Exhibit 10.4

 

SECURITY AGREEMENT RELATING TO RIGHT OF FIRST NEGOTIATION

 

THIS SECURITY AGREEMENT RELATING TO RIGHT OF FIRST NEGOTIATION (this
“Agreement”), dated effective as of the 1st day of October, 2018, is executed by
Amedica Corporation, a Delaware corporation (hereinafter referred to as the
“Obligor”), whose mailing address is 1885 West 2100 South, Salt Lake City, Utah
84119, for the benefit of CTL Medical Corporation, a Delaware corporation
(hereinafter referred to as the “Secured Party”), whose mailing address is 4550
Excel Parkway, Suite 300, Addison, Texas 75001

 

R E C I T A L S:

 

A. This Agreement is executed in connection with that certain Asset Purchase
Agreement (the “APA”), dated as of September 5, 2018, by and among Secured
Party, as buyer, and Obligor and US SPINE, INC., a Delaware corporation,
collectively, as sellers. Capitalized terms used herein and not otherwise
defined have the meanings assigned to them in the APA.

 

B. Pursuant to Section 9.7 of the APA, Obligor has granted to Secured Party
certain rights of first negotiation (“ROFN”) during a period defined therein as
the “ROFN Period.”

 

C. Secured Party has conditioned its consummation of the transactions
contemplated by the APA upon, among other things, the execution and delivery of
this Agreement by Obligor.

 

NOW, THEREFORE, in consideration of the agreement by Secured Party to agree to
the APA, to aid in the enforcement of the ROFN during the ROFN Period and, in
the event of any failure by Obligor to honor the ROFN in accordance with the APA
and, alternatively, to secure payment to Secured Party of any damages resulting
from breach of the ROFN, and as partial consideration for the APA (the receipt
and sufficiency of which is hereby acknowledged and confessed), the parties
agree as follows:

 

Section 1. Grant of Security Interest. Obligor hereby grants to Secured Party a
security interest in the Acquisition Targets, wherever located, whether now
existing or hereafter from time to time arising or acquired, (such property
being hereinafter sometimes called the “Collateral”), together with any non-cash
products and proceeds of such Collateral, to secure performance of the ROFN as
set forth in the APA and to secure payment to Secured Party of any damages
resulting from such ROFN (together, the “Obligations”).

 

Section 2. Representations and Warranties. To induce Secured Party to perform
the APA and to accept the ROFN therein, Obligor represents and warrants to
Secured Party as follows:

 

(a) To the best of the Obligor’s current, actual knowledge, all information
heretofore, herein or hereafter supplied to the Secured Party by Obligor with
respect to the Collateral is true and correct. The exact legal name of Obligor
is correctly shown above and the Obligor’s jurisdiction of incorporation is
Delaware. The Obligor’s exact legal name and its jurisdiction of incorporation
have not changed in the last five years.

 

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(b) To the best of the Obligor’s current, actual knowledge, the execution and
delivery of this Agreement and the performance by the Obligor of its obligations
in connection with the ROFN hereunder and thereunder will not violate any
provision of any applicable law or regulation or any order, judgment, writ,
award, or decree of any court, arbitrator, or governmental authority, domestic
or foreign, applicable to the Obligor or any of its property, or any agreement
or instrument to which the Obligor is party or by which it or its property,
including the Collateral, is governed or bound.

 

(c) Obligor’s principal place of business (as that term is used in the Uniform
Commercial Code as enacted in the State of Texas (the “UCC”) is located at 1885
West 2100 South, Salt Lake City, Utah 84119.

 

(d) To the best of the Obligor’s current, actual knowledge, the Collateral is
not subject to any liens other than the lien granted hereunder.

 

(e) Except as otherwise noted herein, the Collateral is not covered by any
financing statement naming the Obligor as Obligor in any proper jurisdiction
that has not lapsed or been terminated other than (a) financing statements in
favor of the Secured Party, and (b) financing statements perfecting the
Permitted Liens.

 

(f) Except as otherwise noted herein, as of the Closing Date, Obligor has full
right, title and interest in and to the Collateral, including the right to grant
the security interest contemplated in this Agreement to Secured Party.

