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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS AMENDED AND RESTATED LOAN
AND SECURITY AGREEMENT (this “Agreement”) dated as of October 10, 2019 (the
“Effective Date”) among (i) SILICON VALLEY BANK, a California corporation
(“Bank”), and (ii) LUNA INNOVATIONS INCORPORATED, a Delaware corporation
(“Innovations”), LUNA TECHNOLOGIES, INC., a Delaware corporation
(“Technologies”), FORMER LUNA SUBSIDIARY, INC. (f/k/a ADVANCED PHOTONIX, INC.),
a Delaware corporation (“API”), TERAMETRIX, LLC, a Delaware limited liability
company (“TeraMetrix”), and GENERAL PHOTONICS CORP., a California corporation
(“Photonics”; Innovations, Technologies, API, TeraMetrix, and Photonics are
referred to herein, individually and collectively, jointly and severally, as
“Borrower”), each with offices located at 301 1st Street SW, Suite 200, Roanoke,
Virginia 24011, provides the terms on which Bank shall lend to Borrower and
Borrower shall repay Bank. This Agreement amends and restates in its entirety
that certain Loan and Security Agreement dated as of February 18, 2010 by and
among Bank, Innovations, Technologies, and API, among others (as amended and in
effect, the “Prior Loan Agreement”). The parties agree as follows: 1 ACCOUNTING
AND OTHER TERMS Accounting terms not defined in this Agreement shall be
construed following GAAP. Calculations and determinations must be made following
GAAP. Notwithstanding the foregoing, all financial covenant and other financial
calculations shall be computed with respect to Borrower only, and not on a
consolidated basis. Capitalized terms not otherwise defined in this Agreement
shall have the meanings set forth in Section 13. 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. 2 LOAN AND TERMS OF
PAYMENT 2.1 Promise to Pay. Borrower hereby unconditionally, jointly and
severally, promises to pay Bank the outstanding principal amount of all Credit
Extensions and accrued and unpaid interest thereon as and when due in accordance
with this Agreement. 2.2 Revolving Advances. (a) Availability. Subject to the
terms and conditions of this Agreement and to deduction of Reserves, Bank shall
make Advances not exceeding the Availability Amount. Amounts borrowed under the
Revolving Line may be repaid and, prior to the Revolving Line Maturity Date,
reborrowed, subject to the applicable terms and conditions precedent herein. (b)
Termination; Repayment. The Revolving Line terminates on the Revolving Line
Maturity Date, when the principal amount of all Advances, the unpaid interest
thereon, and all other Obligations relating to the Revolving Line shall be
immediately due and payable. 2.3 Letters of Credit Sublimit. (a) As part of the
Revolving Line and subject to deduction of Reserves, Bank shall issue or have
issued Letters of Credit denominated in Dollars or a Foreign Currency for
Borrower’s account. The aggregate Dollar Equivalent amount utilized for the
issuance of Letters of Credit shall at all times reduce the amount otherwise
available for Advances under the Revolving Line. The aggregate Dollar Equivalent
of the face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed
the lesser of (A) Three Million Dollars ($3,000,000), minus (i) the sum of all
amounts used for Cash Management Services, and minus (ii) the FX Reduction
Amount, or (B) the Revolving Line, minus (i) the sum of all outstanding
principal amounts of any Advances (including any amounts used for Cash
Management Services), and minus (ii) the FX Reduction Amount. (b) If, on the
Revolving Line Maturity Date (or the effective date of any termination of this
Agreement), there are any outstanding Letters of Credit, then on such date
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collateral in an amount equal to at least one hundred five percent (105.0%) for
Letters of Credit denominated in Dollars or at least one hundred ten percent
(110.0%) for Letters of Credit denominated in a Foreign Currency, in each case
of the aggregate Dollar Equivalent of the face amount of all such Letters of
Credit plus all interest, fees, and costs due or estimated by Bank to become due
in connection therewith, to secure all of the Obligations relating to such
Letters of Credit. All Letters of Credit shall be in form and substance
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank’s standard Application and Letter of Credit Agreement (the
“Letter of Credit Application”). Borrower agrees to execute any further
documentation in connection with the Letters of Credit as Bank may reasonably
request. Borrower further agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Bank and
opened for Borrower’s account or by Bank’s interpretations of any Letter of
Credit issued by Bank for Borrower’s account, and Borrower understands and
agrees that Bank shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower’s instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto. (c) The obligation of Borrower to immediately reimburse
Bank for drawings made under Letters of Credit shall be absolute, unconditional,
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, such Letters of Credit, and the Letter of Credit Application.
(d) Borrower may request that Bank issue a Letter of Credit payable in a Foreign
Currency. If a demand for payment is made under any such Letter of Credit, Bank
shall treat such demand as an Advance to Borrower of the Dollar Equivalent of
the amount thereof (plus fees and charges in connection therewith such as wire,
cable, SWIFT or similar charges). (e) To guard against fluctuations in currency
exchange rates, upon the issuance of any Letter of Credit payable in a Foreign
Currency, Bank shall create a reserve (the “Letter of Credit Reserve”) under the
Revolving Line in an amount equal to ten percent (10%) of the face amount of
such Letter of Credit (which percentage may be adjusted by Bank in its sole
discretion). The amount of the Letter of Credit Reserve may be adjusted by Bank
from time to time to account for fluctuations in the exchange rate. The
availability of funds under the Revolving Line shall be reduced by the amount of
such Letter of Credit Reserve for as long as such Letter of Credit remains
outstanding. 2.4 Foreign Exchange Sublimit. As part of the Revolving Line and
subject to the deduction of Reserves, Borrower may enter into foreign exchange
contracts with Bank under which Borrower commits to purchase from or sell to
Bank a specific amount of Foreign Currency (each, a “FX Contract”) on a
specified date (the “Settlement Date”). FX Contracts shall have a Settlement
Date of at least one (1) FX Business Day after the contract date and shall be
subject to a reserve of ten percent (10%) of each outstanding FX Contract. The
aggregate amount of FX Contracts at any one time may not exceed the lesser of
(A) Three Million Dollars ($3,000,000), minus (i) the sum of all amounts used
for Cash Management Services, and minus (ii) the aggregate Dollar Equivalent of
the face amount of any outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve), or (B) the
Revolving Line, minus (i) the sum of all outstanding principal amounts of any
Advances (including any amounts used for Cash Management Services), and minus
(ii) the aggregate Dollar Equivalent of the face amount of any outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve). The amount otherwise available for Credit Extensions
under the Revolving Line shall be reduced by an amount equal to ten percent
(10%) of each outstanding FX Contract (the “FX Reduction Amount”). Any amounts
needed to fully reimburse Bank for any amounts not paid by Borrower in
connection with FX Contracts will be treated as Advances under the Revolving
Line and will accrue interest at the interest rate applicable to Advances. 2.5
Cash Management Services Sublimit. Borrower may use the Revolving Line for
Bank’s cash management services, which may include merchant services, direct
deposit of payroll, business credit card, and check cashing services identified
in Bank’s various cash management services agreements (collectively, the “Cash
Management Services”), in an aggregate amount not to exceed the lesser of (A)
Three Million Dollars ($3,000,000), minus (i) the aggregate Dollar Equivalent of
the face amount of any outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve), and minus (ii)
the FX Reduction Amount, or (B) the Revolving Line, minus (i) the sum of all
outstanding principal amounts of any Advances, minus the aggregate Dollar
Equivalent of the face amount of any outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), and
minus (ii) the FX Reduction Amount. Any amounts Bank pays on 2 ny-1693906

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behalf of Borrower for any Cash Management Services will be treated as Advances
under the Revolving Line and will accrue interest at the interest rate
applicable to Advances. 2.6 Overadvances. If, at any time, the sum of (a) the
outstanding principal amount of any Advances (including any amounts used for
Cash Management Services), plus (b) the face amount of any outstanding Letters
of Credit (including drawn but unreimbursed Letters of Credit and any Letter of
Credit Reserve), plus (c) the FX Reduction Amount, exceeds the Revolving Line,
Borrower shall immediately pay to Bank in cash the amount of such excess (such
excess, the “Overadvance”). Without limiting Borrower’s obligation to repay Bank
any Overadvance, Borrower agrees to pay Bank interest on the outstanding amount
of any Overadvance, on demand, at a per annum rate equal to the rate that is
otherwise applicable to Advances plus five percent (5.0%). 2.7 Payment of
Interest on the Credit Extensions. (a) Interest Rate. Subject to Section 2.7(b),
the principal amount outstanding under the Revolving Line shall accrue interest
at a floating per annum rate equal to the greater of (i) one percent (1.0%)
above the Prime Rate, and (ii) Six Percent (6.0%), which interest shall be
payable monthly in accordance with Section 2.7(d) below. (b) Default Rate.
Immediately upon the occurrence and during the continuance of an Event of
Default, Obligations shall bear interest at a rate per annum which is five
percent (5.0%) above the rate that is otherwise applicable thereto (the “Default
Rate”). Fees and expenses which are required to be paid by Borrower pursuant to
the Loan Documents (including, without limitation, Bank Expenses) but are not
paid when due shall bear interest until paid at a rate equal to the highest rate
applicable to the Obligations. Payment or acceptance of the increased interest
rate provided in this Section 2.7(b) is not a permitted alternative to timely
payment and shall not constitute a waiver of any Event of Default or otherwise
prejudice or limit any rights or remedies of Bank. (c) Adjustment to Interest
Rate. Changes to the interest rate of any Credit Extension based on changes to
the Prime Rate shall be effective on the effective date of any change to the
Prime Rate and to the extent of any such change. (d) Payment; Interest
Computation. Interest is payable monthly on the Payment Date of each month and
shall be computed on the basis of a 360-day year for the actual number of days
elapsed. In computing interest, (i) all payments received after 12:00 p.m.
Eastern time on any day shall be deemed received at the opening of business on
the next Business Day, and (ii) the date of the making of any Credit Extension
shall be included and the date of payment shall be excluded; provided, however,
that if any Credit Extension is repaid on the same day on which it is made, such
day shall be included in computing interest on such Credit Extension. 2.8 Fees.
Borrower shall pay to Bank: (a) Revolving Line Commitment Fee. A fully earned,
non-refundable commitment fee of Twenty Thousand Dollars ($20,000.00) is earned
and payable as of the Effective Date; and (b) Bank Expenses. All Bank Expenses
(including reasonable attorneys’ fees and expenses for documentation and
negotiation of this Agreement) incurred through and after the Effective Date,
when due (or, if no stated due date, upon demand by Bank). Unless otherwise
provided in this Agreement or in a separate writing by Bank, Borrower shall not
be entitled to any credit, rebate, or repayment of any fees earned by Bank
pursuant to this Agreement notwithstanding any termination of this Agreement or
the suspension or termination of Bank’s obligation to make loans and advances
hereunder. Bank may deduct amounts owing by Borrower under the clauses of this
Section 2.8 pursuant to the terms of Section 2.9(c). Bank shall provide Borrower
written notice of deductions made from the Designated Deposit Account pursuant
to the terms of the clauses of this Section 2.8. 2.9 Payments; Application of
Payments; Debit of Accounts. 3 ny-1693906

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(a) All payments to be made by Borrower under any Loan Document shall be made in
immediately available funds in Dollars, without setoff or counterclaim, before
12:00 p.m. Eastern time on the date when due. Payments of principal and/or
interest received after 12:00 p.m. Eastern time are considered received at the
opening of business on the next Business Day. When a payment is due on a day
that is not a Business Day, the payment shall be due the next Business Day, and
additional fees or interest, as applicable, shall continue to accrue until paid.
(b) Bank has the exclusive right to determine the order and manner in which all
payments with respect to the Obligations may be applied. Borrower shall have no
right to specify the order or the accounts to which Bank shall allocate or apply
any payments required to be made by Borrower to Bank or otherwise received by
Bank under this Agreement when any such allocation or application is not
specified elsewhere in this Agreement. (c) Bank may debit any of Borrower’s
deposit accounts, including the Designated Deposit Account, for principal and
interest payments or any other amounts Borrower owes Bank when due. These debits
shall not constitute a set-off. 2.10 Withholding. Payments received by Bank from
Borrower under this Agreement will be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, duties,
deductions, withholdings, assessments, fees or other charges imposed by any
Governmental Authority (including any interest, additions to tax or penalties
applicable thereto). Specifically, however, if at any time any Governmental
Authority, applicable law, regulation or international agreement requires
Borrower to make any withholding or deduction from any such payment or other sum
payable hereunder to Bank, Borrower hereby covenants and agrees that the amount
due from Borrower with respect to such payment or other sum payable hereunder
will be increased to the extent necessary to ensure that, after the making of
such required withholding or deduction, Bank receives a net sum equal to the sum
which it would have received had no withholding or deduction been required, and
Borrower shall pay the full amount withheld or deducted to the relevant
Governmental Authority. Borrower will, upon request, furnish Bank with proof
reasonably satisfactory to Bank indicating that Borrower has made such
withholding payment; provided, however, that Borrower need not make any
withholding payment if the amount or validity of such withholding payment is
contested in good faith by appropriate and timely proceedings and as to which
payment in full is bonded or reserved against by Borrower. The agreements and
obligations of Borrower contained in this Section 2.10 shall survive the
termination of this Agreement. 3 CONDITIONS OF LOANS 3.1 Conditions Precedent to
Initial Credit Extension. Bank’s obligation to make the initial Credit Extension
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) duly executed signatures to the Loan Documents; (b) duly
executed signatures to any Control Agreement(s) required by Bank; (c) the
Operating Documents and long-form good standing certificates of Borrower
certified by the Secretary of State (or equivalent agency) of Delaware and each
jurisdiction in which Borrower is qualified to conduct business, each as of a
date no earlier than thirty (30) days prior to the Effective Date; (d) duly
executed subordination agreements in a form and substance acceptable to Bank in
all respects; (e) a secretary’s certificate of Borrower with respect to such
Borrower’s Operating Documents, incumbency, specimen signatures and resolutions
authorizing the execution and delivery of this Agreement and the other Loan
Documents to which it is a party; (f) duly executed signatures to the completed
Borrowing Resolutions for Borrower; 4 ny-1693906

