Document:

exv10w2

 

Exhibit 10.2

REGISTRATION RIGHTS AGREEMENT

          This REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of March 24, 2006 is made and
entered into between ZILA, INC., a Delaware corporation (the “Company”), and BLACK DIAMOND
COMMERCIAL FINANCE, L.L.C. (the “Investor”).

          WHEREAS, the Company and the Investor have entered into that certain Credit Agreement, dated
as of the date hereof (the “Credit Agreement”);

          WHEREAS, pursuant to the terms of, and in partial consideration for, the Investor’s agreement
to enter into the Credit Agreement, the Company has issued to the Investor a Warrant of even date
herewith, exercisable from time to time during the period commencing on the date hereof and ending
on the fifth anniversary of the date hereof (the “Warrant”) for the purchase of an aggregate of
1,200,000 shares of common stock of the Company, par value $.001 per share (the “Common Stock”), at
a price specified in such Warrant;

          WHEREAS, pursuant to the terms of, and in partial consideration for, the Investor’s agreement
to enter into the Credit Agreement, the Company has agreed to provide the Investor with certain
registration rights with respect to the Registrable Securities (as defined below);

          NOW, THEREFORE, in consideration of the premises, the representations, warranties, covenants
and agreements contained herein, in the Warrant and in the Credit Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to
be legally bound hereby, the parties hereto agree as follows:

ARTICLE I.

DEFINITIONS

     Section 1.1 Definitions. Capitalized terms defined in the Credit Agreement or the
Warrant shall have the same meanings herein as are ascribed to them therein. In addition, the
following terms shall have the meanings ascribed below:

          “Act” means the United States Securities Act of 1933, as amended.

          “Registrable Securities” means all of the Common Stock and any other securities issued
or issuable upon exercise of the Warrants as provided therein until (i) a registration statement
under the Act covering the offering of such securities has been declared effective by the SEC and
such securities have been disposed of pursuant to such effective registration statement, (ii) such
securities are sold under circumstances in which all of the applicable conditions of Rule 144 (or
any similar provision then in force) under the Act (“Rule 144”) are met, (iii) such securities have
been otherwise transferred and the Company has delivered a new certificate or other evidence of
ownership for such securities not bearing a restrictive legend or (iv) such time as, in the opinion
of counsel to the Company, which counsel shall be reasonably acceptable to the Investor, such
securities may be sold without any time,

 

 

volume or manner limitation pursuant to Rule 144(k) (or any similar provision then in effect)
under the Act.

          “SEC” means the United States Securities and Exchange Commission, or any other federal
agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant
statute for the particular purpose.

          “Shelf Registration Statement” means a “shelf” registration statement filed under the
Act providing for the registration of, and the sale on a continuous or delayed basis by the holders
of, all of the Registrable Securities pursuant to Rule 415 under the Act and/or any similar rule
that may be adopted by the Commission, filed by the Company pursuant to the provisions of Section 2
of this Agreement, including the prospectus contained therein, any amendments and supplements to
such registration statement, including post-effective amendments, and all exhibits and all material
incorporated by reference in such registration statement.

ARTICLE II.

REGISTRATION RIGHTS

     Section 2.1 Form S-3 Registration Statements.

          (a) The Company shall prepare and file with the Commission a “Shelf” Registration Statement on
Form S-3 (except if the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on another appropriate form in
accordance herewith) covering the resale on Nasdaq of the Registrable Securities, and use its
reasonable best efforts to cause the Registration Statement to become effective and remain
effective as provided herein. The Company shall use its reasonable best efforts to cause the
Registration Statement to be filed no later than May 15, 2006 and declared effective under the Act
as soon as practicable thereafter, and in any event by the later of (i) July 15, 2006 and (ii) the
date upon which at least twenty-five percent (25%) of the Warrant Shares have been acquired upon
exercise of the Warrant (the “Effectiveness Date”).

