UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2021
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
COMMISSION FILE NO. 001-36905
SeaSpine Holdings Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
47-3251758
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
5770 Armada Drive, Carlsbad, CA 92008, USA
(Address of principal executive offices) (zip code) (country)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (760) 727-8399
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
Trading Symbol(s)
Name of Exchange on Which Registered
Common Stock
SPNE
The Nasdaq Global Select Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o
No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
1
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
o
Accelerated filer
x
Non-accelerated filer
o
Smaller reporting company
x
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2021), the aggregate market value of the registrant’s common stock
held by non-affiliates was approximately $603,380,737 based upon the closing sales price of the registrant’s common stock on The Nasdaq Global Select Market on such
date. The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of March 7, 2022 was 36,791,003.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the registrant’s definitive proxy statement relating to its 2022 Annual Meeting of Stockholders (scheduled for June 2, 2022) are incorporated by reference
in Part III of this report.
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Table of Contents
SEASPINE HOLDINGS CORPORATION
INDEX
Page
Number
PART I
Item 1. Business
4
Item 1A. Risk Factors
18
Item 1B. Unresolved Staff Comments
51
Item 2. Properties
52
Item 3. Legal Proceedings
53
Item 4. Mine Safety Disclosures
53
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
53
Item 6. Selected Financial Data
54
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
54
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
69
Item 8. Financial Statements and Supplementary Data
69
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
69
Item 9A. Controls and Procedures
69
Item 9B. Other Information
71
PART III
Item 10. Directors, Executive Officers and Corporate Governance
73
Item 11. Executive Compensation
73
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
73
Item 13. Certain Relationships, Related Transactions, and Director Independence
73
Item 14. Principal Accountant Fees and Services
73
PART IV
Item 15. Exhibits and Financial Statements Schedules
74
Item 16. Form 10-K Summary
82
SIGNATURES
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PART I
This Annual Report on Form 10-K (this “Form 10-K” or this “report”) contains forward-looking statements, within the meaning of the Private Securities
Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in Part II, Item 7 of this report
under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide
current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.
Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,”
“predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and our
actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but
are not limited to, those discussed in Part I, Item 1A of this report under the heading “Risk Factors,” which are incorporated herein by reference. We
assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.
The terms “we,” “us,” “our,” “SeaSpine” or the “Company” refer collectively to SeaSpine Holdings Corporation and its wholly-owned subsidiaries,
unless otherwise stated. All information presented in this report is based on our fiscal year. Unless otherwise stated, references to particular years,
quarters, months or periods refer to our fiscal years ending December 31 and the associated quarters, months and periods of those fiscal years.
ITEM 1. BUSINESS
Overview
We are a global medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of
patients suffering from spinal disorders. We have a comprehensive portfolio of orthobiologics and spinal implant solutions, as well as a surgical navigation
system, to meet the varying combinations of products that neurosurgeons and orthopedic spine surgeons need to perform fusion procedures in the lumbar,
thoracic and cervical spine. We believe this broad combined portfolio is essential to meet the “complete solution” requirements of these surgeons. We
report revenue in two product categories: (i) orthobiologics and (ii) spinal implants and enabling technologies. Our orthobiologics products consist of a
broad range of advanced and traditional bone graft substitutes designed to improve bone fusion rates following a wide range of orthopedic surgeries,
including spine, hip, and extremities procedures. Our spinal implants and enabling technologies portfolio consists of an extensive line of products and
image-guided surgical solutions to facilitate spinal fusion in degenerative, minimally invasive surgery (MIS), and complex spinal deformity procedures.
Expertise in orthobiologic sciences and spinal implants, software and advanced optics product development allows SeaSpine to offer surgeon customers a
differentiated portfolio and a complete solution to meet their patients' fusion requirements. We currently market our products in the United States and in
approximately 30 countries worldwide.
SeaSpine was incorporated in Delaware on February 12, 2015. Our corporate offices are at 5770 Armada Drive, Carlsbad, California.
Spine Anatomy
The spine is a column of bone and cartilage that consists of 33 interlocking bones, called vertebrae, which stack upon each other at a slight angle
to form the spine’s S-shaped curve. Except for the bottom nine vertebrae, the vertebrae are separated by thin regions of cartilage known as intervertebral
discs, which act as shock absorbers that facilitate motion and absorb stress during movement. The spine protects the spinal cord and acts as the core of the
human skeleton, extending from the base of the skull to the pelvis. Soft tissues, including ligaments, tendons and muscles, are attached to the vertebrae and
provide stability to the vertebral segment. The spinal cord carries nerves that exit through openings between the vertebrae and deliver sensation and control
to the body. Below is a diagram of the lateral view of the spine:
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The spine consists of five regions, of which the cervical, thoracic and lumbar are the three primary regions. The cervical region consists of the
seven vertebrae extending from the base of the skull to the shoulders. The thoracic, or central, region consists of the next twelve vertebrae in the middle of
the back. Each vertebra in the thoracic region is connected to two ribs that protect the body’s vital organs. Below the thoracic region, the lumbar region
consists of five vertebrae in the lower back and is the primary load-bearing region of the spine. The thoracic and lumbar regions are commonly called
thoracolumbar and many of the products and procedures to treat these regions are similar. The final two regions of the spine, the sacrum and coccyx,
consist of nine naturally fused vertebrae connected to the hip bones to provide support for the spine.
In spinal fusion procedures, two or more vertebrae are fused to eliminate instability as a result of deformity, degeneration or trauma affecting the
vertebrae and intervertebral discs. During the procedure, spinal implant products are used to decompress, align, and stabilize the spine and the surgeon will
often remove the damaged intervertebral disc and replace it with a bone graft substitute to allow new bone to grow and to fuse the affected vertebrae
together. In addition to the bone graft substitute, the surgeon may replace the removed disc with an interbody device. An interbody device, which may be
made out of machined bone, titanium, 3D-printed titanium or polyetheretherketone (PEEK) is designed to maintain spine alignment and appropriate
spacing while allowing bone to grow between the vertebrae to achieve bone fusion. Procedures that include the implantation of interbody devices are often
referred to by the surgical approach used to place the interbody device in the disc space. A lateral lumbar interbody fusion uses an approach that accesses
the spine from the side of the patient’s body; a posterior lateral interbody fusion uses a direct posterior approach from the patient’s back; a transforaminal
lumbar interbody fusion uses an angled approach from either the left or right side of the back; and an anterior lumbar interbody fusion uses a direct anterior
approach from the patient’s front (stomach) area.
Our Competitive Strengths
We are dedicated to providing a comprehensive portfolio of innovative, procedurally focused products designed to work together to drive fusion.
The latest advancements in bone biology and materials science guide the development of in-house manufactured advanced orthobiologics and proprietary
spinal implant technology engineered to address the many nuances of spinal pathology. The integration of our products with our proprietary machine vision
FLASH
surgical navigation system has produced market leading surgical workflows, while greatly reducing harmful radiation to all stakeholders and
individuals involved in surgical procedures. Our products can be tailored to meet individual patient needs, delivering both clinical and economic value to
patients, surgeons, and hospital systems. Our executive management team has extensive experience in the spine and medical technology industries. We
believe that our management team, combined with the following competitive strengths, will enable us to continue to grow our revenue and increase our
presence in the markets we serve.
Our Integrated Orthobiologics Business drives alignment and priorities across research and development, marketing, quality and manufacturing
operations designed to deliver clinical value through best of class, cost effective products, the vast majority of which are processed in-house. By controlling
the design, manufacturing, and quality processes, we believe that we are better able to control the overall product quality and consistency while also
providing cost of goods advantage and operational leverage with volume increases.
•
Our focused R&D team and disciplined development process optimizes our new products by isolating the manufacturing elements to optimize
product performance and ultimately deliver differentiated products.
•
We are investing in various studies to differentiate our products with science and data. Most notably, we sponsored a study comparing two
leading Cellular Bone Grafts with our Strand Plus demineralized bone fibers that was published in 2020 in the Journal of Bone and Joint Surgery
(JBJS). The study concluded that the cells in cellular bone matrix (CBM) products did not improve fusion or bone formation. The study also
demonstrated that SeaSpine’s
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demineralized bone matrix (DBM) product, OsteoStrand Plus, outperformed the tested CBM product. This study substantiates payor and provider
pushback for cellular bone grafts, and, combined with the previously published pre-clinical study comparing the OsteoStrand DBM fibers to six
leading competitive DBMs, provides strong scientific support for SeaSpine’s differentiated DBM offerings. We will continue to invest in
preclinical and clinical data to evidence our products and their clinical value.
•
A synergistic channel strategy for orthobiologics products. Our dual branding strategy allows our team to market orthobiologics products through
independent sales agents who carry competitive spinal implant products. Specifically, we market our orthobiologics under the SeaSpine and IsoTis
brands, which allows sales agents who sell spinal implant products competitive with ours to continue to represent our orthobiologics products. We
believe this dual branding strategy allows us to penetrate a greater number of customer accounts than we would otherwise serve if we marketed
our orthobiologics products under a single brand.
•
The combination of these elements along with a strengthened distribution channel, has earned SeaSpine the #2 position in the US DBM market
which is a critical factor for our continued access to IDN (independent distributor network) and GPO (group purchasing organization) networks.
Our Fusion Engineered™ Spinal Implant Systems are available with multiple material and surface technology options developed specifically to
complement the strengths of our orthobiologics products. The modularity of these systems provides versatility while minimizing the amount of inventory
required for each surgery.
•
A range of innovative PEEK interbody devices that incorporate NanoMetalene with Reef Topography
, a proprietary titanium surface
technology. We currently offer a wide range of sterile-packaged interbody devices that incorporate our proprietary NanoMetalene surface
technology with Reef Topography. NanoMetalene is a surface technology for interbody implants that incorporates a sub-micron layer of
commercially pure titanium bonded to a PEEK implant using a high-energy, low-temperature process called atomic fusion deposition.
NanoMetalene is designed to provide a bone-friendly titanium surface on the entire surface of the implant while retaining the benefits associated
with traditional PEEK implants, such as biocompatibility, a modulus of elasticity similar to bone, and excellent radiographic visibility for both
Intra and post-operative imaging. Reef Topography incorporates machined macrostructures and undercut features that pre-clinical studies show
improve early biomechanical stability. Reef is designed to act as an integrated fusion scaffolding that increases surface area for new bone to grow
onto and into the interbody device. We have exclusive rights to NanoMetalene and Reef Topography technologies within the spine market.
•
A line of Waveform™ interbody implants offering the next level of 3D-printed titanium architectural innovation. Waveform™ technology
balances key geometric and manufacturing advancements without compromising clinical requirements to deliver a highly porous and robust
interbody solution. The interbody design is intended to balance subsidence resistance, implant stiffness, and bone graft packability, while
maintaining radiographic visualization during intraoperative and postoperative imaging.
•
An expandable posterior interbody solution that offers both parallel and lordotic expansion options to fit both the patient’s need as well as
surgeon preference. The Explorer™ TO system provides a low-profile design for insertion with expansion versatility achieving up to 16mm in
height or up to 20 degrees of lordosis. The streamlined and intuitive instrumentation provides the ability to pack biologics through the implant into
the disc space after expansion.
•
Modular solutions across the portfolio intended maximize clinical versatility, while minimizing the complexity and increased inventory
requirements of non-modular systems. One of our foundational systems that incorporates modular technology is our Mariner Posterior Fixation
Platform. The Mariner System is designed to address a wide range of pathologies with an efficient set of instruments and modular implants.
Surgeons use Mariner to accommodate conventional, as well as minimally invasive approaches to treat degenerative and complex spine
pathologies with a minimum number of trays. This allows surgeons to effectively and efficiently use the most appropriate surgical techniques to
address each unique patient condition.
Our FLASH
Navigation Platform with 7D Technology has redefined image guided surgery, delivering a navigation platform with meaningful
benefits in spine and cranial procedures. The speed, accuracy, efficiency, and intraoperative radiation-free safety profile of the FLASH
Navigation
System delivers significant economic value, while eliminating the long-standing frustrations and challenges of traditional image guided navigation systems.
•
Near Instant and Optimized Workflow Efficiency. Proprietary 7D Machine-Vision Technology utilizes visible light to deliver a
registration method in less than 30 seconds, providing a “navigation-on-demand” experience for the surgeon without altering or
disrupting the surgical workflow. Studies have shown that registration time utilizing FLASH
Navigation is reduced up to 95%
compared to competitor navigation systems. The technology is also designed to optimize the experience for the surgeon by offering a
completely surgeon-controlled platform.
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High Accuracy with Real-Time Navigation. The FLASH
Navigation System provides real-time surgical navigation and informed
decision making through a 3D image acquisition of nearly 1,000,000 data points. This registration method is designed to allow a surgeon
to achieve segmental accuracy at every level regardless of patient positioning or intraoperative movement.
•
Radiation-Free Intraoperative Navigation Technology. Visible light Machine-Vision Technology eliminates the need for intraoperative
radiation used for registration typically required for navigation procedures. The FLASH
Navigation System safety profile eliminates
unnecessary radiation to the surgeon, staff, and patient and potentially reduces the harmful long-term side effects of radiation exposure.
•
Comprehensive & Cost-Effective Navigation Solution. The FLASH
Navigation System delivers a comprehensive and cost-effective
mobile platform with a small footprint designed for use in multiple surgical specialties. The proprietary FLASH
registration method
also significantly reduces registration time from 30 minutes to less than 30 seconds, resulting in faster operative times. In addition, the
intraoperative radiation-free technology eliminates the need for and reliance on harmful intraoperative radiation equipment and
associated personnel.
Our Strategy
Our goal is to continue to scale our business in order to enhance our market position in orthobiologics and become a leader in the spinal implant and image
guided surgery market. To achieve our goal, we are investing in these strategies:
•
Research and development to bring new products and techniques to market. We have recently increased, and intend to continue to increase, our
annual research and development spending as a percentage of revenue in an effort to drive higher revenue growth through new product sales. We
plan to continue to invest resources and to work with our surgeon customers to understand their needs and develop new and next-generation
orthobiologics, spinal implants and image guidance products designed to improve clinical outcomes. We employ dedicated orthobiologics
engineers and scientists with expertise in material sciences, and biology and hardware engineers with expertise in product design and
development. Our expanded team also has significant software expertise to provide surgeons with real-time clinically relevant feedback to assist
with the surgical decision making process.
•
Commercial infrastructure to further penetrate the U.S. markets in which we compete. We have recently increased, and intend to continue to
increase, the quality, size, exclusivity and geographic breadth of our network of independent sales agents in the United States. To support these
efforts, we are investing more in, and are developing comprehensive support for, sales agent and surgeon training and education programs. We
have hands-on cadaveric training facilities in Carlsbad, California and Wayne, Pennsylvania where our team provides training for surgeons and
sales agents. In addition, we plan to increase our presence within teaching institutions that provide spinal surgery fellowship programs to educate
new surgeons on the use of our products. We believe these combined efforts will help surgeons become adept with our spinal implant products and
techniques, thereby improving outcomes for their patients.
•
Pre-clinical and post-market clinical study programs to generate data. We plan to invest in further development of our pre-clinical and clinical
programs designed to generate peer-reviewed scientific evidence and a podium presence that we believe will support the performance of select
orthobiologics and spinal implant solutions that may be compared to competing technologies. We believe that our NanoMetalene, Reef
Topography and WaveForm
technologies may have advantages over many existing implant materials and surface options, and that our fibers-
based OsteoStrand® and OsteoStrand Plus tissue products are more efficacious and cost-effective than, higher cost cellular allografts bone grafts.
We are also investing in additional clinical data for our machine vision FLASH
navigation system to demonstrate the significant reduction in
intraoperative radiation in the operating room with the additional benefit of greatly reducing surgical procedure times.
•
Opportunities to enhance our product offering through strategic alliances and acquisitions. We currently market several products under
distribution agreements and licenses with third-parties. We intend to continue to pursue alliances and acquisition opportunities that we believe will
provide us with technologies to strengthen our market position and grow our business. For example, in September 2021, we entered into an
exclusive distribution agreement with OrthoPediatrics Corp under which it will exclusively distribute the 7D Surgical FLASH
system for
pediatric applications.
Our Products
We offer a portfolio of orthobiologics, spinal implants and enabling technologies products for the treatment of patients suffering from spinal and
other orthopedic disorders. Information regarding the amount and percentage of total revenue contributed by our orthobiologics and spinal implants and
enabling technologies products for each of the last two fiscal years may be found in Part II, Item 7 of this report under the sections entitled “Year Ended
December 31, 2021 Compared to Year
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Ended December 31, 2020—Revenue” and in Part II, Item 8 of this report in the Notes to Consolidated Financial Statements in Note 10, “Segment and
Geographic Information.”
Orthobiologics
Our orthobiologics products are used in orthopedic and dental procedures and consist of a broad range of bone graft substitutes intended to address
the key elements of bone regeneration.
Bone graft substitutes composed of natural biologic proteins and synthetic materials are designed to reduce the amount of autologous bone grafts
needed for spinal fusion procedures. Bone graft substitutes, depending on their design, can be used entirely in place of the patient’s own bone tissue, called
an autograft, or by extending the volume of bone graft material from the patient by combining it with the bone graft substitute.
Our orthobiologics portfolio includes fibers-based and particulate DBM, collagen ceramic matrices, demineralized cancellous allograft bone and
synthetic bone void fillers. We offer our orthobiologics products in the form of fibers, putties, pastes, strips and DBM in a resorbable mesh for a range of
surgical applications.
Demineralized Bone Matrix and Accell
DBM formulations are designed to provide proteins and other growth factors at varying stages of the bone healing process. Developed in the early
1990s, our first-generation DBM formulations combined particulate-demineralized bone matrix with an inert carrier engineered for easy graft handling and
graft containment. The carrier is a biocompatible synthetic polymer with an advantageous property that allows the product to remain moldable at room
temperature, but becomes more viscous at body temperature once implanted, which we call reverse-phase. Subsequently, we developed a proprietary
process to transform particulate-based DBM into a dispersed form to enhance the performance of the graft material. The result of this process was a DBM
product we call Accell Bone Matrix. Accell Bone Matrix is an open structured, dispersed form of DBM, which increases the bioavailability of bone
proteins at an earlier time in the healing cascade. Standard particulate DBM is dense and therefore the bone proteins release more slowly and in a sustained
manner over time. The properties of Accell Bone Matrix and DBM are both desirable, which is why our advanced DBM products include both components
to harness both the early and sustained release of bone proteins. Our Accell Evo3 and OsteoSurge 300 DBM products provide an optimized formulation of
Accell Bone Matrix, particulate-based DBM, and our reverse-phase carrier. These products have a handling property for bone grafting procedures and
contain three times the amount of the Accell Bone Matrix compared to earlier products. We believe that providing both the early-stage and late-stage
accessibility of osteoinductive bone proteins provided by a composite of Accell Bone Matrix and the particulate-based demineralized matrix differentiates
our product compared to competitive DBM products.
Our OsteoStrand® and Strand® Demineralized Bone Fibers product lines as well as our OsteoStrand Plus and Strand Plus product lines, which
incorporate our proprietary Accell Bone Matrix, provide 100% demineralized bone fibers designed to facilitate and aid in fusion by maximizing
osteoinductive content while providing an improved conductive matrix. The fibers were developed through a process that evaluated a variety of fiber
geometries to optimize osteoinductivity and osteoconductivity, intraoperative handling and controlled expansion in order to facilitate surgical placement, to
maintain surgical position and to allow the fibers to better fill the surgical defect with the overriding goal to improve fusion potential.
Our OsteoBallast® and Ballast® Demineralized Bone Matrix in Resorbable Mesh product lines are designed to facilitate and aid in fusion. These
products, which consist of a resorbable mesh containing 100% DBM without a carrier, are designed to simplify graft placement and help prevent graft
migration while maximizing DBM content. OsteoBallast® is designed to provide surgeons with a simple means for delivering bone graft in posterior spine
surgery that contours to the local anatomy while maintaining shape and volume under compression. The simplified technique is intended to be particularly
valuable in MIS procedures, where placing the graft accurately through tubes and small incisions can be challenging. Similarly, our OsteoBallast MT and
Ballast MT resorbable mesh pouches are designed to simplify graft containment and resist graft migration while allowing surgeons to customize the graft
containment length and to utilize the patient's autograft.
We believe that our recently launched and existing product offerings deliver clinical value as payors and hospitals seek more cost effective
orthobiologic solutions.
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Collagen Ceramic Matrix Technologies
Our collagen ceramic matrix technology leverages a history of regenerative technology and collagen engineering. Our leading products in this
category are currently marketed as IsoTis Mozaik and OsteoStrux and are engineered to provide a porous scaffold architecture and osteoconductivity. These
products also support osteogenesis, as they are indicated for use with bone marrow aspirate, which contains osteogenic cells. These products are composed
of highly purified beta-tricalcium phosphate granules, which provide mineral content to foster bone formation during the healing process in a framework of
type-1 collagen that provides a scaffold for bone cell migration. These products are engineered with a resorption profile consistent with the rate of natural
bone formation.
Other Bone Graft Substitutes
Our other bone graft substitute products consist of allograft cancellous bone scaffolds and synthetic bone void fillers.
Spinal Implants and Enabling Technologies
Our spinal implants and enabling technology portfolio consists of an extensive line of products for spinal decompression, alignment, stabilization and
image-guided surgical solutions as well as a surgical navigation system designed for broad spectrum use throughout the entire spinal column. Such
products are typically used to facilitate fusion in degenerative, minimally invasive, and complex spinal deformity procedures throughout the lumbar,
thoracic and cervical regions of the spine. Our products are increasingly focused on restoring adequate spinal balance and profile in the sagittal (front to
back) plane, which we believe is widely recognized as an important factor to improve the quality of life in patients undergoing surgery for spinal
degeneration or deformity.
Degenerative
Our degenerative products include systems used in open and MIS procedures. Open procedures are still the most common surgical approach and involve
a midline incision followed by retraction of the skin and soft tissues. We offer an extensive portfolio of degenerative products designed for use in both
thoracolumbar and cervical spine cases.
Our innovative line of composite PEEK interbody devices featuring NanoMetalene surface technology with Reef Topography with various
footprint and lordotic options, is designed to maintain spine alignment and appropriate spacing while allowing bone to grow between the vertebrae to
achieve bone fusion. Our Reef-TO, Reef-TA and Reef-TH interbody devices for transforaminal lumbar interbody fusion procedures can be used to fuse the
lumbar spine through a posterior approach that starts off to one side of the patient’s back. Our Vu a·POD™ Prime NanoMetalene® and Reef-A interbody
devices for anterior lumbar interbody fusion procedures can be used to fuse the spine through an anterior approach. Our Regatta NanoMetalene Lateral
System is a comprehensive lateral lumbar interbody system that can be used to fuse the spine through a lateral approach. Our Cambria NanoMetalene
interbody device can be used to fuse the cervical spine through an anterior approach. Our Shoreline® Anterior Cervical Standalone System, featuring the
NanoMetalene with Reef Topography, is a modular plate and interbody device designed to maximize intraoperative flexibility to address a wide range of
anatomy, surgical situations or bone in anterior cervical fusions.
Since 2020, we launched our 3D-printed interbody fusion devices under our Waveform™ brand for anterior cervical, transforaminal lumbar,
lateral lumbar and articulating transforaminal lumbar interbody fusion.
We launched the next generation of our Explorer™ TO expandable interbody device system with complementary lordotic and parallel expanding
implant options in 2020 under a limited commercial launch and plan to fully launch the system with additional footprints and other offerings in 2022.
We offer a comprehensive portfolio of spinal fixation products for the cervical, thoracic and lumbar regions of the spine, consisting of rods,
screws, plates and instrumentation to facilitate spinal decompression and fusion. In 2021, we launched the NorthStar OCT Posterior Cervical Fixation
System and the Admiral
Anterior Cervical Plating System (ACP). The NorthStar system’s novel instrumentation and anatomically designed implants are
intended to provide a safe and effective solution designed to improve surgical flow when navigating through complex cervical procedures. The Admiral
ACP system represents the next generation of ACP and was designed to strike a balance between strength, profile and construct rigidity.
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Our Mariner Posterior Fixation System is a pedicle screw system for open and MIS procedures and adult deformity procedures featuring modular
threaded technology and accompanying instrumentation designed to reduce the number of trays needed for surgery and that provides surgeons with
multiple intra-operative options to facilitate posterior lumbar fixation. We also offer a variety of screw and plating systems, such as our Admiral™ ACP
System, that combine large graft viewing windows and a visual confirmation locking system for cervical fixation.
Minimally Invasive Surgery
MIS procedures are less invasive than traditional open surgery procedures, and may result in reduced post-operative pain, faster rates of healing and
fewer procedure complications by minimizing incision size and tissue dissection. Our surgeon customers utilize our iPassage™ MIS Retractors, NewPort™
Tube Retractors, and new pedicle screw-based Mariner MIS Retractors to perform MIS fusions and decompression procedures, a surgical technique used to
alleviate pain caused from compression on the spinal cord or the nerves that emanate from it. During the procedure, the surgeon makes a small incision and
inserts the retractor through the skin and soft tissues down to the spinal column, creating a tunnel to the spine. The retractor is kept in place to hold the
muscles open throughout the procedure. Through this tunnel, the surgeon accesses the spine using small instruments and inserts implants necessary for
fusion, such as the screws and rods of our Mariner MIS Posterior Fixation System and NewPort MIS solutions. The Mariner MIS Posterior Fixation System
features low-profile, robust towers for rod introduction and reduction as well as ultra-tough modular extended tab heads, capable of providing powerful
instrumented compression and distraction of the spine. Our NewPort MIS product has extended tabs for a small incision profile and offers two rod delivery
options for both mini-open and percutaneous approaches. Our MIS portfolio also includes a comprehensive set of decompression instruments, static and
expandable interbody devices, and screw systems designed to facilitate access to the treatment area while minimizing anatomical disruption.
Complex Spinal Deformity
Our spinal implant products are used in complex spinal deformity procedures involving multiple spine segments, challenging anatomy, tumors,
traumatic injury and revision of previous fusion surgeries. We define deformity as any variation in the natural curvature of the spine, the most common of
which is scoliosis, an abnormal lateral curvature of the spine. We offer several technologies designed to address the needs of our surgeon customers who
perform complex deformity procedures and the various derotation techniques they use to correct spine curvature. For example, our Daytona® Deformity
System uses extended tab uniplanar and polyaxial screws with multiple rod options and intuitive instrumentation to create a versatile system adaptable to
surgeon preference. Our Daytona Small Stature System, which has an adolescent idiopathic scoliosis indication, is designed to address standard to complex
deformity cases in smaller-sized patients who need a lower profile construct due to anatomy constraints. We provide our systems in multiple configurations
and materials to address patient requirements, including titanium alloy and cobalt chrome alloy rod options, as well as multiple rod diameters. Offering
products with varying rod diameter and materials provides the surgeon different rod stiffness to treat individual patients. We offer both implant- and
instrument-based reduction capabilities with our extended tab and locking cap products, as well as our uniplanar and D-planar screws and rapid sequential
reduction towers. The Mariner Outrigger Revision System is an adjunct to the Mariner Posterior Fixation System designed to effectively revise and extend
previous fusions. Our complex spinal implant portfolio allows surgeons to combine various product lines and approaches, offering several treatment
options for the most difficult cases. In 2021, we extended the Mariner modular platform to address complex spine adult deformity pathologies.
Enabling Technologies
Our machine vision FLASH
navigation platform is used in a variety of posterior spinal procedures, including degenerative, deformity, tumor,
trauma, and revision surgery. The platform can be utilized in MIS, Mini-Open, or Open techniques. The technology also offers a comprehensive cranial
platform for use in cranial neurosurgery.
Our innovative FLASH
Navigation System with 7D Technology delivers a navigation platform with our proprietary 7D Technology that utilizes
visible light, machine-vision cameras, and advanced software algorithms to create a 3D image for surgical navigation. The novel technology allows for a
fast image reconstruction for surgical navigation with no disruption to surgeon workflow and eliminates radiation exposure during the procedure to the
patient, surgeon, and staff.
Our Spine Module is our leading product in the FLASH
Navigation Portfolio with over 75 installations globally. In 2021, we launched the next
generation of the module, as well a variety of new instrumentation to enhance our offering of navigated instruments. Further enhancements and new
features to the Spine Module are in development and are expected to launch in 2022.
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We launched a limited release of the Percutaneous Module for navigation of minimally invasive spinal procedures in 2021. This application,
accompanied by new instrumentation, addresses an important part of the spine navigation market to round out the FLASH
Navigation Platform and is a
valuable enhancement for both hospitals and ambulatory surgery centers. We plan to fully launch the Percutaneous Module in 2022 and continue to
innovate this technology application and instrumentation to expand the product line. In addition to these new products focused on spine, we continue to
enhance our Cranial Module for the FLASH
Navigation System for use in cranial surgeries. The technology uses a completely contactless workflow,
acquiring hundreds of thousands of virtual fiducials using the patient’s own anatomy, and results in nearly instantaneous cranial registrations to the skin or
skull in almost any surgical position.
Product Pipeline
We believe that our future success and ability to continue to drive revenue growth depends on our ability to sustain a similar cadence of launching
new and next-generation products as we have demonstrated over the last few years. We continue to aggressively develop differentiated new products that
we believe will allow us to enter new markets and be even more competitive in markets in which we are underrepresented. For example, during 2022, we
expect to launch an improved version of our number one selling DBM product family Accell Evo3/OsteoSurge 300. This new product line incorporates
formulation and process improvements that we believe will drive higher performance and at a lower manufacturing cost.
Research and Development
We have a research and development organization dedicated to advancing our portfolio of orthobiologics, spinal implant and machine vision
image guidance innovations through product development and clinical affairs programs. Our product development efforts employ an integrated team
approach that involves collaboration between surgeons, our engineers, our machinists, as well as our regulatory personnel.
Our spinal implants product development team, in consultation with design surgeons, formulates a design for the product and then our machinists
build prototypes for testing our prototyping development and testing operation at our Carlsbad, California facility. We use a broad scope of technologies
designed to allow us to meet the complex engineering requirements of customers. As part of the development process, spine surgeons test the implantation
of the products in our in-house cadaveric laboratories, which helps us design new products intended to meet the needs of both surgeon and patient. Our
team refines or redesigns the prototype as necessary based on the results of the product testing, allowing us to perform rapid iterations of the design-
prototype-test development cycle. Our clinical and regulatory personnel work in parallel with our product engineering personnel to facilitate regulatory
clearances of our orthobiologics and spinal implant products. We believe that these product development efforts allow us to provide solutions that respond
to the needs of our surgeon customers and their patients.
Similar to the spinal implants product development process, our software engineers, product managers and design surgeons are working towards
the full integration of our spinal implants and orthobiologics product lines with our machine vision FLASH
navigation system. This includes the design
of specific software modules, features and tracked instruments designed to meet the needs of a wide range of procedures including, degenerative, complex,
revision, and deformity spine procedures.
We plan to develop line extensions for our innovative orthobiologics technologies that will continue to improve bone forming potential while
addressing specific procedural requirements both in the spine field and in general orthopedic applications. We are investigating new product formulations
in the traditional DBM and Ceramic Matrix product categories. Our orthobiologics research and development team has experience in biomaterial sciences
and bringing next generation technologies to market.
We are also committed to developing new spinal implant products that leverage the NanoMetalene with Reef Topography, 3D-printed titanium and
expandable interbody platforms technology and provide next generation solutions for our existing products or extend the range of solutions that we
provide. We aim to further build upon our foundation of static and expandable interbodies through hyperlordotic and alternative approach options within
the interbody space. We are also committed to providing products, such as additional hyperlordotic cage options and additional expandable technology
solutions, to achieve appropriate curvature of the spine and that can improve sagittal balance, correcting the patient’s spinal alignment. We also plan to
continue to develop next generation technologies that meet global demand, particularly with respect to cost and delivery methods in a manner which
supports a scalable commercial model.
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Sales and Distribution
We currently market and sell our products in the United States and in approximately 30 countries worldwide. Our United States sales organization
consists of regional and territory business managers who oversee a broad network of independent orthobiologics and spinal implant sales agents that
receive commissions from us based on sales they generate. Our international sales organization consists of a sales management team that oversees a
network of independent orthobiologics and spinal implant stocking distributors that purchase our products directly from us and independently sell them.
During 2021, our domestic and international revenues accounted for 90% and 10%, respectively, of total revenue. Information regarding financial data by
geographic segment is set forth in Part II, Item 8 of this report in the Notes to Consolidated Financial Statements in Note 10, “Segment and Geographic
Information.”
In the United States, we typically consign our orthobiologics products and consign or loan our spinal implant sets to hospitals and independent
sales agents, who in turn deliver them to the hospital for a single surgical procedure or leave them with hospitals that are high volume users for use in
multiple procedures. Our spinal implant sets typically contain the instruments, including disposables, and spinal implants required to complete a surgery.
We market our enabling technologies portfolio through a direct sales force in the United States that works together with our independent sales agents to
generate either a capital sale or to place systems and components in an account in a capital efficient manner in return for a long-term revenue commitment
for our spinal implant systems and/or orthobiologics products.
In international markets, we predominantly sell orthobiologics, complete instrument and implant sets and enabling technologies to independent
stocking distributors. We recently notified our European distributors that we will discontinue all sales and marketing activities for our spinal implant
portfolio in the European market effective September 2022 due to the significantly higher upfront and recurring annual costs required to comply with
European medical device regulations. We will continue to market and sell our orthobiologics and enabling technologies products in the European market.
Additionally, we will continue to market our entire portfolio in the Latin American and Asia Pacific markets.
We have recently increased, and intend to continue to increase, the quality, size, exclusivity and geographic breadth of our network of independent
sales agents in the United States. During 2020 and 2021, we gained representation in parts of the country where we had no representation or were
significantly underrepresented. We anticipate adding additional independent sales agents in the United States in 2022. We focus on entering distribution
relationships in territories with a high potential for growth, where our partner will carry our spinal implants and/or DBM products exclusively, except with
respect to clinical markets that our products do not address. We believe these more exclusive relationships will allow us to grow faster and more cost
effectively in these territories over the long term. We also plan to continue to invest in additional instrument sets and marketing and education efforts to
support the expansion of our independent sales agent footprint.
To support our expansion efforts in the United States, we have invested more in, and developed comprehensive support for, sales agent and
surgeon training and education programs. To this end, we have leveraged the capacity of our hands-on cadaveric training laboratories at our Carlsbad,
California and Wayne, Pennsylvania facilities to increase the number of training opportunities for surgeons and sales agents. We believe training and
education will help surgeons become adept with our spinal implant products and techniques, thereby improving outcomes for their patients.
We believe the expansion of our U.S. sales efforts will provide us with the opportunity to sustain revenue growth as we continue to penetrate
existing and new markets.
Suppliers and Raw Materials
In general, raw materials essential to our businesses are readily available from multiple sources. For reasons of quality assurance, availability or
cost effectiveness, certain components and raw materials are available only from one supplier. Our relationships with suppliers that cannot be replaced
without a material expense or delay are governed by written contracts, which are generally supply agreements. These agreements set forth the process by
which we order components or raw materials, as applicable, from such suppliers (which process is either on a purchase order basis or based on quarterly or
annual forecasts and in some cases require us to purchase minimum amounts) and the related fees for purchasing such components or raw materials. These
agreements have terms from one to five years, but in most instances are terminable by us (and in limited instances the other party) for convenience, subject
to a specified notice period, and are also terminable upon agreement by the parties, by either party upon material breach by the other and by either party if
the other party enters bankruptcy. These agreements also outline the rights of each party with respect to quality assurance, inspection and compliance with
applicable law and contain what we believe to be customary indemnification provisions for commercial agreements. Each of these agreements is entered
into in the ordinary course of our business, is immaterial in amount and significance and not a contract
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upon which our business is substantially dependent. In addition, we endeavor to maintain sufficient inventory of components and raw materials so that our
production will not be significantly disrupted even if a particular component or material is not available for a period of time.
Most of our orthobiologics products contain material derived from human or bovine tissue. We only source our raw materials from tissue banks
registered with the U.S. Food and Drug Administration (FDA) and accredited by the American Association of Tissue Banks (AATB). The donors are
screened, tested and processed by the tissue banks in accordance with FDA and AATB requirements. Additionally, each donor must pass FDA-specified
bacterial and viral testing before raw material is distributed to us for further processing. We receive with each donor lot a certification of the safety of the
raw material from the tissue bank’s medical director. As an added safety assurance, each lot of bone is released into the manufacturing process only after
our quality assurance microbiologists screen the incoming bone and serology test records. During our manufacturing process, the bone particles are
subjected to our proprietary process and terminally sterilized. This process is designed to support the safety and effectiveness of our DBM products.
The collagen used in our collagen ceramic matrix products is derived only from the deep flexor tendon of cattle less than 24 months old from New
Zealand. The World Health Organization classifies different types of cattle tissue for relative risk of bovine spongiform encephalopathy (BSE)
transmission. Deep flexor tendon is in the lowest-risk category for BSE transmission (the same category as milk, for example) and is therefore considered
to have a negligible risk of containing the agent that causes BSE (an improperly folded protein known as a prion).
Intellectual Property
We continue to pursue patent and trademark protection for our key technologies, methods, products and product improvements, both in the
United States and in select foreign countries, and when appropriate to enforce and defend our patent and trademark rights. In general, however, we do not
rely solely on our patent and trademark estate to provide us with any significant competitive advantages as it relates to our existing product lines.
We also rely upon trade secrets and continuing technological innovations to develop and maintain our competitive position. In an effort to protect
our proprietary information, we typically require our employees, consultants and advisors to execute agreements that provide that confidential information
developed or provided to the individual by us or on our behalf during their relationship with us must be kept confidential, except in specified
circumstances.
Our 7D Technology is protected by more than 60 issued and pending patents in the United States and other countries, including 22 issued patents
in the United States. Representative utility and design patents and pending applications include (but are not limited to):
•
Systems and Methods for Intraoperative Guidance Feedback;
•
Method of Rendering and Manipulating Anatomical Images on Mobile Computing Device;
•
Handheld Support for Fiducial Markers;
•
Attachments for Tracking Handheld Implements;
•
Integrated Illumination and Optical Surface Topology Detection System and Methods of Use;
•
System and Method for Generating Partial Surface from Volumetric Data for Registration to Surface Topology Image Data;
•
Optical Alignment System;
•
Systems and Methods for Displaying Guidance Images with Spatial Annotations During a Guided Medical Procedure;
•
Tracking Marker Support Structure and Surface Registration Methods Employing the Same for Performing Navigated Surgical
Procedures;
•
Systems, Methods and Devices for Tracking and Calibration of Flexible Instruments;
•
Method for Obtaining a Structured Light Reconstruction of a 3D Surface;
•
Systems and Methods for Intraoperative Spinal Level Verification;
•
Systems and Methods for Determining Intraoperative Spinal Orientation; and
•
Systems and Methods for Guided Manipulation of the Shape of a Surgical Implant.
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IsoTis OrthoBiologics, Inc., one of our subsidiaries, owns a group of patents related to the reverse-phase carrier and Accell process and materials.
This patent group protects the Accell family of DBM products. The patents in this group expire over time through 2024.
Our material registered and unregistered trademarks include: 7D Surgical®, Accell®, Accell Connexus®, Accell Evo3®, Accell TBM®, Accell
Total Bone Matrix®, Admiral
, Atoll™, Ballast®, Capistrano™, Coral®, Current®, Daytona®, DynaBlast®, DynaGraft®, DynaGraft-D®, Evo3®,
Explorer®, FLASH
, Flash Registration
, Fusion Engineered™, Hollywood™, IsoTis®, IsoTis OrthoBiologics®, Malibu™, Manta Ray
, Mariner®,
Meridian®, NanoMetalene®, NewPort™, NorthStar®, NorthStar OCT
, OrthoBlast®, Ossatura®, OsteoBallast®, OsteoCurrent®, OsteoRush
,
OsteoSparx
, OsteoStrand®, OsteoStrux®, OsteoSurge®, OsteoTorrent
, Outrigger®, RAPID®, RAPID: Rack and Pinion Integrated Delivery
,
Reef®, Reef Topography®, Regatta®, Rush
, SeaSpine®, SeaSpine Outrigger®, Shoreline®, Shoreline RT®, Sierra™, SkipJack®, SkipJack Expandable
Interbody®, Sonoma™, SS Admiral
, Strand®, SynPlug®, Torrent
, Trident-C™, Trident-L™, TruProfile®, Vu a•POD™, Vu a•POD Prime
,
WaveForm®, and WayFinder™.
Competition
The global orthobiologics, spinal implant and image guided surgery markets are highly competitive. We face significant competition in these
markets from the spine and orthopedic divisions of large multinational medical device companies, established companies focused solely or primarily on
spine and orthopedics, as well as smaller, emerging players focused on product innovation. These competitors are focused on bringing new technologies to
market and acquiring technologies and technology licenses that directly compete with our products or have potential product advantages that could render
our products obsolete or noncompetitive.
Our primary competitors in the orthobiologics, spinal implants and image guided surgery markets include Alphatec Spine, Baxter, B. Braun,
Brainlab, Bioventus, Cerapedics, DePuy Synthes Spine (a Johnson & Johnson company), Globus Medical, Medtronic, NuVasive, Orthofix, Stryker,
Surgalign, XTANT Medical, ZimVie and many smaller, biologically-focused companies.
We anticipate that our currently marketed products and any future marketed products will be subject to intense competition. Many of our
competitors have significantly greater financial, manufacturing and marketing resources than we do, which could make scaling our business challenging. In
addition, these competitors have more tenured relationships with parties in distribution channels and we anticipate they will continue to dedicate significant
resources to marketing and distributing their products and to developing and commercializing competing products. Our ability to compete will depend on
our ability to launch innovative new products that demonstrate superior clinical outcomes.
Regulation
We are a manufacturer and marketer of medical devices and a tissue bank, and therefore are subject to extensive regulation by the FDA, other
federal governmental agencies and, in some jurisdictions, by state and foreign governmental agencies. The regulations to which we are subject govern the
introduction of new medical devices, the observance of certain standards with respect to the design, manufacture, testing, labeling, promotion and sales of
devices, record maintenance, the ability to track devices, potential and actual product defect reporting, import and export of devices, and other matters.
The regulatory process of obtaining product approvals and clearances can be onerous and costly. The FDA requires, as a condition to marketing a
medical device in the United States, and as applicable based on product type and classification, that we secure a Premarket Notification clearance pursuant
to Section 510(k) of the United States Federal Food, Drug, and Cosmetic Act (FDCA) or an approved premarket approval (PMA) application (or PMA
supplement). Obtaining these approvals and clearances can take up to several years and may involve preclinical studies and clinical trials. The FDA may
also require a post-approval clinical trial as a condition of approval.
To perform clinical trials for significant risk devices in the United States on an unapproved product, we are required to obtain an Investigational
Device Exemption from the FDA. The FDA may also require a filing for FDA approval prior to marketing products that are modifications of existing
products or new indications for existing products. Moreover, after clearance/approval is given, if the product is shown to be hazardous or defective, the
FDA and foreign regulatory agencies have the power to withdraw the clearance or require us to change the device, its manufacturing process or its labeling,
to supply additional proof of its safety and effectiveness or to recall, repair, replace or refund the cost of the medical device.
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The FDA Safety and Innovation Act of 2012 (FDASIA), which includes the Medical Device User Fee Amendments of 2012, as well as other
medical device provisions, went into effect October 1, 2012. This includes performance goals and user fees paid to the FDA by medical device companies
when they register and list with the FDA and when they apply to market a device in the United States. The FDASIA also imposes additional requirements
regarding FDA Establishment Registration and Listing of Medical Devices. All U.S. and foreign manufacturers must have an FDA Establishment
Registration and complete Medical Device listings for sales in the United States.
We manufacture medical devices derived from human tissue (demineralized bone tissue). The FDA has specific regulations governing human
cells, tissues, and cellular and tissue-based products (HCT/Ps). An HCT/P is a product containing, or consisting of, human cells or tissue intended for
transplantation into a human patient. Examples include bone, ligament, skin and cornea. Some HCT/Ps fall within the definition of a biological product,
medical device or drug regulated under the FDCA. These biologic, device or drug HCT/Ps must comply both with the requirements exclusively applicable
to HCT/Ps and, in addition, with requirements applicable to biologics, devices or drugs, including premarket clearance or approval from the FDA.
Section 361 of the Public Health Service Act authorizes the FDA to issue regulations to prevent the introduction, transmission or spread of
communicable disease. HCT/Ps regulated as 361 HCT/Ps are subject to requirements relating to registering facilities and listing products with the FDA,
screening and testing for tissue donor eligibility, Good Tissue Practice when processing, storing, labeling, and distributing HCT/Ps, including required
labeling information, stringent record keeping, and adverse event reporting.
The AATB has issued operating standards for tissue banking. Accreditation is voluntary, but compliance with these standards is a requirement to
become an AATB-accredited tissue establishment. In addition, some states have their own tissue banking regulations. We are licensed or have permits for
tissue banking in California, Florida, New York, Maryland, and other states that require specific licensing or registration.
National Organ Transplant Act. Procurement of certain human organs and tissue for transplantation is subject to the restrictions of the National
Organ Transplant Act (NOTA), which prohibits the transfer of certain human organs, including skin and related tissue for valuable consideration, but
permits the reasonable payment associated with the removal, transportation, implantation, processing, preservation, quality control and storage of human
tissue and skin. We reimburse tissue banks for their expenses associated with the recovery, storage and transportation of donated human tissue they provide
to us for processing. We include in our pricing structure amounts paid to tissue banks to reimburse them for their expenses associated with the recovery and
transportation of the tissue, in addition to certain costs associated with processing, preservation, quality control and storage of the tissue, marketing and
medical education expenses, and costs associated with development of tissue processing technologies. NOTA payment allowances may be interpreted to
limit the amount of costs and expenses that we may recover in our pricing for our products, thereby reducing our future revenue and profitability.
Postmarket Requirements. After a device is cleared or approved for commercial distribution, numerous regulatory requirements apply. These
include, but are not limited to, the FDA’s Quality System Regulations which cover the procedures and documentation of the design, testing, production
processes, controls, quality assurance, labeling, packaging, storage and shipping of medical devices; the FDA’s general prohibition against promoting
products for off-label uses; the Federal Medical Device Reporting regulation, which requires that manufacturers provide information to the FDA whenever
there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or that a malfunction occurred which
would be likely to cause or contribute to a death or serious injury upon recurrence; and the Reports of Corrections and Removals regulation, which requires
manufacturers to report recalls and field corrective actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of
the FDCA.
We are also required to register with the FDA as a medical device manufacturer. As such, our manufacturing sites are subject to periodic
inspection by the FDA for compliance with the FDA’s Quality System Regulations. These regulations require that we manufacture our products and
maintain our documents in a prescribed manner with respect to design, manufacturing, testing and control activities. Further, we are required to comply
with various FDA requirements and other legal requirements for labeling and promotion. If the FDA believes that a company is not in compliance with
applicable regulations, it may issue a warning letter, institute proceedings to detain or seize products, issue a recall order, impose operating restrictions,
enjoin future violations and assess civil penalties against that company, its officers or its employees and may recommend criminal prosecution to the U.S.
Department of Justice (DOJ). Similar requirements to those outlined above also apply to tissue products.
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Medical device regulations also are in effect in many of the countries in which we do business outside the United States. These laws range from
comprehensive medical device approval and quality system requirements for some or all of our medical device products to simpler requests for product
data or certifications. The number and scope of these requirements are increasing. Under the previous European Medical Devices Directive and its
replacement the Medical Device Regulation (MDR) EU 2017/745, medical devices were required to meet the requirements and receive CE Mark
Certification prior to marketing in the EU and European Economic Area. CE Mark Certification requires a comprehensive quality system program,
comprehensive technical documentation and data on the product, which are then reviewed by a Notified Body for most products. A Notified Body is an
organization designated by the national governments of the EU member states to make independent judgments about whether a product complies with the
requirements established by each CE marking regulation. ISO 13485 is a recognized international quality standard designed to ensure that we develop and
manufacture quality medical devices. Other countries have instituted regulations regarding medical devices. Compliance with these regulations requires
extensive documentation, often including clinical reports for our products, revisions to labeling, and other requirements such as facility inspections to
comply with the registration requirements. A recognized Notified Body or government agency audits our facilities annually to verify our compliance with
these standards.
In the EU, our products that contain human-derived tissue, including demineralized bone material, are not medical devices as defined in the MDR.
They are also not medicinal products as defined in Directive 2001/83/EC. Today, tissue regulations, if applicable, are different from one EU member state
to the next. Because of the absence of a harmonized regulatory framework and the proposed regulation for advanced therapy medicinal products in the EU,
the approval process for human-derived cell or tissue-based medical products may be extensive, lengthy, expensive, and unpredictable.
Certain countries, as well as the EU, have issued regulations that govern products that contain materials derived from animal sources. Regulatory
authorities are particularly concerned with materials infected with the agent that causes BSE. These regulations affect our biomaterial products for the
spine, which contain material derived from bovine tissue. Although we take steps designed to provide that our products are safe and free of agents that can
cause disease, products that contain materials derived from animals, including our products, may become subject to additional regulation, or even be
banned in certain countries, because of concern over the potential for prion transmission. Significant new regulations, a ban of our products, or a movement
away from bovine-derived products because of an outbreak of BSE could have a material and adverse effect on our business or our ability to expand our
business. See “Risk Factors-Risks Related to Non-Compliance with Laws and Regulations - Certain of our products contain materials derived from animal
sources and may become subject to additional regulation.”
We are subject to laws and regulations pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws that
regulate how companies in the health care industry may market their products to hospitals and health care professionals and may compete by discounting
the prices of their products. The delivery of our products is subject to regulation regarding reimbursement, and federal healthcare laws apply when a
customer submits a claim for a product that is reimbursed under a federally funded healthcare program. These rules require that we exercise care in
structuring our sales and marketing practices and customer discount arrangements. See “Risk Factors-Risks Related to Non-Compliance with Laws and
Regulations - Oversight of the medical device industry might affect the way may sell medical devices and compete in the marketplace.”
Our international operations subject us to laws regarding sanctioned countries, entities and persons, customs, import-export, laws regarding
transactions in foreign countries, the FCPA and local anti-bribery and other laws regarding interactions with healthcare professionals. Among other things,
these laws restrict, and in some cases prohibit, United States companies from directly or indirectly selling goods, technology or services to people or
entities in certain countries. In addition, these laws require that we exercise care in structuring our sales and marketing practices in foreign countries.
Our research, development and manufacturing processes involve the controlled use of certain hazardous materials. We are subject to country-
specific, federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials and certain waste
products. We believe that our environmental, health and safety (EHS) procedures for handling and disposing of these materials comply with the standards
prescribed by the controlling laws and regulations. However, risk of accidental releases or injury from these materials is possible. These risks are managed
to minimize or eliminate associated business impacts. In the event of this type of accident, we could be held liable for damages that may result, and any
liability could exceed our resources. We could be subject to a regulatory shutdown of a facility that could prevent the distribution and sale of products
manufactured there for a significant period of time and we could suffer a casualty loss that could require a shutdown of the facility in order to repair it, any
of which could have a material and adverse effect on our business. Although we continuously strive to maintain full compliance with respect to all
applicable global EHS
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laws and regulations, we could incur substantial costs to fully comply with future laws and regulations, and our operations, business or assets may be
impacted.
In addition to the above regulations, we are and may be subject to regulation under country-specific federal and state laws, including, but not
limited to, requirements regarding record keeping, and the maintenance of personal information, including personal health information. We also are subject
to other present, and could be subject to possible future, local, state, federal and foreign regulations.
Reimbursement Overview
Healthcare providers that purchase medical devices generally rely on third-party payors, including the Medicare and Medicaid programs, and
private payors, such as indemnity insurers, employer group health insurance programs and managed care plans, to reimburse all or part of the cost of the
device. As a result, demand for our products is and will continue to depend in part on the coverage and reimbursement policies of these third-party and
private payors. The manner in which reimbursement is sought and obtained varies based upon the type of payor involved and the setting in which the
device is furnished and utilized. Reimbursement from Medicare, Medicaid and other third-party payors may be subject to periodic adjustments as a result of
legislative, regulatory and policy changes and budgetary pressures. Possible reductions in, or eliminations of, coverage or reimbursement by third-party and
private payors, or denial of, or provision of uneconomical reimbursement for new products, as a result of these changes may affect our customers’ ability to
purchase our products. Any changes in the healthcare regulatory, payment or enforcement landscape relative to our customers’ healthcare services may
significantly affect our operations and revenue.
Facilities
We maintain four operating facilities: our headquarters in Carlsbad, California, from which our orthobiologics and spinal implant products are
designed, developed, and marketed and from which our more recently launched spinal implant products are inspected, kitted and distributed; a
manufacturing and distribution facility in Irvine, California, from which most of our orthobiologics products are manufactured and all are distributed; office
space in Wayne, Pennsylvania, where we design spinal implants and which facilitates our interactions with customers on the East Coast; and office space in
Toronto, Canada, from which enabling technologies products are designed, developed, and marketed.
We inspect, kit, and distribute most of our spinal implant products through a third-party logistics provider facility in Olive Branch, Mississippi. We
distribute our orthobiologics and spinal implant products in certain international markets through third-party logistics provider facilities in Belgium and the
Netherlands.
Additional information regarding our facilities may be found in Part I, Item 2 of this report.
Employees
As of March 7, 2022, we had 523 employees, 106 of whom were engaged in research and development, 147 in manufacturing, 156 in sales and
marketing and 114 in general and administrative activities.
Available Information
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, (the Exchange Act). In accordance with the
Exchange Act, we file or furnish annual, quarterly and current reports, amendments to those reports, proxy statements and other information with the SEC.
We make these reports and other information available free of charge on our website at www.seaspine.com under the investors page as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the SEC. All such reports were made available in this fashion during 2021.
The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file
electronically with the SEC at www.sec.gov.
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ITEM 1A. RISK FACTORS
Before you invest in our securities, you should be aware that our business faces numerous risks, including those described below, as well as general
economic and business risks. The following discussion provides information concerning the material risks and uncertainties that we have identified and
believe may adversely affect our business, our financial condition and our results of operations. Before you decide whether to invest in our securities, you
should carefully consider these risks and uncertainties, together with all of the other information included in this report and in our other public filings,
which could materially affect our business, financial condition or future results. If any of the risks described below actually occurs, our business, financial
results, financial condition and stock price could be materially and adversely affected.
Summary of Risk Factors
The section provides a summary of many of the risks we are exposed to in the normal course of our business activities. The summary does not contain
all of the information that may be important to you, and you should read the summary together with the more detailed discussion of risks set forth
following this section as well as elsewhere in this report.
•
Impacts of the COVID-19 pandemic could adversely affect our business, financial condition, and results of operations.
•
We expect to incur losses for the foreseeable future and may not achieve or sustain profitability.
•
We operate in a highly competitive industry and we may not compete successfully.
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We must successfully educate and train surgeons and their staff on the proper use of our products.
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Changes in third-party payment systems and in the healthcare industry may adversely impact our business.
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Industry trends have resulted in increased downward pricing pressure on medical services and products, which may affect our ability to
sell our products at prices necessary to support our current business strategy.
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We may not develop new products in a timely and consistent manner.
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We may not maintain or grow our revenue if we are unable to maintain and expand our network of independent sales agents and
stocking distributors.
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The failure to demonstrate the safety and efficacy of our products in clinical studies will adversely affect our sales.
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Our business could be harmed if any of our manufacturing, development or research facilities are damaged and/or our manufacturing
processes are interrupted.
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We depend on a limited number of third-party suppliers for processing activities, components and raw materials.
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Security breaches, loss of data and other disruptions could compromise sensitive information related to our business.
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Our success depends on the services of key members of our senior management and other key employees.
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We may have significant product liability exposure and our insurance may not cover all potential claims.
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We are exposed to significant uninsured liabilities.
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We are exposed to a variety of risks relating to our international sales and operations.
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We may be subject to continuing contingent liabilities of Integra.
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Our sales volumes and our operating results may fluctuate.
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We must maintain high levels of inventory, which could consume a significant amount of our resources and reduce our cash flows.
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Our future financial results could be adversely affected by impairments or other charges.
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Our future capital needs are uncertain and we may need to raise additional funds in the future, and such funds may not be available on
acceptable terms or at all.
•
We are subject to stringent medical device regulation and any adverse regulatory action may materially and adversely affect our
financial condition and business operations.
•
There is no guarantee that the FDA will grant 510(k) clearance or premarket approval, or that equivalent foreign regulatory authorities
will grant the foreign equivalent, of our future products.
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•
Certain of our products are derived from human tissue or contain materials derived from animal sources and are or could be subject to
additional regulations.
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Clinical studies are expensive and their results may not support our product candidate claims.
•
If the third parties on which we rely to conduct our clinical studies do not perform as contractually required or expected, we may not
commercialize our products.
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Oversight of the medical device industry might affect the way we sell medical devices and compete in the marketplace.
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Unfavorable negative publicity concerning both alleged improper methods of tissue recovery from donors and disease transmission from
donated tissue could limit widespread acceptance of some of our products.
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We are subject to a wide range of requirements, regulations and laws due to our international operations.
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Regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may
result in damage to our reputation with customers.
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We are subject to requirements relating to hazardous materials which may impose significant compliance costs on us.
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Our intellectual property rights may not provide meaningful commercial protection for our products.
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Intellectual property in our industry has been the source of litigation and other disputes, which is inherently costly and unpredictable.
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We may be subject to claims by third parties asserting that we have misappropriated their intellectual property.
•
Our stock price has been and may continue to be volatile.
•
Your ownership percentage may be diluted, including by our issuance of preferred stock with terms that could dilute the voting power or
reduce the value of our common stock.
•
We do not anticipate paying cash dividends.
Risks Related to the COVID-19 Pandemic
Our business, financial condition and results of operations will continue to be materially and adversely impacted in the near-term, and could be
materially and adversely impacted in the long-term, by the COVID-19 pandemic.
The COVID-19 pandemic materially and adversely impacted our business and we expect the impact to continue through at least the duration of the
pandemic as regions respond to local conditions. To date, the impacts include: the cancellation or postponement of procedures in which our products
otherwise could be used; personnel and other resource shortages at hospitals and other centers at which spine surgery procedures in which our products
otherwise could be used; disruptions or restrictions on the ability of many of our employees and of third parties on which we rely to work effectively,
including because of adherence to governmental orders or recommendations or to internal policies intended to reduce the spread of COVID-19; and
temporary closures of our facilities and of the facilities of our customers and suppliers. For example, throughout the third quarter of 2021, and most acutely
starting in August, spine surgery procedure volumes were negatively impacted in many areas of the United States, including in Florida and Texas, where
we derive a meaningful portion of our revenue, due to cancellations and/or postponements of procedures as a result of the increased cases and
transmissibility of COVID-19 and because hospitals and other surgical centers were experiencing staffing shortages. As jurisdictions throughout the world
continue to deal with and respond to the pandemic, the degree of the impact of the pandemic may increase in scope or magnitude or we may experience
additional material adverse impacts in one or more regions. Any other variant of the virus that causes COVID-19 that causes more infections, spreads faster
or causes more severe illness than current or previous variants, other outbreaks of contagious diseases or other adverse public health developments in
countries where we operate or where our customers or suppliers are located could also have a material and adverse effect on our business, financial
condition and results of operations.
Because of the pandemic, surgeons and their patients were required, and in certain regions continue to be required, or are choosing, particularly in
areas with a high or increasing number of cases of COVID-19, to cancel or postpone procedures in which our products otherwise could be used, and many
facilities that specialize in the procedures in which our products otherwise could be used temporarily closed or continue to be temporarily closed or
operating at reduced hours or are experiencing personnel and other resource constraints and shortages. In addition, even after the pandemic subsides and/or
governmental orders no longer prohibit or recommend against performing such procedures, patients may continue to defer such procedures out of concern
of being exposed to COVID-19 or for other reasons. Deferrals of elective surgeries could result in delayed product launches if it takes longer than
anticipated to collect feedback following an alpha launch. Further, facilities at
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which our products typically are used may not reopen or, even if they reopen, patients may elect to have procedures performed at facilities that are, or are
perceived to be, lower-risk, such as ambulatory surgery centers, and our products may not be approved at such facilities, and we may be unable to have our
products approved for use at such facilities on a timely basis, or at all.
The effect of the pandemic on the broader economy could also negatively affect demand for procedures using our products, both in the near- and
long-term. For example, as a result of the impact of the pandemic, individuals have lost, and others may lose, access to their private health insurance plan if
they have lost or lose their job. Any prolonged economic downturn or recession as a result of the pandemic could result in layoffs of employees and a
significant increase in unemployment in the United States and elsewhere, which may continue even after the pandemic is contained. An impact to job status
may extend for a prolonged period of time, beyond possible coverage periods through COBRA, or where the cost to maintain coverage may not be
affordable to an individual. As most of the patients who use our products rely on third-party payors, including government programs and private health
insurance plans, to cover the cost of our products, patients may lose coverage to our products, which may harm our business and results of operations.
Workforce shortages and limitations and travel restrictions resulting from the impacts of COVID-19, including actions taken to contain the spread of
COVID-19, have and will continue to adversely affect almost every aspect of our business. As noted above, spine surgery procedure volumes have recently
been negatively impacted in many areas of the United States, including in states where we derive a meaningful portion of our revenue, because of hospitals
and other surgical centers experiencing staffing shortages. If a significant percentage of the workforce of third parties on which we rely cannot work or
cannot dedicate their time and resources to our business matters, including because of personnel and other resource constraints and shortages, illness, or
travel, government or internal policies or restrictions, our operations and financial results may continue to be negatively impacted or the impact thereon
may increase in scope or magnitude. Similarly, if a significant percentage of our workforce cannot work effectively due to the effects of the pandemic, our
operations may be negatively affected. Because of government recommendations or orders, policies of third parties on which we rely, and social distancing
recommendations or guidelines in many countries around the world, there is an increased reliance on working from home for the workforce of third parties
on which we rely. It may also cause us not to timely submit required filings, including with the SEC,FDA, or other regulatory bodies, both in the U.S. and
outside the U.S., any of which by itself may have a negative effect on our business, such as by making us ineligible to conduct an offering under a Form S-
3 registration statement, which generally takes less time and is less expensive than other means, such as conducting an offering under a Form S-1
registration statement. In addition, changes impacting workforce function at the FDA and other regulatory bodies, as well as changes impacting workforce
function at the facilities at which we seek to have new products approved for use, could adversely impact the timing of when our new products are cleared
for marketing and approved for use, either of which could adversely impact the timing of our ability to sell these new products and could have a material
and adverse effect on our revenue growth. Conversely, we may face several challenges or disruptions upon a return to the workplace if and when the
pandemic subsides, including re-integration challenges by our employees and distractions to management related to such transition.
Further, disruptions in the manufacture and/or distribution of our products or in our supply chain may occur as a result of the pandemic, including for
the reasons above, or other events that result in staffing shortages, production slowdowns, stoppages, or disruptions in delivery systems, any of which could
materially and adversely affect our ability to manufacture and/or distribute our products, or to obtain the raw materials and supplies necessary to
manufacture and/or distribute our products, in a timely manner, or at all.
We may also experience other unknown adverse impacts from the pandemic that cannot be predicted. For example, hospitals and other facilities at
which we sell our products may renegotiate their purchase prices, including as a result of, or the perception they may be suffering, financial difficulty as a
result of the pandemic. Similarly, facilities at which we seek to sell our products in the future may require price reductions relative to the price at which we
previously expected to sell our products. Reduction in the prices at which we sell products to existing customers may have a material and adverse effect on
our future financial results and reductions in the prices at which we expected to sell products to anticipated customers may have a material and adverse
effect on our expectations for revenue growth.
Further, the global capital markets experienced, and we expect will continue to experience, disruption and volatility due to the pandemic, adversely
impacting access to capital not only for us, but also for our customers and suppliers who need access to capital. Their inability to access capital in a timely
manner, or at all, could adversely impact demand for our products and/or adversely impact our ability to manufacture and/or supply our products, any of
which could have a material and adverse effect on our business.
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The full extent to which the pandemic will, directly or indirectly, impact our business, results of operations and financial condition, including our
sales, expenses, supply chain integrity, manufacturing capability, research and development activities, and employee-related compensation, is highly
uncertain and cannot be predicted with reasonable accuracy at this time and will depend on future developments that are also highly uncertain and cannot
be predicted with reasonable accuracy at this time, including, without limitation: (a) new information that may emerge concerning COVID-19, its
contagiousness and/or virulence; (b) new variants of the virus that causes COVID-19 that cause more infections, spread faster or cause more severe illness
than current or previous variants; (c) resurgences in COVID-19 transmission and infection following the easing or lifting of “stay-at-home” or other
restrictions or following resumption of surgical procedures, whether as a result thereof, as a result of reinfection, as a result of a delay in the emergence of
symptoms following infection (or reinfection) by COVID-19, or as a result of its ability to lay dormant following infection (or reinfection), and the adverse
impact the foregoing may have on our business and financial condition, including because of the adverse impact on patients’ willingness to undergo
procedures in which our products could be used; (d) actions required or recommended to contain or treat COVID-19, in light of any or all of the foregoing
or other as-yet unanticipated developments, whether related to COVID-19 directly or indirectly; and (e) the direct and indirect economic impact, both
domestically and abroad, of COVID-19 as a result of any or all of the foregoing, including actions taken by local, state, national and international
governmental agencies, whether such impact affects customers, suppliers, or markets generally.
The pandemic also heightens the risks in certain of the other risk factors we face described in this report.
Risks Related to Product Development
We may not develop new products in a timely and consistent manner, and failure to do so may adversely affect the attractiveness of our overall product
portfolio to our surgeon customers and negatively impact our sales and market share.
To be and remain competitive, we need to sunset legacy systems while introducing new products and enhancements or modifications to our existing
products on a regular basis and successfully respond to technological advances. Doing so is technologically challenging and involves significant risks and
uncertainty. Despite substantial investments of time and resources, our research and development efforts may not result in technically feasible new
products. Even if technically feasible, the anticipated time and cost of obtaining regulatory clearance and/or approval and/or commercializing a new
product may be too great to justify continued development. In addition, competitors could develop products that are more effective, are less expensive to
manufacture, are priced more competitively or are ready for commercial introduction before our products. The introduction of new products by our
competitors may lead us to reduce the prices of our products, may lead to reduced margins or loss of market share, and may render our products obsolete or
noncompetitive. The success of any of our new product offerings or enhancement or modification to our existing products will depend on several factors,
including our ability to:
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properly identify and anticipate surgeon and patient needs;
•
develop new products or enhancements or modifications in a timely manner;
•
obtain regulatory clearance and/or approvals for new products or product enhancements or modifications in a timely manner;
•
achieve timely alpha and/or full commercial launches of new products;
•
provide adequate training to potential users of new products and product enhancements or modifications;
•
receive adequate reimbursement approval of third-party payors such as Medicaid, Medicare and private insurers; and
•
develop an effective marketing and distribution network.
If we cannot develop technically and commercially viable new products and enhancements or modifications to our existing products on a consistent
basis and before our competitors, our prospects could be materially and adversely affected. Our ability to develop and launch new products and
enhancements in a timely and consistent manner may be adversely impacted due to the effects of the COVID-19 pandemic in light of the reduced access to
our hands-on cadaveric training facilities in Carlsbad, California and Wayne, Pennsylvania, or if we are required to or elect to temporarily close them, the
change in the manner in which our workforce is functioning and the changes impacting workforce function at the FDA and other regulatory bodies, as well
as changes impacting workforce function at the facilities at which we seek to have new products approved for use.
It is also important that we carefully manage our introduction of new products and enhancements or modifications to our existing products. If
potential customers delay purchases until new or enhanced or modified products are available, it could
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negatively impact our sales. In addition, to the extent we have excess or obsolete inventory as we transition to new or enhanced or modified products, it
would result in margin reducing write-offs for obsolete inventory, and our results of operations may suffer.
There is no guarantee that the FDA will grant 510(k) clearance or premarket approval, or that equivalent foreign regulatory authorities will grant the
foreign equivalent, of our future products, and failure to obtain necessary clearances or approvals for our future products would adversely affect our
ability to grow our business.
In general, unless an exemption applies, a medical device and modifications to the device or its indications must receive either premarket approval or
premarket clearance from the FDA before it can be marketed in the U.S. While in the past we have received such clearances, we may not succeed in the
future in receiving approvals and clearances in a timely manner, or at all. The process of obtaining approval or clearance from the FDA and comparable
foreign regulatory agencies for new products, or for enhancements or modifications to existing products, could:
•
take significant time;
•
require the expenditure of substantial resources;
•
involve rigorous and expensive pre-clinical and clinical testing, as well as post-market surveillance;
•
involve modifications, repairs or replacements of our products; and
•
result in limitations on the indicated uses of our products.
Some of our new products will require FDA 510(k) clearance or approval of a premarket approval application, or PMA, prior to being marketed. Any
modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, including significant design and manufacturing changes, or
that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, approval of a PMA. Similarly,
modifications to PMA-approved products may require submission and approval of a PMA supplement. The FDA requires every manufacturer to determine
whether a new 510(k) or PMA is needed in the first instance, and the FDA has issued guidance on assessing modifications to 510(k)-cleared and PMA-
approved devices to assist manufacturers with making these determinations. However, the FDA may review any such determination and the FDA may not
agree with our determinations regarding whether new clearances or approvals are necessary. We have modified some of our 510(k)-cleared products and
have determined, based on our understanding of FDA guidance, that certain changes did not require new 510(k) clearances. If the FDA disagrees with our
determination and requires us to seek new 510(k) clearances, or PMA approval, for modifications to our cleared products, we may have to stop marketing
or distributing our products, we may need to recall the modified product until we obtain clearance or approval, and we may be subject to significant
regulatory fines or penalties. Significant delays in receiving clearance or approval, or failing to receive clearance or approval for our new products would
have a material and adverse effect on our ability to expand our business.
Outside the U.S., clearance or approval procedures can vary among countries and can involve additional product testing and validation and additional
administrative review periods. The time required to obtain clearance or approval in other countries might differ from that required to obtain FDA clearance
or approval. The regulatory process in other countries may include all of the risks to which we are exposed in the U.S., as well as other risks. Favorable
regulatory action in one country does not ensure favorable regulatory action in another, but a failure or delay in obtaining regulatory clearance or approval
in one country may have a negative effect on the regulatory process in others. Failure to obtain clearance or approval in other countries or any delay or
setback in obtaining such clearance or approval have a material and adverse effect on our business, including that our products may not be cleared or
approved for all indications requested, which could limit the uses of our products and have an adverse effect on product sales.
In the EEA, we must inform the Notified Body that carried out the conformity assessment of the medical devices we market or sell in the EEA of any
planned substantial change to our quality system or any significant change to our devices. The Notified Body will then assess the change and verify
whether it affects the products’ conformity with the Essential Requirements or the conditions for the use of the device. If the assessment is favorable, the
Notified Body may issue a new CE Certificate of Conformity or an addendum to the existing CE Certificate of Conformity. If it is not, we may not be able
to continue to market and sell the applicable product in the EEA, which could have a material and adverse effect on our business, results of operations and
financial condition.
We cannot be certain that we will receive required approval or clearance from the FDA and foreign regulatory agencies for new products, including
modifications to existing products, on a timely basis, or at all. Failing to receive approval or
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clearance for new products on a timely basis would have a material and adverse effect on our financial condition and results of operations.
Clinical studies are expensive and subject to extensive regulation and their results may not support our product candidate claims or may result in the
discovery of adverse effects.
In developing new products or new indications for, or modifications to, existing products, we may conduct or sponsor pre-clinical testing, clinical
studies or other clinical research. We are conducting post-market clinical studies of some of our products to gather information about their performance or
optimal use. The data collected from these clinical studies may ultimately be used to support additional market clearance or approval for these products or
future products. If any of our new products require premarket clinical studies, these studies are expensive, the outcomes are inherently uncertain and they
are subject to extensive regulation and review by numerous governmental authorities both in the U.S. and abroad, including by the FDA and, if federal
funds are involved or if an investigator or site has signed a federal assurance, are subject to further regulation by the Office for Human Research
Protections and the National Institutes of Health. For example, clinical studies must be conducted in compliance with FDA regulations, local regulations,
and according to principles and standards collectively called “Good Clinical Practices.” Failure to comply with applicable regulations could result in
regulatory and legal enforcement action, including fines, penalties, suspension of studies, and also could invalidate the data and make it unusable to support
an FDA submission.
Even if any of our future premarket clinical studies are completed as planned, we cannot be certain that their results will support our product
candidates and/or proposed claims or that the FDA or foreign authorities and Notified Bodies will agree with our interpretation and conclusions regarding
the data they generate. Success in pre-clinical studies and early clinical studies does not ensure that later clinical studies will succeed, and we cannot be
sure that the results of later studies will replicate those of earlier or prior studies. The clinical study process may fail to demonstrate that our product
candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a product candidate and may delay development of
others. Any delay or termination of our clinical studies will delay the filing of our product submissions and, ultimately, our ability to commercialize our
product candidates and generate revenues. It is also possible that patient subjects enrolled in our clinical studies of our marketed products will experience
adverse side effects that are not currently part of the product candidate’s profile and, if so, these findings may result in lower market acceptance, which
could have a material and adverse effect on our business, results of operations and financial condition.
Further, the COVID-19 pandemic and associated shelter-in-place orders could limit or restrict our ability or the ability of others on which we rely to
initiate, conduct or continue our clinical studies of some of our products. Delays and disruption in such studies could result in delays for expanded FDA
and other regulatory clearance or approval of our products.
If the third parties on which we rely to conduct our clinical studies and to assist us with pre-clinical development do not perform as contractually
required or expected, we may not obtain regulatory clearance, approval or a CE Certificate of Conformity for or commercialize our products.
We often must rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to
assist in conducting our clinical studies and other development activities. If these third parties do not successfully carry out their contractual duties, comply
with applicable regulatory obligations or meet expected deadlines, or if these third parties need to be replaced, or if the quality or accuracy of the data they
obtain is compromised due to failing to adhere to clinical protocols, to applicable regulatory requirements or otherwise, our pre-clinical development
activities and clinical studies may be extended, delayed, suspended or terminated. Under these circumstances, we may not be able to obtain regulatory
clearance/approval or a CE Certificate of Conformity for, or successfully commercialize, our products on a timely basis, if at all, and our business,
operating results and prospects may be materially and adversely affected.
Risks Related to Manufacturing, Commercial Operations and Commercialization
We operate in an industry and in market segments that are highly competitive and we may not compete successfully.
There is intense competition among medical device companies that serve the spinal surgery market. We compete with established medical technology
companies, as well as earlier-stage companies that often have differentiated technology and potentially superior solutions for the challenges facing our
neurosurgeon and orthopedic spine surgeon customers and their patients. Our primary competitors include Alphatec Spine, Baxter, Bioventus, Cerapedics,
DePuy Synthes Spine (a Johnson &
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Johnson company), Globus Medical, Medtronic, NuVasive, Orthofix, Stryker, Surgalign, XTANT Medical, ZimVie and many smaller, biologically-focused
companies.
Many of our competitors may have access to greater financial, technical, research and development, marketing, manufacturing, sales, distribution,
administrative, consulting and other resources than we do. Our competitors may be more effective at developing products, at differentiating their products
from our and other competitor products and at designing, executing, analyzing the results of and publishing data from clinical studies. Our competitors may
also have: stronger intellectual property portfolios; broader spine surgery product offerings and products supported by more extensive clinical data; more
established distribution networks; entrenched relationships with surgeons; significantly greater name recognition and more recognizable trademarks for
products similar to the products we sell; more established relationships with healthcare providers and payors; greater experience in obtaining and
maintaining FDA and other regulatory clearances or approvals for products and product enhancement; and greater experience in launching, marketing and
selling products than we do. Many of our competitors specialize in a specific product or focus on a particular market segment, making it more difficult for
us to increase our overall market position. The frequent introduction by competitors of products that are, or claim to be, superior to our products, or that are
alternatives to our existing or planned products may also create market confusion that may make it difficult to differentiate the benefits of our products over
competing products. In addition, the entry of multiple new products and competitors may lead some of our competitors to employ pricing strategies that
could adversely affect the pricing of our products and pricing in the spine market generally.
Our competitive position depends on our ability to achieve market acceptance for our current and future products. Market acceptance for any of our
products requires, among other things, that we timely secure regulatory clearance and/or approval; demonstrate the value of our products, both to our
surgeon customers and payors, which may require that we collect clinical data and/or conduct clinical studies; effectively educate and train our surgeon
customers and their staff on the proper use of our products; obtain and maintain coverage and adequate reimbursement for our products, both within and
outside the U.S., including under Medicare and Medicaid and from private payors; attract and retain a network of independent sales agents and stocking
distributors focused on neurosurgeons and orthopedic spine surgeons; develop and execute an effective marketing strategy; protect the proprietary positions
of our products, including through patent protection; and consistently produce quality products in sufficient quantities to meet demand. Significant risks are
associated with each of these activities and other activities required to achieve market acceptance of both our current and future products, including risks
inherent in collaborations, such as with restor3d, Inc., or use of nascent manufacturing or imaging techniques, such as additive processing (more commonly
known as 3D printing) or advanced optical technologies and machine version-based registration algorithms. Some of these risks are more fully described
elsewhere in this “Risk Factors” section.
In addition, at any time our competitors or other companies may develop alternative treatments, products or procedures for the treatment of spine
disorders that compete directly or indirectly with our products, including ones that prove to be superior to our products.
For these reasons, we may not compete successfully against our existing or potential competitors. Any such failure could lead us to modify our
strategy, to lower our prices, or to increase the commissions we pay on sales of our products and could have a significant adverse effect on our business,
financial condition and results of operations. If we cannot compete effectively, our sales and operating results may suffer.
To be commercially successful, we must effectively demonstrate to neurosurgeon and orthopedic spine surgeons the merits of our products compared to
those of our competitors.
Neurosurgeons and orthopedic spine surgeons play a significant role in determining the course of treatment and, ultimately, the product used to treat a
patient. As a result, our success depends, in large part, on demonstrating to these surgeons the value of our products in the treatment of their patients. To do
so requires that we continue to invest in medical education and training and, along with our independent sales agents and stocking distributors, demonstrate
the merits of our products and underlying technology compared to those of our competitors. The primary manner in which we offer to educate and train
surgeons and their staff on the proper use of our products is at our hands-on cadaveric training facilities in Carlsbad, California and Wayne, Pennsylvania.
During 2020, those facilities were temporarily closed due to the pandemic. Access to those facilities continues to be reduced due to the pandemic and in the
future we may be required to or elect to temporarily close one or both of
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them due to the pandemic. Any limits on our ability to use either or both of those facilities will adversely affect our ability to effectively demonstrate the
merits of our products compared to those of our competitors.
Surgeons who do not use our products may be hesitant to do so for the following or other reasons:
•
lack of experience with our products, techniques, or technologies, or with the equipment necessary to use any of the foregoing;
•
existing relationships with those who sell competitive products;
•
the time required for surgeon and medical staff education and training on new products, techniques and equipment and technologies;
•
lack or perceived lack of clinical evidence supporting patient benefit relative to competing products;
•
our products not being included on hospital formularies, in integrated delivery networks or on group purchasing organization preferred
vendor lists;
•
less attractive coverage and/or reimbursement within healthcare payment systems for our products and procedures compared to other
products and procedures;
•
other costs associated with introducing new products and the equipment necessary to use new products; and
•
perceived risk of liability that could be associated with the use of new products, techniques or technologies.
In addition, we believe recommendations and support of our products by influential neurosurgeons and orthopedic spine surgeons are essential for
market acceptance and adoption. If we do not receive support from such surgeons or long-term data does not show the benefits of using our products,
surgeons may not use our products.
If we are not successful in convincing surgeons of the merits of our products, we may not maintain or grow our sales or achieve or sustain
profitability.
We must successfully educate and train surgeons and their staff on the proper use of our products.
Although most neurosurgeons and orthopedic spine surgeons may have adequate knowledge on how to use most of our products based on their
clinical training and experience, we believe that the most effective way to introduce and build market demand for our products is by directly training such
surgeons in the use of our products. Convincing surgeons to dedicate the time and energy necessary for adequate training is challenging, and we cannot
assure you we will succeed in these efforts. If surgeons are not properly trained, they may not use our products, and, as a result, we may not maintain or
grow our sales or achieve or sustain profitability. If surgeons are not properly trained they may also misuse or ineffectively use our products, which may
result in unsatisfactory patient outcomes, patient injury, negative publicity or lawsuits against us, any of which could have a significant adverse effect on
our business, financial condition and results of operations.
Although we believe our training methods for surgeons are conducted in compliance with FDA and other applicable regulations developed both
nationally and in third countries, if the FDA or other regulatory agency determines that our training constitutes promotion of an unapproved use or
promotion of an intended purpose not covered by the CE mark affixed to our products or FDA approved labeling, they could request that we modify our
training or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalty. See
also “Risks Related to Non-Compliance with Laws and Regulations - Oversight of the medical device industry might affect the way we sell medical devices
and compete in the marketplace" below.
If we are unable to maintain and expand our network of independent sales agents and stocking distributors, we may not maintain or grow our revenue.
Our ability to generate revenue depends on the sales and marketing efforts of independent sales agents and stocking distributors. Some of our
independent sales agents account for a significant portion of our sales volume. If our independent sales agents and stocking distributors fail to adequately
promote, market and sell our products, our sales could significantly decrease. Due to the impacts of the COVID-19 pandemic, most of our independent
sales agents currently are working largely using virtual and online engagement tools and tactics, which may be less effective than our ordinary, in-person
sales and marketing programs.
Further, we face significant challenges and risks in managing our geographically dispersed distribution network and retaining the independent sales
agents and stocking distributors who make up that network, and as we launch new products and
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increase our marketing efforts with respect to existing products, we plan to expand the reach of our marketing and sales efforts and may need to hire new
independent sales agents and stocking distributors. Independent sales agents and stocking distributors require significant technical expertise in various areas
such as spinal care practices, spine injuries and disease, and spinal health and they require training and time to achieve full productivity. We may not attract
or retain qualified independent sales agents or stocking distributors or enter into agreements with them on favorable or commercially reasonable terms, if at
all. This could be due to a number of factors, including, but not limited to, perceived deficiencies, or gaps, in our existing product portfolio, intense
competition for independent sales agents’ services, or because of the disruption associated with restrictive covenants to which distributors may be subject
and potential litigation and expense associated therewith. We may also experience unforeseen disengagement from independent sales agents who have
worked with us for many years. Even if we enter into agreements with additional qualified independent sales agents or stocking distributors, it often takes 6
to 12 months for new sales agents or stocking distributors to reach full operational effectiveness and they may not generate revenue as quickly as we expect
them to, commit the necessary resources to effectively market and sell our products, or ultimately succeed in selling our products. Our success will depend
largely on our ability to continue to hire, train, retain and motivate qualified independent sales agents and stocking distributors. If we cannot expand our
sales and marketing capabilities domestically and internationally, if we fail to train new independent sales agents and stocking distributors adequately, or if
we experience high turnover in our sales network, we may not commercialize our products adequately, or at all, which would adversely affect our business,
results of operations and financial condition.
Moreover, our independent sales agents and stocking distributors are not our employees, we have limited control over their activities and, generally,
we do not enter into exclusive relationships with them. If one or more of them were to be retained by a competitor, whether or an exclusive or non-
exclusive basis, they may divert business from us to our competitor, which could materially and adversely affect our sales.
Sales of, or the price at which we sell, our products may be adversely affected unless the safety and efficacy of our products, alone and relative to
competitive products, is demonstrated in clinical studies.
Generally, we have obtained 510(k) clearance to manufacture, market and sell the products we market in the U.S. and the right to affix the CE mark to
the products we market in the European Economic Area, or EEA. To date, we have not been required to generate new clinical data to support our 510(k)
clearances, CE marks, or product registrations in other countries. However, the EU Medical Device Regulations, which replaced the prior medical device
directives in May 2021, require submission of certain pre- and post-market data to maintain our CE marks, which we do not intent to pursue. Additionally,
we recently completed an analysis of which of our product systems will require submission of clinical data pursuant to MEDDEV 2.7.1 rev 4, which sets
forth the European Commission’s guidance on the clinical evaluation of medical devices. Accordingly, and in line with our vision to deliver clinical value,
we have commenced clinical data collection activities for certain of our marketed products as more fully described elsewhere in this "Risk Factors" section.
In part due to the increased emphasis on the delivery of more cost-effective treatments, purchasing decisions of our customers increasingly will be
based on clinical data that demonstrates the value of our products or the effectiveness of our products relative to others. Conducting clinical studies is
expensive and time-consuming and outcomes are uncertain. See “Risks Related to Product Development - Clinical studies are expensive and subject to
extensive regulation and their results may not support our product candidate claims or may result in the discovery of adverse effects,” above. We may elect
not to, or may be unable to, fund the clinical studies necessary to generate the data required for all of our products to compete effectively, in part due to the
breadth of our product portfolio. Currently, we do not expect to undertake such clinical studies for all of our products and only expect to do so where we
anticipate the benefits will outweigh the costs on a risk-adjusted basis. However, even when we elect and are able to fund such clinical studies on one or
more of our products, such studies may not succeed. Data we generate may not be consistent with our existing data and may demonstrate less favorable
safety or efficacy, which could reduce demand for our products and negatively impact future sales. Neurosurgeons and orthopedic spine surgeons may be
less likely to use our products if more robust, or any, clinical data supporting the safety and efficacy of competing products is available. If we are unable to
or unwilling to generate clinical data supporting the safety and effectiveness of our products, our business, results of operations and financial condition
could be materially and adversely affected.
Further, future patient studies or clinical experience may indicate that treatment with our products does not improve patient outcomes.
With the passage of the American Recovery and Reinvestment Act of 2009, funds have been appropriated for the U.S. Department of Health and
Human Services’ Healthcare Research and Quality to conduct comparative effectiveness research to determine the effectiveness of different drugs, medical
devices, and procedures in treating certain conditions and diseases.
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Some of our products or procedures performed with our products could become the subject of such research. It is unknown what effect, if any, this research
may have on our business. Further, future research or experience may indicate that treatment with our products does not improve patient outcomes or
improves patient outcomes less than we initially expected. Such results would reduce demand for our products, affect sustainable reimbursement from
third-party payers, significantly reduce our ability to achieve expected revenue, and could cause us to withdraw our products from the market and could
prevent us from sustaining or increasing profitability. Moreover, if future results and experience indicate that our products cause unexpected or serious
complications or other unforeseen negative effects, we could be subject to significant legal liability, negative publicity, and damage to our reputation, and
we could experience a dramatic reduction in sales of our products, all of which would have a material adverse effect on our business, financial condition
and results of operations. The spine medical device market has been particularly prone to potential product liability claims that are inherent in the testing,
manufacture and sale of medical devices and products for spine surgery procedures.
If any of our manufacturing, development or research facilities are damaged and/or our manufacturing processes are interrupted, we could experience
supply disruptions, lost revenues and our business could be seriously harmed.
Damage to our manufacturing, development or research facilities or disruption to our business operations for any reason, including due to natural
disaster (such as earthquake, wildfires and other fires or extreme weather), power loss, communications failure, unauthorized entry or other events, such as
a flu or other health epidemic (such as the result of the COVID-19 pandemic), could cause us to discontinue development and/or manufacturing of some or
all of our products for an undetermined period of time. The property damage and business interruption insurance coverage on these facilities that we
maintain might not cover all losses under such circumstances, and we may not be able to renew or obtain such insurance in the future on acceptable terms
with adequate coverage or at reasonable costs. If our facilities were damaged, they could be difficult to replace and could require substantial lead time to
repair or replace. In particular, we manufacture our orthobiologics products in one facility in Irvine, California and any damage to that facility could
adversely affect our ability to timely satisfy demand for those products. Out of an abundance of caution in October 2020, we relocated part of our
orthobiologics finished goods inventory from our Irvine facility to our Carlsbad office due to the threat of the Silverado Fire that was causing evacuations
throughout Orange County, California. Disruptions to our business operations may result from damage to the facilities of, or disruption to the business
operations of, our suppliers. For example, if we are unable to obtain disposables or other materials required to maintain “clean room” sterility in our Irvine
facility, we may be unable to continue to manufacture products at that facility, which products account for approximately 50% of our total revenue. Any
significant disruption to our manufacturing operations and to our ability to meet market demand likely would have an adverse impact on our sales and
revenues as key stakeholders, including our independent sales agents and stocking distributors and surgeon customers, transition to what they perceive as
more reliable sources of products.
We depend on a limited number of third-party suppliers for processing activities, components and raw materials and losing any of these suppliers, or
their inability to provide us with an adequate supply of materials that meet our quality and other requirements, could harm our business.
Outside suppliers, some of whom are sole-source suppliers, provide us with products and raw materials and components used in manufacturing our
orthobiologics and spinal implant products. We strive to maintain sufficient inventory of products, raw materials and components so that our production
will not be significantly disrupted if a particular product, raw material or component is not available to us for a period of time, including as a result of a
supplier's loss of its ISO or other certification or as a result of any of the disruptions described above under the risk factor titled “If any of our
manufacturing, development or research facilities are damaged and/or our manufacturing processes are interrupted, we could experience supply disruptions,
lost revenues and our business could be seriously harmed.” For example, a certain number of our products require titanium, which is sourced from third
party suppliers. While the titanium required for such products is not directly sourced from Russia, the current geopolitical events involving Russia and
Ukraine is negatively impacting the wider titanium supply chain and such geopolitical events and factors relating thereto or resulting therefrom, including
the imposition of sanctions, may negatively impact the ability of our local supply sources to timely supply titanium to us.In addition, some of our suppliers
may choose to discontinue making their products available in the EU rather than follow MDR, which would require us to identify alternate supply sources
for those products. Any such disruption in our production could harm our reputation, business, financial condition and results of operations.
Although we believe there are alternative supply sources replacing our suppliers may be impractical or difficult in many instances. For example, we
could have difficulty obtaining similar services or products from other suppliers that are acceptable to the FDA or other foreign regulatory authorities and
who are able to provide the appropriate supply volumes at an acceptable cost. In addition, if we are required to transition to new suppliers for certain
services or components of our products, the use of services, components or materials furnished by these alternative suppliers could require us to alter our
operations, and if we are
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required to change the manufacturer of a critical component of our products, we will have to verify that the new manufacturer maintains facilities,
procedures and operations that comply with our quality and applicable regulatory requirements, which could further impede our ability to manufacture our
products in a timely manner. Transitioning to a new supplier could be time-consuming and expensive, may result in interruptions in our operations and
product delivery, could affect the performance specifications of our products or could require that we modify the design of those systems.
If we are unable to obtain sufficient quantities of spinal implant products, raw materials or components that meet our quality and other requirements
on a timely basis for any reason, we may not produce sufficient quantities of our products to meet market demand until a new or alternative supply source
is identified and qualified and, as a result, we could lose customers, our reputation could be harmed and our business could suffer. In 2013, we experienced
supply shortages in collagen ceramic matrix bone void fillers, which adversely affected sales of our orthobiologics products, even after the supply shortage
was resolved. Furthermore, an uncorrected defect or supplier’s variation in a component or raw material that is incompatible with our manufacturing,
unknown to us, could harm our ability to manufacture products.
Further, under the FDASIA, which includes the Medical Device User Fee Amendments of 2012, as well as other medical device provisions, all U.S.
and foreign manufacturers must have a FDA Establishment Registration and complete Medical Device listings for sales in the U.S. While we believe that
our facilities materially comply with these requirements, we also source products from foreign contract manufacturers. It is possible that some of our
foreign contract manufacturers will not comply with applicable requirements and choose not to register with the FDA. In such an event, we will need to
determine if there are alternative foreign contract manufacturers who comply with the applicable requirements. If such a foreign contract manufacturer is a
sole supplier of one of our products, there is a risk that we may not be able to source another supplier.
Furthermore, we rely on a small number of tissue banks accredited by the American Association of Tissue Banks for the supply of human tissue, a
crucial component of our orthobiologics products that serve as bone graft substitutes. Any failure to obtain tissue from these sources or to have the tissue
processed by these sources for us in a timely manner will interfere with our ability to meet demand for our orthobiologics products effectively. The
processing of human tissue into orthobiologics products is labor intensive and maintaining a steady supply stream is challenging. In addition, due to
seasonal changes in mortality rates, some scarce tissues used for our orthobiologics products are at times in particularly short supply. If governments
require additional donor testing due to COVID-19, this could also strain the supply of tissue. We cannot be certain that our supply of human tissue from our
suppliers will be available at current levels or will meet our needs or that we will be able to successfully negotiate commercially reasonable terms with
other accredited tissue banks.
Unfavorable media reports or other negative publicity concerning both alleged improper methods of tissue recovery from donors and disease
transmission from donated tissue could limit widespread acceptance of some of our products.
Unfavorable reports of improper or illegal tissue recovery practices, both in the U.S. and internationally, as well as incidents of improperly processed
tissue leading to the transmission of disease, may affect the rate of future tissue donation and market acceptance of technologies incorporating human
tissue. In addition, negative publicity could cause the families of potential donors to become reluctant to donate tissue to for-profit tissue processors. For
example, the media has reported examples of alleged illegal harvesting of body parts from cadavers and resulting recalls conducted by certain companies
selling human tissue-based products affected by the alleged illegal harvesting. These reports and others could have a negative effect on our tissue
regeneration business.
Risks Related to Pricing and Reimbursement and Industry Trends
Changes in third-party payment systems and in the healthcare industry may require us to decrease the selling price for our products, may reduce the
size of the market for our products, or may eliminate a market, any of which could have a material and adverse effect on our financial performance.
Our operations may be substantially affected by fundamental changes in the political, economic and regulatory landscape of the healthcare industry.
Government and private sector initiatives to limit the growth of healthcare costs are continuing in the U.S., and in many other countries where we do
business, causing the marketplace to put increased emphasis on the delivery of more cost-effective treatments. These initiatives include price regulation,
competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements.
Maintaining and growing sales of our products depends on the availability of adequate coverage and reimbursement from third-party payors, both
within and outside the U.S., including government programs such as Medicare and Medicaid, private insurance plans and managed care organizations.
Hospitals and other healthcare providers that purchase our products generally
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rely on third-party payors to cover all or part of the costs associated with the procedures performed with our products, including the cost to purchase our
product. Both the patients’ and our customers’ access to adequate coverage and reimbursement for the procedures performed with our products by
government and private insurance plans is central to the acceptance of our current and future products. We may be unable to sell our products on a
profitable basis, or at all, if third-party payors deny coverage or reduce their levels of payment. In addition, if our cost of production increases at a rate
greater than increases in reimbursement levels for our products, our profitability may be adversely affected.
The healthcare industry, both within and outside the U.S., has experienced a trend toward cost containment as government and private insurers seek to
control rising healthcare costs by imposing lower payment and negotiating reduced contract rates with service providers. Third-party payors continually
review their coverage and reimbursement policies for procedures involving the use of our products and can, without notice, eliminate or reduce coverage or
reimbursement for our products. For example, in the past, a major national third-party insurer in the U.S. reduced coverage (from all or most cases to
limited indications) for biomechanical devices (e.g., spine cages) used in cervical fusion procedures, stating that the devices had not been shown to be more
effective than bone graft. In addition, certain insurers have limited coverage for vertebral fusions in the lumbar spine and other insurers may adopt similar
coverage decisions in the future. Patients covered by these insurers may be unwilling or unable to afford lumbar fusion surgeries to treat their conditions,
which could materially harm or limit our ability to sell our products designed for such surgeries. Further, third-party payors of hospital services and hospital
outpatient services annually revise their payment methodologies, which could result in stricter standards for or the elimination or reduction of
reimbursement of hospital charges for certain medical procedures.
Further, in the U.S., several provisions of the U.S. Patient Protection and Affordable Care Act (the Affordable Care Act) and the Health Care and
Education Reconciliation Act of 2010 address access to health care products and services and establish certain fees for the medical device industry. These
provisions may be modified, repealed, or otherwise invalidated, in whole or in part. Future rulemaking could affect rebates, prices or the rate of price
increases for health care products and services, or required reporting and disclosure. We cannot predict the timing or impact of any future rulemaking or
changes in the law.
To the extent we sell our products internationally, market acceptance may depend, in part, upon the availability of coverage and reimbursement within
prevailing healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country. As in the
U.S., our products may not obtain coverage and reimbursement approvals in a timely manner, if at all, in a particular international market. In addition, even
if we obtain country-specific coverage and reimbursement approvals, we could incur considerable expense to do so. Our failure to obtain such coverage and
approvals would negatively affect market acceptance of our products in the international markets in which such failure occurs and the expenses incurred in
connection with obtaining such coverage and approvals could outweigh the benefits of obtaining them.
If the trend by governmental agencies and other third-party payors to reduce coverage of and/or reimbursement for procedures using our products
continues, our business, results of operations and financial condition could be materially and adversely affected. Further, we cannot be certain that, under
current and future payment systems, the cost of our products will be adequately incorporated into the overall cost of the procedure and, accordingly, we
cannot be certain that the procedures performed with our products will be reimbursed at a cost-effective level, or at all.
Industry trends have resulted in increased downward pricing pressure on medical services and products, which may affect our ability to sell our
products at prices necessary to support our current business strategy.
The trend toward healthcare cost containment through aggregating purchasing decisions and industry consolidation, along with the growth of
managed care organizations, has placed increased emphasis on the delivery of more cost-effective medical therapies. For example:
•
There has been consolidation among healthcare facilities and purchasers of medical devices, particularly in the U.S. One of the results of
such consolidation is that group purchasing organizations, integrated delivery networks and large single accounts use their market power
to consolidate purchasing decisions, which intensifies competition to provide products and services to healthcare providers and other
industry participants, resulting in greater pricing pressures and the exclusion of certain suppliers from important market segments. For
example, some group purchasing organizations negotiate pricing for its member hospitals and require us to discount, or limit our ability
to increase, prices for certain of our products. In particular, certain of our DBM products are priced at a premium to competitors' DBM
products and a significant price reduction could result in a material adverse effect on our profitability.
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•
Surgeons increasingly have moved from independent, out-patient practice settings toward employment by hospitals and other larger
healthcare organizations, which align surgeons’ product choices with their employers’ price sensitivities and adds to pricing pressures.
Hospitals have introduced and may continue to introduce new pricing structures into their contracts to contain healthcare costs,
including fixed price formulas and capitated and construct pricing.
•
Certain hospitals provide financial incentives to doctors for reducing hospital costs (known as gainsharing), rewarding physician
efficiency (known as physician profiling) and encouraging partnerships with healthcare service and goods providers to reduce prices.
•
Existing and proposed laws, regulations and industry policies, in both domestic and international markets, regulate or seek to increase
regulation of sales and marketing practices and the pricing and profitability of companies in the healthcare industry.
More broadly, other provisions of the Affordable Care Act could meaningfully change the way healthcare is developed and delivered in the U.S., and
may adversely affect our business and results of operations. For example, the Affordable Care Act encourages hospitals and physicians to work
collaboratively through shared savings programs, such as accountable care organizations, as well as other bundled payment initiatives, which may
ultimately result in the reduction of medical device purchases and the consolidation of medical device suppliers used by hospitals. It is unclear what the full
impact of the legislation will be. Some of the provisions of the Affordable Care Act have yet to be fully implemented, and certain provisions have been
subject to legal and Congressional challenges. Persisting uncertainty with respect to the scope and effect of certain provisions of the Affordable Care Act
have made compliance costly. A case challenging the constitutionality of the Affordable Care Act's individual mandate is currently before the Supreme
Court of the United States. We cannot predict whether the Affordable Care Act will be repealed, replaced, or modified, or how such repeal, replacement or
modification may be timed or structured. The change in Presidential Administration may also result in new agency priorities, rulemakings, and legislation,
the scope and effect of which cannot be predicted. As a result, we cannot predict accurately what healthcare programs and regulations will ultimately be
implemented at the U.S. federal or state level, or the effect of any future legislation or regulation in the U.S. or elsewhere. However, any changes that have
the effect of reducing reimbursements for our products or reducing medical procedure volumes could have a material and adverse effect on our business,
financial condition and results of operations.
