EXECUTION COPY
Exhibit 10.13
CASTLE BRANDS INC.
AMENDED AND RESTATED CONVERTIBLE NOTE PURCHASE AGREEMENT
AUGUST 16, 2005
Table of Contents
Page
A. Amendment and Restatement of Original Note Purchase Documents............................ 1
1. Definitions.............................................................................. 2
2. Purchase and Sale of Notes............................................................... 5
2.1 Sale and Issuance of Notes...................................................... 5
2.2 Sale and Issuance of Additional Notes........................................... 6
2.3 Closing; Delivery............................................................... 6
3. Registration Rights; Corporate Transaction............................................... 6
4. Right of First Offer..................................................................... 7
4.1 Notice of Offering.............................................................. 7
4.2 Offering Period................................................................. 7
4.3 Expiration of Offering Period................................................... 7
4.4 Acknowledgement of Right of First Offer......................................... 8
5. Representations and Warranties of the Company............................................ 8
5.1 Representations and Warranties of the Company at each Closing................... 8
5.2 Representations and Warranties of the Company at the Initial Closing and the
June 27, 2005 Closing........................................................... 10
5.3 Representations and Warranties of the Company at the Additional Note Closing.... 11
6. Representations and Warranties of the Purchasers......................................... 13
6.1 Authorization................................................................... 13
6.2 Purchase Entirely for Own Account............................................... 13
6.3 Knowledge....................................................................... 14
6.4 Restricted Securities........................................................... 14
6.5 No Public Market................................................................ 14
6.6 Legends......................................................................... 14
6.7 Accredited Investor............................................................. 15
7. Conditions to the Purchasers' Obligations at Closing..................................... 15
8. Conditions to the Company's Obligations at Closing....................................... 16
8.1 Representations and Warranties.................................................. 16
8.2 Qualifications.................................................................. 16
8.3 Delivery of Form W-8 BEN or Form W-9............................................ 16
i
Table of Contents
(continued)
Page
9. Affirmative Covenants of the Company..................................................... 16
9.1 Financial Statements; Reports; Certificates..................................... 16
9.2 Taxes........................................................................... 17
9.3 Notices......................................................................... 17
9.4 Corporate Existence and Compliance with Laws.................................... 17
9.5 Further Assurances.............................................................. 17
10. Negative Covenants of the Company........................................................ 17
10.1 Amendment or Modification of the Notes.......................................... 17
10.2 Issuance of Equity Securities................................................... 17
10.3 Change in Authorized Capital Stock.............................................. 18
10.4 Mergers or Acquisitions......................................................... 18
10.5 Indebtedness of the Company..................................................... 18
10.6 Distributions; Investments...................................................... 18
10.7 Redemption or Repurchase of Equity Securities................................... 18
10.8 Transactions with Affiliates.................................................... 18
10.9 Maintenance..................................................................... 19
10.10 Securities Law Compliance....................................................... 19
11. Events of Default........................................................................ 19
11.1 Payment Default................................................................. 19
11.2 Cross-Default................................................................... 19
11.3 Covenant Default................................................................ 19
11.4 Attachment...................................................................... 20
11.5 Insolvency...................................................................... 20
11.6 Other Agreements................................................................ 20
11.7 Judgments....................................................................... 20
11.8 Misrepresentations.............................................................. 20
12. Board Representation..................................................................... 20
13. Miscellaneous............................................................................ 21
13.1 Successors and Assigns.......................................................... 21
ii
Table of Contents
(continued)
Page
13.2 Governing Law................................................................... 21
13.3 Counterparts.................................................................... 21
13.4 Titles and Subtitles............................................................ 21
13.5 Notices......................................................................... 21
13.6 Finder's Fee.................................................................... 21
13.7 Amendments and Waivers.......................................................... 22
13.8 Severability.................................................................... 22
13.9 Entire Agreement................................................................ 22
13.10 Exculpation Among Purchasers.................................................... 22
13.11 Fee and Cost Reimbursement; Closing Fee......................................... 23
13.12 Lock-Up Agreement............................................................... 23
Schedule of Exhibits
Schedule of Exceptions
iii
CASTLE BRANDS INC.
AMENDED AND RESTATED CONVERTIBLE NOTE PURCHASE AGREEMENT
This Amended and Restated Convertible Note Purchase Agreement (this
"AGREEMENT") is made as of the 16th day of August, 2005 by and among Castle
Brands Inc., a Delaware corporation (the "COMPANY") and the Purchasers (as
defined below).
RECITALS
A. The Company and Mellon HBV (as defined below) have previously entered
into that certain Convertible Note Purchase Agreement dated as of March 1, 2005
(the "ORIGINAL NOTE PURCHASE AGREEMENT"), pursuant to which the Company issued
and sold and Mellon HBV purchased the Initial Note (as defined below) and an
Additional Note (the "MELLON ADDITIONAL NOTE" and together with the Original
Note Purchase Agreement and the Initial Note, the "ORIGINAL NOTE PURCHASE
DOCUMENTS").
B. The Company desires to issue and sell to a certain Purchaser, and such
Purchaser desires to purchase, an Additional Note (as defined below).
C. The Company and Mellon HBV each desire to amend and restate the
Original Note Purchase Documents in order to induce such Purchaser to purchase
an Additional Note and make certain other changes.
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:
A. AMENDMENT AND RESTATEMENT OF ORIGINAL NOTE PURCHASE DOCUMENTS.
Effective and contingent upon the execution of this Agreement, the Amended
Initial Note (as defined below) and the Amended Additional Note (as defined
below) by the Company and Mellon HBV, (i) the Original Note Purchase Agreement
is hereby amended and restated in its entirety as set forth below in this
Agreement, and the Company and each of the Purchasers hereby agree to be bound
by the provisions hereof as the sole agreement of the Company and the Purchasers
with respect to the issuance, sale and purchase of the Notes and certain other
rights, as set forth herein; (ii) the Initial Note shall be amended and restated
in its entirety in the form of amended and restated Initial Note attached hereto
as Exhibit B (the "AMENDED INITIAL NOTE") and the Company and Mellon HBV hereby
agree to be bound by the provisions of the Amended Initial Note and that the
Initial Note shall be deemed cancelled as of the date of the Amended Initial
Note; and (iii) the Mellon Additional Note shall be amended and restated in its
entirety in the form of amended and restated Mellon Additional Note attached
hereto as Exhibit C (the "AMENDED ADDITIONAL NOTE") and the Company and Mellon
HBV hereby agree to be bound by the provisions of the Amended Additional Note
and that the Mellon Additional Note shall be deemed cancelled as of the date of
the Amended Additional Note.
1. DEFINITIONS.
As used in this Agreement, the following capitalized terms have the
following meanings:
"ADDITIONAL NOTE" means an additional US $5,000,000 convertible promissory
note due March 1, 2010 issued by the Company in substantially the form attached
to this Agreement as Exhibit D;
"ADDITIONAL NOTE CLOSING" has the meaning set forth in Section 2.3 below;
"ADDITIONAL NOTE CLOSING FINANCIAL STATEMENTS" has the meaning set forth
in Section 5.2 below.
