AURIGA LABORATORIES, INC. SENIOR SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT
SENIOR SECURED CONVERTIBLE
PROMISSORY NOTE
PURCHASE
AGREEMENT
This
Senior Secured Convertible Promissory Note Purchase Agreement (the “Agreement”) is made
as of the 9th day of June, 2008, by and between Auriga Laboratories, Inc.,
a Delaware corporation (the “Company”), and
Prospector Capital Partners II, LLC, a Delaware limited liability company (the
“Purchaser”).
RECITALS
The
Company desires to issue and sell, and the Purchaser desires to purchase a
senior secured convertible promissory note in
substantially the form attached hereto as Exhibit B (the “First Note”). The
Purchaser shall also have the right to purchase from the Company two additional
senior secured convertible promissory notes in substantially the form of the
First Note (the “Second Note” and
“Third Note”,
respectively, and collectively with the First Note, the “Notes”) in the
principal amount set forth opposite Purchaser’s name on Exhibit A. The
Notes and any securities issuable upon conversion of the Notes are collectively
referred to herein as the “Securities.” Any
capitalized term not defined herein shall have the meaning ascribed to it in the
Notes, the Security Agreement, dated February 13, 2008, by and between the
Company and Purchaser and amended pursuant to Amendment No. 1 to the Security
Agreement (the “Security Agreement
Amendment”) the Royalty Participation Agreement, dated as the date
hereof, by and between the Company and Purchaser (the “Royalty Agreement”
and together with the Security Agreement Amendment, the “Ancillary
Agreements”). This Agreement and the Ancillary Agreements
shall be referred to collectively as the “Transaction
Documents”. In connection with entering into this Agreement,
the parties also wish to cancel the Senior Secured Promissory Note, dated
February 13, 2008, held by Prospector Capital Partners, LLC (the “Prior Note”)
and replace it with the Amended and Restated Senior Secured Promissory Note,
dated as of the date hereof (the “Amended Prior
Note”).
AGREEMENT
In
consideration of the mutual promises contained herein and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties to
this Agreement agree as follows:
1. Purchase
and Sale of First Note.
(a) Sale and
Issuance of First Note. Subject to the
terms and conditions of this Agreement, the Purchaser agrees to purchase at the
First Closing (as defined below) and the Company agrees to sell and issue to the
Purchaser the First Note in the principal amount of $287,500.
(b) Closing;
Delivery.
(i) The purchase and sale of the
First Note shall take place at the offices of Prospector Capital Partners, LLC,
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇-▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, on June 9, 2008, or at such
other time and place as the Company and the Purchaser mutually agree upon,
orally or in writing (which time and place are designated as the “First Closing”). In
the event there are more closings than the Initial Closing, the term “Closing” shall apply
to the Initial Closing and each such closing unless otherwise specified
herein.
(ii) At
the First Closing, the Company shall deliver to Purchaser the executed First
Note along with signed copies of the Ancillary Agreements and the Amended Prior
Note against (1) payment of the Purchase Price (as defined below) therefor by
check payable to the Company or by wire transfer to a bank designated by the
Company, and (2) delivery of counterpart signature pages to this Agreement and
the Ancillary Agreements.
(iii) The
“Purchase
Price” of each of the Notes shall equal the principal amount of the Note
minus the Loan Origination Fee. The “Loan Origination Fee”
shall equal 15% of the principal amount of the Note, payable or deducted from
each Purchase Price as agreed to between the parties. The parties
hereto agree that the “Loan Origination Fee” has been fully earned by Purchaser
and is non-refundable. Purchaser, in its sole discretion, may off-set
the Loan Origination Fee from any amounts provided under such Note.
(c) Additional
Closings.
(i) Conditions
of Additional Closings. On or around the dates set forth on
Exhibit A,
Purchaser shall have the option, in its sole discretion, to purchase from the
Company the Second Note and the Third Note in the principal amounts set forth
opposite Purchaser’s name on Exhibit A. At
each Closing, the Company shall deliver to Purchaser the executed Note against
payment of the Purchase Price therefor by check payable to the Company or by
wire transfer to a bank designated by the Company.
2. Security
Interest. The indebtedness represented by the Notes shall be
secured by Collateral of the Company in accordance with the provisions of the
existing Security Agreement, dated February 13, 2008, by and between the Company
and the Purchaser pursuant to the Security Agreement Amendment.
3. Representations
and Warranties of the Company. The Company hereby represents
and warrants to each Purchaser that:
(a) Organization,
Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted (the
“Business”). The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its Business or properties.
