Exhibit 10.2

 

Certain information has been excluded from the exhibit because it is not
material and would likely cause competitive harm to the company if publicly
disclosed. [***] indicates the redacted confidential portions of this exhibit.

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of December 26,
2019 (the “Effective Date”) by and among (a) SILICON VALLEY BANK, a California
corporation (“Bank”), and (b) (i) MISONIX, INC., a Delaware corporation
(“Parent”), (ii) MISONIX OPCO, INC., a New York corporation (“Misonix”), and
(iii) SOLSYS MEDICAL, LLC, a Delaware limited liability company (“Solsys”)
(Parent, Misonix and Solsys are hereinafter jointly and severally, individually
and collectively, referred to as “Borrower”), provides the terms on which Bank
shall lend to Borrower and Borrower shall repay Bank. The parties agree as
follows:

 

1 ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP. Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Section 13. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code to the extent such terms
are defined therein.

 

2 LOAN AND TERMS OF PAYMENT

 

2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the
outstanding principal amount of all Credit Extensions and accrued and unpaid
interest thereon as and when due in accordance with this Agreement.

 

2.2 Revolving Line.

 

(a) Availability. Subject to the terms and conditions of this Agreement and to
deduction of Reserves, Bank shall make Advances not exceeding the Availability
Amount. Borrower agrees that it shall request an Advance on the Effective Date
in an amount necessary to pay in full (and the proceeds of which shall be used
to pay in full) all outstanding Obligations of Solsys to Bank pursuant to that
certain Loan and Security Agreement between Solsys and Bank dated as of January
22, 2019. Amounts borrowed under the Revolving Line may be repaid and, prior to
the Revolving Line Maturity Date, reborrowed, subject to the applicable terms
and conditions precedent herein.

 

(b) Termination; Repayment. The Revolving Line terminates on the Revolving Line
Maturity Date, when the principal amount of all Advances, the unpaid interest
thereon, and all other Obligations relating to the Revolving Line shall be
immediately due and payable.

 

2.2.1 Letters of Credit Sublimit.

 

(a) As part of the Revolving Line, Bank shall issue or have issued Letters of
Credit denominated in Dollars or a Foreign Currency for Borrower’s account. The
aggregate Dollar Equivalent amount utilized for the issuance of Letters of
Credit shall at all times reduce the amount otherwise available for Advances
under the Revolving Line. The aggregate Dollar Equivalent of the then-applicable
face amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) plus any Letter of Credit Reserve may not exceed the lesser
of (i) (A) One Million Dollars ($1,000,000.00), minus (B) amounts used for Cash
Management Services, and minus (C) the FX Reduction Amount and (ii) (A) the
lesser of the Revolving Line or the Borrowing Base, minus (B) the sum of all
outstanding principal amounts of any Advances (including any amounts used for
Cash Management Services), and minus (C) the FX Reduction Amount.

 

(b) If, on the Revolving Line Maturity Date (or the effective date of any
termination of this Agreement), there are any outstanding Letters of Credit,
then on such date Borrower shall provide to Bank cash collateral in an amount
equal to one hundred five percent (105.0%) for Letters of Credit denominated in
Dollars or one hundred ten percent (110.0%) for Letters of Credit denominated in
a Foreign Currency, in each case of the aggregate Dollar Equivalent of the
then-applicable face amount of all such Letters of Credit plus all interest,
fees, and costs due or estimated by Bank to become due in connection therewith,
to secure all of the Obligations relating to such Letters of Credit. All Letters
of Credit shall be in form and substance acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank’s standard
Application and Letter of Credit Agreement (the “Letter of Credit Application”).
Borrower agrees to execute any further documentation in connection with the
Letters of Credit as Bank may reasonably request. Borrower further agrees to be
bound by the regulations and interpretations of the issuer of any Letters of
Credit guarantied by Bank and opened for Borrower’s account or by Bank’s
interpretations of any Letter of Credit issued by Bank for Borrower’s account,
and Borrower understands and agrees that Bank shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following
Borrower’s instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto.

  

 

 

 

(c) The obligation of Borrower to immediately reimburse Bank for drawings made
under Letters of Credit shall be absolute, unconditional, and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement, such
Letters of Credit, and the Letter of Credit Application.

 

(d) Borrower may request that Bank issue a Letter of Credit payable in a Foreign
Currency. If a demand for payment is made under any such Letter of Credit, Bank
shall treat such demand as an Advance to Borrower of the Dollar Equivalent of
the amount thereof (plus fees and charges in connection therewith such as wire,
cable, SWIFT or similar charges).

 

(e) To guard against fluctuations in currency exchange rates, upon the issuance
of any Letter of Credit payable in a Foreign Currency, Bank shall create a
reserve (the “Letter of Credit Reserve”) under the Revolving Line in an amount
equal to a percentage (which percentage shall be determined by Bank in its sole
discretion) of the then-applicable face amount of such Letter of Credit. The
amount of the Letter of Credit Reserve may be adjusted by Bank from time to time
to account for fluctuations in the exchange rate. The availability of funds
under the Revolving Line shall be reduced by the amount of such Letter of Credit
Reserve for as long as such Letter of Credit remains outstanding.

 

2.2.2 Foreign Exchange Sublimit. As part of the Revolving Line, Borrower may
enter into foreign exchange contracts with Bank under which Borrower commits to
purchase from or sell to Bank a specific amount of Foreign Currency (each, a “FX
Contract”) on a specified date (the “Settlement Date”). FX Contracts shall have
a Settlement Date of at least one (1) FX Business Day after the contract date.
The aggregate FX Reduction Amount at any one time may not exceed the lesser of
(i) (A) One Million Dollars ($1,000,000.00), minus (B) the sum of all amounts
used for Cash Management Services, and minus (C) the aggregate Dollar Equivalent
of the then-applicable face amount of any outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) plus any Letter of Credit
Reserve and (ii) (A) the lesser of the Revolving Line or the Borrowing Base,
minus (B) the sum of all outstanding principal amounts of any Advances
(including any amounts used for Cash Management Services), and minus (C) the
aggregate Dollar Equivalent of the then-applicable face amount of any
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) plus any Letter of Credit Reserve. The amount otherwise available for
Credit Extensions under the Revolving Line shall be reduced by the FX Reduction
Amount. Any amounts needed to fully reimburse Bank for any amounts not paid by
Borrower in connection with FX Contracts will be treated as Advances under the
Revolving Line and will accrue interest at the interest rate applicable to
Advances.

 

2.2.3 Cash Management Services Sublimit. Borrower may use the Revolving Line in
an aggregate amount not to exceed the lesser of (i) (A) One Million Dollars
($1,000,000.00), minus (B) the aggregate Dollar Equivalent of the
then-applicable face amount of any outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit) plus any Letter of Credit Reserve, and
minus (C) the FX Reduction Amount and (ii) (A) the lesser of the Revolving Line
or the Borrowing Base, minus (B) the sum of all outstanding principal amounts of
any Advances, minus the aggregate Dollar Equivalent of the then-applicable face
amount of any outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) plus any Letter of Credit Reserve, and minus (C) the FX
Reduction Amount for Bank’s cash management services, which may include merchant
services, direct deposit of payroll, business credit card, and check cashing
services identified in Bank’s various cash management services agreements
(collectively, the “Cash Management Services”). Any amounts Bank pays on behalf
of Borrower for any Cash Management Services will be treated as Advances under
the Revolving Line and will accrue interest at the interest rate applicable to
Advances.

 

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2.3 Overadvances. If, at any time, the sum of (a) the outstanding principal
amount of any Advances (including any amounts used for Cash Management
Services), plus (b) the then-applicable face amount of any outstanding Letters
of Credit (including drawn but unreimbursed Letters of Credit) plus any Letter
of Credit Reserve, plus (c) the FX Reduction Amount, exceeds the lesser of
either the Revolving Line or the Borrowing Base, Borrower shall immediately pay
to Bank in cash the amount of such excess (such excess, the “Overadvance”).
Without limiting Borrower’s obligation to repay Bank any Overadvance, Borrower
agrees to pay Bank interest on the outstanding amount of any Overadvance, on
demand, at a per annum rate equal to the rate that is otherwise applicable to
Advances plus four percent (4.0%).

 

2.4 Payment of Interest on the Credit Extensions.

 

(a) Interest Rate. Subject to Section 2.4(b), the principal amount outstanding
under the Revolving Line shall accrue interest at a floating per annum rate
equal to the greater of (i) the Prime Rate and (ii) five and one-quarter of one
percent (5.25%), which interest shall be payable monthly in accordance with
Section 2.4(d) below.

 

(b) Default Rate. Immediately upon the occurrence and during the continuance of
an Event of Default, Obligations shall bear interest at a rate per annum which
is four percent (4.0%) above the rate that is otherwise applicable thereto (the
“Default Rate”). Fees and expenses which are required to be paid by Borrower
pursuant to the Loan Documents (including, without limitation, Bank Expenses)
but are not paid when due shall bear interest until paid at a rate equal to the
highest rate applicable to the Obligations. Payment or acceptance of the
increased interest rate provided in this Section 2.4(b) is not a permitted
alternative to timely payment and shall not constitute a waiver of any Event of
Default or otherwise prejudice or limit any rights or remedies of Bank.

 

(c) Adjustment to Interest Rate. Changes to the interest rate of any Credit
Extension based on changes to the Prime Rate shall be effective on the effective
date of any change to the Prime Rate and to the extent of any such change.

 

(d) Payment; Interest Computation. Interest is payable monthly on the Payment
Date of each month and shall be computed on the basis of a 360-day year for the
actual number of days elapsed. In computing interest, (i) all payments received
after 2:00 p.m. Eastern time on any day shall be deemed received at the opening
of business on the next Business Day, and (ii) the date of the making of any
Credit Extension shall be included and the date of payment shall be excluded;
provided, however, that if any Credit Extension is repaid on the same day on
which it is made, such day shall be included in computing interest on such
Credit Extension.

 

2.5 Fees. Borrower shall pay to Bank:

 

(a) Commitment Fee. A fully earned, non-refundable commitment fee of One Hundred
Thousand Dollars ($100,000.00), on the Effective Date;

 

(b) Anniversary Fees. On each year anniversary of the Effective Date occurring
prior to the Revolving Line Maturity Date, Borrower shall pay to Bank a fully
earned, non-refundable anniversary fee of One Hundred Thousand Dollars
($100,000.00) each (each, an “Anniversary Fee” and, collectively, the
“Anniversary Fees”). Each Anniversary Fee shall be fully earned on the Effective
Date but shall be due and payable on the earliest to occur of (i) such one (1)
year anniversary of the Effective Date, (ii) the occurrence of an Event of
Default, and (iii) the termination of this Agreement;

 

(c) Termination Fee. Upon termination of this Agreement or the termination of
the Revolving Line for any reason prior to the Revolving Line Maturity Date, in
addition to the payment of any other amounts then-owing, a termination fee in an
amount equal to one percent (1.0%) of the Revolving Line at such time (the
“Termination Fee”), provided that no termination fee shall be charged if either
(i) the credit facility hereunder is replaced with a new facility from Bank or
(ii) Bank sells, transfers, assigns or negotiates (but excluding grants of
participation in) all of its interest in the obligations, rights and benefits
under this Agreement and the other Loan Documents to a Person (or Persons) that
is not an Affiliate of Bank and Borrower terminates this Agreement or the
Revolving Line within sixty (60) days thereof (unless Borrower has consented to
such sale, transfer, assignment or negotiation). For clarity, no consent from
Borrower is necessary in order to effect any sale, transfer, assignment or
negotiation of Bank’s obligations, rights and benefits under this Agreement and
the other Loan Documents, and the giving or withholding of such consent will
only impact whether the Termination Fee will be waived under the circumstances
set forth in clause (ii) of the preceding sentence;

  

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(d) Unused Revolving Line Facility Fee. Payable monthly in arrears on the last
day of each month ending after the Effective Date and thereafter prior to the
Revolving Line Maturity Date, and on the Revolving Line Maturity Date, a fee
(the “Unused Revolving Line Facility Fee”) in an amount equal to one-quarter of
one percent (0.25%) per annum of the average unused portion of the Revolving
Line, as determined by Bank, computed on the basis of a year with the applicable
number of days as set forth in Section 2.4(d). The unused portion of the
Revolving Line, for purposes of this calculation, shall be calculated on a
calendar year basis and shall equal the difference between (i) the Revolving
Line, and (ii) the average for the period of the daily closing balance of the
outstanding principal amount of any Advances (including any amounts used for
Cash Management Services), plus the sum of the aggregate amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit) plus any
Letter of Credit Reserve, plus the FX Reduction Amount;

 

(e) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or
renewal of Letters of Credit, upon the issuance of such Letter of Credit, each
anniversary of the issuance during the term of such Letter of Credit, and upon
the renewal of such Letter of Credit by Bank; and

 

(f) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and
expenses for documentation and negotiation of this Agreement) incurred through
and after the Effective Date, when due (or, if no stated due date, upon demand
by Bank).

 

Unless otherwise provided in this Agreement or in a separate writing by Bank,
Borrower shall not be entitled to any credit, rebate, or repayment of any fees
earned by Bank pursuant to this Agreement notwithstanding any termination of
this Agreement or the suspension or termination of Bank’s obligation to make
loans and advances hereunder. Bank may deduct amounts owing by Borrower under
the clauses of this Section 2.5 pursuant to the terms of Section 2.6(c). Bank
shall provide Borrower written notice of deductions made from the Designated
Deposit Account pursuant to the terms of the clauses of this Section 2.5.

 

2.6 Payments; Application of Payments; Debit of Accounts.

 

(a) All payments to be made by Borrower under any Loan Document shall be made in
immediately available funds in Dollars, without setoff or counterclaim, before
2:00 p.m. Eastern time on the date when due. Payments of principal and/or
interest received after 2:00 p.m. Eastern time are considered received at the
opening of business on the next Business Day. When a payment is due on a day
that is not a Business Day, the payment shall be due the next Business Day, and
additional fees or interest, as applicable, shall continue to accrue until paid.

 

(b) Bank has the exclusive right to determine the order and manner in which all
payments with respect to the Obligations may be applied. Borrower shall have no
right to specify the order or the accounts to which Bank shall allocate or apply
any payments required to be made by Borrower to Bank or otherwise received by
Bank under this Agreement when any such allocation or application is not
specified elsewhere in this Agreement.

 

(c) Bank may debit any of Borrower’s deposit accounts, including the Designated
Deposit Account, for principal and interest payments or any other amounts
Borrower owes Bank when due. These debits shall not constitute a set-off.

  

4

 

 

2.7 Withholding. Payments received by Bank from Borrower under this Agreement
will be made free and clear of and without deduction for any and all present or
future taxes, levies, imposts, duties, deductions, withholdings, assessments,
fees or other charges imposed by any Governmental Authority (including any
interest, additions to tax or penalties applicable thereto). Specifically,
however, if at any time any Governmental Authority, applicable law, regulation
or international agreement requires Borrower to make any withholding or
deduction from any such payment or other sum payable hereunder to Bank, Borrower
hereby covenants and agrees that the amount due from Borrower with respect to
such payment or other sum payable hereunder will be increased to the extent
necessary to ensure that, after the making of such required withholding or
deduction, Bank receives a net sum equal to the sum which it would have received
had no withholding or deduction been required, and Borrower shall pay the full
amount withheld or deducted to the relevant Governmental Authority. Borrower
will, upon request, furnish Bank with proof reasonably satisfactory to Bank
indicating that Borrower has made such withholding payment; provided, however,
that Borrower need not make any withholding payment if the amount or validity of
such withholding payment is contested in good faith by appropriate and timely
proceedings and as to which payment in full is bonded or reserved against by
Borrower. The agreements and obligations of Borrower contained in this Section
2.7 shall survive the termination of this Agreement.

