Exhibit-10.2
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 13th day of
November, 2006 by and among Zila, Inc., a Delaware corporation (the "Company"),
and the Investors set forth on the signature pages affixed hereto (each an
"Investor" and collectively the "Investors").
RECITALS
A. The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended.
B. The Investors wish to purchase from the Company, and the Company wishes
to sell and issue to the Investors, upon the terms and conditions stated in this
Agreement, (i) an aggregate of $12,000,000 in principal amount of the Company's
6% Senior Secured Convertible Notes in the form attached hereto as Exhibit A
(the "Notes"), which Notes, only upon the satisfaction of certain conditions,
shall, at the option of each holder, be convertible into shares of Common Stock
at a conversion price of $2.20 per share (subject to adjustment); and (ii) on
the Proposal Date, warrants to purchase an aggregate of up to 1,909,091 shares
of Common Stock, at an exercise price of $2.21 per share (subject to adjustment)
in the form attached hereto as Exhibit B (the "Warrants").
C. Contemporaneous with the sale of the Notes and the Warrants, the parties
hereto will execute and deliver a Registration Rights Agreement, in the form
attached hereto as Exhibit C (the "Registration Rights Agreement"), pursuant to
which the Company will agree to provide certain registration rights under the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder, and applicable state securities laws.
D. The Company has agreed to secure its obligations under the Notes by
granting to the Investors (and any subsequent holders of the Notes) a duly
perfected first priority security interests in the collateral specified in the
Security Agreement in the form attached hereto as Exhibit D (the "Security
Agreement").
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere in
this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly through one or more intermediaries Controls, is
controlled by, or is under common control with, such Person.
"Amendment" means an amendment to the Company's Certificate of
Incorporation increasing the authorized Common Stock of the Company to
147,500,000 shares.
"Business Day" means a day, other than a Saturday or Sunday, on which
banks in New York City are open for the general transaction of business.
"Common Stock" means the shares of the Company's common stock, par
value $0.001 per share, together with any securities into which such shares may
be reclassified after the date hereof.
"Company's Knowledge" means the actual knowledge of the executive
officers (as defined in Rule 405 under the 0000 Xxx) of the Company, after due
inquiry.
"Confidential Information" means trade secrets, confidential
information and know-how (including but not limited to ideas, formulae,
compositions, processes, procedures and techniques, research and development
information, computer program code, performance specifications, support
documentation, drawings, specifications, designs, business and marketing plans,
and customer and supplier lists and related information).
"Control" (including the terms "controlling", "controlled by" or
"under common control with") means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Conversion Shares" means the shares of Common Stock issuable upon the
conversion of the Notes.
"Intellectual Property" means all of the following: (i) patents,
patent applications, patent disclosures and inventions (whether or not
patentable and whether or not reduced to practice); (ii) trademarks, service
marks, trade dress, trade names, corporate names, logos, slogans and Internet
domain names, together with all goodwill associated with each of the foregoing;
(iii) copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).
"Material Adverse Effect" means a material adverse effect on (i) the
assets, liabilities, results of operations, condition (financial or other),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.
"Nasdaq" means The Nasdaq Stock Market, Inc.
"Permitted Acquisition" means the acquisition contemplated by the
non-binding letter of intent described in the Company's definitive proxy
statement, dated September 6, 2006
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(the "September Proxy Statement"), of all of the equity interests of an entity
in the dental products industry; provided, that the acquisition is consummated
on substantially the terms described in the September Proxy Statement.
"Person" means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
"Proposal Date" means the Trading Day immediately following the date
the Proposals are approved by the Company's stockholders at the Stockholders
Meeting in accordance with Section 7.9.
"Proposals" has the meaning set forth in Section 7.9.
"Purchase Price" means Twelve Million Dollars ($12,000,000).
"Registration Statement" has the meaning set forth in the Registration
Rights Agreement.
"SEC Filings" has the meaning set forth in Section 4.6.
"Securities" means the Notes, the Warrants, the Conversion Shares and
the Warrant Shares.
"Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
"Trading Day" means (i) if the relevant stock or security is listed or
admitted for trading on The New York Stock Exchange, Inc., the Nasdaq Global
Market, the Nasdaq Capital Market or any other national securities exchange, a
day on which such exchange is open for business; (ii) if the relevant stock or
security is quoted on a system of automated dissemination of quotations of
securities prices, a day on which trades may be effected through such system; or
(iii) if the relevant stock or security is not listed or admitted for trading on
any national securities exchange or quoted on any system of automated
dissemination of quotation of securities prices, a day on which the relevant
stock or security is traded in a regular way in the over-the-counter market and
for which a closing bid and a closing asked price for such stock or security are
available, shall mean a day, other than a Saturday or Sunday, on which The New
York Stock Exchange, Inc. is open for trading.
"Transaction Documents" means this Agreement, the Notes, the Warrants,
the Registration Rights Agreement and the Security Agreement.
"Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Warrants.
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"1933 Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute, and the rules and regulations promulgated thereunder.
2. Purchase and Sale of the Notes and the Warrants. Subject to the terms
and conditions of this Agreement, on the Closing Date (as defined below), each
of the Investors shall severally, and not jointly, purchase, and the Company
shall sell and issue to the Investors, the Notes in the respective amounts set
forth opposite the Investors' names on the signature pages attached hereto in
exchange for the Purchase Price as specified in Section 3 below. No later than
the close of business on the Proposal Date, the Company shall issue to the
Investors entitled thereto the Warrants for no additional consideration in
accordance with Section 7.10.
3. Closing. Upon confirmation that all the conditions of the Company's and
the Investors' obligations to close specified herein have been satisfied or duly
waived (the "Closing Date"), each Investor shall promptly, but no more than one
Business Day thereafter, cause a wire transfer in same day funds to be sent to
the Company, to fund all or a portion of the purchase price of the Permitted
Acquisition (as defined in the Notes), in accordance with Section 4.7 hereof, in
an amount representing such Investor's pro rata portion of the Purchase Price as
set forth on the signature pages of this Agreement. The Closing shall take place
at the offices of Xxxxxxxxxx Xxxxxxx PC, 1251 Avenue of the Xxxxxxxx, 00xx
Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other location and on such other
date as the Company and the Investors shall mutually agree.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investors that, except as set forth in the
schedules delivered herewith (collectively, the "Disclosure Schedules"):
4.1 Organization, Good Standing and Qualification. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted and to own its properties. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or leasing necessary unless the
failure to so qualify has not had and could not reasonably be expected to have a
Material Adverse Effect. The Company's Subsidiaries are listed on Schedule 4.1
hereto.
4.2 Authorization. The Company has full power and authority and,
except for approval of the Proposals by its stockholders as contemplated by
Section 7.9, has taken all requisite action on the part of the Company, its
officers, directors and stockholders necessary for (i) the authorization,
execution and delivery of the Transaction Documents, (ii) the authorization of
the performance of all obligations of the Company hereunder or thereunder and
(iii) the authorization, issuance (or reservation for issuance) and delivery of
the Securities. The Transaction Documents constitute, or upon delivery or
issuance, as applicable, will constitute, the legal, valid and binding
obligations of the Company, enforceable against the Company in
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accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.
4.3 Capitalization. Schedule 4.3 sets forth (a) the authorized capital
stock of the Company as of July 31, 2006; (b) the number of shares of capital
stock issued and outstanding; (c) the number of shares of capital stock issuable
pursuant to the Company's stock plans; and (d) the number of shares of capital
stock issuable and reserved for issuance pursuant to securities (other than the
Securities) exercisable for, or convertible into or exchangeable for any shares
of capital stock of the Company. All of the issued and outstanding shares of the
Company's capital stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of pre-emptive rights and were issued in
compliance in all material respects with applicable state and federal securities
law and any rights of third parties. Except as described on Schedule 4.3, all of
the issued and outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued and are fully paid, nonassessable and free of
pre-emptive rights, were issued in compliance in all material respects with
applicable state and federal securities law and any rights of third parties and
are owned by the Company, beneficially and of record, subject to no lien,
encumbrance or other adverse claim. Except as described in the SEC Filings or on
Schedule 4.3, no Person is entitled to pre-emptive or similar statutory or
contractual rights with respect to any securities of the Company. Except as
described in the SEC Filings or on Schedule 4.3, there are no outstanding
warrants, options, convertible securities or other rights, agreements or
arrangements of any character under which the Company or any of its Subsidiaries
is or may be obligated to issue any equity securities of any kind and except as
contemplated by this Agreement, neither the Company nor any of its Subsidiaries
is currently in negotiations for the issuance of any equity securities of any
kind. Except as described in the SEC Filings or on Schedule 4.3, except for the
Registration Rights Agreement, there are no voting agreements, buy-sell
agreements, option or right of first purchase agreements or other agreements of
any kind among the Company and any of the securityholders of the Company
relating to the securities of the Company held by them. Except as described in
the SEC Filings or on Schedule 4.3 and except as provided in the Registration
Rights Agreement, no Person has the right to require the Company to register any
securities of the Company under the 1933 Act, whether on a demand basis or in
connection with the registration of securities of the Company for its own
account or for the account of any other Person.
Except as described in the SEC Filings or on Schedule 4.3, the
issuance and sale of the Securities hereunder will not obligate the Company to
issue shares of Common Stock or other securities to any other Person (other than
the Investors) and will not result in the adjustment of the exercise,
conversion, exchange or reset price of any outstanding security.
Except as described in the SEC Filings or on Schedule 4.3, the Company
does not have outstanding stockholder purchase rights or "poison pill" or any
similar arrangement in effect giving any Person the right to purchase any equity
interest in the Company upon the occurrence of certain events.
4.4 Valid Issuance. The Notes and the Warrants have been duly and
validly authorized. Subject to the approval of the Proposals by the Company's
stockholders as contemplated by Section 7.9, the Conversion Shares have been
duly and validly authorized and,
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when issued upon the due conversion of the Notes, will be validly issued, fully
paid and nonassessable, and shall be free and clear of all encumbrances and
restrictions (other than those created by the Investors), except for
restrictions on transfer set forth in the Transaction Documents or imposed by
applicable securities laws. Subject to the approval of the Proposals by the
Company's stockholders as contemplated by Section 7.9, upon the due exercise of
the Warrants, the Warrant Shares will be validly issued, fully paid and
non-assessable free and clear of all encumbrances and restrictions, except for
restrictions on transfer set forth in the Transaction Documents or imposed by
applicable securities laws and except for those created by the Investors.
Subject to the approval of the Proposals by the Company's stockholders as
contemplated by Section 7.9, the Company shall have reserved a sufficient number
of shares of Common Stock for issuance upon the conversion of the Notes and the
exercise of the Warrants, free and clear of all encumbrances and restrictions,
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable securities laws and except for those created by the
Investors.
4.5 Consents. Except for approval of the Proposals by its stockholders
as contemplated by Section 7.9, the execution, delivery and performance by the
Company of the Transaction Documents and the offer, issuance and sale of the
Securities require no consent of, action by or in respect of, or filing with,
any Person, governmental body, agency, or official other than filings that have
been made pursuant to applicable state securities laws and post-sale filings
pursuant to applicable state and federal securities laws which the Company
undertakes to file within the applicable time periods. Subject to the accuracy
of the representations and warranties of each Investor set forth in Section 5
hereof, the Company has taken all action necessary to exempt (i) the issuance
and sale of the Securities, (ii) the issuance of the Conversion Shares upon due
conversion of the Notes, (iii) the issuance of the Warrant Shares upon due
exercise of the Warrants, and (iv) the other transactions contemplated by the
Transaction Documents from the provisions of any stockholder rights plan or
other "poison pill" arrangement, any anti-takeover, business combination or
control share law or statute binding on the Company or to which the Company or
any of its assets and properties may be subject and any provision of the
Company's Certificate of Incorporation or Bylaws that is or could reasonably be
expected to become applicable to the Investors as a result of the transactions
contemplated hereby, including without limitation, the issuance of the
Securities and the ownership, disposition or voting of the Securities by the
Investors or the exercise of any right granted to the Investors pursuant to this
Agreement or the other Transaction Documents.
4.6 Delivery of SEC Filings; Business. The Company has filed on the
XXXXX system, true and complete copies of the Company's most recent Annual
Report on Form 10-K for the fiscal year ended July 31, 2006 (the "10-K"), and
all other reports filed by the Company pursuant to the 1934 Act since the filing
of the 10-K and prior to the date hereof (collectively, the "SEC Filings"). The
SEC Filings are the only filings required of the Company pursuant to the 1934
Act for such period. The Company and its Subsidiaries are engaged in all
material respects only in the business described in the SEC Filings and the SEC
Filings contain a complete and accurate description in all material respects of
the business of the Company and its Subsidiaries, taken as a whole.
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4.7 Use of Proceeds. The net proceeds of the sale of the Notes and the
Warrants hereunder shall only be used by the Company to fund all or a portion of
the purchase price of the Permitted Acquisition (as defined in the Notes).
4.8 No Material Adverse Change. Since July 31, 2006, except for the
Amendment and except as identified and described in the SEC Filings or as
described on Schedule 4.8, there has not been:
(i) any change in the consolidated assets, liabilities,
financial condition or operating results of the Company from that reflected in
the financial statements included in the 10-K, except for changes in the
ordinary course of business which have not had and could not reasonably be
expected to have a Material Adverse Effect, individually or in the aggregate;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;
(iii) any material damage, destruction or loss, whether or
not covered by insurance to any assets or properties of the Company or its
Subsidiaries;
(iv) any waiver, not in the ordinary course of business, by
the Company or any Subsidiary of a material right or of a material debt owed to
it;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or a Subsidiary, except
in the ordinary course of business and which is not material to the assets,
properties, financial condition, operating results or business of the Company
and its Subsidiaries taken as a whole (as such business is presently conducted
and as it is proposed to be conducted);
(vi) any change or amendment to the Company's Certificate of
Incorporation or Bylaws, or material change to any material contract or
arrangement by which the Company or any Subsidiary is bound or to which any of
their respective assets or properties is subject;
(vii) any material labor difficulties or labor union
organizing activities with respect to employees of the Company or any
Subsidiary;
(viii) any material transaction entered into by the Company
or a Subsidiary other than in the ordinary course of business;
(ix) the loss of the services of any key employee, or
material change in the composition or duties of the senior management of the
Company or any Subsidiary;
(x) the loss or threatened loss of any customer which has
had or could reasonably be expected to have a Material Adverse Effect; or
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(xi) any other event or condition of any character that has
had or could reasonably be expected to have a Material Adverse Effect.
4.9 SEC Filings; S-3 Eligibility.
(a) At the time of filing thereof, the SEC Filings complied as to
form in all material respects with the requirements of the 1934 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each registration statement and any amendment thereto filed
by the Company since January 1, 2003 pursuant to the 1933 Act and the rules and
regulations thereunder, as of the date such statement or amendment became
effective, complied as to form in all material respects with the 1933 Act and
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading; and each prospectus filed pursuant to
Rule 424(b) under the 1933 Act, as of its issue date and as of the closing of
any sale of securities pursuant thereto did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(c) The Company is eligible to use Form S-3 to register the
Registrable Securities (as such term is defined in the Registration Rights
Agreement) for sale by the Investors as contemplated by the Registration Rights
Agreement.
4.10 No Conflict, Breach, Violation or Default. Subject to the
approval of the Proposals by the Company's stockholders as contemplated by
Section 7.9, the execution, delivery and performance of the Transaction
Documents by the Company and the issuance and sale of the Securities, will not
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under (i) the Company's Certificate of
Incorporation or the Company's Bylaws, both as in effect on the date hereof, but
after giving effect to the Amendment, (true and complete copies of which have
been made available to the Investors through the XXXXX system), or (ii)(a) any
statute, rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company, any Subsidiary
or any of their respective assets or properties, or (b) any agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company or a Subsidiary is bound or to which any of their respective assets or
properties is subject, except, in the case of clause (ii) for such conflicts,
breaches or violations as could not reasonably be expected to have a Material
Adverse Effect.
4.11 Tax Matters. The Company and each Subsidiary has timely prepared
and filed all tax returns required to have been filed by the Company or such
Subsidiary with all appropriate governmental agencies and timely paid all taxes
shown to be due thereon. The charges, accruals and reserves on the books of the
Company in respect of taxes for all fiscal periods are adequate in all material
respects, and there are no material unpaid assessments against the Company or
any Subsidiary nor, to the Company's Knowledge, any basis for the
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assessment of any additional taxes, penalties or interest for any fiscal period
or audits by any federal, state or local taxing authority except for any
assessment which is not material to the Company and its Subsidiaries, taken as a
whole. All material taxes and other assessments and levies that the Company or
any Subsidiary is required to withhold or to collect for payment have been duly
withheld and collected and paid to the proper governmental entity or third party
when due. There are no tax liens or claims pending or, to the Company's
Knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or property. Except as described in the SEC Filings or on
Schedule 4.11, there are no outstanding tax sharing agreements or other such
arrangements between the Company and any Subsidiary or other corporation or
entity.
4.12 Title to Properties. Except as disclosed in the SEC Filings, the
Company and each Subsidiary has good and marketable title to all real properties
and all other material properties and assets owned by it, in each case free from
liens, encumbrances and defects that would materially affect the value thereof
or materially interfere with the use made or currently planned to be made
thereof by them; and except as disclosed in the SEC Filings, the Company and
each Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
4.13 Certificates, Authorities and Permits. The Company and each
Subsidiary possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by it, and neither the Company nor any Subsidiary has received any
written notice of proceedings relating to the revocation or modification of any
such certificate, authority or permit that, if determined adversely to the
Company or such Subsidiary, could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate.
4.14 Labor Matters.
(a) Except as described in the SEC Filings or on Schedule 4.14,
the Company is not a party to or bound by any collective bargaining agreements
or other agreements with labor organizations. The Company has not violated in
any material respect any laws, regulations, orders or contract terms, affecting
the collective bargaining rights of employees, labor organizations or any laws,
regulations or orders affecting employment discrimination, equal opportunity
employment, or employees' health, safety, welfare, wages and hours.
(b) (i) There are no labor disputes existing, or to the Company's
Knowledge, threatened, involving strikes, slow-downs, work stoppages, job
actions, disputes, lockouts or any other disruptions of or by the Company's
employees, (ii) there are no unfair labor practices or petitions for election
pending or, to the Company's Knowledge, threatened before the National Labor
Relations Board or any other federal, state or local labor commission relating
to the Company's employees, (iii) to the Company's Knowledge, no demand for
recognition or certification heretofore made by any labor organization or group
of employees is pending with respect to the Company and (iv) to the Company's
Knowledge, the Company enjoys good labor and employee relations with its
employees and labor organizations.
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(c) The Company is, and at all times has been, in compliance in
all material respects with all applicable laws respecting employment (including
laws relating to classification of employees and independent contractors) and
employment practices, terms and conditions of employment, wages and hours, and
immigration and naturalization. There are no claims pending against the Company
before the Equal Employment Opportunity Commission or any other administrative
body or in any court asserting any violation of Title VII of the Civil Rights
Act of 1964, the Age Discrimination Act of 1967, 42 U.S.C. Sections 1981 or 1983
or any other federal, state or local law, statute or ordinance barring
discrimination in employment.
(d) Except as disclosed in the SEC Filings or as described on
Schedule 4.14, the Company is not a party to, or bound by, any employment or
other contract or agreement that contains any severance, termination pay or
change of control liability or obligation, including, without limitation, any
"excess parachute payment," as defined in Section 2806(b) of the Internal
Revenue Code.
(e) Except as specified in Schedule 4.14, each of the Company's
employees is a Person who is either a United States citizen or a permanent
resident entitled to work in the United States. To the Company's Knowledge, the
Company has no liability for the improper classification by the Company of such
employees as independent contractors or leased employees prior to the Closing.
4.15 Intellectual Property.
(a) All Intellectual Property of the Company and its Subsidiaries
is currently in compliance in all material respects with all legal requirements
(including timely filings, proofs and payments of fees) and, to the Company's
Knowledge, is valid and enforceable. Except as described in Schedule 4.15, no
Intellectual Property of the Company or its Subsidiaries which is necessary for
the conduct of Company's and each of its Subsidiaries' respective businesses as
currently conducted has been or is now the subject of any cancellation, dispute
or litigation. To the Company's Knowledge, no such action is threatened except
as described in Schedule 4.15. No patent of the Company or its Subsidiaries has
been or is now the subject of any interference, reissue, re-examination or
opposition proceeding.
(b) All of the licenses and sublicenses and consent, royalty or
other agreements concerning Intellectual Property which are necessary for the
conduct of the Company's and each of its Subsidiaries' respective businesses as
currently conducted to which the Company or any Subsidiary is a party or by
which any of their assets are bound (other than generally commercially
available, non-custom, off-the-shelf software application programs having a
retail acquisition price of less than $10,000 per license) (collectively,
"License Agreements") are valid and binding obligations of the Company or its
Subsidiaries that are parties thereto and, to the Company's Knowledge, the other
parties thereto, enforceable in accordance with their terms, except to the
extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally, and there exists no
event or condition which will result in a material violation or breach of or
constitute (with or without due notice or lapse of time or both) a material
default by the Company or any of its Subsidiaries under any such License
Agreement.
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(c) The Company and its Subsidiaries own or have the valid right
to use all of the Intellectual Property that is necessary for the conduct of the
Company's and each of its Subsidiaries' respective businesses as currently
conducted and for the ownership, maintenance and operation of the Company's and
its Subsidiaries' properties and assets, free and clear of all liens,
encumbrances, adverse claims or obligations to license all such owned
Intellectual Property and Confidential Information, other than licenses entered
into in the ordinary course of the Company's and its Subsidiaries' businesses.
To the Company's Knowledge, the Company and its Subsidiaries have a valid and
enforceable right to use all third party Intellectual Property and Confidential
Information used or held for use in the respective businesses of the Company and
its Subsidiaries.
(d) To the Company's Knowledge, the conduct of the Company's and
its Subsidiaries' businesses as currently conducted does not infringe or
otherwise impair or conflict with (collectively, "Infringe") any Intellectual
Property rights of any third party or any confidentiality obligation owed to a
third party, and, to the Company's Knowledge, the Intellectual Property and
Confidential Information of the Company and its Subsidiaries which are necessary
for the conduct of Company's and each of its Subsidiaries' respective businesses
as currently conducted are not being Infringed by any third party. There is no
litigation or order pending or outstanding or, to the Company's Knowledge,
threatened or imminent, that seeks to limit or challenge or that concerns the
ownership, use, validity or enforceability of any Intellectual Property or
Confidential Information of the Company and its Subsidiaries and the Company's
and its Subsidiaries' use of any Intellectual Property or Confidential
Information owned by a third party, and, to the Company's Knowledge, there is no
valid basis for the same.
(e) The consummation of the transactions contemplated hereby and
by the other Transaction Documents will not result in the alteration, loss,
impairment of or restriction on the Company's or any of its Subsidiaries'
ownership or right to use any of the Intellectual Property or Confidential
Information which is necessary for the conduct of Company's and each of its
Subsidiaries' respective businesses as currently conducted or as currently
proposed to be conducted.
(f) The Company and its Subsidiaries have taken reasonable steps
to protect the Company's and its Subsidiaries' rights in their Intellectual
Property and Confidential Information. Each employee, consultant and contractor
who has had access to Confidential Information which is necessary for the
conduct of Company's and each of its Subsidiaries' respective businesses as
currently conducted has executed an agreement to maintain the confidentiality of
such Confidential Information and has executed appropriate agreements that are
substantially consistent with the Company's standard forms thereof. To the
Company's Knowledge, except under confidentiality obligations, there has been no
material disclosure of any of the Company's or its Subsidiaries' Confidential
Information to any third party.
4.16 Environmental Matters. Neither the Company nor any Subsidiary is
in violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "Environmental Laws"), owns or operates any real
property contaminated with any substance that is subject to any Environmental
Laws, is liable
11
for any off-site disposal or contamination pursuant to any Environmental Laws,
or is subject to any claim relating to any Environmental Laws, which violation,
contamination, liability or claim has had or could reasonably be expected to
have a Material Adverse Effect, individually or in the aggregate; and, to the
Company's Knowledge, there is no pending or threatened investigation that might
lead to such a claim.
4.17 Litigation. Except as described in the SEC Filings or on Schedule
4.17, there are no pending actions, suits or proceedings against or affecting
the Company, its Subsidiaries or any of its or their properties; and to the
Company's Knowledge, no such actions, suits or proceedings are threatened or
contemplated.
4.18 Financial Statements. The financial statements included in each
SEC Filing present fairly, in all material respects, the consolidated financial
position of the Company as of the dates shown and its consolidated results of
operations and cash flows for the periods shown, and such financial statements
have been prepared in conformity with United States generally accepted
accounting principles, applied on a consistent basis (except as may be disclosed
therein or in the notes thereto, and, in the case of quarterly financial
statements, as permitted by Form 10-Q under the 1934 Act). Except as set forth
in the financial statements of the Company included in the SEC Filings filed
prior to the date hereof or as described on Schedule 4.18, neither the Company
nor any of its Subsidiaries has incurred any liabilities, contingent or
otherwise, except those incurred in the ordinary course of business, consistent
(as to amount and nature) with past practices since the date of such financial
statements, none of which, individually or in the aggregate, have had or could
reasonably be expected to have a Material Adverse Effect.
4.19 Insurance Coverage. The Company and each Subsidiary maintains in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted and properties owned or
leased by the Company and each Subsidiary, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and risks
against which it is customary for comparably situated companies to insure.
4.20 Compliance with Nasdaq Continued Listing Requirements. The
Company is in compliance with applicable Nasdaq continued listing requirements.
There are no proceedings pending or, to the Company's Knowledge, threatened
against the Company relating to the continued listing of the Common Stock on
Nasdaq and the Company has not received any notice of, nor to the Company's
Knowledge is there any basis for, the delisting of the Common Stock from Nasdaq.
4.21 No Manipulation. The Company has not taken and will not take any
action designed to or that might reasonably be expected to cause or result in an
unlawful manipulation of the price of the Common Stock.
4.22 Brokers and Finders. No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation
12
pursuant to any agreement, arrangement or understanding entered into by or on
behalf of the Company, other than as described in Schedule 4.22.
4.23 No Directed Selling Efforts or General Solicitation. Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Securities.
4.24 No Integrated Offering. Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the
Securities under the 1933 Act.
4.25 Private Placement. Assuming the accuracy of the representations
and warranties of the Investors contained in Section 5 hereof, the offer and
sale of the Securities to the Investors as contemplated hereby is exempt from
the registration requirements of the 1933 Act.
4.26 Questionable Payments. Neither the Company nor any of its
Subsidiaries nor, to the Company's Knowledge, any of their respective current or
former stockholders, directors, officers, employees, agents or other Persons
acting on behalf of the Company or any Subsidiary, has on behalf of the Company
or any Subsidiary or in connection with their respective businesses: (a) used
any corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.
4.27 Transactions with Affiliates. Except as disclosed in the SEC
Filings or as disclosed on Schedule 4.27, none of the officers or directors of
the Company and, to the Company's Knowledge, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than as holders of stock options and/or warrants, and for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
Company's Knowledge, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
4.28 Internal Controls. The Company is in compliance in all material
respects with the provisions of the Xxxxxxxx-Xxxxx Act of 2002 currently
applicable to the Company. The Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with
13
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in 1934 Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that material information
relating to the Company, including the Subsidiaries, is made known to the
certifying officers by others within those entities, particularly during the
period in which the Company's most recently filed period report under the 1934
Act, as the case may be, is being prepared. The Company's certifying officers
have evaluated the effectiveness of the Company's disclosure controls and
procedures as of the end of the period covered by the most recently filed
periodic report under the 1934 Act (such date, the "Evaluation Date"). The
Company presented in its most recently filed periodic report under the 1934 Act
the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item 308
of Regulation S-K). The Company maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
GAAP and the applicable requirements of the 0000 Xxx.
4.29 Disclosures. Neither the Company nor any Person acting on its
behalf has provided the Investors or their agents or counsel with any
information that constitutes or might constitute material, non-public
information. The written materials delivered to the Investors in connection with
the transactions contemplated by the Transaction Documents do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading.
5. Representations and Warranties of the Investors. Each of the Investors
hereby severally, and not jointly, represents and warrants to the Company that:
5.1 Organization and Existence. Such Investor is a validly existing
corporation, limited partnership or limited liability company and has all
requisite corporate, partnership or limited liability company power and
authority to enter into and to consummate the transactions contemplated by the
Transaction Documents and to perform its other obligations thereunder.
5.2 Authorization. The execution, delivery and performance by such
Investor of the Transaction Documents to which such Investor is a party have
been duly authorized and will each constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.
5.3 Purchase Entirely for Own Account. The Securities to be received
by such Investor hereunder will be acquired for such Investor's own account, not
as nominee or
14
agent, and not with a view to the resale or distribution of any part thereof in
violation of the 1933 Act, and such Investor has no present intention of
selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act without prejudice, however, to such Investor's right
at all times to sell or otherwise dispose of all or any part of such Securities
in compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by such Investor
to hold the Securities for any period of time. Such Investor is not a
broker-dealer registered with the SEC under the 1934 Act or an entity engaged in
a business that would require it to be so registered. Such Investor is acquiring
the Securities in the ordinary course of business and does not have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities in violation of the 1933 Act.
5.4 Investment Experience. Such Investor acknowledges that it can bear
the economic risk and complete loss of its investment in the Securities and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.
5.5 Disclosure of Information. Such Investor has had an opportunity to
receive all information related to the Company requested by it and to ask
questions of and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Securities,
including the merits and risks of investing in the Securities. Such Investor
acknowledges receipt of copies of the SEC Filings. Neither such inquiries nor
any other due diligence investigation conducted by such Investor shall modify,
limit or otherwise affect such Investor's right to rely on the Company's
representations and warranties contained in this Agreement.
5.6 Restricted Securities. Such Investor understands that the
Securities are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances. The Investor is familiar
with Rule 144 under the 1933 Act and understands the resale limitations imposed
thereunder.
5.7 Legends. It is understood that, except as provided below,
certificates evidencing the Securities may bear the following or any similar
legend:
(a) "The securities represented hereby may not be transferred
unless (i) such securities have been registered for sale pursuant to the
Securities Act of 1933, as amended, (ii) such securities may be sold pursuant to
Rule 144(k), or (iii) the Company has received an opinion of counsel reasonably
satisfactory to it that such transfer may lawfully be made without registration
under the Securities Act of 1933 or qualification under applicable state
securities laws."
(b) If required by the authorities of any state in connection
with the issuance of sale of the Securities, the legend required by such state
authority.
15
(c) The Company acknowledges and agrees that, subject to Section
5.11, an Investor, in compliance with applicable state and federal law, may from
time to time pledge or grant a security interest in some or all of the
Securities in connection with a bona fide margin agreement or other loan or
financing arrangement secured by the Securities and, if required under the terms
of such agreement, loan or arrangement, such Investor may transfer pledged or
secured Securities to the pledgees or secured parties. Except as may otherwise
be required by this Agreement, such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice shall be
required of such pledge. At the appropriate Investor's expense, the Company will
execute and deliver such reasonable documentation as a pledgee or secured party
of Securities may reasonably request in connection with a pledge or transfer of
the Securities, including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the 1933 Act or other applicable provision of
the 1933 Act to appropriately amend the list of selling stockholders thereunder.
5.8 Accredited Investor. Such Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 0000 Xxx.
5.9 No General Solicitation. Such Investor did not learn of the
investment in the Securities as a result of any general solicitation or general
advertising.
5.10 Brokers and Finders. No Person will have, as a result of the
transactions contemplated by the Transaction Documents, any valid right,
interest or claim against or upon the Company, any Subsidiary or an Investor for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of such Investor.
5.11 Prohibited Transactions. Such Investor does not currently have
any short position in the Common Stock. Since the earlier to occur of (i) the
last thirty (30) days prior to the date hereof and (ii) the time such Investor
was first contacted with respect to the transactions contemplated hereby,
neither such Investor nor any Affiliate of such Investor which (x) had knowledge
of the transactions contemplated hereby, (y) has or shares discretion relating
to such Investor's investments or trading or information concerning such
Investor's investments, including in respect of the Securities, or (z) is
subject to such Investor's review or input concerning such Affiliate's
investments or trading (collectively, "Trading Affiliates") has, directly or
indirectly, effected or agreed to effect any short sale (as defined in Rule
200(a) of Regulation SHO), whether or not against the box, established any "put
equivalent position" (as defined in Rule 16a-1(h) under the 0000 Xxx) with
respect to the Common Stock, borrowed or pre-borrowed any shares of Common
Stock, granted any other right (including, without limitation, any put or call
option) with respect to the Common Stock or with respect to any security that
includes, relates to or derived any significant part of its value from the
Common Stock, entered into any direct or indirect stock pledge, forward sales
contract, swap, or similar arrangements (including on a total return basis),
sales or other transactions through non-U.S. broker dealers or foreign regulated
brokers, or otherwise sought to hedge its position in the Securities (each, a
"Prohibited Transaction"). Prior to the earlier to occur of (i) the termination
of this Agreement or, (ii) one-hundred twenty (120) days after the public
announcement of the transactions contemplated hereby, such Investor shall not,
and shall cause its Trading Affiliates
16
not to, engage, directly or indirectly, in a Prohibited Transaction nor any
sale, assignment, pledge, hypothecation, put, call, or other transfer of any of
the Common Stock or other securities acquired hereunder. Such Investor
acknowledges that the representations, warranties and covenants contained in
this Section 5.11 are being made for the benefit of the Investors as well as the
Company and that each of the other Investors shall have an independent right to
assert any claims against such Investor arising out of any breach or violation
of the provisions of this Section 5.11.
6. Conditions to Closing.
6.1 Conditions to the Investors' Obligations. The obligation of each
Investor to purchase the Shares, the Notes and the Initial Warrants at the
Closing is subject to the fulfillment to such Investor's satisfaction, on or
prior to the Closing Date, of the following conditions, any of which may be
waived by such Investor (as to itself only):
(a) The representations and warranties made by the Company in
Section 4 hereof qualified as to materiality shall be true and correct at all
times prior to and on the Closing Date, except to the extent any such
representation or warranty expressly speaks as of an earlier date, in which case
such representation or warranty shall be true and correct as of such earlier
date, and, the representations and warranties made by the Company in Section 4
hereof not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date. The Company shall have performed in all
material respects all obligations and covenants herein required to be performed
by it on or prior to the Closing Date.
(b) The Company shall have obtained any and all consents,
permits, approvals, registrations and waivers (excluding approval of the
Proposals by its stockholders) necessary or appropriate for consummation of the
purchase and sale of the Securities and the consummation of the other
transactions contemplated by the Transaction Documents, all of which shall be in
full force and effect.
(c) The Company shall have executed and delivered the
Registration Rights Agreement and the Security Agreement.
(d) The Company shall have received confirmation from Nasdaq to
the effect that (i) the issuance and sale of the Notes and the Warrants as
contemplated hereby will not require stockholder approval pursuant to the
requirements of Nasdaq Marketplace Rule 4350(i), and (ii) the Warrant Shares
have been approved for inclusion in The Nasdaq Global Market upon official
notice of issuance.
(e) No judgment, writ, order, injunction, award or decree of or
by any court, or judge, justice or magistrate, including any bankruptcy court or
judge, or any order of or by any governmental authority, shall have been issued,
and no action or proceeding shall have been instituted by any governmental
authority, enjoining or preventing the consummation of the transactions
contemplated hereby or by the other Transaction Documents.
17
(f) The Company shall have delivered a Certificate, executed on
behalf of the Company by its Chief Executive Officer or its Chief Financial
Officer, dated as of the Closing Date, certifying to the fulfillment of the
conditions specified in subsections (a), (b), (d), (e), (i) and (j) of this
Section 6.1.
(g) The Company shall have delivered a Certificate, executed on
behalf of the Company by its Secretary, dated as of the Closing Date, (i)
certifying the resolutions adopted by the Board of Directors of the Company (A)
approving the transactions contemplated by this Agreement and the other
Transaction Documents and, subject to Section 7.9(b) below, the issuance of the
Securities, (B) approving the Amendment and directing that the Amendment be
submitted to the Company's stockholders for approval and (C) calling the
Stockholders Meeting and setting the record and meeting dates therefor, (ii)
certifying the current versions of the Certificate of Incorporation and Bylaws
of the Company and (iii) certifying as to the signatures and authority of
persons signing the Transaction Documents and related documents on behalf of the
Company.
(h) The Investors shall have received an opinion from Xxxxx &
Xxxxxx L.L.P., the Company's counsel, dated as of the Closing Date, in form and
substance reasonably acceptable to the Investors and addressing such legal
matters as the Investors may reasonably request.
(i) No stop order or suspension of trading shall have been
imposed by Nasdaq, the SEC or any other governmental or regulatory body with
respect to public trading in the Common Stock.
