Contract
THIS HAS
NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE, IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
Original
Issue Date: February 13, 2008$750,000
Amended
and Restated: June 9, 2008
AMENDED
AND RESTATED SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
DUE
February
12, 2009
FOR VALUE
RECEIVED, Auriga Laboratories, Inc., a Delaware corporation (the “Company”)
promises to pay to Prospector Capital Partners, LLC or its registered assigns
(the “Holder”), the principal sum of $750,000 on or before February 12, 2009 as
set forth below (the “Maturity Date”). This Note was originally issued pursuant
to the Senior Secured Note and Warrant Purchase Agreement, dated February 13,
2008 and amended and restated as of June 9, 2008, and is subject to the
following additional provisions:
Section
1. Definitions. For
the purposes hereof, the following terms shall have the following
meanings:
“Business
Day” means any day except Saturday, Sunday and any day which shall be a federal
legal holiday in the United States or a day on which banking institutions in the
State of Georgia are authorized or required by law or other government action to
close.
“Event of
Default” shall have the meaning set forth in Section 3.
“Maturity
Date” shall have the meaning set forth in Section 2 of this Note.
“Original
Issue Date” shall mean the date of the first issuance of this Note regardless of
the number of transfers of this Note and regardless of the number of instruments
which may be issued to evidence this Note.
“Person”
means a corporation, an association, a partnership, organization, a business, an
individual, a government or political subdivision thereof or a governmental
agency.
“Trading
Day” means a day on which the Common Stock is traded on a Trading
Market.
“Trading
Market” means the following markets or exchanges on which the Common Stock is
listed or quoted for trading on the date in question: the Nasdaq SmallCap
Market, the American Stock Exchange, the New York Stock Exchange, the Nasdaq
National Market or the OTC Bulletin Board.
Section
2. Maturity. On
February 12, 2009 (the “Maturity Date”), the entire outstanding principal
balance of this Note shall mature and be due and payable to the Holder by the
Company. The Company may not prepay this Note without the consent of
the Holder.
Section
3. Conversion.
(a) Investment by the
Holder. The Holder shall have the option of converting the
entire principal amount on this Note into shares of the Company’s equity
securities (the “Equity Securities”) issued and sold at the close of the
Company’s next equity financing or other transaction in with equity securities
are issued (the “Next Equity Financing”). The number of shares of
Equity Securities to be issued upon such conversion shall be equal to the
quotient obtained by dividing (i) the entire principal amount of this Note by
(ii) the product of (A) (1) 90% if the Equity Line Termination Obligation (as
defined below) is met or (2) 80% if the Equity Line Termination Obligation is
not met and (B) the price per share of the Equity Securities, rounded to the
nearest whole share, and the issuance of such shares upon such conversion shall
be upon the terms and subject to the conditions applicable to the Next Equity
Financing. Notwithstanding the above, the Holder shall also have the option of
converting the entire principal amount of this Note into such number of shares
of the Company’s Common Stock as is obtained by dividing (x) the entire
principal amount of this Note plus, if applicable, accrued interest by (y) $.02
per share (as adjusted for stock splits, stock dividends, recapitalizations and
like transactions), rounded to the nearest whole share.
(b) Mechanics and Effect of
Conversion. No fractional shares of the Company’s capital
stock will be issued upon conversion of this Note. In lieu of any
fractional share to which the Holder would otherwise be entitled, the Company
will pay to the Holder in cash the amount of the unconverted principal and
interest balance of this Note that would otherwise be converted into such
fractional share. Upon conversion of this Note pursuant to this
Section 3, the Holder shall surrender this Note, duly endorsed, at the principal
offices of the Company or any transfer agent of the Company. At its
expense, the Company will, as soon as practicable thereafter, issue and deliver
to such Holder, at such principal office, a certificate or certificates for the
number of shares to which such Holder is entitled upon such conversion, together
with any other securities and property to which the Holder is entitled upon such
conversion under the terms of this Note, including a check payable to the Holder
for any cash amounts payable as described herein. Upon conversion of
this Note, the Company will be forever released from all of its obligations and
liabilities under this Note with regard to that portion of the principal amount
and accrued interest being converted including without limitation the obligation
to pay such portion of the principal amount and accrued interest.
Section
4. Events of
Default.
(a) “Event of
Default”, wherever used herein, means any one of the following events (whatever
the reason and whether it shall be voluntary or involuntary or effected by
operation of law or pursuant to any judgment, decree or order of any court, or
any order, rule or regulation of any administrative or governmental
body):
(i) any
default in the payment of the principal of amount of this Note, as and when the
same shall become due and payable (whether on the Maturity Date or by
acceleration or otherwise) which default is not cured, within 5 Trading
Days;
(ii) the
Company shall fail to observe or perform any other covenant or agreement
contained in this Note which failure is not cured, if possible to cure, within 5
Trading Days after notice of such default sent by the Holder;
(iii) any
representation or warranty made herein shall be untrue or incorrect in any
material respect as of the date when made or deemed made;
(iv) the
Company fails to make any payment due under either the Royalty Participation
Agreement, dated February 13, 2008, by and between the Company and the Holder or
the Royalty Participation Agreement, dated as of the date hereof, by and between
the Company and Prospector Capital Partners II, LLC;
(v) (i) the
Company shall commence, or there shall be commenced against the Company, a case
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company commences any other proceeding under
any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Company or (ii) there is
commenced against the Company any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or (iii) the
Company is adjudicated by a court of competent jurisdiction insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or (iv) the Company suffers any appointment of any
custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or (v) the
Company makes a general assignment for the benefit of creditors; or
(vi) the Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or
(vii) the Company shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or
(viii) the Company shall by any act or failure to act expressly indicate
its consent to, approval of or acquiescence in any of the foregoing; or
(ix) any corporate or other action is taken by the Company for the purpose
of effecting any of the foregoing; or
(vi) except
with respect to those liabilities set forth on Schedule 4(a)(v), attached
hereto, the Company shall default in any of its obligations under any mortgage,
credit agreement or other facility, indenture agreement, factoring agreement or
other instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness for borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an amount exceeding
$100,000, whether such indebtedness now exists or shall hereafter be created and
such default shall result in such indebtedness becoming or being declared due
and payable prior to the date on which it would otherwise become due and
payable.
