Document:

ex10-2.htm

Exhibit 10.5

 

COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT

 

This COLLATERAL AGENCY AND INTERCREDITOR AGREEMENT (this “Agreement”), dated as of December 30, 2015, is entered into among Mark Sieczkarek, a resident of the United States (“Sieczkarek”); The Gail J. Maderis Revocable Trust, a trust of the United States ("Maderis"); Jian Ping Fu, a resident of the Republic of China (“Fu”); Pioneer Pharma (Singapore) Pte. Ltd, a corporation based in Singapore (“Pioneer”); and T. Alex McPherson, a resident of Canada ("McPherson"), (collectively, the “Noteholders”), together with China Kington Asset Management Co. Ltd., in its capacity as collateral agent for the Noteholders (the “Collateral Agent”).

 

PRELIMINARY STATEMENTS:

 

(1)     Certain terms are defined in Section 1 hereof.

 

(2)     Reference is hereby made to that certain (i) Promissory Note, dated as of December 30, 2015, made by NovaBay Pharmaceuticals, Inc., a Delaware corporation, as Borrower (the “Borrower”) and payable to Sieczkarek in the original principal amount of $199,000 (the “First Note”), (ii) Promissory Note, dated as of December 30, 2015, made by the Borrower and payable to Maderis in the original principal amount of $71,000 (the “Second Note”); (iii) Promissory Note, to be dated as of 2016, made by the Borrower and payable to Fu in the original principal amount of $1,365,000 (the “Third Note”); (iv) Promissory Note, dated as of December 30, 2015, made by the Borrower and payable to Pioneer Pharma (Singapore) Pte. Ltd in the original principal amount of $1,365,000 (the "Fourth Note"); (v) Promissory Note, dated as of December 30, 2015, made by the Borrower and payable to McPherson in the original principal amount of $20,000 (the "Fifth Note", collectively with the First Note, Second Note, Third Note and Fourth Note, the “Notes”).

 

(3)     In connection with the Notes, the Borrower and the Collateral Agent for the benefit of the Secured Creditors (as defined below), entered into that certain Security Agreement, dated as of the date hereof (as amended, modified, or supplemented from time to time, the “Security Agreement”). 

 

(4)     This Agreement is made for the benefit of the Collateral Agent, and each of the holders of the Notes (any or all of the foregoing, individually a “Secured Creditor” and collectively, the “Secured Creditors”).

 

(5)     The Secured Creditors wish to set forth their understandings and agreements regarding their respective rights and priorities with respect to amounts recovered through the exercise of any right of set off, payments received after a Triggering Event (as defined in Section 2.1 below) and proceeds of the Collateral, and, accordingly, desire to execute this Agreement.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and the mutual covenants and promises set forth herein, each of the parties to this Agreement agrees as follows:

 

	
1.
	
DEFINITIONS AND TERMS.

 

1.1     Defined Terms. The following terms shall have the meanings herein specified unless the context otherwise requires:

 

 

 

 

 

“Agreement” shall mean this Collateral Agency and Intercreditor Agreement as the same may be modified, supplemented or amended from time to time in accordance with its terms.

 

“Bankruptcy Event” shall mean any of the following shall occur:

 

(i)     the Borrower shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled “Bankruptcy,” as now or hereafter in effect, or any successor thereto (the “Bankruptcy Code”); or

 

(ii)     an involuntary case is commenced against the Borrower under the Bankruptcy Code and the petition is not controverted within 20 Business Days, or is not dismissed within 60 Business Days, after commencement of the case; or

 

(iii)     a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower; or

 

(iv)     the Borrower commences (including by way of applying for or consenting to the appointment of, or the taking of possession by, a rehabilitator, receiver, custodian, trustee, conservator or liquidator (collectively, a “conservator”) of itself or all or any substantial portion of its property) any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency, liquidation, rehabilitation, conservatorship or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower; or

 

(v)     any such proceeding is commenced against the Borrower to the extent such proceeding is consented by such person or remains undismissed for a period of 60 Business Days; or 

 

(vi)     the Borrower is adjudicated insolvent or bankrupt; or

 

(vii)     any order of relief or other order approving any such case or proceeding is entered by a court of competent jurisdiction; or

 

(viii)     the Borrower suffers any appointment of any conservator or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 Business Days; or 

 

(ix)     the Borrower makes a general assignment for the benefit of creditors; or

 

(x)     any corporate (or similar organizational) action is taken by the Borrower for the purpose of effecting any of the foregoing.

 

“Business Day” means any day excluding Saturday, Sunday and any legal holiday or a day on which national banking institutions in the United States are authorized by law to close. 

 

“Collateral” shall mean and include any and all “Collateral,” as such term is defined in the Security Agreement.

 

“Collateral Agent” shall have the meaning specified in the first paragraph of this Agreement.

 

“Collateral Documents” shall mean and include the Security Agreement. 

 

 

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“Collateral Proceeds” shall mean any and all Proceeds of the Collateral.

 

“Credit Documents” shall mean and include this Agreement, the Notes and the Collateral Documents.

 

“Credit Document Obligations” shall mean and include:

 

(i)     the principal of and interest on the Notes issued by, and the loans made to, the Borrower under the Notes, and

 

(ii)     all other obligations and liabilities owing by the Borrower to the Collateral Agent or any of the Noteholders under any of the Credit Documents to which the Borrower is now or may hereafter become a party (including, without limitation, indemnities, fees and other amounts payable thereunder), whether primary, secondary, direct, contingent, fixed or otherwise,

 

in all cases whether now existing, or hereafter incurred or arising, including any such interest or other amounts incurred or arising during the pendency of any bankruptcy, insolvency, reorganization, receivership or similar proceeding, regardless of whether allowed or allowable in such proceeding or subject to an automatic stay under section 362(a) of the Bankruptcy Code.

 

“Event of Default” shall mean any default in the payment of principal, interest or fees, under any Credit Document, or any Bankruptcy Event.

 

“Noteholders” shall have the meaning provided in the Preliminary Statements of this Agreement. 

 

“Notes” shall have the meaning provided in the Preliminary Statements of this Agreement. 

 

“Proceeds” shall mean (i) any “proceeds”, as such term is now or hereafter defined in the UCC; and (ii) without limitation of the foregoing, in any event, shall include, but not be limited to, (1) whatever is acquired upon the sale, lease, license, exchange, or other disposition of any Collateral, (2) whatever is collected on, or distributed on account of, any Collateral, (3) rights arising out of any Collateral, (4) claims arising out of the loss or nonconformity of, defects in, or damage to any Collateral, (5) claims and rights to any proceeds of any insurance, indemnity, warranty or guaranty payable to a Noteholder (or the Collateral Agent, as assignee, loss payee or an additional insured) with respect to any of the Collateral, (6) claims and rights to payments (in any form whatsoever) made or due and payable to a Noteholder from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority), (7) all cash, money, checks and negotiable instruments received or held on behalf of the Collateral Agent pursuant to any lockbox or similar arrangement relating to the payment of accounts receivable or other Collateral, and (8) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. 

 

“Secured Creditors” shall have the meaning provided in the Preliminary Statements of this Agreement.

 

 

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“Secured Obligations” shall mean and include 

 

(i) the Borrower’s obligations in respect of all Credit Document Obligations as to which it is an obligor;

 

(ii)     any and all sums advanced by the Collateral Agent in compliance with the provisions of this Agreement or any of the other Credit Documents in order to preserve the Collateral or to preserve or protect its Security Interest in such Collateral, including, without limitation, sums advanced to pay or discharge insurance premiums, taxes, liens and claims; and

 

(iii)     in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities referred to in clauses (i) and (ii) above, after an Event of Default shall have occurred and be continuing, the reasonable expenses of re-taking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by the Collateral Agent of its rights hereunder in respect or its Collateral, together with reasonable attorneys’ fees and court costs.

 

“Security Agreement” shall have the meaning provided in the Preliminary Statements of this Agreement. 