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(g) certified copies, dated as of a recent date, of Lien searches (including,
without limitation, UCC searches), as Bank may request, accompanied by written
evidence (including any termination statements) that the Liens indicated in any
such financing statements either constitute Permitted Liens or have been or, in
connection with the initial Credit Extension, will be terminated or released;
(h) the Perfection Certificate of Borrower, together with the duly executed
signature thereto; and (i) payment of the fees and Bank Expenses then due as
specified in Section 2.8 hereof. 3.2 Conditions Precedent to all Credit
Extensions. Bank’s obligations to make each Credit Extension, including the
initial Credit Extension, is subject to the following conditions precedent: (a)
timely receipt of the Credit Extension request and any materials and documents
required by Section 3.4; (b) the representations and warranties in this
Agreement shall be true, accurate, and complete in all material respects on the
date of the proposed Credit Extension and on the Funding Date of each Credit
Extension; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, and no
Event of Default shall have occurred and be continuing or result from the Credit
Extension. Each Credit Extension is Borrower’s representation and warranty on
that date that the representations and warranties in this Agreement remain true,
accurate, and complete in all material respects; provided, however, that such
materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date; and (c) Bank determines to its
satisfaction that there has not been a Material Adverse Change. 3.3 Covenant to
Deliver. (a) 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.
(b) Within thirty (30) days after the Effective Date, Bank shall have received,
in form and substance satisfactory to Bank, evidence satisfactory to Bank that
the insurance policies and endorsements required by Section 6.7 hereof are in
full force and effect, together with appropriate evidence showing lender loss
payable and/or additional insured clauses or endorsements in favor of Bank. 3.4
Procedures for Borrowing. Subject to the prior satisfaction of all other
applicable conditions to the making of an Advance set forth in this Agreement,
to obtain an Advance, Borrower (via an individual duly authorized by an
Administrator) shall notify Bank (which notice shall be irrevocable) by
electronic mail by 12:00 p.m. Eastern time on the Funding Date of the Advance.
Such notice shall be made by Borrower through Bank’s online banking program,
provided, however, if Borrower is not utilizing Bank’s online banking program,
then such notice shall be in a written format acceptable to Bank that is
executed by an Authorized Signer. Bank shall have received satisfactory evidence
that the Board has approved that such Authorized Signer may provide such notices
and request Advances. In connection with any such notification, Borrower must
promptly deliver to Bank by electronic mail or through Bank’s online banking
program such reports and information, including without limitation, sales
journals, cash receipts journals, accounts receivable aging reports, as Bank may
request in its sole discretion. Bank shall credit proceeds of an Advance to the
Designated Deposit Account. Bank may make Advances under this Agreement based 5
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on instructions from an Authorized Signer or without instructions if the
Advances are necessary to meet Obligations which have become due. 4 CREATION OF
SECURITY INTEREST 4.1 Grant of Security Interest. Borrower hereby grants Bank,
to secure the payment and performance in full of all of the Obligations, a
continuing security interest in, and pledges to Bank, the Collateral, wherever
located, whether now owned or hereafter acquired or arising, and all proceeds
and products thereof. Borrower acknowledges that it previously has entered,
and/or may in the future enter, into Bank Services Agreements with Bank.
Regardless of the terms of any Bank Services Agreement, Borrower agrees that any
amounts Borrower owes Bank thereunder shall be deemed to be Obligations
hereunder and that it is the intent of Borrower and Bank to have all such
Obligations secured by the first priority perfected security interest in the
Collateral granted herein (subject only to Permitted Liens that expressly have
superior priority to Bank’s Lien in this Agreement). 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 (other than inchoate indemnity
obligations) and at such time as Bank’s obligation to make Credit Extensions has
terminated, Bank shall, at the sole cost and expense of Borrower, release its
Liens in the Collateral and all rights therein shall revert to Borrower. In the
event (x) all Obligations (other than inchoate indemnity obligations), except
for Bank Services, are satisfied in full, and (y) this Agreement is terminated,
Bank shall terminate the security interest granted herein upon Borrower
providing cash collateral acceptable to Bank in its good faith business judgment
for Bank Services, if any. In the event such Bank Services consist of
outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in
an amount equal to (x) if such Letters of Credit are denominated in Dollars,
then at least one hundred five percent (105.0%); and (y) if such Letters of
Credit are denominated in a Foreign Currency, then at least one hundred ten
percent (110.0%), of the Dollar Equivalent of the face amount of all such
Letters of Credit plus all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its business judgment), to secure
all of the Obligations relating to such Letters of Credit. 4.2 Priority of
Security Interest. Borrower represents, warrants, and covenants that the
security interest granted herein is and shall at all times continue to be a
first priority perfected security interest in the Collateral (subject only to
Permitted Liens that are permitted pursuant to the terms of this Agreement to
have superior priority to Bank’s Lien under this Agreement). If Borrower shall
acquire a commercial tort claim in an amount of One Hundred Thousand Dollars
($100,000.00) or more, Borrower shall promptly notify Bank in a writing signed
by Borrower of the general details thereof and grant to Bank in such writing a
security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance reasonably
satisfactory to Bank. 4.3 Authorization to File Financing Statements. Borrower
hereby authorizes Bank to file financing statements, without notice to Borrower,
with all appropriate jurisdictions to perfect or protect Bank’s interest or
rights hereunder, including a notice that any disposition of the Collateral, by
either Borrower or any other Person, shall be deemed to violate the rights of
Bank under the Code. Such financing statements may indicate the Collateral as
“all assets of the Debtor” or words of similar effect, or as being of an equal
or lesser scope, or with greater detail, all in Bank’s discretion. 5
REPRESENTATIONS AND WARRANTIES Borrower represents and warrants as follows: 5.1
Due Organization; Authorization; Power and Authority. Borrower and each of its
Subsidiaries are duly existing and in good standing as a Registered Organization
in its jurisdiction of formation and each is qualified and licensed to do
business and each is in good standing in any jurisdiction in which the conduct
of each of its business or its ownership of property requires that it be
qualified except where the failure to do so could not reasonably be expected to
have a material adverse effect on Borrower’s business. In connection with this
Agreement, each Borrower has delivered to Bank a completed certificate signed by
Borrower, entitled “Perfection Certificate” (the “Perfection Certificate”).
Borrower represents and warrants to Bank that (a) each Borrower’s exact legal
name is that indicated 6 ny-1693906

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on the Perfection Certificate and on the signature page hereof; (b) each
Borrower is an organization of the type and is organized in the jurisdiction set
forth in the Perfection Certificate; (c) each Perfection Certificate accurately
sets forth Borrower’s organizational identification number or accurately states
that Borrower has none; (d) the Perfection Certificate accurately sets forth
Borrower’s place of business, or, if more than one, its chief executive office
as well as Borrower’s mailing address (if different than its chief executive
office); (e) each Borrower (and each of its predecessors) has not, in the past
five (5) years, changed its jurisdiction of formation, organizational structure
or type, or any organizational number assigned by its jurisdiction; and (f) all
other information set forth on the Perfection Certificate pertaining to each
Borrower and each of its Subsidiaries is accurate and complete (it being
understood and agreed that Borrower may from time to time update certain
information in the Perfection Certificate after the Effective Date to the extent
permitted by one or more specific provisions in this Agreement). If any Borrower
is not now a Registered Organization but later becomes one, such Borrower shall
promptly notify Bank of such occurrence and provide Bank with Borrower’s
organizational identification number. The execution, delivery and performance by
Borrower of the Loan Documents to which it is a party have been duly authorized,
and do not (i) conflict with any of Borrower’s organizational documents, (ii)
contravene, conflict with, constitute a default under or violate any material
Requirement of Law, (iii) contravene, conflict or violate any applicable order,
writ, judgment, injunction, decree, determination or award of any Governmental
Authority by which Borrower or any of its Subsidiaries or any of their property
or assets may be bound or affected, (iv) require any action by, filing,
registration, or qualification with, or Governmental Approval from, any
Governmental Authority (except such Governmental Approvals which have already
been obtained and are in full force and effect) other than filing by Bank to
perfect its security interest in the Collateral or (v) constitute an event of
default under any material agreement by which Borrower is bound. Borrower is not
in default under any agreement to which it is a party or by which it is bound in
which the default could reasonably be expected to have a material adverse effect
on Borrower’s business. 5.2 Collateral. Borrower has good title to, 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. Borrower has no Collateral Accounts at or with any bank or financial
institution other than Bank or Bank’s Affiliates except for the Collateral
Accounts described in the Perfection Certificate delivered to Bank in connection
herewith and which Borrower has taken such actions as are necessary to give Bank
a perfected security interest therein, pursuant to the terms of Section 6.8(b).
The Accounts are bona fide, existing obligations of the Account Debtors. The
Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection Certificate. Other
than demo or loaner equipment with an aggregate book value of up to One Million
Dollars ($1,000,000.00) that is used in the sales and clinical trial process,
none of the components of the Collateral shall be maintained at locations other
than as provided in the Perfection Certificate or as permitted pursuant to
Section 7.2. All Inventory is in all material respects of good and marketable
quality, free from material defects. Borrower is the sole owner of the
Intellectual Property which it owns or purports to own except for (a) licenses
granted to its customers in the ordinary course of business consistent with
Borrower’s past practices, (b) over- the-counter software that is commercially
available to the public, and (c) material Intellectual Property licensed to
Borrower and noted on the Perfection Certificate. Each Patent which it owns or
purports to own and which is material to Borrower’s business is valid, and no
part of the Intellectual Property which Borrower owns or purports to own and
which is material to Borrower’s business has been judged invalid or
unenforceable, in whole or in part. To the best of Borrower’s knowledge, no
written claim is pending that any part of the Intellectual Property violates the
rights of any third party except to the extent such claim would not have a
material adverse effect on Borrower’s business. Except as noted on the
Perfection Certificate, Borrower is not a party to, nor is it bound by, any
Restricted License. 5.3 Reserved. 5.4 Litigation. Except as disclosed in the
Perfection Certificate, there are no actions or proceedings pending or, to the
knowledge of any Responsible Officer, threatened in writing by or against
Borrower or any of its 7 ny-1693906

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Subsidiaries involving more than, individually Fifty Thousand Dollars ($50,000),
or in the aggregate Two Hundred Fifty Thousand Dollars ($250,000). 5.5 Financial
Statements; Financial Condition. All consolidated financial statements for
Borrower and any of its Subsidiaries delivered to Bank fairly present in all
material respects Borrower’s consolidated financial condition and Borrower’s
consolidated results of operations. There has not been any material
deterioration in Borrower’s consolidated financial condition since the date of
the most recent financial statements submitted to Bank. 5.6 Solvency. The fair
salable value of Borrower’s consolidated assets (including goodwill minus
disposition costs) exceeds the fair value of Borrower’s liabilities; Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature. 5.7 Regulatory Compliance. Borrower is not an “investment company” or a
company “controlled” by an “investment company” under the Investment Company Act
of 1940, as amended. Borrower is not engaged as one of its important activities
in extending credit for margin stock (under Regulations X, T and U of the
Federal Reserve Board of Governors). Borrower (a) has complied in all material
respects with all Requirements of Law, and (b) has not violated any Requirements
of Law the violation of which could reasonably be expected to have a material
adverse effect on its business. None of Borrower’s or any of its Subsidiaries’
properties or assets has been used by Borrower or any Subsidiary or, to the best
of Borrower’s knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Borrower
and each of its Subsidiaries have obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all Governmental Authorities that are necessary to continue their respective
businesses as currently conducted. 5.8 Subsidiaries; Investments. Borrower does
not own any stock, partnership, or other ownership interest or other equity
securities except for Permitted Investments. 5.9 Tax Returns and Payments;
Pension Contributions. Borrower has timely filed all required tax returns and
reports, and Borrower has timely paid all foreign, federal, state and local
taxes, assessments, deposits and contributions owed by Borrower. Borrower may
defer payment of any contested taxes, provided that Borrower (a) in good faith
contests its obligation to pay the taxes by appropriate proceedings promptly and
diligently instituted and conducted, (b) notifies Bank in writing of the
commencement of, and any material development in, the proceedings, (c) posts
bonds or takes any other steps required to prevent the governmental authority
levying such contested taxes from obtaining a Lien upon any of the Collateral
that is other than a “Permitted Lien”. Borrower is unaware of any claims or
adjustments, in excess of $20,000, proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid all amounts necessary to fund all present pension,
profit sharing and deferred compensation plans in accordance with their terms,
and Borrower has not withdrawn from participation in, and has not permitted
partial or complete termination of, or permitted the occurrence of any other
event with respect to, any such plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.
5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions
solely as working capital and to fund its general business requirements and not
for personal, family, household or agricultural purposes. 5.11 Full Disclosure.
No written representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank, as of the date such
representation, warranty, or other statement was made, taken together with all
such written certificates and written statements given to Bank, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained in the certificates or statements not
misleading (it being recognized by Bank that the projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are not
viewed as facts and that actual results during the period or periods covered by
such projections and forecasts may differ from the projected or forecasted
results). 5.12 Definition of “Knowledge.” For purposes of the Loan Documents,
whenever a representation or warranty is made to Borrower’s knowledge or
awareness, to the “best of” Borrower’s knowledge, or with a similar
qualification, knowledge or awareness means the actual knowledge, after
reasonable investigation, of any Responsible Officer. 8 ny-1693906