"AFFILIATE" means, with respect to any Person, a Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of that
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, that Person's managers and members;
"AGREEMENT" means this Convertible Note Purchase Agreement, as amended
from time to time;
"AMENDED ADDITIONAL NOTE" has the meaning set forth in Section A above;
"AMENDED INITIAL NOTE" has the meaning set forth in Section A above;
"BLACK RIVER" means Black River Global Credit Fund Ltd.;
"BUSINESS DAY" means any day other than a day on which commercial banks in
New York are required or permitted by law to be closed;
"CLOSING" means the Initial Closing, the June 27, 2005 Closing and the
Additional Note Closing;
"COMMON STOCK" means the shares of common stock, $.01 par value, per
share, of the Company;
"COMPANY" has the meaning set forth in the introductory paragraph above;
"CONVERSION SHARES" has the meaning set forth in Section 3 below;
"CORPORATE TRANSACTION" means, whether effected in one transaction or one
or more related transactions, (i) a liquidation, dissolution or winding up of
the Company, (ii) a sale of all or substantially all of the assets of the
Company or (iii) a merger, consolidation or sale of capital stock as a result of
which the stockholders of the Company immediately prior to such merger,
consolidation or sale own less than 50% of the Company's voting power
immediately after such merger, consolidation or sale;
2
"DISCLOSURE MATERIALS" has the meaning set forth in Section 5.3 below;
"EQUITY SECURITIES" means any share or interest in the Company and any
convertible notes, warrants or other instruments convertible into any share or
interest in the Company;
"EVENT OF DEFAULT" has the meaning set forth in Section 11 below;
"EXCLUDED SECURITIES" means, with respect to any Equity Securities issued
by the Company, (i) the Notes and the Conversion Shares; (ii) Common Stock
issued or issuable as a dividend or distribution on or upon conversion of the
preferred stock of the Company; (iii) Common Stock issued or issuable by reason
of a dividend, stock split, split-up or other distribution on Common Stock, (iv)
any Common Stock issued or issuable (including pursuant to options or warrants)
to financial institutions in connection with commercial credit arrangements
approved by the Board of Directors of the Company, (v) any Common Stock issued
or issuable to employees, officers, or directors of the Company or their
respective immediate family members pursuant to currently outstanding or newly
created options or warrants that are approved by the Board of Directors of the
Company or a committee thereof, (vi) Common Stock issued upon conversion of the
Company's 5% Convertible Subordinated Notes due on or about the third
anniversary of the Series C Closing Date as defined in the Restated Charter in
the aggregate principal amount of E1,374,750, (vii) shares or interests issued
or issuable pursuant to any rights or agreements, options, warrants or
convertible securities outstanding as of the date of this Agreement or the
issuance of any of the warrants listed on Section 5.3(a) of the Schedule of
Exceptions to this Agreement or the issuance of any shares of Common Stock upon
exercise thereof, (viii) any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, strategic alliance, acquisition
or similar business combination approved by the Board of Directors of the
Company, (ix) any Equity Securities issued in connection with any
recapitalization or similar event by the Company, (x) any Equity Securities that
are issued by the Company pursuant to an IPO, and (xi) any Equity Securities
issued in connection with strategic transactions involving the Company and other
entities, including joint ventures, manufacturing, marketing or distribution
arrangements provided that the issuance of shares therein has been approved by
the Board of Directors of the Company;
"FINANCIAL STATEMENTS" has the meaning set forth in the Section 5.1 below;
"FULLY-EXERCISING PURCHASER" means a Purchaser electing to purchase the
full amount of the Equity Securities offered to such Purchaser in accordance
with Section 4.2 below;
"GOSLING'S" means Gosling's Export (Bermuda) Limited;
"GOSLING'S INVESTMENT" means a joint venture agreement with Gosling's
whereby a 60% owned subsidiary of the Company, Gosling - Castle Partners Inc.,
will acquire a 100% interest in the worldwide export rights of all products made
by Gosling's for a total investment of $5 million;
3
"INITIAL CLOSING" means closing of the sale of the Initial Note at the
offices of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇-▇▇▇▇, at 5:00 p.m., on March 1, 2005;
"INITIAL NOTE" means that certain convertible promissory note of the
Company issued to Mellon HBV due March 1, 2010;
"INTEREST NOTE" means a convertible promissory note or notes due March 1,
2010 in substantially the form attached to this Agreement as Exhibit E;
"IPO" means a firm commitment public offering by the Company of shares of
its common stock pursuant to a registration statement on Form S-1 under the
Securities Act of 1933, as amended;
"JUNE 27, 2005 CLOSING" means the closing of the sale of the Mellon
Additional Note at the offices of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ at 5 p.m. on June 27, 2005;
"MATERIAL ADVERSE EFFECT" means a change or effect that is or is
reasonably likely to be, materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, business, operations or results of
operations of the Company and its Affiliates, taken as a whole, or will prevent
or materially delay consummation of the transactions contemplated by this
Agreement or otherwise will prevent the Company and/or Affiliates from
performing their material obligations under the Notes or this Agreement;
"MATURITY DATE" shall have the meaning set forth in the Notes;
"MELLON ADDITIONAL NOTE" has the meaning set forth in the recitals above;
"MELLON HBV" means Mellon HBV SPV LLC;
"NET EQUITY VALUE" means the product of (i) the aggregate amount of the
Company's outstanding Equity Securities on a fully-diluted basis (excluding any
warrants or options to purchase Common Stock) multiplied by (ii) the average of
the highest bid and lowest asked prices on the exchange or over-the-counter
quotation system on which Common Stock is listed; provided that if there are no
sales of Common Stock on such exchange or over-the-counter quotation system on
any given day, then the Net Equity Value for such day shall equal that of the
previous day;
"NOTES" means the Amended Initial Note, the Amended Additional Note, the
Additional Note and the Interest Notes, if any;
"NOTICE" has the meaning set forth in Section 4.1 below;
"ORIGINAL NOTE PURCHASE AGREEMENT" has the meaning set forth in the
Recitals above.
4
"PERSON" shall mean and include any individual, partnership, corporation
(including a business trust), joint stock company, limited liability company,
unincorporated association, joint venture, governmental entity or other entity;
"PURCHASER" or "PURCHASERS" means Mellon HBV and any other purchaser
listed on Exhibit A attached hereto;
"QUALIFIED ACQUISITION DEBT" means, in connection with the acquisition of
a brand related to or an entity doing business in or related to the beverage
alcohol market (collectively, the "TARGET"), any debt incurred by the Company or
its Affiliates in connection the acquisition of the Target (including costs and
fees associated with incurring such debt) that does not exceed an amount equal
to three times the Target's earnings before interest, taxes, depreciation and
amortization ("EBITDA"), subject to reasonable adjustments thereof to reflect
normal continuing operations of the Target as of the date of acquisition;
"QUALIFIED IPO" means an initial public offering of the Company's Common
Stock that results in gross proceeds to the Company of at least US $15,000,000
(net of underwriting discounts and commissions);
"REGISTRATION RIGHTS" means registration rights granted pursuant to a
registration rights agreement on terms no less favorable than those granted to
the holders of the Series C Preferred as more particularly described in the
Series C PPM;
"RESTATED CERTIFICATE" means the Amended Certificate of Designations, a
copy of which is attached hereto as Exhibit H;
"SECURITIES ACT" means the Securities Act of 1933, as amended;
"SERIES A PREFERRED" means the Series A Convertible Preferred Stock, $1.00
par value per share, of the Company;
"SERIES B PREFERRED" means the Series B Convertible Preferred Stock, $1.00
par value per share, of the Company;
"SERIES C PREFERRED" means the Series C Convertible Preferred Stock, $1.00
par value per share, of the Company;
"SERIES C PPM" means collectively, that certain Confidential Private
Placement Memorandum dated October 14, 2004, as supplemented from time to time
and as attached hereto as Exhibit G;
"SHAREHOLDERS AGREEMENT" means that certain Shareholders Agreement dated
December 1, 2003, as amended, by and among the Company and certain of its
shareholders;
5
"STOCK PLAN" means the Company's 2003 Stock Incentive Plan duly adopted by
the Board of Directors and approved by the holders of the Company's voting
capital stock; and
"SUPER MAJORITY INTEREST" means the holders of at least 70% of the then
outstanding aggregate principal amount of the Notes.
"THIRD PARTY INDEBTEDNESS LIMIT" means US $15,000,000 in the aggregate;
provided that in the event (i) there is a Qualified IPO and (ii) after the
Initial Closing, the Company issues Equity Securities (other than debt
securities and excluding US $610,442 of Series C Preferred Stock) resulting in
aggregate gross proceeds of US $25,000,000 to the Company, "Third Party
Indebtedness Limit" shall mean US $30,000,000 in the aggregate.
2. PURCHASE AND SALE OF NOTES.
2.1 SALE AND ISSUANCE OF INITIAL NOTE AND MELLON ADDITIONAL NOTE.
Subject to the terms and conditions of this Agreement, Mellon HBV
purchased and the Company sold and issued to Mellon HBV at the Initial Closing
the Initial Note and at the June 27, 2005 Closing the Mellon Additional Note
against (1) payment of the purchase price in the principal amount set forth
opposite such Purchaser's name on Exhibit A at each respective Closing, (2)
delivery of executed counterpart signature pages to the Initial Note and
Original Convertible Note Purchase Agreement at the Initial Closing and Mellon
Additional Note at the June 27, 2005 Closing, respectively and (3) delivery of a
validly executed IRS Form W-9 at the Initial Closing. The purchase price of each
of the Initial Note and the Mellon Additional Note was equal to 100% of the
principal amount of the Initial Note and the Mellon Additional Note,
respectively.