Further, the proliferation of medical device sales agents that are owned, directly or indirectly, by physicians (commonly called physician-owned
distributorships, or PODs) could result in increased pricing pressure on our products or harm our ability to sell our products to physicians who own or are
affiliated with these sales agents. These physicians derive a proportion of their revenue from selling or arranging for the sale of medical devices for use in
procedures they perform on their own patients at hospitals that agree to purchase from or through the POD, or that otherwise furnish ordering physicians
with income based, directly or indirectly, on those orders of medical devices. The number of PODs in the spine industry may continue to grow as economic
pressures increase throughout the industry and as hospitals, insurers and physicians search for ways to reduce costs and, in the case of the physicians,
search for ways to increase their incomes. PODs and the physicians who own, or partially own, them have significant market knowledge and access to the
surgeons who use our products and the hospitals that purchase our products. Growth in the number of PODs may reduce our ability to compete effectively
for business from physicians who own, or partially own, them, which could have a material and adverse effect on our business, results of operations and
financial condition.
In addition, the largest device companies with multiple product franchises have increased their effort to leverage and contract broadly with customers
across franchises by providing volume discounts and multi-year arrangements that could prevent our access to these customers or make it difficult (or
impossible) to compete on price.
Risks Related to our Financial Results and Need for Financing
We expect to incur losses for the foreseeable future and cannot assure you that we will be able to generate sufficient sales to achieve or sustain
profitability.
We expect to incur losses for the foreseeable future as we dedicate significant resources to our marketing and product development strategy, including
as we continue to: (i) develop new and next generation products and product line extensions (all of which we call “new products”); (ii) develop new
medical techniques designed to enhance the utility of our products; (iii) collect clinical data and conduct clinical studies to differentiate our products from
those of our competitors and to demonstrate the value of our products to current and prospective customers and payors; (iv) add independent sales agents
and stocking distributors to increase our geographic sales coverage and penetration; (v) increase product inventory to raise the likelihood of
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success of new product launches; and (vi) invest in our Irvine manufacturing facility; (vii) expand our marketing campaigns and surgeon education and
training programs. We cannot assure you that we will ever generate sufficient revenues from our operations to achieve profitability and, even if we achieve
profitability, we cannot assure you that we will remain profitable. Our failure to achieve or maintain profitability could negatively affect the value of our
securities and our ability to attract and retain personnel, raise capital, execute our business strategy or continue operations.
Our sales volumes and our operating results may fluctuate.
Our sales volumes and our operating results, including components of operating results, such as gross margin and cost of goods sold, have fluctuated
in the past and may fluctuate from time to time in the future, including over the course of a fiscal year, and such fluctuations could affect our stock price.
Some factors that may cause these fluctuations include:
•
economic conditions worldwide, including arising from or relating to the effects of the COVID-19 pandemic, which could affect the
ability of hospitals and other customers to purchase our products and could result in a reduction in elective and non-reimbursed
operative procedures;
•
increased competition;
•
market acceptance of our existing products, as well as products in development, and the demand for, and pricing of, our products and the
products of our competitors;
•
costs, benefits and timing of new product introductions;
•
the timing of or failure to obtain regulatory clearances or approvals for new products;
•
lost sales and other expenses resulting from stoppages in our or third parties’ production, including as a result of product recalls or field
corrective actions;
•
the availability and cost of components and materials, including raw materials such as human tissue;
•
accurate predictions of product demand and production capabilities sufficient to meet that demand;
•
our ability to realize expected yield improvements and scrap reduction initiatives that we have undertaken at our Irvine facility;
•
higher than anticipated independent sales agent commissions;
•
our ability to purchase or manufacture and ship our products efficiently and in sufficient quantities to meet sales demands;
•
the timing of our research and development expenditures;
•
expenditures for major initiatives;
•
reimbursement, changes in reimbursement or denials in coverage for our products by third-party payors, such as Medicare, Medicaid,
private and public health insurers and foreign governmental health systems;
•
the ability of our independent sales agents and stocking distributors to achieve expected sales targets and for new agents and stocking
distributors to become familiar with our products in a timely manner;
•
peer-reviewed publications discussing the clinical effectiveness of our products;
•
inspections of our manufacturing facilities for compliance with the FDA's Quality System Regulations (Good Manufacturing Practices),
which could result in Form 483 observations, warning letters, injunctions or other adverse findings from the FDA or equivalent foreign
regulatory bodies, and corrective actions, procedural changes and other actions, including product recalls, that we determine are
necessary or appropriate to address the results of those inspections, any of which may affect production and our ability to supply our
customers with our products;
•
the costs to comply with new regulations from the FDA or equivalent foreign regulatory bodies, such as the requirements to establish a
unique device identification system to adequately identify medical devices through their distribution and use;
•
the increased regulatory scrutiny of certain of our products, including products we manufacture for others, which could result in their
being removed from the market;
•
fluctuations in foreign currency exchange rates; and
•
the impact of acquisitions, including the impact of goodwill and intangible asset impairment charges, if future operating results of the
acquired businesses are significantly less than the results anticipated at the time of the acquisitions.
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In addition, we may experience meaningful variability in our sales and gross profit among quarters, as well as within each quarter, as a result of
several factors, including but not limited to (and in addition to those listed above):
•
the number of products sold in the quarter;
•
the unpredictability of sales of full sets of spinal implants and instruments to our international stocking distributors; and
•
the number of selling days in the quarter.
We must maintain high levels of inventory, which could consume a significant amount of our resources and reduce our cash flows.
Because we maintain substantial inventory levels to meet the needs of our customers, we are subject to the risk of inventory excess, obsolescence and
shelf-life expiration. Many of our spinal implant products come in sets. Each set includes a significant number of components in various sizes so that the
surgeon may select the appropriate spinal implant based on the patient’s needs. In a typical surgery, not all of the implants in the set are used, and therefore
certain sizes of implants placed in the set or that we purchase for replenishment inventory may become obsolete before they can be used. In addition, to
market our products effectively, we often must provide hospitals and independent sales agents with consigned sets that typically consist of spinal implants
and instruments, including products to ensure redundancy and products of different sizes. Further, our orthobiologics products have expiration dates, which
range from one to five years, and these products may expire before they can be used. If a substantial portion of our inventory is deemed excess, becomes
obsolete or expires, it could have a material adverse effect on our earnings and cash flows due to the resulting costs associated with the inventory
impairment charges and costs required to replace such inventory. Further, as we increasingly launch new products and product systems, we may cannibalize
older products and product systems, which could exacerbate excess and obsolete charges.
Our future financial results could be adversely affected by impairments or other charges.
We assess periodically impairment of our long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. As of December 31, 2021, we had $42.1 million of net finite-lived intangible assets, consisting of
technology, customer relationships, trademarks/brand names, and other intangibles. In addition, we continually assess the profitability of our product lines
and, after such assessment, may discontinue certain products or product lines in the future. As a result, we may record impairment charges or accelerate
amortization on certain technology-related intangible assets in the future. Impairment charges as a result of any of the foregoing could be significant and
could have a material and adverse effect on our reported financial results for the period in which the charge is taken, which could have a material and
adverse effect on the market price of our common stock.
Continuing economic instability, including challenges faced by European countries, may adversely affect the ability of hospitals and other customers to
access funds or otherwise have available liquidity, which could reduce orders for our products or impede our ability to obtain new customers,
particularly in European markets.
Continuing economic instability, including challenges faced by European countries and challenges arising from the COVID-19 pandemic, may
adversely affect the ability of hospitals and other customers to access funds to enable them to fund their operating budgets. As a result, hospitals and other
customers may reduce budgets or put all or part of their budgets on hold or close their operations, which could have a negative effect on our sales and could
impede our ability to obtain new customers, particularly in European markets. Governmental austerity policies in Europe and other markets have reduced
and could continue to reduce the amount of money available to purchase medical products, including our products. If such conditions persist, they could
have a material and adverse effect on our business, financial condition and results of operations.
Our future capital needs are uncertain and we may need to raise additional funds in the future, and such funds may not be available on acceptable
terms or at all.
We believe that our cash and cash equivalents and the amount currently available to us under our amended and restated credit agreement with Wells
Fargo, N.A. will be sufficient to meet our projected operating requirements over the next 12 months. That said, continued expansion of our business will be
expensive, and we likely will seek additional capital. Our capital requirements will depend on many factors, including, but not limited to:
•
the revenue generated by sales of our products;
•
the costs associated with expanding our sales and marketing efforts;
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•
the expenses we incur in procuring, manufacturing and selling our products;
•
the scope, rate of progress and cost of our clinical studies;
•
the cost of obtaining and maintaining regulatory approval or clearance of our products and products in development;
•
the costs associated with complying with state, federal and international laws and regulations, including increased costs associated with
the United Kingdom's exit from the European Union and the European Union's new Medical Device Regulations;
•
the cost of filing and prosecuting patent applications and defending and enforcing our patent and other intellectual property rights;
•
the cost of defending, in litigation or otherwise, any claims that we infringe third-party patent or other intellectual property rights;
•
the cost of enforcing or defending against non-competition claims;
•
the number and timing of acquisitions and other strategic transactions;
•
the costs associated with increased capital expenditures, including fixed asset purchases of instrument sets which we consign to
hospitals and independent sales agents to support surgeries; and
•
anticipated and unanticipated general and administrative expenses, including insurance expenses.
We may seek to raise additional capital to:
•
maintain, and, where necessary, increase appropriate product inventory and spinal instruments levels;
•
fund our operations and clinical studies;
•
continue, and, where appropriate, increase our research and development activities;
•
file, prosecute and defend our intellectual property rights, and defend, in litigation or otherwise, any claims that we infringe third-party
patents or other intellectual property rights;
•
address the FDA or other governmental, legal or enforcement actions and remediate underlying problems and address investigations or
inquiries into sales and marketing practices from governmental agencies worldwide;
•
commercialize our new products, if any such products receive regulatory clearance or approval for sale; and
•
acquire companies' new products, technology or intellectual property.
Such capital, which we may seek to raise through public or private equity offerings, issuing debt or existing, expanded or new credit facilities, or
other sources, may not be available to us on favorable terms, or at all. For example, LIBOR is one of the reference rates under our credit agreement and is
the subject of recent proposals for reform that could impact the interest rate we pay under the credit agreement. To the extent we have outstanding
borrowings under the credit agreement at the time a LIBOR alternative becomes applicable, our borrowing costs under the credit agreement may increase.
In addition, our credit agreement prohibits us from incurring indebtedness without the lender’s consent. If we issue equity securities to raise additional
capital, our existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of our
existing stockholders. See “Risks Related to Owning Our Common Stock-Your percentage of ownership in us may be diluted in the future and issuances of
substantial amounts of our common stock, or the perception that such issuances may occur, could cause the market price of our common stock to decline
significantly, even if our business is performing well.,” and “Risks Related to Owning Our Common Stock-We may issue preferred stock with terms that
could dilute the voting power or reduce the value of our common stock,” below. If we raise additional capital through collaboration, licensing or other
similar arrangements, it may be necessary to relinquish valuable rights to our products, potential products or proprietary technologies, or grant licenses on
terms that are not favorable to us. If we cannot raise capital on acceptable terms, we may not be able to develop or enhance our products, execute our
business plan, take advantage of future opportunities or respond to competitive pressures, changes in our supplier relationships or unanticipated customer
requirements. Any of these events could adversely affect our ability to achieve our business and financial goals or to achieve or maintain profitability, and
could have a material and adverse effect on our business, results of operations and financial condition.
Our PPP loan may subject us to challenges and investigations regarding qualifications for the loan.
In April 2020, due to the economic uncertainty resulting from the impact of the COVID-19 pandemic on our operations and to support our ongoing
operations and retain all employees, we applied for, and received, a loan under the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act) administered by the U.S.
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Small Business Administration (SBA). The original principal amount of the loan was $7.2 million; we subsequently repaid $1.0 million. In October 2020,
we applied for forgiveness of the entire loan, which was granted in June 2021. The PPP loan application required us to certify that the current economic
uncertainty made the loan request necessary to support our ongoing operations. We made this certification in good faith after carefully considering the facts
and circumstances, and although we believe we satisfied all eligibility criteria for the PPP loan and our receipt of the PPP loan is consistent with the
objectives of the PPP, the certification described above does not contain objective criteria and is subject to interpretation. Further, following the date we
applied for the PPP Loan, the SBA issued updated guidance regarding the PPP, including regarding required borrower certifications and requirements for
loan forgiveness. The SBA stated that it is unlikely that a public company with substantial market value and access to capital markets will be able to make
the required certification in good faith, and that all PPP loans in excess of $2 million will be subject to review by the SBA for compliance with program
requirements. The lack of clarity regarding loan eligibility under the PPP resulted in significant media coverage and controversy regarding public
companies applying for and receiving PPP loans. When we applied for forgiveness of the loan we were required to make certain certifications that will be
subject to audit and review by governmental entities and could subject us to significant penalties and liabilities if found to be inaccurate. In addition, if
despite our good faith belief that we satisfied all eligibility requirements for the PPP loan, we are found to have been ineligible to receive it or in violation
of any of the laws or regulations that apply to us in connection with the PPP loan, including the False Claims Act, we may be subject to penalties, including
significant civil, criminal and administrative penalties, and could have to repay the PPP loan upon demand. If we are audited or reviewed by the U.S.
Department of the Treasury or the SBA, such audit or review could result in the diversion of management's time and attention, generate negative publicity
and cause us to incur legal and reputational costs. In addition, our receipt of the PPP loan may result in adverse publicity and damage to our reputation.
Any of these events could harm our business, results of operations and financial condition.
Risks Related to our International Operations
We are exposed to a variety of risks relating to our international sales and operations.
During the year ended December 31, 2021, approximately 10% of our net revenue was attributable to our international sales and operations. We are
seeking to increase our international sales over the foreseeable future. Our international business operations are subject to a variety of risks, including:
•
difficulties in staffing and managing foreign and geographically dispersed operations;
•
having to comply with various U.S. and international laws, including the U.S. Foreign Corrupt Practices Act of 1977 and anti-money
laundering laws (see also, “Our international operations subject us to laws regarding sanctioned countries, entities and persons, customs
and import-export practices, laws regarding transactions in foreign countries, the Foreign Corrupt Practices Act of 1977 and local anti-
bribery and other laws regarding interactions with healthcare professionals, and product registration requirements” below);
•
having to comply with export control laws, including, but not limited to, the Export Administration Regulations and trade sanctions
against embargoed countries, which are administered by the Office of Foreign Assets Control within the Department of the Treasury, as
well as the laws and regulations administered by the Department of Commerce;
•
complex data privacy requirements, including, but not limited to, the EU General Data Protection Regulation;
•
differing regulatory requirements for obtaining clearances or approvals to market our products;
•
changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to sell our products, perform services or
repatriate profits to the United States;
•
tariffs, trade barriers and export regulations that adversely impact, and other regulatory and contractual limitations on, our ability to sell
our products in certain foreign markets, the scope and consequences of which are subject to changing agendas of political, business and
environmental groups;
•
fluctuations in foreign currency exchange rates;
•
limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures;
•
differing multiple payer reimbursement regimes, government payers or patient self-pay systems;
•
differing labor laws and standards;
•
economic, political or social instability in foreign countries and regions;
•
an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory licensing imposed by government
action; and
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•
availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us.
Any reduction in international sales, or our failure to further develop our international markets, could have a material adverse effect on our business,
results of operations and financial condition.
Our international operations subject us to laws regarding sanctioned countries, entities and persons, customs and import-export practices, laws
regarding transactions in foreign countries, the Foreign Corrupt Practices Act of 1977 and local anti-bribery and other laws regarding interactions
with healthcare professionals, and product registration requirements.
Foreign governmental regulations have become increasingly stringent and more common, and we may become subject to even more rigorous
regulation by foreign governmental authorities. Numerous laws restrict, and in some cases prohibit, U.S. companies from directly or indirectly selling
goods, technology or services to people or entities in certain countries. In addition, these laws require that we exercise care in structuring our sales and
marketing practices and effecting product registrations in foreign countries. Compliance with these regulations is costly.
The U.S. Foreign Corrupt Practices Act of 1977, or FCPA, and similar anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and
their intermediaries from making improper payments for the purpose of obtaining or retaining business. The FCPA also imposes accounting standards and
requirements on publicly traded U.S. corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment
of bribes and other improper payments. Because of the predominance of government-sponsored healthcare systems around the world, many of our
customer relationships outside of the United States are with governmental entities and are therefore subject to such anti-bribery laws. Our internal control
policies and procedures may not always protect us from reckless or criminal acts committed by our employee shareowners, or agents. In recent years, both
the United States and foreign government regulators have increased regulation, enforcement, inspections and governmental investigations of the medical
device industry, including increased United States government oversight and enforcement of the FCPA. Despite implementation of a comprehensive global
healthcare compliance program, we may be subject to more regulation, enforcement, inspections and investigations by governmental authorities in the
future.
Any failure to comply with applicable foreign legal and regulatory obligations could adversely affect us in a variety of ways, that include, but are not
limited to: the suspension or withdrawal of our CE Certificates of Conformity; the imposition of significant criminal, civil and administrative fines and
penalties, including revocation or suspension of a business license and imprisonment of individuals; denial of export privileges; seizure of shipments and
restrictions on certain business activities; disgorgement and other remedial measures; disruptions of our operations; and significant management distraction.
Our results may be impacted by changes in foreign currency exchange rates.
As a result of our international sales and operations, we generate revenues in various foreign currencies including euros, British pounds, and Swiss
francs, and in U.S. dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S. dollar. We also incur
operating expenses in euros. We cannot predict accurately the consolidated effects of exchange rate fluctuations upon our future operating results because
of the variability of currency exposure in our revenues and operating expenses and the potential volatility of currency exchange rates, which is subject to
increased volatility in light of the COVID-19 pandemic. Although we address currency risk management through regular operating and financing activities,
those actions may not prove to be fully effective. In addition, for those foreign customers who purchase our products in U.S. dollars, currency exchange
rate fluctuations between the U.S. dollar and the currencies in which those customers do business may have a negative effect on the demand for our
products in foreign countries where the U.S. dollar has increased in value compared to the local currency. Converting our earnings from international
operations to U.S. dollars for use in the U.S. can also raise challenges, including problems moving funds out of the countries in which the funds were
earned and difficulties in collecting accounts receivable in foreign countries where the usual accounts receivable payment cycle is longer. To date, we have
not used risk management techniques to hedge the risks associated with foreign currency exchange rate fluctuations. Even if we implemented hedging
strategies, not every exposure can be hedged and, where hedges are put in place based on expected foreign currency exchange exposure, they are based on
forecasts that may vary or that may later prove to have been inaccurate. As a result, fluctuations in foreign currency exchange rates or our failure to
successfully hedge against these fluctuations could have a material adverse effect on our operating results and financial condition.
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Risks Related to Privacy and Security
We depend on information technology and if our information technology fails to operate adequately or fails to properly maintain the integrity of our
data, our business could be materially and adversely affected.
We depend significantly on sophisticated information technology, or IT, for our infrastructure and to support business decisions. Our IT needs require
an ongoing commitment of significant resources to maintain, protect and enhance existing systems and to develop new systems to keep pace with new
technology, evolving regulatory standards, the increasing need to protect patient and customer information and changing customer patterns. We do not have
a comprehensive IT disaster recovery plan. Any significant breakdown, intrusion, interruption, corruption or destruction of any component of our IT
systems could have a material and adverse effect on our business, financial condition and results of operations.
Security breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from accessing critical
information or expose us to liability, which could adversely affect our business and our reputation.
In the ordinary course of our business, we collect and store sensitive data, including legally protected patient health information, credit card
information, personally identifiable information about our employees, intellectual property, and proprietary business information. We manage and maintain
our applications and data utilizing on-site systems. These applications and data encompass a wide variety of business critical information including
research and development information, commercial information and business and financial information.
Although our computer and information systems are protected through physical and software safeguards, they are still vulnerable to system
malfunction, computer viruses, cyber-attacks, breaches or interruptions due to employee error or malfeasance, terrorist attacks, earthquakes, fire, flood (and
other natural disasters), power loss, computer systems failure, data network failure, Internet failure, or lapses in compliance with privacy and security
mandates. If any of our systems were to become subject to any of the foregoing, our networks could be compromised, and the information stored there
could be accessed by unauthorized parties, publicly disclosed, lost or stolen. These events could lead to the unauthorized access and result in the
misappropriation or unauthorized disclosure of confidential information belonging to us or to our employees, partners, customers or suppliers. We have
measures in place designed to detect and respond to security incidents and breaches of privacy and security mandates. The techniques used by criminal
elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world. As a result,
we may not be able to address these techniques proactively or implement adequate preventative measures.
In response to the COVID-19 pandemic, we have modified our business practices and implemented telework policies wherever possible for
appropriate categories of "nonessential" employees to minimize the disruption to our operations, to the extent possible. The continuation of these telework
policies for "nonessential employees" also introduces additional operational risk, including increased cybersecurity risk. These cyber risks may include,
among other risks, greater phishing, malware, and other cyber-attacks, vulnerability to or disruptions of our information technology infrastructure and
systems to support remote operations, increased risk of unauthorized access, use or dissemination of confidential information, limited ability to restore the
systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction, alteration or misuse of valuable
information, including proprietary business information and personally identifiable information of individuals, all of which could expose us to risks of data
or financial loss, litigation and liability.
The regulatory environment governing information, security and privacy laws is increasingly demanding and continues to evolve. A number of states
have adopted laws and regulations that may affect our privacy and data security practices regarding the use, disclosure and protection of personally
identifiable information. For example, the EU’s General Data Protection Regulation (GDPR), which applies to any company established in the EU as well
as any company outside the EU that processes personal data in connection with the offering of goods or services to individuals in the EU, imposes strict
obligations on the processing of personal data, including personal health data, and the free movement of such data. The GDPR imposes substantial fines for
breaches of data protection requirements, which can be up to four percent of global revenue or 20 million euros, whichever is greater, and it also confers a
private right of action on data subjects for breaches of data protection requirements. We are also subject to the California Consumer Privacy Act (the
CCPA), which went into effect on January 1, 2020. On November 3, 2020, California passed the California Privacy Rights Act (the CPRA), which builds
on the CCPA and expands consumer privacy rights to more closely align with the EU’s GDPR. The CPRA will go into effect on January 1, 2023 and will
apply to information collected on or after January 1, 2022. The CCPA and CPRA, among other things, create new data privacy obligations for covered
companies and provides new privacy rights to California residents, including the right to opt out of
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certain disclosures of their information. The CCPA also created a private right of action with statutory damages for certain data breaches, thereby
potentially increasing risks associated with a data breach. It remains unclear what, if any, additional modifications will be made to the CPRA by the
California legislature or how it will be interpreted. Therefore the effects of the CCPA and CPRA are significant and will likely require us to modify our
data processing practices, and may cause us to incur substantial costs and expenses to comply.
If our IT systems are compromised, due to a data breach or otherwise, we could be subject to legal claims or proceedings, liability under laws that
protect the privacy of personal information (such as the CCPA, GDPR and CPRA) government enforcement actions and regulatory penalties, fines,
damages, and enforcement actions, and we could lose trade secrets or other confidential information, the occurrence of any of which could have a material
and adverse effect on our business, financial condition and results of operations. Unauthorized access, loss or dissemination could also interrupt our
operations, including our ability to bill our customers, provide customer support services, conduct research and development activities, process and prepare
company financial information, manage various general and administrative aspects of our business, and could damage our reputation, any of which could
adversely affect our business.
Risks Related to Non-Compliance with Laws and Regulations
We are subject to stringent domestic and foreign medical device regulation and any adverse regulatory action may materially and adversely affect our
financial condition and business operations.
Our products, development activities and manufacturing processes are subject to extensive and rigorous regulation by numerous federal and state
government agencies, including the FDA and comparable foreign agencies. To varying degrees, each agency monitors and enforces our compliance with
laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our products. For example, we must
comply with the FDA’s Quality System Regulation, which mandates that manufacturers of medical devices adhere to certain quality assurance standards
pertaining to, among other things, validation of manufacturing processes, controls for purchasing product components and documentation practices.
In addition, we must engage in extensive recordkeeping and reporting. For example, the Federal Medical Device Reporting regulation requires us to
provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious
injury or that a malfunction occurred that would be likely to cause or contribute to a death or serious injury upon recurrence.
Compliance with applicable regulatory requirements is subject to continual review and we must make our manufacturing facilities and records
available for periodic unscheduled inspections by governmental agencies, including the FDA, state authorities and comparable agencies in other countries.
If we fail to pass an FDA Quality System Regulation inspection or to comply with applicable regulatory requirements, we may receive a notice of a
violation in the form of inspectional observations on Form FDA 483, a warning letter, or could otherwise be required to take corrective action and, in
severe cases, we could suffer a disruption of our operations and manufacturing delays. If we fail to take adequate corrective actions, we could be subject to
enforcement actions, including significant fines, suspension of approvals, seizures or recalls of products, operating restrictions and criminal prosecutions.
The FDA has increased its scrutiny of the medical device industry in recent years and the government is expected to continue to scrutinize the
industry closely. Moreover, allegations may be made against us or against our suppliers, including donor recovery groups or tissue banks, claiming that the
acquisition or processing of biomaterials products does not comply with applicable FDA regulations or other relevant statutes and regulations. Allegations
like these could cause regulators or other authorities to investigate or take other action against us or our suppliers, or could cause negative publicity for us
or our industry generally. If the FDA were to investigate us, because of an allegation or otherwise, and if the FDA were to conclude that we are not in
compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban
such medical devices, detain or seize such medical devices, order a recall, repair, replacement or refund of such devices, require us to notify health
professionals and others that the devices present unreasonable risks of substantial harm to the public health, restrict manufacturing and impose other
operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical devices and assess civil or criminal penalties against our
officers, employees or us. The FDA may also recommend prosecution to the U.S. Department of Justice. Any notice or communication from the FDA
regarding a failure to comply with applicable requirements, or negative publicity or product liability claims resulting from any adverse regulatory action,
could materially and adversely affect our product sales and overall business.
The European Union adopted the MDR in 2017, which will replace the existing medical device directives in May 2021.
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Devices with valid CE certificates issued under the directive before May 2021 may remain on the market until their certificates expire (but no later than
May 2024). The MDR will change many aspects of the existing regulatory framework, imposing stricter pre-market and post-market requirements for
medical devices such as ours. Penalties may be severe, including fines and criminal sanctions. Compliance with the new regulations may require us to incur
significant costs, and failure to meet the requirements could limit our ability to distribute products in the European Union. In addition, until a completed
mutual recognition agreement exists between Switzerland and the EU, Switzerland will be considered a Third Country. This may lead to additional
import/export requirements or unavailability of product in Switzerland if that product is made available in the EU under the MDR.
Further, our suppliers also are subject to a wide array of regulatory and other requirements, including quality control, quality assurance, the
maintenance of records and documentation, and unscheduled inspections by governmental agencies, including the FDA, state authorities and comparable
agencies in other countries. Our suppliers may be unable to comply with these requirements and with other FDA, state and foreign regulatory requirements.
We have little control over their ongoing compliance with these regulations. Their failure to comply may expose us to regulatory action and other liability,
including fines and civil penalties, suspension of production, suspension or delay in new product approval or clearance, product seizure or recall, or
withdrawal of product approval or clearance.
Certain of our products are derived from human tissue and are or could be subject to additional regulations and requirements.
Some of our orthobiologics products are derived from human bone tissue, and as a result are also subject to FDA and certain state regulations
regarding human cells, tissues and cellular or tissue-based products, or HCT/Ps. An HCT/P is a product containing or consisting of human cells or tissue
intended for transplantation into a human patient. Examples include bone, ligament, skin and cornea.
Some HCT/Ps also meet the definition of a biological product, medical device or drug regulated under the Federal Food, Drug and Cosmetic Act.
Section 361 of the Public Health Service Act authorizes the FDA to issue regulations to prevent the introduction, transmission or spread of communicable
disease. HCT/Ps regulated as “361 HCT/Ps” are subject to requirements relating to registering facilities and listing products with the FDA, screening and
testing for tissue donor eligibility, Good Tissue Practice when processing, storing, labeling and distributing HCT/Ps, including required labeling
information, stringent record keeping and adverse event reporting. These biologic, device or drug HCT/Ps must comply both with the requirements
exclusively applicable to 361 HCT/Ps and, in addition, with requirements applicable to biologics, devices or drugs, including premarket clearance or
approval. We have received required approvals for our products regulated as 361 HCT/Ps. However, there have been occasions in the past, and there could
be occasions in the future, when the FDA requires us to obtain a 510(k) clearance for our products regulated as 361 HCT/Ps. The process of obtaining a
510(k) clearance could take time and consume resources, and failing to receive such a clearance would render us unable to market and sell such products,
which could have a material and adverse effect on our business.
The American Association of Tissue Banks has issued operating standards for tissue banking. Accreditation is voluntary, but compliance with these
standards is a requirement to become a licensed tissue bank. In addition, some states have their own tissue banking regulations. In addition, procurement of
certain human organs and tissue for transplantation is subject to the National Organ Transplant Act, or NOTA, which prohibits the transfer of certain human
organs, including skin and related tissue, for valuable consideration, but permits the reasonable payment associated with the removal, transportation,
implantation, processing, preservation, quality control and storage of human tissue and skin. We reimburse tissue banks for their expenses associated with
the recovery, storage and transportation of donated human tissue they provide to us for processing. We include in our pricing structure amounts paid to
tissue banks to reimburse them for their expenses associated with the recovery and transportation of the tissue, in addition to certain costs associated with
processing, preservation, quality control and storage of the tissue, marketing and medical education expenses and costs associated with development of
tissue processing technologies. NOTA payment allowances may be interpreted to limit the amount of costs and expenses we can recover in our pricing for
our products, thereby reducing our future revenue and profitability. If we were to be found to have violated NOTA’s prohibition on the sale or transfer of
human tissue for valuable consideration, we would potentially be subject to criminal enforcement sanctions, which could materially and adversely affect
our results of operations.
Because of the absence of a harmonized regulatory framework and the proposed regulation for advanced therapy medicinal products in the European
Union, or EU, as well as for other countries, the approval process in the EU for human-derived cell or tissue-based medical products could be extensive,
lengthy, expensive and unpredictable. Among others, some of our orthobiologics products are subject to EU member states’ regulations that govern the
donation, procurement, testing,
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coding, traceability, processing, preservation, storage and distribution of HCT/Ps. These EU member states’ regulations include requirements for
registration, listing, labeling, adverse-event reporting and inspection and enforcement. Some EU member states have their own tissue banking regulations,
including new requirements related to COVID-19 and donor screening. Non-compliance with various regulations governing our products in any EU
member state could result in the banning of our products in such member state or enforcement actions being brought against us, which could have a
material and adverse effect on our business, results of operations and financial condition.
Certain of our products contain materials derived from animal sources and may become subject to additional regulation.
Certain of our products contain material derived from bovine tissue. Products that contain materials derived from animal sources, including food,
pharmaceuticals and medical devices, are subject to scrutiny in the media and by regulatory authorities. Regulatory authorities are concerned about the
potential for the transmission of disease from animals to humans via those materials. In past years, public scrutiny was particularly acute in Western Europe
with respect to products derived from animal sources, largely due to concern that materials infected with the agent that causes bovine spongiform
encephalopathy, or BSE, otherwise known as mad cow disease, may, if ingested or implanted, cause a variant of the human Creutzfeldt-Jakob disease, an
ultimately fatal disease with no known cure. Cases of BSE in cattle discovered in Canada and the U.S. increased awareness in North America.
We take steps designed to minimize the risk that our products contain agents that can cause disease, such as obtaining our collagen from countries
considered BSE-free. Nevertheless, products that contain materials derived from animals, including our products, could become subject to additional
regulation, or even be banned in certain countries, because of concern over the potential for the transmission of infectious or other agents. Significant new
regulation, or a ban of our products, could have a material and adverse effect on our business or our ability to expand our business.
Certain countries, such as Japan, China, Taiwan and Argentina, have issued regulations that require our collagen products be processed from bovine
tendon sourced from countries where no cases of BSE have occurred. The collagen raw material we use in our products is sourced from New Zealand. Our
supplier has obtained approval from certain countries, including the U.S., the European Union, Japan, Taiwan, China and Argentina, for the use of such
collagen raw material in products sold in those countries. If we cannot continue to obtain collagen raw material from a qualified source of tendon from a
country that has never had a case of BSE, we will not be permitted to sell our collagen products in certain countries, which could have a material and
adverse effect on our business, results of operations and financial condition.
Oversight of the medical device industry might affect the way we sell medical devices and compete in the marketplace.
The FDA, the U.S. Office of the Inspector General for the U.S. Department of Health and Human Services, the U.S. Department of Justice and other
regulatory agencies actively enforce regulations prohibiting the promotion of a medical device for a use that has not been cleared or approved by the FDA.
Use of a device outside its cleared or approved indications is known as “off-label” use. Physicians may prescribe our products for off-label uses, as the
FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However, if a regulatory agency determines that our
promotional materials, training or activities constitute improper promotion of an off-label use, the regulatory agency could request that we modify our
promotional materials, training or activities, or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure,
civil fine and/or criminal penalties. Although our policy is to refrain from statements and activities that could be considered off-label promotion of our
products, any regulatory agency could disagree and conclude that we have engaged in off-label promotion and, potentially, caused the submission of false
claims. In addition, the off-label use of our products may increase the risk of injury to patients, and, in turn, the risk of product liability claims. See “Other
Risks Related to our Business and Financial Condition-We may have significant product liability exposure and our insurance may not cover all potential
claims,” below.
There are also multiple other laws and regulations that govern how companies in the healthcare industry may market their products to healthcare
professionals and may compete by discounting the prices of their products, including, for example, the federal Anti-Kickback Statute, the federal False
Claims Act, the federal Health Insurance Portability and Accountability Act of 1996, state law equivalents to these federal laws that are meant to protect
against fraud and abuse, the Foreign Corrupt Practices Act of 1977 and analogous laws in foreign countries. Violations of these laws are punishable by
criminal and civil sanctions, including, but not limited to, penalties, fines and exclusion from participation in federal and state healthcare programs,
including Medicare and Medicaid, and imprisonment. Federal and state government agencies, as well as private whistleblowers, have significantly
increased investigations and enforcement activity under these laws. Although we exercise care in structuring our sales and marketing practices, customer
discount arrangements and interactions with healthcare professionals to comply
39
with these laws and regulations, we cannot provide assurance that government officials will not assert that our practices are in compliance or that
government regulators or courts will interpret those laws or regulations in a manner consistent with our interpretation. Even if an investigation is
unsuccessful or is not fully pursued, we may spend considerable time and resources defending ourselves and the adverse publicity surrounding any
assertion that we may have engaged in violative conduct could have a material and adverse effect on our reputation with existing and potential customers
and on our business, financial condition and results of operations.
Federal and state laws are also sometimes open to interpretation, and from time to time we may find ourselves at a competitive disadvantage if our
interpretation differs from that of our competitors. AdvaMed (U.S.), EucoMed (Europe), MEDEC (Canada) and MTAA (Australia), some of the principal
trade associations for the medical device industry, have promulgated model codes of ethics that set forth standards by which its members should (and non-
member companies may) abide in the promotion of their products in various regions. We have implemented policies and procedures for compliance
consistent with those promulgated by these associations, and we train our sales and marketing personnel on our policies regarding sales and marketing
practices. Nevertheless, the sales and marketing practices of our industry have been the subject of increased scrutiny from federal and state government
agencies, we believe this trend will continue and that it could affect our ability to retain customers and other relationships important to our business.
For example, prosecutorial scrutiny and governmental oversight, at both the state and federal levels, over some major device companies regarding the
retention of healthcare professionals have limited how medical device companies may retain healthcare professionals as consultants. Various hospital
organizations, medical societies and trade associations are establishing their own practices that may require detailed disclosures of relationships between
healthcare professionals and medical device companies or ban or restrict certain marketing and sales practices, such as gifts and business meals. In
addition, the Affordable Care Act, as well as certain state laws, require detailed disclosure of certain financial relationships, gifts and other remuneration
made to certain healthcare professionals and teaching hospitals, the publicity surrounding which could have a negative impact on our relationships with our
customers and ability to seek input on product design or involvement in research. As a result of laws, rules and regulations or our own or third-party
policies that prohibit or restrict interactions, or the growing perception that any interaction between healthcare professionals and industry are tainted, we
may be unable to engage with our healthcare professional customers in the same manner or to the same degree, or at all, as would otherwise be the case,
which may adversely affect our ability to understand our customer’s needs and to incorporate into our development programs feedback that addresses these
needs. If we are unable to develop and commercialize new products that address the needs of our surgeon customers and their patients, our products may
not be broadly accepted in the marketplace, or at all, which would have a negative effect on our business, results of operations and financial condition.
We are subject to requirements relating to hazardous materials which may impose significant compliance or other costs on us.
Our research, development and manufacturing processes involve the controlled use of certain hazardous materials. For example, our allograft bone
tissue processing may generate waste materials that in the U.S. are classified as medical waste. In addition, we lease facilities at which hazardous materials
could have been used. Because of the foregoing, we are subject to federal, state, foreign and local laws and regulations governing the use, manufacture,
storage, handling, treatment, remediation and disposal of hazardous materials and certain waste products.
Although we believe that our procedures for handling and disposing of hazardous materials comply with applicable laws as currently in effect, we
cannot eliminate the risk of accidental contamination or injury from these materials. In addition, under some environmental laws and regulations, we could
also be held responsible for all of the costs relating to any contamination at our past or present facilities and at third-party waste disposal sites, even if such
contamination was not caused by us. If an accident occurs, state or federal or other applicable authorities may curtail our use of these materials and
interrupt our business operations. In addition, if an accident or environmental discharge occurs, or if we discover contamination caused by prior operations,
including by prior owners and operators of properties we acquire, we could be liable for cleanup obligations, damages and fines any related liability could
exceed our resources. If such unexpected costs are substantial, this could significantly harm our financial condition and results of operations. We carry no
insurance specifically covering environmental claims relating to the use of hazardous materials.
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Risks Related to Intellectual Property Protection and Use
Our intellectual property rights may not provide meaningful commercial protection for our products, potentially enabling third parties to use our
technology or very similar technology in ways that could reduce our ability to compete in the marketplace.
Our success will depend in part on our ability to, both in the U.S. and in foreign countries, obtain and maintain patent and other exclusivity with
respect to our products; prevent third parties from infringing upon our proprietary rights; and maintain proprietary know-how and trade secrets. However,
these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage.
We own or have licensed patents that cover aspects of some of our product lines. Our patents, however, may not provide us with any significant
competitive advantage. Others may challenge our patents and, as a result, our patents could be narrowed, invalidated or rendered unenforceable.
Competitors may develop products similar to ours that our patents do not cover. In addition, our current and future patent applications may not result in the
issuance of patents in the U.S. or foreign countries. Further, there is a substantial backlog of patent applications at the U.S. Patent and Trademark Office,
and the approval or rejection of patent applications may take several years.
In an effort to protect our trade secrets and intellectual property rights, we require our employees, consultants and advisors to execute confidentiality
and invention assignment agreements upon commencement of employment or consulting relationships with us. These agreements provide that, except in
specified circumstances, all confidential information developed or made known to the individual during their relationship with us must be kept confidential.
We cannot assure you, however, that these agreements will meaningfully protect our trade secrets or other proprietary information in the event of the
unauthorized use or disclosure of confidential information. In addition, we cannot assure you that others will not independently develop substantially
equivalent proprietary information and procedures or otherwise gain access to our trade secrets, that our trade secrets will not be disclosed or that we can
otherwise protect our rights to unpatented trade secrets.
In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security
measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access,
adequately protect our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets
and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully.
Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. Enforcing a claim that a
party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable.
In addition, we may face claims by third parties that our agreements with employees, consultants or advisors obligating them to assign intellectual
property to us are ineffective or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes
regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such intellectual
property. Litigation may be necessary to resolve an ownership dispute, and if we are unsuccessful, we may be precluded from using certain intellectual
property or may lose our exclusive rights in that intellectual property. Either outcome could harm our business and competitive position. See “If we seek to
protect or enforce our intellectual property rights through litigation or other proceedings, it could require us to spend significant time and money, the
results of which are uncertain,” below.
Furthermore, the laws of some foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S., if at all.
Since most of our issued patents and pending patent applications are for the U.S. only, we lack a corresponding scope of patent protection in other
countries. Thus, we may not be able to stop a competitor from marketing products in other countries that are similar to some of our products.
If we are unable to obtain, protect and enforce patents on our technology and to protect our trade secrets, such inability could have a material and
adverse effect on our business, results of operations and financial condition.
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Our success will depend partly on our ability to operate without infringing or misappropriating the proprietary rights of others.
Our success will depend in part on our ability, both in the U.S. and in foreign countries, to operate without infringing upon the patents and proprietary
rights of others, and to obtain appropriate licenses to patents or proprietary rights held by third parties if infringement would otherwise occur.
Significant litigation regarding patent rights occurs in our industry. Our competitors in both the U.S. and abroad, many of which have substantially
greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the
future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our products. Generally, we do not
conduct independent reviews of patents issued to third parties. In addition, patent applications in the U.S. and elsewhere can be pending for many years
before issuance, so there may be applications of others now pending of which we are unaware that may later result in issued patents that will prevent, limit
or otherwise interfere with our ability to make, use or sell our products. The large number of patents, the rapid rate of new patent applications and
issuances, the complexities of the technology involved, and the uncertainty of litigation increase the risk of assets and resources including management’s
attention, being diverted to patent litigation. We have received, and expect to receive, communications from various industry participants alleging our
infringement of their patents, trade secrets or other intellectual property rights and/or offering licenses to such intellectual property. Any lawsuits resulting
from such allegations could subject us to significant liability for damages and invalidate our proprietary rights. Any potential intellectual property litigation
also could force us to do one or more of the following:
•
stop making, selling or using products or technologies that allegedly infringe the asserted intellectual property;
•
lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of
our intellectual property rights against others;
•
incur significant legal expenses;
•
pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing;
•
pay the attorney fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing;
•
redesign those products that contain the allegedly infringing intellectual property, which could be costly, disruptive and/or infeasible; or
•
attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at
all.
See “If we seek to protect or enforce our intellectual property rights through litigation or other proceedings, it could require us to spend significant
time and money, the results of which are uncertain,” below.
Further, as the number of participants in the spine industry grows, the possibility of intellectual property infringement claims against us increases. If
we are found to infringe the intellectual property rights of third parties, we could have to pay substantial damages (which may be increased up to three
times of awarded damages) and/or substantial royalties and could be prevented from selling our products unless we obtain a license or are able to redesign
our products to avoid infringement. Any such license may not be available on reasonable terms, if at all, and there can be no assurance that we would be
able to redesign our products in a way that would not infringe the intellectual property rights of others. If we fail to obtain any required licenses or make
any necessary changes to our products or technologies, we may have to withdraw existing products from the market or may be unable to commercialize one
or more of our products, all of which could have a material adverse effect on our business, results of operations and financial condition.
In addition, we generally indemnify our customers and sales agents with respect to infringement by our products of the proprietary rights of third
parties. Third parties may assert infringement claims against our customers or sales agents. These claims may require us to initiate or defend protracted and
costly litigation on behalf of our customers or sales agents, regardless of the merits of these claims. If any of these claims succeed, we may be forced to
indemnify, or pay damages on behalf of, our customers or sales agents or may have to obtain licenses for the products they use. If we cannot obtain all
necessary licenses on commercially reasonable terms, our customers may be forced to stop using our products.
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If we seek to protect or enforce our intellectual property rights through litigation or other proceedings, it could require us to spend significant time and
money, the results of which are uncertain.
To protect or enforce our intellectual property rights, we may have to initiate or defend litigation against or by third parties, such as infringement
suits, opposition proceedings or seeking a court declaration that we do not infringe the proprietary rights of others or that their rights are invalid or
unenforceable. Litigation, including defending against claims without merit is expensive and time-consuming, and could divert management attention and
resources away from our business and could harm our reputation. We may not have sufficient resources to enforce our intellectual property rights or to
defend our intellectual property rights against a challenge. Even if we prevail, the cost of litigation, including the diversion of management and other
resources, could affect our profitability and could place a significant strain on our financial resources.
Our ability to enforce our intellectual property rights depends on our ability to detect infringement. It may be difficult to detect infringers who do not
advertise the components used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or
potential competitor’s product. The medical device industry is characterized by the existence of a large number of patents and frequent litigation based on
allegations of patent infringement. It is not unusual for parties to exchange letters surrounding allegations of intellectual property infringement and
licensing arrangements. In addition, the patent positions of medical device companies, including our patent position, may involve complex legal and factual
questions, and, therefore, the scope, validity and enforceability of any patent claims we have or may obtain cannot be predicted with certainty.
Risks Related to Our Public Company Status and Growth Through Acquisition
The acquisition of 7D Surgical may present many risks and we may not realize the strategic and financial goals that were contemplated at the time we
entered into the arrangement agreement to acquire 7D Surgical in March 2021.
We acquired 7D Surgical in May 2021. Certain risks we may face in connection with the integration of 7D Surgical include:
•
We may not realize the benefits we expect to receive from the acquisition, such as a best-in-class enabling technology that provides surgeons a
radiation-free navigational system that integrates seamlessly into the surgical workflow; gaining access to new accounts and/or increasing our
presence in existing accounts by providing access to the 7D Surgical technology and/or placing systems at little or no upfront cost to the hospital
through product earn-outs; expanding applications for the 7D Surgical offering, such as in minimally invasive procedures; and the ability of the
7D Surgical technology to position us to address the full patient continuum of care, from pre-operative imaging and surgical planning to post-
operative plan confirmation and predictive analytics.
•
The acquisition may not further our business strategy as we expect, we may not successfully integrate 7D Surgical as planned, there could be
unanticipated adverse impacts on our or 7D Surgical’s business, and/or we may otherwise not realize the expected return on our investment, which
could potentially cause impairment to assets that we record as a part of the acquisition, including intangible assets and goodwill.
•
Our operating results or financial condition may be adversely impacted by (i) claims or liabilities related to 7D Surgical’s business arising after
closing; (ii) unfavorable accounting treatment as a result of 7D Surgical’s practices; and/or (iii) intellectual property claims or disputes.
•
7D Surgical was not required to maintain an internal control infrastructure that would meet the standards of a U.S. public company, including the
requirements of the Sarbanes-Oxley Act of 2002. The costs that we may incur to implement such controls and procedures may be substantial and
we could encounter unexpected delays and challenges in this implementation. In addition, we may discover significant deficiencies or material
weaknesses in the quality of 7D Surgical’s financial and disclosure controls and procedures.
•
We may have failed to identify or assess the magnitude of certain liabilities, shortcomings or other circumstances prior to acquiring 7D Surgical,
which could result in unexpected litigation or regulatory exposure, unfavorable accounting treatment, a diversion of management’s attention and
resources, and other adverse effects on our business, financial condition, and operating results.
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The occurrence of any of these risks could have a material adverse effect on our business, financial condition, and operating results.
We expend substantial resources to comply with laws and regulations relating to public companies, and any failure to maintain compliance could
subject us to regulatory scrutiny and cause investors to lose confidence in our company, which could harm our business and have a material adverse
effect on our stock price.
Laws and regulations affecting public companies, including provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
and the Sarbanes-Oxley Act of 2002 (SOX), and the related rules and regulations adopted by the U.S. Securities and Exchange Commission (SEC), and by
the Nasdaq Stock Market increase our accounting, legal and financial compliance costs and make some activities more time-consuming and costly. We
cannot predict or estimate with any reasonable accuracy the total amount or timing of the costs we may incur to comply with these laws and regulations. In
addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial
time to these matters. For example, compliance with Section 404 of SOX, including performing the system and process documentation and evaluation
necessary to issue our annual report on the effectiveness of our internal control over financial reporting and obtaining the required attestation report from
our independent registered public accounting firm, requires us to incur substantial expense and expend significant management time. Further, we have in
the past discovered, and in the future may discover, areas of internal controls that need improvement. If we identify deficiencies in our internal controls
deemed to be material weaknesses, we could become subject to scrutiny by regulatory authorities and we could lose investor confidence in the accuracy
and completeness of our SEC filings, including the financial statements included therein, which could have a material adverse effect on our stock price.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations,
including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system
may not prevent or detect material misstatements on a timely basis, or at all. Also, previously effective controls may become inadequate over time because
of changes in our business or operating structure, and we may fail to take measures to evaluate the adequacy of and update these controls, as necessary,
which could lead to a material misstatement.
In addition, new laws and regulations could make it costlier or more difficult for us to obtain certain types of insurance, including director and officer
liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the coverage that is the
same or similar to our current coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve as
our executive officers or on our board of directors or on its committees.
Regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in
damage to our reputation with customers.
We are subject to SEC regulations that require us to determine whether our products contain certain specified minerals, referred to under the
regulations as “conflict minerals,” and, if so, to perform an extensive inquiry into our supply chain, to determine whether such conflict minerals originate
from the Democratic Republic of Congo or an adjoining country. We have determined that certain of our products contain such specified minerals. We are
continuing to conduct inquiries into our supply chain in connection with the preparation of our conflict minerals report for 2020. Compliance with these
regulations has increased our costs and has been time-consuming for our management and our supply chain personnel (and time-consuming for our
suppliers), and we expect that continued compliance will continue to require significant money and time. In addition, to the extent any of our disclosures
are perceived by the market to be “negative,” it may cause customers to refuse to purchase our products. Further, if we determine to make any changes to
products, processes, or sources of supply, it may result in additional costs, which may adversely affect our business, financial condition and results of
operations.
Our growth strategy could involve growth through acquisitions, which would require us to incur substantial costs and potential liabilities for which we
may never realize the anticipated benefits.
We may grow our business through acquisitions, a strategy which ultimately could prove unsuccessful. Any new acquisition could result in material
transaction expenses, increased interest and amortization expense, increased depreciation expense, increased operating expense and possible in-process
research and development charges for acquisitions that do not meet the definition of a “business,” any of which could have a material and adverse effect on
our operating results.
In addition, businesses we acquire may not have adequate financial, disclosure, regulatory, quality or other compliance controls in place when we
acquire them, which may create uncertainty regarding the actual condition and financial results of the
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acquired business and our assumptions regarding synergies and future results. Following any acquisition, we must integrate the new business, which
includes incorporating it into our financial, compliance, regulatory and quality systems. Failure to timely and successfully integrate acquired businesses
may result in non-compliance with regulatory or other requirements and may result in unexpected costs, including as a result of inadequate cost
containment and unrealized economies of scale. In addition, acquisitions divert management and other resources, and involve other risks, including, risks
associated with entering markets in which our marketing and sales personnel may have limited experience and with disruption to existing relationships with
employees, suppliers, customers and sales agents, both with respect to us and the acquired company. As a result of any of the foregoing, we may not realize
the expected benefit from any acquisition. If we cannot integrate acquired businesses, products or technologies, our business, financial conditions and
results of operations could be materially and adversely affected.
Furthermore, as a result of acquisitions of other healthcare businesses, we may be subject to the risk of unanticipated business uncertainties,
regulatory and other compliance matters or legal liabilities relating to those acquired businesses for which the sellers of the acquired businesses may not
indemnify us, for which we may not be able to obtain insurance (or adequate insurance) or for which the indemnification may not be sufficient to cover the
ultimate liabilities.
Risks Related to Owning our Common Stock
The market price of our common stock has been and likely will continue to be volatile.
The market price of our common stock is likely to be volatile and could be subject to wide fluctuations in response to various factors, some of which
are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Form 10-K, these factors include:
•
actual or anticipated fluctuations in our quarterly financial condition and operating performance;
•
introduction of new products by us or our competitors;
•
announcements by us or our competitors of significant acquisitions or dispositions;
•
our ability to obtain financing as needed;
•
a shift in our investor base, including sales of our shares by existing stockholders;
•
any major change in our board of directors or management;
•
threatened or actual litigation or governmental investigations;
•
the number of shares of our common stock publicly owned and available for trading;
•
the operating and stock price performance of similar companies;
•
changes in earnings estimates by securities analysts or our ability to meet earnings guidance;
•
publication of research reports about us or our industry or changes in recommendations or withdrawal of research coverage by securities
analysts;
•
changes in laws or regulations affecting our business, including tax legislation;
•
the success or failure of our business strategy;
•
investor perception of us and our industry;
•
changes in accounting standards, policies, guidance, interpretations or principles;
•
the overall performance of the equity markets;
•
general political and economic conditions, and other external factors.
In addition, the stock market in general, and the stocks of medical device companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. This could limit or prevent investors from
readily selling their shares and may otherwise negatively affect the liquidity of our common stock. Securities class action litigation has often been instituted
against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against
us, could result in very substantial costs, divert our management’s attention and resources, and harm our business, financial condition and results of
operation.
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Your percentage of ownership in us may be diluted and issuances of substantial amounts of our common stock, or the perception that such issuances
may occur, could cause the market price of our common stock to decline significantly, even if our business is performing well.
As with any public company, your percentage ownership in us may be diluted because of equity issuances for acquisitions and investments, capital-
raising transactions or otherwise, including equity awards that we have granted and we expect to grant in the future to our directors, officers and
employees. As of December 31, 2021, approximately 0.8 million shares of our common stock were subject to unvested restricted stock units and
approximately 2.6 million shares of our common stock were subject to exercisable stock options with a weighted average exercise price of $14.55.
Since July 1, 2015, we have issued an aggregate of 22.1 million shares of our common stock for capital-raising purposes. Most recently, we issued an
aggregate of 5,175,000 shares of our common stock (including 675,000 shares sold to the underwriter upon exercise of an underwriter option) in an
underwritten offering completed in April 2021 at price to the public of $19.50 per share, before underwriting discounts and commissions. In May 2021, in
connection with our acquisition of 7D Surgical, we issued to the former stockholders of 7D Surgical, 2,991,054 shares of our common stock and 1,298,648
exchangeable shares, which are exchangeable for shares of our common stock on a one-for-one basis.
Further, the market price of our common stock could decline as a result of the issuance, including sale, of a large number of shares of our common
stock, and the perception that these sales could occur may also depress the market price of our common stock. A decline in the price of our common stock
might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity or equity-linked securities.
We may issue preferred stock with terms that could dilute the voting power or reduce the value of our common stock.
While we have no specific plan to issue preferred stock, our amended and restated certificate of incorporation authorizes us to issue, without
stockholder approval, one or more series of preferred stock having such designation, powers, privileges, preferences, including preferences over our
common stock respecting dividends and distributions, terms of redemption and relative participation, optional, or other rights, if any, of the shares of each
such series of preferred stock and any qualifications, limitations or restrictions thereof, as our board of directors may determine. The terms of one or more
series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, the repurchase or redemption rights or
liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading
volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our
business. If current or future analysts who cover us were to downgrade our stock or publish inaccurate or unfavorable research about our business, our
stock price would likely decline. If one or more of these analysts were to stop covering us or were to stop regularly publishing reports on us, demand for
our stock could decrease, which might cause our stock price and trading volume to decline.
We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.
We have never declared or paid cash dividends on our common stock, and we do not currently expect to declare or pay any such cash dividends in the
foreseeable future. Instead, we intend to retain our future earnings, if any, to fund the development and growth of our business. Payment of cash dividends,
if any, will depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of
directors. Furthermore, we are subject to various laws and regulations that may restrict our ability to pay dividends and are subject to contractual
restrictions on, or prohibitions against, the payment of dividends. Due to the foregoing, the return on your investment in our common stock will likely
depend entirely upon any future appreciation and our common stock may not appreciate. Investors seeking cash dividends should not invest in our common
stock.
Certain provisions in our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment and,
therefore, may depress the market price of our common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could have the effect of delaying or
preventing changes in control or changes in our management without the consent of our board of
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directors, including, among other things:
•
a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of
a majority of our board of directors;
•
no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
•
the ability of our board of directors to determine to issue shares of preferred stock and to determine the price and other terms of those
shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership
of a hostile acquirer;
•
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or by
the resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors;
•
limitations on the removal of directors;
•
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of
our stockholders;
•
the requirement that a special meeting of stockholders be called only by the chairman of our board of directors, our chief executive
officer, our president (in absence of a chief executive officer) or our board of directors, which may delay the ability of our stockholders
to force consideration of a proposal or to take action, including the removal of directors;
•
advance notice procedures that stockholders must comply with to nominate candidates to our board of directors or to propose matters to
be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to
elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us;
•
the requirement for the affirmative vote of holders of at least 66 2⁄3% of the voting power of all of the then outstanding shares of our
voting stock, voting together as a single class, to amend or repeal the provisions of our amended and restated certificate of incorporation
and of our amended and restated bylaws that relate to the matters described above, which may inhibit the ability of an acquirer from
amending our amended and restated certificate of incorporation or amended and restated bylaws to facilitate a hostile acquisition; and
•
the ability of our board of directors, by majority vote, to amend our amended and restated bylaws, which may allow our board of
directors to take additional actions to prevent a hostile acquisition and inhibit the ability of an acquirer from amending our amended and
restated bylaws to facilitate a hostile acquisition.
We believe that these provisions protect our stockholders from coercive or harmful takeover tactics by requiring potential acquirers to negotiate with
our board of directors and by providing our board of directors with adequate time to assess any acquisition proposal.
We are also subject to certain anti-takeover provisions under the DGCL. Under the DGCL, a corporation may not, in general, engage in a business
combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, our board of
directors has approved the transaction.
The provisions in our amended and restated certificate of incorporation and amended and restated bylaws and the anti-takeover provisions under the
DGCL, may discourage, delay, prevent or make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate
actions that are opposed by our then-current board of directors, including a merger, tender offer, or proxy contest involving our company. Any delay or
prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline. Even
absent a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as
discouraging future takeover attempts.
Our amended and restated certificate of incorporation designates certain courts as the sole and exclusive forum for certain litigation that may be
initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, to the fullest
extent permitted by applicable law: (A) the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have, or declines to accept,
jurisdiction, another state court or a federal court located within the
47
State of Delaware) shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim
of breach of a fiduciary duty owed by, or other wrongdoing by, any of our directors, officers or employees to us or our stockholders, (iii) any action
asserting a claim against us or any of our directors, officers or employees arising pursuant to any provision of the DGCL or our amended and restated
certificate of incorporation or bylaws, (iv) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of
incorporation or bylaws, or (v) any action asserting a claim against us or any of our directors, officers or employees governed by the internal affairs
doctrine; and (B) the federal district courts of the United States shall be the sole and exclusive forum for the resolution of any complaint asserting a cause
of action arising under the Securities Act. Our amended and restated certificate of incorporation further provides that, to the fullest extent permitted by law,
any person purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and to have consented to the provisions
described above. These provisions may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
We are subject to certain disclosure and compliance requirements that did not previously apply to us due to the recent change in our filer status and
ceasing to qualify as a smaller reporting company.
Our public float as of June 30, 2021 exceeded $250.0 million but was less than $700.0 million. As a result, we became an accelerated filer and no
longer qualify as a smaller reporting company. As a result of such changes, we are subject to certain disclosure and compliance requirements that did not
previously apply to us, including accelerated deadlines for filing are periodic reports. Compliance with such requirements will increase our legal and
financial compliance costs and may require our management and other personnel to devote more time to public company reporting requirements. In
addition, if we are not able to comply with such requirements in a timely or complete manner, the market price of our stock could decline and we could be
subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC, or other regulatory authorities, which would
divert additional financial and management resources away from our business.
Other Risks Related to our Business and Financial Condition
Our business could suffer if we lose the services of key members of our senior management or fail to hire and retain other personnel on whom our
business relies.
Our ability to execute our business strategy and compete in the highly competitive medical device industry depends, in part, on our ability to attract
and retain highly qualified personnel. Companies in the medical device industry in general have experienced a high rate of personnel turnover. Loss of key
employees, including any of our scientific, technical and managerial personnel, could adversely affect our ability to successfully execute our business
strategy, which could have a material and adverse effect on our business, results of operations and financial condition. We would be adversely affected if
we fail to adequately prepare for future turnover of our senior management team. Moreover, replacing key employees may be a difficult, costly and
protracted process, and we may not have other personnel with the capacity to assume all of the responsibilities of a departing employee. Competition for
qualified personnel, particularly for key positions, is intense among companies in our industry, particularly in the San Diego, California area, and many of
the organizations against which we compete for qualified personnel have greater financial and other resources and different risk profiles than our company,
which may make them more attractive employers. All of our employees, including our management personnel, may terminate their employment with us at
any time without notice. If we cannot attract and retain highly qualified personnel, as needed, we may not achieve our financial and other goals.
Moreover, future internal growth could impose significant added responsibilities on our management, and we will need to identify, recruit, maintain,
motivate and integrate additional employees to manage growth effectively. If we do not effectively manage such growth, our expenses may increase more
than expected, we may not achieve our goals, and our ability to generate and/or grow revenue could be diminished.
We may have significant product liability exposure and our insurance may not cover all potential claims.
We are exposed to product liability and other claims. Spine surgery involves significant risk of serious complications, including bleeding, nerve
injury, paralysis and even death. In addition, if neurosurgeons and orthopedic spine surgeons are not sufficiently trained in the use of our products, they
may misuse or ineffectively use our products, which may result in unsatisfactory patient outcomes or patient injury. We could become the subject of
product liability lawsuits alleging that component failures, malfunctions, manufacturing flaws, design defects, or inadequate disclosure of product-related
risks or product-related information resulted in an unsafe condition or injury to patients. In addition, the development of allograft
48
implants and technologies for human tissue repair and treatment may entail particular risk of transmitting diseases to human recipients, and any such
transmission could result in the assertion of product liability claims against us.
Product liability claims are expensive to defend, divert our management’s attention and, if we are not successful in defending the claim, can result in
substantial monetary awards against us or costly settlements. Further, successful product liability claims made against one or more of our competitors could
cause claims to be made against us or expose us to a perception that we are vulnerable to similar claims. Any product liability claim brought against us,
with or without merit and regardless of the outcome or whether it is fully pursued, may result in: decreased demand for our products; injury to our
reputation; significant litigation costs; product recalls; loss of revenue; the inability to commercialize new products or product candidates; and adverse
publicity regarding our products. Any of these may have a material and adverse effect on our reputation with existing and potential customers and on our
business, financial condition and results of operations.
Our existing product liability insurance coverage may be inadequate to protect us from any liabilities we might incur. If a product liability claim or
series of claims is brought against us for uninsured liabilities or more than our insurance coverage, our business could suffer. In addition, a recall of some
of our products, whether or not the result of a product liability claim, could result in significant costs and loss of customers.
Our insurance policies are expensive and protect us only from some risks, which will leave us exposed to significant uninsured liabilities.
We do not carry insurance for all categories of risk to which our business is or may be exposed. Some of the policies we maintain include general
liability, foreign liability, employee benefits liability, property, umbrella, employment practices, workers’ compensation, products liability, cyber, and
directors’ and officers’ insurance. We do not know, however, if we will be able to maintain insurance coverage at a reasonable cost or in sufficient amounts
or scope to protect us against losses. Even if we obtain insurance, a claim could exceed the amount of our insurance coverage or it may be excluded from
coverage under the terms of the policy. Further, insurance coverage may not be available or successfully secured for loss profits or business interruption
relating to the COVID-19 pandemic and its impacts. Any significant uninsured liability may require us to pay substantial amounts, which would adversely
affect our cash position and results of operations.
We may be subject to claims that we, our employees, or our independent sales agents or stocking distributors have wrongfully used or disclosed alleged
trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.
Many of our employees were employed at other medical device companies, including our competitors or potential competitors, in some cases
immediately prior to joining us. In addition, many of our independent sales agents and stocking distributors sell, or in the past have sold, products of our
competitors. We may be subject to claims that we, our employees or our independent sales agents or stocking distributors have intentionally, inadvertently
or otherwise used or disclosed trade secrets or other proprietary information of former employers or competitors. In addition, we have been and may in the
future be subject to claims that we caused an employee, or encouraged/assisted an independent sales agent, to breach the terms of his or her non-
competition or non-solicitation agreement. Litigation may be necessary to defend against these claims. Litigation is expensive, time-consuming and could
divert management attention and resources away from our business. Even if we prevail, the cost of litigation could affect our profitability. If we do not
prevail, in addition to any damages we might have to pay, we may lose valuable intellectual property rights or employees, independent sales agents or
stocking distributors. There can be no assurance that this type of litigation or the threat thereof will not adversely affect our ability to engage and retain key
employees, sales agents or stocking distributors. See also the risk factors titled, “Risks Related to Manufacturing, Commercial Operations and
Commercialization - If we are unable to maintain and expand our network of independent sales agents and stocking distributors, we may not be able to
maintain or grow our revenue,” and “Our business could suffer if we lose the services of key members of our senior management or fail to hire and retain
other personnel on whom our business relies” above.
We have overlapping board membership with Integra, which may lead to conflicting interests, and one of our directors continues to own a substantial
amount of Integra common stock and equity awards covering Integra stock.
Two of our board members also serve as board members of Integra. Our directors who are members of Integra’s board of directors have fiduciary
duties to Integra’s stockholders, as well as fiduciary duties to our stockholders. In addition, several of our directors own or have rights to acquire Integra
common stock (in at least one case, a substantial amount).
49
As a result of the foregoing, there may be the appearance of a conflict of interest and there is the potential for a conflict of interest with respect to
matters involving or affecting both companies, such as when we or Integra consider acquisitions and other corporate opportunities that may be suitable for
each company. In addition, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between Integra and us
regarding the terms of the agreements governing our separation from Integra, the Tax Matters Agreement or under other agreements between Integra and
us, including with respect to indemnification matters. From time to time, we may enter into transactions with Integra and/or its subsidiaries or other
affiliates. There can be no assurance that the terms of any such transactions will be as favorable to us, Integra or any of our or their subsidiaries or affiliates
as would be the case were there no overlapping board membership or ownership interest.
We may be subject to continuing contingent liabilities of Integra.
Even after our separation from Integra, there are several significant areas where Integra’s liabilities may become our obligations. For example, under
the Code and the related rules and regulations, each corporation that was a member of the Integra consolidated U.S. federal income tax reporting group
during any taxable period or portion of any taxable period ending on or before the effective time of the distribution is jointly and severally liable for the
U.S. federal income tax liability of the entire Integra consolidated tax reporting group for that taxable period. In addition, the Tax Matters Agreement
allocates the responsibility for prior period taxes of the Integra consolidated tax reporting group between us and Integra. Under this allocation, we may be
responsible for taxes that we would not have otherwise incurred, or that we would have incurred but in different amounts and/or at different times, on a
standalone basis outside of the Integra consolidated group, and the amount of such taxes could be significant. If Integra is unable to pay any prior period
taxes for which it is responsible, we could have to pay the entire amount of such taxes.
General Risk Factors
Changes in financial accounting standards or practices or existing taxation rules or practices may cause adverse unexpected revenue and/or expense
fluctuations and affect our reported results of operations.
A change in accounting standards or practices or a change in existing taxation rules or practices can have a significant effect on our reported results
and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and taxation rules and varying
interpretations of accounting pronouncements and taxation practice have occurred and may occur in the future. The method in which we market and sell
our products may have an impact on the manner in which we recognize revenue. In addition, changes to existing rules or the questioning of current
practices may adversely affect our reported financial results or the way we conduct our business. Additionally, changes to existing accounting rules or
standards, such as the potential requirement that U.S. registrants prepare financial statements in accordance with International Financial Reporting
Standards, may adversely impact our reported financial results and business, and may further require us to incur greater accounting fees.
Environmental, social and corporate governance (ESG) regulations, policies and provisions may make our supply chain more complex and may
adversely affect our relationships with customers.
There is an increasing focus on the governance of environmental and social risks. A number of our customers who are payors or distributors have
adopted, or may adopt, procurement policies that include ESG provisions that their suppliers or manufacturers must comply with, or they may seek to
include such provisions in their terms and conditions. An increasing number of participants in the medical device industry are also joining voluntary ESG
groups or organizations, such as the Responsible Business Alliance. These ESG provisions and initiatives are subject to change, can be unpredictable, and
may be difficult and expensive for us to comply with, given the complexity of our supply chain and the outsourced manufacturing of certain components of
our products. If we are unable to comply, or are unable to cause our suppliers to comply, with such policies or provisions, a customer may stop purchasing
products from us, and may take legal action against us, which could harm our reputation, revenue and results of operations.
Our business could be negatively impacted by corporate citizenship and ESG matters and/or our reporting of such matters.
There is an increasing focus from certain investors, customers, consumers, and other stakeholders concerning corporate citizenship and sustainability
matters. We could be perceived as not acting responsibly in connection with these matters. Our business could be negatively impacted by such matters. Any
such matters, or related corporate citizenship and sustainability matters, could have a material adverse effect on our business.
50
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of the filing of this report, we had no unresolved comments from the SEC staff regarding our periodic or current reports under the Exchange Act that
were received not less than 180 days before the end of our fiscal year to which this report relates.
51
ITEM 2. PROPERTIES
We lease real property to support our business. The following lists those leased properties that we believe are material to our business. We believe that our
facilities meet our current needs and that we will be able to renew these leases when needed on acceptable terms or find alternative facilities.
Location
Approx. Square
Feet
Purpose
Carlsbad, California
82,000
Design, development, marketing, and inspection of our orthobiologics and spinal implant products
and distribution of certain of our spinal implant products. Also serves as our principal executive
offices and houses one of our cadaveric training laboratories and our prototyping development and
testing operations.
Irvine, California
70,000
Manufacture and distribution of our orthobiologics products
Toronto, Canada
9,200
Design, development, marketing of our enabling technologies products
Wayne, Pennsylvania
3,700
Design of our spinal implants and houses one of our cadaveric training laboratories
Our manufacturing facilities are registered with the FDA. Our facilities are subject to FDA inspection to ensure compliance with its Quality System
Regulations. For further information regarding the status of FDA inspections, see the "Item 1. Business- Regulation," above.
52
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are subject to legal proceedings and claims in the ordinary course of business. While management presently believes that the
ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in
results of operations, in part because of the insurance policies we maintain that cover certain of these claims, legal proceedings are subject to inherent
uncertainties, and unfavorable rulings or outcomes could occur that have individually or in aggregate, a material adverse effect on our business, financial
condition or operating results. We are not currently subject to any pending material litigation, other than ordinary routine litigation incidental to our
business, as described above.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information and Holders
Our common stock is listed on the Nasdaq Global Select Market under the symbol “SPNE.” As of March 7, 2022, we had 355 stockholders of record. The
number of stockholders of record is based upon the number of holders registered on our books at such date. A substantially greater number of holders of
our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation of our
business, and we do not expect to declare or pay any dividends in the foreseeable future.
Equity Compensation Plan Information
Information about our equity compensation plan is incorporated herein by reference to Part III, Item 12 of this report.
Recent Sales of Unregistered Securities
During the fourth quarter of 2021, we did not issue any securities that were not registered under the Securities Act of 1933, as amended (the Securities
Act).
Purchases of Equity Securities by the Issuer
The table below is a summary of purchases of our common stock we made during the quarter ended December 31, 2021. Other than as indicated in the
table below, no such purchases were made in any other month during the quarter. We do not have any publicly announced repurchase plans or programs.
Period
Total Number of Shares
Purchased (1)
Average Price Paid per Share
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
Maximum Number of Shares
That May Yet be Purchased
Under the Plans or Programs
October 1 - October 31
4,334
$
15.82
—
—
November 1 - November 30
1,550
$
15.76
—
—
December 1 - December 31
1,103
$
13.11
—
—
(1) These shares were surrendered to the Company to satisfy tax withholdings obligations in connection with the vesting of
restricted stock awards.
53
ITEM 6.
REMOVED AND RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The terms “we,” “us,” “our,” “SeaSpine” or the “Company” refer collectively to SeaSpine Holdings Corporation and its wholly-owned subsidiaries,
unless otherwise stated. All information in this report is based on our fiscal year. Unless otherwise stated, references to particular years, quarters, months
or periods refer to our fiscal years ending December 31 and the associated quarters, months and periods of those fiscal years.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). The
matters discussed in these forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those
made, projected or implied in the forward-looking statements. Such risks and uncertainties may also give rise to future claims and increase exposure to
contingent liabilities. Please see the “Risk Factors” section for a discussion of the uncertainties, risks and assumptions associated with these statements.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or
otherwise.
You can identify these forward-looking statements by forward-looking words such as “believe,” “may,” “could,” “will,” “estimate,” “continue,”
“anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” and similar expressions.
These risks and uncertainties arise from (among other factors):
•
our expectations and estimates concerning future financial performance, financing plans and the impact of competition;
•
our ability to successfully develop new and next-generation products and the costs associated with designing and developing those new and next-
generation products, including risks inherent in collaborations, such as with restor3d, Inc. or use of nascent manufacturing techniques, such as
additive processing/3D printing;
•
physicians’ willingness to adopt our recently launched and planned products, customers’ continued willingness to pay for our products and third-
party payors’ willingness to provide or continue coverage and appropriate reimbursement for any of our products and our ability to secure
regulatory clearance and/or approval for products in development;
•
our ability to attract and retain new, high-quality distributors, whether as a result of perceived deficiencies, or gaps, in our existing product
portfolio, inability to reach agreement on financial or other contractual terms or otherwise, as well as disruption associated with restrictive
covenants to, which distributors may be subject and potential litigation and expense associate therewith;
•
the full extent to which the COVID-19 pandemic will, directly or indirectly, impact our business, results of operations and financial condition,
including our sales, expenses, supply chain integrity, manufacturing capability, research and development activities, including arising from or
relating to deferrals of procedures using our products, disruptions or restrictions on the ability of many of our employees and of third parties on
which we rely to work effectively, and temporary closures of our facilities and of the facilities of our customers and suppliers;
•
our ability to continue to invest in medical education and training, product development, and/or sales and commercial marketing initiatives at
levels sufficient to drive future revenue growth;
•
anticipated trends in our business, including consolidation among hospital systems, healthcare reform in the United States, increased pricing
pressure from our competitors or hospitals, exclusion from major healthcare systems, whether as a result of unwillingness to provide required
pricing or otherwise, and changes in third-party payment systems;
•
the risk of supply shortages, and the associated potentially long-term disruption to product sales, including as a result of the pandemic and a
limited number of third-party suppliers for components, raw materials and certain processing and assembly services;
54
•
unexpected expenses and delay and our ability to manage timelines and costs related to manufacturing our products including as a result of
litigation or developing and supporting the full commercial launch of new products or relating to the pandemic;
•
our ability to obtain additional debt and equity financing to fund capital expenditures and working capital requirements and acquisitions;
•
our ability to complete acquisitions, integrate operations post-acquisition and maintain relationships with customers of acquired entities;
•
our ability to support the safety and efficacy of our products with long-term clinical data;
•
existing and future regulations affecting our business, both in the United States and internationally, and enforcement of those regulations;
•
our ability to protect our intellectual property, including unpatented trade secrets, and to operate without infringing or misappropriating the
proprietary rights of others;
•
general economic and business conditions, in both domestic and international markets; and
•
other risk factors described in the section entitled “Risk Factors.”
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements included in this report.
Overview
We are a global medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patients
suffering from spinal disorders. We offer a comprehensive portfolio of orthobiologics and spinal implant solutions and a surgical navigation system
intended to meet the needs of neurosurgeons and orthopedic spine surgeons who perform fusion procedures in the lumbar, thoracic and cervical spine. We
believe our offerings are essential to meet the “complete solution” requirements of these surgeons.
We report revenue in two product categories: (i) orthobiologics and (ii) spinal implants and enabling technologies. Our orthobiologics products consist of a
broad range of advanced and traditional bone graft substitutes designed to improve bone fusion rates following a wide range of orthopedic surgeries,
including spine, hip, and extremities procedures. Our spinal implants and enabling technologies portfolio consists of an extensive line of products and
image-guided surgical solutions to facilitate spinal fusion in degenerative, minimally invasive surgery (MIS), and complex spinal deformity procedures.
Our U.S. spinal implants and orthobiologics sales organization consists primarily of regional and territory managers who oversee a broad network of
independent sales agents. We pay these sales agents commissions based on the sales of our products. Our enabling technologies sales organization consists
of a direct sales force that works together with our independent sales agents to generate either a capital sale or to place systems and components in an
account in a capital efficient manner in return for a longer-term revenue commitment for our spinal implant systems and/or orthobiologics products. Our
international sales organization consists of a sales management team that oversees a network of independent stocking distributors that purchase products
directly from us and independently sell them. For each of the years ended December 31, 2021 and 2020, international sales accounted for approximately
10% of our revenue. Our policy is not to sell our products through or to participate in physician-owned distributorships.
For the year ended December 31, 2021, our total revenue, net was $191.5 million and our net loss was $54.3 million. For the same period, revenue from
sales of orthobiologics totaled $91.8 million and revenue from spinal implants and enabling technologies totaled $99.6 million. We will continue to invest
in the expansion of our business, primarily in sales, marketing and research and development, and we expect to continue to incur losses. As of
December 31, 2021, our cash and cash equivalents totaled $83.1 million. In January 2020 and April 2021, we completed an underwritten offering of our
common stock that raised net proceeds of approximately $91.6 million and $94.5 million, respectively, after deducting underwriting discounts and
commissions and estimated offering expenses.
55
Acquisition
In May 2021, we acquired 7D Surgical, Inc., a pioneer in the image-guided surgery market, that developed and commercialized advanced machine-vision-
based registration algorithms to improve surgical workflow and patient care, currently with applications in spine and cranial surgeries. Its flagship system,
founded on its machine-vision, image-guided surgery platform, reduces radiation exposure in open spine surgery by eliminating intra-operative CT
(computed tomography) and fluoroscopy for purposes of registration, both of which commonly are used for patient registration with traditional
navigational systems.
European Spinal Implant Sales and Marketing
During the third quarter of 2021, we ceased in-person sales and marketing operations in France to reduce operating expenses, to centralize the management
of our European operations in our headquarters located in Carlsbad, California, and to further leverage our existing partnerships to centralize our logistics.
As a result, we closed our office located in Lyon, France, and eliminated all employment positions at that location.
During the fourth quarter of 2021, we notified our European distributors that we will discontinue all sales and marketing activities for the spinal implant
portfolio in the European market effective in September 2022 due to the significantly higher upfront and recurring annual costs required to comply with
European medical device regulations. We will continue to market and sell our orthobiologics and enabling technologies products in the European market.
Components of Our Results of Operations
Revenue
Our net revenue is derived primarily from the sale of orthobiologics and spinal implants and enabling technology products in North America, Europe, Asia
Pacific and Latin America. Sales are reported net of returns, rebates, group purchasing organization fees and other customer allowances.
In the United States, we generate most of our revenue by consigning our orthobiologics products and by consigning or loaning our spinal implant sets to
hospitals and independent sales agents, who in turn either deliver them to hospitals for a single surgical procedure, after which they are returned to us, or
leave them with hospitals that are high volume users for multiple procedures. The spinal implant sets typically contain the instruments, disposables, and
spinal implants required to complete a surgery. We ship replacement inventory to independent sales agents to replace the consigned inventory used in
surgeries. We maintain and replenish loaned sets at our kitting and distribution centers and return replenished sets to a hospital or independent sales agent
for the next procedure. We recognize revenue on these consigned or loaned products when they have been used or implanted in a surgical procedure.
Enabling technologies revenue related to capital equipment, tools and software is recognized upon acceptance by the customer. Revenue from training and
installation is recognized upon completion of the training and installation process. Revenue from service contracts is recognized over the term of the
contract.
Under certain contracts, the transfer of capital equipment occurs over time as the customer's purchase commitments on other spinal implant and
orthobiologics products are met. We allocate the transaction price to the multiple performance obligations under these contracts related to the sale of the
products (recognized either upon the shipment or delivery of goods), the lease of capital equipment (recognized over the contract period), and the sale of
capital equipment (recognized once the purchase commitments are met).
For all other sales transactions, including sales to international stocking distributors and private label partners, we generally recognize revenue when the
products are shipped and the customer or stocking distributor obtains control of the products. There is generally no customer acceptance or other condition
that prevents us from recognizing revenue in accordance with the delivery terms for these sales transactions.
Cost of Goods Sold
Cost of goods sold primarily consists of the costs of finished goods purchased directly from third parties and raw materials used in the manufacturing of our
products, plant and equipment overhead, labor costs and packaging costs. The majority of our orthobiologics products are designed and manufactured
internally. The cost of human tissue and fixed manufacturing overhead
56
costs are significant drivers of the cost of goods sold, and consequently our orthobiologics products, at current production volumes, generate lower gross
margin than our spinal implant products. We rely on third-party suppliers to manufacture our spinal implants and enabling technology products, and we
assemble the spinal implants into surgical sets at our kitting and distribution centers. The cost to inspect incoming finished goods is included in the cost of
goods sold. Other costs included in cost of goods sold include amortization of product technology intangible assets, royalties, scrap and consignment
losses, and charges for expired, excess and obsolete inventory.
Selling and Marketing Expense
Our selling and marketing expenses consist primarily of sales commissions, payroll and other headcount related expenses, marketing expenses, shipping,
third-party logistics expenses, depreciation of instrument sets, instrument replacement expense, and cost of medical education and training.
General and Administrative Expense
Our general and administrative expenses consist primarily of payroll and other headcount related expenses, and expenses for information technology, legal,
human resources, insurance, finance, and management. We also record gains or losses associated with changes in the fair value of contingent consideration
liabilities in general and administrative expenses.
Research and Development Expense
Our research and development (R&D) expenses primarily consist of expenses related to the headcount for engineering, product development, clinical
affairs and regulatory functions, as well as consulting services, third-party prototyping services, outside research and clinical studies activities, and
materials, production and other costs associated with development of our products. We expense R&D costs as they are incurred.
While our R&D expenses fluctuate from period to period based on the timing of specific initiatives, we expect these costs will increase over time as we
continue to design and commercialize new products and expand our product portfolio, add related personnel and conduct additional clinical activities.
Intangible Amortization
Our intangible amortization, including the amounts reported in cost of goods sold, consists of acquisition-related amortization. We expect total annual
amortization expense (including amounts reported in cost of goods sold) to be approximately $7.2 million in 2022, $6.6 million in 2023, $4.6 million in
2024, $3.3 million in 2025, and $3.3 million in 2026. See "RESULTS OF OPERATIONS-Year Ended December 31, 2021 Compared to Year Ended
December 31, 2020-Impairment of Intangible Assets," below.
COVID-19 Pandemic - Impact on our Business
The COVID-19 pandemic has presented a substantial public health and economic challenge around the world and has materially and adversely affected our
business. From late March 2020 to mid-May 2020, among other impacts on our business related to the pandemic, surgeons and their patients deferred
surgical procedures in which our products otherwise could have been used. This decrease in demand for our products temporarily recovered to varying
degrees beginning in the latter half of May 2020 as conditions improved in certain geographies, allowing patients to resume receiving their treatments.
However, from late November 2020 to mid-February 2021, a significant and sustained increase in COVID-19 cases and hospitalization rates once again
caused the deferral of surgical procedures in which our products otherwise could have been used. Additionally, in the third quarter of 2021, hospitalization
rates in many geographies increased as a result of the spread of the Delta variant. This, along with hospital support staffing shortages in certain
geographies, adversely impacted the number of elective surgical procedures and slowed the partial recovery we had been experiencing. We expect to see
continued volatility in the demand for our products in 2022 and thereafter as geographies respond to local conditions. We will continue to closely monitor
developments related to the pandemic and our decisions will continue to be driven by the health and well-being of our employees, our distributor and
surgeon customers, and their patients while maintaining operations to support our customers and their patients in the near-term.
At this time, the full extent of the impact of the pandemic on our business, financial condition and results of operations is uncertain and cannot be predicted
with reasonable accuracy and will depend on future developments that are also uncertain and cannot be predicted with reasonable accuracy.
57
The effect of the pandemic will not be fully reflected in our results of operations and overall financial performance until future periods. For additional
information on the various risks posed by the pandemic on our business, financial condition and results of operations, please see "Risk Factors" in Part I,
Item 1A of this report.
RESULTS OF OPERATIONS
Year Ended December 31,
(In thousands, except percentages)
2021
2020
Total revenue, net
$
191,451
$
154,345
Cost of goods sold
76,864
56,841
Gross profit
114,587
97,504
Gross margin
60 %
63 %
Operating expenses:
Selling and marketing
107,299
84,304
General and administrative
42,944
35,874
Research and development
22,006
16,258
Intangible amortization
3,316
3,169
Impairment of intangible assets
—
1,325
Total operating expenses
175,565
140,930
Operating loss
(60,978)
(43,426)
Other income, net
(5,532)
(463)
Loss before income taxes
(55,446)
(42,963)
(Benefit) provision for income taxes
(1,100)
218
Net loss
$
(54,346)
$
(43,181)
58
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Revenue
Total revenue, net in 2021 increased by $37.1 million, or 24%, to $191.5 million compared to $154.3 million in 2020.
Year Ended December 31,
2021
2020
2021 vs. 2020
(In thousands)
% Change
Orthobiologics
$
91,822
$
78,383
17 %
United States
83,249
71,346
17 %
International
8,573
7,037
22 %
% of total revenue, net
48 %
51 %
Spinal implants and enabling technologies
$
99,629
$
75,962
31 %
United States
88,192
67,550
31 %
International
11,437
8,412
36 %
% of total revenue, net
52 %
49 %
Total revenue, net
$
191,451
$
154,345
24 %
Year Ended December 31,
2021
2020
2021 vs. 2020
(In thousands)
% Change
United States
171,441
138,896
23 %
% of total revenue, net
90 %
90 %
International
20,010
15,449
30 %
% of total revenue, net
10 %
10 %
Total revenue, net
$
191,451
$
154,345
24 %
Revenue from orthobiologics sales totaled $91.8 million in 2021, an increase of $13.4 million compared to 2020. Revenue from orthobiologics sales in the
United States increased $11.9 million in 2021 compared to 2020. Revenue from orthobiologics sales internationally increased $1.5 million in 2021
compared to 2020. In all geographies, revenue in the prior year period was adversely impacted due to declines in the volume of surgeries performed due to
the effects of the COVID-19 pandemic. Additionally, the revenue growth in the current year period was driven primarily by higher sales of our fibers-based
demineralized bone matrix (DBM) products as we continue to expand our market share in the orthobiologics market.
Revenue from spinal implants and enabling technology sales totaled $99.6 million in 2021, an increase of $23.7 million compared to 2020. Revenue from
spinal implant and enabling technology sales in the United States increased $20.6 million in 2021 compared to 2020 and included $6.0 million of capital
sales from our acquisition of 7D Surgical in May 2021. Revenue from international sales of spinal implants and enabling technologies increased $3.0
million in 2021 compared to 2020 and included $0.7 million of capital sales from recently acquired 7D Surgical. In all geographies, revenue in the prior
year period was adversely impacted due to declines in the volume of surgeries performed due to the effects of the COVID-19 pandemic. Additionally, the
revenue growth in the current year period was driven by recently launched products, predominantly those products that were alpha or fully launched in
2020 and 2021 and which have been important catalysts to our ability to take market share in the spinal implants market.
Cost of Goods Sold and Gross Margin
Cost of goods sold in 2021 increased $20.0 million from 2020 to $76.9 million. Gross margin was 60% in 2021 compared to 63% in 2020. The decrease in
gross margin was due to the $3.7 million charge related to an unfavorable purchase commitment, $1.6 million of technology-related intangible asset
amortization and $0.5 million of inventory purchase accounting fair market
59
value adjustments associated with the 7D Surgical acquisition, and higher inventory scrap all of which were partially offset by $1.0 million of idle plant
costs recorded in the second quarter of 2020 associated with the nearly two-month shutdown of orthobiologics manufacturing operations at our Irvine
facility due to the effects of the pandemic.
Cost of goods sold included $2.7 million and $1.0 million of amortization for product technology intangible assets for 2021 and 2020, respectively, and
$1.0 million and $1.0 million of depreciation expense for 2021 and 2020, respectively.
Cost of goods sold for 2021 includes a $3.7 million charge related to a purchase commitment related to NanoMetalene processing services which primarily
represents future fixed payments we are obligated to make to a supplier in connection with securing and maintaining long-term backup processing capacity.
We no longer anticipate utilizing the backup processor for a meaningful portion of our future NanoMetalene processing service needs throughout the term
of the agreement.
Selling and Marketing
Selling and marketing expenses increased $23.0 million to $107.3 million in 2021. The increase was driven by higher sales commissions due to increased
sales in 2021, 7D Surgical sales and marketing costs, higher sales, marketing, customer service and logistics headcount and related expenses, additional
spinal instrument set depreciation and instrument replacement expense due to product launches, and higher freight and third-party logistics expenses.
General and Administrative
General and administrative expenses increased $7.1 million to $42.9 million in 2021. The increase was primarily due to costs related to the restructuring of
our European sales and marketing organization, legal and other fees incurred related to our acquisition and integration of 7D Surgical and higher general
and administrative headcount.
Research and Development
R&D expenses increased $5.7 million to $22.0 million, or 11% of revenue, in 2021. The increase was due to 7D Surgical research and development costs, a
pre-technologically feasible patent purchase and higher R&D headcount and related expenses.
Intangible Amortization
Intangible amortization expense, excluding the amounts reported in cost of goods sold for product technology intangible assets, was $3.3 million in 2021
compared to $3.2 million in 2020.
Impairment of Intangible Assets
There was no impairment of intangible assets for the year ended December 31, 2021. Impairment of expandable interbody product technology intangible
assets was $1.3 million for the year ended December 31, 2020. During the year ended December 31, 2020, primarily as a result of an expected shift in
future product revenue mix more toward a parallel expanding interbody device designed based on our internally developed technology and, in turn, lower
future revenue anticipated for the lordotic expanding implant based on acquired technology, our estimated future net sales associated with those acquired
product technologies decreased. Accordingly, we evaluated the ongoing value of the product technology intangible assets associated with the acquisition of
these assets. Based on this evaluation, we determined that intangible assets with a carrying amount of $1.6 million were no longer recoverable and were
impaired, and we wrote those intangible assets down to their estimated fair value of $0.3 million.
Income Taxes
Year Ended December 31,
2021
2020
(In thousands)
Loss before income taxes
$
(55,446)
$
(42,963)
(Benefit from) provision for income taxes
(1,100)
218
Effective tax rate
2.0 %
(0.5)%
60
We reported an income tax benefit for the year ended December 31, 2021 primarily related to foreign operations including 7D Surgical. We reported an
income tax expense for the year ended December 31, 2020 primarily related to federal, foreign and state operations.
In addition, for any pretax losses incurred by the consolidated U.S. tax group, we recorded no corresponding tax benefit because we concluded it is more-
likely-than-not that we will be unable to realize the full value of any resulting deferred tax assets. We will continue to assess our position in future periods
to determine if it is appropriate to reduce a portion of our valuation allowance in the future.
The acquisition of 7D Surgical was a treated as an asset purchase for US tax purposes and a stock purchase for Canadian tax purposes. As such, we
recorded deferred tax assets and liabilities on our Canadian tax attributes. We are able to use our deferred tax liabilities as a source of income against a
portion of our deferred tax assets. A valuation allowance was recorded for the portion of the deferred tax assets that is more-likely-than-not that we will be
unable to realize. A net tax benefit of $1.5 million was recorded as a result of the 7D Surgical current year losses. This was offset by expenses recorded for
indefinite lived intangibles, current foreign and state taxes and prior year state tax true-ups.
In March 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide certain relief as a result of the COVID-
19 pandemic. The CARES Act, among other things, includes provisions relating to net operating loss carryback periods, alternative minimum tax credit
refunds, and modification to the net interest deduction limitations. The CARES Act did not have a material impact on our consolidated financial statements
for the years ended December 31, 2021 or 2020.
Other Income
Other income for the year ended December 31, 2021 primarily consisted of the gain on the forgiveness of debt related to the loan we obtained under the
Paycheck Protection Program under the CARES Act.
Business Factors Affecting the Results of Operations
Special Charges and Gains
We define special charges and gains as expenses or non-operating gains and losses for which the amount or timing can vary significantly from period to
period, and for which the amounts are non-cash in nature, or the amounts are not expected to recur at the same magnitude.
We believe that identification of these special charges and gains provides important supplemental information to investors regarding financial and business
trends relating to our financial condition and results of operations. Investors may find this information useful in assessing comparability of our operating
performance from period to period, against the business model objectives that management has established, and against other companies in our industry.
We provide this information to investors so that they can analyze our operating and financial results in the same way that management does and use this
information in their assessment of our core business and valuation.
61
Loss before income taxes includes the following special charges and gains for the years ended December 31, 2021 and 2020:
Year Ended December 31,
2021
2020
Special Charges and (Gains):
(In thousands)
Severance and other costs associated with European sales and marketing reorganization
1,826
—
Purchase accounting inventory fair market value
542
—
Unfavorable purchase commitment
3,704
—
Idle manufacturing plant costs
—
974
Impairment of intangible assets
—
1,325
Acquisition and integration-related charges for 7D Surgical
2,302
—
Gain on forgiveness of PPP Loan
(6,173)
—
Total Special Charges, net
$
2,201
$
2,299
(1) Relates to the impairment of acquired NLT product technology intangible assets.
The items reported above are reflected in the consolidated statements of operations as follows:
Year Ended December 31,
2021
2020
(In thousands)
Cost of goods sold
$
4,246
$
974
Impairment of intangible assets
$
—
$
1,325
General and administrative
4,128
—
Other income, net
(6,173)
$
—
Total Special Charges, net
$
2,201
$
2,299
Liquidity and Capital Resources
Overview, Capital Resources, and Capital Requirements
As of December 31, 2021, we had cash and cash equivalents totaling approximately $83.1 million, and $26.4 million of current borrowing capacity was
available under our credit facility. We believe that our cash and cash equivalents, and the amount currently available to us under our credit facility, will be
sufficient to fund our operations and meet our contractual obligations for at least the next twelve months.
Paycheck Protection Program Loan
In April 2020, due to the economic uncertainty resulting from the impact of the COVID-19 pandemic on our operations and to support our ongoing
operations and retain all employees, we applied for a loan under the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act). We received a loan in the original principal amount of $7.2 million. The Company subsequently repaid $1.0 million of the
loan. We used the loan proceeds for purposes consistent with the terms of the PPP and applied for forgiveness of the entire $6.2 million loan balance, which
was granted in June 2021. The $6.2 million gain on the loan forgiveness is included in other income, net, in the consolidated statement of operations. There
were no amounts outstanding under the loan at December 31, 2021. The loan is subject to audit by the Small Business Association (SBA) for up to six
years after the date of loan forgiveness. If the SBA determines that we did not qualify for all or part of the loan, we would need to repay all or a part of the
loan.
(1)
62
Credit Facility
We have a $30.0 million credit facility with Wells Fargo Bank, National Association which matures in July 2022.
At December 31, 2021, we had no outstanding borrowings under the credit facility. The borrowing capacity under the credit facility is determined monthly
and is based on the amount of our eligible accounts receivable and inventory balances and qualified cash (as defined in the credit facility). Depending on
the extent to which our eligible accounts receivable and inventory balances increase, our borrowing capacity could increase by as much as an additional
$0.1 million from the $26.4 million available as of December 31, 2021 before we are required to maintain the minimum fixed charge coverage ratio as
discussed below. The credit facility contains various customary affirmative and negative covenants, including prohibiting us from incurring indebtedness
without the lender’s consent. Under the terms of the credit facility, if our Total Liquidity (as defined in the credit facility) is less than $5.0 million, we are
required to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 for the applicable measurement period. Our Total Liquidity was $109.0 million
at December 31, 2021, and therefore that financial covenant was not applicable at that time.
Underwritten Offerings
In January 2020, we sold 7,820,000 shares of our common stock, resulting in proceeds of approximately $91.6 million, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.
In April 2021, we sold 5,175,000 shares of common stock, resulting in net proceeds of approximately $94.5 million, after deducting underwriting discounts
and commissions and estimated offering expenses payable by us.
Cash and Cash Equivalents
We had cash and cash equivalents totaling approximately $83.1 million and $76.8 million at December 31, 2021 and December 31, 2020, respectively.
Cash Flows
Year Ended December 31,
2021
2020
(In thousands)
Net cash used in operating activities
$
(33,512)
$
(24,599)
Net cash used in investing activities
(55,358)
(17,042)
Net cash provided by financing activities
95,545
98,138
Effect of exchange rate changes on cash and cash equivalents
(382)
117
Net change in cash and cash equivalents
$
6,293
$
56,614
Net Cash Used in Operating Activities
Net cash used in operating activities was $33.5 million in 2021 compared to $24.6 million in 2020,. The increase of $8.9 million was due primarily to
increases in inventory to support our product launches.
Net Cash Used in Investing Activities
Net cash used by investing activities was $55.4 million in 2021 compared to $17.0 million in 2020. The $38.3 million increase was primarily due to $28.0
million of net cash paid for the 7D Surgical acquisition, $10.0 million increase in purchases of property and equipment and $0.4 million of increased
additions to technology assets.
63
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $95.5 million in 2021 compared to $98.1 million in 2020. Cash flows provided by financings in 2021 were
comprised primarily of $94.5 million in net proceeds from issuance of common stock, $4.0 million of proceeds from the issuance of common stock under
our employee stock purchase plan and from the exercise of stock options partially offset by $2.9 million in repurchases of common stock from vesting of
restricted stock awards to cover statutory tax withholding requirements.
Off-Balance Sheet Arrangements
There were no off-balance sheet arrangements as of December 31, 2021 that have, or are reasonably likely to have, a current or future effect on our
financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is
material to our business.
Contractual Obligations and Commitments
As of December 31, 2021, we were obligated to pay the following amounts under various agreements:
Total
Less than 1 Year
1-3 Years
4-5 Years
More than 5
Years
(In millions)
Operating Leases
10.2
2.8
3.2
3.0
1.2
Purchase Obligations
30.7
30.7
—
—
—
Other
4.1
2.4
1.7
—
—
Total
$
45.0
$
35.9
$
4.9
$
3.0
$
1.2
The "Other" line item includes minimum milestone payments under certain license agreements. The table above excludes the following liabilities because
we cannot reliably estimate the timing of when they may become payable, if ever:
•
royalty payments related to the NLT acquisition; and
•
up to $1.1 million in the aggregate of potential milestone payments under a license agreement that may be payable at various stages of developing
the licensed technology and sales of products using the licensed technology.
Critical Accounting Policies and the Use of Estimates
Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States of America.
Preparing consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting
amounts reported or disclosed in the consolidated financial statements include allowances for doubtful accounts receivable and sales returns and other
credits, revenue recognition, net realizable value of inventories, discount rates and estimated projected cash flows used to value and test impairments of
goodwill, identifiable intangible and long-lived assets, fair value estimates related to business combinations, assumptions related to the timing and
probability of product launch dates, discount rates matched to the estimated timing of payments, probability of success rates and discount adjustments on
the related cash flows for contingent considerations in business combinations, depreciation and amortization periods for identifiable intangible and long-
lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation and loss
contingencies. These estimates are based on historical experience and on various other assumptions believed to be reasonable under the current
circumstances. Actual results could differ from these estimates.
