bank’s agreement to make each
Credit Extension, including the initial Credit Extension, is subject to the
following:

(a)

receipt of the Advance Request Form;

(b)

Bank shall have (at its option) conducted the confirmations and verifications as
described in Section 2.1(a) of this Agreement;

(c)

the representations and warranties contained in Section 5 shall be true and
correct in all material respects on and as of the date of such Advance Request
Form and on the effective date of each Credit Extension as though made at and as
of each such date, and no Event of Default shall have occurred and be
continuing, or would exist after giving effect to such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2; and

(d)

in Bank’s reasonable discretion, there has not been any material impairment in
the Accounts, general affairs, management, results of operation, financial
condition or the prospect of repayment of the Obligations, or there has not been
any material adverse deviation by Borrower from the most recent business plan of
Borrower presented to and accepted by Bank.

3.3

Covenant to Deliver. Borrower agrees to deliver to Bank each item required to be
delivered to Bank under this Agreement as a condition precedent to any Credit
Extension. Borrower expressly agrees that a Credit Extension made prior to the
receipt by Bank of any such item shall not constitute a waiver by Bank of
Borrower’s obligation to deliver such item, and the making of any Credit
Extension in the absence of a required item shall be in Bank’s sole discretion.

4.

Creation of Security Interest

4.1

Grant of Security Interest. Borrower grants and pledges to Bank a continuing
security interest in all presently existing and hereafter acquired or arising
Collateral in order to secure prompt repayment of any and all Obligations and in
order to secure prompt performance by Borrower of each of its covenants and
duties under the Loan Documents. Such security interest constitutes a valid,
first priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof (subject only to Permitted Liens that are permitted
pursuant to the terms of this Agreement to have superior priority to Bank’s Lien
in this Agreement).

4.2

Delivery of Additional Documentation Required. Borrower shall from time to time
execute and deliver to Bank, at the request of Bank, all Negotiable Collateral,
all financing statements and other documents that Bank may reasonably request,
in form satisfactory to Bank, to perfect and continue the perfection of Bank’s
security interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents. Borrower from time to time
may deposit with Bank specific time deposit accounts to secure specific
Obligations. Borrower authorizes Bank to hold such balances in pledge and to
decline to honor any drafts thereon or any request by Borrower or any other
Person to pay or otherwise transfer any part of such balances for so long as the
Obligations are outstanding.

4.3

Termination. This Agreement may be terminated prior to the Maturity Date by
Borrower effective three (3) Business Days after written notice of termination
is given to Bank and all Obligations have been repaid. If this Agreement is
terminated, Bank’s Lien in the Collateral shall continue until the Obligations
(other than inchoate indemnity obligations) are repaid in full in cash. Upon
payment in full in cash of the Obligations and at such time as this Agreement
has been terminated, Bank shall, at Borrower’s sole cost and expense, release
its Liens in the Collateral and all rights therein shall revert to Borrower.

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5.

Representations and Warranties

Borrower represents and warrants as follows:

5.1

Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing under the laws of its state of incorporation and
qualified and licensed to do business in any state in which the conduct of its
business or its ownership of property requires that it be so qualified in which
the failure to so qualify could reasonably be expected to have a Material
Adverse Effect.

5.2

Due Authorization; No Conflict. The execution, delivery, and performance of the
Loan Documents are within Borrower’s powers, have been duly authorized, and are
not in conflict with nor constitute a breach of any provision contained in
Borrower’s Articles of Incorporation or Bylaws, nor will they constitute an
event of default under any material agreement to which Borrower is a party or by
which Borrower is bound. Borrower is not in default under any material agreement
to which it is a party or by which it is bound.

5.3

Collateral. Borrower has good title to, has rights in, and the power to
transfer, each item of the Collateral upon which it purports to grant a Lien
hereunder, free and clear of any and all Liens except Permitted Liens.

5.4

Bona Fide Accounts. Borrower represents and warrants for each Financed
Receivable that: (i) such Financed Receivable is an Eligible Account; (ii)
Borrower is the owner of and has the legal right to sell, transfer, assign and
encumber such Financed Receivable; (iii) such Financed Receivable is based on an
actual sale and delivery of goods and/or services rendered, is due to Borrower,
is not past due or in default, has not been previously sold, assigned,
transferred, or pledged and is free of any liens, security interests and
encumbrances other than Permitted Liens; (iv) the correct amount is on the
invoice submitted to Bank with respect to such Financed Receivable, (v) payment
is not contingent on any obligation or contract and Borrower has fulfilled all
its obligations as of the invoice date; (vi) there are no defenses, offsets,
counterclaims or agreements for which the Account Debtor may claim any deduction
or discount; (vii) Borrower reasonably believes no Account Debtor is insolvent
or subject to any Insolvency Proceedings; and Borrower has not received written
notice (or to Borrower’s Knowledge, oral notice) of actual or imminent
Insolvency Proceeding of any Account Debtor of an Financed Receivable; and
(viii) Bank has the right to endorse and/or require Borrower to endorse all
payments received on Financed Receivables and all proceeds of Collateral.