(j) The Investors shall have received written evidence reasonably
satisfactory to them evidencing the approval of the corporate governance changes
previously agreed to with the Investors.
(k) The Permitted Acquisition will have closed or will close
simultaneous to the transactions contemplated by this Agreement.
6.2 Conditions to Obligations of the Company. The Company's obligation
to sell and issue the Notes and the Warrants at the Closing is subject to the
fulfillment to the satisfaction of the Company on or prior to the Closing Date
of the following conditions, any of which may be waived by the Company:
(a) The representations and warranties made by the Investors in
Section 5 hereof, other than the representations and warranties contained in
Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the "Investment
Representations"), shall be true and correct in all material respects when made,
and shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date. The
Investment Representations shall be true and correct in all respects when made,
and shall be true and correct in all respects on the Closing Date with the same
force and effect as if they had been made on and as of said date. The Investors
shall have performed in all material respects all obligations and covenants
herein required to be performed by them on or prior to the Closing Date.
18
(b) The Investors shall have executed and delivered the
Registration Rights Agreement and the Security Agreement.
(c) The Investors shall have delivered the Purchase Price to the
Company.
6.3 Termination of Obligations to Effect Closing; Effects.
(a) The obligations of the Company, on the one hand, and the
Investors, on the other hand, to effect the Closing shall terminate as follows:
(i) Upon the mutual written consent of the Company and the
Investors;
(ii) By the Company if any of the conditions set forth in
Section 6.2 shall have become incapable of fulfillment, and shall not have been
waived by the Company;
(iii) By an Investor (with respect to itself only) if any of
the conditions set forth in Section 6.1 shall have become incapable of
fulfillment, and shall not have been waived by the Investor; or
(iv) By either the Company or any Investor (with respect to
itself only) if the Closing has not occurred on or prior to December 15, 2006;
provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party's seeking to
terminate its obligation to effect the Closing.
(b) In the event of termination by the Company or any Investor of
its obligations to effect the Closing pursuant to this Section 6.3, written
notice thereof shall forthwith be given to the other Investors and the other
Investors shall have the right to terminate their obligations to effect the
Closing upon written notice to the Company and the other Investors. Nothing in
this Section 6.3 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel specific
performance by any other party of its obligations under this Agreement or the
other Transaction Documents.
7. Covenants and Agreements of the Company.
7.1 Reservation of Common Stock. From and after the effectiveness of
the Amendment, the Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
providing for the conversion of the Notes and the exercise of the Warrants, such
number of shares of Common Stock as shall from time to time equal the Conversion
Shares issuable upon the due conversion of the Notes and the
19
Warrant Shares issuable upon the due exercise of the Warrants in accordance with
their respective terms.
7.2 Intentionally Omitted.
7.3 No Conflicting Agreements. The Company will not take any action,
enter into any agreement or make any commitment that would conflict or interfere
in any material respect with the Company's obligations to the Investors under
the Transaction Documents.
7.4 Insurance. The Company shall not materially reduce the insurance
coverages described in Section 4.19.
7.5 Compliance with Laws. The Company will comply in all material
respects with all applicable laws, rules, regulations, orders and decrees of all
governmental authorities.
7.6 Listing of Underlying Shares and Related Matters. The Company
shall take all necessary action to cause the Conversion Shares and the Warrant
Shares to be listed on the Nasdaq Global Market no later than the Proposal Date.
Further, if the Company applies to have its Common Stock or other securities
traded on any other principal stock exchange or market, it shall include in such
application the Conversion Shares and the Warrant Shares and will take such
other action as is necessary to cause such Common Stock to be so listed. The
Company will use commercially reasonable efforts to continue the listing and
trading of its Common Stock on the Nasdaq Global Market and, in accordance,
therewith, will use commercially reasonable efforts to comply in all respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of such market or exchange, as applicable.
7.7 Termination of Covenants. The provisions of Sections 7.2 through
7.5 shall terminate and be of no further force and effect on the date on which
the Company's obligations under the Registration Rights Agreement to register or
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate.
7.8 Removal of Legends. Upon the earlier of (i) registration for
resale pursuant to the Registration Rights Agreement or (ii) Rule 144(k)
becoming available, the Company shall (A) deliver to the transfer agent for the
Common Stock (the "Transfer Agent") irrevocable instructions that the Transfer
Agent shall reissue a certificate representing the Conversion Shares and the
Warrant Shares without legends upon receipt by such Transfer Agent of the
legended certificates for such shares or the Notes and/or the Warrants (or any
legended certificates previously issued for such shares), together with either
(1) a customary representation by the Investor that Rule 144(k) applies to the
shares of Common Stock represented thereby or (2) a statement by the Investor
that such Investor has sold the shares of Common Stock represented thereby in
accordance with the Plan of Distribution contained in the Registration Statement
therefor, and (B) cause its counsel to deliver to the Transfer Agent one or more
blanket opinions to the effect that the removal of such legends in such
circumstances may be effected under the 1933 Act. From and after the earlier of
such dates, upon an Investor's written request, the Company shall promptly cause
certificates representing previously issued
20
Conversion Shares or Warrant Shares to be replaced with certificates which do
not bear such restrictive legends, and Conversion Shares subsequently issued
upon due conversion of the Notes and Warrant Shares subsequently issued upon due
exercise of the Warrants shall not bear such restrictive legends provided the
provisions of either clause (i) or clause (ii) above, as applicable, are
satisfied with respect to such Conversion Shares and/or Warrant Shares. When the
Company is required to cause unlegended certificates to replace previously
issued legended certificates, if: (1) unlegended certificates are not delivered
to an Investor within three (3) Business Days of submission by that Investor of
legended certificate(s) and supporting documentation to the Transfer Agent as
provided above and (2) prior to the time such Conversion Shares and/or Warrant
Shares are received free from restrictive legends, the Investor, or any third
party on behalf of such Investor or for the Investor's account, purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Investor of such Conversion Shares and/or Warrant
Shares (a "Buy-In"), then the Company shall pay in cash to the Investor (for
costs incurred either directly by such Investor or on behalf of a third party)
the amount by which the total purchase price paid for Common Stock as a result
of the Buy-In (including brokerage commissions, if any) exceeds the proceeds
received by such Investor as a result of the sale to which such Buy-In relates.
The Investor shall provide the Company written notice indicating the amounts
payable to the Investor in respect of the Buy-In.
7.9 Proxy Statement; Stockholders Meeting. (a) The Company shall take
all action necessary to call an annual meeting of its stockholders (the
"Stockholders Meeting"), which shall conclude not later than December 31, 2006
(the "Stockholders Meeting Deadline"), for the purpose of, among other things,
seeking approval of the Company's stockholders for the following proposals
(collectively, the "Proposals"): (i) the issuance and sale to the Investors of
the Conversion Shares and the Warrant Shares pursuant to Nasdaq Marketplace Rule
4350(i) and (ii) the Amendment. In connection therewith, the Company will, in
accordance with its customary practice for annual meetings, prepare and file
with the SEC proxy materials (including a proxy statement and form of proxy) for
use at the Stockholders Meeting and, after receiving and promptly responding to
any comments of the SEC thereon, shall mail such proxy materials to the
stockholders of the Company. Each Investor shall furnish in writing to the
Company such information relating to such Investor and its investment in the
Company as the Company may reasonably request for inclusion in the Proxy
Statement. The Company will comply with Section 14(a) of the 1934 Act and the
rules promulgated thereunder in relation to any proxy statement (as amended or
supplemented, the "Proxy Statement") and any form of proxy to be sent to the
stockholders of the Company in connection with the Stockholders Meeting, and the
Proxy Statement shall not, on the date that the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to stockholders or at
the time of the Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein not false or misleading, or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies or the Stockholders Meeting which has
become false or misleading. If the Company should discover at any time prior to
the Stockholders Meeting, any event relating to the Company or any of its
Subsidiaries or any of their respective affiliates, officers or directors that
is required to be set forth in a supplement or amendment to the Proxy Statement,
in addition to the Company's obligations under the 1934 Act, the Company will
promptly inform the Investors thereof.
21
(a) Subject to their fiduciary obligations under applicable law
(as determined in good faith by the Company's Board of Directors after
consultation with the Company's outside counsel), the Company's Board of
Directors shall recommend to the Company's stockholders that the stockholders
vote in favor of the Proposals (the "Company Board Recommendation") and take all
commercially reasonable action (including, without limitation, the hiring of a
proxy solicitation firm of nationally recognized standing) to solicit the
approval of the stockholders for the Proposals unless the Board of Directors
shall have modified, amended or withdrawn the Company Board Recommendation
pursuant to the provisions of the immediately succeeding sentence. The Company
covenants that the Board of Directors of the Company shall not modify, amend or
withdraw the Company Board Recommendation unless the Board of Directors (after
consultation with the Company's outside counsel) shall determine in the good
faith exercise of its business judgment that maintaining the Company Board
Recommendation would violate its fiduciary duty to the Company's stockholders.
Whether or not the Company's Board of Directors modifies, amends or withdraws
the Company Board Recommendation pursuant to the immediately preceding sentence,
the Company shall in accordance with Section 146 of the Delaware General
Corporation Law and the provisions of its Certificate of Incorporation and
Bylaws, (i) take all action necessary to convene the Stockholders Meeting as
promptly as practicable, but no later than the Stockholders Meeting Deadline, to
consider and vote upon the approval of the Proposals and (ii) submit the
Proposals at the Stockholders Meeting to the stockholders of the Company for
their approval.
(b) The Company shall file the Amendment with the Secretary of
State of the State of Delaware no later than the close of business on the date
the Proposals are approved by the Company's stockholders in accordance with this
Section 7.9.
7.10 Delivery of Warrants. On the Proposal Date, the Company shall
issue and deliver to the Investors for no additional consideration the Warrants
in the amounts set forth opposite the Investors' names at the addresses set
forth opposite such Investors' names on the signature pages hereto.
8. Survival and Indemnification.
8.1 Survival. The representations, warranties, covenants and
agreements contained in this Agreement shall survive the Closing of the
transactions contemplated by this Agreement.
8.2 Indemnification. The Company agrees to indemnify and hold harmless
each Investor and its Affiliates and their respective directors, officers,
employees and agents from and against any and all losses, claims, damages,
liabilities and expenses (including without limitation reasonable attorney fees
and disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement thereof) (collectively, "Losses") to which such
Person may become subject as a result of any breach of representation, warranty,
covenant or agreement made by or to be performed on the part of the Company
under the Transaction Documents, and will reimburse any such Person for all such
amounts as they are incurred by such Person.
22
8.3 Conduct of Indemnification Proceedings. Promptly after receipt by
any Person (the "Indemnified Person") of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.
9. Miscellaneous.
9.1 Successors and Assigns. This Agreement may not be assigned by a
party hereto without the prior written consent of the Company or the Investors,
as applicable, provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Securities in a private transaction without
the prior written consent of the Company or the other Investors, after notice
duly given by such Investor to the Company provided, that no such assignment or
obligation shall affect the obligations of such Investor hereunder. The
provisions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
9.2 Counterparts; Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed via facsimile, which shall be deemed an original.
23
9.3 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.4 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or telecopier, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one Business Day after
delivery to such carrier. All notices shall be addressed to the party to be
notified at the address as follows, or at such other address as such party may
designate by ten days' advance written notice to the other party:
If to the Company:
Zila, Inc.
0000 Xxxxx 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxxxxxx, Esq.
Fax: (000) 000-0000
If to the Investors:
to the addresses set forth on the signature pages hereto.
9.5 Expenses. The parties hereto shall pay their own costs and
expenses in connection herewith except that the Company shall pay the reasonable
fees and expenses of Xxxxxxxxxx Xxxxxxx PC not to exceed $35,000. Such expenses
shall be paid not later than the Closing. The Company shall reimburse the
Investors upon demand for all reasonable out-of-pocket expenses incurred by the
Investors, including without limitation reimbursement of attorneys' fees and
disbursements for one counsel on behalf of the Investors, in connection with any
amendment, modification or waiver of this Agreement or the other Transaction
Documents requested by the Company. In the event that legal proceedings are
commenced by any party to this Agreement against another party to this Agreement
in connection with this Agreement or the other Transaction Documents, the party
or parties which do not prevail in such proceedings shall severally, but not
jointly, pay their pro rata share of the reasonable attorneys' fees and other
reasonable out-of-pocket costs and expenses incurred by the prevailing party in
such proceedings.
9.6 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investors. Any amendment or
waiver effected in accordance with this
24
paragraph shall be binding upon each holder of any Securities purchased under
this Agreement at the time outstanding, each future holder of all such
Securities, and the Company.
9.7 Publicity. Except as set forth below, no public release or
announcement concerning the transactions contemplated hereby shall be issued by
the Company or the Investors without the prior consent of the Company (in the
case of a release or announcement by the Investors) or the Investors (in the
case of a release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance. By 8:30 a.m. (New York City
time) on the Trading Day immediately following the Closing Date, the Company
shall issue a press release disclosing the consummation of the transactions
contemplated by this Agreement. No later than the fourth Trading Day following
the Closing Date, the Company will file a Current Report on Form 8-K attaching
the press release described in the foregoing sentence as well as copies of the
Transaction Documents. In addition, the Company will make such other filings and
notices in the manner and time required by the SEC or Nasdaq. Notwithstanding
the foregoing, the Company shall not publicly disclose the name of any Investor,
or include the name of any Investor in any filing with the SEC (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the 0000 Xxx)
or any regulatory agency or Nasdaq, without the prior written consent of such
Investor, except to the extent such disclosure is required by law or trading
market regulations, in which case the Company shall provide the Investors with
prior notice of such disclosure.
9.8 Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereby
waive any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
9.9 Entire Agreement. This Agreement, including the Exhibits and the
Disclosure Schedules, and the other Transaction Documents constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.
9.10 Further Assurances. The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
25
9.11 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of New York without regard to the choice of law
principles thereof. Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated hereby.
Service of process in connection with any such suit, action or proceeding may be
served on each party hereto anywhere in the world by the same methods as are
specified for the giving of notices under this Agreement. Each of the parties
hereto irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such court. Each party
hereto irrevocably waives any objection to the laying of venue of any such suit,
action or proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
9.12 Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
[signature page follows]
26
IN WITNESS WHEREOF, the parties have executed this Agreement or caused
their duly authorized officers to execute this Agreement as of the date first
above written.
The Company: ZILA, INC.
By: /s/ Xxxx X. Xxxxxxxxxxx
------------------------------------
Name: Xxxx X. Xxxxxxxxxxx
Title: Vice President, General Counsel
and Secretary
27
The Investors:
Atlas Master Fund, Ltd.
By: /s/ Xxxxx Xxxxxxxxx
------------------------------------
Name: Xxxxx Xxxxxxxxx
Title: Managing Director and General
Counsel
Aggregate Purchase Price: $4,500,001
Principal Amount of Notes: $4,500,001
Number of Warrants: 715,909
Address for Notice:
c/o Visium Asset Management, LLC
000 X. 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
28
The Investors:
Visium Balanced Offshore Fund, Ltd.
By: /s/ Xxxx Xxxxxxxx
------------------------------------
Name: Xxxx Xxxxxxxx
Title: CCO
Aggregate Purchase Price: $3,016,466.20
Principal Amount of Notes: $3,016,466.20
Number of Warrants: 479,892
Address for Notice:
c/o Visium Asset Management, LLC
000 X. 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
29
The Investors:
Visium Long Bias Fund, LP
By: /s/ Xxxx Xxxxxxxx
------------------------------------
Name: Xxxx Xxxxxxxx
Title: CCO
Aggregate Purchase Price: $557,959.60
Principal Amount of Notes: $557,959.60
Number of Warrants: 88,766
Address for Notice:
c/o Visium Asset Management, LLC
000 X. 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
30
The Investors:
Visium Long Bias Offshore Fund, Ltd.
By: /s/ Xxxx Xxxxxxxx
------------------------------------
Name: Xxxx Xxxxxxxx
Title: CCO
Aggregate Purchase Price: $2,114,145
Principal Amount of Notes: $2,114,145
Number of Warrants: 336,341
Address for Notice:
c/o Visium Asset Management, LLC
000 X. 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
31
The Investors:
Visium Balanced Fund, LP
By: /s/ Xxxx Xxxxxxxx
------------------------------------
Name: Xxxx Xxxxxxxx
Title: CCO
Aggregate Purchase Price: $1,811,429.40
Principal Amount of Notes: $1,811,429.40
Number of Warrants: 288,181
Address for Notice:
c/o Visium Asset Management, LLC
000 X. 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
32
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH
SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (III)
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT
THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.
6% SENIOR SECURED CONVERTIBLE NOTE
$_______________ November __, 2006
FOR VALUE RECEIVED, Zila, Inc., a Delaware corporation (the
"Company"), hereby unconditionally promises to pay to the order of
________________ (the "Holder"), having an address at
__________________________, at such address or at such other place as may be
designated in writing by the Holder, or its assigns, the aggregate principal sum
of _______ Million United States Dollars ($__________), together with interest
from the date set forth above on the unpaid principal balance of this Note
outstanding at a rate equal to six percent (6%) (computed on the basis of the
actual number of days elapsed in a 360-day year) per annum and continuing on the
outstanding principal until this 6% Senior Secured Convertible Note (the "Note")
is converted into Common Stock as provided herein or indefeasibly and
irrevocably paid in full by the Company. Interest on this Note shall accrue and
shall be payable quarterly on each subsequent January [__], April [__], July
[__], and anniversary hereof until the Stated Maturity Date (as defined below).
Subject to the other provisions of this Note, the principal of this Note and all
accrued and unpaid interest hereon shall mature and become due and payable on
November __, 2009 (the "Stated Maturity Date"). Except as provided herein, all
payments of principal and interest by the Company under this Note shall be made
in United States dollars in immediately available funds to an account specified
by the Holder. In no event shall any interest charged, collected or reserved
under this Note exceed the maximum rate then permitted by applicable law and if
any such payment is paid by the Company, then such excess sum shall be credited
by the Holder as a payment of principal.
Upon the occurrence and during the continuation of any Event of
Default hereunder, all amounts outstanding hereunder shall bear interest at an
annual rate of fifteen percent (15%). For purposes of any of the covenants set
forth in Sections 5(a)(xiii) through 5(a)(xvi) only, any Event of Default caused
by a breach of any such covenant shall be cured and shall no longer continue
upon the satisfaction by the Company of such covenant for the next succeeding
quarter, to the extent applicable. In no event shall any interest charged,
collected or reserved under this Note exceed the maximum rate then permitted by
applicable law and if any such payment is paid by the Company, then such excess
sum shall be credited by the Holder as a payment of principal.
This Note is one of a series of Notes (the "Company Notes") of like
tenor in an
aggregate principal amount of Twelve Million United States Dollars ($12,000,000)
issued by the Company pursuant to the terms of the Purchase Agreement (as
defined below).
1. Definitions. Capitalized terms used herein shall have the respective
meanings ascribed thereto in the Purchase Agreement unless otherwise defined
herein. Unless the context otherwise requires, when used herein the following
terms shall have the meaning indicated:
"Additional Rights" has the meaning set forth in Section 4 hereof.
"Affiliate" shall mean, with respect to any Person, any other Person
which directly or indirectly through one or more intermediaries Controls, is
controlled by, or is under common control with, such Person.
"Automatic Conversion Event" has the meaning set forth in Section 4(b)
hereof.
"Board" shall mean the Board of Directors of Company.
"Business Day" other than a Saturday or Sunday, on which banks in New
York City are open for the general transaction of business.
"Cash Equivalents" means (a) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities of six months or less from the date of
acquisition issued by any commercial bank organized under the laws of the United
States or any state thereof having combined capital and surplus of not less than
$500,000,000; (c) commercial paper of an issuer rated at least A-1 by Standard &
Poor's Ratings Services ("S&P") or P-1 by Xxxxx'x Investors Service, Inc.
("Moody's"), or carrying an equivalent rating by a nationally recognized rating
agency, if both of the two named rating agencies cease publishing ratings of
commercial paper issuers generally, and maturing within six months from the date
of acquisition; (d) repurchase obligations of any commercial bank satisfying the
requirements of clause (b) of this definition, having a term of not more than 30
days, with respect to securities issued or fully guaranteed or insured by the
United States government; (e) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody's; (f) securities with maturities of six
months or less from the date of acquisition backed by standby letters of credit
issued by any commercial bank satisfying the requirements of clause (b) of this
definition; or (g) shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition or money market funds that (i) comply with the criteria set
forth in Securities and Exchange Commission Rule 2a-7 under the Investment
Company Act of 1940, as amended, (ii) are rated AAA by S&P and Aaa by Moody's
and (iii) have portfolio assets of at least $5,000,000,000.
A-2
"Closing Date" has the meaning set forth in the Purchase Agreement.
"Common Stock" shall mean the Common Stock, par value $0.001 per
share, of the Company or any securities into which shares of Common Stock may be
reclassified after the date hereof.
"Company" has the meaning set forth in the first paragraph hereof.
"Company Notes" has the meaning set forth in the third paragraph
hereof.
"Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP, consistently applied for
all relevant periods, less (i) gains and losses from any sale, lease,
conveyance, transfer or other disposition of any assets or property of the
Company and its Subsidiaries, other than in the ordinary course of business,
including the tax effects thereof and (ii) items classified under GAAP,
consistently applied for all relevant periods, as extraordinary or non-recurring
gains and losses, and the related tax effects thereof.
"Control" (including the terms "controlling", "controlled by" or
"under common control with") means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Conversion Price" shall mean initially $2.20 per share, subject to
adjustment as provided in Section 4.
"Conversion Shares" means the shares of Common Stock issuable upon
conversion of this Note.
"Convertible Securities" has the meaning set forth in Section 4
hereof.
"EBITDA" means, for any period, Consolidated Net Income for such
period plus, without duplication and to the extent reflected as a charge in the
statement of such Consolidated Net Income for such period, the sum of (a) income
tax expense (other than income taxes attributable to extraordinary, unusual or
non-recurring gains or losses), (b) interest expense, amortization or writeoff
of debt discount and debt issuance costs and commissions, discounts and other
fees and charges associated with Indebtedness, (c) depreciation and amortization
expense, and (d) amortization of intangibles (including, but not limited to,
goodwill) and organization costs and minus, to the extent included in the
statement of such Consolidated Net Income for such period, interest income, all
as determined on a consolidated basis.
"Event of Default" has the meaning set forth in Section 6 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Issuances" has the meaning set forth in Section 4(j) hereof.
"Fiscal Year" means the period commencing on August 1 of any year and
ending
A-3
on July 31 of the following year.
"Free Cash" as of any date means the sum of the Company's unrestricted
cash and Cash Equivalents, determined on a consolidated basis, less the amount
of all Indebtedness outstanding under the Future Working Capital Line.
"Future Working Capital Line" means Indebtedness of the Company (i) in
the form of one or more working capital line of credit facilities and (ii) that
is secured by the Company's accounts and inventory; provided, that the aggregate
of all such working capital line of credit facilities shall not exceed
$7,000,000.
"GAAP" means generally accepted accounting principles in the United
States applied on a consistent basis as in effect on the date hereof.
"Hedging Agreement" means any interest rate swap, collar, cap, floor
or forward rate agreement or other agreement regarding the hedging of interest
rate risk exposure executed in connection with hedging the interest rate
exposure of any Person and any confirming letter executed pursuant to such
agreement, all as amended, supplemented, restated or otherwise modified from
time to time.
"Holder" has the meaning set forth in the first paragraph hereof.
"Indebtedness" means any liability or obligation (i) for borrowed
money, other than trade payables incurred in the ordinary course of business,
(ii) evidenced by bonds, debentures, notes, or other similar instruments, (iii)
in respect of letters of credit or other similar instruments (or reimbursement
obligations with respect thereto), except letters of credit or other similar
instruments issued to secure payment of trade payables or obligations in respect
of workers' compensation, unemployment insurance and other social security laws
or regulation, all arising in the ordinary course of business consistent with
past practices, (iv) to pay the deferred purchase price of property or services,
except trade payables arising in the ordinary course of business consistent with
past practices, (v) as lessee under capitalized leases, (vi) secured by a Lien
on any asset of the Company or a Subsidiary, whether or not such obligation is
assumed by the Company or such Subsidiary.
"Investment" means, for any Person: (a) the acquisition (whether for
cash, property, services or securities or otherwise) of capital stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
of any other Person or any agreement to make any such acquisition (including,
without limitation, any "short sale" or any sale of any securities at a time
when such securities are not owned by the Person entering into such sale); (b)
the making of any deposit with, or advance, loan or other extension of credit
to, any other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such Person), but excluding any such advance, loan or extension
of credit having a term not exceeding 90 days arising in connection with the
sale of inventory or supplies by such Person in the ordinary course of business;
(c) the entering into of any guarantee of, or other contingent obligation with
respect to, Indebtedness or other liability of any other Person and (without
duplication) any amount committed to be advanced, lent or extended to such
Person; or (d) the entering into of any
A-4
Hedging Agreement.
"Investors" has the meaning set forth in the Purchase Agreement.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any of the foregoing).
"Majority Holders" has the meaning set forth in Section 8 hereof.
"Market Price", as of a particular date (the "Valuation Date"), shall
mean the following: (a) if the Common Stock is then listed on a national stock
exchange, the closing sale price of one share of Common Stock on such exchange
on the last Trading Day prior to the Valuation Date; (b) if the Common Stock is
then quoted on the National Association of Securities Dealers, Inc. OTC Bulletin
Board (the "Bulletin Board") or such similar quotation system or association,
the closing sale price of one share of Common Stock on the Bulletin Board or
such other quotation system or association on the last Trading Day prior to the
Valuation Date or, if no such closing sale price is available, the average of
the high bid and the low asked price quoted thereon on the last trading day
prior to the Valuation Date; (c) if such security is then included in the "pink
sheets," the closing sale price of one share of Common Stock on the "pink
sheets" on the last Trading Day prior to the Valuation Date or, if no such
closing sale price is available, the average of the high bid and the low ask
price quoted on the "pink sheets" as of the end of the last Trading Day prior to
the Valuation Date; or (d) if the Common Stock is not then listed on a national
stock exchange or quoted on the Bulletin Board, the "pink sheets" or such other
quotation system or association, the fair market value of one share of Common
Stock as of the Valuation Date, as determined in good faith by the Board of
Directors of the Company and the Holder. If the Common Stock is not then listed
on a national securities exchange or quoted on the Bulletin Board, the "pink
sheets" or other quotation system or association, the Board of Directors of the
Company shall respond promptly, in writing, to an inquiry by the Holder as to
the fair market value of a share of Common Stock as determined by the Board of
Directors of the Company. In the event that the Board of Directors of the
Company and the Holder are unable to agree upon the fair market value in respect
of subpart (d) of this paragraph, the Company and the Holder shall jointly
select an appraiser, who is experienced in such matters. The decision of such
appraiser shall be final and conclusive, and the cost of such appraiser shall be
borne equally by the Company and the Holder.
"Note" has the meaning set forth in the first paragraph hereof.
"Optional Conversion Date" has the meaning set forth in Section 4(a)
hereof.
"Options" has the meaning set forth in Section 4 hereof.
"OraTest Expenses" means, for any period, the sum of (i) personnel,
general and administrative expense and research and development expenses of the
Company's Biotech Business Unit for such period and (ii) product launch and
commercialization expenses of the Company's Biotech Business Unit for such
period that are specifically and directly related to the Company's OraTest
product. All of such expenses shall be determined and allocated pursuant to GAAP
and, to the extent consistent with GAAP, the Company's existing accounting
principles,
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applied on a basis consistent with the Company's historical financial
statements.
"Permitted Indebtedness" means:
(a) Unsecured Indebtedness existing on the Closing Date and
refinancings, renewals and extensions of any such Indebtedness if (i) the
average life to maturity thereof is greater than or equal to that of the
Indebtedness being refinanced or extended (ii) the principal amount thereof or
interest payable thereon is not increased, and (iii) the terms thereof are not
less favorable to the Company or the Subsidiary incurring such Indebtedness than
the Indebtedness being refinanced, renewed or extended;
(b) the Future Working Capital Line;
(c) the PIPE Notes;
(d) Guaranties by any Subsidiary of any "Permitted Indebtedness" of
the Company or another Subsidiary;
(e) Indebtedness representing the deferred purchase price of property
and capital lease obligations which collectively does not exceed $1,000,000 in
aggregate principal amount; and
(f) Indebtedness of the Company to any wholly owned Subsidiary and
Indebtedness of any wholly owned Subsidiary to the Company or another wholly
owned Subsidiary which constitutes "Permitted Indebtedness."
"Permitted Investments" means:
(a) direct obligations of the United States of America, or of any
agency thereof, or obligations guaranteed as to principal and interest by the
United States of America, or of any agency thereof, in either case maturing not
more than 90 days from the date of acquisition thereof;
(b) certificates of deposit issued by any bank or trust company
organized under the laws of the United States of America or any State thereof
and having capital, surplus and undivided profits of at least $500,000,000,
maturing not more than 90 days from the date of acquisition thereof;
(c) commercial paper rated A-1 or better or P-1 by Standard & Poor's
Ratings Services or Xxxxx'x Investors Services, Inc., respectively, maturing not
more than 90 days from the date of acquisition thereof; in each case so long as
the same (x) provide for the payment of principal and interest (and not
principal alone or interest alone) and (y) are not subject to any contingency
regarding the payment of principal or interest; and
(d) the acquisition contemplated by the non-binding letter of intent
described in the Company's definitive proxy statement, dated September 6, 2006
(the "September Proxy Statement"), of all of the equity interests of an entity
in the dental products industry; provided,
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that the acquisition is consummated on substantially the terms described in the
September Proxy Statement (the "Permitted Acquisition").
"Permitted Liens" means:
(a) Liens imposed by law for taxes that are not yet due or are being
contested in good faith and for which adequate reserves have been established on
the Company's books and records in accordance with U.S. generally accepted
accounting principles, consistently applied;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of business
and securing obligations that are not overdue by more than 30 days or that are
being contested in good faith and by appropriate proceedings;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other social
security laws or regulations;
(d) 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;
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary course
of business that do not secure any monetary obligations and do not materially
detract from the value of the affected property or interfere with the ordinary
conduct of business of the Company or any of its Subsidiaries; and
(f) Liens granted to secure the obligations of the Company or any
Subsidiary under any Indebtedness permitted under clauses (b) and (e) of the
definition of "Permitted Indebtedness"; provided, however, that any Liens
securing Indebtedness permitted under (i) clause (b) of such definition shall be
limited to the Company's accounts and inventory and (ii) clause (e) of such
definition shall be limited to the property acquired through such Indebtedness.
"Person" means an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
"PIPE Notes" means up to $12,075,000 in aggregate principal amount of
the Company's 12% Convertible Notes due May __, 2007.
"PIPE Purchase Agreement" shall mean the Purchase Agreement, dated as
of November __, 2006, and as that agreement may be amended from time to time, by
and among the Company and the certain investors thereto, relating to the sale
and issuance of 9,100,000 shares of Company's Common Stock, warrants to purchase
8,508,000 shares of the Company's Common Stock and the issuance of the PIPE
Notes.
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"Pro Forma Consolidated Net Income" means, for any period,
Consolidated Net Income for such period minus the OraTest Expenses for such
period.
"Pro Forma EBITDA" means, for any period, EBITDA for such period minus
the OraTest Expenses for such period.
"Proposal Date" has the meaning set forth in the Purchase Agreement.
"Purchase Agreement" shall mean the Purchase Agreement, dated as of
November __, 2006, and as that agreement may be amended from time to time, by
and among the Company and the Investors.
"Qualifying Event of Default" means an Event of Default of the type
specified in Sections 6(b), 6(g) and 6(j).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of November __, 2006, and as that agreement may be amended
from time to time, by and among the Company and the Investors.
"Restricted Payment" has the meaning set forth in Section 5(b)(iv)
hereof.
"Security Agreement" has the meaning set forth in the Purchase
Agreement.
"Security Documents" means the collective reference to the Security
Agreement and each other agreement or writing pursuant to which the Company
purports to pledge or grant a security interest in any property or assets
securing the Company's obligations or any such Person purports to guaranty the
payment and/or performance of the Company's obligations, in each case, as
amended, restated, supplemented or otherwise modified from time to time.
"Stated Maturity Date" has the meaning set forth in the first
paragraph hereof.
"Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
"Trading Day" means (i) if the relevant stock or security is listed or
admitted for trading on The New York Stock Exchange, Inc., the Nasdaq Global
Market, the Nasdaq Capital Market or any other national securities exchange, a
day on which such exchange is open for business; (ii) if the relevant stock or
security is quoted on a system of automated dissemination of quotations of
securities prices, a day on which trades may be effected through such system; or
(iii) if the relevant stock or security is not listed or admitted for trading on
any national securities exchange or quoted on any system of automated
dissemination of quotation of securities prices, a day on which the relevant
stock or security is traded in a regular way in the over-the-counter market and
for which a closing bid and a closing asked price for such stock or security are
available, shall mean a day, other than a Saturday or Sunday, on which The New
York Stock Exchange, Inc. is open for trading.
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"Trigger Issuance" has the meaning set forth in Section 4(i) hereof.
2. Purchase Agreement. This Note is one of the several 6% Senior Secured
Convertible Notes of the Company issued pursuant to the Purchase Agreement. This
Note is subject to the terms and conditions of, and entitled to the benefit of,
the provisions of the Purchase Agreement. This Note is transferable and
assignable to any Person to whom such transfer is permissible under the Purchase
Agreement and applicable law. The Company agrees to issue from time to time a
replacement Note in the form hereof to facilitate such transfers and
assignments. In addition, after delivery of an indemnity in form and substance
reasonably satisfactory to the Company, the Company also agrees to promptly
issue a replacement Note if this Note is lost, stolen, mutilated or destroyed.
3. Prepayment. This Note shall not be prepayable or redeemable by the
Company prior to the Stated Maturity Date.
4. Conversion.
(a) The Holder shall have the right, at its option, exercisable at any
time after the Proposal Date, effective upon delivery to the Company of a
Conversion Notice, to convert all or a portion of the principal amount of this
Note and any accrued and unpaid interest due on the portion of the principal
amount of this Note being converted into fully paid and nonassessable shares of
the Common Stock at the Conversion Price then in effect. The date of any
optional conversion is hereinafter referred to as the "Optional Conversion
Date."
(b) Subject to the provisions of this clause (b), all of the principal
amount of this Note and any accrued and unpaid interest due hereon shall
automatically and without any action on the part of the Holder convert into
fully paid and nonassessable shares of Common Stock at the Conversion Price then
in effect, in the event that the closing bid price of a share of Common Stock as
traded on the Nasdaq Global Market (or such other exchange or stock market on
which the Common Stock may then be listed or quoted) equals or exceeds $7.00
(appropriately adjusted for any stock split, reverse stock split, stock dividend
or other reclassification or combination of the Common Stock occurring after the
date hereof) for twenty (20) consecutive trading days commencing after the
Proposal Date and during which the Registration Statement (as defined in the
Registration Rights Agreement) has been effective (such date, the "Automatic
Conversion Date"); provided that (i) such automatic conversion applies to all of
the Company Notes then outstanding on the same terms, (ii) all of the shares of
Common Stock issuable hereunder either (A) are registered pursuant to an
effective Registration Statement (as defined in the Registration Rights
Agreement) which has not been suspended and for which no stop order is in
effect, and pursuant to which the Holder is able to sell such shares of Common
Stock immediately following the Automatic Conversion Date or (B) no longer
constitute Registrable Securities (as defined in the Registration Rights
Agreement) and (iii) this Note is then fully convertible into shares of Common
Stock. No later than one Business Day following the Automatic Conversion Date,
the Company shall give written notice to the Holder advising the Holder of the
Automatic Conversion Date.
(c) Promptly after the Automatic Conversion Date or any Optional
Conversion Date, as applicable, the Holder of this Note shall deliver this Note
to the Company
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(or, in lieu thereof, an appropriate lost security affidavit in the event this
Note shall have been lost or destroyed, together with a customary indemnity
agreement) to the Company at its principal office (or such other office or
agency of the Company as the Company may designate by notice in writing to the
Holder), together with a statement of the name or names (with address) in which
the certificate or certificates for the Conversion Shares issuable upon such
conversion shall be issued. Promptly following the surrender of this Note (or,
in lieu thereof, delivery of an appropriate lost security affidavit in the event
this Note shall have been lost or destroyed, together with a customary indemnity
agreement) as aforesaid, but in no event more than three (3) Business Days
thereafter, the Company shall issue and deliver, or cause to be issued and
delivered, to the Holder, registered in such name or names as the Holder may
direct in writing, a certificate or certificates for the number of whole
Conversion Shares issuable upon the conversion of this Note and, in the case of
an optional conversion of less than the entire amount of this Note, a new note
of like tenor in the principal amount of this Note not being converted on the
relevant Optional Conversion Date. To the extent permitted by law, such
conversion shall be deemed to have been effected, and the Conversion Price shall
be determined, as of the close of business on the Automatic Conversion Date or
the Optional Conversion Date, as applicable, and at such time, the rights of the
Holder shall cease with respect to the Note, or amount thereof, being converted,
and the Person or Persons in whose name or names any certificate or certificates
for Conversion Shares shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the Conversion Shares represented
thereby.