The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition,
including revenues, expenses, manufacturing, research and development costs and employee-related compensation, will depend on future developments
that are highly uncertain, including as a result of variants of the virus that causes COVID-19 or other information that may emerge concerning COVID-19
and the actions taken to
64
contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. The Company has made
estimates of the impact of the pandemic within its financial statements and there may be changes to those estimates in future periods. Actual results may
differ from these estimates.
We believe that the following accounting policies, which form the basis for developing these estimates, are those that are most critical to the presentation of
our consolidated financial statements and require the more difficult subjective and complex judgments:
Revenue Recognition
Net sales are derived primarily from the sale of orthobiologics and spinal implants and enabling technology products globally. Revenue is recognized when
obligations under the terms of a contract with the Company's customer are satisfied which occurs with the transfer of control of the Company's products.
This occurs either upon shipment or delivery of goods, depending on whether the contract is Free on Board (FOB) origin or FOB destination, or, in other
situations such as consignment arrangements, when the products are used in a surgical procedure (implanted in a patient) and in the case of capital
equipment, when the equipment has been accepted by the customer.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer (transaction
price). To the extent that the transaction price includes variable consideration, such as discounts, list price discounts, rebates, volume discounts and
customer payment penalties, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the most
likely amount method. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future
reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated
amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and
forecasted) that is reasonably available.
The Company reduces revenue by estimates of potential future product returns and other allowances. Provisions for product returns and other allowances
are recorded as a reduction to revenue in the period sales are recognized. The Company estimates the amount of sales returns and allowances that will
eventually be incurred. Certain contracts with stocking distributors contain provisions requiring the Company to repurchase inventory upon termination of
the contract or discontinuation of a product line. Included in the sales returns reserve within other current liabilities is an estimate of repurchases that are
likely to be made under these provisions. Management analyzes sales programs that are in effect, contractual arrangements, market acceptance and
historical trends when evaluating the adequacy of sales returns and allowance accounts.
In certain sales arrangements, the Company fulfills its obligations and bills the customer for the products prior to the shipment of goods. The Company
allocates the transaction price to the multiple performance obligations under these contracts, including delivery of the products and the third-party logistics
(3PL) performance obligations. Revenue related to product sales under these arrangements is not recognized until the Company delivers the products to the
customer’s dedicated space within the Company’s facility, at which point the customer obtains control of the products. Revenue from the related 3PL
obligations consists of revenue from storage of products which is recognized ratably over the service period, and revenue from shipping services which is
recognized upon performance of such obligation.
Additionally, the Company allocates the transaction price to the multiple performance obligations under the contracts related to the sale of capital
equipment, including the capital equipment, tools and software, the training and installation and the service. Revenue related to capital equipment, tools and
software under these arrangements is recognized upon customer acceptance of the system. Revenue from training and installation is recognized upon
completion of the training and installation process. Revenue from service contracts is recognized over the term of the contract.
Under certain contracts, the transfer of capital equipment occurs over time as the customer's purchase commitments on other spinal implant and
orthobiologics products are met. The Company allocates the transaction price to the multiple performance obligations under these contracts related to the
sale of the products (recognized either upon the shipment or delivery of goods, as discussed above), the lease of capital equipment (recognized over the
contract period), and of the sale of capital equipment (recognized once the purchase commitments are met).
Deferred revenue primarily consists of payments received in advance of revenue recognition from the sales of the Company's capital equipment and related
products as described above and is recognized as the revenue recognition criteria are met.
65
Product royalties account for less than 1% of total revenue for any of the periods presented and are estimated and recognized in the same period that the
royalty-based products are sold by licensees. The Company estimates and recognizes royalty revenue based upon communication with licensees, historical
information and expected sales trends. Differences between actual revenues and estimated royalty revenues are adjusted in the period in which they become
known, which is typically the following quarter. Historically, such adjustments have not been material.
Allowance for Doubtful Accounts Receivable
We evaluate the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to meet its
financial obligations to us, we record an allowance to reduce the net recognized receivable to the amount we reasonably expect to collect. For all other
customers, we record allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and our
historical experience. If the financial condition of customers or the length of time that receivables are past due were to change, we may incur bad debt
expense in general and administrative expense.
Inventories
Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost, the value determined by the first-in,
first-out method, or the net realizable value methods. At each balance sheet date, we evaluate ending inventories for excess quantities, obsolescence or
shelf-life expiration. Our evaluation includes an analysis of our current and future strategic plans, historical sales levels by product, projections of future
demand by product, the risk of technological or competitive obsolescence for our products, general market conditions, a review of the shelf-life expiration
dates for our products, and the feasibility of reworking or using excess or obsolete products or components in the production or assembly of other products
that are not obsolete or for which we do not have excess quantities in inventory. To the extent that we determine there are excess or obsolete quantities or
quantities with a shelf life that is too near its expiration for us to reasonably expect that we can sell those products prior to their expiration, we adjust their
carrying value to estimated net realizable value. If future demand or market conditions are lower than our projections or if we are unable to rework excess
or obsolete quantities into other products, we may record further adjustments to the carrying value of inventory through a charge to cost of goods sold in
the period the revision is made. In addition, we capitalize inventory costs associated with certain products prior to regulatory approval, based on
management’s judgment of probable economic benefit. We could be required to expense previously capitalized costs related to pre-approval inventory upon
a change in such judgment, due to, among other potential factors, a denial or delay of approval by necessary regulatory bodies or a decision by management
to discontinue the related development program.
Leases
We determine if an arrangement is a lease at inception. Our leases primarily relate to administrative, manufacturing, research, and distribution facilities and
various manufacturing, office and transportation equipment. Lease assets represent our right to use an underlying asset for the lease term and lease
liabilities represent the obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based
on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, our incremental borrowing rate is used as a
discount rate, based on the information available at the commencement date, in determining the present value of lease payments. Lease assets also include
the impact of any prepayments made and are reduced by impact of any lease incentives.
We made an accounting policy election for short-term leases, such that we will not recognize a lease liability or lease asset on its balance sheet for leases
with a lease term of twelve months or less as of the commencement date. Rather, any short-term lease payments will be recognized as an expense on a
straight-line basis over the lease term. The current period short-term lease expense reasonably reflects the Company's short-term lease commitments.
We made a policy election for all classifications of leases to combine lease and non-lease components and to account for them as a single lease component.
Variable lease payments are excluded from the lease liability and recognized in the period in which the obligation is incurred. Additionally, lease terms may
include options to extend or terminate the lease when it is reasonably certain we will exercise the option.
66
Valuation of Identifiable Intangible Assets
Our intangible assets are comprised primarily of product technology, customer relationships, and trade name and trademarks. We make significant
judgments in relation to the valuation of intangible assets resulting from business combinations and asset acquisitions. Significant estimates include, but are
not limited to, measurements estimating cash flows and determining the appropriate discount rate.
Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization. Intangible assets with finite
lives are amortized on a straight-line basis over their estimated useful lives of 1 to 20 years. We base the useful lives and related amortization expense on
the period of time we estimate the assets will generate revenues or otherwise be used by the Company. We also periodically review the lives assigned to our
intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to realize cash flows from the
technologies. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would
increase.
We review identifiable intangible assets with definite lives for impairment quarterly or whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors we consider in determining whether a triggering event has occurred include a significant change in the
business climate, legal factors, operating performance indicators, competition, sale or disposition of significant assets or products. Application of these
impairment tests requires significant judgments, including estimation of future cash flows, which depends on internal forecasts, estimation of the long-term
rate of growth for our business, the useful life over which cash flows will occur and determination of our weighted-average cost of capital.
Should a triggering event be deemed to occur, we are required to estimate the expected net cash flows to be realized over the life of the asset and/or the
asset’s fair value. Fair values are determined by a discounted cash flow model. These estimates are also subject to significant management judgment
including the determination of many factors such as revenue growth rates, cost growth rates, terminal value assumptions and discount rates. Changes in
these estimates can have a significant impact on the determination of cash flows and fair value and could result in future material impairments.
Due to market trend factors, new features necessary to be competitive, and changing pricing dynamics, there were shifts in the commercialization strategy
of some of the acquired product technologies and the estimated future net sales associated with those technologies. During the years ended December 31,
2021 and 2020, we performed a recoverability test and determined that the expected net cash flows to be realized over the life of the technology related
intangible assets were no longer recoverable and were impaired. See Note 5, "Balance Sheet", to the Notes to Consolidated Financial Statements included
in Part IV of this report for additional information regarding these impairments. If our estimates of expected cash flows continue to decline, we may record
additional impairment charges on the related intangible assets in the future.
Goodwill
Goodwill represents the excess of the purchase prices of an acquired business over the fair value of the underlying net tangible and intangible assets. The
Company is required to assess goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate
impairment may have occurred.
We first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after completing the
qualitative assessment, we determine it is more likely than not that the estimated fair value is greater than the carrying value, we conclude no impairment
exists. Alternatively, if we determine in the qualitative assessment that it is more likely than not that the fair value is less than its carrying value, then we
perform a quantitative goodwill impairment test to identify both the existence of an impairment and the amount of impairment loss, by comparing the fair
value of the reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than the carrying value, then
a goodwill impairment charge will be recognized in the amount by which the carrying amount exceeds the fair value, limited to the total amount of
goodwill allocated to that reporting unit. We perform the goodwill annual assessment test during the fourth quarter every year and when an event occurs or
circumstances change such that it is reasonably possible that an impairment may exist.
We assess qualitative factors to determine whether goodwill is impaired. The qualitative analysis includes assessing the impact of changes in certain factors
including: (1) changes in forecasted operating results and comparing actual results to projections, (2) changes in the industry or our competitive
environment since the acquisition date, (3) changes in the overall economy, our market share and market interest rates since the acquisition date, (4) trends
in the stock price and related market capitalization
67
and enterprise values, (5) trends in peer companies’ total enterprise value metrics, and (6) additional factors such as management turnover, changes in
regulation and changes in litigation matters.
Based on our qualitative assessment performed during the fourth quarter of 2021, we concluded that it was more likely than not that the estimated fair value
of our reporting units exceeded their carrying value as of December 31, 2021, and therefore, determined it was not necessary to perform a quantitative
goodwill impairment test.
Valuation of Stock-Based Compensation
The estimated fair value of stock-based awards exchanged for employee and non-employee director services are expensed over the requisite service period.
For purposes of calculating stock-based compensation, we estimate the fair value of stock options using a Black-Scholes option-pricing model. The
determination of the fair value of stock-based payment awards utilizing the Black-Scholes model is affected by our stock price and several assumptions,
including expected volatility, expected term, risk-free interest rate and expected dividends. Due to our limited historical data as a separate public company,
the expected volatility is calculated based upon the historical volatility of comparable companies in the medical device industry whose share prices are
publicly available for a sufficient period of time. The expected term is calculated using the historical weighted average term of the Company’s options. The
risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the
expected term of the options. We considered that we have never paid cash dividends and do not currently intend to pay cash dividends. The fair value of
restricted stock awards granted is based on the market price of our common stock on the date of grant. In addition, we apply an expected forfeiture rate
when amortizing stock-based compensation expense. The expected forfeiture rate is based on historical experience of pre-vesting forfeitures on awards by
each homogenous group of shareowners and is estimated to be 9% and 13% annually for all non-executive employees for the years ended December 31,
2021 and 2020, respectively. We do not apply a forfeiture rate to awards (including stock options) granted to non-employee directors or executive
employees because their pre-vesting forfeitures are anticipated to be highly unlikely. As individual awards become fully vested, stock-based compensation
expense is adjusted to recognize actual forfeitures.
If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past.
If there is a difference between the assumptions used in determining stock-based compensation expense and the actual factors which become known over
time, specifically with respect to anticipated forfeitures, we may change the input factors used in determining stock-based compensation costs for future
grants. These changes, if any, may materially impact our results of operations in the period such changes are made.
Income Taxes
Our deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and their basis for income tax purposes, and also the temporary differences created by the tax effects of capital loss, net operating loss and tax
credit carryforwards. We record valuation allowances to reduce deferred tax assets to the amounts that are more likely than not to be realized. We could
recognize no benefit from our deferred tax assets or we could recognize some or all of the future benefit depending on the amount and timing of taxable
income we generate in the future.
Changes in the tax rates of the various jurisdictions in which we operate affect our profits. In addition, we maintain a reserve for uncertain tax benefits,
changes to which could impact our effective tax rate in the period such changes are made. The effective tax rate can also be impacted by changes in tax law
and in valuation allowances of deferred tax assets.
Our provision for income taxes may change period-to-period based on specific events, such as the settlement of income tax audits and changes in tax laws,
as well as general factors, including the geographic mix of income before taxes, state and local taxes.
We recognize a tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits
of the position. The amount of the accrual for which an exposure exists is not material for any period presented.
68
We believe that we have identified all reasonably identifiable exposures and the reserve we have established for identifiable exposures is appropriate under
the circumstances; however, it is possible that additional exposures exist and that exposures will be settled at amounts different than the amounts reserved.
It is also possible that changes in facts and circumstances could cause us to either materially increase or reduce the carrying amount of our tax reserves.
Loss Contingencies
The Company is subject to various legal proceedings in the ordinary course of its business with respect to its products, its current or former employees, and
its commercial relationships. The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is
estimable. The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds, and do not include an estimate
for legal fees expected to be incurred in connection with the loss contingency. The Company accrues legal fees expected to be incurred in connection with
loss contingencies as those fees are incurred by outside counsel as a period cost. The Company's financial statements do not reflect any material amounts
related to possible unfavorable outcomes of claims and lawsuits to which it is currently a party because it currently believes that such claims and lawsuits
are not expected, individually or in the aggregate, to result in a material and adverse effect on its financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Because we were a "smaller reporting company," as defined in Item 10 of Regulation S-K, during the year covered by this report, we are not required to
provide the information required by this Item.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and the financial statement schedules specified by this Item, together with the report thereon of RSM US LLP, are presented following
the signature page to this report.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
69
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of our management, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of the end of
the period covered by this report to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i)
recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-
15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed under the supervision and with the participation of
our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America. Management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013
Framework). Based on this assessment, our management concluded that, as of December 31, 2021, our internal control over financial reporting was
effective based on those criteria. RSM US LLP, the Company’s independent registered public accounting firm, has issued an attestation on the Company’s
internal control over financial reporting which is included herein.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and
15d-15(d) under the Exchange Act that occurred during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
70
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of SeaSpine Holdings Corporation
Opinion on the Internal Control Over Financial Reporting
We have audited SeaSpine Holdings Corporation's (the Company) internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’
equity and cash flows for each of the two years in the period ended December 31, 2021 of the Company and our report, dated March 14, 2022, expressed an
unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Los Angeles, California
March 14, 2022
71
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
72
Part III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Information required by this item will be set forth under the headings “PROPOSAL 1: ELECTION OF DIRECTORS,” “EXECUTIVE COMPENSATION
AND OTHER INFORMATION,” and, if applicable, “DELINQUENT SECTION 16(a) REPORTS” in our definitive proxy statement to be filed with the
SEC in connection with our 2022 Annual Meeting of Stockholders, or the Definitive Proxy Statement, which is expected to be filed not later than 120 days
after the end of our fiscal year ended December 31, 2021, and is incorporated in this report by reference.
Item 11. EXECUTIVE COMPENSATION.
The information required by this item will be set forth under the heading "EXECUTIVE COMPENSATION AND OTHER INFORMATION" in the
Definitive Proxy Statement and is incorporated in this report by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this item will be set forth under the headings “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT” and “EXECUTIVE COMPENSATION AND OTHER INFORMATION” in the Definitive Proxy Statement and is incorporated in this
report by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item will be set forth under the headings “CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS”
and “PROPOSAL 1: ELECTION OF DIRECTORS” in the Definitive Proxy Statement and is incorporated in this report by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this item will be set forth under the headings “PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM” in the Definitive Proxy Statement and is incorporated in this report by reference.
73
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as a part of this report.
1. Financial Statements.
The following financial statements and financial statement schedules are filed as a part of this report:
Report of Independent Registered Public Accounting Firm (PCAOB ID: 49)
F- 1
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020
F- 3
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2021 and 2020
F- 4
Consolidated Balance Sheets as of December 31, 2021 and 2020
F- 5
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020
F- 6
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021 and 2020
F- 8
Notes to Consolidated Financial Statements
F- 9
2. Financial Statement Schedules.
Schedule II — Valuation and Qualifying Accounts
F- 30
All other schedules not listed above have been omitted, because they are not applicable or are not required, or because the required information is included
in the consolidated financial statements or notes thereto.
3. Exhibits required to be filed by Item 601 of Regulation S-K.
The following exhibits, as required by Item 601 of Regulation S-K, are attached or incorporated by reference as stated below. We will furnish a copy of any
exhibit to stockholders without charge upon written request to Investor Relations, SeaSpine Holdings Corp., 5770 Armada Drive, Carlsbad, California
92008, or by calling Investor Relations at (760) 727-8399.
74
EXHIBIT INDEX
Incorporated by Reference
Exhibit No.
Description
Filed or
Furnished
Herewith
Form
File/Film No.
Date Filed
2.1(a)*#
Asset Purchase Agreement among SeaSpine Holdings
Corporation, N.L.T Spine Ltd. and NLT Spine, Inc.,
dated August 17, 2016
Form 10-Q
001-36905-161987764
11/10/2016
2.1(b)
Amendment to the Asset Purchase Agreement among
SeaSpine Holdings Corporation, N.L.T Spine Ltd. and
NLT Spine, Inc., dated September 26, 2016
Form 10-Q
001-36905-161987764
11/10/2016
2.1(c)
Amendment No. 2 to Asset Purchase Agreement
among SeaSpine Holdings Corporation, N.L.T Spine
Ltd. and NLT Spine, Inc., dated January 31, 2017
Form 10-K
001-36905-17665133
3/3/2017
3.1
Certificate of Amendment of Amended and Restated
Certificate of Incorporation of SeaSpine Holdings
Corporation executed June 2, 2021
Form 8-K
001-36905-21996521
6/4/2021
3.2
Amended and Restated Bylaws of SeaSpine Holdings
Corporation (as amended as of June 2, 2021)
Form 8-K
001-36905-21996521
6/4/2021
4.1
Form of Common Stock Certificate of SeaSpine
Holdings Corporation
Form 10
001-36905-15904590
6/1/2015
4.2
Form of Indenture for Senior Debt Securities
Form S-3
333-236802-20674290
2/28/2020
4.3
Form of Indenture for Subordinated Debt Securities
Form S-3
333-236802-20674290
2/28/2020
4.4
Description of securities of the registrant
Form 10-K
001-36905-20672604
2/28/2020
10.1
PcoMed Supply Agreement effective March 1, 2021
Form 10-Q
001-36905-21884685
5/3/2021
10.2
Microfibrillar Collagen Supply Agreement between
Integra LifeSciences Holdings Corporation and
SeaSpine Holdings Corporation, dated as of July 1,
2015
Form 8-K
001-36905-15966132
7/1/2015
10.3
Arrangement Agreement, dated March 22, 2021, by
and among SeaSpine Holdings Corporation, 7D
Surgical Inc. and Project Maple Leaf Acquisition ULC
Form 8-K
001-36905-21768284
3/24/2021
10.4
Amendment Agreement to the Arrangement
Agreement among SeaSpine Holdings Corporation,
Project Maple Leaf Acquisition ULC, 7D Surgical Inc.
and Michael Cadotte and Joel Rose dated March 22,
2021.
Form 10-Q
001-36905-211149674
8/5/2021
75
10.5
Non-Employee Director Compensation Program
Amended and Restated Effective June 2, 2021
Form 10-Q
001-36905-21884685
5/3/2021
10.6**
Form of Indemnification Agreement entered into
between SeaSpine Holdings Corporation and each of
its directors and officers
Form 8-K
001-36905-19870508
5/31/2019
10.7
Consent and Agreement Under Amended and Restated
Credit Agreement
Form 10-Q
001-36905-211149674
8/5/2021
10.8(a)**
SeaSpine Holdings Corporation 2015 Employee Stock
Purchase Plan
Form 10
001-36905-15904590
6/1/2015
10.8(b)**
First Amendment to the SeaSpine Holdings
Corporation 2015 Employee Stock Purchase Plan
DEF 14A
001-36905-19753214
4/17/2019
10.8(c)**
Second Amendment to the SeaSpine Holdings
Corporation 2015 Employee Stock Purchase Plan
(December 9, 2020)
DEF 14A
001-36905-21841903
4/21/2021
10.9(a)**
Employment Agreement, by and between SeaSpine
Holdings Corporation, SeaSpine Orthopedics
Corporation and Keith Valentine, dated April 28, 2015
Form 10
001-36905-15904590
6/1/2015
10.9(b)**
Amendment to Employment Agreement entered into
effective as of April 30, 2019 by and between
SeaSpine Holdings Corporation and SeaSpine
Orthopedics Corporation and Keith Valentine
Form 8-K
001-36905-19781754
4/30/2019
10.9(c)**
Letter agreement dated April 23, 2020 with Keith C.
Valentine
Form 8-K
001-36905-20815066
4/24/2020
10.10**
John Bostjancic Letter Agreement, dated March 30,
2015
Form 10
001-36905-15904590
6/1/2015
10.11**
John Winge Letter Agreement, dated January 22, 2015
Form 10
001-36905-15904590
6/1/2015
10.12**
Form of letter agreement dated April 23, 2020 with
members of the senior leadership team of SeaSpine
Holdings Corporation other than Keith C. Valentine
Form 8-K
001-36905-20815066
4/24/2020
76
10.13
Amended and Restated Lease between Monarch RRC
Properties, LLC (assignee of original landlord, New
Goodyear LTD) and IsoTis Orthobiologics, Inc., dated
as of February 23, 2006, for property at 2 Goodyear,
Irvine, CA (the “Irvine Industrial Real Estate Lease”)
Form 10
001-36905-15904590
6/1/2015
10.14(a)
Amendment No. 1 to Irvine Industrial Real Estate
Lease, dated as of May 26, 2011
Form 10
001-36905-15904590
6/1/2015
10.14(b)
Amendment No. 2 to Irvine Industrial Real Estate
Lease, dated as of May 14, 2013
Form 10
001-36905-15904590
6/1/2015
10.15
Sublease Agreement between SeaSpine Orthopedics
Corporation, and SkinMedica, Inc., dated as of July 8,
2015
Form 8-K
001-36905-151103433
9/11/2015
10.16**
SeaSpine Holdings Corporation Senior Leadership
Retention and Severance Plan, effective January 27,
2016
Form 8-K
001-36905-161378936
2/2/2016
10.17(a)
Credit Agreement between SeaSpine Holdings
Corporation, SeaSpine Orthopedics Corporation,
SeaSpine, Inc., SeaSpine Sales LLC, Theken Spine,
LLC, ISOTIS Orthobiologics, Inc. and Wells Fargo
Bank, National Association, as administrative agent
for each member of the lender group and the bank
product providers, entered into as of December 24,
2015
Form 10-K
001-36905-161510399
3/16/2016
10.17(b)
First Amendment to Credit Agreement and Waiver
among SeaSpine Holdings Corporation, SeaSpine
Orthopedics Corporation, SeaSpine, Inc., SeaSpine
Sales LLC, Theken Spine, LLC, ISOTIS
Orthobiologics, Inc. and Wells Fargo Bank, National
Association, as administrative agent for each member
of the lender group and the bank product providers,
made as of October 14, 2016
Form 10-K
001-36905-17665133
3/3/2017
10.17(c)
Amended and Restated Credit Agreement between
SeaSpine Holdings Corporation, SeaSpine Orthopedics
Corporation, SeaSpine, Inc., SeaSpine Sales LLC,
Theken Spine, LLC, ISOTIS Orthobiologics, Inc. and
Wells Fargo Bank, National Association, as
administrative agent for each member of the lender
group and the bank product providers, entered into as
of July 27, 2018
Form 10-Q
001-36905-181164006
11/6/2018
10.17(d)
Consent Under and First Amendment to Amended and
Restated Credit Agreement
Form 10-Q
001-36905-201074116
08/4/2020
77
10.17(e)
Second Amendment to Amended and Restated Credit
Agreement made as of July 30, 2020 by and among
Wells Fargo Bank, N.A., as administrative agent for
each member of the lender group and the bank product
providers, the lenders party thereto, SeaSpine
Holdings Corporation, SeaSpine Orthopedics
Corporation, SeaSpine, Inc., ISOTIS, Inc., SeaSpine
Sales LLC, Theken Spine, LLC, and IsoTis
Orthobiologics, Inc.
Form 10-Q
001-36905-201298825
11/9/2020
10.17(f)
Consent and Agreement Under Amended and Restated
Credit Agreement, dated May 20, 2021, among Wells
Fargo Bank, National Association, and SeaSpine
Holdings Corporation, SeaSpine Orthopedics
Corporation, SeaSpine, Inc., Isotis Inc., SeaSpine
Sales LLC, Theken Spine, LLC, and Isotis
Orthobiologics, Inc.
Form 10-Q
001-36905-211149674
8/5/2021
10.17(g)
Omnibus Joinder and Third Amendment to Amended
and Restated Credit Agreement and Other Loan
Documents
X
10.18(a)**
SeaSpine Holdings Corporation Amended and
Restated 2015 Incentive Award Plan (As Amended
and Restated as of March 30, 2016)
Form S-8
333-211887-161700155
6/7/2016
10.18(b)**
First Amendment to the SeaSpine Holdings
Corporation Amended and Restated 2015 Incentive
Award Plan
Form 8-K
001-36905-161841057
8/18/2016
10.18(c)**
Second Amendment to the SeaSpine Holdings
Corporation Amended and Restated 2015 Incentive
Award Plan
Form S-8
333-223435-18663875
3/5/2018
10.18(d)**
Amendment to the SeaSpine Holdings Corporation
Amended and Restated 2015 Incentive Award Plan
Form 8-K
001-36905-20946631
6/5/2020
10.18(e)**
SeaSpine Holdings Corporation Amended and
Restated 2015 Incentive Award Plan- Form of Stock
Option Grant Notice (including Stock Option
Agreement)
Form S-8
333-211887-161700155
6/7/2016
10.18(f)**
SeaSpine Holdings Corporation Amended and
Restated 2015 Incentive Award Plan - Form of Stock
Option Grant Notice (including Stock Option
Agreement)
Form 10
001-36905-15904590
6/1/2015
78
10.18(g)**
SeaSpine Holdings Corporation Amended and
Restated 2015 Incentive Award Plan- Form of
Restricted Stock Award Grant Notice and Restricted
Stock Award Agreement
Form S-8
333-211887-161700155
6/7/2016
10.18(h)**
SeaSpine Holdings Corporation Amended and
Restated 2015 Incentive Award Plan - Form of
Restricted Stock Unit Award Grant Notice and
Restricted Stock Unit Award Agreement.
Form 10-K
001-36905-17665133
3/3/2017
10.18(i)**
SeaSpine Holdings Corporation Amended and
Restated 2015 Incentive Award Plan - Form of
Restricted Stock Unit Award Grant Notice and
Restricted Stock Unit Award Agreement. (used for
grants on and after February 1, 2018)
Form 10-K
001-36905-18663242
3/2/2018
10.18(j)**
SeaSpine Holdings Corporation Amended and
Restated 2015 Incentive Award Plan - Form of
Restricted Stock Unit Award Grant Notice and
Restricted Stock Unit Award Agreement. (used for
grants on and after January 1, 2020)
Form 10-K
001-36905-20672604
2/28/2020
10.18(k)**
SeaSpine Holdings Corporation Amended and
Restated 2015 Incentive Award Plan - Form of Stock
Option Grant Notice and Stock Option Agreement.
(used for grants on and after June 6, 2018 for Senior
Leadership Team Members)
Form 10-Q
001-36905-18979117
7/31/2018
10.18(l)**
SeaSpine Holdings Corporation Amended and
Restated 2015 Incentive Award Plan - Form of Stock
Option Grant Notice and Stock Option Agreement.
(used for grants on and after June 6, 2018 for Non-
Senior Leadership Team Members)
Form 10-Q
001-36905-18979117
7/31/2018
10.18(m)**
SeaSpine Holdings Corporation Amended and
Restated 2015 Incentive Award Plan Annual Incentive
Program
Form 8-K
001-36905-21571239
1/29/2021
10.19(a)**
SeaSpine Holdings Corporation 2018 Employment
Inducement Incentive Award Plan
Form 10-Q
001-36905-18979117
7/31/2018
10.19(b)**
Form of Restricted Stock Unit Award Grant Notice
and Restricted Stock Unit Award Agreement under the
SeaSpine Holdings Corporation 2018 Employment
Inducement Incentive Award Plan
Form 10-Q
001-36905-18979117
7/31/2018
79
10.19(c)**
Form of Stock Option Grant Notice and Stock Option
Agreement under the SeaSpine Holdings Corporation
2018 Employment Inducement Incentive Award Plan
(for Senior Leadership Team Members)
Form 10-Q
001-36905-18979117
7/31/2018
10.19(d)**
Form of Stock Option Grant Notice and Stock Option
Agreement under the SeaSpine Holdings Corporation
2018 Employment Inducement Incentive Award Plan
(for Non-Senior Leadership Team Members)
Form 10-Q
001-36905-18979117
7/31/2018
10.20(a)**
SeaSpine Holdings Corporation 2020 Employment
Inducement Incentive Award Plan
Form 10-Q
001-36905-201074116
8/4/2020
10.20(b)**
Form of 2020 Employment Inducement Incentive
Award Plan Restricted Stock Unit Award Grant Notice
and Restricted Stock Unit Award Agreement under the
SeaSpine Holdings Corporation 2020 Employment
Inducement Incentive Award Plan
Form 10-Q
001-36905-201074116
8/4/2020
10.20(c)**
Form of Stock Option Grant Notice and Stock Option
Agreement under the SeaSpine Holdings Corporation
2020 Employment Inducement Incentive Award Plan
(for Senior Leadership Team Members) Stock Option
Grant Notice
Form 10-Q
001-36905-201074116
8/4/2020
10.20(d)**
Form of Stock Option Grant Notice and Stock Option
Agreement under the SeaSpine Holdings Corporation
2020 Employment Inducement Incentive Award Plan
(for Non-Senior Leadership Team Members) Stock
Option Grant Notice
Form 10-Q
001-36905-201074116
8/4/2020
10.21**
Amended and Restated Non-Employee Director
Compensation Program, effective May 30, 2018
Form 10-Q
001-36905-18979117
7/31/2018
10.22**
Patrick Keran Letter Agreement, dated October 1,
2015
Form 10-Q
001-36905-17818719
5/5/2017
10.23(a)*
Supply Agreement, dated May 15, 2013, by and
between Integra LifeSciences Corporation and
PcoMed, LLC, and subsequent assignment to
SeaSpine Holdings Corporation on May 21, 2015
Form 8-K
001-36905-181116276
10/10/2018
10.23(b)
Amendment 10 to the Supply Agreement between
SeaSpine Orthopedics Corporation and PcoMed, LLC
Form 10-K
001-36905-21719669
3/5/2021
10.24*
Tyler Lipschultz Letter Agreement, dated July 9, 2015
Form 10-Q
001-36905-19788614
5/1/2019
80
10.25**
Beau Standish Offer Letter
Form 10-Q
001-36905-211149674
8/5/2021
21.1
Subsidiaries of Registrant
X
23.1
Consent of RSM US LLP, Independent Registered
Accounting Firm
X
24.1
Power of Attorney (included on the signatures page)
X
31.1
Certification of Principal Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1***
Certification of Principal Executive Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
X
32.2***
Certification of Principal Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
X
†101.INS
Inline XBRL Instance Document - the instance
document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline
XBRL document.
X
†101.SCH
Inline XBRL Taxonomy Extension Schema Document
X
†101.CAL
Inline XBRL Taxonomy Extension Calculation
Linkbase Document
X
†101.DEF
Inline XBRL Definition Linkbase Document
X
†101.LAB
Inline XBRL Taxonomy Extension Labels Linkbase
Document
X
†101.PRE
Inline XBRL Taxonomy Extension Presentation
Linkbase Document
X
104
Cover Page Interactive Data File (embedded within
Exhibit 101.INS Inline XBRL document)
X
81
* Confidential treatment has been requested or granted to certain confidential information contained in this exhibit. Such information was omitted from
this exhibit by means of redacting a portion of the text and replacing it with an asterisk. We have filed separately with the SEC an unredacted copy
of the exhibit.
# Certain schedules and attachments referenced in this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any
omitted schedule and attachment will be furnished supplementally to the SEC upon request.
** Indicates management contract or compensatory plan or arrangement.
*** These certifications are being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section
18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or after
the date hereof, regardless of any general incorporation by reference language in such filing.
† The financial information of SeaSpine Holdings Corporation Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 14,
2022 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated
Statements of Comprehensive Loss, (iii) the Consolidated Balance Sheets, (iv) Parenthetical Data to the Consolidated Balance Sheets, (v) the
Consolidated Statements of Cash Flows, (vi) the Consolidated Statements of Equity, and (vii) Notes to Consolidated Financial Statements, is
furnished electronically herewith.
ITEM 16.
FORM 10-K SUMMARY
None.
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SEASPINE HOLDINGS CORPORATION
Date:
March 14, 2022
/s/ Keith C. Valentine
Keith C. Valentine
President and Chief Executive Officer
83
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Keith C. Valentine and John J.
Bostjancic, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any
amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Keith C. Valentine
President, Chief Executive Officer and Director
(Principal Executive Officer)
March 14, 2022
Keith C. Valentine
/s/ John J. Bostjancic
Chief Financial Officer
(Principal Financial and Accounting Officer)
March 14, 2022
John J. Bostjancic
/s/ Kirtley C. Stephenson
Chair of the Board
March 14, 2022
Kirtley C. Stephenson
/s/ Stuart M. Essig
Lead Independent Director
March 14, 2022
Stuart M. Essig
Director
March 14, 2022
Keith Bradley
/s/ Michael Fekete
Director
March 14, 2022
Michael Fekete
/s/ Renee M. Gaeta
Director
March 14, 2022
Renee M. Gaeta
/s/ John B. Henneman, III
Director
March 14, 2022
John B. Henneman, III
Director
March 14, 2022
Shweta Singh Maniar
/s/ Angela Steinway
Director
March 14, 2022
Angela Steinway
84
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of SeaSpine Holdings Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SeaSpine Holdings Corporation and its subsidiaries (the Company) as of December 31,
2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 2021, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the
results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 14, 2022 expressed an unqualified opinion on
the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical
audit matters or on the accounts or disclosures to which they relate.
Excess and Obsolete Inventory Reserves
As described in Note 2 and Schedule II to the financial statements, the Company’s inventory reserves balance was $42.3 million as of December 31, 2021.
The Company’s inventories are valued at the lower of cost, the value determined by the first-in, first-out method, or net realizable value. The Company
reviews the components of its inventories on a periodic basis for excess and obsolescence and adjusts inventories to its net realizable value as necessary.
The valuation of inventories requires management to make significant assumptions, including assumptions about product life cycle and projections of
future demand as well as specific product considerations such as timing of the introduction and development of new or enhanced products. We identified
valuation of excess and obsolete inventory reserves, which is included in the inventory reserves balance, as a critical audit matter because of the significant
assumptions and judgements used by management in estimating adequate reserves. Auditing management’s assumptions was complex and required a high
degree of auditor judgment and subjectivity when performing audit procedures and evaluating the audit evidence obtained. Our audit procedures related to
the Company’s excess and obsolete inventory reserves included the following, among others:
a.
We obtained an understanding of the relevant controls over the Company’s excess and obsolete inventory reserves, including the completeness and
accuracy of data used in the process, and tested such controls for design and operating effectiveness.
b.
We evaluated the reasonableness of the methodology, assumptions and data used in the Company’s estimate by:
a.
Comparing the on-hand inventory quantities to projections of future demand and historical sales and evaluating adjustments to projections of
future demand for specific product considerations, such as timing of the introduction and development of new or enhanced product; and
1
b.
Assessing the historical accuracy of management’s estimate and performing sensitivity analyses over the significant assumptions to evaluate the
impact of changes in the obsolete and excess inventory reserve that would result from changes in the underlying assumptions.
Valuation of Acquired Intangible Assets
As described in Note 3 to the consolidated financial statements, the Company completed the acquisition of 7D Surgical, Inc. (“7D Surgical”) for $120.6
million on May 20, 2021. The Company accounted for this transaction under the acquisition method of accounting for business combinations. Accordingly,
the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including identified intangible assets of
$32.3 million and resulting goodwill of $84.6 million. In order to determine the fair value of the identified intangible assets, which consist of trademarks &
tradenames and patents & technology, the Company used an income approach valuation model. The model requires management to make significant
assumptions, which include, where applicable, forecast of future cash flows, forecasted revenue growth rates, royalty rates and discount rates.
We identified the valuation of acquired intangible assets as a critical audit matter as there was a high degree of auditor judgment, subjectivity and increased
audit effort, including the use of valuation specialists, when performing audit procedures and evaluating audit evidence related to the reasonableness of
significant estimates and assumptions utilized in management’s calculation of intangible asset valuations.
We obtained an understanding of the relevant controls related to the valuation of the intangible assets acquired and tested such controls for design and
operating effectiveness, including management review controls related to the development of the significant assumptions including revenue, gross margins,
growth rates, royalty rates and discount rates.
We utilized historical data and compared management’s revenue and gross margin forecasts to the most recent actual data available to determine
reasonableness of assumptions for revenue, gross margins, and growth rates.
With the assistance of our valuation specialists, we evaluated the reasonableness of the royalty rates and discount rates and, tested the relevance and
reliability of source information underlying the determination of the royalty rates, discount rates and testing the mathematical accuracy of the calculation,
and developed a range of independent estimates and compared those to the royalty rates and discount rates selected by management.
/s/ RSM US LLP
We have served as the Company's auditor since 2017.
Los Angeles, California
March 14, 2022
2
SEASPINE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
2021
2020
Total revenue, net
$
191,451
$
154,345
Cost of goods sold
76,864
56,841
Gross profit
114,587
97,504
Operating expenses:
Selling and marketing
107,299
84,304
General and administrative
42,944
35,874
Research and development
22,006
16,258
Intangible amortization
3,316
3,169
Impairment of intangible assets
—
1,325
Total operating expenses
175,565
140,930
Operating loss
(60,978)
(43,426)
Other income, net
(5,532)
(463)
Loss before income taxes
(55,446)
(42,963)
(Benefit) provision for income taxes
(1,100)
218
Net loss
$
(54,346)
$
(43,181)
Net loss per share, basic and diluted
$
(1.62)
$
(1.59)
Weighted average shares used to compute basic and diluted net loss per share
33,604
27,222
The accompanying notes are an integral part of these consolidated financial statements.
3
SEASPINE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Year Ended December 31,
2021
2020
Net loss
$
(54,346)
$
(43,181)
Other comprehensive (loss) income
Foreign currency translation adjustments
(554)
690
Comprehensive loss
$
(54,900)
$
(42,491)
The accompanying notes are an integral part of these consolidated financial statements.
4
SEASPINE HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
December 31, 2021
December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents
$
83,106
$
76,813
Trade accounts receivable, net of allowances of $74 and $192, respectively
36,231
26,154
Inventories
72,299
54,041
Prepaid expenses and other current assets
4,328
3,884
Total current assets
195,964
160,892
Property, plant and equipment, net
46,892
31,422
Right of use assets, net
6,948
7,658
Intangible assets, net
42,056
13,883
Goodwill
84,595
—
Other assets
812
546
Total assets
$
377,267
$
214,401
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade
$
20,301
$
5,006
Accrued compensation
8,769
8,198
Accrued commissions
9,877
8,199
Short-term debt
—
1,114
Short-term lease liability
2,234
2,147
Deferred revenue
1,545
102
Other accrued expenses and current liabilities
10,255
5,961
Total current liabilities
52,981
30,727
Long-term debt
—
5,059
Long-term lease liability
5,866
6,802
Deferred tax liability, net
4,308
—
Other liabilities
1,748
95
Total liabilities
64,903
42,683
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $0.01 par value; 15,000 authorized; no shares issued and outstanding at December 31, 2021 and
December 31, 2020
—
—
Common stock, $0.01 par value; 60,000 authorized; 36,584 and 27,729 shares issued and outstanding at December
31, 2021 and 2020, respectively
366
277
Additional paid-in capital
584,031
388,574
Accumulated other comprehensive income
1,570
2,124
Accumulated deficit
(273,603)
(219,257)
Total stockholders' equity
312,364
171,718
Total liabilities and stockholders' equity
$
377,267
$
214,401
The accompanying notes are an integral part of these consolidated financial statements.
5
SEASPINE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2021
2020
OPERATING ACTIVITIES:
Net loss
$
(54,346)
$
(43,181)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
13,933
10,725
Instrument replacement expense
3,904
2,799
Impairment of spinal instruments
—
210
Impairment of intangible assets
—
1,325
Provision for excess and obsolete inventories
5,220
5,515
Stock-based compensation
11,856
10,357
Gain on forgiveness of Paycheck Protection Program Loan
(6,173)
—
Other
(919)
272
Changes in assets and liabilities, net of the effects from acquisition:
Trade accounts receivable
(7,926)
(1,119)
Inventories
(18,995)
(10,480)
Prepaid expenses and other current assets
659
40
Other assets
(175)
(93)
Accounts payable, trade
10,665
(2,691)
Accrued commissions
1,675
342
Other accrued expenses and current liabilities
5,169
1,396
Other liabilities
1,941
(16)
Net cash used in operating activities
(33,512)
(24,599)
INVESTING ACTIVITIES:
Purchases of property and equipment
(26,041)
(16,085)
Additions to technology assets
(1,361)
(950)
Purchases of short-term investments
—
(25,007)
Maturities of short-term investments
—
25,000
Acquisition, net of cash acquired
(27,956)
—
Net cash used in investing activities
(55,358)
(17,042)
FINANCING ACTIVITIES:
Borrowings under credit facility
20,000
—
Proceeds from Paycheck Protection Program Loan
—
7,173
Repayments of credit facility
(20,000)
—
Repayments of Paycheck Protection Program Loan
—
(1,000)
Debt issuance costs
(45)
—
Proceeds from issuance of common stock- employee stock purchase plan and exercise of stock options
3,991
2,632
Proceeds from issuance of common stock, net of offering costs
94,531
91,622
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and
restricted stock units
(2,887)
(2,164)
6
SEASPINE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Payment of contingent royalty consideration liabilities in connection with acquisition of business
(45)
(125)
Net cash provided by financing activities
95,545
98,138
Effect of exchange rate changes on cash and cash equivalents
(382)
117
Net change in cash and cash equivalents
6,293
56,614
Cash and cash equivalents at beginning of period
76,813
20,199
Cash and cash equivalents at end of period
$
83,106
$
76,813
Supplemental cash flow information:
Interest paid
$
415
$
176
Income taxes paid
$
174
$
148
Non-cash investing activities:
Property and equipment in liabilities
$
4,721
$
1,209
Intangible assets in liabilities
$
700
$
150
Non-cash financing activities:
Issuance of common stock - Acquisition
$
61,048
$
—
Exchangeable shares - Acquisition
$
26,505
$
—
Issuance of common stock - Patent Acquisition
$
500
$
—
Settlement of contingent closing consideration liabilities with stock issuance in connection with
acquisition of business
$
—
$
2,000
The accompanying notes are an integral part of these consolidated financial statements.
7
SEASPINE HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock
Additional
Accumulated Other
Total
Number of
Paid-In
Comprehensive
Accumulated
Stockholders'
Shares
Amount
Capital
Income
Deficit
Equity
Balance at December 31, 2019
19,124
191
284,211
1,434
(176,076)
109,760
Net loss
—
—
—
—
(43,181)
(43,181)
Foreign currency translation adjustment
—
—
—
690
—
690
Restricted stock issued
340
3
(1)
—
—
2
Issuance of common stock- public offering
7,820
78
91,544
—
—
91,622
Issuance of common stock under employee stock
purchase plan
153
2
1,364
—
—
1,366
Issuance of common stock- NLT Spine Ltd contingent
consideration
176
2
1,998
—
—
2,000
Issuance of common stock- exercise of stock options
117
1
1,265
—
—
1,266
Repurchases of common stock for income tax withheld
upon vesting of restricted stock awards and restricted
stock units
(1)
—
(2,164)
—
—
(2,164)
Stock-based compensation
—
—
10,357
—
—
10,357
Balance at December 31, 2020
27,729
277
388,574
2,124
(219,257)
171,718
Net loss
(54,346)
(54,346)
Foreign currency translation adjustment
(554)
(554)
Restricted stock issued
288
3
(1)
2
Issuance of common stock under employee stock
purchase plan
200
2
1,862
1,864
Issuance of common stock - Public Offering
5,175
52
94,479
94,531
Issuance of common stock - Acquisition
2,991
30
61,018
61,048
Issuance of common stock - Exchangeable Shares
—
—
26,505
26,505
Issuance of common stock- Patent Acquisition
33
—
500
500
Issuance of common stock- exercise of stock options
168
2
2,125
2,127
Repurchases of common stock for income tax withheld
upon vesting of restricted stock awards and restricted
stock units
—
—
(2,887)
(2,887)
Stock-based compensation
11,856
11,856
Balance at December 31, 2021
36,584
366
584,031
1,570
(273,603)
312,364
The accompanying notes are an integral part of these consolidated financial statements.
8
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Business
SeaSpine Holdings Corporation was incorporated in Delaware on February 12, 2015. Unless the context indicates otherwise, references to "SeaSpine" or
the "Company" refer to SeaSpine Holdings Corporation and its wholly-owned subsidiaries.
SeaSpine is a global medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of
patients suffering from spinal disorders. SeaSpine has a comprehensive portfolio of orthobiologics and spinal implant solutions, as well as a surgical
navigation system, to meet the varying combinations of products that neurosurgeons and orthopedic spine surgeons need to perform fusion procedures in
the lumbar, thoracic and cervical spine. The Company believes this broad combined portfolio of products is essential to meet the “complete solution”
requirements of such surgeons.
Basis of Presentation and Principles of Consolidation
The Company’s financial statements are presented on a consolidated basis. The Company prepared the consolidated financial statements included in this
report in accordance with accounting principles generally accepted in the U.S. (GAAP). The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Under current SEC rules, generally, a company qualifies as a "smaller reporting company" if it has a public float of less than $250 million as of the last
business day of its most recently completed second fiscal quarter. If a company qualifies as a smaller reporting company on that date, it may elect to reflect
that determination and use the smaller reporting company scaled disclosure accommodations in its subsequent SEC filings until the beginning of the first
quarter of the fiscal year following the date it determines it does not qualify as a smaller reporting company. The Company's public float as of June 30,
2020 was less than $250 million, and as such, the Company qualified as a smaller reporting company, elected to reflect that determination and intends to
use certain of the scaled disclosure accommodations in its SEC filings made during and for the year ended December 31, 2021. The Company's public float
as of June 30, 2021, the last business day of its most recent second fiscal quarter, was more than $250 million, and as such, the Company will no longer
qualify as a smaller reporting company as of January 1, 2022. However, the Company is not required to reflect the change in its smaller reporting company
status or comply with the non-scaled disclosure obligations until the Company’s first quarterly report on Form 10-Q for the three-month period ended
March 31, 2022.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
Preparing consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting
amounts reported or disclosed in the consolidated financial statements include allowances for doubtful accounts receivable and sales returns and other
credits, net realizable value of inventories, discount rates and estimated projected cash flows used to value and test impairments of goodwill, identifiable
intangible and long-lived assets, fair value estimates related to business combinations, assumptions related to the timing and probability of product launch
dates, discount rates matched to the estimated timing of payments, probability of success rates and discount adjustments on the related cash flows for
contingent considerations in business combinations, depreciation and amortization periods for identifiable intangible and long-lived assets, computation of
taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation and loss contingencies. These estimates are
based on historical experience and on various other assumptions believed to be reasonable under the current circumstances. Actual results could differ from
these estimates.
9
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition,
including revenues, expenses, manufacturing, research and development costs and employee-related compensation, will depend on future developments
that are highly uncertain, including as a result of variants of the virus that causes COVID-19 or other information that may emerge concerning COVID-19
and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets.
The Company has made estimates of the impact of the pandemic within its financial statements and there may be changes to those estimates in future
periods. Actual results may differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash
equivalents include cash readily available in checking and money market accounts. Cash balances are maintained primarily at major financial institutions in
the United States and exceed the regulatory limit of $250,000 insured by the Federal Deposit Insurance Corporation (FDIC). The Company has not
experienced any credit losses associated with its cash balances.
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents, receivables, accounts payable and accrued expenses at December 31, 2021 and 2020, are considered to
approximate fair value because of the short-term nature of those items.
The Company measures certain assets and liabilities in accordance with authoritative guidance which requires fair value measurements to be classified and
disclosed in one of the following three categories:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available.
The carrying amounts of contingent consideration liabilities at December 31, 2021 and 2020 related to business combinations are measured at fair value on
a recurring basis, and are classified within Level 3 of the fair value hierarchy because they use significant unobservable inputs.
Trade Accounts Receivable and Allowances
Trade accounts receivable in the accompanying consolidated balance sheets are presented net of allowances for doubtful accounts and sales returns and
other credits. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to
support its receivables.
The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to
meet its financial obligations to the Company, a provision to the allowances for doubtful accounts is recorded to reduce the net recognized receivable to the
amount that is reasonably expected to be collected. For all other customers, a provision to the allowances for doubtful accounts is recorded based on factors
including the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to the
allowances for doubtful accounts are recorded to general and administrative expenses. Account balances are charged off against the allowance when it is
probable that the receivable will not be recovered.
Inventories
Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost, the value determined by the first-in,
first-out method, or net realizable value.
At each balance sheet date, the Company evaluates inventories for excess quantities, obsolescence or shelf life expiration. This evaluation includes analysis
of the Company's current and future strategic plans, historical sales levels by product, projections of future demand, the risk of technological or competitive
obsolescence for products, general market conditions, a review of the shelf life expiration dates for products, as well as the feasibility of reworking or using
excess or obsolete products or components in the production or assembly of other products that are not obsolete or for which there are not excess quantities
in
10
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
inventory. To the extent that management determines there are excess or obsolete inventory or quantities with a shelf life that is too near its expiration for
the Company to reasonably expect that it can sell those products prior to their expiration, the Company adjusts the carrying value to estimated net realizable
value.
The Company capitalizes inventory costs associated with certain products prior to regulatory approval, based on management’s judgment of probable
economic benefit. The Company could be required to expense previously capitalized costs related to pre-approval inventory upon a change in such
judgment, due to, among other potential factors, a denial or delay of approval by necessary regulatory bodies or a decision by management to discontinue
the related development program. No material amounts were capitalized at December 31, 2021 or 2020.
Property, Plant, and Equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment charges. The Company provides for
depreciation using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease
term or the useful life. The cost of major additions and improvements is capitalized, while maintenance and repair costs that do not improve or extend the
lives of the respective assets are charged to operations as incurred. The cost of computer software obtained for internal use is accounted for in accordance
with Accounting Standards Codification 350-40, Internal-Use Software.
The cost of purchased spinal instruments that the Company consigns to hospitals and independent sales agents to support surgeries is initially capitalized as
construction in progress. The amount is then either reclassified to spinal instruments and sets and depreciation is initiated when instruments are put together
in a newly built set with spinal implants, or directly expensed for the instruments used to replace damaged instruments in an existing set. The depreciation
expense and direct expense for replacement instruments are recorded in selling and marketing expense.
Leases
The Company determines if an arrangement is a lease at inception. The Company's leases primarily relate to administrative, manufacturing, research, and
distribution facilities and various manufacturing, office and transportation equipment. Lease assets represent the Company's right to use an underlying asset
for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at
commencement date based on the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the
Company's incremental borrowing rate is used as a discount rate, based on the information available at the commencement date, in determining the present
value of lease payments. Lease assets also include the impact of any prepayments made and are reduced by impact of any lease incentives.
The Company made an accounting policy election for short-term leases, such that the Company will not recognize a lease liability or lease asset on its
balance sheet for leases with a lease term of twelve months or less as of the commencement date. Rather, any short-term lease payments will be recognized
as an expense on a straight-line basis over the lease term. The current period short-term lease expense reasonably reflects the Company's short-term lease
commitments.
The Company made a policy election for all classifications of leases to combine lease and non-lease components and to account for them as a single lease
component. Variable lease payments are excluded from the lease liability and recognized in the period in which the obligation is incurred. Additionally,
lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise the option.
Business Combinations
The purchase price of an acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at
the acquisition date. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets assumed, such excess is
allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash
flows, quoted market prices and estimates made by management. The Company records the net assets and results of operations of an acquired entity from
the acquisition date impacting asset valuations and liabilities assumed. Acquisition-related costs are recognized separately from the acquisition and are
expensed as incurred.
11
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Contingent consideration liability is recognized at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent
consideration liability are recognized in the statement of operations. Contingent consideration liability related to acquisitions consist of commercial
milestone payments and contingent royalty payments, and are valued using discounted cash flow techniques. The fair value of commercial milestone
payments and contingent royalty payments reflects management’s expectations of probability and amount of payment, and increases or decreases as the
probability and amount of payment or expectation of timing of payment changes.
Identifiable Intangible Assets
Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization. Identifiable intangible assets
with finite lives are amortized on a straight-line basis over their estimated useful lives. The carrying values of intangible assets with finite lives are
reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
Goodwill
Goodwill represents the excess of the purchase prices of an acquired business over the fair value of the underlying net tangible and intangible assets. The
Company is required to assess goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate
impairment may have occurred. The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill
impairment test. If, after completing the qualitative assessment, it is determined it is more likely than not that the estimated fair value is greater than the
carrying value, the Company concludes no impairment exists. Alternatively, if the Company determines in the qualitative assessment it is more likely than
not that the fair value is less than its carrying value, then the Company performs a quantitative goodwill impairment test to identify both the existence of an
impairment and the amount of impairment loss, by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the
estimated fair value of the reporting unit is less than the carrying value, then a goodwill impairment charge will be recognized in the amount by which the
carrying amount exceeds the fair value, limited to the total amount of goodwill allocated to that reporting unit. The goodwill annual assessment test is
performed On October 1st every year or when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist.
The Company assesses qualitative and quantitative factors to determine whether goodwill is impaired. The analysis includes assessing the impact of
changes in certain factors including: (1) changes in forecasted operating results and comparing actual results to projections, (2) changes in the industry or
our competitive environment since the acquisition date, (3) changes in the overall economy, our market share and market interest rates since the acquisition
date, (4) trends in the stock price and related market capitalization and enterprise values, (5) trends in peer companies’ total enterprise value metrics, and
(6) additional factors such as management turnover, changes in regulation and changes in litigation matters.
Based on the annual assessment performed during the fourth quarter of 2021, the Company concluded it was more likely than not that the estimated fair
value of our reporting units exceeded their carrying value as of December 31, 2021, and therefore, determined it was not necessary to perform a
quantitative goodwill impairment test.
Impairment of Long-Lived Assets
Long-lived assets held and used by the Company, including property, plant and equipment and intangible assets, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of
long-lived assets to be held and used, a recoverability test is performed using projected undiscounted net cash flows applicable to the long-lived assets. If
an impairment exists, the amount of such impairment is calculated based on the estimated fair value of the asset. Impairments to long-lived assets to be
disposed of are recorded based upon the difference between the carrying value and the fair value of the applicable assets. The Company determined an
impairment existed for certain intangible assets during the year ended December 31, 2020. No impairment existed for intangible assets during the year
ended December 31, 2021. Excluding the impairment of spinal instruments, there was no impairment of tangible long-lived assets in any of the periods
presented. See Note 5, "Balance Sheet Details", below, for additional information.
12
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Foreign Currency
The Company generates revenues outside the United States in multiple foreign currencies including euros, Swiss francs, Canadian dollar and in U.S. dollar-
denominated transactions conducted with customers who generate revenue in currencies other than the U.S. dollar. The Company also incurs operating
expenses in euros, Swiss francs and Canadian dollars. All assets and liabilities of foreign subsidiaries which have a functional currency other than the
U.S. dollar are translated at the rate of exchange at year-end, while elements of the income statement are translated at the average exchange rates in effect
during the year. The net effect of these translation adjustments is shown as a component of accumulated other comprehensive income. These currency
translation adjustments are not currently adjusted for income taxes as they relate to permanent investments in non-U.S. subsidiaries. Foreign currency
transaction gains and losses are reported in other income, net.
Income Taxes
The Company recognizes tax benefits in its financial statements when its uncertain tax positions are more likely than not to be sustained upon audit. The
amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The
Company recognizes deferred tax assets for deductible temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax
assets are reduced by valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.
Revenue Recognition
Net sales are derived primarily from the sale of orthobiologics and spinal implant and enabling technology products globally. Revenue is recognized when
obligations under the terms of a contract with the Company's customer are satisfied which occurs with the transfer of control of the Company's products.
This occurs either upon shipment or delivery of goods, depending on whether the contract is Free on Board (FOB) origin or FOB destination, or, in other
situations such as consignment arrangements, when the products are used in a surgical procedure (implanted in a patient) and in the case of capital
equipment, when the equipment has been accepted by the customer. Revenue is measured as the amount of consideration the Company expects to receive
in exchange for transferring products to a customer (transaction price).
To the extent that the transaction price includes variable consideration, such as discounts, list price discounts, rebates, volume discounts and customer
payment penalties, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the most likely
amount method. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of
cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the
transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that
is reasonably available.
The Company reduces revenue by estimates of potential future product returns and other allowances. Provisions for product returns and other allowances
are recorded as a reduction to revenue in the period sales are recognized. The Company estimates the amount of sales returns and allowances that will
eventually be incurred. Certain contracts with stocking distributors contain provisions requiring the Company to repurchase inventory upon termination of
the contract or discontinuation of a product line. Included in the sales returns reserve within other accrued expenses and current liabilities is an estimate of
repurchases that are likely to be made under these provisions. Management analyzes sales programs that are in effect, contractual arrangements, market
acceptance and historical trends when evaluating the adequacy of sales returns and allowance accounts.
In certain sales arrangements, the Company fulfills its obligations and bills the customer for the products prior to the shipment of goods. The Company
allocates the transaction price to the multiple performance obligations under these contracts, including delivery of the products and the third-party logistics
(3PL) performance obligations. Revenue related to product sales under these arrangements is not recognized until the Company delivers the products to the
customer’s dedicated space within the Company’s facility, at which point the customer obtains control of the products. Revenue from the related 3PL
obligations consists of revenue from storage of products which is recognized ratably over the service period, and revenue from shipping services which is
recognized upon performance of such obligation.
Additionally, the Company allocates the transaction price to the multiple performance obligations under the contracts related to the sale of capital
equipment, including the capital equipment, tools and software, the training and installation and the service. Revenue related to capital equipment, tools and
software under these arrangements is recognized upon customer acceptance of
13
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the system. Revenue from training and installation is recognized upon completion of the training and installation process. Revenue from service contracts is
recognized over the term of the contract.
Under certain contracts, the transfer of capital equipment occurs over time as the customer's purchase commitments on other spinal implant and
orthobiologics products are met. The Company allocates the transaction price to the multiple performance obligations under these contracts related to the
sale of the products (recognized either upon the shipment or delivery of goods, as discussed above), the lease of capital equipment (recognized over the
contract period), and of the sale of capital equipment (recognized once the purchase commitments are met).
Deferred revenue primarily consists of payments received in advance of revenue recognition from the sales of the Company's capital equipment and related
products as described above and is recognized as the revenue recognition criteria are met.
Product royalties account for less than 1% of total revenue for any of the periods presented, and are estimated and recognized in the same period that the
royalty-based products are sold by licensees. The Company estimates and recognizes royalty revenue based upon communication with licensees, historical
information and expected sales trends. Differences between actual revenues and estimated royalty revenues are adjusted in the period in which they become
known, which is typically the following quarter. Historically, such adjustments have not been material.
See Note 10, "Segment and Geographic Information", below for a presentation of the Company's disaggregated revenue.
Shipping and Handling Fees and Costs
The Company has elected to account for shipping and handling activities as fulfillment activities. As such, the Company does not evaluate shipping and
handling as promised services to its customers. Shipping and handling costs of $3.7 million and $2.5 million for shipments of loaned spinal implants and
instrumentation sets and costs incurred for internal movement of inventory were recorded in selling and marketing expense during each of the years ended
December 31, 2021 and 2020, respectively.
Research and Development
Research and development costs, including salaries, stock-based compensation, depreciation, consultant, clinical study, product registration and other
external fees, and facility costs directly attributable to research and development activities, are expensed in the period in which they are incurred.
Stock-Based Compensation
The Company's stock-based compensation has been recognized through the consolidated statement of operations and the Company's additional paid-in
capital account on the consolidated balance sheet.
The Company recognizes the expense related to the fair value of their stock-based compensation awards. Stock-based compensation expense for stock
option awards was based on the fair value on the grant date using the Black-Scholes-Merton option pricing model.
The stock-based compensation is initially measured at the fair value of the awards on the grant date and is then recognized on a ratable basis in the financial
statements over the requisite service period of the award. Stock-based compensation expense was $11.9 million in 2021 and $10.4 million in 2020.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, which is held at major financial
institutions, and trade receivables.
The Company’s products are sold on an uncollateralized basis and on credit terms based upon a credit risk assessment of each customer. A portion of the
Company’s trade receivables to customers outside the United States includes sales to foreign stocking distributors, who then sell to government owned or
supported healthcare systems. The ongoing economic conditions in certain European countries, especially Greece, Ireland, Italy, Portugal and Spain remain
uncertain. Accounts receivable from customers in these countries are not a material amount of the Company’s overall receivables.
14
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
None of the Company’s customers accounted for 10% or more of the net sales or accounts receivable for any of the periods presented.
Recent Accounting Standards Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU or Update) No. 2016-13, Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires credit losses on most financial assets
measured at amortized cost, including trade receivables, and certain other instruments to be measured using an expected credit loss model, referred to as the
current expected credit loss (CECL) model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument. The new
standard will be effective for the Company beginning January 1, 2022. The FASB subsequently issued other related ASUs that amend ASU No. 2016-13 to
provide clarification and additional guidance. The adoption of this new standard is not expected to have a material impact on its consolidated financial
statements.
In January 2017, the FASB issued Update No. 2017-04, Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 simplifies the
accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. As a
smaller reporting company, as defined by the SEC), ASU 2017-04 is effective for the Company beginning after December 15, 2022 and should be applied
on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The
Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its financial statements for both annual and interim reporting
periods, if applicable.
In April 2019, the FASB issued Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives
and Hedging, and Topic 825, Financial Instruments. This Update includes several amendments to the FASB Accounting Standards Codification
(Codification) intended to clarify, improve, or correct errors therein. Some amendments do not require transition guidance and are effective upon issuance.
The amendments requiring transition guidance have the same effective date as Update No. 2016-13 and will be effective for the Company beginning on
January 1, 2022. The adoption of this new standard is not expected to have a material impact on its consolidated financial statements.
In May 2021, the FASB issued Update No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50),
Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40) Issuer's Accounting for
Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This Update addresses issuer's accounting for certain
modifications or exchanges of freestanding equity-classified written call options. The new standard will be effective for the Company beginning January 1,
2022. The adoption of this new standard is not expected to have a material impact on its consolidated financial statements.
In July 2021, the FASB issued Update No. 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. Under this standard,
lessors will classify leases with variable payments that do not depend on an index or rate as operating leases if a different classification would result in a
commencement date selling loss. The new standard will be effective for the Company beginning January 1, 2022. The adoption of this new standard is not
expected to have a material impact on its consolidated financial statements.
Recently Adopted Accounting Standards
In August 2018, the FASB issued Update No. 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40). The amendments in this
Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software
license). The new standard was effective for the Company beginning on January 1, 2021. The adoption of this new standard had no material impact on its
consolidated financial statements.
Net Loss Per Share
The Company follows the two-class method when computing net loss per share as the Company's board of directors has discretion in declaring/issuing
dividends on the Company's common stock, these dividend rights meet the definition for participating securities. Basic and diluted net loss per share was
calculated using the weighted-average number of shares of common stock outstanding during the period. The weighted average number of shares used to
compute diluted net loss per share excludes any assumed issuance of common stock upon exercise of stock options, any assumed issuance of common
stock
15
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
under restricted stock awards or units, and any assumed issuances under the Company's employee stock purchase plan, because the effect, in each case,
would be antidilutive. Common stock equivalents, including the Exchangeable Shares (as defined below), of 6.3 million and 4.2 million shares for the years
ended December 31, 2021 and 2020, respectively, were excluded from the calculation because of their antidilutive effect.
3. BUSINESS ACQUISITION
7D Surgical Acquisition
In March 2021, the Company entered into an arrangement agreement (the Arrangement Agreement) with 7D Surgical, Project Maple Leaf Acquisition
ULC, an unlimited liability company incorporated under the laws of the Province of British Columbia and wholly owned subsidiary of the Company
(Purchaser Sub), and Michael Cadotte and Joel Rose, as the 7D Surgical shareholders’ representatives.
On May 20, 2021, the acquisition contemplated by the Arrangement Agreement was consummated by way of a court-approved plan of arrangement under
Ontario law (Plan of Arrangement) in which Purchaser Sub acquired all outstanding shares of 7D Surgical, including those 7D Surgical shares issuable
upon exercise of outstanding options, and 7D Surgical became a wholly owned subsidiary of the Company (the Acquisition).
Pursuant to the Arrangement Agreement and the Plan of Arrangement, the Company acquired 7D Surgical for a total purchase price consisting of
$27.5 million in cash plus an additional $5.6 million for adjustments as provided for in the Arrangement Agreement for 7D Surgical closing cash, working
capital and net indebtedness, 2,991,054 shares of the Company’s common stock (the Company Shares) and 1,298,648 Exchangeable Shares (as defined
below). Pursuant to the Arrangement Agreement, Canadian-resident 7D Surgical shareholders could elect to receive, in lieu of their portion of the Company
Shares, an equivalent number of Class B common shares of Purchaser Sub (the Exchangeable Shares), which are exchangeable on a 1:1 basis for shares of
the Company’s common stock, subject to customary adjustments. The Company may require all outstanding Exchangeable Shares to be exchanged upon
the occurrence of certain events and at any time following the fifth anniversary of the closing date of the Acquisition. While outstanding, holders of
Exchangeable Shares will be entitled to receive dividends economically equivalent to the dividends declared by the Company with respect to its common
stock, but will not be entitled to cast votes on matters for which holders of the Company’s common stock are entitled to vote.
The Company Shares and the Exchangeable Shares were issued in connection with the consummation of the Plan of Arrangement pursuant to the
exemption from registration under the Securities Act of 1933, as amended (the Securities Act), provided by Section 3(a)(10) of the Securities Act based on
the final order of the Ontario Superior Court of Justice issued in May 2021, approving the Plan of Arrangement following a hearing by the court upon the
fairness of the terms and conditions on which all persons to whom it is proposed the securities will be issued had the right to appear. The Company agreed
to register for resale all shares of Company common stock issuable in exchange for the Exchangeable Shares on a registration statement to be effective
within ninety days of the closing date of the Acquisition.
This acquisition was treated as a business combination and the consideration transferred was allocated to the fair value of 7D Surgical's assets acquired and
liabilities assumed, including identifiable intangible assets. The acquisition was treated as an asset purchase for US taxation and is treated as a stock
purchase for Canadian taxation. The fair value of consideration transferred consisted of the following:
Fair Value
(In thousands)
Common stock issued
$
61,048
Exchangeable shares
26,505
Cash
33,082
$
120,635
The Company incurred $2.3 million of transactions costs directly related to the acquisition that is reflected in general and administrative expenses in the
consolidated statements of operations.
16
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the final consideration paid and related fair values of the assets acquired and liabilities assumed in the Acquisition:
Fair Value
(In thousands)
Cash
$
5,126
Accounts receivable
2,460
Inventory
2,061
Other current assets
1,171
Property & equipment
715
Identifiable intangible assets:
Patents & Technology
31,000
Trademarks & Tradenames
1,300
Goodwill
84,595
Other assets
161
Deferred tax liability, net
(5,598)
Liabilities assumed
(2,356)
$
120,635
Goodwill from the acquisition primarily relates to the future economic benefits arising from the assets acquired and is consistent with the Company's stated
intentions and strategy. For US tax purposes, the Goodwill will be deductible under IRC section 197 since the transaction was treated as an asset purchase.
For Canadian tax purposes, the Goodwill will not be deductible since the transaction was treated a stock purchase.
The Company's results of operations for the year ended December 31, 2021 included the operating results of 7D Surgical of $6.3 million of revenue and a
net loss of $5.3 million in the consolidated statements of operations.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information summarizes the combined results of operations as though the companies were combined as of the
beginning of 2020:
December 31,
2021
2020
(In thousands)
Total Revenue, net
$
195,488
$
162,468
Net Loss
$
(58,624)
$
(46,100)
The unaudited pro forma financial information for all periods presented above has been calculated after adjusting the results to reflect the business
combination accounting effects resulting from this acquisition, including the amortization expense from acquired intangible assets as though the acquisition
occurred as of the beginning of 2020. The Company's historical consolidated financial statements have been adjusted in the pro forma financial information
to give effect to pro forma events that are directly attributable to the business combination and factually supportable. The unaudited pro forma financial
information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken
place at the beginning of 2020.
17
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. DEBT AND INTEREST
Credit Agreement
In December 2015, the Company entered into a three-year credit facility with Wells Fargo Bank, National Association (as amended, the Credit Facility).
The Credit Facility provides an asset-backed revolving line of credit of up to $30.0 million with a maturity date of July 27, 2021, which was subject to a
one-time, one-year extension at the Company's election. In July 2021, the Company elected to extend the term of the Credit Facility such that the maturity
date is now July 27, 2022. In addition, under the Credit Facility, at any time through July 27, 2021, the Company could have increased the $30.0 million
borrowing limit by up to an additional $10.0 million, subject to the Company having sufficient amounts of eligible accounts receivable and inventory and
to customary conditions precedent, including obtaining the commitment of lenders to provide such additional amount. The Company did not elect to
increase the borrowing limit. In connection with entering into the Credit Facility, the Company was required to become a guarantor and to provide a
security interest in substantially all its assets for the benefit of the counterparty.
There were no amounts outstanding under the Credit Facility at December 31, 2021 or 2020. In March 2021, the Company borrowed $20.0 million under
the Credit Facility. As of March 31, 2021, the effective interest rate on the amounts borrowed was 4.50%. In April 2021, the Company repaid the entire
$20.0 million of outstanding borrowings under the Credit Facility. At December 31, 2021, the Company had $26.4 million of current borrowing capacity
under the Credit Facility before the requirement to maintain the minimum fixed charge coverage ratio as discussed below. Debt issuance costs and legal
fees related to the Credit Facility totaling $0.6 million were recorded as a deferred asset and are being amortized ratably over the term of the arrangement.
Borrowings under the Credit Facility accrue interest at the rate then applicable to base rate loans (as customarily defined), unless and until converted into
LIBOR rate loans (as customarily defined) in accordance with the Credit Facility. Borrowings bear interest at a floating annual rate equal to (a) during any
month for which the Company's average excess availability (as customarily defined) is greater than $20.0 million, (i) base rate plus 1.25 percentage points
for base rate loans and (ii) LIBOR rate plus 2.25 percentage points for LIBOR rate loans, (b) during any month for which the Company's average excess
availability is greater than $10.0 million but less than or equal to $20.0 million, (i) base rate plus 1.50 percentage points for base rate loans and (ii) LIBOR
rate plus 2.50 percentage points for LIBOR rate loans and (c) during any month for which the Company's average excess availability is less than or equal to
$10.0 million, (i) base rate plus 1.75 percentage points for base rate loans and (ii) LIBOR rate plus 2.75 percentage points for LIBOR rate loans. The
Company also pays an unused line fee based on the average amount borrowed under the Credit Facility for the most recently completed month. If such
average amount is 25% or greater of the maximum borrowing capacity, the unused fee will be equal to 0.375% per annum of the amount unused under the
Credit Facility, and if such average amount is less than 25%, the unused line fee will be equal to 0.50% per annum of the amount unused under the Credit
Facility. The unused line fee is due on the first day of each month.
The Credit Facility contains various customary affirmative and negative covenants, including prohibiting the Company from incurring indebtedness
without the lender’s consent. The Credit Facility also includes a financial covenant, that requires the Company to maintain a minimum fixed charge
coverage ratio of 1.10 to 1.00 for the applicable measurement period, if the Company's Total Liquidity (as defined in the Credit Facility) is less than $5.0
million. The Company was in compliance with all applicable covenants at December 31, 2021.
The Credit Facility also includes customary events of default, including events of default relating to non-payment of amounts due under the Credit Facility,
material inaccuracy of representations and warranties, violation of covenants, bankruptcy and insolvency, failure to comply with health care laws, violation
of certain of the Company’s existing agreements, and the occurrence of a change of control. Under the Credit Facility, if an event of default occurs, the
lender will have the right to terminate the commitments and accelerate the maturity of any loans outstanding.
Paycheck Protection Program
In April 2020, due to the economic uncertainty resulting from the impact of the COVID-19 pandemic on the Company's operations and to support its
ongoing operations and retain all employees, the Company applied for a loan under the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief,
and Economic Security Act (CARES Act). The Company received a loan in the original principal amount of $7.2 million. The Company subsequently
repaid $1.0 million of the loan. Under the terms of the PPP, subject to specified limitations, the loan may be forgiven if the proceeds are used in accordance
with the CARES Act. The Company used the loan proceeds for purposes consistent with the terms of the PPP and applied for
18
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
forgiveness of the entire $6.2 million loan balance, which was granted in June 2021. The $6.2 million gain on the loan forgiveness is included in other
income, net, in the consolidated statement of operations. There are no amounts outstanding under the loan at December 31, 2021. The loan is subject to
audit by the Small Business Association (SBA) for up to six years after the date of loan forgiveness. Should the SBA determine that the Company did not
qualify for all or part of the loan, the Company would need to repay all or a part of the loan.
5. BALANCE SHEET DETAILS
Inventories.
Inventories consisted of:
December 31, 2021
December 31, 2020
(In thousands)
Finished goods
$
49,405
$
37,689
Work in process
17,644
10,087
Raw materials
5,250
6,265
$
72,299
$
54,041
Property, Plant and Equipment.
Property, plant and equipment balances and corresponding useful lives were as follows:
December 31, 2021
December 31, 2020
Useful Lives
(In thousands)
Leasehold improvements
$
6,501
$
5,976
Shorter of lease
term or useful life
Machinery and production equipment
10,408
9,577
3-10 years
Spinal instruments and sets
45,076
30,275
4-6 years
Information systems and hardware
8,186
7,554
3-7 years
Furniture and fixtures
2,097
1,640
3-5 years
Construction in progress
17,615
12,645
Total
89,883
67,667
Less accumulated depreciation and amortization
(42,991)
(36,245)
Property, plant and equipment, net
$
46,892
$
31,422
Depreciation and amortization expenses totaled $7.9 million and $6.5 million for the years ended December 31, 2021 and 2020, respectively, and included
$1.0 million of expenses that were presented within cost of goods sold for the years ended December 31, 2021 and 2020, respectively. The cost of
purchased instruments used to replace damaged instruments in existing sets and recorded directly to the instrument replacement expense totaled $3.9
million and $2.8 million for the years ended December 31, 2021 and 2020, respectively.
Identifiable Intangible Assets.
Primarily as a result of an expected shift in future product revenue mix more toward a parallel expanding interbody device based on the Company’s
internally developed technology and, in turn, lower future revenue anticipated for the lordotic expanding implant based on technology the Company
acquired from N.L.T. Spine Ltd. (NLT) and NLT Spine, Inc., a wholly owned subsidiary of NLT, the Company's estimated future net sales associated with
those NLT product technologies decreased. Accordingly, the Company evaluated the ongoing value of the product technology intangible assets associated
with the acquisition of these assets. Based on this evaluation, the Company determined that intangible assets with a carrying amount of $1.6 million were
no longer recoverable and were impaired, and the Company wrote those intangible assets down to their
19
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
estimated fair value of $0.3 million at March 31, 2020. During the year ended December 31, 2021, there were no asset impairments.
Significant estimates used in determining the estimated fair value include measurements estimating cash flows and determining the appropriate discount
rate, which are considered Level 3 inputs under Codification 820.
During the year ended December 31, 2021 and 2020, the Company recognized $1.8 million and $0.3 million, respectively, of product technology intangible
assets related to the achievement of certain licensed technology development milestones under a license agreement.
The components of the Company’s identifiable intangible assets were:
December 31, 2021
Weighted
Average
Life
Cost
Accumulated
Amortization
Net
(In thousands)
Product technology
12 years
$
65,642
$
(32,484)
$
33,158
Customer relationships
12 years
56,830
(49,241)
7,589
Trademarks/brand names
6 years
1,600
(438)
1,162
Other intangibles
8 years
159
(12)
147
$
124,231
$
(82,175)
$
42,056
December 31, 2020
Weighted
Average
Life
Cost
Accumulated
Amortization
Net
(In thousands)
Product technology
12 years
$
32,891
$
(29,766)
$
3,125
Customer relationships
12 years
56,830
(46,072)
10,758
Trademarks/brand names
—
300
(300)
—
Other intangibles
—
$
—
$
—
$
—
$
90,021
$
(76,138)
$
13,883
Annual amortization expense (including amounts reported in cost of goods sold) is expected to be approximately, $7.2 million in 2022, $6.6 million in
2023, $4.6 million in 2024, $3.3 million in 2025, and $3.3 million in 2026. Amortization expense totaled $6.0 million and $4.2 million for the years ended
December 31, 2021 and 2020, respectively, and included $2.7 million and $1.0 million, respectively, of amortization of product technology intangible
assets that was presented within cost of goods sold.
The Company assesses qualitative and quantitative factors to determine whether goodwill is impaired. The analysis includes assessing the impact of
changes in certain factors including: (1) changes in forecasted operating results and comparing actual results to projections, (2) changes in the industry or
our competitive environment since the acquisition date, (3) changes in the overall economy, our market share and market interest rates since the acquisition
date, (4) trends in the stock price and related market capitalization and enterprise values, (5) trends in peer companies’ total enterprise value metrics, and
(6) additional factors such as management turnover, changes in regulation and changes in litigation matters.
Based on the annual assessment performed On October 1, 2021, the Company concluded it was more likely than not that the estimated fair value of our
reporting units exceeded their carrying value, and therefore, determined it was not necessary to perform a quantitative goodwill impairment test.
20
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. EQUITY AND STOCK-BASED COMPENSATION
Common Stock
In July 2020 and August 2020, the Company issued 100,100 shares and 75,585 shares of its common stock to NLT, respectively, as settlement of contingent
milestone payments pursuant to the terms of the asset purchase agreement entered into with NLT in August 2016. See Note 5, "Fair Value Measurements"
above.
In January 2020, the Company entered into an Underwriting Agreement with Piper Sandler & Co. and Canaccord Genuity LLC relating to the issuance and
sale of 6,800,000 shares of the Company’s common stock at a price to the public of $12.50 per share, before underwriting discounts and commissions.
Under the terms of that agreement, the Company granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 1,020,000
shares of common stock. The underwriters exercised this option and the offering closed on January 10, 2020 with the sale of 7,820,000 shares of common
stock, resulting in net proceeds to the Company of approximately $92 million, after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company. The offering was made pursuant to the Company’s shelf registration statement on Form S-3 that was declared
effective on May 22, 2019.
In April 2021, the Company entered into an Underwriting Agreement with Piper Sandler & Co., Canaccord Genuity LLC, and Stifel, Nicolaus & Company,
Incorporated relating to the issuance and sale of 4,500,000 shares of the Company's common stock at a price to the public of $19.50 per share, before
underwriting discounts and commissions. Under the terms of that agreement, the Company granted the underwriters an option, exercisable for 30 days, to
purchase up to an additional 675,000 shares of common stock. The underwriters exercised this option and the offering closed on April 20, 2021 with the
sale of 5,175,000 shares of common stock, resulting in net proceeds to the Company of approximately $95 million, after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company. The Company used a portion of the net proceeds from the offering to repay all
of its outstanding borrowings under the Credit Facility and to finance the cash consideration of $27.5 million for the Company's acquisition of 7D Surgical.
In May 2021, the Company issued 2,991,054 shares of the Company’s common stock and 1,298,648 Exchangeable Shares in connection with Company's
acquisition of 7D Surgical.
Equity Award Plans
Stock-based compensation expense, all related to employees and non-employee directors, was recognized as follows:
Year Ended December 31,
2021
2020
(In Thousands)
Selling and marketing
$
2,808
2,530
General and administrative
6,686
$
5,607
Research and development
2,041
1,831
Cost of goods sold
321
389
Total stock-based compensation expense
11,856
10,357
No estimated tax benefit related to stock-based compensation expense was recognized for the years ended December 31, 2021 and 2020.
In May 2015, the Company adopted the 2015 Incentive Award Plan, which was subsequently amended and restated with approval of the Company's
stockholders. In February and March 2018, the Company's board of directors approved amendments to the plan that increased the share reserve by an
aggregate of 2,726,000 shares over the then-existing share reserve thereunder, subject to stockholder approval. The Company's stockholders approved both
amendments in May 2018. In April 2020, the Company's board of directors approved an amendment to the plan that, among other things, increased the
share reserve by an aggregate of 3,500,000 shares over the then-existing share reserve thereunder, subject to stockholder approval. The Company's
stockholders approved the amendment in June 2020 (the 2015 Incentive Award Plan, as amended and restated to date, the Restated Plan). Under the
Restated Plan, the Company can grant its employees, non-employee directors and consultants incentive stock options and non-qualified stock options,
restricted stock, performance stock, dividend equivalent rights, stock appreciation rights, stock payment awards and other incentive awards. The aggregate
number of shares that may be issued or transferred pursuant to awards under the Restated Plan is the sum of (1) the number of shares issuable upon exercise
or vesting
21
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
of the equity awards issued by the Company's former parent company prior to the spin-off that were converted into the Company's equity awards under the
Restated Plan as of the date of the spin-off and (2) 9,735,500 shares of the Company common stock in respect of awards granted under the Restated Plan.
As of December 31, 2021, 3,005,875 shares were available for issuance under the Restated Plan.
In June 2018, the Company established the 2018 Employment Inducement Incentive Award Plan (the 2018 Inducement Plan). The terms of the 2018
Inducement Plan are substantially similar to the terms of the Restated Plan with these principal exceptions: (1) incentive stock options may not be granted
under the 2018 Inducement Plan; (2) there are no annual limits on awards that may be issued to an individual under the 2018 Inducement Plan; (3) awards
granted under the 2018 Inducement Plan are not required to be subject to any minimum vesting period; and (4) awards may be granted under the 2018
Inducement Plan only to those individuals and in those circumstances described below. An aggregate of 2,000,000 shares are reserved under the 2018
Inducement Plan. As of December 31, 2021, 1,926,740 shares were available for issuance under the 2018 Inducement Plan. As a result of the approval of
the amendment to the Restated Plan by the Company's stockholders in June 2020, no awards will be granted under the 2018 Inducement Plan in the future.
In August 2020, the Company adopted the 2020 Employment Inducement Incentive Award Plan (the 2020 Inducement Plan). The terms of the 2020
Inducement Plan are substantially similar to the terms of the Restated Plan with four principal exceptions: (1) incentive stock options may not be granted
under the 2020 Inducement Plan; (2) there are no annual limits on awards that may be issued to an individual under the 2020 Inducement Plan; (3) awards
granted under the 2020 Inducement Plan are not required to be subject to any minimum vesting period; and (4) awards may be granted under the 2020
Inducement Plan only to those individuals and in those circumstances described below. An aggregate of 2,000,000 shares are reserved under the 2020
Inducement Plan. As of December 31, 2021, 1,339,294 share were available for issuance under the 2020 Inducement Plan.
Both the 2018 Inducement Plan and the 2020 Inducement Plan were adopted by the Company’s board of directors without stockholder approval pursuant to
Rule 5635(c)(4) of the Nasdaq Listing Rules. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under those plans may only be made
to an employee who has not previously been an employee or member of the Company's board of directors or of any board of directors of any parent or
subsidiary of the Company, or following a bona fide period of non-employment by the Company or a parent or subsidiary, if he or she is granted such
award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or
her entering into employment with the Company or such subsidiary.
Restricted Stock Awards and Restricted Stock Units
Restricted stock award and restricted stock unit grants to employees generally have a requisite service period of three years, and restricted stock award and
restricted stock unit grants to non-employee directors generally have a requisite service period of one year. Both are subject to graded vesting. The
Company expenses the fair value of restricted stock awards and restricted stock units on an accelerated basis over the vesting period or requisite service
period, whichever is shorter. Stock-based compensation expense related to all equity awards includes an estimate for forfeitures. The expected forfeiture
rate of all equity-based compensation is based on historical experience of pre-vesting forfeitures on awards by each homogeneous group of shareowners.
For awards granted to non-executive employees, the forfeiture rate is estimated to be 9% and 13% annually for the years ended December 31, 2021 and
2020, respectively. There is no forfeiture rate applied to awards granted to non-employee directors or executive employees because their pre-vesting
forfeitures are anticipated to be highly unlikely. As individual awards become fully vested, stock-based compensation expense is adjusted to recognize
actual forfeitures.
22
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes restricted stock awards and restricted stock units granted to SeaSpine employees and non-employee directors during 2021:
Restricted Stock Awards and Units
Shares
(In thousands)
Weighted Average
Grant Date Fair
Value Per Share
Unvested, January 1, 2021
797
$12.71
Granted
499
17.32
Cancellations
(66)
14.96
Released/Vested
(455)
12.51
Unvested, December 31, 2021
775
15.60
The weighted average grant date fair value of restricted stock awards and restricted stock units granted during 2021 and 2020 was $17.32 and $12.12,
respectively. The total fair value of shares subject to restricted stock awards and restricted stock units that vested in 2021 and 2020 was $5.8 million and
$6.0 million, respectively.
The Company recognized $6.6 million and $5.7 million in expense related to restricted stock awards and restricted stock units for the years ended
December 31, 2021 and 2020, respectively. As of December 31, 2021, there was approximately $4.1 million of unrecognized compensation expense related
to the unvested portions of restricted stock awards and restricted stock units. This expense is expected to be recognized over a weighted-average period of
approximately 1.0 years.
Stock Options
Stock option grants to employees generally have a requisite service period of four to five years, and stock option grants to non-employee directors
generally have a requisite service period of one year. Both are subject to graded vesting. The Company records stock-based compensation expense
associated with stock options on an accelerated basis over the applicable vesting period within each grant and based on their fair value at the date of grant
using the Black-Scholes-Merton option pricing model. The following weighted-average assumptions were used in the calculation of fair value for options
granted during the period indicated.
Year Ended December 31,
2021
2020
Expected dividend yield
0 %
0 %
Risk-free interest rate
0.6 %
1.3 %
Expected volatility
51.7 %
46.4 %
Expected term (in years)
4.9
4.9
The Company considered that it has never paid, and does not currently intend to pay, cash dividends. The risk-free interest rates are derived from the U.S.
Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expected term of the options. The expected volatility
is calculated based upon the historical volatility of the Company's share prices. The expected term is calculated using the historical weighted average term
of the Company’s options. In addition, the Company applies an expected forfeiture rate when amortizing stock-based compensation expense. The expected
forfeiture rate of options is based on historical experience of pre-vesting forfeitures on awards by each homogeneous group of shareowners. For options
granted to non-executive employees, the forfeiture rate is estimated to be 9% and 13% annually for the years ended December 31, 2021 and 2020,
respectively. There is no forfeiture rate applied to options granted to non-employee directors and executive employees because their pre-vesting forfeitures
are anticipated to be highly unlikely. As individual options become fully vested, stock-based compensation expense is adjusted to recognize actual
forfeitures.
23
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of the options granted during 2021 and the total number of options outstanding as of December 31, 2021 and changes since January 1, 2021 are
set forth below:
Number of Shares
Outstanding (In
thousands)
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Life (In
years)
Aggregate Intrinsic
Value (In thousands)
Outstanding, January 1, 2021
3,318 $
14.33
4.67 $
10,667
Granted
1,137 $
18.50
Exercised
(168) $
12.66
Forfeited
(104) $
14.98
Outstanding, December 31, 2021
4,183 $
15.51
4.59 $
2,059
Vested or expected to vest, December 31, 2021
4,072 $
15.41
4.52
$
2,049
Exercisable, December 31, 2021
2,601 $
14.55
3.23 $
1,521
The weighted average grant date fair value of options granted during 2021 and 2020 was $8.10 and $4.79, respectively. The total fair value of shares vested
was $2.1 million in 2021 and $2.1 million in 2020.
The Company recognized $4.2 million and $3.8 million in expense related to stock options for the years ended December 31, 2021 and 2020, respectively.
As of December 31, 2021, there was approximately $5.7 million of unrecognized compensation expense related to unvested stock options. This expense is
expected to be recognized over a weighted-average period of approximately 1.6 years.
Employee Stock Purchase Plan
In May 2015, the Company adopted the SeaSpine Holdings Corporation 2015 Employee Stock Purchase Plan, which was amended in November 2018, as
described below (as amended, the ESPP). Under the ESPP, eligible employees may purchase shares of the Company’s common stock through payroll
deductions of up to 15% of eligible compensation during an offering period. Generally, each offering period will be for 24 months as determined by the
Company's board of directors. There are four six-month purchase periods in each offering period for contributions to be made and to be converted into
shares at the end of the purchase period. In no event may an employee purchase more than 2,500 shares per purchase period based on the closing price on
the first trading date of an offering period or more than $25,000 worth of stock during any calendar year. The purchase price for shares to be purchased
under the ESPP is 85% of the lesser of the market price of the Company's common stock on the first trading date of an offering period or on any purchase
date during an offering period (June 30 or December 31).
Subject to stockholder approval, on and effective as of November 2, 2018, the Company's board of directors approved an amendment to the ESPP pursuant
to which the share reserve under the ESPP would increase from 400,000 shares to 800,000 shares. The Company's stockholders approved that amendment
in May 2019. In December 2020, the Company's board of directors approved the issuance of an additional 500,000 shares of common stock under the
ESPP. The Company's stockholders approved that amendment in June 2021. The ESPP is intended to qualify as an “employee stock purchase plan” within
the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the IRC). The ESPP contains a restart feature, such that if the market price
of the stock at the end of any six-month purchase period is lower than the market price at the original grant date of an offering period, that offering period
will terminate after that purchase date, and a new two-year offering period will commence on the January 1 or July 1 immediately following the date the
original offering period terminated. This restart feature was triggered on the purchase date that occurred on June 30, 2020, such that the offering period that
commenced on January 1, 2020 was terminated, and a new two-year offering period commenced on July 1, 2020 and will end on June 30, 2022. The
Company applied share-based payment modification accounting to the awards that were initially valued at the grant date to determine the amount of any
incremental fair value associated with the modified awards. The impact to stock-based compensation expense for modifications during the year ended
December 31, 2021 was immaterial.
During the years ended December 31, 2021 and 2020, there were 199,843 and 153,302 shares of common stock, respectively, purchased under the ESPP.
The Company recognized $1.0 million and $0.9 million in expense related to the ESPP for the years ended December 31, 2021 and 2020, respectively. As
of December 31, 2021, 427,317 shares were available under the ESPP for future issuance.
24
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company estimates the fair value of shares issued to employees under the ESPP using the Black-Scholes-Merton option-pricing model. The following
weighted average assumptions were used in the calculation of fair value of shares under the ESPP at the grant date for the periods indicated:
Year Ended December 31,
2021
2020
Expected dividend yield
0 %
0 %
Risk-free interest rate
0.1 %
0.7 %
Expected volatility
40.7 %
24.6 %
Expected term (in years)
0.8
0.7
7. LEASES
The Company’s lease portfolio only includes operating leases. As of December 31, 2021, the weighted average remaining lease term of these operating
leases was 5.3 years and the weighted average discount rate was 6.5%. For each of the years ended December 31, 2021 and 2020, lease expense, which
represents expense from operating leases, was $2.3 million and $2.1 million.
A summary of the Company's remaining lease liabilities at December 31, 2021 are as follows:
Payments Due by
Calendar Year
(In thousands)
2022
$
2,830
2023
1,684
2024
1,468
2025
1,497
2026
1,543
Thereafter
1,227
Total undiscounted value of lease liabilities
$
10,249
Less: present value adjustment
(1,635)
Less: short-term leases not capitalized
(514)
Present value of lease liabilities
8,100
Less: current portion of lease liability
(2,234)
Operating lease liability, less current portion
$
5,866
8. INCOME TAXES
The Company is subject to income taxes in the U.S., Canada, Switzerland and France. Income taxes are accounted for under the asset and liability method.
Deferred income tax assets and liabilities are calculated based on the difference between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases using the enacted income tax rates expected to be in effect during the years in which the temporary differences are
expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
Significant judgment is required in determining whether a valuation allowance should be recorded against deferred tax assets. In assessing the need for a
valuation allowance, management considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income
and the feasibility of ongoing tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that
can be realized, the Company will adjust its valuation allowance with a corresponding impact to income tax expense in the period in which such
determination is made.
25
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Income Tax Provision
Loss before income taxes consisted of:
Year Ended December 31,
2021
2020
(In thousands)
United States operations
$
(56,362)
$
(42,251)
Foreign operations
916
(712)
$
(55,446)
$
(42,963)
A reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate is:
Year Ended December 31,
2021
2020
Federal statutory rate
21.0%
21.0%
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit
0.1%
2.0%
Foreign operations
1.7%
(0.3)%
Changes in valuation allowances
(23.5)%
(22.3)%
Loan forgiveness
2.3%
—%
Research and development credit
0.3%
0.6%
Other
0.1%
(1.5)%
Effective tax rate
2.0%
(0.5)%
The provision/(benefit) for income taxes consisted of:
Year Ended December 31,
2021
2020
(In thousands)
Current:
Federal
$
—
$
—
State
110
87
Foreign
77
28
Total current
$
187
$
115
Deferred:
Federal
123
—
State
56
—
Foreign
(1,466)
103
Total deferred
$
(1,287)
$
103
Provision for income taxes
$
(1,100)
$
218
26
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The income tax effects of significant temporary differences that give rise to deferred tax assets and liabilities, shown before jurisdictional netting, are
presented below:
Year Ended December 31,
2021
2020
(In thousands)
Deferred tax assets:
Doubtful accounts
$
48
$
47
Inventory related items
12,453
12,317
Tax credits
1,673
563
Compensation accruals
2,000
1,479
Lease liability
1,618
2,014
Stock compensation
5,890
4,947
Net operating loss carryforwards
59,541
45,744
Intangible and fixed assets
9,035
10,740
Other
1,539
444
Total deferred tax assets
93,797
78,295
Less valuation allowance
(91,473)
(75,147)
Deferred tax assets after valuation allowance
$
2,324
$
3,148
Deferred tax liabilities:
Intangible assets
3,648
—
Right-of-use assets
1,364
1,721
Prepaid expenses
598
432
Unrealized gains and losses
983
954
Total deferred tax liabilities
$
6,593
$
3,107
Net deferred tax (liabilities)/assets
$
(4,269)
$
41
At December 31, 2021, the Company had net operating loss carryforwards of $237.3 million for federal and $135.0 million for state income tax purposes.
The Company also had net operating loss carryforwards of $5.6 million for foreign income tax purposes. These loss carryforwards begin to expire in 2022
for foreign income tax purposes and in 2027 for federal and state income tax purposes, and continue to expire through 2042. The Company’s net operating
loss carryforwards generated after 2017 for federal income tax purposes do not expire. The tax benefit recorded for net operating losses, net of valuation
allowance, was immaterial.
At December 31, 2020, the Company had net operating loss carryforwards of $187.7 million for federal and state income tax purposes. The Company also
had net operating loss carryforwards of $0.2 million for foreign income tax purposes. These loss carryforwards begin to expire in 2021 for foreign income
tax purposes and in 2027 for federal and state income tax purposes, and continue to expire through 2039. The Company’s net operating loss carryforwards
generated after 2017 for federal income tax purposes do not expire. The tax expense recorded for net operating losses, net of valuation allowance, was
$0.1 million which relates only to foreign net operating losses.
The valuation allowance relates to deferred tax assets for certain items that will be deductible for income tax purposes under very limited circumstances
and for which the Company believes it is not more likely than not that it will realize the associated tax benefit. However, in the event that the Company
determines that it would be able to realize more or less than the recorded amount of net deferred tax assets, an adjustment to the deferred tax asset valuation
allowance would be recorded in the period such a determination is made. In assessing the realizability of deferred tax assets, management considers
whether it is more-likely-than-not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable
income, and tax planning strategies in making this assessment. Based upon the levels of historical taxable income, projections of future taxable income and
the reversal of deferred tax liabilities over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not that
the Company will realize the benefits of these deductible differences, net of the existing valuation allowance. The amount of
27
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
deferred tax asset considered realizable, however, could change in the near term if estimates which require significant judgment of future taxable income
during the carryforward period are increased or decreased.
A reconciliation of the Company’s uncertain tax benefits is as follows:
Year Ended December 31,
2021
2020
(In thousands)
Balance, beginning of year
$
563
$
319
Gross increases:
Prior years’ tax positions
—
74
Current year tax positions
166
170
Gross decreases:
Prior years' tax positions
(14)
—
Statute of limitations lapses
—
—
Balance, end of year
$
715
$
563
The Company recognizes interest and penalties relating to uncertain tax positions in income tax expense. The amounts recorded in 2021 and 2020 were not
significant.
The Company files income tax returns as prescribed by tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is
subject to examination by federal, state, local and foreign jurisdictions where applicable based on the statute of limitations that apply in each jurisdiction.
The Company has no open income tax audits with any taxing authority as of December 31, 2021. The Company is still subject to income tax examinations
by U.S. federal and state tax authorities for the years 2016 through 2020. Open years for foreign jurisdictions are from 2015 through 2020. However, to the
extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and
make adjustments up to the amount of the net operating loss carryforward amount.
On March 27, 2020, Congress enacted the CARES Act to provide certain relief as a result of the COVID-19 pandemic. The CARES Act, among other
things, includes provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, and modification to the net interest
deduction limitations. The CARES Act did not have a material impact on the Company's consolidated financial statements for the year ended December 31,
2021 and 2020.
9. COMMITMENTS AND CONTINGENCIES
In consideration for certain technology, manufacturing, distribution, and selling rights and licenses granted to the Company, the Company agreed to pay
royalties on sales of certain products sold by the Company. Except for the royalties paid to NLT, the royalties the Company paid are included as a
component of cost of goods sold in the consolidated statements of operations.
The Company is subject to various legal proceedings in the ordinary course of its business with respect to its products, its current or former employees, and
its commercial relationships, some of which have been settled by the Company. In the opinion of management, such proceedings are either adequately
covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material adverse effect on the Company's
financial condition. However, it is possible that the Company's results of operations, financial position and cash flows in a particular period could be
materially affected by these contingencies.
The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued are
based on the full amount of the estimated loss before considering insurance proceeds, and do not include an estimate for legal fees expected to be incurred
in connection with the loss contingency. While uncertainty exists, the Company does not believe there are any pending legal proceedings that would have a
material impact on the Company’s financial position, cash flows or results of operations.
28
SEASPINE HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. SEGMENT AND GEOGRAPHIC INFORMATION
Management assessed its segment reporting based on how it internally manages and reports the results of its business to its chief operating decision maker.