 

3 CONDITIONS OF LOANS

 

3.1 Conditions Precedent to Initial Credit Extension. Bank’s obligation to make
the initial Credit Extension is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, such documents,
and completion of such other matters, as Bank may reasonably deem necessary or
appropriate, including, without limitation:

 

(a) duly executed original signatures to the Loan Documents;

 

(b) a termination agreement with respect to that certain Loan and Security
Agreement between Solsys and Bank dated as of January 22, 2019 and the payment
in full of all outstanding Obligations of Solsys to Bank pursuant to such
agreement;

 

(c) duly executed original signatures to the Control Agreement(s);

 

(d) (i) the Operating Documents and a long-form good standing certificate of
Misonix certified by the Secretary of State of New York, (ii) the Operating
Documents and a long-form good standing certificate of Parent and Solsys
certified by the Secretary of State of Delaware and (iii) a certificate of good
standing/foreign qualification certified by the Secretary of State (or
equivalent agency) of each other state in which a Borrower is qualified to
conduct business, each as of a date no earlier than thirty (30) days prior to
the Effective Date;

 

(e) a secretary’s corporate borrowing certificate of each of Parent and Misonix
with respect to such Borrower’s Operating Documents, incumbency, specimen
signatures and resolutions authorizing the execution and delivery of this
Agreement and the other Loan Documents;

 

(f) a limited liability company borrowing certificate of Solsys with respect to
such Borrower’s Operating Documents, incumbency, specimen signatures and
resolutions authorizing the execution and delivery of this Agreement and the
other Loan Documents;

 

(g) duly executed original signatures to the completed Borrowing Resolutions for
each Borrower;

 

(h) the Intercreditor Agreement by SWK, together with the duly executed
signatures thereto and copies of the documents evidencing Borrower’s
Indebtedness with SWK;

 

(i) certified copies, dated as of a recent date, of financing statement
searches, as Bank may request, accompanied by written evidence (including any
UCC termination statements) that the Liens indicated in any such financing
statements either constitute Permitted Liens or have been or, in connection with
the initial Credit Extension, will be terminated or released;

 

(j) the Perfection Certificate of each Borrower, together with the duly executed
original signatures thereto;

  

5

 

 

(k) Intellectual Property search results for each Borrower and completed
exhibits to the IP Agreement;

 

(l) a landlord’s consent in favor of Bank for each of Borrower’s leased
locations, by the respective landlord thereof, together with the duly executed
signatures thereto;

 

(m) a bailee’s waiver in favor of Bank for each location where Borrower
maintains property with a third party, by each such third party, together with
the duly executed signatures thereto;

 

(n) a legal opinion (authority and enforceability) of Borrower’s counsel dated
as of the Effective Date together with the duly executed original signature
thereto;

 

(o) evidence satisfactory to Bank that the insurance policies and endorsements
required by Section 6.7 hereof are in full force and effect, together with
appropriate evidence showing lender loss payable and/or additional insured
clauses or endorsements in favor of Bank;

 

(p) the completion of the Initial Audit;

 

(q) with respect to the initial Advance, a completed Borrowing Base Report (and
any schedules related thereto and including any other information requested by
Bank with respect to Borrower’s Accounts); and

 

(r) payment of the fees and Bank Expenses then due as specified in Section 2.5
hereof.

 

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

 

(a) timely receipt of the Credit Extension request and any materials and
documents required by Section 3.4;

 

(b) the representations and warranties in this Agreement shall be true,
accurate, and complete in all material respects on the date of the proposed
Credit Extension and on the Funding Date of each Credit Extension; provided,
however, that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, and no
Event of Default shall have occurred and be continuing or result from the Credit
Extension. Each Credit Extension is Borrower’s representation and warranty on
that date that the representations and warranties in this Agreement remain true,
accurate, and complete in all material respects; provided, however, that such
materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date; and

 

(c) Bank determines to its reasonable satisfaction that there has not been any
material impairment in the general affairs, management, results of operation,
financial condition or the prospect of repayment of the Obligations, nor any
material adverse deviation by Borrower from the most recent business plan of
Borrower presented to and accepted by Bank.

 

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

  

6

 

 

3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other
applicable conditions to the making of an Advance (other than under Section
2.2.1 or 2.2.3) set forth in this Agreement, to obtain an Advance, Borrower (via
an individual duly authorized by an Administrator) shall notify Bank (which
notice shall be irrevocable) by electronic mail by 12:00 p.m. Eastern time on
the Funding Date of the Advance. Such notice shall be made by Borrower through
Bank’s online banking program, provided, however, if Borrower is not utilizing
Bank’s online banking program, then such notice shall be in a written format
acceptable to Bank that is executed by an Authorized Signer. Bank shall have
received satisfactory evidence that the Board has approved that such Authorized
Signer may provide such notices and request Advances. In connection with any
such notification, Borrower must promptly deliver to Bank by electronic mail or
through Bank’s online banking program such reports and information, including
without limitation, a Borrowing Base Report, the items required pursuant to
Section 6.2(b), sales journals, cash receipts journals, accounts receivable
aging reports, as Bank may reasonably request. Bank shall credit proceeds of an
Advance to the Designated Deposit Account. Bank may make Advances under this
Agreement based on instructions from an Authorized Signer or without
instructions if the Advances are necessary to meet Obligations which have become
due.

 

4 CREATION OF SECURITY INTEREST

 

4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products thereof.

 

Borrower acknowledges that it previously has entered, and/or may in the future
enter, into Bank Services Agreements with Bank. Regardless of the terms of any
Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank
thereunder shall be deemed to be Obligations hereunder and that it is the intent
of Borrower and Bank to have all such Obligations secured by the first priority
perfected security interest in the Collateral granted herein (which Collateral
may be subject to Permitted Liens and, in the case of Liens granted in
connection with the SWK Credit Agreement, only to the extent contemplated by the
Intercreditor Agreement).

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are repaid in
full in cash. Upon payment in full in cash of the Obligations (other than
inchoate indemnity obligations) and at such time as Bank’s obligation to make
Credit Extensions has terminated, Bank shall, at the sole cost and expense of
Borrower, release its Liens in the Collateral and all rights therein shall
revert to Borrower. In the event (x) all Obligations (other than inchoate
indemnity obligations), except for Bank Services, are satisfied in full, and (y)
this Agreement is terminated, Bank shall terminate the security interest granted
herein upon Borrower providing cash collateral acceptable to Bank in its good
faith business judgment for Bank Services, if any. In the event such Bank
Services consist of outstanding Letters of Credit, Borrower shall provide to
Bank cash collateral in an amount equal to (x) if such Letters of Credit are
denominated in Dollars, then one hundred five percent (105.0%); and (y) if such
Letters of Credit are denominated in a Foreign Currency, then one hundred ten
percent (110.0%), of the Dollar Equivalent of the then-applicable face amount of
all such Letters of Credit plus all interest, fees, and costs due or to become
due in connection therewith (as estimated by Bank in its business judgment), to
secure all of the Obligations relating to such Letters of Credit.

 

4.2 Priority of Security Interest. Borrower represents, warrants, and covenants
that the security interest granted herein is and shall at all times continue to
be a first priority perfected security interest in the Collateral (which
Collateral may be subject to Permitted Liens and, in the case of Liens granted
in connection with the SWK Credit Agreement, only to the extent contemplated by
the Intercreditor Agreement) to the extent contemplated by the Intercreditor
Agreement). If Borrower shall acquire a commercial tort claim with a value in
excess of Two Hundred Fifty Thousand Dollars ($250,000.00), Borrower shall
promptly notify Bank in a writing signed by Borrower of the general details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance reasonably satisfactory to Bank.

 

4.3 Authorization to File Financing Statements. Borrower hereby authorizes Bank
to file financing statements, without notice to Borrower, with all appropriate
jurisdictions to perfect or protect Bank’s interest or rights hereunder,
including a notice that any disposition of the Collateral, by either Borrower or
any other Person, shall be deemed to violate the rights of Bank under the Code.
Such financing statements may indicate the Collateral as “all assets of the
Debtor” or words of similar effect, or as being of an equal or lesser scope, or
with greater detail, all in Bank’s discretion.

 

7

 

 

5 REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1 Due Organization, Authorization; Power and Authority. Borrower is duly
existing and in good standing as a Registered Organization in its jurisdiction
of formation and is qualified and licensed to do business and is in good
standing in any jurisdiction in which the conduct of its business or its
ownership of property requires that it be qualified except where the failure to
do so could not reasonably be expected to have a material adverse effect on
Borrower’s business. In connection with this Agreement, each Borrower has
delivered to Bank a completed certificate signed by such Borrower entitled
“Perfection Certificate” (collectively, the “Perfection Certificate”). Borrower
represents and warrants to Bank that (a) Borrower’s exact legal name is that
indicated on the Perfection Certificate and on the signature page hereof; (b)
Borrower is an organization of the type and is organized in the jurisdiction set
forth in the Perfection Certificate; (c) the Perfection Certificate accurately
sets forth Borrower’s organizational identification number or accurately states
that Borrower has none; (d) the Perfection Certificate accurately sets forth
Borrower’s place of business, or, if more than one, its chief executive office
as well as Borrower’s mailing address (if different than its chief executive
office); (e) Borrower (and each of its predecessors) has not, in the five (5)
years prior to the date of the Perfection Certificate, changed its jurisdiction
of formation, organizational structure or type, or any organizational number
assigned by its jurisdiction; and (f) all other information set forth on the
Perfection Certificate pertaining to Borrower and each of its Subsidiaries is
accurate and complete (it being understood and agreed that Borrower may from
time to time update certain information in the Perfection Certificate after the
Effective Date to the extent permitted by one or more specific provisions in
this Agreement). If Borrower is not now a Registered Organization but later
becomes one, Borrower shall promptly notify Bank of such occurrence and provide
Bank with Borrower’s organizational identification number.

 

The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law, (iii)
contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any of its Subsidiaries or any of their property or assets may
be bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in
full force and effect), or (v) conflict with, contravene, constitute a default
or breach under, or result in or permit the termination or acceleration of, any
material agreement by which Borrower is bound. Borrower is not in default under
any agreement to which it is a party or by which it is bound in which the
default could reasonably be expected to have a material adverse effect on
Borrower’s business.

 

5.2 Collateral. Borrower has good title to, rights in, and the power to transfer
each item of the Collateral upon which it purports to grant a Lien hereunder,
free and clear of any and all Liens except Permitted Liens. Borrower has no
Collateral Accounts at or with any bank or financial institution other than Bank
or Bank’s Affiliates except for the Collateral Accounts described in the
Perfection Certificate delivered to Bank in connection herewith and which
Borrower has taken such actions as are necessary to give Bank a perfected
security interest therein, pursuant to the terms of Section 6.8(b). The Accounts
are bona fide, existing obligations of the Account Debtors.

 

The Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection Certificate or as
permitted by Section 7.2. None of the components of the Collateral shall be
maintained at locations other than as provided in the Perfection Certificate or
as permitted pursuant to Section 7.2.

 

All Inventory is in all material respects of good and marketable quality, free
from material defects.

  

8

 

 

Except as noted in the Perfection Certificate, Borrower is the sole owner of the
Intellectual Property which it owns or purports to own except for non-exclusive
licenses granted to its customers in the ordinary course of business. Each
Patent which it owns or purports to own and which is material to Borrower’s
business is valid and enforceable, and no part of the Intellectual Property
which Borrower owns or purports to own and which is material to Borrower’s
business has been judged invalid or unenforceable, in whole or in part. To the
best of Borrower’s knowledge, no claim has been made that any part of the
Intellectual Property violates the rights of any third party except to the
extent such claim would not reasonably be expected to have a material adverse
effect on Borrower’s business.

 

Except as noted on the Perfection Certificate or as to which Bank has been
notified in accordance with Section 6.10(c), Borrower is not a party to, nor is
it bound by, any Restricted License.

 

5.3 Accounts Receivable; Inventory.

 

(a) For each Account with respect to which Advances are requested, on the date
each Advance is requested and made, such Account shall be an Eligible Account.

 

(b) All statements made and all unpaid balances appearing in all invoices,
instruments and other documents evidencing the Eligible Accounts are and shall
be true and correct and all such invoices, instruments and other documents, and
all of Borrower’s Books are genuine and in all respects what they purport to be.
All sales and other transactions underlying or giving rise to each Eligible
Account shall comply in all material respects with all applicable laws and
governmental rules and regulations. Borrower has no knowledge of any actual or
imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible
Accounts in any Borrowing Base Report. To the best of Borrower’s knowledge, all
signatures and endorsements on all documents, instruments, and agreements
relating to all Eligible Accounts are genuine, and all such documents,
instruments and agreements are legally enforceable in accordance with their
terms.

 

(c) For any item of Inventory consisting of Eligible Inventory in any Borrowing
Base Report, such Inventory (i) consists of finished goods, in good, new, and
salable condition, which is not perishable, returned, consigned, obsolete, not
sellable, damaged, or defective, and is not comprised of demonstrative or custom
inventory, inventory in transit, works in progress, packaging or shipping
materials, or supplies; (ii) meets all applicable governmental standards; (iii)
has been manufactured in compliance with the Fair Labor Standards Act; (iv) is
not subject to any Liens, except (A) the first priority Liens granted or in
favor of Bank under this Agreement or any of the other Loan Documents, (B) Liens
permitted pursuant to clause (f) of the definition of Permitted Liens so long as
such Liens only have priority over Bank’s Liens to the extent contemplated by
the Intercreditor Agreement and (C) Liens permitted pursuant to clause (g) of
the definition of Permitted Liens so long as such Liens do not have superior
priority to Bank’s Liens with respect to any assets or property; and (v) is
located in the United States at the locations identified by Borrower in the
Perfection Certificate where it maintains Inventory (or at any location
permitted under Section 7.2) and such locations are subject to a landlord’s
consent or bailee waiver, as applicable, in form and substance acceptable to
Bank in its sole discretion; provided, however, during the period commencing on
the Effective Date through and including September 30, 2020, Inventory located
at Borrower’s leased location at 1938 New Highway, Farmingdale, New York 11735
shall not be deemed ineligible under clause (v) solely due to such location not
being subject to a landlord’s consent.

 

5.4 Litigation. There are no actions or proceedings pending or, to the knowledge
of any Responsible Officer, threatened in writing by or against Borrower or any
of its Subsidiaries that could reasonably be expected to involve more than,
individually or in the aggregate, Three Million Dollars ($3,000,000.00).

 

5.5 Financial Statements; Financial Condition. All consolidated financial
statements for Borrower and any of its Subsidiaries delivered to Bank fairly
present in all material respects Borrower’s consolidated financial condition and
Borrower’s consolidated results of operations. There has not been any material
deterioration in Borrower’s consolidated financial condition since the date of
the most recent financial statements submitted to Bank.

 

5.6 Solvency. The fair salable value of Borrower’s consolidated assets
(including goodwill minus disposition costs) exceeds the fair value of
Borrower’s liabilities; Borrower is not left with unreasonably small capital
after the transactions in this Agreement; and Borrower is able to pay its debts
(including trade debts) as they mature.