 

“UCC” shall mean the Uniform Commercial Code, as at any time adopted and in effect in any jurisdiction, specifically including and taking into account all amendments, supplements, revisions and other modifications of the Uniform Commercial Code which hereafter are adopted or otherwise take effect.

 

1.2     Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any person shall be construed to include such person’s successors and assigns, where permitted, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (d) unless otherwise specified, all references herein to sections, Annexes and Exhibits shall be construed to refer to sections of, and Annexes and Exhibits to, this Agreement.

 

	
2.
	
SHARING.

 

2.1     Triggering Event. The liens of the Collateral Agent relating to the Collateral shall be held by the Collateral Agent for the benefit of the Noteholders, and, any proceeds realized in respect thereof shall be shared by the Noteholders and distributed in accordance with the rights and priorities set forth in this Agreement. Any Collateral Proceeds, Triggering Event Balances, Triggering Event Payments or Setoff Proceeds (as such terms are defined in Section 2.2) shall be shared by the Secured Creditors and distributed in accordance with the rights and priorities set forth in this Agreement. As used herein, the term “Triggering Event” means (a) the occurrence and continuation of a Bankruptcy Event with respect to the Borrower, (b) the Collateral Agent’s receipt of a written notice that the unpaid principal amount of any of the Secured Obligations has been declared to be then due and payable by the holder or holders thereof prior to the due date as a result of an event of default, or (c) any exercise of any right of setoff or banker’s lien by any Secured Creditor.

 

 

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2.2     Cash Collateral Account; Application of Proceeds. The Collateral Agent shall establish an interest-bearing demand deposit cash collateral account subject to the lien and security interest created by the Collateral Documents (the “Cash Collateral Account”) in the name of the Collateral Agent into which the proceeds, payments and amounts described in subsections (a)(i), (a)(ii), (a)(iii) and (a)(iv) below shall be deposited and from which only the Collateral Agent may effect withdrawals. Such amounts shall be held by the Collateral Agent in the Cash Collateral Account and shall be distributed from time to time by the Collateral Agent in accordance with Section 2.2(b) below.

 

(a)     The following proceeds, payments and amounts shall be deposited and held by the Collateral Agent in the Cash Collateral Account and shall be distributed from time to time by the Collateral Agent in accordance with Section 2.2(b) below:

 

(i)     any proceeds of any collection, recovery, receipt, appropriation, realization or sale of any or all of the Collateral or the enforcement of the Collateral Documents (the “Collateral Proceeds”) received by the Collateral Agent or any Secured Creditor;

 

(ii)     any amounts held in the Cash Collateral Account at the time a Triggering Event occurs (the “Triggering Event Balances”);

 

(iii)     any payments received or otherwise realized by any Secured Creditor in respect of any Secured Obligations on or after the date on which a Triggering Event has occurred (the “Triggering Event Payments”); and

 

(iv)     any amounts received or recovered by any Secured Creditor through any exercise of any right of setoff or banker’s lien at any time on or after the occurrence of a Triggering Event (whether by law, contract or otherwise) (the “Setoff Proceeds”).

 

Each Secured Creditor agrees to deliver any Collateral Proceeds, any Triggering Event Balances, any Triggering Event Payments and any Setoff Proceeds to the Collateral Agent within two (2) Business Days after receipt (other than pursuant to subsection (c) below) of such Collateral Proceeds, Triggering Event Balances, Triggering Event Payments or Setoff Proceeds.

 

 

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(b)     The Collateral Agent shall distribute the proceeds described in subsections (a)(i), (a)(ii), (a)(iii) and (a)(iv) above which are held in the Cash Collateral Account to the Collateral Agent and the Secured Creditors in accordance with the following priorities:

 

first, to the reasonable costs and expenses of the Collateral Agent incurred in connection with the maintenance of the Cash Collateral Account and any collection, recovery, receipt, appropriation, legal proceeding (whether by or against any such party), realization or sale of any or all of the Collateral or the enforcement of the Collateral Documents;

 

second, after payment in full of all amounts set forth in item first, to the Secured Creditors in payment of any and all amounts owed to the Secured Creditors for reimbursement of amounts paid by them to the Collateral Agent in accordance with Section 4.1 pro rata in proportion to such amounts owed to such Secured Creditors;

 

third, after payment in full of all amounts set forth in item second, to the payment and permanent reduction of the principal amount of the outstanding Secured Obligations, pro rata, based on the proportion that the principal amount of such outstanding Secured Obligations held by each Secured Creditor at such time bears to the sum of the principal amount of all such Secured Obligations;

 

fourth, after payment in full of all amounts set forth in item third, to the payment and permanent reduction of the amount of the outstanding Secured Obligations representing interest, pro rata, based on the proportion that such outstanding Secured Obligations representing interest held by each Secured Creditor at such time bears to the sum of all such Secured Obligations representing interest;

 

fifth, after payment in full of all amounts set forth in item fourth, to the payment and permanent reduction of all other outstanding Secured Obligations not representing principal or interest, pro rata, based on the proportion that such outstanding Obligations not representing principal or interest held by each Secured Creditor at such time bears to the sum of all such Secured Obligations not representing principal or interest; and

 

sixth, after payment in full of all amounts set forth in item fifth, to or at the direction of the Borrower or as a court of competent jurisdiction may otherwise direct.

 

The Collateral Agent shall make such distributions promptly after the deposit of any Collateral Proceeds, Triggering Event Balances, Triggering Event Payments or Setoff Proceeds into the Cash Collateral Account.

 

2.3     Payment of Obligations; Distributions Recovered. The Borrower agrees that any amounts received by a Secured Creditor and delivered by such Secured Creditor to the Collateral Agent pursuant to the terms of this Agreement will not be deemed to be a payment in respect of any Secured Obligations owing to such Secured Creditor until such Secured Creditor receives its pro rata share of such amount from the Collateral Agent and then only to the extent of the actual payment and receipt of such pro rata share. Notwithstanding anything to the contrary contained in this Agreement, in each case in which any proceeds (or the value thereof) or payments are recovered as a preferential or otherwise voidable payment (whether by a trustee in bankruptcy or otherwise) from the party (the “Distributor”) which distributed those proceeds to another party or parties under this Agreement, each party (a “Distributee”) to whom any of those proceeds were ultimately distributed shall, upon the Distributor’s notice of the recovery to the Distributee, return to the Distributor an amount equal to the Distributee’s ratable share of the amount recovered, together with a ratable share of interest thereon to the extent the Distributor is required to pay interest thereon computed on the amount to be returned from the date of the recovery. For purposes of this Agreement, “proceeds” means any payment (whether made voluntarily or involuntary) from any source, including, without limitation, any offset of any deposit or other indebtedness, any security (including, without limitation, any guaranty or any collateral) or otherwise.

 

 

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3.
	
The Collateral Agent.

 

3.1     Appointment of Collateral Agent. By execution and delivery hereof, each Secured Creditor hereby appoints China Kington Asset Management Co. Ltd. (together with its successors and assigns) as Collateral Agent and its representative hereunder and under the Credit Documents, and to act as Collateral Agent hereunder, thereunder, and on behalf of each such Secured Creditor. The Collateral Agent agrees to act as such upon the express conditions contained in this Agreement. In performing its functions and duties under this Agreement and the Credit Documents, the Collateral Agent shall act solely as agent of the Secured Creditors to the extent, but only to the extent, provided in this Agreement, and does not assume, and shall not be deemed to have assumed, any obligation towards or relationship of agency, fiduciary or trust with or for any other Person, other than as set forth in the Credit Documents.

 

3.2     Directions to Collateral Agent. The Collateral Agent shall take any action with respect to the Collateral and/or the Credit Documents only as directed in accordance with Section 4.1 hereof; provided that the Collateral Agent shall not be obligated to follow any directions given in accordance with Section 4.1 hereof to the extent that the Collateral Agent has received a written opinion from its counsel to the effect that such directions are in conflict with any provisions of law, this Agreement, the Credit Documents, or any order of any court or administrative agency; provided further that the Collateral Agent shall not, under any circumstances, be liable to any Secured Creditor or any other person for following the written directions received in accordance with Section 4.1 hereof. Any directions given pursuant to Section 4.1 hereof may be withdrawn or modified by the party or parties who originally gave such directions by delivering written notice of withdrawal or modification to the Collateral Agent prior to the time when the Collateral Agent takes any action pursuant to such directions.