(d) No fractional shares shall be issued upon any conversion of this
Note into Common Stock. If any fractional share of Common Stock would, except
for the provisions of the first sentence of this Section 4(d), be delivered upon
such conversion, the Company, in lieu of delivering such fractional share, shall
pay to the Holder an amount in cash equal to the Market Price of such fractional
share of Common Stock.
(e) If the Company shall, at any time or from time to time while this
Note is outstanding, pay a dividend or make a distribution on its Common Stock
in shares of Common Stock, subdivide its outstanding shares of Common Stock into
a greater number of shares or combine its outstanding shares of Common Stock
into a smaller number of shares or issue by reclassification of its outstanding
shares of Common Stock any shares of its capital stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then (i) the Conversion Price in effect
immediately prior to the date on which such change shall become effective shall
be adjusted by multiplying such Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such change and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after giving effect to such change and
(ii) the number of Conversion Shares issuable upon conversion of this Note shall
be adjusted by multiplying the number of Conversion Shares issuable upon
conversion of this Note immediately prior to the date on which such change shall
become effective by a fraction, the numerator of which is shall be the
Conversion Price in effect immediately prior to the date on which such change
shall become effective and the denominator of which shall be the Conversion
Price in effect immediately after giving effect to such change, calculated in
accordance with clause (i) above. Such adjustments shall be made successively
whenever any event listed above shall occur.
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(f) If any capital reorganization, reclassification of the capital
stock of the Company, consolidation or merger of the Company with another
corporation in which the Company is not the survivor, or sale, transfer or other
disposition of all or substantially all of the Company's assets to another
Person shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition,
lawful and adequate provision shall be made whereby the Holder shall thereafter
have the right, at its option, either (i) to purchase and receive upon the basis
and upon the terms and conditions herein specified and in lieu of the Conversion
Shares immediately theretofore issuable upon conversion of this Note such shares
of stock, securities or assets as would have been issuable or payable with
respect to or in exchange for a number of Conversion Shares equal to the number
of Conversion Shares immediately theretofore issuable upon conversion of this
Note, had such reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the Holder
to the end that the provisions hereof (including, without limitation, provision
for adjustment of the Conversion Price) shall thereafter be applicable, as
nearly equivalent as may be practicable in relation to any shares of stock,
securities or assets thereafter deliverable upon the conversion hereof or (ii)
in the event or any such consolidation or merger of the Company or such sale,
transfer or other disposition of all or substantially all of the Company's
assets only, to cause the Company to redeem this Note at a redemption price
equal to 110% of the outstanding principal amount of this Note, together with
all accrued and unpaid interest hereon to the date of redemption, which right
must be exercised by the Holder within ten (10) Business Days after receipt by
it from the Company of written notice of the occurrence of any transaction
giving rise to such right. The Company shall not effect any such consolidation,
merger, sale, transfer or other disposition unless prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger, or the corporation
purchasing or otherwise acquiring such assets or other appropriate corporation
or entity shall assume the obligation to deliver to the Holder, at the last
address of the Holder appearing on the books of the Company, such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
Holder may be entitled to purchase, without regard to any conversion limitation
specified in Section 4, and the other obligations under this Note. The
provisions of this paragraph (f) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales, transfers or
other dispositions.
(g) In case the Company shall fix a payment date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends or distributions referred to in Section 4(e)), or
subscription rights or warrants, the Conversion Price to be in effect after such
payment date shall be determined by multiplying the Conversion Price in effect
immediately prior to such payment date by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price of Common Stock immediately prior to such payment date, less
the fair market value (as determined by the Board in good faith) of said assets
or evidences of indebtedness so distributed, or of such subscription rights or
warrants, and the denominator of which shall be the total number of shares of
Common Stock outstanding multiplied by such Market Price immediately prior to
such payment date. Such adjustment shall be made successively whenever such a
payment date is fixed.
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(h) An adjustment to the Conversion Price shall become effective
immediately after the payment date in the case of each dividend or distribution
and immediately after the effective date of each other event which requires an
adjustment.
(i) In the event that, as a result of an adjustment made pursuant to
this Section 4, the Holder shall become entitled to receive any shares of
capital stock of the Company other than shares of Common Stock, the number of
such other shares so receivable upon conversion of this Note shall be subject
thereafter to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained in this Note.
(j) Except as provided in Section 4(j) hereof, if and whenever the
Company shall issue or sell, or is, in accordance with any of Sections 4(j)(i)
through 4(j)(vii) hereof, deemed to have issued or sold, any Additional Shares
of Common Stock (as defined below) for no consideration or for a consideration
per share less than the Conversion Price in effect immediately prior to the time
of such issuance or sale, then and in each such case (a "Trigger Issuance") the
then-existing Conversion Price, shall be reduced, as of the close of business on
the effective date of the Trigger Issuance, to a price determined as follows:
Adjusted Conversion Price = (A x B) + D
-----------
A+C
where
"A" equals the number of shares of Common Stock outstanding,
including Additional Shares of Common Stock (as defined below) deemed to be
issued hereunder, immediately preceding such Trigger Issuance;
"B" equals the Conversion Price in effect immediately
preceding such Trigger Issuance;
"C" equals the number of Additional Shares of Common Stock
issued or deemed issued hereunder as a result of the Trigger Issuance; and
"D" equals the aggregate consideration, if any, received or
deemed to be received by the Company upon such Trigger Issuance;
provided, however, that in no event shall the Conversion Price after giving
effect to such Trigger Issuance be greater than the Conversion Price in effect
prior to such Trigger Issuance.
For purposes of this subsection (j), "Additional Shares of Common
Stock" shall mean all shares of Common Stock issued or sold by the Company or
deemed to be issued or sold pursuant to this subsection (j), other than Excluded
Issuances (as defined in subsection (k) hereof).
For purposes of this Section 4(j), the following subsections (j)(i) to
(j)(viii) shall also be applicable (subject, in each such case, to the
provisions of Section 4(k) hereof):
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(i) In case at any time the Company shall in any manner grant
(directly and not by assumption in a merger or otherwise) any warrants or other
rights to subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or security convertible into or exchangeable for
Common Stock (such warrants, rights or options being called "Options" and such
convertible or exchangeable stock or securities being called "Convertible
Securities") whether or not such Options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(i) the sum (which sum shall constitute the applicable consideration) of (x) the
total amount, if any, received or receivable by the Company as consideration for
the granting of such Options, plus (y) the aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options, plus
(z), in the case of such Options which relate to Convertible Securities, the
aggregate amount of additional consideration, if any, payable upon the issuance
or sale of such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be less
than the Conversion Price immediately prior to the time of the granting of such
Options, then the total number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total amount of
such Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the date of granting
of such Options or the issuance of such Convertible Securities and thereafter
shall be deemed to be outstanding for purposes of adjusting the Conversion
Price. Except as otherwise provided in subsection 4(i)(iii), no adjustment of
the Conversion Price shall be made upon the actual issuance of such Common Stock
or of such Convertible Securities upon exercise of such Options or upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) In case the Company shall in any manner issue (directly and not
by assumption in a merger or otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert any such Convertible Securities
are immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) the sum
(which sum shall constitute the applicable consideration) of (x) the total
amount received or receivable by the Company as consideration for the issuance
or sale of such Convertible Securities, plus (y) the aggregate amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (ii) the total number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Conversion Price immediately prior to the time of such issuance or
sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued for such price per share as of the date of the issuance or sale
of such Convertible Securities and thereafter shall be deemed to be outstanding
for purposes of adjusting the Conversion Price, provided that (a) except as
otherwise provided in subsection 4(j)(iii), no adjustment of the Conversion
Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities and (b) no further
adjustment of the Conversion Price shall be made by reason of the issuance or
sale of Convertible Securities upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Conversion Price have been
made pursuant to the other provisions of Section 4(j).
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(iii) Upon the happening of any of the following events, namely, if
the purchase price provided for in any Option referred to in subsection 4(j)(i)
hereof, the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subsections 4(j)(i) or
4(j)(ii), or the rate at which Convertible Securities referred to in subsections
4(j)(i) or 4(j)(ii) are convertible into or exchangeable for Common Stock shall
change at any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Conversion Price in effect
at the time of such event shall forthwith be readjusted to the Conversion Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the termination of any Option for which
any adjustment was made pursuant to this subsection 4(j) or any right to convert
or exchange Convertible Securities for which any adjustment was made pursuant to
this subsection 4(j) (including without limitation upon the redemption or
purchase for consideration of such Convertible Securities by the Company), the
Conversion Price then in effect hereunder shall forthwith be changed to the
Conversion Price which would have been in effect at the time of such termination
had such Option or Convertible Securities, to the extent outstanding immediately
prior to such termination, never been issued.
(iv) Subject to the provisions of this Section 4(j), in case the
Company shall declare a dividend or make any other distribution upon any stock
of the Company (other than the Common Stock) payable in Common Stock, Options or
Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration;
provided, that if any adjustment is made to the Conversion Price as a result of
a declaration of a dividend and such dividend is rescinded, the Conversion Price
shall be appropriately readjusted to the Conversion Price in effect had such
dividend not been declared.
(v) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the net amount received by the Company therefor, after
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection therewith. In case any
shares of Common Stock, Options or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount of the consideration other
than cash received by the Company shall be deemed to be the fair value of such
consideration as determined in good faith by the Board, after deduction of any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Company in connection therewith. In case any Options shall be issued in
connection with the issuance and sale of other securities of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued for such consideration as determined in good faith by
the Board of Directors of the Company. If Common Stock, Options or Convertible
Securities shall be issued or sold by the Company and, in connection therewith,
other Options or Convertible Securities (the "Additional Rights") are issued,
then the consideration received or deemed to be received by the Company shall be
reduced by the fair market value of the Additional Rights (as determined using
the Black-Scholes option pricing model or another method mutually agreed to by
the Company and the Holder). The Board shall respond promptly, in writing, to an
inquiry by the Holder as to the
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fair market value of the Additional Rights. In the event that the Board and the
Holder are unable to agree upon the fair market value of the Additional Rights,
the Company and the Holder shall jointly select an appraiser, who is experienced
in such matters. The decision of such appraiser shall be final and conclusive,
and the cost of such appraiser shall be borne evenly by the Company and the
Holder.
(vi) In case the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issuance
or sale of the shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(vii) The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of the Company
or any of its wholly-owned subsidiaries, and the disposition of any such shares
(other than the cancellation or retirement thereof) shall be considered an
issuance or sale of Common Stock for the purpose of this subsection (j).
(viii) Notwithstanding any other provision in this subsection (j) to
the contrary, if a reduction in the Conversion Price pursuant to this subsection
(j) (other than as set forth in this clause (viii)) would require the Company to
obtain stockholder approval of the transactions contemplated by the Purchase
Agreement to be consummated on the Closing Date pursuant to Nasdaq Marketplace
Rule 4350(i) and such stockholder approval has not been obtained, (i) the
Conversion Price shall be reduced to the maximum extent that would not require
stockholder approval under such Rule, and (ii) the Company shall use its
commercially reasonable efforts to obtain such stockholder approval as soon as
reasonably practicable, including by calling a special meeting of stockholders
to vote on such Conversion Price adjustment. This provision shall not restrict
the number of shares of Common Stock which a Holder may receive or beneficially
own in order to determine the amount of securities or other consideration that
such Holder may receive in the event of a transaction contemplated by Section 4
of this Note.
(k) Anything herein to the contrary notwithstanding, the Company shall
not be required to make any adjustment of the Conversion Price in the case of
the issuance of (A) capital stock, Options or Convertible Securities issued to
directors, officers, employees or consultants of the Company in connection with
their service as directors of the Company, their employment by the Company or
their retention as consultants by the Company pursuant to an equity compensation
program approved by the Board of Directors of the Company or the compensation
committee of the Board of Directors of the Company, (B) shares of Common Stock
issued upon the conversion or exercise of Options or Convertible Securities
issued prior to the date hereof, provided such securities are not amended after
the date hereof to increase the number of shares of Common Stock issuable
thereunder or to lower the exercise or conversion price thereof, (C) securities
issued pursuant to the Purchase Agreement and securities issued upon the
exercise or conversion of those securities, (D) shares of Common Stock issued or
issuable by reason of a dividend, stock split or other distribution on shares of
Common Stock (but only to the extent that such a dividend, split or distribution
results in an adjustment in the
A-15
Conversion Price pursuant to the other provisions of this Note) and (E)
securities issued pursuant to the PIPE Purchase Agreement (collectively,
"Excluded Issuances").
(l) In case at any time:
(i) the Company shall declare any dividend upon its Common Stock or
any other class or series of capital stock of the Company payable in cash or
stock or make any other distribution to the holders of its Common Stock or any
such other class or series of capital stock;
(ii) the Company shall offer for subscription pro rata to the holders
of its Common Stock or any other class or series of capital stock of the Company
any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization or reclassification of
the capital stock of the Company, any acquisition or a liquidation, dissolution
or winding up of the Company;
then, in any one or more of said cases, the Company shall give, by delivery in
person or by certified or registered mail, return receipt requested, addressed
to the Holder at the address of such Holder as shown on the books of the
Company, (a) at least 20 Business Days' prior written notice of the date on
which the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any event set forth in clause (iii) of this Section 4(l) and (b)
in the case of any event set forth in clause (iii) of this Section 4(l), at
least 20 Business Days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause (a) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock or such other class or series of
capital stock shall be entitled thereto and such notice in accordance with the
foregoing clause (b) shall also specify the date on which the holders of Common
Stock and such other series or class of capital stock shall be entitled to
exchange their Common Stock and other stock for securities or other property
deliverable upon consummation of the applicable event set forth in clause (iii)
of this Section 4(l).
(m) Upon any adjustment of the Conversion Price, then and in each such
case the Company shall give prompt written notice thereof, by delivery in person
or by certified or registered mail, return receipt requested, addressed to the
Holder at the address of such Holder as shown on the books of the Company, which
notice shall state the Conversion Price resulting from such adjustment and
setting forth in reasonable detail the method upon which such calculation is
based.
(n) From and after the effectiveness of the Amendment (as defined in
the Purchase Agreement), the Company shall at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issuance
upon conversion of this Note as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of this Note. The Company
covenants that all shares of Common Stock which shall be so issued shall be duly
and validly issued and fully paid and nonassessable, and free from all taxes,
liens and charges with respect to the issue thereof, and, without limiting the
generality of the foregoing, and that the Company will from time to time take
all such action as may be
A-16
requisite to assure that the par value per share of the Common Stock is at all
times equal to or less than the Conversion Price in effect at the time. The
Company shall take all such action as may be necessary to assure that all such
shares of Common Stock may be so issued without violation of any applicable law
or regulation, or of any requirement of any national securities exchange or
trading market upon which the Common Stock may be listed. The Company shall not
take any action which results in any adjustment of the Conversion Price if the
total number of shares of Common Stock issued and issuable after such action
upon conversion of this Note would exceed the total number of shares of Common
Stock then authorized by the Company's Certificate of Incorporation.
(o) The issuance of certificates for shares of Common Stock upon
conversion of this Note shall be made without charge to the holders thereof for
any issuance tax in respect thereof, provided that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
Holder. When the Company is required to issue Conversion Shares hereunder, if:
(1) certificates representing such Conversion Shares are not delivered to the
Holder within three (3) Business Days of the Automatic Conversion Date or the
Optional Conversion Date, as applicable, and (2) prior to the time such
certificates are received, the Holder, or any third party on behalf of such
Holder or for the Holder's account, purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of such certificates (a "Buy-In"), then the Company shall pay in cash to
the Holder (for costs incurred either directly by such Holder or on behalf of a
third party) the amount by which the total purchase price paid for Common Stock
as a result of the Buy-In (including brokerage commissions, if any) exceeds the
proceeds received by the Holder as a result of the sale to which such Buy-In
relates. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In.
(p) The Company will not at any time close its transfer books against
the transfer, as applicable, of this Note or of any shares of Common Stock
issued or issuable upon the conversion of this Note in any manner which
interferes with the timely conversion of this Note, except as may otherwise be
required to comply with applicable securities laws.
(q) Notwithstanding anything to the contrary contained herein, the
number of Conversion Shares that may be acquired by the Holder upon any
conversion of this Note (or otherwise in respect hereof) shall be limited to the
extent necessary to insure that, following such conversion (or other issuance),
the total number of shares of Common Stock then beneficially owned by such
Holder and its Affiliates and any other Persons whose beneficial ownership of
Common Stock would be aggregated with the Holder's for purposes of Section 13(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), does
not exceed 9.999% of the total number of issued and outstanding shares of Common
Stock (including for such purpose the shares of Common Stock issuable upon such
conversion). For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. This provision shall not restrict the number of shares
of Common Stock which a Holder may receive or beneficially own in order to
determine the amount of securities or other consideration that such Holder may
receive in the event of a transaction contemplated by Section 4(f) of this Note.
This restriction may not be waived.
A-17
5. Covenants.
(a) So long as any amount due under this Note is outstanding and until
the earlier of (i) the indefeasible payment in full of all amounts payable by
the Company hereunder and (ii) the conversion of this Note:
(i) The Company shall and shall cause each of its Subsidiaries to (A)
carry on and conduct its business in substantially the same manner and in
substantially the same fields of enterprise as it is presently conducting, (B)
do all things necessary to remain duly organized, validly existing, and in good
standing as a domestic corporation under the laws of its state of incorporation
and (C) maintain all requisite authority to conduct its business in those
jurisdictions in which its business is conducted.
(ii) The Company shall promptly notify the Holder in writing of (A)
any change in the business or the operations the Company or any Subsidiary which
could reasonably be expected to have a Material Adverse Effect, and (B) any
information which indicates that any financial statements which are the subject
of any representation contained in the Transaction Documents, or which are
furnished to the Holder pursuant to the Transaction Documents, fail, in any
material respect, to present fairly, as of the date thereof and for the period
covered thereby, the financial condition and results of operations purported to
be presented therein, disclosing the nature thereof.
(iii) The Company shall promptly notify the Holder of the occurrence
of any Event of Default or any event which, with the giving of notice, the lapse
of time or both would constitute an Event of Default, which notice shall include
a written statement as to such occurrence, specifying the nature thereof and the
action (if any) which is proposed to be taken with respect thereto.
(iv) The Company shall promptly notify the Holder of any action, suit
or proceeding at law or in equity or by or before any governmental
instrumentality or other agency against the Company or any Subsidiary or to
which the Company or any Subsidiary may be subject which alleges damages in
excess of Two Hundred Fifty Thousand United States Dollars ($250,000).
(v) The Company shall promptly notify the Holder of any default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which the Company or any
Subsidiary is a party which default could reasonably be expected to have a
Material Adverse Effect.
(vi) The Company shall and shall cause each Subsidiary to promptly
take any and all actions necessary to execute any definitive documentation
(which documentation shall include customary representations, warranties,
covenants, conditions and agreements, and any UCC financing statements)
reasonably requested by the Holder, for obtaining the benefits of the Security
Agreement, subject to the terms and conditions stated therein.
(vii) The Company shall and shall cause each Subsidiary to pay when
due all taxes, assessments and governmental charges and levies upon it or its
income, profits or
A-18
property, except those that are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been set aside.
(viii) The Company shall and shall cause each Subsidiary to all times
maintain with financially sound and reputable insurance companies insurance
covering its assets and its businesses in such amounts and covering such risks
(including, without limitation, hazard, business interruption and public
liability) as is consistent with sound business practice and as may be obtained
at commercially reasonable rates. The insurance policies will comply with the
provisions of Section 11 of the Security Agreement.
(ix) The Company shall and shall cause each Subsidiary to comply with
all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or
awards to which they may be subject except where the failure to so comply could
not reasonably be expected to have a Material Adverse Effect.
(x) The Company shall and shall cause each Subsidiary to use
commercially reasonable efforts to do all things necessary to maintain,
preserve, protect and keep its properties in good repair, working order and
condition and use commercially reasonable efforts to make all necessary and
proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted.
(xi) At its own expense, the Company shall and shall cause each
Subsidiary to make, execute, endorse, acknowledge, file and/or deliver any
documents and take all commercially reasonable actions necessary or required to
maintain its ownership rights in its Intellectual Property, including, without
limitation, (i) any action reasonably required to protect the Intellectual
Property in connection with any infringement, suspected infringement, passing
off, act of unfair competition or other unlawful interference with the rights of
the Company or any Subsidiary in and to such Intellectual Property, and (ii) any
registrations with the United States Patent & Trademark Office and any
corresponding foreign patent and/or trademark office required for the Company or
any Subsidiary to carry on its business as presently conducted and as presently
proposed to be conducted. Except for non-exclusive licenses granted in the
ordinary course of business, the Company shall not and shall cause each
Subsidiary not to transfer, assign or otherwise convey the Intellectual
Property, any registrations or applications thereof and all goodwill associated
therewith, to any person or entity.
(xii) Promptly after the occurrence thereof, the Company shall and
shall cause each Subsidiary to inform the Holder of the following material
developments: (i) entering into material agreements outside the ordinary course
of business consistent with past practice, (ii) any issuance of debt securities
by the Company or any Subsidiary, (iii) the incurrence of any Indebtedness,
other than Permitted Indebtedness, by the Company or any Subsidiary, (iv) a
change in the number of the Board of Directors of the Company, (v) a sale, lease
or transfer of any material portion of the assets of the Company or any
Subsidiary and (vi) any change in ownership of any Subsidiary (specifying the
details of any such change, including the identity and ownership amount of any
new owner).
(xiii) The Company shall maintain, as at the end of each fiscal
quarter commencing with the fiscal quarter ending January 31, 2007, Free Cash in
an amount not less
A-19
than $4,500,000 (the "Cash Target"); provided, however, that if the Company's
Peridex(R) product line is divested, the Cash Target shall be increased to
$10,500,000 effective as of the closing date of such divestiture.
(xiv) The Company shall maintain Pro Forma EBITDA of at least $1 (the
"EBITDA Target") for each of the fiscal quarters ending January 31, 2008 and
April 30, 2008; provided, however, that if the Company's Peridex(R) product line
is divested, the EBITDA Target shall be decreased by $1,500,000 on an annualized
basis, commencing on the closing date of such divestiture. For the avoidance of
doubt, if the Peridex(R) divestiture is consummated on December 31, 2007, the
EBITDA Target for the fiscal quarter ending January 31, 2008 would be -$125,000
and the EBITDA Target for the fiscal quarter ending April 30, 2008 would be
-$375,000.
(xv) The Company shall have Pro Forma Consolidated Net Income of at
least $1 (the "Net Income Target") for the fiscal quarter ended July 31, 2008;
provided, however, that if the Company's Peridex(R) product line is divested,
the Net Income Target shall be decreased by $1,500,000 on an annualized basis,
commencing on the closing date of such divestiture. For the avoidance of doubt,
if the Peridex(R) divestiture is consummated on June 30, 2008, the Net Income
Target for the fiscal quarter ending July 31, 2008 would be -$125,000 and if the
Peridex(R) divestiture is consummated on April 15, 2008, the Net Income Target
for the fiscal quarter ending July 31, 2008 would be -$375,000.
(xvi) The Company shall have Consolidated Net Income of at least $1
for each fiscal quarter commencing with the fiscal quarter ending October 31,
2008.
(xvii) Within 45 days after the end of each of the first three fiscal
quarters and within 60 days after the end of each Fiscal Year, the Company shall
deliver to the Holder an officer's certificate, in a form reasonably
satisfactory to the Holder and signed by the Company's Chief Financial Officer,
certifying as to the Company's compliance with all of the terms, conditions and
covenants set forth in this Note (without regard to any period of grace or
requirement of notice provided hereunder) and, in the event any default or Event
of Default exists, specifying the nature of such default or Event of Default and
the Company's plans to cure such default or Event of Default and demonstrating
the Company's compliance with each of the financial covenants set forth in
Sections 5(a)(xiii) through 5(a)(xvi), as applicable. Each such officer's
certificate shall include a perfection certificate update in a form reasonably
satisfactory to the Holder.
(b) So long as any amount due under this Note is outstanding and until
the earlier of (i) the indefeasible payment in full of all amounts payable by
the Company hereunder and (ii) the conversion of this Note, without the prior
written consent of the Majority Holders (for purposes of this Section 5(b), any
Company Notes held by any employee, director or officer of the Company or any
Subsidiary shall not be deemed to be outstanding):
(i) The Company shall not and shall cause each Subsidiary not to
create, incur, guarantee, issue, assume or in any manner become liable in
respect of any Indebtedness, other than Permitted Indebtedness.
A-20
(ii) The Company shall not and shall cause each Subsidiary not to
create, incur, assume or suffer to exist any Lien upon any of its property,
whether now owned or hereafter acquired other than (i) Liens created pursuant to
the Security Agreement and (ii) Permitted Liens. The Company shall not, and
shall cause each Subsidiary not to, be bound by any agreement which limits the
ability of the Company or any Subsidiary to grant Liens.
(iii) The Company shall not and shall cause each Subsidiary not to,
directly or indirectly, enter into or permit to exist any transaction or series
of related transactions (including, without limitation, the purchase, sale,
lease or exchange of any property or the rendering of any service (other than
service as an employee)) with, or for the benefit of, any of its Affiliates
other than a wholly owned Subsidiary, except for consulting arrangements with
directors approved by the Board.
(iv) The Company shall not, and shall cause each of its Subsidiaries
not to, directly or indirectly, declare or pay any dividends on account of any
shares of any class or series of its capital stock now or hereafter outstanding,
or set aside or otherwise deposit or invest any sums for such purpose, or
redeem, retire, defease, purchase or otherwise acquire any shares of any class
of its capital stock (or set aside or otherwise deposit or invest any sums for
such purpose) for any consideration or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or pay any interest, premium if any, or principal of any Indebtedness or
redeem, retire, defease, repurchase or otherwise acquire any Indebtedness (or
set aside or otherwise deposit or invest any sums for such purpose) for any
consideration or apply or set apart any sum, or make any other payment in
respect thereof or agree to do any of the foregoing (each of the foregoing is
herein called a "Restricted Payment"); provided, that (i) the Company may make
payments of interest, premium if any, and principal of the Notes in accordance
with the terms hereof, (ii) provided that no Event of Default or event which,
with the giving of notice, the lapse of time or both would constitute an Event
of Default has occurred and is continuing, the Company may declare and pay
regular, recurring dividends on the shares of its Series B Preferred Stock
outstanding on the date hereof in accordance with the terms of the Series B
Preferred Stock as in effect on the date hereof, (iii) provided that no Event of
Default or event which, with the giving of notice, the lapse of time or both
would constitute an Event of Default has occurred and is continuing, the Company
and its Subsidiaries may make regularly scheduled payments of interest and
principal of any Permitted Indebtedness, (iv) any Subsidiary directly or
indirectly wholly owned by the Company may pay dividends on its capital stock
and (v) the Company may repurchase capital stock from a former employee in
connection with the termination or other departure of such employee, strictly in
accordance with the terms of any agreement entered into with such employee and
in effect on the Closing Date (as defined in the Purchase Agreement), provided
that (A) such repurchase is approved by a majority of the Board, (B) payments
permitted under this clause (v) shall not exceed $1,000,000 in the aggregate,
and (C) no such payment may be made if an Event of Default or an event which,
with the giving of notice, the lapse of time or both would constitute an Event
of Default has occurred and is continuing or would result from such payment.
(v) Except as contemplated by the Permitted Acquisition, the Company
shall not and shall cause each Subsidiary not to, directly or indirectly, engage
in any business other than the business of developing, manufacturing and
marketing preventive healthcare
A-21
technologies and products, focused on enhanced body defense and the detection of
pre-disease states.
(vi) The Company shall not and shall cause each Subsidiary not to make
or own any Investment in any Person, including without limitation any joint
venture, other than (A) Permitted Investments, (B) operating deposit accounts
with banks, (C) Hedging Agreements entered into in the ordinary course of the
Company's financial planning and not for speculative purposes and (D)
investments by the Company in the capital stock of any wholly owned Subsidiary.
(vii) The Company shall not and shall cause each Subsidiary not to,
directly or indirectly, become or remain liable as lessee or as a guarantor or
other surety with respect to any lease of any property (whether real, personal
or mixed), whether now owned or hereafter acquired, which the Company or any
Subsidiary (a) has sold or transferred or is to sell or to transfer to any other
Person, or (b) intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by the Company or any
Subsidiary to any Person in connection with such lease.
(viii) The Company shall not and shall cause each Subsidiary not to
settle, or agree to indemnify or defend third parties against, any material
lawsuit, except as may be required by judicial or regulatory order or by
agreements entered into prior to the date hereof on a basis consistent with past
practice. A material lawsuit shall be any lawsuit in which the amount in
controversy exceeds One Million United States Dollars ($1,000,000).
(ix) Other than the Amendment to Certificate of Incorporation as
contemplated by Section 7.9 of the Purchase Agreement, the Company shall not and
shall cause each Subsidiary not to amend its bylaws, certificate of
incorporation or other charter document in a manner adverse to the Holder.
(x) The Company shall not change its Fiscal Year.
6. Event of Default. The occurrence of any of following events shall
constitute an "Event of Default" hereunder:
(a) the failure of the Company to make any payment of principal on
this Note when due, whether at maturity, upon acceleration or otherwise;
(b) the failure of the Company to make any payment of interest on this
Note, or any other amounts due under the other Transaction Documents (as defined
under the Purchase Agreement) when due, whether at maturity, upon acceleration
or otherwise, and such failure continues for more than five (5) days;
(c) the Company and/or its Subsidiaries fail to make a required
payment or payments on Indebtedness of $250,000 or more in aggregate principal
amount and such failure continues for more than ten (10) days;
(d) there shall have occurred an acceleration of the stated maturity
of any Indebtedness of the Company or its Subsidiaries of $250,000 or more in
aggregate principal
A-22
amount (which acceleration is not rescinded, annulled or otherwise cured within
ten (10) days of receipt by the Company or a Subsidiary of notice of such
acceleration);
(e) the Company makes an assignment for the benefit of creditors or
admits in writing its inability to pay its debts generally as they become due;
or an order, judgment or decree is entered adjudicating the Company as bankrupt
or insolvent; or any order for relief with respect to the Company is entered
under title 11 of the United States Code or any other bankruptcy or insolvency
law; or the Company petitions or applies to any tribunal for the appointment of
a custodian, trustee, receiver or liquidator of the Company or of any
substantial part of the assets of the Company, or commences any proceeding
relating to it under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding is commenced,
against the Company and either (i) the Company by any act indicates its approval
thereof, consents thereto or acquiescence therein or (ii) such petition
application or proceeding is not dismissed within sixty (60) days;
(f) a final, non-appealable judgment which, in the aggregate with
other outstanding final judgments against the Company and its Subsidiaries,
exceeds $250,000 shall be rendered against the Company or a Subsidiary and
within sixty (60) days after entry thereof, such judgment is not discharged or
execution thereof stayed pending appeal, or within sixty (60) days after the
expiration of such stay, such judgment is not discharged; provided, however,
that a judgment that provides for the payment of royalties subsequent to the
date of the judgment shall be deemed to be discharged so long as the Company or
the Subsidiary affected thereby is in compliance with the terms of such
judgment;
(g) the Company is in breach of the requirements of Sections
5(a)(xiii) through 5(a)(xvii) or Section 5(b) hereof;
(h) if any representation or statement of fact made in any Transaction
Document, certificate or other document furnished to the Holder at any time by
or on behalf of the Company proves to have been false in any material respect
when made or furnished;
(i) any Liens created by the Security Documents shall at any time not
constitute a valid and perfected first priority Lien on the collateral intended
to be covered thereby (to the extent perfection by filing, registration,
recordation or possession is required herein or therein) in favor of the
Holders, free and clear of all other Liens (other than Permitted Liens), or any
of the security interests granted pursuant to the Security Documents shall be
determined to be void, voidable, invalid or unperfected, are subordinated or are
ineffective to provide the Holder with a perfected, first priority security
interest in the collateral covered by the Security Documents, free and clear of
all other Liens (other than Permitted Liens) or, except for expiration or
termination in accordance with their terms, the Security Agreement shall for
whatever reason be terminated or cease to be in full force and effect, or the
enforceability thereof or any other Transaction Documents shall be contested by
the Company;
(j) if the Company fails to observe or perform in any material respect
any of its covenants contained in the Transaction Documents (other than any
failure covered by Section
A-23
6(a), (b) or (g)), and such failure continues for thirty (30) days after receipt
by the Company of notice thereof;
(k) the Proposal Date does not occur on or prior to December 31, 2006;
or
(l) The Company shall fail to comply with the corporate governance
changes as specified in the writing delivered to the Holder pursuant to the
terms of the Purchase Agreement on or prior to the respective dates set forth in
such writing.
Upon the occurrence of any such Event of Default, except as provided in the
following paragraph, all unpaid principal and accrued interest under this Note
shall become immediately due and payable (A) upon election of the Holder, with
respect to (a) through (d) and (f) through (l), and (B) automatically, with
respect to (e). Except as provided in the following paragraph, upon the
occurrence of any Event of Default, the Holder may, in addition to declaring all
amounts due hereunder to be immediately due and payable, pursue any available
remedy, whether at law or in equity, including, without limitation, exercising
its rights under the other Transaction Documents. If an Event of Default occurs,
the Company shall pay to the Holder the reasonable attorneys' fees and
disbursements and all other reasonable out-of-pocket costs incurred by the
Holder in order to collect amounts due and owing under this Note or otherwise to
enforce the Holder's rights and remedies hereunder and under the other
Transaction Documents.
So long as the only Events of Default that have occurred and are continuing
are Qualifying Events of Default, upon the first occurrence of a Qualifying
Event of Default which is not cured by the Company or waived or rescinded by the
Holder, the Holder's right to accelerate the principal and interest due under
this Note shall be limited to one-third of the outstanding principal amount and
all accrued interest then due under this Note (the "First Default Amount"). The
date on which notice of the acceleration of the First Default Amount is given by
the Holder is hereinafter referred to as the "First Acceleration Date." Upon the
second occurrence of a Qualifying Event of Default which is not cured or waived
or rescinded by the Holder or upon the continuation of an existing Qualifying
Event of Default more than 90 days after the First Acceleration Date and
provided that the Holder shall have received the indefeasible payment in full of
the First Default Amount, the Holder's right to accelerate the principal and
interest due under this Note shall be limited to one-half of the outstanding
principal amount and all accrued interest then due under this Note (the "Second
Default Amount"); provided, however, that no such acceleration shall be
effective until 90 days after the First Acceleration Date. The date on which
notice of the acceleration of the Second Default Amount is given by the Holder
is hereinafter referred to as the "Second Acceleration Date." Upon the third
occurrence of a Qualifying Event of Default which is not cured by the Company or
waived or rescinded by the Holder or upon the continuation of an existing
Qualifying Event of Default more than 90 days after the Second Acceleration Date
and provided that the Holder shall have received the indefeasible payment in
full of the First Default Amount and the Second Default Amount, the Holder shall
not have the right to accelerate the remaining outstanding principal amount and
all accrued interest then due under this Note until 90 days after the Second
Acceleration Date. The failure of the Company to indefeasibly pay in full the
First Default Amount or the Second Default Amount within three days of the First
Acceleration Date or the Second Acceleration Date, as applicable, shall
constitute an additional Event of Default hereunder and shall entitle the
Holder, at its option, to declare the entire principal amount of this Note and
all accrued interest
A-24
hereunder immediately due and payable. In no event shall the Holder proceed
against the collateral pursuant to the terms of the Security Agreement in
respect of one or more Qualifying Events of Default subject to the provisions of
this paragraph unless and until the Company shall have failed to pay the First
Default Amount or the Second Default Amount, as applicable, within three days of
the First Acceleration Date or the Second Acceleration Date, as applicable.
7. No Waiver. To the extent permitted by applicable law, no delay or
omission on the part of the Holder in exercising any right under this Note shall
operate as a waiver of such right or of any other right of the Holder, nor shall
any delay, omission or waiver on any one occasion be deemed a bar to or waiver
of the same or any other right on any future occasion.
8. Amendments in Writing. Any term of this Note may be amended or waived
upon the written consent of the Company and the holders of Company Notes
representing at least 50% of the principal amount of Company Notes then
outstanding (the "Majority Holders"); provided, that (x) any such amendment or
waiver must apply to all outstanding Company Notes; and (y) without the consent
of the Holder hereof, no amendment or waiver shall (i) change the Stated
Maturity Date of this Note, (ii) reduce the principal amount of this Note or the
interest rate due hereon, (iii) change the Conversion Price or (iv) change the
place of payment of this Note. No such waiver or consent on any one instance
shall be construed to be a continuing waiver or a waiver in any other instance
unless it expressly so provides.