2.2 SALE AND ISSUANCE OF ADDITIONAL NOTES.
Subject to the terms and conditions of this Agreement, as of the
Additional Note Closing, the Company shall issue and sell to Black River and
Black River shall purchase the Additional Note. The purchase price of the
Additional Note shall be equal to 100% of the principal amount of the Additional
Note.
2.3 CLOSING; DELIVERY.
(A) The purchase and sale of the Additional Note shall take
place at the offices of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ at 5:00 p.m., on August 16, 2005, or at such other
time and place as the Company and Black River mutually agree upon, orally or in
writing (the "ADDITIONAL NOTE CLOSING").
(B) At the Additional Note Closing, the Company shall deliver
to Black River counterpart signature pages to this Agreement together with
counterpart signature pages to the Additional Note against (1) payment of the
purchase price for the Additional Note by check payable to the Company or by
wire transfer to a bank
6
designated by the Company, (2) delivery of counterpart signature pages to this
Agreement and the Additional Note, and (3) delivery of a validly completed and
executed IRS Form W-8 BEN or IRS Form W-9, as applicable, establishing Black
River's exemption from withholding tax, which forms are attached to this
Agreement as Exhibit F.
3. REGISTRATION RIGHTS; CORPORATE TRANSACTION.
The Company hereby agrees that upon conversion of the Notes into Common
Stock (the "CONVERSION SHARES") it shall enter into a registration rights
agreement granting the holders of Conversion Shares Registration Rights and that
the Registration Rights shall survive an IPO. The Company hereby acknowledges
and agrees that in the event of a Corporate Transaction, the Purchasers shall be
entitled to receive, prior and in preference to the holders of any class or
series of capital stock of the Company, an amount equal to the aggregate
principal amount of the Notes outstanding at such time plus all accrued but
unpaid interest thereon. The Company and each Purchaser hereby acknowledge that
the Company has granted registration rights in the Shareholders Agreement that
are similar to those to be granted to the Purchasers and the Registration Rights
to be granted to the Purchasers shall work in conjunction with, and not
adversely effect the registration rights contained in the Shareholders
Agreement.
4. RIGHT OF FIRST OFFER.
Subject to the terms and conditions specified in this Section 4, the
Company hereby grants to each Purchaser a right of first offer with respect to
future sales by the Company of any Equity Securities offered prior to the
consummation of an IPO by the Company other than Excluded Securities. If, prior
to the consummation of an IPO by the Company, the Company proposes to issue
Equity Securities other than Excluded Securities, it shall first make an
offering of such Equity Securities to each Purchaser in accordance with the
following provisions:
4.1 NOTICE OF OFFERING.
The Company shall deliver a written notice (the "NOTICE") to the
Purchasers stating (a) its bona fide intention to offer such Equity Securities,
(b) the number of such Equity Securities to be offered, and (c) the price and
terms, if any, upon which it proposes to offer such Equity Securities.
4.2 OFFERING PERIOD.
Within 15 calendar days after delivery of the Notice, each Purchaser may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Equity Securities which equals the proportion
that the number of shares of Equity Securities then held by such Purchaser bears
to the total number of shares of Equity Securities then outstanding (assuming
full conversion and exercise of all convertible or exercisable securities). Such
purchase shall be completed at the same closing as that of any third party
purchasers or at an additional closing thereunder. The
7
Company shall promptly, in writing, inform each Fully-Exercising Purchaser of
any other Purchasers' failure to purchase all the Equity Securities available to
such Purchasers. During the ten (10)-day period commencing after receipt of such
information, each Fully Exercising Purchaser shall be entitled to obtain that
portion of the Equity Securities for which Purchasers were entitled to subscribe
but which were not subscribed for by the Purchasers that is equal to the
proportion that the number of shares of Equity Securities then held by such
Fully-Exercising Purchaser bears to the total number of shares of Equity
Securities then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities).
4.3 EXPIRATION OF OFFERING PERIOD.
The Company may, during the 90 day period following the expiration of the
period provided in Section 4.2 hereof, offer the remaining unsubscribed portion
of Equity Securities to any person or persons at a price not less than, and upon
terms no more favorable to the offeree than those specified in the Notice. If
the Company does not enter into an agreement for the sale of the Equity
Securities within such period, or if such agreement is not consummated within 60
days of the execution thereof, the right provided hereunder shall be deemed to
be revived and such Equity Securities shall not be offered unless first
reoffered to the Purchasers in accordance herewith.
4.4 ACKNOWLEDGEMENT OF SHAREHOLDER RIGHT OF FIRST OFFER.
The Company and each of the Purchasers hereby acknowledge and agree that
the Company has granted rights of first offer to certain of its shareholders in
the Shareholders Agreement that are similar to those contained in this Section 4
and that this Section 4 shall work in conjunction with, and shall not adversely
effect the rights of first offer contained in, the Shareholders Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
5.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AS OF EACH
CLOSING.
The Company hereby represents and warrants to each Purchaser that, except
as set forth on a Schedule of Exceptions attached to this Agreement which
exceptions shall be deemed to be incorporated into these representations and
warranties as if made hereunder, the following representations are true and
complete as of the date of each Closing, except as otherwise indicated.
(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 presently conducted or proposed
to be conducted. 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.
8
(B) AUTHORIZATION.
All corporate action on the part of the Company, its officers, directors
and holders of Equity Securities necessary for (i) the authorization, execution
and delivery of this Agreement and the Notes, (ii) the performance of all
obligations of the Company under this Agreement and the Notes and (iii) the
authorization, issuance and delivery of the Notes and the Conversion Shares has
been taken or will be taken prior to the Closing, and this Agreement and the
Notes, 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 (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or
other laws of general application relating to or affecting the enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, or (iii) to the extent any indemnification provisions set forth in the
Registration Rights may be limited by applicable federal or state securities
laws.
(C) VALID ISSUANCE OF COMMON STOCK.
The Conversion Shares have been duly and validly reserved for issuance,
and upon issuance in accordance with the terms of this Agreement, the Notes and
the Restated Certificate, will be duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions on
transfer, if any, under this Agreement, the Registration Rights, and applicable
state and federal securities laws and liens or encumbrances created by or
imposed by a Purchaser. Based in part upon the representations of the Purchasers
in Section 6 of this Agreement and subject to the provisions of Section 5.3(c)
hereof, the Conversion Shares will be issued in compliance with all applicable
federal and state securities laws.
(D) COMPLIANCE WITH OTHER INSTRUMENTS; NO EVENTS OF DEFAULT.
The Company is not in violation or default of any provisions of its
Restated Certificate or Bylaws, or of any instrument, judgment, order, writ, or
decree, or under any note, indenture, mortgage, lease, agreement, contract or
purchase order to which it is a party or by which it is bound or of any
provision of state or federal statute, rule or regulation applicable to the
Company, the violation of which would have a Material Adverse Effect. The
execution, delivery and performance of this Agreement, the issuance of the Notes
and the Conversion Shares and the consummation of the transactions contemplated
hereby or thereby will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company in either case which would have a
Material Adverse Effect. No Event of Default shall have occurred or occur as a
result of the Company's execution of this Agreement or the Notes.
9
(E) DISCLOSURE.
The Company and the Purchasers have engaged in a due diligence process,
and in connection with that process the Company has made available to the
Purchasers all the information reasonably available to the Company that the
Purchasers have requested for deciding whether to acquire the Notes (the
"DISCLOSURE MATERIALS"). Assuming the accuracy of the Purchasers'
representations regarding their sophistication with respect to investments in
companies similar to the Company and in light of the due diligence process
mentioned above, neither (i) any representation or warranty of the Company
contained in this Agreement and the exhibits attached hereto, any certificate
furnished or to be furnished to the Purchasers at the Closing, or the Disclosure
Materials (when read together) nor (ii) during the offering of the Series C
Preferred, the Series C PPM contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.
5.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AS OF THE INITIAL
CLOSING AND THE JUNE 27, 2005 CLOSING.
The Company hereby represents and warrants to each Purchaser that, except
as set forth on a Schedule of Exceptions attached to this Agreement which
exceptions shall be deemed to be incorporated into these representations and
warranties as if made hereunder, the following representations are true and
complete as of the date of the Initial Closing, except as otherwise indicated.
(A) CAPITALIZATION.
