Exhibit 10.3
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "AGREEMENT") is dated as of December 5, 2001,
by and between Gum Tech International, Inc., a Utah corporation ("GUM TECH") and
Zensano, Inc., a California corporation ("ZENSANO"). Gum Tech and Zensano are
sometimes referred to herein collectively as the "PARTIES" and each individually
as a "PARTY". Capitalized terms used in this Agreement that are not expressly
defined herein have the respective meanings given to them in the Purchase
Agreement (as defined below).
BACKGROUND
Gum Tech, Zensano and Zensano's parent company, Zengen, Inc., a California
corporation ("ZENGEN") are parties to that certain Purchase Agreement dated as
of December 5, 2001 (the "PURCHASE AGREEMENT") pursuant to which Zensano has
sold to Gum Tech, and Gum Tech has purchased from Zensano, effective as of the
date hereof, Zensano's forty percent (40%) ownership interest (the "OWNERSHIP
INTEREST") in Gel Tech, L.L.C., an Arizona limited liability company ("GEL
TECH").
As partial consideration for its purchase of the Ownership Interest, Gum
Tech has issued to Zensano a non-interest bearing promissory note dated as of
the date of this Agreement in the original principal amount of Eleven Million
Dollars ($11,000,000) (the "PROMISSORY NOTE") and has agreed to make certain
other conditional payments under the Purchase Agreement.
The Parties have agreed that Gum Tech's payment obligations under the
Promissory Note and its conditional payment obligations under the Purchase
Agreement will be secured by the Collateral (as defined herein), as more
specifically provided by this Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual
covenants and agreements contained herein, the receipt and sufficiency of which
are hereby acknowledged, the Parties agree as follows:
1. GRANT OF SECURITY INTEREST. Gum Tech hereby grants to Zensano a first
priority security interest (the "SECURITY INTEREST") in the Ownership Interest,
all rights therein and thereunder and all proceeds thereof (collectively, the
"COLLATERAL") as security for Gum Tech's obligations under the Promissory Note
and Gum Tech's conditional payment obligations under Sections 2.2(b), 2.2(c),
2.5 and 2.7 of the Purchase Agreement.
2. DELIVERY OF CERTIFICATES. If at any time during the effectiveness of
this Security Agreement, Gel Tech issues or causes to be issued any certificate
or similar document evidencing the ownership by Gum Tech of the Ownership
Interest, Gum Tech will promptly deliver such certificate or other document to
Zensano together with a duly executed power of transfer with respect thereto
(collectively, the "TRANSFER DOCUMENTS"), which documents Zensano will hold in
trust pending the expiration or earlier termination of this Agreement or the
exercise by Zensano of its rights under SECTION 7. Upon the expiration or
earlier termination of this Agreement, if Zensano has not exercised its rights
under SECTION 7, Zensano will promptly deliver the Transfer Documents to Gum
Tech.
3. FINANCING STATEMENTS. Gum Tech will join in executing or will execute
individually, as appropriate, all necessary financing statements and similar
documents (collectively, "FINANCING STATEMENTS") reasonably required by, and
prepared by, Zensano to perfect and protect the Security Interest granted
hereunder. Filing for registration or recordation of any and all Financing
Statements will be undertaken by Zensano at Zensano's sole cost. To the extent
that such Financing Statements do not require any signatures by the Parties,
Zensano is authorized to file or record such Financing Statements in the offices
deemed appropriate by it. Zensano will promptly delivery to Gum Tech copies of
all Financing Statements filed by Zensano in connection with this Agreement
together with a list of each jurisdiction in which such Financing Statements are
filed from time to time.
