exv10w1



 






EXHIBIT 10.1




SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT




          This Amendment, dated as of January 25, 2005, is made by and between ZILA NUTRACEUTICALS,
INC., an Arizona corporation (“ZN”), ZILA BIOTECHNOLOGY, INC., an Arizona corporation (“ZB”), ZILA
PHARMACEUTICALS, INC., a Nevada corporation (“ZP”), ZILA SWAB TECHNOLOGIES, INC., an Arizona
corporation (“ZS”), OXYCAL LABORATORIES, INCORPORATED, an Arizona corporation (“Oxycal”)
(collectively, jointly and severally the “Borrower”), and WELLS FARGO BUSINESS CREDIT, INC., a
Minnesota corporation (the “Lender”).




Recitals




          The Borrower and the Lender are parties to a Credit and Security Agreement dated as of
February 6, 2004, as amended from time to time (the “Credit Agreement”). Capitalized terms used in
these recitals have the meanings given to them in the Credit Agreement unless otherwise specified.




          The Borrower has requested that certain amendments be made to the Credit Agreement, which the
Lender is willing to make pursuant to the terms and conditions set forth herein.




          NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements
herein contained, it is agreed as follows:




          1. Amendments. The Credit Agreement is hereby amended as follows:




               (a) Effective December 31, 2004, Sections 6.2(a) through 6.2(c) are hereby deleted and
replaced as follows:




(a) Quarterly Net Worth. The Borrower covenants that as of
December 31, 2003, the Guarantor had a Book Net Worth of not
less than $50,000,000.00. The Borrower covenants that,
commencing with the fiscal quarter ending January 31, 2005
and continuing each quarter thereafter, the Guarantor shall
not achieve a Book Net Worth decrease of more than the
amounts set forth below as measured from the last day of the
immediately preceding fiscal year.



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	 	 	 	 	Maximum Net	 	 
	 	Quarter Ending	 	 	Worth Decrease	 	 
	 	January 31, 2005
	 	 	 	($7,500,000.00	)	 
	 	April 30, 2005
	 	 	 	($11,000,000.00	)	 
	 	July 31, 2005
	 	 	 	($11,000,000.00	)	 
	 






(b) Monthly Net Worth. The Borrower covenants that
commencing with the month ending November 30, 2004 and
continuing on the last day of each month thereafter, the
Guarantor’s Book Net Worth as of the last day of each such
month shall not be less than the amounts set forth below:



	 	 	 	 	 	 	 	 
	 
	 	November, 2004 through January, 2005
	 	 	$	41,500,000.00	 	 
	 	February, 2005 through June, 2005
	 	 	$	38,000,000.00	 	 
	 	July, 2005
	 	 	$	39,000,000.00	 	 
	 






(c) Capital Expenditures. The Borrower and the Guarantor
together will not incur or contract to incur Capital
Expenditures of more than $3,000,000.00 in the aggregate
during 2005 fiscal year.



               (b) Exhibit B of the Credit Agreement is hereby deleted and replaced with Exhibit B attached
hereto.



          2. Amendment Fee. The Borrower shall pay the Lender as of the date hereof a fully
earned, non-refundable fee in the amount of $15,000.00 in consideration of the Lender’s execution
and delivery of this Amendment.




          3. No Other Changes. Except as explicitly amended by this Amendment, all of the terms
and conditions of the Credit Agreement shall remain in full force and effect and shall apply to any
advance or letter of credit thereunder.




          4. Conditions Precedent. This Amendment shall be effective when the Lender shall have
received an executed original hereof, together with each of the following, each in substance and
form acceptable to the Lender in its sole discretion:




               (a) The Acknowledgment and Agreement of Guarantor set forth at the end of this Amendment, duly
executed by the Guarantor and Subordinated Creditor.