Management reviews financial results, manages the business and allocates resources on an aggregate basis. Therefore, financial results are reported in a
single operating segment: the development, manufacture and marketing of orthobiologics, spinal implants, and image guided navigation systems. The
Company reports revenue in two product categories: orthobiologics and spinal implants and enabling technologies. Orthobiologics products consist of a
broad range of advanced and traditional bone graft substitutes that are designed to improve bone fusion rates following surgery. The spinal implants and
enabling technologies portfolio consists of an extensive line of products for minimally invasive surgery, complex spine, deformity and degenerative
procedures, as well as a surgical navigation system. The Company attributes revenues to geographic areas based on the location of the customer.
The following table disaggregates revenue by major sales channel for each of the periods presented (in thousands):
Year Ended December 31, 2021
United States
International
Total
(In thousands)
Orthobiologics
$
83,249 $
8,573 $
91,822
Spinal implants and enabling technologies
$
88,192 $
11,437
99,629
Total revenue, net
$
171,441 $
20,010 $
191,451
Year Ended December 31, 2020
United States
International
Total
(In thousands)
Orthobiologics
$
71,346 $
7,037 $
78,383
Spinal implants and enabling technologies
$
67,550 $
8,412 $
75,962
Total revenue, net
$
138,896 $
15,449 $
154,345
11. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution savings plan under section 401(k) of the IRC. The plan covers substantially all employees. The Company matches
employee contributions made to the plan according to a specified formula. The Company’s matching contributions totaled approximately $1.1 million for
each of the years ended December 31, 2021 and 2020.
29
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Balance at
Beginning of Period
Charged to Costs
and Expenses
Charged to Other
Accounts
Additions/Deductions
Balance at End of
Period
Description
(In thousands)
Year ended December 31, 2021:
Allowance for doubtful accounts and sales returns and other
credits
$
192
$
—
$
—
$
(118)
$
74
Inventory Reserves
38,015
7,031
—
(2,762)
42,284
Deferred tax asset valuation allowance
75,147
16,326
—
—
91,473
Year ended December 31, 2020:
Allowance for doubtful accounts and sales returns and other
credits
$
111
$
—
$
—
$
81
$
192
Inventory Reserves
32,237
6,903
—
(1,125)
38,015
Deferred tax asset valuation allowance
65,576
9,571
—
—
75,147
r
30
OMNIBUS JOINDER AND THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND
OTHER LOAN DOCUMENTS
THIS OMNIBUS JOINDER AND THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT
AGREEMENT AND OTHER LOAN DOCUMENTS (this “Amendment”) is made as of October 26, 2021, by and among
WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as administrative agent for each
member of the Lender Group and the Bank Product Providers (in such capacity, together with its successors and assigns in such
capacity, “Agent”), lenders party thereto (each of such lenders, together with its successors and permitted assigns, collectively,
“Lender”), and SEASPINE HOLDINGS CORPORATION, a Delaware corporation (“Parent”), PROJECT MAPLE LEAF
HOLDINGS ULC, an unlimited liability company organized under the laws of British Columbia (“New Guarantor”; together
with Parent, collectively “Guarantor”), SEASPINE ORTHOPEDICS CORPORATION, a Delaware corporation (“SeaSpine
Orthopedics“), SEASPINE, INC., a Delaware corporation (“SeaSpine Inc.”), ISOTIS, INC., a Delaware corporation (“IsoTis
Inc.”), SEASPINE SALES LLC, a Delaware limited liability company (“SeaSpine Sales”), THEKEN SPINE, LLC, an Ohio
limited liability company (“Theken Spine”), and ISOTIS ORTHOBIOLOGICS, INC., a Washington corporation
(“IsoTis OrthoBiologics”; together with SeaSpine Orthopedics, SeaSpine Inc., IsoTis Inc., Theken Spine, and SeaSpine Sales,
individually and collectively, “Existing Borrower”), SEASPINE ORTHOPEDICS INTERMEDIATECO, INC., a Delaware
corporation (“Seaspine Ortho Intermediate”), 7D SURGICAL USA INC., a Delaware corporation (“7D USA”), 7D
SURGICAL ULC, an unlimited liability company organized under the laws of British Columbia, (“7D Canada”; and together
with Seaspine Ortho Intermediate and 7D USA, collectively, “New Borrower,” and together with Existing Borrower, each
individually as a “Borrower”, and individually and collectively, jointly and severally, as the “Borrowers”). Unless otherwise
provided herein, capitalized terms used but not defined in this Amendment shall have the meanings that are set forth in the Credit
Agreement referred to below.
RECITALS
A. Pursuant to that certain Amended and Restated Credit Agreement dated as of July 27, 2018, by and among Parent,
Existing Borrower, Agent and Lender, as amended by that certain Consent Under and First Amendment to Amended and
Restated Credit Agreement dated as of April 24, 2020, and as amended by that certain Second Amendment to Amended and
Restated Credit Agreement dated as of July 24, 2020 (as may be further amended, restated, supplemented or otherwise modified
from time to time to the date hereof, collectively, the “Existing Credit Agreement”), Lender agreed to make available to Existing
Borrower a secured revolving loan facility.
B. Pursuant to that certain Guaranty and Security Agreement by and among Existing Borrowers party thereto, certain
other Guarantors party thereto, and Agent dated as of December 24, 2015 (as amended, restated, modified or supplemented from
time to time to the date hereof, the “Existing Guaranty and Security Agreement”), Parent and Existing Borrowers granted a first
priority perfect Lien in their assets to Agent for the benefit of itself and the other Lenders.
C. Parent and Existing Borrower have requested that (i) New Borrower be joined as a co-obligor, Borrower and Loan
Party under the Loan and all other Loan Documents, (ii) New Guarantor be joined as a Guarantor and Loan Party under the Loan
Documents, as applicable, and (iii) Agent and Lender amend certain terms and conditions of the Existing Credit Agreement and
Existing Security Agreement, and Agent and Lender have so agreed subject to the terms and conditions hereof.
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NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Amendment, and other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1.
Joinder to Loan Documents.
(a)
The parties hereto agree that each of Seaspine Ortho Intermediate and 7D USA (individually and
collectively, “U.S. New Borrower”), shall from and hereafter be deemed a “Borrower”, a “Grantor”, a “Debtor”, an “Obligor”,
and a Loan Party for all purposes of the Existing Credit Agreement, as amended by this Amendment (the “Credit Agreement”),
the Existing Guaranty and Security Agreement, as amended by this Amendment (the “Guaranty and Security Agreement”) and
the other Loan Documents, as applicable. Accordingly, U.S. New Borrower hereby agrees to be bound by all of the conditions,
covenants, representations, warranties, and other agreements set forth in the Credit Agreement, the Guaranty and Security
Agreement and the other Loan Documents, to the extent applicable, and hereby agrees to promptly execute all further
documentation required by Agent or Lenders to be executed by U.S. New Borrower, consistent with the terms of the Credit
Agreement. The Lenders party hereto hereby approve and consent to the Agent entering into amendments and reaffirmations to
the Loan Documents to join U.S. New Borrower thereto.
(b)
The parties hereto agree that 7D Canada shall from and hereafter be deemed a “Borrower”, a “Grantor”, a
“Debtor”, an “Obligor”, and a Loan Party for all purposes of the Credit Agreement, the Canadian Pledge and Security
Agreement, the Canadian Guaranty and the other Loan Documents (other than the Guaranty and Security Agreement), as
applicable. Accordingly, 7D Canada hereby agrees to be bound by all of the conditions, covenants, representations, warranties,
and other agreements set forth in the Credit Agreement, the Canadian Guaranty, and the Canadian Pledge and Security
Agreement and the other Loan Documents (other than the Guaranty and Security Agreement), to the extent applicable, and
hereby agrees to promptly execute all further documentation required by Agent or Lenders to be executed by 7D Canada,
consistent with the terms of the Credit Agreement. The Lenders party hereto hereby approve and consent to the Agent entering
into amendments and reaffirmations to the Loan Documents to join 7D Canada thereto.
(c)
The parties hereto agree that New Guarantor shall from and hereafter be deemed a “Guarantor”, a
“Grantor”, a “Debtor”, an “Obligor”, and a Loan Party for all purposes of the Credit Agreement, the Canadian Pledge and
Security Agreement, the Canadian Guaranty and the other Loan Documents (other than the Guaranty and Security Agreement),
as applicable. Accordingly, New Guarantor hereby agrees to be bound by all of the conditions, covenants, representations,
warranties, and other agreements set forth in the Credit Agreement, the Canadian Pledge and Security Agreement, the Canadian
Guaranty and the other Loan Documents (other than the Guaranty and Security Agreement), to the extent applicable, and hereby
agrees to promptly execute all further documentation required by Agent or Lenders to be executed by New Guarantor, consistent
with the terms of the Credit Agreement and the Canadian Pledge and Security Agreement. The Lenders party hereto hereby
approve and consent to the Agent entering into amendments and reaffirmations to the Loan Documents to join New Guarantor
thereto.
(d)
Each Borrower covenants and agrees to execute and deliver to each Lender (if so requested by such
Lender) amended and restated promissory notes.
2.
Amendment to Credit Agreement. Subject to the terms and conditions herein, the Credit Agreement shall be
amended as follows:
(a)
the Credit Agreement is hereby amended to delete the stricken text (indicated textually in the same manner
as the following example: stricken text) and to add the
DM3\7661109.4
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underlined text (indicated textually in the same manager as the following example: (underlined text) as set forth in the changed
pages of the Loan Agreement attached hereto as Exhibit A.
(b)
the exhibits, annexes and schedules to the Credit Agreement are hereby amended and restated by the
updated exhibits, annexes and schedules to the Credit Agreement with respect to New Borrower and New Guarantor, attached
hereto as Exhibit B, each of which shall be deemed a part of the Credit Agreement for all purposes of the Credit Agreement.
3.
Amendment to Guaranty and Security Agreement. Subject to the terms and conditions contained herein, the
Guaranty and Security Agreement is hereby amended to delete the stricken text (indicated textually in the same manner as the
following example: stricken text) and to add the underlined text (indicated textually in the same manager as the following
example: underlined text) as set forth in the changes pages of the Loan Agreement attached hereto as Exhibit C.
4.
Joinder of Seaspine Ortho Imtermediate and 7D USA to the Guaranty and Security Agreement. Pursuant to
Section 5.11 of the Credit Agreement and Section 26 of the Guaranty and Security Agreement, Seaspine Ortho Imtermediate and
7D USA shall enter into the Joinder to Guaranty and Security Agreement dated as of the date hereof, by and among Seaspine
Ortho Intermediate, 7D USA and Agent (the “Joinder to Guaranty and Security Agreement”).
5.
Amendment to and Joinder of New Borrower and New Guarantor to the Intercompany Subordination
Agreement.
(a)
Amendment to Intercompany Subordination Agreement. The Intercompany Subordination Agreement is
hereby amended as set forth below:
(i)
Section 1 of the Intercompany Subordination Agreement is hereby amended by adding the
following new defined terms therein in appropriate numerical order to read as follows:
“Canadian Guaranty” has the meaning specified in the Credit Agreement.
“Canadian Security and Pledge Agreement” has the meaning specified in the Credit
Agreement.
(ii)
The definition of “Senior Debt” in Section 1 of the Intercompany Subordination Agreement is
hereby amended and restated in its entirety to read as follows:
“Senior Debt” means all obligations (including the Obligations and the Indebtedness
evidenced by the Guaranty (as defined in the Guaranty and Security Agreement)) and the Canadian
Guaranty, and all amounts owing, due, or secured under, or in connection with, the terms of, or
evidenced by, the Credit Agreement, any other Loan Document (including, without limitation the
Canadian Security and Pledge Agreement) or Bank Product Agreement, whether now existing or
arising hereafter, including all principal, premium, interest, Lender Group Expenses,
reimbursement obligations, obligations to post cash collateral in respect of Letters of Credit or
Bank Product Obligations or indemnities in respect thereof, any other indemnities or guarantees,
and all other amounts payable under or secured by any Loan
DM3\7661109.4
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Document or Bank Product Agreement (including, in each case, all amounts accruing on or after
the commencement of any Insolvency Proceeding relating to any Loan Party, or that would have
accrued or become due under the terms of any Loan Document or Bank Product Agreement but for
the commencement of any Insolvency Proceeding with respect to any Loan Party and irrespective
of whether a claim for all or any portion of such amounts is allowable or allowed in such
Insolvency Proceeding).
(iii)
Section 9 of the Intercompany Subordination Agreement is hereby amended by replacing the
reference to “whereas pursuant to the Guaranty and Security Agreement or otherwise” in the last sentence of Section 9
with the following: “whereas pursuant to the Guaranty and Security Agreement, the Canadian Security and Pledge
Agreement or otherwise.”
(iv)
The first sentence of Section 25 of the Intercompany Subordination Agreement is hereby amended
and restated in its entirety to read as follows:
“Each Obligor shall cause any Subsidiary (whether by acquisition or formation) of any
Loan Party that is required pursuant to Section 5.11 of the Credit Agreement to execute a joinder to
the Guaranty and Security Agreement, the Credit Agreement, the Canadian Guaranty or the
Canadian Security and Pledge Agreement, as applicable, within 15 days of such acquisition or
formation (or such later date as permitted by Agent in its sole discretion), as the case may be, to
execute and deliver to Agent a joinder to this Agreement in a form reasonably satisfactory to
Agent.”
(b)
Joinder to Intercompany Subordination Agreement. By its execution of this Agreement, New Borrower
and New Guarantor hereby (a) agrees that from and after the date of this Agreement it shall be an Obligor under the
Intercompany Subordination Agreement as if it were a signatory thereto and shall be bound by all of the provisions thereof, and
(b) agrees that it shall comply with and be subject to all the terms, conditions, covenants, agreements and obligations set forth in
the Intercompany Subordination Agreement. New Borrower and New Guarantor hereby agrees that each reference to an
“Obligor” or the “Obligors” in the Intercompany Subordination Agreement shall include New Borrower and New Guarantor.
New Borrower and New Guarantor acknowledge that it has received a copy of the Intercompany Subordination Agreement and
that it has read and understands the terms thereof.
6.
Joinder of New Borrower and New Guarantor to the Fee Letter. By its execution of this Agreement, New
Borrower and New Guarantor hereby (a) agrees that from and after the date of this Agreement it shall be a party to the Fee Letter
as if it were a signatory thereto and shall be bound by all of the provisions thereof, and (b) agrees that it shall comply with and be
subject to all of the terms, conditions, covenants, agreements and obligations set forth in the Fee Letter applicable to Borrowers.
New Borrower hereby agrees that each reference to “Borrower” or “Borrowers” in the Fee Letter shall include New Borrower.
New Borrower and New Guarantor acknowledges that it has received a copy of the Fee Letter and that it has read and
understands the terms thereof.
7.
Reaffirmation of Security Interest/Guarantor Acknowledgment. Loan Parties hereby confirm and agree that
all security interests and Liens granted to Agent, for the benefit of Lenders, pursuant to the Guaranty and Security Agreement and
the Canadian Pledge and Security Agreement continue to be perfected, first priority Liens and remain in full force and
DM3\7661109.4
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effect and shall continue to secure the Obligations. All Collateral remains free and clear of any Liens other than Liens in favor of
Agent and Permitted Liens. Nothing herein contained is intended to in any way impair or limit the validity, priority, and extent of
Agent’s existing security interest in and Liens upon the Collateral. Each Guarantor acknowledges and consents to all of the terms
and conditions of this Amendment, affirms its guaranty obligations under and in respect of the Loan Documents to which it is a
party and agrees that neither this Amendment nor any of the documents executed in connection therewith operate to reduce or
discharge its obligations under the Loan Documents, except as expressly set forth therein.
8.
Effectiveness Conditions. This Amendment shall be effective upon completion of the following conditions
precedent (all documents to be in form and substance satisfactory to Agent and Agent’s counsel):
(a)
Agent shall have received a letter duly executed by New Borrower, dated prior to the date hereof
authorizing Agent to file appropriate financing statements in such office or offices as may be necessary or, in the opinion of
Agent, desirable to perfect the security interests to be created by this Agreement and the related Loan Documents;
(b)
Agent shall have received evidence that appropriate financing statements have been duly filed in such
office or offices as may be necessary or, in the opinion of Agent, desirable to perfect the Agent's Liens in and to the Collateral;
(c)
Execution and delivery of this Amendment;
(d)
Execution and delivery of the Joinder to Guaranty and Security Agreement;
(e)
Execution and delivery of the Pledged Interest Addendum;
(f)
Execution and delivery of the First Amendment and Joinder to Trademark Security Agreement;
(g)
Execution and delivery of the First Amendment and Joinder to Patent Security Agreement;
(h)
Execution and delivery of the Collateral Assignment of Purchase Documents;
(i)
Execution and delivery of the Canadian Guaranty Agreement;
(j)
Execution and delivery of the Canadian Pledge and Security Agreement;
(k)
Execution and delivery of the Intellectual Security Agreements governed by Canadian law;
(l)
Agent shall have received a duly executed Blocked Accounts Agreement by and among Royal Bank of
Canada, Agent and 7D Canada;
(m)
Agent shall have received a Form 8821 for New Borrower;
(n)
Agent shall have received a certificate from the Secretary or other officer of New Borrower and New
Guarantor (i) attesting to the resolutions of New Borrower's or New Guarantor’s board of directors or managers authorizing its
execution, delivery, and performance of the Loan Documents to which it is a party, (ii) authorizing specific officers of New
Borrower
DM3\7661109.4
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and New Guarantor to execute the same, and (iii) attesting to the incumbency and signatures of such specific officers of New
Borrower and New Guarantor;
(o)
Agent shall have received certificates from the Secretary of each Existing Borrower (i) attesting to no
change with respect to the Governing Documents of Existing Borrowers since last delivered to Agent, (ii) attesting to the
resolutions of Existing Borrower's board of directors or managers authorizing its execution, delivery, and performance of the
Loan Documents to which it is a party, (ii) authorizing specific officers of each Existing Borrower to execute the same, and (iii)
attesting to the incumbency and signatures of such specific officers of Existing Borrowers;
(p)
Agent shall have received copies of New Borrower's Governing Documents, as amended, modified, or
supplemented prior to the date hereof, which Governing Documents shall be (i) certified by the Secretary of New Borrower, and
(ii) with respect to Governing Documents of 7D USA and Seaspine Ortho Intermediate that are charter documents, certified as of
a recent date (not more than 30 days prior to the date hereof) by the appropriate governmental official;
(q)
Agent shall have received a certificate of status with respect to each Existing Borrower, New Borrower,
and New Guarantor dated within 30 days of the date hereof, such certificate to be issued by the appropriate officer of the
jurisdiction of organization of New Borrower and New Guarantor, as the case may be, which certificate shall indicate that New
Borrower and New Guarantor, as the case may be, is in good standing in such jurisdiction;
(r)
Agent shall have received a certificate of insurance for New Borrower and New Guarantor, together with
the endorsements thereto, as are required by Section 5.6 of the Credit Agreement, the form and substance of which shall be
satisfactory to Agent;
(s)
Agent shall have received an opinion of counsel with respect to the New Borrower and New Guarantor in
form and substance reasonably satisfactory to Agent;
(t)
Agent shall have completed its business, legal, and collateral due diligence with respect to New Borrower
and New Guarantor;
(u)
Agent shall have completed (i) Patriot Act searches, OFAC/PEP searches and customary individual
background checks for New Borrower, and (ii) OFAC/PEP searches and customary individual background searches for New
Borrower's senior management and key principals, the results of which shall be satisfactory to Agent;
(v)
New Borrower and New Guarantor shall have received, or made application for, all licenses, approvals or
evidence of other actions required by any Governmental Authority in connection with the execution and delivery by New
Borrower of the Loan Documents or with the consummation of the transactions contemplated thereby;
(w)
Payment of all outstanding costs, fees and expenses associated with this Amendment, including without
limitation, the costs, fees and expenses required under Section 11 hereof; and
(x)
Such additional documents, instruments and agreements as Agent may reasonably request.
9.
Additional Covenants.
DM3\7661109.4
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(a)
The Loan Parties shall diligently pursue and effect the dissolution and liquidation of 7D Surgical
International Inc., a Barbados company, as soon as reasonably practicable under Barbados law, and upon such dissolution and
liquidation having been completed the Loan Parties shall deliver to Agent filed articles of dissolution, together with such other
necessary evidence of dissolution, evidencing that such company has been dissolved. The Loan Parties agree that from and after
the date hereof, the Loan Parties shall cause 7D Surgical International Inc., not to enter into or transact any business.
(b)
Within ninety (90) days of the date hereof (or such later date as approved by Agent in its sole discretion),
Loan Parties shall deliver to Agent evidence that Loan Parties have submitted the appropriate name change request with the
United States Patent and Trademark Office and Canadian Intellectual Property Office, respectively, in order to reflect that owner
on record for any Patents or Trademarks previously registered in the name of 7D Surgical Inc. will now be registered in the name
of 7D Surgical ULC (as successor in interest to 7D Surgical Inc.).
(c)
Within thirty (30) days following the date hereof, (or such later date as approved by Agent in its sole
discretion), Loan Parties shall deliver to Agent (i) a lenders loss payable endorsement to the property insurance policy for the
New Borrower and New Guarantor reflecting Agent, including its successors and/or assigns as lenders loss payable under such
property insurance policy, and (ii) a notice of cancellation endorsement for each of the liability and property insurance policies of
New Borrower and New Guarantor, in each case in form and substance satisfactory to Agent.
(d)
Within fifteen (15) days following the date hereof (or such later date as approved by Agent in its sole
discretion), the Loan Parties shall deliver to Agent a duly executed Blocked Account Agreement with Royal Bank of Canada with
respect to the account in the name of 7D Canada.
10.
Confirmation of Representations and Warranties. Each Loan Party hereby represents and warrants to Agent
and Lender, on a joint and several basis, that, as of the date hereof:
(a)
The representations and warranties set forth in the Credit Agreement and in the other Loan Documents,
each as amended to date, are true and correct in all material respects (except 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) on and as the date
hereof, with the same effect as if made on and as of the date hereof, except to the extent such representations and warranties
expressly refer to an earlier date, in which case they shall be true and correct in all material respects (except 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) as of such earlier date.
(b)
The representations and warranties set forth in the Guaranty and Security Agreement, are true and correct
in all material respects (except 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) on and as the date hereof, with the same effect as if made on
and as of the date hereof, except to the extent such representations and warranties expressly refer to an earlier date, in which case
they shall be true and correct in all material respects (except 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) as of such earlier date.
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(c)
This Amendment and each other document delivered by it in connection herewith has been duly executed
and delivered by such Person and constitutes such Person’s legal, valid and binding obligation, enforceable in accordance with its
terms, except as such enforceability may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting creditors’ rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding at law or in equity).
(d)
The execution, delivery and performance of this Amendment has been duly authorized by all requisite
limited liability company, partnership or corporate action, as applicable, on the part of each Loan Party. This Amendment and
each other document delivered by it in connection herewith has been duly authorized, executed and delivered to Agent by each
Borrower and each Guarantor and each is enforceable in accordance with its terms and is in full force and effect.
(e)
No Default or Event of Default has occurred and is continuing on and as of the date hereof or would exist
upon the consummation of the transactions contemplated by this Amendment.
11.
Costs and Fees. In consideration of Agent and Lender agreeing to amend the Credit Agreement and the other
Loan Documents referred to herein, Borrowers shall be responsible for the payment of all reasonable fees of Agent’s outside
counsel incurred in connection with the preparation of this Amendment and any related documents.
12.
No Waiver or Novation. The execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided in this Amendment, operate as a waiver of any right, power or remedy of Agent or Lender, nor constitute a
waiver of any provision of the Credit Agreement, the other Loan Documents or any other documents, instruments and agreements
executed or delivered in connection with any of the foregoing. Nothing herein is intended or shall be construed as a waiver of any
existing defaults or Events of Default under the Credit Agreement or the other Loan Documents or any of Agent’s or Lender’s
rights and remedies in respect of such defaults or Events of Default. This Amendment (together with any other document
executed in connection herewith) is not intended to be, nor shall it be construed as, a novation of the Credit Agreement or the
other Loan Documents. This Amendment cannot be amended without the prior written consent of Agent.
13.
Miscellaneous.
(a)
Continuing Effect of Credit Agreement; Conflicts. Except as expressly modified pursuant hereto, no other
changes or modifications to the Credit Agreement or the Loan Documents are intended or implied by this Amendment and in all
other respects the Credit Agreement and the Loan Documents hereby are ratified, restated and confirmed by all parties hereto as
of the date hereof. To the extent of conflict between the terms of this Amendment, the Credit Agreement and the Loan
Documents, the terms of this Amendment shall govern and control.
(b)
Further Assurances. At Loan Parties’ expense, the parties hereto shall execute and deliver such additional
documents and take such further action as may be reasonably requested by any other party hereto to effectuate the provisions and
purposes of this Amendment.
(c)
Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of each of the
parties hereto and their respective successors and assigns.
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(d)
Survival of Representations, Warranties and Covenants. All representations, warranties, covenants and
releases of each Loan Party made in this Amendment or any other document furnished in connection with this Amendment shall
survive the execution and delivery of this Amendment, and no investigation by Agent or Lender, or any closing, shall affect the
representations and warranties or the right of Agent and Lender to rely upon them.
(e)
Reviewed by Attorneys. Each Loan Party hereby represents and warrants to Agent and Lender that it
(a) understands fully the terms of this Amendment and the consequences of the execution and delivery of this Amendment,
(b) has been afforded an opportunity to discuss this Amendment and have this Amendment reviewed by, such attorneys and other
Persons as such Loan Party may wish, and (c) has entered into this Amendment and executed and delivered all documents in
connection herewith of its own free will and accord and without threat, duress or other coercion of any kind by any Person. The
parties hereto acknowledge and agree that none of this Amendment or the other documents executed pursuant hereto shall be
construed more favorably in favor of one than the other based upon which party drafted the same, it being acknowledged that all
parties hereto contributed substantially to the negotiation and preparation of this Amendment and all of the other documents
executed pursuant hereto or in connection herewith.
(f)
Relationship. Each Loan Party hereby agrees that the relationship among Agent and Lender, on the one
hand, and each Loan Party, on the other hand, is that of creditor and debtor and not that of partners or joint venturers. Neither this
Amendment nor any of the other Loan Documents constitute a partnership agreement, or any other association among Agent and
Lender, on the one hand, and each Loan Party, on the other hand. Each Loan Party acknowledges that Agent and Lender have
acted at all times only as a creditor to each Loan Party within the normal and usual scope of the activities normally undertaken by
a creditor and in no event has Agent or Lender attempted to exercise any control over the Loan Parties or their respective
businesses or affairs. Each Loan Party further acknowledges that, to the knowledge of such Loan Party, Agent and Lender have
not taken or failed to take any action under or in connection with its respective rights under the Credit Agreement and the Loan
Documents that in any way or to any extent has interfered with or adversely affects any ownership of Collateral by any Loan
Party.
(g)
Acknowledgement and Reaffirmation. Except as expressly set forth herein, this Amendment (i) shall not
by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of Agent and Lender
under the Credit Agreement or any other Loan Document, and (ii) shall not alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other provision of either such
agreement or any other Loan Document. Except as expressly set forth herein, each and every term, condition, obligation,
covenant and agreement contained in the Credit Agreement or any other Loan Document is hereby ratified and re-affirmed in all
respects and shall continue in full force and effect. Each Loan Party reaffirms its obligations under the Loan Documents to which
it is party and the validity of the Liens granted by it pursuant to the Loan Documents. This Amendment shall constitute a Loan
Document for purposes of the Credit Agreement and from and after the date hereof, all references to the Credit Agreement in any
Loan Document and all references in the Credit Agreement to “this Amendment”, “hereunder”, “hereof” or words of like import
referring to the Credit Agreement, shall, unless expressly provided otherwise, refer to the Credit Agreement as amended by this
Amendment. Each Loan Party hereby consents to this Amendment and confirms that all obligations of such Loan Party under the
Loan Documents to which such Loan Party is a party shall continue to apply to the Credit Agreement as amended hereby.
(h)
Release; No Action, Claims, Etc. In consideration of Agent’s and Lender’s willingness to enter into this
Amendment, each of the Loan Parties hereby releases and
DM3\7661109.4
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forever discharges Agent and Lender and each of Agent’s and Lender’s predecessors, successors, assigns, officers, managers,
directors, employees, agents, attorneys, representatives and affiliates from any and all claims, counterclaims, demands, damages,
debts, suits, liabilities, actions and causes of action of any nature whatsoever, in each case to the extent arising in connection with
the Loan Documents through the date of this Amendment, whether arising at law or in equity, whether known or unknown,
whether liability be direct or indirect, liquidated or unliquidated, whether absolute or contingent, foreseen or unforeseen, and
whether or not heretofore asserted, which any Borrower may have or claim to have against Agent and/or Lender. As of the date
hereof, each of the Loan Parties hereby acknowledges and confirms that it has no knowledge of any actions, causes of action,
claims, demands, damages and liabilities of whatever kind or nature, in law or in equity, against Agent and/or Lender, or any of
Agent’s and/or Lender’s officers, employees, representatives, agents, counsel or directors arising from any action by such
Persons, or failure of such Persons to act under the Credit Agreement on or prior to the date hereof.
(i)
Counterparts. This Amendment may be executed in any number of counterparts, but all of such
counterparts shall together constitute but one and the same agreement. Receipt by telecopy, facsimile, email transmission or other
electronic transmission acceptable to Agent of any executed signature page to this Amendment shall constitute effective delivery
of such signature page.
(j)
Severability; Interpretation. Wherever possible, each provision of this Amendment shall be interpreted in
such a manner as to be effective and valid under applicable, but if any provision of this Amendment shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this Amendment.
(k)
Headings. The headings of this Amendment are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof.
(l)
Entirety. This Amendment and the other Loan Documents embody the entire agreement between the
parties and supersede all prior agreements and understandings, if any, relating to the subject matter hereof. This Amendment and
the other Loan Documents represent the final agreement between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties.
(m)
CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; BINDING EFFECT. THIS AMENDMENT
SHALL BE SUBJECT TO THE PROVISIONS REGARDING CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER;
BINDING EFFECT SET FORTH IN SECTION 12 OF THE CREDIT AGREEMENT, AND SUCH PROVISIONS ARE
INCORPORATED HEREIN BY THIS REFERENCE, MUTATIS MUTANDIS.
[SIGNATURE PAGES FOLLOW]
DM3\7661109.4
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(Signature Page to Omnibus Joinder and Third Amendment to Amended and Restated Credit Agreement and Other Loan
Documents)
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first written above.
PARENT AND GUARANTOR:
SEASPINE HOLDINGS CORPORATION, a Delaware corporation
By:
John Bostjancic
Chief Financial Officer
NEW GUARANTOR:
PROJECT MAPLE LEAF HOLDINGS ULC, an unlimited liability
company organized under the laws of British Columbia
By:
Patrick Keran
Director
EXISTING BORROWERS:
SEASPINE ORTHOPEDICS CORPORATION, a Delaware
corporation
By:
John Bostjancic
Chief Financial Officer
SEASPINE, INC., a Delaware corporation
By:
John Bostjancic
Chief Financial Officer
ISOTIS, INC., a Delaware corporation
By:
John Bostjancic
Chief Financial Officer
DM3\7661109.4
(Signature Page to Omnibus Joinder and Third Amendment to Amended and Restated Credit Agreement and Other Loan
Documents)
SEASPINE SALES LLC, a Delaware limited liability company
By: SeaSpine, Inc., its sole member
By:
John Bostjancic
Chief Financial Officer
ISOTIS ORTHOBIOLOGICS, INC., a Washington corporation
By:
John Bostjancic
Chief Financial Officer
THEKEN SPINE, LLC, an Ohio limited liability company
By: SeaSpine Orthopedics Corporation, its sole member
By:
John Bostjancic
Chief Financial Officer
NEW BORROWER:
SEASPINE ORTHOPEDICS INTERMEDIATECO, INC., a
Delaware corporation
By:
John Bostjancic
Chief Financial Officer
7D SURGICAL USA INC., a Delaware corporation
By:
John Bostjancic
Chief Financial Officer
7D SURGICAL ULC, an unlimited liability company organized under the
laws of British Columbia
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By:
John Bostjancic
Senior Vice President
AGENT AND A LENDER:
WELLS FARGO BANK, NATIONAL ASSOCIATION, a national
banking association
By:
Name: Rina Shinoda
Title: Authorized Signatory
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EXHIBIT A
Changed Pages to Credit Agreement
AMENDED AND RESTATED CREDIT AGREEMENT
by and among
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent,
WELLS FARGO BANK, NATIONAL ASSOCIATION
and
THE LENDERS THAT ARE PARTIES HERETO
as the Lenders,
SEASPINE HOLDINGS CORPORATION,
as Parent and Guarantor, and
PROJECT MAPLE LEAF HOLDINGS ULC,
as Guarantor,
and
SEASPINE ORTHOPEDICS CORPORATION,
ISOTIS ORTHOBIOLOGICS, INC.,
ISOTIS, INC., SEASPINE, INC.,
THEKEN SPINE, LLC,
SEASPINE SALES LLC,
SEASPINE ORTHOPEDICS INTERMEDIATECO, INC.,
7D SURGICAL USA INC.,
7D SURGICAL ULC,
as Borrowers
Dated as of July 27, 2018
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TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION 12
1.1 Definitions 12
1.2 Accounting Terms 2
1.3 Code 2
1.4 Construction 2
1.5 Time References 3
1.6 Schedules and Exhibits 3
1.7 Currency Matters. 4
1.8 Canadian Terms. 4
1.9 Rates. 4
2. LOANS AND TERMS OF PAYMENT 45
2.1 Revolving Loans 45
2.2 [Reserved] 57
2.3 Borrowing Procedures and Settlements 57
2.4 Payments; Reductions of Commitments; Prepayments 1214
2.5 Promise to Pay; Promissory Notes 1618
2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations 1719
2.7 Crediting Payments 1921
2.8 Designated Account 1921
2.9 Maintenance of Loan Account; Statements of Obligations 1922
2.10 Fees 2022
2.11 Letters of Credit 2023
2.12 LIBOR Option 2830
2.13 Capital Requirements 3034
2.14 Incremental Facility 3135
2.15 Joint and Several Liability of Borrowers 3337
3. CONDITIONS; TERM OF AGREEMENT 3741
3.1 Conditions Precedent to the Initial Extension of Credit 3741
3.2 Conditions Precedent to all Extensions of Credit 3741
3.3 Maturity 3742
3.4 Effect of Maturity 3742
3.5 Early Termination by Borrowers 3842
3.6 Conditions Subsequent 3842
4. REPRESENTATIONS AND WARRANTIES 3843
4.1 Due Organization and Qualification; Subsidiaries 3943
4.2 Due Authorization; No Conflict 3944
4.3 Governmental Consents 4044
4.4 Binding Obligations; Perfected Liens 4045
4.5 Title to Assets; No Encumbrances 4045
4.6 Litigation 4145
4.7 Compliance with Laws 4146
4.8 No Material Adverse Effect 4146
4.9 Solvency 4246
4.10 Employee Benefits 4246
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4.11 Environmental Condition 4247
4.12 Complete Disclosure 4247
4.13 Patriot Act 4348
4.14 Indebtedness 4348
4.15 Payment of Taxes 4348
4.16 Margin Stock 4348
4.17 Governmental Regulation 4349
4.18 OFAC; Sanctions; Anti-Corruption Laws; Anti-Money Laundering Laws 4449
4.19 Employee and Labor Matters 4449
4.20 Parent and Maple Leaf as a Holding CompanyCompanies 4450
4.21 Leases 4550
4.22 Eligible Accounts 4550
4.23 Eligible Inventory 4550
4.24 Location of Inventory 4550
4.25 Inventory Records 4550
4.26 Hedge Agreements 4550
4.27 Health Care Matters 4651
4.28 Regulatory Compliance 4753
4.29 Intellectual Property 4854
5. AFFIRMATIVE COVENANTS 4955
5.1 Financial Statements, Reports, Certificates 4955
5.2 Reporting 4955
5.3 Existence 5055
5.4 Maintenance of Properties 5055
5.5 Taxes 5055
5.6 Insurance 5055
5.7 Inspection 5156
5.8 Compliance with Laws 5157
5.9 Environmental 5257
5.10 Disclosure Updates 5257
5.11 Formation of Subsidiaries 5258
5.12 Further Assurances 5358
5.13 Lender Meetings 5359
5.14 Location of Inventory; Chief Executive Office 5459
5.15 Compliance with Health Care Laws. 5459
5.16 Protection of Intellectual Property 5560
5.17 Collateral Access Agreements 5561
5.18 N.L.T. Spine Eligibility 5561
5.19 OFAC; Sanctions; Anti-Corruption Laws; Anti-Money Laundering Laws 5661
5.20 CARES Act 61
5.21 Canadian Pension Plans. 62
6. NEGATIVE COVENANTS 5663
6.1 Indebtedness 5663
6.2 Liens 5663
6.3 Restrictions on Fundamental Changes 5663
6.4 Disposal of Assets 5764
6.5 Nature of Business 5764
6.6 Prepayments and Amendments 5764
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6.7 Restricted Payments 5865
6.8 Accounting Methods 5865
6.9 Investments 5865
6.10 Transactions with Affiliates 5865
6.11 Use of Proceeds 5966
6.12 Limitation on Issuance of Equity Interests 6067
6.13 Inventory with Bailees 6067
6.14 Parent as Holding Company 6067
6.15 Modifications to Material Contracts 6067
6.16 Antilayering 6067
6.17 Deposit Accounts 6067
6.18 Canada Pension Plan. 67
7. FINANCIAL COVENANT 6068
8. EVENTS OF DEFAULT 6168
8.1 Payments 6168
8.2 Covenants 6168
8.3 Judgments 6169
8.4 Voluntary Bankruptcy, etc 6269
8.5 Involuntary Bankruptcy, etc 6269
8.6 Default Under Other Agreements 6269
8.7 Representations, etc 6270
8.8 Guaranty 6270
8.9 Security Documents 6270
8.10 Loan Documents 6370
8.11 Change of Control 6370
8.12 Lockbox Instructions 6370
8.13 Health Care Laws 6370
8.14 Regulatory Authority 6471
8.15 Lease Agreements 6471
8.16 Integra Supply Agreements 6471
8.17 CARES Act. 72
9. RIGHTS AND REMEDIES 6472
9.1 Rights and Remedies 6472
9.2 Remedies Cumulative 6573
10. WAIVERS; INDEMNIFICATION 6573
10.1 Demand; Protest; etc 6573
10.2 The Lender Group’s Liability for Collateral 6573
10.3 Indemnification 6673
10.4 Currency Indemnity. 74
11. NOTICES 6775
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE PROVISION 6876
13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS 7179
13.1 Assignments and Participations 7179
13.2 Successors 7683
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14. AMENDMENTS; WAIVERS 7684
14.1 Amendments and Waivers 7684
14.2 Replacement of Certain Lenders 7886
14.3 No Waivers; Cumulative Remedies 7986
15. AGENT; THE LENDER GROUP 7987
15.1 Appointment and Authorization of Agent 7987
15.2 Delegation of Duties 8088
15.3 Liability of Agent 8088
15.4 Reliance by Agent 8088
15.5 Notice of Default or Event of Default 8188
15.6 Credit Decision 8189
15.7 Costs and Expenses; Indemnification 8290
15.8 Agent in Individual Capacity 8290
15.9 Successor Agent 8391
15.10 Lender in Individual Capacity 8391
15.11 Collateral Matters 8492
15.12 Restrictions on Actions by Lenders; Sharing of Payments 8694
15.13 Agency for Perfection 8694
15.14 Payments by Agent to the Lenders 8794
15.15 Concerning the Collateral and Related Loan Documents 8794
15.16 Field Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and
Information 8795
15.17 Several Obligations; No Liability 8896
16. WITHHOLDING TAXES 8896
16.1 Payments 8896
16.2 Exemptions 8997
16.3 Reductions 9199
16.4 Refunds 9299
17. GENERAL PROVISIONS 92100
17.1 Effectiveness 92100
17.2 Section Headings 92100
17.3 Interpretation 92100
17.4 Severability of Provisions 92100
17.5 Bank Product Providers 93100
17.6 Debtor-Creditor Relationship 93101
17.7 Counterparts; Electronic Execution 94101
17.8 Revival and Reinstatement of Obligations; Certain Waivers 94101
17.9 Confidentiality 95102
17.10 Survival 96104
17.11 Patriot Act; Due Diligence 97104
17.12 Integration 97105
17.13 SeaSpine Orthopedics as Agent for Borrowers 97105
17.14 Acknowledgement and Consent to Bail-In of EEA Financial Institutions 98105
17.15 Amendment and Restatement of the Original Credit Agreement 98106
17.17 Reaffirmation of Loan Documents; Reaffirmation of Security Interest; Guarantor
Acknowledgement 100108
17.18 ULC Shares. 108
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EXHIBITS AND SCHEDULES
Exhibit A-1
—
Form of Assignment and Acceptance
Exhibit B-1
—
Form of Borrowing Base Certificate
Exhibit C-1
—
Form of Compliance Certificate
Exhibit G-1
—
Amended and Restated Disclosure Schedules to Guaranty and Security Agreement
Exhibit L-1
—
Form of LIBOR Notice
Exhibit P-1
—
Form of Perfection Certificate
Schedule A-1
—
Agent’s Account
Schedule A-2
—
Authorized Persons
Schedule C-1
—
Commitments
Schedule D-1
—
Designated Account
Schedule P-1
—
Permitted Investments
Schedule P-2
—
Permitted Liens
Schedule R-1
—
Real Property Collateral
Schedule 3.1
—
Conditions Precedent
Schedule 3.6
—
Conditions Subsequent
Schedule 4.1 (b)
—
Capitalization of Borrowers
Schedule 4.1(c)
—
Capitalization of Borrowers’ Subsidiaries
Schedule 4.1(d)
—
Subscriptions, Options, Warrants, Calls
Schedule 4.6
Schedule 14.10(b)
—
—
Litigation
Canadian Employee Plan
Schedule 4.11
—
Environmental Matters
Schedule 4.14
—
Permitted Indebtedness
Schedule 4.24
—
Location of Inventory
Schedule 4.29
—
Intellectual Property
Schedule 5.1
—
Financial Statements, Reports, Certificates
Schedule 5.2
—
Collateral Reporting
Schedule 6.5
—
Nature of Business
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AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this “Agreement”), is entered into as of July 27, 2018,
by and among the lenders identified on the signature pages hereof (each of such lenders, together with its successors and
permitted assigns, is referred to hereinafter as a “Lender”, as that term is hereinafter further defined), WELLS FARGO BANK,
NATIONAL ASSOCIATION, a national banking association (“Wells Fargo”), as administrative agent for each member of the
Lender Group and the Bank Product Providers (in such capacity, together with its successors and assigns in such capacity,
“Agent”), the financial institutions who are or hereafter become parties to this Agreement as lenders (together with Wells Fargo,
collectively the “Lenders”, and each individually, a “Lender”), SEASPINE HOLDINGS CORPORATION, a Delaware
corporation (“Parent”), as Parent and as Guarantor, SEASPINEPROJECT MAPLE LEAF HOLDINGS ULC, an unlimited
liability company organized under the laws of British Columbia (“Maple Leaf”; together with Parent, individually and
collectively “Guarantor”), SEASPINE ORTHOPEDICS CORPORATION, a Delaware corporation (“SeaSpine Orthopedics“),
SEASPINE, INC., a Delaware corporation (“SeaSpine Inc.”), ISOTIS, INC., a Delaware corporation (“IsoTis Inc.”),
SEASPINE SALES LLC, a Delaware limited liability company (“SeaSpine Sales”), THEKEN SPINE, LLC, an Ohio limited
liability
company
(“Theken
Spine”),
and
ISOTIS
ORTHOBIOLOGICS,
INC.,
a
Washington
corporation
(“IsoTis OrthoBiologics”), SEASPINE ORTHOPEDICS INTERMEDIATECO, INC., a Delaware corporation (“SeaSpine
Ortho Intermediate”), 7D SURGICAL USA INC., a Delaware corporation (“7D USA”), 7D SURGICAL ULC, an unlimited
liability company organized under the laws of British Columbia (“7D Canada”; together with SeaSpine Orthopedics, SeaSpine
Inc., IsoTis Inc., Theken Spine, and SeaSpine Sales, IsoTis OrthoBiologics, SeaSpine Ortho Intermediate and 7D USA are
referred to hereinafter each individually as a “Borrower”, and individually and collectively, jointly and severally, as the
“Borrowers”).
WHEREAS, Borrowers are party to that certain Credit Agreement dated as of December 24, 2015 (the “Initial Closing
Date”) by and among Borrowers, Lenders, and Agent (as amended, the “Original Credit Agreement”), which is being amended
and restated in connection herewith pursuant to this Agreement;
WHEREAS, the parties hereto desire to amend and restate the Original Credit Agreement (and the Borrowers have agreed
to continue to secure all of their Obligations under the Original Credit Agreement and the “Loan Documents” entered into in
connection therewith by continuing their grant of a security interest in and lien upon the Collateral described herein and in the
Guaranty and Security Agreement), upon the terms and provisions and subject to the conditions set forth herein;
WHEREAS, this Agreement shall become effective upon the execution of this Agreement by Borrowers, Agent and
Lenders and upon the satisfaction of the conditions contained in Section 3.1 hereof; and
WHEREAS, Borrowers have requested that Lenders continue to make available to Borrowers the financing facilities as
described herein. Lenders are willing to continue to extend such credit to Borrowers under the terms and conditions herein set
forth.
The parties agree as follows:
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DEFINITIONS AND CONSTRUCTION.
Definitions. Capitalized terms used in this Agreement shall have the meanings specified therefor on Schedule 1.1.
Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with
GAAP; provided, that if Administrative Borrower notifies Agent that Borrowers request an amendment to any
provision hereof to eliminate the effect of any Accounting Change occurring after the Closing Date or in the
application thereof on the operation of such provision (or if Agent notifies Administrative Borrower that the Required
Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is
given before or after such Accounting Change or in the application thereof, then Agent and Borrowers agree that they
will negotiate in good faith amendments to the provisions of this Agreement that are directly affected by such
Accounting Change with the intent of having the respective positions of the Lenders and Borrowers after such
Accounting Change conform as nearly as possible to their respective positions immediately before such Accounting
Change took effect and, until any such amendments have been agreed upon and agreed to by the Required Lenders,
the provisions in this Agreement shall be calculated as if no such Accounting Change had occurred. When used
herein, the term “financial statements” shall include the notes and schedules thereto. Whenever the terms “Parent”
and “Borrowers” are used in respect of a financial covenant or a related definition, it shall be understood to mean
Parent and its Subsidiaries on a consolidated basis, unless the context clearly requires otherwise. Notwithstanding
anything to the contrary contained herein, (a) all financial statements delivered hereunder shall be prepared, and all
financial covenants contained herein shall be calculated, without giving effect to any election under the Statement of
Financial Accounting Standards Board’s Accounting Standards Codification Topic 825 (or any similar accounting
principle) permitting a Person to value its financial liabilities or Indebtedness at the fair value thereof, and (b) the term
“unqualified opinion” as used herein to refer to opinions or reports provided by accountants shall mean an opinion or
report that is (i) unqualified, and (ii) does not include any explanation, supplemental comment, or other comment
concerning the ability of the applicable Person to continue as a going concern or concerning the scope of the audit.
Code. AnySubject to Section 1.8, any terms used in this Agreement that are defined in the Code, shall be construed
and defined as set forth in the Code unless otherwise defined herein; provided, that to the extent that the Code is
used to define any term herein and such term is defined differently in different Articles of the Code, the definition of
such term contained in Article 9 of the Code shall govern.
Construction. Unless the context of this Agreement or any other Loan Document clearly requires otherwise,
references to the plural include the singular, references to the singular include the plural, the terms “includes” and
“including” are not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning
represented by the phrase “and/or.” The words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this
Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be,
as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be.
Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise
specified. Any reference in this Agreement or in any other Loan Document to any agreement, instrument, or
document shall include all alterations, amendments, changes, extensions,
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modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable
(subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein). The words “asset” and “property” shall be
construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and
properties. Any reference herein or in any other Loan Document to the satisfaction, repayment, or payment in full of
the Obligations shall mean (a) the payment or repayment in full in immediately available funds of (i) the principal
amount of, and interest accrued and unpaid with respect to, all outstanding Loans, together with the payment of any
premium applicable to the repayment of the Loans, (ii) all Lender Group Expenses that have accrued and are unpaid
regardless of whether demand has been made therefor, (iii) all fees or charges that have accrued hereunder or under
any other Loan Document (including the Letter of Credit Fee and the Unused Line Fee) and are unpaid, (b) in the
case of contingent reimbursement obligations with respect to Letters of Credit, providing Letter of Credit
Collateralization, (c) in the case of obligations with respect to Bank Products (other than Hedge Obligations),
providing Bank Product Collateralization, (d) the receipt by Agent of cash collateral in order to secure any other
contingent Obligations for which a claim or demand for payment has been made on or prior to such time or in respect
of matters or circumstances known to Agent or a Lender at such time that are reasonably expected to result in any
loss, cost, damage, or expense (including attorneys’ fees and legal expenses), such cash collateral to be in such
amount as Agent reasonably determines is appropriate to secure such contingent Obligations, (e) the payment or
repayment in full in immediately available funds of all other outstanding Obligations (including the payment of any
termination amount then applicable (or which would or could become applicable as a result of the repayment of the
other Obligations) under Hedge Agreements provided by Hedge Providers) other than (i) unasserted contingent
indemnification Obligations, (ii) any Bank Product Obligations (other than Hedge Obligations) that, at such time, are
allowed by the applicable Bank Product Provider to remain outstanding without being required to be repaid or cash
collateralized, and (iii) any Hedge Obligations that, at such time, are allowed by the applicable Hedge Provider to
remain outstanding without being required to be repaid, and (f) the termination of all of the Commitments of the
Lenders. Any reference herein to any Person shall be construed to include such Person’s successors and assigns.
Any requirement of a writing contained herein or in any other Loan Document shall be satisfied by the transmission of
a Record.
Time References. Unless the context of this Agreement or any other Loan Document clearly requires otherwise,
all references to time of day refer to Pacific standard time or Pacific daylight saving time, as in effect in Los Angeles,
California on such day. For purposes of the computation of a period of time from a specified date to a later specified
date, unless otherwise expressly provided, the word “from” means “from and including” and the words “to” and “until”
each means “to and including”; provided, that with respect to a computation of fees or interest payable to Agent or
any Lender, such period shall in any event consist of at least one full day.
Schedules and Exhibits. All of the schedules and exhibits attached to this Agreement shall be deemed
incorporated herein by reference.
1.
Currency Matters. Principal, interest, reimbursement obligations, fees, and all other amounts payable under
this Agreement and the other Loan Documents to Agent shall be payable in the currency in which such
Obligations are denominated. Unless stated otherwise, all calculations, comparisons,
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measurements or determinations under this Agreement, shall be made in Dollars. For the purpose of all
calculations, comparisons, measurements or determinations hereunder, including all financial performance or
results and all calculations with respect to financial ratios and/or financial covenants, including calculation of the
component parts thereof (such as EBITDA, etc.), amounts denominated in other currencies shall be converted to
the Dollar Equivalent thereof at the Exchange Rate in effect on the day of determination. If Agent shall receive
payment in a currency other than the currency in which the Obligations are due, whether pursuant to the exercise
of control under a securities account control agreement or deposit account control agreement, or as proceeds or
realization of the Collateral or otherwise, then Agent shall be authorized to convert such amounts at the Exchange
Rate in effect on the day of determination to the currencies in which such Obligations are due for application
thereto. All financial statements, Borrowing Base Certificate, and the Compliance Certificate shall be set forth in
Dollars.
2.
Canadian Terms. In this Agreement, (i) any term defined in this Agreement by reference to the “UCC” or
“Code” shall also have any extended, alternative or analogous meaning given to such term in applicable Canadian
personal property security and other laws (including, without limitation, the PPSA, the Bills of Exchange Act
(Canada) and the Depository Bills and Notes Act (Canada)), in all cases for the extension, preservation or
betterment of the security and rights of Agent, (ii) all references in this Agreement to “Article 8 of the Code” or
“Article 8 of the Uniform Commercial Code” shall be deemed to refer also to applicable Canadian securities
transfer laws (including, without limitation, the Securities Transfer Act, 2006 (Ontario) and the Securities Transfer
Act (British Columbia), as applicable), (iii) all references in this Agreement to the United States Copyright Office
or the United States Patent and Trademark Office shall be deemed to refer also to the Canadian Intellectual
Property Office, (iv) all references in this Agreement to a financing statement, continuation statement, amendment
or termination statement shall be deemed to refer also to the analogous documents used under applicable Canadian
personal property security laws, (v) all references to federal or state securities law of the United States shall be
deemed to refer also to analogous federal and provincial and territorial securities laws in Canada, (vi) all
references to “state or federal bankruptcy laws” shall be deemed to refer also to any insolvency proceeding
occurring in Canada or under Canadian law, (vii) all calculations of Dollar amounts which utilize amounts
expressed in Canadian Dollars shall be made using the Dollar Equivalent of such Canadian Dollar amounts at the
Exchange Rate and (viii) all financial statements required to be delivered to Agent or Lenders hereunder shall be
presented in Dollars.
3.
Rates. The interest rate on Loans denominated in Dollars may be determined by reference to a benchmark rate
that is, or may in the future become, the subject to regulatory reform or cessation. Regulators have signaled the
need to use alternative reference rates for some of these benchmark rates and, as a result, such
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benchmark rates may cease to comply with applicable laws and regulations, may be permanently discontinued or
the basis on which they are calculated may change. The London interbank offered rate, which may be one of the
benchmark rates with reference to which the interest rate on Loans may be determined, is intended to represent the
rate at which contributing banks may obtain short-term borrowings from each other in the London interbank
market. On March 5, 2021, the ICE Benchmark Administration (“IBA”), the administrator of the London
interbank offered rate, and the Financial Conduct Authority (the “FCA”), the regulatory supervisor of IBA,
announced in public statements (the "Announcements") that the final publication or representativeness date for the
London interbank offered rate for: (a) Canadian Dollars will be December 31, 2021, (b) Dollars for 1-week and 2-
month tenor settings will be December 31, 2021 and (c) Dollars for overnight, 1-month, 3-month, 6-month and 12-
month tenor settings will be June 30, 2023. No successor administrator for IBA was identified in such
Announcements. As a result, it is possible that immediately after such dates, the London interbank offered rate for
such tenors may no longer be available or may no longer be deemed a representative reference rate upon which to
determine the interest rate on LIBOR Rate Loans or Base Rate Loans (when determined by reference to clause (b)
of the definition of Base Rate). There is no assurance that the dates set forth in the Announcements will not
change or that IBA or the FCA will not take further action that could impact the availability, composition or
characteristics of any London interbank offered rate. Public and private sector industry initiatives have been and
continue, as of the date hereof, to be underway to implement new or alternative reference rates to be used in place
of London interbank offered rates. In the event that the London interbank offered rate or any other then-current
Benchmark is no longer available or in certain other circumstances set forth in Section 2.12(d)(iii), such Section
2.12(d)(iii) provides a mechanism for determining an alternative rate of interest. The Agent will notify the
Borrower, pursuant to Section 2.12(d)(iii), of any change to the reference rate upon which the interest rate on
LIBOR Rate Loans and Base Rate Loans (when determined by reference to clause (b) of the definition of Base
Rate) is based. However, Agent does not warrant or accept any responsibility for, and shall not have any liability
with respect to, (i) the continuation of, administration of, submission of, calculation of or any other matter related
to the London interbank offered rate or other rates in the definition of “LIBOR Rate” or with respect to any
alternative, successor or replacement rate thereto (including any then-current Benchmark or any Benchmark
Replacement), including whether the composition or characteristics of any such alternative, successor or
replacement rate (including any Benchmark Replacement), as it may or may not be adjusted pursuant to Section
2.12(d)(iii), will be similar to, or produce the same value or economic equivalence of, the LIBOR Rate or any
other Benchmark, or have the same volume or liquidity as did the London interbank offered rate or any other
Benchmark prior to its discontinuance or unavailability, or (ii) the effect, implementation or composition of any
Benchmark Replacement Conforming
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Changes. Agent and its Affiliates or other related entities may engage in transactions that affect the calculation of
a Benchmark, any alternative, successor or replacement rate (including any Benchmark Replacement) or any
relevant adjustments thereto and such transactions may be adverse to a Borrower. Agent may select information
sources or services in its reasonable discretion to ascertain any Benchmark, any component definition thereof or
rates referenced in the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no
liability to any Borrower, any Lender or any other person or entity for damages of any kind, including direct or
indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract
or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof)
provided by any such information source or service.
LOANS AND TERMS OF PAYMENT.
Revolving Loans.
Subject to the terms and conditions of this Agreement, and during the term of this Agreement,
each Revolving Lender agrees (severally, not jointly or jointly and severally) to make revolving loans
(“Revolving Loans”) to Borrowers in an amount at any one time outstanding not to exceed the lesser
of:
such Lender’s Revolver Commitment, or
such Lender’s Pro Rata Share (subject to Section 2.3(c)) of an amount equal to the lesser of:
the amount equal to (l) the Maximum Revolver Amount less (2) the sum of (y) the Letter of Credit
Usage at such time, plus (z) the principal amount of Swing Loans outstanding at such time, and
(B) the amount equal to (1) the Borrowing Base as of such date (based upon the most recent
Borrowing Base Certificate delivered by Borrowers to Agent, as adjusted for Reserves established by Agent in accordance with
Section 2.1(c)), less the sum of (1) the Letter of Credit Usage at such time, plus (2) the principal amount of Swing Loans
outstanding at such time.
Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the terms and
conditions of this Agreement, reborrowed at any time during the term of this Agreement. The
outstanding principal amount of the Revolving Loans, together with interest accrued and unpaid
thereon, shall constitute Obligations and shall be due and payable on the Maturity Date or, if earlier,
on the date on which they otherwise become due and payable pursuant to the terms of this
Agreement.
Anything to the contrary in this Section 2.1 notwithstanding, Agent shall have the right (but not
the obligation) at any time, in the exercise of its Permitted Discretion, to establish and increase or
decrease Reserves and against the Borrowing Base or the Maximum Revolver Amount; provided,
that Agent shall endeavor to notify Borrowers at or before the time any such reserve in a material
amount is to be established or increased, but a non-willful
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failure of Agent to so notify Borrowers shall not be a breach of this Agreement and shall not cause
such establishment or increase of a reserve to be ineffective. The amount of any Reserve established
by Agent, and any changes to the eligibility criteria set forth in the definitions of Eligible Accounts,
Eligible Finished Goods Inventory, Eligible Inventory, Eligible Raw Material Inventory, Eligible
Unbilled Accounts and Eligible Work-in-Process Inventory shall have a reasonable relationship to the
event, condition, other circumstance, or fact that is the basis for such reserve or change in eligibility,
shall continue only so long as such event, condition or circumstances continue, and shall not be
duplicative of any other reserve established and currently maintained. Upon establishment or increase
in Reserves, Agent agrees to make itself available to discuss the Reserve or increase, and Borrowers
may take such action as may be required so that the event, condition, circumstance, or fact that is the
basis for such reserve or increase no longer exists, in a manner and to the extent reasonably
satisfactory to Agent in the exercise of its Permitted Discretion. In no event shall such opportunity
limit the right of Agent to establish or change such Reserve, unless Agent shall have determined, in
its Permitted Discretion, that the event, condition, other circumstance, or fact that was the basis for
such Reserve or such change no longer exists or has otherwise been adequately addressed by
Borrowers.
[Reserved].
Borrowing Procedures and Settlements.
Procedure for Borrowing Revolving Loans. Each Borrowing shall be made by a written request by an Authorized
Person delivered to Agent (which may be delivered through Agent’s electronic platform or portal) and received by Agent no later
than 11:00 a.m. (i) on the Business Day that is the requested Funding Date in the case of a request for a Swing Loan, (ii) on the
Business Day that is one (1) Business Day prior to the requested Funding Date in the case of a request for a Base Rate Loan, and
(iii) on the Business Day that is three (3) Business Days prior to the requested Funding Date in the case of all other requests,
specifying (A) the amount of such Borrowing, and (B) the requested Funding Date (which shall be a Business Day); provided,
that Agent may, in its sole discretion, elect to accept as timely requests that are received later than 11:00 a.m. on the applicable
Business Day. All Borrowing requests which are not made on-line via Agent’s electronic platform or portal shall be subject to
(and unless Agent elects otherwise in the exercise of its sole discretion, such Borrowings shall not be made until the completion
of) Agent’s authentication process (with results satisfactory to Agent) prior to the funding of any such requested Revolving Loan.
Making of Swing Loans. In the case of a Revolving Loan and so long as (i) either (A) the aggregate amount of Swing
Loans made since the last Settlement Date, minus all payments or other amounts applied to Swing Loans since the last Settlement
Date, plus the amount of the requested Swing Loan does not exceed $3,000,000, or (B) Swing Lender, in its sole discretion,
agrees to make a Swing Loan notwithstanding the foregoing limitation, and (ii) the requested Revolving Loan meets the
requirements of Section 2.1(a), Swing Lender shall make a Revolving Loan (any such Revolving Loan made by Swing Lender
pursuant to this Section 2.3(b) being referred to as a “Swing Loan” and all such Revolving Loans being referred to as “Swing
Loans”) available to Borrowers on the Funding Date applicable thereto by transferring immediately available funds in the amount
of such Borrowing to the Designated Account. Each Swing Loan
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shall be deemed to be a Revolving Loan hereunder and shall be subject to all the terms and conditions (including Section 3)
applicable to other Revolving Loans, except that all payments (including interest) on any Swing Loan shall be payable to Swing
Lender solely for its own account. Subject to the provisions of Section 2.3(d)(ii), Swing Lender shall not make and shall not be
obligated to make any Swing Loan if Swing Lender has actual knowledge that (i) one or more of the applicable conditions
precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing, or (ii) the
requested Borrowing would exceed the Availability on such Funding Date. Swing Lender shall not otherwise be required to
determine whether the applicable conditions precedent set forth in Section 3 have been satisfied on the Funding Date applicable
thereto prior to making any Swing Loan. The Swing Loans shall be secured by Agent’s Liens, constitute Revolving Loans and
Obligations, and bear interest at the rate then applicable from time to time to Revolving Loans.
Making of Revolving Loans.
In the event that Swing Lender is not obligated to make (or does not make) a Swing Loan, then after receipt of a request for a
Borrowing pursuant to Section 2.3(a)(i), Agent shall notify the Lenders by telecopy, telephone, email, or other electronic form of
transmission, of the requested Borrowing; such notification to be sent on the Business Day that is (A) in the case of a Base Rate
Loan, at least one (1) Business Day prior to the requested Funding Date, or (B) in the case of a LIBOR Rate Loan, prior to 11:00
a.m. at least three (3) Business Days prior to the requested Funding Date for Base Rate Loans. If Agent has notified the Lenders
of a requested Borrowing on the Business Day that is (y) three (3) Business Days prior to the requested Funding Date in the case
of LIBOR Rate Loans and (z) one (1) Business Day prior to the requested Funding Date for Base Rate Loans, then each Lender
shall make the amount of such Lender’s Pro Rata Share of the requested Borrowing available to Agent in immediately available
funds, to Agent’s Account, not later than 10:00 a.m. on the Business Day that is the requested Funding Date. After Agent’s
receipt of the proceeds of such Revolving Loans from the Lenders, Agent shall make the proceeds thereof available to Borrowers
on the applicable Funding Date by transferring immediately available funds equal to such proceeds received by Agent to the
Designated Account; provided, that subject to the provisions of Section 2.3(d)(ii), no Lender shall have an obligation to make any
Revolving Loan, if (1) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the
requested Funding Date for the applicable Borrowing unless such condition has been waived, or (2) the requested Borrowing
would exceed the Availability on such Funding Date.
Unless Agent receives notice from a Lender prior to 9:30 a.m. on the Business Day that is the requested Funding Date relative to
a requested Borrowing as to which Agent has notified the Lenders of such requested Borrowing that such Lender will not make
available as and when required hereunder to Agent for the account of Borrowers the amount of that Lender’s Pro Rata Share of
the Borrowing, Agent may assume that each Lender has made or will make such amount available to Agent in immediately
available funds on the Funding Date and Agent may (but shall not be so required), in reliance upon such assumption, make
available to Borrowers a corresponding amount. If, on the requested Funding Date, any Lender shall not have remitted the full
amount that it is required to make available to Agent in immediately available funds and if Agent has made available to
Borrowers such amount on the requested Funding Date, then such Lender shall make the amount of such Lender’s Pro Rata Share
of the requested Borrowing available to Agent in immediately available funds, to Agent’s Account, no later than 10:00 a.m. on
the Business Day that is the first Business Day after the requested Funding Date (in which case, the interest accrued on such
Lender’s portion of such Borrowing for the Funding Date shall be for Agent’s separate account). If any Lender shall not remit the
full amount that it is required to make available to Agent in immediately available funds as and when required hereby and if
Agent has made available to Borrowers such amount, then that Lender shall be obligated to
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immediately remit such amount to Agent, together with interest at the Defaulting Lender Rate for each day until the date on
which such amount is so remitted. A notice submitted by Agent to any Lender with respect to amounts owing under this
Section 2.3(c)(ii) shall be conclusive, absent manifest error. If the amount that a Lender is required to remit is made available to
Agent, then such payment to Agent shall constitute such Lender’s Revolving Loan for all purposes of this Agreement. If such
amount is not made available to Agent on the Business Day following the Funding Date, Agent will notify Administrative
Borrower of such failure to fund and, upon demand by Agent, Borrowers shall pay such amount to Agent for Agent’s account,
together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Revolving Loans composing such Borrowing.
Protective Advances and Optional Overadvances.
Any contrary provision of this Agreement or any other Loan Document notwithstanding, at any time (A) after the occurrence and
during the continuance of a Default or an Event of Default, or (B) that any of the other applicable conditions precedent set forth
in Section 3 are not satisfied, Agent hereby is authorized by Borrowers and the Lenders, from time to time, in Agent’s sole
discretion, to make Revolving Loans to, or for the benefit of, Borrowers, on behalf of the Revolving Lenders, that Agent, in its
Permitted Discretion, deems necessary or desirable (1) to preserve or protect the Collateral, or any portion thereof, or (2) to
enhance the likelihood of repayment of the Obligations (other than the Bank Product Obligations) (the Revolving Loans
described in this Section 2.3(d)(i) shall be referred to as “Protective Advances”).
Any contrary provision of this Agreement or any other Loan Document notwithstanding, the Lenders hereby authorize Agent or
Swing Lender, as applicable, and either Agent or Swing Lender, as applicable, may, but is not obligated to, knowingly and
intentionally, continue to make Revolving Loans (including Swing Loans) to Borrowers notwithstanding that an Overadvance
exists or would be created thereby, so long as (A) after giving effect to such Revolving Loans, the outstanding Revolver Usage
does not exceed the Borrowing Base by more than $3,000,000, and (B) after giving effect to such Revolving Loans, the
outstanding Revolver Usage (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group
Expenses) does not exceed the Maximum Revolver Amount. In the event Agent obtains actual knowledge that the Revolver
Usage exceeds the amounts permitted by this Section 2.3(d), regardless of the amount of, or reason for, such excess, Agent shall
notify the Lenders as soon as practicable (and prior to making any (or any additional) intentional Overadvances (except for and
excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) unless Agent determines that prior
notice would result in imminent harm to the Collateral or its value, in which case Agent may make such Overadvances and
provide notice as promptly as practicable thereafter), and the Lenders with Revolver Commitments thereupon shall, together with
Agent, jointly determine the terms of arrangements that shall be implemented with Borrowers intended to reduce, within a
reasonable time, the outstanding principal amount of the Revolving Loans to Borrowers to an amount permitted by the preceding
sentence. In such circumstances, if any Lender with a Revolver Commitment objects to the proposed terms of reduction or
repayment of any Overadvance, the terms of reduction or repayment thereof shall be implemented according to the determination
of the Required Lenders. The foregoing provisions are meant for the benefit of the Lenders and Agent and are not meant for the
benefit of Borrowers (or any other Loan Party), which shall continue to be bound by the provisions of Section 2.4(e)(i).
Each Protective Advance and each Overadvance (each, an “Extraordinary Advance”) shall be deemed to be a Revolving Loan
hereunder, except that no Extraordinary Advance shall be eligible to be a LIBOR Rate Loan. Prior to Settlement of any
Extraordinary Advance, all payments with respect thereto, including interest thereon shall be payable to Agent solely for its own
account. Each Revolving Lender shall be obligated to settle with Agent as provided in
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Section 2.3(e) (or Section 2.3(g), as applicable) for the amount of such Lender’s Pro Rata Share of any Extraordinary Advance.
The Extraordinary Advances shall be repayable on demand, secured by Agent’s Liens, constitute Obligations hereunder, and bear
interest at the rate applicable from time to time to Revolving Loans that are Base Rate Loans. The provisions of this
Section 2.3(d) are for the exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended to benefit Borrowers
(or any other Loan Party) in any way.
Settlement. It is agreed that each Lender’s funded portion of the Revolving Loans is intended by the Lenders to equal, at all
times, such Lender’s Pro Rata Share of the outstanding Revolving Loans, subject to Sections 2.3(b) and 2.3(c). Such agreement
notwithstanding, Agent, Swing Lender, and the other Lenders agree (which agreement shall not be for the benefit of Borrowers or
any other Loan Party) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement
among the Lenders as to the Revolving Loans (including Swing Loans and Extraordinary Advances) shall take place on a
periodic basis in accordance with the following provisions:
Agent shall request settlement (“Settlement”) with the Lenders on a weekly basis, or on a more frequent basis if so determined by
Agent in its sole discretion (1) on behalf of Swing Lender, with respect to the outstanding Swing Loans, (2) for itself, with
respect to the outstanding Extraordinary Advances, and (3) with respect to Borrowers’ or any of their Subsidiaries’ payments or
other amounts received, as to each by notifying the Lenders by telecopy, telephone, or other similar form of transmission, of such
requested Settlement, no later than 2:00 p.m. on the Business Day immediately prior to the date of such requested Settlement (the
date of such requested Settlement being the “Settlement Date”). Such notice of a Settlement Date shall include a summary
statement of the amount of outstanding Revolving Loans (including Swing Loans, and Extraordinary Advances) for the period
since the prior Settlement Date. Subject to the terms and conditions contained herein (including Section 2.3(g)): (y) if the amount
of the Revolving Loans (including Swing Loans and Extraordinary Advances) made by a Lender that is not a Defaulting Lender
exceeds such Lender’s Pro Rata Share of the Revolving Loans (including Swing Loans, and Extraordinary Advances) as of a
Settlement Date, then Agent shall, by no later than 12:00 p.m. on the Settlement Date, transfer in immediately available funds to
a Deposit Account of such Lender (as such Lender may designate), an amount such that each such Lender shall, upon receipt of
such amount, have as of the Settlement Date, its Pro Rata Share of the Revolving Loans (including Swing Loans, and
Extraordinary Advances), and (z) if the amount of the Revolving Loans (including Swing Loans, and Extraordinary Advances)
made by a Lender is less than such Lender’s Pro Rata Share of the Revolving Loans (including Swing Loans, and Extraordinary
Advances) as of a Settlement Date, such Lender shall no later than 12:00 p.m. on the Settlement Date transfer in immediately
available funds to Agent’s Account, an amount such that each such Lender shall, upon transfer of such amount, have as of the
Settlement Date, its Pro Rata Share of the Revolving Loans (including Swing Loans and Extraordinary Advances). Such amounts
made available to Agent under clause (z) of the immediately preceding sentence shall be applied against the amounts of the
applicable Swing Loans or Extraordinary Advances and, together with the portion of such Swing Loans or Extraordinary
Advances representing Swing Lender’s Pro Rata Share thereof, shall constitute Revolving Loans of such Lenders. If any such
amount is not made available to Agent by any Lender on the Settlement Date applicable thereto to the extent required by the
terms hereof, Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest
thereon at the Defaulting Lender Rate.
In determining whether a Lender’s balance of the Revolving Loans (including Swing Loans and Extraordinary Advances) is less
than, equal to, or greater than such Lender’s Pro Rata Share of the Revolving Loans (including Swing Loans and Extraordinary
Advances) as of a Settlement Date, Agent shall, as part of the relevant Settlement, apply to such balance the portion of
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payments actually received in good funds by Agent with respect to principal, interest, fees payable by Borrowers and allocable to
the Lenders hereunder, and proceeds of Collateral.
Between Settlement Dates, Agent, to the extent Extraordinary Advances or Swing Loans are outstanding, may pay over to Agent
or Swing Lender, as applicable, any payments or other amounts received by Agent, that in accordance with the terms of this
Agreement would be applied to the reduction of the Revolving Loans, for application to the Extraordinary Advances or Swing
Loans. Between Settlement Dates, Agent, to the extent no Extraordinary Advances or Swing Loans are outstanding, may pay
over to Swing Lender any payments or other amounts received by Agent, that in accordance with the terms of this Agreement
would be applied to the reduction of the Revolving Loans, for application to Swing Lender’s Pro Rata Share of the Revolving
Loans. If, as of any Settlement Date, payments or other amounts of Parent, Borrowers or their Subsidiaries received since the
then immediately preceding Settlement Date have been applied to Swing Lender’s Pro Rata Share of the Revolving Loans other
than to Swing Loans, as provided for in the previous sentence, Swing Lender shall pay to Agent for the accounts of the Lenders,
and Agent shall pay to the Lenders (other than a Defaulting Lender if Agent has implemented the provisions of Section 2.3(g)), to
be applied to the outstanding Revolving Loans of such Lenders, an amount such that each such Lender shall, upon receipt of such
amount, have, as of such Settlement Date, its Pro Rata Share of the Revolving Loans. During the period between Settlement
Dates, Swing Lender with respect to Swing Loans, Agent with respect to Extraordinary Advances, and each Lender with respect
to the Revolving Loans other than Swing Loans and Extraordinary Advances, shall be entitled to interest at the applicable rate or
rates payable under this Agreement on the daily amount of funds employed by Swing Lender, Agent, or the Lenders, as
applicable.
Anything in this Section 2.3(e) to the contrary notwithstanding, in the event that a Lender is a Defaulting Lender, Agent shall be
entitled to refrain from remitting settlement amounts to the Defaulting Lender and, instead, shall be entitled to elect to implement
the provisions set forth in Section 2.3(g).
Notation. Consistent with Section 13.1(h), Agent, as a non-fiduciary agent for Borrowers, shall maintain a register showing the
principal amount and stated interest of the Revolving Loans owing to each Lender, including the Swing Loans owing to Swing
Lender, and Extraordinary Advances owing to Agent, and the interests therein of each Lender, from time to time and such register
shall, absent manifest error, conclusively be presumed to be correct and accurate.
Defaulting Lenders.
Notwithstanding the provisions of Section 2.4(b)(iii), Agent shall not be obligated to transfer to a Defaulting Lender any
payments made by Borrowers to Agent for the Defaulting Lender’s benefit or any proceeds of Collateral that would otherwise be
remitted hereunder to the Defaulting Lender, and, in the absence of such transfer to the Defaulting Lender, Agent shall transfer
any such payments (A) first, to Agent to the extent of any Extraordinary Advances that were made by Agent and that were
required to be, but were not, paid by Defaulting Lender, (B) second, to Swing Lender to the extent of any Swing Loans that were
made by Swing Lender and that were required to be, but were not, paid by the Defaulting Lender, (C) third, to Issuing Bank, to
the extent of the portion of a Letter of Credit Disbursement that was required to be, but was not, paid by the Defaulting Lender,
(D) fourth, to each Non-Defaulting Lender ratably in accordance with their Commitments (but, in each case, only to the extent
that such Defaulting Lender’s portion of a Revolving Loan (or other funding obligation) was funded by such other Non-
Defaulting Lender), (E) fifth, in Agent’s sole discretion, to a suspense account maintained by Agent, the proceeds of which shall
be retained by Agent and may be made available to be re-advanced to or for the benefit of Borrowers (upon the request of
Borrowers and subject to the conditions set forth in Section 3.2) as if such Defaulting Lender had made its portion of
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Revolving Loans (or other funding obligations) hereunder, and (F) sixth, from and after the date on which all other Obligations
have been paid in full, to such Defaulting Lender in accordance with tier (L) of Section 2.4(b)(iii). Subject to the foregoing,
Agent may hold and, in its discretion, re-lend to Borrowers for the account of such Defaulting Lender the amount of all such
payments received and retained by Agent for the account of such Defaulting Lender. Solely for the purposes of voting or
consenting to matters with respect to the Loan Documents (including the calculation of Pro Rata Share in connection therewith)
and for the purpose of calculating the fee payable under Section 2.10(b), such Defaulting Lender shall be deemed not to be a
“Lender” and such Lender’s Commitment shall be deemed to be zero; provided, that the foregoing shall not apply to any of the
matters governed by Section 14.1(a)(i) through (iii). The provisions of this Section 2.3(g) shall remain effective with respect to
such Defaulting Lender until the earlier of (y) the date on which all of the Non-Defaulting Lenders, Agent, Issuing Bank, and
Borrowers shall have waived, in writing, the application of this Section 2.3(g) to such Defaulting Lender, or (z) the date on which
such Defaulting Lender makes payment of all amounts that it was obligated to fund hereunder, pays to Agent all amounts owing
by Defaulting Lender in respect of the amounts that it was obligated to fund hereunder, and, if requested by Agent, provides
adequate assurance of its ability to perform its future obligations hereunder (on which earlier date, so long as no Event of Default
has occurred and is continuing, any remaining cash collateral held by Agent pursuant to Section 2.3(g)(ii) shall be released to
Borrowers). The operation of this Section 2.3(g) shall not be construed to increase or otherwise affect the Commitment of any
Lender, to relieve or excuse the performance by such Defaulting Lender or any other Lender of its duties and obligations
hereunder, or to relieve or excuse the performance by any Borrower of its duties and obligations hereunder to Agent, Issuing
Bank, or to the Lenders other than such Defaulting Lender. Any failure by a Defaulting Lender to fund amounts that it was
obligated to fund hereunder shall constitute a material breach by such Defaulting Lender of this Agreement and shall entitle
Borrowers, at their option, upon written notice to Agent, to arrange for a substitute Lender to assume the Commitment of such
Defaulting Lender, such substitute Lender to be reasonably acceptable to Agent. In connection with the arrangement of such a
substitute Lender, the Defaulting Lender shall have no right to refuse to be replaced hereunder, and agrees to execute and deliver
a completed form of Assignment and Acceptance in favor of the substitute Lender (and agrees that it shall be deemed to have
executed and delivered such document if it fails to do so) subject only to being paid its share of the outstanding Obligations
(other than Bank Product Obligations, but including (1) all interest, fees, and other amounts that may be due and payable in
respect thereof, and (2) an assumption of its Pro Rata Share of its participation in the Letters of Credit); provided, that any such
assumption of the Commitment of such Defaulting Lender shall not be deemed to constitute a waiver of any of the Lender
Groups’ or Borrowers’ rights or remedies against any such Defaulting Lender arising out of or in relation to such failure to fund.
In the event of a direct conflict between the priority provisions of this Section 2.3(g) and any other provision contained in this
Agreement or any other Loan Document, it is the intention of the parties hereto that such provisions be read together and
construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that
cannot be resolved as aforesaid, the terms and provisions of this Section 2.3(g) shall control and govern.
If any Swing Loan or Letter of Credit is outstanding or is issued at the time that a Lender is or becomes a Defaulting Lender then:
such Defaulting Lender’s Swing Loan Exposure and Letter of Credit Exposure shall be reallocated
among the Non-Defaulting Lenders in accordance with their respective Pro Rata Shares but only to the extent (x) the sum of all
Non-Defaulting Lenders’ Pro Rata Share of Revolver Usage plus such Defaulting Lender’s Swing Loan Exposure and Letter of
Credit Exposure does not exceed the total of all Non-Defaulting Lenders’ Revolver Commitments and (y) the conditions set forth
in Section 3.2 are satisfied at such time;
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if the reallocation described in clause (A) above cannot, or can only partially, be effected,
Borrowers shall within one (1) Business Day following notice by the Agent (x) first, prepay such Defaulting Lender’s Swing
Loan Exposure (after giving effect to any partial reallocation pursuant to clause (A) above) and (y) second, cash collateralize
such Defaulting Lender’s Letter of Credit Exposure (after giving effect to any partial reallocation pursuant to clause (A) above),
pursuant to a cash collateral agreement to be entered into in form and substance reasonably satisfactory to the Agent, for so long
as such Letter of Credit Exposure is outstanding; provided, that Borrowers shall not be obligated to cash collateralize any
Defaulting Lender’s Letter of Credit Exposure if such Defaulting Lender is also Issuing Bank;
if Borrowers cash collateralize any portion of such Defaulting Lender’s Letter of Credit Exposure
pursuant to this Section 2.3(g)(ii), Borrowers shall not be required to pay any Letter of Credit Fees to Agent for the account of
such Defaulting Lender pursuant to Section 2.6(b) with respect to such cash collateralized portion of such Defaulting Lender’s
Letter of Credit Exposure during the period such Letter of Credit Exposure is cash collateralized;
to the extent the Letter of Credit Exposure of the Non-Defaulting Lenders is reallocated pursuant to
this Section 2.3(g)(ii), then the Letter of Credit Fees payable to the Non-Defaulting Lenders pursuant to Section 2.6(b) shall be
adjusted in accordance with such Non-Defaulting Lenders’ Letter of Credit Exposure;
to the extent any Defaulting Lender’s Letter of Credit Exposure is neither cash collateralized nor
reallocated pursuant to this Section 2.3(g)(ii), then, without prejudice to any rights or remedies of Issuing Bank or any Lender
hereunder, all Letter of Credit Fees that would have otherwise been payable to such Defaulting Lender under Section 2.6(b) with
respect to such portion of such Letter of Credit Exposure shall instead be payable to Issuing Bank until such portion of such
Defaulting Lender’s Letter of Credit Exposure is cash collateralized or reallocated;
so long as any Lender is a Defaulting Lender, the Swing Lender shall not be required to make any
Swing Loan and Issuing Bank shall not be required to issue, amend, or increase any Letter of Credit, in each case, to the extent
(x) the Defaulting Lender’s Pro Rata Share of such Swing Loans or Letter of Credit cannot be reallocated pursuant to this
Section 2.3(g)(ii) or (y) the Swing Lender or Issuing Bank, as applicable, has not otherwise entered into arrangements reasonably
satisfactory to the Swing Lender or Issuing Bank, as applicable, and Borrowers to eliminate the Swing Lender’s or Issuing Bank’s
risk with respect to the Defaulting Lender’s participation in Swing Loans or Letters of Credit; and
Agent may release any cash collateral provided by Borrowers pursuant to this Section 2.3(g)(ii) to
Issuing Bank and Issuing Bank may apply any such cash collateral to the payment of such Defaulting Lender’s Pro Rata Share of
any Letter of Credit Disbursement that is not reimbursed by Borrowers pursuant to Section 2.11(d). Subject to Section 17.14, no
reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising
from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-
Defaulting Lender’s increased exposure following such reallocation.
Independent Obligations. All Revolving Loans (other than Swing Loans and Extraordinary Advances) shall be made by
the Lenders contemporaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be
responsible for any failure by any other Lender to perform its obligation to make any Revolving Loan (or other extension of
credit)
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hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to
perform its obligations hereunder, and (ii) no failure by any Lender to perform its obligations hereunder shall excuse any other
Lender from its obligations hereunder.
Payments; Reductions of Commitments; Prepayments.
Payments by Borrowers.
Except as otherwise expressly provided herein, all payments by Borrowers shall be made to Agent’s Account for the account of
the Lender Group and shall be made in immediately available funds, no later than 1:30 p.m. on the date specified herein. Any
payment received by Agent later than 1:30 p.m. shall be deemed to have been received (unless Agent, in its sole discretion, elects
to credit it on the date received) on the following Business Day and any applicable interest or fee shall continue to accrue until
such following Business Day.
Unless Agent receives notice from Borrowers prior to the date on which any payment is due to the Lenders that Borrowers will
not make such payment in full as and when required, Agent may assume that Borrowers have made (or will make) such payment
in full to Agent on such date in immediately available funds and Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent
Borrowers do not make such payment in full to Agent on the date when due, each Lender severally shall repay to Agent on
demand such amount distributed to such Lender, together with interest thereon at the Defaulting Lender Rate for each day from
the date such amount is distributed to such Lender until the date repaid.
Apportionment and Application.
So long as no Application Event has occurred and is continuing and except as otherwise provided herein with respect to
Defaulting Lenders, all principal and interest payments received by Agent shall be apportioned ratably among the Lenders
(according to the unpaid principal balance of the Obligations to which such payments relate held by each Lender) and all
payments of fees and expenses received by Agent (other than fees or expenses that are for Agent’s separate account or for the
separate account of Issuing Bank) shall be apportioned ratably among the Lenders having a Pro Rata Share of the type of
Commitment or Obligation to which a particular fee or expense relates.
Subject to Section 2.4(b)(v) and Section 2.4(e), all payments to be made hereunder by Borrowers shall be remitted to Agent and
all such payments, and all proceeds of Collateral received by Agent, shall be applied, so long as no Application Event has
occurred and is continuing and except as otherwise provided herein with respect to Defaulting Lenders, to reduce the balance of
the Revolving Loans outstanding and, thereafter, to Borrowers (to be wired to the Designated Account) or such other Person
entitled thereto under applicable law.
At any time that an Application Event has occurred and is continuing and except as otherwise provided herein with respect to
Defaulting Lenders, all payments remitted to Agent and all proceeds of Collateral received by Agent shall be applied as follows:
first, to pay any Lender Group Expenses (including cost or expense reimbursements) or indemnities
then due to Agent under the Loan Documents, until paid in full,
second, to pay any fees or premiums then due to Agent under the Loan Documents until paid in
full,
third, to pay interest due in respect of all Protective Advances until paid in full,
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fourth, to pay the principal of all Protective Advances until paid in full,
fifth, ratably, to pay any Lender Group Expenses (including cost or expense reimbursements) or
indemnities then due to any of the Lenders under the Loan Documents, until paid in full,
sixth, ratably, to pay any fees or premiums then due to any of the Lenders under the Loan
Documents until paid in full,
seventh, to pay interest accrued in respect of the Swing Loans until paid in full,
eighth, to pay the principal of all Swing Loans until paid in full,
ninth, to pay interest accrued in respect of the Revolving Loans (other than Protective Advances)
until paid in full,
tenth, ratably
to pay the principal of all Revolving Loans until paid in full,
to Agent, to be held by Agent, for the benefit of Issuing Bank (and for the ratable benefit of
each of the Lenders that have an obligation to pay to Agent, for the account of Issuing Bank, a share of each Letter of Credit
Disbursement), as cash collateral in an amount up to 105% of the Letter of Credit Usage (to the extent permitted by applicable
law, such cash collateral shall be applied to the reimbursement of any Letter of Credit Disbursement as and when such
disbursement occurs and, if a Letter of Credit expires undrawn, the cash collateral held by Agent in respect of such Letter of
Credit shall, to the extent permitted by applicable law, be reapplied pursuant to this Section 2.4(b)(iii), beginning with tier (A)
hereof),
ratably, (after taking into account any amounts previously paid pursuant to this clause (iii.)
during the continuation of the applicable Application Event to the Bank Product Providers based upon amounts then certified by
each applicable Bank Product Provider to Agent (in form and substance satisfactory to Agent) to be due and payable to such
Bank Product Providers on account of Bank Product Obligations (but not in excess of the Bank Product Reserve established for
the Bank Product Obligations of such Bank Product Provider and with any balance to be paid to Agent, to be held by Agent, for
the ratable benefit of the Bank Product Providers, as cash collateral (which cash collateral may be released by Agent to the
applicable Bank Product Provider and applied by such Bank Product Provider to the payment or reimbursement of any amounts
due and payable with respect to Bank Product Obligations owed to the applicable Bank Product Provider as and when such
amounts first become due and payable and, if and at such time as all such Bank Product Obligations are paid or otherwise
satisfied in full, the cash collateral held by Agent in respect of such Bank Product Obligations shall be reapplied pursuant to this
Section 2.4(b)(iii), beginning with tier (A) hereof),
eleventh, to pay any other Obligations other than Obligations owed to Defaulting Lenders;
twelfth, ratably to pay any Obligations owed to Defaulting Lenders; and
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thirteenth, to Borrowers (to be wired to the Designated Account) or such other Person entitled
thereto under applicable law.
Agent promptly shall distribute to each Lender, pursuant to the applicable wire instructions received from each Lender in writing,
such funds as it may be entitled to receive, subject to a Settlement delay as provided in Section 2.3(e).
In each instance, so long as no Application Event has occurred and is continuing, Section 2.4(b)(ii) shall not apply to any
payment made by Borrowers to Agent and specified by Borrowers to be for the payment of specific Obligations then due and
payable (or pre-payable) under any provision of this Agreement or any other Loan Document.
For purposes of Section 2.4(b)(iii), “paid in full” of a type of Obligation means payment in cash or immediately available funds
of all amounts owing on account of such type of Obligation, including interest accrued after the commencement of any
Insolvency Proceeding, default interest, interest on interest, and expense reimbursements, irrespective of whether any of the
foregoing would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding.
In the event of a direct conflict between the priority provisions of this Section 2.4 and any other provision contained in this
Agreement or any other Loan Document, it is the intention of the parties hereto that such provisions be read together and
construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that
cannot be resolved as aforesaid, if the conflict relates to the provisions of Section 2.3(g) and this Section 2.4, then the provisions
of Section 2.3(g) shall control and govern, and if otherwise, then the terms and provisions of this Section 2.4 shall control and
govern.
Reserved.
Reserved.
Mandatory Prepayments.
Borrowing Base. If, at any time, (A) the Revolver Usage on such date exceeds (B) the lesser of (x) the Borrowing
Base reflected in the Borrowing Base Certificate most recently delivered by Borrowers to Agent, or (y) the Maximum
Revolver Amount, in all cases as adjusted for Reserves established by Agent in accordance with Section 2.1(c), then
Borrowers shall immediately prepay the Obligations in accordance with Section 2.4(f)(i) in an aggregate amount
equal to the amount of such excess.
Dispositions. Within one (1) Business Day of the date of receipt by Parent, any Borrower or any of their
Subsidiaries of the net cash proceeds of any sale or disposition by Parent, any such Borrower or any such Subsidiary
of assets (excluding sales or dispositions which qualify as Permitted Dispositions under clauses (a), (b), (c), (d), (e),
(j), (k), (l), (m), or (n) of the definition of Permitted Dispositions), Borrowers shall prepay the outstanding principal
amount of the Obligations in accordance with Section 2.4(f)(ii) in an amount equal to 100% of such net cash proceeds
received by such Person in connection with such sales or dispositions; provided that the Commitment shall not be
reduced and, so long as (A) no Default or Event of Default shall have occurred and is continuing or would result
therefrom, (B) such Borrower shall have given Agent prior written notice of such Borrower’s intention to apply such
monies to the costs of replacement of the properties or assets that are the subject of such sale or disposition, (C) the
monies are held in a Deposit Account in which Agent has a perfected first-priority security interest, and (D) Parent,
such Borrower or any such Subsidiary, as applicable, completes such replacement or purchase within 180 days after
the initial receipt of such monies, then the Loan Party whose assets
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were the subject of such disposition shall have the option to apply such monies to the costs of replacement of the
assets that are the subject of such sale or disposition unless and to the extent that such applicable period shall have
expired without such replacement or purchase being made or completed, in which case, any amounts remaining in
the Deposit Account referred to in clause (C) above shall be paid to Agent and applied in accordance with Section
2.4(f)(ii). Nothing contained in this Section 2.4(e)(ii) shall permit Parent, any Borrower or any of their Subsidiaries to
sell or otherwise dispose of any assets other than in accordance with Section 6.4.
Application of Payments.
Each prepayment pursuant to Section 2.4(e)(i) shall, (A) so long as no Application Event shall have occurred and be continuing,
be applied, first, to the outstanding principal amount of the Revolving Loans until paid in full, and second, to cash collateralize
the Letters of Credit in an amount equal to 105% of the then outstanding Letter of Credit Usage, and (B) if an Application Event
shall have occurred and be continuing, be applied in the manner set forth in Section 2.4(b)(iii).
Each prepayment pursuant to Section 2.4(e)(ii) shall (A) so long as no Application Event shall have occurred and be continuing,
be applied, first, to the outstanding principal amount of the Revolving Loans until paid in full, and second, to cash collateralize
the Letters of Credit in an amount equal to 105% of the then outstanding Letter of Credit Usage and (B) if an Application Event
shall have occurred and be continuing, be applied in the manner set forth in Section 2.4(b)(iii).
Promise to Pay; Promissory Notes.
Borrowers agree to pay (x) all non-out-of-pocket Lender Group Expenses on the earlier of (i) the
first day of the month following the date on which the applicable Lender Group Expenses were first
incurred, and (ii) the date on which demand therefor is made by Agent (provided that if demand
therefor is made on a day that is not a Business Day or after 10:00 a.m. on a Business Day, such
Lender Group Expenses shall be due and payable on the next Business Day) (it being acknowledged
and agreed that any charging of such costs, expenses or Lender Group Expenses to the Loan Account
pursuant to the provisions of Section 2.6(d) shall be deemed to constitute a demand for payment
thereof for the purposes of this subclause (ii)), and (y) all out-of-pocket Lender Group Expenses
within thirty days of the date on which demand therefor is made by Agent. Borrowers promise to pay
all of the Obligations (including principal, interest, premiums, if any, fees, costs, and expenses
(including Lender Group Expenses)) in full on the Maturity Date or, if earlier, on the date on which
the Obligations (other than the Bank Product Obligations) become due and payable pursuant to the
terms of this Agreement. Borrowers agree that their obligations contained in the first sentence of this
Section 2.5(a) shall survive payment or satisfaction in full of all other Obligations.
Any Lender may request that any portion of its Commitments or the Loans made by it be
evidenced by one or more promissory notes. In such event, Borrowers shall execute and deliver to
such Lender the requested promissory notes payable to the order of such Lender in a form furnished
by Agent and reasonably satisfactory to Borrowers. Thereafter, the portion of the Commitments and
Loans evidenced by such promissory notes and interest thereon shall
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at all times be represented by one or more promissory notes in such form payable to the order of the
payee named therein.
Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations.
Interest Rates. Except as provided in Section 2.6(c) and Section 2.12(d), all Obligations (except for undrawn Letters of
Credit) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest as follows:
if the relevant Obligation is a LIBOR Rate Loan, at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin, and
otherwise, at a per annum rate equal to the Base Rate plus the Base Rate Margin.
Letter of Credit Fee. Borrowers shall pay Agent (for the ratable benefit of the Revolving Lenders), a Letter of Credit fee
(the “Letter of Credit Fee”) (which fee shall be in addition to the fronting fees and commissions, other fees, charges and
expenses set forth in Section 2.11(k)) that shall accrue at a per annum rate equal to the LIBOR Rate Margin times the average
amount of the Letter of Credit Usage during the immediately preceding month (or portion thereof),
Default Rate. Upon the occurrence and during the continuation of an Event of Default and at the election of Agent or the
Required Lenders, all Obligations (except for undrawn Letters of Credit) that have been charged to the Loan Account pursuant to
the terms hereof shall bear interest at a per annum rate equal to two (2) percentage points above the per annum rate otherwise
applicable thereunder, and the Letter of Credit Fee shall be increased to two (2) percentage points above the per annum rate
otherwise applicable hereunder.
Payment. Except to the extent provided to the contrary in Section 2.10, Section 2.11(k) or Section 2.12(a), (i) all interest and
all other fees payable hereunder or under any of the other Loan Documents (other than Letter of Credit Fees) shall be due and
payable, in arrears, on the first day of each month, (ii) all Letter of Credit Fees payable hereunder, and all fronting fees and all
commissions, other fees, charges and expenses provided for in Section 2.11(k) shall be due and payable, in arrears, on the first
Business Day of each month, (iii) all non-out-of-pocket costs, expenses and Lender Group Expenses payable hereunder or under
any of the other Loan Documents shall be due and payable on the earlier of (x) the first day of the month following the date on
which the applicable costs, expenses, or Lender Group Expenses were first incurred or (y) the date on which demand therefor is
made by Agent (it being acknowledged and agreed that any charging of such costs, expenses or Lender Group Expenses to the
Loan Account pursuant to the provisions of the following sentence shall be deemed to constitute a demand for payment thereof
for the purposes of this subclause (y)) and (iv) all out-of-pocket audit, field exam, appraisal, UCC searchCode and PPSA lien
searches, valuation and other out-of-pocket costs, expenses and Lender Group Expenses payable hereunder or under any of the
other Loan Documents shall be due and payable on the 30th day after the date on which demand therefor is made by Agent.
Borrowers hereby authorize Agent, from time to time without prior notice to Borrowers, to charge to the Loan Account (A) on
the first day of each month, all interest accrued during the prior month on the Revolving Loans hereunder, (B) on the first
Business Day of each month, all Letter of Credit Fees accrued or chargeable hereunder during the prior month, (C) as and when
incurred or accrued, all fees and costs provided for in Section 2.10(a), (D) on the first day of each month, the Unused Line Fee
accrued during the prior month pursuant to Section 2.10(b), (E) as and when incurred or accrued, all non-out-of-pocket charges or
fees payable hereunder pursuant to Section 2.10(c), (F) if Borrowers do not pay any such Lender Group Expenses within 30 days
of the date of Borrowers’ receipt of written notice thereof, all
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out-of-pocket audit, field exam, appraisal, UCC searchCode and PPSA lien searches, valuation and other out-of-pocket costs
payable hereunder pursuant to Section 2.10(c), (G) as and when due and payable, all other fees payable hereunder or under any of
the other Loan Documents, (H) [reserved], (I) if Borrowers do not pay any other Lender Group Expenses within 30 days of the
date of Borrowers’ receipt of written notice thereof, all other Lender Group Expenses, and (J) as and when due and payable all
other payment obligations payable under any Loan Document or any Bank Product Agreement (including any amounts due and
payable to the Bank Product Providers in respect of Bank Products); provided, that if such amounts are not paid and, instead, are
charged to the Loan Account, they shall be charged thereto as of the day on which the item was first due and payable or incurred
or accrued without regard to the applicable delay and such amounts shall accrue interest from such original date; provided
further, that the applicable delays set forth in the foregoing clauses (F) and (I) and clause (iii) of the foregoing sentence shall not
be applicable (and Agent shall be entitled to immediately charge to the Loan Account) at any time that an Event of Default has
occurred and is continuing. All amounts (including interest, fees, costs, expenses, Lender Group Expenses, or other amounts
payable hereunder or under any other Loan Document or under any Bank Product Agreement) charged to the Loan Account shall
constitute Revolving Loans hereunder, shall constitute Obligations hereunder, and shall initially accrue interest at the rate then
applicable to Revolving Loans that are Base Rate Loans (unless and until converted into LIBOR Rate Loans in accordance with
the terms of this Agreement).