 

3.3     Duties and Responsibilities of Collateral Agent. Each Secured Creditor authorizes the Collateral Agent to take such action on such Secured Creditor’s behalf and to exercise such powers hereunder as are specifically delegated to the Collateral Agent by the terms hereof and the terms of the Credit Documents, together with such powers as are reasonably incidental thereto. The Collateral Agent shall have only those duties and responsibilities that are expressly specified in this Agreement and the Credit Documents, and it may perform such duties by or through its agents or employees. Nothing in this Agreement or the Credit Documents, express or implied, is intended to or shall be construed as imposing upon the Collateral Agent any obligations in respect of this Agreement or such Credit Documents, except as expressly set forth herein or therein. The Collateral Agent shall not be responsible to any Secured Creditor for the execution, effectiveness, genuineness, validity, perfection, enforceability, collectibility, value or sufficiency of the Collateral or the Credit Documents or for any representations, warranties, recitals or statements made in any document executed in connection with the Secured Obligations or made in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by or on behalf of the Borrower or any subsidiary of either of the Borrower to any Secured Creditor or be required to ascertain or inquire as to the performance or observance by the Borrower or any of its subsidiaries or any other pledgor or guarantor of any of the terms, conditions, provisions, covenants or agreements contained in any document executed in connection with the Secured Obligations or of the existence or possible existence of any Triggering Event.

 

 

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3.4     Liabilities of Collateral Agent. The Collateral Agent shall not be liable to any Secured Creditor for any action taken or omitted hereunder, under the Credit Documents, or in connection herewith or therewith except to the extent caused by the Collateral Agent’s gross negligence or willful misconduct. The Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any written statement, 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, except as otherwise specifically provided in this Agreement, shall be entitled to rely upon the written direction of the Required Creditors (as defined in Section 4.1) certifying that the persons signing such direction constitute the “Required Creditors,” and shall be entitled to rely and shall be fully protected in relying on opinions and judgments of counsel, accountants, experts and other professional advisors selected by it in good faith and with due care. The Collateral Agent shall be entitled to refrain from exercising any power, discretion or authority vested in it under this Agreement or the Credit Documents, unless and until it has obtained the directions in accordance with Section 4.1 hereof with respect to the matters covered thereby. The Collateral Agent shall be entitled to request from each Secured Creditor a certificate setting out the amount of the respective Secured Obligations held by it for purposes of calculating distributions pursuant to Section 2.3.

 

3.5     No Action by Secured Creditors. Each Secured Creditor agrees not to take any action whatsoever to enforce any term or provision of the Credit Documents or to enforce any of its rights in respect of the Collateral, in each case except through the Collateral Agent acting in accordance with this Agreement.

 

3.6     Indemnification of Collateral Agent. Each of the Borrower, by its execution of the signature page of this Agreement, agrees to pay and save the Collateral Agent harmless from liability for payment of all costs and expenses of the Collateral Agent in connection with this Agreement or the Credit Documents, other than liabilities, costs and expenses resulting from the Collateral Agent’s gross negligence or willful misconduct. Each Secured Creditor severally agrees to indemnify the Collateral Agent, pro rata (to the extent set forth in the penultimate sentence of this Section 3.6), to the extent the Collateral Agent shall not have been reimbursed by or on behalf of the Borrower or from proceeds of the Collateral or otherwise, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, reasonable expenses (including, without limitation, reasonable counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Collateral Agent in performing its duties hereunder, or under the Credit Documents, in its capacity as the Collateral Agent in any way relating to or arising out of this Agreement, the Credit Documents and/or the Collateral; provided that no Secured Creditor shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Collateral Agent’s gross negligence, willful misconduct or breach of the express terms of this Agreement. For purposes of this Section 3.6 any pro rata calculation shall be on the basis of the outstanding principal amount of the Secured Obligations held by or for each Secured Creditor at the time of the act, omission or transaction giving rise to the reimbursement or indemnity required by this Section 3.6. The provisions of this Section 3.6 shall survive the payment in full of all the Secured Obligations and the termination of this Agreement and all other documents executed in connection with the Secured Obligations.

 

 

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3.7     Resignation and Replacement of Collateral Agent. The Collateral Agent may resign at any time by giving thirty (30) calendar days’ prior written notice thereof to the Secured Creditors and the Borrower, subject to the acceptance of its appointment by a successor Collateral Agent simultaneously with or prior to any resignation of the Collateral Agent. Upon any such notice of resignation, the Required Creditors (as defined in Section 4.1 below) shall have the right to appoint a successor Collateral Agent. The Collateral Agent may be removed at any time with or without cause, by an instrument in writing delivered to the Collateral Agent, the Borrower and the other Secured Creditors by the Required Creditors (as defined in Section 4.1 below). Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Collateral Agent, and the retiring or removed Collateral Agent shall be discharged from its duties and obligations under this Agreement and the Credit Documents; provided, however, that the retiring or removed Collateral Agent will continue to remain liable for all acts of, or the omission to act by, such retiring or removed Collateral Agent which occurred prior to such retirement or removal. If no successor Collateral Agent shall have been so appointed and shall have accepted such appointment within thirty (30) calendar days after the retiring Collateral Agent’s giving of notice of resignation, then the retiring Collateral Agent may, upon prior written notice to the Borrower and the Secured Creditors and on behalf of the Secured Creditors, appoint a successor Collateral Agent. After any retiring or removed Collateral Agent’s resignation or removal hereunder as Collateral Agent, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Collateral Agent under this Agreement and the Credit Documents.

 

3.7     Other Collateral Agency Provisions. The Collateral Agent shall not be liable for or by reason of (i) any failure or defect in the registration, filing or recording of any of the Credit Documents, or any notice, caveat or financing statement with respect to the foregoing, or (ii) any failure to do any act necessary to constitute, perfect and maintain the priority of the security interest created by the Credit Documents. Notwithstanding anything to the contrary contained in this Agreement or any document executed in connection with any of the Secured Obligations, the Collateral Agent, unless it shall have actual knowledge thereof, shall not be deemed to have any knowledge of any Triggering Event unless and until it shall have received written notice from either of the Borrower or any Secured Creditor describing such Triggering Event in reasonable detail (including, to the extent known, the date of occurrence of the same). Upon receipt by the Collateral Agent of any direction by the Required Creditors, all of the Secured Creditors will be bound by such direction.

 

 

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4.
	
Collateral agent’s actions Relating to Defaults and Remedies.

 

4.1     Actions after any Triggering Event. The Required Creditors may, after any Triggering Event (other than an involuntary bankruptcy proceeding) has occurred and by giving the Collateral Agent written notice of such election, instruct and cause the Collateral Agent to exercise its rights and remedies under the Credit Documents. The Collateral Agent shall follow the instructions of the Required Creditors with respect to the enforcement action to be taken. For purposes of this Agreement, the term “Required Creditors” shall mean, at any time, the Secured Creditors holding, in the aggregate, more than 50% of the sum of the then currently outstanding principal amount of the Secured Obligations. Notwithstanding anything to the contrary contained in this Agreement, the Collateral Agent shall not commence or otherwise take any action or proceeding to enforce any Collateral Document or to realize upon any or all of the Collateral unless and until the Collateral Agent has received instructions in accordance with this Section 4.1. Upon receipt by the Collateral Agent of any such instructions, the Collateral Agent shall seek to enforce the Credit Documents and to realize upon the Collateral in accordance with such instructions; provided that the Collateral Agent shall not be obligated to follow any such directions as to which the Collateral Agent has received a written opinion of its counsel to the effect that such directions are in conflict with any provisions of law, this Agreement, the Credit Documents, or any order of any court or administrative agency, and the Collateral Agent shall not, under any circumstances, be liable to any Secured Creditor or any other Person for following the written directions received in accordance with this Section 4.1.