          (b) The Company shall use its reasonable best efforts to keep such Registration Statement
continuously effective under the Act until the earlier to occur of (i) the date upon which all
Registrable Securities registered under the Registration Statement have been sold, and (ii) the
date upon which none of the Common Stock acquired, or which may be acquired, upon exercise of the
Warrant constitutes Registrable Securities (the “Effectiveness Period”).

          (c) In the event the Company fails to obtain the effectiveness of a Registration Statement by
the Effectiveness Date, or fails to maintain the effectiveness of a Registration Statement during
the Effectiveness Period, the Company shall pay to the Investor at the end of each thirty (30) day
period following the Effectiveness Date, in cash, an amount equal to $40,000 for the first 30 days
such registration is not effective, pro-rated on a daily basis, and $40,000 per each 30-day period
thereafter, pro-rated on a daily basis.

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ARTICLE III.

REGISTRATION PROCEDURES

     Section 3.1 Filings; Information. In connection with the registration of Registrable
Securities pursuant to Section 2.1, the Company:

          (a) will (i) prepare and file with the SEC, as promptly as reasonably possible, such
amendments and supplements to such Shelf Registration Statement and the prospectus used in
connection therewith as may be necessary to make sure such Shelf Registration Statement is, during
the Effectiveness Period, in compliance with the provisions of the Act and the rules and
regulations thereunder, and (ii) respond as promptly as reasonably possible, and in any event
within fifteen (15) business days, to any comments received from the SEC with respect to the Shelf
Registration Statement or any amendment thereto and as promptly as reasonably possible provide the
Investor true and complete copies of all correspondence from and to the SEC relating to the Shelf
Registration Statement provided that the Company is not required to produce any information
to the Investor pursuant to this Section 3.1(a) if the Company in good faith deems it material
non-public information or otherwise of a confidential nature;

          (b) will, not less than three days prior to filing a Shelf Registration Statement or
prospectus or any amendment or supplement thereto (excluding amendments deemed to result from the
filing of documents incorporated by reference therein), furnish to the Investor and one firm of
counsel representing the Investor, a copy of such Shelf Registration Statement as proposed to be
filed, together with exhibits thereto, which documents will be subject to review by such parties.
Thereafter, the Company shall furnish to the Investor and its counsel copies of the “final”
prospectus included in such Shelf Registration Statement (including each preliminary prospectus)
and any amendment or supplement thereto as the Investor or counsel may reasonably request in order
to facilitate the disposition of the Registrable Securities;

          (c) will use its reasonable best efforts to (i) register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions in the United States
as the Investor may reasonably (in light of its intended plan of distribution) request, and (ii)
cause such Registrable Securities to be registered with or approved by such other governmental
agencies or authorities in the United States as may be necessary by virtue of the business and
operations of the Company and do any and all other acts and things that may be reasonably necessary
or advisable to enable the Investor to consummate the disposition of the Registrable Securities;
provided that the Company will not be required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this paragraph (d), (B)
subject itself to taxation in any such jurisdiction or (C) consent or subject itself to general
service of process in any such jurisdiction;

          (d) will promptly notify the Investor upon the occurrence of any of the following events in
respect of a Shelf Registration Statement or related prospectus in respect of an offering of
Registrable Securities; (i) receipt of any request for additional information by the SEC or any
other federal or state governmental authority during the period of effectiveness of the Shelf
Registration Statement for amendments or supplements to the Shelf Registration Statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state governmental authority of
any stop order suspending the effectiveness of the Shelf Registration Statement or the initiation
of any proceedings for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the Registrable

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Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose; (iv) the happening of any event which makes any statement made in the Shelf
Registration Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or which requires the making of
any changes in the Shelf Registration Statement, related prospectus or documents so that, in the
case of the Shelf Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the related prospectus, it will not
contain any untrue statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and (vi) the Company’s reasonable determination that a
post-effective amendment to the Shelf Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement or amendment to the related
prospectus;

          (e) will otherwise comply with all applicable rules and regulations of the SEC, including,
without limitation, compliance with applicable reporting requirements under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”);

