Exhibit 10.03
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Security Agreement") dated as of January 1,
2004 between NOVARTIS CONSUMER HEALTH, INC., 000 Xxxxxxx Xxxxx, Xxxxxxxxxx,
XX 00000 ("Creditor"), a Delaware corporation, and LECTEC CORPORATION,
00000 Xxx Xxxxxx Xxxxx, Xxxxxxxxxx, XX 00000 ("Debtor"), a Minnesota
corporation.
RECITALS
A. Creditor has agreed to advance funds to Debtor as provided in a certain
Supply and License Agreement of even date herewith ("Supply Agreement") and
Debtor is otherwise indebted to Creditor. Debtor has issued it a promissory
note (the "Note") to Creditor evidencing Debtor's obligation to repay
advances made or to be made by Creditor to Debtor and such other
indebtedness of Debtor to Creditor.
B. Debtor has agreed to grant a security interest in its assets as provided in
this Security Agreement to secure its payment obligations under the Note.
NOW, THEREFORE, the parties hereby agree as follows:
1. Security Interest. To secure the full and prompt payment to Creditor of
the obligations of Borrower under the Note (hereinafter, the
"Liabilities"), Debtor has granted and hereby grants to Creditor a
continuing security interest in and to all of Debtor's accounts receivable,
inventory, equipment and general intangibles (hereinafter, the
"Collateral"), whether now owned or existing or hereafter acquired or
arising, the proceeds of the Collateral, and all books and records
(including, without limitation, customer lists, credit files, computer
programs, print-outs, and other computer materials and records) of Debtor
pertaining to the Collateral.
2. Disclosure of Security Interest. Debtor shall make appropriate entries
upon its financial statements disclosing Creditor's security interest in
the Collateral.
3. Financing Statements. At Creditor's request, Debtor shall execute or
deliver to Creditor, at any time or times hereafter, all supplemental
documentation that Creditor may reasonably request relating to the
perfection of the security interest granted in Section 1, in form and
substance acceptable to Creditor, and pay the costs of any recording or
filing of the same.
4. Perfection and Priority; Location of Collateral. Debtor represents that:
(A) None of the Collateral is subject to any lien, security interest
or other encumbrance, except as disclosed on Exhibit A attached hereto and
made a part hereof;
(B) The address specified above is Debtor's chief executive office and
principal place of business and Debtor is incorporated under the laws of
the state of Minnesota.
5. Event of Default. The occurrence of any one or more of the following
events shall constitute an "Event of Default:"
(A) DEBTOR FAILS TO PAY THE LIABILITIES WHEN DUE AND
PAYABLE AS PROVIDED IN THE NOTE;
(B) Debtor fails or neglects to perform, keep or observe any other term,
provision, condition, covenant, warranty or representation contained in
this Security Agreement which is required to be performed, kept or observed
and the same is not cured to Creditor's satisfaction within ten (10) days
after Creditor gives Debtor written notice thereof;
(C) Any material representation by Debtor to Creditor concerning its financial
condition is not true and correct when made, in all material respects;
(D) The Collateral or any other of Debtor's material assets are attached,
seized, levied upon or subjected to a writ or distress warrant, or come
within the possession of any receiver, trustee, custodian or assignee for
the benefit of creditors and the same is not cured within sixty (60) days
thereafter; an application is made by any person other than Debtor for the
appointment of a receiver, trustee, or custodian for the Collateral or any
other of Debtor's assets and the same is not dismissed within sixty (60)
days after the application therefore;
(E) An application is made by Debtor for the appointment of a receiver, trustee
or custodian for the Collateral or any other of Debtor's assets; a petition
under any section or chapter of the Bankruptcy Code or any similar law or
regulation shall be filed by Debtor; Debtor makes an assignment for the
benefit of its creditors or any case or proceeding is filed by Debtor for
its dissolution, liquidation, or termination; or
(F) Debtor ceases to conduct its business as now conducted or is enjoined,
restrained or in any way prevented by court order from conducting all or
any material part of its business affairs; a petition under any section or
chapter of the Bankruptcy Code or any similar law or regulation is filed
against any Debtor or any case or proceeding is filed against Debtor for
its dissolution or liquidation and such injunction, restraint or petition
is not dismissed within sixty (60) days after the entry or filing thereof.
6. Remedies. Upon and after an Event of Default, Creditor shall have the
following rights and remedies:
(A) All the rights and remedies of a secured party under the Uniform Commercial
Code as in effect at the time in Minnesota, all of which rights and
remedies shall be cumulative, and none exclusive, to the extent permitted
by law, in addition to any other rights and remedies contained in this
Security Agreement.