The Company's capitalization consisted, immediately prior to the Initial
Closing, of:
1) 4,500,000 shares of authorized preferred stock,
consisting of (i) 550,000 shares that have been designated as Series A
Preferred, of which 535,715 shares are issued and outstanding immediately prior
to the Initial Closing, (ii) 200,000 shares that have been designated as Series
B Preferred, all of which are issued and outstanding immediately prior to the
Initial Closing, (iii) 3,375,000 shares that have been designated as Series C
Preferred, of which 2,914,947.25 are issued and outstanding immediately prior to
the Initial Closing and (iv) 375,000 shares that remain undesignated, none of
which have been issued immediately prior to the Initial Closing. The rights,
privileges and preferences of the preferred stock are as stated in the Restated
Certificate. All of the outstanding shares of preferred stock have been duly
authorized, are fully paid and nonassessable and were issued in compliance with
all applicable federal and state securities laws.
2) 20,500,000 shares of Common Stock, 3,106,666 shares
of which were issued and outstanding immediately prior to the Initial Closing.
All of the outstanding shares of Common Stock have been duly authorized, are
fully paid
10
and nonassessable and were issued in compliance with all applicable federal and
state securities laws.
3) The Company had reserved 2,000,000 shares of Common
Stock for issuance to officers, directors, employees and consultants of the
Company pursuant to the Stock Plan. Of such reserved shares of Common Stock, no
shares have been issued pursuant to restricted stock purchase agreements,
options to purchase 744,500 shares have been granted and are currently
outstanding, and 1,255,500 shares of Common Stock remain available for issuance
to officers, directors, employees and consultants pursuant to the Stock Plan.
4) Except for rights under the Shareholders Agreement,
outstanding options issued pursuant to the Stock Plan, warrants to purchase
shares of Common Stock set forth on the Schedule of Exceptions, convertible
promissory notes currently convertible into 263,493 shares of Common Stock and
the authorized preferred stock listed above there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal or similar rights) or agreements, orally or in writing, for the purchase
or acquisition from the Company of any Equity Securities. None of the Company's
stock purchase agreements or stock option documents contains a provision for
acceleration (or lapse of a repurchase right) upon the occurrence of any event.
The Company has never adjusted or amended the exercise price of any stock
options previously awarded, whether through amendment, cancellation, replacement
grant, repricing, or any other means.
5) The list of holders of the Company's Equity
Securities, dated as of February 15, 2005, provided to counsel to the
Purchasers, was true and correct.
(B) FINANCIAL STATEMENTS.
The Company has made available to the Purchasers its unaudited financial
statements (including balance sheet, income statement and statement of cash
flows) as of December 31, 2004 and its audited financial statements (including
balance sheet, income statement and statement of cash flows) for the fiscal year
ended December 31, 2003 (collectively, the "INITIAL CLOSING FINANCIAL
STATEMENTS"). The Financial Statements have been prepared in accordance with
generally accepted accounting principals applied on a consistent basis
throughout the periods indicated, except that the unaudited Financial Statements
may not contain all footnotes required by generally accepted accounting
principles. The Financial Statements fairly present in all material respects the
financial condition of the Company as of the dates, and for the periods,
indicated therein, subject to normal year-end audit adjustments. Except as set
forth in the Financial Statements, the Company has no material liabilities or
obligations, contingent or otherwise, other than (a) liabilities incurred in the
ordinary course of business subsequent to December 31, 2004 and (b) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Financial Statements, which, in both cases, individually or in the aggregate
are not material to the financial
11
condition or operating results of the Company.
5.3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AS OF THE
ADDITIONAL NOTE CLOSING.
The Company hereby represents and warrants to each Purchaser that, except
as set forth on a Schedule of Exceptions attached to this Agreement which
exceptions shall be deemed to be incorporated into these representations and
warranties as if made hereunder, the following representations are true and
complete as of the date of the Additional Note Closing, except as otherwise
indicated.
(A) CAPITALIZATION.
The Company's capitalization consists, immediately prior to the Additional
Note Closing, of:
1) 4,500,000 shares of authorized preferred stock,
consisting of (i) 550,000 shares that have been designated as Series A
Preferred, of which 535,715 shares are issued and outstanding immediately prior
to the Additional Note Closing, (ii) 200,000 shares that have been designated as
Series B Preferred, all of which are issued and outstanding immediately prior to
the Additional Note Closing, (iii) 3,375,000 shares that have been designated as
Series C Preferred, of which 3,353,750 are issued and outstanding immediately
prior to the Additional Note Closing and (iv) 375,000 shares that remain
undesignated, none of which have been issued immediately prior to the Additional
Note Closing. The rights, privileges and preferences of the preferred stock are
as stated in the Restated Certificate. All of the outstanding shares of
preferred stock have been duly authorized, are fully paid and nonassessable and
were issued in compliance with all applicable federal and state securities laws.
2) 20,500,000 shares of Common Stock, 3,106,666 shares
of which were issued and outstanding immediately prior to the Additional Note
Closing. All of the outstanding shares of Common Stock have been duly
authorized, are fully paid and nonassessable and were issued in compliance with
all applicable federal and state securities laws.
3) The Company had reserved 2,000,000 shares of Common
Stock for issuance to officers, directors, employees and consultants of the
Company pursuant to the Stock Plan. Of such reserved shares of Common Stock, no
shares have been issued pursuant to restricted stock purchase agreements,
options to purchase 909,500 shares have been granted and are currently
outstanding, and 1,090,500 shares of Common Stock remain available for issuance
to officers, directors, employees and consultants pursuant to the Stock Plan.
4) Except for rights under the Shareholders Agreement,
outstanding options issued pursuant to the Stock Plan, warrants to purchase
shares of Common Stock set forth on the Schedule of Exceptions, convertible
promissory notes currently convertible into 263,362.06 shares of Common Stock,
the Notes and the Conversion Shares issuable upon conversion thereof and the
authorized preferred stock
12
listed above there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights)
or agreements, orally or in writing, for the purchase or acquisition from the
Company of any Equity Securities. None of the Company's stock purchase
agreements or stock option documents contains a provision for acceleration (or
lapse of a repurchase right) upon the occurrence of any event. The Company has
never adjusted or amended the exercise price of any stock options previously
awarded, whether through amendment, cancellation, replacement grant, repricing,
or any other means.
5) The list of holders of the Company's Equity
Securities, dated as of the Additional Note Closing, provided to counsel to the
Purchasers, is true and correct.
(B) FINANCIAL STATEMENTS.
The Company has made available to the Purchasers its unaudited financial
statements (including balance sheet, income statement and statement of cash
flows) as of April 30, 2005 and its audited financial statements (including
balance sheet, income statement and statement of cash flows) for the fiscal year
ended December 31, 2004 (collectively, the "ADDITIONAL NOTE CLOSING FINANCIAL
STATEMENTS"). The Financial Statements have been prepared in accordance with
generally accepted accounting principals applied on a consistent basis
throughout the periods indicated, except that the unaudited Financial Statements
may not contain all footnotes required by generally accepted accounting
principles. The Financial Statements fairly present in all material respects the
financial condition of the Company as of the dates, and for the periods,
indicated therein, subject to normal year-end audit adjustments. Except as set
forth in the Financial Statements, the Company has no material liabilities or
obligations, contingent or otherwise, other than (a) liabilities incurred in the
ordinary course of business subsequent to April 30, 2005 and (b) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Financial Statements, which, in both cases, individually or in the aggregate
are not material to the financial condition or operating results of the Company.
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company that:
6.1 AUTHORIZATION.
Such 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.
13
6.2 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 Notes and the Conversion
Shares 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
Notes or the Conversion Shares. The Purchaser has not been formed for the
specific purpose of acquiring the Notes and the Conversion Shares.
6.3 KNOWLEDGE.
In reliance on the Disclosure Materials, 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 Notes and the Conversion Shares.
6.4 RESTRICTED SECURITIES.
The Purchaser understands that the Notes and Conversion Shares have not
been, and will not be, registered under 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 Notes and the Conversion Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Notes and the Conversion
Shares 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 Notes
and the Conversion Shares for resale, except as set forth in Section 3 hereof.
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 Notes and the Conversion Shares, 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.
14
6.5 NO PUBLIC MARKET.
The Purchaser understands that no public market now exists for any of the
securities issued by the Company, that the Company has made no assurances that a
public market will ever exist for the Equity Securities.
6.6 LEGENDS.
The Purchaser understands that the Conversion Shares, may bear one or all
of the following legends:
(A) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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."
(B) Any 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.
6.7 ACCREDITED INVESTOR.
The Purchaser is an accredited investor as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act.