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6 AFFIRMATIVE COVENANTS Borrower shall do all of the following: 6.1 Government
Compliance. (a) Maintain its and all its Subsidiaries’ legal existence and good
standing in their respective jurisdictions of formation and maintain
qualification in each jurisdiction in which the failure to so qualify would
reasonably be expected to have a material adverse effect on Borrower’s business
or operations. Borrower shall comply, and have each Subsidiary comply, with all
laws, ordinances and regulations to which it is subject, the noncompliance with
which could have a material adverse effect on Borrower’s business. (b) Obtain
all of the Governmental Approvals necessary for the performance by Borrower of
its obligations under the Loan Documents to which it is a party and the grant of
a security interest to Bank in all of the Collateral. Borrower shall promptly
provide copies of any such obtained Governmental Approvals to Bank. 6.2
Financial Statements, Reports, Certificates. Provide Bank with the following:
(a) as soon as available, but no later than thirty (30) days after the last day
of each month, (A) monthly accounts receivable agings, aged by invoice date, (B)
monthly accounts payable agings, aged by invoice date, and outstanding or held
check registers, if any, and (C) monthly reconciliations of accounts receivable
agings (aged by invoice date), including without limitation, project identifiers
for the purposes of tracking the status of assignments under the Federal
Assignment of Claims Act of 1940, Deferred Revenue report, and general ledger;
(b) as soon as available, but no later than thirty (30) days after the last day
of each month, a company prepared consolidated balance sheet and income
statement covering Borrower’s consolidated operations for such month certified
by a Responsible Officer and in a form reasonably acceptable to Bank (the
“Monthly Financial Statements”); (c) as soon as available, but no later than
thirty (30) days following the end of each fiscal year of Borrower, and
contemporaneously with any updates or amendments thereto, (A) annual operating
budgets (including income statements, balance sheets and cash flow statements,
by month) for the upcoming fiscal year of Borrower, and (B) annual financial
projections for the following fiscal year (on a quarterly basis), in each case
as approved by the Board, together with any related business forecasts used in
the preparation of such annual financial projections; (d) as soon as available,
and in any event within one hundred eighty (180) days following the last day of
Borrower’s fiscal year, audited consolidated financial statements prepared under
GAAP, consistently applied, together with an unqualified opinion on the
financial statements from an independent certified public accounting firm
reasonably acceptable to Bank; (e) in the event that Borrower becomes subject to
the reporting requirements under the Exchange Act within five (5) days of
filing, copies of all periodic and other reports, proxy statements and other
materials filed by Borrower with the SEC, any Governmental Authority succeeding
to any or all of the functions of the SEC or with any national securities
exchange, or distributed to its shareholders, as the case may be. Documents
required to be delivered pursuant to the terms hereof (to the extent any such
documents are included in materials otherwise filed with the SEC) may be
delivered electronically and if so delivered, shall be deemed to have been
delivered on the date on which Borrower posts such documents, or provides a link
thereto, on Borrower’s website on the internet at Borrower’s website address;
provided, however, Borrower shall promptly notify Bank in writing (which may be
by electronic mail) of the posting of any such documents; (f) within five (5)
days of delivery, copies of all proxy statements, financial statements and
reports made available to all of Borrower’s security holders (in such capacity)
or to any holders of Subordinated Debt; 9 ny-1693906

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(g) a prompt report of any legal actions pending or threatened in writing
against Borrower or any of its Subsidiaries that could result in damages or
costs to Borrower or any of its Subsidiaries of, individually, Fifty Thousand
Dollars ($50,000) or more, or in the aggregate Two Hundred Fifty Thousand
Dollars ($250,000); (h) prompt written notice of any changes to the beneficial
ownership information set out in Section 14 of the Perfection Certificate.
Borrower understands and acknowledges that Bank relies on such true, accurate
and up-to-date beneficial ownership information to meet Bank’s regulatory
obligations to obtain, verify and record information about the beneficial owners
of its legal entity customers; and (i) promptly, from time to time, such other
information regarding Borrower or compliance with the terms of any Loan
Documents as reasonably requested by Bank. 6.3 Accounts Receivable. (a)
Schedules and Documents Relating to Accounts. Borrower shall deliver to Bank
transaction reports and schedules of collections, as provided in Section 6.2, on
Bank’s standard forms; provided, however, that Borrower’s failure to execute and
deliver the same shall not affect or limit Bank’s Lien and other rights in all
of Borrower’s Accounts, nor shall Bank’s failure to advance or lend against a
specific Account affect or limit Bank’s Lien and other rights therein. If
requested by Bank, Borrower shall furnish Bank with copies (or, at Bank’s
request, originals) of all contracts, orders, invoices, and other similar
documents, and all shipping instructions, delivery receipts, bills of lading,
and other evidence of delivery, for any goods the sale or disposition of which
gave rise to such Accounts. In addition, Borrower shall deliver to Bank, on its
request, the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any Accounts,
in the same form as received, with all necessary indorsements, and copies of all
credit memos. (b) Disputes. Borrower shall promptly notify Bank of all disputes
or claims relating to Accounts. Borrower may forgive (completely or partially),
compromise, or settle any Account for less than payment in full, or agree to do
any of the foregoing so long as (i) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business, in
arm’s-length transactions, and reports the same to Bank in the regular reports
provided to Bank; (ii) no Event of Default has occurred and is continuing; and
(iii) after taking into account all such discounts, settlements and forgiveness,
the total outstanding Advances will not exceed the Availability Amount. (c)
Collection of Accounts. Borrower shall direct Account Debtors to deliver or
transmit all proceeds of Accounts into a lockbox account, or a “blocked account”
as specified by Bank (either such account, the “Cash Collateral Account”).
Whether or not an Event of Default has occurred and is continuing, Borrower
shall immediately deliver all payments on and proceeds of Accounts to the Cash
Collateral Account. Subject to Bank’s right to maintain a reserve pursuant to
Section 6.3(d), all amounts received in the Cash Collateral Account shall be (i)
when an Event of Default exists, applied to immediately reduce the Obligations
(unless Bank, in its sole discretion, elects not to so apply such amounts), and
(ii) when no Event of Default exists, transferred on a daily basis to Borrower’s
operating account with Bank. Borrower hereby authorizes Bank to transfer to the
Cash Collateral Account any amounts that Bank reasonably determines are proceeds
of the Accounts (provided that Bank is under no obligation to do so and this
allowance shall in no event relieve Borrower of its obligations hereunder). (d)
Reserves. Notwithstanding any terms in this Agreement to the contrary, at times
when an Event of Default exists, Bank may hold any proceeds of the Accounts and
any amounts in the Cash Collateral Account that are not applied to the
Obligations pursuant to Section 6.3(c) above) as a reserve to be applied to any
Obligations regardless of whether such Obligations are then due and payable. (e)
Returns. Provided no Event of Default has occurred and is continuing, if any
Account Debtor returns any Inventory to Borrower, Borrower shall promptly (i)
determine the reason for such return, (ii) issue a credit memorandum to the
Account Debtor in the appropriate amount, and (iii) provide a copy of such
credit memorandum to Bank, upon request from Bank. In the event any attempted
return occurs after the occurrence and during the continuance of any Event of
Default, Borrower shall hold the returned Inventory in trust for Bank, and
immediately notify Bank of the return of the Inventory. 10 ny-1693906

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(f) Verifications; Confirmations; Credit Quality; Notifications. Bank may, from
time to time, (i) verify and confirm directly with the respective Account
Debtors the validity, amount and other matters relating to the Accounts, either
in the name of Borrower or Bank or such other name as Bank may choose, and
notify any Account Debtor of Bank’s security interest in such Account and/or
(ii) conduct a credit check of any Account Debtor to approve any such Account
Debtor’s credit. In addition, Bank may notify Account Debtors to make payments
in respect of Accounts directly to Bank. (g) No Liability. Bank shall not be
responsible or liable for any shortage or discrepancy in, damage to, or loss or
destruction of, any goods, the sale or other disposition of which gives rise to
an Account, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any Account,
or for settling any Account in good faith for less than the full amount thereof,
nor shall Bank be deemed to be responsible for any of Borrower’s obligations
under any contract or agreement giving rise to an Account. Nothing herein shall,
however, relieve Bank from liability for its own gross negligence or willful
misconduct. 6.4 Remittance of Proceeds. Except as otherwise provided in Section
6.3(c), deliver, in kind, all proceeds arising from the disposition of any
Collateral to Bank in the original form in which received by Borrower not later
than the following Business Day after receipt by Borrower, to be applied to the
Obligations (a) prior to an Event of Default, pursuant to the terms of Section
6.3(c) hereof, and (b) after the occurrence and during the continuance of an
Event of Default, pursuant to the terms of Section 9.4 hereof; provided that, if
no Event of Default has occurred and is continuing, Borrower shall not be
obligated to remit to Bank the proceeds of the sale of worn out or obsolete
Equipment disposed of by Borrower in good faith in an arm’s length transaction
for an aggregate purchase price of Twenty Five Thousand Dollars ($25,000.00) or
less (for all such transactions in any fiscal year). Borrower agrees that it
will not commingle proceeds of Collateral with any of Borrower’s other funds or
property, but will hold such proceeds separate and apart from such other funds
and property and in an express trust for Bank. Nothing in this Section 6.4
limits the restrictions on disposition of Collateral set forth elsewhere in this
Agreement. 6.5 Taxes; Pensions. Timely file, and require each of its
Subsidiaries to timely file, all required tax returns and reports and timely
pay, and require each of its Subsidiaries to timely pay, all foreign, federal,
state and local taxes, assessments, deposits and contributions owed by Borrower
and each of its Subsidiaries, except for deferred payment of any taxes contested
pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on
demand, appropriate certificates attesting to such payments, and pay all amounts
necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms. 6.6 Access to Collateral; Books and
Records. At reasonable times, on one (1) Business Day’s notice (provided no
notice is required if an Event of Default has occurred and is continuing), Bank,
or its agents, shall have the right, up to one (1) time per year (unless an
Event of Default has occurred and is continuing in which case such inspections
and audits shall occur as often as Bank shall determine is necessary), to
inspect the Collateral and the right to audit and copy Borrower’s Books. The
foregoing inspections and audits shall be conducted at Borrower’s expense and
the charge therefor shall be One Thousand Dollars ($1,000.00) per person per day
(or such higher amount as shall represent Bank’s then-current standard charge
for the same), plus reasonable out-of-pocket expenses. In the event Borrower and
Bank schedule an audit more than eight (8) days in advance, and Borrower cancels
or seeks to or reschedules the audit with less than eight (8) days written
notice to Bank, then (without limiting any of Bank’s rights or remedies)
Borrower shall pay Bank a fee of Two Thousand Dollars ($2,000.00) plus any
out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated
costs and expenses of the cancellation or rescheduling. 6.7 Insurance. (a) Keep
its business and the Collateral insured for risks and in amounts standard for
companies in Borrower’s industry and location and as Bank may reasonably
request. Insurance policies shall be in a form, with financially sound and
reputable insurance companies that are not Affiliates of Borrower, and in
amounts that are satisfactory to Bank. All property policies shall have a
lender’s loss payable endorsement showing Bank as a lender loss payee. All
liability policies shall show, or have endorsements showing, Bank as an
additional insured. Bank shall be named as lender loss payee and/or additional
insured with respect to any such insurance providing coverage in respect of any
Collateral. 11 ny-1693906