9. Waivers. The Company hereby forever waives presentment, demand,
presentment for payment, protest, notice of protest, notice of dishonor of this
Note and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note.
10. Waiver of Jury Trial. THE COMPANY HEREBY WAIVES ITS RIGHT TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS NOTE OR
ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL
OTHER CLAIMS. THE COMPANY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
11. Secured Obligation. This Note is one of the Notes referred to in the
Security Agreement and is secured by the collateral described therein. The
Security Agreement grants the Holder certain rights with respect to such
collateral upon an Event of Default.
12. Governing Law; Consent to Jurisdiction. This Note shall be governed by
and construed under the law of the State of New York, without giving effect to
the conflicts of law principles thereof. The Company and, by accepting this
Note, the Holder, each irrevocably submits to the exclusive jurisdiction of the
courts of the State of New York located in New York County and the United States
District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this Note and
the transactions contemplated hereby. Service of process in connection with any
such suit, action or proceeding may be served on each party hereto anywhere in
the world by the same methods as are specified for the giving of notices under
this Note. The Company and, by accepting this Note, the Holder, each irrevocably
consents to the jurisdiction of any such court in any such suit, action or
proceeding and to the laying of venue in such court. The Company and, by
accepting
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this Note, the Holder, each irrevocably waives any objection to the laying of
venue of any such suit, action or proceeding brought in such courts and
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum.
13. Costs. If action is instituted to collect on this Note, the Company
promises to pay all reasonable costs and expenses, including reasonable
attorney's fees, incurred in connection with such action.
14. Notices. All notices hereunder shall be given in writing and shall be
deemed delivered when received by the other party hereto at the address set
forth in the Purchase Agreement or at such other address as may be specified by
such party from time to time in accordance with the Purchase Agreement.
15. Successors and Assigns. This Note shall be binding upon the successors
or assigns of the Company and shall inure to the benefit of the successors and
assigns of the Holder.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Company has caused this 6% Senior Convertible Note
to be signed in its name, effective as of the date first above written.
ZILA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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EXHIBIT B
THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH
SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (III)
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT
THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.
SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID
AFTER 5:00 P.M. EASTERN TIME ON NOVEMBER __, 2011 (THE "EXPIRATION DATE").
No. __________
ZILA, INC.
WARRANT TO PURCHASE ______ SHARES OF
COMMON STOCK, PAR VALUE $0.001 PER SHARE
For VALUE RECEIVED, ____________________ ("Warrantholder"), is entitled to
purchase, subject to the provisions of this Warrant, from Zila, Inc., a Delaware
corporation ("Company"), at any time not later than 5:00 P.M., Eastern time, on
the Expiration Date (as defined above), at an exercise price per share equal to
$2.21 (the exercise price in effect being herein called the "Warrant Price"),
______ shares ("Warrant Shares") of the Company's Common Stock, par value $0.001
per share ("Common Stock"). The number of Warrant Shares purchasable upon
exercise of this Warrant and the Warrant Price shall be subject to adjustment
from time to time as described herein. Terms not otherwise defined herein have
the respective meanings ascribed to them in the Purchase Agreement, dated
November __, 2006 (the "Purchase Agreement"), among the Company, the initial
holder of this Warrant and the other parties thereto.
Section 1. Registration. The Company shall maintain books for the transfer
and registration of the Warrant. Upon the initial issuance of this Warrant, the
Company shall issue and register the Warrant in the name of the Warrantholder.
Section 2. Transfers. As provided herein, this Warrant may be transferred
only pursuant to a registration statement filed under the Securities Act of
1933, as amended (the "Securities Act"), or an exemption from such registration.
Subject to such restrictions, the Company shall transfer this Warrant from time
to time upon the books to be maintained by the Company for that purpose, upon
surrender hereof for transfer, properly endorsed or accompanied by appropriate
instructions for transfer and such other documents as may be reasonably required
by the Company, including, if required by the Company, an opinion of its counsel
to the effect that such transfer is exempt from the registration requirements of
the Securities Act, to establish that such transfer is being made in accordance
with the terms hereof, and a new Warrant shall be issued to the transferee and
the surrendered Warrant shall be canceled by the Company.
Section 3. Exercise of Warrant. Subject to the provisions hereof, the
Warrantholder may exercise this Warrant, in whole or in part, at any time prior
to its expiration upon surrender of the Warrant, together with delivery of a
duly executed Warrant exercise form, in the form attached hereto as Appendix A
(the "Exercise Agreement") and payment by cash, certified check or wire transfer
of funds (or, in certain circumstances, by cashless exercise as provided below)
of the aggregate Warrant Price for that number of Warrant Shares then being
purchased, to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Warrantholder). The Warrant Shares
so purchased shall be deemed to be issued to the Warrantholder or the
Warrantholder's designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered for
exercise (or the date evidence of loss, theft or destruction thereof and
security or indemnity satisfactory to the Company has been provided to the
Company in connection with such exercise), the Warrant Price
shall have been paid and the completed Exercise Agreement shall have been
delivered. Certificates for the Warrant Shares so purchased shall be delivered
to the Warrantholder within a reasonable time, not exceeding three (3) business
days, after this Warrant shall have been so exercised. The certificates so
delivered shall be in such denominations as may be requested by the
Warrantholder and shall be registered in the name of the Warrantholder or such
other name as shall be designated by the Warrantholder, as specified in the
Exercise Agreement. If this Warrant shall have been exercised only in part,
then, unless this Warrant has expired, the Company shall, at its expense, at the
time of delivery of such certificates, deliver to the Warrantholder a new
Warrant representing the right to purchase the number of shares with respect to
which this Warrant shall not then have been exercised. As used herein, "business
day" means a day, other than a Saturday or Sunday, on which banks in New York
City are open for the general transaction of business. Each exercise hereof
shall constitute the re-affirmation by the Warrantholder that the
representations and warranties contained in Section 5 of the Purchase Agreement
are true and correct in all material respects with respect to the Warrantholder
as of the time of such exercise.
Section 4. Compliance with the Securities Act of 1933. Except as provided
in the Purchase Agreement, the Company may cause the legend set forth on the
first page of this Warrant to be set forth on each Warrant, and a similar legend
on any security issued or issuable upon exercise of this Warrant, unless counsel
for the Company is of the opinion as to any such security that such legend is
unnecessary.
Section 5. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Warrant Shares issuable upon the
exercise of the Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Warrant Shares in a
name other than that of the Warrantholder in respect of which such shares are
issued, and in such case, the Company shall not be required to issue or deliver
any certificate for Warrant Shares or any Warrant until the person requesting
the same has paid to the Company the amount of such tax or has established to
the Company's reasonable satisfaction that such tax has been paid. The
Warrantholder shall be responsible for income taxes due under federal, state or
other law, if any such tax is due.
Section 6. Mutilated or Missing Warrants. In case this Warrant shall be
mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and
substitution of and upon surrender and cancellation of the mutilated Warrant, or
in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and for the purchase of a like number of Warrant Shares,
but only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction of the Warrant, and with respect to a lost, stolen or
destroyed Warrant, reasonable indemnity with respect thereto, if requested by
the Company.
Section 7. Reservation of Common Stock. The Company hereby represents and
warrants that there have been reserved, and the Company shall at all applicable
times keep reserved until issued (if necessary) as contemplated by this Section
7, out of the authorized and unissued shares of Common Stock, sufficient shares
to provide for the exercise of the rights of purchase represented by this
Warrant. The Company agrees that all Warrant Shares issued upon due exercise of
the Warrant shall be, at the time of delivery of the certificates for such
Warrant Shares, duly authorized, validly issued, fully paid and non-assessable
shares of Common Stock of the Company.
Section 8. Adjustments. Subject and pursuant to the provisions of this
Section 8, the Warrant Price and number of Warrant Shares subject to this
Warrant shall be subject to adjustment from time to time as set forth
hereinafter.
(a) If the Company shall, at any time or from time to time while this
Warrant is outstanding, pay a dividend or make a distribution on its Common
Stock in shares of Common Stock, subdivide its outstanding shares of Common
Stock into a greater number of shares or combine its outstanding shares of
Common Stock into a smaller number of shares or issue by reclassification of its
outstanding shares of Common Stock any shares of its capital stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then (i) the Warrant Price in effect
immediately prior to the date on which such change shall become effective shall
be adjusted by multiplying such Warrant Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such change and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after giving effect to such change and
(ii) the number of Warrant Shares purchasable upon exercise of this Warrant
shall be adjusted by multiplying the number of Warrant Shares purchasable upon
exercise of this Warrant immediately prior to the date
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on which such change shall become effective by a fraction, the numerator of
which is shall be the Warrant Price in effect immediately prior to the date on
which such change shall become effective and the denominator of which shall be
the Warrant Price in effect immediately after giving effect to such change,
calculated in accordance with clause (i) above. Such adjustments shall be made
successively whenever any event listed above shall occur.
(b) If any capital reorganization, reclassification of the capital
stock of the Company, consolidation or merger of the Company with another
corporation in which the Company is not the survivor, or sale, transfer or other
disposition of all or substantially all of the Company's assets to another
corporation shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition,
lawful and adequate provision shall be made whereby each Warrantholder shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions herein specified and in lieu of the Warrant Shares
immediately theretofore issuable upon exercise of the Warrant, such shares of
stock, securities or assets as would have been issuable or payable with respect
to or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of the Warrant, had such
reorganization, reclassification, consolidation, merger, sale, transfer or other
disposition not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of each Warrantholder to the end
that the provisions hereof (including, without limitation, provision for
adjustment of the Warrant Price) shall thereafter be applicable, as nearly
equivalent as may be practicable in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. The Company shall not
effect any such consolidation, merger, sale, transfer or other disposition
unless prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such consolidation or
merger, or the corporation purchasing or otherwise acquiring such assets or
other appropriate corporation or entity shall assume the obligation to deliver
to the Warrantholder, at the last address of the Warrantholder appearing on the
books of the Company, such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Warrantholder may be entitled to
purchase, and the other obligations under this Warrant. The provisions of this
paragraph (b) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, transfers or other
dispositions.
(c) In case the Company shall fix a payment date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends or distributions referred to in Section 8(a)), or
subscription rights or warrants, the Warrant Price to be in effect after such
payment date shall be determined by multiplying the Warrant Price in effect
immediately prior to such payment date by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price (as defined below) per share of Common Stock immediately prior
to such payment date, less the fair market value (as determined by the Company's
Board of Directors in good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or warrants, and the denominator of
which shall be the total number of shares of Common Stock outstanding multiplied
by such Market Price per share of Common Stock immediately prior to such payment
date. "Market Price", as of a particular date (the "Valuation Date"), shall mean
the following: (a) if the Common Stock is then listed on a national stock
exchange, the closing sale price of one share of Common Stock on such exchange
on the last Trading Day prior to the Valuation Date; (b) if the Common Stock is
then quoted on the National Association of Securities Dealers, Inc. OTC Bulletin
Board (the "Bulletin Board") or such similar quotation system or association,
the closing sale price of one share of Common Stock on the Bulletin Board or
such other quotation system or association on the last Trading Day prior to the
Valuation Date or, if no such closing sale price is available, the average of
the high bid and the low asked price quoted thereon on the last trading day
prior to the Valuation Date; (c) if such security is then included in the "pink
sheets," the closing sale price of one share of Common Stock on the "pink
sheets" on the last Trading Day prior to the Valuation Date or, if no such
closing sale price is available, the average of the high bid and the low ask
price quoted on the "pink sheets" as of the end of the last Trading Day prior to
the Valuation Date; or (d) if the Common Stock is not then listed on a national
stock exchange or quoted on the Bulletin Board, the "pink sheets" or such other
quotation system or association, the fair market value of one share of Common
Stock as of the Valuation Date, as determined in good faith by the Board of
Directors of the Company and the Warrantholder. If the Common Stock is not then
listed on a national securities exchange or quoted on the Bulletin Board, the
"pink sheets" or other quotation system or association, the Board of Directors
of the Company shall respond promptly, in writing, to an inquiry by the
Warrantholder prior to the exercise hereunder as to the fair market value of a
share of Common Stock as determined by the Board of Directors of the Company. In
the event that the Board of Directors of the Company and the Warrantholder are
unable to agree
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upon the fair market value in respect of subpart (d) of this paragraph, the
Company and the Warrantholder shall jointly select an appraiser, who is
experienced in such matters. The decision of such appraiser shall be final and
conclusive, and the cost of such appraiser shall be borne equally by the Company
and the Warrantholder. Such adjustment shall be made successively whenever such
a payment date is fixed.
(d) An adjustment to the Warrant Price shall become effective
immediately after the payment date in the case of each dividend or distribution
and immediately after the effective date of each other event which requires an
adjustment.
(e) In the event that, as a result of an adjustment made pursuant to
this Section 8, the Warrantholder shall become entitled to receive any shares of
capital stock of the Company other than shares of Common Stock, the number of
such other shares so receivable upon exercise of this Warrant shall be subject
thereafter to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
contained in this Warrant.
(f) Except as provided in subsection (g) hereof, if and whenever the
Company shall issue or sell, or is, in accordance with any of subsections (f)(l)
through (f)(7) hereof, deemed to have issued or sold, any Additional Shares of
Common Stock (as defined below) for no consideration or for a consideration per
share less than the Warrant Price in effect immediately prior to the time of
such issuance or sale, then and in each such case (a "Trigger Issuance") the
then-existing Warrant Price, shall be reduced, as of the close of business on
the effective date of the Trigger Issuance, to a price determined as follows:
Adjusted Warrant Price = (A x B) + D
-----------
A+C
where
"A" equals the number of shares of Common Stock outstanding,
including Additional Shares of Common Stock (as defined below) deemed to be
issued hereunder, immediately preceding such Trigger Issuance;
"B" equals the Warrant Price in effect immediately preceding
such Trigger Issuance;
"C" equals the number of Additional Shares of Common Stock
issued or deemed issued hereunder as a result of the Trigger Issuance; and
"D" equals the aggregate consideration, if any, received or
deemed to be received by the Company upon such Trigger Issuance;
provided, however, that in no event shall the Warrant Price after giving effect
to such Trigger Issuance be greater than the Warrant Price in effect prior to
such Trigger Issuance.
For purposes of this subsection (f), "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued or sold by the Company or deemed to
be issued or sold pursuant to this subsection (f), other than Excluded Issuances
(as defined in subsection (g) hereof).
For purposes of this subsection (f), the following subsections (f)(l) to
(f)(8) shall also be applicable (subject, in each such case, to the provisions
of Section 8(g) hereof):
(f)(1) Issuance of Rights or Options. In case at any time the
Company shall in any manner grant (directly and not by assumption in a merger or
otherwise) any warrants or other rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or security convertible
into or exchangeable for Common Stock (such warrants, rights or options being
called "Options" and such convertible or exchangeable stock or securities being
called "Convertible Securities") whether or not such Options or the right to
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convert or exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus (y) the
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus (z), in the case of such Options which relate
to Convertible Securities, the aggregate amount of additional consideration, if
any, payable upon the issuance or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (ii) the total maximum number of shares
of Common Stock issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Options) shall be less than the Warrant Price in effect
immediately prior to the time of the granting of such Options, then the total
number of shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed to have been issued
for such price per share as of the date of granting of such Options or the
issuance of such Convertible Securities and thereafter shall be deemed to be
outstanding for purposes of adjusting the Warrant Price. Except as otherwise
provided in subsection 8(f)(3), no adjustment of the Warrant Price shall be made
upon the actual issuance of such Common Stock or of such Convertible Securities
upon exercise of such Options or upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities.
(f)(2) Issuance of Convertible Securities. In case the Company
shall in any manner issue (directly and not by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon such conversion
or exchange (determined by dividing (i) the sum (which sum shall constitute the
applicable consideration) of (x) the total amount received or receivable by the
Company as consideration for the issuance or sale of such Convertible
Securities, plus (y) the aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (ii) the
total number of shares of Common Stock issuable upon the conversion or exchange
of all such Convertible Securities) shall be less than the Warrant Price in
effect immediately prior to the time of such issuance or sale, then the total
maximum number of shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall be deemed to have been issued for such
price per share as of the date of the issuance or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding for purposes of
adjusting the Warrant Price, provided that (a) except as otherwise provided in
subsection 8(f)(3), no adjustment of the Warrant Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities and (b) no further adjustment of the Warrant Price shall
be made by reason of the issuance or sale of Convertible Securities upon
exercise of any Options to purchase any such Convertible Securities for which
adjustments of the Warrant Price have been made pursuant to the other provisions
of subsection 8(f).
(f)(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price provided
for in any Option referred to in subsection 8(f)(l) hereof, the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subsections 8(f)(l) or 8(f)(2), or the
rate at which Convertible Securities referred to in subsections 8(f)(l) or
8(f)(2) are convertible into or exchangeable for Common Stock shall change at
any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Warrant Price in effect at
the time of such event shall forthwith be readjusted to the Warrant Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the termination of any Option for which
any adjustment was made pursuant to this subsection 8(f) or any right to convert
or exchange Convertible Securities for which any adjustment was made pursuant to
this subsection 8(f) (including without limitation upon the redemption or
purchase for consideration of such Convertible Securities by the Company), the
Warrant Price then in effect hereunder shall forthwith be changed to the Warrant
Price which would have been in effect at the time of such termination had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such termination, never been issued.
(f)(4) Stock Dividends. Subject to the provisions of this Section
8(f), in case the Company shall declare a dividend or make any other
distribution upon any stock of the Company (other than the Common Stock) payable
in Common Stock, Options or Convertible Securities, then any Common Stock,
Options or
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Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration; provided, that if any adjustment is made to the Warrant Price as
a result of a declaration of a dividend and such dividend is rescinded, the
Warrant Price shall be appropriately readjusted to the Warrant Price in effect
had such dividend not been declared.
(f)(5) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the net amount received by
the Company therefor, after deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined in good faith by
the Board of Directors of the Company, after deduction of any expenses incurred
or any underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any Options shall be issued in connection with the
issuance and sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
for such consideration as determined in good faith by the Board of Directors of
the Company. If Common Stock, Options or Convertible Securities shall be issued
or sold by the Company and, in connection therewith, other Options or
Convertible Securities (the "Additional Rights") are issued, then the
consideration received or deemed to be received by the Company shall be reduced
by the fair market value of the Additional Rights (as determined using the
Black-Scholes option pricing model or another method mutually agreed to by the
Company and the Warrantholder). The Board of Directors of the Company shall
respond promptly, in writing, to an inquiry by the Warrantholder as to the fair
market value of the Additional Rights. In the event that the Board of Directors
of the Company and the Warrantholder are unable to agree upon the fair market
value of the Additional Rights, the Company and the Warrantholder shall jointly
select an appraiser, who is experienced in such matters. The decision of such
appraiser shall be final and conclusive, and the cost of such appraiser shall be
borne evenly by the Company and the Warrantholder.
(f)(6) Record Date. In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (i) to receive
a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issuance or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(f)(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company or any of its wholly-owned subsidiaries, and the
disposition of any such shares (other than the cancellation or retirement
thereof) shall be considered an issuance or sale of Common Stock for the purpose
of this subsection (f).
(f)(8) Nasdaq Limitation. Notwithstanding any other provision in
Section 8(f) to the contrary, if a reduction in the Warrant Price pursuant to
Section 8(f) (other than as set forth in this clause (f)(8)) would require the
Company to obtain stockholder approval of the transactions contemplated by the
Purchase Agreement to be consummated on the Closing Date pursuant to Nasdaq
Marketplace Rule 4350(i) and such stockholder approval has not been obtained,
(i) the Warrant Price shall be reduced to the maximum extent that would not
require stockholder approval under such Rule, and (ii) the Company shall use its
commercially reasonable efforts to obtain such stockholder approval as soon as
reasonably practicable, including by calling a special meeting of stockholders
to vote on such Warrant Price adjustment. This provision shall not restrict the
number of shares of Common Stock which a Warrantholder may receive or
beneficially own in order to determine the amount of securities or other
consideration that such Holder may receive in the event of a transaction
contemplated by Section 8 of this Warrant.
(g) Anything herein to the contrary notwithstanding, the Company shall
not be required to make any adjustment of the Warrant Price in the case of the
issuance of (A) capital stock, Options or Convertible Securities issued to
directors, officers, employees or consultants of the Company in connection with
their service as directors of the Company, their employment by the Company or
their retention as consultants by the Company
B-6
pursuant to an equity compensation program approved by the Board of Directors of
the Company or the compensation committee of the Board of Directors of the
Company, (B) shares of Common Stock issued upon the conversion or exercise of
Options or Convertible Securities issued prior to the date hereof, provided such
securities are not amended after the date hereof to increase the number of
shares of Common Stock issuable thereunder or to lower the exercise or
conversion price thereof, (C) securities issued pursuant to the Purchase
Agreement and securities issued upon the exercise or conversion of those
securities, (D) shares of Common Stock issued or issuable by reason of a
dividend, stock split or other distribution on shares of Common Stock (but only
to the extent that such a dividend, split or distribution results in an
adjustment in the Warrant Price pursuant to the other provisions of this
Warrant) and (E) securities issued pursuant to the Purchase Agreement, dated as
of November __, 2006, and as that agreement may be amended from time to time, by
and among the Company and the certain investors thereto, relating to the sale
and issuance of 9,100,000 shares of Company's Common Stock, warrants to purchase
8,508,000 shares of the Company's Common Stock and the issuance of $12,075,000
in aggregate principal amount of the Company's 12% Convertible Notes due May
2007 (collectively, "Excluded Issuances").
(h) Upon any adjustment to the Warrant Price pursuant to Section 8(f)
above, the number of Warrant Shares purchasable hereunder shall be adjusted by
multiplying such number by a fraction, the numerator of which shall be the
Warrant Price in effect immediately prior to such adjustment and the denominator
of which shall be the Warrant Price in effect immediately thereafter.
(i) To the extent permitted by applicable law and the listing
requirements of any stock market or exchange on which the Common Stock is then
listed, the Company from time to time may decrease the Warrant Price by any
amount for any period of time if the period is at least twenty (20) days, the
decrease is irrevocable during the period and the Board shall have made a
determination that such decrease would be in the best interests of the Company,
which determination shall be conclusive. Whenever the Warrant Price is decreased
pursuant to the preceding sentence, the Company shall provide written notice
thereof to the Warrantholder at least five (5) days prior to the date the
decreased Warrant Price takes effect, and such notice shall state the decreased
Warrant Price and the period during which it will be in effect.
Section 9. Fractional Interest. The Company shall not be required to issue
fractions of Warrant Shares upon the exercise of this Warrant. If any fractional
share of Common Stock would, except for the provisions of the first sentence of
this Section 9, be deliverable upon such exercise, the Company, in lieu of
delivering such fractional share, shall pay to the exercising Warrantholder an
amount in cash equal to the Market Price of such fractional share of Common
Stock on the date of exercise.
Section 10. Extension of Expiration Date. If the Company fails to cause any
Registration Statement covering Registrable Securities (unless otherwise defined
herein, capitalized terms are as defined in the Registration Rights Agreement
relating to the Warrant Shares (the "Registration Rights Agreement")) to be
declared effective prior to the applicable dates set forth therein, or if any of
the events specified in Section 2(c)(ii) of the Registration Rights Agreement
occurs, and the Blackout Period (whether alone, or in combination with any other
Blackout Period) continues for more than 60 days in any 12 month period, or for
more than a total of 90 days, then the Expiration Date of this Warrant shall be
extended one day for each day beyond the 60-day or 90-day limits, as the case
may be, that the Blackout Period continues.
Section 11. Benefits. Nothing in this Warrant shall be construed to give
any person, firm or corporation (other than the Company and the Warrantholder)
any legal or equitable right, remedy or claim, it being agreed that this Warrant
shall be for the sole and exclusive benefit of the Company and the
Warrantholder.
Section 12. Notices to Warrantholder. Upon the happening of any event
requiring an adjustment of the Warrant Price, the Company shall promptly give
written notice thereof to the Warrantholder at the address appearing in the
records of the Company, stating the adjusted Warrant Price and the adjusted
number of Warrant Shares resulting from such event and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. Failure to give such notice to the Warrantholder or any
defect therein shall not affect the legality or validity of the subject
adjustment.
Section 13. Identity of Transfer Agent. The Transfer Agent for the Common
Stock is Computershare Trust Company. Upon the appointment of any subsequent
transfer agent for the Common Stock or other shares of
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the Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrant, the Company will mail to the Warrantholder a
statement setting forth the name and address of such transfer agent.
Section 14. Notices. Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or facsimile, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one business day after
delivery to such carrier. All notices shall be addressed as follows: if to the
Warrantholder, at its address as set forth in the Company's books and records
and, if to the Company, at the address as follows, or at such other address as
the Warrantholder or the Company may designate by ten days' advance written
notice to the other:
If to the Company:
Zila, Inc.
0000 Xxxxx 0xx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxxxxxxx, Esq.
Fax: (000) 000-0000
Section 15. Registration Rights. The initial Warrantholder is entitled to
the benefit of certain registration rights with respect to the shares of Common
Stock issuable upon the exercise of this Warrant as provided in the Registration
Rights Agreement, and any subsequent Warrantholder may be entitled to such
rights.
Section 16. Successors. All the covenants and provisions hereof by or for
the benefit of the Warrantholder shall bind and inure to the benefit of its
respective successors and assigns hereunder.
Section 17. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
This Warrant shall be governed by, and construed in accordance with, the
internal laws of the State of New York, without reference to the choice of law
provisions thereof. The Company and, by accepting this Warrant, the
Warrantholder, each irrevocably submits to the exclusive jurisdiction of the
courts of the State of New York located in New York County and the United States
District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this Warrant
and the transactions contemplated hereby. Service of process in connection with
any such suit, action or proceeding may be served on each party hereto anywhere
in the world by the same methods as are specified for the giving of notices
under this Warrant. The Company and, by accepting this Warrant, the
Warrantholder, each irrevocably consents to the jurisdiction of any such court
in any such suit, action or proceeding and to the laying of venue in such court.
The Company and, by accepting this Warrant, the Warrantholder, each irrevocably
waives any objection to the laying of venue of any such suit, action or
proceeding brought in such courts and irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE
WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.
Section 18. Mandatory Exercise. Notwithstanding any other provision
contained in this Warrant to the contrary, in the event that the closing price
per share of Common Stock equals or exceeds $5.00 appropriately adjusted for any
stock split, reverse stock split, stock dividend or other reclassification or
combination of the Common Stock occurring after the date hereof) for twenty (20)
consecutive trading days commencing after the Registration Statement (as defined
in the Registration Rights Agreement) with respect to the shares of Common Stock
issuable upon the exercise of this Warrant has been declared effective, the
Company, upon thirty (30) days prior written notice (the "Notice Period") given
to the Warrantholder within one business day immediately following the end of
such twenty (20) trading day period, may demand that the Warrantholder exercise
its cash exercise rights hereunder, and the Warrantholder must exercise its
rights hereunder prior to the end of the Notice Period; provided that (i) the
Company simultaneously gives a similar notice to all holders of Company Warrants
(as defined below),
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(ii) all of the shares of Common Stock issuable hereunder either (A) are
registered pursuant to an effective Registration Statement (as defined in the
Registration Rights Agreement) which has not been suspended and for which no
stop order is in effect, and pursuant to which the Warrantholder is able to sell
such shares of Common Stock at all times during the Notice Period or (B) no
longer constitute Registrable Securities (as defined in the Registration Rights
Agreement) and (iii) this Warrant is fully exercisable for the full amount of
Warrant Shares covered hereby. If such exercise is not made or if only a partial
exercise is made, any and all rights to further exercise the Warrant shall cease
upon the expiration of the Notice Period. Notwithstanding any such notice by the
Company, the Warrantholder shall have the right to exercise this Warrant prior
to the end of the Notice Period.
Section 19. Cashless Exercise. Notwithstanding any other provision
contained herein to the contrary, from and after the first anniversary of the
Closing Date (as defined in the Purchase Agreement) and so long as the Company
is required under the Registration Rights Agreement to have effected the
registration of the Warrant Shares for resale to the public pursuant to a
Registration Statement (as such term is defined in the Registration Rights
Agreement), if the Warrant Shares may not be freely sold to the public as a
result of the Company's failure to perform or satisfy its obligations under the
Registration Rights Agreement, the Warrantholder may elect to receive, without
the payment by the Warrantholder of the aggregate Warrant Price in respect of
the shares of Common Stock to be acquired, shares of Common Stock of equal value
to the value of this Warrant, or any specified portion hereof, by the surrender
of this Warrant (or such portion of this Warrant being so exercised) together
with a Net Issue Election Notice, in the form annexed hereto as Appendix B, duly
executed, to the Company. Thereupon, the Company shall issue to the
Warrantholder such number of fully paid, validly issued and nonassessable shares
of Common Stock as is computed using the following formula:
X = Y (A - B)
---------
A
where
X = the number of shares of Common Stock to which the
Warrantholder is entitled upon such cashless exercise;
Y = the total number of shares of Common Stock covered by this
Warrant for which the Warrantholder has surrendered purchase rights at such time
for cashless exercise (including both shares to be issued to the Warrantholder
and shares as to which the purchase rights are to be canceled as payment
therefor);
A = the "Market Price" of one share of Common Stock as at the
date the net issue election is made; and
B = the Warrant Price in effect under this Warrant at the time
the net issue election is made.
Section 20. Limitations on Exercise. Notwithstanding anything to the
contrary contained herein, the number of Warrant Shares that may be acquired by
the Warrantholder upon any exercise of this Warrant (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such
exercise (or other issuance), the total number of shares of Common Stock then
beneficially owned by such Warrantholder and its Affiliates and any other
Persons whose beneficial ownership of Common Stock would be aggregated with the
Warrantholder's for purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), does not exceed 9.999% of the total
number of issued and outstanding shares of Common Stock (including for such
purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
This provision shall not restrict the number of shares of Common Stock which a
Holder may receive or beneficially own in order to determine the amount of
securities or other consideration that such Holder may receive in the event of a
transaction contemplated by Section 8 of this Warrant. This restriction may not
be waived.
Section 21. No Rights as Stockholder. Prior to the exercise of this
Warrant, the Warrantholder shall not have or exercise any rights as a
stockholder of the Company by virtue of its ownership of this Warrant.
B-9
Section 22. Amendment; Waiver. This Warrant is one of a series of Warrants
of like tenor issued by the Company pursuant to the Purchase Agreement and
initially covering an aggregate of 1,909,091 shares of Common Stock
(collectively, the "Company Warrants"). Any term of this Warrant may be amended
or waived (including the adjustment provisions included in Section 8 of this
Warrant) upon the written consent of the Company and the holders of Company
Warrants representing at least 50% of the number of shares of Common Stock then
subject to all outstanding Company Warrants (the "Majority Holders"); provided,
that (x) any such amendment or waiver must apply to all Company Warrants; and
(y) the number of Warrant Shares subject to this Warrant, the Warrant Price and
the Expiration Date may not be amended, and the right to exercise this Warrant
may not be altered or waived, without the written consent of the Warrantholder.
Section 23. Section Headings. The section headings in this Warrant are for
the convenience of the Company and the Warrantholder and in no way alter,
modify, amend, limit or restrict the provisions hereof.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed, as of the ______ day of November, 2006.
ZILA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
B-11
APPENDIX A
ZILA, INC.
WARRANT EXERCISE FORM
To Zila, Inc.:
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant ("Warrant") for, and to purchase thereunder by
the payment of the Warrant Price and surrender of the Warrant, _______________
shares of Common Stock ("Warrant Shares") provided for therein, and requests
that certificates for the Warrant Shares be issued as follows:
__________________________________________________
Name
__________________________________________________
Address
__________________________________________________
Federal Tax ID or Social Security No.
and delivered by
____ (certified mail to the above address, or
____ (electronically (provide DWAC Instructions:___________________),
or
____ (other (specify): __________________________________________).
and, if the number of Warrant Shares shall not be all the Warrant Shares
purchasable upon exercise of the Warrant, that a new Warrant for the balance of
the Warrant Shares purchasable upon exercise of this Warrant be registered in
the name of the undersigned Warrantholder or the undersigned's Assignee as below
indicated and delivered to the address stated below.
Note: The signature must correspond with the name of the Warrantholder as
written on the first page of the Warrant in every particular, without alteration
or enlargement or any change whatever, unless the Warrant has been assigned.
Dated: ____________, ____ Signature:
-----------------------------
----------------------------------------
Name (please print)
----------------------------------------
----------------------------------------
Address
----------------------------------------
Federal Identification or
Social Security No.
A-1
Assignee:
----------------------------------------
----------------------------------------
----------------------------------------
X-0
XXXXXXXX X
ZILA, INC.
NET ISSUE ELECTION NOTICE
To: Zila, Inc.
Date:[_________________________]
The undersigned hereby elects under Section 19 of this Warrant to surrender
the right to purchase [____________] shares of Common Stock pursuant to this
Warrant and hereby requests the issuance of [_____________] shares of Common
Stock. The certificate(s) for the shares issuable upon such net issue election
shall be issued in the name of the undersigned or as otherwise indicated below.
-----------------------------------------
Signature
-----------------------------------------
Name for Registration
-----------------------------------------
Mailing Address
B-1
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of this ___ day of November, 2006, by and among Zila, Inc., a Delaware
corporation (the "Company"), and the "Investors" named in that certain Purchase
Agreement by and among the Company and the Investors (the "Purchase Agreement").
The parties hereby agree as follows:
1. Certain Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliate" means, with respect to any person, any other person which
directly or indirectly controls, is controlled by, or is under common control
with, such person.
"Business Day" means a day, other than a Saturday or Sunday, on which banks
in New York City are open for the general transaction of business.
"Common Stock" shall mean the Company's common stock, par value $0.001 per
share, and any securities into which such shares may hereinafter be
reclassified.
"Conversion Shares" means the shares of Common Stock issuable upon the due
conversion of the Notes.
"Investors" shall mean Xxxx, the Investors identified in the Purchase
Agreement and any Affiliate or permitted transferee of any Investor who is a
subsequent holder of any Warrants or Registrable Securities.
"Notes" means the 6% Senior Secured Convertible Notes issued by the Company
to the Investors pursuant to the Purchase Agreement, the form of which is
attached to the Purchase Agreement as Exhibit A.
"PIPEs Agreement" means the Purchase Agreement, dated as of November ___,
2006, among the Company and the investors party thereto relating to the issuance
and sale by the Company of shares of its Common Stock, its 12% Convertible Notes
and certain warrants relating thereto.
"PIPEs Securities" means the shares of Common Stock issued pursuant to the
terms of the PIPEs Agreement and issuable upon the conversion or exercise of the
securities issued pursuant to the terms of the PIPEs Agreement.
"Proposal Date" is as defined in the Purchase Agreement.
"Prospectus" shall mean (i) the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus, and (ii) any "free
writing prospectus" as defined in Rule 163 under the 1933 Act.
"Register," "registered" and "registration" refer to a registration made by
preparing and filing a Registration Statement or similar document in compliance
with the 1933 Act (as defined below), and the declaration or ordering of
effectiveness of such Registration Statement or document.
"Registrable Securities" shall mean (i) the Conversion Shares, (iii) the
Warrant Shares and (iv) any other securities issued or issuable with respect to
or in exchange for Registrable Securities; provided, that, a security shall
cease to be a Registrable Security upon (A) sale pursuant to a Registration
Statement or Rule 144 under the 1933 Act, or (B) such security becoming eligible
for sale by the Investors pursuant to Rule 144(k).
"Registration Statement" shall mean any registration statement of the
Company filed under the 1933 Act that covers the resale of any of the
Registrable Securities pursuant to the provisions of this Agreement, amendments
and supplements to such Registration Statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such
Registration Statement.
"Required Investors" means the Investors holding a majority of the
Registrable Securities.
"Xxxx" means Xxxx Capital Partners, Inc. together with its employees and
Affiliates.
"SEC" means the U.S. Securities and Exchange Commission.
"Shares" means the shares of Common Stock issued on the Closing Date
pursuant to the Purchase Agreement.
"Trading Day" means (i) if the relevant stock or security is listed or
admitted for trading on The New York Stock Exchange, Inc., the Nasdaq Global
Market, the Nasdaq Capital Market or any other national securities exchange, a
day on which such exchange is open for business; (ii) if the relevant stock or
security is quoted on a system of automated dissemination of quotations of
securities prices, a day on which trades may be effected through such system; or
(iii) if the relevant stock or security is not listed or admitted for trading on
any national securities exchange or quoted on any system of automated
dissemination of quotation of securities prices, a day on which the relevant
stock or security is traded in a regular way in the over-the-counter market and
for which a closing bid and a closing asked price for such stock or security are
available, shall mean a day, other than a Saturday or Sunday, on which The New
York Stock Exchange, Inc. is open for trading.