5.5

Merchantable Inventory. All Inventory is in all material respects of good and
marketable quality, free from all material defects, except for Inventory for
which adequate reserves have been made.

5.6

Intellectual Property. Borrower is the sole owner of the Intellectual Property,
except for non-exclusive licenses granted by Borrower to its customers in the
ordinary course of business and those exclusive licenses granted by Borrower and
disclosed in the Schedule. Each of the Patents is valid and enforceable, and no
part of the Intellectual Property has been judged invalid or unenforceable, in
whole or in part, and to Borrower’s Knowledge, no written claim has been made
that any part of the Intellectual Property violates the rights of any third
party. Except as set forth in the Schedule, Borrower’s rights as a licensee of
intellectual property do not give rise to more than five percent (5%) of its
gross revenue in any given month, including without limitation revenue derived
from the sale, licensing, rendering or disposition of any product or service.
Borrower is not a party to, or bound by, any agreement that restricts the grant
by Borrower of a security interest in Borrower’s rights under such agreement.

5.7

Name; Location of Chief Executive Office. Except as disclosed in the Schedule,
Borrower has not done business under any name other than that specified on the
signature page hereof; or, in the past five (5) years, changed its jurisdiction
of formation, corporate structure, organizational type, or any organizational
number assigned by its jurisdiction. The chief executive office of Borrower is
located at the address indicated in Section 10 hereof.

5.8

Litigation. Except as set forth in the Schedule, there are no actions or
proceedings pending by or against Borrower or any Subsidiary before any court or
administrative agency which would, if there were an unfavorable decision, has or
could reasonably be expected to result in a Material Adverse Effect.

 

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5.9

No Material Adverse Change in Financial Statements. All consolidated and
consolidating financial statements related to Borrower and any Subsidiary that
Bank has received from Borrower fairly present in all material respects
Borrower’s financial condition as of the date thereof and Borrower’s
consolidated and consolidating results of operations for the period then ended.
There has not been a material adverse change in the consolidated or the
consolidating financial condition of Borrower since the date of the most recent
of such financial statements submitted to Bank.

5.10

Solvency, Payment of Debts. Borrower is solvent and able to pay its debts
(including trade debts) as they mature.

5.11

Regulatory Compliance. Borrower and each Subsidiary have met the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to
ERISA, and no event has occurred resulting from Borrower’s failure to comply
with ERISA that could result in Borrower’s incurring any material liability.
Borrower is not an “investment company” or a company “controlled” by an
“investment company” within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations T and U of the Board of
Governors of the Federal Reserve System). Borrower and each Subsidiary have
complied in all material respects with all the provisions of the Federal Fair
Labor Standards Act. Borrower and each Subsidiary have not violated any material
statutes, laws, ordinances or rules applicable to it.

5.12

Environmental Condition. None of Borrower’s or any Subsidiary’s properties or
assets has ever been used by Borrower or any Subsidiary or, to Borrower’s
Knowledge, by previous owners or operators, in the disposal of, or to produce,
store, handle, treat, release, or transport, any hazardous waste or hazardous
substance other than in accordance with applicable law; to Borrower’s Knowledge,
none of Borrower’s properties or assets has ever been designated or identified
in any manner pursuant to any environmental protection statute as a hazardous
waste or hazardous substance disposal site, or a candidate for closure pursuant
to any environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.

5.13

Taxes. Borrower and each Subsidiary have filed or caused to be filed all tax
returns required to be filed, and have paid, or have made adequate provision for
the payment of, all taxes reflected therein.

5.14

Subsidiaries. Except as set forth on the Schedule, Borrower does not own any
stock, partnership interest or other equity securities of any Person, except for
Permitted Investments.

5.15

Government Consents. Borrower and each Subsidiary have obtained all material
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower’s business as currently conducted,
except in each case as could not have or reasonably be expected to result in a
Material Adverse Effect.

5.16

Operating, Depository and Investment Accounts. As of the Closing Date, all of
Borrower’s or any Subsidiary’s operating, depository and investment accounts
maintained outside of Bank are listed on the Schedule (collectively, the
“Permitted Accounts”). None of Borrower’s nor any domestic Subsidiary’s accounts
are maintained or invested with a Person other than Bank, except as permitted
under Section 6.8.

5.17

Full Disclosure. To Borrower’s Knowledge, no representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.