7. CONDITIONS TO THE PURCHASERS' OBLIGATIONS AT CLOSING.
The obligation of each Purchaser to purchase Notes at a Closing is subject
to the fulfillment, on or before such Closing, of each of the following
conditions, unless otherwise waived by such Purchaser:
(A) the representations and warranties of the Company
contained in Section 5 shall be true on and as of such Closing with the same
effect as though such representations and warranties had been made on and as of
the date of such Closing;
(B) the Company shall have performed under and complied in all
material respects with each agreement, covenant and obligation required by this
Agreement to be so performed by or complied with by the Company on or before
such Closing;
(C) the non-occurrence of any event having a Material Adverse
Effect;
15
(D) the obtaining of all third party consents, approvals and
waivers required for the Company to consummate the transactions contemplated by
this Agreement;
(E) compliance by the Company with all applicable federal and
state securities laws;
(F) completion of all required and/or appropriate state and
local filings required to be made by the Company for the issuance and delivery
of the Notes and the Conversion Shares;
(G) a legal opinion of counsel to the Company in a form
reasonably satisfactory to the Purchasers shall have been delivered to the
Purchasers;
(H) the definitive agreements providing for the Gosling's
Investment shall have been executed by the parties thereto and, with respect to
the Initial Closing, on terms reasonably satisfactory to the Purchasers;
(I) the Company shall have issued and sold for cash
consideration at least US $6,889,578 of the Series C Preferred prior to the
Initial Closing and at least an additional US $610,422 of the Series C Preferred
within forty five (45) days from the Initial Closing; and
(J) no default or Event of Default under the Notes shall have
occurred and be continuing or would arise as a result of the sale of the Notes
at such Closing.
8. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligation of the Company to sell Notes to each Purchaser at a Closing
is subject to the fulfillment, on or before such Closing, of each of the
following conditions, unless otherwise waived by the Company:
8.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each Purchaser contained in Section
6 shall be true on and as of such Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
8.2 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 and
Conversion Shares pursuant to this Agreement shall be obtained and effective as
of the Closing.
16
8.3 DELIVERY OF FORM W-8 BEN OR FORM W-9.
Each Purchaser shall have completed and delivered to the Company a validly
executed IRS Form W-8 BEN or IRS Form W-9, as applicable, establishing such
Purchaser's exemption from withholding tax, which forms are attached as Exhibit
F to this Agreement.
8.4 AMENDED AND RESTATED AGREEMENT AND NOTES.
Mellon HBV shall have executed and delivered to the Company this
Agreement, the Amended Initial Note and the Amended Additional Note and returned
the Initial Note and the Mellon Additional Note to the Company for cancellation.
9. AFFIRMATIVE COVENANTS OF THE COMPANY.
The Company will do all of the following for so long as any of the Notes
are outstanding:
9.1 FINANCIAL STATEMENTS; REPORTS; CERTIFICATES.
(A) Deliver to the Purchasers: (i) as soon as possible, but no
later than forty-five (45) days after the last day of each month, the monthly
financial statements in a form reasonably acceptable to the Purchasers together
with a Compliance Certificate signed by an officer of the Company in the form of
Exhibit I; (ii) as soon as available, but no later than 180 days after the last
day of the Company's fiscal year, audited financial statements, together with an
opinion on the financial statements from an independent certified public
accounting firm reasonably acceptable to the Purchasers; (iii) a prompt report
of any legal actions pending or threatened against the Company that could result
in damages or costs to the Company of US $150,000 or more; and (iv) budgets,
sales projections, operating plans or other financial information the Purchasers
reasonably request.
(B) Allow the Purchasers to audit the Company at the Company's
expense, provided that such audits will be conducted only at such times as an
Event of Default has occurred and is continuing.
9.2 TAXES.
Make timely payment of all material federal, state, and local taxes or
assessments other than any taxes or assessments that the Company is contesting
in good faith and deliver to the Purchasers, on demand, appropriate certificates
attesting to such payment.
9.3 NOTICES.
Provide notice within thirty (30) days of the Company's receipt of any
governmental and/or environmental proceedings initiated against the Company that
is
17
reasonably likely to result in damages or costs to the Company of US $150,000 or
more.
9.4 CORPORATE EXISTENCE AND COMPLIANCE WITH LAWS.
Maintain its and its Affiliates corporate existence and good standing
under the laws of their state of incorporation and remain in good standing in
each jurisdiction in which the failure to do so would have a Material Adverse
Effect.
9.5 FURTHER ASSURANCES.
Take such further action as the Purchasers reasonably request to fulfill
the Company's obligations under this Agreement.
10. NEGATIVE COVENANTS OF THE COMPANY.
So long as at least US $1,500,000 of the principal amount of the Notes
remains outstanding and is held by the Purchasers or Affiliates of the
Purchasers, the Company will not:
10.1 AMENDMENT OR MODIFICATION OF THE NOTES.
Without the prior written consent of the Super Majority Interest, amend or
modify any right, preference, privilege of the Notes that materially adversely
affects the rights of the holders thereof.
10.2 ISSUANCE OF EQUITY SECURITIES.
Prior to a Qualified IPO, without the prior written consent of the Super
Majority Interest, except for Excluded Securities, issue Equity Securities (i)
pari passu or in preference to the Notes or (ii) in a single transaction or
series of related transactions, in an amount that would represent more than a
twenty percent (20%) cumulative change of ownership in the Company.
10.3 CHANGE IN AUTHORIZED CAPITAL STOCK.
Without the prior written consent of the Super Majority Interest, prior to
a Qualified IPO, increase or decrease the total number of authorized shares of
capital stock of the Company, except as required to permit the additional
issuance of Equity Securities as provided for in Section 10.2 above.
10.4 MERGERS OR ACQUISITIONS.
Without the prior written consent of the Super Majority Interest, except
for the Gosling's Investment, prior to a Qualified IPO, engage in any Corporate
Transaction.
18
10.5 INDEBTEDNESS OF THE COMPANY.
Without the prior written consent of the Super Majority Interest, at any
time prior to the Company maintaining a Net Equity Value of at least US
$100,000,000 for a period of no less than 90 days, incur third party
indebtedness of the Company (excluding the Notes) of more than the Third Party
Indebtedness Limit; provided however, that (i) the Third Party Indebtedness
Limit shall not include Qualified Acquisition Debt and (ii) once the Company has
maintained a Net Equity Value of at least US $100,000,000 for a period of no
less than 90 days, this covenant shall no longer apply.
10.6 DISTRIBUTIONS; INVESTMENTS.
Without the prior written consent of the holders of at least a majority in
interest of the principal amount outstanding of the Notes, except for any
mandatory dividends payable on the Series A Preferred, the Series B Preferred or
the Series C Preferred, pay any dividends or make any distribution or payment on
any Equity Securities.
10.7 REDEMPTION OR REPURCHASE OF EQUITY SECURITIES.
Without the prior written consent of the holders of at least a majority in
interest of the principal amount outstanding of the Notes, redeem or repurchase
Equity Securities (other than repurchases of Common Stock from employees upon
termination of their employment with the Company).
10.8 TRANSACTIONS WITH AFFILIATES.
Without the prior written consent of the Super Majority Interest, directly
or indirectly enter into or permit to exist any material transaction with any
Affiliate of the Company except for transactions that are in the ordinary course
of the Company's business, upon fair and reasonable terms that are no less
favorable to the Company than would be obtained in an arm's length transaction
with a nonaffiliated Person.
10.9 MAINTENANCE.
Without the prior written consent of the Super Majority Interest, by
charter amendment or through reorganization, consolidation, merger, dissolution
or sale of assets, or by any other voluntary act, avoid or seek to avoid the
observance or performance of any of the covenants, stipulations or conditions to
be observed or performed hereunder by the Company, or the provisions contained
in the Company's organizational documents relating to the rights of the holders
of the Notes and/or the Conversion Shares.
10.10 SECURITIES LAW COMPLIANCE.
Without the prior written consent of the Super Majority Interest, take any
action between the date of this Agreement and the date of the Initial Closing
that would cause
19
the issuance of the Notes and the Conversion Shares to fail to comply with all
applicable federal and state securities laws.
11. EVENTS OF DEFAULT.
Any one of the following is an "EVENT OF DEFAULT":
11.1 PAYMENT DEFAULT.
If the Company fails to pay (i) any of the principal amount of and accrued
interest on the Notes on the Maturity Date of any such Notes or (ii) any fees
related to the Notes when due, and such failure to pay such fees remains
unremedied for five (5) Business Days.