Computation. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year, in
each case, for the actual number of days elapsed in the period during which the interest or fees accrue. In the event the Base Rate
is changed from time to time hereafter, the rates of interest hereunder based upon the Base Rate automatically and immediately
shall be increased or decreased by an amount equal to such change in the Base Rate. For the purposes of the Interest Act
(Canada), the yearly rate of interest to which any rate calculated on the basis of a period of time different from the actual number
of days in the year (360 days, for example) is equivalent is the stated rate multiplied by the actual number of days in the year (365
or 366, as applicable) and divided by the number of days in the shorter period (360 days, in the example), and the parties hereto
acknowledge that there is a material distinction between the nominal and effective rates of interest and that they are capable of
making the calculations necessary to compare such rates and that the calculations herein are to be made using the nominal rate
method and not on any basis that gives effect to the principle of deemed reinvestment of interest. Each Loan Party confirms that it
understands and is able to calculate the rate of interest applicable to advances made under this Agreement based on the
methodology for calculating per annum rates provided for herein. Each Loan Party irrevocably agrees not to plead or assert,
whether by way of defence or otherwise, in any proceeding relating to this Agreement or any other Loan Documents, that the
interest payable hereunder and the calculation thereof has not been adequately disclosed to them as required pursuant to Section 4
of the Interest Act (Canada).
Intent to Limit Charges to Maximum Lawful Rate. In no event shall the interest rate or rates payable under this
Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of
competent jurisdiction shall, in a final determination, deem applicable. Borrowers and the Lender Group, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it;
provided, that, anything contained herein to the contrary notwithstanding, if such rate or rates of interest or manner of payment
exceeds the maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrowers are and shall
be liable only for the payment of such maximum amount as is allowed by law, and payment received from Borrowers in excess of
such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such
excess. Without limiting the foregoing,
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if any provision of this Agreement would oblige a Canadian Loan Party to make any payment of interest or other amount payable
to any Lender in an amount or calculated at a rate which would be prohibited by the applicable Requirements of Law or would
result in a receipt by that Lender of “interest” at a “criminal rate” (as such terms are construed under the Criminal Code
(Canada)), then, notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive
effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by applicable Requirements
of Law or so result in a receipt by that Lender of “interest” at a “criminal rate”, such adjustment to be effected, to the extent
necessary (but only to the extent necessary), as follows: (i) first, by reducing the amount or rate of interest required to be paid to
the affected Lender under this Section; and (ii) thereafter, by reducing any fees, commissions, costs, expenses, premiums and
other amounts required to be paid to the affected Lender which would constitute interest for purposes of section 347 of the
Criminal Code (Canada). If, notwithstanding the provisions of this Section 2.6(f), and after giving effect to all adjustments
contemplated thereby, any Lender shall have received an amount in excess of the maximum permitted by the Criminal Code
(Canada), then such excess shall be applied by Agent and the Lenders to the reduction of the principal balance of any Borrowings
outstanding, in Bank’s discretion, and not to the payment of interest or if such excessive interest exceeds the principal balance of
any Borrowings, such excess shall be refunded to the Canadian Borrower.
Crediting Payments. The receipt of any payment item by Agent shall not be required to be considered a payment
on account unless such payment item is a wire transfer of immediately available funds made to Agent’s Account or
unless and until such payment item is honored when presented for payment. Should any payment item not be
honored when presented for payment, then Borrowers shall be deemed not to have made such payment. Anything to
the contrary contained herein notwithstanding, any payment item shall be deemed received by Agent only if it is
received into Agent’s Account on a Business Day on or before 1:30 p.m. If any payment item is received into Agent’s
Account on a non-Business Day or after 1:30 p.m. on a Business Day (unless Agent, in its sole discretion, elects to
credit it on the date received), it shall be deemed to have been received by Agent as of the opening of business on
the immediately following Business Day.
Designated Account. Agent is authorized to make the Revolving Loans, and Issuing Bank is authorized to issue
the Letters of Credit, under this Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Person or, without instructions, if pursuant to Section 2.6(d). Borrowers agree to
establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving the
proceeds of the Revolving Loans requested by Borrowers and made by Agent or the Lenders hereunder. Unless
otherwise agreed by Agent and Borrowers, any Revolving Loan or Swing Loan requested by Borrowers and made by
Agent or the Lenders hereunder shall be made to the Designated Account.
Maintenance of Loan Account; Statements of Obligations. Agent shall maintain an account on its
books in the name of Borrowers (the “Loan Account”) on which Borrowers will be charged with all Revolving Loans
(including Protective Advances, Extraordinary Advances and Swing Loans) made by Agent, Swing Lender, or the
Lenders to Borrowers or for Borrowers’ account, the Letters of Credit issued or arranged by Issuing Bank for
Borrowers’ account, and, subject to the delays set forth in clauses (F) and (I) of Section 2.6(d) (if applicable), with all
other payment Obligations hereunder or under the other Loan Documents, including, accrued interest, fees and
expenses, and Lender Group Expenses. In accordance with Section 2.7, the Loan Account will be credited with all
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payments received by Agent from Borrowers or for Borrowers’ account. Agent shall make available to Borrowers
monthly statements regarding the Loan Account, including the principal amount of the Revolving Loans, interest
accrued hereunder, fees accrued or charged hereunder or under the other Loan Documents, and a summary
itemization of all charges and expenses constituting Lender Group Expenses accrued hereunder or under the other
Loan Documents, and each such statement, absent manifest error, shall be conclusively presumed to be correct and
accurate and constitute an account stated between Borrowers and the Lender Group unless, within 45 days after
Agent first makes such a statement available to Borrowers, Borrowers shall deliver to Agent written objection thereto
describing the error or errors contained in such statement.
Fees.
Agent Fees. Borrowers shall pay to Agent, for the account of Agent, as and when due and payable under the terms of the Fee
Letter, the fees set forth in the Fee Letter.
Unused Line Fee. Borrowers shall pay to Agent, for the ratable account of the Revolving Lenders, an unused line fee (the
“Unused Line Fee”) in an amount equal to the Applicable Unused Line Fee Percentage per annum times the result of (i) the
aggregate amount of the Revolver Commitments, less (ii) the Average Revolver Usage during the immediately preceding month
(or portion thereof), which Unused Line Fee shall be due and payable, in arrears, on the first day of each month from and after
the Closing Date up to the first day of the month prior to the date on which the Obligations are paid in full and on the date on
which the Obligations are paid in full.
Field Examination and Other Fees. Borrowers shall pay to Agent, field examination, appraisal, and valuation fees and
charges, as and when incurred or chargeable, as follows (i) a fee of $1,000 per day, per examiner, plus reasonable out-of-pocket
expenses (including travel, meals, and lodging) for each field examination of any Borrower performed by or on behalf of Agent,
and (ii) the fees, charges or expenses paid or incurred by Agent if it elects to employ the services of one or more third Persons to
appraise the Collateral, or any portion thereof, or to assess Parent’s, any Borrower’s or any of their Subsidiaries’ business
valuation.
Letters of Credit.
Subject to the terms and conditions of this Agreement, upon the request of Borrowers made in
accordance herewith, and prior to the Maturity Date, Issuing Bank agrees to issue a requested standby
Letter of Credit or a sight commercial Letter of Credit for the account of Borrowers. By submitting a
request to Issuing Bank for the issuance of a Letter of Credit, Borrowers shall be deemed to have
requested that Issuing Bank issue the requested Letter of Credit. Each request for the issuance of a
Letter of Credit, or the amendment, renewal, or extension of any outstanding Letter of Credit, shall be
(i) irrevocable and made in writing by an Authorized Person, (ii) delivered to Agent and Issuing Bank
via telefacsimile or other electronic method of transmission reasonably acceptable to Agent and
Issuing Bank and reasonably in advance of the requested date of issuance, amendment, renewal, or
extension and (iii) subject to Issuing Bank’s authentication procedures with results satisfactory to
Issuing Bank. Each such request shall be in form and substance reasonably satisfactory to Agent and
Issuing Bank and (i) shall specify (A) the amount of such Letter of Credit, (B) the date of issuance,
amendment,
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renewal, or extension of such Letter of Credit, (C) the proposed expiration date of such Letter of
Credit, (D) the name and address of the beneficiary of the Letter of Credit, and (E) such other
information (including, the conditions to drawing, and, in the case of an amendment, renewal, or
extension, identification of the Letter of Credit to be so amended, renewed, or extended) as shall be
necessary to prepare, amend, renew, or extend such Letter of Credit, and (ii) shall be accompanied by
such Issuer Documents as Agent or Issuing Bank may request or require, to the extent that such
requests or requirements are consistent with the Issuer Documents that Issuing Bank generally
requests for Letters of Credit in similar circumstances. Issuing Bank’s records of the content of any
such request will be conclusive. Anything contained herein to the contrary notwithstanding, Issuing
Bank may, but shall not be obligated to, issue a Letter of Credit that supports the obligations of a
Loan Party or one of its Subsidiaries in respect of (x) a lease of real property, or (y) an employment
contract.
Issuing Bank shall have no obligation to issue a Letter of Credit if any of the following would
result after giving effect to the requested issuance:
the Letter of Credit Usage would exceed $1,000,000, or
the Letter of Credit Usage would exceed the Maximum Revolver Amount less the outstanding amount of Revolving Loans
(including Swing Loans) at such time, or
the Letter of Credit Usage would exceed the Borrowing Base at such time less the outstanding principal balance of the Revolving
Loans (inclusive of Swing Loans) at such time.
In the event there is a Defaulting Lender as of the date of any request for the issuance of a Letter
of Credit, Issuing Bank shall not be required to issue or arrange for such Letter of Credit to the extent
(i) the Defaulting Lender’s Letter of Credit Exposure with respect to such Letter of Credit may not be
reallocated pursuant to Section 2.3(g)(ii), or (ii) Issuing Bank has not otherwise entered into
arrangements reasonably satisfactory to it and Borrowers to eliminate Issuing Bank’s risk with
respect to the participation in such Letter of Credit of the Defaulting Lender, which arrangements
may include Borrowers cash collateralizing such Defaulting Lender’s Letter of Credit Exposure in
accordance with Section 2.3(g)(ii). Additionally, Issuing Bank shall have no obligation to issue or
extend a Letter of Credit if (A) any order, judgment, or decree of any Governmental Authority or
arbitrator shall, by its terms, purport to enjoin or restrain Issuing Bank from issuing such Letter of
Credit, or any law applicable to Issuing Bank or any request or directive (whether or not having the
force of law) from any Governmental Authority with jurisdiction over Issuing Bank shall prohibit or
request that Issuing Bank refrain from the issuance of letters of credit generally or such Letter of
Credit in particular, (B) the issuance of such Letter of Credit would violate one or more policies of
Issuing Bank applicable to letters of credit generally, or (C) if amounts demanded to be paid under
any Letter of Credit will not or may not be in United States Dollars.
Any Issuing Bank (other than Wells Fargo or any of its Affiliates) shall notify Agent in writing of
any issuance of a Letter of Credit no later than the Business Day prior to the Business Day on which
such Issuing Bank issues any Letter of Credit. In addition, each Issuing Bank (other than Wells Fargo
or any of its Affiliates) shall, on the first Business Day of each week, submit to Agent a report
detailing the daily undrawn
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amount of each Letter of Credit issued by such Issuing Bank during the prior calendar week. Each
Letter of Credit shall be in form and substance reasonably acceptable to Issuing Bank, including the
requirement that the amounts payable thereunder must be payable in Dollars or, with the prior written
consent of Agent, payable in a foreign currency. If Issuing Bank makes a payment under a Letter of
Credit, Borrowers shall pay to Agent an amount equal to the applicable Letter of Credit Disbursement
on the Business Day such Letter of Credit Disbursement is made and, in the absence of such
payment, the amount of the Letter of Credit Disbursement immediately and automatically shall be
deemed to be a Revolving Loan hereunder (notwithstanding any failure to satisfy any condition
precedent set forth in Section 3) and, initially, shall bear interest at the rate then applicable to
Revolving Loans that are Base Rate Loans. If a Letter of Credit Disbursement is deemed to be a
Revolving Loan hereunder, Borrowers’ obligation to pay the amount of such Letter of Credit
Disbursement to Issuing Bank shall be automatically converted into an obligation to pay the resulting
Revolving Loan. Promptly following receipt by Agent of any payment from Borrowers pursuant to
this paragraph, Agent shall distribute such payment to Issuing Bank or, to the extent that Revolving
Lenders have made payments pursuant to Section 2.11(e) to reimburse Issuing Bank, then to such
Revolving Lenders and Issuing Bank as their interests may appear.
Promptly following receipt of a notice of a Letter of Credit Disbursement pursuant to
Section 2.11(d), each Revolving Lender agrees to fund its Pro Rata Share of any Revolving Loan
deemed made pursuant to Section 2.11(d) on the same terms and conditions as if Borrowers had
requested the amount thereof as a Revolving Loan and Agent shall promptly pay to Issuing Bank the
amounts so received by it from the Revolving Lenders. By the issuance of a Letter of Credit (or an
amendment, renewal, or extension of a Letter of Credit) and without any further action on the part of
Issuing Bank or the Revolving Lenders, Issuing Bank shall be deemed to have granted to each
Revolving Lender, and each Revolving Lender shall be deemed to have purchased, a participation in
each Letter of Credit issued by Issuing Bank, in an amount equal to its Pro Rata Share of such Letter
of Credit, and each such Revolving Lender agrees to pay to Agent, for the account of Issuing Bank,
such Revolving Lender’s Pro Rata Share of any Letter of Credit Disbursement made by Issuing Bank
under the applicable Letter of Credit. In consideration and in furtherance of the foregoing, each
Revolving Lender hereby absolutely and unconditionally agrees to pay to Agent, for the account of
Issuing Bank, such Revolving Lender’s Pro Rata Share of each Letter of Credit Disbursement made
by Issuing Bank and not reimbursed by Borrowers on the date due as provided in Section 2.11(d), or
of any reimbursement payment that is required to be refunded (or that Agent or Issuing Bank elects,
based upon the advice of counsel, to refund) to Borrowers for any reason. Each Revolving Lender
acknowledges and agrees that its obligation to deliver to Agent, for the account of Issuing Bank, an
amount equal to its respective Pro Rata Share of each Letter of Credit Disbursement pursuant to this
Section 2.11(e) shall be absolute and unconditional and such remittance shall be made
notwithstanding the occurrence or continuation of an Event of Default or Default or the failure to
satisfy any condition set
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forth in Section 3. If any such Revolving Lender fails to make available to Agent the amount of such
Revolving Lender’s Pro Rata Share of a Letter of Credit Disbursement as provided in this Section,
such Revolving Lender shall be deemed to be a Defaulting Lender and Agent (for the account of
Issuing Bank) shall be entitled to recover such amount on demand from such Revolving Lender
together with interest thereon at the Defaulting Lender Rate until paid in full.
Each Borrower agrees to indemnify, defend and hold harmless each member of the Lender Group
(including Issuing Bank and its branches, Affiliates, and correspondents) and each such Person’s
respective directors, officers, employees, attorneys and agents (each, including Issuing Bank, a
“Letter of Credit Related Person”) (to the fullest extent permitted by law) from and against any and
all claims, demands, suits, actions, investigations, proceedings, liabilities, fines, costs, penalties, and
damages, and all reasonable fees and disbursements of attorneys, experts, or consultants and all other
costs and expenses actually incurred in connection therewith or in connection with the enforcement
of this indemnification (as and when they are incurred and irrespective of whether suit is brought),
which may be incurred by or awarded against any Letter of Credit Related Person (other than Taxes,
which shall be governed by Section 16) (the “Letter of Credit Indemnified Costs”), and which arise
out of or in connection with, or as a result of this Agreement, any Letter of Credit, any Issuer
Document, or any Drawing Document referred to in or related to any Letter of Credit, or any action
or proceeding arising out of any of the foregoing (whether administrative, judicial or in connection
with arbitration); in each case, including that resulting from the Letter of Credit Related Person’s own
negligence; provided, that such indemnity shall not be available to any Letter of Credit Related
Person claiming indemnification to the extent that such Letter of Credit Indemnified Costs may be
finally determined in a final, non-appealable judgment by a court of competent jurisdiction to have
resulted directly from the gross negligence or willful misconduct of the Letter of Credit Related
Person claiming indemnity. This indemnification provision shall survive termination of this
Agreement and all Letters of Credit.
The liability of Issuing Bank (or any other Letter of Credit Related Person) under, in connection
with or arising out of any Letter of Credit (or pre-advice), regardless of the form or legal grounds of
the action or proceeding, shall be limited to direct damages suffered by Borrowers that are caused
directly by Issuing Bank’s gross negligence or willful misconduct in (i) honoring a presentation under
a Letter of Credit that on its face does not at least substantially comply with the terms and conditions
of such Letter of Credit, (ii) failing to honor a presentation under a Letter of Credit that strictly
complies with the terms and conditions of such Letter of Credit or (iii) retaining Drawing Documents
presented under a Letter of Credit. Borrowers’ aggregate remedies against Issuing Bank and any
Letter of Credit Related Person for wrongfully honoring a presentation under any Letter of Credit or
wrongfully retaining honored Drawing Documents shall in no event exceed the aggregate amount
paid by Borrowers to Issuing Bank in respect of the honored presentation in connection with such
Letter of Credit under Section 2.11(d), plus interest at the rate then applicable to Base Rate Loans
hereunder. Borrowers shall take action to avoid and mitigate
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the amount of any damages claimed against Issuing Bank or any other Letter of Credit Related
Person, including by enforcing its rights against the beneficiaries of the Letters of Credit. Any claim
by Borrowers under or in connection with any Letter of Credit shall be reduced by an amount equal
to the sum of (x) the amount (if any) saved by Borrowers as a result of the breach or alleged wrongful
conduct complained of; and (y) the amount (if any) of the loss that would have been avoided had
Borrowers taken all reasonable steps to mitigate any loss, and in case of a claim of wrongful
dishonor, by specifically and timely authorizing Issuing Bank to effect a cure.
Borrowers are responsible for the final text of the Letter of Credit as issued by Issuing Bank,
irrespective of any assistance Issuing Bank may provide such as drafting or recommending text or by
Issuing Bank’s use or refusal to use text submitted by Borrowers. Borrowers understand that the final
form of any Letter of Credit may be subject to such revisions and changes as are deemed necessary or
appropriate by Issuing Bank, and Borrowers hereby consent to such revisions and changes not
materially different from the application executed in connection therewith. Borrowers are solely
responsible for the suitability of the Letter of Credit for Borrowers’ purposes. If Borrowers request
Issuing Bank to issue a Letter of Credit for an affiliated or unaffiliated third party (an “Account
Party”), (i) such Account Party shall have no rights against Issuing Bank; (ii) Borrowers shall be
responsible for the application and obligations under this Agreement; and (iii) communications
(including notices) related to the respective Letter of Credit shall be among Issuing Bank and
Borrowers. Borrowers will examine the copy of the Letter of Credit and any other documents sent by
Issuing Bank in connection therewith and shall promptly notify Issuing Bank (not later than three (3)
Business Days following Borrowers’ receipt of documents from Issuing Bank) of any non-
compliance with Borrowers’ instructions and of any discrepancy in any document under any
presentment or other irregularity. Borrowers understand and agree that Issuing Bank is not required to
extend the expiration date of any Letter of Credit for any reason. With respect to any Letter of Credit
containing an “automatic amendment” to extend the expiration date of such Letter of Credit, Issuing
Bank, in its sole and absolute discretion, may give notice of nonrenewal of such Letter of Credit and,
if Borrowers do not at any time want the then current expiration date of such Letter of Credit to be
extended, Borrowers will so notify Agent and Issuing Bank at least 30 calendar days before Issuing
Bank is required to notify the beneficiary of such Letter of Credit or any advising bank of such non-
extension pursuant to the terms of such Letter of Credit.
Borrowers’ reimbursement and payment obligations under this Section 2.11 are absolute,
unconditional and irrevocable and shall be performed strictly in accordance with the terms of this
Agreement under any and all circumstances whatsoever, provided, that subject to Section 2.11(g)
above, the foregoing shall not release Issuing Bank from such liability to Borrowers as may be finally
determined in a final, non-appealable judgment by a court of competent jurisdiction against Issuing
Bank following reimbursement or payment of the obligations and liabilities, including reimbursement
and other payment obligations, of Borrowers to Issuing Bank arising under, or in connection with,
this Section 2.11 or any Letter of Credit.
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Without limiting any other provision of this Agreement, Issuing Bank and each other Letter of
Credit Related Person (if applicable) shall not be responsible to Borrowers for, and Issuing Bank’s
rights and remedies against Borrowers and the obligation of Borrowers to reimburse Issuing Bank for
each drawing under each Letter of Credit shall not be impaired by:
honor of a presentation under any Letter of Credit that on its face substantially complies with the terms and conditions of such
Letter of Credit, even if the Letter of Credit requires strict compliance by the beneficiary;
honor of a presentation of any Drawing Document that appears on its face to have been signed, presented or issued (A) by any
purported successor or transferee of any beneficiary or other Person required to sign, present or issue such Drawing Document or
(B) under a new name of the beneficiary;
acceptance as a draft of any written or electronic demand or request for payment under a Letter of Credit, even if nonnegotiable
or not in the form of a draft or notwithstanding any requirement that such draft, demand or request bear any or adequate reference
to the Letter of Credit;
the identity or authority of any presenter or signer of any Drawing Document or the form, accuracy, genuineness or legal effect of
any Drawing Document (other than Issuing Bank’s determination that such Drawing Document appears on its face substantially
to comply with the terms and conditions of the Letter of Credit);
acting upon any instruction or request relative to a Letter of Credit or requested Letter of Credit that Issuing Bank in good faith
believes to have been given by a Person authorized to give such instruction or request;
any errors, omissions, interruptions or delays in transmission or delivery of any message, advice or document (regardless of how
sent or transmitted) or for errors in interpretation of technical terms or in translation or any delay in giving or failing to give
notice to Borrowers;
any acts, omissions or fraud by, or the insolvency of, any beneficiary, any nominated person or entity or any other Person or any
breach of contract between any beneficiary and any Borrower or any of the parties to the underlying transaction to which the
Letter of Credit relates;
assertion or waiver of any provision of the ISP or UCP that primarily benefits an issuer of a letter of credit, including any
requirement that any Drawing Document be presented to it at a particular hour or place;
payment to any presenting bank (designated or permitted by the terms of the applicable Letter of Credit) claiming that it
rightfully honored or is entitled to reimbursement or indemnity under Standard Letter of Credit Practice applicable to it;
acting or failing to act as required or permitted under Standard Letter of Credit Practice applicable to where Issuing Bank has
issued, confirmed, advised or negotiated such Letter of Credit, as the case may be;
honor of a presentation after the expiration date of any Letter of Credit notwithstanding that a presentation was made prior to
such expiration date and dishonored by Issuing Bank if subsequently Issuing Bank or any court or other finder of fact determines
such presentation should have been honored;
dishonor of any presentation that does not strictly comply or that is fraudulent, forged or otherwise not entitled to honor; or
honor of a presentation that is subsequently determined by Issuing Bank to have been made in violation of international, federal,
state or local restrictions on the transaction of business with certain prohibited Persons.
Borrowers shall pay immediately upon demand to Agent for the account of Issuing Bank as non-
refundable fees, commissions, and charges (it being acknowledged and agreed that any charging of
such fees, commissions, and charges to the Loan Account pursuant to the provisions of Section 2.6(d)
shall be deemed to constitute a demand for payment thereof for the purposes of this Section 2.11(k)):
(i) a fronting fee
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which shall be imposed by Issuing Bank equal to 0.15% per annum times the average amount of the
Letter of Credit Usage during the immediately preceding month (or portion thereof) plus (ii) any and
all other customary commissions, fees and charges then in effect imposed by, and any and all
expenses incurred by, Issuing Bank, or by any adviser, confirming institution or entity or other
nominated person, relating to Letters of Credit, at the time of issuance of any Letter of Credit and
upon the occurrence of any other activity with respect to any Letter of Credit (including transfers,
assignments of proceeds, amendments, drawings, renewals or cancellations). Borrowers further agree
that, to the extent Agent consents to any Letter of Credit being payable in a foreign currency, upon
issuance of any such Letter of Credit, Agent shall establish a reserve against the Borrowing Base in
an amount equal to twenty percent (20%) of the face amount of each such Letter of Credit.
If by reason of (x) any Change in Law, or (y) compliance by Issuing Bank or any other member
of the Lender Group with any direction, request, or requirement (irrespective of whether having the
force of law) of any Governmental Authority or monetary authority including, Regulation D of the
Board of Governors as from time to time in effect (and any successor thereto):
any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit issued or caused
to be issued hereunder or hereby, or any Loans or obligations to make Loans hereunder or hereby, or
there shall be imposed on Issuing Bank or any other member of the Lender Group any other condition regarding any Letter of
Credit, Loans, or obligations to make Loans hereunder, and the result of the foregoing is to increase, directly or indirectly, the
cost to Issuing Bank or any other member of the Lender Group of issuing, making, participating in, or maintaining any Letter of
Credit or to reduce the amount receivable in respect thereof, then, and in any such case, Agent may, at any time within a
reasonable period after the additional cost is incurred or the amount received is reduced, notify Borrowers, and Borrowers shall
pay within 30 days after demand therefor, such amounts as Agent may specify to be necessary to compensate Issuing Bank or any
other member of the Lender Group for such additional cost or reduced receipt, together with interest on such amount from the
date of such demand until payment in full thereof at the rate then applicable to Base Rate Loans hereunder; provided,
that (A) Borrowers shall not be required to provide any compensation pursuant to this Section 2.11(l) for any such amounts
incurred more than 180 days prior to the date on which the demand for payment of such amounts is first made to Borrowers, and
(B) if an event or circumstance giving rise to such amounts is retroactive, then the 180-day period referred to above shall be
extended to include the period of retroactive effect thereof. The determination by Agent of any amount due pursuant to this
Section 2.11(l), as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of
manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto.
Each standby Letter of Credit shall expire not later than the date that is 12 months after the date
of the issuance of such Letter of Credit; provided, that any standby Letter of Credit may provide for
the automatic extension thereof for any number of additional periods each of up to one year in
duration; provided further, that with respect to any Letter of Credit which extends beyond the
Maturity Date, Letter of Credit Collateralization shall be provided therefor on or before the date that
is five (5) Business Days prior to the Maturity Date. Each commercial Letter of Credit shall expire on
the earlier of (i) 120 days after the date of the issuance of such
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commercial Letter of Credit and (ii) five (5) Business Days prior to the Maturity Date.
If (i) any Event of Default shall occur and be continuing, or (ii) Availability shall at any time be
less than zero, then on the Business Day following the date when the Administrative Borrower
receives notice from Agent or the Required Lenders (or, if the maturity of the Obligations has been
accelerated, Revolving Lenders with Letter of Credit Exposure representing greater than 50% of the
total Letter of Credit Exposure) demanding Letter of Credit Collateralization pursuant to this Section
2.11(n) upon such demand, Borrowers shall provide Letter of Credit Collateralization with respect to
the then existing Letter of Credit Usage. If Borrowers fail to provide Letter of Credit Collateralization
as required by this Section 2.11(n), the Revolving Lenders may (and, upon direction of Agent, shall)
advance, as Revolving Loans the amount of the cash collateral required pursuant to the Letter of
Credit Collateralization provision so that the then existing Letter of Credit Usage is cash
collateralized in accordance with the Letter of Credit Collateralization provision (whether or not the
Revolver Commitments have terminated, an Overadvance exists or the conditions in Section 3 are
satisfied).
Unless otherwise expressly agreed by Issuing Bank and Borrowers when a Letter of Credit is
issued, (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the
UCP shall apply to each commercial Letter of Credit.
Issuing Bank shall be deemed to have acted with due diligence and reasonable care if Issuing
Bank’s conduct is in accordance with Standard Letter of Credit Practice or in accordance with this
Agreement.
In the event of a direct conflict between the provisions of this Section 2.11 and any provision
contained in any Issuer Document, it is the intention of the parties hereto that such provisions be read
together and construed, to the fullest extent possible, to be in concert with each other. In the event of
any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of
this Section 2.11 shall control and govern.
The provisions of this Section 2.11 shall survive the termination of this Agreement and the
repayment in full of the Obligations with respect to any Letters of Credit that remain outstanding.
At Borrowers’ cost and expense, Borrowers shall execute and deliver to Issuing Bank such
additional certificates, instruments and/or documents and take such additional action as may be
reasonably requested by Issuing Bank to enable Issuing Bank to issue any Letter of Credit pursuant to
this Agreement and related Issuer Document, to protect, exercise and/or enforce Issuing Banks’ rights
and interests under this Agreement or to give effect to the terms and provisions of this Agreement or
any Issuer Document. Each Borrower irrevocably appoints Issuing Bank as its attorney-in-fact and
authorizes Issuing Bank, without notice to Borrowers, to execute and deliver ancillary documents and
letters customary in the letter of credit business that may include but are not limited to advisements,
indemnities, checks, bills of exchange and issuance documents. The power of attorney granted by the
Borrowers is limited solely to such actions related to the issuance, confirmation or amendment of any
Letter of Credit
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and to ancillary documents or letters customary in the letter of credit business. This appointment is
coupled with an interest.
LIBOR Option.
Interest and Interest Payment Dates. In lieu of having interest charged at the rate based upon the Base Rate, Borrowers
shall have the option, subject to Section 2.12(b) below (the “LIBOR Option”) to have interest on all or a portion of the Revolving
Loans (whether at the time when made (unless otherwise provided herein), upon conversion from a Base Rate Loan to a LIBOR
Rate Loan, or upon continuation of a LIBOR Rate Loan as a LIBOR Rate Loan) at a rate of interest based upon the LIBOR Rate.
Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the last day of the Interest Period applicable thereto;
provided, that, subject to the following clauses (ii) and (iii), in the case of any Interest Period greater than three months in
duration, interest shall be payable at three month intervals after the commencement of the applicable Interest Period and on the
last day of such Interest Period), (ii) the date on which all or any portion of the Obligations are accelerated pursuant to the terms
hereof, or (iii) the date on which this Agreement is terminated pursuant to the terms hereof. On the last day of each applicable
Interest Period, unless Borrowers have properly exercised the LIBOR Option with respect thereto, the interest rate applicable to
such LIBOR Rate Loan automatically shall convert to the rate of interest then applicable to Base Rate Loans of the same type
hereunder. At any time that an Event of Default has occurred and is continuing, Borrowers no longer shall have the option to
request that Revolving Loans bear interest at a rate based upon the LIBOR Rate.
LIBOR Election.
Borrowers may, at any time and from time to time, so long as no Event of Default has occurred and is continuing, elect to
exercise the LIBOR Option by notifying Agent prior to 11:00 a.m. at least one (1) Business Day prior to the commencement of
the proposed Interest Period (the “LIBOR Deadline”). Notice of Borrowers’ election of the LIBOR Option for a permitted
portion of the Revolving Loans and an Interest Period pursuant to this Section shall be made by delivery to Agent of a LIBOR
Notice received by Agent before the LIBOR Deadline. Promptly upon its receipt of each such LIBOR Notice, Agent shall
provide a copy thereof to each of the affected Lenders.
Each LIBOR Notice shall be irrevocable and binding on Borrowers. In connection with each LIBOR Rate Loan, each Borrower
shall indemnify, defend, and hold Agent and the Lenders harmless against any loss, cost, or expense actually incurred by Agent
or any Lender as a result of (A) the payment or required assignment of any principal of any LIBOR Rate Loan other than on the
last day of an Interest Period applicable thereto (including as a result of an Event of Default), (B) the conversion of any LIBOR
Rate Loan other than on the last day of the Interest Period applicable thereto, or (C) the failure to borrow, convert, continue or
prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice delivered pursuant hereto (such losses, costs, or
expenses, “Funding Losses”). A certificate of Agent or a Lender delivered to Borrowers setting forth in reasonable detail any
amount or amounts that Agent or such Lender is entitled to receive pursuant to this Section 2.12 shall be conclusive absent
manifest error. Borrowers shall pay such amount to Agent or the Lender, as applicable, within 30 days of the date of its receipt of
such certificate.
Unless Agent, in its sole discretion, agrees otherwise, Borrowers shall have not more than five LIBOR Rate Loans in effect at any
given time. Borrowers may only exercise the LIBOR Option for proposed LIBOR Rate Loans of at least $1,000,000.
Conversion; Prepayment. Borrowers may convert LIBOR Rate Loans to Base Rate Loans or prepay LIBOR Rate Loans at
any time; provided, that in the event that LIBOR Rate Loans are
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converted or prepaid on any date that is not the last day of the Interest Period applicable thereto, including as a result of any
prepayment through the required application by Agent of any payments or proceeds of Collateral in accordance with
Section 2.4(b) or for any other reason, including early termination of the term of this Agreement or acceleration of all or any
portion of the Obligations pursuant to the terms hereof, each Borrower shall indemnify, defend, and hold Agent and the Lenders
and their Participants harmless against any and all Funding Losses in accordance with Section 2.12(b)(ii).
Special Provisions Applicable to LIBOR Rate.
The LIBOR Rate may be adjusted by Agent with respect to any Lender on a prospective basis to
take into account any additional or increased costs to such Lender of maintaining or obtaining any
eurodollar deposits or increased costs (other than Taxes which shall be governed by Section 16), in
each case, due to changes in applicable law occurring subsequent to the commencement of the then
applicable Interest Period, including any Changes in Law and changes in the reserve requirements
imposed by the Board of Governors, which additional or increased costs would increase the cost of
funding or maintaining loans bearing interest at the LIBOR Rate. In any such event, the affected
Lender shall give Borrowers and Agent notice of such a determination and adjustment and Agent
promptly shall transmit the notice to each other Lender and, upon its receipt of the notice from the
affected Lender, Borrowers may, by notice to such affected Lender (A) require such Lender to furnish
to Borrowers a statement setting forth in reasonable detail the basis for adjusting such LIBOR Rate
and the method for determining the amount of such adjustment, or (B) repay the LIBOR Rate Loans
of such Lender with respect to which such adjustment is made (together with any amounts due
under Section 2.12(b)(ii)).
In theSubject to the provisions set forth in Section 2.12(d)(iii) below, in the event that any change in
market conditions or any Change in Law shall at any time after the date hereof, in the reasonable
opinion of any Lender, make it unlawful or impractical for such Lender to fund or maintain LIBOR
Rate Loans or to continue such funding or maintaining, or to determine or charge interest rates at the
LIBOR Rate, such Lender shall give notice of such changed circumstances to Agent and Borrowers
and Agent promptly shall transmit the notice to each other Lender and (y) in the case of any LIBOR
Rate Loans of such Lender that are outstanding, the date specified in such Lender’s notice shall be
deemed to be the last day of the Interest Period of such LIBOR Rate Loans, and interest upon the
LIBOR Rate Loans of such Lender thereafter shall accrue interest at the rate then applicable to Base
Rate Loans, and (z) Borrowers shall not be entitled to elect the LIBOR Option with respect to such
Lender until such Lender determines that it would no longer be unlawful or impractical to do so.
(1)
Benchmark Replacement Setting.
(1)
Benchmark Replacement. (1) Notwithstanding anything to the contrary herein or in any
other Loan Document if a Benchmark Transition Event or an Early Opt-in Election as applicable, and its related Benchmark
Replacement Date have occurred prior
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to the Reference Time in respect of any setting of the then-current Benchmark, then (x) if a Benchmark Replacement is
determined in accordance with clause (a)(i) or (a)(ii) of the definition of “Benchmark Replacement” for such Benchmark
Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan
Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action
or consent of any other party to, this Agreement or any other Loan Document and (y) if a Benchmark Replacement is determined
in accordance with clause (a)(iii) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such
Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of
any Benchmark setting at or after 5:00 p.m. on the fifth (5 ) Business Day after the date notice of such Benchmark Replacement
is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any
other Loan Document so long as Agent has not received, by such time, written notice of objection to such Benchmark
Replacement from Lenders comprising the Required Lenders. If an Unadjusted Benchmark Replacement Rate is SOFR Average,
all interest payments will be on a monthly basis.
(2) Notwithstanding anything to the contrary herein or in any other Loan Document, if a Term
SOFR Transition Event and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any
setting of the then-current Benchmark, then the applicable Benchmark Replacement will replace the then-current Benchmark for
all purposes hereunder or under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings,
without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document;
provided that this clause (2) shall not be effective unless Agent has delivered to the Lenders and Administrative Borrower a Term
SOFR Notice. For the avoidance of doubt, Agent shall not be required to deliver a Term SOFR Notice after a Term SOFR
Transition Event and may elect or not elect to do so in its sole discretion.
(2)
Benchmark Replacement Conforming Changes. In connection with the implementation of a
Benchmark Replacement, Agent will have the right to make Benchmark Replacement Conforming Changes from time to time
and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such
Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to
this Agreement or any other Loan Document.
(3)
Notices; Standards for Decisions and Determinations. Agent will promptly notify
Administrative Borrower and the Lenders of (1) any occurrence of a Benchmark Transition Event, a Term SOFR Transition
Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date, (2) the implementation of any
Benchmark Replacement, (3) the effectiveness of any Benchmark Replacement Conforming Changes, (4) the removal or
reinstatement of any tenor of a Benchmark pursuant to Section 2.12(d)(iii)(D) below and (5) the commencement or conclusion of
any Benchmark Unavailability Period. Any determination, decision or election that may be made by Agent or, if applicable, any
Lender (or group of Lenders) pursuant to this Section 2.12(d)(iii), including any determination with respect to a tenor, rate or
adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from
taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole
discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as
expressly required pursuant to this Section 2.12(d)(iii).
th
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(4)
Unavailability of Tenor of Benchmark. Notwithstanding anything to the contrary herein or
in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (1) if
the then-current Benchmark is a term rate (including Term SOFR or USD LIBOR) and either (x) any tenor for such Benchmark is
not displayed on a screen or other information service that publishes such rate from time to time as selected by Agent in its
reasonable discretion or (y) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or
publication of information announcing that any tenor for such Benchmark is or will be no longer representative, then Agent may
modify the definition of “Interest Period” for any Benchmark settings at or after such time to remove such unavailable or non-
representative tenor and (2) if a tenor that was removed pursuant to clause (1) above either (x) is subsequently displayed on a
screen or information service for a Benchmark (including a Benchmark Replacement) or (y) is not, or is no longer, subject to an
announcement that it is or will no longer be representative for a Benchmark (including a Benchmark Replacement), then Agent
may modify the definition of “Interest Period” for all Benchmark settings at or after such time to reinstate such previously
removed tenor.
(5)
Benchmark Unavailability Period. Upon Administrative Borrower’s receipt of notice of the
commencement of a Benchmark Unavailability Period, Administrative Borrower may revoke any request for a Borrowing of,
conversion to or continuation of LIBOR Rate Loans to be made, converted or continued during any Benchmark Unavailability
Period and, failing that, Administrative Borrower will be deemed to have converted any such request into a request for a
Borrowing of or conversion to Base Rate Loans. During any Benchmark Unavailability Period or at any time that a tenor for the
then-current Benchmark is not an Available Tenor, the component of Base Rate based upon the then-current Benchmark or such
tenor for such Benchmark, as applicable, will not be used in any determination of the Base Rate.
(6)
London Interbank Offered Rate Benchmark Transition Event. On March 5, 2021, the ICE
Benchmark Administration (the “IBA”), the administrator of the London interbank offered rate, and the Financial Conduct
Authority (the “FCA”), the regulatory supervisor of the IBA, announced in public statements (the "Announcements") that the
final publication or representativeness date for the London interbank offered rate for: (i) Canadian Dollars will be December 31,
2021, (ii) Dollars for 1-week and 2-month tenor settings will be December 31, 2021 and (iii) Dollars for overnight, 1-month, 3-
month, 6-month and 12-month tenor settings will be June 30, 2023. No successor administrator for the IBA was identified in such
Announcements. The parties hereto agree and acknowledge that the Announcements resulted in the occurrence of a Benchmark
Transition Event with respect to the London interbank offered rate for each of the aforementioned currencies pursuant to the
terms of this Agreement and that any obligation of Agent to notify any parties of any such Benchmark Transition Event pursuant
to Section 2.12(d)(iii)(C) shall be deemed satisfied.
No Requirement of Matched Funding. Anything to the contrary contained herein notwithstanding, neither
Agent, nor any Lender, nor any of their Participants, is required actually to acquire eurodollar deposits to
fund or otherwise match fund any Obligation as to which interest accrues at the LIBOR Rate.
Capital Requirements.
If, after the date hereof, Issuing Bank or any Lender determines that (i) any Change in Law
regarding capital, liquidity or reserve requirements for banks or bank holding
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companies, or (ii) compliance by Issuing Bank or such Lender, or their respective parent bank
holding companies, with any guideline, request or directive of any Governmental Authority regarding
capital adequacy or liquidity requirements (whether or not having the force of law), has the effect of
reducing the return on Issuing Bank’s, such Lender’s, or such holding companies’ capital or liquidity
as a consequence of Issuing Bank’s or such Lender’s commitments, Loans, participations or other
obligations hereunder to a level below that which Issuing Bank, such Lender, or such holding
companies could have achieved but for such Change in Law or compliance (taking into consideration
Issuing Bank’s, such Lender’s, or such holding companies’ then existing policies with respect to
capital adequacy or liquidity requirements and assuming the full utilization of such entity’s capital)
by any amount deemed by Issuing Bank or such Lender to be material, then Issuing Bank or such
Lender may notify Borrowers and Agent thereof. Following receipt of such notice, Borrowers agree
to pay Issuing Bank or such Lender on demand the amount of such reduction of return of capital as
and when such reduction is determined, payable within 30 days after presentation by Issuing Bank or
such Lender of a statement in the amount and setting forth in reasonable detail Issuing Bank’s or such
Lender’s calculation thereof and the assumptions upon which such calculation was based (which
statement shall be deemed true and correct absent manifest error). In determining such amount,
Issuing Bank or such Lender may use any reasonable averaging and attribution methods. Failure or
delay on the part of Issuing Bank or any Lender to demand compensation pursuant to this Section
shall not constitute a waiver of Issuing Bank’s or such Lender’s right to demand such compensation;
provided that Borrowers shall not be required to compensate Issuing Bank or a Lender pursuant to
this Section for any reductions in return incurred more than 180 days prior to the date that Issuing
Bank or such Lender notifies Borrowers of such Change in Law giving rise to such reductions and of
such Lender’s intention to claim compensation therefor; provided further that if such claim arises by
reason of the Change in Law that is retroactive, then the 180-day period referred to above shall be
extended to include the period of retroactive effect thereof.
If Issuing Bank or any Lender requests additional or increased costs referred to in Section 2.11(l)
or Section 2.12(d)(i) or amounts under Section 2.13(a) or sends a notice under Section 2.12(d)(ii)
relative to changed circumstances (such Issuing Bank or Lender, an “Affected Lender”), then, at the
request of Administrative Borrower, such Affected Lender shall use reasonable efforts to promptly
designate a different one of its lending offices or to assign its rights and obligations hereunder to
another of its offices or branches, if (i) in the reasonable judgment of such Affected Lender, such
designation or assignment would eliminate or reduce amounts payable pursuant to Section 2.11(l),
Section 2.12(d)(i) or Section 2.13(a), as applicable, or would eliminate the illegality or impracticality
of funding or maintaining LIBOR Rate Loans and (ii) in the reasonable judgment of such Affected
Lender, such designation or assignment would not subject it to any material unreimbursed cost or
expense and would not otherwise be materially disadvantageous to it. Borrowers agree to pay all
reasonable out-of-pocket costs and expenses incurred by such Affected Lender in connection with
any such designation or
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assignment. If, after such reasonable efforts, such Affected Lender does not so designate a different
one of its lending offices or assign its rights to another of its offices or branches so as to eliminate
Borrowers’ obligation to pay any future amounts to such Affected Lender pursuant to Section 2.11(l),
Section 2.12(d)(i) or Section 2.13(a), as applicable, or to enable Borrowers to obtain LIBOR Rate
Loans, then Borrowers (without prejudice to any amounts then due to such Affected Lender under
Section 2.11(l), Section 2.12(d)(i) or Section 2.13(a), as applicable) may, unless prior to the effective
date of any such assignment the Affected Lender withdraws its request for such additional amounts
under Section 2.11(l), Section 2.12(d)(i) or Section 2.13(a), as applicable, or indicates that it is no
longer unlawful or impractical to fund or maintain LIBOR Rate Loans, may designate a different
Issuing Bank or substitute a Lender or prospective Lender, in each case, reasonably acceptable to
Agent to purchase the Obligations owed to such Affected Lender and such Affected Lender’s
commitments hereunder (a “Replacement Lender”), and if such Replacement Lender agrees to such
purchase, such Affected Lender shall assign to the Replacement Lender its Obligations and
commitments, and upon such purchase by the Replacement Lender, which such Replacement Lender
shall be deemed to be “Issuing Bank” or a “Lender” (as the case may be) for purposes of this
Agreement and such Affected Lender shall cease to be “Issuing Bank” or a “Lender” (as the case may
be) for purposes of this Agreement.
Notwithstanding anything herein to the contrary, the protection of Sections 2.11(l), 2.12(d), and
2.13 shall be available to Issuing Bank and each Lender (as applicable) regardless of any possible
contention of the invalidity or inapplicability of the law, rule, regulation, judicial ruling, judgment,
guideline, treaty or other change or condition which shall have occurred or been imposed, so long as
it shall be customary for issuing banks or lenders affected thereby to comply therewith.
Notwithstanding any other provision herein, neither Issuing Bank nor any Lender shall demand
compensation pursuant to this Section 2.13 if it shall not at the time be the general policy or practice
of Issuing Bank or such Lender (as the case may be) to demand such compensation in similar
circumstances under comparable provisions of other credit agreements, if any.
Incremental Facility.
(a)
At any time during the period from and after the Closing Date through but excluding the date that is the
secondthird year anniversary of the Closing Date, at the option of Borrowers (but subject to the conditions set forth in clause (b)
below), the Revolver Commitments and the Maximum Revolver Amount may be increased by an amount in the aggregate not to
exceed the Available Increase Amount (each such increase, an “Increase”). Agent shall invite each Lender to increase its
Revolver Commitments (it being understood that no Lender shall be obligated to increase its Revolver Commitments) in
connection with a proposed Increase at the interest margin proposed by Borrowers, and if sufficient Lenders do not agree to
increase their Revolver Commitments in connection with such proposed Increase, then Agent or Borrowers may invite any
prospective lender who is reasonably satisfactory to Agent and Borrowers to become a Lender in connection with a proposed
Increase. Any Increase shall be in an amount of at least $5,000,000 and integral multiples of $5,000,000 in excess thereof. In no
event may the Revolver Commitments and the Maximum Revolver Amount be increased
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pursuant to this Section 2.14 on more than two (2) occasions in the aggregate for all such Increases. Additionally, for the
avoidance of doubt, it is understood and agreed that in no event shall the aggregate amount of the Increases to the Revolver
Commitments exceed the Available Increase Amount.
(b)
Each of the following shall be conditions precedent to any Increase of the Revolver Commitments and the
Maximum Revolver Amount in connection therewith:
Agent or Borrowers have obtained the commitment of one or more Lenders (or other prospective lenders) reasonably satisfactory
to Agent and Borrowers to provide the applicable Increase and any such Lenders (or prospective lenders), Borrowers, and Agent
have signed a joinder agreement to this Agreement (an “Increase Joinder”), in form and substance reasonably satisfactory to
Agent, to which such Lenders (or prospective lenders), Borrowers, and Agent are party,
) each of the conditions precedent set forth in Section 3.2 are satisfied,
i)if any Loan Party or any of its Subsidiaries owns any Margin Stock or is acquiring any Margin Stock in connection with the
transactions that are contemplated to be consummated in connection with such Increase, Borrowers shall deliver to Agent a
description of any such Margin Stock being acquired, together with an updated Form U-1 (with sufficient additional originals
thereof for each Lender), duly executed and delivered by the Borrowers, together with such other documentation as Agent shall
reasonably request, in order to enable Agent and the Lenders to comply with any of the requirements under Regulations T, U or X
of the Federal Reserve Board,
v)Borrowers have delivered to Agent updated pro forma Projections (after giving effect to the applicable Increase) for the Loan
Parties and their Subsidiaries evidencing compliance on a pro forma basis with Section 7 for the twelve months (on a month-by-
month basis) immediately following the proposed date of the applicable Increase (calculated as if a Covenant Testing Period was
in effect during the entire twelve month period), and
) Borrowers shall have reached agreement with the Lenders (or prospective lenders) agreeing to the increased Revolver
Commitments with respect to the interest margins applicable to Revolving Loans to be made pursuant to the increased Revolver
Commitments (which interest margins may be with respect to Revolving Loans made pursuant to the increased Revolver
Commitments, higher than or equal to the interest margins applicable to Revolving Loans set forth in this Agreement
immediately prior to the date of the increased Revolver Commitments (the date of the effectiveness of the increased Revolver
Commitments and the Maximum Revolver Amount, the “Increase Date”)) and shall have communicated the amount of such
interest margins to Agent. Any Increase Joinder may, with the consent of Agent, Borrowers and the Lenders or prospective
lenders agreeing to the proposed Increase, effect such amendments to this Agreement and the other Loan Documents as may be
necessary to effectuate the provisions of this Section 2.14 (including any amendment necessary to effectuate the interest margins
for the Revolving Loans to be made pursuant to the increased Revolver Commitments).
(c)
Unless otherwise specifically provided herein, all references in this Agreement and any other Loan
Document to Revolving Loans shall be deemed, unless the context otherwise requires, to include Revolving Loans made pursuant
to the increased Revolver Commitments and Maximum Revolver Amount pursuant to this Section 2.14.
(d)
Each of the Lenders having a Revolver Commitment prior to the Increase Date (the “Pre-Increase
Revolver Lenders”) shall assign to any Lender which is acquiring a new
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or additional Revolver Commitment on the Increase Date (the “Post-Increase Revolver Lenders”), and such Post-Increase
Revolver Lenders shall purchase from each Pre-Increase Revolver Lender, at the principal amount thereof, such interests in the
Revolving Loans and participation interests in Letters of Credit on such Increase Date as shall be necessary in order that, after
giving effect to all such assignments and purchases, such Revolving Loans and participation interests in Letters of Credit will be
held by Pre-Increase Revolver Lenders and Post-Increase Revolver Lenders ratably in accordance with their Pro Rata Share after
giving effect to such increased Revolver Commitments.
(e)
The Revolving Loans, Revolver Commitments, and Maximum Revolver Amount established pursuant to
this Section 2.14 shall constitute Revolving Loans, Revolver Commitments, and Maximum Revolver Amount under, and shall be
entitled to all the benefits afforded by, this Agreement and the other Loan Documents, and shall, without limiting the foregoing,
benefit equally and ratably from any guarantees and the security interests created by the Loan Documents. Borrowers shall take
any actions reasonably required by Agent to ensure and demonstrate that the Liens and security interests granted by the Loan
Documents continue to be perfected under the Code or otherwise after giving effect to the establishment of any such new
Revolver Commitments and Maximum Revolver Amount.
Joint and Several Liability of Borrowers.
Each Borrower is accepting joint and several liability hereunder and under the other Loan
Documents in consideration of the financial accommodations to be provided by the Lender Group
under this Agreement, for the mutual benefit, directly and indirectly, of each Borrower and in
consideration of the undertakings of the other Borrowers to accept joint and several liability for the
Obligations.
Each Borrower, jointly and severally, hereby irrevocably and unconditionally accepts, not merely
as a surety but also as a co-debtor, joint and several liability with the other Borrowers, with respect to
the payment and performance of all of the Obligations (including any Obligations arising under this
Section 2.15), it being the intention of the parties hereto that all the Obligations shall be the joint and
several obligations of each Borrower without preferences or distinction among them. Accordingly,
each Borrower hereby waives any and all suretyship defenses that would otherwise be available to
such Borrower under applicable law.
If and to the extent that any Borrower shall fail to make any payment with respect to any of the
Obligations as and when due, whether upon maturity, acceleration, or otherwise, or to perform any of
the Obligations in accordance with the terms thereof, then in each such event the other Borrowers
will make such payment with respect to, or perform, such Obligations until such time as all of the
Obligations are paid in full, and without the need for demand, protest, or any other notice or
formality.
The Obligations of each Borrower under the provisions of this Section 2.15 constitute the
absolute and unconditional, full recourse Obligations of each Borrower enforceable against each
Borrower to the full extent of its properties and assets, irrespective of the validity, regularity or
enforceability of the provisions of this Agreement (other than this Section 2.15(d)) or any other
circumstances whatsoever.
Without limiting the generality of the foregoing and except as otherwise expressly provided in
this Agreement, each Borrower hereby waives presentments, demands for
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performance, protests and notices, including notices of acceptance of its joint and several liability,
notice of any Revolving Loans or Letters of Credit issued under or pursuant to this Agreement, notice
of the occurrence of any Default, Event of Default, notices of nonperformance, notices of protest,
notices of dishonor, notices of acceptance of this Agreement, notices of the existence, creation, or
incurring of new or additional Obligations or other financial accommodations or of any demand for
any payment under this Agreement, notice of any action at any time taken or omitted by Agent or
Lenders under or in respect of any of the Obligations, any right to proceed against any other
Borrower or any other Person, to proceed against or exhaust any security held from any other
Borrower or any other Person, to protect, secure, perfect, or insure any security interest or Lien on
any property subject thereto or exhaust any right to take any action against any other Borrower, any
other Person, or any collateral, to pursue any other remedy in any member of the Lender Group’s or
any Bank Product Provider’s power whatsoever, any requirement of diligence or to mitigate damages
and, generally, to the extent permitted by applicable law, all demands, notices and other formalities of
every kind in connection with this Agreement (except as otherwise provided in this Agreement), any
right to assert against any member of the Lender Group or any Bank Product Provider, any defense
(legal or equitable), set-off, counterclaim, or claim which each Borrower may now or at any time
hereafter have against any other Borrower or any other party liable to any member of the Lender
Group or any Bank Product Provider, any defense, set-off, counterclaim, or claim, of any kind or
nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity,
or enforceability of the Obligations or any security therefor, and any right or defense arising by
reason of any claim or defense based upon an election of remedies by any member of the Lender
Group or any Bank Product Provider including any defense based upon an impairment or elimination
of such Borrower’s rights of subrogation, reimbursement, contribution, or indemnity of such
Borrower against any other Borrower. Without limiting the generality of the foregoing, each
Borrower hereby assents to, and waives notice of, any extension or postponement of the time for the
payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the
acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by
Agent or Lenders at any time or times in respect of any default by any Borrower in the performance
or satisfaction of any term, covenant, condition or provision of this Agreement, any and all other
indulgences whatsoever by Agent or Lenders in respect of any of the Obligations, and the taking,
addition, substitution or release, in whole or in part, at any time or times, of any security for any of
the Obligations or the addition, substitution or release, in whole or in part, of any Borrower. Without
limiting the generality of the foregoing, each Borrower assents to any other action or delay in acting
or failure to act on the part of any Agent or Lender with respect to the failure by any Borrower to
comply with any of its respective Obligations, including any failure strictly or diligently to assert any
right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder,
which might, but for the provisions of this Section 2.15 afford grounds for terminating, discharging or
relieving any
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Borrower, in whole or in part, from any of its Obligations under this Section 2.15, it being the
intention of each Borrower that, so long as any of the Obligations hereunder remain unsatisfied, the
Obligations of each Borrower under this Section 2.15 shall not be discharged except by performance
and then only to the extent of such performance. The Obligations of each Borrower under this
Section 2.15 shall not be diminished or rendered unenforceable by any winding up, reorganization,
arrangement, liquidation, reconstruction or similar proceeding with respect to any other Borrower or
any Agent or Lender. Each of the Borrowers waives, to the fullest extent permitted by law, the benefit
of any statute of limitations affecting its liability hereunder or the enforcement hereof. Any payment
by any Borrower or other circumstance which operates to toll any statute of limitations as to any
Borrower shall operate to toll the statute of limitations as to each of the Borrowers. Each of the
Borrowers waives any defense based on or arising out of any defense of any Borrower or any other
Person, other than payment of the Obligations to the extent of such payment, based on or arising out
of the disability of any Borrower or any other Person, or the validity, legality, or unenforceability of
the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of
any Borrower other than payment of the Obligations to the extent of such payment. Agent may, at the
election of the Required Lenders, foreclose upon any Collateral held by Agent by one or more
judicial or nonjudicial sales or other dispositions, whether or not every aspect of any such sale is
commercially reasonable or otherwise fails to comply with applicable law or may exercise any other
right or remedy Agent, any other member of the Lender Group, or any Bank Product Provider may
have against any Borrower or any other Person, or any security, in each case, without affecting or
impairing in any way the liability of any of the Borrowers hereunder except to the extent the
Obligations have been paid.
Each Borrower represents and warrants to Agent and Lenders that such Borrower is currently
informed of the financial condition of Borrowers and of all other circumstances which a diligent
inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Borrower
further represents and warrants to Agent and Lenders that such Borrower has read and understands
the terms and conditions of the Loan Documents. Each Borrower hereby covenants that such
Borrower will continue to keep informed of Borrowers’ financial condition and of all other
circumstances which bear upon the risk of nonpayment or nonperformance of the Obligations.
The provisions of this Section 2.15 are made for the benefit of Agent, each member of the
Lender Group, each Bank Product Provider, and their respective successors and assigns, and may be
enforced by it or them from time to time against any or all Borrowers as often as occasion therefor
may arise and without requirement on the part of Agent, any member of the Lender Group, any Bank
Product Provider, or any of their successors or assigns first to marshal any of its or their claims or to
exercise any of its or their rights against any Borrower or to exhaust any remedies available to it or
them against any Borrower or to resort to any other source or means of obtaining payment of any of
the Obligations hereunder or to elect any other remedy. The provisions of this Section 2.15 shall
remain in effect until all of the Obligations shall have
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been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made in
respect of any of the Obligations, is rescinded or must otherwise be restored or returned by Agent or
any Lender upon the insolvency, bankruptcy or reorganization of any Borrower, or otherwise, the
provisions of this Section 2.15 will forthwith be reinstated in effect, as though such payment had not
been made.
Each Borrower hereby agrees that it will not enforce any of its rights that arise from the
existence, payment, performance or enforcement of the provisions of this Section 2.15, including
rights of subrogation, reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of Agent, any other member of the Lender Group, or any Bank
Product Provider against any Borrower, whether or not such claim, remedy or right arises in equity or
under contract, statute or common law, including the right to take or receive from any Borrower,
directly or indirectly, in cash or other property or by set-off or in any other manner, payment or
security solely on account of such claim, remedy or right, unless and until such time as all of the
Obligations have been paid in full in cash. Any claim which any Borrower may have against any
other Borrower with respect to any payments to any Agent or any member of the Lender Group
hereunder or under any of the Bank Product Agreements are hereby expressly made subordinate and
junior in right of payment, without limitation as to any increases in the Obligations arising hereunder
or thereunder, to the prior payment in full in cash of the Obligations and, in the event of any
insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceeding under the
laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or
involuntary, all such Obligations shall be paid in full in cash before any payment or distribution of
any character, whether in cash, securities or other property, shall be made to any other Borrower
therefor. If any amount shall be paid to any Borrower in violation of the immediately preceding
sentence, such amount shall be held in trust for the benefit of Agent, for the benefit of the Lender
Group and the Bank Product Providers, and shall forthwith be paid to Agent to be credited and
applied to the Obligations and all other amounts payable under this Agreement, whether matured or
unmatured, in accordance with the terms of this Agreement, or to be held as Collateral for any
Obligations or other amounts payable under this Agreement thereafter arising. Notwithstanding
anything to the contrary contained in this Agreement, no Borrower may exercise any rights of
subrogation, contribution, indemnity, reimbursement or other similar rights against, and may not
proceed or seek recourse against or with respect to any property or asset of, any other Borrower (the
“Foreclosed Borrower”), including after payment in full of the Obligations, if all or any portion of the
Obligations have been satisfied in connection with an exercise of remedies in respect of the Equity
Interests of such Foreclosed Borrower whether pursuant to this Agreement or otherwise.
Each of the Borrowers hereby acknowledges and affirms that it understands that to the extent the
Obligations are secured by Real Property located in California, the Borrowers shall be liable for the
full amount of the liability hereunder notwithstanding the foreclosure on such Real Property by
trustee sale or any other reason impairing such Borrower’s right to proceed against any other Loan
Party. In accordance
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with Section 2856 of the California Civil Code or any similar laws of any other applicable
jurisdiction, each of the Borrowers hereby waives until such time as the Obligations have been paid
in full:
all rights of subrogation, reimbursement, indemnification, and contribution and any other rights and
defenses that are or may become available to the Borrowers by reason of Sections 2787 to 2855,
inclusive, 2899, and 3433 of the California Civil Code or any similar laws of any other applicable
jurisdiction;
all rights and defenses that the Borrowers may have because the Obligations are secured by Real
Property located in California, meaning, among other things, that: (A) Agent, the other members of
the Lender Group, and the Bank Product Providers may collect from the Borrowers without first
foreclosing on any real or personal property collateral pledged by any Loan Party, and (B) if Agent,
on behalf of the Lender Group, forecloses on any Real Property Collateral pledged by any Loan
Party, (1) the amount of the Obligations may be reduced only by the price for which that collateral is
sold at the foreclosure sale, even if the collateral is worth more than the sale price, and (2) the
Lender Group may collect from the Loan Parties even if, by foreclosing on the Real Property
Collateral, Agent or the other members of the Lender Group have destroyed or impaired any right
the Borrowers may have to collect from any other Loan Party, it being understood that this is an
unconditional and irrevocable waiver of any rights and defenses the Borrowers may have because
the Obligations are secured by Real Property (including any rights or defenses based upon Sections
580a, 580d, or 726 of the California Code of Civil Procedure or any similar laws of any other
applicable jurisdiction); and
all rights and defenses arising out of an election of remedies by Agent, the other members of the
Lender Group, and the Bank Product Providers, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for the Obligations, has destroyed the Borrowers'
rights of subrogation and reimbursement against any other Loan Party by the operation of Section
580d of the California Code of Civil Procedure or any similar laws of any other applicable jurisdiction
or otherwise.
CONDITIONS; TERM OF AGREEMENT.
Conditions Precedent to the Initial Extension of Credit. The obligation of each Lender to make the initial
extensions of credit provided for hereunder is subject to the fulfillment, to the satisfaction of Agent and each Lender,
of each of the conditions precedent set forth on Schedule 3.1 to this Agreement (the making of such initial extensions
of credit by a Lender being conclusively deemed to be its satisfaction or waiver of the conditions precedent).
Conditions Precedent to all Extensions of Credit. The obligation of the Lender Group (or any member
thereof) to make any Revolving Loans hereunder (or to extend any other
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credit hereunder) at any time shall be subject to the following conditions precedent (except solely with respect to
subsection (d) hereof, after the initial Revolving Loans on the Closing Date in an amount sufficient to pay fees, costs
and expenses in an amount equal to the amount set forth on the Flow of Funds Agreement):
Agent shall have received from Borrowers a Borrowing Base Certificate regarding the
Borrowing Base then in effect;
the representations and warranties of Parent, each Borrower and their Subsidiaries contained in
this Agreement or in the other Loan Documents shall be true and correct in all material respects
(except 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) on and as of the date of such
extension of credit, as though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date, in which case such representations and
warranties shall be true and correct in all material respects (except 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) as of such earlier date); and
no Default or Event of Default shall have occurred and be continuing on the date of such
extension of credit, nor shall either result from the making thereof.
Maturity. The Commitments shall continue in full force and effect for a term ending on the Maturity Date (unless
terminated earlier in accordance with the terms hereof).
Effect of Maturity. On the Maturity Date, all commitments of the Lender Group to provide additional credit
hereunder shall automatically be terminated and all of the Obligations (other than Hedge Obligations) immediately
shall become due and payable without notice or demand and Borrowers shall be required to repay all of the
Obligations (other than Hedge Obligations) in full. No termination of the obligations of the Lender Group (other than
payment in full of the Obligations and termination of the Commitments) shall relieve or discharge any Loan Party of its
duties, obligations, or covenants hereunder or under any other Loan Document and Agent’s Liens in the Collateral
shall continue to secure the Obligations and shall remain in effect until all Obligations have been paid in full and the
Commitments have been terminated. When all of the Obligations have been paid in full, Agent will, at Borrowers’ sole
expense, execute and deliver any termination statements, lien releases, discharges of security interests, and other
similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to
release, as of record, Agent’s Liens and all notices of security interests and liens previously filed by Agent and will
redeliver to Borrowers or their representatives any possessory Collateral in Agent’s possession.
Early Termination by Borrowers. Borrowers have the option, at any time upon ten (10) Business Days prior
written notice to Agent, to repay all of the Obligations in full and terminate the Commitments. The foregoing
notwithstanding, (a) Borrowers may rescind termination notices relative to proposed payments in full of the
Obligations with the proceeds of third party Indebtedness if the closing for such issuance or incurrence does not
happen on or before the date of the proposed termination (in which case, a new notice shall be required to be sent in
connection with any subsequent termination), and (b) Borrowers
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may extend the date of termination at any time with the consent of Agent (which consent shall not be unreasonably
withheld or delayed).
Conditions Subsequent. The obligation of the Lender Group (or any member thereof) to continue to make
Revolving Loans (or otherwise extend credit hereunder) is subject to the fulfillment, on or before the date applicable
thereto, of the conditions subsequent set forth on Schedule 3.6 to this Agreement (the failure by Borrowers to so
perform or cause to be performed such conditions subsequent as and when required by the terms thereof (unless
such date is extended, in writing, by Agent, which Agent may do without obtaining the consent of the other members
of the Lender Group), shall constitute an Event of Default).
REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender Group to enter into this Agreement, each of Parent, Maple Leaf and each Borrower makes
the following representations and warranties to the Lender Group which shall be true, correct, and complete, in all material
respects (except 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), as of the Closing Date, and shall be true, correct, and complete, in all
material respects (except 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), as of the date of the making of each Revolving Loan (or any other
extension of credit) made thereafter, as though made on and as of the date of such Revolving Loan (or other extension of credit)
(except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations
and warranties shall be true and correct in all material respects (except 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) as of such earlier date)
and such representations and warranties shall survive the execution and delivery of this Agreement:
Due Organization and Qualification; Subsidiaries.
Each Loan Party (i) is duly organized and existing and in good standing under the laws of the
jurisdiction of its organization, (ii) is qualified to do business in any state (or in the case of the
Canadian Loan Parties, province or territory) where the failure to be so qualified could reasonably be
expected to result in a Material Adverse Effect, and (iii) has all requisite power and authority to own
or lease and operate its properties, to carry on its business as now conducted and as proposed to be
conducted, to enter into the Loan Documents to which it is a party and to carry out the transactions
contemplated thereby.
Set forth on Schedule 4.1(b) to this Agreement (as such Schedule may be updated from time to
time to reflect changes resulting from transactions permitted under this Agreement) is a complete and
accurate description of the authorized Equity Interests of each Borrower, by class, and, as of the
Closing Date, a description of the number of shares of each such class that are issued and
outstanding, except that such Schedule does not reflect and Borrowers shall have no obligation to
update such Schedule to reflect any securities issues pursuant to the employee stock option plan or
employee stock purchase plan, each as disclosed to Agent in the Perfection Certificate.
Set forth on Schedule 4.1(c) to this Agreement (as such Schedule may be updated from time to
time to reflect changes
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resulting from transactions permitted under this Agreement) is a complete and accurate list of the
Parent’s direct and indirect Subsidiaries, showing: (i) the number of shares of each class of common
and preferred Equity Interests authorized for each of such Subsidiaries, and (ii) the number and the
percentage of the outstanding shares of each such class owned directly or indirectly by Parent. All of
the outstanding Equity Interests of each such Subsidiary has been validly issued and is fully paid and
non-assessable.
Except as set forth on Schedule 4.1(d) to this Agreement, there are no subscriptions, options,
warrants, or calls relating to any shares of any of Parent’s direct or indirect Subsidiaries’ Equity
Interests, including any right of conversion or exchange under any outstanding security or other
instrument. No Loan Party is subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its Equity Interests or any security convertible into or
exchangeable for any of its Equity Interests.
Due Authorization; No Conflict.
As to each Loan Party, the execution, delivery, and performance by such Loan Party of the Loan
Documents to which it is a party have been duly authorized by all necessary action on the part of such
Loan Party.
As to each Loan Party, the execution, delivery, and performance by such Loan Party of the Loan
Documents to which it is a party do not and will not (i) violate any material provision of federal,
state, or local law or regulation applicable to any Loan Party or its Subsidiaries, the Governing
Documents of any Loan Party or its Subsidiaries, or any order, judgment, or decree of any court or
other Governmental Authority binding on any Loan Party or its Subsidiaries, (ii) conflict with, result
in a breach of, or constitute (with due notice or lapse of time or both) a default under (A) any Patent
License applicable to any Eligible Inventory or (B) any other Material Contract, except to the extent
for purposes of this clause (B), any such conflict, breach or default (1) could not individually or in the
aggregate reasonably be expected to have a Material Adverse Effect and (2) does not prohibit or give
rise to an event of default if such Material Contract or the rights therein are pledged, (iii) result in or
require the creation or imposition of any Lien of any nature whatsoever upon any assets of any Loan
Party, other than Permitted Liens, or (iv) require any approval of any holder of Equity Interests of a
Loan Party or any approval or consent of any Person under any material agreement of any Loan
Party, other than consents or approvals that have been obtained and that are still in force and effect
and except for consents or approvals, the failure to obtain could not individually or in the aggregate
reasonably be expected to cause a Material Adverse Effect.
Governmental Consents. The execution, delivery, and performance by each Loan Party of the Loan Documents
to which such Loan Party is a party and the consummation of the transactions contemplated by the Loan Documents
do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any
Governmental Authority, other than registrations, consents, approvals, notices, or other actions that have been
obtained and that are still in force and effect and except for filings and recordings with the United States Securities
and Exchange Commission, which will be
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made timely, and with respect to the Collateral to be made, or otherwise delivered to Agent for filing or recordation, as
of the Closing Date.
Binding Obligations; Perfected Liens.
Each Loan Document has been duly executed and delivered by each Loan Party that is a party
thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such
Loan Party in accordance with its respective terms, except as enforcement may be limited by
equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors’ rights generally.
Agent’s Liens are validly created, perfected (other than (i) in respect of motor vehicles that are
subject to a certificate of title, (ii) money, (iii) letter-of-credit rights (other than supporting
obligations), (iv) commercial tort claims (other than those that, by the terms of the Guaranty and
Security Agreement, are required to be perfected), and (v) any Deposit Accounts and Securities
Accounts not subject to a Control Agreement as permitted by Section 7(k)(iv) of the Guaranty and
Security Agreement or the Canadian Security and Pledge Agreement, as applicable, and subject only
to the filing of financing statements, the recordation of the Intellectual Property Security Agreements,
in each case, in the appropriate filing offices as required under the Code and, the PPSA, the United
States Patent and Trademark Office, the Canadian Intellectual Property Office and any other
applicable offices), and first priority Liens, subject only to Permitted Liens which are non-consensual
Permitted Liens, permitted purchase money Liens, the interests of lessors under Capital Leases or
Liens described in clause (k) of the definition of Permitted Liens.
Title to Assets; No Encumbrances. Each of the Loan Parties and its Subsidiaries has (a) good, sufficient and
legal title to (in the case of fee interests in Real Property), (b) valid leasehold interests in (in the case of leasehold
interests in real or personal property), and (c) good and marketable title to (in the case of all other personal property),
all of their respective material assets reflected in their most recent financial statements delivered pursuant to
Section 5.1, in each case except for assets disposed of since the date of such financial statements to the extent
permitted hereby. All of such assets are free and clear of Liens except for Permitted Liens.
Litigation.
There are no actions, suits, or proceedings pending or, to the knowledge of any Borrower, after
due inquiry, threatened in writing against a Loan Party or any of its Subsidiaries that either
individually or in the aggregate could reasonably be expected to result in a Material Adverse Effect.
Schedule 4.6(b) to this Agreement sets forth a complete and accurate description of each of the
actions, suits, or proceedings with asserted liabilities in excess of, or that could reasonably be
expected to result in liabilities in excess of, $100,000 that, as of the Closing Date, is pending or, to
the knowledge of any Borrower, after due inquiry, threatened against a Loan Party or any of its
Subsidiaries.
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There are no pending (or, to the knowledge of any Borrower, after due inquiry, threatened in
writing), Health Care Proceedings commenced, brought, conducted or heard by or before, or
otherwise involving, any Governmental Authority or arbitrator against or affecting Parent, any
Borrower or any of their Subsidiaries, that either individually or in the aggregate could reasonably be
expected to result in a Material Adverse Effect. There are no facts, circumstances or conditions that
could reasonably be expected to form the basis for any Health Care Proceeding against or affecting
Parent, any Borrower or any of their Subsidiaries, that either individually or in the aggregate could
reasonably be expected to result in a Material Adverse Effect.
Compliance with Laws. Neither Parent, any Borrower nor any of their respective Subsidiaries (a) is in violation
of any Requirement of Law (including Environmental Laws) that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect, or (b) is subject to or in default with respect to any final judgments,
writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.
No Material Adverse Effect. Except as noted therein, all historical financial statements relating to Parent and its
Subsidiaries that have been delivered to Agent have been prepared in accordance with GAAP (except, in the case of
unaudited financial statements, for the lack of footnotes, appropriate format, and being subject to year-end audit
adjustments) and present fairly in all material respects, Parent’s and its Subsidiaries’ combined and/or consolidated
financial condition as of the date thereof and results of operations for the period then ended, in conformity with GAAP.
Since December 31, 2017, no event, circumstance, or change has occurred that has or could reasonably be
expected to result in a Material Adverse Effect.
Solvency.
Each Loan Party is Solvent.
No transfer of property is being made by any Loan Party and no obligation is being incurred by
any Loan Party in connection with the transactions contemplated by this Agreement or the other Loan
Documents with the intent to hinder, delay, or defraud either present or future creditors of such Loan
Party.
Employee Benefits.
1.1.2. No Loan Party, none of their Subsidiaries, nor any of their ERISA Affiliates maintains or contributes to
any Benefit Plan.
1.1.3. Schedule 4.10(b) lists each Canadian Employee Plan (including the applicable registration number(s)
and any such plan which contains a defined benefit provision), as such term is defined in subsection
147.1(1) of the Income Tax Act (Canada) and, except as could not reasonably result in a Material Adverse
Effect, (i) none of the Canadian Employee Plans provide retiree welfare benefits or retiree life insurance
benefits; (ii) the Canadian Pension Plans are registered under the Income Tax Act (Canada) and all other
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applicable laws which require registration and to the knowledge of the Loan Parties, no event has occurred
which is reasonably likely to cause the loss of such registered status; (iii) except as could not reasonably be
expected to result in a Material Adverse Effect, all material obligations of each of the Loan Parties required
to be performed in connection with the Canadian Employee Plans have been performed in a timely fashion,
in accordance with the terms of the particular plan, applicable law and the terms of all applicable collective
bargaining agreements, participation agreements, employment contracts and funding agreements; (iv)
except as could not reasonably be expected to result in a Material Adverse Effect, all employer and
employee payments and contributions (including “normal cost”, “special payments” and any other required
payments in respect of any funding deficiencies or shortfalls) required to be withheld, made, remitted or paid
by the Loan Parties to or in respect of each Canadian Employee Plan have been withheld, made, remitted or
paid on a timely basis in accordance with the terms of such plans, any applicable collective bargaining
agreement, participation agreement, employment contract and all applicable law; (v) to the knowledge of the
Loan Parties, no condition exists and no event or transaction has occurred with respect to any Canadian
Employee Plan that is reasonably likely to result in any Loan Party incurring any liability, fine or penalty; (vi)
no Lien has arisen or exists in respect of a Loan Party or its property in connection with any Canadian
Employee Plan; (vii) to the knowledge of the Loan Parties, there are no material outstanding disputes
concerning the assets or liabilities of any Canadian Employee Plan; and (viii) no Loan Party participates in,
contributes to or is obligated to contribute to a Canadian Pension Plan that contains a defined benefit
provision as such term is defined in subsection 147.1(1) of the Income Tax Act (Canada) .
Environmental Condition. Except as set forth on Schedule 4.11 to this Agreement, (a) to Parent’s and each
Borrower’s knowledge, none of Parent’s, nor any Borrower’s, nor any of their respective Subsidiaries’ properties or
assets has ever been used by a Loan Party, any of its Subsidiaries, or by previous owners or operators in the
disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such disposal,
production, storage, handling, treatment, release or transport was in violation, in any material respect, of any
applicable Environmental Law, (b) to Parent’s and each Borrower’s knowledge, none of Parent’s, nor any Borrower’s,
nor any of their Subsidiaries’ properties or assets has ever been designated or identified in any manner pursuant to
any environmental protection statute as a Hazardous Materials disposal site, (c) none of Parent, nor any Borrower,
nor any of their respective Subsidiaries has received notice that a Lien arising under any Environmental Law has
attached to any revenues or to any Real Property owned or operated by a Loan Party or any of its Subsidiaries, and
(d) none of Parent, nor any Borrower, nor any of their respective Subsidiaries, nor any of their respective Health Care
Facilities or operations is subject to any outstanding written order, consent decree, or settlement agreement with any
Person relating to any Environmental Law or Environmental Liability that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.
Complete Disclosure. All factual information taken as a whole (other than forward-looking information and
projections and information of a general economic nature and general information about Borrowers’ industry)
furnished by or on behalf of a Loan Party or its Subsidiaries in writing to Agent or any Lender (including all information
contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection
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with this Agreement or the other Loan Documents, and all other such factual information taken as a whole (other than
forward-looking information and projections and information of a general economic nature and general information
about Borrowers’ industry) hereafter furnished by or on behalf of a Loan Party or its Subsidiaries in writing to Agent or
any Lender will be, true and accurate, in all material respects, on the date as of which such information is dated or
certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not
misleading in any material respect at such time in light of the circumstances under which such information was
provided. The Projections previously delivered to Agent on June 28, 2018 represent, and except as noted therein as
of the date on which any other Projections are delivered to Agent, such additional Projections represent, Parent’s and
Borrowers’ good faith estimate, on the date such Projections are delivered, of the Loan Parties’ and their
Subsidiaries’ future performance for the periods covered thereby based upon assumptions believed by Parent and
Borrowers to be reasonable at the time of the delivery thereof to Agent (it being understood that such Projections are
subject to significant uncertainties and contingencies, many of which are beyond the control of the Loan Parties and
their Subsidiaries, and no assurances can be given that such Projections will be realized, and although reflecting
Parent’s and Borrowers’ good faith estimate, projections or forecasts based on methods and assumptions which
Borrowers believed to be reasonable at the time such Projections were prepared, are not to be viewed as facts, and
that actual results during the period or periods covered by the Projections may differ materially from projected or
estimated results).
Patriot Act. To the extent applicable, each Loan Party is in compliance, in all material respects, with the (a) Trading
with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order
relating thereto, and (b) Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism (USA Patriot Act of 2001, as amended) (the “Patriot Act”), and (c) Canadian Anti-Money
Laundering & Anti-Terrorism Legislation.
Indebtedness. Set forth on Schedule 4.14 to this Agreement is a true and complete list of all Indebtedness of
Parent and each of its Subsidiaries outstanding immediately prior to the Closing Date that is to remain outstanding
immediately after giving effect to the closing hereunder on the Closing Date and such Schedule accurately sets forth
the aggregate principal amount of such Indebtedness as of the Closing Date.
Payment of Taxes. Except as otherwise permitted under Section 5.5, all Tax returns and reports of Parent and
each of its Subsidiaries required to be filed by any of them have been timely filed, and all Taxes shown on such Tax
returns to be due and payable and all other Taxes upon Parent and each of its Subsidiaries and upon their respective
assets, income, businesses and franchises that are due and payable have been paid when due and payable or
commenced a Permitted Protest. Parent and each of its Subsidiaries have made adequate provision in accordance
with GAAP for all Taxes not yet due and payable. Neither Parent nor any Borrower knows of any proposed Tax
assessment against a Loan Party or any of its Subsidiaries that is not being appropriately contested by such Loan
Party or such Subsidiary diligently, in good faith, and by appropriate proceedings; provided, that such
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reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made
or provided therefor.
Margin Stock. Neither any Parent nor any of its Subsidiaries owns any Margin Stock or is engaged principally, or
as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any
Margin Stock. No part of the proceeds of the Loans will be used to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin Stock or for any purpose that violates the
provisions of Regulation T, U or X of the Board of Governors. Neither any Loan Party nor any of its Subsidiaries
expects to acquire any Margin Stock.
Governmental Regulation. Neither Parent nor any of its Subsidiaries is subject to regulation under the Federal
Power Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may
limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations
unenforceable. Neither Parent nor any of its Subsidiaries is a “registered investment company” or a company
“controlled” by a “registered investment company” or a “principal underwriter” of a “registered investment company”
as such terms are defined in the Investment Company Act of 1940.
OFAC; Sanctions; Anti-Corruption Laws; Anti-Money Laundering Laws. No Loan Party or any of its
Subsidiaries is in violation of any Sanctions. Neither Parent nor any of its Subsidiaries nor, to the knowledge of such
Loan Party, any director, officer, employee, agent or Affiliate of such Loan Party or such Subsidiary (a) is a
Sanctioned Person or a Sanctioned Entity, (b) has any assets located in Sanctioned Entities, or (c) derives revenues
from investments in, or transactions with Sanctioned Persons or Sanctioned Entities. Each of the Loan Parties and its
Subsidiaries has implemented and maintains in effect policies and procedures designed to ensure compliance with all
Sanctions, Anti-Corruption Laws and Anti-Money Laundering Laws. Each of the Loan Parties and its Subsidiaries,
and to the knowledge of each such Loan Party, each director, officer, employee, agent and Affiliate of each such Loan
Party and each such Subsidiary, is in compliance with all Sanctions, Anti-Corruption Laws and Anti-Money
Laundering Laws. No proceeds of the Loans or any other loan made or Letter of Credit issued hereunder will be used
to fund any operations in, finance any investments or activities in, or make any payments to, a Sanctioned Person or
a Sanctioned Entity, or otherwise used in any manner that would result in a violation of any Sanction, Anti-Corruption
Law or Anti-Money Laundering Law by any Person (including any Lender, Bank Product Provider, or other individual
or entity participating in any transaction).
Employee and Labor Matters. There is (i) no unfair labor practice complaint pending or, to the knowledge of
Parent or any Borrower, threatened against Parent or any of its Subsidiaries before any Governmental Authority, and
no grievance or arbitration proceeding pending or threatened against Parent or any of its Subsidiaries which arises
out of or under any collective bargaining agreement and that could reasonably be expected to result in a material
liability or (ii) no strike, labor dispute, slowdown, stoppage or similar action or grievance pending or threatened in
writing against Parent or any of its Subsidiaries that could reasonably be expected to result in a material liability or
(iii) as of the Closing Date, to the knowledge of Parent or any Borrower, after due inquiry, no union representation
question existing with respect to the employees of Parent or any of its Subsidiaries and no union organizing activity
taking place with respect to any of the employees of Parent or any of its Subsidiaries. Neither Parent nor any of its
Subsidiaries
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has incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act or similar state
law, which remains unpaid or unsatisfied. The hours worked and payments made to employees of Parent and each of
its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable legal requirements,
except to the extent such violations could not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. All material payments due from Parent or any of its Subsidiaries on account of wages and
employee health and welfare insurance and other benefits have been paid or accrued as a liability on the books of
Parent and such Subsidiary, except where the failure to do so could not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect.
Parent and Maple Leaf as a Holding CompanyCompanies. Each of Parent and Maple Leaf is a holding
company and does not have any material liabilities (other than liabilities arising under the Loan Documents and
liabilities disclosed in writing to the Agent), own any material assets (other than the Equity Interests of Borrowers) or
engage in any operations or business (other than the ownership of Borrowers and their Subsidiaries and incidental
activities related thereto).
Leases. Parent and each of its Subsidiaries enjoy peaceful and undisturbed possession under all leases material to
their business and to which they are parties or under which they are operating, and, subject to Permitted Protests, all
of such material leases are valid and subsisting and no material default by Parent or such Subsidiary exists under
any of them.
Eligible Accounts. As to each Account that is identified by Borrowers as an Eligible Account in a Borrowing Base
Certificate submitted to Agent, such Account is (a) a bona fide existing payment obligation of the applicable Account
Debtor created by the sale and delivery of Inventory or the rendition of services to such Account Debtor in the
ordinary course of a Borrower’s business, (b) owed to a Borrower without any known defenses, disputes, offsets,
counterclaims, or rights of return or cancellation, and (c) not excluded as ineligible by virtue of one or more of the
excluding criteria (other than any Agent-discretionary criteria) set forth in the definition of Eligible Accounts or the
definition of Eligible Unbilled Accounts, as applicable. Each Account that is identified by a Borrower in a Borrowing
Base Certificate submitted to Agent as an Eligible Account, as applicable, reimbursed pursuant to a Third Party Payor
Arrangement (a) has been originated in compliance with applicable Health Care Laws, the reimbursement policies of
the applicable Third Party Payor Arrangement and (b) does not exceed the amount such Borrower is entitled to
receive under any applicable capitation arrangement, fee schedule, discount formula, cost-based reimbursement or
other adjustment or limitation to such Borrower’s usual charges.
Eligible Inventory. As to each item of Inventory that is identified by Borrowers as Eligible Finished Goods
Inventory, Eligible Raw Materials Inventory or, Eligible Work-in-Process Inventory in a Borrowing Base Certificate, as
applicable, submitted to Agent, such item of Inventory is (a) of good and merchantable quality, free from known
defects, and (b) not excluded as ineligible by virtue of one or more of the excluding criteria (other than any Agent-
discretionary criteria) set forth in the definition of Eligible Inventory.
Location of Inventory. The Inventory (other than Inventory on consignment) of Borrowers and their Subsidiaries
is not stored with a bailee, warehouseman, or similar
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party and is located only at, or in-transit between, the locations identified on Schedule 4.24 to this Agreement (as
such Schedule may be updated pursuant to Section 5.14).
Inventory Records. Each Loan Party keeps correct and accurate records itemizing and describing the type,
quality, and quantity of its and its Subsidiaries’ Inventory and the book value thereof.
Hedge Agreements. On each date that any Hedge Agreement is executed by any Hedge Provider, Borrower and each other
Loan Party satisfy all eligibility, suitability and other requirements under the Commodity Exchange Act (7 U.S.C. § 1, et seq., as
in effect from time to time) and the Commodity Futures Trading Commission regulations.
Health Care Matters.
Compliance with Health Care Laws; Health Care Permits; Third Party Payors. Each Borrower and each of its
Subsidiaries is in compliance in all material respects with all applicable Health Care Laws and requirements of Third Party Payor
Arrangements applicable to it and its assets, business or operations. Each Loan Party and each of their respective Subsidiaries
maintains a corporate and health care regulatory compliance program (“CCP”) which addresses the requirements of all applicable
Health Care Laws, including HIPAA and Other Privacy Laws. Each Borrower and each of its Subsidiaries holds in full force and
effect all Health Care Permits necessary for it to own, lease, sublease or operate its assets under applicable Health Care Laws and
to conduct its business and operations as presently conducted (including to obtain reimbursement under all Third Party Payor
Arrangements in which it participates). There exist no restrictions, required plans of correction or other such remedial measures
with respect to (i) any Health Care Permit of any Loan Party or its Subsidiaries or (ii) the participation by any Loan Party or any
of its Subsidiaries in any Third Party Payor Arrangement, in each case under clauses (i) and (ii), that would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect. To the extent required, prudent or customary in the
industry in which it is engaged, has obtained and maintains in good standing and without limitation or impairment accreditation
from all generally recognized accreditation agencies. No circumstance exists or event has occurred which could reasonably be
expected to result in the suspension, revocation, termination, restriction, limitation, modification or non-renewal of any material
Health Care Permit held by any Loan Party or any of their Subsidiaries.
Material Statements. No Borrower, nor any officer, managing employee or director of any Borrower has made an untrue
statement of a material fact or fraudulent statement to any Governmental Authority, failed to disclose a material fact that must be
disclosed to any Governmental Authority, or committed an act, made a statement or failed to make a statement that, at the time
such statement, disclosure or failure to disclose occurred, would constitute a violation of any Health Care Law.
Prohibited Transactions. No Loan Party or any of its Subsidiaries nor, to the knowledge of the Loan Parties, any officer,
affiliate or managing employee of any Loan Party or any Subsidiary of a Loan Party has (i) offered or paid or solicited or
received any remuneration, in cash or in kind, or made any financial arrangements, in material violation of any applicable Health
Care Law; (ii) given any gift or gratuitous payment of any kind, nature or description (whether in money, property or services) in
material violation of any applicable Health Care Law; (iii) made any contribution, payment or gift of funds or property to, or for
the private use of, any governmental official, employee or agent where either the contribution, payment or gift or the purpose of
such contribution, payment or gift was illegal in any material respect under the applicable laws of any
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Governmental Authority having jurisdiction over such payment, contribution or gift; (iv) established or maintained any
unrecorded fund or asset for any purpose or made any misleading, false or artificial entries on any of its books or records in
material violation of applicable Health Care Laws; or (v) made any payment to any person with the intention that any part of such
payment would be in material violation of any applicable Health Care Law. No Person has filed or has threatened in writing to
file against any Loan Party or any of their Subsidiaries an action under any federal, provincial, territorial or state or Canadian
whistleblower statute related to alleged noncompliance with applicable Health Care Laws, including under the False Claims Act
of 1863 (31 U.S.C. § 3729 et seq.).
Exclusion. No Borrower, nor any officer, managing employee or director of any Borrower, or Person with a “direct or indirect
ownership interest” (as that phrase is defined in 42 C.F.R. § 420.201) in any Borrower or an Affiliate, has (i) been excluded from
or debarred from participating in any Third Party Payor Arrangement or had a civil monetary penalty assessed pursuant to 42
U.S.C. § 1320a-7; (ii) been convicted (as that term is defined in 42 C.F.R. § 1001.2) of or investigated for any of those offenses
described in 42 U.S.C. § 1320a-7b or 18 U.S.C. § § 669, 1035, 1347 or 1518, including any of the following categories of
offenses: (A) criminal offenses relating to the delivery of an item or service under any federal health care program (as that term is
defined in 42 U.S.C. § 1320a-7b) or healthcare benefit program (as that term is defined in 18 U.S.C. § 24b), (B) criminal offenses
under federal or state law relating to patient neglect or abuse in connection with the delivery of a healthcare item or service,
(C) criminal offenses under laws relating to fraud and abuse, theft, embezzlement, false statements to third parties, money
laundering, kickbacks, breach of fiduciary responsibility or other financial misconduct in connection with the delivery of a
healthcare item or service or with respect to any act or omission in a program operated by or financed in whole or in part by any
federal, state or local governmental agency, (D) laws relating to the interference with or obstruction of any investigations into any
criminal offenses described in clause (c), or (E) criminal offenses under laws relating to the unlawful manufacturing, distribution,
prescription or dispensing of a controlled substance; or (iii) been involved or named as a defendant in a U.S. Attorney complaint
made or any other action taken pursuant to the False Claims Act under 31 U.S.C. § § 3729-3731 or qui tam action brought
pursuant to 31 U.S.C. § 3729 et seq.
Corporate Integrity Agreement. No Borrower, nor any officer, managing employee or director of any Borrower is a party
to or bound by any individual integrity agreement, corporate integrity agreement, corporate compliance agreement, deferred
prosecution agreement, or other similar written agreement with any Governmental Authority concerning compliance with Health
Care Laws, any Government Reimbursement Programs or the requirements of any Health Care Permit.
Third Party Payor Audits and Investigations. No Borrower, nor any officer, managing employee or director of any
Borrower is subject to any Third Party Payor special investigations unit or other fraud or compliance-related audit or
investigation, except solely with respect to compliance-related audits in the normal course of such Borrower’s business.
1.1.4. PPP Debt. All applications, documents and other information submitted to any Governmental Authority with respect to
the PPP Debt shall be true and correct in all material respects. No Lender or any of its Affiliates is deemed an “affiliate” of any
Loan Party or any of
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its Subsidiaries for any purpose related to the PPP Debt, including the eligibility criteria with respect thereto.
1.1.5. CARES Act. Each Loan Party and each of its Subsidiaries acknowledges and agrees that (a) it has consulted its own
legal and financial advisors with respect to all matters related to CARES Act, including PPP Debt (including eligibility criteria
and conditions for forgiveness of such PPP Debt), the Paycheck Protection Program and the AAPP, as applicable, (b) it is
responsible for making its own independent judgment with respect to any funds or loans received under the CARES Act,
including the AAPP, the PPP Debt and the process leading thereto, as applicable, and (c) it has not relied on Agent, any Lender or
any of their respective Affiliates with respect to any of such matters.
1.1.6. Compliance Under CARES Act. Each Loan Party and each of its Subsidiaries is in compliance in all material
respects with the CARES Act, including the Paycheck Protection Program and the AAPP, in each case to the extent applicable.
Regulatory Compliance.
Each Loan Party is in compliance in all material respects with all applicable statutes, rules,
regulations, directives, standards, guidances, policies or orders issued by relevant Regulatory Authorities.
Each Loan Party has, and it and its products are in conformance in all material respects with, all
Registrations that are required to conduct its business as currently conducted, or as proposed to be
conducted. To the knowledge of each Loan Party, no Regulatory Authority is considering limiting,
suspending, or revoking such Registrations or requiring changes to the marketing classification or labeling or
other significant parameter adversely affecting any product of any Loan Party, in each case, the effect of
which would not reasonably be likely to result in any material liability to such Loan Party. To best knowledge
of each Loan Party, any third party that is a manufacturer, supplier, distributor or contractor for any Loan
Party is in compliance in all material respects, and has been (to the extent applicable) in compliance in all
material respects for the previous six years, with all Registrations required by relevant Regulatory Authorities
and all Public Health Laws that reasonably pertain to product components of, accessories to, or products
regulated as drugs or medical devices and marketed or distributed by such Loan Party, in any case, the
effect of which would not reasonably be likely to result in any material liability to such Loan Party. To the
knowledge of each Loan Party, there are no facts that furnish any reasonable basis for any Regulatory
Action by that Regulatory Authority.
All products designed, developed, investigated, manufactured, prepared, assembled, packaged,
tested, labeled, distributed, promoted, sold or marketed by or on behalf of any Loan Party that are subject to
the jurisdiction of any Regulatory Authority have been and are being, to the best knowledge of each Loan
Party, designed, developed, investigated, manufactured, prepared, assembled, packaged, tested, labeled,
distributed, promoted, sold and marketed in compliance in all material respects with the Public Health Laws
and, to the best knowledge of each Loan Party, have been (to the extent
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applicable) for the previous six years. All activities conducted by the Loan Parties are conducted in
compliance in all material respects with the Public Health Laws.
No Loan Party is subject to any material obligation arising under a Regulatory Action, and no
such obligation has been threatened. There is no material Regulatory Action or other civil, criminal or
administrative action, suit, demand, claim, complaint, hearing, investigation, demand letter, proceeding or
request for information pending against any Loan Party or an officer, director, or employee of any Loan
Party, and no Loan Party has any material liability (whether actual or contingent) for failure to comply with
any Public Health Laws.
As of the Closing Date, no Loan Party is undergoing any inspection by any Regulatory Authority
related to any activities or products of any Loan Party that are subject to Public Health Laws.
No Loan Party has received any notice or communication from any Regulatory Authority alleging
material noncompliance with any Public Health Law. No product has been seized, withdrawn, recalled,
detained, or subject to a suspension of research, manufacturing, distribution or commercialization activity as
a result of non-compliance with any Public Health Law. No proceedings seeking the withdrawal, recall,
revocation, suspension, import detention, or seizure of any product are pending or threatened against any
Loan Party.
Intellectual Property. A list of all of each Loan Party’s Intellectual Property (limited to clause (a) of the definition
thereof but excluding the right to use any other Person’s Intellectual Property) and all inbound exclusive license
agreements as of the Closing Date is set forth on Schedule 4.29 hereto, which indicates, for each such item of
Property: (a) the name of the Loan Party owning such Intellectual Property or licensing such Intellectual Property,
(b) the Loan Party’s identifier for such property (e.g., name of patent, application serial number, patent number,
license, etc.), (c) whether such Property is Intellectual Property (or application therefor) that is owned by such Loan
Party or is licensed by such Loan Party, (d) the expiration date of such Intellectual Property or license agreement, and
(e) whether such Intellectual Property is material to the condition (financial or otherwise), business or operations of
any Loan Party. In the case of any Intellectual Property described in the foregoing clause (e) that is an in-bound
license agreement, Schedule 4.29 further indicates, for each: (i) the name and address of the licensor, (ii) the name
and date of the agreement pursuant to which such item of Intellectual Property is licensed, (iii) whether or not such
license agreement grants an exclusive license to a Loan Party, (iv) whether there are any purported restrictions in
such license agreement as to the ability of a Loan Party to grant a security interest in, or to Transfer any of its rights
as a licensee under, such license agreement, and (v) whether a default under or termination of such license
agreement could interfere with Agent’s right to sell or assign such license or any other Collateral. Each Loan Party’s
Intellectual Property is valid and enforceable, and each Loan Party owns or has rights to use all Intellectual Property
material to the conduct of its business as now conducted by it or proposed to be conducted by it, without any actual
(or, to its best knowledge, claimed) infringement, upon the rights of third parties. Except as specified on
Schedule 4.29, as of the Closing Date, each Loan Party is the sole owner of its Intellectual Property, and such
Intellectual Property is free and clear of all Liens, except for non-exclusive licenses of Intellectual Property granted by
a Loan Party to third parties in the ordinary course of its business. No Loan Party has entered into any agreement or
financing
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arrangement (other than any Loan Document) prohibiting or otherwise restricting the existence of any Lien upon any
of its Intellectual Property. Upon filing of the Intellectual Property Security Agreements with the United States Patent
and Trademark Office and, the United States Copyright Office, and the Canadian Intellectual Property Office, as
applicable, and the filing of appropriate financing statements, all action necessary or desirable to protect and perfect
Agent’s Lien on each Loan Party’s Intellectual Property shall have been duly taken.
AFFIRMATIVE COVENANTS.
Each of Parent and each Borrower (jointly and severally) covenants and agrees that, until the termination of all of the
Commitments and the payment in full of the Obligations (other than contingent Obligations as to which any claim has been
asserted):
Financial Statements, Reports, Certificates.
1.1.7. Borrowers (a) will deliver to Agent, with copies to each Lender, each of the financial statements,
reports, and other items set forth on Schedule 5.1 to this Agreement no later than the times specified
therein, (b) agree each Loan Party and each of its Subsidiaries will have a fiscal year ending December 31
of each year, (c) agree to maintain a system of accounting that enables Parent and Borrowers to produce
financial statements in accordance with GAAP, and (d) agree that they will, and will cause each other Loan
Party to, (i) keep a reporting system that shows all additions, sales, claims, returns, and allowances with
respect to their and their Subsidiaries’ sales, and (ii) maintain their billing systems and practices
substantially as in effect as of the Closing Date and shall only make material modifications thereto with
notice to Agent.
1.1.8. Borrowers will deliver to Agent on the last day of each fiscal quarter, commencing with the fiscal
quarter ending December 31, 2021 and continuing thereafter, an updated Schedule 4.29 to the Loan
Agreement, including any new Intellectual Property and any new license agreements together with a
description of total revenue attributed to such license agreement in order for Agent to determine the
materiality of such license agreement, and Borrower further agrees to deliver to Agent a duly executed
collateral assignment of any new license agreement, within one hundred and twenty (120) days of such
request by Agent, if Agent determines such license agreement to be material based on the percentage of
total revenue as reasonably determined by Agent and mutually agreed to by Borrower.
Reporting. Borrowers (a) will deliver to Agent (and if so requested by Agent, with copies for each Lender) each of
the reports set forth on Schedule 5.2 to this Agreement at the times specified therein, and (b) agree to use
commercially reasonable efforts in cooperation with Agent to facilitate and implement a system of electronic collateral
reporting in order to provide electronic reporting of each of the items set forth on such Schedule.
