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exhibit48lunadescription

                                                                             Exhibit 4.8             Description of Capital Stock of Luna Innovations Incorporated     The following description of the common stock of Luna Innovations Incorporated (the “Company”) is a summary  and does not purport to be complete. This summary is qualified in its entirety by reference to the provisions of the  Delaware General Corporation Law (the “DGCL”) and the complete text of the Company’s amended and restated  certificate of incorporation (the “restated certificate”), the Amended and Restated Certificate of Designations of  the Series A Convertible Preferred Stock (the “certificate of designations”), and the amended and restated bylaws  (the “bylaws”), each as currently in effect, which are incorporated by reference as Exhibits 3.1, 3.2 and 3.3,  respectively, of the Company’s Annual Report on Form 10-K, to which this description is also an exhibit. The  Company encourages you to read that law and those documents carefully.     Authorized Capital Stock    The restated certificate authorizes the issuance of up to 100,000,000 shares of common stock, $0.001 par value  per share, and 5,000,000 shares of preferred stock with a $0.001 par value per share. The certificate of  designations designates the issuance of up to 1,321,514 shares of series A convertible preferred stock, par value  $0.001 per share (the “Series A Preferred Stock”).   The Company’s board of directors may establish the rights  and preferences of the preferred stock from time to time.       Common Stock              Voting Rights     Holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote  of the stockholders. Common stockholders do not have cumulative voting rights in the election of directors.  Accordingly, holders of a majority of the shares voting are able to elect all directors being elected at such time.  Subject to preferences that may be granted to any then outstanding preferred stock, holders of common stock are  entitled to receive ratably only those dividends as may be declared by the board of directors out of funds legally  available therefor. See “Dividend policy.” In the event of the Company’s liquidation, dissolution or winding up,  holders of common stock are entitled to share ratably in all of the Company’s assets remaining after the Company  pays its liabilities and distribute the liquidation preference of any then outstanding preferred stock. Holders of  common stock have no preemptive or other subscription or conversion rights.           Dividends    Holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to  time by the board of directors out of legally available funds.                Liquidation    In the event of the Company’s liquidation, dissolution or winding up, holders of common stock will be entitled to  share ratably in the net assets legally available for distribution to stockholders.             Rights and Preferences    Holders of common stock have no preemptive, conversion or subscription rights and there are no redemption or  sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of  common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of  preferred stock that the Company may designate in the future. 

 

  Preferred Stock            Voting Rights     Holders of Series A Preferred Stock shall have no voting rights. The consent of the holders of a majority of the  outstanding shares of Series A Preferred Stock shall be required for any action which: (i) changes the rights,  preferences or privileges of the Series A Preferred Stock, or amends, alters or repeals any provision of the restated  certificate or bylaws, including by merger or consolidation, in a manner that adversely affects the rights,  preferences or privileges of the Series A Preferred Stock; (ii) increases or decreases the authorized number of  shares of any class or series of capital stock including, without limitation, the Series A Preferred Stock; or (iii)  creates or issues any class or series of capital stock (including any security convertible into or exercisable for any  capital stock) which ranks superior to or pari passu with the Series A Preferred Stock in any respect.          Dividends  The Series A Preferred Stock shall accrue cumulative dividends (“Dividends”) for each share of Series A  Preferred Stock at the rate of six percent (6%) of $4.69159 per annum (the “Dividend Rate”). Dividends on the  shares of Series A Preferred Stock shall commence accruing on the original issue date and shall be computed on  the basis of a 360-day year consisting of twelve 30-day months and shall be payable in arrears for each quarter on  the first day of the succeeding quarter during the period beginning on the original issue date (each, a “Dividend  Date”) with the first Dividend Date being April 1, 2010. Dividends accrued during a partial Calendar Quarter  shall be appropriately pro rated by the actual number of days such Dividends accrued during such Calendar  Quarter. Dividends shall not be payable in cash but shall be payable only in fully paid and non-assessable shares  of Common Stock (“Dividend Shares”), unless a Liquidation Event (as defined in the restated certificate) occurs,  in which case, the Dividend Shares shall be payable in cash. The number of Dividend Shares payable in respect of  each share of Series A Preferred Stock on any Dividend Date shall be equal to the quotient obtained by dividing  (i) the cumulative aggregate balance of accrued but unpaid Dividends on such share of Series A Preferred Stock  as of such Dividend Date (the “Dividend Balance”), by (ii) the Conversion Price (as defined in the certificate of  designations). The accrual of Dividends shall terminate (“Dividend Termination”) on the earlier of the conversion  of the Series A Preferred Stock into common stock or at any time after December 31, 2012, provided that: (a) the  Closing Price of the Company’s common stock at the time of the proposed termination has been greater than one  hundred ten percent (110%) of the Conversion Price, for the immediately preceding 30 consecutive Trading Days  (as defined in the certificate of designations, the “Dividend Termination Event”), and (b) the Company has  delivered written notice of the Dividend Termination Event (“Dividend Termination Notice”) to holder. Upon  satisfaction of the conditions for a Dividend Termination Event, Dividend Termination shall occur on the last day  of the month in which the Dividend Termination Notice is provided. In connection with the issuance of Dividend  Shares on a Dividend Date, the Company shall upon written request of the holder, (i) provided Company’s  designated transfer agent (the “Transfer Agent”) is participating in The Depository Trust Company (“DTC”) Fast  Automated Securities Transfer Program, credit such aggregate number of shares of common stock to which the  holder shall be entitled to the holder’s or its designee’s balance account with DTC through its Deposit Withdrawal  Agent Commission system, within two (2) Business Days of the applicable Dividend Date, or (Y) if the Transfer  Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to such  holder, a certificate, registered in the name of the holder or its designee, for the number of shares of common  stock to which the holder shall be entitled within three (3) Business Days of the applicable Dividend Date. The  Dividend Balance shall be appropriately reduced by the issuance of any Dividend Shares to the holder. In addition  to payment of the foregoing Dividends, in the event dividends are declared and paid on the common stock (or any  other class of capital stock of the Company), an equivalent dividend shall be paid on each share of Series A  Preferred Stock.                Liquidation   