 

4.2     Duties and Responsibilities. The duties and responsibilities of the Collateral Agent hereunder shall consist of and be limited to (i) selling, releasing, surrendering, realizing upon or otherwise dealing with, in any manner and in any order, all or any portion of the Collateral, (ii) exercising or refraining from exercising any rights, remedies or powers of the Collateral Agent under this Agreement or the Credit Documents or under applicable law in respect of all or any portion of the Collateral, (iii) making any demands or giving any notices under the Credit Documents, (iv) effecting amendments to and granting waivers under the Credit Documents in accordance with the terms hereof, and (v) maintaining any cash collateral account under its exclusive dominion and control for the benefit of the Secured Creditors and making deposits therein and withdrawals therefrom as necessary to effect the provisions of this Agreement.

 

4.3     Actions Against the Collateral. In the event that the Collateral Agent proceeds to foreclose upon, collect, sell or otherwise dispose of or take any other action with respect to any or all of the Collateral or to enforce any provisions of the Credit Documents or takes any other action pursuant to this Agreement or any provision of the Credit Documents or requests directions from the Required Creditors as provided herein, upon the request of the Collateral Agent or any Secured Creditor, each of the Secured Creditors agrees that such Secured Creditor (or any agent of or representative for such Secured Creditor) shall promptly notify the Collateral Agent in writing, as of any time that the Collateral Agent may specify in such request, (i) of the aggregate amount of the respective Secured Obligations then owing to such Secured Creditor as of such date and (ii) such other information as the Collateral Agent may reasonably request.

 

 

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4.4     Notice of Triggering Event. Promptly after the Collateral Agent receives written notice of the occurrence of any Triggering Event pursuant to Section 2.1, it shall promptly send copies of such notice to each of the Secured Creditors.

 

4.5.     No Use of Collateral Agent’s Funds. The Collateral Agent shall not be obliged to expend its own funds in performing its obligations under this Agreement and shall be entitled to require that the Secured Creditors provide it with sufficient funds prior to taking any action required under this Agreement.

 

	
5.
	
Third Party Beneficiaries.

 

This Agreement is solely for the benefit of the parties hereto and their respective permitted successors and assigns, and neither of the Borrower nor any other person or entity, are intended to be third party beneficiaries hereunder or to have any right, benefit, priority or interest under, or shall have any right to enforce this Agreement. 

 

	
6.
	
Relation of Creditors. 

 

This Agreement is entered into solely for the purposes set forth herein, and no Secured Creditor assumes any responsibility to any other party hereto to advise such other party of information known to such other party regarding the financial condition of the Borrower or any of their Subsidiaries or of any other circumstances bearing upon the risk of nonpayment of any obligation. Each Secured Creditor specifically acknowledges and agrees that nothing contained in this agreement is or is intended to be for the benefit of the Borrower or any of their Subsidiaries and nothing contained herein shall limit or in any way modify any of the obligations of the Borrower to the Secured Creditors.

 

	
7.
	
Notice of Certain Events.

 

Each Secured Creditor agrees that upon the occurrence of a Triggering Event, it shall promptly notify the Collateral Agent of the occurrence of such Triggering Event. In addition, each Secured Creditor agrees to provide to the Collateral Agent the amount and currency of its Secured Obligations at such reasonable times as may be necessary to determine such Secured Creditor’s pro rata share of the outstanding principal amount of the Secured Obligations.

 

	
8.
	
MISCELLANEOUS.

 

8.1     Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under this Agreement), shall be sent (i) by facsimile or email, with a confirmation of transmission by the transmitting equipment or (ii) by registered or certified mail with return receipt requested (postage prepaid), or (iii) by a recognized overnight delivery service (with charges prepaid) to the intended recipient at the address for notices specified beneath the signature of such party hereto; or as to any party at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communication shall be deemed to have been duly given when actually received.

 

 

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8.2     Amendments, Waivers, Consents. All amendments, waivers or consents of any provision of this Agreement shall be effective only if the same shall be in writing and signed by all of the Secured Creditors.

 

8.3     Releases of Collateral. The parties hereto agree that the Collateral Agent shall release all or any portion of the Collateral (other than in connection with the exercise of its rights and remedies pursuant to Section 4) only upon the receipt by the Collateral Agent of a written approval from the Required Creditors or confirmation that the Credit Document Obligations have been paid in full. Upon the receipt of such written approval, the Collateral Agent shall, at the Borrower’s expense, execute and deliver such releases of its security interest in such Collateral to be released, and provide a copy of such releases to each of the Secured Creditors. In connection therewith, the Secured Creditors hereby irrevocably authorize the Collateral Agent from time to time to release such Collateral or consent to such release in accordance with the terms of this Agreement. 

 

8.4     Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted respective successors and assigns. 

 

8.5     Captions. The captions and Section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement.

 

8.6     Conflicts. In the event of a conflict between the terms of this Agreement and the terms of any of the Credit Documents, the terms of this Agreement shall control.

 

8.7     Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together will constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart.

 

8.8     GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF DELAWARE.

 

8.9     Merger. This Agreement and the Credit Documents supersede all prior agreements, written or oral, among the parties with respect to the subject matter of such agreements.

 

8.10     Independent Investigation. None of the Collateral Agent or any of the Secured Creditors, nor any of their respective directors, officers, agents or employees, shall be responsible to any of the others for the solvency or financial condition of the Borrower or the ability of the Borrower to repay any of the Secured Obligations, or for the value, sufficiency, existence or ownership of any of the Collateral, or the statements of the Borrower, oral or written, or for the validity, sufficiency or enforceability of any of the Secured Obligations or any document or agreement executed or delivered in connection with or pursuant to any of the foregoing. Each Secured Creditor has entered into its respective financial agreements with the Borrower based upon its own independent investigation, and makes no warranty or representation to the other, nor does it rely upon any representation by any of the others, with respect to the matters identified or referred to in this Section.

 

 

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8.11     Severability. In case any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby.

 

8.12     Effect of Bankruptcy or Insolvency. This Agreement shall continue in effect notwithstanding the bankruptcy or insolvency of any party hereto or the Borrower or any of its Subsidiaries.

 

[Remainder of page intentionally left blank]

 

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

 

 

CHINA KINGTON ASSET MANAGEMENT CO. LTD., as the Collateral Agent

 

By:      /s/ Eric Wu                                       

Name: Eric Wu

Title: Partner, Senior Vice President

 

Address for Notices:   Suite 6C, Building 3, You You Century Plaza, No. 428 Yang Gao

South Road, Pu Dong New District, Shanghai, P.R. China

Attention: Bob Wu

Email: wubing98@gmail.com

Tel: 86 21 2028 0208   Facsimile: 86 21 5020 3616

 

 

Mark Sieczkarek, as a Noteholder 

 

 

/s/ Mark Sieczkarek                                                     

 

Address for Notices:   [At the address and contact information most recently 

on the books and records of the company.]

 

 

Jian Ping Fu, as a Noteholder

 

 

/s/ Jian Ping Fu                                                            

 

Address for Notices:   Suite 6C, Building 3, You You Century Plaza, No. 428 Yang Gao

South Road, Pu Dong New District, Shanghai, P.R. China

Attention: Bob Wu

Email: wubing98@gmail.com

Tel: 86 21 2028 0208   Facsimile: 86 21 5020 3616

 

 

S-1

 

 

Pioneer Pharma (Singapore) Pte. Ltd., as a Noteholder

 

 

/s/ Xinzhou Li (Paul Li)                                               

 

Address for Notices:   33A Chander Road, Singapore 219539

Tel: +65 98116356

Attention: Xinzhou Li (Paul Li)

Email: paul.li@pioneer-pharma.com

 

 

Gail J. Maderis Revocable Trust, as a Noteholder:

 

/s/ Gail J. Maderis                                                        

 

Address for Notices:   [At the address and contact information most recently 

on the books and records of the company.]