"Warrant Shares" means the shares of Common Stock issuable upon the
exercise of the Warrants.
"Warrants" means the warrants to purchase shares of Common Stock issuable
to the Investors on the Proposal Date pursuant to the Purchase Agreement, the
form of which is attached to the Purchase Agreement as Exhibit C.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
2. Registration.
(a) Registration Statements.
(i)
(A) Promptly following the Proposal Date, and in no event
later than thirty (30) days after the Proposal Date (the "Filing Deadline"), the
Company shall prepare and file with the SEC a Registration Statement on Form S-3
(or, if Form S-3 is not then available to the Company, on such form of
registration statement as is then available to effect a registration for resale
of the Registrable Securities, subject to the Required Investors' consent),
covering the resale of the Conversion Shares and the Warrant Shares and any and
all other securities issued or issuable with respect to or in exchange for such
Registrable Securities. In connection with the second Registration Statement
referred to above, the Company may avail itself of Rule 429 under the 0000 Xxx.
(B) Subject to any SEC comments, each Registration Statement
filed pursuant to Section 2(a)(i) shall include the plan of distribution
attached hereto as Exhibit A. Each such Registration Statement also shall cover,
to the extent allowable under the 1933 Act and the rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of Common
Stock resulting from stock splits,
C-2
stock dividends or similar transactions with respect to the Registrable
Securities to which such Registration Statement relates. Such Registration
Statement shall not include any shares of Common Stock or other securities for
the account of any other holder without the prior written consent of the
Required Investors; provided, however, that the Company shall have the right to
include (i) the PIPEs Securities and (ii) the shares of Common Stock issued to
Xxxx or which Xxxx may have the right to acquire as compensation for Xxxx'x
services to the Company in connection with the transactions contemplated by the
Purchase Agreement and the PIPEs Agreement. Each Registration Statement (and
each amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided in accordance with Section 3(c) to the
Investors and/or their counsel prior to its filing or other submission. If the
Registration Statement covering the Conversion Shares and the Warrant Shares and
any and all other securities issued or issuable with respect to or in exchange
for such Registrable Securities is not filed with the SEC on or prior to the
Filing Deadline for such Registrable Securities, the Company will make pro rata
payments to each Investor, as liquidated damages and not as a penalty, in an
amount equal to 1.0% of the aggregate amount invested by such Investor for the
Registrable Securities included in the applicable Registration Statement for
each 30-day period or pro rata for any portion thereof following the Filing
Deadline for which the applicable Registration Statement is not filed with
respect to the applicable Registrable Securities. Such payments shall constitute
the Investors' exclusive monetary remedy for such events, but shall not affect
the right of the Investors to seek injunctive relief. Such payments shall be
made to each Investor in cash.
(ii) Additional Registrable Securities. Upon the written demand
of any Investor and upon any change in the Conversion Price (as defined in the
Notes) or in the Warrant Price (as defined in the Warrants) such that additional
shares of Common Stock become issuable upon the conversion of the Notes or the
exercise of the Warrants (the "Additional Shares"), the Company shall prepare
and file with the SEC one or more Registration Statements on Form S-3 or amend
the relevant Registration Statement filed pursuant to clause (i) above, if such
Registration Statement has not previously been declared effective (or, if Form
S-3 is not then available to the Company, on such form of registration statement
as is then available to effect a registration for resale of the Additional
Shares, subject to the Required Investors' consent) covering the resale of the
Additional Shares, but only to the extent the Additional Shares are not at the
time covered by an effective Registration Statement. Such Registration Statement
also shall cover, to the extent allowable under the 1933 Act and the rules
promulgated thereunder (including Rule 416), such indeterminate number of
additional shares of Common Stock resulting from stock splits, stock dividends
or similar transactions with respect to the Additional Shares. Such Registration
Statement shall not include any shares of Common Stock or other securities for
the account of any other holder without the prior written consent of the
Required Investors; provided, however, that the Company shall have the right to
include (i) the PIPEs Securities and (ii) the shares of Common Stock issued to
Xxxx or which Xxxx may have the right to acquire as compensation for Xxxx'x
services to the Company in connection with the transactions contemplated by the
Purchase Agreement and the PIPEs Agreement. The Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided in accordance with Section 3(c) to the
Investors and/or their counsel prior to its filing or other submission. If a
Registration Statement covering the Additional Shares is required to be filed
under this Section 2(a)(ii) and is not filed with the SEC within thirty (30)
days of the request of any Investor or upon the occurrence of any of the events
specified in this Section 2(a)(ii), the Company will make pro rata payments to
each Investor, as liquidated damages and not as a penalty, in an amount equal to
1.0% of the aggregate amount invested by such Investor with respect to the
securities giving rise to the issuance of such Additional Shares for each 30-day
period or pro rata for any portion thereof following the date by which such
Registration Statement should have been filed for which no Registration
Statement is filed with respect to the Additional Shares. Such payments shall
constitute the Investors' exclusive monetary remedy for such events, but shall
not affect the right of the Investors to seek injunctive relief. Such payments
shall be made to each Investor in cash.
(b) Expenses. The Company will pay all expenses associated with each
registration, including filing and printing fees, the Company's counsel and
accounting fees and expenses, costs associated with clearing the Registrable
Securities for sale under applicable state securities laws, listing fees, fees
and expenses of one counsel to the Investors and the Investors' reasonable
expenses in connection with the registration, but excluding discounts,
commissions, fees of underwriters, selling brokers, dealer managers or similar
securities industry professionals with respect to the Registrable Securities
being sold.
(c) Effectiveness.
C-3
(i) The Company shall use best efforts to have any Registration
Statement declared effective as soon as practicable. The Company shall notify
the Investors by facsimile or e-mail as promptly as practicable, and in any
event, within twenty-four (24) hours, after (A) any Registration Statement is
declared effective and (B) the filing of any related Prospectus under Rule
424(b), at which time the Company shall also provide the Investors with copies
of such related Prospectus. If (A)(w) a Registration Statement covering the
resale of the Conversion Shares and the Warrant Shares and any and all other
securities issued or issuable with respect to or in exchange for such
Registrable Securities is not declared effective by the SEC prior to the earlier
of (i) five (5) Business Days after the SEC shall have informed the Company that
no review of the Registration Statement will be made or that the SEC has no
further comments on the Registration Statement or (ii) the 90th day after the
Proposal Date (the 120th day after the Proposal Date if the Registration
Statement is reviewed by the SEC) or (y) a Registration Statement covering
Additional Shares is not declared effective by the SEC within ninety (90) days
following the time such Registration Statement was required to be filed pursuant
to Section 2(a)(ii) (the 120th day after such date if the Registration Statement
is reviewed by the SEC), or (B) after a Registration Statement has been declared
effective by the SEC, sales cannot be made pursuant to such Registration
Statement for any reason (including without limitation by reason of a stop
order, or the Company's failure to update the Registration Statement), but
excluding the inability of any Investor to sell the Registrable Securities
covered thereby due to market conditions and except as excused pursuant to
subparagraph (ii) below, then the Company will make pro rata payments to each
Investor, as liquidated damages and not as a penalty, in an amount equal to (i)
1.0% of the aggregate amount invested by such Investor for the Registrable
Securities included in the applicable Registration Statement that has not been
declared effective (or, in the case of a Registration Statement relating to
Additional Shares, the securities giving rise to the issuance of such Additional
Shares) for each 30-day period or pro rata for any portion thereof following the
date by which such Registration Statement should have been effective (the
"Blackout Period") and (ii) 1.0% of the aggregate amount invested by such
Investor for the Registrable Securities included in the applicable Registration
Statement that is not available for resales (or, in the case of a Registration
Statement relating to Additional Shares, the securities giving rise to the
issuance of such Additional Shares) for each 30-day period or pro rata for any
portion thereof that sales could not be made thereunder as provided in clause
(B) above. Such payments shall constitute the Investors' exclusive monetary
remedy for such events, but shall not affect the right of the Investors to seek
injunctive relief. The amounts payable as liquidated damages pursuant to this
paragraph shall be paid monthly within three (3) Business Days of the last day
of each month following the commencement of the Blackout Period until the
termination of the Blackout Period.
(ii) For not more than twenty (20) consecutive days or for a
total of not more than forty-five (45) days in any twelve (12) month period, the
Company may delay the disclosure of material non-public information concerning
the Company, by suspending the use of any Prospectus included in any
registration contemplated by this Section containing such information, the
disclosure of which at the time is not, in the good faith opinion of the
Company, in the best interests of the Company (an "Allowed Delay"); provided,
that the Company shall promptly (a) notify the Investors in writing of the
existence of (but in no event, without the prior written consent of an Investor,
shall the Company disclose to such Investor any of the facts or circumstances
regarding) material non-public information giving rise to an Allowed Delay, (b)
advise the Investors in writing to cease all sales under the Registration
Statement until the end of the Allowed Delay and (c) use commercially reasonable
efforts to terminate an Allowed Delay as promptly as practicable.
(d) Limitation on Liquidated Damages. Notwithstanding the other
provisions of this Section 2, in no event shall the Company be liable for
liquidated damages in excess of an aggregate of 24% of the aggregate purchase
price paid by the Investors pursuant to the Purchase Agreement.
3. Company Obligations. The Company will use commercially reasonable
efforts to effect the registration of the Registrable Securities in accordance
with the terms hereof, and pursuant thereto the Company will, as expeditiously
as practicable:
(a) use commercially reasonable efforts to cause each such
Registration Statement to become effective after 4:00 p.m. E.S.T. (the date the
Registration Statement is declared effective shall be referred to as the
"Effective Date") and to remain continuously effective for a period that will
terminate upon the earlier of (i) the date on which all Registrable Securities
covered by such Registration Statement as amended from time to time, have been
sold, and (ii) the date on which all Registrable Securities covered by such
Registration Statement may be sold
C-4
pursuant to Rule 144(k) (the "Effectiveness Period") and advise the Investors in
writing when the Effectiveness Period has expired;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement and the Prospectus as may be necessary
to keep the Registration Statement effective for the Effectiveness Period and to
comply with the provisions of the 1933 Act and the 1934 Act with respect to the
distribution of all of the Registrable Securities covered thereby;
(c) provide copies to and permit counsel designated by the Investors,
if any, in the selling securityholder questionnaire attached hereto as Exhibit B
(the "Selling Securityholder Questionnaire") to review each Registration
Statement and all amendments and supplements thereto no fewer than seven (7)
days prior to their filing with the SEC and not file any document to which such
counsel reasonably objects;
(d) furnish to the Investors and their legal counsel designated by the
Investors, if any, in the Selling Securityholder Questionnaire (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company (but not later than two (2) Business Days after the
filing date, receipt date or sending date, as the case may be) one (1) copy of
any Registration Statement and any amendment thereto, each preliminary
prospectus and Prospectus and each amendment or supplement thereto, and each
letter written by or on behalf of the Company to the SEC or the staff of the
SEC, and each item of correspondence from the SEC or the staff of the SEC, in
each case relating to such Registration Statement (other than any portion of any
thereof which contains information for which the Company has sought confidential
treatment), and (ii) such number of copies of a Prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents as each Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor that are
covered by the related Registration Statement;
(e) use commercially reasonable efforts to (i) prevent the issuance of
any stop order or other suspension of effectiveness and, (ii) if such order is
issued, obtain the withdrawal of any such order at the earliest possible moment;
(f) prior to any public offering of Registrable Securities, use
commercially reasonable efforts to register or qualify or cooperate with the
Investors and their counsel designated by the Investors, if any, in the Selling
Securityholder Questionnaire in connection with the registration or
qualification of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions requested by the Investors and
do any and all other commercially reasonable acts or things necessary or
advisable to enable the distribution in such jurisdictions of the Registrable
Securities covered by the Registration Statement; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to (i) qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(f), (ii) subject itself to general
taxation in any jurisdiction where it would not otherwise be so subject but for
this Section 3(f), or (iii) file a general consent to service of process in any
such jurisdiction;
(g) use commercially reasonable efforts to cause all Registrable
Securities covered by a Registration Statement to be listed on each securities
exchange, interdealer quotation system or other market on which similar
securities issued by the Company are then listed;
(h) immediately notify the Investors, at any time prior to the end of
the Effectiveness Period, upon discovery that, or upon the happening of any
event as a result of which, the Prospectus includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing, and promptly prepare, file with the SEC and furnish
to such holder a supplement to or an amendment of such Prospectus as may be
necessary so that such Prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing; and
(i) otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act,
including, without limitation, Rule 172 under the 1933 Act, file any final
Prospectus, including any supplement or amendment thereof, with the SEC pursuant
to Rule 424
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under the 1933 Act prior to 9:30 a.m. E.S.T. on the Trading Day immediately
following the Effective Date, promptly inform the Investors in writing if, at
any time during the Effectiveness Period, the Company does not satisfy the
conditions specified in Rule 172 and, as a result thereof, the Investors are
required to deliver a Prospectus in connection with any disposition of
Registrable Securities and take such other actions as may be reasonably
necessary to facilitate the registration of the Registrable Securities
hereunder; and make available to its security holders, as soon as reasonably
practicable, but not later than the Availability Date (as defined below), an
earnings statement covering a period of at least twelve (12) months, beginning
after the effective date of each Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the 1933 Act,
including Rule 158 promulgated thereunder (for the purpose of this subsection
3(i), "Availability Date" means the 45th day following the end of the fourth
fiscal quarter that includes the effective date of such Registration Statement,
except that, if such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "Availability Date" means the 90th day after the end of such fourth
fiscal quarter).
(j) with a view to making available to the Investors the benefits of
Rule 144 (or its successor rule) and any other rule or regulation of the SEC
that may at any time permit the Investors to sell shares of Common Stock to the
public without registration, the Company covenants and agrees to: (i) make and
keep public information available, as those terms are understood and defined in
Rule 144, until the earlier of (A) six months after such date as all of the
Registrable Securities may be resold pursuant to Rule 144(k) or any other rule
of similar effect or (B) such date as all of the Registrable Securities shall
have been resold; (ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the 1934 Act; and (iii) furnish to
each Investor upon request, as long as such Investor owns any Registrable
Securities, (A) a written statement by the Company that it has complied with the
reporting requirements of the 1934 Act, (B) a copy of the Company's most recent
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other
information as may be reasonably requested in order to avail such Investor of
any rule or regulation of the SEC that permits the selling of any such
Registrable Securities without registration.
4. Due Diligence Review; Information. The Company shall make available,
during normal business hours, for inspection and review by the Investors,
advisors to and representatives of the Investors (who may or may not be
affiliated with the Investors and who are reasonably acceptable to the Company),
all financial and other records, all SEC Filings (as defined in the Purchase
Agreement) and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees, within a
reasonable time period, to supply all such information reasonably requested by
the Investors or any such representative, advisor or underwriter in connection
with such Registration Statement (including, without limitation, in response to
all questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of such Registration Statement.
The Company shall not disclose material nonpublic information to the
Investors, or to advisors to or representatives of the Investors, unless prior
to disclosure of such information the Company identifies such information as
being material nonpublic information and provides the Investors, such advisors
and representatives with the opportunity to accept or refuse to accept such
material nonpublic information for review and any Investor wishing to obtain
such information enters into an appropriate confidentiality agreement with the
Company with respect thereto.
5. Obligations of the Investors.
(a) Each Investor has furnished to the Company a Selling
Securityholder Questionnaire and shall furnish in writing to the Company such
additional information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it,
as shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. At least five (5) Business Days prior to
the first anticipated filing date of any Registration Statement, the Company
shall notify each Investor of the information the Company requires from such
Investor, to the extent not included in the Selling Securityholder
Questionnaire, if such Investor elects to have any of the Registrable Securities
included in the Registration Statement. An Investor shall provide
C-6
such information to the Company at least two (2) Business Days prior to the
first anticipated filing date of such Registration Statement if such Investor
elects to have any of the Registrable Securities included in the Registration
Statement.
(b) Each Investor, by its acceptance of the Registrable Securities
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of a Registration Statement
hereunder, unless such Investor has notified the Company in writing of its
election to exclude all of its Registrable Securities from such Registration
Statement.
(c) Each Investor agrees that, upon receipt of any notice from the
Company of either (i) the commencement of an Allowed Delay pursuant to Section
2(c)(ii) or (ii) the happening of an event pursuant to Section 3(h) hereof, such
Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities,
until the Investor is advised by the Company that such dispositions may again be
made.
6. Indemnification.
(a) Indemnification by the Company. The Company will indemnify and
hold harmless each Investor and its officers, directors, members, employees and
agents, successors and assigns, and each other person, if any, who controls such
Investor within the meaning of the 1933 Act, against any losses, claims, damages
or liabilities, joint or several, to which they may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon: (i) any untrue
statement or omission or alleged untrue statement or omission of any material
fact in any Registration Statement, any preliminary Prospectus or final
Prospectus, or any amendment or supplement thereof required to be stated therein
or necessary to make the statements therein not misleading; (ii) any blue sky
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all of the Registrable
Securities under the securities laws thereof (any such application, document or
information herein called a "Blue Sky Application"); (iii) any violation by the
Company or its agents of any rule or regulation promulgated under the 1933 Act
applicable to the Company or its agents and relating to action or inaction
required of the Company in connection with such registration; or (iv) any
failure to register or qualify the Registrable Securities included in any such
Registration in any state where the Company or its agents has affirmatively
undertaken or agreed in writing that the Company will undertake such
registration or qualification on an Investor's behalf and will reimburse such
Investor, and each such officer, director or member and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
if and to the extent that any such loss, claim, damage or liability arises out
of or is based upon (i) such Investor's failure to comply with the prospectus
delivery requirements of the Securities Act at any time when the Company does
not meet the conditions for use of Rule 172, has advised the Investor in writing
that the Company does not meet such conditions and that therefore the Investor
is required to deliver a Prospectus in connection with any sale or other
disposition of Registrable Securities and has provided such Investor with a
current Prospectus for such use, (ii) an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by such Investor or any such controlling person in writing
specifically for use in such Registration Statement or Prospectus or (iii) the
use by an Investor of an outdated or defective Prospectus after the Company has
notified the Investor that such Prospectus is outdated or defective and the use
of a corrected or updated Prospectus would have avoided such losses, claims,
damages, liabilities or expenses.
(b) Indemnification by the Investors. Each Investor agrees, severally
but not jointly, to indemnify and hold harmless, to the fullest extent permitted
by law, the Company, its directors, officers, employees, stockholders and each
person who controls the Company (within the meaning of the 0000 Xxx) against any
losses, claims, damages, liabilities and expense (including reasonable attorney
fees) resulting from (i) such Investor's failure to comply with the prospectus
delivery requirements of the Securities Act at any time when the Company does
not meet the conditions for use of Rule 172, has advised the Investor in writing
that the Company does not meet such conditions and that therefore the Investor
is required to deliver a Prospectus in connection with any sale or other
disposition of Registrable Securities and has provided such Investor with a
current Prospectus for such use, (ii) the use by an Investor of an outdated or
defective Prospectus after the Company has notified the Investor that
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such Prospectus is outdated or defective and the use of a corrected or updated
Prospectus would have avoided such losses, claims, damages, liabilities or
expenses, and (iii) any untrue statement of a material fact or any omission of a
material fact required to be stated in the Registration Statement or Prospectus
or preliminary Prospectus or amendment or supplement thereto or necessary to
make the statements therein not misleading, to the extent, but only to the
extent that such untrue statement or omission is contained in any information
furnished in writing by such Investor to the Company specifically for inclusion
in such Registration Statement or Prospectus or amendment or supplement thereto.
In no event shall the liability of an Investor be greater in amount than the
dollar amount of the proceeds (net of all expense paid by such Investor in
connection with any claim relating to this Section 6 and the amount of any
damages such Investor has otherwise been required to pay by reason of such
untrue statement or omission) received by such Investor upon the sale of the
Registrable Securities included in the Registration Statement giving rise to
such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder shall (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided that any person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such person unless (a) the indemnifying party
has agreed to pay such fees or expenses, or (b) the indemnifying party shall
have failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such person or (c) in the reasonable judgment of any such
person, based upon written advice of its counsel, a conflict of interest exists
between such person and the indemnifying party with respect to such claims (in
which case, if the person notifies the indemnifying party in writing that such
person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person); and provided, further, that the failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations hereunder, except to the extent that such
failure to give notice shall materially adversely affect the indemnifying party
in the defense of any such claim or litigation. It is understood that the
indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm of
attorneys at any time for all such indemnified parties. No indemnifying party
will, except with the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation.
(d) Contribution. If for any reason the indemnification provided for
in the preceding paragraphs (a) and (b) is unavailable to an indemnified party
or insufficient to hold it harmless, other than as expressly specified therein,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of the
indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
within the meaning of Section 11(f) of the 1933 Act shall be entitled to
contribution from any person not guilty of such fraudulent misrepresentation. In
no event shall the contribution obligation of a holder of Registrable Securities
be greater in amount than the dollar amount of the proceeds (net of all expenses
paid by such holder in connection with any claim relating to this Section 6 and
the amount of any damages such holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission) received by it upon the sale of the Registrable Securities giving rise
to such contribution obligation.
7. Miscellaneous.
(a) Amendments and Waivers. This Agreement may be amended only by a
writing signed by the Company and the Required Investors. The Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company shall have obtained the written consent to
such amendment, action or omission to act, of the Required Investors.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made as set forth in Section 9.4 of the Purchase
Agreement.
C-8
(c) Assignments and Transfers by Investors. The provisions of this
Agreement shall be binding upon and inure to the benefit of the Investors and
their respective successors and assigns. An Investor may transfer or assign, in
whole or from time to time in part, to one or more persons its rights hereunder
in connection with the transfer of Registrable Securities by such Investor to
such person, provided that such Investor complies with all laws applicable
thereto and provides written notice of assignment to the Company promptly after
such assignment is effected.
(d) Assignments and Transfers by the Company. This Agreement may not
be assigned by the Company (whether by operation of law or otherwise) without
the prior written consent of the Required Investors, provided, however, that the
Company may assign its rights and delegate its duties hereunder to any surviving
or successor corporation in connection with a merger or consolidation of the
Company with another corporation, or a sale, transfer or other disposition of
all or substantially all of the Company's assets to another corporation, without
the prior written consent of the Required Investors, after notice duly given by
the Company to each Investor.
(e) Benefits of the Agreement. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
(f) Counterparts; Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed via facsimile, which shall be deemed an original.
(g) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(h) Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereby
waive any provision of law which renders any provisions hereof prohibited or
unenforceable in any respect.
(i) Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(k) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the choice of law principles
thereof. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for
the giving of notices under this Agreement. Each of the parties hereto
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
C-9
REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
C-10
IN WITNESS WHEREOF, the parties have executed this Agreement or
caused their duly authorized officers to execute this Agreement as of the date
first above written.
The Company: ZILA, INC.
By:
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Name:
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Title:
---------------------------------
C-11
[NAME OF INVESTOR]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
C-12
Exhibit A
PLAN OF DISTRIBUTION
The selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any or
all of their shares of common stock or interests in shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or
in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or at
negotiated prices.
The selling stockholders may use any one or more of the following methods
when disposing of shares or interests therein:
- ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
- block trades in which the broker-dealer will attempt to sell the
shares as agent, but may position and resell a portion of the block as
principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
- an exchange distribution in accordance with the rules of the
applicable exchange;
- privately negotiated transactions;
- short sales effected after the date the registration statement of
which this Prospectus is a part is declared effective by the SEC;
- through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
- broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
- a combination of any such methods of sale; and
- any other method permitted by applicable law.
The selling stockholders may, from time to time, pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock, from time to time, under
this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In connection with the sale of our common stock or interests therein, the
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered
A-1
by this prospectus, which shares such broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction).
The aggregate proceeds to the selling stockholders from the sale of the
common stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering. Upon
any exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
The selling stockholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act of
1933, provided that they meet the criteria and conform to the requirements of
that rule.
The selling stockholders and any underwriters, broker-dealers or agents
that participate in the sale of the common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are "underwriters" within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements of
the Securities Act.
To the extent required, the shares of our common stock to be sold, the
names of the selling stockholders, the respective purchase prices and public
offering prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable,
the common stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
We have advised the selling stockholders that the anti-manipulation rules
of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling stockholders and their affiliates.
In addition, to the extent applicable we will make copies of this prospectus (as
it may be supplemented or amended from time to time) available to the selling
stockholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act. The selling stockholders may indemnify any broker-dealer
that participates in transactions involving the sale of the shares against
certain liabilities, including liabilities arising under the Securities Act.
We have agreed to indemnify the selling stockholders against liabilities,
including liabilities under the Securities Act and state securities laws,
relating to the registration of the shares offered by this prospectus.
We have agreed with the selling stockholders to keep the registration
statement of which this prospectus constitutes a part effective until the
earlier of (1) such time as all of the shares covered by this prospectus have
been disposed of pursuant to and in accordance with the registration statement
or (2) the date on which the shares may be sold pursuant to Rule 144(k) of the
Securities Act.
A-2
Exhibit B
Zila, Inc.
Selling Securityholder Questionnaire
The undersigned beneficial owner (the "Selling Securityholder") of common
stock (the "Common Stock"), of Zila, Inc. (the "Company") understands that the
Company has filed or intends to file with the Securities and Exchange Commission
(the "Commission") one or more Registration Statements for the registration and
resale of the Registrable Securities, in accordance with the terms of the
Registration Rights Agreement, dated as of November __, 2006 (the "Registration
Rights Agreement"), among the Company and the Investors named therein. A copy of
the Registration Rights Agreement is available from the Company upon request at
the address set forth below. All capitalized terms used and not otherwise
defined herein shall have the meanings ascribed thereto in the Registration
Rights Agreement.
The undersigned hereby provides the following information to the Company
and represents and warrants that such information is accurate:
QUESTIONNAIRE
1. NAME.
(a) Full legal name of Selling Securityholder:
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(b) Full legal name of registered Holder (if not the same as (a) above)
through which Registrable Securities listed in Item 3 below are held:
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(c) Full legal name of Natural Control Person (which means a natural person
who directly or indirectly alone or with others has power to vote or dispose of
the securities covered by the questionnaire):
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(d) State of organization or domicile of Selling Securityholder:
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2. ADDRESS FOR NOTICES TO SELLING SECURITYHOLDER:
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Telephone: ________________________
Fax: ________________________
Contact Person: ________________________
Email: ________________________
Note: By providing an email address, the undersigned hereby consents to receipt
of notices by email.
B-1
Any such notice shall also be sent to the following address (which shall not
constitute notice):
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Telephone: ________________________
Fax: ________________________
Contact Person: ________________________
Email: ________________________
3. BENEFICIAL OWNERSHIP OF REGISTRABLE SECURITIES:
Type and principal amount of Registrable Securities beneficially owned:
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If applicable, provide the information required by Items 1 and 2 for each
beneficial owner.
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4. BROKER-DEALER STATUS:
(a) Are you a broker-dealer?
Yes [ ] No [ ]
Note: If yes, the Commission's staff has indicated that you should be identified
as an underwriter in any Registration Statement filed pursuant to the
Registration Rights Agreement.
(b) Are you an affiliate of a broker-dealer?
Yes [ ] No [ ]
(c) If you are an affiliate of a broker-dealer, do you certify that you
bought the Registrable Securities in the ordinary course of business, and at the
time of the purchase of the Registrable Securities to be resold, you had no
agreements or understandings, directly or indirectly, with any person to
distribute the Registrable Securities?
Yes [ ] No [ ]
Note: If no, the Commission's staff has indicated that you should be identified
as an underwriter in any Registration Statement filed pursuant to the
Registration Rights Agreement.
If you checked "Yes" to either of the questions in Item 4(a) or Item 4(b)
above, please state (a) the name of any such broker-dealer, (b) the nature
of your affiliation or association with such broker-dealer, (c) information
as to such broker-dealer's participation in any capacity in the offering or
the original placement of the Securities, (d) the number of shares of
equity securities or face value of debt securities of the Company owned by
you, (e) the date such securities were acquired and (f) the price paid for
such securities.
B-2
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5. BENEFICIAL OWNERSHIP OF OTHER SECURITIES OF THE COMPANY OWNED BY THE
SELLING SECURITYHOLDER.
Except as set forth below in this Item 5, the undersigned is not the
beneficial or registered owner of any securities of the Company other than
the Registrable Securities listed above in Item 3.
Type and amount of other securities beneficially owned by the Selling
Securityholder:
----------------------------------------------------------------------
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6. RELATIONSHIPS WITH THE COMPANY:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (owners of 5%
of more of the equity securities of the undersigned) has held any position
or office or has had any other material relationship with the Company (or
its predecessors or affiliates) during the past three years.
State any exceptions here:
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7. PLAN OF DISTRIBUTION:
Except as set forth below, the undersigned intends to distribute the
Registrable Securities listed above in Item 3 only as set forth in Exhibit
A to the Registration Rights Agreement (if at all):
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The undersigned agrees to promptly notify the Company of any inaccuracies
or changes in the information provided herein that may occur subsequent to the
date hereof and prior to the effective date of any applicable Registration
Statement filed pursuant to the Registration Rights Agreement.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 7 and the
inclusion of such information in each Registration Statement filed pursuant to
the Registration Rights Agreement and each related prospectus. The undersigned
understands that such information will be relied upon by the Company in
connection with the preparation or amendment of any such Registration Statement
and the related prospectus.
By signing below, the undersigned acknowledges that it understands its
obligation to comply, and agrees that it will comply, with the provisions of the
Exchange Act and the rules and regulations thereunder, particularly Regulation
M. The undersigned also acknowledges that it understands that the answers to
this Questionnaire are furnished for use in connection with Registration
Statements filed pursuant to the Registration Rights Agreement and any
amendments or supplements thereto filed with the Commission pursuant to the
Securities Act.
I confirm that, to the best of my knowledge and belief, the foregoing
statements (including without limitation the answers to this Questionnaire) are
correct.
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IN WITNESS WHEREOF the undersigned, by authority duly given, has caused
this Questionnaire to be executed and delivered either in person or by its duly
authorized agent.
Dated: Beneficial Owner:
------------------------ ----------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED QUESTIONNAIRE, AND RETURN THE
ORIGINAL BY OVERNIGHT MAIL, TO:
Zila, Inc.
0000 X. 0xx Xxxxxx
Xxxxxxx, XX 00000
Fax No.: (000) 000 0000
Attn: Xxxx X. Xxxxxxxxxxx
with a copy to:
Xxxxx & Xxxxxx L.L.P.
000 Xxxx Xxx Xxxxx Xxxxxx
Xxxxxxx, XX 00000
Fax No.: (000) 000 0000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
B-4
EXHIBIT D
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of November __, 2006 (as this
agreement may be amended, restated, supplemented or otherwise modified, renewed
or replaced from time to time, this "Agreement"), is by and among Zila, Inc., a
Delaware corporation (the "Borrower"), Zila Biotechnology, Inc., an Arizona
corporation, and a Subsidiary of Borrower, Zila Pharmaceuticals, Inc., a Nevada
corporation, and a Subsidiary of Borrower, Zila Technical, Inc., an Arizona
corporation, and a Subsidiary of Borrower, and Zila Limited, a United Kingdom
company, and a Subsidiary of Borrower, as guarantors (the "Subsidiary
Guarantors"), and such other parties as may become Grantors hereunder on or
after the date hereof (together with the Borrower and the Subsidiary Guarantors,
the "Grantors" and, individually, a "Grantor"), and _________________, a
__________ _____________, as collateral agent (the "Agent") for the Investors
named in the Purchase Agreement, dated November __, 2006 (the "Purchase
Agreement"), by and among the Borrower and such Investors (collectively, the
"Purchasers"), and the Purchasers for the purposes only of Section 30 of this
Agreement.
WHEREAS, pursuant to the terms of the Purchase Agreement, the Purchasers
are purchasing from the Borrower, among other things, $12,000,000 in an
aggregate principal amount of the Borrower's 6% Senior Secured Convertible Notes
(the "Notes");
WHEREAS, pursuant to the terms of Section 28 of this Security Agreement,
each Subsidiary Guarantor and each other Subsidiary that becomes a Grantor under
this Agreement is guaranteeing the obligations of the Borrower under the Notes
and the other Transaction Documents; and
WHEREAS, the Grantors are hereby granting continuing duly perfected first
priority security interests in all current and future assets and property of the
Grantors in favor of the Agent for the benefit of the Purchasers and the Agent
(collectively, the "Secured Parties") as herein provided to secure the
obligations of the Borrower under the Notes and the other Transaction Documents
and the obligations of the Subsidiary Grantors (as defined in Section 28) under
their Guarantees (as defined in Section 28);
NOW THEREFORE, in consideration of the promises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS.
1.1 All capitalized terms used herein without definitions shall have the
respective meanings provided therefor in the Purchase Agreement or the Notes. As
used herein the term "Obligations" shall mean all principal, interest (including
interest accrued after the filing of a bankruptcy or similar petition whether or
not a claim therefor is enforceable), fees, expenses and indemnities payable
from time to time by the Grantors under the Notes, the Guarantees and the other
Transaction Documents, including, without limitation, reimbursements under
Section 9.5 of the Purchase Agreement, and all such fees, expenses and
indemnities payable, if any, under this Agreement to the Agent.
1.2 The term "State," as used herein, means the State of New York.
1.3 The term "Post-Petition Interest", as used herein, means interest and
fees accruing after the filing of any petition in bankruptcy, or the
commencement of any case, proceeding or action relating to the bankruptcy,
reorganization or insolvency of Borrower or any other Grantor of any of the
foregoing (or interest that would accrue but for the operation of applicable
bankruptcy, reorganization or insolvency laws), whether or not a claim for
post-filing or post-petition interest and/or fees is allowed or allowable as a
claim in any such case, proceeding or action.
1.4 All terms defined in the Uniform Commercial Code of the State and used
herein shall have the same definitions herein as specified therein. However, if
a term is defined in Article 9 of the Uniform Commercial Code of the State
differently than in another Article of the Uniform Commercial Code of the State,
the term has the meaning specified in Article 9.
2. GRANT OF SECURITY INTEREST. Borrower, as security for the due and punctual
payment and performance in full of the Obligations (including Post-Petition
Interest), and each of the other Grantors, as security for its obligations under
its guarantee pursuant to the Guaranty and for any other Obligations, hereby
grants, mortgages, pledges, assigns, hypothecates, transfers, sets over, conveys
and delivers to the Agent (for the benefit of the Secured Parties) a continuing
first priority security interest in, and lien on, Borrower's or such other
Grantor's (as applicable) rights, titles and interests in, to and under all
tangible and intangible personal property and Fixtures of every kind and nature,
wherever located and whether now owned or existing, or hereafter acquired,
created or arising, and all proceeds and products thereof or income therefrom
(all of the foregoing and all of the assets set forth below in clauses (i)
through (xiii), being referred to herein as the "Collateral"), including each of
the following:
(i) goods (including inventory, equipment and any accessions thereto),
(ii) instruments (including promissory notes),
(iii) documents,
(iv) accounts,
(v) chattel paper (whether tangible or electronic),
(vi) deposit accounts,
(vii) letter-of-credit rights (whether or not the letter of credit is
evidenced by a writing),
(viii) commercial tort claims,
(ix) securities and all other investment property ("Investment
Property"),
(x) supporting obligations,
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(xi) contract rights or rights to the payment of money, insurance
claims and proceeds,
(xii) general intangibles including, without limitation, all payment
intangibles, patents, patent applications, trademarks, trademark applications,
trade names, copyrights, copyright applications, software, engineering drawings,
service marks, customer lists, goodwill, and all licenses, permits, agreements
of any kind or nature pursuant to which the Grantors possess, use or have
authority to possess or use property (whether tangible or intangible) of others
or others possess, use or have authority to possess or use property (whether
tangible or intangible) of the Grantors, and all recorded data of any kind or
nature, regardless of the medium of recording including, without limitation, all
software, writings, plans, specifications and schematics; and
(xiii) all now existing and hereafter acquired or arising (A) capital
stock, equity securities or interests or other Investment Property (including
the capital stock described on Schedule A hereto), (B) all cash dividends and
cash distributions with respect to the foregoing ("Dividends"), (C) all non-cash
dividends paid on capital securities, liquidating dividends paid on capital
securities, shares of capital securities resulting from (or in connection with
the exercise of) stock splits, reclassifications, warrants, options, non-cash
dividends, mergers, consolidations, and all other distributions (whether similar
or dissimilar to the foregoing) on or with respect to any capital securities
constituting Collateral (excluding Dividends, "Distributions"), and (D) all
certificates, agreements (including stockholders agreements, partnership
agreements, operating agreements and limited liability company agreements),
books, records, writings, data bases, information and other property relating
to, used or useful in connection with, evidencing, embodying, incorporating or
referring to, any of the foregoing.