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6.

Affirmative Covenants.

Borrower shall comply with all of the following:

6.1

Good Standing. Borrower shall maintain its and each of its Subsidiaries’
corporate existence and good standing in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to do so could
reasonably be expected to have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, in force all
licenses, approvals and agreements, the loss of which could reasonably be
expected to have a Material Adverse Effect.

6.2

Government Compliance. Borrower shall meet, and shall cause each Subsidiary to
meet, the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. Borrower shall comply, and shall cause each
Subsidiary to comply, with all statutes, laws, ordinances and government rules
and regulations to which it is subject, noncompliance with which could have a
Material Adverse Effect.

6.3

Financial Statements, Reports, Certificates. Borrower shall deliver the
following to Bank: (a) within thirty (30) days after the last day of each month,
aged listings of accounts receivable and accounts payable, together with a
deferred revenue listing; (b) as soon as available, but in any event within
forty-five (45) days after the end of each month, a Compliance Certificate
signed by a Responsible Officer in substantially the form of Exhibit C hereto;
(c) as soon as available, but in any event within forty five (45) days after the
end of each quarter, a Borrower prepared consolidated and consolidating balance
sheet, income, and cash flow statement covering Borrower’s consolidated
operations during such period, prepared in accordance with GAAP, consistently
applied, in a form reasonably acceptable to Bank; provided, however, that the
filing of such financial statements with the Securities and Exchange Commission
through EDGAR will satisfy Borrower’s delivery obligations hereunder upon notice
to Bank of such filings; (d) as soon as available, but in any event within one
hundred twenty (120) days after the end of Borrower’s fiscal year, audited
consolidated and consolidating financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an unqualified opinion
on such financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; provided, however that the filing of such
financial statements and opinion of an independent certified public accounting
firm with the Securities and Exchange Commission through EDGAR will satisfy
Borrower’s delivery obligations hereunder upon notice to Bank of such filings;
(e) unless complete copies of the following are not available on EDGAR, copies
of all statements, reports and notices sent or made available generally by
Borrower to its security holders or to any holders of Subordinated Debt; (f)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)
or more, or any commercial tort claim (as defined in the Code) acquired by
Borrower; (g) within 30 days following the end of each month, copies of all bank
statements with respect to all accounts of Borrower or any Subsidiary maintained
outside of Bank; and (h) such budgets, sales projections, operating plans, other
financial information including information related to the verification of
Borrower’s Accounts as Bank may reasonably request from time to time. For the
avoidance of doubt, all information disclosed by Borrower, or any of its
Subsidiaries, to Bank pursuant to this Section 6.3, shall be kept confidential
by Bank in accordance with Section 12.9.

6.4

Audits. Bank shall have a right from time to time hereafter to audit Borrower’s
Accounts and appraise Collateral at Borrower’s expense, provided that such
audits will be conducted no more often than every twelve (12) months unless an
Event of Default has occurred and is continuing.

6.5

Inventory; Returns. Borrower shall keep all Inventory in good and marketable
condition, free from all material defects except for Inventory for which
adequate reserves have been made. Returns and allowances, if any, as between
Borrower and its account debtors shall be on the same basis and in accordance
with the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. Borrower shall promptly notify Bank of
all returns and recoveries and of all disputes and claims, where the return,
recovery, dispute or claim involves more than One Hundred Thousand Dollars
($100,000).

 

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6.6

Taxes. Borrower shall make, and shall cause each Subsidiary to make, due and
timely payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by Borrower

6.7

Insurance.

(a)

Borrower, at its expense, shall keep the Collateral insured against loss or
damage by fire, theft, explosion, sprinklers, and all other hazards and risks,
and in such amounts, as ordinarily insured against by other owners in similar
businesses conducted in the locations where Borrower’s business is conducted on
the date hereof. Borrower shall also maintain insurance relating to Borrower’s
business, ownership and use of the Collateral in amounts and of a type that are
customary to businesses similar to Borrower’s.

 

(b)