4. TERMINATION OF SECURITY INTEREST AND FINANCING STATEMENTS. The Security
Interest will automatically terminate and be of no further force or effect
immediately upon (i) full satisfaction by Gum Tech of its obligations under the
Promissory Note, and (ii) full satisfaction or termination (as the case may be)
of Gum Tech's conditional payment obligations under Sections 2.2(b), 2.2(c), 2.5
and 2.7 of the Purchase Agreement. Forthwith (and in any event within ten (10)
Business Days) after full satisfaction and/or termination of Gum Tech's
obligations under the Promissory Note and Sections 2.2(b), 2.2(c), 2.5 and 2.7
of the Purchase Agreement, Zensano will cause to be cancelled, discharged and
released, at its sole cost, all Financing Statements and registrations or
recordations thereof. If after the expiration of such ten (10) Business Days,
Zensano, has failed to comply with its obligations under this SECTION 4, then
effective as of such time, Zensano hereby irrevocably appoints Gum Tech as
attorney and agent for, and in the name and on behalf of Zensano to prepare,
execute, deliver and record to and with all applicable Persons all such
agreements, instruments and documents as Gum Tech deems reasonably necessary or
appropriate to properly discharge, cancel and release the registration or
recordation of any and all Financing Statements made or filed by or on behalf of
Zensano or any of its Affiliates in connection with this Agreement, and Zensano
hereby ratifies and confirms all that Gum Tech may lawfully do or cause to be
done by virtue of the appointment herein of Gum Tech as the attorney and agent
for Zensano for the limited purposes described herein. All costs (including
reasonable attorney's fees and expenses) incurred by Gum Tech acting in its
capacity as the attorney and agent of Zensano for the limited purposes described
herein will constitute a debt owed by Zensano to Gum Tech and will be due and
payable immediately upon written demand therefor.
5. REPRESENTATIONS OF GUM TECH. Except to the extent that such
representation is untrue, inaccurate or incomplete due to a misrepresentation or
breach of warranty by Zengen or Zensano under the Purchase Agreement, (i) Gum
Tech is the legal and equitable owner of the Ownership Interest, together with
the other rights and interests comprising the Collateral described above,
subject to no Encumbrances, and has full power and lawful authority to pledge,
assign and grant a security interest in the Collateral hereunder, and (ii) there
is no existing agreement, option, right or privilege capable of becoming an
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agreement or option pursuant to which Gum Tech could be required to sell or
otherwise dispose of all or a part of the Ownership Interest. Gum Tech has not
executed, and has no actual knowledge of, any effective financing statement,
security agreement or other instrument similar in effect covering all or any
part of the Collateral on file in any recording office, except (i) such as may
have been filed pursuant to this Agreement, or (ii) such as may have been filed
by Zensano or any of its Affiliates before the date hereof.
6. COVENANTS OF GUM TECH. Gum Tech hereby covenants and agrees that during
the effectiveness of this Agreement, it will:
(a) perform and comply, in all material respects, with all obligations
and conditions on its part to be performed hereunder and under the
Promissory Note;
(b) defend its title to the Collateral and the interest of Zensano in
the Collateral pledged hereunder against the claims and demands of all
Persons;
(c) not, without Zensano's prior written consent, directly or
indirectly create, incur, assume or suffer to exist any Encumbrance on or
with respect to any part of the Collateral that ranks higher in priority to
the Security Interest, and Gum Tech will, at its own cost and expense,
promptly take such action as may be necessary to discharge any such
Encumbrance; PROVIDED, however, that this SECTION 6(C) will not apply to
any Encumbrance on the Collateral that existed on or before the date hereof
based on any act or omission of Zensano, Zengen or any Affiliate thereof;
(d) keep accurate and complete records of the Collateral and, upon
reasonable prior notice, will permit representatives of Zensano during
normal business hours of Gum Tech to inspect Gel Tech's Articles of
Organization, as amended, Operating Agreement and other company documents
directly pertaining to the Collateral. Upon the occurrence and continuation
of any Event of Default, at Zensano's request, Gum Tech will promptly
deliver copies of such documents to Zensano;
(e) give Zensano written notice of any change of Gum Tech's corporate
domicile within thirty (30) days before the effectiveness of such change,
and will execute and deliver such instruments and documents as may be
required and prepared by Zensano, at Zensano's sole cost, to maintain a
first priority perfected security interest in the Collateral; and
(f) give Zensano prompt written notice of any security interest in the
Ownership Interest granted by Gum Tech to any Person (other than Zensano).