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(b) Ensure that proceeds payable under any property policy are, at Bank’s
option, payable to Bank on account of the Obligations. (c) At Bank’s request,
Borrower shall deliver certified copies of insurance policies and evidence of
all premium payments. Each provider of any such insurance required under this
Section 6.7 shall agree, by endorsement upon the policy or policies issued by it
or by independent instruments furnished to Bank, that it will give Bank thirty
(30) days prior written notice before any such policy or policies shall be
materially altered or canceled. If Borrower fails to obtain insurance as
required under this Section 6.7 or to pay any amount or furnish any required
proof of payment to third persons and Bank, Bank may make all or part of such
payment or obtain such insurance policies required in this Section 6.7, and take
any action under the policies Bank deems prudent. 6.8 Accounts. (a) Maintain its
and all of its Subsidiaries’, if any, primary depository, operating accounts and
securities accounts with Bank and Bank’s Affiliates with all excess funds
maintained at or invested through Bank or an affiliate of Bank, which accounts
shall represent at least (i) 95% of the dollar value or (ii) all but $1,000,000
of Borrower’s and its Subsidiaries’ accounts at all financial institutions.
Notwithstanding the foregoing, until December 31, 2019, Borrower’s Subsidiaries
may maintain deposits of up to Two Million Dollars ($2,000,000.00) in the
aggregate with financial institutions other than Bank and Bank’s Affiliates. In
addition, Borrower and its Subsidiaries Borrower shall conduct all cash
management, foreign exchange, letter of credit banking, and business credit
cards with Bank. (b) For each Collateral Account that Borrower at any time
maintains, Borrower shall cause the applicable bank or financial institution
(other than Bank) at or with which any Collateral Account is maintained to
execute and deliver a Control Agreement or other appropriate instrument with
respect to such Collateral Account to perfect Bank’s Lien in such Collateral
Account in accordance with the terms hereunder which Control Agreement may not
be terminated without the prior written consent of Bank. The provisions of the
previous sentence shall not apply to deposit accounts exclusively used for
payroll, payroll taxes and other employee wage and benefit payments to or for
the benefit of Borrower’s employees and identified to Bank by Borrower as such.
6.9 Financial Covenants - Liquidity Coverage Ratio. Borrower shall maintain at
all times, to be certified as of the last day of each month, a Liquidity
Coverage Ratio equal to or greater than 2.0 to 1.00. 6.10 Protection and
Registration of Intellectual Property Rights. (a) (i) Protect, defend and
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) If Borrower (i) obtains any Patent, registered Trademark,
registered Copyright, registered mask work, or any pending application for any
of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for
any Patent or the registration of any Trademark, then Borrower shall immediately
provide written notice thereof to Bank and shall execute such intellectual
property security agreements and other documents and take such other actions as
Bank shall request in its good faith business judgment to perfect and maintain a
first priority perfected security interest in favor of Bank in such property. If
Borrower decides to register any Copyrights or mask works in the United States
Copyright Office, Borrower shall: (x) provide Bank with at least fifteen (15)
days prior written notice of Borrower’s intent to register such Copyrights or
mask works together with a copy of the application it intends to file with the
United States Copyright Office (excluding exhibits thereto); (y) execute an
intellectual property security agreement and such other documents and take such
other actions as Bank may request in its good faith business judgment to perfect
and maintain a first priority perfected security interest in favor of Bank in
the Copyrights or mask works intended to be registered with the United States
Copyright Office; and (z) record such intellectual property security agreement
with the United States Copyright Office contemporaneously with filing the
Copyright or mask work application(s) with the United States Copyright Office.
Borrower shall promptly provide to Bank copies of all applications that it files
for Patents or for the registration of Trademarks, Copyrights or mask works,
together with evidence of the recording of the intellectual property security
agreement required for Bank to perfect and maintain a first priority perfected
security interest in such property. 12 ny-1693906

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(c) Provide written notice to Bank within ten (10) days of entering or becoming
bound by any Restricted License (other than over-the-counter software that is
commercially available to the public). Borrower shall take such steps as Bank
requests to obtain the consent of, or waiver by, any person whose consent or
waiver is necessary for (i) any Restricted License to be deemed “Collateral” and
for Bank to have a security interest in it that might otherwise be restricted or
prohibited by law or by the terms of any such Restricted License, whether now
existing or entered into in the future, and (ii) Bank to have the ability in the
event of a liquidation of any Collateral to dispose of such Collateral in
accordance with Bank’s rights and remedies under this Agreement and the other
Loan Documents 6.11 Litigation Cooperation. From the date hereof and continuing
through the termination of this Agreement, make available to Bank without
expense to Bank, Borrower and its officers, employees and agents and Borrower’s
books and records, to the extent that Bank may deem them reasonably necessary to
prosecute or defend any third-party suit or proceeding instituted by or against
Bank with respect to any Collateral or relating to Borrower. 6.12 Online
Banking. (a) Utilize Bank’s online banking platform for all matters requested by
Bank which shall include, without limitation (and without request by Bank for
the following matters), uploading information pertaining to Accounts and Account
Debtors, requesting approval for exceptions, requesting Credit Extensions, and
uploading financial statements and other reports required to be delivered by
this Agreement (including, without limitation, those described in Section 6.2 of
this Agreement). (b) Comply with the terms of Bank’s Online Banking Agreement as
in effect from time to time and ensure that all persons utilizing Bank’s online
banking platform are duly authorized to do so by an Administrator. Bank shall be
entitled to assume the authenticity, accuracy and completeness on any
information, instruction or request for a Credit Extension submitted via Bank’s
online banking platform and to further assume that any submissions or requests
made via Bank’s online banking platform have been duly authorized by an
Administrator.. 6.13 Further Assurances. Execute any further instruments and
take further action as Bank reasonably requests to perfect or continue Bank’s
Lien in the Collateral or to effect the purposes of this Agreement. Deliver to
Bank, within five (5) days after the same are sent or received, copies of all
correspondence, reports, documents and other filings with any Governmental
Authority regarding compliance with or maintenance of Governmental Approvals or
Requirements of Law or that could reasonably be expected to have a material
effect on any of the Governmental Approvals or otherwise on the operations of
Borrower or any of its Subsidiaries. 6.14 Creation/Acquisition of Subsidiaries.
Notwithstanding and without limiting the negative covenants contained in
Sections 7.3 and 7.7 hereof, in the event Borrower or any Subsidiary creates or
acquires any Subsidiary (including without limitation, pursuant to a Division),
Borrower and such Subsidiary shall promptly notify Bank of the creation or
acquisition of such new Subsidiary and, at Bank’s request, in its sole
discretion, shall (a) with respect to Subsidiaries organized within the United
States only, cause such new Subsidiary to provide to Bank a joinder to the Loan
Documents to cause such Subsidiary to become a co-borrower hereunder, and grant
a continuing pledge and security interest in and to the assets of such
Subsidiary (substantially as described on Exhibit A hereto), (b) provide to Bank
appropriate certificates and powers and financing statements, pledging all of
the direct or beneficial ownership interest in such new Subsidiary, in form and
substance satisfactory to Bank, and (c) provide to Bank all other documentation
in form and substance reasonably satisfactory to Bank, which in its opinion is
appropriate with respect to the execution and delivery of the applicable
documentation referred to above. Any document, agreement, or instrument executed
or issued pursuant to this Section 6.14 shall be a Loan Document. 7 NEGATIVE
COVENANTS Borrower shall not do any of the following without Bank’s prior
written consent: 7.1 Dispositions. Convey, sell, lease, transfer, assign, or
otherwise dispose of (including, without limitation, pursuant to a Division)
(collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all
or any material part of its business or property, except for Transfers (a) of
Inventory in the ordinary course of business; (b) of worn out or obsolete
Equipment; (c) in connection with Permitted Liens and Permitted Investments; (d)
of non- exclusive licenses for the use of the Intellectual Property of Borrower
in the ordinary course of business that could not 13 ny-1693906

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result in a legal transfer of title of the licensed property but that may be
exclusive in respects other than territory and that may be exclusive as to
territory only as to discrete geographical areas outside of the United States,
or (e) of exclusive licenses of Intellectual Property in the ordinary course of
Borrower’s business and consistent with Borrower’s past practices. 7.2 Changes
in Business, Management, Control, or Business Locations. (a) Engage in or permit
any of its Subsidiaries, if any, to engage in any business other than the
businesses currently engaged in by Borrower and such Subsidiary, as applicable,
or reasonably related thereto; (b) liquidate or dissolve, other than
Subsidiaries that own assets with an aggregate value of less than One Hundred
Thousand Dollars ($100,000.00); (c) fail to provide notice to Bank of any Key
Person departing from or ceasing to be employed by Borrower within five (5) days
after his or her departure from Borrower, or (d) permit or suffer any Change in
Control. Borrower shall not, without at least thirty (30) days prior written
notice to Bank: (1) add any new offices or business locations, including
warehouses (unless such new offices or business locations contain less than
Fifty Thousand Dollars ($50,000.00) in Borrower’s assets or property) or deliver
any portion of the Collateral valued, individually or in the aggregate, in
excess of Fifty Thousand Dollars ($50,000.00) to a bailee at a location other
than to a bailee and at a location already disclosed in the Perfection
Certificate, (2) change its jurisdiction of organization, (3) change its
organizational structure or type, (4) change its legal name, or (5) change any
organizational number (if any) assigned by its jurisdiction of organization. If
Borrower intends to add any new offices or business locations, including
warehouses, containing in excess of Fifty Thousand Dollars ($50,000.00) of
Borrower's assets or property, then Borrower will first receive the written
consent of Bank, and the landlord of any such new offices or business locations,
including warehouses, shall execute and deliver a landlord consent in form and
substance satisfactory to Bank. If Borrower intends to deliver any portion of
the Collateral valued, individually or in the aggregate, in excess of Fifty
Thousand Dollars ($50,000.00) to a bailee, and Bank and such bailee are not
already parties to a bailee agreement governing both the Collateral and the
location to which Borrower intends to deliver the Collateral, then Borrower will
first receive the written consent of Bank, and such bailee shall execute and
deliver a bailee agreement in form and substance satisfactory to Bank in its
sole discretion. 7.3 Mergers or Acquisitions. Merge or consolidate, or permit
any of its Subsidiaries to merge or consolidate, with any other Person, or
acquire, or permit any of its Subsidiaries to acquire, all or substantially all
of the capital stock or property of another Person (including, without
limitation, by the formation of any Subsidiary or pursuant to a Division). A
Subsidiary may merge or consolidate into another Subsidiary or into Borrower.
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or
permit any Subsidiary to do so, other than Permitted Indebtedness. 7.5
Encumbrance. Create, incur, allow, or suffer any Lien on any of its property, or
assign or convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, permit any Collateral not to be subject to the first priority security
interest granted herein, or enter into any agreement, document, instrument or
other arrangement (except with or in favor of Bank) with any Person which
directly or indirectly prohibits or has the effect of prohibiting Borrower or
any Subsidiary from assigning, mortgaging, pledging, granting a security
interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s
Intellectual Property, except as is otherwise permitted in Section 7.1 hereof
and the definition of “Permitted Liens” herein. 7.6 Maintenance of Collateral
Accounts. Maintain any Collateral Account except pursuant to the terms of
Section 6.8(b) hereof. 7.7 Distributions; Investments. (a) Pay any cash
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock, provided that Borrower may repurchase the stock of employees so
long as an Event of Default does not exist at the time of any such repurchase
and would not exist after giving effect to any such repurchase, provided that
the aggregate amount of all such repurchases does not exceed Five Hundred
Thousand Dollars ($500,000.00); or (b) directly or indirectly make any
Investment (including, without limitation, any additional Investment in any
Subsidiary) other than Permitted Investments, or permit any of its Subsidiaries
to do so. 14 ny-1693906

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[exhibit1027amendedandres015.jpg]
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower, except for
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. 7.9
Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt,
except under the terms of any subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or (b) amend any provision
in any document relating to the Subordinated Debt which would increase the
amount thereof or adversely affect the subordination thereof to Obligations owed
to Bank. 7.10 Compliance. Become an “investment company” or a company controlled
by an “investment company”, under the Investment Company Act of 1940, as
amended, or undertake as one of its important activities extending credit to
purchase or carry margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve System), or use the proceeds of any Credit
Extension for that 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 other law or regulation, if the violation could reasonably be expected to
have a material adverse effect on Borrower’s business, or permit any of its
Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any present pension, profit
sharing and deferred compensation plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.
7.11 Subsidiary Limitations. Permit any Subsidiary or Subsidiaries that are not
a Borrower to maintain assets in an aggregate amount for all such Subsidiaries
in excess of One Hundred Thousand Dollars ($100,000) at any time. 8 EVENTS OF
DEFAULT Any one of the following shall constitute an event of default (an “Event
of Default”) under this Agreement: 8.1 Payment Default. Borrower fails to (a)
make any payment of principal or interest on any Credit Extension when due, or
(b) pay any other Obligations within three (3) Business Days after such
Obligations are due and payable (which three (3) Business Day cure period shall
not apply to payments due on the Revolving Line Maturity Date). During the cure
period, the failure to make or pay any payment specified under clause (b)
hereunder is not an Event of Default (but no Credit Extension will be made
during the cure period); 8.2 Covenant Default. (a) Borrower fails or neglects to
perform any obligation in Sections 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10,
6.12, or 6.14, or violates any covenant in Section 7; or (b) Borrower fails or
neglects to perform, keep, or observe any other term, provision, condition,
covenant or agreement contained in this Agreement or any Loan Documents, and as
to any default (other than those specified in this Section 8) under such other
term, provision, condition, covenant or agreement that can be cured, has failed
to cure the default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional period (which shall not in any case
exceed thirty (30) days) to attempt to cure such default, and within such
reasonable time period the failure to cure the default shall not be deemed an
Event of Default (but no Credit Extensions shall be made during such cure
period). Cure periods provided under this section shall not apply, among other
things, to financial covenants or any other covenants set forth in clause (a)
above; 8.3 Material Adverse Change. A Material Adverse Change occurs; 8.4
Attachment; Levy; Restraint on Business. 15 ny-1693906