The Agent acknowledges that the attachment of the security interest in any
commercial tort claim as original collateral is subject to the Grantor's
compliance with Section 4.7.
Notwithstanding the foregoing, Collateral shall not include any of the
following (collectively, the "Excluded Collateral"):
(1) vehicles subject to a certificate of title statute; and
(2) rights under licenses, permits and contracts and other general
intangibles to the extent that the granting of a security interest therein or
assignment thereof would violate any applicable law or any enforceable provision
of any such license, permit, contract or other general intangible, provided,
that the Grantors shall not permit any such prohibitions in any contracts,
licenses, general intangibles and permits entered into after the date hereof
except in the ordinary course on usual and customary terms or consistent with
past practice.
3. AUTHORIZATION TO FILE FINANCING STATEMENTS. The Grantors hereby irrevocably
authorize the Agent at any time and from time to time to file in any applicable
Uniform Commercial Code jurisdiction any initial financing statements and
amendments thereto against each Grantor that (a) indicate the Collateral (i) as
all assets of such Grantor or words of similar effect, regardless of whether any
particular asset comprised in the Collateral falls within the scope of Article 9
of the Uniform Commercial Code of the State or such jurisdiction, or (ii) as
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being of an equal or lesser scope or with greater detail, and (b) contain any
other information required by part 5 of Article 9 of the Uniform Commercial Code
of the State for the sufficiency or filing office acceptance of any financing
statement or amendment, including whether such Grantor is an organization, the
type of organization and any organization identification number issued to such
Grantor. The Grantors agree to furnish any such information to the Agent and the
other Secured Parties promptly upon request. Each Grantor also ratifies its
authorization for the Agent to have filed in any Uniform Commercial Code
jurisdiction financing statements or amendments thereto if filed prior to the
date hereof.
4. OTHER ACTIONS. Further to insure the attachment, perfection and first
priority (subject to Permitted Liens) of, and the ability of the Agent to
enforce, the Agent's first priority security interest in the Collateral, the
Grantors agree, in each case at the Grantor's own expense, to take the following
actions with respect to the following Collateral:
4.1 Promissory Notes and Tangible Chattel Paper. If any Grantor shall at
any time hold or acquire any promissory notes or tangible chattel paper, such
Grantor shall forthwith endorse, pledge and deliver the same to the Agent,
accompanied by such instruments of transfer or assignment duly executed in blank
as the Agent may from time to time specify.
4.2 Deposit Accounts. For each deposit account (each, a "Deposit Account")
that any Grantor at any time opens or maintains at any depository bank (each, a
"Depository Bank"), the Grantor shall, at the Agent's or any other Secured
Party's reasonable request and option, pursuant to an agreement (each, a
"Deposit Account Control Agreement") in form and substance satisfactory to the
Agent and the Requisite Purchasers (as defined in Section 30.3(b)), upon an
Event of Default either (a) cause the Depositary Bank to agree to comply at any
time with instructions from the Agent to such Depositary Bank directing the
disposition of funds from time to time credited to such Deposit Account, without
further consent of the Grantor, or (b) arrange for the Agent to become the
customers of the Depositary Bank with respect to the Deposit Account, with the
Grantors being permitted, only with the consent of the Agent and the Requisite
Purchasers, to exercise rights to withdraw funds from such Deposit Account. The
Agent agrees with the Grantors that the Agent shall not give any such
instructions or withhold any withdrawal rights from the Grantors, unless an
Event of Default has occurred and is continuing, or, after giving effect to any
withdrawal not otherwise permitted by the Transaction Documents, would occur.
The provisions of this paragraph shall not apply to (i) any Deposit Account for
which the Grantors, the Depositary Bank and the Agent and/or the other Secured
Parties have entered into a cash collateral agreement specially negotiated among
any Grantor, the Depositary Bank and the Agent and/or the other Secured Parties
for the specific purpose set forth therein (ii) Deposit Accounts for which any
Secured Party is the depositary, and (iii) any Deposit Account which holds
exclusively sales tax and/or withholding remittances.
4.3 Investment Property. If any Grantor shall at any time hold or acquire
any certificated securities, the Grantor shall forthwith endorse, pledge and
deliver the same to the Agent, accompanied by such instruments of transfer or
assignment duly executed in blank as the Agent may from time to time specify. If
any securities now or hereafter acquired by any Grantor are uncertificated and
are issued to the Grantor or its nominee directly by the issuer thereof, the
Grantor shall immediately notify the Agent and the other Secured Parties thereof
and, at the Agent's or any other Secured Party's reasonable request and option,
pursuant to an agreement in
D-4
form and substance satisfactory to the Agent and the Requisite Purchasers,
either (a) cause the issuer to agree to comply with instructions from the Agent
as to such securities, without further consent of the Grantor or such nominee,
or (b) arrange for the Agent (on behalf of the Secured Parties) to become the
registered owners of the securities. If any securities, whether certificated or
uncertificated, or other investment property now or hereafter acquired by any
Grantor are held by the Grantor or its nominee through a securities intermediary
or commodity intermediary, the Grantor shall immediately notify the Agent and
the other Secured Parties thereof and, at the Agent's or any other Secured
Party's reasonable request and option, pursuant to an agreement in form and
substance satisfactory to the Agent and the Requisite Purchasers, either (i)
cause such securities intermediary or (as the case may be) commodity
intermediary to agree to comply with entitlement orders or other instructions
from the Agent to such securities intermediary as to such securities or other
investment property, or (as the case may be) to apply any value distributed on
account of any commodity contract as directed by the Agent to such commodity
intermediary, in each case without further consent of the Grantor or such
nominee, or (ii) in the case of financial assets or other investment property
held through a securities intermediary, arrange for the Agent (on behalf of the
Secured Parties) to become the entitlement holders with respect to such
investment property, with the Grantor being permitted, only with the consent of
the Agent and the Requisite Purchasers, to exercise rights to withdraw or
otherwise deal with such investment property. The Agent agrees with the Grantors
that the Agent shall not give any such entitlement orders or instructions or
directions to any such issuer, securities intermediary or commodity
intermediary, and shall not withhold its consent to the exercise of any
withdrawal or dealing rights by the Grantors, unless an Event of Default has
occurred and is continuing, or, after giving effect to any such investment and
withdrawal rights not otherwise permitted by the Transaction Documents, would
occur. The provisions of this paragraph shall not apply to any financial assets
credited to a securities account for which any Secured Party is the securities
intermediary.
4.4 Collateral in the Possession of a Bailee. If any goods are at any time
in the possession of a bailee, the Grantors shall promptly notify the Agent and
the other Secured Parties thereof and, if reasonably requested by the Agent or
any other Secured Party, shall promptly obtain an acknowledgment from the
bailee, in form and substance satisfactory to the Agent and the Requisite
Purchasers, that the bailee holds such Collateral for the benefit of the Agent
(on behalf of the Secured Parties) and shall act upon the instructions of the
Agent, without the further consent of the Grantor. The Agent agrees with the
Grantors that the Agent shall not give any such instructions unless an Event of
Default has occurred and is continuing or would occur after taking into account
any action by the Grantors with respect to the bailee.
4.5 Electronic Chattel Paper and Transferable Records. If any Grantor at
any time holds or acquires an interest in any electronic chattel paper, the
Grantor shall promptly notify the Agent and the other Secured Parties thereof
and, at the reasonable request of the Agent or any other Secured Party, shall
take such action as the Agent or such other Secured Party may reasonably request
to vest in the Agent control, under Section9-105 of the Uniform Commercial Code,
of such electronic chattel paper. The Agent agrees with the Grantors that the
Agent will arrange, pursuant to procedures satisfactory to the Agent and the
Requisite Purchasers and so long as such procedures will not result in the
Agent's loss of control, for the Grantors to make alterations to the electronic
chattel paper or transferable record permitted under XXX Xxxxxxx0-000, unless an
Event of Default has occurred and is continuing or would occur after taking into
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account any action by the Grantors with respect to such electronic chattel paper
or transferable record.
4.6 Letter-of-credit Rights. If any Grantor is at any time a beneficiary
under a letter of credit now or hereafter issued in favor of the Grantor, the
Grantor shall promptly notify the Agent and the other Secured Parties thereof
and, at the reasonable request and option of the Agent or any Secured Party, the
Grantor shall, pursuant to an agreement in form and substance satisfactory to
the Agent and the Requisite Purchasers, either (i) use commercially reasonable
efforts (including, but not limited to, the payment of customary transfer and
assignment fees) to have the issuer and any confirmer of such letter of credit
to consent to an assignment to the Agent of the proceeds of any drawing under
the letter of credit or (ii) use commercially reasonable efforts (including, but
not limited to, the payment of customary transfer and assignment fees) to have
the Agent become the transferee beneficiaries of the letter of credit, with the
Agent agreeing, in each case, that the proceeds of any drawing under the letter
to credit are to be applied as provided in the Notes.
4.7 Commercial Tort Claims. If any Grantor shall at any time hold or
acquire a commercial tort claim, the Grantor shall immediately notify the Agent
and the other Secured Parties in a writing signed by the Grantor of the brief
details thereof and grant to the Agent (on behalf of the Secured Parties) 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
satisfactory to the Agent and the Requisite Purchasers.
5. OTHER ACTIONS AS TO ANY AND ALL COLLATERAL. The Grantors further agree to
take any other action reasonably requested by the Agent or any other Secured
Party to insure the attachment, perfection and first priority (subject to
Permitted Liens) of, and the ability of the Agent (on behalf of the Secured
Parties) to enforce, the Secured Parties' security interest in any and all of
the Collateral including, without limitation, (a) executing, delivering and,
where appropriate, filing financing statements and amendments relating thereto
under the Uniform Commercial Code, to the extent, if any, that any Grantor's
signature thereon is required therefor, (b) causing the Agent's name to be noted
as the secured party on any certificate of title for a titled good if such
notation is a condition to attachment, perfection or priority of, or ability of
the Agent to enforce, the Agent's security interest in such Collateral, (c)
complying with any provision of any statute, regulation or treaty of the United
States as to any Collateral if compliance with such provision is a condition to
attachment, perfection or priority of, or ability of the Agent to enforce, the
Agent's security interest in such Collateral, (d) obtaining governmental and
other third party consents and approvals, including without limitation any
consent of any licensor, lessor or other person obligated on Collateral, (e)
obtaining waivers from landlords in form and substance satisfactory to the Agent
and the Requisite Purchasers, (f) taking all actions required by other law, as
applicable in any relevant jurisdiction, or by other law as applicable in any
foreign jurisdiction, and (g) delivery to the Agent of stock certificates (and
stock powers duly executed in blank in favor of the Agent) covering all of the
capital stock described on Schedule A.
6. RELATION TO OTHER SECURITY DOCUMENTS. The provisions of this Agreement
supplement the provisions of the other Transaction Documents. Nothing contained
in any such Transaction Document shall derogate from any of the rights or
remedies of the Agent or any other Secured
D-6
Party hereunder. The provisions of this Agreement shall be read and construed
with the other Security Documents referred to below in the manner so indicated.
6.1 Copyright Security Agreements. If reasonably requested by the Agent or
any other Secured Party, each Grantor shall execute and deliver to the Agent the
Copyright Security Agreement (attached hereto as Exhibit I) pursuant to which
the Grantor shall grant to the Agent (on behalf of the Secured Parties) security
interests in certain Collateral consisting of copyrights, and copyright
registrations. The provisions of the Copyright Security Agreement are
supplemental to the provisions of this Agreement, and nothing contained in the
Copyright Security Agreement shall derogate from any of the rights or remedies
of the Agent or any other Secured Party hereunder. Neither the delivery of, nor
anything contained in, the Copyright Security Agreement shall be deemed to
prevent or postpone the time of attachment or perfection of any security
interest in such Collateral created hereby.
6.2 Trademark Security Agreements. If reasonably requested by the Agent or
any other Secured Party, each Grantor shall execute and deliver to the Agent the
Trademark Security Agreement (attached hereto as Exhibit II) pursuant to which
the Grantor shall grant to the Agent (on behalf of the Secured Parties) security
interests in certain Collateral consisting of trademarks, and trademark
registrations. The provisions of the Trademark Security Agreement are
supplemental to the provisions of this Agreement, and nothing contained in the
Trademark Security Agreement shall derogate from any of the rights or remedies
of the Agent or any other Secured Party hereunder. Neither the delivery of, nor
anything contained in, the Trademark Security Agreement shall be deemed to
prevent or postpone the time of attachment or perfection of any security
interest in such Collateral created hereby.
6.3 Patent Security Agreements. If reasonably requested by the Agent or any
other Secured Party, each Grantor shall execute and deliver to the Agent the
Patent Security Agreement (attached hereto as Exhibit III) pursuant to which the
Grantor shall grant to the Agent (on behalf of the Secured Parties) security
interests in certain Collateral consisting of patents, and patent registrations.
The provisions of the Patent Security Agreement are supplemental to the
provisions of this Agreement, and nothing contained in the Patent Security
Agreement shall derogate from any of the rights or remedies of the Agent or any
other Secured Party hereunder. Neither the delivery of, nor anything contained
in, the Patent Security Agreement shall be deemed to prevent or postpone the
time of attachment or perfection of any security interest in such Collateral
created hereby.
7. REPRESENTATIONS AND WARRANTIES CONCERNING GRANTOR'S LEGAL STATUS. Each
Grantor has previously delivered to the Agent and the other Secured Parties a
certificate signed by each Grantor and entitled "Perfection Certificate" (the
"Perfection Certificate"). Each Grantor represents and warrants to the Agent and
the other Secured Parties as follows: (a) the Grantor's exact legal name is that
indicated on the Perfection Certificate and on the signature page hereof, (b)
the Grantor is an organization of the type and organized in the jurisdiction set
forth in the Perfection Certificate, (c) the Perfection Certificate accurately
sets forth the Grantor's organizational identification number or accurately
states that the Grantor has none, (d) the Perfection Certificate accurately sets
forth the Grantor's place of business or, if more than one, its chief executive
office as well as the Grantor's mailing address if different and (e) all other
D-7
information set forth on the Perfection Certificate pertaining to the Grantor is
accurate and complete.
8. COVENANTS CONCERNING GRANTOR'S LEGAL STATUS. Each Grantor covenants with the
Agent and the other Secured Parties as follows: (a) without providing at least
30 days prior written notice to the Agent and the other Secured Parties, the
Grantor will not change its name, its place of business or, if more than one,
chief executive office, or its mailing address or organizational identification
number if it has one, (b) if the Grantor does not have an organizational
identification number and later obtains one, the Grantor shall forthwith notify
the Agent and the other Secured Parties of such organizational identification
number, and (c) the Grantor will not change its type of organization,
jurisdiction of organization or other legal structure.
9. REPRESENTATIONS AND WARRANTIES CONCERNING COLLATERAL. Each Grantor further
represents and warrants to the Agent and the other Secured Parties as follows:
(a) the Grantor is the owner of or has other rights in the Collateral, free from
any adverse lien, security interest or other encumbrance, except for the
security interest created by this Agreement and the Permitted Liens, (b) none of
the Collateral constitutes, or is the proceeds of, "farm products" as defined in
Section 9-102(a)(34) of the Uniform Commercial Code of the State, (c) none of
the account debtors or other persons obligated on any of the Collateral is a
governmental authority subject to the Federal Assignment of Claims Act or like
federal, state or local statute or rule in respect of such Collateral, (d) the
Grantor holds no commercial tort claim except as indicated on Schedule B hereto
as modified from time to time, (e) to the best of its knowledge, the Grantor has
at all times operated its business in compliance with all applicable provisions
of the federal Fair Labor Standards Act, as amended, and with all applicable
provisions of federal, state and local statutes and ordinances dealing with the
control, shipment, storage or disposal of hazardous materials or substances and
(f) all other information set forth on the Perfection Certificate pertaining to
the Collateral is accurate and complete.
10. COVENANTS CONCERNING COLLATERAL ETC. Each Grantor further covenants with the
Agent and the other Secured Parties as follows:
10.1 The Collateral, to the extent not delivered to the Agent pursuant to
Section 4 or in transit within the United States will be kept at those locations
listed on the Perfection Certificate and, other than in connection with a
disposition permitted by Section 10.8 hereof, and the Grantor will not remove
the Collateral from such locations, without providing at least 20 days prior
written notice to the Agent.
10.2 Except for the security interest herein granted and Permitted Liens,
the Grantor shall be the owner of or have other rights in the Collateral free
from any lien, security interest or other encumbrance, and the Grantor shall
defend the same against all claims and demands of all persons at any time
claiming the same or any interests therein adverse to the Purchasers.
10.3 The Grantor shall not pledge, mortgage or create, or suffer to exist a
security interest in the Collateral in favor of any person other than the Agent
except for Permitted Liens.
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10.4 The Grantor will not use the Collateral in violation of any policy of
insurance thereon.
10.5 The Grantor will permit the Agent and any Purchaser or their
respective designees, to inspect the Collateral, wherever located, at any
reasonable time during business hours upon prior notice of at least three
Business Days (unless a Default or an Event of Default has occurred and is
continuing, in which event no prior notice shall be required).
10.6 The Grantor will pay promptly when due all taxes, assessments,
governmental charges and levies upon the Collateral or incurred in connection
with the use or operation of such Collateral or incurred in connection with this
Agreement other than any taxes contested in good faith and for which appropriate
reserves have been established by the Grantor.
10.7 The Grantor will continue to operate, its business in compliance with
all applicable provisions of the federal Fair Labor Standards Act, as amended,
and with all applicable provisions of federal, state and local statutes and
ordinances dealing with the control, shipment, storage or disposal of hazardous
materials or substances.
10.8 The Grantor will not sell or otherwise dispose, or offer to sell or
otherwise dispose, of the Collateral or any interest therein except for as
permitted by the Notes and except for (i) equipment not used by the Grantors in
the ordinary course of its business, (ii) obsolete equipment not used by the
Grantors in the ordinary course of its business, and (iii) goods sold by the
Grantors in the ordinary course of its busine
11. INSURANCE.
11.1 MAINTENANCE OF INSURANCE. Each Grantor will maintain with financially
sound and reputable insurers insurance with respect to its properties and
business against such casualties and contingencies as shall be in accordance
with general practices of businesses engaged in similar activities in similar
geographic areas; provided, however, that the Borrower shall at all times
maintain with financially sound and reputable insurers such insurance in amounts
not less than the insurance maintained by the Borrower as of the date hereof,
except with the Purchasers' prior written consent (which will not be
unreasonably withheld or delayed). Such insurance shall be in such minimum
amounts that the Grantor will not be deemed a co-insurer under applicable
insurance laws, regulations and policies and otherwise shall be in such amounts,
contain such terms, be in such forms and be for such periods as may be
reasonably satisfactory to the Agent and the Requisite Purchasers. In addition,
all such insurance shall be payable to the Agent (on behalf of the Secured
Parties) as loss payee. Without limiting the foregoing, the Grantors will (i)
keep all of its physical property insured with casualty or physical hazard
insurance on an "all risks" basis, with broad form flood and earthquake
coverages and electronic data processing coverage, with a full replacement cost
endorsement and an "agreed amount" clause in an amount equal to 100% of the full
replacement cost of such property, (ii) maintain all such workers' compensation
or similar insurance as may be required by law and (iii) maintain, in amounts
and with deductibles equal to those generally maintained by businesses engaged
in similar activities in similar geographic areas, general public liability
insurance against claims of bodily injury, death or property damage occurring,
on, in or about the properties of the Grantors; business interruption insurance;
and product liability insurance.
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11.2 INSURANCE PROCEEDS. The proceeds of any casualty insurance in respect
of any casualty loss of any of the Collateral shall, subject to the rights, if
any, of other parties with a prior interest in the property covered thereby, (i)
so long as no Default or Event of Default has occurred and is continuing and to
the extent that the amount of such proceeds is less than $150,000, be disbursed
to the Grantor for direct application by the Grantor solely to the repair or
replacement of the Grantor's property so damaged or destroyed and (ii) in all
other circumstances, be held by the Purchasers as cash collateral for the
Obligations and (except to the extent disbursed pursuant to the next sentence)
may be applied to the Obligations. The Agent may, at its sole option, disburse
from time to time all or any part of such proceeds so held as cash collateral,
upon such terms and conditions as the Agent may reasonably prescribe, for direct
application by the Grantor solely to the repair or replacement of the Grantor's
property so damaged or destroyed, or the Agent may apply all or any part of such
proceeds to the Obligations.
11.3 NOTICE OF CANCELLATION ETC. All policies of insurance shall provide
for at least 30 days prior written cancellation notice to the Agent and the
other Secured Parties, unless a shorter period is mandated under applicable law.
In the event of failure by any Grantor to provide and maintain insurance as
herein provided, the Agent or any other Secured Party may, at their option,
provide such insurance and charge the amount thereof to the Grantor. Each
Grantor shall furnish the Agent and the other Secured Parties with certificates
of insurance and policies evidencing compliance with the foregoing insurance
provision.
12. COLLATERAL PROTECTION EXPENSES; PRESERVATION OF COLLATERAL.
12.1 EXPENSES INCURRED BY THE SECURED PARTIES. In their discretion, the
Agent or any other Secured Party may, if any Grantor fails to do so, discharge
encumbrances at any time levied or placed on any of the Collateral (other than
to the extent constituting Permitted Liens), make repairs thereto and pay any
necessary filing fees or, if any Grantor fails to do so, insurance premiums.
Each Grantor agrees to reimburse the Agent or such other applicable Secured
Party on demand for any and all expenditures so made. Neither the Agent nor any
other Secured Party shall have any obligation to the Grantors to make any such
expenditures, nor shall the making thereof relieve the Grantor of any default.
Any expenses incurred under this Section 12 shall constitute Obligations.
12.2 SECURED PARTIES' OBLIGATIONS AND DUTIES. Anything herein to the
contrary notwithstanding, each Grantor shall remain liable under each contract
or agreement comprised in the Collateral to be observed or performed by the
Grantor thereunder. The Secured Parties shall not have any obligation or
liability under any such contract or agreement by reason of or arising out of
this Agreement or the receipt by the Agent or any other Secured Party of any
payment relating to any of the Collateral, nor shall the Agent or any other
Secured Party be obligated in any manner to perform any of the obligations of
the Grantor under or pursuant to any such contract or agreement, to make inquiry
as to the nature or sufficiency of any payment received by the Agent or any
other Secured Party in respect of the Collateral or as to the sufficiency of any
performance by any party under any such contract or agreement, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to the Agent or any other
Secured Party or to which the Agent or any other Secured Party may be entitled
at any time or times. The Agent's (and any other Secure
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Party so receiving Collateral) sole duty with respect to the custody, safe
keeping and physical preservation of the Collateral in its possession, under
Section9-207 of the Uniform Commercial Code of the State or otherwise, shall be
to deal with such Collateral in the same manner as the Agent (or such other
Secured Party) deals with similar property for its own account.
13. SECURITIES AND DEPOSITS. The Agent may at any time following and during the
continuance of an Event of Default, at its option, transfer to itself or any
nominee any securities constituting Collateral, receive any income thereon and
hold such income as additional Collateral or apply it to the Obligations.
Whether or not any Obligations are due, the Agent may following and during the
continuance of an Event of Default demand, xxx for, collect, or make any
settlement or compromise which it deems desirable with respect to the
Collateral. Regardless of the adequacy of Collateral or any other security for
the Obligations, any deposits or other sums at any time credited by or due from
the Agent to the Grantors may at any time be applied to or set off against any
of the Obligations then due and owing.
14. NOTIFICATION TO ACCOUNT DEBTORS AND OTHER PERSONS OBLIGATED ON COLLATERAL.
If an Event of Default shall have occurred and be continuing, the Grantors
shall, at the reasonable request of the Agent or any other Secured Party, notify
account debtors and other persons obligated on any of the Collateral of the
security interest of the Agent in any account, chattel paper, general
intangible, instrument or other Collateral and that payment thereof is to be
made directly to the Agent or to any financial institution designated by the
Agent as its agent therefor, and the Agent may, if an Event of Default shall
have occurred and be continuing, without notice to or demand upon the Grantor,
so notify account debtors and other persons obligated on Collateral. After the
making of such a request or the giving of any such notification, the Grantors
shall hold any proceeds of collection of accounts, chattel paper, general
intangibles, instruments and other Collateral received by the Grantor as trustee
for the Agent without commingling the same with other funds of the Grantor and
shall turn the same over to the Agent in the identical form received, together
with any reasonably necessary or advisable endorsements or assignments. The
Agent shall apply the proceeds of collection of accounts, chattel paper, general
intangibles, instruments and other Collateral received by the Agent to the
Obligations, such proceeds to be immediately entered after final payment in cash
or other immediately available funds of the items giving rise to them.
15. INVESTMENT PROPERTY. (i) The Grantors, at their cost and expense (including
the cost and expense of any of the following referenced consents, approvals
etc.) will promptly execute and deliver or cause the execution and delivery of
all applications, certificates, instruments, registration statements, and all
other documents and papers the Purchasers may reasonably request during the
continuance of an Event of Default in connection with the obtaining of any
consent, approval, registration, qualification, permit, license, accreditation,
or authorization of any other official body or other Person reasonably necessary
or appropriate for the effective exercise of any rights hereunder or under the
other Transaction Documents. Without limiting the generality of the foregoing,
the Grantors agree that in the event the Agent shall exercise its rights
hereunder or pursuant to the other Transaction Documents during the continuance
of an Event of Default, to sell, transfer, or otherwise dispose of, or vote,
consent, operate, or take any other action in connection with any of the
Collateral, the Grantors shall execute and deliver (or cause to be executed and
delivered) all applications, certificates, assignments and other documents that
the Agent reasonably requests to facilitate such actions and shall otherwise
promptly, fully, and
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diligently cooperate with the Agent and any other Persons in making any
application for the prior consent or approval of any official body or any other
Person to the exercise by the Purchasers of any such rights relating to all or
any of the Collateral.
(i) The Grantors agree promptly upon the occurrence and continuance of
an Event of Default and without any request therefor by the Agent or any other
Secured Party, so long as such Event of Default shall continue, to deliver
(properly endorsed where required hereby or reasonably requested by the Agent or
any other Secured Party) to the Agent all Dividends and Distributions with
respect to Investment Property and all proceeds of the Collateral, in each case
thereafter received by the Grantor, all of which shall be held by the Agent as
additional Collateral.
(ii) Except when an Event of Default has occurred and is continuing,
the Grantors may continue to vote all Investment Property included in the
Collateral except in a manner which is inconsistent or in violation of the
Transaction Documents. The Grantors agree promptly upon the occurrence and
during the continuance of an Event of Default, (i) that the Agent may exercise
(to the exclusion of the Grantor) the voting power and all other incidental
rights of ownership with respect to any Collateral constituting Investment
Property of the Grantor and the Grantor hereby grants the Agent an irrevocable
proxy, exercisable under such circumstances, to vote such Investment Property;
and (ii) that it shall promptly deliver to the Agent such additional proxies and
other documents as may be reasonably necessary to allow the Agent to exercise
such voting power.
(iii) All Dividends, Distributions, interest, principal, cash
payments, payment intangibles and proceeds which may at any time and from time
to time be held by any Grantor but which the Grantor is then obligated to
deliver to the Agent, shall, until delivery to the Agent, be held by the Grantor
separate and apart from its other property in trust for the Agent. The Agent
agrees that unless an Event of Default shall have occurred and be continuing,
the Grantors will have the exclusive voting power with respect to any Investment
Property constituting the Grantor's Collateral and the Agent will, upon the
written request of any Grantor, promptly deliver such proxies and other
documents, if any, as shall be reasonably requested by the Grantor which are
reasonably necessary to allow the Grantor to exercise that voting power;
provided that no vote shall be cast, or consent, waiver, or ratification given,
or action taken by the Grantor that would violate any provision of any
Transaction Document.
The Grantors hereby acknowledge that the sale by the Agent of any
Investment Property pursuant to the terms hereof in compliance with the
Securities Act, as well as applicable "Blue Sky" or other state securities laws
may require strict limitations as to the manner in which the Agent or any
subsequent transferee of the Investment Property may dispose thereof. The
Grantors acknowledge and agree that, to protect the Agent's interests, it may be
necessary to sell the Investment Property at a price less than the maximum price
attainable if a sale were delayed or made in another manner, such as a public
offering under the Securities Act. The Grantors do not have an objection to a
sale in such manner and the Grantors agree that the Agent does not have an
obligation to obtain the maximum possible price for all or any part of the
Investment Property. Without limiting the generality of the foregoing, the
Grantors agree that the Agent may, pursuant to the terms hereof and subject to
applicable law, from time to time attempt to sell all or any part of the
Investment Property by a private placement, restricting the bidders and
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prospective purchasers to those Persons who will represent and agree that they
are purchasing for investment only and not for distribution. In so doing, the
Agent may solicit offers to buy the Investment Property or any part thereof for
cash from a limited number of investors deemed by the Agent, in its reasonable
judgment, to be institutional investors or other responsible Persons who might
be interested in purchasing the Investment Property. If the Agent shall solicit
such offers, then acceptance by Purchasers of one of the offers shall be deemed
to be a commercially reasonable method of disposition of the Collateral.
16. POWER OF ATTORNEY.
16.1 APPOINTMENT AND POWERS OF PURCHASERS. The Grantors hereby irrevocably
constitute and appoint the Agent and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Grantors or in the
Agent's own name, for the purpose of carrying out the terms of this Agreement,
to take any and all appropriate action and to execute any and all documents and
instruments that may be reasonably necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, hereby gives said attorney the power and right, on behalf of the
Grantors, without notice to or assent by the Grantors, to do the following:
(a) upon the occurrence and during the continuance of an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral in such manner as is consistent
with the Uniform Commercial Code of the State and as fully and completely as
though the Agent was the absolute owners thereof for all purposes, and to do at
the Grantors' expense, at any time, or from time to time, all acts and things
which the Agent deems reasonably necessary or advisable to protect, preserve or
realize upon the Collateral and the Agent's security interest therein, in order
to effect the intent of this Agreement, all as fully and effectively as the
Grantor might do, including, without limitation, (i) the filing and prosecuting
of registration and transfer applications with the appropriate federal or local
agencies or authorities with respect to trademarks, copyrights and patentable
inventions and processes, (ii) upon written notice to the Grantors, the exercise
of voting rights with respect to voting securities, which rights may be
exercised, if the Agent so elects, with a view to causing the liquidation in a
commercially reasonable manner of assets of the issuer of any such securities
and (iii) the execution, delivery and recording, in connection with any sale or
other disposition of any Collateral, of the endorsements, assignments or other
instruments of conveyance or transfer with respect to such Collateral; and
(b) to the extent that the Grantors' authorization given in Section 3
is not sufficient, to file such financing statements with respect hereto, with
or without the Grantor' signature, as the Agent may deem appropriate and to
execute in the Grantor's name such financing statements and amendments thereto
and continuation statements which may require the Grantor's signature.
16.2 RATIFICATION BY GRANTORS. To the extent permitted by law, the Grantors
hereby ratify all that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is a power coupled with an interest and
shall be irrevocable.
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16.3 NO DUTY ON PURCHASERS. The powers conferred on the Agent hereunder are
solely to protect its interests in the Collateral and shall not impose any duty
upon it to exercise any such powers. The Agent shall be accountable only for the
amounts that it actually receives as a result of the exercise of such powers and
neither the Agent nor any of its officers, directors, employees or agents shall
be responsible to the Grantor for any act or failure to act, except for the
Agent's own gross negligence or willful misconduct.
16.4 NO EXERCISE IN ABSENCE OF EVENT OF DEFAULT. The Agent hereby agrees
that it will not exercise any rights conferred by this Section 16 absent the
occurrence of an Event of Default.
17. REMEDIES. Notwithstanding anything to the contrary in this Agreement, upon
the occurrence and during the continuation of an Event of Default, the Agent and
the Holders are limited to the remedies set forth in Section 6 of the Notes,
including those with respect to any First Default, Second Default and Third
Default. Upon the occurrence and during any subsequent Event of Default, the
Agent may, without notice to or demand upon the Grantors, declare this Agreement
to be in default, and the Agent shall thereafter have in any jurisdiction in
which enforcement hereof is sought, in addition to all other rights and
remedies, the rights and remedies of a purchaser under the Uniform Commercial
Code of the State or of any jurisdiction in which Collateral is located,
including, without limitation, the right to take possession of the Collateral,
and for that purpose the Agent may, so far as the Grantors can give authority
therefor, enter upon any premises on which the Collateral may be situated and
remove the same therefrom. The Agent may in its discretion require the Grantors
to assemble all or any part of the Collateral at such location or locations
within the jurisdiction(s) of the Grantors' principal office(s) or at such other
locations as the Agent may reasonably designate. Unless the Collateral is
perishable or threatens to decline speedily in value or is otherwise consented
to by the Grantors, the Agent shall give to the Grantors at least ten Business
Days prior written notice of the time and place of any public sale of Collateral
or of the time after which any private sale or any other intended disposition is
to be made. The Grantors hereby acknowledge that ten Business Days prior written
notice of such sale or sales shall be reasonable notice. In addition, the
Grantors waive any and all rights that it may have to a judicial hearing in
advance of the enforcement of any of the Agent's rights hereunder, including,
without limitation, its right following an Event of Default to take immediate
possession of the Collateral and to exercise its rights with respect thereto.
18. STANDARDS FOR EXERCISING REMEDIES. To the extent that applicable law imposes
duties on the Agent to exercise remedies in a commercially reasonable manner,
the Grantors acknowledge and agree that it is not commercially unreasonable for
the Agent (a) to fail to incur expenses reasonably deemed significant by the
Agent to prepare Collateral for disposition or otherwise to complete raw
material or work in process into finished goods or other finished products for
disposition, in each case after using commercially reasonable efforts, (b) to
fail to obtain third party consents for access to Collateral to be disposed of,
or to obtain or, if not required by other law, to fail to obtain governmental or
third party consents for the collection or disposition of Collateral to be
collected or disposed of, in each case after using commercially reasonable
efforts, (c) to fail to exercise collection remedies against account debtors or
other persons obligated on Collateral or to remove liens or encumbrances on or
any adverse claims against Collateral, (d) to exercise collection remedies
against account debtors and other persons
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obligated on Collateral directly or through the use of collection agencies and
other collection specialists, (e) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (f) to contact other persons, whether or
not in the same business as the Grantor, for expressions of interest in
acquiring all or any portion of the Collateral, (g) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the collateral is of a specialized nature, (h) to dispose of Collateral by
utilizing Internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capability of doing so,
or that match buyers and sellers of assets, (i) to dispose of assets in
wholesale rather than retail markets, (j) to disclaim disposition warranties,
(k) to purchase insurance or credit enhancements to insure the Agent's against
risks of loss, collection or disposition of Collateral or to provide to the
Agent a guaranteed return from the collection or disposition of Collateral, or
(1) to the extent deemed appropriate by the Agent, to obtain the services of
other brokers, investment bankers, consultants and other professionals to assist
the Agent in the collection or disposition of any of the Collateral. The
Grantors acknowledge that the purpose of this Section 18 is to provide
non-exhaustive indications of what actions or omissions by the Agent would not
be commercially unreasonable in the Agent's exercise of remedies against the
Collateral and that other actions or omissions by the Agent shall not be deemed
commercially unreasonable solely on account of not being indicated in this
Section 18. Without limitation upon the foregoing, nothing contained in this
Section 18 shall be construed to grant any rights to the Grantors or to impose
any duties on the Agent that would not have been granted or imposed by this
Agreement or by applicable law in the absence of this Section 18.
19. NO ORAL CHANGE; AMENDMENTS; SECURITY AGREEMENT SUPPLEMENTS FOR ADDITIONAL
GRANTORS. No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by the Grantors, the Agent and the other
Secured Parties, and no waiver of any provision of this Agreement, and no
consent to any departure by the Grantors therefrom, shall be effective unless it
is in writing and signed by the Agent and the Requisite Purchasers, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. Notwithstanding the foregoing, additional
Persons may become Grantors under this Agreement without consent of any other
Grantor through execution and delivery to the Purchasers of an Assumption
Agreement in the form of Annex 1 hereto or any other form of supplement
acceptable to the Purchasers. Nothing in this Section 19 shall be construed to
permit any Grantor to form a Subsidiary unless expressly permitted to do so
under the Note.
20. SURETYSHIP WAIVERS BY GRANTORS. Each Grantor waives demand, notice, protest,
notice of acceptance of this Agreement, notice of loans made, credit extended,
Collateral received or delivered or other action taken in reliance hereon and
all other demands and notices of any description. With respect to both the
Obligations and the Collateral, the Grantors assent to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of or failure to perfect any security interest
in any Collateral, to the addition or release of any party or person primarily
or secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromising or adjusting of any thereof, all in such manner and at
such time or times as the Agent may deem advisable. The Agent shall have no duty
as to the collection or protection of the Collateral or any income thereon, nor
as to the preservation of rights against prior parties, nor as to the
preservation of any rights pertaining
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thereto beyond the safe custody thereof as set forth in Section 11.2. The
Grantors further waive any and all other suretyship defenses.