  

9

 

 

5.7 Regulatory Compliance. Borrower is not an “investment company” or a company
“controlled” by an “investment company” under the Investment Company Act of
1940, as amended. Borrower is not engaged as one of its important activities in
extending credit for margin stock (under Regulations X, T and U of the Federal
Reserve Board of Governors). Borrower (a) has complied in all material respects
with all Requirements of Law, and (b) has not violated any Requirements of Law
the violation of which could reasonably be expected to have a material adverse
effect on its business. None of Borrower’s or any of its Subsidiaries’
properties or assets has been used by Borrower or any Subsidiary or, to the best
of Borrower’s knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Borrower
and each of its Subsidiaries have obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all Governmental Authorities that are necessary to continue their respective
businesses as currently conducted.

 

5.8 Subsidiaries; Investments. Borrower does not own any stock, partnership, or
other ownership interest or other equity securities except for Permitted
Investments.

 

5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed
all required tax returns and reports, and Borrower has timely paid all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower except (a) to the extent such taxes are being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted, so long
as such reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor, or (b) if such taxes,
assessments, deposits and contributions do not, individually or in the
aggregate, exceed Two Hundred Fifty Thousand Dollars ($250,000.00).

 

To the extent Borrower defers payment of any contested taxes, Borrower shall (i)
notify Bank in writing of the commencement of, and any material development in,
the proceedings, and (ii) post bonds or take any other steps required to prevent
the Governmental Authority levying such contested taxes from obtaining a Lien
upon any of the Collateral that is other than a “Permitted Lien.” Borrower is
unaware of any claims or adjustments proposed for any of Borrower’s prior tax
years which could result in additional taxes becoming due and payable by
Borrower in excess of Two Hundred Fifty Thousand Dollars ($250,000.00). Borrower
has paid all amounts necessary to fund all present pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has not
withdrawn from participation in, and has not permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to,
any such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation or
its successors or any other governmental agency.

 

5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions
solely as working capital and to fund its general business requirements and not
for personal, family, household or agricultural purposes.

 

5.11 Full Disclosure. No written representation, warranty or other statement of
Borrower in any certificate or written statement given to Bank, as of the date
such representation, warranty, or other statement was made, taken together with
all such written certificates and written statements given to Bank, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained in the certificates or statements not
misleading (it being recognized by Bank that the projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are not
viewed as facts and that actual results during the period or periods covered by
such projections and forecasts may differ from the projected or forecasted
results).

 

5.12 Definition of “Knowledge.” For purposes of the Loan Documents, whenever a
representation or warranty is made to Borrower’s knowledge or awareness, to the
“best of” Borrower’s knowledge, or with a similar qualification, knowledge or
awareness means the actual knowledge, after reasonable investigation, of any
Responsible Officer.

  

10

 

 

6 AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1 Government Compliance.

 

(a) Maintain its and all its Subsidiaries’ legal existence and good standing in
their respective jurisdictions of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
have a material adverse effect on Borrower’s business or operations. Borrower
shall comply, and have each Subsidiary comply, in all material respects, with
all laws, ordinances and regulations to which it is subject, the noncompliance
with which could reasonably be expected to have a material adverse effect on
Borrower’s or any Subsidiary’s business.

 

(b) Obtain all of the Governmental Approvals necessary for the performance by
Borrower of its obligations under the Loan Documents to which it is a party and
the grant of a security interest to Bank in all of its property. Borrower shall
promptly provide copies of any such obtained Governmental Approvals to Bank.

 

6.2 Financial Statements, Reports, Certificates. Provide Bank with the
following:

 

(a) a Borrowing Base Report (and any schedules related thereto and including any
other information requested by Bank with respect to Borrower’s Accounts) (i)
with each request for an Advance and (ii) within thirty (30) days after the end
of each month;

 

(b) (i) monthly accounts receivable agings, aged by invoice date, (ii) monthly
accounts payable agings, aged by invoice date, and outstanding or held check
registers, if any, (iii) monthly reconciliations of accounts receivable agings
(aged by invoice date) and transaction reports and (iv) monthly perpetual
inventory reports for Inventory valued on a first-in, first-out basis at the
lower of cost or market (in accordance with GAAP) or such other inventory
reports as are requested by Bank in its good faith business judgment, in the
case of each of the foregoing (A) with each request for an Advance and (B)
within thirty (30) days after the end of each month;

 

(c) as soon as available, but no later than thirty (30) days after the last day
of each month, a company prepared consolidated balance sheet and income
statement covering Borrower’s consolidated operations for such month in a form
reasonably acceptable to Bank (the “Monthly Financial Statements”);

 

(d) within thirty (30) days after the last day of each month and together with
the Monthly Financial Statements, a duly completed Compliance Certificate signed
by a Responsible Officer, certifying that as of the end of such month, Borrower
was in full compliance with all of the terms and conditions of this Agreement,
and setting forth calculations showing compliance with the financial covenants
set forth in this Agreement and such other information as Bank may reasonably
request, including, without limitation, a statement that at the end of such
month there were no held checks;

 

(e) as soon as available, and in any event no later than thirty (30) days
following the end of each fiscal year of Borrower, and contemporaneously with
any updates or amendments thereto, (A) annual operating budgets (including
income statements, balance sheets and cash flow statements, by month), and (B)
annual financial projections (on a quarterly basis), in each case as approved by
the Board, together with any related business forecasts used in the preparation
of such annual financial projections;

 

(f) as soon as available, and in any event within forty-five (45) days following
the end of each fiscal quarter of Parent, Parent’s 10-Q for such fiscal quarter
as filed with the SEC;

 

(g) as soon as available, and in any event within ninety (90) days following the
end of Parent’s fiscal year, Parent’s 10-K for such fiscal year as filed with
the SEC, together with an unqualified opinion on the financial statements
included in the 10-K from an independent certified public accounting firm
reasonably acceptable to Bank;

 

(h) within five (5) days of filing, copies of all periodic and other reports,
proxy statements and other materials filed by Borrower and/or any Guarantor with
the SEC, any Governmental Authority succeeding to any or all of the functions of
the SEC or with any national securities exchange, or distributed to its
shareholders, as the case may be. Documents required to be delivered pursuant to
the terms hereof (to the extent any such documents are included in materials
otherwise filed with the SEC) may be delivered electronically and if so
delivered, shall be deemed to have been delivered on the date on which Borrower
posts such documents, or provides a link thereto, on Borrower’s website on the
internet at Borrower’s website address; provided, however, Borrower shall
promptly notify Bank in writing (which may be by electronic mail) of the posting
of any such documents;

  

11

 

 

(i) within five (5) days of delivery, copies of all statements, reports and
notices made available to Borrower’s security holders or to any holders of
Subordinated Debt;

 

(j) prompt written notice of any changes to the beneficial ownership information
set out in Section 14 of the Perfection Certificate. Borrower understands and
acknowledges that Bank relies on such true, accurate and up-to-date beneficial
ownership information to meet Bank’s regulatory obligations to obtain, verify
and record information about the beneficial owners of its legal entity
customers;

 

(k) prompt report of any legal actions pending or threatened in writing against
Borrower or any of its Subsidiaries that could result in damages or costs to
Borrower or any of its Subsidiaries of, individually or in the aggregate, One
Million Dollars ($1,000,000.00) or more; and

 

(l) promptly, from time to time, such other information regarding Borrower or
compliance with the terms of any Loan Documents as reasonably requested by Bank.

 

6.3 Accounts Receivable.

 

(a) Schedules and Documents Relating to Accounts. Borrower shall deliver to Bank
transaction reports and schedules of collections, as provided in Section 6.2, on
Bank’s standard forms; provided, however, that Borrower’s failure to execute and
deliver the same shall not affect or limit Bank’s Lien and other rights in all
of Borrower’s Accounts, nor shall Bank’s failure to advance or lend against a
specific Account affect or limit Bank’s Lien and other rights therein. If
requested by Bank, Borrower shall furnish Bank with copies (or, at Bank’s
reasonable request, originals) of all contracts, orders, invoices, and other
similar documents, and all shipping instructions, delivery receipts, bills of
lading, and other evidence of delivery, for any goods the sale or disposition of
which gave rise to such Accounts. In addition, Borrower shall deliver to Bank,
on its request, the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Accounts, in the same form as received, with all necessary indorsements, and
copies of all credit memos.

 

(b) Disputes. Borrower shall promptly notify Bank of all disputes or claims
relating to Accounts. Borrower may forgive (completely or partially),
compromise, or settle any Account for less than payment in full, or agree to do
any of the foregoing so long as (i) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business, in
arm’s-length transactions, and reports the same to Bank in the regular reports
provided to Bank; (ii) no Event of Default has occurred and is continuing; and
(iii) after taking into account all such discounts, settlements and forgiveness,
the sum of (A) the outstanding principal amount of any Advances (including any
amounts used for Cash Management Services), plus (B) the then-applicable face
amount of any outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) plus any Letter of Credit Reserve, plus (C) the FX Reduction
Amount, will not exceed the lesser of the Revolving Line or the Borrowing Base.

 

(c) Collection of Accounts. Borrower shall direct Account Debtors to deliver or
transmit all proceeds of Accounts into a lockbox account, or such other “blocked
account” as specified by Bank (either such account, the “Cash Collateral
Account”). Whether or not an Event of Default has occurred and is continuing,
Borrower shall promptly (but, in any event, within two (2) Business Days)
deliver all payments on and proceeds of Accounts to the Cash Collateral Account.
Subject to Bank’s right to maintain a reserve pursuant to Section 6.3(d), all
amounts received in the Cash Collateral Account shall be (i) when a Streamline
Period is not in effect, applied to immediately reduce the outstanding
Obligations under the Revolving Line (unless Bank, in its sole discretion,
elects not to so apply such amounts), or (ii) when a Streamline Period is in
effect, transferred on a daily basis to Borrower’s operating account with Bank.
Borrower hereby authorizes Bank to transfer to the Cash Collateral Account any
amounts that Bank reasonably determines are proceeds of the Accounts (provided
that Bank is under no obligation to do so and this allowance shall in no event
relieve Borrower of its obligations hereunder).

  

12

 

 

(d) Reserves. Notwithstanding any terms in this Agreement to the contrary, at
times when an Event of Default exists, Bank may hold any proceeds of the
Accounts and any amounts in the Cash Collateral Account that are not applied to
the outstanding Obligations pursuant to Section 6.3(c) above (including amounts
otherwise required to be transferred to Borrower’s operating account with Bank
when a Streamline Period is in effect) as a reserve to be applied to any
Obligations regardless of whether such Obligations are then due and payable.

 

(e) Returns. Provided no Event of Default has occurred and is continuing, if any
Account Debtor returns any Inventory to Borrower, Borrower shall promptly (i)
determine the reason for such return, (ii) issue a credit memorandum to the
Account Debtor in the appropriate amount, and (iii) provide a copy of such
credit memorandum to Bank, upon request from Bank. In the event any attempted
return occurs after the occurrence and during the continuance of any Event of
Default, Borrower shall hold the returned Inventory in trust for Bank, and
immediately notify Bank of the return of the Inventory.

 

(f) Verifications; Confirmations; Credit Quality; Notifications. Bank may, from
time to time, (i) verify and confirm directly with the respective Account
Debtors the validity, amount and other matters relating to the Accounts, either
in the name of Borrower or Bank or such other name as Bank may choose, and
notify any Account Debtor of Bank’s security interest in such Account and/or
(ii) conduct a credit check of any Account Debtor to approve any such Account
Debtor’s credit. Notwithstanding the foregoing, so long as no Event of Default
has occurred and is continuing, Bank will notify and consult with Borrower prior
to making direct contact with an Account Debtor.

 

(g) No Liability. Bank shall not be responsible or liable for any shortage or
discrepancy in, damage to, or loss or destruction of, any goods, the sale or
other disposition of which gives rise to an Account, or for any error, act,
omission, or delay of any kind occurring in the settlement, failure to settle,
collection or failure to collect any Account, or for settling any Account in
good faith for less than the full amount thereof, nor shall Bank be deemed to be
responsible for any of Borrower’s obligations under any contract or agreement
giving rise to an Account. Nothing herein shall, however, relieve Bank from
liability for its own gross negligence or willful misconduct.

 

6.4 Remittance of Proceeds. Except as otherwise provided in Section 6.3(c),
deliver, in kind, all proceeds arising from the disposition of any Collateral to
the Cash Collateral Account Bank in the original form in which received by
Borrower (or if not in a form that may be transferred to the Cash Collateral
Account, transferred in any manner instructed by Bank) not later than the
following Business Day after receipt by Borrower, to be applied to the
Obligations (a) prior to an Event of Default, pursuant to the terms of Section
6.3(c) hereof, and (b) after the occurrence and during the continuance of an
Event of Default, pursuant to the terms of Section 9.4 hereof; provided that, if
no Event of Default has occurred and is continuing, Borrower shall not be
obligated to remit to Bank the proceeds of the sale of worn out or obsolete
Equipment disposed of by Borrower in good faith in an arm’s length transaction
for an aggregate purchase price of Two Hundred Fifty Thousand Dollars
($250,000.00) or less (for all such transactions in any fiscal year). Nothing in
this Section 6.4 limits the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.

 

6.5 Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely
file, all required tax returns and reports and timely pay, and require each of
its Subsidiaries to timely pay, all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower and each of its
Subsidiaries, except for deferred payment of any taxes contested pursuant to the
terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate
certificates attesting to such payments, and pay all amounts necessary to fund
all present pension, profit sharing and deferred compensation plans in
accordance with their terms.

 

6.6 Access to Collateral; Books and Records. At reasonable times, on one (1)
Business Day’s notice (provided no notice is required if an Event of Default has
occurred and is continuing), Bank, or its agents, shall have the right to
inspect the Collateral and the right to audit and copy Borrower’s Books. Such
inspections and audits shall be conducted as frequently as Bank determines in
its sole discretion that conditions warrant. The foregoing inspections and
audits shall be conducted at Borrower’s expense and the charge therefor shall be
One Thousand Dollars ($1,000.00) per person per day (or such higher amount as
shall represent Bank’s then-current standard charge for the same), plus
reasonable out-of-pocket expenses. In the event Borrower and Bank schedule an
audit more than eight (8) days in advance, and Borrower cancels or seeks to or
reschedules the audit with less than eight (8) days written notice to Bank, then
(without limiting any of Bank’s rights or remedies) Borrower shall pay Bank a
fee of Two Thousand Dollars ($2,000.00) plus any out-of-pocket expenses incurred
by Bank to compensate Bank for the anticipated costs and expenses of the
cancellation or rescheduling.

  

13

 

 

6.7 Insurance.

 

(a) Keep its business and the Collateral insured for risks and in amounts
standard for companies in Borrower’s industry and location and as Bank may
reasonably request. Insurance policies shall be in a form, with financially
sound and reputable insurance companies that are not Affiliates of Borrower, and
in amounts that are satisfactory to Bank. All property policies shall have a
lender’s loss payable endorsement showing Bank as the lender loss payee. All
liability policies shall show, or have endorsements showing, Bank as an
additional insured. Bank shall be named as lender loss payee and/or additional
insured with respect to any such insurance providing coverage in respect of any
Collateral.

 

(b) Ensure that proceeds payable under any property policy are, at Bank’s
option, payable to Bank on account of the Obligations.

 

(c) At Bank’s request, Borrower shall deliver certified copies of insurance
policies and evidence of all premium payments. Each provider of any such
insurance required under this Section 6.7 shall agree, by endorsement upon the
policy or policies issued by it or by independent instruments furnished to Bank,
that it will give Bank thirty (30) days prior written notice before any such
policy or policies shall be materially altered or canceled. If Borrower fails to
obtain insurance as required under this Section 6.7 or to pay any amount or
furnish any required proof of payment to third persons and Bank, Bank may make
all or part of such payment or obtain such insurance policies required in this
Section 6.7, and take any action under the policies Bank deems prudent.