          (f) will appoint a transfer agent and registrar for all such Registrable Securities covered by
such Shelf Registration Statement not later than the effective date of such Shelf Registration
Statement; and

          (g) may require the Investor to promptly furnish in writing to the Company such information
regarding the distribution of the Registrable Securities as the Company may from time to time
reasonably request and such other information as may be legally required in connection with such
registration including, without limitation, all such information as may be requested by the SEC,
the NASD, or other similar governmental entity. The Investor agrees to provide such information
requested in connection with such registration within three (3) business days after receiving such
written request and the Company shall not be responsible for (and the penalties specified in
Section 2.1(c) shall not apply in respect of) any delays in obtaining or maintaining the
effectiveness of the Shelf Registration Statement caused by the Investor’s failure to timely
provide such information. The Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3.1(d) hereof, the Investor will
forthwith discontinue disposition of Registrable Securities pursuant to the Shelf Registration
Statement covering such Registrable Securities until the Investor’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3.1(d) hereof, and, if so directed by
the Company, the Investor will deliver to the Company all copies, other than permanent file copies
then in the Investor’s possession, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice. In the event the Company shall give such notice,
the Company shall extend the period during which such Shelf Registration Statement shall be
maintained effective (including the period referred to in Section 3.1(a) hereof) by the number of
days during the period from and including the date of the giving of notice pursuant to Section
3.1(d) hereof to the date when the Company shall make available to the Investor a prospectus
supplemented or amended to conform with the requirements of Section 3.1(d) hereof.

          (h) Registration Expenses. In connection with each Shelf Registration Statement, the
Company shall pay the following registration expenses incurred in connection

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with the registration thereunder (the “Registration Expenses”): (i) all registration and
filing fees, (ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) printing expenses, (iv) the Company’s internal expenses (including,
without limitation, all salaries and expenses of its officers and employees performing legal or
accounting duties), (v) the fees and expenses incurred in connection with the listing of the
Registrable Securities, (vi) reasonable fees and disbursements of counsel for the Company and
customary fees and expenses, if any, for independent certified public accountants retained by the
Company, and (vii) the fees and expenses of any special experts retained by the Company in
connection with such registration. The Company shall have no obligation to pay any underwriting
fees, discounts or commissions attributable to the sale of Registrable Securities, all such costs
to be borne by the Investors.

ARTICLE IV.

INDEMNIFICATION AND CONTRIBUTION

     Section 4.1 Indemnification

          (a) The Company hereby agrees to indemnify and hold harmless, to the extent permitted by law,
each seller of any Registrable Securities covered by such registration statement, its directors,
officers, general and limited partners, employees, agents and representatives (and directors and
officers thereof and, if such seller is a portfolio or investment fund, its investment advisors or
agents), and each other Person, if any, who controls such seller or any such underwriter within the
meaning of Section 15 of the Securities Act, as follows:

     (i) against any and all loss, liability, claim, damage, attorneys’ fee or
expense whatsoever arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration statement (or any
amendment or supplement thereto), including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not misleading, or
arising out of an untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or prospectus (or any amendment or
supplement thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein not misleading;

     (ii) against any and all loss, liability, claim, damage and expense whatsoever
to the extent of the aggregate amount paid in settlement (a “Settlement
Payment”) of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or omission,
if such settlement is effected with the written consent of the Company, which
consent shall not be unreasonably withheld or delayed; and

     (iii) against any and all expense (other than any Settlement Payment)
reasonably incurred by them in connection with investigating, preparing or defending
against any litigation, or investigation or proceeding by any