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7. DEFAULT AND REMEDIES. Subject to SECTION 8, if an Event of Default (as
that term is defined in the Promissory Note) occurs with respect to Gum Tech, or
Gum Tech fails to comply with its conditional payment obligations under any of
Sections 2.2(b), 2.2(c), 2.5 or 2.7 of the Purchase Agreement, then, following
written notice thereof by Zensano to Gum Tech thereof, and the failure by Gum
Tech within ten (10) Business Days following delivery of such notice to cure
such Event of Default or to satisfy its conditional payment obligations under
Sections 2.2(b), 2.2(c), 2.5 or 2.7 of the Purchase Agreement, the following
will apply:
(a) Zensano may exercise any and all of the rights and remedies of
Zensano provided by the Uniform Commercial Code Section 9000, ET SEQ. with
respect to the Security Interest.
(b) Zensano will cause the Collateral to be sold at a public or
private sale and will use all reasonable efforts to sell the Collateral for
the fair market value thereof. At any such public or private sale, each of
Gum Tech and Zensano will be entitled to bid on the Collateral in the same
manner as any member of the public. Zensano will give Gum Tech reasonable
notice of the time and place of any public sale of the Collateral, or of
the date upon which any private sale or any other intended disposition of
Collateral is to be made. Notice by Zensano of any intended private sale
will include a right offered to Gum Tech to bid on and purchase the
Collateral for a price greater than that negotiated in such private sale.
The requirement of reasonable notice to Gum Tech will be met if such notice
is given or delivered as provided in SECTION 14 at least ten (10) Business
Days before the time of any such sale or disposition.
(c) The rights, powers and remedies afforded the Parties by this
Agreement are in addition to all rights, powers and remedies afforded the
Parties by virtue of any applicable Law or Governmental Order. The rights,
privileges, powers, and remedies afforded Zensano hereunder and under
applicable Laws and Governmental Orders are cumulative, and no single or
partial exercise of any of them will preclude the further or other exercise
of the same or any of them.
(d) Any forbearance, failure or delay by Zensano in exercising any
right, power or remedy under this Agreement will not be deemed to be a
waiver of such right, power or remedy, and any single or partial exercise
of any right, power or remedy under this Agreement will not preclude the
further exercise thereof. Every right, power and remedy of Zensano
hereunder will continue in full force and effect until such right, power or
remedy is specifically waived by an instrument in writing executed by
Zensano or this Agreement is terminated in accordance with its terms.
8. LIMITATION ON EXERCISE OF REMEDIES. The Parties acknowledge and agree
that Zensano will not be entitled to exercise its rights and remedies under
SECTION 7 if Gum Tech does not pay any amount or delays in the payment of any
amount under the Promissory Note or under any of Sections 2.2(b), 2.2(c), 2.5 or
2.7 of the Purchase Agreement where such non-payment or delay of payment is
based on any claim for set-off made reasonably and in good faith by Gum Tech
pursuant to the provisions of Section 6.10 of the Purchase Agreement, even if
such set-off claim or the amount thereof is ultimately rejected or reduced under
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the procedures established in Section 6.10 of the Purchase Agreement for the
resolution of any such set-off claim. Zensano may not initiate or proceed with
any collection, foreclosure or other actions under this Agreement until such
set-off claim of Gum Tech has been disposed of pursuant to the provisions of
Section 6.10 of the Purchase Agreement, and then only for amounts owing by Gum
Tech under the Promissory Note or under any of Sections 2.2(b), 2.2(c), 2.5 or
2.7 of the Purchase Agreement from the date of such disposition.
9. APPLICATION OF PAYMENTS ON SALE OR DISPOSITION OF COLLATERAL. All
proceeds received and realized by Zensano from the sale or disposition of
Collateral will be applied by Zensano, as the case may be, in the following
order:
(a) first, to the payment of all reasonable costs and expenses of such
sale or disposition incurred by Zensano, including any such costs and
expenses of foreclosure of suit, if any, reasonable attorney's fees and
expenses and payment, if required, of all taxes, assessments or liens
superior to the Security Interest;
(b) second, to all outstanding amounts payable by Gum Tech under the
Promissory Note and/or under Sections 2.2(b), 2.2(c), 2.5 and 2.7 of the
Purchase Agreement, as the case may be;
(c) third, to each Person legally entitled to any of such proceeds,
where Zensano is required by Law or Governmental Order to make payment to
such Person out of such proceeds; and
(d) fourth, to Gum Tech or its successors and assigns.