 

6.8 Accounts.

 

(a) Maintain its and all of its Subsidiaries’ operating and other deposit
accounts, the Cash Collateral Account and excess cash with Bank and Bank’s
Affiliates; provided, however, Borrower may maintain its accounts existing on
the Effective Date that are disclosed in the Perfection Certificate until the
date that is one hundred eighty (180) days from the Effective Date so long as
such accounts do not at any time hold any excess cash of Borrower. In addition
to the foregoing, Borrower shall conduct all of its cash management, asset
management, letters of credit and business credit card banking with Bank. Any
Guarantor shall maintain all depository and operating accounts and excess cash
with Bank and Bank’s Affiliates.

 

(b) In addition to and without limiting the restrictions in (a), Borrower shall
provide Bank five (5) days prior written notice before establishing any
Collateral Account at or with any bank or financial institution other than Bank
or Bank’s Affiliates. For each Collateral Account that Borrower at any time
maintains, Borrower shall cause the applicable bank or financial institution
(other than Bank) at or with which any Collateral Account is maintained to
execute and deliver a Control Agreement or other appropriate instrument with
respect to such Collateral Account to perfect Bank’s Lien in such Collateral
Account in accordance with the terms hereunder which Control Agreement may not
be terminated without the prior written consent of Bank. The provisions of the
previous sentence shall not apply to deposit accounts exclusively used for
payroll, payroll taxes, and other employee wage and benefit payments to or for
the benefit of Borrower’s employees and identified to Bank by Borrower as such.

 

6.9 Financial Covenants.

 

(a) Consolidated Unencumbered Liquid Assets. Have at all times, to be tested as
of the last day of each fiscal quarter, Consolidated Unencumbered Liquid Assets
of at least (i) as of any date of determination where the Market Capitalization
of Parent is greater than or equal to [***] or (ii), as of any date of
determination where the aggregate Market Capitalization of Parent is less than
[***], the greater of (A) [***] or (B) an amount equal to two hundred percent
(200.0%) of the Covenant Operational Burn for the prior fiscal quarter.

  

14

 

 

(b) Minimum Aggregate Revenue. Have at all times, to be tested as of the last
Business Day of each fiscal quarter, Aggregate Revenue for the following periods
of at least:

  

Period   Aggregate Revenue Trailing 9-month period ending March 31, 2020   [***]
Trailing 12-month period ending June 30, 2020   [***] Trailing 12-month period
ending September 30, 2020   [***] Trailing 12-month period ending December 31,
2020   [***] Trailing 12-month period ending March 31, 2021   [***] Trailing
12-month period ending June 30, 2021   [***] Trailing 12-month period ending
September 30, 2021 and each 12-month period ending on the last day of each
fiscal quarter thereafter   [***]

  

For purposes of clarification, if Aggregate Revenue is calculated for a period
that includes any period prior the consummation of the transactions contemplated
in the Merger Agreement, Aggregate Revenue will include, without duplication,
the combined aggregate of Covenant Net Sales, Covenant Royalties and any other
income or revenue recognized by Parent and/or its Subsidiaries, on one hand, and
by Solsys and/or its Subsidiaries, on the other hand, for such period.

 

(c) Minimum EBITDA. Have at all times when the aggregate Market Capitalization
of Parent is less than [***], to be tested as of the last day of each fiscal
quarter, EBITDA, as tested on a consolidated basis with respect to Parent and
its Subsidiaries for the following periods of at least the following:

  

Period   Minimum EBITDA Trailing 6-month period ending December 31, 2019   [***]
Trailing 9-month period ending March 31, 2020   [***] Trailing 12-month period
ending June 30, 2020   [***] Trailing 12-month period ending September 30, 2020
  [***] Trailing 12-month period ending December 31, 2020   [***] Trailing
12-month period ending March 31, 2021   [***] Trailing 12-month period ending
June 30, 2021 and each 12-month period ending on the last day of each calendar
quarter thereafter   [***]

  

15

 

 

Notwithstanding the foregoing, any failure of Borrower to satisfy the
requirements set forth in this Section 6.9(c) shall not otherwise constitute an
Event of Default so long as Borrower maintains Consolidated Unencumbered Liquid
Assets of at least the greater of (i) $[***] or (ii) an amount equal to four
hundred percent (400.0%) of the Covenant Operational Burn for the prior Fiscal
Quarter at all times until the Borrower is otherwise in compliance with this
Section 6.9(c).

 

6.10 Protection and Registration of Intellectual Property Rights.

 

(a) (i) Protect, defend and maintain the validity and enforceability of the
Intellectual Property that is material to Borrower’s business; (ii) promptly
advise Bank in writing of material infringements or any other event that could
reasonably be expected to materially and adversely affect the value of the
Intellectual Property that is material to Borrower’s business; and (iii) not
allow any Intellectual Property material to Borrower’s business to be abandoned,
forfeited or dedicated to the public without Bank’s written consent unless the
Board, in its good faith business judgment, determines it is in Borrower’s best
interest to do so.

 

(b) If Borrower (i) obtains any Patent, registered Trademark, registered
Copyright, registered mask work, or any pending application for any of the
foregoing, whether as owner, licensee or otherwise, or (ii) applies for any
Patent or the registration of any Trademark, then Borrower shall immediately
provide written notice thereof to Bank and shall execute such intellectual
property security agreements and other documents and take such other actions as
Bank may request in its good faith business judgment to perfect and maintain a
first priority perfected security interest in favor of Bank in such property
(except that the first priority aspect may be subject to the security interest
of SWK in certain property, but only to the extent contemplated by the
Intercreditor Agreement). If Borrower decides to register any Copyrights or mask
works in the United States Copyright Office, Borrower shall: (x) provide Bank
with at least fifteen (15) days prior written notice of Borrower’s intent to
register such Copyrights or mask works together with a copy of the application
it intends to file with the United States Copyright Office (excluding exhibits
thereto); (y) execute an intellectual property security agreement and such other
documents and take such other actions as Bank may request in its good faith
business judgment to perfect and maintain a first priority perfected security
interest in favor of Bank in the Copyrights or mask works intended to be
registered with the United States Copyright Office (except that the first
priority aspect may be subject to the security interest of SWK in certain
property, but only to the extent contemplated by the Intercreditor Agreement);
and (z) record such intellectual property security agreement with the United
States Copyright Office contemporaneously with filing the Copyright or mask work
application(s) with the United States Copyright Office. Borrower shall promptly
provide to Bank copies of all applications that it files for Patents or for the
registration of Trademarks, Copyrights or mask works, together with evidence of
the recording of the intellectual property security agreement required for Bank
to perfect and maintain a first priority perfected security interest in such
property (except that the first priority aspect may be subject to the security
interest of SWK in certain property, but only to the extent contemplated by the
Intercreditor Agreement).

 

(c) Provide written notice to Bank within thirty (30) days of entering or
becoming bound by any Restricted License (other than over-the-counter software
that is commercially available to the public). With respect to any Restricted
License entered into on or after the Effective Date, Borrower shall take such
steps as Bank reasonably requests to obtain the consent of, or waiver by, any
person whose consent or waiver is necessary for (i) any Restricted License to be
deemed “Collateral” and for Bank to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such
Restricted License, whether now existing or entered into in the future, and (ii)
Bank to have the ability in the event of a liquidation of any Collateral to
dispose of such Collateral in accordance with Bank’s rights and remedies under
this Agreement and the other Loan Documents.

 

6.11 Litigation Cooperation. From the date hereof and continuing through the
termination of this Agreement, make available to Bank, without expense to Bank,
Borrower and its officers, employees and agents and Borrower’s books and
records, to the extent that Bank may deem them reasonably necessary to prosecute
or defend any third-party suit or proceeding instituted by or against Bank with
respect to any Collateral or relating to Borrower.

  

16

 

 

6.12 Online Banking.

 

(a) Utilize Bank’s online banking platform for all matters requested by Bank
which shall include, without limitation (and without request by Bank for the
following matters), requesting approval for exceptions, requesting Credit
Extensions, and uploading financial statements and other reports required to be
delivered by this Agreement (including, without limitation, those described in
Section 6.2 of this Agreement).

 

(b) Comply with the terms of Bank’s Online Banking Agreement as in effect from
time to time and ensure that all persons utilizing Bank’s online banking
platform are duly authorized to do so by an Administrator. Bank shall be
entitled to assume the authenticity, accuracy and completeness of any
information, instruction or request for a Credit Extension submitted via Bank’s
online banking platform and to further assume that any submissions or requests
made via Bank’s online banking platform have been duly authorized by an
Administrator.

 

6.13 Further Assurances. Execute any further instruments and take further action
as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral
or to effect the purposes of this Agreement. Deliver to Bank, within five (5)
days after the same are sent or received, copies of all correspondence, reports,
documents and other filings with any Governmental Authority regarding compliance
with or maintenance of Governmental Approvals or Requirements of Law or that
could reasonably be expected to have a material effect on any of the
Governmental Approvals or otherwise on the operations of Borrower or any of its
Subsidiaries.

 

7 NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Bank’s prior written consent:

 

7.1 Dispositions. Convey, sell, lease, transfer, assign, or otherwise dispose of
(including, without limitation, pursuant to a Division) (collectively,
“Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, except for Transfers (a) of Inventory in the ordinary
course of business; (b) of worn-out or obsolete Equipment that is, in the
reasonable judgment of Borrower, no longer economically practicable to maintain
or useful in the ordinary course of business of Borrower; (c) consisting of
Permitted Liens and Permitted Investments; (d) consisting of non-exclusive
licenses for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (e) by one Borrower to another Borrower; (f)
consisting of the cancellation of intercompany Indebtedness owed by one Borrower
to another; (g) consisting of sales and dispositions among Subsidiaries of
Borrower (other than a Borrower); (h) consisting of exchanges of existing
Equipment for new Equipment that is substantially similar to the Equipment being
exchanged and that has a value equal to or greater than the Equipment being
exchanged, provided that the new Equipment shall be deemed Collateral in which
Bank has been granted a first priority security interest; (i) of any
Intellectual Property that is abandoned, forfeited or dedicated to the public
and that the Board has, in its good faith business judgment, determined is in
Borrower’s best interest to do so; or (j) of other assets with a value not to
exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate in any
fiscal year.

 

7.2 Changes in Business, Management, Control, or Business Locations. (a) Engage
in or permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower and such Subsidiary, as applicable,
or reasonably related thereto; (b) liquidate or dissolve; (c) fail to provide
notice to Bank of any Key Person departing from or ceasing to be employed by
Borrower within five (5) days after such Key Person’s departure from Borrower;
or (d) permit or suffer any Change in Control.

 

Borrower shall not, without at least thirty (30) days prior written notice to
Bank: (1) add any new offices or business locations, including warehouses
(unless such new offices or business locations contain less than One Hundred
Thousand Dollars ($100,000.00) in Borrower’s assets or property) or deliver any
portion of the Collateral valued, individually or in the aggregate, in excess of
One Hundred Thousand Dollars ($100,000.00) to a bailee at a location other than
to a bailee and at a location already disclosed in the Perfection Certificate,
(2) change its jurisdiction of organization, (3) change its organizational
structure or type, (4) change its legal name, or (5) change any organizational
number (if any) assigned by its jurisdiction of organization. If Borrower
intends to add any new offices or business locations, including warehouses,
containing in excess of One Hundred Thousand Dollars ($100,000.00) of Borrower's
assets or property, then Borrower will first cause the landlord of any such new
offices or business locations, including warehouses, to execute and deliver a
landlord consent in form and substance satisfactory to Bank. If Borrower intends
to deliver any portion of the Collateral valued, individually or in the
aggregate, in excess of One Hundred Thousand Dollars ($100,000.00) to a bailee,
and Bank and such bailee are not already parties to a bailee agreement governing
both the Collateral and the location to which Borrower intends to deliver the
Collateral, then Borrower will first cause such bailee to execute and deliver a
bailee agreement in form and substance satisfactory to Bank.

  

17

 

 

7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person (including, without limitation, by
the formation of any Subsidiary or pursuant to a Division). A Subsidiary may
merge or consolidate into another Subsidiary or into Borrower.

 

7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or
permit any Subsidiary to do so, other than Permitted Indebtedness.

 

7.5 Encumbrance. Create, incur, allow, or suffer any Lien on any of its
property, or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, permit any Collateral not to be subject to the first priority security
interest granted herein (which Collateral may be subject to Permitted Liens and,
in the case of Liens granted in connection with the SWK Credit Agreement, only
to the extent contemplated by the Intercreditor Agreement) to the extent
contemplated by the Intercreditor Agreement), or enter into any agreement,
document, instrument or other arrangement (except with or in favor of Bank) with
any Person which directly or indirectly prohibits or has the effect of
prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging,
granting a security interest in or upon, or encumbering any of Borrower’s or any
Subsidiary’s Intellectual Property, except as is otherwise permitted in Section
7.1 hereof and the definition of “Permitted Liens” herein.

 

7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except
pursuant to the terms of Section 6.8(b) hereof.

 

7.7 Distributions; Investments. (a) Pay any dividends or make any distribution
or payment or redeem, retire or purchase any capital stock or membership
interests (other than dividends or distributions made or paid to a Borrower); or
(b) directly or indirectly make any Investment (including, without limitation,
by the formation of any Subsidiary) other than Permitted Investments, or permit
any of its Subsidiaries to do so.

 

7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower, except for (a)
transactions that are in the ordinary course of Borrower’s business, upon fair
and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm’s length transaction with a non-affiliated Person and (b)
transactions with any other Borrower or a Secured Guarantor that are otherwise
permitted under the terms of this Agreement.

 

7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt,
except under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or (b) amend any provision
in any document relating to the Subordinated Debt which would increase the
amount thereof, provide for earlier or greater principal, interest, or other
payments thereon, or adversely affect the subordination thereof to Obligations
owed to Bank.

 

7.10 Compliance. Become an “investment company” or a company controlled by an
“investment company”, under the Investment Company Act of 1940, as amended, or
undertake as one of its important activities extending credit to purchase or
carry margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower’s business, or permit any of its Subsidiaries to do
so; withdraw or permit any Subsidiary to withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any present pension, profit sharing and deferred compensation
plan which could reasonably be expected to result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.