 

Section 3. Covenants. Obligor covenants and agrees with Secured Party that until
the Obligations are performed, satisfied, or paid in full, as the case may be:

 

(a) Compliance with Loans. Obligor will not permit any other loans secured by
the Collateral or the security agreements governing such other liens, whether
junior or senior to the liens granted herein, to be breached or to be defaulted
and will promptly cure any such breaches or defaults.

 

(b) Other Liens. Obligor will not permit any other liens secured by any of the
Collateral, whether junior or senior to the liens granted herein, to become the
subject of a foreclosure sale, UCC sale, other forced sale, or auction.

 

(c) Disposition of Collateral. Obligor shall not sell, lease, or otherwise
dispose of the Collateral or any part thereof in a manner that conflicts with
the ROFN or other rights granted under this Agreement and in the APA.

 

(d) Further Assurances. At any time and from time to time, upon the request of
Secured Party, Obligor shall promptly execute and deliver all such further
instruments and documents and take such further action as Secured Party may deem
necessary or desirable to preserve and perfect its security interest in the
Collateral and carry out the provisions and purposes of this Agreement,
including, without limitation, the execution and filing of such financing
statements as Secured Party may require. A carbon, photographic, or other
reproduction of this Agreement or of any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement and
may be filed as a financing statement.

 

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(e) Notification. Obligor shall promptly notify Secured Party of any lien,
security interest, encumbrance, or claim made or threatened against the
Collateral.

 

(f) Taxes. Obligor agrees to pay or discharge prior to delinquency all taxes,
assessments, levies, and other governmental charges imposed on it or its
property, except Obligor shall not be required to pay or discharge any tax,
assessment, levy, or other governmental charge if (i) the amount or validity
thereof is being contested by Obligor in good faith by appropriate proceedings
diligently pursued, (ii) such proceedings do not involve any risk of sale,
forfeiture, or loss of the Collateral or any interest therein, and (iii)
adequate reserves therefor have been established in conformity with generally
accepted accounting principles.

 

(g) Obligations. Obligor shall duly perform the Obligations and, if not
performed or otherwise breached, shall duly pay any and all resulting damages.

 

(h) Organization Changes. Obligor shall not change its name, identity, notice
address, or corporate existence, structure or management in any manner that
might make any financing statement filed in connection with this Agreement
seriously misleading unless Obligor has given Secured Party thirty (30) days
prior written notice thereof and shall have taken all action deemed necessary or
desirable by Secured Party to make each financing statement not seriously
misleading. Obligor shall not change its principal place of business or the
place where it keeps its books and records unless it shall have given Secured
Party thirty (30) days prior written notice thereof and shall have taken all
action deemed necessary or desirable by Secured Party to cause its security
interest in the Collateral to be perfected with the priority required by this
Agreement.

 

Section 4. Default and Remedies.

 

(a) The occurrence of any one or more of the following will constitute an event
of default (“Event of Default”) under this Security Agreement:

 

(i) Any representation or warranty made by the Obligor under this Agreement or
in any certificate, document or financial or other statement furnished by the
Obligor under or in connection with this Agreement shall prove to have been
incorrect, false or misleading in any material respect on or as of the date
made.

 

(ii) The material breach by the Obligor of any provision of this Agreement and
such breach continues for fifteen (15) calendar days after the Obligor’s receipt
of written notice thereof; provided, that, to the extent such 15-day cure period
would cause the loss or impairment of the perfection or the priority of the
security interest granted hereunder, such 15-day cure period shall be
automatically adjusted to the extent necessary to prevent such loss or
impairment.

 

(iii) The failure of the Obligor to pay any cost, expense, indemnity or other
amount due under this Agreement as and when due or, if no due date is specified
herein, within six (6) business days of demand therefor, subject to any
applicable indemnification procedures set forth in the APA.

 

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(iv) The breach of Obligor’s Obligations under Section 9.7 of the APA.

 

(b) Upon the occurrence of an Event of Default, the Secured Party may exercise
any or all of the following rights and remedies:

 

(i) Upon any failure to perform the ROFN or other uncured breach thereof,
Secured Party may declare the Obligations or any part thereof immediately due
and payable.