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(a) (i) The service of process seeking to attach, by trustee or similar process,
any funds of Borrower or of any entity under the control of Borrower (including
a Subsidiary) on deposit or otherwise maintained with Bank or any Bank
Affiliate, or (ii) a notice of lien or levy is filed against any of Borrower’s
assets by any Governmental Authority, and the same under subclauses (i) and (ii)
hereof are not, within ten (10) days after the occurrence thereof, discharged or
stayed (whether through the posting of a bond or otherwise); provided, however,
no Credit Extensions shall be made during any ten (10) day cure period; or (b)
(i) any material portion of Borrower’s assets is attached, seized, levied on, or
comes into possession of a trustee or receiver, or (ii) any court order enjoins,
restrains, or prevents Borrower from conducting all or any material part of its
business; 8.5 Insolvency. (a) Borrower or any of its Subsidiaries is unable to
pay its debts (including trade debts) as they become due or otherwise becomes
insolvent; (b) Borrower or any of its Subsidiaries begins an Insolvency
Proceeding; or (c) an Insolvency Proceeding is begun against Borrower or any of
its Subsidiaries and is not dismissed or stayed within thirty (30) days (but no
Credit Extensions shall be made while any of the conditions described in clause
(a) exist and/or until any Insolvency Proceeding is dismissed); 8.6 Other
Agreements. There is, under any agreement to which Borrower or any Guarantor is
a party with a third party or parties, (a) any default resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount individually or in the aggregate in
excess of Two Hundred Fifty Thousand Dollars ($250,000); or (b) any default by
Borrower, the result of which could have a material adverse effect on Borrower’s
business; 8.7 Judgments; Penalties. One or more fines, penalties or final
judgments, orders or decrees for the payment of money in an amount, individually
or in the aggregate, of at least Two Hundred Fifty Thousand Dollars
($250,000.00) (not covered by independent third-party insurance as to which
liability has been accepted by such insurance carrier) shall be rendered against
Borrower by any Governmental Authority, and the same are not, within ten (10)
days after the entry, assessment or issuance thereof, discharged, satisfied, or
paid, or after execution thereof, stayed or bonded pending appeal, or such
judgments are not discharged prior to the expiration of any such stay (provided
that no Credit Extensions will be made prior to the satisfaction, payment,
discharge, stay, or bonding of such fine, penalty, judgment, order or decree);
8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any
representation, warranty, or other statement now or later in this Agreement, any
Loan Document or in any writing delivered to Bank or to induce Bank to enter
this Agreement or any Loan Document, and such representation, warranty, or other
statement is incorrect in any material respect when made; 8.9 Subordinated Debt.
Any document, instrument, or agreement evidencing any Subordinated Debt shall
for any reason be revoked or invalidated or otherwise cease to be in full force
and effect, any Person shall be in breach thereof or contest in any manner the
validity or enforceability thereof or deny that it has any further liability or
obligation thereunder, or the Obligations shall for any reason be subordinated
or shall not have the priority contemplated by this Agreement or any applicable
subordination or intercreditor agreement; or 8.10 Governmental Approvals. Any
Governmental Approval shall have been (a) revoked, rescinded, suspended,
modified in an adverse manner or not renewed in the ordinary course for a full
term or (b) subject to any decision by a Governmental Authority that designates
a hearing with respect to any applications for renewal of any of such
Governmental Approval or that could result in the Governmental Authority taking
any of the actions described in clause (a) above, and such decision or such
revocation, rescission, suspension, modification or non-renewal (i) causes, or
could reasonably be expected to cause, a Material Adverse Change, or (ii)
adversely affects the legal qualifications of Borrower or any of its
Subsidiaries to hold such Governmental Approval in any applicable jurisdiction
and such revocation, rescission, suspension, modification or non-renewal could
reasonably be expected to affect the status of or legal qualifications of
Borrower or any of its Subsidiaries to hold any Governmental Approval in any
other jurisdiction; or 8.11 Regulatory Event. The commencement of or an any
development in (a) any inquiry, investigation, or regulatory action by any
applicable Governmental Authority against Borrower, any of its Subsidiaries
and/or any other Person engaged in the industry in which Borrower conducts its
business or (b) any legal action or proceeding to 16 ny-1693906

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[exhibit1027amendedandres017.jpg]
which Borrower, any of its Subsidiaries and/or any other Person engaged in the
industry in which Borrower conducts its business is a party that, in the case of
either (a) or (b), Bank in its sole discretion determines could impact
Borrower’s or any of its Subsidiaries’ ability to continue its business as then
currently conducted or could have a negative impact on the industry in which
Borrower conducts its business as a whole. 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, without notice or demand, do any or all of the following:
(a) declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank); (b) stop advancing money or extending
credit for Borrower’s benefit under this Agreement or under any other agreement
between Borrower and Bank; (c) demand that Borrower (i) deposit cash with Bank
in an amount equal to at least (A) one hundred five percent (105.0%) of the
Dollar Equivalent of the aggregate face amount of all Letters of Credit
denominated in Dollars remaining undrawn, and (B) one hundred ten percent
(110.0%) of the Dollar Equivalent of the aggregate face amount of all Letters of
Credit denominated in a Foreign Currency remaining undrawn (plus, in each case,
all interest, fees, and costs due or to become due in connection therewith (as
estimated by Bank in its good faith business judgment)), to secure all of the
Obligations relating to such Letters of Credit, as collateral security for the
repayment of any future drawings under such Letters of Credit, and Borrower
shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter
of credit fees scheduled to be paid or payable over the remaining term of any
Letters of Credit; (d) terminate any FX Contracts; (e) verify the amount of,
demand payment of and performance under, and collect any Accounts and General
Intangibles, 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.
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; (f) make any payments and do any
acts it considers necessary or reasonable to protect the Collateral and/or its
security interest in the Collateral. Borrower shall assemble the Collateral if
Bank requests and make it available as Bank designates. Bank may enter premises
where the Collateral is located, take and maintain possession of any part of the
Collateral, and pay, purchase, contest, or compromise any Lien which appears to
be prior or superior to its security interest and pay all expenses incurred.
Borrower grants Bank a license to enter and occupy any of its premises, without
charge, to exercise any of Bank’s rights or remedies; (g) apply to the
Obligations any (i) balances and deposits of Borrower it holds, or (ii) amount
held by Bank owing to or for the credit or the account of Borrower; (h) ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell the Collateral. Bank is hereby granted a non-exclusive,
royalty-free license or other right to use, without charge, Borrower’s labels,
Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade
names, Trademarks, and advertising matter, or any similar property 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 inure to Bank’s benefit; (i) 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; 17 ny-1693906

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(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). 9.2 Power of Attorney. Borrower
hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable
following the occurrence and during the continuance of an Event of Default, to:
(a) endorse Borrower’s name on any checks, payment instruments, or other forms
of payment or security; (b) sign Borrower’s name on any invoice or bill of
lading for any Account or drafts against Account Debtors; (c) demand, collect,
sue, and give releases to any Account Debtor for monies due, settle and adjust
disputes and claims about the Accounts directly with Account Debtors, and
compromise, prosecute, or defend any action, claim, case, or proceeding about
any Collateral (including filing a claim or voting a claim in any bankruptcy
case in Bank’s or Borrower’s name, as Bank chooses); (d) make, settle, and
adjust all claims under Borrower’s insurance policies; (e) pay, contest or
settle any Lien, charge, encumbrance, security interest, or other claim in or to
the Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; and (f) transfer the Collateral into the name
of Bank or a third party as the Code permits. Borrower hereby appoints Bank as
its lawful attorney-in-fact to sign Borrower’s name on any documents necessary
to perfect or continue the perfection of Bank’s security interest in the
Collateral regardless of whether an Event of Default has occurred until all
Obligations have been satisfied in full and the Loan Documents have been
terminated. Bank’s foregoing appointment as Borrower’s attorney in fact, and all
of Bank’s rights and powers, coupled with an interest, are irrevocable until all
Obligations have been fully repaid and performed and the Loan Documents have
been terminated. 9.3 Protective Payments. If Borrower fails to obtain the
insurance called for by Section 6.7 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 or which may be required to preserve the Collateral,
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. 9.4 Application of
Payments and Proceeds. Bank shall have the right to apply in any order any funds
in its possession, whether from Borrower account balances, payments, proceeds
realized as the result of any collection of Accounts or other disposition of the
Collateral, or otherwise, to the Obligations. Bank shall pay any surplus to
Borrower by credit to the Designated Deposit Account or to other Persons legally
entitled thereto; Borrower shall remain liable to Bank for any deficiency. If
Bank, directly or indirectly, enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Bank shall have the
option, exercisable at any time, of either reducing the Obligations by the
principal amount of the purchase price or deferring the reduction of the
Obligations until the actual receipt by Bank of cash therefor. 9.5 Bank’s
Liability for Collateral. So long as Bank complies with reasonable banking
practices regarding the safekeeping of the Collateral in the possession or under
the control of Bank, Bank shall not be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any
diminution in the value of the Collateral; or (d) any act or default of any
carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss,
damage or destruction of the Collateral. 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. 18 ny-1693906

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9.7 Demand Waiver. Borrower waives demand, 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 held by Bank on which Borrower is
liable. 9.8 Borrower Liability. Any Borrower may, acting singly, request Credit
Extensions hereunder. Each Borrower hereby appoints each other as agent for the
other for all purposes hereunder, including with respect to requesting Credit
Extensions hereunder. Each Borrower hereunder shall be jointly and severally
obligated to repay all Credit Extensions made hereunder, regardless of which
Borrower actually receives said Credit Extension, as if each Borrower hereunder
directly received all Credit Extensions. Each Borrower waives (a) any suretyship
defenses available to it under the Code or any other applicable law, and (b) any
right to require Bank to: (i) proceed against any Borrower or any other person;
(ii) proceed against or exhaust any security; or (iii) pursue any other remedy.
Bank may exercise or not exercise any right or remedy it has against any
Borrower or any security it holds (including the right to foreclose by judicial
or non-judicial sale) without affecting any Borrower’s liability.
Notwithstanding any other provision of this Agreement or other related document,
each Borrower irrevocably waives all rights that it may have at law or in equity
(including, without limitation, any law subrogating Borrower to the rights of
Bank under this Agreement) to seek contribution, indemnification or any other
form of reimbursement from any other Borrower, or any other Person now or
hereafter primarily or secondarily liable for any of the Obligations, for any
payment made by Borrower with respect to the Obligations in connection with this
Agreement or otherwise and all rights that it might have to benefit from, or to
participate in, any security for the Obligations as a result of any payment made
by Borrower with respect to the Obligations in connection with this Agreement or
otherwise. Any agreement providing for indemnification, reimbursement or any
other arrangement prohibited under this Section 9.8 shall be null and void. If
any payment is made to a Borrower in contravention of this Section 9.8, such
Borrower shall hold such payment in trust for Bank and such payment shall be
promptly delivered to Bank for application to the Obligations, whether matured
or unmatured. 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: Luna
Innovations Incorporated Luna Technologies, Inc. c/o Luna Innovations
Incorporated 1 Riverside Circle, Suite 400 Roanoke, Virginia 24016 Attn: Scott
Graeff Fax: (540) 769-8401 Email: graeffs@lunainnovations.com With a copy to:
Woods Rogers PLC 10 South Jefferson Street Suite 1400 Roanoke, Va. 24011 Attn:
Talfourd H. Kemper, Jr. Email: fkemper@woodsrogers.com 19 ny-1693906

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[exhibit1027amendedandres020.jpg]
If to Bank: Silicon Valley Bank 8020 Towers Crescent Drive Suite 475 Vienna,
Virginia 22182 Attn: Ms. Alicia Fuller Fax: (703) 356-7643 Email:
afuller@svb.com with a copy to: Morrison & Foerster LLP 20 Clarendon Street,
20th Floor Boston, Massachusetts 02116 Attn: Charles W. Stavros, Esquire Email:
cstavros@mofo.com 11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL
REFERENCE Massachusetts law governs the Loan Documents without regard to
principles of conflicts of law. Borrower and Bank each submit to the exclusive
jurisdiction of the State and Federal courts in Massachusetts; provided,
however, that nothing in this Agreement shall be deemed to operate to preclude
Bank from bringing suit or taking other legal action in any other jurisdiction
to realize on the Collateral or any other security for the Obligations, or to
enforce a judgment or other court order in favor of Bank. Borrower expressly
submits and consents in advance to such jurisdiction in any action or suit
commenced in any such court, and Borrower hereby waives any objection that it
may have based upon lack of personal jurisdiction, improper venue, or forum non
conveniens and hereby consents to the granting of such legal or equitable relief
as is deemed appropriate by such court. Borrower hereby waives personal service
of the summons, complaints, and other process issued in such action or suit and
agrees that service of such summons, complaints, and other process may be made
by registered or certified mail addressed to Borrower at the address set forth
in Section 10 of this Agreement and that service so made shall be deemed
completed upon the earlier to occur of Borrower’s actual receipt thereof or
three (3) days after deposit in the U.S. mails, proper postage prepaid.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH HEREINABOVE, BANK SHALL
SPECIFICALLY HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER
OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK DEEMS
NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE
ENFORCE BANK’S RIGHTS AGAINST BORROWER OR ITS PROPERTY. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING
CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL
INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS
REVIEWED THIS WAIVER WITH ITS COUNSEL. This Section 11 shall survive the
termination of this Agreement. 12 GENERAL PROVISIONS 12.1 Termination Prior to
Maturity Date; Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force until this Agreement has terminated
pursuant to its terms and all Obligations (other than inchoate indemnity
obligations, and any Obligations under Bank Services Agreements that are cash
collateralized in accordance with Section 4.1 of this Agreement) have been
satisfied. So long as Borrower has satisfied the Obligations (other than
inchoate indemnity obligations, and any other obligations which, by their terms,
are to survive the termination of this Agreement, and any Obligations under Bank
Services Agreements that are cash collateralized in accordance with Section 4.1
of this Agreement), this Agreement may be terminated prior to the Revolving Line
Maturity Date by Borrower, effective three (3) Business Days after written
notice of termination is given to Bank. Those obligations that are expressly
specified in this Agreement as surviving this Agreement’s termination shall
continue to survive notwithstanding this Agreement’s termination. 20 ny-1693906