  

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8 EVENTS OF DEFAULT

 

Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:

 

8.1 Payment Default. Borrower fails to (a) make any payment of principal or
interest on any Credit Extension when due, or (b) pay any other Obligations
within three (3) Business Days after such Obligations are due and payable (which
three (3) Business Day cure period shall not apply to payments due on the
Revolving Line Maturity Date). During the cure period, the failure to make or
pay any payment specified under clause (b) hereunder is not an Event of Default
(but Bank will have not obligation to make any Credit Extension during the cure
period);

 

8.2 Covenant Default.

 

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.3,
6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10(c), or 6.12 or violates any covenant in
Section 7; or

 

(b) Borrower fails or neglects to perform, keep, or observe any other term,
provision, condition, covenant or agreement contained in this Agreement or any
Loan Documents, and as to any default (other than those specified in this
Section 8) under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to cure the default
shall not be deemed an Event of Default (but Bank will have not obligation to
make any Credit Extension during the cure period). Cure periods provided under
this section shall not apply, among other things, to financial covenants or any
other covenants set forth in clause (a) above;

 

8.3 Material Adverse Change. A Material Adverse Change occurs;

 

8.4 Attachment; Levy; Restraint on Business.

 

(a) (i) The service of process seeking to attach, by trustee or similar process,
any funds of Borrower or of any entity under the control of Borrower (including
a Subsidiary), or (ii) a notice of lien or levy is filed against any of
Borrower’s assets by any Governmental Authority, and the same under subclauses
(i) and (ii) hereof are not, within ten (10) days after the occurrence thereof,
discharged or stayed (whether through the posting of a bond or otherwise);
provided, however, Bank will have no obligation to make any Credit Extensions
during any ten (10) day cure period; or

 

(b) (i) any material portion of Borrower’s assets is attached, seized, levied
on, or comes into possession of a trustee or receiver, or (ii) any court order
enjoins, restrains, or prevents Borrower from conducting all or any material
part of its business;

 

8.5 Insolvency. (a) Borrower or any of its Subsidiaries is unable to pay its
debts (including trade debts) as they become due or otherwise becomes insolvent;
(b) Borrower or any of its Subsidiaries begins an Insolvency Proceeding; or (c)
an Insolvency Proceeding is begun against Borrower or any of its Subsidiaries
and is not dismissed or stayed within forty-five (45) days (but Bank will no
obligation to make Credit Extensions while any of the conditions described in
clause (a) exist and/or until any Insolvency Proceeding is dismissed);

 

8.6 Other Agreements. There is, under any agreement to which Borrower or any
Guarantor is a party with a third party or parties, (a) any default resulting in
a right by such third party or parties, whether or not exercised, to accelerate
the maturity of any Indebtedness in an amount individually or in the aggregate
in excess of Two Hundred Fifty Thousand Dollars ($250,000.00); or (b) any breach
or default by Borrower or Guarantor, the result of which could have a material
adverse effect on Borrower’s or any Guarantor’s business;

  

19

 

 

8.7 Judgments; Penalties. One or more fines, penalties or final judgments,
orders or decrees for the payment of money in an amount, individually or in the
aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000.00) (not
covered by independent third-party insurance as to which liability has been
accepted by such insurance carrier) shall be rendered against Borrower by any
Governmental Authority, and the same are not, within ten (10) days after the
entry, assessment or issuance thereof, discharged, satisfied, or paid, or after
execution thereof, stayed or bonded pending appeal, or such judgments are not
discharged prior to the expiration of any such stay (provided that Bank will
have no Obligation to make Credit Extensions prior to the satisfaction, payment,
discharge, stay, or bonding of such fine, penalty, judgment, order or decree);

 

8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any
representation, warranty, or other statement now or later in this Agreement, any
Loan Document or in any writing delivered to Bank or to induce Bank to enter
this Agreement or any Loan Document, and such representation, warranty, or other
statement is incorrect in any material respect when made;

 

8.9 Subordinated Debt. Any subordination agreement, intercreditor agreement or
other document, instrument, or agreement evidencing the subordination of any
Subordinated Debt shall for any reason be revoked or invalidated or otherwise
cease to be in full force and effect, any Person shall be in breach thereof or
contest in any manner the validity or enforceability thereof or deny that it has
any further liability or obligation thereunder, or the Obligations shall for any
reason be subordinated or shall not have the priority contemplated by this
Agreement or any applicable subordination or intercreditor agreement;

 

8.10 Guaranty. (a) Any guaranty of any Obligations terminates or ceases for any
reason to be in full force and effect; (b) any Guarantor does not perform any
obligation or covenant under any guaranty of the Obligations; (c) any
circumstance described in Sections 8.3, 8.4, 8.5, 8.6, 8.7, or 8.8 of this
Agreement occurs with respect to any Guarantor, (d) the death, liquidation,
winding up, or termination of existence of any Guarantor; or (e) (i) a material
impairment in the perfection or priority of Bank’s Lien in any collateral
provided by Guarantor or in the value of such collateral or (ii) a material
adverse change in the general affairs, management, results of operation,
condition (financial or otherwise) or the prospect of repayment of the
Obligations occurs with respect to any Guarantor; or

 

8.11 SWK. The occurrence of any Event of Default (or any replacement term)
under, and as defined in, the Loan Documents (as defined in the SWK Credit
Agreement).

 

9 BANK’S RIGHTS AND REMEDIES

 

9.1 Rights and Remedies. Upon the occurrence and during the continuance of an
Event of Default, Bank may, without notice or demand, do any or all of the
following:

 

(a) declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank);

 

(b) stop advancing money or extending credit for Borrower’s benefit under this
Agreement or under any other agreement between Borrower and Bank;

 

(c) demand that Borrower (i) deposit cash with Bank in an amount equal to (A)
one hundred five percent (105.0%) of the Dollar Equivalent of the aggregate
then-applicable face amount of all Letters of Credit denominated in Dollars
remaining undrawn, and (B) one hundred ten percent (110.0%) of the Dollar
Equivalent of the aggregate then-applicable face amount of all Letters of Credit
denominated in a Foreign Currency remaining undrawn (plus, in each case, all
interest, fees, and costs due or to become due in connection therewith (as
estimated by Bank in its good faith business judgment)), to secure all of the
Obligations relating to such Letters of Credit, as collateral security for the
repayment of any future drawings under such Letters of Credit, and Borrower
shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter
of credit fees scheduled to be paid or payable over the remaining term of any
Letters of Credit;

 

(d) terminate any FX Contracts;

  

20

 

 

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

 

(f) make any payments and do any acts it considers necessary or reasonable to
protect the Collateral and/or its security interest in the Collateral. Borrower
shall assemble the Collateral if Bank requests and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank’s rights
or remedies;

 

(g) apply to the Obligations any (i) balances and deposits of Borrower it holds,
or (ii) amount held by Bank owing to or for the credit or the account of
Borrower;

 

(h) subject to any applicable provisions of the Code, ship, reclaim, recover,
store, finish, maintain, repair, prepare for sale, advertise for sale, and sell
the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask
works, rights of use of any name, trade secrets, trade names, Trademarks, and
advertising matter, or any similar property as it pertains to the Collateral, in
completing production of, advertising for sale, and selling any Collateral and,
in connection with Bank’s exercise of its rights under this Section 9.1,
Borrower’s rights under all licenses and all franchise agreements inure to
Bank’s benefit;

 

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

 

(j) demand and receive possession of Borrower’s Books; and

 

(k) exercise all rights and remedies available to Bank under the Loan Documents
or at law or equity, including all remedies provided under the Code (including
disposal of the Collateral pursuant to the terms thereof).

 

9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful
attorney-in-fact, exercisable following the occurrence and during the
continuation of an Event of Default, to: (a) endorse Borrower’s name on any
checks, payment instruments, or other forms of payment or security; (b) sign
Borrower’s name on any invoice or bill of lading for any Account or drafts
against Account Debtors; (c) demand, collect, sue, and give releases to any
Account Debtor for monies due, settle and adjust disputes and claims about the
Accounts directly with Account Debtors, and compromise, prosecute, or defend any
action, claim, case, or proceeding about any Collateral (including filing a
claim or voting a claim in any bankruptcy case in Bank’s or Borrower’s name, as
Bank chooses); (d) make, settle, and adjust all claims under Borrower’s
insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance,
security interest, or other claim in or to the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; and
(f) transfer the Collateral into the name of Bank or a third party as the Code
permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign
Borrower’s name on any documents necessary to perfect or continue the perfection
of Bank’s security interest in the Collateral regardless of whether an Event of
Default has occurred until all Obligations have been satisfied in full and the
Loan Documents have been terminated. Bank’s foregoing appointment as Borrower’s
attorney in fact, and all of Bank’s rights and powers, coupled with an interest,
are irrevocable until all Obligations have been fully repaid and performed and
the Loan Documents have been terminated.

 

9.3 Protective Payments. If Borrower fails to obtain the insurance called for by
Section 6.7 or fails to pay any premium thereon or fails to pay any other amount
which Borrower is obligated to pay under this Agreement or any other Loan
Document or which may be required to preserve the Collateral, Bank may obtain
such insurance or make such payment, and all amounts so paid by Bank are Bank
Expenses and immediately due and payable, bearing interest at the then highest
rate applicable to the Obligations, and secured by the Collateral. Bank will
make reasonable efforts to provide Borrower with notice of Bank obtaining such
insurance at the time it is obtained or within a reasonable time thereafter. No
payments by Bank are deemed an agreement to make similar payments in the future
or Bank’s waiver of any Event of Default.

  

21

 

 

9.4 Application of Payments and Proceeds. If any Event of Default has occurred
and is continuing (or at any time on the terms set forth in Section 6.3(c),
regardless of whether an Event of Default exists) Bank shall have the right to
apply in any order any funds in its possession, whether from Borrower account
balances, payments, proceeds realized as the result of any collection of
Accounts or other disposition of the Collateral, or otherwise, to the
Obligations. Bank shall pay any surplus to Borrower by credit to the Designated
Deposit Account or to other Persons legally entitled thereto; Borrower shall
remain liable to Bank for any deficiency. If Bank, directly or indirectly,
enters into a deferred payment or other credit transaction with any purchaser at
any sale of Collateral, Bank shall have the option, exercisable at any time, of
either reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Bank of
cash therefor.

 

9.5 Bank’s Liability for Collateral. So long as Bank complies with reasonable
banking practices regarding the safekeeping of the Collateral in the possession
or under the control of Bank, Bank shall not be liable or responsible for: (a)
the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c)
any diminution in the value of the Collateral; or (d) any act or default of any
carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss,
damage or destruction of the Collateral.

 

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

 

9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.

 

9.8 Borrower Liability. Any Borrower may, acting singly, request Credit
Extensions hereunder.  Each Borrower hereby appoints each other as agent for the
other for all purposes hereunder, including with respect to requesting Credit
Extensions hereunder. Each Borrower hereunder shall be jointly and severally
obligated to repay all Credit Extensions made hereunder, regardless of which
Borrower actually receives said Credit Extension, as if each Borrower hereunder
directly received all Credit Extensions.  Each Borrower waives (a) any
suretyship defenses available to it under the Code or any other applicable law,
and (b) any right to require Bank to: (i) proceed against any Borrower or any
other person; (ii) proceed against or exhaust any security; or (iii) pursue any
other remedy.  Bank may exercise or not exercise any right or remedy it has
against any Borrower or any security it holds (including the right to foreclose
by judicial or non-judicial sale) without affecting any Borrower’s liability. 
Notwithstanding any other provision of this Agreement or other related document,
until such time as all Obligations are paid in full and this Agreement has been
terminated in accordance with Section 12.1, each Borrower irrevocably waives all
rights that it may have at law or in equity (including, without limitation, any
law subrogating Borrower to the rights of Bank under this Agreement) to seek
contribution, indemnification or any other form of reimbursement from any other
Borrower, or any other Person now or hereafter primarily or secondarily liable
for any of the Obligations, for any payment made by Borrower with respect to the
Obligations in connection with this Agreement or otherwise and all rights that
it might have to benefit from, or to participate in, any security for the
Obligations as a result of any payment made by Borrower with respect to the
Obligations in connection with this Agreement or otherwise.  Any
indemnification, reimbursement or any other obligation prohibited under this
Section 9.8 is hereby subordinated in time and right of payment to all
obligations of Borrower to Bank until such time as all Obligations are paid in
full and this Agreement has been terminated in accordance with Section 12.1.  If
any payment is made to a Borrower in contravention of this Section 9.8, such
Borrower shall hold such payment in trust for Bank and such payment shall be
promptly delivered to Bank for application to the Obligations, whether matured
or unmatured.

  

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10 NOTICES

 

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

  

If to a Borrower: c/o Misonix, Inc.   1938 New Highway   Farmingdale, New York
11735   Attn: Joe Dwyer   Fax: (631) 980-4253   Email: jdwyer@misonix.com     If
to Bank: Silicon Valley Bank   275 Grove Street   Suite 2-200   Newton,
Massachusetts 02466   Attn:  Mr. Sam Subilia   Fax: (617) 527-0177   Email:
SSubilia@svb.com     with a copy to: Morrison & Foerster LLP   200 Clarendon
Street, Floor 20   Boston, Massachusetts 02116   Attn:  David A. Ephraim,
Esquire   Fax: (617) 830-0142   Email: DEphraim@mofo.com

 

11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

 

Except as otherwise expressly provided in any of the Loan Documents,
Massachusetts law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Boston, Massachusetts; provided, however, that
nothing in this Agreement shall be deemed to operate to preclude Bank from
bringing suit or taking other legal action in any other jurisdiction to realize
on the Collateral or any other security for the Obligations, or to enforce a
judgment or other court order in favor of Bank. Borrower expressly submits and
consents in advance to such jurisdiction in any action or suit commenced in any
such court, and Borrower hereby waives any objection that it may have based upon
lack of personal jurisdiction, improper venue, or forum non conveniens and
hereby consents to the granting of such legal or equitable relief as is deemed
appropriate by such court. Borrower hereby waives personal service of the
summons, complaints, and other process issued in such action or suit and agrees
that service of such summons, complaints, and other process may be made by
registered or certified mail addressed to Borrower at the address set forth in,
or subsequently provided by Borrower in accordance with, Section 10 of this
Agreement and that service so made shall be deemed completed upon the earlier to
occur of Borrower’s actual receipt thereof or three (3) days after deposit in
the U.S. mails, proper postage prepaid.

  

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BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

This Section 11 shall survive the termination of this Agreement.

 

12 GENERAL PROVISIONS

 

12.1 Termination Prior to Maturity Date; Survival. All covenants,
representations and warranties made in this Agreement shall continue in full
force until this Agreement has terminated pursuant to its terms and all
Obligations have been satisfied (other than inchoate indemnity obligations, and
any other obligations which, by their terms, are to survive the termination of
this Agreement, and any other Obligations under Bank Services Agreements that
are cash collateralized in accordance with Section 4.1). So long as Borrower has
satisfied the Obligations (other than inchoate indemnity obligations, and any
other obligations which, by their terms, are to survive the termination of this
Agreement, and any Obligations under Bank Services Agreements that are cash
collateralized in accordance with Section 4.1), this Agreement may be terminated
prior to the Revolving Line Maturity Date by Borrower, effective three (3)
Business Days after written notice of termination is given to Bank. Those
obligations that are expressly specified in this Agreement as surviving this
Agreement’s termination shall continue to survive notwithstanding this
Agreement’s termination.

 

12.2 Successors and Assigns. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. Borrower may not assign this
Agreement or any rights or obligations under it without Bank’s prior written
consent (which may be granted or withheld in Bank’s discretion). Bank has the
right, without the consent of or notice to Borrower, to sell, transfer, assign,
negotiate, or grant participation in all or any part of, or any interest in,
Bank’s obligations, rights, and benefits under this Agreement and the other Loan
Documents.

 

12.3 Indemnification. Borrower agrees to indemnify, defend and hold Bank and its
directors, officers, employees, agents, attorneys, or any other Person
affiliated with or representing Bank (each, an “Indemnified Person”) harmless
against: (i) all obligations, demands, claims, and liabilities (collectively,
“Claims”) claimed or asserted by any other party in connection with the
transactions contemplated by the Loan Documents; and (ii) all losses or expenses
(including Bank Expenses) in any way suffered, incurred, or paid by such
Indemnified Person as a result of, following from, consequential to, or arising
from transactions between Bank and Borrower (including reasonable attorneys’
fees and expenses), except for Claims and/or losses directly caused by such
Indemnified Person’s gross negligence or willful misconduct.

 

This Section 12.3 shall survive until all statutes of limitation with respect to
the Claims, losses, and expenses for which indemnity is given shall have run.