(b) Authorization. All corporate
action required on the part of the Company, its officers, directors and
stockholders necessary for the authorization, execution and delivery of this
Agreement and the Ancillary Agreements and the authorization, sale, issuance and
delivery of the Notes, and the performance of all obligations of the Company
hereunder and under the Ancillary Agreements has been taken or will be taken
prior to the Closing. All corporate action
required to authorize the issuance of the Securities will be taken prior to the
issuance thereof. The Agreement, and each of the Ancillary
Agreements, when executed and delivered by the Company, shall constitute valid
and legally binding obligations of the Company, enforceable against the Company
in accordance with their respective terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
other laws of general application affecting enforcement of creditors’ rights
generally, and as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
(c) Issuance
of the Securities. The Securities are duly authorized and,
when issued and paid for in accordance with the Transaction Documents, will be
duly and validly issued, fully paid and nonassessable, free and clear of all
liens. The Company has reserved from its duly authorized capital
stock the maximum number of shares of Common Stock issuable upon the conversion
of the Notes.
(d) Litigation. Except as set
forth on Schedule 3.(d), attached hereto, there is no claim, action, suit,
proceeding, arbitration, complaint, charge or investigation pending with respect
to which the Company has been notified or is aware, to the Company’s knowledge,
currently threatened against the Company that, if successful, would reasonably
be expected to have, either individually or in the aggregate, a material adverse
effect on its Business or properties, or any change in the current equity
ownership of the Company, nor is the Company aware that there is any basis for
the foregoing.
(e) SEC
Reports; Financial Statements. To the best of its knowledge,
the Company has filed all material reports required to be filed by it under the
Securities Act and the Exchange Actfor the two years preceding (collectively,
the “SEC
Reports”) on a timely basis. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4. Representations
and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company that:
(a) Authorization. The Purchaser has
full power and authority to enter into this Agreement. This
Agreement, when executed and delivered by the Purchaser, will constitute a valid
and legally binding obligation of the Purchaser, enforceable in accordance with
its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of general
application affecting enforcement of creditors’ rights generally, and as limited
by laws relating to the availability of a specific performance, injunctive
relief, or other equitable remedies.
(b) Purchase
Entirely for Own Account. This Agreement is
made with the Purchaser in reliance upon the Purchaser’s representation to the
Company, which by the Purchaser’s execution of this Agreement, the Purchaser
hereby confirms, that the Securities to be acquired by the Purchaser will be
acquired for investment for the Purchaser’s own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing
this Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities.
(c) Knowledge. The Purchaser is
aware of the Company’s business affairs and financial condition and has acquired
sufficient information about the Company to reach an informed and knowledgeable
decision to acquire the Securities.
(d) Restricted
Securities. The Purchaser
understands that the Securities have not been, and will not be, registered under
the Securities Act of 1933, as amended (the “Securities Act”), by
reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser’s representations as
expressed herein. The Purchaser understands that the Securities are
“restricted securities” under applicable U.S. federal and state securities laws
and that, pursuant to these laws, the Purchaser must hold the Securities indefinitely unless they
are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for
resale. The Purchaser further acknowledges that if an exemption from
registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the
holding period for the Securities, and on requirements relating to the Company
which are outside of the Purchaser’s control, and which the Company is under no
obligation and may not be able to satisfy.
(e) Legends. The Purchaser
understands that the Securities may bear one or all of the following
legends:
(i) “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.”
(ii) Any
other legend required by the Blue Sky laws of any state to the extent such laws
are applicable to the shares represented by the certificate so
legended.
(f) Accredited
Investor. The
Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.
5. Conditions
of the Purchasers’ Obligations at Closing. The obligations
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
(a) Representations
and Warranties. The
representations and warranties of the Company contained in Section 3 shall
be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
(b) Qualifications. All
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Notes pursuant to this
Agreement shall be obtained and effective as of the Closing.
(c) Security
Agreement. The Company and the Purchaser shall have executed
the Security Agreement.
(d) Royalty
Participation Agreement. The Company and the Purchaser shall
have executed the Royalty Participation Agreement attached hereto as Exhibit
D.
(e) Good
Standing Certificates.
The Company shall have delivered a certified copy of its Certificate of
Incorporation, a certified copy of any form qualifying it to do business issued
by the jurisdictions in which the Company conducts or intends to conduct its
business or operations within the period prior to the Initial Financing and,
shall have ordered good standing certificates from such jurisdictions and its
state of incorporation
6. Conditions
of the Company’s Obligations at Closing. The obligations
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
(a) Representations
and Warranties. The
representations and warranties of the Purchaser contained in Section 4
shall be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the
Closing.