 

In the event of any Liquidation Event, the holders of Series A Preferred Stock shall be entitled to receive, prior  and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of Junior  Securities (as defined in the certificate of designations) by reason of their ownership thereof, an amount per share  in cash equal to the sum of (i) Stated Value for each share of Series A Preferred Stock then held by them, plus (ii)  the aggregate dollar amount of all accrued but unpaid Dividends on such Series A Preferred Stock as of the date  of such event (such sum, the “Series A Stock Liquidation Preference”). If, upon the occurrence of a Liquidation  Event, the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient  to permit the payment to such holders of the full Series A Stock Liquidation Preference, then the holders of the  Series A Preferred Stock shall share ratably in any such distribution of the assets and funds of the Company in  proportion to the aggregate Series A Stock Liquidation Preference that would otherwise be payable to each of  such holders.        Conversion  At the option of any holder, each share of Series A Preferred Stock held by such holder may be converted into  that number of shares of common stock equal to the Conversion Rate (as defined in the certificate of  designations). A holder may convert shares of Series A Preferred Stock into common stock pursuant to this  paragraph at any time.        Rights and Preferences    Holders of Series A Preferred Stock have no preemptive or subscription rights and there are no redemption or  sinking fund provisions applicable to the Series A Preferred Stock. The rights, preferences and privileges of the  holders of Series A Preferred Stock are subject to, and may be adversely affected by, the rights of the holders of  shares of any series of preferred stock that the Company may designate in the future.        Anti-Takeover Effects of Provisions of the Amended and Restated Certificate of Incorporation and Bylaws      The restated certificate provides for the Company’s board of directors to be divided into three classes, with  staggered three-year terms. Only one class of directors will be elected at each annual meeting of stockholders,  with the other classes continuing for the remainder of their respective three-year terms. Because common  stockholders do not have cumulative voting rights, common stockholders representing a majority of the shares of  common stock outstanding will be able to elect all of the Company’s directors. The restated certificate and bylaws  provide that only the Company’s board of directors, chairman of the board, chief executive officer or president (in  the absence of a chief executive officer) may call a special meeting of stockholders. The restated certificate  requires a 66 2/3% stockholder vote for the amendment, repeal or modification of certain provisions of the  restated certificate and bylaws relating to the absence of cumulative voting, the classification of the Company’s  board of directors, and the designated parties entitled to call a special meeting of the stockholders.      The combination of a classified board, the lack of cumulative voting and the 66 2/3% stockholder voting  requirements will make it more difficult for existing stockholders to replace the Company’s board of directors as  well as for another party to obtain control of the Company by replacing the Company’s board of directors. Since  the Company's board of directors has the power to retain and discharge the Company’s officers, these provisions  could also make it more difficult for existing stockholders or another party to effect a change in management. In  addition, the authorization of undesignated preferred stock makes it possible for the Company’s board of directors  to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to  change the Company’s control.      These provisions may have the effect of deterring hostile takeovers or delaying changes in the Company’s control  or management. These provisions are intended to enhance the likelihood of continued stability in the composition  of the Company’s board of directors and in the policies they implement, and to discourage certain types of  transactions that may involve an actual or threatened change of the Company’s control. These provisions are  designed to reduce the Company’s vulnerability to an unsolicited acquisition proposal. The provisions also are 