(b) Remedies Upon Event of
Default. If any Event of Default occurs, the full principal
amount of this Note to the date of acceleration shall become, at the Holder’s
election, immediately due and payable in full. The Holder need
not provide and the Company hereby waives any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by the Holder at any time prior to
payment hereunder and the Holder shall have all rights as a Note holder until
such time, if any, as the full payment under this Section shall have been
received by it. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section
5. Miscellaneous.
(a) Notices. Any
and all notices or other communications or deliveries to be provided by the
Holder hereunder by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at 0000 Xxxxxx Xxxx, Xxxxxxxxx,
Xxxxxxxxxx 00000, xxxxxxxxx number, (000) 000-0000, Attn: CEO and Corporate
Counsel, or such other address or facsimile number as the Company may specify
for such purposes by notice to the Holder delivered in accordance with this
Section. Any and all notices or other communications or deliveries to
be provided by the Company hereunder shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service addressed to the Holder at the facsimile telephone number or address of
such Xxxxxx appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business of the
Holder. Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 5:30 p.m. (local
time in Los Angeles, California), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 5:30 p.m. (local
time in Los Angeles, California) on any date and earlier than 11:59 p.m. (local
time in Los Angeles, California) on such date, (iii) the second Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.
(b) Absolute Obligation.
Except as expressly provided herein, no provision of this Note shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of this Note at the time, place, and rate, and in the coin or
currency, herein prescribed. This Note is a direct debt obligation of
the Company.
(c) Lost or Mutilated
Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Note, or in lieu of or in substitution
for a lost, stolen or destroyed Note, a new Note for the principal amount of
this Note so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Note, and of the ownership
hereof, and indemnity, if requested, all reasonably satisfactory to the
Company.
(d) Security
Interest. This Note is a direct debt obligation of the Company
and is secured by a first priority perfected security interest in all of the
assets of the Company for the benefit of the Holder. The Holder and
the Company have agreed to and more fully provided the Holder’s Security
Interest in that certain Security Agreement, by and among the Parties hereto,
dated February 13, 2008, attached hereto as Exhibit A (the “Security
Agreement”). The Security Agreement is incorporated by reference
herein in its entirety.
(e) Dutchess Equity
Line. The Company agrees it shall take any and all actions
necessary to ensure that its existing equity line with Dutchess Private Equities
Fund, LP (“Dutchess”) is cancelled and no longer in effect by no later than June
30, 2008 (the “Equity Line Termination Obligation”) and that no other
arrangement is entered into between the Company and Dutchess or any Dutchess
affiliate during the term of this Note.
(f) Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of this Note shall be governed by and construed
and enforced in accordance with the internal laws of the State of Delaware,
without regard to the principles of conflicts of law thereof.
(g) Waiver. Any
waiver by the Company or the Holder of a breach of any provision of this Note
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Note. The
failure of the Company or the Holder to insist upon strict adherence to any term
of this Note on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Note. Any waiver must be in
writing.
(h) Severability. If
any provision of this Note is invalid, illegal or unenforceable, the balance of
this Note shall remain in effect, and if any provision is inapplicable to any
Person or circumstance, it shall nevertheless remain applicable to all other
Persons and circumstances. If it shall be found that any interest or
other amount deemed interest due hereunder violates applicable laws governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum permitted rate of interest. The Company covenants
(to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on this Note as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Note, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that
it will not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Holder.
(i) Payment; Next Business
Day. All payments shall be made in lawful money of the United States of
America at such place as the Holder hereof may from time to time designate in
writing to the Company. Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.
(j) Headings. The
headings contained herein are for convenience only, do not constitute a part of
this Note and shall not be deemed to limit or affect any of the provisions
hereof.
(k) Seniority. This
Note is senior in right of payment to any and all other indebtedness of the
Company, provided, however, Xxxxxx agrees to subordinate this Note to (i) a
receivables line of credit of up to $1.5 million; or (ii) a term loan of up to
$1.0 million, in the event that the Company enters into either during the term
of the Note with a reputable commercial bank.
(l) Action to Collect on
Note. If action is instituted to collect on this Note, the
Company promises to pay all costs and expenses, including reasonable attorney’s
fees, incurred in connection with such action.
(m) Loss of
Note. Upon receipt by the Company of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Note or any Note
exchanged for it, and indemnity satisfactory to the Company (in case of loss,
theft or destruction) or surrender and cancellation of such Note (in the case of
mutilation), the Company will make and deliver in lieu of such Note a new Note
of like tenor.
*********************
Page
IN
WITNESS WHEREOF, the Company has caused this Amended and Restated Senior Secured
Promissory Note to be duly executed by a duly authorized officer as of June 9,
2008.
|
By:
Name: ________________________
Title: Chief
Executive Officer
|
AGREED
AND ACKNOWLEDGED
PROSPECTOR
CAPITAL PARTNERS, LLC
By:
Xxxxxx & Co., LLC, its manager
Name:
Xxxxxxxxxxx X. Xxxxxx
Title:
Authorized Person
EXHIBIT
A
Security
Agreement
Schedule
4(a)(v)
Gardena Hospital, L.P., et. al. v.
Auriga Laboratories, Inc., Los Angeles County Superior Court Case No.
SC097013