 

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

 

12.5 Severability of Provisions. Each provision of this Agreement is severable
from every other provision in determining the enforceability of any provision.

 

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

  

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12.7 Amendments in Writing; Waiver; Integration. No purported amendment or
modification of any Loan Document, or waiver, discharge or termination of any
obligation under any Loan Document, shall be enforceable or admissible unless,
and only to the extent, expressly set forth in a writing signed by the party
against which enforcement or admission is sought. Without limiting the
generality of the foregoing, no oral promise or statement, nor any action,
inaction, delay, failure to require performance or course of conduct shall
operate as, or evidence, an amendment, supplement or waiver or have any other
effect on any Loan Document. Any waiver granted shall be limited to the specific
circumstance expressly described in it, and shall not apply to any subsequent or
other circumstance, whether similar or dissimilar, or give rise to, or evidence,
any obligation or commitment to grant any further waiver. The Loan Documents
represent the entire agreement about this subject matter and supersede prior
negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of the Loan Documents merge into the Loan Documents.

 

12.8 Counterparts. This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when executed
and delivered, is an original, and all taken together, constitute one Agreement.

 

12.9 Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with
Bank, collectively, “Bank Entities”); (b) to prospective transferees or
purchasers of any interest in the Credit Extensions (provided, however, Bank
shall use its best efforts to obtain any prospective transferee’s or purchaser’s
agreement to the terms of this provision); (c) as required by law, regulation,
subpoena, or other order; (d) to Bank’s regulators or as otherwise required in
connection with Bank’s examination or audit; (e) as Bank considers appropriate
in exercising remedies under the Loan Documents; and (f) to third-party service
providers of Bank so long as such service providers have executed a
confidentiality agreement with Bank with terms no less restrictive than those
contained herein. Confidential information does not include information that is
either: (i) in the public domain or in Bank’s possession when disclosed to Bank,
or becomes part of the public domain (other than as a result of its disclosure
by Bank in violation of this Agreement) after disclosure to Bank; or (ii)
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.

 

Bank Entities may use anonymous forms of confidential information for aggregate
datasets, for analyses or reporting, and for any other uses not expressly
prohibited in writing by Borrower. The provisions of the immediately preceding
sentence shall survive the termination of this Agreement.

 

12.10 Electronic Execution of Documents. The words “execution,” “signed,”
“signature” and words of like import in any Loan Document shall be deemed to
include electronic signatures or the keeping of records in electronic form, each
of which shall be of the same legal effect, validity and enforceability as a
manually executed signature or the use of a paper-based recordkeeping systems,
as the case may be, to the extent and as provided for in any applicable law,
including, without limitation, any state law based on the Uniform Electronic
Transactions Act.

 

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

 

12.12 Captions. The headings used in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.

 

12.13 Construction of Agreement. The parties mutually acknowledge that they and
their attorneys have participated in the preparation and negotiation of this
Agreement. In cases of uncertainty this Agreement shall be construed without
regard to which of the parties caused the uncertainty to exist.

  

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12.14 Relationship. The relationship of the parties to this Agreement is
determined solely by the provisions of this Agreement. The parties do not intend
to create any agency, partnership, joint venture, trust, fiduciary or other
relationship with duties or incidents different from those of parties to an
arm’s-length contract.

 

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

 

13 DEFINITIONS

 

13.1 Definitions. As used in the Loan Documents, the word “shall” is mandatory,
the word “may” is permissive, the word “or” is not exclusive, the words
“includes” and “including” are not limiting, the singular includes the plural,
and numbers denoting amounts that are set off in brackets are negative. As used
in this Agreement, the following capitalized terms have the following meanings:

 

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

 

“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Administrator” is an individual that is named:

 

(a) as an “Administrator” in the “SVB Online Services” form completed by
Borrower with the authority to determine who will be authorized to use SVB
Online Services (as defined in Bank’s Online Banking Agreement as in effect from
time to time) on behalf of Borrower; and

 

(b) as an Authorized Signer of Borrower in an approval by the Board.

 

“Advance” or “Advances” means a revolving credit loan (or revolving credit
loans) under the Revolving Line.

 

“Affiliate” is, with respect to any Person, each other Person that owns or
controls directly or indirectly the Person, any Person that controls or is
controlled by or is under common control with the Person, and each of that
Person’s senior executive officers, directors, partners and, for any Person that
is a limited liability company, that Person’s managers and members. For purposes
of the definition of Eligible Accounts, Affiliate shall include a Specified
Affiliate.

 

“Aggregate Revenue” means the aggregate of Covenant Net Sales, Covenant
Royalties and any other income or revenue recognized by Parent and/or its
Subsidiaries.

 

“Agreement” is defined in the preamble hereof.

 

“Anniversary Fee” and “Anniversary Fees” are each defined in Section 2.5(b).

 

“Authorized Signer” is any individual listed in Borrower’s Borrowing Resolution
who is authorized to execute the Loan Documents, including making (and executing
if applicable) any Credit Extension request, on behalf of Borrower.

 

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
amount available under the Borrowing Base minus (b) the aggregate Dollar
Equivalent amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit
Reserve, minus (c) the FX Reduction Amount, minus (d) any amounts used for Cash
Management Services, and minus (e) the outstanding principal balance of any
Advances.

  

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“Bank” is defined in the preamble hereof.

 

“Bank Entities” is defined in Section 12.9.

 

“Bank Expenses” are all out-of-pocket audit fees and expenses, costs, and
expenses (including reasonable attorneys’ fees and expenses) for preparing,
amending, negotiating, administering, defending and enforcing the Loan Documents
(including, without limitation, those incurred in connection with appeals or
Insolvency Proceedings) or otherwise incurred with respect to Borrower or any
Guarantor.

 

“Bank Services” are any products, credit services, and/or financial
accommodations previously, now, or hereafter provided to Borrower or any of its
Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any
letters of credit, cash management services (including, without limitation,
merchant services, direct deposit of payroll, business credit cards, and check
cashing services), interest rate swap arrangements, and foreign exchange
services as any such products or services may be identified in Bank’s various
agreements related thereto (each, a “Bank Services Agreement”) and shall
include, without limitation, any Letters of Credit pursuant to Section 2.2.1, FX
Contracts pursuant to Section 2.2.2 and Cash Management Services pursuant to
Section 2.2.3.

 

“Bank Services Agreement” is defined in the definition of Bank Services.

 

“Board” is Borrower’s board of directors or the limited liability company
equivalent thereof.

 

“Borrower” is defined in the preamble hereof.

 

“Borrower’s Books” are all Borrower’s books and records including ledgers,
federal and state tax returns, records regarding Borrower’s assets or
liabilities, the Collateral, business operations or financial condition, and all
computer programs or storage or any equipment containing such information.

 

“Borrowing Base” is (a) eighty-five percent (85.0%) of Eligible Accounts plus
(b) the lesser of (i) fifty percent (50.0%) of the value of Borrower’s Eligible
Inventory (valued at the lower of cost or wholesale fair market value) or (ii)
Five Million Dollars ($5,000,000.00), as determined by Bank from Borrower’s most
recent Borrowing Base Report (and as may subsequently be updated by Bank based
upon information received by Bank including, without limitation, Accounts that
are paid and/or billed following the date of the Borrowing Base Report);
provided, however, that Bank has the right to decrease the foregoing amount and
percentages in its good faith business judgment to mitigate the impact of
events, conditions, contingencies, or risks which may adversely affect the
Collateral or its value.

 

“Borrowing Base Report” is that certain report of the value of certain
Collateral in the form specified by Bank to Borrower from time to time.

 

“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s board of directors (or the limited liability company
equivalent thereof), and, if required under the terms of such Person’s Operating
Documents, stockholders or other equity holders, and delivered by such Person to
Bank approving the Loan Documents to which such Person is a party and the
transactions contemplated thereby, together with a certificate executed by its
secretary on behalf of such Person certifying (a) such Person has the authority
to execute, deliver, and perform its obligations under each of the Loan
Documents to which it is a party, (b) that set forth as a part of or attached as
an exhibit to such certificate is a true, correct, and complete copy of the
resolutions then in full force and effect authorizing and ratifying the
execution, delivery, and performance by such Person of the Loan Documents to
which it is a party, (c) the name(s) of the Person(s) authorized to execute the
Loan Documents, including making (and executing if applicable) any Credit
Extension request, on behalf of such Person, together with a sample of the true
signature(s) of such Person(s), and (d) that Bank may conclusively rely on such
certificate unless and until such Person shall have delivered to Bank a further
certificate canceling or amending such prior certificate.

  

27

 

 

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank
is closed, except that if any determination of a “Business Day” shall relate to
an FX Contract, the term “Business Day” shall mean a day on which dealings are
carried on in the country of settlement of the Foreign Currency.

 

“Cash Collateral Account” is defined in Section 6.3(c).

 

“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (c) of this
definition.

 

“Cash Management Services” is defined in Section 2.2.3.

 

“Change in Control” means (a) at any time, any “person” or “group” (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), shall become,
or obtain rights (whether by means of warrants, options or otherwise) to become,
the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the
Exchange Act), directly or indirectly, of forty-nine percent (49.0%) or more of
the ordinary voting power for the election of directors of Parent (determined on
a fully diluted basis) other than by the sale of Parent’s equity securities in a
public offering or to venture capital or private equity investors so long as
Borrower identifies to Bank the venture capital or private equity investors at
least seven (7) Business Days prior to the closing of the transaction and
provides to Bank a description of the material terms of the transaction; (b)
during any period of twelve (12) consecutive months, a majority of the members
of the board of directors or other equivalent governing body of Parent cease to
be composed of individuals (i) who were members of that board or equivalent
governing body on the first day of such period, (ii) whose election or
nomination to that board or equivalent governing body was approved by
individuals referred to in clause (i) above constituting at the time of such
election or nomination at least a majority of that board or equivalent governing
body or (iii) whose election or nomination to that board or other equivalent
governing body was approved by individuals referred to in clauses (i) and (ii)
above constituting at the time of such election or nomination at least a
majority of that board or equivalent governing body; or (c) at any time,
Borrower shall cease to own and control, of record and beneficially, directly or
indirectly, one hundred percent (100.0%) of each class of outstanding capital
stock of each Subsidiary of Borrower free and clear of all Liens (except Liens
created by this Agreement).

 

“Claims” is defined in Section 12.3.

 

“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the Commonwealth of Massachusetts; provided, that, to
the extent that the Code is used to define any term herein or in any Loan
Document and such term is defined differently in different Articles or Divisions
of the Code, the definition of such term contained in Article or Division 9
shall govern; provided further, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection, or priority of, or
remedies with respect to, Bank’s Lien on any Collateral is governed by the
Uniform Commercial Code in effect in a jurisdiction other than the Commonwealth
of Massachusetts, the term “Code” shall mean the Uniform Commercial Code as
enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority, or
remedies and for purposes of definitions relating to such provisions.

 

“Collateral” is any and all properties, rights and assets of Borrower described
on Exhibit A.

 

“Collateral Account” is any Deposit Account, Securities Account, or Commodity
Account.

 

“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit B.

  

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“Consolidated Unencumbered Liquid Assets” means any Covenant Cash Equivalent
Investment owned by Parent and its Subsidiaries on a consolidated basis which
are not the subject of any Lien or other arrangement with any creditor to have
its claim satisfied out of the asset (or proceeds thereof) prior to the general
creditors of Parent and such Subsidiaries other than the Lien for the benefit of
SWK.

 

“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) any indebtedness, lease, dividend,
letter of credit or other obligation of another such as an obligation, in each
case, directly or indirectly guaranteed, endorsed, co made, discounted or sold
with recourse by that Person, or for which that Person is directly or indirectly
liable; (b) any obligations for undrawn letters of credit for the account of
that Person; and (c) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but “Contingent
Obligation” does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.

 

“Control Agreement” is any control agreement entered into among the depository
institution at which Borrower maintains a Deposit Account or the securities
intermediary or commodity intermediary at which Borrower maintains a Securities
Account or a Commodity Account, Borrower, and Bank pursuant to which Bank
obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.

 

“Copyrights” are any and all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret.

 

“Covenant Acquisition” means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all of the assets of a Person, or of all or
substantially all of any business or division of a Person, (b) the acquisition
of in excess of fifty percent (50.0%) of the capital stock, partnership
interests, membership interests or equity of any Person, or otherwise causing
any Person to become a Subsidiary, (c) the acquisition of a product license or a
product line, or (d) a merger or consolidation or any other combination (other
than a merger, consolidation or combination that effects a Disposition (as
defined in the SWK Credit Agreement)) with another Person (other than a Person
that is already a Subsidiary).

 

“Covenant Capital Lease” means, with respect to any Person, any lease of (or
other agreement conveying the right to use) any real or personal property by
such Person that, in conformity with GAAP, is accounted for as a capital lease
on the balance sheet of such Person.

  

“Covenant Cash Equivalent Investment” means, at any time, (a) any evidence of
Covenant Debt, maturing not more than one year after such time, issued or
guaranteed by the United States Government or any agency thereof, (b) commercial
paper, or corporate demand notes, in each case rated at least “A-l” by Standard
& Poor’s Ratings Group or “P-l” by Moody’s Investors Service, Inc., (c) any
certificate of deposit (or time deposit represented by a certificate of deposit)
or banker’s acceptance maturing not more than one year after such time, or any
overnight Federal Funds transaction that is issued or sold by a commercial
banking institution that is a member of the Federal Reserve System or is a U.S.
branch of a foreign banking institution and has a combined capital and surplus
and undivided profits of not less than $500,000,000.00), (d) any repurchase
agreement entered into with any commercial banking institution of the nature
referred to in clause (c) above) which (i) is secured by a fully perfected
security interest in any obligation of the type described in any of clauses (a)
through (c) above and (ii) has a market value at the time such repurchase
agreement is entered into of not less than one-hundred percent (100.0%) of the
repurchase obligation of such commercial banking institution thereunder, (e)
money market accounts or mutual funds which invest exclusively or substantially
in assets satisfying the foregoing requirements, (f) cash, and (g) other short
term liquid investments approved in writing by Bank.

 

“Covenant Consolidated Net Income” means, with respect to Parent and its
Subsidiaries, for any period, the consolidated net income (or loss) for such
period, as determined under GAAP.

  

29

 

 

“Covenant Contingent Obligation” means any agreement, undertaking or arrangement
by which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to or otherwise to invest in a
debtor, or otherwise to assure a creditor against loss) any indebtedness,
obligation or other liability of any other Person (other than by endorsements of
instruments in the course of collection), or guarantees the payment of dividends
or other distributions upon the shares of any other Person. The amount of any
Person’s obligation in respect of any Covenant Contingent Obligation shall be
deemed to be the amount for which the Person obligated thereon is reasonably
expected to be liable or responsible.

 

“Covenant Debt” of any Person means, without duplication, (a) all indebtedness
of such Person for borrowed money, (b) all indebtedness evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person as
lessee under Covenant Capital Leases which have been or should be recorded as
liabilities on a balance sheet of such Person in accordance with GAAP, (d) all
obligations of such Person to pay the deferred purchase price of property or
services (excluding trade accounts payable in the ordinary course of business),
other than (i) payment obligations, earn-outs and similar obligations of such
Person arising in connection with a Covenant Acquisition or (ii) royalty
payments or milestone payments made or to be made by such Person from time to
time in connection with a Covenant Acquisition, (e) all indebtedness secured by
a Lien on the property of such Person, whether or not such indebtedness shall
have been assumed by such Person (with the amount thereof being measured as the
lesser of (x) the aggregate unpaid amount of such indebtedness and (y) the fair
market value of such property), (f) all reimbursement obligations, contingent or
otherwise, with respect to letters of credit (whether or not drawn), banker’s
acceptances and surety bonds issued for the account of such Person, other than
obligations that relate to trade accounts payable in the ordinary course of
business, (g) all Covenant Hedging Obligations of such Person, (h) all Covenant
Contingent Obligations of such Person in respect of Debt of others, (i) all
indebtedness of any partnership of which such Person is a general partner except
to the extent such Person is not liable for such Debt, and (j) all obligations
of such Person under any synthetic lease transaction, where such obligations are
considered borrowed money indebtedness for tax purposes but the transaction is
classified as an operating lease in accordance with GAAP.