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governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid under clauses
(i) or (ii) above;

provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of or based upon an untrue statement or omission
made in reliance upon and in conformity with written information furnished to the Company by or on
behalf of any such seller or underwriter expressly for use in the preparation of any registration
statement (or any amendment thereto) or any preliminary prospectus or prospectus (or any amendment
or supplement thereto); and provided, further, that if such offering and sale are
not effected by or through an underwriter, then the Company will not be liable to the seller or any
other Person, if any, who controls such seller within the meaning of Section 15 of the Securities
Act, under the indemnity agreement in this Section 4.1(a) with respect to any preliminary
prospectus or final prospectus or final prospectus as amended or supplemented, as the case may be,
to the extent that any such loss, claim, damage or liability of such controlling Person results
from the fact that such seller sold Registrable Securities to a Person to whom there was not sent
or given, at or prior to the written confirmation of such sale, a copy of the final prospectus or
of the final prospectus as then amended or supplemented, whichever is most recent, if the Company
has previously furnished copies thereof to such seller. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller or any such
director, officer, general or limited partner, investment advisor or agent, underwriter or
controlling Person and shall survive the transfer of such securities by such seller.

          (b) The Investors shall indemnify and hold harmless (in the same manner and to the same extent
as set forth in Section 4.1(a) hereof) the Company, each Person who controls the Company or any
such underwriter (within the meaning of Section 15 of the Securities Act) and their respective
officers, directors, partners, employees, agents and representatives, with respect to any statement
in or omission from such registration statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with written information
furnished to the Company by such seller specifically for use in the preparation of such
registration statement, preliminary, final or summary prospectus or amendment or supplement. Such
indemnity shall remain in full force and effect regardless of any investigation made by or on
behalf of the Company, or any such director, officer, partner, employee, agent, representative or
controlling Person and shall survive the transfer of such securities by such seller. The
obligations of the Company and each seller pursuant to this Section 4.1 are to be several and not
joint; provided, however, that the indemnity agreement contained in this Section
4.1(b) shall not apply to amounts paid in settlement of any lawsuits, claims, damages, liabilities
or actions if such settlement is effected without the consent of the Investor, which consent shall
not be unreasonably withheld or delayed, and provided, further, however, that, with
respect to each claim pursuant to this Section 4.1, each such seller’s liability under this Section
4.1 shall be limited to an amount equal to the net proceeds (after deducting the underwriters’
discount and expenses) received by such seller from the sale of Registrable Securities by it
pursuant to such registration statement.

          (c) Promptly after receipt by an indemnified party hereunder of written notice of the
commencement of any action or proceeding involving a claim referred to in this Section

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4.1, such indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to such indemnifying party of the commencement of such
action; provided, however, that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations under this Section
4.1, except to the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party, unless in such
indemnified party’s reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof.

     Section 4.2 Contribution. In order to provide for just and equitable contribution in
circumstances under which the indemnity contemplated by Section 4.1 hereof is for any reason not
available, the parties required to indemnify by the terms thereof shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity
agreement incurred by the Company, any seller of Registrable Securities and one or more of the
underwriters, except to the extent that contribution is not permitted under Section 11(f) of the
Securities Act. In determining the amounts which the respective parties shall contribute, there
shall be considered the relative benefits received by each party from the offering of the
Registrable Securities (taking into account the portion of the proceeds of the offering realized by
each), the parties’ relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any statement or omission
and any other equitable considerations appropriate under the circumstances. The Company and each
such seller agree that it would not be equitable if the amount of such contribution were determined
by pro rata or per capita allocation (even if the underwriters were treated as one entity for such
purpose) or for the underwriters’ portion of such contribution to exceed the percentage that the
underwriting discount bears to the initial public offering price of the Registrable Securities.
For purposes of this Section 4.2, each Person, if any, who controls an underwriter within the
meaning of Section 15 of the Securities Act shall have the same rights to contribution as such
underwriter, and each director and each officer of the Company who signed the registration
statement, and each Person, if any, who controls the Company or a seller of Registrable Securities
shall have the same rights to contribution as the Company or a seller of Registrable Securities, as
the case may be. Notwithstanding the foregoing, no seller of Registrable Securities shall be
required to contribute any amount in excess of the amount such seller would have been required to
pay to an indemnified party if the indemnity under Section 4.1 hereof were available.