11.2 CROSS-DEFAULT.
If the Company fails to pay any other debt for borrowed money in excess of
US $250,000 of the Company as and when it becomes due and payable.
11.3 COVENANT DEFAULT.
(A) If the Company fails to perform any obligation under
Section 9 and such failure remains unremedied for more than ten (10) Business
Days, or
(B) If the Company fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, the Notes or any other present or future agreement
between the Company and the Purchasers (other than those contained in Section 9
of this Agreement) and as to any default under such other term, provision,
condition, covenant or agreement that can be cured, has failed to cure such
default within twenty (20) days after the occurrence thereof; provided, however,
that if the default cannot by its nature be cured within the twenty (20) day
period or cannot after diligent attempts by the Company be cured within such
twenty (20) day period, and such default is likely to be cured within a
reasonable time, then the Company shall have an additional reasonable period
(which shall not in any case exceed thirty (30) additional days) to attempt to
cure such default, and within such reasonable time period the failure to have
cured such default shall not be deemed an Event of Default;
11.4 ATTACHMENT.
If any material portion of the Company's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in thirty (30) days, or if the Company is
enjoined, restrained, or prevented by court order from conducting a material
part of its business or if a judgment or other claim becomes a lien on a
material portion of the Company's assets, or if a notice of lien, levy, or
assessment is filed against any of the Company's assets by any government agency
and not paid within thirty (30) days after the Company receives
20
notice. Such notices shall not constitute Events of Default if stayed or if a
bond is posted pending contest by the Company;
11.5 INSOLVENCY.
If the Company becomes insolvent or if the Company begins an insolvency
proceeding or an insolvency proceeding is begun against the Company and not
dismissed or stayed within sixty (60) days;
11.6 OTHER AGREEMENTS.
If there is a default in any agreement between the Company and a third
party that gives the third party the right to accelerate any indebtedness
exceeding US $250,000;
11.7 JUDGMENTS.
If one or more money judgments in the aggregate of at least US $250,000
are rendered against the Company and is unsatisfied and unstayed for thirty (30)
days; or
11.8 MISREPRESENTATIONS.
If the Company or any Person acting for the Company has made or makes any
material misrepresentation or material misstatement now or later in any warranty
or representation in this Agreement or in any writing delivered to the Company
or to induce the Company to enter this Agreement or the Notes.
12. BOARD REPRESENTATION.
So long as Mellon HBV and Black River each hold at least 5% of the capital
stock of the Company (on an as-converted basis), Mellon HBV and Black River may
each designate in writing a representative to the Board of Directors of the
Company. Each representative shall have the right to attend meetings of the
Board of Directors of the Company as an observer, and shall receive proper
notice of such meetings, and shall be entitled to receive copies of all proposed
actions by written consent of the Board of Directors and all materials provided
to members of Board of Directors in connection with the matters to be discussed
at such meetings.
13. MISCELLANEOUS.
13.1 SUCCESSORS AND ASSIGNS.
Subject to the limitations set forth herein, each of the Purchasers may
assign this Agreement and the rights and obligations conferred hereby, in whole
or in part, to eligible financial institutions upon the written consent of the
Company, such consent not to be unreasonably withheld or delayed. The terms and
conditions of this Agreement shall be binding upon and 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
21
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
13.2 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 New York, without giving
effect to principles of conflicts of law.
13.3 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.
13.4 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.
13.5 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.
13.6 FINDER'S FEE.
Except for the fee to be paid by the Company to Fieldstone Partners upon
the occurrence of the Initial Closing, each party represents that it neither is
nor will be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
13.7 AMENDMENTS AND WAIVERS.
Except as required by Section 10 of this Agreement, any term of this
Agreement may be amended or waived only with the written consent of the Company
and the holders of at least a majority in interest of the principal amount
outstanding of the Notes;
22
provided however that if the amendment or waiver will materially adversely
affect the holders of the Notes, then such amendment or waiver will require the
Consent of the Company and the Super Majority Interest. Any amendment or waiver
effected in accordance with this Section 13.7 shall be binding upon each
Purchaser and each transferee of the Notes or Conversion Shares, each future
holder of all such Notes or Conversion Shares, and the Company.
13.8 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.
13.9 ENTIRE AGREEMENT.
This Agreement, and the documents 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.
13.10 EXCULPATION AMONG PURCHASERS.
Each Purchaser acknowledges that it is not relying upon any person, firm
or corporation, other than the Company and its officers and directors, in making
its investment or decision to invest in the Company. Each Purchaser agrees that
no Purchaser nor the respective controlling persons, officers, directors,
partners, agents, or employees of any Purchaser shall be liable for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the Notes or the Conversion Shares.
13.11 FEE AND COST REIMBURSEMENT; CLOSING FEE.
The Company shall at each Closing reimburse the Purchasers for all
reasonable legal fees and diligence costs and expenses incurred by the
Purchasers in connection with such Closing for a maximum amount of US $20,000.
The Company shall pay to Black River at the Additional Note Closing a fee equal
to US $125,000. The Company shall also have paid to Mellon HBV at the Initial
Closing a fee equal to US $250,000.
23
13.12 LOCK-UP AGREEMENT.
In connection with the initial public offering of the Company's securities
and upon request of the Company or the underwriters managing such offering of
the Company's securities, each Purchaser agrees not to sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
securities of the Company, however or whenever acquired (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters and to execute an agreement reflecting
the foregoing as may be requested by the underwriters at the time of the
Company's initial public offering, so long as such terms are no more restrictive
than the terms imposed upon holders of the Series C Preferred.
[Signature Pages Follow]
24
The parties have executed this Amended and Restated Convertible Note
Purchase Agreement as of the date first written above.
COMPANY:
CASTLE BRANDS INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇, Chairman & CEO
Address: 29th Floor
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
PURCHASERS:
MELLON HBV SPV LLC
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
Title: Portfolio Manager
-------------------------------
Address: ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
BLACK RIVER GLOBAL CREDIT FUND LTD.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------------
Title: Authorized Signer
-------------------------------
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
SCHEDULE OF EXHIBITS
Exhibit A - Schedule of Purchasers
Exhibit B - Form of Amended Initial Note
Exhibit C - Form of Amended Additional Note
Exhibit D - Form of Additional Note
Exhibit E Form of Interest Note
Exhibit F - Purchaser Withholding Exemptions
Exhibit G - Series C Private Placement Memorandum
Exhibit H Restated Certificate
Exhibit I Compliance Certificate
EXHIBIT A
SCHEDULE OF PURCHASERS
NAME/ADDRESS AND FACSIMILE NUMBER ORIGINAL PRINCIPAL AMOUNT
OF PURCHASER OF NOTE
INITIAL CLOSING:
Mellon HBV SPV LLC US $5,000,000
c/o Mellon HBV Alternative Strategies LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(212) 808-3955
JUNE 27, 2005 CLOSING:
Mellon HBV SPV LLC US $5,000,000
c/o Mellon HBV Alternative Strategies LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(212) 808-3955
AUGUST 16, 2005 CLOSING:
Black River Global Credit Fund Ltd. US $5,000,000
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax (▇▇▇) ▇▇▇-▇▇▇▇
--------------------------------------------------------------------------------
TOTAL: US $15,000,000
EXHIBIT E
FORM OF INTEREST NOTE
EXECUTION COPY
NEITHER THIS NOTE NOR THE EQUITY SECURITIES FOR WHICH THIS NOTE IS CONVERTIBLE
HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR
QUALIFIED UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION. NONE OF SUCH
SECURITIES MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Convertible Promissory Note
$ Date:
--------------- ---------------
FOR VALUE RECEIVED, the undersigned Castle Brands Inc., a Delaware corporation
(the "Company"), promises to pay to the order of _______________ ("Holder") the
principal amount of _______________ US DOLLARS (US $_______________) (the
"Principal Amount"), together, with interest on the unpaid balance of the
Principal Amount, on the Maturity Date, and subject to the following provisions.