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12.2 Successors and Assigns. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. Borrower may not assign this
Agreement or any rights or obligations under it without Bank’s prior written
consent (which may be granted or withheld in Bank’s discretion). Bank has the
right, without the consent of or notice to Borrower, to sell, transfer, assign,
negotiate, or grant participation in all or any part of, or any interest in,
Bank’s obligations, rights, and benefits under this Agreement and the other Loan
Documents (other than the Warrant, as to which assignment, transfer and other
such actions are governed by the terms thereof). 12.3 Indemnification. Borrower
agrees to indemnify, defend and hold Bank and its directors, officers,
employees, agents, attorneys, or any other Person affiliated with or
representing Bank (each, an “Indemnified Person”) harmless against: (i) all
obligations, demands, claims, and liabilities (collectively, “Claims”) claimed
or asserted by any other party in connection with the transactions contemplated
by the Loan Documents; and (ii) all losses or expenses (including Bank Expenses)
in any way suffered, incurred, or paid by such Indemnified Person as a result
of, following from, consequential to, or arising from transactions between Bank
and Borrower contemplated by the Loan Documents (including reasonable attorneys’
fees and expenses), except for Claims and/or losses directly caused by such
Indemnified Person’s gross negligence or willful misconduct. This Section 12.3
shall survive until all statutes of limitation with respect to the Claims,
losses, and expenses for which indemnity is given shall have run. 12.4 Time of
Essence. Time is of the essence for the performance of all Obligations in this
Agreement. 12.5 Severability of Provisions. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision. 12.6 Correction of Loan Documents. Bank may correct patent errors and
fill in any blanks in the Loan Documents consistent with the agreement of the
parties. 12.7 Amendments in Writing; Waiver; Integration. No purported amendment
or modification of any Loan Document, or waiver, discharge or termination of any
obligation under any Loan Document, shall be enforceable or admissible unless,
and only to the extent, expressly set forth in a writing signed by the party
against which enforcement or admission is sought. Without limiting the
generality of the foregoing, no oral promise or statement, nor any action,
inaction, delay, failure to require performance or course of conduct shall
operate as, or evidence, an amendment, supplement or waiver or have any other
effect on any Loan Document. Any waiver granted shall be limited to the specific
circumstance expressly described in it, and shall not apply to any subsequent or
other circumstance, whether similar or dissimilar, or give rise to, or evidence,
any obligation or commitment to grant any further waiver. The Loan Documents
represent the entire agreement about this subject matter and supersede prior
negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of the Loan Documents merge into the Loan Documents. 12.8
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, is an original, and all taken together, constitute one Agreement.
12.9 Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with
Bank, collectively, “Bank Entities”); (b) to prospective transferees or
purchasers of any interest in the Credit Extensions (provided, however, Bank
shall use its best efforts to obtain any prospective transferee’s or purchaser’s
agreement to the terms of this provision); (c) as required by law, regulation,
subpoena, or other order; (d) to Bank’s regulators or as otherwise required in
connection with Bank’s examination or audit; (e) as Bank considers appropriate
in exercising remedies under the Loan Documents; and (f) to third-party service
providers of Bank so long as such service providers have executed a
confidentiality agreement with Bank with terms no less restrictive than those
contained herein. Confidential information does not include information that is
either: (i) in the public domain or in Bank’s possession when disclosed to Bank,
or becomes part of the public domain (other than as a result of its disclosure
by Bank in violation of this Agreement) after disclosure to Bank; or (ii)
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information. 21 ny-1693906

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Bank Entities may use anonymous forms of confidential information for aggregate
datasets, for analyses or reporting, and for any other uses not expressly
prohibited in writing by Borrower. The provisions of the immediately preceding
sentence shall survive the termination of this Agreement. 12.10 Attorneys’ Fees,
Costs and Expenses. In any action or proceeding between Borrower and Bank
arising out of or relating to the Loan Documents, the prevailing party shall be
entitled to recover its reasonable attorneys’ fees and other costs and expenses
incurred, in addition to any other relief to which it may be entitled. 12.11
Electronic Execution of Documents. The words “execution,” “signed,” “signature”
and words of like import in any Loan Document shall be deemed to include
electronic signatures or the keeping of records in electronic form, each of
which shall be of the same legal effect, validity and enforceability as a
manually executed signature or the use of a paper-based recordkeeping systems,
as the case may be, to the extent and as provided for in any applicable law,
including, without limitation, any state law based on the Uniform Electronic
Transactions Act. 12.12 Right of Setoff. Borrower hereby grants to Bank a Lien
and a 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 subsidiary
of Bank) 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 setoff 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. 12.13 Captions. The headings used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement. 12.14 Construction of Agreement. The parties
mutually acknowledge that they and their attorneys have participated in the
preparation and negotiation of this Agreement. In cases of uncertainty this
Agreement shall be construed without regard to which of the parties caused the
uncertainty to exist. 12.15 Relationship. The relationship of the parties to
this Agreement is determined solely by the provisions of this Agreement. The
parties do not intend to create any agency, partnership, joint venture, trust,
fiduciary or other relationship with duties or incidents different from those of
parties to an arm’s-length contract. 12.16 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. 12.17 No Novation. Borrower and Bank hereby agree that, effective
upon the execution and delivery of this Agreement by each such party, the terms
and provisions of the Prior Loan Agreement shall be and hereby are amended,
restated and superseded in their entirety by the terms and provisions of this
Agreement, and the Prior Loan Agreement shall be automatically terminated on the
Effective Date of this Agreement. Nothing herein contained shall be construed as
a substitution or novation of the obligations of Borrower outstanding under the
Prior Loan Agreement, any instruments securing the same, which obligations shall
remain in full force and effect, except to the extent that the terms thereof are
modified hereby or by instruments or other Loan Documents executed concurrently
herewith. Nothing expressed or implied in this Agreement shall be construed as a
release or other discharge of any Borrower from any of the Obligations or any
liabilities under the Prior Loan Agreement or any of the security agreements,
pledge agreements, mortgages, guaranties or other Loan Documents (as such term
is defined in the Prior Loan Agreement), executed in connection therewith.
Borrower hereby (i) confirms and agrees that each Loan Document to which it is a
party is, and shall continue to be, in full force and effect and is hereby
ratified and confirmed in all respects except that on and after the Effective
Date all references in any such Loan Document to the “Loan and Security 22
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[exhibit1027amendedandres023.jpg]
Agreement”, the “Loan Agreement” the “Agreement”, “thereto”, “thereof”,
“thereunder” or words of like import referring to the Prior Loan Agreement shall
mean the Prior Loan Agreement as amended and restated by this Agreement; and
(ii) confirms and agrees that to the extent that the Prior Loan Agreement or any
Loan Document executed in connection therewith purports to assign or pledge to
the Bank, or to grant to the Bank a security interest in or lien on, any
collateral as security for the Obligations of Borrower or any guarantor from
time to time existing in respect of the Prior Loan Agreement, such pledge,
assignment or grant of the security interest or lien is hereby ratified and
confirmed in all respects and shall remain effective as of the first date it
became effective, as amended and restated by this Agreement. 12.18 Waiver of
Claims; Release. (a) Borrower hereby acknowledges and agrees that it has no
offsets, defenses, causes of action, suits, damages, claims, or counterclaims
against Bank, or Bank’s officers, directors, employees, attorneys,
representatives, predecessors, successors, and assigns (collectively, the “Bank
Released Parties”) with respect to the Obligations, the Loan Documents, the
Collateral, any contracts, promises, commitments or other agreements to provide,
to arrange for, or to obtain loans or other financial accommodations to or for
the Borrowers, and all actions taken or contemplated to be taken in connection
with, arising from, or in any manner whatsoever relating to the foregoing, or
otherwise, and that if any Borrower now has, or ever did have, any offsets,
defenses, causes of action, suits, damages, claims, or counterclaims against one
or more of the Bank Released Parties, whether known or unknown, at law or in
equity, from the beginning of the world through this date and through the time
of execution of this Agreement (collectively, the “Released Claims”), all of
them are hereby expressly WAIVED, and Borrower hereby RELEASES the Bank Released
Parties from any liability therefor. Borrower hereby irrevocably agrees to
refrain from directly or indirectly asserting any claim or demand or commencing
(or causing to be commenced) any suit, action, arbitration or proceeding of any
kind, in any court or before any tribunal or arbiter or arbitration panel,
against any Bank Released Party as to any Released Claim. Nothing contained in
this Section 12.18 is intended to be, and shall not be construed as, a waiver of
Bank’s obligations under this Agreement or any other Loan Document from and
after the Effective Date. (b) In furtherance of this release, Borrower expressly
acknowledges and waives any and all rights under Section 1542 of the California
Civil Code, which provides as follows: “A general release does not extend to
claims that the creditor or releasing party does not know or suspect to exist in
his or her favor at the time of executing the release and that, if known by him
or her, would have materially affected his or her settlement with the debtor or
released party.” (c) This release may be pleaded as a full and complete defense
and/or as a cross-complaint or counterclaim against any action, suit, or other
proceeding that may be instituted, prosecuted or attempted in breach of this
release. Borrower acknowledges that the release contained herein constitutes a
material inducement to Bank to enter into this Agreement, and that Bank would
not have done so but for Bank’s expectation that such release is valid and
enforceable in all events. (d) By entering into this release, Borrower
recognizes that no facts or representations are ever absolutely certain and it
may hereafter discover facts in addition to or different from those which it
presently knows or believes to be true, but that it is the intention of Borrower
hereby to fully, finally and forever settle and release all matters, disputes
and differences, known or unknown, suspected or unsuspected; accordingly, if any
Borrower should subsequently discover that any fact that it relied upon in
entering into this release was untrue, or that any understanding of the facts
was incorrect, such Borrower shall not be entitled to set aside this release by
reason thereof, regardless of any claim of mistake of fact or law or any other
circumstances whatsoever. Borrower acknowledges that it is not relying upon and
has not relied upon any representation or statement made by Bank with respect to
the facts underlying this release or with regard to any of such party’s rights
or asserted rights. (e) Borrower hereby represents and warrants to Bank, and
Bank is relying thereon, as follows: (i) except as expressly stated in this
Agreement, neither Bank nor any agent, employee or representative of Bank has
made any statement or representation to any Borrower regarding any fact relied
upon by such Borrower in entering into this Agreement; (ii) Borrower has made
such investigation of the facts pertaining to this Agreement and all of the 23
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[exhibit1027amendedandres024.jpg]
matters appertaining thereto, as it deems necessary; (iii) the terms of this
Agreement are contractual and not a mere recital; (iv) this Agreement has been
carefully read by Borrower, the contents hereof are known and understood by
Borrower, and this Agreement is signed freely, and without duress, by such
Borrower; and (v) Borrower represents and warrants that it is the sole and
lawful owner of all right, title and interest in and to every claim and every
other matter which it releases herein, and that it has not heretofore assigned
or transferred, or purported to assign or transfer, to any person, firm or
entity any claims or other matters herein released. Borrower shall indemnify
Bank, defend and hold it harmless from and against all claims based upon or
arising in connection with prior assignments or purported assignments or
transfers of any claims or matters released herein. 13 DEFINITIONS 13.1
Definitions. As used in the Loan Documents, the word “shall” is mandatory, the
word “may” is permissive, the word “or” is not exclusive, the words “includes”
and “including” are not limiting, the singular includes the plural, and numbers
denoting amounts that are set off in brackets are negative. As used in this
Agreement, the following capitalized terms have the following meanings:
“Account” is, as to any Person, any “account” of such Person as “account” is
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 such Person. “Account Debtor” is any “account debtor” as defined in the Code
with such additions to such term as may hereafter be made. “Administrator” is an
individual that is named: (a) as an “Administrator” in the “SVB Online Services”
form completed by Borrower with the authority to determine who will be
authorized to use SVB Online Services (as defined in Bank’s Online Banking
Agreement as in effect from time to time) on behalf of Borrower; and (b) as an
Authorized Signer of Borrower in an approval by the Board. “Advance” or
“Advances” means a revolving credit loan (or revolving credit loans) under the
Revolving Line. “Affiliate” is, with respect to any Person, each other 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, partners and, for
any Person that is a limited liability company, that Person’s managers and
members. “Agreement” is defined in the preamble hereof. “API Canada” means
Advanced Photonix Canada, Inc., a Canadian corporation and wholly-owned
Subsidiary of API. “Authorized Signer” is any individual listed in Borrower’s
Borrowing Resolution who is authorized to execute the Loan Documents, including
making (and executing if applicable) any Credit Extension request, on behalf of
Borrower. “Availability Amount” is (a) the Revolving Line, minus (b) the
aggregate Dollar Equivalent amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) plus an amount equal to the
Letter of Credit Reserve, minus (c) the FX Reduction Amount, minus (d) any
amounts used for Cash Management Services, and minus (e) the outstanding
principal balance of any Advances. “Bank” is defined in the preamble hereof. 24
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[exhibit1027amendedandres025.jpg]
“Bank Entities” is defined in Section 12.9. “Bank Expenses” are all audit fees
and expenses, costs, and expenses (including reasonable attorneys’ fees and
expenses) for preparing, amending, negotiating, administering, defending and
enforcing the Loan Documents (including, without limitation, those incurred in
connection with appeals or Insolvency Proceedings) or otherwise incurred with
respect to Borrower or any Guarantor. “Bank Services” are any products, credit
services, and/or financial accommodations previously, now, or hereafter provided
to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including,
without limitation, any letters of credit, cash management services (including,
without limitation, merchant services, direct deposit of payroll, business
credit cards, and check cashing services), interest rate swap arrangements, and
foreign exchange services as any such products or services may be identified in
Bank’s various agreements related thereto (each, a “Bank Services Agreement”).
“Bank Services Agreement” is defined in the definition of Bank Services. “Board”
is Borrower’s board of directors. “Borrower” is defined in the preamble hereof.
“Borrower’s Books” are all Borrower’s books and records including ledgers,
federal and state tax returns, records regarding Borrower’s assets or
liabilities, the Collateral, business operations or financial condition, and all
computer programs or storage or any equipment containing such information.
“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s board of directors (and, if required under the terms of
such Person’s Operating Documents, stockholders) and delivered by such Person to
Bank approving the Loan Documents to which such Person is a party and the
transactions contemplated thereby, together with a certificate executed by its
secretary on behalf of such Person certifying (a) such Person has the authority
to execute, deliver, and perform its obligations under each of the Loan
Documents to which it is a party, (b) that set forth as a part of or attached as
an exhibit to such certificate is a true, correct, and complete copy of the
resolutions then in full force and effect authorizing and ratifying the
execution, delivery, and performance by such Person of the Loan Documents to
which it is a party, (c) the name(s) of the Person(s) authorized to execute the
Loan Documents, including making (and executing if applicable) any Credit
Extension request, on behalf of such Person, together with a sample of the true
signature(s) of such Person(s), and (d) that Bank may conclusively rely on such
certificate unless and until such Person shall have delivered to Bank a further
certificate canceling or amending such prior certificate. “Business Day” is any
day that is not a Saturday, Sunday or a day on which Bank is closed. “Cash
Collateral Account” is defined in Section 6.3(c). “Cash Equivalents” means (a)
marketable direct obligations issued or unconditionally guaranteed by the United
States or any agency or any State thereof having maturities of not more than one
(1) year from the date of acquisition; (b) commercial paper maturing no more
than one (1) year after its creation and having the highest rating from either
Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; (c) Bank’s
certificates of deposit issued maturing no more than one (1) year after issue;
and (d) money market funds at least ninety-five percent (95%) of the assets of
which constitute Cash Equivalents of the kinds described in clauses (a) through
(c) of this definition. “Change in Control” means (a) at any time, any “person”
or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), shall become, or obtain rights (whether by means of warrants, options or
otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and
13(d)-5 under the Exchange Act), directly or indirectly, of forty percent
(40.0%) or more of the ordinary voting power for the election of directors of
Borrower (determined on a fully diluted basis) other than by the sale of
Borrower’s equity securities in a public offering or to venture capital or
private equity investors so long as Borrower identifies to Bank the venture
capital or private equity investors at least seven (7) Business Days prior to
the closing of the transaction and provides to Bank a 25 ny-1693906