(b) Qualifications. All
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful issuance and sale of the Notes pursuant to this
Agreement shall be obtained and effective as of the Closing.
(c) Ancillary
Agreements. The Company and the Purchaser, and the other
parties thereto, if any, shall have executed all of the Ancillary
Agreements.
7. Additional
Agreements
(a) Indemnification
of Purchaser. The Company hereby indemnifies and holds the
Purchaser and its managers, members, affiliates and agents (each, a “Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation (collectively, “Losses”) that any
such Purchaser Party may suffer or incur as a result of or relating to (a) any
misrepresentation, breach or inaccuracy, or any allegation by a third party
that, if true, would constitute a breach or inaccuracy, of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents; or (b) any cause of action,
suit or claim brought or made against such Purchaser Party and solely arising
out of or solely resulting from the execution, delivery, performance or
enforcement of this Agreement or any of the other Transaction
Documents. Notwithstanding the above, the Company shall not be liable
in any such case for any loss, liability, obligation, claim, contingency,
damage, cost or expense to the extent that it arises out of or is based written
information furnished, or any other act or omission, by any such Purchaser
Party. The Company will reimburse such Purchaser for its reasonable legal and
other expenses incurred in connection therewith, as such expenses are
incurred. The Purchaser Party may not, without the prior written
consent of the Company, agree to any settlement of any claim or action with
respect to which the Company is required to indemnify the Purchaser Party
pursuant to this Section 7(a). The obligations of the Company under this Section
7(a) shall survive the payment and performance of the Company’s obligations
under the Transaction Documents.
(b) Non-Public
Information. The Company covenants and agrees that neither it
nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser
shall be relying on the foregoing representations in effecting transactions in
securities of the Company.
(c) Release. The
Company, its subsidiaries, officers, directors, managers, employees,
shareholders, creditors, agents, heirs, representatives and any permitted
successors, and assigns (each a “Company Releasing
Party”) hereby fully, finally, completely, and forever releases,
discharges, acquits, and relinquishes the Purchaser, its managers, members and
agents and the affiliates of each of the foregoing(the “Purchaser Released
Parties”) from and against all loss, cost, damage, claim, liability, or
expense, including reasonable attorneys’ fees and costs , in any way arising
from or related to the sale and issuance of the Notes and the entering into by
the parties of the remaining Ancillary Agreements. The Company (for
and on behalf of each Company Releasing Party) hereby agrees (a) not to file any
lawsuit or pursue any other action with respect to any of the foregoing matters
and (b) to indemnify and hold harmless, jointly and severally, any and all of
the Company Released Parties from any and all injuries, harm, damages, costs,
losses, expenses and/or liability, including reasonable attorneys’ fees and
court costs, as incurred and when incurred as a result of the filing of any such
lawsuit or the pursuit of any other action with respect to any of the foregoing
matters. The agreement and obligations of the Company under this Section 7(c)
shall survive the payment and performance of the Company’s obligations under the
Transaction Documents.
(d)SEC
Reporting. With a view to
making available to the Purchaser the benefits of Rule 144 (or its successor
rule) and any other rule or regulation of the SEC that may at any time permit
the Purchaser to sell shares of Common Stock issued or issuable upon conversion
of the Notes or the Prior Note (the “Conversion Stock”) to
the public without registration, the Company covenants and agrees so long that
it is subject to the requirements of the Securities Exchange Act of 1934, as
amended (the “1934
Act”) to: (i) make and keep public information available, as
those terms are understood and defined in Rule 144, until the earlier of (A) six
months after such date as all of the shares of Conversion Stock may be resold
pursuant to Rule 144(k) or any other rule of similar effect, (B) such date as
all of the shares of the Conversion Stock shall have been resold or (C) the date
that the Notes are repaid in full if no Conversion Stock is issued; (ii) file
with the SEC in a timely manner all reports and other documents required of the
Company under the 1934 Act; and (iii) furnish to Purchaser upon request, (A) a
written statement by the Company that it has complied with the reporting
requirements of the 1934 Act and (B) such other information as may be reasonably
requested in order to avail Purchaser of any rule or regulation of the SEC that
permits the selling of any such shares of Conversion Stock without
registration.