 

 

T. Alex McPherson, as a Noteholder:

 

/s/ T. Alex McPherson                                                

 

Address for Notices:   [At the address and contact information most recently 

on the books and records of the company.]

 

 

S-2

 

 

THE UNDERSIGNED HEREBY ACKNOWLEDGES AND CONSENTS TO THE FOREGOING.

 

BORROWER:

 

NOVABAY PHARMACEUTICALS, INC.

 

 

By:      /s/ Justin Hall                                                   

Name: Justin Hall

Title: General Counsel

 

 

 

Address for Notices:

 

5980 Horton Street, Suite 550

Emeryville, CA 94608
Facsimile: (510) 225-0371

 

Email: jhall@novabay.com

 

 

A-1ex10-3.htm

Exhibit 10.6

 

SECURITY AGREEMENT

 

 

THIS SECURITY AGREEMENT (this “Agreement”) dated as of December 30, 2015, between NOVABAY PHARMACEUTICALS, INC., a Delaware corporation (the “Company”), and CHINA KINGTON ASSET MANAGEMENT CO. LTD., in its capacity as Collateral Agent for the benefit of the Secured Parties (together with its successors and assigns in such capacity, the “Collateral Agent”).

 

W I T N E S S E T H:

 

 

WHEREAS, the Company, as maker, has executed and delivered or will soon execute and deliver to each of Mark Sieczkarek, a resident of the United States (“Sieczkarek”); The Gail J. Maderis Revocable Trust, a trust of the United States (“Maderis”); T. Alex McPherson, a resident of Canada ("McPherson"); Jian Ping Fu, a resident of the Republic of China (“Fu”) and Pioneer Pharma (Singapore) Pte. Ltd., a corporation based in Singapore (“Pioneer”), (each a “Secured Party” and collectively, the “Secured Parties”), as payee, certain promissory notes, that have an aggregate principal amount of $3,020,000 (as hereinafter modified from time to time, each a “Note” and collectively, the “Notes”);

 

WHEREAS, each Note evidences a loan to be advanced by the applicable Secured Party to the Company (each a “Loan” and collectively, the “Loans”); and 

 

WHEREAS, it is a condition precedent to each Secured Party’s advance of its respective Loan that the Company shall have executed and delivered this Security Agreement to the Collateral Agent.

 

NOW THEREFORE, in consideration for the foregoing premises, the agreements and covenants contained herein and other valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I

 

DEFINITIONS AND REFERENCES

 

Section 1.1.     General Definitions. As used herein, the terms “Company,” “Secured Party,” “Note” and “Loan” shall have the meanings ascribed to such terms above, and the following terms shall have the following meanings:

 

“Code” means the Uniform Commercial Code currently in effect in the State of Delaware; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, priority or exercise of remedies of the Collateral Agent’s security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Delaware, the term “Code” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection, priority or exercise of remedies and for purposes of definitions related to such provisions.

 

 

 

 

 

“Collateral” means all property of whatever type, in which the Collateral Agent, for the benefit of the Secured Parties, at any time has a security interest pursuant to Section 2.1 hereof.

 

“Event of Default” has the meaning specified in Section 5.1 hereof.

 

“Person” means an individual, corporation, association, general or limited partnership, limited liability company, joint stock company, joint venture, trust or trustee thereof, estate or executor thereof, unincorporated organization or joint venture, court or governmental unit or any agency or subdivision thereof, or any legally recognizable entity of whatever kind or type.

 

“Secured Obligations” means the payment by the Company, as and when due and payable, of amounts from time to time owing by it under or with respect to the Notes and all indebtedness and other obligations owing by the Company under this Agreement or any of the other loan documents executed in connection therewith or herewith.

 

Section 1.2.     References. All terms used in this Agreement which are defined in Article 9 of the Code and not otherwise defined herein shall have the same meanings herein as set forth therein, except where the context otherwise requires.

 

Section 1.3.     Exhibits and Schedules. All exhibits and schedules attached to this Agreement are a part hereof for all purposes.

 

Section 1.4.   Renewals, Extensions, Amendments, Modifications, Supplements and Restatements. Unless the context otherwise requires or unless otherwise provided herein, references in this Agreement to a particular agreement, instrument or document (including, without limitation, references in Section 2.1) also refer to and include all renewals, extensions, amendments, modifications, supplements or restatements of any such agreement, instrument or document, provided that nothing contained in this Section 1.4 shall be construed to authorize any Person to execute or enter into any such renewal, extension, amendment, modification, supplement or restatement.

 

Section 1.5.     Headings. Titles and headings appearing at the beginning of any subdivision are for convenience only and do not constitute any part of any such subdivision and shall be disregarded in construing the language contained in this Agreement.

 

Section 1.6.     References and Titles. All references in this Agreement to Exhibits, Schedules, Articles, Sections, Subsections, and other subdivisions refer to the Exhibits, Schedules, Articles, Sections, Subsections and other subdivisions of this Agreement unless expressly provided otherwise. The words “this Agreement”, “herein”, “hereof”, “hereby”, “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The phrases “this Section” and “this Subsection” and similar phrases refer only to the Sections or Subsections hereof in which the phrase occurs. The word “or” is not exclusive. Pronouns in masculine, feminine and neuter gender shall be construed to include any other gender. Words in the singular form shall be construed to include the plural and words in the plural form shall be construed to include the singular, unless the context otherwise requires.

 

 

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ARTICLE II

 

SECURITY INTEREST

 

Section 2.1.     Grant of Security Interest. As security for the Secured Obligations, the Company hereby grants to the Collateral Agent for the benefit of the Secured Parties a security interest in all of the Company’s right, title and interest in and to all tangible and intangible assets, whether now existing or owned or hereafter arising or acquired, and wheresoever situated, including but not limited to all accounts, contract rights and other general intangibles (including payment intangibles and patents, trademarks, copyrights and applications therefor), inventory, equipment, fixtures, deposit accounts, investment property, commercial tort claims, letters of credit and letter of credit rights, and products and proceeds (as each and all of the foregoing types of Collateral is defined in the Code) of all of the foregoing owned by the Company or in which the Company otherwise has any rights. For the avoidance of doubt, such security interest also includes but is not limited to, the Company’s rights to, and patents for, Aganocide and derivative compounds such as auriclosene (NVC-422), which may have an application as a treatment for UCBE; Neutrox, including the Company’s three branded Neutrox products Avenova, NeutroPhase and CelleRx; and intelliCase.

 

Section 2.2.     Obligations Secured. The security interest created hereby in the Collateral constitutes a continuing security interest for the payment by the Company, as and when due and payable, of all amounts from time to time owing by it under or with respect to the Note. The obligations secured by this Agreement include all renewals, extensions, amendments, modifications, supplements or restatements of or substitutions for any of the foregoing.

 

Section 2.3.     Nature of Obligations. The security interests created by this Agreement in the Collateral are to be a first priority interest in the Collateral superior to all other security interests in the Collateral, except as expressly permitted hereunder or under the Notes. Notwithstanding the foregoing, the Company may execute additional promissory notes on terms substantially similar to the Notes, and the obligations under such additional promissory notes may be secured by security interests that are pari passu with the security interests granted hereunder.

 

ARTICLE III

 

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

Section 3.1.     Representations and Warranties. The Company represents and warrants to the Collateral Agent for the benefit of the Secured Parties as of the date hereof as follows:

 

(a)     Location of the Company and Records. The Company’s chief executive office and principal place of business and the office where the records concerning the Collateral are kept or will be kept is set forth on Schedule 3.1 hereto. Schedule 3.1 also sets forth each and every other location at which Collateral is stored or maintained.