All such policies of insurance shall be in such form, with such companies, and
in such amounts as are reasonably satisfactory to Bank. All such policies of
property insurance insuring property located in the United States shall contain
a lender’s loss payable endorsement, in a form reasonably satisfactory to Bank,
showing Bank as an additional loss payee thereof, and all liability insurance
policies issued to Borrower or its domestic Subsidiaries shall show the Bank as
an additional insured and shall specify that the insurer must give at least
twenty (20) days’ notice to Bank before canceling its policy for any reason.
Upon Bank’s request, Borrower shall deliver to Bank certified copies of such
policies of insurance and evidence of the payments of all premiums therefor. All
proceeds payable under any such policy shall, at the option of Bank, be payable
to Bank to be applied on account of the Obligations. Notwithstanding the
foregoing, (x) so long as no Event of Default has occurred that is continuing,
Borrower shall have the option of applying the proceeds of any casualty policy
up to One Million Dollars ($1,000,000) in the aggregate for all losses under all
casualty policies in any one year, toward the replacement or repair of destroyed
or damaged property; provided that any such replaced or repaired property shall
be of equal or like value as the replaced or repaired Collateral and shall be
deemed Collateral in which Bank has been granted a first priority security
interest, and (y) after the occurrence and during the continuance of an Event of
Default, all proceeds payable under such casualty policy shall, at the option of
Bank, be payable to Bank on account of the Obligations. Borrower shall give Bank
prompt written notice (which shall in no event be greater than ten (10) days
following such occurrence) of the occurrence of any casualty affecting the
Collateral or properties covered by the insurance policies required by this
Section 6.7(b) or any portion thereof.

 

6.8

Operating, Depository and Investment Accounts. Borrower shall maintain and shall
cause each of its domestic Subsidiaries to maintain its primary depository and
operating accounts with Bank. For each operating, depository or investment
account, including each Permitted Account, that Borrower maintains outside of
Bank, Borrower shall either: (a) cause the applicable bank or financial
institution at or with which any such account is maintained to execute and
deliver an account control agreement or other appropriate instrument in form and
substance reasonably satisfactory to Bank; or (b) maintain an account balance in
each such Permitted Account in an amount not to exceed Ten Thousand Dollars
($10,000) at any given time.

6.9

Intellectual Property Rights.

(a)

Maintain the validity and enforceability of its Intellectual Property; (ii)
promptly advise Bank in writing of material infringements of its Intellectual
Property; and (iii) not allow any Intellectual Property material to Borrower’s
business to be abandoned, forfeited or dedicated to the public without Bank’s
written consent.

(b)

Borrower (i) shall give Bank not less than fifteen (15) days prior written
notice of the filing of any applications or registrations with the United States
Copyright Office, including the title of such intellectual property rights to be
registered, as such title will appear on such applications or registrations, and
the date such applications or registrations will be filed, and (ii) shall
execute such documents as Bank may reasonably request for Bank to maintain its
perfection in the proceeds of such intellectual property rights to be registered
by Borrower.

 

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6.10

Further Assurances. At any time and from time to time Borrower shall execute and
deliver such further instruments and take such further action as may reasonably
be requested by Bank to effect the purposes of this Agreement.

7.

NEGATIVE COVENANTS. Borrower will not do any of the following:

7.1

Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a “Transfer”), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than: (i) Transfers of Inventory
in the ordinary course of business; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; or (iii) Transfers of worn-out or obsolete
Equipment.

7.2

Change in Business; Change in Control or Executive Office. Engage in any
business, or permit any of its Subsidiaries to engage in any business, other
than the businesses currently engaged in by Borrower and any business
substantially similar or related thereto (or incidental thereto); cease to
conduct business substantially in the manner conducted by Borrower as of the
Closing Date; or suffer or permit a Change in Control; or without thirty (30)
days prior written notification to Bank, relocate its chief executive office or
state of incorporation or change its legal name; or without Bank’s prior written
consent, change the date on which its fiscal year ends.

7.3

Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries
to merge or consolidate, with or into any other business organization, or
acquire, or permit any of its Subsidiaries to acquire, all or substantially all
of the capital stock or property of another Person, provided however, that
Borrower may acquire all or substantially all of the capital stock or property
of another Person with prior notice to Bank (but without the prior written
consent of Bank) if each the following conditions is applicable: (i) no Event of
Default has occurred, is continuing or would exist after giving effect to such
transactions, (ii) such transactions do not result in a Change in Control, and
(iii) Borrower is the surviving entity.

7.4

Indebtedness. Create, incur, guarantee, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.

7.5

Encumbrances. Create, incur, assume or suffer to exist any Lien with respect to
any of its property, or assign or otherwise convey any right to receive income,
including the sale of any Accounts, or permit any of its Subsidiaries so to do,
except for Permitted Liens, or enter into any agreement with any Person other
than Bank not to grant a security interest in, or otherwise encumber, any of its
property, or permit any Subsidiary to do so.

7.6

Distributions. Pay any dividends or make any other distribution or payment on
account of or in redemption, retirement or purchase of any capital stock, or
permit any of its Subsidiaries to do so, except that Borrower may repurchase the
stock of former employees pursuant to stock repurchase agreements as long as an
Event of Default does not exist prior to such repurchase or would not exist
after giving effect to such repurchase, and the aggregate amount of such
repurchase does not exceed $100,000 in any fiscal year.