 

“Covenant Hedging Obligation” means, with respect to any Person, any liability
of such Person under any interest rate, currency or commodity swap agreement,
cap agreement or collar agreement, and any other agreement or arrangement
designed to protect a Person against fluctuations in interest rates, currency
exchange rates or commodity prices. The amount of any Person’s obligation in
respect of any Covenant Hedging Obligation shall be deemed to be the incremental
obligation that would be reflected in the financial statements of such Person in
accordance with GAAP.

 

“Covenant Interest Expense” means, for Parent and its Subsidiaries, for any
period, the consolidated interest expense for such period (including all imputed
interest on Covenant Capital Leases).

 

“Covenant Net Sales” means the gross amount billed or invoiced by Parent and its
Subsidiaries for Covenant Services and for the sale of Covenant Products and
(including products and services ancillary thereto) to independent customers,
less deductions for (a) quantity, trade, cash or other discounts, allowances,
credits or rebates (including customer rebates) actually allowed or taken, (b)
amounts deducted, repaid or credited by reason of rejections or returns of goods
and government mandated rebates, or because of chargebacks or retroactive price
reductions, (c) charges for freight, handling, postage, transportation,
insurance and other shipping charges and (d) taxes, tariffs, duties or other
governmental charges or assessments (including any sales, value added or similar
taxes other than an income tax) levied, absorbed or otherwise imposed on or with
respect to the production, sale, transportation, delivery or use of
pharmaceutical products. A Covenant Product or Covenant Service shall be
considered sold and/or provided when billed out or invoiced. To the extent
applicable, components of Covenant Net Sales shall be determined in the ordinary
course of business in accordance with historical practice and using the accrual
method of accounting in accordance with GAAP. For the purposes of calculating
Covenant Net Sales, Bank understands and agrees that (i) Affiliates of a
Borrower shall not be regarded as independent customers and (ii) Covenant Net
Sales shall not include Covenant Products distributed for product development
purposes, including for use in pre-clinical trials.

 

“Covenant Operational Burn” for any period being measured shall mean (a) the
aggregate cash flow from operations of Parent and its Subsidiaries less (b)
capital expenditures and changes in net working capital (normalized for any
non-recurring items); in the case of clauses (a) and (b) for the period being
measured and as determined in accordance with GAAP.

 

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“Covenant Products” means any products manufactured, sold, developed, tested or
marketed by Parent or any of its Subsidiaries, including without limitation,
those products set forth on Schedule 1 attached hereto (as updated from time to
time in accordance with Section 6.1.2 of the SWK Credit Agreement); provided,
however, that if Borrower shall fail to comply with the obligations under
Section 6.1.2 of the SWK Credit Agreement to give notice to SWK and update
Schedule 1 prior to manufacturing, selling, developing, testing or marketing any
new Covenant Product, any such improperly undisclosed Covenant Product shall be
deemed to be included in this definition; and provided, further, that products
manufactured by Borrower for unaffiliated third parties shall not be deemed
“Covenant Products” hereunder.

 

“Covenant Royalties” means the amount of any and all royalties, license fees and
any other payments or income of any type recognized as revenue in accordance
with GAAP by Parent and its Subsidiaries with respect to the sale of Covenant
Products or the provision of services by independent licensees of Parent and/or
its Subsidiaries, including any such payments characterized as a share of net
profits, any up-front or lump sum payments, any milestone payments, commissions,
fees or any other similar amounts, less deductions for amounts deducted, repaid
or credited by reason of adjustments to the sales upon which royalty amounts are
based, regardless of the reason for such adjustment to such sales. For the
purposes of calculating Covenant Royalties, Bank understands and agrees that
Affiliates of Borrower shall not be regarded as independent licensees.

 

“Covenant Services” means services provided by Borrower or any Affiliate of
Borrower to un-Affiliated Persons, including without limitation any sales,
laboratory analysis, testing, consulting, marketing, commercialization and any
other healthcare-related services.

 

“Credit Extension” is any Advance, any Overadvance (for purposes of Sections 1,
2.4, 7.10, 8.1, 9.8 and 12.9 only), Letter of Credit, FX Contract, amount
utilized for Cash Management Services, or any other extension of credit by Bank
for Borrower’s benefit.

 

“Default Rate” is defined in Section 2.4(b).

 

“Deferred Revenue” is all amounts received or invoiced in advance of performance
under contracts and not yet recognized as revenue.

 

“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Designated Deposit Account” is the account number ending 464 (last three
digits) maintained by Borrower with Bank (provided, however, if no such account
number is included, then the Designated Deposit Account shall be any deposit
account of Borrower maintained with Bank as chosen by Bank).

 

“Division” means, in reference to any Person which is an entity, the division of
such Person into two (2) or more separate Persons, with the dividing Person
either continuing or terminating its existence as part of such division,
including, without limitation, as contemplated under Section 18-217 of the
Delaware Limited Liability Company Act for limited liability companies formed
under Delaware law, or any analogous action taken pursuant to any other
applicable law with respect to any corporation, limited liability company,
partnership or other entity.

 

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the
United States and not any other currency, regardless of whether that currency
uses the “$” sign to denote its currency or may be readily converted into lawful
money of the United States.

 

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated
in Dollars, such amount, and (b) with respect to any amount denominated in a
Foreign Currency, the equivalent amount therefor in Dollars as determined by
Bank at such time on the basis of the then-prevailing rate of exchange in San
Francisco, California, for sales of the Foreign Currency for transfer to the
country issuing such Foreign Currency.

  

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“EBITDA” means, with respect to Parent and its Subsidiaries, for any period,
Covenant Consolidated Net Income for such period plus, to the extent deducted in
determining such Covenant Consolidated Net Income for such period (and without
duplication), (i) Covenant Interest Expense, (ii) income tax expense (including
tax accruals), (iii) depreciation and amortization, (iv) nonrecurring cash fees,
costs and expenses incurred in connection with the Covenant Acquisitions of
product licenses and product lines from a third party, and milestone and royalty
payments to any third party, in relation to any material contract or any other
Covenant Acquisition made prior to September 27, 2019, (v) non-cash expenses
relating to equity-based compensation or purchase accounting, and (vi) other
non-recurring and/or non-cash expenses or charges approved by Bank.

 

“Effective Date” is defined in the preamble hereof.

 

“Eligible Accounts” means Accounts owing to Borrower which arise in the ordinary
course of Borrower’s business that meet all Borrower’s representations and
warranties in Section 5.3, that have been, at the option of Bank, confirmed in
accordance with Section 6.3(f) of this Agreement, and are due and owing from
Account Debtors deemed creditworthy by Bank in its good faith business judgment.
Bank reserves the right at any time after the Effective Date to adjust any of
the criteria set forth below and to establish new criteria in its good faith
business judgment. Unless Bank otherwise agrees in writing, Eligible Accounts
shall not include:

 

(a) Accounts (i) for which the Account Debtor is Borrower’s Affiliate, officer,
employee, investor, or agent, or (ii) that are intercompany Accounts;

 

(b) Accounts that the Account Debtor has not paid within ninety (90) days of
invoice date regardless of invoice payment period terms;

 

(c) Accounts with credit balances over ninety (90) days from invoice date;

 

(d) Accounts owing from an Account Debtor if fifty percent (50%) or more of the
Accounts owing from such Account Debtor have not been paid within ninety (90)
days of invoice date;

 

(e) Accounts owing from an Account Debtor (i) which does not have its principal
place of business in the United States, the United Kingdom, Ireland, Germany,
France, Sweden, Italy, Belgium, Switzerland, Spain, Denmark, the Netherlands,
Norway, Finland, Portugal, Austria, Japan, Australia, New Zealand or Israel or
(ii) whose billing address (as set forth in the applicable invoice for such
Account) is not in the United States, the United Kingdom, Ireland, Germany,
France, Sweden, Italy, Belgium, Switzerland, Spain, Denmark, the Netherlands,
Norway, Finland, Portugal, Austria, Japan, Australia, New Zealand or Israel,
unless in the case of both (i) and (ii) such Accounts are otherwise approved by
Bank in writing on a case by case basis in its sole discretion;

 

(f) Accounts billed from and/or payable to Borrower outside of the United States
(sometimes called foreign invoiced accounts);

 

(g) Accounts in which Bank does not have a first priority, perfected security
interest under all applicable laws;

 

(h) Accounts billed and/or payable in a Currency other than Dollars;

 

(i) Accounts owing from an Account Debtor to the extent that Borrower is
indebted or obligated in any manner to the Account Debtor (as creditor, lessor,
supplier or otherwise – sometimes called “contra” accounts, accounts payable,
customer deposits or credit accounts);

 

(j) Accounts with or in respect of accruals for marketing allowances, incentive
rebates, price protection, cooperative advertising and other similar marketing
credits, unless otherwise approved by Bank in writing;

  

32

 

 

(k) Accounts owing from an Account Debtor which is a United States government
entity or any department, agency, or instrumentality thereof unless Borrower has
assigned its payment rights to Bank and the assignment has been acknowledged
under the Federal Assignment of Claims Act of 1940, as amended;

 

(l) Accounts with customer deposits and/or with respect to which Borrower has
received an upfront payment, to the extent of such customer deposit and/or
upfront payment;

 

(m) Accounts for demonstration or promotional equipment, or in which goods are
consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”,
or other terms if Account Debtor’s payment may be conditional;

 

(n) Accounts owing from an Account Debtor where goods or services have not yet
been rendered to the Account Debtor (sometimes called memo billings or
pre-billings);

 

(o) Accounts subject to contractual arrangements between Borrower and an Account
Debtor where payments shall be scheduled or due according to completion or
fulfillment requirements (sometimes called contracts accounts receivable,
progress billings, milestone billings, or fulfillment contracts);

 

(p) Accounts owing from an Account Debtor the amount of which may be subject to
withholding based on the Account Debtor’s satisfaction of Borrower’s complete
performance (but only to the extent of the amount withheld; sometimes called
retainage billings);

 

(q) Accounts subject to trust provisions, subrogation rights of a bonding
company, or a statutory trust;

 

(r) Accounts owing from an Account Debtor that has been invoiced for goods that
have not been shipped to the Account Debtor unless Bank, Borrower, and the
Account Debtor have entered into an agreement acceptable to Bank wherein the
Account Debtor acknowledges that (i) it has title to and has ownership of the
goods wherever located, (ii) a bona fide sale of the goods has occurred, and
(iii) it owes payment for such goods in accordance with invoices from Borrower
(sometimes called “bill and hold” accounts);

 

(s) Accounts for which the Account Debtor has not been invoiced;

 

(t) Accounts that represent non-trade receivables or that are derived by means
other than in the ordinary course of Borrower’s business;

 

(u) Accounts for which Borrower has permitted Account Debtor’s payment to extend
beyond ninety (90) days (including Accounts with a due date that is more than
ninety (90) days from invoice date);

 

(v) Accounts arising from chargebacks, debit memos or other payment deductions
taken by an Account Debtor;

 

(w) Accounts arising from product returns and/or exchanges (sometimes called
“warranty” or “RMA” accounts);

 

(x) Accounts in which the Account Debtor disputes liability or makes any claim
(but only up to the disputed or claimed amount), or if the Account Debtor is
subject to an Insolvency Proceeding (whether voluntary or involuntary), or
becomes insolvent, or goes out of business;

 

(y) Accounts owing from an Account Debtor, whose total obligations to Borrower
exceed twenty-five percent (25.0%) of all Accounts, for the amounts that exceed
that percentage, unless otherwise approved by Bank in writing on a case-by-case
basis in its sole discretion; and

 

(z) Accounts for which Bank in its good faith business judgment determines
collection to be doubtful, including, without limitation, accounts represented
by “refreshed” or “recycled” invoices.

  

33

 

 

“Eligible Inventory” means Inventory that meets all of Borrower’s
representations and warranties in Section 5.3 and is otherwise acceptable to
Bank in all respects.

 

“Equipment” is all “equipment” as defined in the Code with such additions to
such term as may hereafter be made, and includes without limitation all
machinery, fixtures, goods, vehicles (including motor vehicles and trailers),
and any interest in any of the foregoing.

 

“ERISA” is the Employee Retirement Income Security Act of 1974, and its
regulations.

 

“Event of Default” is defined in Section 8.

 

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

 

“Foreign Currency” means lawful money of a country other than the United States.

 

“Funding Date” is any date on which a Credit Extension is made to or for the
account of Borrower which shall be a Business Day.

 

“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is
conducting its normal business and (b) the Foreign Currency being purchased or
sold by Borrower is available to Bank from the entity from which Bank shall buy
or sell such Foreign Currency.

 

“FX Contract” is defined in Section 2.2.2.

 

“FX Reduction Amount” means, with respect to a given FX Contract, the notional
amount thereof multiplied by the currency exchange risk factor for the
currencies involved in the FX Contract, multiplied by the current foreign
exchange spot rates, in each instance as determined and calculated by Bank in
its sole discretion.

 

“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.

 

“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all Intellectual Property, claims, income
and other tax refunds, security and other deposits, payment intangibles,
contract rights, options to purchase or sell real or personal property, rights
in all litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property
damage, and business interruption insurance), payments of insurance and rights
to payment of any kind.

 

“Governmental Approval” is any consent, authorization, approval, order, license,
franchise, permit, certificate, accreditation, registration, filing or notice,
of, issued by, from or to, or other act by or in respect of, any Governmental
Authority.

 

“Governmental Authority” is any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization.

 

“Guarantor” is any Person providing a Guaranty in favor of Bank.

 

“Guaranty” is any guarantee of all or any part of the Obligations, as the same
may from time to time be amended, restated, modified or otherwise supplemented.

  

34

 

 

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of
property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations, and (d)
Contingent Obligations.

 

“Indemnified Person” is defined in Section 12.3.

 

“Initial Audit” is Bank’s inspection of Borrower’s Accounts, the Collateral, and
Borrower’s Books, with results satisfactory to Bank in its sole and absolute
discretion.

 

“Insolvency Proceeding” is any proceeding by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

 

“Intellectual Property” means, with respect to any Person, all of such Person’s
right, title, and interest in and to the following:

 

(a) its Copyrights, Trademarks and Patents;

 

(b) any and all trade secrets and trade secret rights, including, without
limitation, any rights to unpatented inventions, know-how and operating manuals;

 

(c) any and all source code;

 

(d) any and all design rights which may be available to such Person;

 

(e) any and all claims for damages by way of past, present and future
infringement of any of the foregoing, with the right, but not the obligation, to
sue for and collect such damages for said use or infringement of the
Intellectual Property rights identified above; and

 

(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks
or Patents.

 

“Intercreditor Agreement” is that certain Intercreditor Agreement dated as of
the Effective Date by and between Bank and SWK and acknowledged by Borrower, as
the same may from time to time be amended, modified, supplemented, and/or
restated from time to time.

 

“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of Borrower’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.

