ROYALTY PARTICIPATION AGREEMENT
This
Royalty Participation Agreement (the “Royalty Agreement”) is entered into by and
between Auriga Laboratories, Inc., a Delaware corporation, located at 0000
Xxxxxx Xxxx Xxxxxxxxx, Xxxxxxxxxx 00000, and each of its subsidiaries
(collectively, the “Company”) and Prospector Capital Partners II, LLC, a
Delaware limited liability company, located at 0000 Xxxxxxx Xxxx, Xxxxx X-000,
Xxxxxx, Xxxxx 00000 (the “Investor”).
RECITALS
WHEREAS,
the Company is in the business of commercializing, licensing, and developing of
prescription pharmaceutical products; and
WHEREAS,
Company desires to issue and sell to the Investor, and the Investor has agreed
to purchase from the Company a Senior Secured Convertible Promissory Note in a
principal aggregate amount of $287,500 (the “Principal Financing Amount”),
pursuant to that certain Senior Secured Convertible Note Purchase Agreement and
Senior Secured Convertible Promissory Note between the parties hereto and of
even date herewith (the “Senior Secured Loan Agreements”); and
WHEREAS,
in consideration of the provision of the Principal Financing Amount, the Company
desires to pay a percentage of all gains or revenue from the sales, licensing or
disposition of the Products or other revenue of the Company to the Investor (the
“Royalty Payments”); and
WHEREAS,
the Investor and the Company wish to define with precision the terms and
conditions of the Royalty Payments;
THEREFORE,
in consideration of the mutual considerations herein, the receipt of which is
mutually acknowledged, the parties hereto agree as follows:
1. FINANCING. Investor
shall loan the gross amount of $287,500, subject to reduction of fees payable to
any third party, to the Company pursuant to the Senior Secured Loan Agreements
upon execution hereof.
2. SOURCE,
AMOUNT AND TIMING OF ROYALTY PAYMENTS.
(a). Commencing
upon the fiscal quarter ended June 30, 2008, the Company shall pay to Investor
non-refundable Royalty Payments consisting of five percent (5.00%) of all “Gross
Revenue” received by the Company based on (i) the sale, license, development,
commercialization or monetization of the Products, and (ii) all gains on
disposition of any Products or assets or other income until such time as the
“Royalty Cap Amount” has been met. The Royalty Payments shall be paid
to the Investor within 15 days of the end of the quarter in which the Company
receives payment for any Gross Revenue of the Products.
(b). For
the purposes of this Agreement, “Products” shall mean any current or future
product, service or right commercialized, licensed, developed or otherwise
monetized by the Company or its successors and assigns.
(c). For
the purposes of this Agreement, “Royalty Cap Amount” shall mean EIGHT MILLION
U.S. DOLLARS (U.S. $8,000,000).
(d). For
the purposes of this Agreement, “Gross Revenue” shall mean the total gross
receipts from sale, license, development, commercialization or other
monetization of Products less the following amounts: (i) cash discounts, freight
discounts, rebates or promotional allowances; and (ii) actual Product returns.
For the avoidance of doubt, Gross Revenue shall be calculated in accordance with
GAAP, consistent with revenue recognized in reporting the financial results of
the Company. The Company hereby agrees to use its commercial best
efforts to maximize its Gross Revenue during the term of this
Agreement. “Gross Revenues” shall also include all settlement
amounts, payments and damages received by Company which result from litigation
or disputes related to or arising from the sale, license, development,
commercialization or other monetization of Products.
3. INFORMATION
REQUIRED TO BE SUPPLIED WITH EACH PAYMENT. With each Royalty Payment,
the Company shall supply to the Investor a detailed and reasonably satisfactory
accounting and reconciliation of how the Royalty Payment was
calculated. The Company agrees to have an officer certify each
reconciliation and provide a reconciliation each calendar month during the term
of this Agreement regardless of whether any Royalty Payment is due
4. TERMINATION. This
Agreement shall terminate upon the payment in full of the Royalty Cap
Amount.
5. NO
SALE OR ASSIGMENT BY COMPANY. During the term of this Agreement, the
Company may not (i) sell (other than ordinary course sales to customers), assign
or otherwise transfer or encumber the Products, (ii) assign or otherwise
transfer or encumber this Agreement, or (iii) create an obligation whereby the
Company is required to pay all or a portion of Gross Revenue of the Products to
any party in priority to the Investor, without either first (A) obtaining the
prior written consent of the Investor to such sale, assignment, transfer or
encumbrance, or (B) making the full payment of the Royalty Cap Amount provided
for in Paragraph 2(c) above.
6. NOTICES:
If to the
Company, to:
Attn: CEO
and Corporate Counsel
0000
Xxxxxx Xxxx
Xxxxxxxxx,
Xxxxxxxxxx 00000
Facsimile:
(000) 000-0000
If to
Investor, to:
Attn:
Manager
Prospector
Capital Partners II, LLC
0000
Xxxxxxx Xxxx, Xxxxx X-000
Xxxxxx,
XX 00000
Facsimile:
(000) 000-0000
7. ASSIGNMENT
BY INVESTOR. Investor may assign a portion or all of its interest in
this Agreement to an assignee.
8. EXTRAORDINARY
EVENT. The Company agrees not to enter into a merger,
recapitalization, sale or change of control of the Company or sale transaction
involving all or substantially all of the Company’s equity or assets unless the
acquiring or successor entity agrees in writing to recognize the Investor’s
rights under this Agreement.
9. APPLICABLE
LAW, VENUE, JURISDICTION. All questions concerning the construction,
validity, enforcement and interpretation of the Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Texas, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of
Austin. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of Austin,
Texas, county of Xxxxxx for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. The parties hereby waive
all rights to a trial by jury.
[Signature
Pages Follow]
IN
WITNESS WHEREOF, the Company and the Investor have caused this Royalty
Participation Agreement to be duly executed and delivered as of June 9,
2008.
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By:
__________________________________
Name:
________________________________
Title:
_________________________________
Address:
0000
Xxxxxx Xxxx
Xxxxxxxxx,
XX 00000
Fax:
(000) 000-0000
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PROSPECTOR
CAPITAL PARTNERS II, LLC
________________________________________
By:
Xxxxxx & Co., LLC
Its:
Manager
Title:
Authorized Person
Address:
0000
Xxxxxxx Xxxx, Xxxxx X-000
Xxxxxx,
XX 00000
Fax:
000-000-0000
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