Existence. Except as otherwise permitted under Section 6.3 or Section 6.4, Parent and each Borrower will, and will
cause each of their Subsidiaries to, at all times preserve and keep in full force and effect such Person’s valid
existence and good standing in its jurisdiction of organization and, except as could not reasonably be expected to
result in a Material
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Adverse Effect, good standing with respect to all other jurisdictions in which it is qualified to do business and any
rights, franchises, permits, licenses, accreditations, authorizations, or other approvals material to their businesses.
Maintenance of Properties. Parent and each Borrower will, and will cause each of their Subsidiaries to,
maintain and preserve all of its assets that are necessary or useful in the proper conduct of its business in good
working order and condition, ordinary wear, tear, casualty, and condemnation and Permitted Dispositions excepted.
Taxes. Parent and each Borrower will, and will cause each of their Subsidiaries to, pay in full before delinquency or
before the expiration of any extension period all Taxes imposed, levied, or assessed against it, or any of its assets or
in respect of any of its income, businesses, or franchises, other than to the extent that the validity of such Tax is the
subject of a Permitted Protest.
Insurance. Parent and each Borrower will, and will cause each of their Subsidiaries to, at Borrowers’ expense,
maintain insurance respecting each of Parent’s and its Subsidiaries’ assets wherever located, covering liabilities,
losses or damages as are customarily are insured against by other Persons engaged in same or similar businesses
and similarly situated and located. All such policies of insurance shall be with financially sound and reputable
insurance companies and in such amounts as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated and located and, in any event, in amount, adequacy, and scope
reasonably satisfactory to Agent (it being agreed that the amount, adequacy, and scope of the policies of insurance of
Parent and Borrowers in effect as of the Closing Date are acceptable to Agent). All property insurance policies are to
be made payable to Agent for the benefit of Agent and the Lenders, as their interests may appear, in case of loss,
pursuant to a standard lender’s loss payable endorsement with a standard non-contributory “lender” or “secured
party” clause and are to contain such other provisions as Agent may reasonably require to fully protect the Lenders’
interest in the Collateral and to any payments to be made under such policies. All certificates of property and general
liability insurance are to be delivered to Agent, with the lender’s loss payable and additional insured endorsements in
favor of Agent and shall provide for not less than thirty days (ten days in the case of non-payment) prior written notice
to Agent of the exercise of any right of cancellation. If Parent, any Borrower or any of their Subsidiaries fails to
maintain such insurance, Agent may arrange for such insurance, but at Borrowers’ expense and without any
responsibility on Agent’s part for obtaining the insurance, the solvency of the insurance companies, the adequacy of
the coverage, or the collection of claims. Borrowers shall give Agent prompt notice of any loss exceeding $150,000
covered by Parent’s or any Subsidiary’s casualty or business interruption insurance. Upon the occurrence and during
the continuance of an Event of Default, Agent shall have the sole right to file claims under any property and general
liability insurance policies in respect of the Collateral, to receive, receipt and give acquittance for any payments that
may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments,
reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any
claims under any such insurance policies.
Inspection.
Parent and each Borrower will, and will cause each of their Subsidiaries to, permit Agent, any
Lender, and each of their respective duly authorized representatives or agents to
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visit any of its properties and inspect any of its assets or books and records, to examine and make
copies of its books and records, and to discuss its affairs, finances, and accounts with, and to be
advised as to the same by, its officers and employees (provided, that an authorized representative of a
Borrower shall be allowed to be present) at such reasonable times and intervals as Agent or any
Lender, as applicable, may designate and, so long as no Default or Event of Default has occurred and
is continuing, with reasonable prior notice to Borrowers and during regular business hours, at
Borrowers’ expense in accordance with the provisions of the Fee Letter, subject to the limitations set
forth below in Section 5.7(c).
Parent and each Borrower will, and will cause each of their Subsidiaries to, permit Agent and
each of its duly authorized representatives or agents to conduct field examinations, appraisals or
valuations at such reasonable times and intervals as Agent may designate, at Borrowers’ expense in
accordance with the provisions of the Fee Letter, subject to the limitations set forth below in Section
5.7(c).
So long as no Event of Default shall have occurred and be continuing during a calendar year,
Borrowers shall not be obligated to reimburse Agent for (x) more than two (2) field examinations in
such calendar year and (y) one (1) appraisal of the Collateral in such calendar year, in each case,
except for field examinations and appraisals conducted in connection with a proposed Permitted
Acquisition (whether or not consummated).
Compliance with Laws. Each of Parent and each Borrower will, and will cause each of their Subsidiaries to,
comply with all applicable Requirement of Law except where the failure to comply could not reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect or except where being contested in
connection with a Permitted Protest and solely to the extent permitted by the terms and provisions of this Agreement.
Without limiting the generality of the foregoing, each Parent and each Borrower will, and will cause each of their
Subsidiaries to, comply in all material respects with all Public Health Laws and their implementation by any applicable
Governmental Authority and all lawful requests of any Governmental Authority applicable to its products. Each of
Parent and each Borrower will, and will cause each of their Subsidiaries to, continue to operate all facilities, locations,
and processes in compliance in all material respects with all Registrations and Public Health Laws. All products
designed, developed, investigated, manufactured, prepared, assembled, packaged, tested, labeled, distributed,
promoted, sold or marketed by or on behalf of Parent, any Borrower or any of their direct or indirect Subsidiaries that
are subject to the jurisdiction of any Regulatory Authority shall be designed, developed, investigated, manufactured,
prepared, assembled, packaged, tested, labeled, distributed, promoted, sold and marketed in compliance in all
material respects with the Public Health Laws.
Environmental. Each of Parent and each Borrower will, and will cause each of their Subsidiaries to,
Keep any property either owned or operated by Parent and any Borrower or any of their
Subsidiaries free of any Environmental Liens or post bonds or other financial assurances sufficient to
satisfy the obligations or liability evidenced by such Environmental Liens,
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Comply, in all material respects, with Environmental Laws and provide to Agent documentation
of such compliance which Agent reasonably requests,
Promptly notify Agent of any release of which any Borrower has knowledge of a Hazardous
Material in any reportable quantity from or onto property owned or operated by Parent or any
Borrower or any of their Subsidiaries and take any Remedial Actions required to abate said release or
otherwise to come into compliance, in all material respects, with applicable Environmental Law, and
Promptly, but in any event within five (5) Business Days of its receipt thereof, provide Agent
with written notice of any of the following: (i) notice that an Environmental Lien has been filed
against any Property of Parent, any Borrower or any of their Subsidiaries, (ii) commencement of any
Environmental Action or written notice that an Environmental Action will be filed against Parent, any
Borrower or any of their Subsidiaries, and (iii) written notice of a violation, citation, or other
administrative order from a Governmental Authority.
Disclosure Updates. Each of Parent and each Borrower will, promptly and in no event later than five (5)
Business Days after obtaining knowledge thereof, notify Agent if any written information, exhibit, or report furnished to
Agent or the Lenders contained, at the time it was furnished, any untrue statement of a material fact or omitted to
state any material fact necessary to make the statements contained therein not misleading in light of the
circumstances in which made. The foregoing to the contrary notwithstanding, any notification pursuant to the
foregoing provision will not cure or remedy the effect of the prior untrue statement of a material fact or omission of
any material fact nor shall any such notification have the effect of amending or modifying this Agreement or any of the
Schedules hereto.
Formation of Subsidiaries. Each of Parent and each Borrower will, and will cause each of their Subsidiaries to,
at the time that any Loan Party forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary
after the Closing Date, within fifteen days of such event (or such later date as permitted by Agent in its sole
discretion) (a) cause such new Subsidiary (i) if such Subsidiary is a Domestic Subsidiary and Administrative Borrower
requests, subject to the consent of Agent, that such Domestic Subsidiary be joined as a Borrower hereunder, to
provide to Agent a Joinderjoinder to this Agreement, and (ii) to provide to Agent a joinder to the Guaranty and
Security Agreement, (or Canadian Security and Pledge Agreement in the case of a Canadian Loan Party), in each
case, together with such other security agreements (including Intellectual Property Security Agreements and
Mortgages with respect to any Real Property owned in fee of such new Subsidiary), as well as appropriate financing
statements (and with respect to all property subject to a Mortgage, fixture filings), all in form and substance
reasonably satisfactory to Agent (including being sufficient to grant Agent a first priority Lien (subject to Permitted
Liens) in and to the assets of such newly formed or acquired Subsidiary); provided, that the Joinderjoinder to this
Agreement, the joinder to the Guaranty and Security Agreement and such other security agreements shall not be
required to be provided to Agent with respect to any CFC or any foreign Subsidiary of any CFC (other than a
Canadian Loan Party), (b) provide, or cause the applicable Loan Party to provide, to Agent a pledge agreement (or
an addendum to the Guaranty and Security Agreement or Canadian Security and Pledge Agreement, as applicable)
and appropriate certificates and powers or financing statements, pledging all of the direct or beneficial ownership
interest in such new Subsidiary in form and substance reasonably satisfactory to Agent; provided, that the Equity
Interests of any
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CFC (other than a Canadian Loan Party) or any foreign Subsidiary of such CFC shall not be required to be pledged,
and (c) provide to Agent all other documentation, including the Governing Documents of such Subsidiary and one or
more opinions of counsel reasonably satisfactory to Agent, which, in its reasonable opinion, is appropriate with
respect to the execution and delivery of the applicable documentation referred to above (including policies of title
insurance, flood certification documentation or other documentation with respect to all Real Property owned in fee
and subject to a mortgage). Any document, agreement, or instrument executed or issued pursuant to this
Section 5.11 shall constitute a Loan Document.
Further Assurances. Each of Parent and each Borrower will, and will cause each of their Subsidiaries to, at any
time upon the reasonable request of Agent, execute or deliver to Agent any and all financing statements, fixture
filings, security agreements (including Intellectual Property Security Agreement), pledges, assignments, mortgages,
deeds of trust, opinions of counsel, and all other documents (the “Additional Documents”) that Agent may reasonably
request in form and substance reasonably satisfactory to Agent, to create, perfect, and continue perfected or to better
perfect Agent’s Liens in all of the assets of Parent, each Borrower and their Subsidiaries (whether now owned or
hereafter arising or acquired, tangible or intangible, real or personal) (other than any assets expressly excluded from
the Collateral (as defined in the Guaranty and Security Agreement) pursuant to Section 3 of the Guaranty and
Security Agreement), to create and perfect Liens in favor of Agent in any Real Property acquired after the Closing
Date by Parent or any Subsidiary, and in order to fully consummate all of the transactions contemplated hereby and
under the other Loan Documents; provided that the foregoing shall not apply to any CFC, any foreign Subsidiary of
any CFC, and any Subsidiary which would be excluded from the requirements of Section 5.11. To the maximum
extent permitted by applicable law, if Parent or any Borrower or any other Loan Party refuses or fails to execute or
deliver any reasonably requested Additional Documents within a reasonable period of time not to exceed five (5)
Business Days following the request to do so, Parent, each Borrower and each other Loan Party hereby authorizes
Agent to execute any such Additional Documents in the applicable Loan Party’s name and authorizes Agent to file
such executed Additional Documents in any appropriate filing office. In furtherance of, and not in limitation of, the
foregoing, each Loan Party shall take such actions as Agent may reasonably request from time to time to ensure that
the Obligations are guaranteed by the Guarantors and are secured by substantially all of the assets of Parent and its
Subsidiaries, including all of the outstanding capital Equity Interests of Borrowers and their Subsidiaries in each case,
other than with respect to any assets expressly excluded from the Collateral (as defined in the Guaranty and Security
Agreement) pursuant to Section 3 of the Guaranty and Security Agreement).
Lender Meetings. Parent and Borrowers will, within 90 days after the close of each fiscal year of Parent, at the
request of Agent or of the Required Lenders and upon reasonable prior notice, hold a meeting (at a mutually
agreeable location and time or, at the option of Agent, by conference call) with all Lenders who choose to attend such
meeting at which meeting shall be reviewed the financial results of the previous fiscal year and the financial condition
of Parent and its Subsidiaries and the projections presented for the current fiscal year of Parent.
Location of Inventory; Chief Executive Office. Each Borrower will, and will cause each of its Subsidiaries
to, keep (a) their Inventory (other than Inventory on consignment or in transit and Inventory held outside of the United
States) only at the locations identified on Schedule 4.24 to this Agreement (provided that Borrowers may amend
Schedule 4.24 to
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this Agreement so long as such amendment occurs by written notice to Agent not less than ten days prior to the date
on which such Inventory is moved to such new location and so long as Agent has consented to such amendment and
such new location is within the continental United States or within Canada or any province or territory thereof), and
(b) their respective chief executive offices only at the locations identified on Schedule 7 to the Guaranty and Security
Agreement.
Compliance with Health Care Laws.
In addition to complying with Section 5.8, each Borrower and each of its Subsidiaries will
comply in all material respects with all applicable Health Care Laws.
Each Borrower and each of its Subsidiaries shall (i) obtain, maintain and preserve, and cause
each of its Subsidiaries to obtain, maintain and preserve, and take all necessary action to timely
renew, all material Health Care Permits (including, as applicable, Health Care Permits necessary for it
to be eligible to receive payment and compensation from and to participate in any Third Party Payor
Arrangements) which are necessary or useful in the proper conduct of its business; (ii) be and remain
in material compliance with all requirements for participation in, and for licensure required to provide
the goods or services that are reimbursable under, all Third Party Payor Arrangements; and (iii) keep
and maintain all records required to be maintained by any Governmental Authority or otherwise
under any Health Care Law.
Parent and SeaSpine Orthopedics shall cause their respective Subsidiaries to maintain a corporate
and health care regulatory compliance program (“RCP”) which addresses the requirements of Health
Care Laws, including HIPAA and Other Privacy Laws, and includes at least the following
components: (i) standards of conduct and procedures that describe compliance policies regarding
laws with an emphasis on prevention of fraud and abuse; (ii) a specific officer within high-level
personnel identified as having overall responsibility for compliance with such standards and
procedures; (iii) training and education programs which effectively communicate the compliance
standards and procedures to employees and agents, including fraud and abuse laws and illegal billing
practices; (iv) auditing and monitoring systems and reasonable steps for achieving compliance with
such standards and procedures including publicizing a reporting system to allow employees and other
agents to anonymously report criminal or suspect conduct and potential compliance problems;
(v) disciplinary guidelines and consistent enforcement of compliance policies including discipline of
individuals responsible for the failure to detect violations of the RCP; and (vi) mechanisms to
immediately respond to detected violations of the RCP. Each Borrower and each of its Subsidiaries
shall modify such RCPs from time to time, as may be necessary to ensure continuing compliance
with all applicable Health Care Laws. Upon request, the Agent (and/or its consultants) shall be
permitted to review such RCPs.
Borrower shall provide to Agent upon request, an accurate, complete and current list of all Third
Party Payor Arrangements with respect to the business of the Borrowers and their Subsidiaries.
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Protection of Intellectual Property. Each Loan Party shall (a) protect, defend and maintain the validity and
enforceability of any Intellectual Property material to the business of the Loan Parties and (b) not allow any
Intellectual Property material to the Loan Parties’ business to be abandoned, forfeited or dedicated to the public
without Agent’s prior written consent. Each Loan Party shall at all times use commercially reasonable efforts to
conduct its business without, in any material respect, infringing, misappropriating, diluting, violating, or otherwise
impairing the Intellectual Property of any other Person. Each Loan Party shall remain liable under each of its
Intellectual Property licenses pursuant to which it is a licensee that are material to such Loan Party’s business, and
shall observe and perform, in all material respects, all of the conditions and obligations to be observed and performed
by it thereunder. None of Agent or any Lender shall have any obligation or liability under any such license by reason
of or arising out of any Loan Document, the granting of a Lien, if any, in such license or the receipt by Agent (on
behalf of itself and Lenders) of any payment relating to any such license. If after the Closing Date any Loan Party
(i) obtains any patent, registered trademark or servicemark, 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, servicemark, copyright or mask work, in each case that is material to any such
Loan Party, then such Loan Party shall concurrently with the delivery of the next Compliance Certificate in
accordance with this Agreement provide written notice thereof to Agent and shall promptly execute an Intellectual
Property Security Agreement (or updates to the Exhibits to the Intellectual Property Security Agreement previously
delivered if not filed at such time by Agent) and other documents and take such other actions as Agent shall request
to protect or perfect and maintain a first priority perfected security interest (which will be effective as provided herein)
in favor of Agent, for the benefit of Lenders, in such Property. If requested by Agent, each Loan Party shall promptly
provide to Agent copies of all applications that it files for patents or for the registration of trademarks, servicemarks,
copyrights or mask works.
Collateral Access Agreements. Unless otherwise agreed to by Agent in writing, each Loan Party shall obtain
and maintain a Collateral Access Agreement with respect to any real property (other than real property owned by
such Loan Party) (a) that is such Loan Party’s principal place of business, (b) where such Loan Party’s books or
records are maintained and (c) where any Collateral (other than Inventory on consignment) is stored or maintained.
N.L.T. Spine Eligibility. Notwithstanding anything to the contrary contained herein, all Accounts and Inventory of
Borrower relating directly or indirectly to the Medical Device Business (defined in the N.L.T. Spine Acquisition Agreement)
acquired by Parent pursuant to and in accordance with the N.L.T. Spine Acquisition Agreement shall be considered ineligible for
purposes of calculation of, and inclusion in, the Borrowing Base hereunder until such time as Agent has received from Borrower,
in form and substance reasonably acceptable to Agent, not less than five (5) Business Days prior to the date of any proposed
borrowing, a certificate signed on behalf of Borrower by an Authorized Person certifying (i) that the OCS Transfer Amount has
been received in full by the OCS to the extent not otherwise waived in writing by the OCS (each as defined in the N.L.T. Spine
Acquisition Agreement), (ii) that the Subsequent Closing (as defined in the N.L.T. Spine Acquisition Agreement) has closed and
each of the conditions precedent set forth in the N.L.T. Spine Acquisition Agreement relating to the Subsequent Closing have
been satisfied or waived and (iii) that such Accounts and/or Inventory otherwise
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satisfy all of the eligibility criteria of an “Eligible Account”, “Eligible Inventory” or “Eligible Inventory”, as the case may be.
OFAC; Sanctions; Anti-Corruption Laws; Anti-Money Laundering Laws. Each Loan Party will, and will
cause each of its Subsidiaries to comply with all applicable Sanctions, Anti-Corruption Laws and Anti-Money Laundering Laws.
Each of the Loan Parties and its Subsidiaries shall implement and maintain in effect policies and procedures designed to ensure
compliance by the Loan Parties and their Subsidiaries and their respective directors, officers, employees, agents and Affiliates
with all Sanctions, Anti-Corruption Laws and Anti-Money Laundering Laws. Each of the Loan Parties shall and shall cause their
respective Subsidiaries to comply with all Sanctions, Anti-Corruption Laws and Anti-Money Laundering Laws.
4.
CARES Act.
1.1.1.
The Loan Parties shall provide to Agent (i) a copy of the Loan Parties’ application
for PPP Debt promptly (and in any event within three (3) Business Days) upon submission thereof,
and (ii) copies of the PPP Debt Documents promptly (and in any event within three (3) Business
Days) upon execution and delivery thereof by the parties, together with a reasonably detailed written
estimate of the amount of PPP Debt that the Loan Parties reasonably anticipate will be subject to
forgiveness pursuant to the provisions of the Paycheck Protection Program.
1.1.2.
The Loan Parties shall timely (and, in any event, not later than thirty (30) days (or
such longer period as may be agreed by Agent or as required by the lender of the PPP Debt) after the
seven-week anniversary of the initial incurrence thereof) submit all applications and required
documentation necessary or desirable for the lender of the PPP Debt and/or the Small Business
Administration to make a determination regarding the amount of the PPP Debt that is eligible to be
forgiven.
1.1.3.
The Loan Parties shall provide to Agent copies of any amendments, modifications,
waivers, supplements or consents executed and delivered by any Loan Party with respect to PPP Debt
promptly (and in any event within three (3) Business Days) upon execution and delivery thereof, and
copies of any notices of default received by any Loan Party with respect to the PPP Debt, promptly
(and in any event within three (3) Business Days) upon receipt thereof.
1.1.4.
The Loan Parties shall, to the extent not included in the foregoing clauses (b) or (c),
promptly (and in any event within three (3) Business Days) upon receipt or filing thereof, as
applicable, provide to Agent copies of all material documents and applications with the applicable
lender or any Governmental Authority relating to PPP Debt, including with respect to forgiveness of
such PPP Debt.
1.1.5.
The Loan Parties shall, to the extent not included in the foregoing clauses (a), (b),
(c) or (d), provide to Agent (1) copies of any applications and material documents (including any
amendments, modifications, waivers, supplements or consents executed and delivered by any Loan
Party in connection therewith), in each case, with respect to any loans or funds received under the
CARES Act, promptly (and in any event within three (3) Business Days) upon receipt or execution
thereof, and (2) copies of any notices of default received by any Loan Party with respect to any loans
or funds received under CARES Act, promptly (and in any event within three (3) Business Days)
upon receipt thereof.
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1.1.6.
The Loan Parties shall use the proceeds of the PPP Debt solely for PPP Permitted
Purposes. Without limiting anything in the foregoing, the Loan Parties shall ensure that the proceeds
of the PPP Debt are not used to repay other Indebtedness.
1.1.7.
On the PPP Forgiveness Date, the Loan Parties shall deliver to Agent a certificate
of an Authorized Person of the Loan Parties certifying as to the amount of the PPP Debt that will be
forgiven pursuant to the provisions of the Paycheck Protection Program, together with reasonably
detailed description thereof, all in form reasonably satisfactory to Agent.
1.1.8.
Each Loan Party agrees that it will not make any claim that Agent, any Lender or
any of their respective Affiliates have rendered advisory services of any nature or respect in
connection with any programs, funds or loans administered under the CARES Act, including the
AAPP, PPP Debt, the Paycheck Protection Program or the process leading thereto.
5.
Canadian Pension Plans. Except when the failure to do so could not reasonably be expected to
have a Material Adverse Effect, each Loan Party shall perform in all material respects all obligations
required to be performed by such Borrower in connection with each applicable Canadian Pension Plan
and remit all contributions under each applicable Canadian Pension Plan and required to be made or
paid by it in accordance with Requirements of Law and withhold by way of authorized payroll
deductions, or otherwise collect and pay into the applicable Canadian Pension Plan, all employee
contributions required to be withheld or collected by it in accordance with the terms of each applicable
Canadian Employee Plan and Requirements of Law. Each Loan Party shall, upon request by Agent,
provide to Agent (i) a copy of each Canadian Pension Plan, (ii) copies of each annual information
return, where applicable, actuarial report (including applicable schedules), and any application for
regulatory approval of asset withdrawals other than benefit or individual member account transfers with
respect to each Canadian Pension Plan or any fund maintained in respect thereof, and (iii) copies of
any material notifications or remittances or similar documents prepared and delivered to the trustee or
custodian of any Canadian Pension Plan pursuant to section 56.1 of the Pension Benefits Act (Ontario)
or similar Requirements of Law in another jurisdiction.
NEGATIVE COVENANTS.
Each of Parent and each Borrower (jointly and severally) covenants and agrees that, until the termination of all of the
Commitments and the payment in full of the Obligations (other than contingent Obligations as to which any claim has been
asserted):
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Indebtedness. Neither Parent nor any Borrower shall permit any of its Subsidiaries to create, incur, assume, suffer
to exist, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness,
except for Permitted Indebtedness.
Liens. Neither Parent nor any Borrower shall, nor shall they permit their respective Subsidiaries to, create, incur,
assume, or suffer to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether
now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens.
Restrictions on Fundamental Changes. Neither Parent, any Borrower nor any of their respective
Subsidiaries will,
Other than in order to consummate a Permitted Acquisition or an IsoTis Acquisition, enter into
any merger, consolidation, reorganization, or recapitalization, or reclassify its Equity Interests, except
for any (i) merger or such other transaction between Borrowers, provided, that no merger may occur
between Parent and any Borrower and (ii) merger or such other transaction between a Borrower and a
Subsidiary of such Borrower that is not a Loan Party so long as such Borrower is the surviving entity
of any such merger and (iii) merger or such other transaction between Subsidiaries which are not
Borrowers or Guarantors,
liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution), except for (i) the
liquidation or dissolution of non-operating Subsidiaries with nominal assets and nominal liabilities,
(ii) the liquidation or dissolution of a Loan Party (other than Parent or any Borrower) or any of its
wholly-owned Subsidiaries so long as all of the assets (including any interest in any Equity Interests)
of such liquidating or dissolving Loan Party or Subsidiary are transferred to a Loan Party that is not
liquidating or dissolving, or (iii) the liquidation or dissolution of a Subsidiary that is not a Loan Party
so long as all of the assets of such liquidating or dissolving Subsidiary are transferred to a Subsidiary
that is not liquidating or dissolving or to a Subsidiary which would not be required to be a Loan Party
pursuant to Section 5.11, or
suspend or cease operating a substantial portion of its or their business, except as permitted
pursuant to clauses (a) or (b) above or in connection with a transaction permitted under Section 6.4,
or
change its classification/status for U.S. federal income tax purposes.
Disposal of Assets. Other than Permitted Dispositions or transactions expressly permitted by Sections 6.3 or 6.9,
neither Parent nor any Borrower shall, nor shall they permit their respective Subsidiaries to Transfer or otherwise
dispose of (or enter into an agreement to Transfer or otherwise dispose of) any of its or their assets.
Nature of Business. Neither Parent nor any Borrower shall, nor shall they permit their respective Subsidiaries to,
make any change in the nature of its or their business as described in Schedule 6.5 to this Agreement or acquire any
properties or assets that are not reasonably related to the conduct of such business activities; provided, that the
foregoing
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shall not prevent Parent, any Borrower or any of their respective Subsidiaries from engaging in any business that is
reasonably related or ancillary to its or their business.
Prepayments and Amendments. Neither Parent, Maple Leaf nor any Borrower shall, nor shall they permit
their respective Subsidiaries to,
Except in connection with Refinancing Indebtedness permitted by Section 6.1,
optionally prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of Parent, any Borrower or any of their
Subsidiaries, other than (A) the Obligations in accordance with this Agreement, (B) Hedge Obligations or (C) Permitted
Intercompany Advances, or
make any payment on account of Indebtedness that has been contractually subordinated in right of payment to the Obligations if
such payment is not permitted at such time under the subordination terms and conditions, or
make any payment on account of N.L.T. Spine Indebtedness other than Permitted N.L.T. Spine Indebtedness Payments, or
(1)
notwithstanding anything to the contrary contained in this Agreement, make any prepayment on account of any portion of
the PPP Debt without the prior written consent of Agent; provided, however, a Loan Party may prepay any portion of the PPP
Debt so long as (i) both before and after giving effect to such prepayment the Total Liquidity of Parent, Borrower and their
Subsidiaries is not less than $25,000,000, and (ii) no Default or Event of Default has occurred or is continuing or would result
from such prepayment, or
Directly or indirectly, amend, modify, or change any of the terms or provisions of
any agreement, instrument, document, indenture, or other writing evidencing or concerning Permitted Indebtedness other than
(A) the Obligations in accordance with this Agreement, (B) Hedge Obligations, (C) Permitted Intercompany Advances,
(D) Indebtedness permitted under clauses (c), (h), (j) and (k) of the definition of Permitted Indebtedness and (E) any other
amendments, modifications or changes so long as after giving effect thereto the applicable agreement, instrument, document,
indenture or other writing constitutes Permitted Indebtedness,
the Governing Documents of any Loan Party or any of its Subsidiaries if the effect thereof, either individually or in the aggregate,
could reasonably be expected to be materially adverse to the interests of the Lenders,
any Lease if the effect thereof, either individually or in the aggregate, could reasonably be expected to be materially adverse to
the interests of the Lenders,
the Patent Licenses with respect to any Eligible Inventory, except to the extent that such amendment, modification, or change
could not, individually or in the aggregate, reasonably be expected to be materially adverse to the interests of Agent or any
Lender (it being understood that any amendment or modification that restricts the ability of the Parent or any of its Subsidiaries to
sublicense or assign any Intellectual Property in respect of any such Patent License to Agent shall be deemed to be materially
adverse to the interests of Agent and the Lenders), or
any other Material Contract, except to the extent that such amendment, modification, or change could not, individually or in the
aggregate, reasonably be expected to be materially adverse to the interests of Agent or any Lender.
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Restricted Payments. Neither Parent nor any Borrower shall, nor shall they permit their respective Subsidiaries
to, make any Restricted Payment, except as permitted under Section 2.15(i).
Accounting Methods. Neither Parent nor any Borrower shall, nor shall they permit their respective Subsidiaries
to, modify or change its fiscal year or its method of accounting (other than as may be required to conform to or is
permitted by GAAP).
Investments. Neither Parent nor any Borrower shall, nor shall they permit their respective Subsidiaries to, directly
or indirectly, make or acquire any Investment or incur any liabilities (including contingent obligations) for or in
connection with any Investment except for Permitted Investments.
Transactions with Affiliates. Neither Parent nor any Borrower shall, nor shall they permit their respective
Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction with any Affiliate of any Loan Party
except for:
transactions (other than the payment of management, consulting, monitoring, or advisory fees)
between Parent or any Borrower or any of their Subsidiaries, on the one hand, and any Affiliate of
Parent or any Borrower or any of their Subsidiaries, on the other hand, so long as such transactions
(i) are fully disclosed to Agent prior to the consummation thereof, if they involve one or more
payments by Parent, such Borrower or such Subsidiary in excess of $100,000 for any single
transaction or series of related transactions and (ii) are no less favorable, taken as a whole, to Parent,
such Borrower or such Subsidiary, as applicable, than would be obtained in an arm’s length
transaction with a non-Affiliate,
any indemnity provided for the benefit of directors (or comparable managers) of Parent, a
Borrower or a Subsidiary so long as it has been approved by Parent’s, such Borrower’s or such
Subsidiary’s board of directors (or comparable governing body) if required by applicable law,
the payment of reasonable compensation (including equity awards and related documentation),
severance, or employee benefit arrangements to employees, officers, and outside directors of Parent,
a Borrower and a Subsidiary in the ordinary course of business and consistent with industry practice
so long as it has been approved by Parent’s, such Borrower’s or such Subsidiary’s board of directors
(or comparable governing body) if required in accordance with applicable law,
transactions solely (a) made by a Borrower to another Borrower or to any direct or indirect
Subsidiary of any Borrower that is a Loan Party, (b) made by any CFC to a Borrower, any direct or
indirect Subsidiary of any Borrower, or to any Subsidiary of any CFC and (c) made by a Borrower to
IsoTis International (or another CFC) consisting solely of clearly identifiable proceeds received from
an issuance of Equity Interests by such Borrower and exclusively used by IsoTis (or such CFC) for
purposes of consummating IsoTis Acquisitions,
transactions permitted by Section 6.3, Section 6.7 or Section 6.9, and
agreements for the non-exclusive licensing of intellectual property, or distribution of products, in
each case, among the Loan Parties and their Subsidiaries for the purpose of the
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counterparty thereof operating its business, and agreements for the assignment of intellectual property
from any Loan Party or any of its Subsidiaries to any Loan Party.
Use of Proceeds. Neither Parent nor any Borrower shall, nor shall they permit their respective Subsidiaries to,
use the proceeds of the Loans for any purpose other than (a) on the Closing Date, to pay the fees, costs, and
expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated
hereby and thereby, in each case, as set forth in the Funds Flow Agreement, and (b) thereafter, consistent with the
terms and conditions hereof, for their lawful and permitted purposes; provided, that (x) no part of the proceeds of the
Loans made to Borrowers will be used to purchase or carry any such Margin Stock or to extend credit to others for
the purpose of purchasing or carrying any such Margin Stock or for any purpose that violates the provisions of
Regulation T, U or X of the Board of Governors, (y) no part of the proceeds of any Loan or Letter of Credit will be
used, directly or indirectly, to make any payments to a Sanctioned Entity or a Sanctioned Person, to fund any
investments, loans or contributions in, or otherwise make such proceeds available to, a Sanctioned Entity or a
Sanctioned Person, to fund any operations, activities or business of a Sanctioned Entity or a Sanctioned Person, or in
any other manner that would result in a violation of Sanctions by any Person, and (z) that no part of the proceeds of
any Loan or Letter of Credit will be used, directly or indirectly, in furtherance of an offer, payment, promise to pay, or
authorization of the payment or giving of money, or anything else of value, to any Person in violation of any
Sanctions, Anti-Corruption Laws or Anti-Money Laundering Laws.
Limitation on Issuance of Equity Interests. Other than in connection with a Permitted Disposition or a
Permitted Acquisition, neither Parent nor any Borrower shall, nor shall they permit their respective Subsidiaries to,
issue or sell or enter into any agreement or arrangement for the issuance or sale of any of its Equity Interests.
Inventory with Bailees. Neither Parent nor any Borrower shall, nor shall they permit their respective Subsidiaries
to, other than as set forth on Schedule 4.24, other than as permitted under Section 5.14 and other than consigned
Inventory, store Inventory at any time with a bailee, warehouseman, or similar party, or Transfer any Collateral to any
such location without Agent’s prior written consent except as set forth on Schedule 4.24 (as such Schedule may be
amended in accordance with Section 5.14).
Parent as Holding Company. Parent shall not incur any liabilities (other than liabilities arising under the Loan
Documents), own or acquire any assets (other than the Equity Interests of Borrowers and its other Subsidiaries) or
engage itself in any operations or business, except in connection with its ownership of Borrowers and Parent’s other
Subsidiaries and Parent’s rights and obligations under the Loan Documents.
Modifications to Material Contracts. Neither Parent nor any Borrower shall, nor shall they permit their
respective Subsidiaries to, amend, modify or waive any provision of (a) any Material Contract, unless the net effect of
such amendment, modification or waiver is not adverse to any Loan Party, Agent or Lenders, (b) any document
relating to any Subordinated Indebtedness or (c) any N.L.T. Spine Acquisition Document; provided, however, Parent
and/or any Borrower may amend, modify or waive any provision of any N.LT. Spine Acquisition Documents to the
extent such amendment, modification or waiver
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does not amend, modify or waive any provision relating to the N.L.T. Spine Indebtedness in a manner adverse to any
Loan Party, Agent or Lenders.
Antilayering. Borrowers shall not incur or suffer to exist Indebtedness that is senior in right of payment to the
Loans or any of the other Obligations under the Loan Documents, as the case may be, and expressly subordinate in
right of payment to any other Indebtedness of such Person.
Deposit Accounts. The Loan Parties shall not fail to comply with any of the provisions set forth in Section 7(k) of the
Guaranty and Security Agreement or in the case of the Canadian Loan Parties, Section 6(i) of the Canadian Security and Pledge
Agreement.
6.
Canada Pension Plan. No Loan Party shall (i) except as required by Requirements of Law or
except as could not reasonably result in a Material Adverse Effect, commence to participate in,
maintain, contribute or assume an obligation to contribute to any single or multi-employer pension plan
that contains a defined benefit provision, as such term is defined in subsection 147.1(1) of the Income
Tax Act (Canada) for employees or former employees of a Borrower, arising from employment in
Canada, (ii) without the prior consent of Agent (which consent shall not be unreasonably withheld,
conditioned or delayed) acquire an interest in any Person if such Person sponsors, administers,
maintains or contributes to, or has any liability in respect of, the defined benefit provision, as such term
is defined in subsection 147.1(1) of the Income Tax Act (Canada), of any pension plan which would
constitute a Canadian Pension Plan if contributed to by a Borrower, (iii) except as could not reasonably
result in a Material Adverse Effect, take any action to cause the wind-up, in whole or in part, of any
Canadian Pension Plan or which would cause circumstances to exist that would reasonably be
expected to provide any basis for a Governmental Authority under applicable law to take steps to cause
the wind-up, in whole or in part, of any Canadian Pension Plan, (iv) except when the failure to do so
could not reasonably be expected to have a Material Adverse Effect, fail to meet all required minimum
funding requirements under Requirements of Law with respect to any Canadian Pension Plan, (v) fail
promptly to notify Agent of the occurrence of any Canadian Pension Event, (vi) except when the failure
to do so could not reasonably be expected to have a Material Adverse Effect, fail to comply with the
requirements of Requirements of Law in respect of any Canadian Pension Plan, or (vii) cause a
representation or warranty in Section 4.10(b) to cease to be true and correct.
FINANCIAL COVENANT.
Each of Parent and each Borrower covenants and agrees that, until the termination of all of the Commitments and the
payment in full of the Obligations (other than contingent Obligations as to which any claim has been asserted), during any
Covenant Testing Period, Borrowers will maintain a Fixed Charge Coverage Ratio of at least 1.10 to 1.00 measured as of the last
day of the prior fiscal month for the applicable Measurement Period. At all times when
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no Covenant Testing Period exists, Parent and Borrowers shall have no obligations under this Section 7.
EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of default (each, an “Event of Default”) under this
Agreement:
Payments. If any Loan Party fail to pay when due and payable, or when declared due and payable, (a) all or any
portion of the Obligations consisting of interest, fees, or charges due the Lender Group, reimbursement of Lender
Group Expenses, or other amounts (other than any portion thereof constituting principal) constituting Obligations
(including any portion thereof that accrues after the commencement of an Insolvency Proceeding, regardless of
whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), and such failure
continues for a period of five (5) Business Days, (b) all or any portion of the principal of the Loans, or (c) any amount
payable to Issuing Bank in reimbursement of any drawing under a Letter of Credit;
Covenants. If any Loan Party or any of its Subsidiaries:
fails to perform or observe any covenant or other agreement contained in any of (i) Sections 3.6,
5.1, 5.2, 5.3 (solely if any Borrower is not in good standing in its jurisdiction of organization), 5.6,
5.7 (solely if any Borrower refuses to allow Agent or its representatives or agents to visit any
Borrower’s properties, inspect its assets or books or records, examine and make copies of its books
and records, or discuss Borrowers’ affairs, finances, and accounts with officers and employees of any
Borrower), 5.10, 5.11, 5.13, or 5.14, 5.15, 5.16 or 5.17 of this Agreement, (ii) Section 6 of this
Agreement, (iii) Section 7 of this Agreement, or (iv) Section 7 of the Guaranty and Security
Agreement;
fails to perform or observe any covenant or other agreement contained in any of Sections 5.3
(other than if any Borrower is not in good standing in its jurisdiction of organization), 5.4, 5.5, 5.8,
5.9 and 5.12 of this Agreement and such failure continues for a period of ten days after the earlier of
(i) the date on which such failure shall first become known to any officer of any Borrower or (ii) the
date on which written notice thereof is given to Borrowers by Agent; or
fails to perform or observe any covenant or other agreement contained in this Agreement, or in
any of the other Loan Documents, in each case, other than any such covenant or agreement that is the
subject of another provision of this Section 8 (in which event such other provision of this Section 8
shall govern), and such failure continues for a period of thirty days after the earlier of (i) the date on
which such failure shall first become known to any officer of any Borrower, or (ii) the date on which
written notice thereof is given to Borrowers by Agent;
Judgments. If one or more judgments, orders, or awards for the payment of cash involving an aggregate amount
of $250,000, or more (except to the extent fully covered (other than to the extent of customary deductibles) by
insurance pursuant to which the insurer has not denied coverage) is entered or filed against a Loan Party or any of its
Subsidiaries, or with
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respect to any of their respective assets, and either (a) there is a period of forty-five consecutive days at any time
after the entry of any such judgment, order, or award during which (1) the same is not discharged, satisfied, vacated,
or bonded pending appeal, or (2) a stay of enforcement thereof is not in effect, or (b) enforcement proceedings are
commenced upon such judgment, order, or award;
Voluntary Bankruptcy, etc. If an Insolvency Proceeding is commenced by a Loan Party or any of its
Subsidiaries;
Involuntary Bankruptcy, etc. If an Insolvency Proceeding is commenced against a Loan Party or any of its
Subsidiaries and any of the following events occur: (a) such Loan Party or such Subsidiary consents to the institution
of such Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely
controverted, (c) the petition commencing the Insolvency Proceeding is not dismissed within sixty calendar days of
the date of the filing thereof, (d) an interim trustee is appointed to take possession of all or any substantial portion of
the properties or assets of, or to operate all or any substantial portion of the business of, such Loan Party or its
Subsidiary, or (e) an order for relief shall have been issued or entered therein;
Default Under Other Agreements. If there is (a) a default in one or more agreements to which a Loan Party or
any of its Subsidiaries is a party with one or more third Persons relative to a Loan Party’s or any of its Subsidiaries’
Indebtedness involving an aggregate amount of $250,000 or more, and such default (i) occurs at the final maturity of
the obligations thereunder, or (ii) results in a right by such third Person, irrespective of whether exercised, to
accelerate the maturity of such Loan Party’s or its Subsidiary’s obligations thereunder, or (b) a default in or an
involuntary early termination of one or more Hedge Agreements to which a Loan Party or any of its Subsidiaries is a
party with a value in excess of $250,000, or (c) the occurrence of any event that terminates, or permits any
counterparty to terminate, any Patent License or any consent to a sublicense of such Patent License to Agent, in
each case applicable to any Eligible Inventory with a value in excess of $100,000;
Representations, etc. If any warranty, representation, certificate, statement, or Record made herein or in any
other Loan Document or delivered in writing to Agent or any Lender in connection with this Agreement or any other
Loan Document proves to be untrue in any material respect (except 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) as of the date of issuance or making or deemed making thereof;
Guaranty. If the obligation of any Guarantor under the guaranty contained in the Guaranty and Security Agreement
is limited or terminated by operation of law or by such Guarantor (other than in accordance with the terms of this
Agreement) or if any Guarantor repudiates or revokes or purports to repudiate or revoke any such guaranty;
Security Documents. If the Guaranty and Security Agreement, any Intellectual Property Security Agreement or
any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and
perfected and, (except to the extent of Permitted Liens which are non-consensual Permitted Liens, permitted
purchase money Liens or the interests of lessors under Capital Leases) first priority Lien on the Collateral covered
thereby, except (a) as a result of a disposition of the applicable Collateral in a
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transaction permitted under this Agreement, or (b) as the result of an action or failure to act on the part of Agent;
Loan Documents. The validity or enforceability of any Loan Document shall at any time for any reason (other
than solely as the result of an action or failure to act on the part of Agent) be declared to be null and void, or a
proceeding shall be commenced by a Loan Party or its Subsidiaries, or by any Governmental Authority having
jurisdiction over a Loan Party or its Subsidiaries, seeking to establish the invalidity or unenforceability thereof, or a
Loan Party or its Subsidiaries shall deny that such Loan Party or its Subsidiaries has any liability or obligation
purported to be created under any Loan Document;
Change of Control. A Change of Control shall occur, whether directly or indirectly.
Lockbox Instructions. If (a) any instruction or agreement regarding any Non-Government Receivables Lockbox
Account is amended or terminated without the written consent of Agent, (b) any Borrower fails to forward any
Collections on Accounts to the applicable Non-Government Receivables Lockbox Account as required pursuant to
Section 7(k) of the Guaranty and Security Agreement or (c) any Loan Party directs any Account Debtor to make a
payment in respect of any Account to any place, lockbox or Deposit Account other than a Non-Government
Receivables Lockbox Account.
Health Care Laws. If any of the following shall occur:
any Health Care Permit of a Borrower shall be revoked, fail to be renewed, suspended or
otherwise terminated, if the result thereof is reasonably expected to have, alone or in the aggregate, a
Material Adverse Effect,
any Borrower shall lose eligibility for any reason to participate in any Government
Reimbursement Program or to accept assignments or rights to reimbursement thereunder, if the result
thereof is reasonably expected to have, alone or in the aggregate, a Material Adverse Effect,
any Account Debtor shall terminate, revoke or fail to renew one or more Borrower’s right to
participate in any Third Party Payor Arrangement, if the result thereof is reasonably expected to have,
alone or in the aggregate, a Material Adverse Effect,
any Borrower shall fail to pay when due any amounts owing by such Borrower under any
extended repayment agreement, or such Borrower shall fail to perform in a timely manner any of its
other obligations under such extended repayment agreement, or any event shall occur that shall
permit CMS to accelerate the aggregate amounts payable under such extended repayment agreement,
if the result thereof is reasonably expected to have, alone or in the aggregate, a Material Adverse
Effect, or
any Borrower, officer, managing employee, shareholder or director of any Borrower (i) shall
have been found guilty of an act of fraud or (ii) shall have been indicted for or convicted of a felony
crime that relates to any Third Party Payor Arrangement.
Regulatory Authority. (i) a Regulatory Authority initiates a Regulatory Action or any other enforcement action
against any Loan Party or any supplier of a Loan Party that causes any Loan Party to recall, withdraw, remove or
discontinue marketing or conducting clinical research on any of its products which could reasonably be expected to
have a
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Material Adverse Effect; (ii) a Regulatory Authority issues or undertakes a Regulatory Action with respect to any Loan
Party or any of its activities or products which could reasonably be expected to have a Material Adverse Effect;
(iii) any Loan Party conducts a mandatory or voluntary recall which could reasonably be expected to result in liability
and expense to the Loan Parties of $500,000 or more; (iv) any Loan Party enters into a settlement agreement with
CMS or any Regulatory Authority that results in aggregate liability as to any single or related series of transactions,
incidents or conditions of $500,000 or more or that could reasonably be expected to have a Material Adverse Effect;
or (v) a Regulatory Authority revokes any authorization or permission granted under any Registration, or any Loan
Party withdraws any Registration, that could reasonably be expected to have a Material Adverse Effect.
Lease Agreements. The occurrence of an event of default (after giving effect to any cure periods) under any lease
agreement covering the leased premises at (i) 5770 Armada Drive, Carlsbad, California or, (ii) 2 Goodyear, Irvine, California, or
(iii) 60 Scarsdale Road, Unit 118, Toronto, ON, M3B 2R7, Canada, and as a result thereof, the landlord thereunder terminates
such lease agreement or sends a written notice of default or intent to terminate such lease agreement or pursue any other remedies
under such lease agreement against one or more of the Borrowers.
Integra Supply Agreements. The occurrence of a default by a Borrower under any of the Integra Supply
Agreements which continues uncured beyond any applicable notice and grace period provided thereunder and the
effect of which could reasonably be expected to result in a Material Adverse Effect.
7.
CARES Act. The occurrence of an event of default with respect to any programs, funds or loans under the
CARES Act (including the AAPP, the Paycheck Protection Program, the PPP Debt and any PPP Debt Document,
to the extent applicable), and with respect to the PPP Debt, or the occurrence of any event or condition that results
in the PPP Debt becoming due prior to its scheduled maturity or that enables or permits the holder or holders
thereof to declare the PPP Debt to be due, or to require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity.
RIGHTS AND REMEDIES.
Rights and Remedies. Upon the occurrence and during the continuation of an Event of Default, Agent may, and,
at the instruction of the Required Lenders, shall, in addition to any other rights or remedies provided for hereunder or
under any other Loan Document or by applicable law, do any one or more of the following:
by written notice to Borrowers, (i) declare the principal of, and any and all accrued and unpaid
interest and fees in respect of, the Loans and all other Obligations (other than the Bank Product
Obligations), whether evidenced by this Agreement or by any of the other Loan Documents to be
immediately due and payable, whereupon the same shall become and be immediately due and
payable and Borrowers shall be obligated to repay all of such Obligations in full, without
presentment, demand, protest, or further notice or other requirements of any kind, all of which are
hereby expressly waived by each Borrower, and (ii) direct Borrowers
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to provide (and Borrowers agree that upon receipt of such notice Borrowers will provide) Letter of
Credit Collateralization to Agent to be held as security for Borrowers’ reimbursement obligations for
drawings that may subsequently occur under issued and outstanding Letters of Credit;
by written notice to Borrowers, declare the Commitments terminated, whereupon the
Commitments shall immediately be terminated together with (i) any obligation of any Revolving
Lender to make Revolving Loans, (ii) the obligation of the Swing Lender to make Swing Loans, and
(iii) the obligation of Issuing Bank to issue Letters of Credit; and
exercise all other rights and remedies available to Agent or the Lenders under the Loan
Documents, under applicable law, or in equity.
The foregoing to the contrary notwithstanding, upon the occurrence of any Event of Default described in Section 8.4 or
Section 8.5, in addition to the remedies set forth above, without any notice to Borrowers or any other Person or any act by the
Lender Group, the Commitments shall automatically terminate and the Obligations (other than the Bank Product Obligations),
inclusive of the principal of, and any and all accrued and unpaid interest and fees in respect of, the Loans and all other
Obligations (other than the Bank Product Obligations), whether evidenced by this Agreement or by any of the other Loan
Documents, shall automatically become and be immediately due and payable and Borrowers shall automatically be obligated to
repay all of such Obligations in full (including Borrowers being obligated to provide (and Borrowers agree that they will provide)
(1) Letter of Credit Collateralization to Agent to be held as security for Borrowers’ reimbursement obligations in respect of
drawings that may subsequently occur under issued and outstanding Letters of Credit and (2) Bank Product Collateralization to
be held as security for Borrowers’ or their Subsidiaries’ obligations in respect of outstanding Bank Products), without
presentment, demand, protest, or notice or other requirements of any kind, all of which are expressly waived by Parent,
Borrowers and their Subsidiaries. The Agent waives any right of offset it may have against any Government Receivables
Lockbox Account maintained by any Borrower with Agent for the repayment of any Obligations (other than Bank Product
Obligations); provided, however, that the Agent shall at all times have (and does not waive) a perfected security interest in each
such Government Receivables Lockbox Account and any proceeds of Collateral deposited into each such Government
Receivables Lockbox Account to secure the repayment of all Obligations.
Remedies Cumulative. The rights and remedies of the Lender Group under this Agreement, the other Loan
Documents, and all other agreements shall be cumulative. The Lender Group shall have all other rights and remedies
not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by the Lender Group of one
right or remedy shall be deemed an election, and no waiver by the Lender Group of any Default or Event of Default
shall be deemed a continuing waiver. No delay by the Lender Group shall constitute a waiver, election, or
acquiescence by it.
WAIVERS; INDEMNIFICATION.
Demand; Protest; etc. Each of Parent and each Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of documents,
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instruments, chattel paper, and guarantees at any time held by the Lender Group on which Parent or any Borrower
may in any way be liable.
The Lender Group’s Liability for Collateral. Each of Parent and each Borrower hereby agrees that: (a) so
long as Agent complies with its obligations, if any, under the Code, the Lender Group shall not in any way or manner
be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in
any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the
Collateral shall be borne by Parent and Borrowers.
Indemnification. Parent and each Borrower shall pay, indemnify, defend, and hold the Agent-Related Persons, the
Lender-Related Persons, Issuing Bank, and each Participant (each, an “Indemnified Person”) harmless (to the fullest
extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings,
liabilities, fines, costs, penalties, and damages, and all reasonable fees and disbursements of attorneys, experts, or
consultants and all other costs and expenses actually incurred in connection therewith or in connection with the
enforcement of this indemnification (as and when they are incurred and irrespective of whether suit is brought), at any
time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to
the execution and delivery, enforcement, performance, or administration (including any restructuring or workout with
respect hereto) of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or
thereby or Agent’s monitoring of Parent’s, Borrowers’ and their Subsidiaries’ compliance with the terms of the Loan
Documents (provided that neither Parent nor any Borrower shall be liable for costs and expenses (including attorneys
fees) of any Lender (other than Wells Fargo) incurred in advising, structuring, drafting, reviewing, administering or
syndicating the Loan Documents)) (provided, that the indemnification in this clause (a) shall not extend to (i) disputes
solely between or among the Lenders that do not involve any acts or omissions of any Loan Party, or (ii) disputes
solely between or among the Lenders and their respective Affiliates that do not involve any acts or omissions of any
Loan Party; it being understood and agreed that the indemnification in this clause (a) shall extend to Agent (but not
the Lenders unless the dispute involves an act or omission of a Loan Party) relative to disputes between or among
Agent on the one hand, and one or more Lenders, or one or more of their Affiliates, on the other hand, or (iii) any
claims for Taxes, which shall be governed by Section 16, other than Taxes which relate to primarily non-Tax claims),
(b) with respect to any actual or prospective investigation, litigation, or proceeding related to this Agreement, any
other Loan Document, the making of any Loans or issuance of any Letters of Credit hereunder, or the use of the
proceeds of the Loans or the Letters of Credit provided hereunder (irrespective of whether any Indemnified Person is
a party thereto), or any act, omission, event, or circumstance in any manner related thereto, and (c) in connection
with or arising out of any presence or release of Hazardous Materials at, on, under, to or from any assets or
properties owned, leased or operated by any Borrower or any of its Subsidiaries or any Environmental Actions,
Environmental Liabilities or Remedial Actions related in any way to any such assets or properties of any Borrower or
any of its Subsidiaries (each and all of the foregoing, the “Indemnified Liabilities”). The foregoing to the contrary
notwithstanding, neither Parent nor any Borrower shall have any obligation to any Indemnified Person under this
Section 10.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines in a final,
non-appealable judgment to have resulted from the gross negligence or willful misconduct of such
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Indemnified Person or its officers, directors, employees, attorneys, or agents. This provision shall survive the
termination of this Agreement and the repayment in full of the Obligations. If any Indemnified Person makes any
payment to any other Indemnified Person with respect to an Indemnified Liability as to which Parent or Borrowers
were required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such
payment is entitled to be indemnified and reimbursed by Parent and Borrowers with respect thereto. WITHOUT
LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT
TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY
NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.
8.
Currency Indemnity. If, for the purposes of obtaining judgment in any court in any jurisdiction with respect
to this Agreement or any Loan Document it becomes necessary to convert into the currency of such jurisdiction
(the “Judgment Currency”) any amount due under this Agreement or under any of the Loan Documents in any
currency other than the Judgment Currency (the “Currency Due”), then conversion shall be made at the Exchange
Rate at which Agent is able, on the relevant date, to purchase the Currency Due with the Judgment Currency
prevailing on the Business Day before the day on which judgment is given. In the event that there is a change in
the rate of Exchange Rate prevailing between the Business Day before the day on which the judgment is given and
the date of receipt by Agent of the amount due, Borrowers will, on the date of receipt by Agent, pay such
additional amounts, if any, or be entitled to receive reimbursement of such amount, if any, as may be necessary to
ensure that the amount received by Agent on such date is the amount in the Judgment Currency which when
converted at the rate of exchange prevailing on the date of receipt by Agent is the amount then due under this
Agreement or such other Loan Document in the Currency Due. Borrowers shall indemnify and save Agent
harmless from and against loss or damage arising as a result of any deficiency in the amount Agent is able to
purchase with respect to the original Currency Due. The indemnity contained herein shall constitute an obligation
separate and independent from the other obligations contained in this Agreement and the Loan Documents, shall
give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by
Agent from time to time and shall continue in full force and effect notwithstanding any judgment or order for a
liquidated sum in respect of an amount due under this Agreement or any of the other Loan Documents or under
any judgment or order.
NOTICES.
Unless otherwise provided in this Agreement, all notices or demands relating to this Agreement or any other Loan
Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-
class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt
requested), overnight courier, electronic mail (at such email addresses as a party may designate in accordance herewith), or
telefacsimile. In the case of notices or demands to Parent, any
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Borrower or Agent, as the case may be, they shall be sent to the respective address set forth below:
If to Parent or any Borrower:
c/o SeaSpine Orthopedics Corporation
5770 Amada Drive
Carlsbad, CA 92008
Attn:
John Bostjancic
Fax No.
(760) 683-6634
with copies to:
Goodsmith, Gregg & UnruhDLA Piper (Canada)
LLP
150 S. Wacker Dr., Suite 31506000, 1 First
Canadian Place
Chicago, IL 60606PO Box 367, 100 King St W
Toronto, ON M5X 1E2
Attn:
David Gregg, Esq.Alex C. Roberts
Fax No.
(312) 322-0056
If to Agent:
Wells Fargo Bank, National Association
2450 Colorado Avenue
Suite 3000 West
Santa Monica, California 90404
Attn: Specialty Finance Loan Portfolio Manager
Fax No. (310) 453-7442
with copies to:
Duane Morris LLP
190 South LaSalle Street, Suite 3700
Chicago, Illinois 60603
Attn:
N. Paul Coyle, Esq.
Fax No.
(312) 277-7590
Any party hereto may change the address at which they are to receive notices hereunder, by notice in writing in the
foregoing manner given to the other party. All notices or demands sent in accordance with this Section 11, shall be deemed
received on the earlier of the date of actual receipt or three (3) Business Days after the deposit thereof in the mail; provided, that
(a) notices sent by overnight courier service shall be deemed to have been given when received, (b) notices by facsimile shall be
deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to
have been given at the opening of business on the next Business Day for the recipient) and (c) notices by electronic mail shall be
deemed received upon the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return receipt
requested” function, as available, return email or other written acknowledgment).
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CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE
PROVISION.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN
DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF,
THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL
MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO, AND ANY CLAIMS, CONTROVERSIES OR DISPUTES ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY
OF LOS ANGELES, STATE OF CALIFORNIA; PROVIDED, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE
AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR
OTHER PROPERTY MAY BE FOUND. EACH OF PARENT AND EACH BORROWER
AND EACH MEMBER OF THE LENDER GROUP WAIVE, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 12(b).
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF
PARENT AND EACH BORROWER AND EACH MEMBER OF THE LENDER GROUP
HEREBY WAIVE THEIR RESPECTIVE RIGHTS, IF ANY, TO A JURY TRIAL OF ANY
CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION DIRECTLY OR
INDIRECTLY BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS
OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS (EACH A “CLAIM”). EACH OF PARENT
AND EACH BORROWER AND EACH MEMBER OF THE LENDER GROUP REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY
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OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY
THE COURT.
EACH OF PARENT AND EACH BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES AND THE
STATE OF CALIFORNIA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY LOAN DOCUMENTS, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY JUDGMENT. EACH OF THE PARTIES HERETO AGREES
THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT
THAT AGENT MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST
ANY LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
NO CLAIM MAY BE MADE BY ANY LOAN PARTY AGAINST THE AGENT, THE
SWING LENDER, ANY OTHER LENDER, ISSUING BANK, OR ANY AFFILIATE,
DIRECTOR, OFFICER, EMPLOYEE, COUNSEL, REPRESENTATIVE, AGENT, OR
ATTORNEY-IN-FACT OF ANY OF THEM FOR ANY SPECIAL, INDIRECT,
CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES OR LOSSES IN RESPECT
OF ANY CLAIM FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF
LIABILITY ARISING OUT OF OR RELATED TO THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR
ANY ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION THEREWITH, AND
EACH LOAN PARTY HEREBY WAIVES, RELEASES, AND AGREES NOT TO SUE UPON
ANY CLAIM FOR SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER
OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
IN THE EVENT ANY LEGAL PROCEEDING IS FILED IN A COURT OF THE STATE
OF CALIFORNIA (THE “COURT”) BY OR AGAINST ANY PARTY HERETO IN
CONNECTION WITH ANY CLAIM AND THE WAIVER SET FORTH IN CLAUSE (C)
ABOVE IS NOT ENFORCEABLE IN SUCH PROCEEDING, THE PARTIES HERETO
AGREE AS FOLLOWS:
WITH THE EXCEPTION OF THE MATTERS SPECIFIED IN SUBCLAUSE (ii) BELOW, ANY CLAIM SHALL BE
DETERMINED BY A GENERAL REFERENCE PROCEEDING IN ACCORDANCE WITH THE PROVISIONS OF
CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 638 THROUGH 645.1. THE PARTIES INTEND THIS
GENERAL REFERENCE AGREEMENT TO BE SPECIFICALLY ENFORCEABLE. VENUE FOR THE
REFERENCE PROCEEDING SHALL BE IN THE COUNTY OF LOS ANGELES, CALIFORNIA.
THE FOLLOWING MATTERS SHALL NOT BE SUBJECT TO A GENERAL REFERENCE PROCEEDING:
(A) NON-JUDICIAL FORECLOSURE OF ANY
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SECURITY INTERESTS IN REAL OR PERSONAL PROPERTY, (B) EXERCISE OF SELF-HELP REMEDIES
(INCLUDING SETOFF OR RECOUPMENT), (C) APPOINTMENT OF A RECEIVER, AND (D) TEMPORARY,
PROVISIONAL, OR ANCILLARY REMEDIES (INCLUDING WRITS OF ATTACHMENT, WRITS OF POSSESSION,
TEMPORARY RESTRAINING ORDERS, OR PRELIMINARY INJUNCTIONS). THIS AGREEMENT DOES NOT
LIMIT THE RIGHT OF ANY PARTY TO EXERCISE OR OPPOSE ANY OF THE RIGHTS AND REMEDIES
DESCRIBED IN CLAUSES (A) - (D) AND ANY SUCH EXERCISE OR OPPOSITION DOES NOT WAIVE THE
RIGHT OF ANY PARTY TO PARTICIPATE IN A REFERENCE PROCEEDING PURSUANT TO THIS
AGREEMENT WITH RESPECT TO ANY OTHER MATTER.
UPON THE WRITTEN REQUEST OF ANY PARTY, THE PARTIES SHALL SELECT A SINGLE REFEREE, WHO
SHALL BE A RETIRED JUDGE OR JUSTICE. IF THE PARTIES DO NOT AGREE UPON A REFEREE WITHIN
TEN DAYS OF SUCH WRITTEN REQUEST, THEN, ANY PARTY SHALL HAVE THE RIGHT TO REQUEST THE
COURT TO APPOINT A REFEREE PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE SECTION
640(B). THE REFEREE SHALL BE APPOINTED TO SIT WITH ALL OF THE POWERS PROVIDED BY LAW.
PENDING APPOINTMENT OF THE REFEREE, THE COURT SHALL HAVE THE POWER TO ISSUE
TEMPORARY OR PROVISIONAL REMEDIES.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE REFEREE SHALL DETERMINE THE
MANNER IN WHICH THE REFERENCE PROCEEDING IS CONDUCTED INCLUDING THE TIME AND PLACE
OF HEARINGS, THE ORDER OF PRESENTATION OF EVIDENCE, AND ALL OTHER QUESTIONS THAT ARISE
WITH RESPECT TO THE COURSE OF THE REFERENCE PROCEEDING. ALL PROCEEDINGS AND HEARINGS
CONDUCTED BEFORE THE REFEREE, EXCEPT FOR TRIAL, SHALL BE CONDUCTED WITHOUT A COURT
REPORTER, EXCEPT WHEN ANY PARTY SO REQUESTS A COURT REPORTER AND A TRANSCRIPT IS
ORDERED, A COURT REPORTER SHALL BE USED AND THE REFEREE SHALL BE PROVIDED A COURTESY
COPY OF THE TRANSCRIPT. THE PARTY MAKING SUCH REQUEST SHALL HAVE THE OBLIGATION TO
ARRANGE FOR AND PAY THE COSTS OF THE COURT REPORTER; PROVIDED THAT SUCH COSTS, ALONG
WITH THE REFEREE’S FEES, SHALL ULTIMATELY BE BORNE BY THE PARTY WHO DOES NOT PREVAIL,
AS DETERMINED BY THE REFEREE.
THE REFEREE MAY REQUIRE ONE OR MORE PREHEARING CONFERENCES. THE PARTIES HERETO
SHALL BE ENTITLED TO DISCOVERY, AND THE REFEREE SHALL OVERSEE DISCOVERY IN ACCORDANCE
WITH THE RULES OF DISCOVERY, AND SHALL ENFORCE ALL DISCOVERY ORDERS IN THE SAME
MANNER AS ANY TRIAL COURT JUDGE IN PROCEEDINGS AT LAW IN THE STATE OF CALIFORNIA.
THE REFEREE SHALL APPLY THE RULES OF EVIDENCE APPLICABLE TO PROCEEDINGS AT LAW IN THE
STATE OF CALIFORNIA AND SHALL DETERMINE ALL ISSUES IN ACCORDANCE WITH CALIFORNIA
SUBSTANTIVE AND PROCEDURAL LAW. THE REFEREE SHALL BE EMPOWERED TO ENTER EQUITABLE
AS WELL AS LEGAL RELIEF AND RULE ON ANY MOTION WHICH WOULD BE AUTHORIZED IN A TRIAL,
INCLUDING MOTIONS FOR DEFAULT JUDGMENT OR SUMMARY JUDGMENT. THE REFEREE SHALL
REPORT HIS OR HER DECISION, WHICH REPORT SHALL ALSO INCLUDE FINDINGS OF FACT AND
CONCLUSIONS OF LAW. THE REFEREE SHALL ISSUE A DECISION AND PURSUANT TO CALIFORNIA CODE
OF CIVIL PROCEDURE, SECTION 644, THE REFEREE’S DECISION SHALL BE ENTERED BY THE COURT AS
A JUDGMENT IN THE SAME MANNER AS IF THE ACTION HAD BEEN TRIED BY THE COURT. THE
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FINAL JUDGMENT OR ORDER FROM ANY APPEALABLE DECISION OR ORDER ENTERED BY THE
REFEREE SHALL BE FULLY APPEALABLE AS IF IT HAS BEEN ENTERED BY THE COURT.
THE PARTIES RECOGNIZE AND AGREE THAT ALL CLAIMS RESOLVED IN A GENERAL REFERENCE
PROCEEDING PURSUANT HERETO WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN
CHOICE, EACH PARTY HERETO KNOWINGLY AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT
AGREES THAT THIS REFERENCE PROVISION SHALL APPLY TO ANY DISPUTE BETWEEN THEM THAT
ARISES OUT OF OR IS RELATED TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
Assignments and Participations.
(i) Subject to the conditions set forth in clause (a)(ii) below, any Lender may assign and delegate
all or any portion of its rights and duties under the Loan Documents (including the Obligations owed
to it and its Commitments) to one or more assignees (each, an “Assignee”), with the prior written
consent (such consent not be unreasonably withheld or delayed) of:
Administrative Borrower; provided, that no consent of Administrative Borrower shall be required
(1) if a Default or an Event of Default has occurred and is continuing, or (2) in connection with an assignment to a Person that is
a Lender or an Affiliate (other than natural persons) of a Lender; provided further, that Administrative Borrower shall be deemed
to have consented to a proposed assignment unless Administrative Borrower objects thereto by written notice to Agent within
five (5) Business Days after having received notice thereof; and
Agent, Swing Lender, and Issuing Bank.
Assignments shall be subject to the following additional conditions:
no assignment may be made (i) so long as no Event of Default has occurred and is continuing, to an
Ineligible Institution, (ii) so long as no Event of Default has occurred and is continuing, to a Competitor, or (iii) to a natural
person,
no assignment may be made to a Loan Party or an Affiliate of a Loan Party,
the amount of the Commitments and the other rights and obligations of the assigning Lender
hereunder and under the other Loan Documents subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to Agent) shall be in a minimum amount (unless waived by Agent) of
$5,000,000 (except such minimum amount shall not apply to (I) an assignment or delegation by any Lender to any other Lender,
an Affiliate of any Lender, or a Related Fund of such Lender or (II) a group of new Lenders, each of which is an Affiliate of each
other or a Related Fund of such new Lender to the extent that the aggregate amount to be assigned to all such new Lenders is at
least $5,000,000),
each partial assignment shall be made as an assignment of a proportionate part of all the assigning
Lender’s rights and obligations under this Agreement,
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the parties to each assignment shall execute and deliver to Agent an Assignment and Acceptance;
provided, that Borrowers and Agent may continue to deal solely and directly with the assigning Lender in connection with the
interest so assigned to an Assignee until written notice of such assignment, together with payment instructions, addresses, and
related information with respect to the Assignee, have been given to Borrowers and Agent by such Lender and the Assignee,
unless waived by Agent, the assigning Lender or Assignee has paid to Agent, for Agent’s separate
account, a processing fee in the amount of $3,500, and
the assignee, if it is not a Lender, shall deliver to Agent an Administrative Questionnaire in a form
approved by Agent (the “Administrative Questionnaire”).
From and after the date that Agent receives the executed Assignment and Acceptance and, if
applicable, payment of the required processing fee, (i) the Assignee thereunder shall be a party hereto
and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall be a “Lender” and shall have the rights and obligations of a
Lender under the Loan Documents, and (ii) the assigning Lender shall, to the extent that rights and
obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights (except with respect to Section 10.3) and be
released from any future obligations under this Agreement (and in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations
under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto
and thereto); provided, that nothing contained herein shall release any assigning Lender from
obligations that survive the termination of this Agreement, including such assigning Lender’s
obligations under Section 15 and Section 17.9(a).
By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder
and the Assignee thereunder confirm to and agree with each other and the other parties hereto as
follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan
Document furnished pursuant hereto, (ii) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of any Borrower or the
performance or observance by any Borrower of any of its obligations under this Agreement or any
other Loan Document furnished pursuant hereto, (iii) such Assignee confirms that it has received a
copy of this Agreement, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such Assignment and
Acceptance, (iv) such Assignee will, independently and without reliance upon Agent, such assigning
Lender or any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or not taking action under
this Agreement, (v) such Assignee
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appoints and authorizes Agent to take such actions and to exercise such powers under this Agreement
and the other Loan Documents as are delegated to Agent, by the terms hereof and thereof, together
with such powers as are reasonably incidental thereto, and (vi) such Assignee agrees that it will
perform all of the obligations which by the terms of this Agreement are required to be performed by
it as a Lender.
Immediately upon Agent’s receipt of the required processing fee, if applicable, and delivery of
notice to the assigning Lender pursuant to Section 13.1(b), this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each
Assignee shall reduce such Commitments of the assigning Lender pro tanto.
Any Lender may at any time sell to one or more commercial banks, financial institutions, or
other Persons (a “Participant”) participating interests in all or any portion of its Obligations, its
Commitment, and the other rights and interests of that Lender (the “Originating Lender”) hereunder
and under the other Loan Documents; provided, that (i) the Originating Lender shall remain a
“Lender” for all purposes of this Agreement and the other Loan Documents and the Participant
receiving the participating interest in the Obligations, the Commitments, and the other rights and
interests of the Originating Lender hereunder shall not constitute a “Lender” hereunder or under the
other Loan Documents and the Originating Lender’s obligations under this Agreement shall remain
unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such
obligations, (iii) Borrowers, Agent, and the Lenders shall continue to deal solely and directly with the
Originating Lender in connection with the Originating Lender’s rights and obligations under this
Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant any participating
interest under which the Participant has the right to approve any amendment to, or any consent or
waiver with respect to, this Agreement or any other Loan Document, except to the extent such
amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document
would (A) extend the final maturity date of the Obligations hereunder in which such Participant is
participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such
Participant is participating, (C) release all or substantially all of the Collateral or guaranties (except to
the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations
hereunder in which such Participant is participating, (D) postpone the payment of, or reduce the
amount of, the interest or fees payable to such Participant through such Lender (other than a waiver
of default interest), or (E) decrease the amount or postpone the due dates of scheduled principal
repayments or prepayments or premiums payable to such Participant through such Lender, (v) no
participation shall be sold to a natural person, (vi) no participation shall be sold to a Loan Party or an
Affiliate of a Loan Party, and (vii) all amounts payable by Borrowers hereunder shall be determined
as if such Lender had not sold such participation, except that, if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set
off in respect of its
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participating interest in amounts owing under this Agreement to the same extent as if the amount of
its participating interest were owing directly to it as a Lender under this Agreement. The rights of any
Participant only shall be derivative through the Originating Lender with whom such Participant
participates and no Participant shall have any rights under this Agreement or the other Loan
Documents or any direct rights as to the other Lenders, Agent, Borrowers, the Collateral, or otherwise
in respect of the Obligations. No Participant shall have the right to participate directly in the making
of decisions by the Lenders among themselves.
In connection with any such assignment or participation or proposed assignment or participation
or any grant of a security interest in, or pledge of, its rights under and interest in this Agreement, a
Lender may, subject to the provisions of Section 17.9, disclose all documents and information which
it now or hereafter may have relating to Parent, any Borrower and their Subsidiaries and their
respective businesses.
Any other provision in this Agreement notwithstanding, any Lender may at any time create a
security interest in, or pledge, all or any portion of its rights under and interest in this Agreement to
secure obligations of such Lender, including any pledge in favor of any Federal Reserve Bank in
accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR
§ 203.24, and such Federal Reserve Bank may enforce such pledge or security interest in any manner
permitted under applicable law; provided, that no such pledge shall release such Lender from any of
its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
Agent (as a non-fiduciary agent on behalf of Borrowers) shall maintain, or cause to be
maintained, a register (the “Register”) on which it enters the name and address of each Lender as the
registered owner of the Revolving Loans (and the principal amount thereof and stated interest
thereon) held by such Lender (each, a “Registered Loan”). Other than in connection with an
assignment by a Lender of all or any portion of its portion of the Revolving Loan to an Affiliate of
such Lender or a Related Fund of such Lender (i) a Registered Loan (and the registered note, if any,
evidencing the same) may be assigned or sold in whole or in part only by registration of such
assignment or sale on the Register (and each registered note shall expressly so provide) and (ii) any
assignment or sale of all or part of such Registered Loan (and the registered note, if any, evidencing
the same) may be effected only by registration of such assignment or sale on the Register, together
with the surrender of the registered note, if any, evidencing the same duly endorsed by (or
accompanied by a written instrument of assignment or sale duly executed by) the holder of such
registered note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more
new registered notes in the same aggregate principal amount shall be issued to the designated
assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Loan
(and the registered note, if any evidencing the same), Borrowers shall treat the Person in whose name
such Registered Loan (and the registered note, if any, evidencing the same) is registered as the owner
thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding
notice to the contrary. In the case of any assignment by a Lender of all or any portion of its Revolving
Loan to an Affiliate of such Lender or a Related
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Fund of such Lender, and which assignment is not recorded in the Register, the assigning Lender, on
behalf of Borrowers, shall maintain a register comparable to the Register.
In the event that a Lender sells participations in the Registered Loan, such Lender, as a non-
fiduciary agent on behalf of Borrowers, shall maintain (or cause to be maintained) a register on which
it enters the name of all participants in the Registered Loans held by it (and the principal amount (and
stated interest thereon) of the portion of such Registered Loans that is subject to such participations)
(the “Participant Register”). A Registered Loan (and the Registered Note, if any, evidencing the
same) may be participated in whole or in part only by registration of such participation on the
Participant Register (and each registered note shall expressly so provide). Any participation of such
Registered Loan (and the registered note, if any, evidencing the same) may be effected only by the
registration of such participation on the Participant Register. No Lender shall have any obligation to
disclose all or any portion of the Participant Register (including the identity of any Participant or any
information relating to a Participant’s interest in any commitments, loans, letters of credit or its other
obligations under any Loan Document) to any Person except to the extent that such disclosure is
necessary to establish that such commitment, loan, letter of credit or other obligation is in registered
form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the
Participant Register shall be conclusive absent manifest error, and such Lender shall treat each person
whose name is recorded in the Participant Register as the owner of such participation for all purposes
of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Agent
(in its capacity as Agent) shall have no responsibility for maintaining a Participant Register.
Agent shall make a copy of the Register (and each Lender shall make a copy of its Participant
Register to the extent it has one) available for review by Borrowers from time to time as Borrowers
may reasonably request.
Successors. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each
of the parties; provided, that except to the extent specifically permitted by the terms and provisions of this Agreement,
neither Parent nor any Borrower may assign this Agreement or any rights or duties hereunder without the Lenders’
prior written consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by
the Lenders shall release Parent or any Borrower from its Obligations. A Lender may assign this Agreement and the
other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 13.1 and, except as
expressly required pursuant to Section 13.1, no consent or approval by Parent or any Borrower is required in
connection with any such assignment.
AMENDMENTS; WAIVERS.
Amendments and Waivers.
No amendment, waiver or other modification of any provision of this Agreement or any other
Loan Document (other than the Fee Letter), and no consent with respect to any departure by Parent or
any Borrower therefrom, shall be
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effective unless the same shall be in writing and signed by the Required Lenders (or by Agent at the
written request of the Required Lenders) and the Loan Parties that are party thereto and then any such
waiver or consent shall be effective, but only in the specific instance and for the specific purpose for
which given; provided, that no such waiver, amendment, or consent shall, unless in writing and
signed by all of the Lenders directly affected thereby and all of the Loan Parties that are party thereto,
do any of the following:
increase the amount of or extend the expiration date of any Commitment of any Lender,
postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or
other amounts due hereunder or under any other Loan Document,
reduce the principal of, or the rate of interest on, any loan or other extension of credit hereunder, or reduce any fees or other
amounts payable hereunder or under any other Loan Document (except (y) in connection with the waiver of applicability of
Section 2.6(c) (which waiver shall be effective with the written consent of the Required Lenders), and (z) that any amendment or
modification of defined terms used in the financial covenants in this Agreement shall not constitute a reduction in the rate of
interest or a reduction of fees for purposes of this clause (iii)),
amend, modify, or eliminate this Section or any provision of this Agreement providing for consent or other action by all Lenders,
amend, modify, or eliminate Section 3.1 or 3.2,
amend, modify, or eliminate Section 15.11,
other than as permitted by Section 15.11, release or contractually subordinate Agent’s Lien in and to any of the Collateral,
amend, modify, or eliminate the definitions of “Required Lenders”, Supermajority Lenders or “Pro Rata Share”,
other than in connection with a merger, liquidation, dissolution or sale of such Person expressly permitted by the terms hereof or
the other Loan Documents, release any Borrower or any Guarantor from any obligation for the payment of money or consent to
the assignment or transfer by any Borrower or any Guarantor of any of its rights or duties under this Agreement or the other Loan
Documents, or
amend, modify, or eliminate any of the provisions of Section 2.4(b)(i), (ii) or (iii) or Section 2.4(e) or (f);
No amendment, waiver, modification, or consent shall amend, modify, waive, or eliminate,
the definition of, or any of the terms or provisions of, the Fee Letter, without the written consent of Agent and Borrowers (and
shall not require the written consent of any of the Lenders),
any provision of Section 15 pertaining to Agent, or any other rights or duties of Agent under this Agreement or the other Loan
Documents, without the written consent of Agent, Borrowers, and the Required Lenders;
No amendment, waiver, modification, elimination, or consent shall amend, without written
consent of Agent, Borrowers and the Supermajority Lenders, modify, or eliminate the definition of
Borrowing Base or any of the defined terms (including the definitions of Eligible Accounts, Eligible
Unbilled Accounts, Eligible Finished Goods Inventory, Eligible Raw Material Inventory, Eligible
Work-in-Process Inventory and, Eligible Inventory) that are used in such definition to the extent that
any such change results in more credit being made available to Borrowers based upon the Borrowing
Base, but not otherwise, or the definition of Maximum Revolver Amount, or change Section 2.1(c);
No amendment, waiver, modification, elimination, or consent shall amend, modify, or waive any
provision of this Agreement or the other Loan Documents pertaining to Issuing
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Bank, or any other rights or duties of Issuing Bank under this Agreement or the other Loan
Documents, without the written consent of Issuing Bank, Agent, Borrowers, and the Required
Lenders;
No amendment, waiver, modification, elimination, or consent shall amend, modify, or waive any
provision of this Agreement or the other Loan Documents pertaining to Swing Lender, or any other
rights or duties of Swing Lender under this Agreement or the other Loan Documents, without the
written consent of Swing Lender, Agent, Borrowers, and the Required Lenders; and
Anything in this Section 14.1 to the contrary notwithstanding, (i) any amendment, modification,
elimination, waiver, consent, termination, or release of, or with respect to, any provision of this
Agreement or any other Loan Document that relates only to the relationship of the Lender Group
among themselves, and that does not affect the rights or obligations of Parent or any Borrower, shall
not require consent by or the agreement of any Loan Party, and (ii) any amendment, waiver,
modification, elimination, or consent of or with respect to any provision of this Agreement or any
other Loan Document may be entered into without the consent of, or over the objection of, any
Defaulting Lender other than any of the matters governed by Section 14.1(a)(i) through (iii) that
affect such Lender.
Replacement of Certain Lenders.
If (i) any action to be taken by the Lender Group or Agent hereunder requires the consent,
authorization, or agreement of all Lenders or all Lenders affected thereby and if such action has
received the consent, authorization, or agreement of the Required Lenders but not of all Lenders or all
Lenders affected thereby, or (ii) any Lender makes a claim for compensation under Section 16, then
Borrowers or Agent, upon at least five (5) Business Days prior irrevocable notice, may permanently
replace any Lender that failed to give its consent, authorization, or agreement (a “Non-Consenting
Lender”) or any Lender that made a claim for compensation (a “Tax Lender”) with one or more
Replacement Lenders, and the Non-Consenting Lender or Tax Lender, as applicable, shall have no
right to refuse to be replaced hereunder. Such notice to replace the Non-Consenting Lender or Tax
Lender, as applicable, shall specify an effective date for such replacement, which date shall not be
later than fifteen (15) Business Days after the date such notice is given.
Prior to the effective date of such replacement, the Non-Consenting Lender or Tax Lender, as
applicable, and each Replacement Lender shall execute and deliver an Assignment and Acceptance,
subject only to the Non-Consenting Lender or Tax Lender, as applicable, being repaid in full its share
of the outstanding Obligations (without any premium or penalty of any kind whatsoever, but
including (i) all interest, fees and other amounts that may be due in payable in respect thereof, (ii) an
assumption of its Pro Rata Share of participations in the Letters of Credit, and (iii) Funding Losses).
If the Non-Consenting Lender or Tax Lender, as applicable, shall refuse or fail to execute and deliver
any such Assignment and Acceptance prior to the effective date of such replacement, Agent may, but
shall not be required to, execute and deliver such Assignment and Acceptance in the name or and on
behalf of the Non-Consenting Lender or Tax Lender, as applicable,
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and irrespective of whether Agent executes and delivers such Assignment and Acceptance, the Non-
Consenting Lender or Tax Lender, as applicable, shall be deemed to have executed and delivered
such Assignment and Acceptance. The replacement of any Non-Consenting Lender or Tax Lender, as
applicable, shall be made in accordance with the terms of Section 13.1. Until such time as one or
more Replacement Lenders shall have acquired all of the Obligations, the Commitments, and the
other rights and obligations of the Non-Consenting Lender or Tax Lender, as applicable, hereunder
and under the other Loan Documents, the Non-Consenting Lender or Tax Lender, as applicable, shall
remain obligated to make the Non-Consenting Lender’s or Tax Lender’s, as applicable, Pro Rata
Share of Revolving Loans and to purchase a participation in each Letter of Credit, in an amount equal
to its Pro Rata Share of participations in such Letters of Credit.
No Waivers; Cumulative Remedies. No failure by Agent or any Lender to exercise any right, remedy, or
option under this Agreement or any other Loan Document, or delay by Agent or any Lender in exercising the same,
will operate as a waiver thereof. No waiver by Agent or any Lender will be effective unless it is in writing, and then
only to the extent specifically stated. No waiver by Agent or any Lender on any occasion shall affect or diminish
Agent’s and each Lender’s rights thereafter to require strict performance by Parent and Borrowers of any provision of
this Agreement. Agent’s and each Lender’s rights under this Agreement and the other Loan Documents will be
cumulative and not exclusive of any other right or remedy that Agent or any Lender may have.
AGENT; THE LENDER GROUP.
Appointment and Authorization of Agent. Each Lender hereby designates and appoints Wells Fargo as its
agent under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes (and by
entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to designate, appoint, and
authorize) Agent to execute and deliver each of the other Loan Documents on its behalf and to take such other action
on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to Agent by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto. Agent agrees to act as agent for and on
behalf of the Lenders (and the Bank Product Providers) on the conditions contained in this Section 15. Any provision
to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent shall
not have any duties or responsibilities, except those expressly set forth herein or in the other Loan Documents, nor
shall Agent have or be deemed to have any fiduciary relationship with any Lender (or Bank Product Provider), and no
implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any
other Loan Document or otherwise exist against Agent. Without limiting the generality of the foregoing, the use of the
term “agent” in this Agreement or the other Loan Documents with reference to Agent is not intended to connote any
fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such
term is used merely as a matter of market custom, and is intended to create or reflect only a representative
relationship between independent contracting parties. Each Lender hereby further authorizes (and by entering into a
Bank Product Agreement, each Bank Product Provider shall be deemed to authorize) Agent to act as the secured
party under each of the Loan Documents that create a Lien on
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any item of Collateral. Except as expressly otherwise provided in this Agreement, Agent shall have and may use its
sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining
from taking any actions that Agent expressly is entitled to take or assert under or pursuant to this Agreement and the
other Loan Documents. Without limiting the generality of the foregoing, or of any other provision of the Loan
Documents that provides rights or powers to Agent, Lenders agree that Agent shall have the right to exercise the
following powers as long as this Agreement remains in effect: (a) maintain, in accordance with its customary business
practices, ledgers and records reflecting the status of the Obligations, the Collateral, payments and proceeds of
Collateral, and related matters, (b) execute or file any and all financing or similar statements or notices, amendments,
renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect
to the Loan Documents, or to take any other action with respect to any Collateral or Loan Documents which may be
necessary to perfect, and maintain perfected, the security interests and Liens upon Collateral pursuant to the Loan
Documents, (c) make Revolving Loans, for itself or on behalf of Lenders, as provided in the Loan Documents,
(d) exclusively receive, apply, and distribute payments and proceeds of the Collateral as provided in the Loan
Documents, (e) open and maintain such bank accounts and cash management arrangements as Agent deems
necessary and appropriate in accordance with the Loan Documents for the foregoing purposes, (f) perform, exercise,
and enforce any and all other rights and remedies of the Lender Group with respect to Parent, any Borrower or any of
their Subsidiaries, the Obligations, the Collateral, or otherwise related to any of same as provided in the Loan
Documents, and (g) incur and pay such Lender Group Expenses as Agent may deem necessary or appropriate for
the performance and fulfillment of its functions and powers pursuant to the Loan Documents.
Delegation of Duties. Agent may execute any of its duties under this Agreement or any other Loan Document by
or through agents, employees or attorneys in fact and shall be entitled to advice of counsel concerning all matters
pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney in
fact that it selects as long as such selection was made without gross negligence or willful misconduct.
Liability of Agent. None of the Agent-Related Persons shall (a) be liable for any action taken or omitted to be
taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct), or (b) be responsible in any manner
to any of the Lenders (or Bank Product Providers) for any recital, statement, representation or warranty made by
Parent, any Borrower or any of their Subsidiaries or Affiliates, or any officer or director thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or
provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the
validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of Parent, any Borrower or any of their Subsidiaries or any other party to any Loan Document to
perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any
Lenders (or Bank Product Providers) to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the books and
records or properties of Parent or any Borrower or any of their Subsidiaries. No Agent-Related Person shall have any
liability to any Lender, and Loan Party or any of their respective Affiliates if any request for a Loan, Letter of Credit or
other extension of credit was not authorized by the applicable Borrower. Agent shall not
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be required to take any action that, in its opinion or in the opinion of its counsel, may expose it to liability or that is
contrary to any Loan Document or applicable law or regulation.
Reliance by Agent. Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing,
resolution, notice, consent, certificate, affidavit, letter, telegram, telefacsimile or other electronic method of
transmission, telex or telephone message, statement or other document or conversation believed by it to be genuine
and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel to Borrowers or counsel to any Lender), independent accountants and
other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless Agent shall first receive such advice or concurrence of the Lenders
as it deems appropriate and until such instructions are received, Agent shall act, or refrain from acting, as it deems
advisable. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by the Lenders (and, if it so
elects, the Bank Product Providers) against any and all liability and expense that may be incurred by it by reason of
taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required
Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the
Lenders (and Bank Product Providers).
Notice of Default or Event of Default. Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest,
fees, and expenses required to be paid to Agent for the account of the Lenders and, except with respect to Events of
Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or
Borrowers referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a
“notice of default.” Agent promptly will notify the Lenders of its receipt of any such notice or of any Event of Default of
which Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender
promptly shall notify the other Lenders and Agent of such Event of Default. Each Lender shall be solely responsible
for giving any notices to its Participants, if any. Subject to Section 15.4, Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 9;
provided, that unless and until Agent has received any such request, Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem
advisable.
Credit Decision. Each Lender (and Bank Product Provider) acknowledges that none of the Agent-Related
Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any
review of the affairs of Parent and any Borrower and their Subsidiaries or Affiliates, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Lender (or Bank Product Provider). Each Lender
represents (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to
represent) to Agent that it has, independently and without reliance upon any Agent-Related Person and based on
such due diligence, documents and information as it has deemed appropriate, made its own appraisal of an
investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of
Parent and each Borrower or any other Person party to a Loan Document, and all applicable bank regulatory laws
relating to the transactions
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contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Parent and
Borrowers. Each Lender also represents (and by entering into a Bank Product Agreement, each Bank Product
Provider shall be deemed to represent) that it will, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan
Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects,
operations, property, financial and other condition and creditworthiness of Parent and each Borrower or any other
Person party to a Loan Document. Except for notices, reports, and other documents expressly herein required to be
furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender (or Bank
Product Provider) with any credit or other information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of Parent and any Borrower or any other Person party to a Loan
Document that may come into the possession of any of the Agent-Related Persons. Each Lender acknowledges (and
by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that
Agent does not have any duty or responsibility, either initially or on a continuing basis (except to the extent, if any, that
is expressly specified herein) to provide such Lender (or Bank Product Provider) with any credit or other information
with respect to Parent, any Borrower, their Affiliates or any of their respective business, legal, financial or other affairs,
and irrespective of whether such information came into Agent’s or their Affiliates’ or representatives’ possession
before or after the date on which such Lender became a party to this Agreement (or such Bank Product Provider
entered into a Bank Product Agreement).
Costs and Expenses; Indemnification. Agent may incur and pay Lender Group Expenses to the extent
Agent reasonably deems necessary or appropriate for the performance and fulfillment of its functions, powers, and
obligations pursuant to the Loan Documents, including court costs, attorneys fees and expenses, fees and expenses
of financial accountants, advisors, consultants, and appraisers, costs of collection by outside collection agencies,
auctioneer fees and expenses, and costs of security guards or insurance premiums paid to maintain the Collateral,
whether or not Borrowers are obligated to reimburse Agent or Lenders for such expenses pursuant to this Agreement
or otherwise. Agent is authorized and directed to deduct and retain sufficient amounts from payments or proceeds of
the Collateral received by Agent to reimburse Agent for such out-of-pocket costs and expenses prior to the
distribution of any amounts to Lenders (or Bank Product Providers). In the event Agent is not reimbursed for such
costs and expenses by Parent, any Borrower or any of their Subsidiaries, each Lender hereby agrees that it is and
shall be obligated to pay to Agent such Lender’s ratable share thereof. Whether or not the transactions contemplated
hereby are consummated, each of the Lenders, on a ratable basis, shall indemnify and defend the Agent-Related
Persons (to the extent not reimbursed by or on behalf of Borrowers and without limiting the obligation of Borrowers to
do so) from and against any and all Indemnified Liabilities; provided, that no Lender shall be liable for the payment to
any Agent-Related Person of any portion of such Indemnified Liabilities resulting solely from such Person’s gross
negligence or willful misconduct nor shall any Lender be liable for the obligations of any Defaulting Lender in failing to
make a Revolving Loan or other extension of credit hereunder. Without limitation of the foregoing, each Lender shall
reimburse Agent upon demand for such Lender’s ratable share of any costs or out of pocket expenses (including
attorneys, accountants, advisors, and consultants fees and expenses) incurred by Agent in connection with the
preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities
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under, this Agreement or any other Loan Document to the extent that Agent is not reimbursed for such expenses by
or on behalf of Borrowers. The undertaking in this Section shall survive the payment of all Obligations hereunder and
the resignation or replacement of Agent.
Agent in Individual Capacity. Wells Fargo and its Affiliates may make loans to, issue letters of credit for the
account of, accept deposits from, provide Bank Products to, acquire Equity Interests in, and generally engage in any
kind of banking, trust, financial advisory, underwriting, or other business with Parent and any Borrower and their
Subsidiaries and Affiliates and any other Person party to any Loan Document as though Wells Fargo were not Agent
hereunder, and, in each case, without notice to or consent of the other members of the Lender Group. The other
members of the Lender Group acknowledge (and by entering into a Bank Product Agreement, each Bank Product
Provider shall be deemed to acknowledge) that, pursuant to such activities, Wells Fargo or its Affiliates may receive
information regarding Parent, any Borrower or their Affiliates or any other Person party to any Loan Documents that is
subject to confidentiality obligations in favor of Parent, such Borrower or such other Person and that prohibit the
disclosure of such information to the Lenders (or Bank Product Providers), and the Lenders acknowledge (and by
entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that, in such
circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver Agent will use its
reasonable best efforts to obtain), Agent shall not be under any obligation to provide such information to them. The
terms “Lender” and “Lenders” include Wells Fargo in its individual capacity.
Successor Agent. Agent may resign as Agent upon 30 days (ten days if an Event of Default has occurred and is
continuing) prior written notice to the Lenders (unless such notice is waived by the Required Lenders) and Borrowers
(unless such notice is waived by Borrowers or a Default or Event of Default has occurred and is continuing) and
without any notice to the Bank Product Providers. If Agent resigns under this Agreement, the Required Lenders shall
be entitled, with (so long as no Event of Default has occurred and is continuing) the consent of Borrowers (such
consent not to be unreasonably withheld, delayed, or conditioned), appoint a successor Agent for the Lenders (and
the Bank Product Providers). If, at the time that Agent’s resignation is effective, it is acting as Issuing Bank or the
Swing Lender, such resignation shall also operate to effectuate its resignation as Issuing Bank or the Swing Lender,
as applicable, and it shall automatically be relieved of any further obligation to issue Letters of Credit, or to make
Swing Loans. If no successor Agent is appointed prior to the effective date of the resignation of Agent, Agent may
appoint, after consulting with the Lenders and Borrowers, a successor Agent. If Agent has materially breached or
failed to perform any material provision of this Agreement or of applicable law, the Required Lenders may agree in
writing to remove and replace Agent with a successor Agent from among the Lenders with (so long as no Event of
Default has occurred and is continuing) the consent of Borrowers (such consent not to be unreasonably withheld,
delayed, or conditioned). In any such event, upon the acceptance of its appointment as successor Agent hereunder,
such successor Agent shall succeed to all the rights, powers, and duties of the retiring Agent and the term “Agent”
shall mean such successor Agent and the retiring Agent’s appointment, powers, and duties as Agent shall be
terminated. After any retiring Agent’s resignation hereunder as Agent, the provisions of this Section 15 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no
successor Agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent’s notice
of resignation, the retiring Agent’s resignation shall nevertheless thereupon become effective and the Lenders
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shall perform all of the duties of Agent hereunder until such time, if any, as the Lenders appoint a successor Agent as
provided for above.
Lender in Individual Capacity. Any Lender and its respective Affiliates may make loans to, issue letters of
credit for the account of, accept deposits from, provide Bank Products to, acquire Equity Interests in and generally
engage in any kind of banking, trust, financial advisory, underwriting, or other business with Parent, any Borrower and
their Subsidiaries and Affiliates and any other Person party to any Loan Documents as though such Lender were not
a Lender hereunder without notice to or consent of the other members of the Lender Group (or the Bank Product
Providers). The other members of the Lender Group acknowledge (and by entering into a Bank Product Agreement,
each Bank Product Provider shall be deemed to acknowledge) that, pursuant to such activities, such Lender and its
respective Affiliates may receive information regarding Parent, any Borrower or their Affiliates or any other Person
party to any Loan Documents that is subject to confidentiality obligations in favor of Parent, such Borrower or such
other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge (and
by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that, in
such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Lender will
use its reasonable best efforts to obtain), such Lender shall not be under any obligation to provide such information to
them.
Collateral Matters.
The Lenders hereby irrevocably authorize (and by entering into a Bank Product Agreement, each
Bank Product Provider shall be deemed to authorize) Agent to release any Lien on any Collateral
(i) upon the termination of the Commitments and payment and satisfaction in full by the Loan Parties
of all of the Obligations, (ii) constituting property being sold or disposed of if a release is required or
desirable in connection therewith and if Borrowers certify to Agent that the sale or disposition is
permitted under Section 6.4 (and Agent may rely conclusively on any such certificate, without further
inquiry), (iii) constituting property in which neither Parent, nor any Borrower or any of their
Subsidiaries owned any interest at the time Agent’s Lien was granted nor at any time thereafter,
(iv) constituting property leased or licensed to Parent, a Borrower or any of their Subsidiaries under a
lease or license that has expired or is terminated in a transaction permitted under this Agreement, or
(v) in connection with a credit bid or purchase authorized under this Section 15.11. The Loan Parties
and the Lenders hereby irrevocably authorize (and by entering into a Bank Product Agreement, each
Bank Product Provider shall be deemed to authorize) Agent, based upon the instruction of the
Required Lenders, to (a) consent to the sale of, credit bid, or purchase (either directly or indirectly
through one or more entities) all or any portion of the Collateral at any sale thereof conducted under
the provisions of the Bankruptcy Code, including Section 363 of the Bankruptcy Code (or Canadian
Debtor Relief Laws), (b) credit bid or purchase (either directly or indirectly through one or more
entities) all or any portion of the Collateral at any sale or other disposition thereof conducted under
the provisions of the Code, or the PPSA, as applicable, including pursuant to Sections 9-610 or 9-620
of the Code, or (c) credit bid or purchase (either directly or indirectly through one or more entities) all
or any portion of the Collateral at any other sale or
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foreclosure conducted or consented to by Agent in accordance with applicable law in any judicial
action or proceeding or by the exercise of any legal or equitable remedy. In connection with any such
credit bid or purchase, (i) the Obligations owed to the Lenders and the Bank Product Providers shall
be entitled to be, and shall be, credit bid on a ratable basis (with Obligations with respect to
contingent or unliquidated claims being estimated for such purpose if the fixing or liquidation thereof
would not impair or unduly delay the ability of Agent to credit bid or purchase at such sale or other
disposition of the Collateral and, if such contingent or unliquidated claims cannot be estimated
without impairing or unduly delaying the ability of Agent to credit bid at such sale or other
disposition, then such claims shall be disregarded, not credit bid, and not entitled to any interest in the
Collateral that is the subject of such credit bid or purchase) and the Lenders and the Bank Product
Providers whose Obligations are credit bid shall be entitled to receive interests (ratably based upon
the proportion of their Obligations credit bid in relation to the aggregate amount of Obligations so
credit bid) in the Collateral that is the subject of such credit bid or purchase (or in the Equity Interests
of the any entities that are used to consummate such credit bid or purchase), and (ii) Agent, based
upon the instruction of the Required Lenders, may accept non-cash consideration, including debt and
equity securities issued by any entities used to consummate such credit bid or purchase and in
connection therewith Agent may reduce the Obligations owed to the Lenders and the Bank Product
Providers (ratably based upon the proportion of their Obligations credit bid in relation to the
aggregate amount of Obligations so credit bid) based upon the value of such non-cash consideration;
provided, that Bank Product Obligations not entitled to the application set forth in Section 2.4(b)(iii)
(J) shall not be entitled to be, and shall not be, credit bid, or used in the calculation of the ratable
interest of the Lenders and Bank Product Providers in the Obligations which are credit bid. Except as
provided above, Agent will not execute and deliver a release of any Lien on any Collateral without
the prior written authorization of (y) if the release is of all or substantially all of the Collateral, all of
the Lenders (without requiring the authorization of the Bank Product Providers), or (z) otherwise, the
Required Lenders (without requiring the authorization of the Bank Product Providers). Upon request
by Agent or Borrowers at any time, the Lenders will (and if so requested, the Bank Product Providers
will) confirm in writing Agent’s authority to release any such Liens on particular types or items of
Collateral pursuant to this Section 15.11; provided, that (1) anything to the contrary contained in any
of the Loan Documents notwithstanding, Agent shall not be required to execute any document or take
any action necessary to evidence such release on terms that, in Agent’s opinion, could expose Agent
to liability or create any obligation or entail any consequence other than the release of such Lien
without recourse, representation, or warranty, and (2) such release shall not in any manner discharge,
affect, or impair the Obligations or any Liens (other than those expressly released) upon (or
obligations of Borrowers in respect of) any and all interests retained by any Loan Party, including, the
proceeds of any sale, all of which shall continue to constitute part of the Collateral. Each Lender
further hereby irrevocably authorize (and by entering into a Bank Product Agreement, each Bank
Product Provider shall be deemed to irrevocably authorize)
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Agent, at its option and in its sole discretion, to subordinate (by contract or otherwise) any Lien
granted to or held by Agent on any property under any Loan Document (a) to the holder of any
Permitted Lien on such property if such Permitted Lien secures purchase money Indebtedness
(including Capitalized Lease Obligations) which constitute Permitted Indebtedness and (b) to the
extent Agent has the authority under this Section 15.11 to release its Lien on such property.