 

 

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(b)     Ownership. The Company is the legal and beneficial owner of the Collateral free and clear of any liens, except for (i) the security interests created by this Agreement, (ii) liens imposed by law for taxes that are not yet due or are being contested, (iii) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like liens imposed by law and arising in the ordinary course of business, (iv) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance, social insurance and other social security laws or regulations, (v) 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, (vi) judgment liens in respect of judgments that do not constitute an Event of Default under Notes, (vii) 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, (viii) liens upon tangible personal property securing loans to the Company or deferred payments by the Company for the purchase of such tangible personal property, (ix) pari passu liens as described in Section 2.3 and (x) other liens consented to in writing by the Collateral Agent (collectively, “Permitted Liens”). Except with respect to Permitted Liens, no effective financing statement or other document similar in effect covering all or any part of the Collateral is on file in any recording office.

 

(c)     Validity. This Agreement creates a valid security interest in the Collateral, securing the payment of the Secured Obligations.

 

(d)     No Conflict, Violation or Breach. The execution, delivery and performance by the Company of this Agreement do not and will not (a) conflict with the Company’s organizational documents; (b) violate any provision of any law, rule or regulation; (c) result in breach of or constitute a default (after the passage of time or the giving of notice or both) under any loan or credit agreement or any other agreement, lease or instrument to which the Company is a party or by which it or its properties may be bound or affected; or (d) require the consent or approval of any third party or governmental entities, except, in the case of clauses (b), (c) and (d) above, for any such default or violation that would not, individually or in the aggregate, have a Material Adverse Effect. As used in this Section, “Material Adverse Effect” shall mean any event, act, condition or occurrence having a material adverse effect on the business, properties, management, financial position, stockholders’ equity, results of operations or prospects of the Company and its subsidiaries taken as a whole or on the performance by the Company of its obligations under this Agreement.

 

Section 3.2.     Affirmative Covenants. Unless the holders of a majority of the Secured Obligations then outstanding shall otherwise consent in writing, the Company shall at all times comply with the covenants and agreements contained in this Section 3.2 from the date hereof and so long as any part of the Secured Obligations are outstanding:

 

(a)     Ownership and Liens. The Company shall maintain good and marketable title to all Collateral free and clear of all liens, security interests, adverse claims and other charges or encumbrances except with respect to Permitted Liens. The Company shall use commercially reasonable efforts to resolve any dispute, right of set off, counterclaim or defense with respect to all or any part of the Collateral. The Company shall cause to be terminated any financing statement or other security instrument with respect to the Collateral, except such as may exist or as may have been filed in favor of the Collateral Agent or pursuant to a Permitted Lien. 

 

 

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(b)     Inspection; Verification. The Company shall make the Collateral available for inspection by the Collateral Agent or any Secured Party. The Company shall not permit the Collateral or any part thereof to be affixed to or otherwise become a part of any real or personal property, without first making arrangements satisfactory to the Collateral Agent to protect the Collateral Agent’s security interest therein. During regular business hours and after reasonable notice to the Company, the Collateral Agent or any Secured Party (by any of its officers, employees, agents, representatives, or designees) shall have the right to inspect the Collateral and to inspect and audit, all books, records, journals, orders, receipts, or other correspondence related thereto or to the Company’s business (and to make extracts or copies thereof as the Collateral Agent or such Secured Party may desire), to inspect the premises upon which any of the Collateral is located, and to verify accounts with the Company’s customers and other account debtors for the purpose of verifying the amount, quality, quantity, value, and condition of, or any other matter relating to, the Collateral, including, without limitation, the conduct of the Company’s business and its compliance with the terms and conditions of this Agreement and the Notes. Each of the Collateral Agent and each Secured Party agrees to maintain the confidentiality of information obtained pursuant to any such inspection, except that such information may be disclosed (i) to its directors, officers, employees, agents, advisors and other representatives (it being understood that the persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential), (ii) to the extent requested by any regulatory authority purporting to have jurisdiction over it or him, (iii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iv) in connection with the exercise of any remedies hereunder or under any other loan document executed in connection herewith or any action or proceeding relating to this Agreement or any other such loan document or the enforcement of rights hereunder or thereunder, (v) with the consent of the Company or (vi) to the extent such information (A) becomes publicly available other than as a result of a breach of this section or (B) becomes available to the Collateral Agent or any Secured Party on a nonconfidential basis from a source other than the Company. 

 

(c)     Further Assurances. The Company shall, at its expense and at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that may be necessary or desirable or that the Collateral Agent or any Secured Party may reasonably request in order (i) to perfect and protect the security interest created hereby; (ii) to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to the Collateral; or (iii) to otherwise effect the purposes of this Agreement, including, without limitation (A) executing and filing such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that the Collateral Agent may request in order to perfect and preserve the security interest created hereby, (B) executing and delivering, and causing depositaries and security intermediaries to execute and deliver, control agreements in respect of deposit accounts and investment property, and (C) furnishing to the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable detail.

 

(d)     Information. The Company shall furnish to the Collateral Agent any information that the Collateral Agent or any Secured Party may from time to time reasonably request concerning any covenant, provision or representation contained herein or any other matter in connection with the Collateral. The Company shall advise the Collateral Agent promptly upon the Company’s acquiring or otherwise having an interest in any commercial tort claim.

 

 

5

 

 

(e)     Payment of Taxes, etc. The Company shall (i) timely pay all property and other taxes, assessments and governmental charges or levies imposed upon the Collateral or any part thereof, (ii) timely pay all lawful claims which, if unpaid, might become a lien or charge upon the Collateral or any part thereof, and (iii) maintain appropriate accruals and reserves for all such liabilities in a timely fashion in accordance with generally accepted accounting principles. The Company may, however, delay paying or discharging any such taxes, assessments, charges, claims or liabilities so long as the validity thereof is contested in good faith by proper proceedings and adequate reserves therefor have been set aside on its books.

 

(f)      Changes. Without limitation of any other covenant herein, the Company shall provide thirty (30) days’ written notice to the Collateral Agent prior to causing or permitting any change to be made in its name or identity, or any change to be made to the locations, as set forth on Schedule 3.1, of (i) any Collateral, (ii) any records concerning any Collateral, or (iii) the Company’s chief executive office or principal place of business. 

 

Section 3.3.     Negative Covenants. Unless a majority of the holders of the Secured Obligations then outstanding otherwise consents in writing, the Company shall at all times comply with the covenants contained in this Section 3.3 from the date hereof and so long as any part of the Secured Obligations are outstanding.

 

(a)     Transfer or Encumbrance. The Company shall not (i) sell, assign (by operation of law or otherwise), transfer, exchange, lease or otherwise dispose of any of its properties or assets, including any of the Collateral, other than in the ordinary course of the Company’s business (the “Business”) and other than personal property that is replaced by equivalent property or consumed in the normal operation of the Business or is otherwise no longer used or useful in the operation thereof, (ii) grant a lien on or security interest in or execute, file or record any financing statement or other security instrument with respect to the Collateral other than those in favor of the Collateral Agent or Permitted Liens, or (iii) deliver actual or constructive possession of the Collateral to any other Person. Notwithstanding the foregoing, the Company may license or otherwise transfer interests in its intellectual property or other general intangibles that is no longer used or useful in the operation of the Business. 

 

(b)     Impairment of Security Interest. The Company shall not take or fail to take any action outside the ordinary course of Business that would in any manner materially impair the value or enforceability of the Collateral Agent’s security interest in any Collateral. 

 

ARTICLE IV

 

POWERS AND AUTHORIZATIONS

 

Section 4.1.     Additional Financing Statement Filings. The Company hereby authorizes the Collateral Agent to file, without the signature of the Company where permitted by law, one or more financing or continuation statements, and amendments thereto, relating to the Collateral. The Company further agrees that a carbon, photographic or other reproduction of this Agreement or any financing statement describing any Collateral is sufficient as a financing statement and may be filed in any jurisdiction that the Collateral Agent may deem appropriate.