               (b) A Certificate of the Secretary of the Borrower certifying as to (i) the resolutions of the
board of directors of the Borrower approving the execution and delivery of this Amendment, (ii) the
fact that the articles of incorporation and bylaws of the Borrower, which were certified and
delivered to the Lender pursuant to the Certificate of Authority of the Borrower’s secretary or
assistant secretary dated as of



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February 6, 2004 continue in full force and effect and have not been amended or otherwise
modified except as set forth in the Certificate to be delivered, and (iii) certifying that the
officers and agents of the Borrower who have been certified to the Lender, pursuant to the
Certificate of Authority of the Borrower’s secretary or assistant secretary dated as of February 6,
2004, as being authorized to sign and to act on behalf of the Borrower continue to be so authorized
or setting forth the sample signatures of each of the officers and agents of the Borrower
authorized to execute and deliver this Amendment and all other documents, agreements and
certificates on behalf of the Borrower.




               (c) Such other matters as the Lender may require.



          5. Representations and Warranties. The Borrower hereby represents and warrants to the
Lender as follows:




               (a) The Borrower has all requisite power and authority to execute this Amendment and to
perform all of its obligations hereunder, and this Amendment has been duly executed and delivered
by the Borrower and constitutes the legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms.



               (b) The execution, delivery and performance by the Borrower of this Amendment has been duly
authorized by all necessary corporate action and do not (i) require any authorization, consent or
approval by any governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order,
writ, injunction or decree presently in effect, having applicability to the Borrower, or the
articles of incorporation or by-laws of the Borrower, or (iii) result in a breach of or constitute
a default under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Borrower is a party or by which it or its properties may be bound or
affected.



               (c) All of the representations and warranties contained in Article V of the Credit Agreement
are correct on and as of the date hereof as though made on and as of such date, except to the
extent that such representations and warranties relate solely to an earlier date.



          6. References. All references in the Credit Agreement to “this Agreement” shall be
deemed to refer to the Credit Agreement as amended hereby; and any and all references in the
Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as
amended hereby.




          7. No Waiver. The execution of this Amendment and acceptance of any documents related
hereto shall not be deemed to be a waiver of any Default or Event of Default or Default Period
under the Credit Agreement or breach, default or event of default under any Security Document or
other document held by the Lender, whether or not known to the Lender and whether or not existing
on the date of this Amendment.





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          8. Release. The Borrower and each Guarantor by signing the Acknowledgment and
Agreement of Guarantor each hereby absolutely and unconditionally releases and forever discharges
the Lender, and any and all participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together with all of the
present and former directors, officers, agents and employees of any of the foregoing, from any and
all claims, demands or causes of action of any kind, nature or description, whether arising in law
or equity or upon contract or tort or under any state or federal law or otherwise, which the
Borrower or such Guarantor has had, now has or has made claim to have against any such person for
or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of
time to and including the date of this Amendment, whether such claims, demands and causes of action
are matured or unmatured or known or unknown.




          9. Costs and Expenses. The Borrower hereby reaffirms its agreement under the Credit
Agreement to pay or reimburse the Lender on demand for all costs and expenses incurred by the
Lender in connection with the Loan Documents, including without limitation all reasonable fees and
disbursements of legal counsel. Without limiting the generality of the foregoing, the Borrower
specifically agrees to pay all fees and disbursements of counsel to the Lender for the services
performed by such counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto. The Borrower hereby agrees that the Lender may, at any time or
from time to time in its sole discretion and without further authorization by the Borrower, make a
loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose
of paying any such fees, disbursements, costs and expenses, including the fee described in Section
2 above.




          10. Miscellaneous. This Amendment and the Acknowledgment and Agreement of Guarantor
may be executed in any number of counterparts, each of which when so executed and delivered shall
be deemed an original and all of which counterparts, taken together, shall constitute one and the
same instrument.




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          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of
the date first written above.