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[exhibit1027amendedandres026.jpg]
description of the material terms of the transaction; (b) during any period of
twelve (12) consecutive months, a majority of the members of the board of
directors or other equivalent governing body of Borrower cease to be composed of
individuals (i) who were members of that board or equivalent governing body on
the first day of such period, (ii) whose election or nomination to that board or
equivalent governing body was approved by individuals referred to in clause (i)
above constituting at the time of such election or nomination at least a
majority of that board or equivalent governing body or (iii) whose election or
nomination to that board or other equivalent governing body was approved by
individuals referred to in clauses (i) and (ii) above constituting at the time
of such election or nomination at least a majority of that board or equivalent
governing body; or (c) at any time, Borrower shall cease to own and control, of
record and beneficially, directly or indirectly, one hundred percent (100.0%) of
each class of outstanding capital stock of each subsidiary of Borrower free and
clear of all Liens (except Liens created by this Agreement). “Claims” is defined
in Section 12.3. “Code” is the Uniform Commercial Code, as the same may, from
time to time, be enacted and in effect in the Commonwealth of Massachusetts;
provided, that, to the extent that the Code is used to define any term herein or
in any Loan Document and such term is defined differently in different Articles
or Divisions of the Code, the definition of such term contained in Article or
Division 9 shall govern; provided further, that in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection, or
priority of, or remedies with respect to, Bank’s Lien on any Collateral is
governed by the Uniform Commercial Code in effect in a jurisdiction other than
the Commonwealth of Massachusetts, the term “Code” shall mean the Uniform
Commercial Code as enacted and in effect in such other jurisdiction solely for
purposes of the provisions thereof relating to such attachment, perfection,
priority, or remedies and for purposes of definitions relating to such
provisions. “Collateral” is any and all properties, rights and assets of
Borrower described on Exhibit A. “Collateral Account” is any Deposit Account,
Securities Account, or Commodity Account. “Commodity Account” is any “commodity
account” as defined in the Code with such additions to such term as may
hereafter be made. “Compliance Certificate” is that certain certificate in the
form attached hereto as Exhibit B. “Contingent Obligation” is, for any Person,
any direct or indirect liability, contingent or not, of that Person for (a) any
indebtedness, lease, dividend, letter of credit or other obligation of another
such as an obligation, in each case, directly or indirectly guaranteed,
endorsed, co made, discounted or sold with recourse by that Person, or for which
that Person is directly or indirectly liable; (b) any obligations for undrawn
letters of credit for the account of that Person; and (c) all obligations from
any interest rate, currency or commodity swap agreement, interest rate cap or
collar agreement, or other agreement or arrangement designated to protect a
Person against fluctuation in interest rates, currency exchange rates or
commodity prices; but “Contingent Obligation” does not include endorsements in
the ordinary course of business. The amount of a Contingent Obligation is the
stated or determined amount of the primary obligation for which the Contingent
Obligation is made or, if not determinable, the maximum reasonably anticipated
liability for it determined by the Person in good faith; but the amount may not
exceed the maximum of the obligations under any guarantee or other support
arrangement. “Control Agreement” is any control agreement entered into among the
depository institution at which Borrower maintains a Deposit Account or the
securities intermediary or commodity intermediary at which Borrower maintains a
Securities Account or a Commodity Account, Borrower, and Bank pursuant to which
Bank obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account. “Copyrights” are any and all copyright
rights, copyright applications, copyright registrations and like protections in
each work of authorship and derivative work thereof, whether published or
unpublished and whether or not the same also constitutes a trade secret. “Credit
Extension” is any Advance, any Overadvance, Letter of Credit, FX Contract,
amount utilized for Cash Management Services, or any other extension of credit
by Bank for Borrower’s benefit. 26 ny-1693906

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[exhibit1027amendedandres027.jpg]
“Currency” is coined money and such other banknotes or other paper money as are
authorized by law and circulate as a medium of exchange. “Default Rate” is
defined in Section 2.7(b). “Deferred Revenue” is all amounts received or
invoiced in advance of performance under contracts and not yet recognized as
revenue. “Deposit Account” is any “deposit account” as defined in the Code with
such additions to such term as may hereafter be made. “Designated Deposit
Account” is Borrower’s deposit account, account number xxxxxxx246, maintained
with Bank. “Division” means, in reference to any Person which is an entity, the
division of such Person into two (2) or more separate Persons, with the dividing
Person either continuing or terminating its existence as part of such division,
including, without limitation, as contemplated under Section 18-217 of the
Delaware Limited Liability Company Act for limited liability companies formed
under Delaware law, or any analogous action taken pursuant to any other
applicable law with respect to any corporation, limited liability company,
partnership or other entity. “Dollars,” “dollars” or use of the sign “$” means
only lawful money of the United States and not any other currency, regardless of
whether that currency uses the “$” sign to denote its currency or may be readily
converted into lawful money of the United States. “Dollar Equivalent” is, at any
time, (a) with respect to any amount denominated in Dollars, such amount, and
(b) with respect to any amount denominated in a Foreign Currency, the equivalent
amount therefor in Dollars as determined by Bank at such time on the basis of
the then-prevailing rate of exchange in San Francisco, California, for sales of
the Foreign Currency for transfer to the country issuing such Foreign Currency.
“Effective Date” is defined in the preamble hereof. “Equipment” is all
“equipment” as defined in the Code with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures,
goods, vehicles (including motor vehicles and trailers), and any interest in any
of the foregoing. “ERISA” is the Employee Retirement Income Security Act of
1974, and its regulations. “Event of Default” is defined in Section 8. “Exchange
Act” is the Securities Exchange Act of 1934, as amended. “Foreign Currency”
means lawful money of a country other than the United States. “Funding Date” is
any date on which a Credit Extension is made to or for the account of Borrower
which shall be a Business Day. “FX Business Day” is any day when (a) Bank’s
Foreign Exchange Department is conducting its normal business and (b) the
Foreign Currency being purchased or sold by Borrower is available to Bank from
the entity from which Bank shall buy or sell such Foreign Currency. “FX
Contract” is defined in Section 2.4. “FX Reduction Amount” is defined in Section
2.4. 27 ny-1693906

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[exhibit1027amendedandres028.jpg]
“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination. “General
Intangibles” is all “general intangibles” as defined in the Code in effect on
the date hereof with such additions to such term as may hereafter be made, and
includes without limitation, all Intellectual Property, claims, income and other
tax refunds, security and other deposits, payment intangibles, contract rights,
options to purchase or sell real or personal property, rights in all litigation
presently or hereafter pending (whether in contract, tort or otherwise),
insurance policies (including without limitation key man, property damage, and
business interruption insurance), payments of insurance and rights to payment of
any kind. “Governmental Approval” is any consent, authorization, approval,
order, license, franchise, permit, certificate, accreditation, registration,
filing or notice, of, issued by, from or to, or other act by or in respect of,
any Governmental Authority. “Governmental Authority” is any nation or
government, any state or other political subdivision thereof, any agency,
authority, instrumentality, regulatory body, court, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative functions of or pertaining to government, any securities exchange
and any self-regulatory organization. “Guarantor” is any Person providing a
Guaranty in favor of Bank. “Guaranty” is any guarantee of all or any part of the
Obligations, as the same may from time to time be amended, restated, modified or
otherwise supplemented. “Indebtedness” is (a) indebtedness for borrowed money or
the deferred price of property or services, such as reimbursement and other
obligations for surety bonds and letters of credit, (b) obligations evidenced by
notes, bonds, debentures or similar instruments, (c) capital lease obligations,
and (d) Contingent Obligations. “Indemnified Person” is defined in Section 12.3.
“Insolvency Proceeding” is any proceeding by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief. “Intellectual Property” means, with respect to any
Person, all of such Person’s right, title, and interest in and to the following:
(a) its Copyrights, Trademarks and Patents; (b) any and all trade secrets and
trade secret rights, including, without limitation, any rights to unpatented
inventions, know-how and operating manuals; (c) any and all source code; (d) any
and all design rights which may be available to such Person; (e) any and all
claims for damages by way of past, present and future infringement of any of the
foregoing, with the right, but not the obligation, to sue for and collect such
damages for said use or infringement of the Intellectual Property rights
identified above; and (f) all amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents. 28 ny-1693906

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[exhibit1027amendedandres029.jpg]
“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of Borrower’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above. “Investment” is any beneficial ownership
interest in any Person (including stock, partnership interest or other
securities), and any loan, advance or capital contribution to any Person. “Key
Person” is each of Borrower’s (a) Chief Executive Officer, who is Scott A.
Graeff as of the Effective Date. “Letter of Credit” is a standby or commercial
letter of credit issued by Bank upon request of Borrower based upon an
application, guarantee, indemnity, or similar agreement. “Letter of Credit
Application” is defined in Section 2.3(b). “Letter of Credit Reserve” has the
meaning set forth in Section 2.3(e). “Lien” is a claim, mortgage, deed of trust,
levy, charge, pledge, security interest or other encumbrance of any kind,
whether voluntarily incurred or arising by operation of law or otherwise against
any property. “Liquidity Coverage Ratio” means the ratio of (A) (i) unrestricted
cash of Borrower at Bank plus (ii) the Availability Amount, divided by (B) all
Obligations of Borrower to Bank, including, without limitation, all Indebtedness
under Letters of Credit. “Loan Documents” are, collectively, this Agreement and
any schedules, exhibits, certificates, notices, and any other documents related
to this Agreement, any Bank Services Agreement, the Perfection Certificate, any
Control Agreement, any subordination agreement, any note, or notes or guaranties
executed by Borrower or any Guarantor, and any other present or future agreement
by Borrower and/or any Guarantor with or for the benefit of Bank in connection
with this Agreement or Bank Services, all as amended, restated, or otherwise
modified. “Material Adverse Change” is (a) a material impairment in the
perfection or priority of Bank’s Lien in the Collateral or in the value of such
Collateral; (b) a material adverse change in the business, operations, or
condition (financial or otherwise) of Borrower; (c) a material impairment of the
prospect of repayment of any portion of the Obligations; (d) Bank determines,
based upon information available to it and in its reasonable judgment, that
there is a reasonable likelihood that Borrower shall fail to comply with one or
more of the financial covenants in Section 6 during the next succeeding
financial reporting period, or (e) any Key Person departs from or ceases to be
employed by Borrower. “Monthly Financial Statements” is defined in Section
6.2(b). “Obligations” are Borrower’s obligations to pay when due any debts,
principal, interest, fees, Bank Expenses, and other amounts Borrower owes Bank
now or later, whether under this Agreement, the other Loan Documents, or
otherwise, including, without limitation, all obligations relating to Bank
Services and interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Bank, and to perform
Borrower’s duties under the Loan Documents. “Operating Documents” are, for any
Person, such Person’s formation documents, as certified by the Secretary of
State (or equivalent agency) of such Person’s jurisdiction of organization on a
date that is no earlier than thirty (30) days prior to the Effective Date, and,
(a) if such Person is a corporation, its bylaws in current form, (b) if such
Person is a limited liability company, its limited liability company agreement
(or similar agreement), and (c) if such Person is a partnership, its partnership
agreement (or similar agreement), each of the foregoing with all current
amendments or modifications thereto. 29 ny-1693906