 

 

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Section 4.2.     Power of Attorney. The Company hereby irrevocably appoints the Collateral Agent as the Company’s attorney-in-fact and proxy, with full authority upon the occurrence and during the continuance of an Event of Default in the place and stead of the Company and in the name of the Company or otherwise, in the Collateral Agent’s discretion, at any time upon the occurrence and during the continuance of an Event of Default, to take any action and to execute any instrument which the Collateral Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation (i) to obtain and adjust insurance required to be paid to the Collateral Agent for the benefit of the Secured Parties, (ii) to ask, demand, collect, sue for, recover, compound, receive, compromise, settle, and give acquittance and receipts for moneys due and to become due under or with respect to any of the Collateral, and take control, in any manner, of any item of payment or proceeds relating to any Collateral, to endorse the name of the Company upon any of the items of payment or proceeds relating to any Collateral and deposit the same to the account of the Collateral Agent on account of the Secured Obligations and endorse the name of the Company upon any chattel paper, document, instrument, invoice, freight bill, bill of lading, or similar document or agreement relating to the accounts, inventory and any other Collateral, (iii) to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (i) or clause (ii) above, (iv) to file any claims and proofs of claim or take any action or institute any proceedings that the Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Collateral Agent with respect to any of the Collateral, and (v) to execute and file one or more financing or continuation statements, and amendments thereto, relating to the Collateral. Such appointment is coupled with an interest and shall be irrevocable from the date hereof and so long as any part of the Secured Obligations are outstanding, but may only be exercised upon the occurrence and during the continuance of an Event of Default.

 

Section 4.3.     Performance by the Collateral Agent. If the Company fails to perform any material agreement or obligation contained herein within thirty (30) days after notice from the Collateral Agent, the Collateral Agent may itself, at its option and in its sole discretion, perform, or cause performance of, such agreement or obligation, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by the Company on demand; provided, however, that nothing herein shall impose any obligation of any kind whatsoever on the Collateral Agent to perform any obligation or agreement of the Company.

 

ARTICLE V

 

EVENTS OF DEFAULT AND REMEDIES

 

Section 5.1.     Events of Default. The occurrence of any of the following events shall constitute an “Event of Default” hereunder:

 

(a)     the Company shall fail to make any payment, including without limitation, for principal, interest, fees or other expenses, under any Note; or

 

 

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(b)     an Event of Default, as defined in the Notes, shall occur; or

 

(c)     any representation, warranty or statement made by the Company herein shall prove to have been incorrect or untrue in any material respect on or as of the date made or deemed made; or

 

(d)     the Company shall fail to observe or perform in all material respects any term, indemnity, covenant or agreement contained herein.

 

Section 5.2.     Remedies. Upon the occurrence of any Event of Default, or at any time thereafter, in addition to all other rights, powers and remedies herein conferred, conferred in the Notes or conferred by operation of law, the Collateral Agent may, and upon receipt of written instructions from the holders of a majority of the Secured Obligations then outstanding shall, declare the Secured Obligations immediately due, payable and performable; and from time to time in its reasonable discretion, without limitation and without notice except as expressly provided below, the Collateral Agent may:

 

(a)     exercise with respect to the Collateral all the rights and remedies of a secured party on default under the Code (whether or not the Code applies to the affected Collateral);

 

(b)     require the Company to, and the Company hereby agrees that it shall at its expense and upon the reasonable request of the Collateral Agent forthwith, assemble all or part of the Collateral as directed by the Collateral Agent and make it available to the Collateral Agent;

 

(c)     reduce its claim to judgment or foreclose or otherwise enforce, in whole or in part, the security interest created hereby by any available judicial procedure;

 

(d)     dispose of, at its office, on the premises of the Company or elsewhere, all or any part of the Collateral, as a unit or in parcels, by public or private proceedings, and by way of one or more contracts (it being agreed that the sale of any part of the Collateral shall not exhaust the Collateral Agent’s power of sale, but sales may be made from time to time, and at any time, until all of the Collateral has been sold or until the Secured Obligations have been paid and performed in full), and at any such sale it shall not be necessary to exhibit any of the Collateral;

 

(e)     apply by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and the Company hereby consents to any such appointment; and

 

(f)     at its discretion, retain an amount of the Collateral in satisfaction of the Secured Obligations whenever the circumstances are such that the Collateral Agent is entitled to do so under the Code or otherwise.

 

The Company agrees that, to the extent notice of sale shall be required by law, ten (10) calendar days’ notice to the Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

 

 

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Section 5.3.     Application of Proceeds. Upon the occurrence of any Event of Default, or at any time thereafter, the Collateral Agent may in its discretion apply any cash held by the Collateral Agent as Collateral, and any cash proceeds received by the Collateral Agent with respect to any sale of, collection from, or other realization upon all or any part of, the Collateral, to any or all of the following in such order as the Collateral Agent may elect:

 

(a)     to the repayment of the reasonable out-of-pocket costs and expenses up to an aggregate of $20,000, including attorneys’ fees and legal expenses up to an aggregate of $10,000, incurred by the Collateral Agent in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral, (iii) the exercise or enforcement of any of the rights of the Collateral Agent or the Secured Parties hereunder; or (iv) the failure of the Company to perform or observe any of the provisions hereof;

 

(b)     to the payment or other satisfaction of any liens and other encumbrances upon any of the Collateral;

 

(c)     to the satisfaction of the Secured Obligations on a pro rata basis;

 

(d)     by holding the same as Collateral;

 

(e)     to the payment of any other amounts required by applicable law; and

 

(f)     by delivery to the Company or to any other party who shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct.

 

Section 5.4.     Deficiency. In the event that the proceeds of any sale, collection or realization of or upon the Collateral by the Collateral Agent or any Secured Party are insufficient to pay all amounts to which the Collateral Agent and the Secured Parties are legally entitled, the Company shall be liable for the deficiency, together with interest thereon as provided herein and in the Notes, or, if no interest is so provided, at such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees and expenses of any attorneys (up to $10,000) employed by the Collateral Agent to collect such deficiency.

 

Section 5.5.     Other Resources. The Company waives any right to require the Collateral Agent to proceed against any other Person, exhaust any Collateral or other security for the Secured Obligations, or pursue any other remedy in the Collateral Agent’s power. The Company further waives any and all notice of acceptance of this Agreement. Until all of the Secured Obligations shall have been paid in full, the Company shall have no right to subrogation and the Company waives the right to enforce any remedy which the Collateral Agent has or may hereafter have against any other party liable for the Secured Obligations, and waives any benefit of and any right to participate in any other security whatsoever now or hereafter held by the Collateral Agent. No action which the Collateral Agent may take or omit to take in connection with this Agreement or the Notes or any of the Secured Obligations shall release or diminish the Company’s obligations, liabilities, duties or agreements hereunder, including without limitation, from time to time: (a) taking or holding any other property of any type from any other Person as security for the Secured Obligations, and exchanging, enforcing, waiving and releasing any or all of such other property, and (b) applying the Collateral or such other property and directing the order or manner of sale thereof as the Collateral Agent may in its reasonable discretion determine.

 

 

9

 

 

Section 5.7.     Remedies Not Exclusive. All rights, powers and remedies herein conferred are cumulative, and not exclusive, of (i) any and all other rights and remedies herein conferred or provided for, (ii) any and all other rights, powers and remedies conferred or provided for in the Notes, and (iii) any and all rights, powers and remedies conferred, provided for or existing at law or in equity, and the Collateral Agent shall, in addition to the rights, powers and remedies herein conferred or provided for, be entitled to avail itself of all such other rights, powers and remedies as may now or hereafter exist at law or in equity for the collection of and enforcement of the Secured Obligations and the enforcement of the warranties, representations, covenants, indemnities and other agreements contained in this Agreement and the Notes. Each and every such right, power and remedy may be exercised from time to time and as often and in such order as may be deemed expedient by the Collateral Agent and the exercise of any such right, power or remedy shall not be deemed a waiver of the right to exercise, at the same time or thereafter, any other right to exercise, at the same time or thereafter, any other right, power or remedy. No delay or omission by the Collateral Agent or other person in the exercise of any right, power or remedy will impair any such right, power or remedy or operate as a waiver thereof or of any other right, power or remedy then or thereafter existing.