The following is a statement of the rights of Holder and the conditions to which
this Note is subject, and to which Holder, by the acceptance of this Note,
agrees:
1. Definitions.
The capitalized terms in this Note shall have the meanings ascribed to
such terms in the Convertible Note Purchase Agreement unless otherwise defined
herein:
"40% Conversion" has the meaning set forth in Section 7.2(i) below;
"Additional Stock" means any Equity Securities of the Company issued by
the Company after the applicable Closing Date but prior to the second
anniversary of the applicable Closing Date other than (i) the Notes (as defined
in the Convertible Note Purchase Agreement) and the Conversion Shares; (ii)
Common Stock issued or issuable as a dividend or distribution on or upon
conversion of the Preferred Stock of the Company; (iii) Common Stock issued or
issuable by reason of a dividend, stock split, split-up or other distribution on
Common Stock, (iv) any Common Stock issued or issuable (including pursuant to
options or warrants) to financial institutions in connection with commercial
credit arrangements approved by the Board of Directors of the Company, (v) any
Common Stock issued or issuable to employees, officers, or directors of the
Company or their respective immediate family members pursuant to currently
outstanding or newly created options or warrants that are approved by the Board
of Directors of the Company or a committee thereof, (vi) Common Stock issued
upon conversion of the Company's 5% Convertible Subordinated Notes due on or
about the third anniversary of the Series C Closing Date as defined in the
Restated Charter in the aggregate principal amount of (EURO)1,374,750, (vii)
shares or interests
issued or issuable pursuant to any rights or agreements, options, warrants or
convertible securities outstanding as of the date of this Note or the issuance
of any of the warrants listed on Section 5.3(a) of the Schedule of Exceptions to
the Convertible Note Purchase Agreement or the issuance of any shares of Common
Stock upon exercise thereof, (viii) any Equity Securities issued for
consideration other than cash pursuant to a merger, consolidation, strategic
alliance, acquisition or similar business combination approved by the Board of
Directors of the Company, (ix) any Equity Securities issued in connection with
any recapitalization or similar event by the Company, (x) any Equity Securities
that are issued by the Company pursuant to an IPO, and (xi) any Equity
Securities issued in connection with strategic transactions involving the
Company and other entities, including joint ventures, manufacturing, marketing
or distribution arrangements provided that the issuance of shares therein has
been approved by the Board of Directors of the Company;
"Certificate of Designations" has the meaning set forth in Section 7.2
below;
"Conversion Notice" has the meaning set forth in Section 7.3 below;
"Conversion Price" means a price equal to, in the case of conversion of
this Note into Conversion Shares, $8.00 per share; provided, however, that (i)
in the event that the Company issues or is deemed to issue Additional Stock at a
per share purchase price of less than the then in effect Conversion Price, the
Conversion Price shall be subject to the following adjustment upon the issuance
of any Additional Stock: the new Conversion Price shall be determined by
multiplying the Conversion Price then in effect by a fraction, (x) the numerator
of which shall be the number of shares of Common Stock deemed outstanding
immediately prior to such issuance ("Outstanding Common") plus the number of
shares of Common Stock that the aggregate consideration received by the Company
for such issuance would purchase at the Conversion Price then in effect; and (y)
the denominator of which shall be the number of shares of Outstanding Common
plus the number of shares of such Additional Stock, and (ii) the Conversion
Price shall be proportionately adjusted in the case of any stock dividend, stock
split, split-up or other distribution on Common Stock; for purposes of clarity,
"Outstanding Common" shall include all outstanding shares of Common Stock and
all shares of Common Stock issuable upon conversion of outstanding shares of
Preferred Stock or other convertible instruments of the Company or issuable upon
exercise of options, warrants or other rights to acquire Common Stock;
"Conversion Shares" means Common Stock to which Holder shall be entitled
under the terms of this Note;
"Convertible Note Purchase Agreement" means that certain Amended and
Restated Convertible Note Purchase Agreement dated as of August [__], 2005, by
and among the Company and the Purchasers, and/or their affiliates and assigns,
set forth on Exhibit A thereto;
"Default Rate" shall have the meaning set forth in Section 6.1 below;
2
"Discounted Conversion Rate" has the meaning set forth in Section
7.2(i) below;
"Equity Securities" means (i) any share or interest in the Company,
(ii) any security convertible into or exercisable or exchangeable for, with or
without consideration, any share or interest (including any option to purchase
such convertible security) in the Company, (iii) any security carrying any
warrant or right to subscribe to purchase any share, interest or other security
in the Company or (iv) any such warrant or right;
"Final Conversion" has the meaning set forth in Section 7.2 below;
"Holder" has the meaning set forth in the introductory paragraph to
this Note;
"Interest Note Rate" means the rate of 7.5% calculated on the basis of
a 360 day year based on the number of days actually elapsed including the first
day but excluding the day on which such calculation is being made; provided that
in the absence of an Event of Default and in the event the Company does not
complete an IPO by June 30, 2006, the Interest Note Rate will increase by 100
basis points as of June 30, 2006; provided further that upon the occurrence of
an Event of Default, the Interest Note Rate will increase to the Default Rate;
"Maturity Date" means March 1, 2010 or such earlier date as this Note
shall become due and payable in accordance with Section 2.4 or Section 6 below;
"Note" means this Convertible Promissory Note due March 1, 2010;
"Principal Amount" has the meaning set forth in the introductory
paragraph to this Note; and
"Series C Preferred Conversion" has the meaning set forth in Section
7.2 below.
2. Time of Payment.
2.1 Payment at Maturity Date.
The Principal Amount together with all accrued but unpaid interest
shall be due and payable on the Maturity Date, in accordance with the terms of
this Note. If the payment of the Principal Amount and interest on this Note
becomes due on a day which is not a Business Day, such payment shall be made on
the next succeeding Business Day, and any such extension of time shall be
included in computing interest in connection with such payment.
2.2 Interest Payment.
Interest shall accrue on the Principal Amount at the Interest
Note Rate. Interest accrued but unpaid on the Principal Amount as of the end of
each quarter of
3
each calendar year that this Note remains outstanding shall be payable within 30
days after the end of each calendar quarter in accordance with the terms of this
Note.
2.3 No Prepayment.
Except as set forth in this Note, the Company may not prepay the
Principal Amount and/or the accrued but unpaid interest or any part thereof
without the prior written consent of the Super Majority Interest.
2.4 Maturity Date Acceleration.
In the event that any of the holders of Series A Preferred,
Series B Preferred or Series C Preferred have the right to require the Company
to redeem any of their shares of preferred stock, at least forty-five (45) days
before the date the Company is required to redeem such stock, the Company shall
provide written notice to each Holder describing the number of shares of stock
the Company is required to redeem, the redemption price, the date of redemption
(the "Redemption Date") and any other material terms and conditions relating to
such redemption. Within fifteen (15) days after receipt of such written notice,
holders of at least a majority in interest of the principal amount outstanding
on the Notes may notify the Company in writing of their election to accelerate
the Maturity Date to the date ten (10) Business Days prior to the Redemption
Date. Upon the written election to accelerate the Maturity Date in accordance
with the preceding sentence, the Company agrees that it shall pay the then
outstanding Principal Amount, all accrued but unpaid interest and other amounts
due under this Note prior to the payment of any amount to redeem the Company's
preferred stock.
3. Application of Payments.
All payments of the indebtedness evidenced by this Note shall be applied
first to any accrued but unpaid interest on this Note then due and payable
hereunder, and then to the Principal Amount of this Note then outstanding.
4. Currency.
All payments of Principal Amount or of interest on this Note shall be
made in US dollars at the address of Holder indicated on the signature page
hereof, or such other place as Holder shall designate in writing to Company.
5. Events of Default.
The occurrence of any of the following shall constitute an Event of
Default under this Note: (a) The Company's failure to pay the outstanding
Principal Amount and accrued interest on this Note on the Maturity Date; (b) the
Company's failure to pay any fees related to this Note when due and any such
failure to pay shall remain unremedied for five (5) Business Days or (c) an
Event of Default under, and as defined in, the Convertible Note Purchase
Agreement.
4
6. Remedies.
6.1 Remedy Upon an Event of Default.
Upon the occurrence of an Event of Default, (i) this Note shall
become due and payable upon the demand of the Super Majority Interest, and upon
such demand shall thereafter become automatically due and payable, without
presentment, demand, protest, or further notice of any kind, all of which are
hereby expressly waived by the Company, and (ii) the Interest Note Rate shall
increase by 400 basis points above the then applicable Interest Note Rate (the
"Default Rate").
