exv10w1



 







Exhibit 10.1




EXECUTION COPY




SECOND AMENDMENT TO CREDIT AGREEMENT AND WAIVER




          This SECOND AMENDMENT, dated as of August 4, 2006 (this “Amendment”), to the Credit
Agreement referred to below is by and among (a) ZILA, INC., a Delaware corporation, ZILA
NUTRACEUTICALS, INC. (formerly known as Oxycal Laboratories Incorporated), an Arizona corporation,
ZILA TECHNICAL, INC., an Arizona corporation, ZILA BIOTECHNOLOGY, INC., an Arizona corporation,
ZILA PHARMACEUTICALS, INC., a Nevada corporation, and ZILA SWAB TECHNOLOGIES, INC., an Arizona
corporation (collectively, the “Borrowers”), (b) BLACK DIAMOND COMMERCIAL FINANCE, L.L.C.,
a Delaware corporation, as administrative agent for Lenders (the “Administrative Agent”),
and (c) the Required Lenders party to the Credit Agreement from time to time.




W I T N E S S E T H




          WHEREAS, the Borrowers, the Lenders and the Administrative Agent are parties to that certain
Credit Agreement, dated as of March 24, 2006 (including all annexes, exhibits and schedules
thereto, and as amended, supplemented or otherwise modified from time to time, the “Credit
Agreement”); and




          WHEREAS, the Borrowers request that the Agent and Required Lenders amend certain terms under
the Credit Agreement and waive compliance with certain covenants; and




          WHEREAS, the Administrative Agent and Required Lenders have agreed to the requested waiver and
amendments to the Credit Agreement, in the manner, and on the terms and conditions, provided for
herein.




          NOW THEREFORE, in consideration of the premises and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:




          1. Definitions. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Credit Agreement.




          2. Amendments to Section 1 of the Credit Agreement. Section 1.1 of the
Credit Agreement, Definitions, is hereby amended by adding the following definitions in the
appropriate alphabetical order:




               “Second Amendment”: that certain Second Amendment to Credit Agreement and Waiver
dated as of August 4, 2006, by and among Borrowers, Administrative Agent and Required Lenders.



               “Second Amendment Effective Date”: the date on which all conditions precedent to the
Second Amendment have been satisfied or waived by the Administrative Agent and Required Lenders.



          3. Amendments to Section 7 Affirmative Covenants of the Credit Agreement.





          (a) Section 7.17 Mortgages, Etc. of the Credit Agreement is hereby amended as
of the Second Amendment Effective Date by deleting the proviso in



 









 






Section 7.17 in its entirety and substituting in lieu thereof the following new
proviso in such Section 7.17:




“provided, however, the Administrative Agent shall have
received a Mortgage on the Prescott Facility by not later than August
4, 2006.”




          (b) Section 7 Affirmative Covenants of the Credit Agreement is hereby amended
by adding the following Sections to the end of such Section:




Section 7.1(d)
Financial Statements.




“(d)
Financial Reporting:




     (i) no later than August 25, 2006, the unaudited consolidated and
consolidating balance sheets of Holdings and its subsidiaries and the
related unaudited consolidated and consolidating statements of income
and the related unaudited consolidated statements of cash flows for the
month ending July 31, 2006 and the portion of the fiscal year through
such date, setting forth, in each case in comparative form to the
figures for the previous year, certified by a Responsible Officer as
being fairly stated in all material respects (subject to normal
year-end audit adjustments) and all documents and other certifications
required pursuant to Section 7.2(b) of the Credit Agreement;




     (ii) commencing upon the Second Amendment Effective Date, a
rolling thirteen-week cash flow forecast of Borrowers delivered each
Monday on a weekly basis in form and substance acceptable to the
Administrative Agent;




     (iii) commencing upon the Second Amendment Effective Date, the
Borrowers’ (a) current cash balance report, and (b) daily report of all
anticipated checks, wire transfers and other disbursements, each such
report delivered to the Administrative Agent as soon as completed each
Business Day in form and substance acceptable to the Administrative
Agent;”




          (c) Section 8. Negative Covenants of the Credit Agreement
is hereby amended by adding the following Section 8.1(b)(iii) to the
end of such Section:




     “(iii) Minimum Unrestricted Cash. The Borrowers shall have, at
the end of each week set forth below, unrestricted book balances of cash and
Cash Equivalents for such week ended in an amount not less than the amount set
forth below opposite such week:



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	Week Ending	 	Minimum Unrestricted Cash
	August 4, 2006
	 	$	3,400,000	 
	August 11, 2006
	 	$	4,000,000	 
	August 18, 2006
	 	$	4,500,000	 
	August 25, 2006
	 	$	5,000,000	 
	September 1, 2006
	 	$	5,500,000	 
	September 8, 2006
	 	$	6,000,000	 
	September 15, 2006 and each week thereafter
	 	$	6,500,000	 






          4. Amendment to Section 9. Events of Default of the Credit Agreement. Section
9(c) of the Credit Agreement is hereby amended by adding clause (c)(iii) to the end of
Section 9(c)(ii) as follows:




          “(iii) any Loan Party shall default in the observance or performance of any agreement
contained in Sections 7.17 and 7.1(d); or”




          5. Limited Waiver. Subject to the fulfillment of the conditions precedent to the
effectiveness of this Amendment set forth below, the Administrative Agent and the Required Lenders
hereby waive Borrowers’ compliance with the Financial Covenant set forth in Section 8.1(a)(i)
(Minimum LTM EBITDA with respect to the Nutraceuticals Business) of the Credit Agreement for the
fiscal month ended June 30, 2006.




          6. Representations and Warranties. To induce the Administrative Agent and Lenders to
enter into this Amendment, the Borrowers executing this Amendment jointly and severally represent
and warrant that:




          (a) Each Borrower has taken all necessary organizational action to authorize the execution,
delivery and performance of this Amendment. No consent or authorization of, filing with, notice to
or other act by or in respect of, any Governmental Authority or any other Person is required in
connection with the execution, delivery, performance, validity or enforceability of this Amendment,
except (i) consents, authorizations, filings and notices described in Schedule 5.4, which
consents, authorizations, filings and notices have been obtained or made and are in full force and
effect and (ii) the filings and recordings referred to in Section 5.19.




          (b) This Amendment has been duly executed and delivered by or on behalf of each of the
Borrowers.




          (c) This Amendment constitutes a legal, valid and binding obligation of each Borrower,
enforceable against each such Borrower in accordance with its terms, except




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as enforceability may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or at law).




          (d) No Default or Event of Default has occurred and is continuing after giving effect to this
Amendment.




          (e) No litigation, investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of any Borrower, threatened by or against any Group
Member or against any of their respective properties or revenues (a) with respect to any of the
Loan Documents or any of the transactions contemplated hereby or thereby, or (b) that could
reasonably be expected to have a Material Adverse Effect.




          (f) The representations and warranties of each Borrower contained in the Credit Agreement and
each other Loan Document shall be true and correct on and as of the Second Amendment Effective Date
with the same effect as if such representations and warranties had been made on and as of such
date, except that any such representation or warranty which is expressly made only as of a
specified date need be true only as of such date.




          7. No Other Amendments/Waivers. Except as expressly provided herein, (a) the Credit
Agreement shall be unmodified and shall continue to be in full force and effect in accordance with
its terms and (b) this Amendment shall not be deemed a waiver of any term or condition of any Loan
Document and shall not be deemed to prejudice any right or rights which the Administrative Agent or
any Lender may now have or may have in the future under or in connection with any Loan Document or
any of the instruments or agreements referred to therein, as the same may be amended from time to
time.




          8. Outstanding Indebtedness; Waiver of Claims. Each Borrower hereby acknowledges and
agrees that as of August 3, 2006, the aggregate outstanding principal amount of the Term Loan is
$19,884,172.41 (collectively, the “Outstanding Obligations”), and that such principal
amounts are payable pursuant to the Credit Agreement without defense, offset, withholding,
counterclaim or deduction of any kind. Each Borrower hereby waives, releases, remises and forever
discharges the Administrative Agent, Lenders and each other Indemnified Person from any and all
claims, suits, actions, investigations, proceedings or demands arising out of or in connection with
the Credit Agreement (collectively, “Claims”), whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute or common law of any kind or
character, known or unknown, which such Borrower ever had, now has or might hereafter have against
the Administrative Agent or Lenders which relates, directly or indirectly, to any acts or omissions
of the Administrative Agent, Lenders or any other Indemnified Person on or prior to the date
hereof, provided that, the Borrowers do not waive any Claim solely to the extent such Claim
relates to the Administrative Agent’s or any Lender’s gross negligence or willful misconduct.