 

(ii) Those rights and remedies available to the Secured Party under other
applicable law or in equity.

 

(iii) In addition to all other rights and remedies granted to Secured Party in
this Agreement, Secured Party shall have all of the rights and remedies of a
secured party under the UCC.

 

Section 5. Expenses; Indemnification. The Obligor agrees to reimburse
out-of-pocket expenses, including reasonable attorneys’ fees, incurred in
connection with the enforcement by Secured Party of any of the Secured Party’s
rights in connection with this Agreement.

 

Section 6. Successors and Assigns. The terms and provisions of this Security
Agreement shall be binding upon and inure to the benefit of the Obligor, the
Secured Party and their respective successors and permitted assigns (including
all persons or entities who become bound as a Obligor to this Agreement), and
neither the Obligor nor the Secured Party shall have the right to assign their
rights or delegate their obligations under this Agreement or any interest
herein, without the prior written consent of the other party, which Obligor may
not unreasonably withhold.

 

Section 7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.

 

Section 8. Headings. The headings, captions, and arrangements used in this
Agreement are for convenience only and shall not affect the interpretation of
this Agreement.

 

Section 9. Survival of Representations and Warranties. All representations and
warranties made in this Agreement or in any certificate delivered pursuant
hereto shall survive the execution and delivery of this Agreement until this
Agreement is released in writing or the ROFN period ends, whichever occurs
first.

 

Section 10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery of an executed
counterpart of a signature page to this Agreement by facsimile or in electronic
(i.e., “pdf” or “tif”) format shall be effective as delivery of a manually
executed counterpart of this Agreement.

 

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Section 11. Severability. If any one or more of the provisions of this
Agreement, or the applicability of any such provision to a specific situation,
shall be held invalid or unenforceable, such provision shall be modified to the
minimum extent necessary to make it or its application valid and enforceable,
and the validity and enforceability of all other provisions of this Agreement
and all other applications of any such provision shall not be affected thereby.

 

Section 12. Construction. Obligor and Secured Party acknowledge that each of
them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by Obligor and Secured
Party. Any defined terms not defined herein shall have the meaning set forth in
the APA.

 

Section 13. Amendment. None of the terms or provisions of this Agreement may be
amended, modified, supplemented, terminated, or waived, and no consent to any
departure by the Obligor therefrom shall be effective, unless the same shall be
in writing and signed by the Secured Party and the Obligor, and then such
amendment, modification, supplement, waiver, or consent shall be effective only
in the specific instance and for the specific purpose for which made or given.

 

Section 14. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Obligor and the Secured Party with respect to its
subject matter and supersedes all prior agreements and understandings between
the Obligor and the Secured Party with respect thereto.

 

Section 15. Consent to Jurisdiction. THE OBLIGOR IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN DALLAS COUNTY,
TEXAS OVER ANY SUIT, ACTION, OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE LOAN DOCUMENTS, AND THE OBLIGOR HEREBY AGREES AND
CONSENTS THAT, IN ADDITION TO ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR
UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN ANY STATE OR FEDERAL COURT SITTING IN DALLAS COUNTY, TEXAS MAY BE
MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO
MAKER AT THE ADDRESS INDICATED BELOW, AND SERVICE SO MADE SHALL BE COMPLETE FIVE
DAYS AFTER THE SAME SHALL HAVE BEEN SO MAILED.

 

Section 16. WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT. THE OBLIGOR (A) CERTIFIES THAT
NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE SECURED PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE SECURED PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT THE
SECURED PARTY AND THE OBLIGOR HAVE EACH BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first written above.

 

  SECURED PARTY:         CTL MEDICAL CORPORATION,   a Delaware corporation      
By: /s/ Daniel Chon   Name: Daniel Chon   Title: President / CEO

 

  OBLIGOR:         AMEDICA CORPORATION,   a Delaware corporation       By: /s/
B. Sonny Bal   Name: B. Sonny Bal, MD   Title: President and Chief Executive
Officer

 

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