7.7

Investments. Directly or indirectly acquire or own, or make any Investment in or
to any Person, or permit any of its Subsidiaries so to do, other than Permitted
Investments; or maintain or invest any of its property with a Person other than
Bank or permit any of its Subsidiaries to do so unless such Person has entered
into an account control agreement with Bank in form and substance reasonably
satisfactory to Bank (provided however that Borrower and its Chinese Subsidiary
may maintain accounts with foreign financial institutions that are not subject
to an account control agreement in favor of Bank, consistent with past practices
and in the ordinary course of business); or suffer or permit any Subsidiary to
be a party to, or be bound by, an agreement that restricts such Subsidiary from
paying dividends or otherwise distributing property to Borrower.

7.8

Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower except for (i)
transactions that are in the ordinary course of Borrower’s business, upon fair
and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm’s length transaction with a non-affiliated Person; and (ii)
transactions with Chinese Subsidiary pursuant to transfer pricing arrangements
consistent with past practices and in the ordinary course of business.

 

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7.9

Subordinated Debt. Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision contained in
any documentation relating to the Subordinated Debt without Bank’s prior written
consent.

7.10

Collateral. Store the Collateral with a bailee, warehouseman, or other third
party unless the third party has been notified of Bank’s security interest and
Bank has received a consent, waiver, acknowledgment, control agreement or other
instrument or document duly executed by such third party in form and substance
reasonably satisfactory to Bank.

7.11

Compliance. Become an “investment company” or be controlled by an “investment
company,” within the meaning of the Investment Company Act of 1940, or become
principally engaged in, or undertake as one of its important activities, the
business of extending credit for the purpose of purchasing or carrying margin
stock, or use the proceeds of any Credit Extension for such purpose. Fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could reasonably be expected to have a Material Adverse Effect, or a
material adverse effect on the Collateral or the priority of Bank’s Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.

8.

EVENTS OF DEFAULT.

Any one or more of the following events shall constitute an Event of Default by
Borrower under this Agreement:

8.1

Payment Default. If Borrower fails to pay, when due, any of the Obligations;

8.2

Covenant Default.

(a)

If Borrower fails to perform any obligation under Article 6 other than Section
6.1, 6.2, or 6.9, or violates any of the covenants contained in Article 7 of
this Agreement; or

(b)

If Borrower fails or neglects to perform or observe any provision of Section
6.1, 6.2, or 6.9 or any other material term, provision, condition, covenant
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition or covenant that can be cured, has
failed to cure such default within twenty (20) days after Borrower receives
notice thereof or any officer of Borrower becomes aware thereof; provided,
however, that if the default cannot by its nature be cured within the twenty
(20) day period or cannot after diligent attempts by Borrower be cured within
such twenty (20) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable period (which
shall not in any case exceed an additional twenty (20) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default but no Credit Extensions
will be made.

8.3

Material Adverse Effect. If there occurs any circumstance or circumstances that
could reasonably be expected to have a Material Adverse Effect;

8.4

Attachment. If any portion of Borrower’s assets is attached, seized, subjected
to a writ or distress warrant, or is levied upon, or comes into the possession
of any trustee, receiver or person acting in a similar capacity and such
attachment, seizure, writ or distress warrant or levy has not been removed,
discharged or rescinded within twenty (20) days, or if Borrower is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any part of its business affairs, or if a judgment or other claim becomes
a lien or encumbrance upon any portion of Borrower’s assets, or if a notice of
lien, levy, or assessment is filed of record with respect to any of Borrower’s
assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency, and the same is not paid within twenty (20) days after Borrower receives
notice thereof, provided that none of the foregoing shall constitute an Event of
Default where such action or event is stayed or an adequate bond has been posted
pending a good faith contest by Borrower (provided that no Credit Extensions
will be required to be made during such cure period);

 

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8.5

Insolvency. If Borrower becomes insolvent, or if an Insolvency Proceeding is
commenced by Borrower, or if an Insolvency Proceeding is commenced against
Borrower and is not dismissed or stayed within forty-five (45) days (provided
that no Credit Extensions will be made prior to the dismissal of such Insolvency
Proceeding);

8.6

Other Agreements. If there is a default or other failure to perform in any
agreement to which Borrower is a party or by which it is bound resulting in a
right by a third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or which could reasonably be expected to have a Material
Adverse Effect;

8.7

Subordinated Debt. If Borrower makes any payment on account of Subordinated
Debt, except to the extent the payment is allowed under any subordination
agreement entered into with Bank;

8.8

Judgments. If a judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least One Hundred Thousand Dollars
($100,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of twenty (20) days (provided that no Credit Extensions
will be made prior to the satisfaction or stay of such judgment);