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[exhibit1027amendedandres030.jpg]
“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. “Payment Date” is the last
calendar day of each month. “Perfection Certificate” is defined in Section 5.1.
“Permitted Indebtedness” is: (a) Borrower’s Indebtedness to Bank under this
Agreement and the other Loan Documents; (b) Indebtedness existing on the
Effective Date and shown on the Perfection Certificate; (c) Subordinated Debt;
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of
business; and (e) extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (d) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be. “Permitted Investments” are: (a) Investments
shown on the Perfection Certificate and existing on the Effective Date; (b) Cash
Equivalents; (c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of Borrower’s business; (d) Investments consisting of (i) travel advances
and employee relocation loans and other employee loans and advances in the
ordinary course of business, and (ii) loans to employees, officers or directors
relating to the purchase of equity securities of Borrower or its Subsidiaries
pursuant to employee stock purchase plans or agreements approved by the Board;
(e) Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business; (f) Investments consisting of notes
receivable of, or prepaid royalties and other credit extensions, to customers
and suppliers who are not Affiliates, in the ordinary course of business;
provided that this paragraph (f) shall not apply to Investments of Borrower in
any Subsidiary; (g) Investments consisting of the creation of a Subsidiary for
the purpose of consummating a merger transaction permitted by Section 7.3 of
this Agreement, which is otherwise a Permitted Investment; and (h) Investments
by Borrower in API Canada in an amount not to exceed Two Hundred Fifty Thousand
Dollars ($250,000) in the aggregate in any consecutive three (3) month period.
“Permitted Liens” are: (a) Liens existing on the Effective Date and shown on the
Perfection Certificate or arising under this Agreement and the other Loan
Documents; (b) Liens for taxes, fees, assessments or other government charges or
levies, either (i) not due and payable or (ii) being contested in good faith and
for which Borrower maintains adequate reserves on its Books, that no notice of
any such Lien has been filed or recorded under the Internal Revenue Code of
1986, as amended, and the Treasury Regulations adopted thereunder; 30 ny-1693906

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[exhibit1027amendedandres031.jpg]
(c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred
for financing the acquisition of the Equipment securing no more than Two Hundred
Fifty Thousand Dollars ($250,000) in the aggregate amount outstanding, or (ii)
existing on Equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the Equipment; (d) Liens of carriers,
warehousemen, suppliers, or other Persons that are possessory in nature arising
in the ordinary course of business so long as such Liens attach only to
Inventory, securing liabilities in the aggregate amount not to exceed Two
Hundred Fifty Thousand Dollars ($250,000) and which are not delinquent or remain
payable without penalty or which are being contested in good faith and by
appropriate proceedings which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto; (e) Liens to secure payment
of workers’ compensation, employment insurance, old-age pensions, social
security and other like obligations incurred in the ordinary course of business
(other than Liens imposed by ERISA); (f) Liens incurred in the extension,
renewal or refinancing of the Indebtedness secured by Liens described in (a)
through (c), but any extension, renewal or replacement Lien must be limited to
the property encumbered by the existing Lien and the principal amount of the
indebtedness may not increase; (g) leases or subleases of real property granted
in the ordinary course of Borrower’s business, and leases, subleases,
non-exclusive licenses or sublicenses of property (other than real property or
Intellectual Property) granted in the ordinary course of Borrower’s business, if
the leases, subleases, licenses and sublicenses do not prohibit granting Bank a
security interest; (h) non-exclusive licenses of Intellectual Property granted
to third parties in the ordinary course of business; (i) exclusive licenses of
Intellectual Property in the ordinary course of Borrower’s business and
consistent with Borrower’s past practices; (j) Liens arising from judgments,
orders, decrees or attachments in circumstances not constituting an Event of
Default under Sections 8.4 or 8.7; and (a) Liens in favor of other financial
institutions arising in connection with Borrower’s deposit and/or securities
accounts held at such institutions, provided that Bank has a perfected security
interest in the amounts held in such deposit and/or securities accounts.
“Person” is any individual, sole proprietorship, partnership, limited liability
company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency. “Prime Rate” is the rate of
interest per annum from time to time published in the money rates section of The
Wall Street Journal or any successor publication thereto as the “prime rate”
then in effect; provided that, in the event such rate of interest is less than
zero, such rate shall be deemed to be zero for purposes of this Agreement; and
provided further that if such rate of interest, as set forth from time to time
in the money rates section of The Wall Street Journal, becomes unavailable for
any reason as determined by Bank, the “Prime Rate” shall mean the rate of
interest per annum announced by Bank as its prime rate in effect at its
principal office in the State of California (such Bank announced Prime Rate not
being intended to be the lowest rate of interest charged by Bank in connection
with extensions of credit to debtors); provided that, in the event such rate of
interest is less than zero, such rate shall be deemed to be zero for purposes of
this Agreement. “Registered Organization” is any “registered organization” as
defined in the Code with such additions to such term as may hereafter be made.
“Requirement of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject. 31
ny-1693906

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[exhibit1027amendedandres032.jpg]
“Reserves” means, as of any date of determination, such amounts as Bank may from
time to time establish and revise in its good faith business judgment, reducing
the amount of Advances and other financial accommodations which would otherwise
be available to Borrower (a) to reflect events, conditions, contingencies or
risks which, as determined by Bank in its good faith business judgment, do or
may adversely affect (i) the Collateral or any other property which is security
for the Obligations or its value (including without limitation any increase in
delinquencies of Accounts), (ii) the assets, business or prospects of Borrower
or any Guarantor, or (iii) the security interests and other rights of Bank in
the Collateral (including the enforceability, perfection and priority thereof);
or (b) to reflect Bank's reasonable belief that any collateral report or
financial information furnished by or on behalf of Borrower or any Guarantor to
Bank is or may have been incomplete, inaccurate or misleading in any material
respect; or (c) in respect of any state of facts which Bank determines
constitutes an Event of Default or that may, with notice or passage of time or
both, constitute an Event of Default. “Responsible Officer” is any of the Chief
Executive Officer, President, Chief Financial Officer and Controller of
Borrower. “Restricted License” is any material license or other agreement with
respect to which Borrower is the licensee (a) that prohibits or otherwise
restricts Borrower from granting a security interest in Borrower’s interest in
such license or agreement or any other property, or (b) for which a default
under or termination of could interfere with Bank’s right to sell any
Collateral. “Revolving Line” is an aggregate principal amount equal to Ten
Million Dollars ($10,000,000.00). “Revolving Line Maturity Date” is October 10,
2020. “SEC” shall mean the Securities and Exchange Commission, any successor
thereto, and any analogous Governmental Authority. “Securities Account” is any
“securities account” as defined in the Code with such additions to such term as
may hereafter be made. “Subordinated Debt” is indebtedness incurred by Borrower
subordinated to all of Borrower’s now or hereafter indebtedness to Bank
(pursuant to a subordination, intercreditor, or other similar agreement in form
and substance satisfactory to Bank entered into between Bank and the other
creditor), on terms acceptable to Bank. “Subsidiary” is, as to any Person, a
corporation, partnership, limited liability company or other entity of which
shares of stock or other ownership interests having ordinary voting power (other
than stock or such other ownership interests having such power only by reason of
the happening of a contingency) to elect a majority of the board of directors or
other managers of such corporation, partnership or other entity are at the time
owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person. Unless
the context otherwise requires, each reference to a Subsidiary herein shall be a
reference to a Subsidiary of Borrower or Guarantor. “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” is defined in Section 7.1. [Signature page follows.] 32
ny-1693906

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[exhibit1027amendedandres033.jpg]

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[exhibit1027amendedandres034.jpg]

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[exhibit1027amendedandres035.jpg]
EXHIBIT A - COLLATERAL DESCRIPTION The Collateral consists of all of Borrower’s
right, title and interest in and to the following personal property: All goods,
Accounts (including health-care receivables), Equipment, Inventory, contract
rights or rights to payment of money, leases, license agreements, franchise
agreements, General Intangibles (except as provided below), domain names,
commercial tort claims, documents, instruments (including any promissory notes),
chattel paper (whether tangible or electronic), cash, deposit accounts,
certificates of deposit, fixtures, letters of credit rights (whether or not the
letter of credit is evidenced by a writing), securities, and all other
investment property, supporting obligations, and financial assets, whether now
owned or hereafter acquired, wherever located; and all Borrower’s Books relating
to the foregoing, and any and all claims, rights and interests in any of the
above and all substitutions for, additions, attachments, accessories, accessions
and improvements to and replacements, products, proceeds and insurance proceeds
of any or all of the foregoing. Notwithstanding the foregoing, the Collateral
does not include any Intellectual Property; provided, however, the Collateral
shall include all Accounts and all proceeds of Intellectual Property. If a
judicial authority (including a U.S. Bankruptcy Court) would hold that a
security interest in the underlying Intellectual Property is necessary to have a
security interest in such Accounts and such property that are proceeds of
Intellectual Property, then the Collateral shall automatically, and effective as
of the Effective Date, include the Intellectual Property to the extent necessary
to permit perfection of Bank’s security interest in such Accounts and such other
property of Borrower that are proceeds of the Intellectual Property. Pursuant to
the terms of a certain negative pledge arrangement with Bank, Borrower has
agreed not to encumber any of its Intellectual Property without Bank’s prior
written consent. ny-1693906

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[exhibit1027amendedandres036.jpg]
EXHIBIT B COMPLIANCE CERTIFICATE TO: SILICON VALLEY BANK Date: FROM: LUNA
INNOVATIONS INCORPORATED, et al The undersigned authorized officer of Luna
Innovations Incorporated, Luna Technologies, Inc., Former Luna Subsidiary, Inc.,
TeraMetrix, LLC, and General Photonics Corp. (individually and collectively,
jointly and severally, the “Borrower”) certifies that under the terms and
conditions of the Loan and Security Agreement between Borrower and Bank (the
“Agreement”), (1) Borrower is in complete compliance for the period ending
_______________ with all required covenants except as noted below, (2) there are
no Events of Default, (3) all representations and warranties in the Agreement
are true and correct in all material respects on this date except as noted
below; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, (4)
Borrower, and each of its Subsidiaries, has timely filed all required tax
returns and reports, and Borrower has timely paid all foreign, federal, state
and local taxes, assessments, deposits and contributions owed by Borrower except
as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower or any of its
Subsidiaries, if any, relating to unpaid employee payroll or benefits of which
Borrower has not previously provided written notification to Bank. Attached are
the required documents supporting the certification. The undersigned certifies
that these are prepared in accordance with GAAP consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.
The undersigned acknowledges that no borrowings may be requested at any time or
date of determination that Borrower is not in compliance with any of the terms
of the Agreement, and that compliance is determined not just at the date this
certificate is delivered. Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Agreement. Please indicate
compliance status by circling Yes/No under “Complies” column. Reporting
Covenants Required Complies Monthly financial statements with Monthly within 30
days Yes No Compliance Certificate Annual financial statements (CPA Audited) FYE
within 180 days Yes No 10-Q, 10-K and 8-K Within 5 days after filing with Yes No
SEC Board approved projections FYE within 30 days, and as amended Yes No
Financial Covenant Required Actual Complies Maintain as indicated: Liquidity
Coverage Ratio ≥ 2.0:1.0 Yes No The following financial covenant analyses and
information set forth in Schedule 1 attached hereto are true and accurate as of
the date of this Certificate. The following are the exceptions with respect to
the certification above: (If no exceptions exist, state “No exceptions to
note.”)
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ny-1693906

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[exhibit1027amendedandres037.jpg]
LUNA INNOVATIONS INCORPORATED BANK USE ONLY LUNA TECHNOLOGIES, INC. FORMER LUNA
SUBSIDIARY, INC. Received by: _____________________ TERAMETRIX, LLC AUTHORIZED
SIGNER GENERAL PHOTONICS CORP. Date: _________________________ Verified:
________________________ AUTHORIZED SIGNER By: Date: _________________________
Name: Title: Compliance Status: Yes No ny-1693906

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[exhibit1027amendedandres038.jpg]
Schedule 1 to Compliance Certificate Financial Covenants of Borrower In the
event of a conflict between this Schedule and the Loan Agreement, the terms of
the Loan Agreement shall govern. Dated: ____________________ Liquidity Coverage
Ratio (Section 6.9) Required: Borrower shall maintain at all times, to be
certified as of the last day of each month, a Liquidity Coverage Ratio of equal
to or greater than 2.0 to 1.00. Actual: A. Aggregate value of Borrower’s
unrestricted cash at Bank $ B. Availability Amount $ C. Line A. plus Line B $ D.
Aggregate of all Obligations owing to Bank, including, without limitation, all
issued and $ outstanding letters of credit E. Line C divided by Line D $ Is Line
E greater than 2.0? No, not in compliance Yes, in compliance ny-1693906

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