8. Miscellaneous.
(a) Assignment;
Successors and Assigns. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
(b) Waiver
of Conflicts. Each
party to this Agreement acknowledges that each of ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, the
authorized signer of the Purchaser’s manager and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, counsel for
the Purchaser, have in the past performed and may continue to perform legal
and/or consulting services for the Company in matters unrelated to the
transactions described in this Agreement, including the representation of the
Company in financings and other matters. Accordingly, each party to
this Agreement hereby (a) acknowledges that they have had an opportunity to ask
for information relevant to this disclosure; and (b) gives its informed consent
to ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇’▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇’▇ representation of and/or
performance of consulting services for the Company in such unrelated matters and
to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇’▇ representation of the Purchaser in connection with this
Agreement and the transactions contemplated hereby.
(d) Governing
Law. This Agreement
and all acts and transactions pursuant hereto and the rights and obligations of
the parties hereto shall be governed, construed and interpreted in accordance
with the laws of the State of Delaware, without giving effect to principles of
conflicts of law.
(e) Counterparts. This Agreement
may be executed in two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute one instrument.
(f) Titles
and Subtitles. The titles and
subtitles used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.
(g) Notices. Any notice
required or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon receipt, when delivered personally or by courier, overnight
delivery service or confirmed facsimile, or 48 hours after being deposited in
the U.S. mail as certified or registered mail with postage prepaid, if such
notice is addressed to the party to be notified at such party’s address or
facsimile number as
set forth below or as subsequently modified by written notice.
(h) Amendments
and Waivers. Any term of this
Agreement may only be amended or waived with the written consent of the Company
and the holders of at least a majority in interest of the Notes. Any
amendment or waiver effected in accordance with this Section 8(h) shall be
binding upon each Purchaser and each transferee of the Securities, each future
holder of all such Securities, and the Company.
(i) Severability. If one or more
provisions of this Agreement are held to be unenforceable
under applicable law, the parties agree to renegotiate such provision in good
faith, in order to maintain the economic position enjoyed by each party as close
as possible to that under the provision rendered unenforceable. In
the event that the parties cannot reach a mutually agreeable and enforceable
replacement for such provision, then (i) such provision shall be excluded
from this Agreement, (ii) the balance of the Agreement shall be interpreted
as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
(j) Entire
Agreement. This Agreement,
and the documents and agreements referred to herein constitute the entire
agreement between the parties hereto pertaining to the subject matter hereof,
and any and all other written or oral agreements existing between the parties
hereto are expressly canceled.
[Signature
Pages Follow]
The
parties have executed this Senior Secured Convertible Promissory Note Purchase
Agreement as of the date first written above.
COMPANY
|
By:
|
|
|
Name:
|
|
|
Title:
|
Address:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
PURCHASER:
PROSPECTOR CAPITAL PARTNERS II,
LLC
By: ▇▇▇▇▇▇ & Co., LLC,
its manager
By: ____________________________
Name: ▇▇▇▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇
Title: Authorized Person
Address: ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇-▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
EXHIBITS
Exhibit A
- Purchase
Schedule
Exhibit B
- Form
of Senior Secured Convertible Promissory Note
Exhibit C
- Form
of Security Agreement Amendment
Exhibit D
- Form
of Royalty Participation Agreement
EXHIBIT
A
PURCHASE
SCHEDULE
|
Note
|
Date
|
Principal
Amount of Note
|
Proceeds
to Company*
|
|
First
Note
|
June
9, 2008
|
$287,500.00
|
$250,000.00
|
|
Second
Note**
|
June
20, 2008
|
$287,500.00
|
$250,000.00
|
|
Third
Note**
|
July
3, 2008
|
$287,500.00
|
$250,000.00
|
|
TOTAL
|
$862,500.00
|
$750,000.00
|
* After
payment of Origination Fee
** The
purchase of the Second Note and the Third Note shall be at the option of
Purchaser.
EXHIBIT
B
FORM
OF SENIOR SECURED CONVERIBLE PROMISSORY NOTE
EXHIBIT
C
SECURITY
AGREEMENT AMENDMENT
EXHIBIT
D
FORM
OF ROYALTY PARTICIPATION AGREEMENT
Schedule
3(d)
Gardena Hospital, L.P., et. al. v.
Auriga Laboratories, Inc., Los Angeles County Superior Court Case No.
SC097013
Laboratories Carilene S.A.S. v.
Auriga Laboratories, United States District Court, Southern District of
New York Case No. ’07 CIV 9616
Threatened
employment litigation by former employee, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, against Auriga
Laboratories