(B) The right to sell or to otherwise dispose of all or any Collateral in its
then condition, or after any further manufacturing or processing thereof,
at public or private sale or sales, with such notice as may be required by
law, in lots or in bulk, for cash or on credit, all as Creditor, in its
sole discretion, may deem advisable; such sales may be adjourned from time
to time with or without notice. Creditor shall have the right to conduct
such sales on the premises of Debtor or elsewhere and shall have the right
to use Debtor's premises without charge for such sales for such time or
times as Creditor may see fit. Creditor is hereby granted a license or
other right to use, without charge, Debtor's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks and
advertising matter, or any property of a similar nature, as it pertains to
the Collateral; provided, however, that the grant of license and right to
use herein shall be subject to the license provisions of the Supply
Agreement. Creditor shall have the right to sell, lease or otherwise
dispose of the Collateral, or any part thereof, for cash, credit or any
combination thereof and Creditor may purchase all or any part of the
Collateral at public or, if permitted by law, private sale and in lieu of
actual payment of such purchase price, may setoff the amount of such price
against the Liabilities. The proceeds realized from the sale of any
Collateral shall be applied first to the reasonable costs, expenses
(including attorneys' fees and expense) incurred by Creditor for collection
and for acquisition, completion, protection, removal, storage, sale and
delivery of the Collateral; second to interest due upon any of the
Liabilities; third to the principal of the Liabilities; fourth to the
holder of any junior lien or any of the Collateral. If any deficiency shall
arise, Debtor shall remain liable to Creditor therefore. Notwithstanding
anything else in this Agreement, Creditor shall not sell, lease or
otherwise dispose of that portion of the Collateral consisting of the
Intellectual Property, as that term is defined in the Supply Agreement, in
whole or in part, so long as the Supply Agreement is in effect.
7. Subordination by Creditor. On no more than a single occasion and upon
the written request of Debtor, Creditor shall subordinate its security
interest in the Collateral to a security interest that Debtor may propose
to grant to an institutional lender to secure a new loan to Debtor in a
principal amount of not less than $1,000,000. Such subordination shall have
the effect only of making Creditor's security interest in the Collateral
junior to the security interest granted to such new lender notwithstanding
the priority of the perfection of Creditor's security interest and shall
not otherwise affect any of Creditor's rights under the Note or this
Security Agreement.
8. Waiver. Each party acknowledges and agrees that any failure on the part
of the other party to enforce at any time, or for any period of time, any
of the provisions of this Security Agreement shall not be deemed or
construed to be a waiver of such provisions or of the right of such other
party thereafter to enforce each and every such provision.
9. Enforcement. If and to the extent that any provision of this Security
Agreement is determined by any legislature, court or administrative agency
to be, in whole or in part, invalid or unenforceable, such provision or
part thereof shall be deemed to be surplusage and, to the extent not so
determined to be invalid or unenforceable, each provision hereof shall
remain in full force and effect unless the purposes of this Security
Agreement cannot be achieved. In the event any provisions shall be held
invalid, illegal or
unenforceable the parties shall use commercially reasonable efforts to
substitute a valid, legal and enforceable provision which insofar as
practical implements the purposes hereof.
10. Choice of Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Minnesota as though made and to
be fully performed in said State.
11. Notices. All notices required or permitted hereunder shall be given in
writing and sent by confirmed facsimile transmission, or mailed postage
prepaid by first-class certified or registered mail, or sent by a
nationally recognized express courier service, or hand-delivered to the
following addressees:
Creditor: Novartis Consumer Health, Inc.
000 Xxxxxxx Xxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attn: General Counsel
Debtor: LecTec Corporation
00000 Xxx Xxxxxx Xx.
Xxxxxxxxxx, Xxxxxxxxx 00000
Attn: Chief Executive Officer
or to such other address as may be specified in a notice given to the other
party in accordance with this Section 11. Any notice, if sent properly
addressed, postage prepaid, shall be deemed made three (3) days after the
date of mailing as indicated on the certified or registered mail receipt,
or on the next business day if sent by express courier service or on the
date of delivery or transmission (if delivered or sent during ordinary
business hours, otherwise on the next business day) if hand-delivered or
sent by confirmed facsimile transmission.
12. Captions. The captions of each section of this Security Agreement are
inserted only as a matter of convenience and for reference and in no way
shall be deemed to define, limit, enlarge, or describe the scope of this
Security Agreement and the relationship of the parties hereto, and shall
not in any way affect this Security Agreement or the construction of any
provisions herein.
13. Entire Agreement; Amendment. This Security Agreement, including Exhibit
A annexed hereto, and the Supply Agreement represent and incorporate the
entire understanding between the parties hereto with respect to the subject
matter of this Security Agreement and supersedes any prior offers,
proposals, drafts or other communications with respect thereto. In the
event of a conflict between the terms of this Security Agreement and the
Supply Agreement, the provisions of the Supply Agreement shall prevail.
Each party acknowledges that there are no warranties, representations,
covenants or understandings of any kind, nature or description whatsoever
made by any
party to any other, except such as are expressly hereinabove set forth.
This Security Agreement shall not be subject to change or modification
except by the execution of a writing specified to be an explicit amendment
to this Security Agreement duly executed by all parties hereto.
14 Counterparts. This Security Agreement may be executed in two or more
counterparts, each of which shall constitute an original and all of which
together shall constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
LECTEC CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxxxx
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Name: Xxxxxxx X Xxxxxxxxxx
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Title: CEO
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NOVARTIS XXXXXXXX.XXXXXX, INC.
By: /s/ Xxxxx Xxxxxxxxxx
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Name: Xxxxx Xxxxxxxxxx
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Title: SVP OTC NA
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