21. MARSHALLING. The Agent shall not be required to marshal any present or
future collateral security (including but not limited to this Agreement and the
Collateral) for, or other assurances of payment of, the Obligations or any of
them or to resort to such collateral security or other assurances of payment in
any particular order, and all of its rights hereunder and in respect of such
collateral security and other assurances of payment shall be cumulative and in
addition to all other rights, however existing or arising. To the extent that it
lawfully may, each Grantors hereby agrees that it will not invoke any law
relating to the marshalling of collateral which might cause delay in or impede
the enforcement of the Agent's rights under this Agreement or under any other
instrument creating or evidencing any of the Obligations or under which any of
the Obligations is outstanding or by which any of the Obligations is secured or
payment thereof is otherwise assured, and, to the extent that it lawfully may,
each Grantor hereby irrevocably waives the benefits of all such laws.
22. PROCEEDS OF DISPOSITIONS; EXPENSES. The Grantors shall pay to the Agent on
demand any and all expenses, including reasonable attorneys' fees and
disbursements, incurred or paid by any Secured Party in protecting, preserving
or enforcing the Agent's or any other Secured Party's rights under or in respect
of any of the Obligations or any of the Collateral. After deducting all of said
expenses, the residue of any proceeds of collection or sale of the Obligations
or Collateral shall, to the extent actually received in cash, be applied to the
payment of the Obligations in such order or preference as the Agent may
reasonably determine, proper allowance and provision being made for any
Obligations not then due. Upon the final payment and satisfaction in full of all
of the Obligations and after making any payments required by Section
9-608(a)(1)(C) or 9-615(a)(3) of the Uniform Commercial Code of the State, any
excess shall be returned to the Grantors, and the Grantors shall remain liable
for any deficiency in the payment of the Obligations.
23. OVERDUE AMOUNTS. Until paid, all amounts due and payable by the Grantors
hereunder shall be a debt secured by the Collateral and shall bear, whether
before or after judgment, interest at the rate of interest set forth in the
Note.
24. GOVERNING LAW; CONSENT TO JURISDICTION.
(a) Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the State (other than those conflict of law rules
that would defer to the substantive laws of another jurisdiction). Without in
any way limiting the preceding choice of law, the parties elect to be governed
by the law of the State in accordance with, and are relying (at least in part)
on, Section 5-1401 of the General Obligations Law of the State, as amended, or
any corresponding or succeeding provisions thereof.
(b) Submission to Jurisdiction. The Grantors hereby submit to the
exclusive personal jurisdiction of the United States District Court for the
Southern District of New York and of the Supreme Court of the State of New York
sitting in New York County (including its Appellate Division), and of any other
appellate court in the State of New York, for the purposes
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of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby.
(c) Waiver of Venue. The Grantors hereby irrevocably waive, to the
fullest extent permitted by applicable law, any objection that it may now or
hereafter have to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum. Without in any way limiting the preceding
consents to personal jurisdiction and venue, the parties agree to submit to the
jurisdiction of the courts of the State of New York in accordance with Section
5-1402 of the General Obligations Law of the State, as amended, or any
corresponding or succeeding provisions thereof.
(d) Service of Process; Notices. Each party to this Agreement
irrevocably consents to service of process and delivery of notices provided for
hereunder in the manner provided for notices in the Purchase Agreement. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law. The Agent's name and address for
notices is set forth opposite it signature on its signature page hereto or as
hereafter shall be provided to the Borrower and the Purchasers in writing in the
manner provide for notices in the Purchase Agreement.
25. WAIVER OF JURY TRIAL. THE GRANTORS, THE AGENT AND THE OTHER SECURED PARTIES
HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
26. MISCELLANEOUS; AGREEMENT TO BE BOUND BY PROVISIONS OF TRANSACTION DOCUMENTS
APPLICABLE TO GRANTOR. The headings of each section of this Agreement are for
convenience only and shall not define or limit the provisions thereof. This
Agreement and all rights and obligations hereunder shall be binding upon the
Grantors and their respective successors and assigns, and shall inure to the
benefit of the Secured Parties and their respective successors and assigns. If
any term of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity of all other terms hereof shall in no way be
affected thereby, and this Agreement shall be construed and be enforceable as if
such invalid, illegal or unenforceable term had not been included herein. The
Grantors acknowledge receipt of a copy of this Agreement. Each Grantor agrees to
be bound by each provision of every other Transaction Document which purports to
be applicable to it as if such provision were set forth herein.
27. SUBSIDIARIES.
27.1 Borrower represents and warrants that each of its Subsidiaries with
assets of $10,000 has entered into this Agreement as a Subsidiary Guarantor.
27.2 Borrower covenants and agrees that it shall cause each future
Subsidiary that has assets of $10,000 or more to complete, execute and deliver
to the Agent, the form of Assumption Agreement attached as Annex 1 and such
other documents as the Agent shall reasonably request,
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including, without limitation, evidence of good standing of such Affiliate and
lien searches, all in form and substance acceptable to the Purchasers.
28. LIMITED RECOURSE GUARANTY. Each Subsidiary Guarantor and each other
Subsidiary that becomes a Grantor (each a "Subsidiary Grantor") hereby
unconditionally guarantees the payment when due of all Obligations (the
"Guarantees"), provided, however, that recourse under this provision is limited
to the assets of the Subsidiary Grantor that are, or will be, included as part
of the Collateral. The Guarantees are irrevocable and will not be affected by
any release of any Grantor or surrender, exchange, compromise or release any
Collateral, by any failure to perfect any liens, by any irregularity,
enforceability or invalidity of any Obligations or any part thereof or any
security or guaranty thereof. Each Subsidiary Grantor waives all defenses based
on suretyship or on impairment of Collateral. Without notice to, or the consent
of, any Subsidiary Grantor, the terms of the Obligations and any related
documents may be changed, extended, renewed or compromised.
29. FURTHER ASSURANCES. Borrower and each Subsidiary Grantor shall execute and
deliver all such further instruments and documents and take all such other
actions as may reasonably be required to carry out the transactions contemplated
hereby and to evidence the fulfillment of the agreements herein contained.
30. COLLATERAL AGENCY.
30.1 APPOINTMENT OF AGENT. Each Purchaser hereby appoints Agent to serve as
collateral agent hereunder and each Purchaser hereby authorizes Agent, in such
capacity, to act as its agent and representative hereunder in accordance with
the terms hereof and with respect to the Guarantees, the Collateral and the
other Security Documents. The provisions of this Section 30 are solely for the
benefit of the Agent and Purchasers and none of the Grantors shall have any
rights as a third party beneficiary of any of the provisions of this Section 30;
provided, however, that the Grantors shall be entitled to rely on consents and
approvals executed by the Agent without investigation as to the existence of
proper authorization by the other Secured Parties. In performing its functions
and duties hereunder, the Agent shall act solely as an agent of the Purchasers
and does not assume and shall not be deemed to have assumed any obligation
towards or relationship of agency or trust with or for any of the Grantors or
any Subsidiary or Affiliate thereof.
30.2 POWERS AND DUTIES. Each Purchaser irrevocably authorizes the Agent to
take such action on such Purchaser's behalf and to exercise such powers, rights
and remedies hereunder as are specifically delegated or granted to the Agent by
the terms hereof, together with such powers, rights and remedies as are
reasonably incidental thereto. The Agent shall have only those duties and
responsibilities that are expressly specified herein. The Agent may exercise
such powers, rights and remedies and perform such duties by or through its
agents or employees. The Agent shall not have, by reason hereof or of any other
Transaction Document, a fiduciary relationship in respect of any Purchaser; and
nothing herein, expressed or implied, is intended to or shall be so construed as
to impose upon the Agent any obligations in respect hereof or any of the other
Transaction Documents except as expressly set forth herein.
D-18
30.3 GENERAL IMMUNITY.
(a) No Responsibility for Certain Matters. The Agent shall not be
responsible to any Purchaser for the execution, effectiveness, genuineness,
validity, enforceability, collectability or sufficiency hereof or any other
Transaction Document or for any representations, warranties, recitals or
statements made herein or therein or made in any written or oral statements or
in any other statements, instruments, reports or certificates or any other
documents furnished or made by the Agent to Purchasers or by or on behalf of any
Grantor to the Agent or any other Secured Party in connection with this
Agreement or any other Transaction Document and the transactions contemplated
hereby or thereby or for the financial condition or business affairs of any
Grantor or the condition of any of the Collateral, nor shall the Agent be
required to ascertain or inquire as to the performance or observance of any of
the terms, conditions, provisions, covenants or agreements contained in this
Agreement or any of the other Transaction Documents or as to the existence or
possible existence of any Event of Default or Default or to make any disclosures
with respect to the foregoing.
(b) Exculpatory Provisions. Neither the Agent, nor any Affiliate of
the Agent, nor any of their respective officers, partners, directors, employees,
controlling persons, auditors or agents shall be liable to Purchasers for any
action taken or omitted by the Agent hereunder or in connection with any of the
other Transaction Documents except to the extent found by a final,
non-appealable judgment of a court of competent jurisdiction to have been caused
by the Agent's gross negligence or willful misconduct. The Agent shall be
entitled to refrain from any act or the taking of any action (including the
failure to take an action) in connection herewith or any of the other
Transaction Documents or from the exercise of any power, discretion or authority
vested in it hereunder or thereunder unless and until the Agent shall have
received instructions in respect thereof from Purchasers holding a majority in
principal amount of the Notes then outstanding (the "Requisite Purchasers") and,
upon receipt of such instructions from Requisite Purchasers, the Agent shall be
entitled to act or (where so instructed) refrain from acting, or to exercise
such power, discretion or authority, in accordance with such instructions.
Without prejudice to the generality of the foregoing, (i) the Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
communication, instrument or document believed by it to be genuine and correct
and to have been signed or sent by the proper Person or Persons, and shall be
entitled to rely and shall be protected in relying on opinions and judgments of
attorneys (who may be attorneys for the Grantors), accountants, experts and
other professional advisors selected by it; and (ii) no Purchaser shall have any
right of action whatsoever against the Agent as a result of the Agent acting or
(where so instructed) refraining from acting hereunder or under any of the other
Transaction Documents in accordance with the instructions of Requisite
Purchasers.
30.4 AGENT ENTITLED TO ACT AS PURCHASER. The agency hereby created shall in
no way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, the Agent in its individual capacity as a Purchaser hereunder.
With respect to its holding of Notes, the Agent shall have the same rights and
powers hereunder as any other Purchaser and may exercise the same as if it were
not performing the duties and functions delegated to it hereunder, and the term
"Purchaser" shall, unless the context clearly otherwise indicates, include the
Agent in its individual capacity. The Agent and its Affiliates may accept
deposits from, lend money to, own securities of, and generally engage in any
kind of banking, trust, financial advisory or other business with any Grantor or
any of their Affiliates as if it were not performing the duties
D-19
specified herein, and may accept fees and other consideration from Borrower for
services in connection herewith and otherwise without having to account for the
same to Purchasers.
30.5 PURCHASERS' REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENT.
(a) Each Purchaser represents and warrants that it has made its own
independent investigation of the financial condition and affairs of the Grantors
and the condition and value of the Collateral in connection with its purchase of
Notes. The Agent shall not have any duty or responsibility, either initially or
on a continuing basis, to make any investigation or appraisal of the
creditworthiness of the Grantors or the condition and value of the Collateral on
behalf of the Purchasers or to provide any Purchaser with any information with
respect thereto, and the Agent shall not have any responsibility with respect to
the accuracy of or the completeness of any information provided to the
Purchasers.
(b) Each Purchaser, by delivering its signature page to this Agreement
and funding its Notes shall be deemed to have acknowledged receipt of, and
consented to and approved, this Agreement, each other Transaction Document and
each other document required to be approved by the Agent, Requisite Purchasers
or Purchasers, as applicable on the date hereof.
30.6 RIGHT TO INDEMNITY. Each Purchaser, in proportion to the pro rata
share of the principal amount of Notes purchased by it on the date hereof ("Pro
Rata Share"), severally agrees to indemnify the Agent, its Affiliates and their
respective officers, partners, directors, trustees, employees, auditors,
controlling persons and agents (each, an "Indemnitee Agent Party"), to the
extent that such Indemnitee Agent Party shall not have been reimbursed by any
Grantor, for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including counsel fees
and disbursements) or disbursements of any kind or nature whatsoever which may
be imposed on, incurred by or asserted against such Indemnitee Agent Party in
exercising its powers, rights and remedies or performing its duties hereunder or
under the other Transaction Documents or otherwise in its capacity as such
Indemnitee Agent Party in any way relating to or arising out of this Agreement
or the other Transaction Documents, IN ALL CASES, WHETHER OR NOT CAUSED BY OR
ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY, OR SOLE
NEGLIGENCE OF SUCH INDEMNITEE AGENT PARTY; provided, that no Purchaser shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from such Indemnitee Agent Party's gross negligence or willful misconduct to the
extent that such have been found by a final, non-appealable judgment of a court
of competent jurisdiction. If any indemnity furnished to any Indemnitee Agent
Party for any purpose shall, in the opinion of such Indemnitee Agent Party, be
insufficient or become impaired, such Indemnitee Agent Party may call for
additional indemnity and cease, or not commence, to do the acts indemnified
against unless and until such additional indemnity is furnished; provided, that
in no event shall this sentence require any Purchaser to indemnify any
Indemnitee Agent Party against any liability, obligation, loss, damage, penalty,
action, judgment, suit, cost, expense or disbursement in excess of such
Purchaser's Pro Rata Share thereof; and provided, further, that this sentence
shall not be deemed to require any Purchaser to indemnify any Indemnitee Agent
Party against any liability, obligation, loss,
D-20
damage, penalty, action, judgment, suit, cost, expense or disbursement described
in the proviso in the immediately preceding sentence.
30.7 SUCCESSOR AGENT.
(a) The Agent may resign at any time by giving fifteen (15) Business
Days' prior written notice thereof to Purchasers and Borrower, which resignation
shall be effective as to this Agreement and each other Security Document for
which Agent acts in its capacity as such. Upon any such notice of resignation,
the Requisite Purchasers shall have the right, upon five Business Days' notice
to Borrower, to appoint a successor Agent. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, that successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent and the Agent shall promptly (i) transfer to
such successor Agent all sums, Securities and other items of Collateral and the
other Security Documents creating a security interest in any of the Collateral,
together with all records and other documents necessary or appropriate in
connection with the performance of the duties of the successor Agent under this
Agreement and the other Transaction Documents, and (ii) execute and deliver to
such successor Agent such amendments to financing statements, and take such
other actions, as may be necessary or appropriate in connection with the
assignment to such successor Agent of the security interests created under the
Security Documents, whereupon such retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 30 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent
hereunder.
(b) Notwithstanding anything herein to the contrary, the Agent may
assign its rights and duties as Agent hereunder to any of its Affiliates (other
than any Grantor or any Subsidiary thereof) without the prior written consent
of, or prior written notice to, the Grantors or the Purchasers under this
Agreement and any other Security Document for which Agent acts in its capacity
as such; provided that the Grantors and the Purchasers may deem and treat such
assigning Agent as the Agent for all purposes hereof, unless and until such
assigning Agent provides written notice to Borrower and the Purchasers of such
assignment. Upon such assignment such Affiliate shall succeed to and become
vested with all rights, powers, privileges and duties as Agent hereunder and
under the other Transaction Documents.
30.8 COLLATERAL AND GUARANTEES.
(a) Right to Release Collateral or Guarantees. Subject to Section 19,
without further written consent or authorization from the Purchasers, the Agent
may execute any documents or instruments necessary to (i) release any lien
encumbering any item of Collateral that is the subject of a sale or other
disposition of assets permitted under the terms of Transaction Documents or to
which Requisite Purchasers have otherwise consented, or (ii) release any
Subsidiary Grantor from its Guarantee upon the sale of such Subsidiary as
permitted pursuant to the terms and conditions of the Transaction Documents or
to which Requisite Purchasers have otherwise consented.
D-21
(b) Right to Realize on Collateral and Enforce Guarantees. Anything
contained in any of the Transaction Documents to the contrary notwithstanding,
the Grantors, the Agent and each Purchaser hereby agree that (i) no Purchaser
shall have any right individually to realize upon any of the Collateral or to
enforce any of the Guarantees, it being understood and agreed that all powers,
rights and remedies hereunder may be exercised solely by the Agent, on behalf of
Purchasers in accordance with the terms hereof and all powers, rights and
remedies under the other Security Documents may be exercised solely by the
Agent, and (ii) in the event of a foreclosure by the Agent on any of the
Collateral pursuant to a public or private sale, the Agent or any other Secured
Party may be the purchaser of any or all of such Collateral at any such sale and
the Agent, as agent for and representative of Secured Parties (but not any
Purchaser or Purchasers in its or their respective individual capacities unless
Requisite Purchasers shall otherwise agree in writing) shall be entitled, for
the purpose of bidding and making settlement or payment of the purchase price
for all or any portion of the Collateral sold at any such public sale, to use
and apply any of the Obligations as a credit on account of the purchase price
for any collateral payable by the Agent at such sale.
31. TERMINATION. This Agreement shall remain in full force and effect until such
time as all principal and any accrued interest on the Notes is either (a)
converted into Common Stock in accordance with the terms of the Notes or (b)
indefeasibly paid in full and, in the case of either (a) or (b), all other
Obligations then due and owing (including Post-Petition Interest) are
indefeasibly paid in full; provided, however, that, so long as no Event of
Default, or event which, with the giving of notice, the lapse of time for both
would constitute an Event of Default, has occurred and is continuing, the Agent,
upon the written request of a Grantor, shall release and otherwise terminate any
and all Liens and security interests held by Agent with respect to (a) such
Grantor's accounts and such Grantor's inventory in the event that (i) such
Grantor obtains the Future Working Capital Line (as defined in the Note) and
(ii) the release and termination of such Liens and security interests are
necessary for such Grantor to obtain the Future Working Capital Line and (b)
such Grantor's right, title and interest in and to the assets of the Peridex(R)
product line effective upon the consummation of the sale of the Peridex(R)
product line on the terms and conditions approved by such Grantor's board of
directors. Following the termination hereof, upon the request of and at the
expense of the Grantors, the Agent shall reassign to the Grantors all Collateral
held by Agent and shall execute a termination of all security agreements and
security interests given by Grantors to Agent.
[The remainder of this page has been intentionally left blank.]
D-22
IN WITNESS WHEREOF, intending to be legally bound, the Grantors, the Agent
and, for the purpose of Section 30, only, the Purchasers, have caused this
Agreement to be duly executed as of the date first above written.
GRANTORS:
BORROWER:
ZILA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
SUBSIDIARY GUARANTORS:
[__________________]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
[__________________]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
[Signature Page to Pledge and Security Agreement]
AGENT:
NOTICE ADDRESS FOR AGENT: [__________________]
[________________________]
[________________________]
[________________________] By:
[________________________] ------------------------------------
Name:
Attention: [__________] ---------------------------------
Telephone: [__________] Title:
Facsimile: [__________] ---------------------------------
PURCHASERS, for the purpose of Section 30, only:
[NAME]
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[NAME]
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[NAME]
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
SCHEDULE A
CAPITAL STOCK
Pledged Stock
PLEDGOR ISSUER SHARES PLEDGED CERTIFICATE NUMBER(S)
------- ------ -------------- ---------------------
A-1
EXHIBIT I
COPYRIGHT SECURITY AGREEMENT
COPYRIGHT SECURITY AGREEMENT, dated as of November __, 2006 (this
"Agreement"), is by and among the parties identified as "Grantors" on the
signature pages hereto and such other parties as may become Grantors hereunder
after the date hereof (individually a "Grantor", and collectively the
"Grantors"), and __________________, a ___________ ______________, as collateral
agent (the "Agent").
WHEREAS, this Agreement is being entered into in accordance with Section
6.1 of that certain Pledge and Security Agreement, dated as of November __, 2006
(as the same may be amended, restated, supplemented or otherwise modified,
renewed or replaced from time to time, the "Security Agreement"), by and among
the Grantors, the Agent and the parties identified on the signature pages
thereto as Purchasers;
NOW THEREFORE, in consideration of the promises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1.
DEFINITIONS; INTERPRETATION.
(a) Defined Terms. All capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to them in the
Purchase Agreement, dated as of November __, 2006 (the "Purchase Agreement"), by
and between Zila, Inc. (the "Borrower") and the Investors named therein (the
"Purchasers"), the Notes and the Security Agreement.
(b) Certain Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Collateral" has the meaning set forth in Section 2.
"Copyright Office" means the United States Copyright Office.
"Notes" means $12,000,000 in aggregate principal amount of the Borrower's
6% Senior Secured Convertible Notes issued by the Borrower to the Purchasers.
"UCC" means the Uniform Commercial Code as in effect in the State of New
York.
1
(c) Terms Defined in UCC. Where applicable in the context of this Agreement
and except as otherwise defined herein, terms used in this Agreement shall have
the meanings assigned to them in the UCC.
(d) Construction. In this Agreement, the following rules of construction
and interpretation shall be applicable: (i) no reference to "proceeds" in this
Agreement authorizes any sale, transfer, or other disposition of any Collateral
by Grantor; (ii) "includes" and "including" are not limiting; (iii) "or" is not
exclusive; and (iv) "all" includes "any" and "any" includes "all." To the extent
not inconsistent with the foregoing, the rules of construction and
interpretation applicable to the Security Agreement shall also be applicable to
this Agreement and are incorporated herein by this reference.
SECTION 2.
SECURITY INTEREST.
(a) Grant of Security Interest. As security for the payment and performance
of the Obligations, each Grantor hereby assigns, transfers and conveys to the
Agent, and grants an ongoing duly perfected first priority security interest in
and mortgage to the Agent of, all such Grantor's right, title and interest in,
to and under the following property, in each case whether now or hereafter
existing or arising or in which such Grantor now has or hereafter owns, acquires
or develops an interest and wherever located (collectively, the "Collateral"):
(i) All of such Grantor's present and future United States registered
copyrights and copyright registrations, including such Grantor's United
States registered copyrights and copyright registrations listed in Schedule
A to this Agreement, all of such Grantor's present and future United States
applications for copyright registrations, including such Grantor's United
States applications for copyright registrations listed in Schedule B to
this Agreement, and all of such Grantor's present and future copyrights
that are not registered in the Copyright Office including, without
limitation, derivative works (collectively, the "Copyrights"), and any and
all royalties, payments, and other amounts payable to Grantor in connection
with the Copyrights, together with all renewals and extensions of the
Copyrights, the right to recover for all past, present, and future
infringements of the Copyrights, and all manuscripts, documents, writings,
tapes, disks, storage media, computer programs, computer databases,
computer program flow diagrams, source codes, object codes and all tangible
property embodying or incorporating the Copyrights, and all other rights of
every kind whatsoever accruing thereunder or pertaining thereto;
(ii) All of such Grantor's right, title and interest in and to any and
all present and future license agreements with respect to the Copyrights;
(iii) All present and future accounts and other rights to payment
arising from, in connection with or relating to the Copyrights; and
2
(iv) All cash and non-cash proceeds of any and all of the foregoing.
(b) Continuing Security Interest. Each Grantor agrees that this Agreement
shall create a continuing security interest in the Collateral which shall remain
in effect until terminated in accordance with Section 11.
SECTION 3.
SUPPLEMENT TO SECURITY AGREEMENT.
This Agreement has been entered into in conjunction with the security
interests granted to the Agent under the Security Agreement, and other security
documents referred to therein. The rights and remedies of the Agent and the
other Secured Parties with respect to the security interests granted herein are
without prejudice to, and are in addition to those set forth in the Security
Agreement or any other security documents referred to therein, all terms and
provisions of which are incorporated herein by reference.
SECTION 4.
REPRESENTATIONS AND WARRANTIES.
Each Grantor represents and warrants to the Agent and the other Secured
Parties that:
(a) Copyright Registrations. A true and correct list of all of such
Grantor's United States registered copyrights and copyright registrations is set
forth in Schedule A.
(b) Applications for Copyright Registration. A true and correct list of all
of such Grantor's United States applications for copyright registrations is set
forth in Schedule B.
SECTION 5.
FURTHER ACTS.
On a continuing basis, each Grantor shall make, execute, acknowledge and
deliver, and file and record in the proper filing and recording places, all such
instruments and documents, and take all such action as may be reasonably
necessary or advisable or may be reasonably requested by the Agent or any other
Secured Party to carry out the intent and purposes of this Agreement, or for
assuring, confirming or protecting the grant or perfection of the first priority
security interest granted or purported to be granted hereby, to ensure such
Grantor's compliance with this Agreement or to enable the Agent to exercise and
enforce the rights and remedies of the Agent and the other Secured Parties
hereunder with respect to the Collateral, including any documents for filing
with the Copyright Office or any applicable state office. The Agent may record
this Agreement, an abstract thereof, or any other document describing the
Agent's interest in the
3
Copyrights with the Copyright Office, at the expense of such Grantor. In
addition, each Grantor authorizes the Agent to file financing statements
describing the Collateral in any UCC filing office deemed appropriate by the
Agent. If any Grantor shall at any time hold or acquire a commercial tort claim
arising with respect to the Collateral, such Grantor shall immediately notify
the Agent and the other Secured Parties in a writing signed by such Grantor of
the brief details thereof and grant to the Agent (on behalf of the Secured
Parties) 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 satisfactory to the Agent and the Requisite Purchasers.
SECTION 6.
AUTHORIZATION TO SUPPLEMENT.
Each Grantor shall give the Agent and the other Secured Parties prompt
notice of any additional United States copyright registrations or applications
therefor after the date hereof. Each Grantor authorizes the Agent unilaterally
to modify this Agreement by amending Schedule A or B to include any future
United States registered copyrights or applications therefor of such Grantor.
Notwithstanding the foregoing, no failure to so modify this Agreement or amend
Schedule A or B shall in any way affect, invalidate or detract from Agent's
continuing security interest in all Collateral, whether or not listed on
Schedule A or B.
SECTION 7.
BINDING EFFECT.
This Agreement shall be binding upon, inure to the benefit of and be
enforceable by each Grantor, the Agent and the other Secured Parties and their
respective successors and assigns. Except as provided in Section 30.7 of the
Security Agreement, no party hereto may assign, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder except as
agreed to in writing by the other parties hereto.
SECTION 8.
GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with, the
law of the State of New York, except as required by mandatory provisions of law
or to the extent the perfection or priority of the security interests hereunder,
or the remedies hereunder, in respect of any Collateral are governed by the law
of a jurisdiction other than the State of New York.
No amendment of any provision of this Agreement shall be effective unless
it is in writing and signed by the Grantors, the Agent and the Requisite
Purchasers, and no waiver of any provision of this Agreement, and no consent to
any departure by the Grantors therefrom, shall be effective unless it is in
writing and signed by the Agent and
4
consented to in writing by the Requisite Purchasers, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. Notwithstanding the foregoing, (i) additional Persons
may become Grantors under this Agreement without consent of any other Grantor
through execution and delivery to the Agent of an Assumption Agreement in the
form of Annex 1 hereto or any other form of supplement acceptable to the Agent,
and (ii) the Agent unilaterally may re-execute this Agreement or modify, amend
or supplement the Schedules hereto as provided in Section 6 hereof. To the
extent that any provision of this Agreement conflicts with any provision of the
Notes, the provision giving the Secured Parties greater rights or remedies shall
govern, it being understood that the purpose of this Agreement is to add to, and
not detract from, the rights granted to Purchasers under the Notes. Nothing in
this Section 9 shall be construed to permit any Grantor to form a Subsidiary
unless expressly permitted to do so under the Notes.
SECTION 10.
COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement. Delivery of an executed counterpart
of this Agreement by facsimile shall be equally as effective as delivery of a
manually executed counterpart. Any party hereto delivering a counterpart of this
Agreement by facsimile shall also deliver a manually executed counterpart, but
the failure to so deliver a manually executed counterpart shall not affect the
validity, enforceability, or binding effect hereof.
SECTION 11.
TERMINATION.
Upon the indefeasible payment and performance in full of all Obligations,
the security interests created by this Agreement shall terminate and the Agent
(at the Grantors' expense) shall promptly execute and deliver to the Grantors
such documents and instruments reasonably requested by the Grantors as shall be
necessary to evidence termination of all such security interests given by the
Grantors to Agent hereunder, including cancellation of this Agreement by written
notice from Agent to the Copyright Office.
SECTION 12.
NO INCONSISTENT REQUIREMENTS.
Each Grantor acknowledges that this Agreement and the other documents,
agreements and instruments entered into or executed in connection herewith may
contain covenants and other terms and provisions variously stated regarding the
same or similar matters, and each Grantor agrees that all such covenants, terms
and provisions are
5
cumulative and all shall be performed and satisfied in accordance with their
respective terms.
SECTION 13.
SEVERABILITY.
If one or more provisions contained in this Agreement shall be invalid,
illegal or unenforceable in any respect in any jurisdiction or with respect to
any party, such invalidity, illegality or unenforceability in such jurisdiction
or with respect to such party shall, to the fullest extent permitted by
applicable law, not invalidate or render illegal or unenforceable any such
provision in any other jurisdiction or with respect to any other party, or any
other provisions of this Agreement.
SECTION 14.
NOTICES.
All notices and other communications hereunder shall be in writing and
shall be mailed, sent or delivered in accordance with the Purchase Agreement and
the Security Agreement.
[Signature Page Follows]
6
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
as of the date first above written.
GRANTORS:
ZILA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
[NAMES OF SUBSIDIARY GRANTORS]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
AGENT:
[NAME]
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[Signature Page to Copyright Security Agreement]
SCHEDULE A
TO THE COPYRIGHT SECURITY AGREEMENT
GRANTOR: [___________]
Registered Copyrights
Title of Work Registration Number Date of Registration
------------- ------------------- --------------------
A-1
SCHEDULE B
TO THE COPYRIGHT SECURITY AGREEMENT
GRANTOR: [___________]
Copyright Applications
Title of Work Application Number
------------- ------------------
B-1
Annex 1 to
Copyright Security Agreement
ASSUMPTION AGREEMENT, dated as of ________________, 20__, made by
______________________________ (the "Additional Grantor"), in favor of
__________________, a ___________ ______________, as collateral agent (the
"Agent"), under that certain Copyright Security Agreement (as defined below).
WITNESSETH :
WHEREAS, the Grantors have entered into the Copyright Security
Agreement dated as of ________________, 20__ (as it may be amended, supplemented
or otherwise modified from time to time, the "Copyright Security Agreement") in
favor of the Agent; and
WHEREAS, the Additional Grantor has agreed to execute and deliver this
Assumption Agreement in order to become a party to the Copyright Security
Agreement;
NOW, THEREFORE, IT IS AGREED:
1. COPYRIGHT SECURITY AGREEMENT. By executing and delivering this
Assumption Agreement, the Additional Grantor, as provided in Section 9 of the
Copyright Security Agreement, hereby becomes a party to the Copyright Security
Agreement as a Grantor thereunder with the same force and effect as if
originally named therein as a Grantor and, without limiting the generality of
the foregoing, hereby expressly assumes all obligations and liabilities of a
Grantor thereunder. All capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to them in the
Copyright Security Agreement.
2. REPRESENTATIONS AND WARRANTIES CONCERNING GRANTOR'S LEGAL STATUS.
The Additional Grantor has previously delivered to the Agent and the other
Secured Parties (as defined in the Security Agreement) a certificate signed by
the Additional Grantor and entitled "Perfection Certificate" (the "Perfection
Certificate"). The Additional Grantor represents and warrants to the Agent and
the other Secured Parties as follows: (a) the Additional Grantor's exact legal
name is that indicated on the Perfection Certificate and on the signature page
hereof, (b) the Additional Grantor is an organization of the type and organized
in the jurisdiction set forth in the Perfection Certificate, (c) the Perfection
Certificate accurately sets forth the Additional Grantor's organizational
identification number or accurately states that the Additional Grantor has none,
(d) the Perfection Certificate accurately sets forth the Additional Grantor's
place of business or, if more than one, its chief executive office as well as
the Additional Grantor's mailing address if different, (e) all other information
set forth on the Perfection Certificate pertaining to the Additional Grantor is
accurate and complete including but not limited to information pertaining to
copyrights and (f) each of the representations and warranties contained in the
Transaction Documents relating to it are true and correct on
Annex 1
and as the date hereof (after giving effect to this Assumption Agreement) as if
made on and as of such date.
3. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
WITHOUT IN ANY WAY LIMITING THE PRECEDING CHOICE OF LAW, THE UNDERSIGNED (AND BY
ITS ACCEPTANCE HEREOF, THE AGENT) ELECTS TO BE GOVERNED BY NEW YORK LAW IN
ACCORDANCE WITH, AND ARE RELYING (AT LEAST IN PART) ON SECTION 5-1401 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AS AMENDED, OR ANY
CORRESPONDING OR SUCCEEDING PROVISIONS THEREOF.
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.
[ADDITIONAL GRANTOR]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
2
EXHIBIT II
TRADEMARK SECURITY AGREEMENT
TRADEMARK SECURITY AGREEMENT, dated as of November __, 2006 (this
"Agreement"), is by and among the parties identified as "Grantors" on the
signature pages hereto and such other parties as may become Grantors hereunder
after the date hereof (individually a "Grantor", and collectively the
"Grantors"), and __________________, a ___________ ______________, as collateral
agent (the "Agent").
WHEREAS, this Agreement is being entered into in accordance with
Section 6.2 of that certain Pledge and Security Agreement, dated as of November
__, 2006 (as the same may be amended, restated, supplemented or otherwise
modified, renewed or replaced from time to time, the "Security Agreement"), by
and among the Grantors, the Agent and the parties identified on the signature
pages thereto as Purchasers;
NOW THEREFORE, in consideration of the promises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1.
DEFINITIONS; INTERPRETATION.
(a) Defined Terms. All capitalized terms used in this Agreement and
not otherwise defined herein shall have the meanings assigned to them in the
Purchase Agreement, dated as of November __, 2006 (the "Purchase Agreement"), by
and between Zila, Inc. (the "Borrower") and the Investors named therein (the
"Purchasers"), the Notes and the Security Agreement.
(b) Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Collateral" has the meaning set forth in Section 2.
"Notes" means $12,000,000 in aggregate principal amount of the
Borrower's 6% Senior Secured Convertible Notes issued by the Borrower to the
Purchasers.
"Trademark Office" means the United States Patent & Trademark Office.
II-1
SECTION 2.
SECURITY INTEREST
To secure the complete and timely payment and satisfaction of the
Obligations, each Grantor hereby grants to the Agent, and hereby reaffirms its
prior grant pursuant to the Security Agreement of, a continuing first priority
security interest in such Grantor's entire right, title and interest in and to
the following (all of the following items or types of property being herein
collectively referred to as the "Collateral"), whether now owned or existing or
hereafter created or acquired:
(a) Each trademark listed on Schedule 1 annexed hereto, together with any
reissues, continuations or extensions thereof (each a "Trademark"), and all of
the goodwill of the business connected with the use of, and symbolized by, each
Trademark; and
(b) All products and proceeds of the forgoing, including without
limitation, any claim by Grantor against third parties for past, present or
future (a) infringement or dilution of any Trademark, or (b) injury to the
goodwill associated with any Trademark.
SECTION 3
SUPPLEMENT TO SECURITY AGREEMENT
This Agreement has been entered into in conjunction with the security
interests granted to the Agent under the Security Agreement, and other security
documents referred to therein. The rights and remedies of the Agent and the
other Secured Parties with respect to the security interests granted herein are
without prejudice to, and are in addition to those set forth in the Security
Agreement or any other security documents referred to therein, all terms and
provisions of which are incorporated herein by reference.
SECTION 4
REPRESENTATIONS AND WARRANTIES
Each Grantor represents and warrants to Agent and the other Secured Parties
that:
(a) Grantor is the sole and exclusive owner of the entire and unencumbered
right, title and interest in and to each Trademark, free and clear of any liens,
charges and encumbrances, including without limitation licenses and covenants by
Grantor not to xxx third persons, except for Permitted Liens.
(b) Grantor has no notice of any suits or actions commenced or threatened
with reference to any Trademark; and
II-2
(c) Grantor has the unqualified right to execute and deliver this Agreement
and perform its terms.
SECTION 5
FURTHER ACTS
Grantor agrees that until Grantor's Obligations shall have been satisfied
in full, Grantor shall not, without the prior written consent of the Agent, sell
or assign its interest in, or grant any license under, any Trademark or enter
into any other agreement with respect to any Trademark (except as permitted
under the Transaction Documents), and Grantor further agrees that it shall not
take any action or permit any action to be taken by others subject to its
control, including licensees, or fail to take any action which would affect the
validity or enforcement of the rights transferred to the Agent under this
Agreement.