ARTICLE V.

MISCELLANEOUS

     Section 5.1 Term. The registration rights provided to the holders of Registrable
Securities hereunder shall terminate upon the earlier of (i) the Company’s obligations as set forth
under Section 2.1 are satisfied or (ii) December 31, 2011; provided, however, that
the provisions of Article IV hereof shall survive any termination of this Agreement.

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     Section 5.2 Rule 144. The Company covenants that so long as any Registrable Securities
remain outstanding and restricted it will file all reports required to be filed by it under the Act
and the Exchange Act and that it will take such further action as holders of Registrable Securities
may reasonably request, all to the extent required from time to time to enable the Investor to sell
Registrable Securities without registration under the Act within the limitation of the exemptions
provided by (a) Rule 144, as such Rule may be amended from time to time, or (b) any successor or
similar rule or regulation hereafter adopted by the SEC. If at any time the Company is not required
to file such reports, it will, upon the request of any holder of Registrable Securities, make
publicly available other information so long as necessary to permit sales pursuant to Rule 144.

     Section 5.3 Amendment and Modification. Any provision of this Agreement may be waived,
provided that such waiver is set forth in a writing executed by the party against whom the
enforcement of such waiver is sought. The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, unless the Company has obtained the written consent of
the holders of a majority of the then outstanding Registrable Securities. Notwithstanding the
foregoing, the waiver of any provision hereof with respect to a matter that relates exclusively to
the rights of holders of Registrable Securities whose securities are being sold pursuant to a Shelf
Registration Statement and does not directly or indirectly affect the rights of other holders of
Registrable Securities may be given by holders of at least a majority of the Registrable Securities
being sold by such holders; provided that the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the immediately preceding
sentence. No course of dealing between or among any Persons having any interest in this Agreement
will be deemed effective to modify, amend or discharge any part of this Agreement or any rights or
obligations of any person under or by reason of this Agreement.

     Section 5.4 Successors and Assigns; Entire Agreement. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. The Investor may assign its rights under this Agreement to any
subsequent holder of Warrants or Registrable Securities, provided that the Company shall have the
right to require any holder of Registrable Securities to execute a counterpart of this Agreement as
a condition to such holder’s claim to any rights hereunder. This Agreement, together with the
Credit Agreement and the Warrants, set forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements
and understandings of any and every nature among them.

     Section 5.5 Separability. In the event that any provision of this Agreement or the
application of any provision hereof is declared to be illegal, invalid or otherwise unenforceable
by a court of competent jurisdiction, the remainder of this Agreement shall not be affected except
to the extent necessary to delete such illegal, invalid or unenforceable provision unless that
provision held invalid shall substantially impair the benefits of the remaining portions of this
Agreement.

     Section 5.6 Notices. All notices, demands, requests, consents, approvals or other
communications required or permitted to be given hereunder or which are given with respect to this
Agreement shall be in writing and shall be personally served or deposited in the mail, registered
or certified, return receipt requested, postage prepaid, or delivered by reputable air

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courier service with charges prepaid, or transmitted by hand delivery, telegram, telex or
facsimile, addressed as set forth below, or to such other address as such party shall have
specified most recently by written notice: (i) if to the Company, to: Zila, Inc., 5227 North 7th
Street, Phoenix, AZ 85014-2800; Attention: Gary V. Klinefelter, Vice President, General Counsel and
Secretary, Facsimile No.: (602) 234-2318, with copies (which shall not constitute notice) to: Snell
& Wilmer L.L.P., One Arizona Center, Phoenix, AZ 85004, Attention: Michael M. Donahey; and (ii) if
to the Investor, to the address set forth on the signature pages hereto. Notice shall be deemed
given on the date of service or transmission if personally served or transmitted by telegram, telex
or facsimile. Notice otherwise sent as provided herein shall be deemed given on the third business
day following the date mailed or on the second business day following delivery of such notice by a
reputable air courier service.