Agent shall have no obligation whatsoever to any of the Lenders (or the Bank Product Providers)
(i) to verify or assure that the Collateral exists or is owned by Parent, Borrowers or their Subsidiaries
or is cared for, protected, or insured or has been encumbered, (ii) to verify or assure that Agent’s
Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are
entitled to any particular priority, (iii) to verify or assure that any particular items of Collateral meet
the eligibility criteria applicable in respect thereof, (iv) to impose, maintain, increase, reduce,
implement, or eliminate any particular reserve hereunder or to determine whether the amount of any
reserve is appropriate or not, or (v) to exercise at all or in any particular manner or under any duty of
care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted
or available to Agent pursuant to any of the Loan Documents, it being understood and agreed that in
respect of the Collateral, or any act, omission, or event related thereto, subject to the terms and
conditions contained herein, Agent may act in any manner it may deem appropriate, in its sole
discretion given Agent’s own interest in the Collateral in its capacity as one of the Lenders and that
Agent shall have no other duty or liability whatsoever to any Lender (or Bank Product Provider) as to
any of the foregoing, except as otherwise expressly provided herein.
Upon the termination of the Commitments and payment and satisfaction in full by the Loan
Parties of all of the Obligations, promptly following a request by any Borrower, Agent shall deliver to
Borrower a release of the Loan Documents (and releases or termination statements in proper form)
with respect to the assets of any Subsidiary Transferred pursuant to a transaction permitted by the
Loan Documents and with respect to any pledge of the Equity Interests or Indebtedness of such
Subsidiary pursuant to any such transaction.
Restrictions on Actions by Lenders; Sharing of Payments.
Each of the Lenders agrees that it shall not, without the express written consent of Agent, and
that it shall, to the extent it is lawfully entitled to do so, upon the written request of Agent, set off
against the Obligations, any amounts owing by such Lender to Parent, any Borrower or any of their
Subsidiaries or any deposit accounts of Parent, any Borrower or any of their Subsidiaries now or
hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless
specifically requested to do so in writing by Agent, take or cause to be taken any action, including,
the commencement of any legal or equitable proceedings to enforce any Loan Document against any
Borrower or any Guarantor or to foreclose any Lien on, or otherwise enforce any security interest in,
any of the Collateral.
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If, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise,
any proceeds of Collateral or any payments with respect to the Obligations, except for any such
proceeds or payments received by such Lender from Agent pursuant to the terms of this Agreement,
or (ii) payments from Agent in excess of such Lender’s Pro Rata Share of all such distributions by
Agent, such Lender promptly shall (A) turn the same over to Agent, in kind, and with such
endorsements as may be required to negotiate the same to Agent, or in immediately available funds,
as applicable, for the account of all of the Lenders and for application to the Obligations in
accordance with the applicable provisions of this Agreement, or (B) purchase, without recourse or
warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that
such excess payment received shall be applied ratably as among the Lenders in accordance with their
Pro Rata Shares; provided, that to the extent that such excess payment received by the purchasing
party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or
in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned
to such purchasing party, but without interest except to the extent that such purchasing party is
required to pay interest in connection with the recovery of the excess payment.
Agency for Perfection. Agent hereby appoints each other Lender (and each Bank Product Provider) as its agent
(and each Lender hereby accepts (and by entering into a Bank Product Agreement, each Bank Product Provider shall
be deemed to accept) such appointment) for the purpose of perfecting Agent’s Liens in assets which, in accordance
with Article 8 or Article 9, as applicable, of the Code can be perfected by possession or control. Should any Lender
obtain possession or control of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon
Agent’s request therefor shall deliver possession or control of such Collateral to Agent or in accordance with Agent’s
instructions.
Payments by Agent to the Lenders. All payments to be made by Agent to the Lenders (or Bank Product
Providers) shall be made by bank wire transfer of immediately available funds pursuant to such wire transfer
instructions as each party may designate for itself by written notice to Agent. Concurrently with each such payment,
Agent shall identify whether such payment (or any portion thereof) represents principal, premium, fees, or interest of
the Obligations.
Concerning the Collateral and Related Loan Documents. Each member of the Lender Group authorizes
and directs Agent to enter into this Agreement and the other Loan Documents. Each member of the Lender Group
agrees (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to agree) that
any action taken by Agent in accordance with the terms of this Agreement or the other Loan Documents relating to
the Collateral and the exercise by Agent of its powers set forth therein or herein, together with such other powers that
are reasonably incidental thereto, shall be binding upon all of the Lenders (and such Bank Product Provider).
Field Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and
Information. By becoming a party to this Agreement, each Lender:
is deemed to have requested that Agent furnish such Lender, promptly after it becomes available,
a copy of each
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field examination report respecting Parent, any Borrower or any of their Subsidiaries (each, a
“Report”) prepared by or at the request of Agent, and Agent shall so furnish each Lender with such
Reports,
expressly agrees and acknowledges that Agent does not (i) make any representation or warranty
as to the accuracy of any Report, and (ii) shall not be liable for any information contained in any
Report,
expressly agrees and acknowledges that the Reports are not comprehensive audits or
examinations, that Agent or other party performing any field examination will inspect only specific
information regarding Parent, Borrowers and their Subsidiaries and will rely significantly upon
Parent’s, Borrowers’ and their Subsidiaries’ books and records, as well as on representations of
Borrowers’ personnel,
agrees to keep all Reports and other material, non-public information regarding Parent,
Borrowers and their Subsidiaries and their operations, assets, and existing and contemplated business
plans in a confidential manner in accordance with Section 17.9, and
without limiting the generality of any other indemnification provision contained in this
Agreement, agrees: (i) to hold Agent and any other Lender preparing a Report harmless from any
action the indemnifying Lender may take or fail to take or any conclusion the indemnifying Lender
may reach or draw from any Report in connection with any loans or other credit accommodations that
the indemnifying Lender has made or may make to Borrowers, or the indemnifying Lender’s
participation in, or the indemnifying Lender’s purchase of, a loan or loans of Borrowers, and (ii) to
pay and protect, and indemnify, defend and hold Agent, and any such other Lender preparing a
Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and
other amounts (including, attorneys’ fees and costs) incurred by Agent and any such other Lender
preparing a Report as the direct or indirect result of any third parties who might obtain all or part of
any Report through the indemnifying Lender.
In addition to the foregoing, (x) any Lender may from time to time request of Agent in writing
that Agent provide to such Lender a copy of any report or document provided by Parent, any
Borrower or any of their Subsidiaries to Agent that has not been contemporaneously provided by
Parent, such Borrower or such Subsidiary to such Lender, and, upon receipt of such request, Agent
promptly shall provide a copy of same to such Lender, (y) to the extent that Agent is entitled, under
any provision of the Loan Documents, to request additional reports or information from Parent, any
Borrower or any of their Subsidiaries, any Lender may, from time to time, reasonably request Agent
to exercise such right as specified in such Lender’s notice to Agent, whereupon Agent promptly shall
request of Borrowers the additional reports or information reasonably specified by such Lender, and,
upon receipt thereof from Parent, such Borrower or such Subsidiary, Agent promptly shall provide a
copy of same to such Lender, and (z) any time that Agent renders to Borrowers a statement regarding
the Loan Account, Agent shall send a copy of such statement to each Lender.
Several Obligations; No Liability. Notwithstanding that certain of the Loan Documents now or hereafter may
have been or will be executed only by or in favor of Agent in its
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capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of Agent (if any) to make
any credit available hereunder shall constitute the several (and not joint) obligations of the respective Lenders on a
ratable basis (except as otherwise specifically provided herein), according to their respective Commitments, to make
an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their
respective Commitments. Nothing contained herein shall confer upon any Lender any interest in, or subject any
Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lender. Each
Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the
extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of
any other Lender. Except as provided in Section 15.7, no member of the Lender Group shall have any liability for the
acts of any other member of the Lender Group. No Lender shall be responsible to any Borrower or any other Person
for any failure by any other Lender (or Bank Product Provider) to fulfill its obligations to make credit available
hereunder, nor to advance for such Lender (or Bank Product Provider) or on its behalf, nor to take any other action on
behalf of such Lender (or Bank Product Provider) hereunder or in connection with the financing contemplated herein.
WITHHOLDING TAXES.
Payments. All payments made by any Loan Party under any Loan Document will be made free and clear of, and
without deduction or withholding for, any Taxes, except as otherwise required by applicable law, and in the event any
deduction or withholding of Taxes is required, the applicable Loan Party shall make the requisite withholding,
promptly pay over to the applicable Governmental Authority the withheld tax, and furnish to Agent as promptly as
possible after the date the payment of any such Tax is due pursuant to applicable law, certified copies of tax receipts
evidencing such payment by the Loan Parties. Furthermore, if any such Tax is an Indemnified Taxes or an
Indemnified Tax is so levied or imposed, the Loan Parties agree to pay the full amount of such Indemnified Taxes and
such additional amounts as may be necessary so that every payment of all amounts due under this Agreement, any
note, or Loan Document, including any amount paid pursuant to this Section 16.1 after withholding or deduction for or
on account of any Indemnified Taxes, will not be less than the amount provided for herein. The Loan Parties will
promptly pay any Other Taxes or reimburse Agent for such Other Taxes upon Agent's demand. The Loan Parties
shall jointly and severally indemnify each Indemnified Person (as defined in Section 10.3) (collectively a "Tax
Indemnitee") for the full amount of Indemnified Taxes arising in connection with this Agreement or any other Loan
Document or breach thereof by any Loan Party (including any Indemnified Taxes imposed or asserted on, or
attributable to, amounts payable under this Section 16) imposed on, or paid by, such Tax Indemnitee and all
reasonable costs and expenses related thereto (including fees and disbursements of attorneys and other tax
professionals), as and when they are incurred and irrespective of whether suit is brought, whether or not such
Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority (other than
Indemnified Taxes and additional amounts that a court of competent jurisdiction finally determines in a final, non-
appealable judgment to have resulted from the gross negligence or willful misconduct of such Tax Indemnitee). The
obligations of the Loan Parties under this Section
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16 shall survive the termination of this Agreement, the resignation and replacement of the Agent, and the repayment
of the Obligations.
Exemptions.
If a Lender or Participant is entitled to claim an exemption or reduction from United States
withholding tax, such Lender or Participant agrees with and in favor of Agent, to deliver to Agent (or,
in the case of a Participant, to the Lender granting the participation only) and the Administrative
Borrower on behalf of all Borrowers one of the following before receiving its first payment under this
Agreement:
if such Lender or Participant is entitled to claim an exemption from United States withholding tax pursuant to the portfolio
interest exception, (A) a statement of the Lender or Participant, signed under penalty of perjury, that it is not a (I) a “bank” as
described in Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder of Parent (within the meaning of Section 871(h)(3)(B) of
the IRC), or (III) a controlled foreign corporation related to Borrowers within the meaning of Section 864(d)(4) of the IRC, and
(B) a properly completed and executed IRS Form W-8BEN, Form W-8BEN-E or Form W-8IMY (with proper attachments, as
applicable);
if such Lender or Participant is entitled to claim an exemption from, or a reduction of, withholding tax under a United States tax
treaty, a properly completed and executed copy of IRS Form W-8BEN or Form W-8BEN-E, as applicable;
if such Lender or Participant is entitled to claim that interest paid under this Agreement is exempt from United States withholding
tax because it is effectively connected with a United States trade or business of such Lender, a properly completed and executed
copy of IRS Form W-8ECI;
if such Lender or Participant is entitled to claim that interest paid under this Agreement is exempt from United States withholding
tax because such Lender or Participant serves as an intermediary, a properly completed and executed copy of IRS Form W-8IMY
(including a withholding statement and copies of the tax certification documentation for its beneficial owner(s) of the income
paid to the intermediary, if required based on its status provided on the Form W-8IMY); or
a properly completed and executed copy of any other form or forms, including IRS Form W-9, as may be required under the IRC
or other laws of the United States as a condition to exemption from, or reduction of, United States withholding or backup
withholding tax.
Each Lender or Participant shall provide new forms (or successor forms) upon the expiration or
obsolescence of any previously delivered forms and to promptly notify Agent and Administrative
Borrower (or, in the case of a Participant, to the Lender granting the participation only) of any change
in circumstances which would modify or render invalid any claimed exemption or reduction.
If a Lender or Participant claims an exemption from withholding tax in a jurisdiction other than
the United States, such Lender or such Participant agrees with and in favor of Agent and Borrowers,
to deliver to Agent and Administrative Borrower (or, in the case of a Participant, to the Lender
granting the participation only) any such form or forms, as may be required under the laws of such
jurisdiction as a condition to exemption from, or reduction of, foreign withholding or backup
withholding tax before receiving its first payment under this Agreement, but only if such Lender or
such Participant is legally able to deliver such forms, or the providing of or delivery of such forms in
the Lender's reasonable judgment would not subject such Lender to any material unreimbursed cost
or expense or materially prejudice the legal or commercial position of such Lender (or its
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Affiliates), provided, further, that nothing in this Section 16.2(c) shall require a Lender or Participant
to disclose any information that it deems to be confidential (including its tax returns). Each Lender
and each Participant shall provide new forms (or successor forms) upon the expiration or
obsolescence of any previously delivered forms and to promptly notify Agent and Administrative
Borrower (or, in the case of a Participant, to the Lender granting the participation only) of any change
in circumstances which would modify or render invalid any claimed exemption or reduction.
If a Lender or Participant claims exemption from, or reduction of, withholding tax and such
Lender or Participant sells, assigns, grants a participation in, or otherwise transfers all or part of the
Obligations of Loan Parties to such Lender or Participant, such Lender or Participant agrees to notify
Agent and Administrative Borrower (or, in the case of a sale of a participation interest, to the Lender
granting the participation only) of the percentage amount in which it is no longer the beneficial owner
of Obligations of Loan Parties to such Lender or Participant. To the extent of such percentage
amount, Agent and Administrative Borrower will treat such Lender’s or such Participant’s
documentation provided pursuant to Section 16.2(a) or 16.2(c) as no longer valid. With respect to
such percentage amount, such Participant or Assignee may provide new documentation, pursuant to
Section 16.2(a) or 16.2(c), if applicable. Parent and Borrowers agree that each Participant shall be
entitled to the benefits of this Section 16 with respect to its participation in any portion of the
Commitments and the Obligations so long as such Participant complies with the obligations set forth
in this Section 16 with respect thereto.
If a payment made to a Lender under any Loan Document would be subject to U.S. federal
withholding tax imposed by FATCA if such Lender were to fail to comply with the applicable due
diligence and reporting requirements of FATCA (including those contained in Section 1471(b) or
1472(b) of the IRC, as applicable), such Lender shall deliver to Agent (or, in the case of a Participant,
to the Lender granting the participation only) at the time or times prescribed by law and at such time
or times reasonably requested by Agent (or, in the case of a Participant, the Lender granting the
participation) such documentation prescribed by applicable law (including as prescribed by Section
1471(b)(3)(C)(i) of the IRC) and such additional documentation reasonably requested by Agent (or,
in the case of a Participant, the Lender granting the participation) as may be necessary for Agent or
Borrowers to comply with their obligations under FATCA and to determine that such Lender has
complied with such Lender's obligations under FATCA or to determine the amount to deduct and
withhold from such payment. Solely for purposes of this clause (e), "FATCA" shall include any
amendments made to FATCA after the date of this Agreement.
Reductions.
If a Lender or a Participant is subject to an applicable withholding tax, Agent (or, in the case of a
Participant, the Lender granting the participation) may withhold from any payment to such Lender or
such Participant an amount equivalent to the applicable withholding tax. If the forms or other
documentation required by Section 16.2(a) or 16.2(c) are
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not delivered to Agent (or, in the case of a Participant, to the Lender granting the participation), then
Agent (or, in the case of a Participant, to the Lender granting the participation) may withhold from
any payment to such Lender or such Participant not providing such forms or other documentation an
amount equivalent to the applicable withholding tax.
If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts
a claim that Agent (or, in the case of a Participant, to the Lender granting the participation) did not
properly withhold tax from amounts paid to or for the account of any Lender or any Participant due to
a failure on the part of the Lender or any Participant (because the appropriate form was not delivered,
was not properly executed, or because such Lender failed to notify Agent (or such Participant failed
to notify the Lender granting the participation) of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender
shall indemnify and hold Agent harmless (or, in the case of a Participant, such Participant shall
indemnify and hold the Lender granting the participation harmless) for all amounts paid, directly or
indirectly, by Agent (or, in the case of a Participant, to the Lender granting the participation), as tax
or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on
the amounts payable to Agent (or, in the case of a Participant, to the Lender granting the participation
only) under this Section 16, together with all costs and expenses (including attorneys fees and
expenses). The obligation of the Lenders and the Participants under this subsection shall survive the
payment of all Obligations and the resignation or replacement of Agent.
Refunds. If Agent or a Lender determines, in its sole discretion, that it has received a refund of any Indemnified
Taxes to which Borrowers have paid additional amounts pursuant to this Section 16, so long as no Default or Event of
Default has occurred and is continuing, it shall pay over such refund to the Administrative Borrower on behalf of the
Borrowers (but only to the extent of payments made, or additional amounts paid, by Borrowers under this Section 16
with respect to Indemnified Taxes giving rise to such a refund), net of all out-of-pocket expenses of Agent or such
Lender and without interest (other than any interest paid by the applicable Governmental Authority with respect to
such a refund); provided, that Borrowers, upon the request of Agent or such Lender, agrees to repay the amount paid
over to Borrowers (plus any penalties, interest or other charges, imposed by the applicable Governmental Authority,
other than such penalties, interest or other charges imposed as a result of the willful misconduct or gross negligence
of Agent hereunder as finally determined in a final, non-appealable judgment by a court of competent jurisdiction) to
Agent or such Lender in the event Agent or such Lender is required to repay such refund to such Governmental
Authority. Notwithstanding anything in this Agreement to the contrary, this Section 16 shall not be construed to require
Agent or any Lender to make available its tax returns (or any other information which it deems confidential) to
Borrowers or any other Person or require Agent or any Lender to pay any amount to an indemnifying party pursuant
to Section 16.4, the payment of which would place Agent or such Lender (or their Affiliates) in a less favorable net
after-Tax position than such Person would have been in if the Tax subject to indemnification and giving rise to such
refund had not been deducted, withheld or otherwise imposed and the
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indemnification payments or additional amounts with respect to such Tax had never been paid.
GENERAL PROVISIONS.
Effectiveness. This Agreement shall be binding and deemed effective when executed by Parent, each Borrower,
Agent, and each Lender whose signature is provided for on the signature pages hereof.
Section Headings. Headings and numbers have been set forth herein for convenience only. Unless the contrary
is compelled by the context, everything contained in each Section applies equally to this entire Agreement.
Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against the
Lender Group or Parent or any Borrower, whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.
Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of
this Agreement for the purpose of determining the legal enforceability of any specific provision.
Bank Product Providers. Each Bank Product Provider in its capacity as such shall be deemed a third party
beneficiary hereof and of the provisions of the other Loan Documents for purposes of any reference in a Loan
Document to the parties for whom Agent is acting. Agent hereby agrees to act as agent for such Bank Product
Providers and, by virtue of entering into a Bank Product Agreement, the applicable Bank Product Provider shall be
automatically deemed to have appointed Agent as its agent and to have accepted the benefits of the Loan
Documents. It is understood and agreed that the rights and benefits of each Bank Product Provider under the Loan
Documents consist exclusively of such Bank Product Provider’s being a beneficiary of the Liens and security interests
(and, if applicable, guarantees) granted to Agent and the right to share in payments and collections out of the
Collateral as more fully set forth herein. In addition, each Bank Product Provider, by virtue of entering into a Bank
Product Agreement, shall be automatically deemed to have agreed that Agent shall have the right, but shall have no
obligation, to establish, maintain, relax, or release reserves in respect of the Bank Product Obligations and that if
reserves are established there is no obligation on the part of Agent to determine or insure whether the amount of any
such reserve is appropriate or not. In connection with any such distribution of payments or proceeds of Collateral,
Agent shall be entitled to assume no amounts are due or owing to any Bank Product Provider unless such Bank
Product Provider has provided a written certification (setting forth a reasonably detailed calculation) to Agent as to the
amounts that are due and owing to it and such written certification is received by Agent a reasonable period of time
prior to the making of such distribution. Agent shall have no obligation to calculate the amount due and payable with
respect to any Bank Products, but may rely upon the written certification of the amount due and payable from the
applicable Bank Product Provider. In the absence of an updated certification, Agent shall be entitled to assume that
the amount due and payable to the applicable Bank Product Provider is the amount last certified to Agent by such
Bank Product Provider as being due and payable (less any distributions made to such Bank Product Provider on
account thereof). Borrowers may obtain Bank Products from any Bank Product Provider, although
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Borrowers are not required to do so. Each Borrower acknowledges and agrees that no Bank Product Provider has
committed to provide any Bank Products and that the providing of Bank Products by any Bank Product Provider is in
the sole and absolute discretion of such Bank Product Provider. Notwithstanding anything to the contrary in this
Agreement or any other Loan Document, no provider or holder of any Bank Product shall have any voting or approval
rights hereunder (or be deemed a Lender) solely by virtue of its status as the provider or holder of such agreements
or products or the Obligations owing thereunder, nor shall the consent of any such provider or holder be required
(other than in their capacities as Lenders, to the extent applicable) for any matter hereunder or under any of the other
Loan Documents, including as to any matter relating to the Collateral or the release of Collateral or Guarantors.
Debtor-Creditor Relationship. The relationship between the Lenders and Agent, on the one hand, and the
Loan Parties, on the other hand, is solely that of creditor and debtor. No member of the Lender Group has (or shall be
deemed to have) any fiduciary relationship or duty to any Loan Party arising out of or in connection with the Loan
Documents or the transactions contemplated thereby, and there is no agency or joint venture relationship between
the members of the Lender Group, on the one hand, and the Loan Parties, on the other hand, by virtue of any Loan
Document or any transaction contemplated therein.
Counterparts; Electronic Execution. This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an
original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an
executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally
as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original
executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document
mutatis mutandis.
Revival and Reinstatement of Obligations; Certain Waivers.
If any member of the Lender Group or any Bank Product Provider repays, refunds, restores, or
returns in whole or in part, any payment or property (including any proceeds of Collateral) previously
paid or transferred to such member of the Lender Group or such Bank Product Provider in full or
partial satisfaction of any Obligation or on account of any other obligation of any Loan Party under
any Loan Document or any Bank Product Agreement, because the payment, transfer, or the
incurrence of the obligation so satisfied is asserted or declared to be void, voidable, or otherwise
recoverable under any law relating to creditors’ rights, including provisions of the Bankruptcy Code
and Canadian Debtor Relief Laws relating to fraudulent transfers, preferences, or other voidable or
recoverable obligations or transfers (each, a “Voidable Transfer”), or because such member of the
Lender Group or Bank Product Provider elects to do so on the reasonable advice of its counsel in
connection with a claim that the payment, transfer, or incurrence is or may be a Voidable Transfer,
then, as to any such Voidable Transfer, or the amount thereof that such member of the Lender Group
or Bank Product Provider elects to repay,
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restore, or return (including pursuant to a settlement of any claim in respect thereof), and as to all
reasonable costs, expenses, and attorneys’ fees of such member of the Lender Group or Bank Product
Provider related thereto, (i) the liability of the Loan Parties with respect to the amount or property
paid, refunded, restored, or returned will automatically and immediately be revived, reinstated, and
restored and will exist and (ii) Agent’s Liens securing such liability shall be effective, revived, and
remain in full force and effect, in each case, as fully as if such Voidable Transfer had never been
made. If, prior to any of the foregoing, (A) Agent’s Liens shall have been released or terminated or
(B) any provision of this Agreement shall have been terminated or cancelled, Agent’s Liens, or such
provision of this Agreement, shall be reinstated in full force and effect and such prior release,
termination, cancellation or surrender shall not diminish, release, discharge, impair or otherwise
affect the obligation of any Loan Party in respect of such liability or any Collateral securing such
liability. This provision shall survive the termination of this Agreement and the repayment in full of
the Obligations.
Anything to the contrary contained herein notwithstanding, if Agent or any Lender accepts a
guaranty of only a portion of the Obligations pursuant to any guaranty, each of Parent and each
Borrower hereby waive its right under Section 2822(a) of the California Civil Code or any similar
laws of any other applicable jurisdiction to designate the portion of the Obligations satisfied by the
applicable guarantor’s partial payment.
Confidentiality.
Agent and Lenders each individually (and not jointly or jointly and severally) agree that material,
non-public information regarding Parent, Borrowers and their Subsidiaries, their operations, assets,
and existing and contemplated business plans (“Confidential Information”) shall be treated by Agent
and the Lenders in a confidential manner, shall not be used other than in connection with the
administration of the Loans and performance of the Loan Documents, and shall not be disclosed by
Agent and the Lenders to Persons who are not parties to this Agreement, except: (i) to attorneys for
and other advisors, accountants, auditors, and consultants to any member of the Lender Group and to
employees, directors and officers of any member of the Lender Group (the Persons in this clause (i),
“Lender Group Representatives”) on a “need to know” basis in connection with this Agreement and
the transactions contemplated hereby and on a confidential basis, (ii) to Subsidiaries and Affiliates of
any member of the Lender Group (including the Bank Product Providers), provided that any such
Subsidiary or Affiliate shall have agreed to receive such information hereunder subject to the terms of
this Section 17.9, (iii) as may be required by regulatory authorities so long as such authorities are
informed of the confidential nature of such information, (iv) as may be required by statute, decision,
or judicial or administrative order, rule, or regulation; provided that (x) prior to any disclosure under
this clause (iv), the disclosing party agrees to provide Borrowers with prior notice thereof, to the
extent that it is practicable to do so and to the extent that the disclosing party is permitted to provide
such prior notice to Borrowers pursuant to the terms of the
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applicable statute, decision, or judicial or administrative order, rule, or regulation and (y) any
disclosure under this clause (iv) shall be limited to the portion of the Confidential Information as may
be required by such statute, decision, or judicial or administrative order, rule, or regulation, (v) as
may be agreed to in advance in writing by Borrowers, (vi) as requested or required by any
Governmental Authority pursuant to any subpoena or other legal process, provided, that, (x) prior to
any disclosure under this clause (vi) the disclosing party agrees to provide Borrowers with prior
written notice thereof, to the extent that it is practicable to do so and to the extent that the disclosing
party is permitted to provide such prior written notice to Borrowers pursuant to the terms of the
subpoena or other legal process and (y) any disclosure under this clause (vi) shall be limited to the
portion of the Confidential Information as may be required by such Governmental Authority pursuant
to such subpoena or other legal process, (vii) as to any such information that is or becomes generally
available to the public (other than as a result of prohibited disclosure by Agent or the Lenders or the
Lender Group Representatives), (viii) in connection with any assignment, participation or pledge of
any Lender’s interest under this Agreement, provided that prior to receipt of Confidential Information
any such assignee, participant, or pledgee shall have agreed in writing to receive such Confidential
Information either subject to the terms of this Section 17.9 or pursuant to confidentiality requirements
substantially similar to those contained in this Section 17.9 (and such Person may disclose such
Confidential Information to Persons employed or engaged by them as described in clause (i) above),
(ix) in connection with any litigation or other adversary proceeding involving parties hereto which
such litigation or adversary proceeding involves claims related to the rights or duties of such parties
under this Agreement or the other Loan Documents; provided, that, prior to any disclosure to any
Person (other than any Loan Party, Agent, any Lender, any of their respective Affiliates, or their
respective counsel) under this clause (ix) with respect to litigation involving any Person (other than
any Borrower, Agent, any Lender, any of their respective Affiliates, or their respective counsel), the
disclosing party agrees to provide Borrowers with prior written notice thereof, and (x) in connection
with, and to the extent reasonably necessary for, the exercise of any secured creditor remedy under
this Agreement or under any other Loan Document.
Anything in this Agreement to the contrary notwithstanding, Agent may disclose information
concerning the terms and conditions of this Agreement and the other Loan Documents to loan
syndication and pricing reporting services or in its marketing or promotional materials, with such
information to consist of deal terms and other information customarily found in such publications or
marketing or promotional materials and may otherwise use the name, logos, and other insignia of any
Borrower or the other Loan Parties and the Commitments provided hereunder in any “tombstone” or
other advertisements, on its website or in other marketing materials of the Agent.
Each Loan Party agrees that Agent may make materials or information provided by or on behalf
of Borrowers hereunder (collectively, “Borrower Materials”) available to the Lenders by posting the
Communications on IntraLinks, SyndTrak or a substantially similar secure electronic transmission
system (the
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“Platform”). The Platform is provided “as is” and “as available.” Agent does not warrant the accuracy
or completeness of the Borrower Materials, or the adequacy of the Platform and expressly disclaim
liability for errors or omissions in the communications. No warranty of any kind, express, implied or
statutory, including any warranty of merchantability, fitness for a particular purpose, non-
infringement of third party rights or freedom from viruses or other code defects, is made by Agent in
connection with the Borrower Materials or the Platform. In no event shall Agent or any of the Agent-
Related Persons have any liability to the Loan Parties, any Lender or any other person for damages of
any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses
(whether in tort, contract or otherwise) arising out of any Loan Party’s or Agent’s transmission of
communications through the Internet, except to the extent the liability of such person is found in a
final non-appealable judgment by a court of competent jurisdiction to have resulted from such
person’s gross negligence or willful misconduct. Each Loan Party further agrees that certain of the
Lenders may be “public-side” Lenders (i.e., Lenders that do not wish to receive material non-public
information with respect to the Loan Parties or their securities) (each, a “Public Lender”). The Loan
Parties shall be deemed to have authorized Agent and its Affiliates and the Lenders to treat Borrower
Materials marked “PUBLIC” or otherwise at any time filed with the SEC as not containing any
material non-public information with respect to the Loan Parties or their securities for purposes of
United States federal and state securities laws. All Borrower Materials marked “PUBLIC” are
permitted to be made available through a portion of the Platform designated as “Public Investor” (or
another similar term). Agent and its Affiliates and the Lenders shall be entitled to treat any Borrower
Materials that are not marked “PUBLIC” or that are not at any time filed with the SEC as being
suitable only for posting on a portion of the Platform not marked as “Public Investor” (or such other
similar term).
Survival. All representations and warranties made by the Loan Parties in the Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan
Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution
and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless
of any investigation made by any such other party or on its behalf and notwithstanding that Agent, Issuing Bank, or
any Lender may have had notice or knowledge of any Default or Event of Default or incorrect representation or
warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the
principal of, or any accrued interest on, any Loan or any fee or any other amount payable under this Agreement is
outstanding or unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or
been terminated.
Patriot Act; Due Diligence. Each Lender that is subject to the requirements of the Patriot Act hereby notifies the
Loan Parties that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information
that identifies each Loan Party, which information includes the name and address of each Loan Party and other
information that will allow such Lender to identify each Loan Party in accordance with the Patriot Act. In addition,
Agent and each Lender shall have the right to periodically conduct due diligence
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on all Loan Parties, their senior management and key principals and legal and beneficial owners. Each Loan Party
agrees to cooperate in respect of the conduct of such due diligence and further agrees that the reasonable costs and
charges for any such due diligence by Agent shall constitute Lender Group Expenses hereunder and be for the
account of Borrowers. Each Loan Party acknowledges that, pursuant to the AML Legislation, the Lenders and Agent
may be required to obtain, verify and record information regarding each Loan Party, their respective directors,
authorized signing officers, direct or indirect shareholders or other Persons in control of such Loan Party, and the
transactions contemplated hereby. Borrowers shall promptly provide all such information, including supporting
documentation and other evidence, as may be requested by any Lender or Agent, or any prospective assign or
participant of a Lender or Agent, in order to comply with any applicable AML Legislation, whether now or hereafter in
existence.
Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the
parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other
agreement, oral or written, before the date hereof. The foregoing to the contrary notwithstanding, all Bank Product
Agreements, if any, are independent agreements governed by the written provisions of such Bank Product
Agreements, which will remain in full force and effect, unaffected by any repayment, prepayments, acceleration,
reduction, increase, or change in the terms of any credit extended hereunder, except as otherwise expressly provided
in such Bank Product Agreement.
SeaSpine Orthopedics as Agent for Borrowers. Each Borrower hereby irrevocably appoints SeaSpine
Orthopedics as the borrowing agent and attorney-in-fact for all Borrowers (the “Administrative Borrower”) which
appointment shall remain in full force and effect unless and until Agent shall have received prior written notice signed
by each Borrower that such appointment has been revoked and that another Borrower has been appointed
Administrative Borrower. Each Borrower hereby irrevocably appoints and authorizes the Administrative Borrower
(a) to provide Agent with all notices with respect to Revolving Loans and Letters of Credit obtained for the benefit of
any Borrower and all other notices and instructions under this Agreement and the other Loan Documents (and any
notice or instruction provided by Administrative Borrower shall be deemed to be given by Borrowers hereunder and
shall bind each Borrower), (b) to receive notices and instructions from members of the Lender Group (and any notice
or instruction provided by any member of the Lender Group to the Administrative Borrower in accordance with the
terms hereof shall be deemed to have been given to each Borrower), and (c) to take such action as the
Administrative Borrower deems appropriate on its behalf to obtain Revolving Loans and Letters of Credit and to
exercise such other powers as are reasonably incidental thereto to carry out the purposes of this Agreement. It is
understood that the handling of the Loan Account and Collateral in a combined fashion, as more fully set forth herein,
is done solely as an accommodation to Borrowers in order to utilize the collective borrowing powers of Borrowers in
the most efficient and economical manner and at their request, and that Lender Group shall not incur liability to any
Borrower as a result hereof. Each Borrower expects to derive benefit, directly or indirectly, from the handling of the
Loan Account and the Collateral in a combined fashion since the successful operation of each Borrower is dependent
on the continued successful performance of the integrated group. To induce the Lender Group to do so, and in
consideration thereof, each Borrower hereby jointly and severally agrees to indemnify each member of the Lender
Group and hold each member of the Lender Group harmless against any and all liability, expense, loss or claim of
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damage or injury, made against the Lender Group by any Borrower or by any third party whosoever, arising from or
incurred by reason of (i) the handling of the Loan Account and Collateral of Borrowers as herein provided, or (ii) the
Lender Group’s relying on any instructions of the Administrative Borrower, except that Borrowers will have no liability
to the relevant Agent-Related Person or Lender-Related Person under this Section 17.13 with respect to any liability
that has been finally determined in a final, non-appealable judgment by a court of competent jurisdiction to have
resulted solely from the gross negligence or willful misconduct of such Agent-Related Person or Lender-Related
Person, as the case may be.
Acknowledgement and Consent to Bail-In of EEA Financial Institutions. Notwithstanding anything to
the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party
hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such
liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and
consents to, and acknowledges and agrees to be bound by:
(a)
the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such
liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b)
the effects of any Bail-in Action on any such liability, including, if applicable:
a reduction in full or in part or cancellation of any such liability;
) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution,
its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other
instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or
any other Loan Document; or
i)the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA
Resolution Authority.
Amendment and Restatement of the Original Credit Agreement. The parties hereto acknowledge and
agree that: (a) this Agreement and the other Loan Documents executed and delivered in connection herewith do not constitute a
novation, payment and reborrowing, or termination of the “Obligations” (as defined in the Original Credit Agreement); (b) such
“Obligations” under the Original Credit Agreement are in all respects continuing with only the terms thereof being amended and
modified as provided in this Agreement; and (c) the “Liens” granted in the “Collateral” (each as defined in the Original Credit
Agreement and/or the Guaranty and Security Agreement, as applicable) pursuant to the Original Credit Agreement securing
payment of such “Obligations” are in all respects continuing and in full force and effect and secure the payment of the
Obligations (as defined in this Agreement) and are hereby fully ratified and affirmed. Without limitation of the foregoing,
Borrowers and Parent hereby fully and unconditionally ratify and affirm all of the Loan Documents, as amended, and agree that
all security interests and other Liens granted to Agent for the benefit of itself and the other Lenders in the collateral thereunder
with respect to the Loans shall from and after the date hereof secure all Obligations hereunder in favor of the Agent for the
benefit of itself and the other Lenders. For the avoidance of doubt, all other Obligations (as defined in the Original Credit
Agreement) remain unaffected except to the extent specifically set forth therein, and the Original Credit Agreement and related
Loan Documents remain in full force and effect in all respects.
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Notwithstanding the modifications effected by this Agreement of the representations, warranties and covenants of Borrowers
and/or Parent, as applicable, in the Original Credit Agreement, Borrowers and Parent acknowledge and agree that any choses in
action or other rights created in favor of Agent for the benefit of itself and the other Lenders (and their successors and assigns)
arising out of the representations and warranties of Borrowers and/or Parent, as applicable, contained in or delivered (including
representations and warranties delivered in connection with the making of the loans or other extensions of credit thereunder) in
connection with the Original Credit Agreement shall survive the execution and delivery of this Agreement in favor of the Agent
for the benefit of itself and the other Lenders. All indemnification obligations of Borrowers and Parent pursuant to the Original
Credit Agreement shall survive the amendment and restatement of the Original Credit Agreement pursuant to this Agreement. On
and after the Closing Date, each reference in the Loan Documents to the “Credit Agreement”, “thereunder”, “thereof” or similar
words referring to the Credit Agreement shall mean and be a reference to this Agreement.
(n)
Release; No Actions, Claims, Etc..
(i)
In further consideration of Agent’s and Lenders’ execution of this Agreement, each of Parent and
each Borrower (on behalf of itself and its members, managers, partners, officers, employees, affiliates, agents, successors
and assigns) hereby unconditionally and irrevocably forever remises, releases, acquits, satisfies and forever discharges
Agent and each Lender and their respective predecessors, successors, assigns, officers, managers, directors, employees,
agents, attorneys, representatives and affiliates (collectively, the “Releasees”) from any and all claims, counterclaims,
demands, liabilities, disputes, proceedings, damages, debts, suits, controversies, penalties, fees, costs, expenses, actions
and causes of action (whether at law or in equity) and obligations of every nature whatsoever, whether liability be direct
or indirect, liquidated or unliquidated, known or unknown, matured or unmatured, fixed or contingent, foreseen or
unforeseen, and whether or not heretofore asserted, that such Borrower or Parent (or any of its members, managers,
partners, employees, officers, affiliates, successors or assigns) ever had, now has, or may have against or seek from any or
all of the Releasees, which arise from or relate to any actions, omissions, conditions, events, or any other circumstances
whatsoever on or prior to the date hereof, including with respect to the Obligations, any Collateral, this Agreement, the
transactions relating thereto, and any Loan Documents, other than for Agent or any Lender’s gross negligence or willful
misconduct as finally determined in a final, non-appealable judgment by a court of competent jurisdiction.
(ii)
Each of Parent and each Borrower understands, acknowledges and agrees that the release set forth
above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit
or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.
(iii)
To the furthest extent permitted by law, each of Parent and each Borrower hereby knowingly,
voluntarily, intentionally and expressly waives and relinquishes any and all rights and benefits that it, respectively, may
have as against Agent or any Lender under any law, rule or regulation of any jurisdiction that would or could have the
effect of limiting the extent to which a general release extends to claims which any Borrower, Parent, Agent, any Lender
or any Releasee does not know or suspect to exist as of the date hereof. Each of Parent and each Borrower hereby
acknowledges that the waiver set forth in the prior sentence was separately bargained for and that such waiver is an
essential term and condition of this Agreement.
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As of the date hereof, each of Parent and each Borrower hereby acknowledges and confirms that they have
no knowledge of any claims, counterclaims, demands, liabilities, disputes, proceedings, damages, debts,
suits, controversies, penalties, fees, costs, expenses, actions or causes of action of whatever kind or nature,
in law or in equity, against the Agent, the Lenders or any other Releasees arising from any action by such
Persons, or failure of such Persons on or prior to the date hereof which arise from or relate to any actions,
omissions, conditions, events, or any other circumstances whatsoever on or prior to the date hereof,
including with respect to the Original Credit Agreement and the other Loan Documents executed in
connection therewith, the transactions relating thereto the Obligations or any Collateral.
Reaffirmation of Loan Documents; Reaffirmation of Security Interest; Guarantor
Acknowledgement. Each of Parent and each Borrower hereby (a) confirms and agrees that (i) each Loan Document to
which it is a party remains in full force and effect and each are hereby ratified and confirmed in all respects, including with
regard to this Agreement and all of each Borrower’s and Parent’s liabilities and obligations under and pursuant to the Loan
Documents to which it is a party, each as modified by this Agreement (if and as applicable), are and shall be valid and
enforceable and shall not be impaired or limited in any way by the execution, delivery or effectiveness of this Agreement, (b)
represents and warrants to Agent and Lenders, which representations and warranties shall survive the execution and delivery
hereof, that each Borrower’s and Parent’s representations and warranties contained in the Loan Documents to which it is a party
are true and correct as of the date hereof, with the same effect as though made on the date hereof, (c) agrees and acknowledges
that such ratification and confirmation is not a condition to the continued effectiveness of this Agreement or any other Loan
Document, and (d) agrees that neither such ratification and confirmation, nor the solicitation of such ratification and confirmation
by Agent constitutes a course of dealing giving rise to any obligation or condition requiring a similar or any other ratification or
confirmation from the undersigned with respect to subsequent amendments, modifications or restatements, if any, to the
Agreement or any other Loan Document. The disclosure schedules to the Guaranty and Security Agreement are amended and
restated with the disclosure schedules attached hereto as Exhibit G-1, each of which is true, complete and correct in all material
respects and shall be deemed a part of the Guaranty and Security Agreement for all purposes of the Guaranty and Security
Agreement. Each of Parent and each Borrower hereby confirms and agrees that all security interests and liens granted to Agent,
for the benefit of the Lenders, continue to be perfected, first priority liens and remain in full force and effect and shall continue to
secure the Obligations. All Collateral remains free and clear of any liens other than liens in favor of Agent and Permitted Liens.
Nothing herein contained is intended to in any way impair or limit the validity, priority, and extent of Agent’s existing security
interest in and liens upon the Collateral. Each Guarantor acknowledges and consents to all of the terms and conditions of this
Agreement, affirms its guaranty obligations under and in respect of the Loan Documents to which it is a party and agrees that
neither this Agreement nor any of the documents executed in connection therewith operate to reduce or discharge its obligations
under the Loan Documents, except as expressly set forth herein or therein.
9.
ULC Shares.
(1)
Notwithstanding anything else contained in this Agreement or any other document or
agreement among all or some of the parties hereto (or beneficiaries hereof), each Loan Party is the
sole registered and beneficial owner of all of its Collateral that is ULC Shares and will remain so until
such time as such ULC Shares
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are effectively transferred into the name of Agent, or any nominee of the foregoing or any other
Person on the books and records of such ULC. Accordingly, such Loan Party shall be entitled to
receive and retain for its own account any dividend on or other distribution, if any, in respect of ULC
Shares that are its Collateral and shall have the right to vote such ULC Shares and to control the
direction, management and policies of any such ULC to the same extent as such Loan Party would if
such ULC Shares were not pledged to Agent pursuant hereto. Nothing in this Agreement or any
other document or agreement among all or some of the parties hereto (or beneficiaries hereof) is
intended to, and nothing in this Agreement or any other document or agreement among all or some
of the parties hereto (or beneficiaries hereof) shall, constitute Agent or any Person other than the
Loan Parties, a member of any ULC for the purposes of the Companies Act (Nova Scotia), the
Business Corporations Act (British Columbia), the Business Corporations Act (Alberta) or any other
applicable legislation until such time as notice is given to the relevant Loan Parties and further steps
are taken hereunder or thereunder so as to register Agent, or any nominee of the foregoing, as
specified in such notice, as the holder of shares of such ULC. To the extent any provision hereof
would have the effect of constituting Agent a member of a ULC prior to such time, such provision
shall be severed herefrom and ineffective with respect to Collateral that is shares of such ULC
without otherwise invalidating or rendering unenforceable this Agreement or invalidating or rendering
unenforceable such provision insofar as it relates to Collateral that is not shares of such ULC.
1.1.2. Except upon the exercise of rights to sell or otherwise dispose of Collateral that is ULC Shares once
the security interest is enforceable, no Loan Party shall cause or permit, or enable any ULC in which it holds
ULC Shares that are Collateral to cause or permit, to the extent it is able to do so, Agent to: (i) be registered
as a shareholder or member of a ULC; (ii) have any notation entered in its favor in the share register of a
ULC; (iii) be held out as a shareholder or member of a ULC; (iv) receive, directly or indirectly, any dividends,
property or other distributions from a ULC by reason of Agent holding a security interest in a ULC or ULC
Shares; or (v) act as a shareholder or member of a ULC, or exercise any rights of a shareholder or member
including the right to attend a meeting of, or to vote the shares of, a ULC.
[Signature pages to follow.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date
first above written.
PARENT AND GUARANTOR:
SEASPINE HOLDINGS CORPORATION, a Delaware corporation
By:
John Bostjancic
Chief Financial Officer
GUARANTOR:
PROJECT MAPLE LEAF HOLDINGS ULC, an unlimited liability
company organized under the laws of British Columbia
By:
Patrick Keran
Director
BORROWERS:
SEASPINE ORTHOPEDICS CORPORATION, a Delaware corporation
By:
John Bostjancic
Chief Financial Officer
SEASPINE, INC., a Delaware corporation
By:
John Bostjancic
Chief Financial Officer
ISOTIS, INC., a Delaware corporation
By:
John Bostjancic
Chief Financial Officer
(Signature Page to Amended and Restated Credit Agreement)
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SEASPINE SALES LLC, a Delaware limited liability company
By: SeaSpine, Inc., its sole member
By:
John Bostjancic
Chief Financial Officer
(Signature Page to Amended and Restated Credit Agreement)
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Documents)
ISOTIS ORTHOBIOLOGICS, INC., a Washington corporation
By:
John Bostjancic
Chief Financial Officer
THEKEN SPINE, LLC, an Ohio limited liability company
By: SeaSpine Orthopedics Corporation, its sole member
By:
John Bostjancic
Chief Financial Officer
SEASPINE ORTHOPEDICS INTERMEDIATECO, INC., a Delaware
corporation
By:
John Bostjancic
Chief Financial Officer
7D SURGICAL USA INC., a Delaware corporation
By:
John Bostjancic
Chief Financial Officer
7D SURGICAL ULC, an unlimited liability company organized under the
laws of British Columbia
By:
John Bostjancic
Senior Vice President
(Signature Page to Amended and Restated Credit Agreement)
DM3\7893162.7
WELLS FARGO BANK, NATIONAL
ASSOCIATION, a national banking
association, as Agent and as a Lender
By:
Name: Lloyd Van DykeRina Shinoda
Title:
Authorized Signatory
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Schedule 1.1
As used in the Agreement, the following terms shall have the following definitions:
“AAPP” means the Accelerated and Advance Payments Program under the CARES Act, as amended (including any
successor thereto), and all requests, rules, guidelines, requirements and directives thereunder or issued in connection therewith or
in implementation thereof, regardless of the date enacted, adopted, issued or implemented.
“Acceptable Appraisal” means, with respect to an appraisal of Inventory the most recent appraisal of such property
received by Agent (a) from an appraisal company satisfactory to Agent, (b) the scope and methodology (including, to the extent
relevant, any sampling procedure employed by such appraisal company) (prepared based on reasonable assumptions and pursuant
to customary instructions) of which are satisfactory to Agent, and (c) the results of which are satisfactory to Agent, in each case,
in Agent's Permitted Discretion.
“Account” means an account (as that term is defined in the Code).
“Account Debtor” means any Person who is obligated on an Account, chattel paper, or a general intangible.
“Account Party” has the meaning specified therefor in Section 2.11(h) of the Agreement.
“Accounting Changes” means changes in accounting principles required by the promulgation of any rule, regulation,
pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public
Accountants (or successor thereto or any agency with similar functions).
“Acquired Indebtedness” means Indebtedness of a Person whose assets or Equity Interests are acquired by Parent, and
Borrower or any of their respective Subsidiaries in a Permitted Acquisition; provided, that such Indebtedness (a) is either
purchase money Indebtedness or a Capital Lease with respect to Equipment or mortgage financing with respect to Real Property
or other Indebtedness which would be Permitted Indebtedness if incurred by Borrower, (b) was in existence prior to the date of
such Permitted Acquisition, and (c) was not incurred in connection with, or in contemplation of, such Permitted Acquisition.
“Acquisition” means (a) the purchase or other acquisition by a Person or its Subsidiaries of all or substantially all of the
assets of any other Person, or (b) the purchase or other acquisition (whether by means of a merger, consolidation, or otherwise)
by a Person or its Subsidiaries of all of the Equity Interests of any other Person.
“Additional Documents” has the meaning specified therefor in Section 5.12 of the Agreement.
“Administrative Borrower” has the meaning specified therefor in Section 17.13 of the Agreement.
“Administrative Questionnaire” has the meaning specified therefor in Section 13.1(a) of the Agreement.
“Affected Lender” has the meaning specified therefor in Section 2.13(b) of the Agreement.
SCHEDULE 1.1
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“Affiliate” means, as applied to any Person, any other Person who controls, is controlled by, or is under common control
with, such Person. For purposes of this definition, “control” means the possession, directly or indirectly through one or more
intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of Equity
Interests, by contract, or otherwise; provided, that, for purposes of the definitiondefinitions of Eligible Accounts and Section 6.10
of the Agreement: (a) if any Person owns directly or indirectly 20% or more of the Equity Interests having ordinary voting power
for the election of directors or other members of the governing body of a Person or 20% or more of the partnership or other
ownership interests of a Person (other than as a limited partner of such Person), then both such Persons shall be deemed Affiliates
of each other, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and
(c) each partnership in which a Person is a general partner shall be deemed an Affiliate of such Person.
“Agent” has the meaning specified therefor in the preamble to the Agreement.
“Agent-Related Persons” means Agent, together with its Affiliates, officers, directors, employees, attorneys, and agents.
“Agent’s Account” means the Deposit Account of Agent identified on Schedule A-1 to the Agreement (or such other
Deposit Account of Agent that has been designated as such, in writing, by Agent to Borrowers and the Lenders).
“Agent’s Liens” means the Liens granted by Parent, each Borrower and any of their Subsidiaries to Agent under the Loan
Documents and securing the Obligations.
“Agreement” means the Amended and Restated Credit Agreement to which this Schedule 1.1 is attached, as amended,
restated, amended and restated, supplemented or otherwise modified from time to time.
“AML Legislation” means Canadian Anti-Money Laundering & Anti-Terrorism Legislation and other applicable anti-
money laundering, anti-terrorist financing, government sanction and “know your client” laws.
“Anti-Corruption Laws” means the FCPA, the U.K. Bribery Act of 2010, as amended, Canadian Economic Sanctions and
Export Control Laws and all other applicable laws and regulations or ordinances concerning or relating to bribery, money
laundering or corruption in any jurisdiction in which any Loan Party or any of its Subsidiaries or Affiliates is located or is doing
business.
“Anti-Money Laundering Laws” means the applicable laws or regulations in any jurisdiction in which any Loan Party or
any of its Subsidiaries or Affiliates is located or is doing business that relates to money laundering, any predicate crime to money
laundering, or any financial record keeping and reporting requirements related thereto.
“Applicable Margin” means, as of any date of determination and with respect to Base Rate Loans or LIBOR Rate Loans,
as applicable, the applicable margin set forth in the following table that corresponds to the Average Excess Availability of
Borrowers for the most recently completed month; provided, that any time an Event of Default has occurred and is continuing,
the Applicable Margin shall be set at the margin in the row styled “Level III”:
SCHEDULE 1.1
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Level
Average Excess Availability
Applicable Margin Relative to
Base Rate Loans (the “Base
Rate Margin”)
Applicable Margin Relative to
LIBOR
Rate Loans (the
“LIBOR Rate
Margin”)
I
> $20,000,000
1.25 percentage
points
2.25 percentage points
II
< $20,000,000 and
> $10,000,000
1.50 percentage
points
2.50 percentage points
III
< $10,000,000
1.75 percentage
points
2.75 percentage points
The Applicable Margin shall be re-determined as of the first day of each fiscal month of Borrowers.
“Applicable Unused Line Fee Percentage” means, as of any date of determination, the applicable percentage set forth in
the following table that corresponds to the Average Revolver Usage of Borrowers for the most recently completed month as
determined by Agent in its Permitted Discretion; provided that any time an Event of Default has occurred and is continuing, the
Applicable Unused Line Fee Percentage shall be set at the margin in the row styled “Level II”:
Level
Average Revolver Usage
Applicable
Unused
Line
Fee
Percentage
I
> 25% of the Maximum
Revolver Amount
0.375 percentage
points
II
< $25% of the Maximum
Revolver Amount
0.50 percentage
points
The Applicable Unused Line Fee Percentage shall be re-determined on the first date of each month by Agent.
SCHEDULE 1.1
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“Application Event” means the occurrence of (a) a failure by Borrowers to repay all of the Obligations in full on the
Maturity Date, or (b) an Event of Default and the election by Agent or the Required Lenders to require that payments and
proceeds of Collateral be applied pursuant to Section 2.4(b)(iii) of the Agreement.
“Assignee” has the meaning specified therefor in Section 13.1(a) of the Agreement.
“Assignment and Acceptance” means an Assignment and Acceptance Agreement substantially in the form of Exhibit A-1
to the Agreement.
“Authorized Person” means any one of the individuals identified as an officer of a Borrower on Schedule A-2 to the
Agreement, or any other individual identified by Administrative Borrower as an authorized person and authenticated through
Agent’s electronic platform or portal in accordance with its procedures for such authentication.
“Availability” means, as of any date of determination, the aggregate amount that Borrowers are entitled to borrow as
Revolving Loans under Section 2.1 of the Agreement (after giving effect to the then outstanding Revolver Usage).
“Available Increase Amount” means, as of any date of determination, an amount equal to the result of (a) $10,000,000,
minus (b) the aggregate principal amount of Increases to the Revolver Commitments previously made pursuant to Section 2.14 of
the Agreement.
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable,
(x) if the then-current Benchmark is a term rate, any tenor for such Benchmark or (y) otherwise, any payment period for interest
calculated with reference to such Benchmark, as applicable, that is or may be used for determining the length of an Interest
Period pursuant to this Agreement as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark
that is then-removed from the definition of “Interest Period” pursuant to Section 2.12(d)(iii)(D); provided, that if the then-current
Benchmark is based upon SOFR Average, such Benchmark shall be deemed to not have any Available Tenors.
“Average Excess Availability” means, with respect to any period, the sum of the aggregate amount of Excess Availability
for each Business Day in such period (calculated as of the end of each respective Business Day) divided by the number of
Business Days in such period.
“Average Revolver Usage” means, with respect to any period, the sum of the aggregate amount of Revolver Usage for
each day in such period (calculated as of the end of each respective day) divided by the number of days in such period.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution
Authority in respect of any liability of an EEA Financial Institution.
“Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU
of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country
from time to time which is described in the EU Bail-In Legislation Schedule.
“Bank Product” means any one or more of the following financial products or accommodations extended to Parent, any
Borrower or any of their Subsidiaries by a Bank Product Provider: (a) credit cards (including commercial cards (including so-
called “purchase
SCHEDULE 1.1
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cards”, “procurement cards” or “p-cards”)), (b) payment card processing services, (c) debit cards, (d) stored value cards, (e) Cash
Management Services, or (f) transactions under Hedge Agreements.
“Bank Product Agreements” means those agreements entered into from time to time by Parent, any Borrower or any of
their Subsidiaries with a Bank Product Provider in connection with the obtaining of any of the Bank Products.
“Bank Product Collateralization” means providing cash collateral (pursuant to documentation reasonably satisfactory to
Agent) to be held by Agent for the benefit of the Bank Product Providers (other than the Hedge Providers) in an amount
determined by Agent as sufficient to satisfy the reasonably estimated credit exposure, operational risk or processing risk with
respect to the then existing Bank Product Obligations (other than Hedge Obligations).
“Bank Product Obligations” means (a) all obligations, liabilities, reimbursement obligations, fees, or expenses owing by
Parent and each Borrower and their Subsidiaries to any Bank Product Provider pursuant to or evidenced by a Bank Product
Agreement and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, (b) all Hedge Obligations, and (c) all amounts that Agent or any Lender is
obligated to pay to a Bank Product Provider as a result of Agent or such Lender purchasing participations from, or executing
guarantees or indemnities or reimbursement obligations to, a Bank Product Provider with respect to the Bank Products provided
by such Bank Product Provider to Parent, any Borrower or any of their Subsidiaries.
“Bank Product Provider” means Wells Fargo or any of its Affiliates, including each of the foregoing in its capacity, if
applicable, as a Hedge Provider.
“Bank Product Reserves” means, as of any date of determination, those reserves that Agent deems necessary or
appropriate to establish (based upon the Bank Product Providers’ determination of the liabilities and obligations of Parent and
each Borrower and their Subsidiaries in respect of Bank Product Obligations) in respect of Bank Products then provided or
outstanding.
“Bankruptcy Code” means title 11 of the United States Code, as in effect from time to time.
“Base Rate” means, on any date, an annual rate of interest equal to the greatest of (a) the Federal Funds Rate plus ½%,
(b) the LIBOR Rate (which rate shall be calculated based upon an interest period of one month and shall be determined on a daily
basis), plus one percentage point, and (c) the rate of interest announced, from time to time, within Wells Fargo at its principal
office in San Francisco as its “prime rate”, with the understanding that the “prime rate” is one of Wells Fargo’s base rates (not
necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans
making reference thereto and is evidenced by the recording thereof after its announcement in such internal publications as Wells
Fargo may designate (and, if any such announced rate is below zero, then the rate determined pursuant to this clause (d) shall be
deemed to be zero).
“Base Rate Loan” means each portion of the Revolving Loans to Borrowers that bears interest at a rate determined by
reference to the Base Rate.
“Base Rate Margin” has the meaning set forth in the definition of Applicable Margin.
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“Benchmark” means, initially, USD LIBOR; provided that if a Benchmark Transition Event, a Term SOFR Transition
Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date have occurred with respect to
USD LIBOR or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that
such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 2.12(d)(iii)(A).
“Benchmark Replacement” means,
(a) with respect to any Benchmark Transition Event or Early Opt-in Election, the first alternative set forth in the order
below that can be determined by Agent for the applicable Benchmark Replacement Date:
(i) for any Available Tenor, the sum of: (A) Term SOFR and (B) the related Benchmark Replacement
Adjustment;
(ii) the sum of: (A) SOFR Average and (B) the related Benchmark Replacement Adjustment;
(iii) for any Available Tenor (if applicable), the sum of: (A) the alternate benchmark rate that has been selected
by Agent and Administrative Borrower as the replacement for the then-current Benchmark for the applicable
Corresponding Tenor (if applicable) giving due consideration to (1) any selection or recommendation of a
replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental
Body or (2) any evolving or then-prevailing market convention for determining a benchmark rate as a
replacement for the then-current Benchmark for Dollar-denominated syndicated credit facilities at such time
and (B) the related Benchmark Replacement Adjustment; or
(b) with respect to any Term SOFR Transition Event, for any Available Tenor (if applicable), the sum of (i) Term SOFR
and (ii) the related Benchmark Replacement Adjustment;
provided that, (x) in the case of clause (a)(i), if Agent decides that Term SOFR is not administratively feasible for Agent,
then Term SOFR will be deemed unavailable for purposes of this definition and (y) in the case of clause (a)(i) or clause (b) of this
definition, the applicable Unadjusted Benchmark Replacement is displayed on a screen or other information service that
publishes such rate from time to time as selected by Agent in its reasonable discretion. If the Benchmark Replacement as
determined pursuant to clause (a)(i), (a)(ii) or (a)(iii) or clause (b) of this definition would be less than the Floor, the Benchmark
Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark
with an Unadjusted Benchmark Replacement for any applicable Interest Period and Available Tenor (if applicable) for any setting
of such Unadjusted Benchmark Replacement:
(a) for purposes of clauses (a)(i) and (b) of the definition of “Benchmark Replacement,” an amount equal to (A)
0.11448% (11.448 basis points) for an Available Tenor of one-month’s duration, (B) 0.26161% (26.161 basis points) for an
Available Tenor of three-months’ duration and (C) 0.42826% (42.826 basis points) for an Available Tenor of six-months’
duration;
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(b) for purposes of clause (a)(ii) of the definition of “Benchmark Replacement,” an amount equal to 0.11448%
(11.448 basis points); and
(c) for purposes of clause (a)(iii) of the definition of “Benchmark Replacement,” the spread adjustment, or
method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been
selected by Agent and Administrative Borrower giving due consideration to (i) any selection or recommendation of a spread
adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Available Tenor (if
applicable) of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body on
the applicable Benchmark Replacement Date or (ii) any evolving or then-prevailing market convention for determining a spread
adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Available Tenor (if
applicable) of such Benchmark with the applicable Unadjusted Benchmark Replacement for Dollar-denominated syndicated
credit facilities.
“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement, any
technical, administrative or operational changes (including changes to the definition of “Base Rate,” the definition of “Business
Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of
borrowing requests or prepayment, conversion or continuation notices, length of lookback periods, the applicability of breakage
provisions, and other technical, administrative or operational matters) that Agent decides may be appropriate to reflect the
adoption and implementation of such Benchmark Replacement and to permit the administration thereof by Agent in a manner
substantially consistent with market practice (or, if Agent decides that adoption of any portion of such market practice is not
administratively feasible or if Agent determines that no market practice for the administration of such Benchmark Replacement
exists, in such other manner of administration as Agent decides is reasonably necessary in connection with the administration of
this Agreement and the other Loan Documents).
“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-
current Benchmark:
(a) in the case of clause (a) or (b) of the definition of “Benchmark Transition Event,” the later of (i) the date of
the public statement or publication of information referenced therein and (ii) the date on which the administrator of such
Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all
Available Tenors (if applicable) of such Benchmark (or such component thereof);
(b) in the case of clause (c) of the definition of “Benchmark Transition Event,” the date of the public statement
or publication of information referenced therein;
(c) in the case of a Term SOFR Transition Event, the date that is thirty (30) days after Agent has provided the
Term SOFR Notice to the Lenders and Administrative Borrower pursuant to Section 2.12(d)(iii)(A)(2); or
(d) in the case of an Early Opt-in Election, the sixth (6 ) Business Day after the date notice of such Early Opt-in
Election is provided to the Lenders, so long as Agent has not received, by 5:00 p.m. on the fifth (5 ) Business Day after the date
notice of such Early Opt-in Election is provided to the Lenders, written notice of objection to such Early Opt-in Election from
Lenders comprising the Required Lenders.
th
th
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For the avoidance of doubt, (A) if the event giving rise to the Benchmark Replacement Date occurs on the same day as,
but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have
occurred prior to the Reference Time for such determination and (B) if the then-current Benchmark has any Available Tenors, the
“Benchmark Replacement Date” will be deemed to have occurred in the case of clause (a) or (b) with respect to any Benchmark
upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such
Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-
current Benchmark:
(a) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the
published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all
Available Tenors (if applicable)of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the
time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor (if
applicable) of such Benchmark (or such component thereof);
(b) a public statement or publication of information by the regulatory supervisor for the administrator of such
Benchmark (or the published component used in the calculation thereof), the Federal Reserve Board, the Federal Reserve Bank of
New York, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution
authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar
insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the
administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors (if applicable) of
such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or
publication, there is no successor administrator that will continue to provide any Available Tenor (if applicable) of such
Benchmark (or such component thereof); or
(c) a public statement or publication of information by the regulatory supervisor for the administrator of such
Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors (if applicable) of
such Benchmark (or such component thereof) are no longer representative.
For the avoidance of doubt, if the then-current Benchmark has any Available Tenors, a “Benchmark Transition Event”
will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth
above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in
the calculation thereof).
“Benchmark Unavailability Period” means the period (if any) (x) beginning at the time that a Benchmark Replacement
Date pursuant to clauses (a) or (b) of that definition has occurred if, at such time, no Benchmark Replacement has replaced the
then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.12(d)(iii) and (y)
ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under
any Loan Document in accordance with Section 2.12(d)(iii).
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“Benefit Plan” means a “defined benefit plan” (as defined in Section 3(35) of ERISA) for which Parent, any Borrower or
any of their respective Subsidiaries or ERISA Affiliates has been an “employer” (as defined in Section 3(5) of ERISA) within the
past six years.
“Board of Directors” means, as to any Person, the board of directors (or comparable managers) of such Person, or any
committee thereof duly authorized to act on behalf of the board of directors (or comparable managers).
“Board of Governors” means the Board of Governors of the Federal Reserve System of the United States (or any
successor).
“Borrower” and “Borrowers” have the respective meanings specified therefor in the preamble to the Agreement.
“Borrower Materials” has the meaning specified therefor in Section 17.9(c) of the Agreement.
“Borrowing” means a borrowing consisting of Revolving Loans made on the same day by the Lenders (or Agent on
behalf thereof), or by Swing Lender in the case of a Swing Loan, or by Agent in the case of an Extraordinary Advance.
“Borrowing Base” means, as of any date of determination, the result of:
(a)
the sum of
(i)
85% of the amount of Eligible Accounts and Eligible Unbilled Accounts, minus
(ii)
the amount, if any, of the Dilution Reserve, minus
(iii)
the aggregate amount of other reserves, if any, established by Agent under Section 2.1(c) of the
Agreement, minus
(iv)
the Credit and Unapplied Collection Amount, plus
(b)
the lowest of
(i)
$12,500,000, and
(ii)
the lowest of (A) the product of 80% multiplied by the value (calculated at the lower of cost or market on a
basis consistent with Borrowers’ historical accounting practices) of (x) Eligible Finished Goods Inventory, (y) Eligible
Raw Materials Inventory and (z) Eligible Work-in-Process Inventory at such time, (B) the product of 85% multiplied by
the Net Recovery Percentage identified in the most recent Acceptable Appraisal of Inventory, multiplied by the value
(calculated at the lower of cost or market on a basis consistent with Borrowers’ historical accounting practices) of
(x) Eligible Finished Goods Inventory, (y) Eligible Raw Materials Inventory and (z) Eligible Work-in-Process Inventory
(each such determination may be made as to different categories of Eligible Finished Goods Inventory, Eligible Raw
Materials Inventory and Eligible Work-in-Process Inventory, as the case may be, based upon the Net Recovery Percentage
applicable to such categories) at such time, and (C) the product of 75% multiplied by the
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amount resulting from the calculation set forth in subsection (a)(i) of this definition at such time, minus
(c)
the aggregate amount of reserves, if any and without duplication, established by Agent under Section 2.1(c) of the
Agreement.
“Borrowing Base Certificate” means a certificate in the form of Exhibit B-1 to the Agreement.
“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to
close in the state of California, except that, if a determination of a Business Day shall relate to a LIBOR Rate Loan, the term
“Business Day” also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank
market.
“Canadian Anti-Money Laundering & Anti-Terrorism Legislation” means the Criminal Code, R.S.C. 1985, c. C-46, the
Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S.C. 2000, 17 and the United Nations Act, R.S.C. 1985, c.
U-2 or any similar Canadian legislation, together with Regulations Implementing the United Nations Resolutions on the
Suppression of Terrorism and the United Nations Al-Qaida and Taliban Regulations promulgated under the United Nations Act.
“Canadian Borrower” means 7D Canada.
“Canadian Debtor Relief Laws” means the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors
Arrangement Act (Canada), the Winding-Up and Restructuring Act (Canada) and all other liquidation, conservatorship,
bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or
similar debtor relief laws of Canada or other applicable jurisdictions from time to time in effect and affecting the rights of
creditors generally.
“Canadian Dollars” or C$ means lawful money of Canada.
“Canadian Economic Sanctions and Export Control Laws” means the Special Economic Measures Act (Canada) (S,C.
1992, c. 17) and the regulations made thereunder, the United Nations Act (Canada) (R.S.C. 1985, c. U-2), and the regulations
made thereunder, Freezing Assets of Corrupt Foreign Officials Act (Canada) (S.C. 2011, c.10), and the regulations made
thereunder, Part II.1 of the Criminal Code (Canada) (R.S.C., 1985, c. C-46), and the regulations made thereunder, the Export and
Import Permits Act (Canada) (R.S.C., 1985, c. E-19), and the regulations made thereunder, any other law or regulation
promulgated from time to time and administered by Global Affairs Canada and any similar laws enacted in Canada after the date
of this Agreement.
“Canadian Employee Plan” means a Canadian Pension Plan, a Canadian Welfare Plan or both.
“Canadian Guarantors” means Maple Leaf and each other Subsidiary formed in Canada or a province or territory of
Canada that has guaranteed the Obligations and their successors and assigns.
“Canadian Guaranty” means the Canadian Guarantee in form and substance reasonably satisfactory to Agent, executed
and to be delivered by each Canadian Loan Party to Agent.
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“Canadian Loan Parties” means, collectively, the Canadian Borrower and Canadian Guarantors.
“Canadian Pension Event” shall mean (a) the termination or wind-up in whole or in part of any Canadian Pension Plan or
the institution of proceedings by any Governmental Authority to terminate or wind-up in whole or in part or have a trustee or a
replacement administrator appointed to administer a Canadian Pension Plan which could reasonably be expected to have a
Material Adverse Effect, (b) the occurrence of an event under the Income Tax Act (Canada) that could reasonably be expected to
affect the registered status of any Canadian Pension Plan which could reasonably be expected to have a Material Adverse Effect,
(c) the taking of any action with respect to any Canadian Pension Plan which could reasonably be expected to have a Material
Adverse Effect, (d) receipt by a Loan Party of any order or notice of intention to issue an order from the applicable pension
standards regulator or similar Governmental Authority that could reasonably be expected to affect the registered status or cause
the termination or wind-up (in whole or in part) of any Canadian Pension Plan and, in either case, which could reasonably be
expected to have a Material Adverse Effect, (e) the receipt of notice by the administrator or the funding agent of any failure to
remit contributions to a Canadian Pension Plan, where such failure could reasonably be expected to have a Material Adverse
Effect, (f) the adoption of any amendment to a Canadian Pension Plan that would require the provision of security pursuant to
Applicable Law which could reasonably be expected to have a Material Adverse Effect, or (g) any other extraordinary event or
condition with respect to a Canadian Pension Plan that could reasonably be expected to result in a Lien or any acceleration of any
statutory requirements to fund all or a substantial portion of the unfunded liabilities of such plan which could reasonably be
expected to have a Material Adverse Effect.
“Canadian Pension Plans” shall mean a pension plan that is a “registered pension plan” as defined in subsection 248(1) of
the Income Tax Act (Canada) and which is maintained or contributed to by, or to which there is or may be an obligation to
contribute by any Borrower in respect of its employees or former employees, arising from employment in Canada, but does not
include the Canada Pension Plan or the Quebec Pension Plan as maintained by the Government of Canada or the Province of
Quebec.
“Canadian Security and Pledge Agreement” means the Canadian Security and Pledge Agreement in form and substance
reasonably satisfactory to Agent, executed and to be delivered by each Canadian Loan Party to Agent.
“Canadian Security Agreements” means the Canadian Guaranty, the Canadian Security and Pledge Agreement, any
Intellectual Property Security Agreement governed under the laws of Canada, and any other security documents executed and/or
delivered to Agent by any Loan Party organized under the laws of a province of Canada.
“Canadian Welfare Plan” means any deferred compensation, bonus, share option or purchase, savings, retirement savings,
retirement benefit, profit sharing, medical, health, hospitalization, insurance or any other benefit, program, agreement or
arrangement, funded or unfunded, formal or informal, written or unwritten, that is applicable to any current or former Canadian
employee, director, officer, shareholder, consultant or independent contractor of any Loan Party, or any dependent of any of them,
except a Canadian Pension Plan.
“Capital Expenditures” means, with respect to any Person, the amount of all expenditures by such Person and its
Subsidiaries during such period, in all cases that are capital expenditures as determined in accordance with GAAP, whether such
expenditures are paid in cash or financed, but excluding, without duplication (a) expenditures made during such period in
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connection with the replacement, substitution, or restoration of assets or properties pursuant to Section 2.4(e)(ii) of the
Agreement, (b) with respect to the purchase price of assets that are purchased substantially contemporaneously with the trade-in
of existing assets during such period, the amount that the gross amount of such purchase price is reduced by the credit granted by
the seller of such assets for the assets being traded in at such time, (c) expenditures made during such period to consummate one
or more Permitted Acquisitions, (d) expenditures made during such period to the extent made with the identifiable proceeds of an
equity investment in Parent, a Borrower or any of their Subsidiaries which equity investment is made substantially
contemporaneously with the making of the expenditure, (e) expenditures made with proceeds of insurance, and (f) expenditures
during such period that, pursuant to a written agreement, are reimbursed by a third Person (excluding Parent, any Borrower or
any of their Affiliates).
“Capitalized Lease Obligation” means that portion of the obligations under a Capital Lease that is required to be
capitalized in accordance with GAAP.
“Capital Lease” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.
“CARES Act” means the Coronavirus Aid, Relief, and Economic Security Act (Pub.L. No. 116-136), as amended
(including any successor thereto), and all requests, rules, guidelines, requirements and directives thereunder or issued in
connection therewith or in implementation thereof, regardless of the date enacted, adopted, issued or implemented.
“Cash Equivalents” means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States
or the Government of Canada issued by any agency thereof and backed by the full faith and credit of the United States or the
Government of Canada, as applicable, in each case maturing within one year from the date of acquisition thereof, (b) marketable
direct obligations issued or fully guaranteed by any state of the United States or province or territory of Canada or any political
subdivision of any such state, province or territory or any public instrumentality thereof maturing within one year from the date
of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard &
Poor’s Rating Group (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”), (c) commercial paper maturing no more than 270
days from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody’s, (d) certificates of deposit, time deposits, overnight bank deposits or bankers’ acceptances maturing within one year
from the date of acquisition thereof issued by any bank organized under the laws of the United States or any state thereof or the
District of Columbia or any United States branch of a foreign bank having at the date of acquisition thereof combined capital and
surplus of not less than $1,000,000,000, (e) Deposit Accounts maintained with (i) any bank that satisfies the criteria described in
clause (d) above, or (ii) any other bank organized under the laws of the United States or any state thereof so long as the full
amount maintained with any such other bank is insured by the Federal Deposit Insurance Corporation, (f) repurchase obligations
of any commercial bank satisfying the requirements of clause (d) of this definition or of any recognized securities dealer having
combined capital and surplus of not less than $1,000,000,000, having a term of not more than seven days, with respect to
securities satisfying the criteria in clauses (a) or (d) above, (g) debt securities with maturities of six months or less from the date
of acquisition backed by standby letters of credit issued by any commercial bank satisfying the criteria described in clause (d)
above, and (h) Investments in money market funds substantially all of whose assets are invested in the types of assets described
in clauses (a) through (g) above.
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“Cash Management Services” means any cash management or related services including treasury, depository, return
items, overdraft, controlled disbursement, merchant store value cards, e-payables services, electronic funds transfer, interstate
depository network, automatic clearing house transfer (including the Automated Clearing House processing of electronic funds
transfers through the direct Federal Reserve Fedline system) and other customary cash management arrangements.
“CFC” means a controlled foreign corporation (as that term is defined in the IRC) in which any Loan Party is a "United
States shareholder" within the meaning of Section 951(b) of the IRC.
“CHAMPVA” means, collectively, the Civilian Health and Medical Program of the Department of Veterans Affairs, and
all laws, rules, regulations, manuals, orders, guidelines or requirements (whether or not having the force of law) pertaining to
such program, in each case as the same may be amended, supplemented or otherwise modified from time to time.
“Change in Law” means the occurrence after the date of the Agreement of: (a) the adoption or effectiveness of any law,
rule, regulation, judicial ruling, judgment or treaty, (b) any change in any law, rule, regulation, judicial ruling, judgment or treaty
or in the administration, interpretation, implementation or application by any Governmental Authority of any law, rule,
regulation, guideline or treaty, or (c) the making or issuance by any Governmental Authority of any request, rule, guideline or
directive, whether or not having the force of law; provided that notwithstanding anything in the Agreement to the contrary, (i) the
Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or
issued in connection therewith and (ii) all requests, rules, guidelines or directives concerning capital adequacy promulgated by
the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or
the United States or foreign regulatory authorities shall, in each case, be deemed to be a “Change in Law,” regardless of the date
enacted, adopted or issued.
“Change of Control” means that:
(a)
the occurrence of a change in the composition of the Board of Directors of Parent, Maple Leaf or any Borrower
such that a majority of the members of such Board of Directors are not Continuing Directors; or
(b)
Parent fails to own and control, directly or indirectly, 100% of the Equity Interests of each other Loan Party.
“Closing Date” means the date of the making of the initial Revolving Loan (or other extension of credit) under the
Agreement.
“CMS” means The Centers for Medicare and Medicaid Services of the United States Department of Health and Human
Services, and any Governmental Authority successor thereto.
“Code” means the California Uniform Commercial Code, as in effect from time to time.
“Collateral” means all assets and interests in assets and proceeds thereof now owned or hereafter acquired by Parent, any
Borrower or any of their Subsidiaries in or upon which a Lien is granted by such Person in favor of Agent or the Lenders under
any of the Loan Documents.
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Documents)
“Collateral Access Agreement” means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor,
warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in
Parent’s, any Borrower’s or any of their Subsidiaries’ books and records, Equipment, or Inventory, in each case, in form and
substance reasonably satisfactory to Agent.
“Collections” means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, cash
proceeds of asset sales, rental proceeds, and tax refunds).
“Commitment” means, with respect to each Lender, its Revolver Commitment, and, with respect to all Lenders, their
Revolver Commitments, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable
heading on Schedule C-1 to the Agreement or in the Assignment and Acceptance pursuant to which such Lender became a
Lender under the Agreement, as such amounts may be reduced or increased from time to time pursuant to assignments made in
accordance with the provisions of Section 13.1 of the Agreement.
“Competitor” means any Person which is a direct competitor of Borrowers or any of their Subsidiaries if, at the time of a
proposed assignment, Agent and the assigning Lender have actual knowledge that such Person is a direct competitor of
Borrowers or any of their Subsidiaries; provided, that in connection with any assignment or participation, the Assignee or
Participant with respect to such proposed assignment or participation that is an investment bank, a commercial bank, a finance
company, a fund, or other Person which merely has an economic interest in any such direct competitor, and is not itself such a
direct competitor of Borrowers or any of their Subsidiaries, shall not be deemed to be a direct competitor for the purposes of this
definition.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time,
and any successor statute.
“Compliance Certificate” means a certificate substantially in the form of Exhibit C-1 to the Agreement delivered by the
chief financial officer or treasurer of Parent to Agent.
“Confidential Information” has the meaning specified therefor in Section 17.9(a) of the Agreement.
“Continuing Director” means (a) any member of the Board of Directors who was a director (or comparable manager) of
Parent or any Borrower, as the case may be, on the Closing Date, and (b) any individual who becomes a member of the Board of
Directors after the Closing Date if such individual was approved, appointed or nominated for election to the Board of Directors
by either the Permitted Holders or a majority of the Continuing Directors.
“Control Agreement” means a control agreement or blocked account agreement, in form and substance reasonably
satisfactory to Agent, executed and delivered by Parent or any Borrower, Agent, and the applicable securities intermediary (with
respect to a Securities Account) or bank in the United States or Canada (with respect to a Deposit Account).
“Copyright Security Agreement” has the meaning specified therefor in the Guaranty and Security Agreement or in the
case of the Canadian Loan Parties, the Canadian Security and Pledge Agreement.
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“Corresponding Tenor” with respect to any Available Tenor means, as applicable, either a tenor (including overnight) or
an interest payment period having approximately the same length (disregarding business day adjustment) as such Available
Tenor.
“Covenant Testing Period” means a period (a) commencing on the last day of the fiscal month of Parent and Borrowers
most recently ended prior to a Covenant Trigger Event for which Borrowers are required to deliver to Agent monthly, quarterly or
annual financial statements pursuant to Schedule 5.1 to the Agreement, and (b) continuing through and including the first day
after such Covenant Trigger Event that the Total Liquidity is equal to or greater than the Threshold Amount for thirty (30)
consecutive days.
“Covenant Trigger Event” means any date on which the Total Liquidity is less than the Threshold Amount.
“Credit and Unapplied Collection Amount” means, at any time, the sum of (a) any credit charges of any Account Debtors
of Eligible Accounts that are aged greater than the number of days allowed for the applicable Account Debtor for Eligible
Accounts from the invoice date and (b) any collections on Accounts that have been received by a Borrower but have not yet been
applied to an invoice.
“Default” means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an
Event of Default.
“Defaulting Lender” means any Lender that (a) has failed to (i) fund all or any portion of its Loans within two (2)
Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies Agent and
Administrative Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions
precedent to funding (each of which conditions precedent, together with any applicable Default or Event of Default, shall be
specifically identified in such writing) has not been satisfied, or (ii) pay to Agent, Issuing Bank, or any other Lender any other
amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit) within two (2) Business
Days of the date when due, (b) has notified any Borrower, Agent or Issuing Bank in writing that it does not intend to comply with
its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to
such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a
condition precedent to funding (which condition precedent, together with any applicable Default or Event of Default, shall be
specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three (3) Business Days after
written request by Agent or Administrative Borrower, to confirm in writing to Agent and Administrative Borrower that it will
comply with its prospective funding obligations hereunder (provided, that such Lender shall cease to be a Defaulting Lender
pursuant to this clause (c) upon receipt of such written confirmation by Agent and Administrative Borrower), or (d) has, or has a
direct or indirect parent company that has, (i) become the subject of any Insolvency Proceeding, (ii) had appointed for it a
receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with
reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or
federal regulatory authority acting in such a capacity, or (iii) become the subject of a Bail-in Action; provided, that a Lender shall
not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or
indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide
such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or
writs of attachment on its assets or permit such Lender (or such Governmental
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Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by
Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above shall be conclusive and
binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender upon delivery of written notice of such
determination to Administrative Borrower, Issuing Bank, and each Lender.
“Defaulting Lender Rate” means (a) for the first three days from and after the date the relevant payment is due, the Base
Rate, and (b) thereafter, the interest rate then applicable to Revolving Loans that are Base Rate Loans (inclusive of the Base Rate
Margin applicable thereto).
“Deposit Account” means any deposit account (as that term is defined in the Code).
“Designated Account” means the Deposit Account of the Loan Parties identified on Schedule D-1 to the Agreement (or
such other Deposit Account of any Loan Party located at Designated Account Bank that has been designated as such, in writing,
by Borrowers to Agent).
“Designated Account Bank” has the meaning specified therefor in Schedule D-1 to the Agreement (or such other bank
that is located within the United States that has been designated as such, in writing, by Borrowers to Agent).
“Dilution” means, as of any date of determination, a percentage, based upon the experience of the immediately prior
twelve (12) months, that is the result of dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising
allowances, credits, or other dilutive items with respect to Borrowers’ Accounts during such period, by (b) Borrowers’ billings
with respect to Accounts during such period.
“Dilution Reserve” means, as of any date of determination, an amount sufficient to reduce the advance rate against
Eligible Accounts by the extent to which Dilution is in excess of 5%.
“Disqualified Equity Interests” means any Equity Interests that, by their terms (or by the terms of any security or other
Equity Interests into which they are convertible or for which they are exchangeable), or upon the happening of any event or
condition (a) matures or are mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund
obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the
occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Loans and all other
Obligations that are accrued and payable and the termination of the Commitments), (b) are redeemable at the option of the holder
thereof (other than solely for Qualified Equity Interests), in whole or in part, (c) provide for the scheduled payments of dividends
in cash, or (d) are or become convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute
Disqualified Equity Interests, in each case, prior to the date that is 180 days after the Maturity Date.
“Dollars” or “$” means United States dollars.
“Dollars Equivalent” means, at any time, (i) as to any amount denominated in Dollars, the amount thereof at such time,
and (ii) as to any amount denominated in any other currency, the equivalent amount in Dollars calculated by Agent in good faith
at such time using the Exchange Rate in effect on the day of determination.
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“Domestic Subsidiary” means any Subsidiary of any Loan Party that is not a Foreign Subsidiary.
“Drawing Document” means any Letter of Credit or other document presented for purposes of drawing under any Letter
of Credit, including by electronic transmission such as SWIFT, electronic mail, facsimile or computer generated communication.
“Early Opt-in Election” means the occurrence of:
(a) a notification by Agent to (or the request by Administrative Borrower to Agent to notify) each of the other parties
hereto that at least five currently outstanding Dollar-denominated syndicated credit facilities at such time contain (as a result of
amendment or as originally executed) a SOFR-based rate (including SOFR, a term SOFR or any other rate based upon SOFR) as
a benchmark rate (and such syndicated credit facilities are identified in such notice and are publicly available for review), and
(b) the joint election by Agent and Administrative Borrower to trigger a fallback from USD LIBOR and the provision
by Agent of written notice of such election to the Lenders.
“Earn-Outs” means unsecured liabilities of a Loan Party arising under an agreement to make any deferred payment as a
part of the Purchase Price for a Permitted Acquisition, including performance bonuses or consulting payments in any related
services, employment or similar agreement, in an amount that is subject to or contingent upon the revenues, income, cash flow or
profits (or the like) of the target of such Permitted Acquisition.
“EBITDA” means, with respect to any fiscal period,
(a)
Parent’s and each of its direct and indirect Subsidiaries’ consolidated net earnings (or loss),
minus
(b)
without duplication, the sum of the following amounts of Parent and each of its direct and indirect Subsidiaries for
such period to the extent included in determining consolidated net earnings (or loss) for such period:
(i)
unusual or non-recurring gains,
(ii)
interest income,
plus
(c)
without duplication, the sum of the following amounts of Parent and each of its direct and indirect Subsidiaries for
such period to the extent deducted in determining consolidated net earnings (or loss) for such period:
(i)
non-cash unusual or non-recurring losses,
(ii)
non-cash impairment charges to fixed assets or intangible assets,
(iii)
Interest Expense,
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(iv)
provisions for income taxes,
(v)
depreciation and amortization for such period,
(vi)
non-cash equity compensation charges, and
(vii)
and other non-cash charges or non-recurring charges approved by Agent in its reasonable discretion, in
each case, determined on a consolidated basis in accordance with GAAP.
For the purposes of calculating EBITDA for any period of twelve-month period (each, a “Reference Period”), if at any
time during such Reference Period (and after the Closing Date), Parent or any of its Subsidiaries shall have made a Permitted
Acquisition, EBITDA for such Reference Period shall be calculated after giving pro forma effect thereto (including pro forma
adjustments arising out of events which are directly attributable to such Permitted Acquisition, are factually supportable, and are
expected to have a continuing impact, in each case to be mutually and reasonably agreed upon by Parent, Borrowers and Agent)
or in such other manner acceptable to Agent as if any such Permitted Acquisition or adjustment occurred on the first day of such
Reference Period. Further, for the purposes of calculating EBITDA, no more than twenty percent 20% of EBITDA shall be
attributable to foreign Subsidiaries which are not Loan Parties.
“Eligible Accounts” means those Accounts created by a Borrower in the ordinary course of its business, that arise out of
such Borrower’s sale of goods or rendition of services, that comply with each of the representations and warranties respecting
Eligible Accounts made in the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the excluding
criteria set forth below; provided, that such criteria may be revised from time to time by Agent in Agent’s Permitted Discretion to
address the results of any information with respect to the Borrowers’ business or assets of which Agent becomes aware after the
Closing Date, including any field examination performed by (or on behalf of) Agent from time to time after the Closing Date. In
determining the amount to be included, Eligible Accounts shall be calculated net of customer deposits, unapplied cash, taxes,
finance charges, service charges, discounts, credits, allowances, and rebates. Eligible Accounts shall not include the following:
(a)
Accounts that the Account Debtor has failed to pay within 120 days after original invoice date,
(b)
Accounts owed by an Account Debtor (or its Affiliates) where 50% or more of all Accounts owed by that Account
Debtor (or its Affiliates) are deemed ineligible under clause (a) above,
(c)
Accounts with respect to which the Account Debtor is a natural person, an Affiliate of any Borrower or an
employee or agent of any Borrower or any Affiliate of any Borrower,
(d)
Accounts (i) arising in a transaction wherein goods are placed on consignment or are sold pursuant to a guaranteed
sale, a sale or return, a sale on approval, a bill and hold, or any other terms by reason of which the payment by the Account
Debtor may be conditional or (ii) with respect to which the payment terms are “C.O.D.”, cash on delivery or other similar terms,
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(e)
Accounts that are not payable in Dollars, or Canadian Dollars; provided, all Eligible Accounts must be calculated
and provided to Agent in Dollars in connection with the calculation of the Borrowing Base,
(f)
Accounts with respect to which the Account Debtor either (i) does not maintain its principal executive office in the
United States or Canada, or (ii) is not organized under (x) the laws of the United States or any state thereof or (y) the laws of
Canada or any province or territory thereof (excluding the Province of Quebec), or (iii) is the government of any foreign country
or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency,
public corporation, or other instrumentality thereof (subject to paragraph (g) below),
(g)
Accounts with respect to which the Account Debtor is either federal Government of Canada or any
provincial or territorial government or Governmental Authority thereof which has adopted legislation requiring
any consent or other legal formality of a provincial or territorial Governmental Authority to the assignment of any
claim against such province or territory or Governmental Authority and/or the grant of any Lien in such Account,
unless the applicable Canadian Loan Party has complied with the terms of the Financial Administration Act
(Canada) or any other similar applicable provincial or territorial statute and such assignment is enforceable against
such Governmental Authority;
(h)
(g) Accounts with respect to which the Account Debtor is either (i) the United States or any
department, agency, or instrumentality of the United States (exclusive, however, of Accounts with respect to
which Borrowers have complied, to the reasonable satisfaction of Agent, with the Assignment of Claims Act, 31
USC § 3727) (but not an Account Debtor making payments under a Government Reimbursement Program), or
(ii) any state of the United States,
(i)
(h) Accounts with respect to which the Account Debtor is not a Third Party Payor,
(j)
(i) Accounts with respect to which the Account Debtor is a creditor of a Borrower, has or has
asserted a right of recoupment, chargeback, rebate or setoff, or has disputed its obligation to pay all or any portion
of the Account, to the extent of such claim, right of recoupment, chargeback, rebate or setoff, or dispute,
(k)
(j) Accounts with respect to an Account Debtor whose Eligible Accounts owing to Borrowers
exceed 10% (such percentage, as applied to a particular Account Debtor, being subject to reduction by Agent in its
Permitted Discretion if the creditworthiness of such Account Debtor deteriorates) of all Eligible Accounts, to the
extent of the obligations owing by such Account Debtor in excess of such percentage; provided, that, in each case,
the amount of Eligible Accounts that are excluded because they exceed the foregoing percentage shall be
determined by Agent based on all of the otherwise Eligible Accounts prior to giving effect to any eliminations
based upon the foregoing concentration limit,
(l)
(k) Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, is
not Solvent, has gone out of business, or as to
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which any Borrower has received notice of an imminent Insolvency Proceeding or a material impairment of the
financial condition of such Account Debtor,
(m)
(l) Accounts, the collection of which, Agent, in its Permitted Discretion, believes to be doubtful,
including by reason of the Account Debtor’s financial condition,
(n)
(m) Accounts that are not subject to a valid and perfected first priority Agent’s Lien,
(o)
(n) Accounts with respect to which (i) the goods giving rise to such Account have not been shipped
and billed to the Account Debtor, or (ii) the services giving rise to such Account have not been performed and
billed to the Account Debtor; provided, that such Accounts may constitute Eligible Unbilled Accounts if such
Accounts satisfy the definition thereof,
(p)
(o) Accounts with respect to which the Account Debtor is a Sanctioned Person or Sanctioned
Entity,
(q)
(p) Accounts that represent the right to receive progress payments or other advance billings that are
due prior to the completion of performance by the applicable Borrower of the subject contract for goods or
services,
(r)
(q) Accounts owned by a target acquired in connection with a Permitted Acquisition or Permitted
Investment, or Accounts owned by a Person that is joined to the Agreement as a Borrower pursuant to the
provisions of the Agreement, until the completion of a field examination with respect to such Accounts, in each
case, satisfactory to Agent in its Permitted Discretion, or
(s)
(r) Accounts arising out of a settlement or expected settlement.
“Eligible Finished Goods Inventory” means Inventory that qualifies as Eligible Inventory and is first quality finished
goods held for sale in the ordinary course of Borrowers’ business consisting of spinal fusion hardware products and
orthobiologics products.
“Eligible Inventory” means Inventory of a Borrower, that complies with each of the representations and warranties
respecting Eligible Inventory made in the Loan Documents, and that is not excluded as ineligible by virtue of one or more of the
excluding criteria set forth below; provided, that such criteria may be revised from time to time by Agent in Agent’s Permitted
Discretion to address the results of any information with respect to the Borrowers’ business or assets of which Agent becomes
aware after the Closing Date, including any field examination or appraisal performed or received by Agent from time to time
after the Closing Date. In determining the amount to be so included, Inventory shall be valued at the lower of cost or market on a
basis consistent with Borrowers’ historical accounting practices and the most recent appraisals of such Inventory obtained by
Agent. An item of Inventory shall not be included in Eligible Inventory if:
(a)
a Borrower does not have good, valid, and marketable title thereto,
(b)
a Borrower does not have actual and exclusive possession thereof (either directly or through a bailee or agent of a
Borrower),
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(c)
it is located on real property leased by a Borrower or in a contract warehouse, in each case, unless it is (x) located
at a location in the continental United States or in a province or territory in Canada, (y) subject to a Collateral Access Agreement
executed by the lessor or warehouseman, as the case may be, or a Landlord Reserve is in effect for such location, and (z)
segregated or otherwise separately identifiable from goods of others, if any, stored on the premises,
(d)
it is the subject of a bill of lading or other document of title,
(e)
it is not subject to a valid and perfected first priority Agent’s Lien,
(f)
it consists of goods returned or rejected by a Borrower’s customers or that are subject to a recall,
(g)
it consists of goods that are obsolete, slow moving or spoiled or are otherwise past the stated expiration, “sell-by”
or “use by” date applicable thereto, restrictive or custom items or otherwise is manufactured in accordance with customer-
specific requirements, work-in-process (other than Eligible Work-In-Process Inventory), raw materials (other than Eligible Raw
Materials Inventory), or goods that constitute spare parts, surgical kits, surgical instruments, packaging and shipping materials,
supplies used or consumed in Borrowers’ business, bill and hold goods, defective goods, “seconds,” or Inventory acquired on
consignment,
(h)
it is subject to Intellectual Property or a license of Intellectual Property (including Patent Licenses), unless
(1) Agent is satisfied that such Inventory can be freely sold by Agent on and after the occurrence of an Event of a Default despite
any rights of such creditors, including after foreclosure and (2) with respect to any such Intellectual Property or license of
Intellectual Property (including Patent Licenses) acquired after the Closing Date, such creditors or their representative have
expressly acknowledged and consented to (without condition or qualification) the license, sublicense or grant to Agent of the
right to use such Intellectual Property or license of Intellectual Property (including Patent Licenses) on the terms set forth in the
Guaranty and Security Agreement, the respective Intellectual Property Security Agreement and any other applicable Loan
Document,
(i)
it was acquired in connection with a Permitted Acquisition, until the completion of an Acceptable Appraisal (or
such other diligence as Agent shall require), in each case, reasonably satisfactory to Agent (which appraisal and field examination
may be conducted prior to the closing of such Permitted Acquisition),
(j)
it consists of drugs (as such term is defined in the Federal Food, Drug, and Cosmetic Act (21 U.S.C. §§ 301 et
seq.)),
(k)
it is not in compliance with all Public Health Laws and standards imposed by the FDA or any other Governmental
Authority having regulatory authority over such Inventory, its use or sale,
(l)
it is subject to a Patent or Patent License that expires within the following 180 days; or
(m)
it is owned by IsoTis Orthobiologics and is within 180 days of expiration.
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“Eligible Raw Material Inventory” means Inventory that qualifies as Eligible Inventory and consists of goods that are first
quality raw materials consisting of orthobiologics products (but not spinal fusion hardware products).
“Eligible Unbilled Accounts” means Accounts that otherwise qualify as Eligible Accounts except that an invoice,
statement or other billing document has not been sent to the applicable Account Debtor; provided, that any such Account shall
cease to be an Eligible Unbilled Account on the date that (a) an invoice, statement or other billing document is sent to the
applicable Account Debtor or (b) is more than 30 days after the most recent date on which such services, goods or merchandise
were provided by a Borrower; provided, however, the aggregate amount of Eligible Unbilled Accounts shall at no time exceed
$3,000,000.
“Eligible Transferee” means (a) any Lender (other than a Defaulting Lender), any Affiliate of any Lender and any Related
Fund of any Lender; and (b) (i) a commercial bank organized under the laws of the United States or any state thereof, and having
total assets in excess of $1,000,000,000; (ii) a savings and loan association or savings bank organized under the laws of the
United States or any state thereof, and having total assets in excess of $1,000,000,000; (iii) a commercial bank organized under
the laws of any other country or a political subdivision thereof; provided that (A) (x) such bank is acting through a branch or
agency located in the United States or (y) such bank is organized under the laws of a country that is a member of the
Organization for Economic Cooperation and Development or a political subdivision of such country, and (B) such bank has total
assets in excess of $1,000,000,000; (d) any other entity (other than a natural person) that is an “accredited investor” (as defined in
Regulation D under the Securities Act) that extends credit or buys loans as one of its businesses including insurance companies,
investment or mutual funds and lease financing companies, and having total assets in excess of $1,000,000,000; and (f) during
the continuation of an Event of Default, any other Person approved by Agent.
“Eligible Work-in-Process Inventory” means Inventory that qualifies as Eligible Inventory and consists of goods that are
first quality work-in-process consisting of orthobiologics products (but not spinal fusion hardware products); provided that,
anything to the contrary contained herein notwithstanding, the value of such Inventory shall not include the value of any labor or
other services rendered to produce such Inventory.
“Environmental Action” means any written complaint, summons, citation, notice, directive, order, claim, litigation,
investigation, judicial or administrative proceeding, judgment, letter, or other written communication from any Governmental
Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials (a) from any assets,
properties, or businesses of any Borrower, any Subsidiary of any Borrower, or any of their predecessors in interest, (b) from
adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by any
Borrower, any Subsidiary of any Borrower, or any of their predecessors in interest.
“Environmental Law” means any applicable federal, state, provincial, territorial, foreign or local statute, law, rule,
regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy, or rule of common law
now or hereafter in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent decree or judgment, in each case, to the extent binding on Parent, any Borrower or any of
their Subsidiaries, relating to the environment, the effect of the environment on employee health (other than occupational and
safety laws), or Hazardous Materials, in each case as amended from time to time.