8.9

Misrepresentations. If any material misrepresentation or material misstatement
exists now or hereafter in any warranty or representation set forth herein or in
any certificate delivered to Bank by any Responsible Officer pursuant to this
Agreement or to induce Bank to enter into this Agreement or any other Loan
Document; or

8.10

Guaranty. If any guaranty of all or a portion of the Obligations (a “Guaranty”)
ceases for any reason to be in full force and effect, or any guarantor fails to
perform any obligation under any Guaranty or a security agreement securing any
Guaranty (collectively, the “Guaranty Documents”), or any event of default
occurs under any Guaranty Document or any guarantor revokes or purports to
revoke a Guaranty, or any material misrepresentation or material misstatement
exists now or hereafter in any warranty or representation set forth in any
Guaranty Document or in any certificate delivered to Bank in connection with any
Guaranty Document, or if any of the circumstances described in Sections 8.3
through 8.8 occur with respect to any guarantor or becomes subject to any
criminal prosecution, or any circumstances arise causing Bank, in good faith, to
become insecure as to the satisfaction of any of any guarantor’s obligations
under the Guaranty Documents.

9.

Bank’s Rights and Remedies

9.1

Rights and Remedies. Upon the occurrence and during the continuance of an Event
of Default, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower:

(a)

Declare all or any portion of the Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5, all Obligations shall become immediately due and payable without
any action by Bank);

(b)

Cease advancing money or extending credit to or for the benefit of Borrower
under this Agreement or under any other agreement between Borrower and Bank;

(c)

settle or adjust disputes and claims directly with Account Debtors for amounts,
on terms and in any order that Bank considers advisable and notify any Person
owing Borrower money of Bank’s security interest in such funds and verify the
amount of such account. Borrower shall collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the Account Debtor, with proper endorsements for deposit;

 

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(d)

Make such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank’s determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower’s owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of Bank’s rights or remedies provided
herein, at law, in equity, or otherwise;

(e)

Set off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Bank, or (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Bank;

(f)

Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell (in the manner provided for herein) the Collateral.
Bank is hereby granted a license or other right, solely pursuant to the
provisions of this Section 9.1, to use, without charge, Borrower’s labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section 9.1, Borrower’s rights under all
licenses and all franchise agreements shall inure to Bank’s benefit;

(g)

Dispose of the Collateral by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower’s
premises) as Bank determines is commercially reasonable, and apply any proceeds
to the Obligations in whatever manner or order Bank deems appropriate;

(h)

place a “hold” on any account maintained with Bank and/or deliver a notice of
exclusive control, any entitlement order, or other directions or instructions
pursuant to any Control Agreement or similar agreements providing control of any
Collateral;

(i)

credit bid and purchase at any public sale;

(j)

demand and receive possession of Borrower’s Books; and

(k)

exercise all rights and remedies available to Bank under the Loan Documents or
at law or equity, including all remedies provided under the Code (including
disposal of the Collateral pursuant to the terms thereof). Any deficiency that
exists after disposition of the Collateral as provided above will be paid
immediately by Borrower.

9.2

Right of Set-Off. Borrower hereby grants to Bank, a lien, security interest and
right of setoff as security for all Obligations to Bank, whether now existing or
hereafter arising upon and against all deposits, credits, collateral and
property, now or hereafter in the possession, custody, safekeeping or control of
Bank or any entity under the control of Bank (including a Bank subsidiary) or in
transit to any of them. At any time after the occurrence and during the
continuance of an Event of Default, without demand or notice, Bank may set off
the same or any part thereof and apply the same to any liability or obligation
of Borrower even though unmatured and regardless of the adequacy of any other
collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO
SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.

 

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9.3

Power of Attorney. During the continuance of an Event of Default, Borrower
hereby irrevocably appoints Bank (and any of Bank’s designated officers, or
employees) as Borrower’s true and lawful attorney, without limitation to any
other right of Bank under this Agreement, to: (a) send requests for verification
of Accounts or notify account debtors of Bank’s security interest in the
Accounts; (b) notify all account debtors with respect to the Accounts to pay
Bank directly; (c) sign Borrower’s name on any invoice or bill of lading
relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower’s policies of insurance; (e) demand, collect, receive, sue,
and give releases to any account debtor for the monies due or which may become
due upon or with respect to the Accounts and to compromise, prosecute, or defend
any action, claim, case or proceeding relating to the Accounts; (f) settle and
adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable; (g)
sell, assign, transfer, pledge, compromise, discharge or otherwise dispose of
any Collateral; (h) receive and open all mail addressed to Borrower for the
purpose of collecting the Accounts; (i) endorse Borrower’s name on any checks or
other forms of payment or security that may come into Bank’s possession; (j)
execute on behalf of Borrower any and all instruments, documents, financing
statements and the like to perfect Bank’s interests in the Accounts and
Collections and file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral; and (k) do all acts and things necessary or expedient, in
furtherance of any such purposes; provided however Bank may exercise such power
of attorney with respect to any actions described in clause (j) above,
regardless of whether an Event of Default has occurred. The appointment of Bank
as Borrower’s attorney in fact, and each and every one of Bank’s rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Bank’s obligation to
provide Credit Extensions hereunder is terminated.