     Section 5.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.

     Section 5.8 Headings. The headings in this Agreement are for convenience of reference
only and shall not constitute a part of this Agreement, nor shall they affect their meaning,
construction or effect.

     Section 5.9 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original instrument and all of which together shall
constitute one and the same instrument.

     Section 5.10 Further Assurances. Each party shall cooperate and take such action as
may be reasonably requested by another party in order to carry out the provisions and purposes of
this Agreement and the transactions contemplated hereby.

     Section 5.11 Remedies. In the event of a breach or a threatened breach by any party to
this Agreement of its obligations under this Agreement, any party injured or to be injured by such
breach will be entitled to specific performance of its rights under this Agreement or to injunctive
relief, in addition to being entitled to exercise all rights provided in this Agreement and granted
by law. The parties agree that the provisions of this Agreement shall be specifically enforceable,
it being agreed by the parties that the remedy at law, including monetary damages, for breach of
any such provision will be inadequate compensation for any loss and that any defense or objection
in any action for specific performance or injunctive relief that a remedy at law would be adequate
is waived.

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.

	 	 	 	 	 	 	 
	 	 	ZILA, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Andrew A. Stevens	 	 
	 

	 	 	 	 

	 	 

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	 	 	 	     Name: Andrew A. Stevens	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	     Title:    Vice President & CFO	 	 
	 
	 	 	 	 	 	 
	 	 	BLACK DIAMOND COMMERCIAL FINANCE, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Stuart Armstrong
 

	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	     Name: Stuart Armstrong	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	     Title:    President & Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notice:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Zila, Inc.	 	 
	 

	 	 	 	5227 N. 7th Street	 	 
	 

	 	 	 	Phoenix, AZ 85014	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Black Diamond Commercial Finance, LLC	 	 
	 

	 	 	 	Two Stamford Place	 	 
	 

	 	 	 	281 Tressor Blvd., 7th Floor	 	 
	 

	 	 	 	Stamford, CT 06901-3242	 	 

10exv10w3

 

EXHIBIT 10.3

FIRST AMENDMENT TO CREDIT AGREEMENT

          This FIRST AMENDMENT, dated as of June 6, 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 Administrative Agent and Required Lenders have agreed to amend 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. Limited Waiver. The Administrative Agent and the Required Lenders hereby waive,
effective as of April 30, 2006, the Borrowers’ compliance with the Financial Covenants set forth in
Section 8.1(a)(i) (Minimum LTM EBITDA with respect to the Nutraceuticals Business),
Section 8.1(b)(i) (Minimum LTM EBITDA with respect to the Borrowers operations as a whole)
and Section 8.1(b)(ii) (Minimum Cash) of the Credit Agreement, for the fiscal months ending
April 30, 2006 and May 31, 2006, respectively.

          3. Amendment to Section 2.3 of the Credit Agreement. Section 2.3 of the
Credit Agreement is hereby amended as of the First Amendment Effective Date by deleting the initial
exercise price of the Warrants in such Section 2.3 and substituting in lieu thereof the new
initial exercise price of “$3.14 per share”.

          4. Amendment to Section 7.17 of the Credit Agreement. Section 7.17 of the
Credit Agreement is hereby amended as of the First 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 July 15, 2006.”

 

 

          5. Amendment to Annex A of the Credit Agreement. Annex A of the Credit
Agreement is hereby amended as of the First Amendment Effective Date by adding the following new
definition to Annex A in appropriate alphabetical order:

       “First Amendment Effective Date’ means the First Amendment to Credit
Agreement, dated as of June 6, 2006, among the Borrowers, the Administrative Agent and
the Lenders party thereto.”