 

intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the  effect of discouraging others from making tender offers for the Company’s shares and, as a consequence, they  also may inhibit fluctuations in the market price of the Company’s shares that could result from actual or rumored  takeover attempts. Such provisions may also have the effect of preventing changes in the Company’s  management.      Section 203 of the General Corporation Law of the State of Delaware      The Company is subject to Section 203 of the DGCL, which regulates acquisitions of some Delaware  corporations. Section 203 generally prohibits a publicly held Delaware corporation from engaging in a "business  combination" with an "interested stockholder" for a period of three years following the date of the transaction in  which the person became an interested stockholder, unless:       •  the board of directors of the corporation approved the business combination or the other transaction in        which the person became an interested stockholder prior to the date of the business combination or other        transaction;       •  upon consummation of the transaction that resulted in the person becoming an interested stockholder, the        person owned at least 85% of the voting stock of the corporation outstanding at the time the transaction        commenced, excluding shares owned by persons who are directors and also officers of the corporation        and shares issued under employee stock plans under which employee participants do not have the right to        determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange        offer; or       •  on or subsequent to the date the person became an interested stockholder, the board of directors of the        corporation approved the business combination and the stockholders of the corporation authorized the        business combination at an annual or special meeting of stockholders by the affirmative vote of at least        66-2/3% of the outstanding stock of the corporation not owned by the interested stockholder.    Section 203 of the DGCL defines a "business combination" to include any of the following:       •  any merger or consolidation involving the corporation and the interested stockholder;       •  any sale, transfer, pledge or other disposition of 10% or more of the corporation's assets or outstanding        stock involving the interested stockholder;       •  subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any of        its stock to the interested stockholder;       •  any transaction involving the corporation that has the effect of increasing the proportionate share of its        stock owned by the interested stockholder; or       •  the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or        other financial benefits provided by or through the corporation.     •  In general, Section 203 defines an "interested stockholder" as any person who, together with the person's        affiliates and associates, owns, or within three years prior to the determination of interested stockholder        status did own, 15% or more of a corporation's voting stock.    Section 203 of the DGCL could depress the Company’s stock price and delay, discourage or prohibit transactions  not approved in advance by the board of directors, such as takeover attempts that might otherwise involve the  payment to the Company’s stockholders of a premium over the market price of the its common stock.     Nasdaq National Market Listing  

 

   The common stock is listed on the Nasdaq Capital Market under the symbol “LUNA.”      Transfer Agent and Registrar      The transfer agent and registrar for the Company’s common stock is American Stock Transfer & Trust Company.  The transfer Agent’s address is 6201 15th Avenue, Brooklyn New York 11219.exhibit1027amendedandres

                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  Borrower  shall  provide  to Bank  cash    ny-1693906  

 

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  

 

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 

 

                (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 

 

               (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  ny-1693906 

 

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  

 

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  

 

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  

 

       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  

 

               (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  

 

               (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  

 

               (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  

 

               (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 

 

 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 

 

       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  

 

               (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  

 

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  

 

               (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  

 

       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  

 

               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  

 

       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  

 

       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  ny-1693906  

 

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  ny-1693906  

 

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  ny-1693906  

 

       “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  

 

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  

 

         “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 

 

        “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  

 

        “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 

 

       “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  

 

               (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  

 

       “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  

 

 

 

                           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  

 

                                               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.”)   ------------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------       ny-1693906 

 

                 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  

 

                                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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