 

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

 

“IP Agreement” is, collectively, (a) that certain Intellectual Property Security
Agreement between Parent and Bank dated as of the Effective Date, (b) that
certain Intellectual Property Security Agreement between Misonix and Bank dated
as of the Effective Date and (c) that certain Intellectual Property Security
Agreement between Solsys and Bank dated as of the Effective Date, in each case
as may be amended, modified or restated from time to time.

 

“Key Person” is each of Borrower’s Chief Executive Officer and Chief Financial
Officer.

 

“Letter of Credit” means a standby letter of credit issued by Bank or another
institution based upon an application, guarantee, indemnity or similar agreement
on the part of Bank as set forth in Section 2.2.1.

  

35

 

 

“Letter of Credit Application” is defined in Section 2.2.1(b).

 

“Letter of Credit Reserve” is defined in Section 2.2.1(e).

 

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security
interest or other encumbrance of any kind, whether voluntarily incurred or
arising by operation of law or otherwise against any property.

 

“Loan Documents” are, collectively, this Agreement and any schedules, exhibits,
certificates, notices, and any other documents related to this Agreement, the IP
Agreement, the Perfection Certificate, any Control Agreement, any Bank Services
Agreement, any subordination agreement, any note, or notes or guaranties
executed by Borrower or any Guarantor, and any other present or future agreement
by Borrower and/or any Guarantor with or for the benefit of Bank, all as
amended, restated, or otherwise modified.

 

“Market Capitalization” means, with respect to Parent, the volume weighted
average closing price per share of Parent’s publicly traded common stock as of
the end of the five trading days immediately prior to such date of determination
(as quoted by Bloomberg L.P. or, if such quote is not available, such other
customary inter-dealer quotation system reasonably acceptable to Bank)
multiplied by (b) the number of outstanding shares of Parent’s publicly traded
common stock publicly disclosed in its most recent SEC filing as outstanding as
of such date of determination.

 

“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Bank’s Lien in the Collateral or in the value of the Collateral; (b)
a material adverse change in the business, operations, or condition (financial
or otherwise) of Borrower; or (c) a material impairment of the prospect of
repayment of any portion of the Obligations.

 

“Merger Agreement” means that certain Agreement and Plan of Merger, dated as of
May 2, 2019, among Solsys, Parent, Misonix, and the other parties thereto.

 

“Misonix” is defined in the preamble hereof.

“Monthly Financial Statements” is defined in Section 6.2(c).

 

“Net Cash” is (a) Borrower’s unrestricted and unencumbered cash maintained at
Bank minus (b) the aggregate outstanding principal amount of all Obligations.

 

“Obligations” are Borrower’s obligations to pay when due any debts, principal,
interest, fees, the Anniversary Fees, the Unused Revolving Line Facility Fee,
the Termination Fee, Bank Expenses, and other amounts Borrower owes Bank now or
later, under this Agreement or the other Loan Documents, including, without
limitation, all obligations relating to Bank Services and interest accruing
after Insolvency Proceedings begin and debts, liabilities, or obligations of
Borrower assigned to Bank, and to perform Borrower’s duties under the Loan
Documents.

 

“Operating Documents” are, for any Person, such Person’s formation documents, as
certified by the Secretary of State (or equivalent agency) of such Person’s
jurisdiction of organization on a date that is no earlier than thirty (30) days
prior to the Effective Date, and, (a) if such Person is a corporation, its
bylaws in current form, (b) if such Person is a limited liability company, its
limited liability company agreement (or similar agreement), and (c) if such
Person is a partnership, its partnership agreement (or similar agreement), each
of the foregoing with all current amendments or modifications thereto.

 

“Overadvance” is defined in Section 2.3.

 

“Parent” is defined in the preamble hereof.

 

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

 

36

 

 

“Payment Date” is the last calendar day of each month.

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Indebtedness” is:

 

(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan
Documents;

 

(b) Indebtedness existing on the Effective Date which is shown on the Perfection
Certificate;

 

(c) Subordinated Debt;

 

(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of
business;

 

(e) Indebtedness to SWK in an aggregate original principal amount of up to
Thirty Million Ninety Five Thousand Seven Hundred Sixty One Dollars
($30,095,761.00), which amount shall be reduced on a dollar for dollar basis as
such Indebtedness is repaid or otherwise satisfied; provided that such
Indebtedness shall in no circumstance include any indebtedness incurred after
the Effective Date (including any increase, refinancing, or re-borrowing of any
amounts) and shall be subject to the Intercreditor Agreement;

 

(f) Indebtedness secured by Liens permitted under clauses (a) and (c) of the
definition of “Permitted Liens” hereunder;

 

(g) Indebtedness (i) arising with respect to customary indemnification and
purchase price adjustment obligations incurred in connection with any Transfer
permitted hereunder and (ii) representing customer deposits and advance payments
received in the ordinary course of business from customers for goods purchased
in the ordinary course of business;

 

(h) other unsecured Indebtedness (excluding Indebtedness in connection with cash
management, asset management, letters of credit and business credit cards) not
otherwise permitted by Section 7.4 not exceeding Five Hundred Thousand Dollars
($500,000.00) in the aggregate outstanding at any time; and

 

(i) extensions, refinancings, modifications, amendments and restatements of any
items of Permitted Indebtedness (a) through (d) above, provided that the
principal amount thereof is not increased or the terms thereof are not modified
to impose more burdensome terms upon Borrower or its Subsidiary, as the case may
be.

 

“Permitted Investments” are:

 

(a) Investments (including, without limitation, Subsidiaries) existing on the
Effective Date which are shown on the Perfection Certificate;

 

(b) Investments consisting of Cash Equivalents;

 

(c) Investments by a Borrower in another Borrower;

 

(d) Investments accepted in connection with Transfers permitted by Section 7.1;

 

(e) Investments consisting of (i) travel advances and employee relocation loans
and other employee loans and advances in the ordinary course of business, and
(ii) loans to employees, officers or directors relating to the purchase of
equity securities of Borrower or its Subsidiaries pursuant to employee stock
purchase plans or agreements approved by the Board;

 

(f) Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business;

 

37

 

 

(g) Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions, to customers and suppliers who are not Affiliates, in
the ordinary course of business; provided that this paragraph (g) shall not
apply to Investments of Borrower in any Subsidiary; and

 

(h) Investments consisting of the receipt of securities received in connection
with the bankruptcy or reorganization of any Person and in settlement of
delinquent obligations of, and other disputes with, such Persons arising in the
ordinary course of business.

 

“Permitted Liens” are:

 

(a) Liens existing on the Effective Date which are shown on the Perfection
Certificate or arising under this Agreement or the other Loan Documents;

 

(b) Liens for taxes, fees, assessments or other government charges or levies,
either (i) not due and payable or (ii) being contested in good faith and for
which Borrower maintains adequate reserves on Borrower’s Books, provided that no
notice of any such Lien has been filed or recorded under the Internal Revenue
Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

 

(c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred
for financing the acquisition of the Equipment securing no more than Five
Hundred Thousand Dollars ($500,000.00) in the aggregate amount outstanding, or
(ii) existing on Equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the Equipment;

 

(d) Liens incurred in the extension, renewal or refinancing of the Indebtedness
secured by Liens described in (a) through (c), but any extension, renewal or
replacement Lien must be limited to the property encumbered by the existing Lien
and the principal amount of the indebtedness may not increase;

 

(e) Liens securing the Indebtedness to SWK described in subsection (e) of the
definition of Permitted Indebtedness, but only to the extent that such Liens are
subject to the Intercreditor Agreement;

 

(f) leases or subleases of real property granted in the ordinary course of
Borrower’s business (or, if referring to another Person, in the ordinary course
of such Person’s business), and leases, subleases, non-exclusive licenses or
sublicenses of personal property (other than Intellectual Property) granted in
the ordinary course of Borrower’s business (or, if referring to another Person,
in the ordinary course of such Person’s business), if the leases, subleases,
licenses and sublicenses do not prohibit granting Bank a security interest
therein;

 

(g) Liens of carriers, warehousemen, suppliers, or other Persons that are
possessory in nature arising in the ordinary course of business so long as such
Liens attach only to Inventory, which are not delinquent or remain payable
without penalty or which are being contested in good faith and by appropriate
proceedings which proceedings have the effect of preventing the forfeiture or
sale of the property subject thereto;

 

(h) Liens to secure payment of workers’ compensation, employment insurance,
old-age pensions, social security and other like obligations incurred in the
ordinary course of business (other than Liens imposed by ERISA);

 

(i) deposits to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature, in each case in the ordinary course of business;

 

(j) easements, reservations, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances affecting real
property not likely to have a material adverse effect on Borrower’s business;

 

(k) non-exclusive licenses of Intellectual Property granted to third parties in
the ordinary course of business;

  

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(l) Liens arising from attachments or judgments, orders, or decrees in
circumstances not constituting an Event of Default under Sections 8.4 and 8.7;

 

(m) Liens in favor of other financial institutions arising in connection with
Borrower’s deposit and/or securities accounts held at such institutions,
provided that (i) Bank has a first priority perfected security interest in the
amounts held in such deposit and/or securities accounts (ii) such accounts are
permitted to be maintained pursuant to Section 6.8 of this Agreement;

 

(n) the filing of UCC financing statements solely as a precautionary measure in
connection with operating leases so long as such Liens are limited to leased
equipment and the proceeds thereof;

 

(o) Liens on assets of a Borrower in favor of another Borrower; and

 

(p) any Lien arising under conditional sale, title retention, consignment or
similar arrangements for the sale of goods in the ordinary course of business;
provided that such Lien attaches only to the goods subject to such sale, title
retention, consignment or similar arrangement.

 

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

 

“Prime Rate” is the rate of interest per annum from time to time published in
the money rates section of The Wall Street Journal or any successor publication
thereto as the “prime rate” then in effect; provided that, in the event such
rate of interest is less than zero, such rate shall be deemed to be zero for
purposes of this Agreement; and provided further that if such rate of interest,
as set forth from time to time in the money rates section of The Wall Street
Journal, becomes unavailable for any reason as determined by Bank, the “Prime
Rate” shall mean the rate of interest per annum announced by Bank as its prime
rate in effect at its principal office in the State of California (such Bank
announced Prime Rate not being intended to be the lowest rate of interest
charged by Bank in connection with extensions of credit to debtors); provided
that, in the event such rate of interest is less than zero, such rate shall be
deemed to be zero for purposes of this Agreement.

 

“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made.

 

“Requirement of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.

 

“Reserves” means, as of any date of determination, such amounts as Bank may from
time to time establish and revise in its good faith business judgment, reducing
the amount of Advances and other financial accommodations which would otherwise
be available to Borrower (a) to reflect events, conditions, contingencies or
risks which, as determined by Bank in its good faith business judgment, do or
may adversely affect (i) the Collateral or any other property which is security
for the Obligations or its value (including without limitation any increase in
delinquencies of Accounts), (ii) the assets, business or prospects of Borrower
or any Guarantor, or (iii) the security interests and other rights of Bank in
the Collateral (including the enforceability, perfection and priority thereof);
or (b) to reflect Bank’s reasonable belief that any collateral report or
financial information furnished by or on behalf of Borrower or any Guarantor to
Bank is or may have been incomplete, inaccurate or misleading in any material
respect; or (c) in respect of any state of facts which Bank reasonably
determines constitutes an Event of Default or may, with notice or passage of
time or both, constitute an Event of Default.

 

“Responsible Officer” is any of the Chief Executive Officer, President, Chief
Financial Officer and Controller of Borrower.

  

39

 

 

“Restricted License” is any material license or other material agreement with
respect to which Borrower is the licensee (a) that prohibits or otherwise
restricts Borrower from granting a security interest in Borrower’s interest in
such license or agreement or any other property, or (b) for which a default
under or termination of could reasonably be expected to interfere with Bank’s
right to sell any Collateral.

 

“Revolving Line” is an aggregate principal amount equal to Twenty Million
Dollars ($20,000,000.00).

 

“Revolving Line Maturity Date” is the date that is three (3) years from the
Effective Date.

 

“SEC” shall mean the Securities and Exchange Commission, any successor thereto,
and any analogous Governmental Authority.

 

“Secured Guarantor” is any Guarantor with respect to which Bank has a first
priority security interest (provided that the collateral granted by such
Guarantor may be subject to Permitted Liens) in all of such Guarantor’s personal
property and assets.

 

“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.

 

“Settlement Date” is defined in Section 2.2.2.

 

“Solsys” is defined in the preamble hereof.

 

“Specified Affiliate” is any Person (a) more than ten percent (10.0%) of whose
aggregate issued and outstanding equity or ownership securities or interests,
voting, non-voting or both, are owned or held directly or indirectly,
beneficially or of record, by Borrower, and/or (b) whose equity or ownership
securities or interests representing more than ten percent (10.0%) of such
Person’s total outstanding combined voting power are owned or held directly or
indirectly, beneficially or of record, by Borrower.

 

“Streamline Period” is on and after the Effective Date, provided no Event of
Default has occurred and is continuing, the period (a) commencing on the first
day of the month following the day that Borrower provides to Bank a written
report that Borrower has at all times during the immediately preceding calendar
month maintained Net Cash, as determined by Bank in its reasonable discretion,
of greater than Zero Dollars ($0.00) (the “Threshold Amount”); and (b)
terminating on the earlier to occur of (i) the occurrence of an Event of
Default, or (ii) the first day thereafter in which Borrower fails to maintain
the Net Cash, as determined by Bank in its reasonable discretion, of greater
than the Threshold Amount. Upon the termination of a Streamline Period, Borrower
must maintain Net Cash greater than the Threshold Amount each consecutive day
for two (2) consecutive months as determined by Bank in its reasonable
discretion, prior to entering into a subsequent Streamline Period. Borrower
shall give Bank prior written notice of Borrower’s election to enter into any
such Streamline Period, and each such Streamline Period shall commence on the
first day of the monthly period following the date Bank determines, in its
reasonable discretion, that Net Cash of greater than the Threshold Amount has
been achieved.

 

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of
Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination,
intercreditor, or other similar agreement in form and substance satisfactory to
Bank entered into between Bank and the other creditor), on terms acceptable to
Bank.

 

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability
company or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries,
or both, by such Person. Unless the context otherwise requires, each reference
to a Subsidiary herein shall be a reference to a Subsidiary of Borrower or
Guarantor.

 

“SWK” is SWK Funding LLC, a Delaware limited liability company.

  

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“SWK Credit Agreement” means that certain Amended and Restated Credit Agreement
by and among Parent, Solsys and SWK dated as of September 27, 2019, as in effect
on the Effective Date or as amended with the prior written consent of Bank.

 

“Termination Fee” is defined in Section 2.5(c).

 

“Threshold Amount” is defined in the definition of Streamline Period.

 

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

 

“Transfer” is defined in Section 7.1.

 

“Unused Revolving Line Facility Fee” is defined in Section 2.5(d).

 

[Signature page follows.]

  

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as a sealed instrument under the laws of the Commonwealth of Massachusetts as of
the Effective Date.

 

  BORROWER:       MISONIX,  INC.       By /s/ Joseph P. Dwyer       Name: Joseph
P. Dwyer       Title: CFO       MISONIX OPCO, INC.       By /s/ Joseph P. Dwyer
      Name: Joseph P. Dwyer       Title: CFO       SOLSYS MEDICAL, LLC       By:
Misonix, Inc.   Its: Sole member       By /s/ Joseph P. Dwyer       Name: Joseph
P. Dwyer       Title: CFO       BANK:       SILICON VALLEY BANK       By /s/ Sam
Subilia       Name: Sam Subilia       Title: Director