	 	 	 	 	 	 	 	 	 	 	 
	 	 	ZILA NUTRACEUTICALS, INC., an Arizona corporation	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By	 	/s/ Andrew A. Stevens
	 	 	 	 	 
	

	 	 	 	Its
	 	/s/ Vice President	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 





	 	 	 	 	 	 	 	 	 	 	 
	 	 	ZILA BIOTECHNOLOGY, INC., an Arizona corporation	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By	 	/s/ Andrew A. Stevens
	 	 	 	 	 
	

	 	 	 	Its
	 	/s/ Vice President	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 






	 	 	 	 	 	 	 	 	 	 	 
	 	 	ZILA PHARMACEUTICALS, INC., a Nevada corporation	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By	 	/s/ Andrew A. Stevens
	 	 	 	 	 
	

	 	 	 	Its
	 	/s/ Vice President	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 






	 	 	 	 	 	 	 	 	 	 	 
	 	 	ZILA SWAB TECHNOLOGIES, INC., an Arizona
corporation	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By	 	/s/ Andrew A. Stevens
	 	 	 	 	 
	

	 	 	 	Its
	 	/s/ Vice President	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 






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	 	 	OXYCAL LABORATORIES, INCORPORATED, an Arizona
corporation	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By	 	/s/ Andrew A. Stevens
	 	 	 	 	 
	

	 	 	 	Its
	 	/s/ Vice President	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 






	 	 	 	 	 	 	 	 	 	 	 
	 	 	WELLS FARGO BUSINESS CREDIT, INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By	 	/s/ Andrew A. Stevens
	 	 	 	 	 
	

	 	 	 	Its
	 	/s/ Vice President	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 






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ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS




          The undersigned, a guarantor of the indebtedness of the Borrower, as defined above (the
“Borrower”) to Wells Fargo Business Credit, Inc. (the “Lender”) pursuant to a Guaranty dated as of
February 6, 2004 (the “Guaranty”), hereby (i) acknowledges receipt of the foregoing Amendment; (ii)
consents to the terms (including without limitation the release set forth in paragraph 8 of the
Amendment) and execution thereof; (iii) reaffirms his or its obligations to the Lender pursuant to
the terms of his or its Guaranty; and (iv) acknowledges that the Lender may amend, restate, extend,
renew or otherwise modify the Credit Agreement and any indebtedness or agreement of the Borrower,
or enter into any agreement or extend additional or other credit accommodations, without notifying
or obtaining the consent of the undersigned and without impairing the liability of the undersigned
under the Guaranty for all of the Borrower’s present and future indebtedness to the Lender.




	 	 	 	 	 	 	 	 	 	 	 
	 	 	ZILA, INC., a Delaware corporation	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By	 	/s/ Andrew A. Stevens
	 	 	 	 	 
	

	 	 	 	Its
	 	/s/ Vice President	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 






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Exhibit B to Credit and Security Agreement




Compliance Certificate




	 	 	 
	To:

	 	                                                            
	 
	 	 
	

	 	Wells Fargo Business Credit, Inc.
	 
	 	 
	Date:

	 	                                        , 2004
	 
	 	 
	Subject:

	 	ZILA NUTRACEUTICALS, INC., an Arizona corporation, ZILA
BIOTECHNOLOGY, INC., an Arizona corporation, ZILA
PHARMACEUTICALS, INC., a Nevada corporation, ZILA SWAB
TECHNOLOGIES, INC., an Arizona corporation, OXYCAL LABORATORIES,
INCORPORATED, an Arizona corporation
Financial Statements





In accordance with our Credit and Security Agreement dated as of ___, 2003 (the “Credit
Agreement”), attached are the financial statements of ZILA NUTRACEUTICALS, INC., an Arizona
corporation, ZILA BIOTECHNOLOGY, INC., an Arizona corporation, ZILA PHARMACEUTICALS, INC., a Nevada
corporation, ZILA SWAB TECHNOLOGIES, INC., an Arizona corporation, OXYCAL LABORATORIES,
INCORPORATED, an Arizona corporation (collectively, jointly and severally the “Borrower”), as of
and for ___, ___(the “Reporting Date”) and the year-to-date period then ended (the
“Current Financials”). All terms used in this certificate have the meanings given in the Credit
Agreement.