10. RIGHTS ON SALE OF OWNERSHIP INTEREST. If during the effectiveness of
this Agreement, Gum Tech or any Affiliate thereof sells, conveys or transfers
the Ownership Interest to a Third Party Purchaser, then the aggregate amounts
outstanding and payable under the Promissory Note at the time of the closing of
such sale, conveyance or transfer will accelerate and be payable in full no
later than fifteen (15) days after the closing of such sale, conveyance or
transfer.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire, final and
complete agreement among the Parties with respect to the subject matter hereof
and supersedes all prior agreements, representations, negotiations,
communications and understandings, whether written or oral, between or among the
Parties with respect to the subject matter hereof. No Party will be bound by or
liable for any statement, representation, promise, inducement, or understanding
of any kind whatsoever not expressly set forth in the Purchase Agreement, this
Agreement or in an agreement entered into pursuant hereto or in connection
herewith.
12. JOINT PREPARATION; INTERPRETATION. This Agreement will be considered
for all purposes as having been prepared through the joint efforts of the
Parties. No presumption will apply in favor of any Party in the interpretation
of this Agreement or in the resolution of any ambiguity of any provision hereof
based on the preparation, substitution, submission or other event of
negotiation, drafting or execution hereof.
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13. MODIFICATION AND AMENDMENT. This Agreement may not be modified or
amended except by an instrument in writing executed by authorized representative
of each Party.
14. NOTICES. Except as otherwise provided in this Agreement, any notice,
communication or other document required or permitted to be given or delivered
hereunder must be in writing and delivered by hand (including delivery by
commercial courier service), by registered or certified U.S. mail (postage
prepaid, return receipt requested) or electronic facsimile transmission to the
applicable address(es) specified below:
if to Zensano, to:
Zensano, Inc.
21800 Oxnard Street, Suite 980
Woodland Hills, California 91367
Attention: Matthew C. Lipton
Fax: (818) 884-5988
with a copy to:
Morgan, Lewis & Bockius LLP
300 South Grand Avenue, Suite 2200
Los Angeles, California
90071-31323
Attention: Matthew Burns
Fax: (213) 612-2554
if to Gum Tech, to:
Gum Tech International, Inc.
2375 East Camelback Road, Suite 500
Phoenix, Arizona 85016
Attention: President
Fax: (602) 387-4112
with a copy to:
Snell & Wilmer L.L.P.
One Arizona Center
400 E. Van Buren Street
Phoenix, Arizona 85004
Attention: Samuel C. Cowley
Fax: (602) 382-6070
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Any notice which requires action or response by the receiving Party within
a contractually or statutorily defined time must reference the contract or
statutory provision relied upon and must identify the date on or before which
such action or response is required. Any notice which requires action or
response in less than thirty (30) days must be served both by same-day or
overnight courier and electronic facsimile transmission: Either Party may change
its mailing address by notice to the other Party in the manner herein
prescribed. Any notice, communication or document delivered pursuant to the
provisions hereof will be deemed to have been delivered, if mailed, upon the
earlier of (i) actual receipt by the addressee, (ii) the date shown on the
return receipt of such mailing, or (iii) three (3) Business Days after deposit
in the mail. Any notice, communication or document delivered by hand (including
commercial courier service) will be deemed to have been delivered upon the
earlier of (i) actual receipt by the addressee, and (ii) the first Business Day
after deposit of such notice, communication or document with such courier
service. Any notice, communication or document delivered by electronic facsimile
will be deemed to have been delivered when sent (provided that a transmission
record is maintained by the sending Party), so long as it was received during
the receiving Party's normal working hours (8:00 a.m. to 5:00 p.m. local time)
on a Business Day, and otherwise such delivery will be deemed to be made as of
the next succeeding Business Day.
15. DATES AND TIMES. Dates and times set forth in this Agreement for the
performance of the respective obligations of the Parties will be strictly
construed, time being of the essence of this Agreement. All provisions in this
Agreement which specify or provide a method to compute a number of days for the
performance, delivery, completion or observance by a Party of any action,
covenant, agreement, obligation or notice hereunder will mean and refer to
calendar days, unless otherwise expressly provided. If the date specified or
computed under this Agreement for the performance, delivery, completion or
observance of a covenant, agreement, obligation or notice by any Party, or for
the occurrence of any event provided for herein, is a day other than a Business
Day, then the date for such performance, delivery, completion, observance or
occurrence will automatically be extended to the next Business Day following
such date.