7. Conversion.
Subject to the provisions hereof, this Note, unless otherwise provided
hereinafter, will be converted into shares of Conversion Shares at any time, and
from time to time, in whole, as follows:
7.1 Voluntary Conversion.
Any Note may be converted into Conversion Shares, at any time or
from time to time, at the option of the holder of such Note. The number of
shares of Conversion Shares into which such Note may be converted shall be
determined by dividing the principal amount of such Note then outstanding by the
Conversion Price, as adjusted and then in effect.
7.2 Automatic Conversion.
(i) Forty percent (40%) of the principal under the Notes shall be
converted automatically into Conversion Shares at a 12.5% discount to the
then-applicable Conversion Price (the "Discounted Conversion Price") upon the
completion of a Qualified IPO (the "40% Conversion"); and
(ii) The remaining principal under the Notes shall be converted
automatically into Conversion Shares at the then applicable Conversion Price
(the "Final Conversion") on the first date that is both (A) after the third
anniversary of the date of the Initial Closing and (B) the 30th consecutive
trading day on a nationally recognized securities exchange or dealer quotation
system from and after the consummation of an IPO by the Company on which the
closing price of the Company's Common Stock is no less than $20.00 per share
(subject to proportionate adjustments for dividends, stock splits, split-ups or
other distributions on Common Stock).
Notwithstanding anything to the contrary in this Note, if (i) the
40% Conversion constitutes an issuance of "Additional Common Stock" under the
Company's Certificate of Designations of the Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred
Stock , as amended from time to time, (the "Certificate of Designations")
requiring an adjustment to the Conversion Price (as defined in the Certificate
of Designations)
5
applicable to the Company's Series C Preferred Stock, and (ii) such adjustment
to the Series C Preferred Stock Conversion Price has not been waived by the
requisite majority of holders of Series C Preferred Stock, then, upon conversion
of Series C Preferred Stock into Common Stock (the "Series C Preferred
Conversion"), the Conversion Price applicable to the outstanding principal under
this Note that was not subject to the 40% Conversion shall be adjusted pursuant
to the formula set forth in the definition of Conversion Price in this Note as
if the Common Stock being issued upon the 40% Conversion were issued immediately
prior to the Series C Preferred Conversion as shares of Additional Stock at the
Discounted Conversion Price.
Upon the Final Conversion, this Note, without any further action
of the parties, shall cease to be a payment obligation and shall represent only
the right to represent the Conversion Shares.
7.3 Conversion; Surrender of Note.
Any voluntary conversion of this Note shall be by presentation and
surrender of this Note to the Company at the principal office of the Company,
accompanied by a written notice of conversion (the "Conversion Notice"). The
Conversion Notice shall become effective when received by the Company.
7.4 Conversion Closing.
Upon presentation and surrender of this Note and the Conversion
Notice, the Company shall promptly conduct a Closing to effect the issuance of
the Conversion Shares to Holder. At such Closing, the Company shall deliver to
Holder validly executed share certificates representing such Conversion Shares.
7.5 Deemed Stockholder.
Holder shall not, by virtue hereof, be entitled to any rights of
a stockholder in the Company, but will have the rights of a debt holder set
forth in the Convertible Note Purchase Agreement and/or this Note. Upon receipt
by the Company of the Conversion Notice, Holder shall be deemed to be holder of
the shares issuable upon such conversion notwithstanding that the share transfer
books of the Company shall then be closed and that certificates representing
such shares shall not then be actually delivered to Holder. The Company shall
pay all taxes and other charges that may be payable in connection with the
issuance of the shares and the preparation and delivery of stock certificates
pursuant to this Section 7 in the name of Holder, but shall not pay any taxes
payable by Holder by virtue of the holding, issuance, exercise or sale of this
Note or the shares by Holder.
7.6 No Fractional Shares.
No fractional Conversion Shares shall be issued in connection
with the conversion of this Note, and the number of shares issued shall be
rounded to the nearest whole number (with one-half being rounded downward) and
the amount of principal constituting such fraction shall be paid in cash.
6
8. Waiver.
The Company waives presentment for payment, notice of nonpayment,
protest, demand, notice of protest, notice of intent to accelerate, notice of
acceleration and dishonor, diligence in enforcement and indulgences of every
kind.
9. No Waiver.
The acceptance by Holder of any payment under this Note which is less
than the payment in full of all amounts due and payable at the time of such
payment shall not (i) constitute a waiver of or impair, reduce, release or
extinguish any right, remedy or recourse of Holder, or nullify any prior
exercise of any such right, remedy or recourse, or (ii) impair, reduce, release
or extinguish the obligations of any party as originally provided herein.
10. Senior Subordinated Note.
This Note and the principal and interest payable hereunder shall be
wholly subordinate in right of payment to all obligations of the Company under
the senior secured notes issued pursuant to that certain Trust Indenture
Agreement dated as of June 1, 2004, between the Company and JPMorgan Chase Bank,
and joined by MHW, Ltd., as collateral agent, and other senior debt subsequently
incurred, subject to the limitations on Company indebtedness set forth in
Section 10.5 of the Convertible Note Purchase Agreement.
11. Cumulative Remedies.
The rights, remedies and recourses of Holder, as provided in this Note,
shall be cumulative and concurrent and may be pursued separately, successively
or together as often as occasion therefore shall arise, at the sole discretion
of Holder.
12. Governing Law.
This Note shall be governed by, and interpreted in accordance with, the
laws of the State of New York, without giving effect to the rules respecting
conflicts of law.
13. Severability.
If any provision hereof or the application thereof to any Person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the application of such provision to any other Person or
circumstance nor the remainder of the instrument in which such provision is
contained shall be affected thereby and shall be enforced to the greatest extent
permitted by law.
14. Interpretation.
The headings in this Note are included only for convenience and shall
not affect the meaning or interpretation of this Note. The words "herein" and
"hereof" and
7
other words of similar import refer to this Note as a whole and not to any
particular part of this Note.
15. Notices.
All notices, demands, and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission),
to Holder at its address set forth below, or to the Company at its principal
executive office (or at such other address for a party as shall be specified by
like notice).
16. Exchange or Loss of Note.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Note, if mutilated, the Company will execute
and deliver a new Note of like tenor and date.
17. Specific Performance.
Without limiting the foregoing or any remedies available to the
parties, the parties will be entitled to specific performance of the obligations
hereunder and injunctive relief against actual or threatened violations of the
obligations of any person subject to this Note.
18. Transfer and Assignment.
This Note and the rights conferred hereby shall be transferable by
Holder to eligible financial institutions, subject, in whole or in part, to the
limitations set forth in the Convertible Note Purchase Agreement with the
written consent of the Company, which consent shall not be unreasonably withheld
or delayed. If this Note should be transferred in part only, the Company shall,
upon surrender of this Note for cancellation, execute and deliver new Notes
evidencing, separately, the rights and obligations of Holder and the rights and
obligations of the transferee to payment and conversion of their respective
portions of the principal and interest hereunder into Conversion Shares.
19. Enforceability.
This Note shall be binding upon and inure to the benefit of both
parties hereto and their respective successors and assigns. If any provision of
this Note shall be held to be invalid or unenforceable, in whole or in part,
neither the validity nor the enforceability of the remainder hereof shall in any
way be affected.
8
20. Amendments and Waivers.
Any term of this Note may be amended or waived only with the written
consent of the Company and the holders of a majority in interest of the
principal amount of the Notes outstanding under the Convertible Note Purchase
Agreement; provided however that if the amendment or waiver will materially
adversely affect any holder(s) of the Notes, then such amendment or waiver will
require the consent of the Company and the Super Majority Interest. Any
amendment or waiver effected in accordance with this Section 20 shall be binding
upon each Holder and each transferee of this Note, the Conversion Shares, each
future holder of all such Conversion Shares, and the Company.
21. Limitation on Interest.
Nothing contained in this Note shall be deemed to require the payment
of interest or other charges by the Company or any other Person in excess of the
amount which Holder may lawfully charge under the applicable usury laws. In the
event that Holder shall collect moneys which are deemed to constitute interest
which would increase the effective Interest Note Rate to a rate in excess of
that permitted to be charged by applicable law, all such sums deemed to
constitute interest in excess of the legal rate shall be credited against the
Principal Amount then outstanding and the excess shall be returned to the
Company.
[Remainder of Page Intentionally Left Blank]
9
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.
CASTLE BRANDS INC. ACKNOWLEDGED AND AGREED TO BY:
---------------------------------
---------------------------------
By: By:
--------------------------------- ----------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇, Chairman &
CEO ----------------------------------
----------------------------------
Castle Brands Inc.
29th Floor
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
10