          I certify (as an officer of the Borrower, but not in my personal capacity) that the Current
Financials have been prepared in accordance with GAAP, subject to year-end audit adjustments, and
fairly present the Borrower’s financial condition and the results of its operations as of the date
thereof.





Events of Default. (Check one):




 ̈ The undersigned does not have knowledge of the
occurrence of a Default or Event of Default under
the Credit Agreement except as previously reported
in writing to the Lender.




 ̈ The undersigned has knowledge of the occurrence of a
Default or Event of Default under the Credit
Agreement not previously reported in writing to the
Lender and attached hereto is a statement of the
facts with respect to thereto. The Borrower
acknowledges that pursuant to Section 2.10(d) of the
Credit Agreement, the Lender may impose the Default
Rate at any time during the resulting Default
Period.




I hereby certify to the Lender as follows:




 ̈ The Reporting Date does not mark the end of one of
the Borrower’s fiscal quarters, hence I am
completing only paragraph ___below.



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 ̈ The Reporting Date marks the end of one of the Borrower’s fiscal quarters,
hence I am completing all paragraphs below except paragraph ___.




 ̈ The Reporting Date marks the end of the Borrower’s fiscal year, hence I am
completing all paragraphs below.


Financial Covenants. I further hereby certify that (as an officer of the Borrower, but not
in my personal capacity) the Borrower is in compliance with the covenants set forth in Section 6(a)
through (c) of the Agreement, except as indicated below. The calculations made to determine
compliance are as follows:




Covenant 6.2(a) Quarterly Net Worth




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Quarter Ending	 	 	Maximum Net Worth Decrease	 	 	 	Actual	 	 
	 	January 31, 2005
	 	 	$	7,500,000.00	 	 	 	 	 	 	 
	 	April 30, 2005
	 	 	$	11,000,000.00	 	 	 	 	 	 	 
	 	July 31, 2005
	 	 	$	11,000,000.00	 	 	 	 	 	 	 
	 





Covenant 6.2(b) Monthly Net Worth




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Month Ending	 	 	Minimum Net Worth Required	 	 	 	Actual	 	 
	 	November, 2004 through
January, 2005
	 	 	$	41,500,000.00	 	 	 	 	 	 	 
	 	February, 2005 through June,
2005
	 	 	$	38,000,000.00	 	 	 	 	 	 	 
	 	July, 2005
	 	 	$	39,000,000.00	 	 	 	 	 	 	 
	 





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Covenant 6.2(c) Capital Expenditures




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Year	 	Maximum Allowable Capital 
Expenditures	 	 	 	Actual	 	 
	 	2005
	 	$3,000,000.00	 	 	 	 	 	 	 
	 





     Attached hereto are all relevant facts in reasonable detail to evidence, and the computations
of the financial covenants referred to above.



	 	 	 	 	 	 	 	 	 	 	 
	 	 	ZILA NUTRACEUTICALS, INC., an Arizona corporation	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	

	 	By	 	 	 	 	 	 	 	 
	 	 	 	 	 
	

	 	 	 	Its	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 






	 	 	 	 	 	 	 	 	 	 	 
	 	 	ZILA BIOTECHNOLOGY, INC., an Arizona corporation	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	

	 	By	 	 	 	 	 	 	 	 
	 	 	 	 	 
	

	 	 	 	Its	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 






	 	 	 	 	 	 	 	 	 	 	 
	 	 	ZILA PHARMACEUTICALS, INC., a Nevada corporation	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	

	 	By	 	 	 	 	 	 	 	 
	 	 	 	 	 
	

	 	 	 	Its	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 






	 	 	 	 	 	 	 	 	 	 	 
	 	 	ZILA SWAB TECHNOLOGIES, INC., an Arizona
corporation	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	

	 	By	 	 	 	 	 	 	 	 
	 	 	 	 	 
	

	 	 	 	Its	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 






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	 	 	OXYCAL LABORATORIES, INCORPORATED, an Arizona

corporation	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	

	 	By	 	 	 	 	 	 	 	 
	 	 	 	 	 
	

	 	 	 	Its	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 







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