16. GOVERNING LAW. This Agreement will be governed by and interpreted in
accordance with the Laws of the State of Arizona, including all matters of
construction, validity, performance and enforcement, without giving effect to
principles of conflict of Laws.
17. FORUM FOR DISPUTES. All disputes arising out of, with respect to or in
connection with this Agreement or any agreement, instrument or other document
entered into or delivered in connection herewith or any of the transactions
contemplated hereby will be instituted and maintained only in the state or
federal courts of Maricopa County in the State of Arizona.
18. HEADINGS. The subject headings of the sections of this Agreement are
included for convenience of reference only, do not form a part of this Agreement
and will not in any way affect the meaning or interpretation of this Agreement
or any of its provisions.
19. FURTHER ASSURANCES. The Parties agree to execute all instruments and
documents of further assurance and to do any and all such acts as may be
reasonably required to carry out their respective obligations and to consummate
the transactions contemplated herein.
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20. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure
to the benefit of the Parties and their successors and permitted assigns.
Neither Party may assign its rights or delegate its obligations under this
Agreement, in whole or in part, without the prior written consent of the other
Party, which consent will not be unreasonably withheld, except that Zensano may
assign its rights and delegate its obligations to Zengen upon written notice to
(but without the requirement of consent of) Gum Tech. Effective upon such an
assignment and delegation by Zensano to Zengen, the power of attorney granted to
Gum Tech by Zensano under SECTION 4 will automatically become an identical power
of attorney granted to Gum Tech by Zengen without further documentation thereof
or notice with respect thereto.
21. THIRD PARTY BENEFIT. Nothing in this Agreement, express or implied,
will confer on any Person other than the Parties or their respective successors
and permitted assigns, any right, remedy, obligation or liability under or by
reason of this Agreement.
22. SEVERABILITY. If any provision of this Agreement, or the application of
any such provision to any Person or any circumstance, is held to be
unenforceable or invalid under any applicable Law or pursuant to any
Governmental Order, the Parties will negotiate an equitable adjustment to the
provisions of this Agreement with the view to effecting, to the greatest extent
possible, the original purpose and intent of this Agreement, and in any event,
the validity and enforceability of the remaining provisions of this Agreement
will not be affected thereby.
23. WAIVER OF JURY TRIAL. GUM TECH, TO THE EXTENT IT MAY LEGALLY DO SO,
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION,
CAUSE OF ACTION OR PROCEEDING ARISING DIRECTLY UNDER OR WITH RESPECT TO THIS
AGREEMENT, BUT ONLY TO THE EXTENT THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF
ACTION OR PROCEEDING RELATES DIRECTLY TO THE PROMISSORY NOTE AND GUM TECH'S
OBLIGATIONS THEREUNDER (AND NOT WITH RESPECT TO ANY CLAIM, DEMAND, ACTION, CAUSE
OF ACTION OR PROCEEDING WITH RESPECT TO ANY OBLIGATION OF GUM TECH UNDER THE
PURCHASE AGREEMENT), IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE. GUM TECH, TO
THE EXTENT IT MAY LEGALLY DO SO, HEREBY AGREES THAT ANY SUCH CLAIM, DEMAND,
ACTION, CAUSE OF ACTION OR PROCEEDING WILL BE DECIDED BY A COURT TRIAL WITHOUT A
JURY AND THAT ZENSANO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION
23 WITH ANY STATE OR FEDERAL COURT IN MARICOPA COUNTY, ARIZONA AS WRITTEN
EVIDENCE OF THE CONSENT OF GUM TECH TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
24. COUNTERPARTS. This Agreement may be executed, in original form or by
electronic facsimile signature, and delivered in any number of counterparts,
each of which will be deemed as original and all of which together will
constitute one and the same instrument.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, the Parties have executed this Agreement effective as
of the day and year first above written.
GUM TECH INTERNATIONAL, INC.
By:
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Carl C. Johnson
President
ZENSANO, INC.
By:
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Name:
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Its:
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