9.4

Protective Payments. If Borrower fails to obtain the insurance called for by
Section 6.6 of this Agreement or fails to pay any premium thereon or fails to
pay any other amount which Borrower is obligated to pay under this Agreement or
any other Loan Document, Bank may obtain such insurance or make such payment,
and all amounts so paid by Bank are Bank Expenses and immediately due and
payable, bearing interest at the then highest rate applicable to the
Obligations, and secured by the Collateral. Bank will make reasonable efforts to
provide Borrower with notice of Bank obtaining such insurance at the time it is
obtained or within a reasonable time thereafter. No payments by Bank are deemed
an agreement to make similar payments in the future or Bank’s waiver of any
Event of Default.

9.5

Bank’s Liability for Collateral. So long as Bank complies with reasonable
banking practices, Bank shall not in any way or manner be liable or responsible
for: (a) the safekeeping of the Collateral; any loss or damage thereto occurring
or arising in any manner or fashion from any cause; (b) any diminution in the
value thereof; or (c) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other person whomsoever. All risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.

9.6

No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to require
strict performance by Borrower of any provision of this Agreement or any other
Loan Document shall not waive, affect, or diminish any right of Bank thereafter
to demand strict performance and compliance herewith or therewith. No waiver
hereunder shall be effective unless signed by the party granting the waiver and
then is only effective for the specific instance and purpose for which it is
given. Bank’s rights and remedies under this Agreement and the other Loan
Documents are cumulative. Bank has all rights and remedies provided under the
Code, by law, or in equity. Bank’s exercise of one right or remedy is not an
election and shall not preclude Bank from exercising any other remedy under this
Agreement or other remedy available at law or in equity, and Bank’s waiver of
any Event of Default is not a continuing waiver. Bank’s delay in exercising any
remedy is not a waiver, election, or acquiescence.

9.7

Demand; Protest. Borrower waives, to the extent permitted by applicable law,
demand, protest, notice of protest, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by Bank on which
Borrower may in any way be liable.

 

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10.

Notices. All notices, consents, requests, approvals, demands, or other
communication by any party to this Agreement or any other Loan Document must be
in writing and shall be deemed to have been validly served, given, or delivered:
(a) upon the earlier of actual receipt and three (3) Business Days after deposit
in the U.S. mail, first class, registered or certified mail return receipt
requested, with proper postage prepaid; (b) upon transmission, when sent by
electronic mail or facsimile transmission; (c) one (1) Business Day after
deposit with a reputable overnight courier with all charges prepaid; or (d) when
delivered, if hand-delivered by messenger, all of which shall be addressed to
the party to be notified and sent to the address, facsimile number, or email
address indicated below. Bank or Borrower may change its mailing or electronic
mail address or facsimile number by giving the other party written notice
thereof in accordance with the terms of this Section 10.

If to Borrower:

LightPath Technologies, Inc.

2603 Challenger Tech Ct., Suite 100

Orlando, FL 32826

Attn: Dorothy Cipolla

FAX: (407) 382-4007

Email: dcipolla@lightpath.com

 

with a copy to:

 

Baker & Hostetler LLP

200 South Orange Avenue, Suite 2300

Orlando, FL 32801

Attn: Jeffrey E. Decker, Esq.

FAX: (407) 841-0168

Email: jdecker@bakerlaw.com

 

If to Bank:

Avidbank

50 West San Fernando Street, Suite 850

San Jose, California 95113

Attn: Jon Krogstad

FAX: (408) 200-7399; (855) 208-1157

Email: jkrogstad@avidbank.com

 

11.

Choice of Law, Venue, Jury Trial Waiver and Judicial Reference. This Agreement
shall be governed by, and construed in accordance with, the internal laws of the
State of California, without regard to principles of conflicts of law. Each of
Borrower and Bank hereby submits to the exclusive jurisdiction of the state and
Federal courts located in the County of Santa Clara, State of California.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

 

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WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
§ 638 (or pursuant to comparable provisions of federal law if the dispute falls
within the exclusive jurisdiction of the federal courts), sitting without a
jury, in Santa Clara County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the Santa Clara
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and orders applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this
paragraph shall limit the right of any party at any time to exercise self-help
remedies, foreclose against collateral, or obtain provisional remedies. The
private judge shall also determine all issues relating to the applicability,
interpretation, and enforceability of this paragraph.