SECTION 6
AGENT'S RIGHT TO XXX
After an Event of Default occurs and while it continues, the Agent shall
have the right, but shall in no way be obligated, to bring suit in its own name
to enforce the Trademarks and, if the Agent shall commence any such suit,
Grantor shall, at the reasonable request of the Agent, do any and all lawful
acts and execute any and all proper documents reasonably required by the Agent
in aid of such enforcement and Grantor shall promptly, upon demand, reimburse
and indemnify the Agent for all reasonable costs and expenses incurred by the
Agent in the exercise of its rights under this Section 6.
SECTION 7
CUMULATIVE REMEDIES; POWER OF ATTORNEY
The Agent hereby acknowledges and affirms that the rights and remedies with
respect to the Trademarks, whether established hereby or by the Security
Agreement, or by any other agreements or by law shall be cumulative and may be
exercised singularly or concurrently. Grantor hereby authorizes the Agent upon
the occurrence and during the continuance of an Event of Default, to make,
constitute and appoint any officer or agent of the Agent as the Agent select, in
its sole discretion, as Grantor's true and lawful attorney-in-fact, with power
to (a) endorse Grantor's name on all applications, documents, papers and
instruments reasonably necessary or desirable for the Agent in the use of the
Trademarks or (b) take any other actions with respect to the Trademarks as the
Agent deems to be in the best interest of the Secured Parties, or (c) grant or
issue any exclusive or non-exclusive license under the Trademarks to anyone, or
(d) assign, pledge, convey or otherwise transfer title in or dispose of the
Trademarks to anyone. Grantor hereby ratifies all that such attorneys shall
lawfully do or cause to be done after the occurrence and during the continuance
of an Event of Default by virtue hereof. This
II-3
power of attorney shall be irrevocable until Grantor's Obligations shall have
been paid in full. Grantor hereby further acknowledges and agrees that the use
by the Agent of the Trademarks after the occurrence and during the continuance
of an Event of Default shall be worldwide, except as limited by their terms, and
without any liability for royalties or related charges from the Agent to
Grantor.
SECTION 8
BINDING EFFECT
This Agreement shall be binding upon, inure to the benefit of and be
enforceable by each Grantor, the Agent and the other Secured Parties and their
respective successors and assigns. Except as provided in Section 30.7 of the
Security Agreement, no party hereto may assign, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder except as
agreed to in writing by the other parties hereto.
SECTION 9
GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with, the
law of the State of New York, except as required by mandatory provisions of law
or to the extent the perfection or priority of the security interests hereunder,
or the remedies hereunder, in respect of any Collateral are governed by the law
of a jurisdiction other than the State of New York.
SECTION 10
ENTIRE AGREEMENT; AMENDMENT
No amendment of any provision of this Agreement shall be effective unless
it is in writing and signed by the Grantors, the Agent and the Requisite
Purchasers, and no waiver of any provision of this Agreement, and no consent to
any departure by the Grantors therefrom, shall be effective unless it is in
writing and signed by the Agent and consented to in writing by the Requisite
Purchasers, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. Notwithstanding
the foregoing, (a) additional Persons may become Grantors under this Agreement
without consent of any other Grantor through execution and delivery to the Agent
of an Assumption Agreement in the form of Annex 1 hereto or any other form of
supplement acceptable to the Agent, and (b) the Agent unilaterally may modify,
amend or supplement the Schedules hereto, and such modified, amended or
supplemented Schedules shall be deemed to be accurate absent manifest error. To
the extent that any provision of this Agreement conflicts with any provision of
the Notes, the provision giving the Secured Parties greater rights or remedies
shall govern, it being understood that the purpose of this Agreement is to add
to, and not detract from, the rights granted to Purchasers under the Notes.
Nothing in this Section 10 shall be
II-4
construed to permit any Grantor to form a Subsidiary unless expressly permitted
to do so under the Notes.
SECTION 11
COUNTERPARTS
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement. Delivery of an executed counterpart
of this Agreement by facsimile shall be equally as effective as delivery of a
manually executed counterpart. Any party hereto delivering a counterpart of this
Agreement by facsimile shall also deliver a manually executed counterpart, but
the failure to so deliver a manually executed counterpart shall not affect the
validity, enforceability, or binding effect hereof.
SECTION 12.
TERMINATION
Upon the indefeasible payment and performance in full of all Obligations,
the security interests created by this Agreement shall terminate and the Agent
(at the Grantors' expense) shall promptly execute and deliver to the Grantors
such documents and instruments reasonably requested by the Grantors as shall be
reasonably necessary to evidence termination of all such security interests
given by the Grantors to the Agent hereunder, including cancellation of this
Agreement by written notice from the Agent to the Trademark Office.
SECTION 13
NO INCONSISTENT REQUIREMENTS
Each Grantor acknowledges that this Agreement and the other documents,
agreements and instruments entered into or executed in connection herewith may
contain covenants and other terms and provisions variously stated regarding the
same or similar matters, and each Grantor agrees that all such covenants, terms
and provisions are cumulative and all shall be performed and satisfied in
accordance with their respective terms.
SECTION 14
SEVERABILITY
If one or more provisions contained in this Agreement shall be invalid,
illegal or unenforceable in any respect in any jurisdiction or with respect to
any party, such invalidity, illegality or unenforceability in such jurisdiction
or with respect to such party
II-5
shall, to the fullest extent permitted by applicable law, not invalidate or
render illegal or unenforceable any such provision in any other jurisdiction or
with respect to any other party, or any other provisions of this Agreement.
SECTION 15
NOTICES
All notices and other communications hereunder shall be in writing and
shall be mailed, sent or delivered in accordance with the Purchase Agreement and
the Security Agreement.
[Signature Page Follows]
II-6
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
GRANTORS:
ZILA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
[NAMES OF SUBSIDIARY GRANTORS]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
AGENT:
[NAME]
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[Signature Page to Trademark Security Agreement]
SCHEDULE A
TO THE TRADEMARK SECURITY AGREEMENT
GRANTOR: [_________]
TRADEMARK REGISTRATIONS
Trademarks owned by Grantors:
Trademark Description U.S. Registration No. Date Registered
--------------------- --------------------- ---------------
A-1
SCHEDULE B
TO THE TRADEMARK SECURITY AGREEMENT
GRANTOR: [_________]
TRADEMARK APPLICATIONS
Trademark Application Description U.S. Application No. Date Applied
--------------------------------- -------------------- ------------
B-1
Annex 1 to
Trademark Security Agreement
ASSUMPTION AGREEMENT, dated as of ________________, 20__, made by
______________________________ (the "Additional Grantor"), in favor of
__________________, a ___________ ______________, as collateral agent (the
"Agent"), under that certain Trademark Security Agreement (as defined below).
WITNESSETH :
WHEREAS, the Grantors have entered into the Trademark Security
Agreement dated as of ________________, 20__ (as it may be amended, supplemented
or otherwise modified from time to time, the "Trademark Security Agreement") in
favor of the Agent; and
WHEREAS, the Additional Grantor has agreed to execute and deliver this
Assumption Agreement in order to become a party to the Trademark Security
Agreement;
NOW, THEREFORE, IT IS AGREED:
1. TRADEMARK SECURITY AGREEMENT. By executing and delivering this
Assumption Agreement, the Additional Grantor, as provided in Section 10 of the
Trademark Security Agreement, hereby becomes a party to the Trademark Security
Agreement as a Grantor thereunder with the same force and effect as if
originally named therein as a Grantor and, without limiting the generality of
the foregoing, hereby expressly assumes all obligations and liabilities of a
Grantor thereunder. All capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to them in the
Trademark Security Agreement.
2. REPRESENTATIONS AND WARRANTIES CONCERNING GRANTOR'S LEGAL STATUS.
The Additional Grantor has previously delivered to the Agent and the other
Secured Parties (as defined in the Security Agreement) a certificate signed by
the Additional Grantor and entitled "Perfection Certificate" (the "Perfection
Certificate"). The Additional Grantor represents and warrants to the Agent and
the other Secured Parties as follows: (a) the Additional Grantor's exact legal
name is that indicated on the Perfection Certificate and on the signature page
hereof, (b) the Additional Grantor is an organization of the type and organized
in the jurisdiction set forth in the Perfection Certificate, (c) the Perfection
Certificate accurately sets forth the Additional Grantor's organizational
identification number or accurately states that the Additional Grantor has none,
(d) the Perfection Certificate accurately sets forth the Additional Grantor's
place of business or, if more than one, its chief executive office as well as
the Additional Grantor's mailing address if different (e) all other information
set forth on the Perfection Certificate pertaining to the Additional Grantor is
accurate and complete including but not limited to information pertaining to
trademarks and (f) each of the representations and warranties contained in the
Transaction Documents relating to the Additional Grantor are true and correct on
and as the date hereof (after giving effect to this Assumption Agreement) as if
made on and as of such date.
Annex 1
3. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
WITHOUT IN ANY WAY LIMITING THE PRECEDING CHOICE OF LAW, THE UNDERSIGNED (AND BY
ITS ACCEPTANCE HEREOF, THE AGENT) ELECTS TO BE GOVERNED BY NEW YORK LAW IN
ACCORDANCE WITH, AND ARE RELYING (AT LEAST IN PART) ON SECTION 5-1401 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AS AMENDED, OR ANY
CORRESPONDING OR SUCCEEDING PROVISIONS THEREOF.
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.
[ADDITIONAL GRANTOR]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Annex 2
EXHIBIT III
PATENT SECURITY AGREEMENT
PATENT SECURITY AGREEMENT, dated as of November __, 2006 (this
"Agreement"), is by and among the parties identified as "Grantors" on the
signature pages hereto and such other parties as may become Grantors hereunder
after the date hereof (individually a "Grantor", and collectively the
"Grantors"), and __________________, a _________________________, as collateral
agent (the "Agent").
WITNESSETH:
WHEREAS, this Agreement is being entered into in accordance with Section
6.3 of that certain Pledge and Security Agreement, dated as of November __, 2006
(as the same may be amended, restated, supplemented or otherwise modified,
renewed or replaced from time to time, the "Security Agreement"), by and among
the Grantors, the Agent and the parties identified on the signature pages
thereto as Purchasers, and in order to obtain the benefits referred to therein,
the Grantors have granted to the Agent a continuing first priority security
interest in substantially all of the Grantor's property, including, without
limitation, the Collateral referred to in Section 2 below; and
WHEREAS, pursuant to the Security Agreement, the Grantors have agreed to
execute this Agreement in respect of its Collateral for recording with the
Patent Office and any other office in which a security interest in the
Collateral may be recorded under the laws of any other applicable jurisdiction;
NOW THEREFORE, in consideration of the promises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1.
Definitions; Interpretation.
(a) Defined Terms. All capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to them in the
Purchase Agreement, dated as of November __, 2006 (the "Purchase Agreement"), by
and between Zila, Inc. (the "Borrower") and the Investors named therein (the
"Purchasers"), the Notes and the Security Agreement.
(b) Certain Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Collateral" has the meaning set forth in Section 2.
"Notes" means $12,000,000 in aggregate principal amount of the Borrower's
6% Senior Secured Convertible Notes issued by the Borrower to the Purchasers.
III-1
"Patent Office" means the United States Patent and Trademark Office.
"UCC" means the Uniform Commercial Code as in effect in the State of New
York.
(c) Terms Defined in UCC. Where applicable in the context of this Agreement
and except as otherwise defined herein, terms used in this Agreement shall have
the meanings assigned to them in the UCC.
(d) Construction. In this Agreement, the following rules of construction
and interpretation shall be applicable: (i) no reference to "proceeds" in this
Agreement authorizes any sale, transfer, or other disposition of any Collateral
by Grantor; (ii) "includes" and "including" are not limiting; (iii) "or" is not
exclusive; and (iv) "all" includes "any" and "any" includes "all." To the extent
not inconsistent with the foregoing, the rules of construction and
interpretation applicable to the Security Agreement shall also be applicable to
this Agreement and are incorporated herein by this reference.
SECTION 2
GRANT OF SECURITY
(a) Each Grantor hereby grants to the Agent a continuing first priority
security interest in and to all of the Grantor's right, title and interest in
and to the following (the "Collateral"):
(i) the United States, international, and foreign patents, patent
applications and patent licenses set forth on Schedule A and B hereto, as
Schedule A and B may be supplemented from time to time by supplements to
the Security Agreement and this Agreement which may be executed and
delivered by the Grantor to the Agent, from time to time, together with all
reissues, divisions, continuations, continuations-in-part, extensions and
reexaminations thereof, and all rights therein provided by international
treaties or conventions (the "Patents");
(ii) any and all claims for damages for past, present and future
infringement, misappropriation or breach with respect to the Patents, with
the right, but not the obligation, to xxx for and collect, or otherwise
recover, such damages; and
(iii) any and all proceeds of the foregoing.
(b) The pledge and collateral assignment of, and the grant of a first
priority security interest in, the Collateral by the Grantor under this
Agreement secures the payment of all Obligations of the Grantor now or hereafter
existing, whether direct or indirect, absolute or contingent, and whether for
principal, reimbursement obligations, interest, premiums, penalties, fees,
indemnifications, contract causes of action, costs, expenses or otherwise.
(c) The Grantor authorizes and requests that the Commissioner of Patents
and Trademarks and any other applicable government officer record this
Agreement.
III-2
SECTION 3.
SUPPLEMENT TO SECURITY AGREEMENT.
This Agreement has been entered into in conjunction with the
continuing first priority security interests granted to the Agent under the
Security Agreement, and other security documents referred to therein. The rights
and remedies of the Agent and the other Secured Parties with respect to the
security interests granted herein are without prejudice to, and are in addition
to those set forth in the Security Agreement or any other security documents
referred to therein, all terms and provisions of which are incorporated herein
by reference.
SECTION 4.
REPRESENTATIONS AND WARRANTIES.
Each Grantor represents and warrants to Secured Parties that:
(a) Patent Registrations. A true and correct list of all of such
Grantor's Patents is set forth on Schedule A.
(b) Applications for Patents. A true and correct list of all of such
Grantor's applications for Patents is set forth on Schedule B.
SECTION 5.
FURTHER ACTS.
On a continuing basis, each Grantor shall make, execute, acknowledge and
deliver, and file and record in the proper filing and recording places, all such
instruments and documents, and take all such action as may be reasonably
necessary or advisable or may be reasonably requested by the Agent to carry out
the intent and purposes of this Agreement, or for assuring, confirming or
protecting the grant or perfection of the continuing first priority security
interest granted or purported to be granted hereby, to ensure such Grantor's
compliance with this Agreement or to enable the Agent to exercise and enforce
the rights and remedies of the Agent and the other Secured Parties hereunder
with respect to the Collateral, including any documents for filing with the
Patent Office or any applicable state office. The Agent may record this
Agreement, an abstract thereof, or any other document describing the Agent's
interest in the Patents with the Patent Office, at the expense of such Grantor.
In addition, each Grantor authorizes the Agent to file financing statements
describing the Collateral in any UCC filing office deemed appropriate by the
Agent. If any Grantor shall at any time hold or acquire a commercial tort claim
arising with respect to the Collateral, such Grantor shall immediately notify
the Agent and the other Secured Parties in a writing signed by such Grantor of
the brief details thereof and grant to the Agent (on behalf of the Secured
Parties) 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 satisfactory to the Agent and the Requisite Purchasers.
III-3
SECTION 6.
AUTHORIZATION TO SUPPLEMENT.
Each Grantor shall give the Agent and the other Secured Parties prompt
notice of any additional United States Patent registrations or applications
therefor after the date hereof. Each Grantor authorizes the Agent unilaterally
to modify this Agreement by amending Schedule A or B to include any future
United States registered Patents or applications therefor of such Grantor.
Notwithstanding the foregoing, no failure to so modify this Agreement or amend
Schedule A or B shall in any way affect, invalidate or detract from Agent's
continuing security interest in all Collateral, whether or not listed on
Schedule A or B.
SECTION 7.
BINDING EFFECT.
This Agreement shall be binding upon, inure to the benefit of and be
enforceable by each Grantor, the Agent and the other Secured Parties and their
respective successors and assigns. Except as provided in Section 30.7 of the
Security Agreement, no party hereto may assign, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder except as
agreed to in writing by the other parties hereto.
SECTION 8.
GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with, the
law of the State of New York, except as required by mandatory provisions of law
or to the extent the perfection or priority of the security interests hereunder,
or the remedies hereunder, in respect of any Collateral are governed by the law
of a jurisdiction other than the State of New York.
SECTION 9.
ENTIRE AGREEMENT; AMENDMENT.
No amendment of any provision of this Agreement shall be effective unless
it is in writing and signed by the Grantors, the Agent and the Requisite
Purchasers, and no waiver of any provision of this Agreement, and no consent to
any departure by the Grantors therefrom, shall be effective unless it is in
writing and signed by the Agent and consented to in writing by the Requisite
Purchasers, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. Notwithstanding
the foregoing, (i) additional Persons may become Grantors under this Agreement
without consent of any other Grantor through execution and delivery to the Agent
of an Assumption Agreement in the form of Annex 1 hereto or any other form of
supplement acceptable to the Agent, and (ii) the Agent unilaterally may
re-execute this Agreement, to the extent reasonably necessary, to modify, amend
or supplement Schedule A or B hereto as provided in Section 6 hereof, and such
modified, amended or supplemented Schedules shall be deemed to be accurate
absent manifest error. To the extent that any provision of this Agreement
conflicts with any provision of the
III-4
Notes, the provision giving the Secured Parties greater rights or remedies shall
govern, it being understood that the purpose of this Agreement is to add to, and
not detract from, the rights granted to Purchasers under the Notes. Nothing in
this Section 9 shall be construed to permit any Grantor to form a Subsidiary
unless expressly permitted to do so under the Notes.
SECTION 10.
COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one and the same agreement. Delivery of an executed counterpart
of this Agreement by facsimile shall be equally as effective as delivery of a
manually executed counterpart. Any party hereto delivering a counterpart of this
Agreement by facsimile shall also deliver a manually executed counterpart, but
the failure to so deliver a manually executed counterpart shall not affect the
validity, enforceability, or binding effect hereof.
SECTION 11.
TERMINATION.
Upon the indefeasible payment and performance in full of all Obligations,
the security interests created by this Agreement shall terminate and the Agent
(at the Grantors' expense) shall promptly execute and deliver to the Grantors
such documents and instruments reasonably requested by the Grantors as shall be
necessary to evidence termination of all such security interests given by the
Grantors to the Agent hereunder, including cancellation of this Agreement by
written notice from Purchasers to the Patent Office.
SECTION 12.
NO INCONSISTENT REQUIREMENTS.
Each Grantor acknowledges that this Agreement and the other documents,
agreements and instruments entered into or executed in connection herewith may
contain covenants and other terms and provisions variously stated regarding the
same or similar matters, and each Grantor agrees that all such covenants, terms
and provisions are cumulative and all shall be performed and satisfied in
accordance with their respective terms.
SECTION 13.
SEVERABILITY.
If one or more provisions contained in this Agreement shall be invalid,
illegal or unenforceable in any respect in any jurisdiction or with respect to
any party, such invalidity, illegality or unenforceability in such jurisdiction
or with respect to such party shall, to the fullest extent permitted by
applicable law, not invalidate or render illegal or unenforceable any such
III-5
provision in any other jurisdiction or with respect to any other party, or any
other provisions of this Agreement.
SECTION 14.
NOTICES.
All notices and other communications hereunder shall be in writing and
shall be mailed, sent or delivered in accordance with the Purchase Agreement and
the Security Agreement.
[Signature Page Follows]
III-6
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
GRANTORS:
ZILA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
[NAMES OF SUBSIDIARY GRANTORS]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
AGENT:
[NAME]
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[Signature Page to Patent Security Agreement]
SCHEDULE A
TO THE PATENT SECURITY AGREEMENT
GRANTOR: [_________]
Registered Patents:
Patent No. Date of Registration Date of Expiration
---------- -------------------- ------------------
A-1
SCHEDULE B
TO PATENT SECURITY AGREEMENT
GRANTOR: [_________]
Applications for Patents:
Patent No. Date of Registration Date of Expiration
---------- -------------------- ------------------
B-1
Annex 1 to
Patent Security Agreement
ASSUMPTION AGREEMENT, dated as of ________________, 20__, made by
______________________________ (the "Additional Grantor"), in favor of
__________________, a ___________ ______________, as collateral agent (the
"Agent"), under that certain Patent Security Agreement (as defined below).
WITNESSETH:
WHEREAS, the Grantors have entered into the Patent Security Agreement
dated as of ________________, 20__ (as it may be amended, supplemented or
otherwise modified from time to time, the "Patent Security Agreement") in favor
of the Agent; and
WHEREAS, the Additional Grantor has agreed to execute and deliver this
Assumption Agreement in order to become a party to the Patent Security
Agreement;
NOW, THEREFORE, IT IS AGREED:
1. PATENT SECURITY AGREEMENT. By executing and delivering this
Assumption Agreement, the Additional Grantor, as provided in Section 9 of the
Patent Security Agreement, hereby becomes a party to the Patent Security
Agreement as a Grantor thereunder with the same force and effect as if
originally named therein as a Grantor and, without limiting the generality of
the foregoing, hereby expressly assumes all obligations and liabilities of a
Grantor thereunder. All capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to them in the Patent
Security Agreement.
2. REPRESENTATIONS AND WARRANTIES CONCERNING GRANTOR'S LEGAL STATUS.
The Additional Grantor has previously delivered to the Agent and the other
Secured Parties (as defined in the Security Agreement) a certificate signed by
the Additional Grantor and entitled "Perfection Certificate" (the "Perfection
Certificate"). The Additional Grantor represents and warrants to the Agent and
the other Secured Parties as follows: (a) the Additional Grantor's exact legal
name is that indicated on the Perfection Certificate and on the signature page
hereof, (b) the Additional Grantor is an organization of the type and organized
in the jurisdiction set forth in the Perfection Certificate, (c) the Perfection
Certificate accurately sets forth the Additional Grantor's organizational
identification number or accurately states that the Additional Grantor has none,
(d) the Perfection Certificate accurately sets forth the Additional Grantor's
place of business or, if more than one, its chief executive office as well as
the Additional Grantor's mailing address if different (e) all other information
set forth on the Perfection Certificate pertaining to the Additional Grantor is
accurate and complete including but
Annex 1 to PSA
not limited to information pertaining to Patents and (f) each of the
representations and warranties contained in the Transaction Documents relating
to the Additional Grantor are true and correct on and as the date hereof (after
giving effect to this Assumption Agreement) as if made on and as of such date.
3. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
WITHOUT IN ANY WAY LIMITING THE PRECEDING CHOICE OF LAW, THE UNDERSIGNED (AND BY
ITS ACCEPTANCE HEREOF, THE AGENT) ELECTS TO BE GOVERNED BY NEW YORK LAW IN
ACCORDANCE WITH, AND ARE RELYING (AT LEAST IN PART) ON SECTION 5-1401 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AS AMENDED, OR ANY
CORRESPONDING OR SUCCEEDING PROVISIONS THEREOF.
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.
[ADDITIONAL GRANTOR]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Annex 2 to PSA
SCHEDULE B
COMMERCIAL TORT CLAIMS
1
Annex 1 to
Pledge and Security Agreement
ASSUMPTION AGREEMENT, dated as of ________________, 20__, made by
______________________________ (the "Additional Grantor"), in favor of
__________________, a ___________ ______________, as collateral agent (the
"Agent"), under that certain Security Agreement (as defined below).
WITNESSETH:
WHEREAS, the Grantors have entered into the Pledge and Security
Agreement dated as of November __, 2006 (as it may be amended, supplemented or
otherwise modified from time to time, the "Security Agreement") in favor of the
Agent; and
WHEREAS, the Additional Grantor has agreed to execute and deliver this
Assumption Agreement in order to become a party to the Security Agreement;
NOW, THEREFORE, IT IS AGREED:
1. SECURITY AGREEMENT. By executing and delivering this Assumption
Agreement, the Additional Grantor, as provided in Section 19 of the Security
Agreement, hereby becomes a party to the Security Agreement as a Grantor
thereunder with the same force and effect as if originally named therein as a
Grantor and, without limiting the generality of the foregoing, hereby expressly
assumes all obligations and liabilities of a Grantor thereunder. All capitalized
terms used in this Agreement and not otherwise defined herein shall have the
meanings assigned to them in the Security Agreement.
2. REPRESENTATIONS AND WARRANTIES CONCERNING GRANTOR'S LEGAL STATUS.
The Additional Grantor has previously delivered to the Agent and the other
Secured Parties (as defined in the Security Agreement) a certificate signed by
the Additional Grantor and entitled "Perfection Certificate" (the "Perfection
Certificate"). The Additional Grantor represents and warrants to the Agent and
the other Secured Parties as follows: (a) the Additional Grantor's exact legal
name is that indicated on the Perfection Certificate and on the signature page
hereof, (b) the Additional Grantor is an organization of the type and organized
in the jurisdiction set forth in the Perfection Certificate, (c) the Perfection
Certificate accurately sets forth the Additional Grantor's organizational
identification number or accurately states that the Additional Grantor has none,
(d) the Perfection Certificate accurately sets forth the Additional Grantor's
place of business or, if more than one, its chief executive office as well as
the Additional Grantor's mailing address if different (e) all other information
set forth on the Perfection Certificate pertaining to the Additional Grantor is
accurate and complete including but not limited to information pertaining to
Patents and (f) each of the representations and
1 to P&SA
warranties contained in the Transaction Documents relating to the Additional
Grantor are true and correct on and as the date hereof (after giving effect to
this Assumption Agreement) as if made on and as of such date.
3. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
WITHOUT IN ANY WAY LIMITING THE PRECEDING CHOICE OF LAW, THE UNDERSIGNED (AND BY
ITS ACCEPTANCE HEREOF, THE AGENT) ELECTS TO BE GOVERNED BY NEW YORK LAW IN
ACCORDANCE WITH, AND ARE RELYING (AT LEAST IN PART) ON SECTION 5-1401 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AS AMENDED, OR ANY
CORRESPONDING OR SUCCEEDING PROVISIONS THEREOF.
IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.
[ADDITIONAL GRANTOR]
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Annex 2 to P&SA
SCHEDULE 1
TO
ASSUMPTION AGREEMENT TO PLEDGE AND SECURITY AGREEMENT
PERFECTION CERTIFICATE
The undersigned, the ____________________ and ____________________ of
[Additional Grantor] a [state of organization] [entity] (the "Company"), hereby
certifies, with reference to a certain Pledge and Security Agreement, dated as
of November __, 2006 (the "Security Agreement"; terms defined in the Security
Agreement having the same meanings herein as specified therein), between the
Grantors named therein, _______________, as collateral agent ("Agent"), and the
Purchasers named therein, to Agent and the other Secured Parties:
1. Names. (a) The exact corporate name of the Company as that name appears
on its [Certificate of Incorporation] is as follows:
(b) The following is a list of all other names (including trade names or
similar appellations) used by the Company, or any other business or organization
to which the Company became the successor by merger, consolidation, acquisition,
change in form, nature or jurisdiction of organization or otherwise, now or at
any time during the past five years:
2. Other Identifying Factors. (a)The following is the type of organization
of the Company:
(b) The following is the jurisdiction of the Company's organization:
(c) The following is the Company's state issued organizational
identification number [state "None" if the state does not issue such a number]:
(d) The following is the Company's federal employer identification number:
(e) Attached hereto as Schedule 2 is the information required above in this
Section 2 for any other business or organization to which the Company became the
successor by merger, consolidation, acquisition, change in form, nature or
jurisdiction of organization or otherwise, now or at any time during the past
five years:
3. Chief Executive Office.
(a) The chief executive office of the Company is located at the following
address:
1
Address County State
------- ------ -----
(b) The principal mailing address of the Company is the following address,
if different from the chief executive office address:
Mailing Address County State
--------------- ------ -----
4. Other Current Locations.
(a) The following are all other locations in the United States of America
in which the Company maintains any books or records relating to any of the
Collateral consisting of accounts, contract rights, chattel paper, general
intangibles or mobile goods:
Address County State
------- ------ -----
(b) The following are all other places of business of the Company in the
United States of America:
Address County State
------- ------ -----
(c) The following are all other locations in the United States of America
where any of the Collateral consisting of inventory or equipment is located:
S1-2
Address County State
------- ------ -----
(d) The following are the names and addresses of all persons or entities
other than the Company, such as lessees, consignees, warehousemen or purchasers
of chattel paper, which have possession or are intended to have possession of
any of the Collateral consisting of chattel paper, inventory or equipment:
Name Mailing Address County State
---- --------------- ------ -----
5. Prior Locations. (a) Set forth below is the information required by
Section 3 and by subparagraphs (a) and (b) of Section 4 with respect to each
location or place of business previously maintained by the Company at any time
during the past five years in a state in which the Company has previously
maintained a location or place of business at any time during the past four
months:
Address County State
------- ------ -----
(b) Set forth below is the information required by subparagraphs (c) and
(d) of Section 4 with respect to each other location at which, or other person
or entity with which, any of the Collateral consisting of inventory or equipment
has been previously held at any time during the past twelve months:
Name Address County State
---- ------- ------ -----
S1-3
6. Fixtures. Attached hereto as Schedule 6 is the information required by
UCC Section9-402(5) or by Rev. UCC Section9-502(b) of each state in which any of
the Collateral consisting of fixtures are or are to be located and the name and
address of each real estate recording office where a mortgage on the real estate
on which such fixtures are or are to be located would be recorded.
7. Intellectual Property. Attached hereto as Schedule 7 is a complete list
of all United States and foreign patents, copyrights, trademarks, trade names
and service marks registered or for which applications are pending in the name
of the Company.
8. Securities; Instruments. Attached hereto as Schedule 8 is a complete
list of all stocks, bonds, debentures, notes and other securities and investment
property owned by the Company (provide name of issuer, a description of security
and value):
9. Motor Vehicles. The following is a complete list of all motor vehicles
owned by the Company (describe each vehicle by make, model and year and indicate
for each the state in which registered and the state in which based):
Vehicle State of Registration State in Which Based
------- --------------------- --------------------
10. Other Titled Collateral. The following is a complete list of aircraft
and boats and all other inventory, equipment and other goods of the Company
which are subject to any certificate of title or other registration statute of
the United States, any state or any other jurisdiction (provide description of
covered goods and indicate registration system and jurisdiction):
Goods Registration System Jurisdiction
----- ------------------- ------------
S1-4
11. Bank Accounts. The following is a complete list of all bank accounts
(including securities and commodities accounts) maintained by the Company
(provide name and address of depository bank, type of account and account
number):
Depository Bank Bank Address Type of Account Acct. No.
--------------- ------------ --------------- ---------
12. Unusual Transactions. Except for those purchases, acquisitions and
other transactions described on Schedule 2 or on Schedule 12 attached hereto,
all of the Collateral has been originated by the Company in the ordinary course
of the Company's business or consists of goods which have been acquired by the
Company in the ordinary course from a person in the business of selling goods of
that kind.
13. Termination Statements. An authorized termination statement on Form
UCC-3 in form acceptable to the Agent has been duly filed in each applicable
jurisdiction identified in Section 2, 3, 4 and 5 or on Schedule 2 and Schedule
12 hereto [or, in the case of Schedule 2 or Schedule 12 a release acceptable to
the Agent and the Requisite Purchasers from the person from which the Company
purchased or otherwise acquired the Collateral identified on such schedule] and
has been delivered to Agent. Attached hereto as Schedule 13 is a true copy of
each such filing duly acknowledged by the filing officer[ and of each such
release].
14. Schedule of Filing. Attached hereto as Schedule 14 is a schedule
setting forth filing information with respect to the filings described in
Section 13 above.
15. Filing Fees. All filing fees and taxes payable in connection with the
filings described in Section 13 have been paid.
S1-5
IN WITNESS WHEREOF, we have hereunto signed this Certificate on __________.
----------------------------------------
Title:
----------------------------------------
Title:
[Signature Page to Perfection Certificate]
SCHEDULE 2
S2-1
SCHEDULE 6
S6-1
SCHEDULE 7
S7-1
SCHEDULE 8
S8-1
SCHEDULE 12
S12-1
SCHEDULE 13
S13-1
SCHEDULE 14
S14-1
EXHIBIT E
November___, 2006
Balyasny Asset Management, L.P.
000 Xxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxx
Dear Xxxx:
Reference is hereby made to the Purchase Agreement, dated as of November
___, 2006 (the "Purchase Agreement"), by and among Zila, Inc. (the "Company")
and the investors party thereto (the "Investors"). Capitalized terms used herein
have the respective meanings ascribed thereto in the Purchase Agreement unless
otherwise defined herein.
In order to induce the Investors to purchase the Notes and the Warrants,
the Company hereby agrees as follows:
1. The Company agrees to the following corporate governance changes as
being in the best interests of the Company and its stockholders, including the
Investors:
(a) The functions of the Chief Executive Officer and Chairman of the
Board shall be separated so that such positions are not held by the same person;
(b) No later than the close of business on August 1, 2007 (the
"Outside Date"), the Board shall appoint a Chairman or Chairwoman of the Board
who shall not be the same person as the Chief Executive Officer and who shall be
selected pursuant to the Company's existing Board development plan, a copy of
which has previously been provided to the Investors (the "Plan"), and, to the
extent not inconsistent therewith, the process specified in paragraph (d) below;
(c) No later than the close of business on the Outside Date, the Board
shall increase the number of persons constituting the Board by two (in addition
to the directors to be elected at the annual meeting to be held on December 14,
2006) and shall use its commercially reasonable efforts to fill the vacancies
resulting from the creation of such vacancies (the "Additional Directors")
pursuant to the Plan, the Director Nomination Process, a copy of which has been
provided to the Investors ("the Process"), and, to the extent not inconsistent
therewith, the process specified in paragraph (d) below;
(d) Promptly following the date hereof, the Investors or their
designee will provide the Nominations and Corporate Governance Committee of the
Board (the "Committee") with a list of prospective candidates for membership on
the Board. Such list shall be comprised of persons of high quality suitable for
membership on the board of directors of a publicly traded
company and each of such persons shall meet the criteria set forth in the Plan
and, to the extent not inconsistent therewith, the following criteria:
(i) such person shall have significant experience as a member of
senior management or the board of directors of a successful life sciences
company;
(ii) such person shall have professional and educational
qualifications appropriate for membership on the Board and shall have the time
necessary to devote to Board membership;
(iii) such person shall have familiarized himself or herself with
the operations and future prospects of the Company and its Subsidiaries;
(iv) such person shall not be subject to any fine, judgment,
injunction or other proceeding required to be disclosed pursuant to Item 103 of
Regulation S-K; and
(v) such person shall qualify as an "independent" director of the
Company under applicable SEC and Nasdaq rules and regulations.
The Committee shall evaluate and consider in good faith as contemplated by
the Plan and the Process the prospective candidates recommended by the
Investors. The Committee may, consistent with the Plan and the Process, also
consider such additional persons as may be recommended for membership on the
Board by stockholders or other third parties; provided the Board or the
Committee reasonably determines that such additional persons meet the criteria
set forth in the Plan and the Process and, to the extent not inconsistent
therewith, those set forth above. In performing its evaluation and
consideration, the Committee shall, among other things, perform appropriate
background and reference checks and shall solicit and consider in good faith the
views of the Investors. If requested, the Investors shall have the right to meet
any final candidates prior to their selection. Upon request, the Committee, or
its designee, shall inform the Investors as to the progress of the Committee's
activities; provided, however, that no material nonpublic information shall be
provided to the Investors.
Upon completion of its evaluation and consideration, the Committee shall
make its recommendations to the Board in accordance with the Plan and the
Process. Promptly thereafter, the Board shall take such action as may be
necessary or advisable to appoint the Chairman of the Board and the Additional
Directors; provided, however, that if the Board determines, in the good faith
application of its reasonable business judgment, that only one person is
qualified to be an Additional Director or if only one person accepts an
invitation to become an Additional Director, the Board shall instruct the
Committee to, and the Committee shall, continue to pursue the appointment of a
second Additional Director in good faith.
2. The Company acknowledges and agrees that the failure of the Company to
comply with the provisions of this letter shall constitute an Event of Default
(as such term is defined in the Notes). Time shall be of the essence in the
performance of the obligations contained herein.
E-2
If the foregoing accurately reflects our agreement, please sign this letter
agreement in the space indicated and return a signed counterpart to the
undersigned. This letter agreement may be executed in counterparts, each of
which shall be deemed and original and all of which shall together represent one
and the same instrument. Each of the New Investors is hereby named as an express
third-party beneficiary of this letter agreement and shall have the right to
enforce the provisions hereof against the parties hereto as if it were named as
a party hereto. This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without reference to the
choice of law provisions thereof.
ZILA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
ACCEPTED AND AGREED:
BALYASNY ASSET MANAGEMENT, L.P.
By:
---------------------------------
Name:
-------------------------------
Title: Authorized Signatory
E-3