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“Environmental Liabilities” means all liabilities, monetary obligations, losses, damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility
studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand, or Remedial Action required, by any
Governmental Authority or any third party, and which relate to any Environmental Action.
“Environmental Lien” means any Lien in favor of any Governmental Authority for Environmental Liabilities.
“Equipment” means equipment (as that term is defined in the Code).
“Equity Interests” means, with respect to a Person, all of the shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in such Person, whether voting or nonvoting, including capital stock (or other
ownership or profit interests or units), preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1 of
the General Rules and Regulations promulgated by the SEC under the Exchange Act).
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto.
“ERISA Affiliate” means (a) any Person subject to ERISA whose employees are treated as employed by the same
employer as the employees of Parent or any of its direct or indirect Subsidiaries under IRC Section 414(b), (b) any trade or
business subject to ERISA whose employees are treated as employed by the same employer as the employees of Parent or any of
its direct or indirect Subsidiaries under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of
the IRC, any organization subject to ERISA that is a member of an affiliated service group of which Parent or any of its direct or
indirect Subsidiaries is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412
of the IRC, any Person subject to ERISA that is a party to an arrangement with Parent or any of its direct or indirect Subsidiaries
and whose employees are aggregated with the employees of Parent or any of its direct or indirect Subsidiaries under IRC
Section 414(o).
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association
(or any successor person), as in effect from time to time.
“Event of Default” has the meaning specified therefor in Section 8 of the Agreement.
“Excess Availability” means, as of any date of determination, the amount equal to Availability minus the aggregate
amount, if any, of all trade payables of Parent, Borrowers and their Subsidiaries aged in excess of historical levels with respect
thereto and not subject to a bona fide dispute and all book overdrafts of Parent, Borrowers and their Subsidiaries in excess of
historical practices with respect thereto, in each case as determined by Agent in its Permitted Discretion.
“Exchange Act” means the Securities Exchange Act of 1934, as in effect from time to time.
“Exchange Rate” shall mean, with respect to any calculation of the Dollar Equivalent of any amount denominated in any
currency other than Dollars on any date of determination, the prevailing spot rate of exchange for the conversion of such other
currency into Dollars as determined by Agent’s foreign exchange department (in the exercise of its ordinary business
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practices regarding foreign currency exchange for customers of Agent similarly situated to Borrowers) as of the close of business
for Agent’s foreign exchange department on the Business Day immediately preceding such date of determination; provided that,
notwithstanding the foregoing, in the context of any actual conversion by Agent or any Lender of any funds received by Agent or
any Lender (whether as a payment made by any Loan Party or the proceeds of any Collateral (including any collections on any
Accounts received by Agent or any Lender)), or any calculation or valuation of asset values, from one currency to another for the
purpose of applying such funds to the Obligations in accordance with the terms of this Agreement ,“Exchange Rate” means the
spot-buying or spot-selling (as the case may be) rate of exchange at which Agent or such Lender is actually able to exchange the
one currency for the other in the exercise of its ordinary business practices regarding foreign currency exchange at the time of
such actual conversion.
“Excluded Swap Obligation” means, with respect to any Loan Party, any Swap Obligation if, and to the extent that, all or
a portion of the guaranty of such Loan Party of (including by virtue of the joint and several liability provisions of Section 2.15),
or the grant by such Loan Party of a security interest to secure, such Swap Obligation (or any guaranty thereof) is or becomes
illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or
the application or official interpretation of any thereof) by virtue of such Loan Party’s failure for any reason to constitute an
“eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the guaranty
of such Loan Party or the grant of such security interest becomes effective with respect to such Swap Obligation. If a Swap
Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such
Swap Obligation that is attributable to swaps for which such guaranty or security interest is or becomes illegal.
“Excluded Taxes” means (i) any tax imposed on the net income (however denominated) or net profits of any Lender or
any Participant (including any branch profits or franchise taxes), in each case imposed by the jurisdiction (or by any political
subdivision or taxing authority thereof) in which such Lender or such Participant is organized or the jurisdiction (or by any
political subdivision or taxing authority thereof) in which such Lender’s or such Participant’s principal office is located in or as a
result of a present or former connection between such Lender or such Participant and the jurisdiction or taxing authority imposing
the tax (other than any such connection arising solely from such Lender or such Participant having executed, delivered or
performed its obligations or received payment under, or enforced its rights or remedies under the Agreement or any other Loan
Document); (ii) withholding taxes that would not have been imposed but for a Lender’s or a Participant’s failure to comply with
the requirements of Section 16.2 of the Agreement, (iii) any United States federal withholding taxes that would be imposed on
amounts payable to a Foreign Lender based upon the law (and the applicable withholding rate) in effect at the time such Foreign
Lender becomes a party to the Agreement (or designates a new lending office, other than a designation made at the request of a
Loan Party), except that Excluded Taxes shall not include (A) any amount that such Foreign Lender (or its assignor, if any) was
previously entitled to receive pursuant to Section 16.1 of the Agreement, if any, with respect to such withholding tax at the time
such Foreign Lender becomes a party to the Agreement (or designates a new lending office), and (B) additional United States
federal withholding taxes that may be imposed after the time such Foreign Lender becomes a party to the Agreement (or
designates a new lending office), as a result of a change in law, rule, regulation, treaty, order or other decision or other Change in
Law with respect to any of the foregoing by any Governmental Authority, and (iv) any United States federal withholding taxes
imposed under FATCA., and (v) taxes imposed under Part XIII of the Income Tax Act (Canada) on amounts paid by a Canadian
Loan Party that arise as a consequence of the recipient of the
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payment (i) not dealing at arm’s length (within the meaning of the Income Tax Act (Canada)) with the Canadian Loan Party, (ii)
being a “specified non-resident shareholder” (within the meaning of subsection 18(5) of the Income Tax Act (Canada)) of the
Canadian Loan Party, or (iii) not dealing at arm’s length (within the meaning of the Income Tax Act (Canada)) with a “specified
shareholder” (within the meaning of subsection 18(5) of the Income Tax Act (Canada)) of the Canadian Loan Party; provided that
Agent, any Lender, Swing Lender or any Issuing Bank shall not be deemed to be not dealing at arm’s length with or be a
“specified shareholder” of any Canadian Loan Party or be a “specified non-resident shareholder” of any Canadian Loan Party by
virtue of it entering into this Agreement or any Loan Document or being granted or perfecting or enforcing any Lien or
possessing any Collateral, including any Equity Interests.
“Extraordinary Advances” has the meaning specified therefor in Section 2.3(d)(iii) of the Agreement.
“FATCA” means Sections 1471 through 1474 of the IRC, as of the date of the Agreement (or any amended or successor
version that is substantively comparable and not materially more onerous to comply with), and (a) any current or future
regulations or official interpretations thereof, (b) any agreements entered into pursuant to Section 1471(b)(1) of the IRC, and (c)
any intergovernmental agreement entered into by the United States (or any fiscal or regulatory legislation, rules, or practices
adopted pursuant to any such intergovernmental agreement entered into in connection therewith).
“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder.
“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal to, for each day during such
period, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System,
as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from
three Federal funds brokers of recognized standing selected by it (and, if any such rate is below zero, then the rate determined
pursuant to this definition shall be deemed to be zero).
“Federal Reserve Bank of New York’s Website” means the website of the Federal Reserve Bank of New York at
http://www.newyorkfed.org, or any successor source.
“Fee Letter” means that certain fee letter, dated as of even date with the Agreement, among Borrowers and Agent, in form
and substance reasonably satisfactory to Agent.
“Fixed Charges” means, with respect to any fiscal period and with respect to Parent and each of its direct and indirect
Subsidiaries determined on a consolidated basis in accordance with GAAP, in all cases, the sum, without duplication, of
(a) Interest Expense required to be paid (other than interest paid-in-kind, amortization of financing fees, and other non-cash
Interest Expense) during such period, (b) scheduled principal payments in respect of Indebtedness that are required to be paid,
plus all payments made under settlement agreements to which Parent or any of its Subsidiaries is a party, in each case, during
such period, (c) all federal, state, and local income taxes required to be paid during such period, (d) all fees paid during such
period to the extent not deducted in the calculation of EBITDA (including paid pursuant to the Transition Agreements) and (e) all
Restricted Payments paid (whether in cash or other property, other than common Equity Interest) during such period. Further, for
the purposes of calculating Fixed
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Charges, no more than twenty percent 20% of Fixed Charges shall be attributable to foreign Subsidiaries which are not Loan
Parties.
“Fixed Charge Coverage Ratio” means, with respect to any fiscal period and with respect to Parent and each of its direct
and indirect Subsidiaries determined on a consolidated basis in accordance with GAAP, the ratio of (a) EBITDA for such period
minus Unfinanced Capital Expenditures made (to the extent not already incurred in a prior period and excluding Capital
Expenditures that are financed (other than with Revolving Loans)) or incurred during such period, to (b) Fixed Charges for such
period.
“Floor” means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this
Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to USD LIBOR.
“Flow of Funds Agreement” means a flow of funds agreement, dated as of even date with the Agreement, in form and
substance reasonably satisfactory to Agent, executed and delivered by each Loan Party and Agent.
“Foreign Lender” means any Lender or Participant that is not a United States person within the meaning of
IRC section 7701(a)(30).
“Foreign Subsidiary” means any direct or indirect subsidiary of any Loan Party that is organized under the laws of any
jurisdiction other than the United States, any state thereof or the District of Columbia.
“Funding Date” means the date on which a Borrowing occurs.
“Funding Losses” has the meaning specified therefor in Section 2.12(b)(ii) of the Agreement.
“GAAP” means generally accepted accounting principles as in effect from time to time in the United States, consistently
applied.
“Governing Documents” means, with respect to any Person, the certificate or articles of incorporation, by-laws, or other
organizational documents of such Person.
“Government Account Debtor” means the United States government or a political subdivision thereof, or any state,
county or municipality or department, agency or instrumentality thereof, that is responsible for payment of an Account under any
Government Reimbursement Program, or any agent, administrator, administrative contractor, intermediary or carrier for the
foregoing.
“Government Receivable” means any Account that is payable by a Government Account Debtor pursuant to a
Government Reimbursement Program.
“Government Receivables Lockbox Account” means a Deposit Account of the Borrower that is used exclusively for the
receipt of Collections of Government Receivables.
“Government Reimbursement Program” means (a) Medicare, (b) Medicaid, (c) the Federal Employees Health Benefit
Program under 5 U.S.C. § § 8902 et seq., (d) TRICARE, (e) CHAMPVA, or (f) if applicable within the context of the Agreement,
any agent, administrator, administrative contractor, intermediary or carrier for any of the foregoing,
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(g) Ontario Health Insurance Plan administered pursuant to the Health Insurance Act (Ontario) and regulations thereto, or any
other similar governmental health funding program.
“Governmental Authority” means the government of any nation or any political subdivision thereof, whether at the
national, state, territorial, provincial, county, municipal or any other level, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of, or pertaining to, government (including any supra-national bodies such as the European Union or the European
Central Bank), including CMS, any Medicare or Medicaid administrative contractors, intermediaries or carriers, and any agency,
branch or other governmental body (federal, provincial, territorial or state) charged with the responsibility, or vested with the
authority to administer or enforce any Health Care Laws. The term “Governmental Authority” shall further include any
institutional review board, ethics committee, data monitoring committee, or other committee or entity with defined authority to
oversee Regulatory Matters or any agency, branch or other governmental body charged with the responsibility and/or vested with
the authority to administer and/or enforce any Public Health Laws.
“Guarantor” means (a) each Person that guaranties all or a portion of the Obligations, including (i) Parent, (ii) each
Subsidiary of Parent (other than IsoTis International and any CFC or any foreign Subsidiary of any CFC) and (iii) any other
Person that is a "Guarantor" under the Guaranty and Security Agreement, and (b) each other Person that becomes a guarantor
after the Closing Date pursuant to Section 5.11 of the Agreement.
“Guaranty and Security Agreement” means a guaranty and security agreement, dated as of December 24, 2015, in form
and substance reasonably satisfactory to Agent, executed and delivered by Parent and each of the Borrowers and each of the
Guarantors to Agent.
“Hazardous Materials” means (a) substances that are defined or listed in, or otherwise classified pursuant to, any
applicable laws or regulations as “hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic substances,” or any
other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP toxicity”, (b) oil, petroleum, or petroleum derived
substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or
explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric
fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million.
“Health Care Laws” means all Requirements of Law relating to: (a) fraud and abuse (including the following statutes, as
amended, modified or supplemented from time to time and any successor statutes thereto and regulations promulgated from time
to time thereunder: the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)), the Stark Law (42 U.S.C. § 1395nn and
§ 1395(q)), the civil False Claims Act (31 U.S.C. § 3729 et seq.), the federal health care program exclusion provisions (42 U.S.C.
§ 1320a-7), the Civil Monetary Penalties Act (42 U.S.C. § 1320a-7a), and the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Pub. L. No. 108-173)) and applicable industry and professional codes of conduct, such as the
Medtech Canada Code of Conduct; (b) any Government Reimbursement Program; (c) the licensure or regulation of healthcare
professionals, including under the Regulated Health Professions Act, 1991 (Ontario), profession-specific legislation and
regulations, providers, suppliers, professionals, facilities or payors (including all statutes and regulations administered
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by any Regulatory Authority); (d) the operation of any health care facility or the provision of, or payment for, items or supplies,
including compliance with broader public sector procurement rules and directives; (e) quality, safety certification and
accreditation standards and requirements; (f) the billing, coding or submission of claims or collection of accounts receivable or
refund of overpayments, including payments relating to any Government Authority; (g) HIPAA and Other Privacy Laws,
including PHIPA; (h) the billing, coding or submission of health care claims for reimbursement; (i) the practice of medicine and
other health care professions or the organization of medical or professional entities; (j) fee-splitting prohibitions, conflict of
interest or professional regulatory requirements; (k) requirements for maintaining federal, state, provincial or territorial and local
tax-exempt status of Borrower; (l) charitable trusts or charitable solicitation laws; (m) health planning or rate-setting laws,
including laws regarding certificates of need and certificates of exemption; and (n) the CARES Act and any programs, loans
and/or funds accessed and/or administered under the CARES Act; (o) Public Health Laws and (p) any and all other applicable
federal, state, provincial, territorial or local health care laws, rules, codes, regulations, manuals, orders, ordinances, professional
or ethical rules, administrative guidance and requirements, as the same may be amended, modified or supplemented from time to
time.
“Health Care Permits” means any and all permits, licenses, authorizations, certificates, certificates of need, accreditations
and plans of third-party accreditation agencies that are (a) necessary to enable any Borrower to operate any health care facility or
participate in and receive payment under any Government Reimbursement Program or other Third Party Payor Arrangement, as
applicable, or otherwise continue to conduct its business as it is conducted on the Closing Date, or (b) required under any Health
Care Law.
“Health Care Proceeding” means any inquiries, investigations, probes, audits, hearings, litigation or proceedings (in each
case, whether civil, criminal, administrative or investigative) concerning any alleged or actual non-compliance by any Loan Party
with any Health Care Laws or the requirements of any Health Care Permit or Third Party Payor Arrangement or the business
affairs, practices, licensing or reimbursement entitlements of any Borrower (including inquiries involving the Comprehensive
Error Rate Testing and any inquiries, investigations, probes, audits or procedures initiated by a Fiscal Intermediary/Medicare
Administrator Contractor, a Medicaid Integrity Contractor, a Recovery Audit Contractor, a Program Safeguard Contractor, a Zone
Program Integrity Contractor, an Attorney General, the Office of Inspector General, the Department of Justice, Ontario Ministry
of Health, Health Canada or any similar governmental agencies or contractors for such agencies).
“Hedge Agreement” means a “swap agreement” as that term is defined in Section 101(53B)(A) of the Bankruptcy Code.
“Hedge Obligations” means any and all obligations or liabilities, whether absolute or contingent, due or to become due,
now existing or hereafter arising, of Parent, Borrowers and their Subsidiaries arising under, owing pursuant to, or existing in
respect of Hedge Agreements entered into with one or more of the Hedge Providers.
“Hedge Provider” means Wells Fargo or any of its Affiliates.
“HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as the same may be amended, modified
or supplemented from time to time, and any and all rules or regulations promulgated from time to time thereunder.
“HIPAA and Other Privacy Laws” means (a) HIPAA; (b) the Health Information Technology for Economic and Clinical
Health Act (Title XIII of the American Recovery and
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Reinvestment Act of 2009), as the same may be amended, modified or supplemented from time to time; (c) any successor statute
thereto; and (d) any statePersonal Information Protection and Electronic Documents Act (Canada); (e) Canada’s Anti-Spam
Laws; (f) PHIPA; or (g) any state, provincial, territorial and local laws regulating the privacy and/or security of patient protected
health, personally identifiable information, or other records generated in the course of providing or paying for health care services
in each case as the same may be amended, modified or supplemented from time to time, any successor statutes thereto, and any
and all rules or regulations promulgated from time to time thereunder.
“Increase” has the meaning specified therefor in Section 2.14.
“Increase Date” has the meaning specified therefor in Section 2.14.
“Increase Joinder” has the meaning specified therefor in Section 2.14.
“Indebtedness” as to any Person means (a) all obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect
of letters of credit, bankers acceptances, or other financial products, (c) all obligations of such Person as a lessee under Capital
Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of such Person, irrespective of whether such
obligation or liability is assumed, (e) all obligations of such Person to pay the deferred purchase price of assets (other than trade
payables incurred in the ordinary course of business and repayable in accordance with customary trade practices and, for the
avoidance of doubt, other than royalty payments payable in the ordinary course of business in respect of non-exclusive licenses)
and any earn-out or similar obligations, (f) all monetary obligations of such Person owing under Hedge Agreements (which
amount shall be calculated based on the amount that would be payable by such Person if the Hedge Agreement were terminated
on the date of determination), (g) any Disqualified Equity Interests of such Person, and (h) any obligation of such Person
guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with
recourse) any obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (g) above. For
purposes of this definition, (i) the amount of any Indebtedness represented by a guaranty or other similar instrument shall be the
lesser of the principal amount of the obligations guaranteed and still outstanding and the maximum amount for which the
guaranteeing Person may be liable pursuant to the terms of the instrument embodying such Indebtedness, and (ii) the amount of
any Indebtedness which is limited or is non-recourse to a Person or for which recourse is limited to an identified asset shall be
valued at the lesser of (A) if applicable, the limited amount of such obligations, and (B) if applicable, the fair market value of
such assets securing such obligation.
“Indemnified Liabilities” has the meaning specified therefor in Section 10.3 of the Agreement.
“Indemnified Person” has the meaning specified therefor in Section 10.3 of the Agreement.
“Indemnified Taxes” means, (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by,
or on account of any obligation of, any Loan Party under any Loan Document, and (b) to the extent not otherwise described in the
foregoing clause (a), Other Taxes.
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“Ineligible Institution” means the Persons identified in writing to Agent by Borrowers on or prior to the Closing Date,
which list of Persons is consented to in writing by Agent (such consent not to be unreasonably withheld or delayed).
“Initial Closing Date” has the meaning set forth in the preamble to thethis Agreement.
“Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of the
Bankruptcy Code, Canadian Debtor Relief Laws or under any other state or federal bankruptcy or insolvency law, assignments
for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement, or other similar relief.
“Integra Supply Agreements” means the collective reference to that certain (i) Mozaik Supply Agreement (Integra as
Supplier) effective as of July 1, 2015 by and between Integra LifeSciences Corporation, a Delaware corporation, and SeaSpine
Orthopedics and (ii) Microfib Supply Agreement (Integra as Supplier) effective as of July 1, 2015 by and between Integra
LifeSciences Corporation, a Delaware corporation, and SeaSpine Orthopedics, as each of the same may be amended, restated,
modified or otherwise supplemented from time to time.
“Intellectual Property” means (a) all copyright rights, copyright applications, copyright registrations and like protections
in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like
protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the
same, industrial designs, trademarks, trade names, service marks, mask works, rights of use of any name, domain names, or any
other similar rights, any applications therefor, whether registered or not, and (b) the goodwill of the business or that portion of the
business represented by the mark and of any Person connected with and symbolized thereby, know-how, operating manuals, trade
secret rights, clinical and non-clinical data, and rights to unpatented inventions.
“Intellectual Property Security Agreement” means each of, and “Intellectual Property Security Agreements” means the
collective reference to, the Copyright Security Agreements, Patent Security Agreements and Trademark Security Agreements.
“Intercompany Subordination Agreement” means an intercompany subordination agreement, dated as of December 24,
2015, executed and delivered by Parent and each of its Subsidiaries, and Agent, the form and substance of which is reasonably
satisfactory to Agent (as may be amended, restated, supplemented or otherwise modified from time to time).
“Interest Expense” means, for any period, the aggregate of the interest expense of Parent and Borrowers (including the
interest portion of the rent under capitalized leases) for such period, determined on a consolidated basis in accordance with
GAAP.
“Interest Period” means, with respect to each LIBOR Rate Loan, a period commencing on the date of the making of such
LIBOR Rate Loan (or the continuation of a LIBOR Rate Loan or the conversion of a Base Rate Loan to a LIBOR Rate Loan) and
ending 1, 2, 3 or 6 months thereafter; provided, that (a) interest shall accrue at the applicable rate based upon the LIBOR Rate
from and including the first day of each Interest Period to, but excluding, the day on which any Interest Period expires, (b) any
Interest Period that would end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless
such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business
Day, (c) with respect to an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is
no numerically corresponding day in the calendar
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month at the end of such Interest Period), the Interest Period shall end on the last Business Day of the calendar month that is 1, 2,
3 or 6 months after the date on which the Interest Period began, as applicable, and (d) Borrowers may not elect an Interest Period
which will end after the Maturity Date.
“Inventory” means inventory (as that term is defined in the Code).
“Inventory Reserves” means, as of any date of determination, (a) Landlord Reserves in respect of Inventory, and (b) those
reserves that Agent deems necessary or appropriate, in its Permitted Discretion and subject to Section 2.1(c), to establish and
maintain (including reserves for slow moving Inventory, Inventory with no value, Inventory shrinkage and for deferred
manufacturing costs) with respect to Eligible Inventory or the Maximum Revolver Amount, including based on the results of
appraisals.
“Investment” means, with respect to any Person, any investment by such Person in any other Person (including Affiliates)
in the form of loans, guarantees, advances, capital contributions (excluding (a) commission, travel, and similar advances to
officers, directors, agents and employees of and consultants to such Person made in the ordinary course of business, and (b) bona
fide accounts receivable arising in the ordinary course of business), or acquisitions of Indebtedness, Equity Interests, or all or
substantially all of the assets of such other Person (or of any division or business line of such other Person), and any other items
that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. The amount of any
Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustment for
increases or decreases in value, or write-ups, write-downs, or write-offs with respect to such Investment.
“IRC” means the Internal Revenue Code of 1986, as in effect from time to time.
“ISP” means, with respect to any Letter of Credit, the International Standby Practices 1998 (International Chamber of
Commerce Publication No. 590) and any version or revision thereof accepted by Issuing Bank for use.
“IsoTis Acquisition” means any Acquisition by IsoTis International (or effected by a CFC owned directly or indirectly by
Parent) of Borrower on or after the Closing Date so long as:
(a)
no Default or Event of Default shall have occurred and be continuing, and
(b)
(i) to the extent Borrowers have provided Agent with written confirmation, supported by reasonably detailed
calculations, that on a pro forma basis, Borrowers would have been in compliance with the Fixed Charge Coverage Ratio of at
least 1.10:1.00 for the most recent twelve-month period then ended, Borrowers shall have Total Liquidity of at least $12,500,000
consisting of Excess Availability of at least $3,500,000, and (ii) to the extent Borrowers have not provided to Agent such
evidence of compliance on a pro forma basis with the Fixed Charge Coverage Ratio of at least 1.10:1.00 for the most recent
twelve-month period then ended, Borrowers shall have Total Liquidity of at least $13,500,000 consisting of Excess Availability
of at least $3,500,000.
“IsoTis International” means IsoTis International SARL, a limited liability company organized under the laws of
Switzerland (formerly known as IsoTis International SA, a limited liability company organized under laws of Switzerland),
together with its successors and assigns.
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“Issuer Document” means, with respect to any Letter of Credit, a letter of credit application, a letter of credit agreement,
or any other document, agreement or instrument entered into (or to be entered into) by a Borrower in favor of Issuing Bank and
relating to such Letter of Credit.
“Issuing Bank” means Wells Fargo or any other Lender that, at the request of Borrowers and with the consent of Agent,
agrees, in such Lender’s sole discretion, to become an Issuing Bank for the purpose of issuing Letters of Credit pursuant to
Section 2.11 of the Agreement, and Issuing Bank shall be a Lender.
“Joinder” means a joinder agreement substantially in the form of Exhibit J-1 to the Agreement.
“knowledge” means, with respect to any Loan Party, the actual knowledge of an executive officer, as defined in Rule 16a-
1(f) of the Securities Exchange Act of 1934, of such Loan Party.
“Landlord Reserve” means, as to each location at which a Borrower has Inventory (other than Inventory on consignment)
or books and records located and as to which a Collateral Access Agreement has not been received by Agent, a reserve in an
amount equal to the greater of (a) the number of months’ rent, storage charges, fees or other amounts for which the landlord,
bailee, warehouseman or other property owner will have, under applicable law, a Lien in the Inventory of such Borrower to
secure the payment of such amounts under the lease or other applicable agreement relative to such location, or (b) 3 months’ rent,
storage charges, fees or other amounts under the lease or other applicable agreement relative to such location.
“Lender” has the meaning set forth in the preamble to the Agreement, shall include Issuing Bank and the Swing Lender,
and shall also include any other Person made a party to the Agreement pursuant to the provisions of Section 13.1 of the
Agreement and “Lenders” means each of the Lenders or any one or more of them.
“Lender Group” means each of the Lenders (including Issuing Bank and the Swing Lender) and Agent, or any one or
more of them.
“Lender Group Expenses” means all (a) costs or expenses (including taxes and insurance premiums) required to be paid
by Parent, any Borrower or any of their Subsidiaries under any of the Loan Documents that are paid, advanced, or incurred by the
Lender Group, (b) documented out- of-pocket fees or charges paid or incurred by Agent in connection with the Lender Group’s
transactions with Parent, each Borrower and each of their Subsidiaries under any of the Loan Documents, including,
photocopying, notarization, couriers and messengers, telecommunication, public record searches, filing fees, recording fees,
publication, real estate surveys, real estate title policies and endorsements, and environmental audits, (c) Agent’s customary fees
and charges imposed or incurred in connection with any background checks or OF AC/PEP searches related to Parent, any
Borrower or any of their Subsidiaries, (d) Agent’s customary fees and charges (as adjusted from time to time) with respect to the
disbursement of funds (or the receipt of funds) to or for the account of any Borrower (whether by wire transfer or otherwise),
together with any out-of- pocket costs and expenses incurred in connection therewith, (e) customary charges imposed or incurred
by Agent resulting from the dishonor of checks payable by or to any Loan Party, (f) reasonable, documented out-of-pocket costs
and expenses paid or incurred by the Lender Group to correct any default or enforce any provision of the Loan Documents, or
during the continuance of an Event of Default, in gaining possession of, maintaining, handling, preserving, storing, shipping,
selling, preparing for sale, or advertising to sell the Collateral, or
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any portion thereof, irrespective of whether a sale is consummated, (g) field examination, appraisal, and valuation fees and
expenses of Agent related to any field examinations, appraisals, or valuation to the extent of the fees and charges (and up to the
amount of any limitation) provided in Section 2.10 of the Agreement, (h) Agent’s and Lenders’ reasonable and documented costs
and expenses (including reasonable and documented attorneys’ fees and expenses) relative to third party claims or any other
lawsuit or adverse proceeding paid or incurred, whether in enforcing or defending the Loan Documents or otherwise in
connection with the transactions contemplated by the Loan Documents, Agent’s Liens in and to the Collateral, or the Lender
Group’s relationship with Parent, any Borrower or any of their Subsidiaries, (i) Agent’s reasonable and documented costs and
expenses (including reasonable and documented attorneys’ fees and due diligence expenses) incurred in advising, structuring,
drafting, reviewing, administering (including travel, meals, and lodging), syndicating (including reasonable costs and expenses
relative to CUSIP, DXSyndicate™, SyndTrak or other communication costs incurred in connection with a syndication of the loan
facilities), or amending, waiving, or modifying the Loan Documents, and (j) Agent’s and each Lender’s reasonable and
documented costs and expenses (including reasonable and documented attorneys, accountants, consultants, and other advisors
fees and expenses) incurred in terminating, enforcing (including attorneys, accountants, consultants, and other advisors fees and
expenses incurred in connection with a “workout,” a “restructuring,” or an Insolvency Proceeding concerning Parent, any
Borrower or any of their Subsidiaries or in exercising rights or remedies under the Loan Documents), or defending the Loan
Documents, irrespective of whether a lawsuit or other adverse proceeding is brought, or in taking any enforcement action or any
Remedial Action with respect to the Collateral.
“Lender Group Representatives” has the meaning specified therefor in Section 17.9 of the Agreement.
“Lender-Related Person” means, with respect to any Lender, such Lender, together with such Lender’s Affiliates, officers,
directors, employees, attorneys, and agents.
“Letter of Credit” means a letter of credit (as that term is defined in the Code) issued by Issuing Bank.
“Letter of Credit Collateralization” means either (a) providing cash collateral (pursuant to documentation reasonably
satisfactory to Agent (including that Agent has a first priority perfected Lien in such cash collateral), including provisions that
specify that the Letter of Credit Fees and all commissions, fees, charges and expenses provided for in Section 2.11(k) of the
Agreement (including any fronting fees) will continue to accrue while the Letters of Credit are outstanding) to be held by Agent
for the benefit of the Revolving Lenders in an amount equal to 105% of the then existing Letter of Credit Usage, (b) delivering to
Agent documentation executed by all beneficiaries under the Letters of Credit, in form and substance reasonably satisfactory to
Agent and Issuing Bank, terminating all of such beneficiaries’ rights under the Letters of Credit, or (c) providing Agent with a
standby letter of credit, in form and substance reasonably satisfactory to Agent, from a commercial bank acceptable to Agent (in
its sole discretion) in an amount equal to 105% of the then existing Letter of Credit Usage (it being understood that the Letter of
Credit Fee and all fronting fees set forth in the Agreement will continue to accrue while the Letters of Credit are outstanding and
that any such fees that accrue must be an amount that can be drawn under any such standby letter of credit).
“Letter of Credit Disbursement” means a payment made by Issuing Bank pursuant to a Letter of Credit.
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“Letter of Credit Exposure” means, as of any date of determination with respect to any Lender, such Lender’s
participation in the Letter of Credit Usage pursuant to Section 2.11(e) on such date.
“Letter of Credit Fee” has the meaning specified therefor in Section 2.6(b) of the Agreement.
“Letter of Credit Indemnified Costs” has the meaning specified therefor in Section 2.11(f) of the Agreement.
“Letter of Credit Related Person” has the meaning specified therefor in Section 2.11(f) of the Agreement.
“Letter of Credit Usage” means, as of any date of determination, the sum of (a) the aggregate undrawn amount of all
outstanding Letters of Credit, plus (b) the aggregate amount of outstanding reimbursement obligations with respect to Letters of
Credit which remain unreimbursed or which have not been paid through a Revolving Loan.
“LIBOR Deadline” has the meaning specified therefor in Section 2.12(b)(i) of the Agreement.
“LIBOR Notice” means a written notice in the form of Exhibit L-1 to the Agreement.
“LIBOR Option” has the meaning specified therefor in Section 2.12(a) of the Agreement.
“LIBOR Rate” means the rate per annum as reported on Reuters Screen LIBOR01 Pagepublished by ICE Benchmark
Administration Limited (or any successor page) two (2) or other commercially available source as Agent may designate from
time to time) as of 11:00 a.m., London time, two Business Days prior to the commencement of the requested Interest Period, for a
term, and in an amount, comparable to the Interest Period and the amount of the LIBOR Rate Loan requested (whether as an
initial LIBOR Rate Loan or as a continuation of a LIBOR Rate Loan or as a conversion of a Base Rate Loan to a LIBOR Rate
Loan) by Borrowers in accordance with thethis Agreement (and, if any such published rate is below zero, then the LIBOR Rate
shall be deemed to be zero), which. Each determination of the LIBOR Rate shall be made by Agent and shall be conclusive in the
absence of manifest error.
“LIBOR Rate Loan” means each portion of a Revolving Loan that bears interest at a rate determined by reference to the
LIBOR Rate.
“LIBOR Rate Margin” has the meaning set forth in the definition of Applicable Margin.
“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance,
easement, lien (statutory or other), security interest, or other security arrangement and any other preference, priority, or
preferential arrangement of any kind or nature whatsoever, including any conditional sale contract or other title retention
agreement, the interest of a lessor under a Capital Lease and any synthetic or other financing lease having substantially the same
economic effect as any of the foregoing.
“Loan” means any, and “Loans” means the collective reference to, Revolving Loan, Swing Loan or Extraordinary
Advance made (or to be made) hereunder.
“Loan Account” has the meaning specified therefor in Section 2.9 of the Agreement.
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“Loan Documents” means the Agreement, the Control Agreements, the Intellectual Property Security Agreements, any
Borrowing Base Certificate, the Fee Letter, the Guaranty and Security Agreement, the Intercompany Subordination Agreement,
any Issuer Documents, the Letters of Credit, the Mortgages, the Canadian Security Agreements, any license or sublicense
agreement granted in favor of Agent, any collateral assignment agreements, any note or notes executed by Borrowers in
connection with the Agreement and payable to any member of the Lender Group, and any other instrument or agreement entered
into, now or in the future, by Parent, any Borrower or any of their Subsidiaries and any member of the Lender Group in
connection with the Agreement (but specifically excluding Bank Product Agreements).
“Loan Party” means Parent, any Borrower, or any Guarantor. For the avoidance of doubt, each Canadian Loan Party shall
be included in the definition of Loan Party.
“Margin Stock” as defined in Regulation U of the Board of Governors as in effect from time to time.
“Material Adverse Effect” means (a) a material adverse effect in the business, operations, results of operations, assets,
liabilities or financial condition of Parent, Borrowers and their Subsidiaries, taken as a whole, (b) a material impairment of
Parent’s, Borrowers’ and their Subsidiaries’ ability to perform their obligations under the Loan Documents to which they are
parties or of the Lender Group’s ability to enforce the Obligations or realize upon the Collateral (other than as a result of as a
result of an action taken or not taken that is solely in the control of Agent or the Lenders), or (c) a material impairment of the
enforceability or priority of Agent’s Liens with respect to all or a material portion of the Collateral.
“Material Contract” means, with respect to any Person, agreements and contracts required to be disclosed with respect to
such Person under Item 15 of Form 10-K promulgated under the Exchange Act, as amended, including the PPP Debt Documents,
the Transition Agreements and those set forth on Item B.10 of Exhibit P-1.
“Maturity Date” means July 27, 2021; provided that if Agent receives Borrowers written request by a date not later than
July 27, 2021 that Borrowers would like to exercise a one-time one-year extension and no Default or Event of Default exists on
such date, then “Maturity Date” means July 27, 2022.
“Maximum Revolver Amount” means $30,000,000, increased by the amount of any Increase made in accordance with
Section 2.14 of the Agreement.
“Measurement Period” means, as of any date of determination, for the last day of the fiscal month most recently ended,
the trailing-twelve month period.
“Medicaid” means, collectively, the healthcare assistance program established by Title XIX of the Social Security Act (42
U.S.C. § § 1396 et seq.) and any statutes succeeding thereto, and all laws, rules, regulations, manuals, orders, guidelines or
requirements (whether or not having the force of law) pertaining to such program, including all state statutes and plans for
medical assistance enacted in connection with such program, in each case as the same may be amended, supplemented or
otherwise modified from time to time.
“Medicare” means, collectively, the health insurance program for the aged and disabled established by Title XVIII of the
Social Security Act (42 U.S.C. § § 1395 et seq.) and any statutes succeeding thereto, and all laws, rules, regulations, manuals,
orders, guidelines or
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requirements (whether or not having the force of law) pertaining to such program, in each case as the same may be amended,
supplemented or otherwise modified from time to time.
“Moody’s” has the meaning specified therefor in the definition of Cash Equivalents.
“Mortgages” means, individually and collectively, one or more mortgages, deeds of trust, or deeds to secure debt,
executed and delivered by Parent or one of its Subsidiaries in favor of Agent, in form and substance reasonably satisfactory to
Agent, that encumber the Real Property Collateral.
“N.L.T. Spine Acquisition” means the acquisition of substantially all of the assets used in the operation of the Medical
Device Business (defined in the N.L.T. Spine Acquisition Agreement) pursuant to and in accordance with the N.L.T. Spine
Acquisition Agreement.
“N.L.T. Spine Acquisition Agreement means certain Asset Purchase Agreement dated as of August 17, 2016 by and
among Parent, as buyer, N.L.T Spine Ltd., a company organized under the laws of the State of Israel, as seller parent, and NLT
Spine, Inc., a Delaware corporation, as seller subsidiary.
“N.L.T. Spine Acquisition Documents means, individually and/or collectively, as applicable, the N.L.T. Spine Acquisition
Agreement, the documents identified in the N.L.T. Spine Acquisition Agreement and any and all of the other material documents,
instruments and agreements executed or delivered in connection therewith, in each case as the same may be amended or modified
to the extent permitted hereunder.
“N.L.T Spine Indebtedness” means, individually and/or collectively, as applicable, any Indebtedness (whether in cash or
securities) owed by Parent and/or any of the Borrowers pursuant to the N.L.T. Spine Acquisition Documents including the
Milestone Payments, the Contingent Asset Purchase Payments and any payments made pursuant to the Buyer OCS Payment
Election (each as defined in the N.L.T. Spine Acquisition Agreement).
“Net Recovery Percentage” means, as of any date of determination, the percentage of the book value of Borrowers’
Inventory that is estimated to be recoverable in an orderly liquidation of such Inventory net of all associated costs and expenses
of such liquidation, such percentage to be determined as to each category of Inventory and to be as specified in the most recent
Acceptable Appraisal of Inventory.
“Non-Consenting Lender” has the meaning specified therefor in Section 14.2(a) of the Agreement.
“Non-Defaulting Lender” means each Lender other than a Defaulting Lender.
“Non-Government Receivable” means an Account that is not a Government Receivable.
“Non-Government Receivables Lockbox Account” means a Deposit Account of the Borrower that is used exclusively for
the receipt of Collections of Non-Government Receivables.
“Obligations” means (a) all loans (including the Revolving Loans (inclusive of Extraordinary Advances and Swing
Loans)), debts, principal, interest (including any interest that accrues after the commencement of an Insolvency Proceeding,
regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), reimbursement or
indemnification obligations with respect to Letters of Credit (irrespective of whether contingent),
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premiums, liabilities (including all amounts charged to the Loan Account pursuant to the Agreement), obligations (including
indemnification obligations), fees (including the fees provided for in the Fee Letter), Lender Group Expenses (including any fees
or expenses that accrue after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in
whole or in part as a claim in any such Insolvency Proceeding), guaranties, and all covenants and duties of any other kind and
description owing by any Loan Party arising out of, under, pursuant to, in connection with, or evidenced by the Agreement or any
of the other Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all other
expenses or other amounts that Borrowers are required to pay or reimburse by the Loan Documents or by law or otherwise in
connection with the Loan Documents, and (b) all Bank Product Obligations; provided that, anything to the contrary contained in
the foregoing notwithstanding, the Obligations shall exclude any Excluded Swap Obligation. Without limiting the generality of
the foregoing, the Obligations of Borrowers under the Loan Documents include the obligation to pay (i) the principal of the
Revolving Loans, (ii) interest accrued on the Revolving Loans, (iii) the amount necessary to reimburse Issuing Bank for amounts
paid or payable pursuant to Letters of Credit, (iv) Letter of Credit commissions, fees (including fronting fees) and charges,
(v) Lender Group Expenses, (vi) fees payable under the Agreement or any of the other Loan Documents, and (vii) indemnities
and other amounts payable by any Loan Party under any Loan Document. Any reference in the Agreement or in the Loan
Documents to the Obligations shall include all or any portion thereof and any extensions, modifications, renewals, or alterations
thereof, both prior and subsequent to any Insolvency Proceeding and for the avoidance of doubt shall not include any PPP Debt.
“OFAC” means The Office of Foreign Assets Control of the U.S. Department of the Treasury.
“Original Credit Agreement” has the meaning set forth in the preamble to the Agreement.
“Originating Lender” has the meaning specified therefor in Section 13.1(e) of the Agreement.
“Other Taxes” means all present or future stamp, court, excise, value added, or documentary, intangible, recording, filing
or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration
of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document
“Overadvance” means, as of any date of determination, that the Revolver Usage is greater than any of the limitations set
forth in Section 2.1 or Section 2.11 of the Agreement.
“Paycheck Protection Program” means Title I of the Coronavirus Aid, Relief and Economic Security Act (the Paycheck
Protection Program), as amended (including any successor thereto), and all requests, rules, guidelines, requirements and
directives thereunder or issued in connection therewith or in implementation thereof, regardless of the date enacted, adopted,
issued or implemented.
“Parent” has the meaning specified therefor in the preamble to the Agreement.
“Participant” has the meaning specified therefor in Section 13.1(e) of the Agreement.
“Participant Register” has the meaning set forth in Section 13.1(i) of the Agreement.
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“Patent License” means, with respect to any Person, any license of patents or patent rights to a Borrower permitting such
Borrower to use such patents or patent rights in connection with the sale and distribution of any Inventory.
“Patent Security Agreement” has the meaning specified therefor in the Guaranty and Security Agreement or in the case of
the Canadian Loan Parties, the Canadian Security and Pledge Agreement.
“Patriot Act” has the meaning specified therefor in Section 4.13 of the Agreement.
“Perfection Certificate” means a certificate in the form of Exhibit P-1 to the Agreement, as amended from time to time in
accordance with the Agreement.
“Permits” means, with respect to any Person, any permit, approval, clearance, authorization, license, registration,
certificate, concession, grant, franchise, variance or permission from, and any other contractual obligations with, any
Governmental Authority, in each case whether or not having the force of law and applicable to or binding upon such Person or
any of its Property or products or to which such Person or any of its Property or products is subject, including all Registrations
and all Health Care Permits.
“Permitted Acquisition” means any Acquisition (other than an IsoTis Acquisition) on or after the Closing Date so long as:
(a)
no Default or Event of Default shall have occurred and be continuing or would result from the consummation of
the proposed Acquisition and the proposed Acquisition is consensual,
(b)
no Indebtedness will be incurred, assumed, or would exist with respect to Parent, any Borrower or any of their
Subsidiaries as a result of such Acquisition, other than Permitted Indebtedness and no Liens will be incurred, assumed, or would
exist with respect to the assets of Parent, any Borrower or their Subsidiaries as a result of such Acquisition other than Permitted
Liens,
(c)
(i) to the extent Borrowers have provided Agent with written confirmation, supported by reasonably detailed
calculations, that on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to
such proposed Acquisition, are factually supportable, and are expected to have a continuing impact, in each case, determined as if
the combination had been accomplished at the beginning of the relevant period; such eliminations and inclusions to be mutually
and reasonably agreed upon by Parent and Agent) created by adding the historical combined financial statements of Parent
(including the combined financial statements of any other Person or assets that were the subject of a prior Permitted Acquisition
during the relevant period) to the historical consolidated financial statements of the Person to be acquired (or the historical
financial statements related to the assets to be acquired) pursuant to the proposed Acquisition, Parent, Borrowers and their
Subsidiaries (x) would have been in compliance with the Fixed Charge Coverage Ratio of at least 1.10:1.00 for the twelve-month
period ended immediately prior to the proposed date of consummation of such proposed Acquisition, and (y) are projected to be
in compliance with the Fixed Charge Coverage Ratio of at least 1.10:1.00 for the twelve-month period ended one year after the
proposed date of consummation of such proposed Acquisition, Borrowers shall have Total Liquidity of at least $7,500,000
consisting of Excess Availability of at least $3,500,000 immediately after giving effect to the consummation of the proposed
Acquisition, and (ii) to the extent Borrowers have not provided to Agent such evidence of compliance on a pro forma basis with
the Fixed Charge
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Coverage Ratio of at least 1.10:1.00, Borrowers shall have Total Liquidity of at least $12,500,000 consisting of Excess
Availability of at least $3,500,000 immediately after giving effect to the consummation of the proposed Acquisition,
(d)
at any such time during the continuance of a Covenant Testing Period, (i) Parent, Borrowers and their Subsidiaries
on a pro forma basis (as set forth above) (x) would have been in compliance with the Fixed Charge Coverage Ratio of at least
1.10:1.00 for the twelve-month period ended immediately prior to the proposed date of consummation of such proposed
Acquisition, and (y) are projected to be in compliance with the Fixed Charge Coverage Ratio of at least 1.10:1.00 for the twelve-
month period ended one year after the proposed date of consummation of such proposed Acquisition, and (ii) Borrowers shall
have Total Liquidity of at least $7,500,000 consisting of Excess Availability of at least $5,000,000 immediately after giving effect
to the consummation of the proposed Acquisition,
(e)
Borrowers have provided Agent with its due diligence package relative to the proposed Acquisition at least fifteen
(15) Business Days prior to the anticipated closing date of the proposed Acquisition, including forecasted balance sheets, profit
and loss statements, and cash flow statements of the Person or assets to be acquired, all prepared on a basis consistent with such
Person’s (or assets’) historical financial statements, together with appropriate supporting details and a statement of underlying
assumptions for the 1 year period following the date of the proposed Acquisition, on a quarter by quarter basis), in form and
substance (including as to scope and underlying assumptions) reasonably satisfactory to Agent,
(f)
(A) the assets being acquired or the Person whose Equity Interests are being acquired either have positive
EBITDA or negative EBITDA of no less than $10,000,000 during the 12 consecutive month period most recently concluded prior
to the date of the proposed Acquisition and (B) negative EBITDA of such assets or such Person whose Equity Interests are being
acquired is projected to be no less than $5,000,000 for the twelve-month period ended one year after the proposed date of
consummation, provided however,
(i) if negative EBITDA is projected to be less than $1,000,000, but no less than $2,500,000 for the twelve-month
period ended one year after the proposed date of consummation of such proposed Acquisition, Borrowers shall have Total
Liquidity of at least $11,000,000 consisting of Excess Availability of at least $3,500,000 immediately after giving effect to
the consummation of the proposed Acquisition;
(ii) If negative EBITDA is projected to be less than $2,500,000 but no less than $5,000,000 for the twelve-month
period ended one year after the proposed date of consummation of such proposed Acquisition, Borrowers shall have Total
Liquidity of at least $20,000,000 consisting of Excess Availability of at least $5,000,000 immediately after giving effect
to the consummation of the proposed Acquisition;
(g)
Borrowers have provided Agent with written notice of the proposed Acquisition at least fifteen (15) Business Days
prior to the anticipated closing date of the proposed Acquisition and, not later than five (5) Business Days prior to the anticipated
closing date of the proposed Acquisition, copies of the acquisition agreement and other material documents relative to the
proposed Acquisition, together with all information and other diligence as Agent shall reasonably request, including financial
information, regulatory information and copies of Patent Licenses being acquired or granted,
(h)
the assets being acquired (other than a de minimis amount of assets in relation to Parent’s, Borrowers’ and their
Subsidiaries’ total assets), or the Person whose Equity Interests
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are being acquired, are useful in or engaged in, as applicable, the business of Parent, Borrowers and their Subsidiaries or a
business reasonably related thereto, and
(i)
the subject assets or Equity Interests, as applicable, are being acquired directly by Parent, a Borrower or one of
their Subsidiaries that is a Loan Party (or a Person which becomes a Loan Party on or before the date of the acquisition) or is not
required to become a Loan Party under Section 5.11 (other than in connection with an Iso TisIsoTis Acquisition), and, in
connection therewith, the applicable Loan Party shall have complied with Section 5.11 or 5.12 of the Agreement, to the extent
applicable, of the Agreement and in the case of the acquisition of Equity Interests the acquired Person which becomes a Loan
Party pursuant to Section 5.11 shall agree to the terms of Section 2.15.
“Permitted Discretion” means a determination made in the exercise of reasonable (from the perspective of a secured asset-
based lender) business judgment.
“Permitted Dispositions” means:
(a)
sales, abandonment, or other dispositions of Equipment that is substantially worn, damaged, or obsolete or no
longer used or useful in the ordinary course of business and leases or subleases of Real Property not useful in the conduct of the
business of Parent, Borrowers and their Subsidiaries,
(b)
sales of Inventory, equipment, real property, contract rights, or other assets to buyers in the ordinary course of
business and consistent with past practices,
(c)
the use or transfer of cash or Cash Equivalents in a manner that is not prohibited by the terms of the Agreement or
the other Loan Documents,
(d)
the licensing of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of
business,
(e)
the granting of Permitted Liens,
(f)
the sale or discount, in each case without recourse, of accounts receivable (other than Eligible Accounts or
Eligible Unbilled Accounts) arising in the ordinary course of business, but only in connection with the compromise or collection
thereof,
(g)
any involuntary loss, damage or destruction of property,
(h)
any involuntary condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, or
confiscation or requisition of use of property,
(i)
the leasing or subleasing of assets of Parent, any Borrower or any of their Subsidiaries in the ordinary course of
business,
(j)
the sale or issuance of Equity Interests (other than Disqualified Equity Interests) of Parent,
(k)
(i) the lapse of registered patents, trademarks, copyrights and other intellectual property of Parent, any Borrower
or any of their Subsidiaries to the extent not economically desirable in the conduct of its business or (ii) the abandonment of
patents, trademarks, copyrights, or other intellectual property rights (and applications therefor) in the ordinary course
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of business so long as (in each case under clauses (i) and (ii)), (A) with respect to copyrights, such copyrights are not material
revenue generating copyrights, and (B) such lapse is not materially adverse to the interests of the Lender Group,
(l)
[intentionally omitted],
(m)
Issuances of directors’ shares of CFCs if required by applicable law,
(n)
the making of Permitted Investments that are expressly permitted to be made pursuant to the Agreement,
(o)
so long as no Event of Default has occurred and is continuing or would immediately result therefrom, transfers of
assets from Parent or any of its direct or indirect Subsidiaries to any Borrower,
(p)
dispositions of assets acquired by Parent, Borrowers and their Subsidiaries pursuant to a Permitted Acquisition so
long as (i) the consideration received for the assets to be so disposed is at least equal to the fair market value of such assets,
(ii) the assets to be so disposed are not necessary or economically desirable in connection with the business of Parent, Borrowers
and their Subsidiaries, and (iii) the assets to be so disposed are readily identifiable as assets acquired pursuant to the subject
Permitted Acquisition, and
(q)
sales or dispositions of assets (other than Accounts, Inventory, Equity Interests of Subsidiaries of any Borrower or
any of its Subsidiaries) not otherwise permitted in clauses (a) through (o) above so long as made at fair market value and the
aggregate fair market value of all assets disposed of in fiscal year (including the proposed disposition) would not exceed
$500,000.
“Permitted Holder” means Richard E. Caruso, PhD (and entities affiliated with Mr. Caruso), Novo Holdings A/S,
Altrinsic Global Advisors, LLC, Dimensional Fund Advisors, L.P., The Vanguard Group, Inc., Renaissance Technologies, LLC,
Hawk Ridge Capital Management LP, Manulife Asset Management (US) LLC, BlackRock Institutional Trust Company, N.A.,
and Gilder Gagnon Howe & Co. LLC.
“Permitted Indebtedness” means:
(a)
Indebtedness in respect of the Obligations,
(b)
Indebtedness as of the Closing Date set forth on Schedule 4.14 to the Agreement and any Refinancing
Indebtedness in respect of such Indebtedness,
(c)
Permitted Purchase Money Indebtedness and any Refinancing Indebtedness in respect of such Indebtedness,
(d)
Indebtedness arising in connection with the endorsement of instruments or other payment items for deposit in the
ordinary course of business,
(e)
Indebtedness consisting of (i) unsecured guarantees incurred in the ordinary course of business with respect to
surety and appeal bonds, performance bonds, bid bonds, appeal bonds, completion guarantee and similar obligations;
(ii) unsecured guarantees arising with respect to customary indemnification obligations to purchasers in connection with
Permitted Dispositions; and (iii) unsecured guarantees with respect to Indebtedness of Parent or any its
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Subsidiaries, to the extent that the Person that is obligated under such guaranty could have incurred such underlying
Indebtedness,
(f)
unsecured Indebtedness of Parent or any Borrower that is incurred on the date of the consummation of a Permitted
Acquisition solely for the purpose of consummating such Permitted Acquisition so long as (i) no Event of Default has occurred
and is continuing or would result therefrom, (ii) such unsecured Indebtedness is not incurred for working capital purposes,
(iii) such unsecured Indebtedness does not mature prior to the date that is 12 months after the Maturity Date, (iv) such unsecured
Indebtedness does not amortize until 12 months after the Maturity Date, (v) such unsecured Indebtedness does not provide for the
payment of interest thereon in cash or Cash Equivalents prior to the date that is 12 months after the Maturity Date, and (vi) such
Indebtedness is subordinated in right of payment to the Obligations on terms and conditions reasonably satisfactory to Agent and
is otherwise on terms and conditions (including economic terms and absence of covenants) reasonably satisfactory to Agent,
(g)
Acquired Indebtedness in an amount not to exceed $250,000 outstanding at any one time,
(h)
Indebtedness incurred in the ordinary course of business under performance, surety, statutory, or appeal bonds,
(i)
Indebtedness owed to any Person providing property, casualty, liability, or other insurance to Parent, any Borrower
or any of their Subsidiaries, so long as the amount of such Indebtedness is not in excess of the amount of the unpaid cost of, and
shall be incurred only to defer the cost of, such insurance for the year in which such Indebtedness is incurred and such
Indebtedness is outstanding only during such year,
(j)
the incurrence by Parent, any Borrower or any of their Subsidiaries of Indebtedness under Hedge Agreements that
are incurred for the bona fide purpose of hedging the interest rate, commodity, or foreign currency risks associated with Parent’s,
Borrowers’ and their Subsidiaries’ operations and not for speculative purposes,
(k)
Indebtedness incurred in the ordinary course of business in respect of credit cards, credit card processing services,
debit cards, stored value cards, commercial cards (including so- called “purchase cards”, “procurement cards” or “p-cards”), or
Cash Management Services,
(l)
Permitted Intercompany Advances,
(m)
intentionally omitted,
(n)
contingent liabilities in respect of any indemnification obligation, adjustment of purchase price, non-compete, or
similar obligation of any Loan Party incurred in connection with the consummation of one or more Permitted Acquisitions,
including, the N.L.T. Spine Indebtedness in connection with the N.L.T. Spine Acquisition; provided, however, that to the extent
any N.L.T. Spine Indebtedness is payable in equity rather than cash, no such equity shall have any call, put or other conversion
features (including conversion into or exchange for debt) that would obligate Borrower to declare or pay cash dividends, make
distributions, or otherwise pay any money or deliver any other securities or consideration to the holder or convert or exchange the
equity for debt,
(o)
Indebtedness composing Permitted Investments,
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(p)
unsecured Indebtedness incurred in respect of netting services, overdraft protection, and other like services, in
each case, incurred in the ordinary course of business,
(q)
intentionally omitted,
(r)
unsecured Indebtedness of Parent, any Borrower or any of their Subsidiaries in respect of Earn-Outs owing to
sellers of assets or Equity Interests to Parent, such Borrower or any such Subsidiary that is incurred in connection with the
consummation of one or more Permitted Acquisitions so long as such unsecured Indebtedness is on terms and conditions
reasonably acceptable to Agent,
(s)
intentionally omitted,
(t)
accrual of interest, accretion or amortization of original issue discount, or the payment of interest in kind, in each
case, on Indebtedness that otherwise constitutes Permitted Indebtedness,
(u)
Subordinated Indebtedness, the aggregate outstanding amount of which does not exceed $500,000, and
(v)
(i) unsecured Indebtedness in an aggregate principal amount not to exceed $7,173,100.00 advanced by (i) any
Governmental Authority (including the Small Business Administration) or any other Person acting as a financial agent of a
Governmental Authority or (ii) any other Person to the extent such Indebtedness under this clause (ii) is guaranteed by a
Governmental Authority (including the Small Business Administration), in each case under this clause (v), pursuant to the
Paycheck Protection Program (such unsecured Indebtedness, “PPP Debt”); provided that, unless otherwise approved by Agent,
(A) no Event of Default shall have occurred and be continuing at the time of incurrence thereof, and (B) PPP Debt shall (1) be
used by the Loan Parties and their Subsidiaries solely for PPP Permitted Purposes, (2) have a maturity date not less than two (2)
years after the date of incurrence of the PPP Debt, (3) bear interest at a rate not greater than one percent (1%) per annum, (4) not
require any payments of principal during the first six (6) months following the date of the advance of the PPP Debt, and (5)
otherwise have terms customary for loans made pursuant to the Paycheck Protection Program (taken as a whole), and (ii) PPP
Unforgiven Debt; and
(w)
(v) any other unsecured Indebtedness incurred by Parent or any Borrower or any of their Subsidiaries in an
aggregate outstanding amount not to exceed $250,000 at any one time.
“Permitted Intercompany Advances” means loans (a) made by a Borrower to another Borrower or to any direct or indirect
Subsidiary of any Borrower that is a Loan Party, (b) made by any CFC to a Borrower, any direct or indirect Subsidiary of any
Borrower, or to any Subsidiary of any CFC and (c) made by a Borrower to IsoTis International (or another CFC) consisting solely
of clearly identifiable proceeds received from an issuance of Equity Interests by such Borrower and exclusively used by IsoTis
(or such CFC) for purposes of consummating IsoTis Acquisitions.
“Permitted Investments” means:
(a)
Investments in cash and Cash Equivalents,
(b)
Investments in negotiable instruments deposited or to be deposited for collection in the ordinary course of
business,
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(c)
advances made in connection with purchases of goods or services or to customers or distributors in the ordinary
course of business,
(d)
Investments received in settlement of amounts due to any Loan Party or any of its Subsidiaries effected in the
ordinary course of business or owing to any Loan Party or any of its Subsidiaries as a result of Insolvency Proceedings involving
an account debtor or upon the foreclosure or enforcement of any Lien in favor of a Loan Party or its Subsidiaries or other
resolution of claims by a Loan Party or its Subsidiaries,
(e)
Investments owned by any Loan Party or any of its Subsidiaries on the Closing Date and set forth on Schedule P-1
to the Agreement,
(f)
guarantees permitted under the definition of Permitted Indebtedness,
(g)
Permitted Intercompany Advances,
(h)
Equity Interests or other securities acquired in connection with the satisfaction or enforcement of Indebtedness or
claims due or owing to a Loan Party or its Subsidiaries (in bankruptcy of customers or suppliers or otherwise outside the ordinary
course of business) or as security for any such Indebtedness or claims,
(i)
deposits of cash made in the ordinary course of business to secure performance of operating leases or other
contracts,
(j)
loans and advances to employees, contractors, directors and officers of Parent or any Borrower in the ordinary
course of business and in an aggregate amount not to exceed $250,000 at any one time,
(k)
Permitted Acquisitions and Investments received or retained in connection with Permitted Dispositions,
(l)
Investments in the form of capital contributions and the acquisition of Equity Interests made by any Borrower in
any other Borrower (other than capital contributions to or the acquisition of Equity Interests of Parent or any Borrower),
(m)
Investments resulting from entering into (i) Bank Product Agreements, or (ii) agreements relative to obligations
permitted under clause (j) of the definition of Permitted Indebtedness,
(n)
equity Investments by any Loan Party in any Subsidiary of such Loan Party which is required by law to maintain a
minimum net capital requirement or as may be otherwise required by applicable law,
(o)
Investments held by a Person acquired in a Permitted Acquisition to the extent that such Investments were not
made in contemplation of or in connection with such Permitted Acquisition and were in existence on the date of such Permitted
Acquisition, and
(p)
minority Investments in any Person consisting of Equity Interests made by Parent or a Borrower if (after giving
effect to such Investments) (i) no Default or Event of Default shall have occurred and be continuing, (ii) to the extent
(x) Borrowers have provided Agent with written confirmation, supported by reasonably detailed calculations, that on a pro forma
basis, Borrowers would have been in compliance with the Fixed Charge Coverage Ratio of at least
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1.10:1.00 for the most recent twelve-month period then ended, Borrowers shall have Total Liquidity of at least $12,500,000
consisting of Excess Availability of at least $3,500,000, and (y) Borrowers have not provided to Agent such evidence of
compliance on a pro forma basis with the Fixed Charge Coverage Ratio of at least 1.10:1.00 for the most recent twelve-month
period then ended, Borrowers shall have Total Liquidity of at least $15,500,000 consisting of Excess Availability of at least
$3,500,000 and (iii) all such Investments shall not exceed $10,000,000 in the aggregate in any fiscal year, and
(q)
so long as no Event of Default has occurred and is continuing or would result therefrom, any other Investments in
an aggregate amount not to exceed $100,000 during the term of the Agreement.
“Permitted Liens” means
(a)
Liens granted to, or for the benefit of, Agent to secure the Obligations,
(b)
Liens for unpaid taxes, assessments, or other governmental charges or levies that either (i) are not yet delinquent,
or (ii) do not have priority over Agent’s Liens and the underlying taxes, assessments, or charges or levies are the subject of
Permitted Protests,
(c)
judgment Liens arising solely as a result of the existence of judgments, orders, or awards that do not constitute an
Event of Default under Section 8.3 of the Agreement,
(d)
Liens set forth on Schedule P-2 to the Agreement; provided, that to qualify as a Permitted Lien, any such Lien
described on Schedule P-2 to the Agreement shall only secure the Indebtedness that it secures on the Closing Date and any
Refinancing Indebtedness in respect thereof,
(e)
the interests of lessors under operating leases and non-exclusive licensors under license agreements,
(f)
purchase money Liens on fixed assets or the interests of lessors under Capital Leases to the extent that such Liens
or interests secure Permitted Purchase Money Indebtedness and so long as (i) such Lien attaches only to the fixed asset purchased
or acquired and the proceeds thereof, and (ii) such Lien only secures the Indebtedness that was incurred to acquire the fixed asset
purchased or acquired or any Refinancing Indebtedness in respect thereof,
(g)
Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers,
or suppliers, incurred in the ordinary course of business and not in connection with the borrowing of money, and which Liens
either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests,
(h)
Liens on amounts deposited to secure Borrowers’ and their Subsidiaries’ obligations in connection with worker’s
compensation or other unemployment insurance,
(i)
Liens on amounts deposited to secure Borrowers’ and their Subsidiaries’ obligations in connection with the
making or entering into of bids, tenders, or leases in the ordinary course of business and not in connection with the borrowing of
money,
(j)
Liens on amounts deposited to secure Borrowers’ and their Subsidiaries’ reimbursement obligations with respect
to surety or appeal bonds obtained in the ordinary course of business,
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(k)
with respect to any Real Property, easements, rights of way, and zoning restrictions that do not materially interfere
with or impair the use or operation thereof,
(l)
licenses of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of
business,
(m)
Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is the subject of
permitted Refinancing Indebtedness and so long as the replacement Liens only encumber those assets that secured the original
Indebtedness,
(n)
rights of setoff or bankers’ liens upon deposits of funds in favor of banks or other depository institutions, solely to
the extent incurred in connection with the maintenance of such Deposit Accounts in the ordinary course of business,
(o)
Liens granted in the ordinary course of business on the unearned portion of insurance premiums securing the
financing of insurance premiums to the extent the financing is permitted under the definition of Permitted Indebtedness,
(p)
Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods,
(q)
Liens solely on any cash earnest money deposits made by Parent, any Borrower or any of their Subsidiaries in
connection with any letter of intent or purchase agreement with respect to a Permitted Acquisition,
(r)
Liens assumed by Parent or any Borrower in connection with a Permitted Acquisition that secure Acquired
Indebtedness that is Permitted Indebtedness, and
(s)
other Liens which do not secure Indebtedness for borrowed money or letters of credit and as to which the
aggregate amount of the obligations secured thereby does not exceed $250,000.
“Permitted N.L.T. Spine Indebtedness Payments” means regularly scheduled payments of the N.L.T. Spine Indebtedness
(whether in cash or securities), provided, however:
(a)
that if such payment is a Milestone Payment which is to be made in cash, then Agent shall receive from Borrower
not less than five (5) Business Days prior to the date of such proposed payment a Compliance Certificate in accordance with the
Agreement, in form and substance reasonably acceptable to Agent, and dated as of the date of such proposed payment certifying,
among other things, (i) that no Default or Event of Default has occurred and is continuing and no pro forma Default or Event of
Default would arise after giving effect to any such payment, (ii) the computation and calculation of the proposed payment under
the N.L.T. Spine Acquisition Documents and all supporting documentation, and (iii) that payment of the proposed payment is not
otherwise prohibited by the terms of the Agreement;
(b)
that to the extent any N.L.T. Spine Indebtedness is payable in equity rather than cash, no such equity shall have
any call, put or other conversion features (including conversion into or exchange for debt) that would obligate Borrower to
declare or pay cash dividends, make distributions, or otherwise pay any money or deliver any other securities or consideration to
the holder or convert or exchange the equity for debt; and
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(c)
that if such payment is to be made pursuant to the Buyer OCS Payment Election (as defined in the N.L.T. Spine
Acquisition Agreement), then Agent shall receive from Borrower not less than five (5) Business Days prior to the date of such
proposed payment a Compliance Certificate in accordance with the Agreement, in form and substance reasonably acceptable to
Agent, and dated as of the date of such proposed payment certifying, among other things, that (i) no Default or Event of Default
has occurred and is continuing and no pro forma Default or Event of Default would arise after giving effect to any such payment,
(ii) Borrowers shall have Total Liquidity of at least $20,000,000 consisting of Excess Availability of at least $10,000,000 both
before and immediately after giving effect to any such payment, and (iii) payment of the proposed payment is not otherwise
prohibited by the terms of the Agreement.
“Permitted Protest” means the right of Parent, any Borrower or any of their Subsidiaries to protest any Lien (other than
any Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on Parent’s, such Borrower’s or
such Subsidiary’s books and records in such amount as is required under GAAP, (b) any such protest is instituted promptly and
prosecuted diligently by Parent, such Borrower or such Subsidiary, as applicable, in good faith (or is otherwise conducted in a
commercially reasonable manner), and (c) Agent is reasonably satisfied that, while any such protest is pending, there will be no
impairment of the enforceability, validity, or priority of any of Agent’s Liens.
“Permitted Purchase Money Indebtedness” means, as of any date of determination, Indebtedness (other than the
Obligations, but including Capitalized Lease Obligations), incurred after the Closing Date and at the time of, or within 20 days
after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof, in an aggregate
principal amount outstanding at any one time not in excess of $1,500,000.
“Person” means natural persons, corporations, limited liability companies, limited partnerships, general partnerships,
limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they
are legal entities, and governments and agencies and political subdivisions thereof.
“PHIPA” means the Personal Health Information Protection Act, 2004 (Ontario), including any regulations thereto, as
well as any directives, orders or guidance issued by the Information and Privacy Commissioner of Ontario, as applicable; and
“Platform” has the meaning specified therefor in Section 17.9(c) of the Agreement.
“PPSA” means the Personal Property Security Act (Ontario) including the regulations respectively thereto and related
Minister’s Orders, provided that if perfection or the effect of perfection or non-perfection or the priority of any Lien created
hereunder or under any other Loan Document on the Collateral is governed by the personal property legislation or other
applicable legislation with respect to personal property security in effect in any applicable jurisdiction in Canada, “PPSA” means
the Personal Property Security Act or such other applicable legislation (including, the Civil Code of Quebec) in effect from time
to time in such other jurisdiction in Canada for the purposes of the provisions hereof relating to such perfection, effect of
perfection or non-perfection or priority.
“Post-Increase Revolver Lenders” has the meaning specified therefor in Section 2.14 of the Agreement.
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“PPP Permitted Purposes” means, with respect to the use of proceeds of any PPP Debt, the purposes set forth in Section
1106(b) of the Paycheck Protection Program and otherwise in compliance with all other provisions or requirements of the
Paycheck Protection Program applicable in order for the entire amount of the PPP Debt to be eligible for forgiveness.
“PPP Debt” has the meaning ascribed thereto in clause (v) of the definition of “Permitted Indebtedness”.
“PPP Debt Documents” means any applications, loan documentation and other information submitted to the lender
servicing the PPP Debt or any Governmental Authority (including the Small Business Administration) with respect to the PPP
Debt.
“PPP Forgiveness Date” means five (5) Business Days after the date that the Loan Parties obtain a final determination by
the lender of the PPP Debt in the exercise of its reasonable discretion (and, to the extent required, the Small Business
Administration) (or such longer period as may be approved in writing by Agent) regarding the amount of PPP Debt, if any, that
will be forgiven pursuant to the provisions of the Paycheck Protection Program.
“PPP Unforgiven Debt” means that amount of the PPP Debt that has been determined by the lender of the PPP Debt in the
exercise of its reasonable discretion (or the Small Business Administration) to be ineligible for forgiveness pursuant to the
provisions of the Paycheck Protection Program; provided that PPP Debt (or the applicable portion thereof) is deemed PPP
Unforgiven Debt if (a) the Loan Parties do not timely file an application for forgiveness or do not include any portion of the PPP
Debt in an application for forgiveness, (b) any Loan Party gives notice to Agent that the PPP Debt will be PPP Unforgiven Debt,
or (c) Agent obtains actual knowledge that the PPP Debt will be PPP Unforgiven Debt.
“Pre-Increase Revolver Lenders” has the meaning specified therefor in Section 2.14 of the Agreement.
“Primary Syndication” has the meaning ascribed thereto in the Fee Letter.
“Priority Payables” shall mean, with respect to any Canadian Loan Party, (a) the full amount of the liabilities of any Loan
Party which (i) have a trust imposed to provide for payment or a security interest, pledge, Lien, hypothec or charge ranking or
capable of ranking senior to or pari passu with security interests, Liens, hypothecs or charges securing the Obligations on any
Collateral under any federal, provincial, state, county, district, municipal, local or foreign law or (ii) have a right imposed to
provide for payment ranking or capable of ranking senior to or pari passu with the Obligations under federal, provincial, state,
county, district, municipal, local or foreign law, regulation or directive, including, but not limited to, claims for unremitted and/or
accelerated rents, taxes, wages, withholdings taxes, value added taxes, amounts payable to an insolvency administrator, employee
withholdings or deductions, vacation pay, severance and termination pay, workers’ compensation obligations, government
royalties or pension obligations in each case to the extent such trust, or security interest, Lien hypothec or charge has been or may
be imposed, including under the Wage Earner Protection Program Act (Canada), and (b) the amount equal to the aggregate value
of the Inventory which Agent, in good faith, and on a reasonable basis, considers is or may be subject to retention of title by a
supplier or a right of a supplier to recover possession thereof, where such supplier’s right has priority over the security interests,
liens, hypothecs or charges securing the Obligations, including, without limitation, Inventory subject to a right of a supplier to
repossess goods pursuant to Section 81.1 of the Bankruptcy and Insolvency Act (Canada) or any applicable laws granting
revendication or
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similar rights to unpaid suppliers or any similar laws of Canada or any other applicable jurisdiction.
“Projections” means Parent’s and Borrowers’ forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash
flow statements, all prepared on a basis consistent with Parent’s and Borrowers’ historical financial statements, together with
appropriate supporting details and a statement of underlying assumptions.
“Property” means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or
intangible.
“Pro Rata Share” means, as of any date of determination:
(a)
with respect to a Lender’s obligation to make all or a portion of the Revolving Loans, with respect to such
Lender’s right to receive payments of interest, fees, and principal with respect to the Revolving Loans, and with respect to all
other computations and other matters related to the Revolver Commitments or the Revolving Loans, the percentage obtained by
dividing (i) the Revolving Loan Exposure of such Lender by (ii) the aggregate Revolving Loan Exposure of all Lenders,
(b)
with respect to a Lender’s obligation to participate in the Letters of Credit, with respect to such Lender’s
obligation to reimburse Issuing Bank, and with respect to such Lender’s right to receive payments of Letter of Credit Fees, and
with respect to all other computations and other matters related to the Letters of Credit, the percentage obtained by dividing
(i) the Revolving Loan Exposure of such Lender by (ii) the aggregate Revolving Loan Exposure of all Lenders; provided, that if
all of the Revolving Loans have been repaid in full and all Revolver Commitments have been terminated, but Letters of Credit
remain outstanding, Pro Rata Share under this clause shall be the percentage obtained by dividing (A) the Letter of Credit
Exposure of such Lender, by (B) the Letter of Credit Exposure of all Lenders,
(c)
[intentionally omitted], and
(d)
with respect to all other matters and for all other matters as to a particular Lender (including the indemnification
obligations arising under Section 15.7 of the Agreement), the percentage obtained by dividing (i) the Revolving Loan Exposure
of such Lender by (ii) the aggregate Revolving Loan Exposure of all Lenders, in any such case as the applicable percentage may
be adjusted by assignments permitted pursuant to Section 13.1; provided, that if all of the Loans have been repaid in full and all
Commitments have been terminated, Pro Rata Share under this clause shall be the percentage obtained by dividing (A) the Letter
of Credit Exposure of such Lender, by (B) the Letter of Credit Exposure of all Lenders.
“Protective Advances” has the meaning specified therefor in Section 2.3(d)(i) of the Agreement.
“Public Health Laws” means all RequirementRequirements of Law relating to the procurement, development, clinical and
non-clinical evaluation or investigation, product approval or clearance, manufacture, production, analysis, distribution,
dispensing, importation, exportation, use, handling, quality, reimbursement, sale, labeling, advertising, promotion, or postmarket
requirements of any drug, medical device, food, dietary supplement, or other product (including any ingredient or component of,
or accessory to, the foregoing products) subject to regulation under the Federal Food, Drug, and Cosmetic Act (21 U.S.C. et seq.),
Food and Drugs Act (Canada) and regulations thereto, including the Medical Devices Regulation and Controlled
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Drugs and Substances Act (Canada), and similar state, provincial, territorial or foreign laws, controlled substances laws,
pharmacy laws, or consumer product safety laws and public health protection and promotion laws.
“Public Lender” has the meaning specified therefor in Section 17.9(c) of the Agreement.
“Purchase Price” means, with respect to any Acquisition, an amount equal to the aggregate consideration, whether cash,
property or securities (including the fair market value of any Equity Interests of Parent or any Borrower issued in connection with
such Acquisition and including the maximum amount of Earn-Outs), paid or delivered by Parent or such Borrower in connection
with such Acquisition (whether paid at the closing thereof or payable thereafter and whether fixed or contingent), but excluding
therefrom (a) any cash of the seller and its Affiliates used to fund any portion of such consideration and (b) any cash or Cash
Equivalents acquired in connection with such Acquisition.
“Qualified Cash” means, as of any date of determination, the amount of unrestricted (other than customary account
agreements) cash and Cash Equivalents of Parent, Borrowers and their Subsidiaries that is in Deposit Accounts or in Securities
Accounts, or any combination thereof, and which such Deposit Account or Securities Account is the subject of a Control
Agreement and is maintained by a branch office of the bank or securities intermediary located within the United States; provided,
however, any proceeds received by Parent, Maple Leaf, any Borrower or any of their Subsidiaries in connection with the
Paycheck Protection Program shall not constitute Qualified Cash.
“Qualified Equity Interests” means and refers to any Equity Interests issued by Parent (and not by one or more of its
Subsidiaries) that is not a Disqualified Equity Interest.
“Real Property” means any estates or interests in real property now owned or hereafter acquired by Parent or any
Borrower or one of their respective Subsidiaries and the improvements thereto.
“Real Property Collateral” means (a) the Real Property identified on Schedule R-1 to the Agreement and (b) any Real
Property hereafter acquired by Parent or one of its Subsidiaries.
“Receivable Reserves” means, as of any date of determination, those reserves that Agent deems necessary or appropriate,
in its Permitted Discretion and subject to Section 2.1(c), to establish and maintain (including Landlord Reserves for books and
records locations and reserves for rebates, discounts, warranty claims, and returns) with respect to the Eligible Accounts or the
Maximum Revolver Amount.
“Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and
is retrievable in perceivable form.
“Reference Period” has the meaning set forth in the definition of EBITDA.
“Reference Time” with respect to any setting of the then-current Benchmark means (a) if such Benchmark is USD
LIBOR, 11:00 a.m., London time, on the day that is two (2) Business Days preceding the date of such setting, and (b) if such
Benchmark is not USD LIBOR, the time determined by Agent in its reasonable discretion.
“Refinancing Indebtedness” means refinancings, renewals, or extensions of Indebtedness so long as:
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(a)
such refinancings, renewals, or extensions do not result in an increase in the principal amount of the Indebtedness
so refinanced, renewed, or extended, other than by the amount of premiums paid thereon and the fees and expenses incurred in
connection therewith and by the amount of unfunded commitments with respect thereto,
(b)
such refinancings, renewals, or extensions do not result in a shortening of the final stated maturity or the average
weighted maturity (measured as of the refinancing, renewal, or extension) of the Indebtedness so refinanced, renewed, or
extended, nor are they on terms or conditions that, taken as a whole, are or could reasonably be expected to be materially adverse
to the interests of the Lenders,
(c)
if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the
Obligations, then the terms and conditions of the refinancing, renewal, or extension must include subordination terms and
conditions that are at least as favorable to the Lender Group as those that were applicable to the refinanced, renewed, or extended
Indebtedness,
(d)
the Indebtedness that is refinanced, renewed, or extended is not recourse to any Person that is liable on account of
the Obligations other than those Persons which were obligated with respect to the Indebtedness that was refinanced, renewed, or
extended,
(e)
if the Indebtedness that is refinanced, renewed or extended was unsecured, such refinancing, renewal or extension
shall be unsecured, and
(f)
if the Indebtedness that is refinanced, renewed, or extended was secured (i) such refinancing, renewal, or
extension shall be secured by substantially the same or less collateral as secured such refinanced, renewed or extended
Indebtedness on terms no less favorable to Agent or the Lender Group and (ii) the Liens securing such refinancing, renewal or
extension shall not have a priority more senior than the Liens securing such Indebtedness that is refinanced, renewed or extended.
“Register” has the meaning set forth in Section 13.1(h) of the Agreement.
“Registered Loan” has the meaning set forth in Section 13.1(h) of the Agreement.
“Registrations” means all Permits and exemptions issued or allowed by a Regulatory Authority (including new drug
applications, abbreviated new drug applications, biologics license applications, investigational new drug applications, over-the-
counter drug monograph, device pre-market approval applications, device pre-market notifications, investigational device
exemptions, product recertifications, manufacturing approvals, registrations and authorizations, CE Marks, pricing and
reimbursement approvals, labeling approvals or their foreign equivalent, controlled substance registrations, and wholesale
distributor permits) held by, or applied by contract to, any Loan Party or any of its Subsidiaries, that are required for the research,
development, manufacture, distribution, marketing, storage, transportation, use and sale of any Property or products of any such
Loan Party or any such Subsidiary.
“Regulatory Action” means an administrative or regulatory action, proceeding, investigation or non-routine inspection,
FDA Form 483 inspectional observation or other formal notice of serious deficiencies, warning letter, untitled letter, notice of
violation letter, recall, alert, seizure, Section 305 notice or other similar communication, or consent decree issued by a Regulatory
Authority.
SCHEDULE 1.1
Page 51
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(Signature Page to Omnibus Joinder and Third Amendment to Amended and Restated Credit Agreement and Other Loan
Documents)
“Regulatory Authority” means the FDA, Health Canada or any comparable Governmental Authority that is concerned
with the safety, efficacy, reliability, manufacture, sale, labelling, advertising, promotion, reimbursement, import, export or
marketing of medical devices, products or drugs.
“Regulatory Matters” means, collectively, activities, Property and products that are subject to Public Health Laws.
“Related Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or
investing in bank loans and similar extensions of credit in the ordinary course and that is administered, advised or managed by
(a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers, advises or manages a Lender.
“Releasees” has the meaning specified therefor in Section 17.16 of the Agreement.
“Relevant Governmental Body” means the Federal Reserve Board and/or the Federal Reserve Bank of New York, or a
committee officially endorsed or convened by the Federal Reserve Board and/or the Federal Reserve Bank of New York or any
successor thereto.
“Remedial Action” means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or
in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened
release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor
or outdoor environment, (c) restore or reclaim natural resources or the environment, (d) perform any pre-remedial studies,
investigations, or post-remedial operation and maintenance activities, or (e) conduct any other actions with respect to Hazardous
Materials required by Environmental Laws.
“Replacement Lender” has the meaning specified therefor in Section 2.13(b) of the Agreement.
“Report” has the meaning specified therefor in Section 15.16 of the Agreement.
“Required Lenders” means, at any time, Lenders having or holding more than 50% of the aggregate Revolving Loan
Exposure of all Lenders; provided, that (i) the Revolving Loan Exposure of any Defaulting Lender shall be disregarded in the
determination of the Required Lenders and (ii) at any time there are two or more Lenders (who are not Affiliates of one another
or Defaulting Lenders), “Required Lenders” must include at least two Lenders (who are not Affiliates of one another).
“Requirement of Law” means, with respect to any Person, any law (statutory or common), ordinance, treaty, rule,
regulation, order, policy, judgment, writ, injunction, decree, or other legal requirement or determination of an arbitrator or of a
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, including all Health Care Laws.
“Reserves” means, as of any date of determination, without duplication, Receivable Reserves, Bank Product Reserves,
Inventory Reserves, Dilution Reserve, Priority Payables and those other reserves that Agent deems necessary or appropriate, in
its Permitted Discretion and subject to Section 2.1(c), to establish and maintain (including reserves with respect to (a) sums that
Parent, any Borrower or any of their Subsidiaries are required to pay under any Section of
SCHEDULE 1.1
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(Signature Page to Omnibus Joinder and Third Amendment to Amended and Restated Credit Agreement and Other Loan
Documents)
the Agreement or any other Loan Document (such as taxes, assessments, settlements, insurance premiums, or, in the case of
leased assets, rents or other amounts payable under such leases) and has failed to pay, and (b) amounts owing by Parent, any
Borrower or any of their Subsidiaries to any Person to the extent secured by a Lien on, or trust over, any of the Collateral (other
than a Permitted Lien), which Lien or trust, in the Permitted Discretion of Agent likely would have a priority superior to the
Agent’s Liens (such as Liens or trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or
suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes where given priority under applicable law) in and to such
item of the Collateral) with respect to the Borrowing Base or the Maximum Revolver Amount.
“Restricted Payment” means (a) any declaration or payment of any cash dividend or the making of any other cash
payment or distribution, directly or indirectly, on account of Equity Interests issued by any Person or to the direct or indirect
holders of Equity Interests issued by such Person in their capacity as such, or (b) any purchase, redemption, making of any
sinking fund or similar payment, or other acquisition or retirement for value any Equity Interests issued by any Person (other than
purchase by Parent of unvested Equity Interests), (c) any making of any payment to retire, or to obtain the surrender of, any
outstanding warrants, options, or other rights to acquire Equity Interests of any Person now or hereafter outstanding, (d) any
making, or causing or suffering to permit any Person to make, any payment or prepayment of principal of, premium, if any, or
interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar
payment with respect to, any Subordinated Indebtedness, (e) any declaration or payment of any dividend or making of any other
payment or distribution, directly or indirectly (whether in cash, securities or other property), to IsoTis International other than a
Permitted Intercompany Advances pursuant to subsection (c) of the definition thereof and (f) any making, or causing or suffering
to permit any Person to make, any payment or prepayment of principal of, premium, if any, or interest on, the N.L.T Spine
Indebtedness other than Permitted N.L.T. Spine Indebtedness Payments.
“Revolver Commitment” means, with respect to each Revolving Lender, its Revolver Commitment, and, with respect to
all Revolving Lenders, their Revolver Commitments, in each case as such Dollar amounts are set forth beside such Revolving
Lender’s name under the applicable heading on Schedule C-1 to the Agreement or in the Assignment and Acceptance pursuant to
which such Revolving Lender became a Revolving Lender under the Agreement, as such amounts may be reduced or increased
from time to time pursuant to assignments made in accordance with the provisions of Section 13.1 of the Agreement, and as such
amounts may be decreased by the amount of reductions in the Revolver Commitments made in accordance with Section 2.4(c)
hereof.
“Revolver Usage” means, as of any date of determination, the sum of (a) the amount of outstanding Revolving Loans
(inclusive of Swing Loans and Protective Advances), plus (b) the amount of the Letter of Credit Usage.
“Revolving Lender” means a Lender that has a Revolving Loan Exposure or Letter of Credit Exposure.
“Revolving Loan Exposure” means, with respect to any Revolving Lender, as of any date of determination (a) prior to the
termination of the Revolver Commitments, the amount of such Lender’s Revolver Commitment, and (b) after the termination of
the Revolver Commitments, the aggregate outstanding principal amount of the Revolving Loans of such Lender.
“Revolving Loans” has the meaning specified therefor in Section 2.1(a) of the Agreement.
SCHEDULE 1.1
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(Signature Page to Omnibus Joinder and Third Amendment to Amended and Restated Credit Agreement and Other Loan
Documents)
“Sanctioned Entity” means (a) a country or territory or a government of a country or territory, (b) an agency of the
government of a country or territory, (c) an organization directly or indirectly controlled by a country or territory or its
government, or (d) a Person resident in or determined to be resident in a country or territory, in each case of clauses (a) through
(d) that is a target of Sanctions, including a target of any country sanctions program administered and enforced by OFAC.
“Sanctioned Person” means, at any time (a) any Person named on the list of Specially Designated Nationals and Blocked
Persons maintained by OFAC, OFAC’s consolidated Non-SDN list or any other Sanctions-related list maintained by any
Governmental Authority including any Person named or listed in the regulations made under the Special Economic Measures Act
(Canada) (S,C. 1992, c. 17) as a person or entity with whom trading or dealing is prohibited, in accordance with the most recent
of such lists published by the Department of Foreign Affairs and International Trade on its web site, (b) a Person or legal entity
that is a target of Sanctions, (c) any Person operating, organized or resident in a Sanctioned Entity, or (d) any Person directly or
indirectly owned or controlled (individually or in the aggregate) by or acting on behalf of any such Person or Persons described
in clauses (a) through (c) above.
“Sanctions” means individually and collectively, respectively, any and all economic sanctions, trade sanctions, financial
sanctions, sectoral sanctions, secondary sanctions, trade embargoes anti-terrorism laws and other sanctions laws, regulations or
embargoes, including those imposed, administered or enforced from time to time by: (a) the United States of America, including
those administered by OFAC, the U.S. Department of State, the U.S. Department of Commerce, or through any existing or future
executive order, (b) the United Nations Security Council, (c) the European Union or any European Union member state, (d) Her
Majesty’s Treasury of the United Kingdom, (e) the Government of Canada or the government of any province or territory of
Canada including those administered by Global Affairs Canada, or (df) any other Governmental Authority with jurisdiction over
any member of Lender Group or any Loan Party or any of their respective Subsidiaries or Affiliates.
“S&P” has the meaning specified therefor in the definition of Cash Equivalents.
“SEC” means the United States Securities and Exchange Commission and any successor thereto.
“Securities Account” means a securities account (as that term is defined in the Code).
“Securities Act” means the Securities Act of 1933, as amended from time to time, and any successor statute.
“Settlement” has the meaning specified therefor in Section 2.3(e)(i) of the Agreement.
“Settlement Date” has the meaning specified therefor in Section 2.3(e)(i) of the Agreement.
“Small Business Administration” means the U.S. Small Business Administration.
“SOFR” means, with respect to any Business Day, a rate per annum equal to the secured overnight financing rate for such
Business Day published by the SOFR Administrator on the SOFR Administrator’s Website on the immediately succeeding
Business Day.
SCHEDULE 1.1
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(Signature Page to Omnibus Joinder and Third Amendment to Amended and Restated Credit Agreement and Other Loan
Documents)
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured
overnight financing rate).
“SOFR Administrator’s Website” means the website of the Federal Reserve Bank of New York, currently at
http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR
Administrator from time to time.
“SOFR Average” means the compounded average of SOFR over a rolling calendar day period of thirty (30) days
published by the Federal Reserve Bank of New York (or a successor administrator of the SOFR Average).
“Solvent” means, with respect to any Person as of any date of determination, that (a) at fair valuations, the sum of such
Person’s debts (including contingent liabilities) is less than all of such Person’s assets, (b) such Person is not engaged or about to
engage in a business or transaction for which the remaining assets of such Person are unreasonably small in relation to the
business or transaction or for which the property remaining with such Person is an unreasonably small capital, and (c) such
Person has not incurred and does not intend to incur, or reasonably believe that it will incur, debts beyond its ability to pay such
debts as they become due (whether at maturity or otherwise), and (d) such Person is “solvent” or not “insolvent”, as applicable
within the meaning given those terms and similar terms under applicable laws relating to fraudulent transfers and conveyances.
For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of
all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an
actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of
Financial Accounting Standard No. 5).
“Standard Letter of Credit Practice” means, for Issuing Bank, any domestic or foreign law or letter of credit practices
applicable in the city in which Issuing Bank issued the applicable Letter of Credit or, for its branch or correspondent, such laws
and practices applicable in the city in which it has advised, confirmed or negotiated such Letter of Credit, as the case may be, in
each case, (a) which letter of credit practices are of banks that regularly issue letters of credit in the particular city, and (b) which
laws or letter of credit practices are required or permitted under ISP or UCP, as chosen in the applicable Letter of Credit.
“Subordinated Indebtedness” means any Indebtedness of Parent, any Borrower or any of their Subsidiaries incurred from
time to time that is subordinated in right of payment to the Obligations and is subject to a subordination agreement or contains
terms and conditions of subordination that are reasonably acceptable to Agent.
“Subsidiary” of a Person means a corporation, partnership, limited liability company, or other entity in which that Person
directly or indirectly owns or controls the Equity Interests having ordinary voting power to elect a majority of the Board of
Directors of such corporation, partnership, limited liability company, or other entity.
“Supermajority Lenders” means, at any time, Revolving Lenders having or holding more than 66 2/3% of the aggregate
Revolving Loan Exposure of all Revolving Lenders; provided, that (i) the Revolving Loan Exposure of any Defaulting Lender
shall be disregarded in the determination of the Supermajority Lenders, and (ii) at any time there are two or more Revolving
Lenders (who are not Affiliates of one another), “Supermajority Lenders” must include at least two Revolving Lenders (who are
not Affiliates of one another or Defaulting Lenders).
SCHEDULE 1.1
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(Signature Page to Omnibus Joinder and Third Amendment to Amended and Restated Credit Agreement and Other Loan
Documents)
“Supply Agreements” mean the collective reference to (i) the Integra Supply Agreements and (ii) DBM and OS Supply
Agreement (SeaSpine as Supplier) effective as of July 1, 2015 by and between SeaSpine Orthopedics and Integra LifeSciences
Corporation, a Delaware corporation, as each of the same may be amended, restated, modified or otherwise supplemented from
time to time.
“Swap Obligation” means, with respect to any Loan Party, any obligation to pay or perform under any agreement,
contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.
“Swing Lender” means Wells Fargo or any other Lender that, at the request of Borrowers and with the consent of Agent
agrees, in such Lender’s sole discretion, to become the Swing Lender under Section 2.3(b) of the Agreement.
“Swing Loan” has the meaning specified therefor in Section 2.3(b) of the Agreement.
“Swing Loan Exposure” means, as of any date of determination with respect to any Lender, such Lender’s Pro Rata Share
of the Swing Loans on such date.
“Taxes” means any taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter
imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein, and all interest, penalties or
similar liabilities with respect thereto. With respect to any Loan Party, “Taxes” shall include quality assurance fees and similar
fees owing to any Governmental Authority from time to time.
“Tax Lender” has the meaning specified therefor in Section 14.2(a) of the Agreement.
“Term SOFR” means, for the applicable Corresponding Tenor as of the applicable Reference Time, the forward-looking
term rate based on SOFR that has been selected or recommended by the Relevant Governmental Body.
“Term SOFR Notice” means a notification by Agent to the Lenders and Administrative Borrower of the occurrence of a
Term SOFR Transition Event.
“Term SOFR Transition Event” means the determination by Agent that (a) Term SOFR has been recommended for use by
the Relevant Governmental Body, (b) the administration of Term SOFR is administratively feasible for Agent and (c) a
Benchmark Transition Event or an Early Opt-in Election, as applicable, has previously occurred resulting in the replacement of
the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.12(d)(iii)
with a Benchmark Replacement, the Unadjusted Benchmark Replacement component of which is not Term SOFR.
“Third Party Payor” means (i) a commercial medical insurance company, health maintenance organization, professional
provider organization or other third party payor that reimburses for good or services, (ii) a nonprofit medical insurance company
(such as the Blue Cross, Blue Shield entities), and (iii) a Government Account Debtor that maintains a Government
Reimbursement Program.
“Third Party Payor Arrangement” means a written agreement or arrangement with a Third Party Payor pursuant to which
the Third Party Payor pays all or a portion of the charges of any Borrower or its Subsidiaries for selling goods or providing
services.
SCHEDULE 1.1
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(Signature Page to Omnibus Joinder and Third Amendment to Amended and Restated Credit Agreement and Other Loan
Documents)
“Threshold Amount” means $5,000,000 of Total Liquidity consisting of Excess Availability of at least $3,500,000.
“Total Liquidity” means, on any date of determination, a measure of (a) Excess Availability and (b) Qualified Cash.
“Trademark Security Agreement” has the meaning specified therefor in the Guaranty and Security Agreement or in the
case of the Canadian Loan Parties, the Canadian Security and Pledge Agreement.
“Transfer” means, with respect to any Property, to sell, convey, transfer, assign, license, rent, lease, sublease, mortgage,
transfer or otherwise dispose of any interest therein or to permit any Person to acquire any such interest.
“Transition Agreements” means the collective reference to (i) that certain Transition Services Agreement dated as of
July 1, 2015 by and between Integra LifeSciences Holdings Corporation, a Delaware corporation, and Parent, (ii) that certain
Separation and Distribution Agreement dated as of June 30, 2015 by and between Integra LifeSciences Holdings Corporation, a
Delaware corporation, and Parent, (iii) that certain Tax Matters Agreement dated as of July 1, 2015 by and between Integra
LifeSciences Holdings Corporation, a Delaware corporation, and Parent, (iv) that certain Employee Matters Agreement dated as
of July 1, 2015 by and between Integra LifeSciences Holdings Corporation, a Delaware corporation, and Parent, and (v) the
Supply Agreements, as each of the same may be amended, restated, modified or otherwise supplemented from time to time.
“TRICARE” means, collectively, the program of medical benefits covering former and active members of the uniformed
services and certain of their dependents, financed and administered by the United States Department of Defense, Health and
Human Services and Transportation, and all laws, rules, regulations, manuals, orders, guidelines or requirements (whether or not
having the force of law) pertaining to such program, in each case as the same may be amended, supplemented or otherwise
modified from time to time.
“UCP” means, with respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits 2007
Revision, International Chamber of Commerce Publication No. 600 and any version or revision thereof accepted by Issuing Bank
for use.
“ULC” means an unlimited company, an unlimited liability company or an unlimited liability corporation incorporated
pursuant to or otherwise governed by the laws of any of the provinces of Canada.
“ULC Shares” means shares in any ULC at any time owned or otherwise held by a Loan Party.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark
Replacement Adjustment.
“Unfinanced Capital Expenditures” means Capital Expenditures (a) not financed with the proceeds of any incurrence of
Indebtedness (other than the incurrence of any Revolving Loans), the proceeds of any sale or issuance of Equity Interests or
equity contributions, the proceeds of any asset sale (other than the sale of Inventory in the ordinary course of business) or any
insurance proceeds, and (b) that are not reimbursed by a third person (excluding any Loan Party or any of its Affiliates) in the
period such expenditures are made pursuant to a written agreement.
SCHEDULE 1.1
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(Signature Page to Omnibus Joinder and Third Amendment to Amended and Restated Credit Agreement and Other Loan
Documents)
“United States” means the United States of America.
“Unused Line Fee” has the meaning specified therefor in Section 2.10(b) of the Agreement.
“USD LIBOR” means the London interbank offered rate for Dollars.
“Voidable Transfer” has the meaning specified therefor in Section 17.8 of the Agreement.
“Wells Fargo” means Wells Fargo Bank, National Association, a national banking association.
“Write-Down and Conversion Powers” means, with respect to any EEA Resolution Authority, the write-down and
conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA
Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
SCHEDULE 1.1
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EXHIBIT B
Amended and Restated Schedules to Credit Agreement
SCHEDULE 1.1
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EXHIBIT C
Changed Pages to Guaranty and Security Agreement
SCHEDULE 1.1
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EXHIBIT 21.1
Subsidiaries of SeaSpine Holdings Corporation
Name of Subsidiary
State or Country of Incorporation or Organization
IsoTis International SARL
Switzerland
IsoTis OrthoBiologics, Inc.
Washington
IosTis, Inc.
Delaware
SeaSpine, Inc.
Delaware
SeaSpine Sales LLC
Delaware
SeaSpine Orthopedics Corporation
Delaware
Theken Spine, LLC
Ohio
SeaSpine Orthopedics IntermediateCo, Inc.
Delaware
Project Maple Leaf Holdings ULC
British Columbia
7D Surgical ULC
British Columbia
7D Surgical USA Inc.
Delaware
7D Surgical International Inc.
Barbados
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements (Nos. 333-216450, 333-230047, 333-236802, 333-248136 and
333-258527) on Form S-3 and the Registration Statements (Nos. 333-205334, 333-211887, 333-216448, 333-223435, 333-225291, 333-
226046, 333-228217, 333-240377 and 333-257068) on Form S-8 of SeaSpine Holdings Corporation, of our reports dated March 14, 2022,
relating to the consolidated financial statements, the financial statement schedule and the effectiveness of internal control over financial
reporting of SeaSpine Holdings Corporation, appearing in this Annual Report on Form 10-K of SeaSpine Holdings Corporation for the year
ended December 31, 2021.
/s/ RSM US LLP
Los Angeles, California
March 14, 2022
Exhibit 31.1
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Keith C. Valentine, certify that:
1.
I have reviewed this annual report on Form 10-K of SeaSpine Holdings Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 14, 2022
/s/ Keith C. Valentine
Keith C. Valentine
Chief Executive Officer
Exhibit 31.2
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John J. Bostjancic, certify that:
1.
I have reviewed this annual report on Form 10-K of SeaSpine Holdings Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date:
March 14, 2022
/s/ John J. Bostjancic
John J. Bostjancic
Chief Financial Officer
Exhibit 32.1
Certification of Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Keith C. Valentine, President and Chief Executive Officer of SeaSpine Holdings Corporation (the “Company”), hereby certify that, to my knowledge:
1
The Annual Report on Form 10-K of the Company for the year ended December 31, 2021 (the “Report”) fully complies with the
requirement of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date:
March 14, 2022
/s/ Keith C. Valentine
Keith C. Valentine
Chief Executive Officer
Exhibit 32.2
Certification of Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, John J. Bostjancic, Senior Vice President and Chief Financial Officer of SeaSpine Holdings Corporation (the “Company”), hereby certify that, to my
knowledge:
1
The Annual Report on Form 10-K of the Company for the year ended December 31, 2021 (the “Report”) fully complies with the
requirement of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date:
March 14, 2022
/s/ John J. Bostjancic
John J. Bostjancic
Chief Financial Officer