 

ARTICLE VI

 

MISCELLANEOUS

 

Section 6.1.     Notices. All notices and other required communications hereunder shall be in writing, addressed as follows:

 

If to the Collateral Agent:

 

China Kington Asset Management Co Ltd.

Suite 6C, Building 3, You You Century Plaza, No. 428 Yang Gao

South Road, Pu Dong New District, Shanghai, P.R. China

Attention: Bob Wu 

Email: bob.wu@kingtonasset.com

 

If to the Company then to:

 

NovaBay Pharmaceuticals, Inc.

5980 Horton Street, Suite 550

Emeryville, CA 94608

Attention: Justin Hall, General Counsel

Email: jhall@novabay.com

 

 

10

 

 

Notices shall be given (a) by personal delivery to the other party, (b) by facsimile or email, with a confirmation of transmission by the transmitting equipment, or (c) by registered or certified mail, return receipt requested. All notices shall be effective and deemed delivered (i) if by personal delivery, on the date of delivery if during business hours, otherwise next business day, (ii) if by facsimile or email, on the date the facsimile or email is received if received during business hours in the time zone of the recipient, otherwise next business day, and (iii) if solely by mail, upon receipt by the addressee. A party may change its address by notice to the other party.

 

Section 6.2.     Entire Agreement. This Agreement (including the Schedules and Exhibits hereto) constitutes the entire understanding between the parties with respect to the subject matter hereof and supersedes all negotiations, prior discussions and prior agreements and understandings relating to such subject matter.

 

Section 6.3.     Costs and Expenses. The Company shall upon demand pay to the Collateral Agent the amount of any and all reasonable costs and expenses up to $20,000, including the reasonable fees and disbursements of the Collateral Agent’s counsel and of any experts and agents up to $10,000, which the Collateral Agent may incur in connection with (i) the perfection and preservation of the security interest created under this Agreement, (ii) the administration of this Agreement, (iii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral, (iv) the exercise or enforcement of any of the rights of the Collateral Agent or the Secured Parties hereunder, or (v) the failure by the Company to perform or observe any of the provisions hereof.

 

Section 6.4.     Amendments. No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Company and the Collateral Agent, and no waiver of any provision of this Agreement, and no consent to any departure by the Company therefrom, shall be effective unless it is in writing and signed by the Collateral Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given and to the extent specified in such writing.

 

Section 6.5.     Preservation of Rights. No failure on the part of the Collateral Agent to exercise, and no delay in exercising, any right hereunder or under the Notes shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. Neither the execution nor the delivery of this Agreement shall in any manner impair or affect any other security for the Secured Obligations.

 

Section 6.6.     Unenforceability. All rights, powers and remedies hereunder conferred shall be exercisable by the Collateral Agent only to the extent not prohibited by applicable law; and all waivers or relinquishments of rights and similar matters shall only be effective to the extent such waivers or relinquishments are not prohibited by applicable law. If any provision of this Agreement is invalid or unenforceable in any jurisdiction, such provision shall be fully severable from this Agreement, and the other provisions hereof shall remain in full force and effect in such jurisdiction and the remaining provisions hereof shall be liberally constructed in favor of the Collateral Agent in order to carry out the provisions and intent hereof. The invalidity of any provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction.

 

 

11

 

 

Section 6.7.     Survival of Agreements. All representations and warranties of the Company herein, and all covenants and agreements herein, including the confidentiality covenant within Section 3.2(b) herein, shall survive the execution and delivery of this Agreement, and the creation of the Secured Obligations.

 

Section 6.8.     Binding Effect and Assignment. This Agreement creates a continuing security interest in the Collateral and shall be binding on the Company and shall inure to the benefit of the Collateral Agent for the benefit of the Secured Parties. Neither the Company nor the Collateral Agent may assign or otherwise transfer its rights under this Agreement to any other person or entity without the prior written consent of the other party. Upon any such consent to transfer, such other person or entity shall become vested with all of the duties, obligations and benefits with respect thereto granted to the Company or the Collateral Agent, as the case may be, herein or otherwise.

 

Section 6.9.     Termination. Upon the satisfaction in full of the Secured Obligations, the security interest created by this Agreement shall terminate and all rights to the Collateral shall revert to the Company. Upon such event, the Collateral Agent shall, upon the Company’s request and at the Company’s expense (a) return to the Company such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof, and (b) execute and deliver to the Company such documents as the Company shall reasonably request to evidence such termination. The termination of the security interest created by this Agreement, shall not terminate or otherwise affect the Collateral Agent’s right or ability to exercise any right, power or remedy on account of any claim for breach of warranty or representation, for failure to perform any covenant or other agreement, under any indemnity or for fraud, deceit or other misrepresentation or omission.

 

Section 6.10.     Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within such state, except as required by mandatory provisions of law and except to the extent that the perfection and the effect of perfection or non-perfection of the security interest created hereby, with respect to any particular collateral, are governed by the laws of a jurisdiction other than the State of Delaware.

 

Section 6.11.     Jurisdiction. The Company agrees to submit to personal jurisdiction in the State of Delaware in any action or proceeding arising out of this Agreement and, in furtherance of such agreement, the Company hereby agrees and consents that without limiting other methods of obtaining jurisdiction, personal jurisdiction over the Company in any such action or proceeding may be obtained within or without the jurisdiction of any court located in Delaware and that any process or notice of motion or other application to any such court in connection with any such action or proceeding may be served upon the Company by registered or certified mail to or by personal service at the address set forth in Section 6.1 (unless such address is changed pursuant to the notice provision set forth in Section 6.1) whether such address be within or without the jurisdiction of any such court.

 

 

12

 

 

Section 6.12.     Waiver of Jury Trial. THE COMPANY AND THE COLLATERAL AGENT HEREBY IRREVOCABLY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY NOTE, THIS AGREEMENT OR OTHER RELATED AGREEMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THE NOTES, THIS AGREEMENT OR OTHER RELATED AGREEMENTS AND THE RELATIONSHIPS THEREBY ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach of duty claims, and all other statutory and common law claims. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS OF THIS AGREEMENT. In the event of litigation, this provision may be filed as a written consent to a trial by the court.

 

Section 6.13.     Specific Performance. The Collateral Agent, for itself and on behalf of the Secured Parties, acknowledges and agrees that compliance with the confidentiality provisions set forth in Section 3.2(b) is essential, and that Company will suffer immediate and irreparable injury and have no adequate remedy at law, if the Collateral Agent or any Secured Party, through acts or omissions, fails to comply with such provisions. Accordingly, in addition to all other rights and remedies of the Company hereunder, the Company shall have the right to seek specific performance of the Collateral Agent’s and the Secured Parties’ obligations under such provisions, and any other equitable relief as the Company may deem necessary or appropriate, and the Collateral Agent, for itself and on behalf of the Secured Parties, waives any requirement for the posting of a bond in connection with such equitable relief.

 

[The remainder of this page is intentionally left blank.]

 

 

13

 

 

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written.

 

	
 
	
NOVABAY PHARMACEUTICALS, INC.
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
By:
	
/s/ Justin Hall
	
 

	
 
	
 
	
Name: Justin Hall
	
 

	
 
	
 
	
Title: General Counsel
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
CHINA KINGTON ASSET MANAGEMENT CO. LTD.
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
By:
	
/s/ Eric Wu
	
 

	
 
	
 
	
Name: Eric Wu
	
 

	
 
	
 
	
Title: Partner
	
 

 

 

14

 

 

SCHEDULE 3.1

 

Chief Executive Office and Other Locations of Collateral

 

 

	
 
	
Chief Executive Office:

	
 
	
 

	
 
	
NOVABAY PHARMACEUTICALS, INC.

5980 Horton Street, Suite 550

Emeryville, CA 94608

	
 
	
 

	
 
	
 

	
 
	
 

	
 
	
Other Locations of Collateral:

	
 
	
 

	
 
	
None

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