12.

General Provisions

12.1

Successors and Assigns. This Agreement shall bind and inure to the benefit of
the respective successors and permitted assigns of each of the parties;
provided, however, that neither this Agreement nor any rights hereunder may be
assigned by Borrower without Bank’s prior written consent, which consent may be
granted or withheld in Bank’s sole discretion. Bank shall have the right without
the consent of or notice to Borrower to sell, transfer, negotiate, or grant
participation in all or any part of, or any interest in, Bank’s obligations,
rights and benefits hereunder.

12.2

Indemnification. Borrower shall defend, indemnify and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities claimed or asserted by any other party in connection with the
transactions contemplated by this Agreement; and (b) all losses or Bank Expenses
in any way suffered, incurred, or paid by Bank as a result of or in any way
arising out of, following, or consequential to transactions between Bank and
Borrower whether under this Agreement, or otherwise (including without
limitation reasonable attorneys’ fees and expenses), except for losses caused by
Bank’s gross negligence or willful misconduct.

12.3

Time of Essence. Time is of the essence for the performance of all obligations
in this Agreement.

12.4

Severability of Provisions. Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of determining the
legal enforceability of any specific provision.

12.5

Correction of Loan Documents. Bank may correct patent errors and fill in any
blanks in this Agreement and the other Loan Documents consistent with the
agreement of the parties.

12.6

Amendments in Writing, Integration. Neither this Agreement nor the Loan
Documents can be amended or terminated orally. Subject to Section 1.3 of this
Agreement, all prior agreements, understandings, representations, warranties,
and negotiations between the parties hereto with respect to the subject matter
of this Agreement and the Loan Documents, if any, are merged into this Agreement
and the Loan Documents.

12.7

Counterparts. This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement. In the event that any
signature is delivered by facsimile transmission or by e-mail delivery of a
“.pdf” format data file, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof. Notwithstanding the foregoing, Borrower
shall deliver all original signed documents requested by Bank no later than ten
(10) Business Days following the Closing Date.

 

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12.8

Survival. All covenants, representations and warranties made in this Agreement
shall continue in full force and effect so long as any Obligations remain
outstanding or Bank has any obligation to make Credit Extensions to Borrower.
The obligations of Borrower to indemnify Bank with respect to the expenses,
damages, losses, costs and liabilities described in Section 12.2 shall survive
until all applicable statute of limitations periods with respect to actions that
may be brought against Bank have run.

12.9

Confidentiality. In handling any confidential information Bank and all employees
and agents of Bank, including but not limited to accountants, shall exercise the
same degree of care that it exercises with respect to its own proprietary
information of the same types to maintain the confidentiality of any non-public
information thereby received or received pursuant to this Agreement except that
disclosure of such information may be made (i) to the subsidiaries or affiliates
of Bank in connection with their present or prospective business relations with
Borrower, (ii) to prospective transferees or purchasers of any interest in the
loans, provided that they are similarly bound by confidentiality obligations,
(iii) as required by law, regulations, rule or order, subpoena, judicial order
or similar order, (iv) as may be required in connection with the examination,
audit or similar investigation of Bank and (v) as Bank may determine in
connection with the enforcement of any remedies hereunder. Confidential
information hereunder shall not include information that either: (a) is in the
public domain or in the knowledge or possession of Bank when disclosed to Bank,
or becomes part of the public domain after disclosure to Bank through no fault
of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not
have actual knowledge that such third party is prohibited from disclosing such
information.

12.10

Patriot Act Notice. Bank hereby notifies Borrower that, pursuant to the
requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into
law on October 26, 2001) (the “Patriot Act”), it is required to obtain, verify
and record information that identifies the Borrower, which information includes
names and addresses and other information that will allow Bank, as applicable,
to identify the Borrower in accordance with the Patriot Act.

12.11

Third Parties. Nothing in this Agreement, whether express or implied, is
intended to: (a) confer any benefits, rights or remedies under or by reason of
this Agreement on any persons other than the express parties to it and their
respective permitted successors and assigns; (b) relieve or discharge the
obligation or liability of any person not an express party to this Agreement; or
(c) give any person not an express party to this Agreement any right of
subrogation or action against any party to this Agreement.

[remainder of this page intentionally left blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Closing Date.

BORROWER

LIGHTPATH TECHNOLOGIES, INC.

By: /s/ J. James Gaynor     Name: J. James Gaynor     Title: CEO & President    
BANK     AVIDBANK     By: /s/ Jon Krogstad     Name: Jon Krogstad     Title:
Senior Vice President    

 

 

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