          9. Expenses. Each Borrower hereby reconfirms its obligations pursuant to Sections
4.5 and 7.11 of the Credit Agreement to pay and reimburse the Administrative Agent and
Lenders for all reasonable costs and expenses (including, without limitation, reasonable fees of
counsel) incurred in connection with the negotiation, preparation,




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execution and delivery of this Amendment and all other documents and instruments delivered in
connection herewith.




          10. Effectiveness. This Amendment shall become effective as of the date hereof only
upon satisfaction in full in the judgment of the Administrative Agent of each of the following
conditions on or prior to August 4, 2006 (such date, the “Second Amendment Effective
Date”):




          (a) Amendment. The Administrative Agent shall have received six (6) original copies
of this Amendment duly executed and delivered by the Administrative Agent, Required Lenders and
each of the Borrowers.




          (b) Payment of Fees and Expenses. The Borrowers shall have paid to the Administrative
all costs, fees and expenses invoiced and owing in connection with this Amendment and the other
Loan Documents and due to the Administrative Agent (including, without limitation, reasonable legal
fees and expenses).




          (c) Amendment Fee. The Borrowers shall have paid to the Administrative Agent, for the
pro-rata account of the Lenders, an amendment fee in the amount of $150,000.




          (d) Representations and Warranties. The representations and warranties of or on
behalf of each Borrower in this Amendment shall be true and correct on and as of the Second
Amendment Effective Date.




          11. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.




          12. Counterparts. This Amendment may be executed by the parties hereto on any number
of separate counterparts and all of said counterparts taken together shall be deemed to constitute
one and the same instrument.




(SIGNATURE PAGE FOLLOWS)




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          IN WITNESS WHEREOF, this Amendment has been duly executed as of the date first written above.




	 	 	 	 	 
	 	BORROWERS:





ZILA, INC.

 	 
	 	By: 	 /s/ Gary V. Klinefelter	 
	 	 	Name: 	Gary V. Klinefelter	 
	 	 	Title: 	Vice President	 
	 



	 	 	 	 	 
	 	ZILA TECHNICAL, INC.

 	 
	 	By:  	 /s/ Gary V. Klinefelter	 
	 	 	Name:  	Gary V. Klinefelter	 
	 	 	Title:  	Vice President	 
	 



	 	 	 	 	 
	 	ZILA BIOTECHNOLOGY, INC.

 	 
	 	By:  	 /s/ Gary V. Klinefelter	 
	 	 	Name:  	Gary V. Klinefelter	 
	 	 	Title:  	Vice President	 
	 



	 	 	 	 	 
	 	ZILA NUTRACEUTICALS, INC.

 	 
	 	By:  	 /s/ Gary V. Klinefelter	 
	 	 	Name:  	Gary V. Klinefelter	 
	 	 	Title:  	Vice President	 
	 




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	 	ZILA PHARMACEUTICALS, INC.

 	 
	 	By:  	 /s/
Gary V. Klinefelter	 
	 	 	Name:  	Gary V. Klinefelter	 
	 	 	Title:  	Vice President	 
	 




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	 	ADMINISTRATIVE AGENT:





BLACK DIAMOND COMMERCIAL FINANCE, L.L.C.

 	 
	 	By:  	 /s/
Stuart A. Armstrong	 
	 	 	Name:  	Stuart A. Armstrong	 
	 	 	Title:  	President and CEO	 
	 




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	 	LENDER:





BDC FINANCE, LLC


By: Black Diamond Capital Management, L.L.C.
Its: Investment
Manager

	 
	 	By:  	 /s/
James J. Zenni	 
	 	 	Name:  	James J. Zenni, Jr.	 
	 	 	Title:  	President and Managing Partner - Black Diamond
Capital Management, L.L.C.	 
	 




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