          6. Amendment to Section 8.6 of the Credit Agreement. Section 8.6 of the
Credit Agreement is hereby amended as of the First Amendment Effective Date by deleting Section
8.6 in its entirety and substituting in lieu thereof the following Section 8.6:

       “Restricted Payments. Declare or pay any dividend (other than dividends
payable solely in common stock of the Person making such dividend) on, or make any payment
on account of, or set apart assets for a sinking or other analogous fund for, the purchase,
redemption, defeasance, retirement or other acquisition of, any Capital Stock of any Group
Member, whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in obligations of any
Borrower or any Subsidiary (collectively, “Restricted Payments”), except that (a)
any Subsidiary may make Restricted Payments to any Borrower or any Wholly Owned Subsidiary
Guarantor and (b) the Borrower may pay dividends on the Borrower’s Series B Convertible
Preferred Stock in accordance with the terms and conditions of the Borrower’s certificate of
incorporation as in effect on the Closing Date.”

          7. 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 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).

-2-

 

          (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 First 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.

          8. 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.

          9. Outstanding Indebtedness; Waiver of Claims. Each Borrower hereby acknowledges and
agrees that as of June 6, 2006, the aggregate outstanding principal amount of the Term Loan is
$20,149,365.77 (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.

          10. 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,
execution and delivery of this Amendment and all other documents and instruments delivered in
connection herewith.

-3-

 

          11. 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 June 6, 2006:

          (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) Amendment to Warrant. The Borrower shall have executed and delivered to the
Administrative Agent an amended and restated Warrant reflecting the amendment to the initial issue
price described in Section 3 of this Amendment.

          (c) Payment of Fees and Expenses. The Borrowers shall have paid to the Administrative
Agent (i) a non-refundable cash amendment fee equal to $50,000 for the pro rata
account of Lenders, (ii) a non-refundable cash amendment fee equal to $150,000 for the sole account
of the Administrative Agent and (iii) 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).

          (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 First
Amendment Effective Date.

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

          13. 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)

-4-

 

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

	 	 	 	 	 
	BORROWERS:
	 	 

	 
	 	 
	ZILA, INC.
	 	 

	 
	 	 
	By:

	 	\s\ Andrew A. Stevens
	 

	 	 
	 

	 	Name: Andrew A. Stevens

Title: VP
	 
	 	 
	ZILA TECHNICAL, INC.
	 	 

	 
	 	 
	By:

	 	\s\ Andrew A. Stevens
	 

	 	 
	 

	 	Name: Andrew A. Stevens

Title: VP
	 
	 	 
	ZILA BIOTECHNOLOGY, INC.
	 	 

	 
	 	 
	By:

	 	\s\ Andrew A. Stevens
	 

	 	 
	 

	 	Name: Andrew A. Stevens

Title: VP
	 
	 	 
	ZILA NUTRACEUTICALS, INC.
	 	 

	 
	 	 
	By:

	 	\s\ Andrew A. Stevens
	 

	 	 
	 

	 	Name: Andrew A. Stevens

Title: VP

-5-

 

	 	 	 	 	 
	ZILA PHARMACEUTICALS, INC.
	 	 

	 
	 	 
	By:

	 	\s\ Andrew A. Stevens
	 

	 	 
	 

	 	Name: Andrew A. Stevens

Title: VP
	 
	 	 
	ZILA SWAB TECHNOLOGIES, INC.
	 	 

	 
	 	 
	By:

	 	\s\ Andrew A. Stevens
	 

	 	 
	 

	 	Name: Andrew A. Stevens

Title: VP

-6-

 

	 	 	 	 	 
	ADMINISTRATIVE AGENT:
	 	 

	 
	 	 
	BLACK DIAMOND COMMERCIAL FINANCE, L.L.C.
	 	 

	 
	 	 
	By:

	 	/s/ Stuart Armstrong
	 

	 	 
	 

	 	Name: Stuart Armstrong

Title: President and CEO

-7-

 

	 	 	 
	LENDER:

	 
	 	 
	BDC FINANCE, LLC

	 
	 	 
	By:

	 	/s/ James J. Zenni, Jr.
	 

	 	 
	 

	 	Name: James J. Zenni, Jr.

Title: President & Managing Partner

Black Diamond Capital Management, LLC

-8-

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