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, 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 developing, manufacturing and distributing
pharmaceutical products for personal and professional use utilizing (i)
dextroamphetamine or (ii) codeine or acetaminophen (the “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 Promissory Note in a principal
aggregate amount of $750,000 (the “Principal Financing Amount”), pursuant to
that certain Senior Secured Note and Warrant Purchase Agreement and Senior
Secured 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 sales of the Products 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 $750,000, 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 distribution by Investor and receipt by Company of the Principal Financing
Amount, the Company shall pay to Investor non-refundable Royalty Payments
consisting of seven and one-half percent (7.50%) of all “Net Sales” of the
Products received by the Company 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 month in which the Company receives payment for any
Net Sales of the Products.
(b). For
the purposes of this Agreement, “Products” shall mean: (i)
detroamphetamine suflate oral solution subject of that certain License Agreement
between Outlook Pharmaceuticals, Inc and the Company, dated November 28, 2007
(the “Outlook Agreement”) or any successor or replacement agreement to the
Outlook Agreement; and (ii) Codeine APAP subject of that certain license
Agreement between Mikart Pharmaceuticals, Inc and the Company, dated October
29,
2007 (the “Mikart Agreement”) or any successor or replacement agreement to the
Mikart Agreement, and any and all successors, derivative works, line
extensions, upgrades, new formulations, generic versions and the like of the
foregoing products.
(c). For
the purposes of this Agreement, “Royalty Cap Amount” shall mean SIX MILLION U.S.
DOLLARS (U.S. $6,000,000).
(d). For
the purposes of this Agreement, “Net Sales” shall mean the total gross receipts
from sale or license of Products less the following amounts: (i)
amounts reimbursed by customers, such as for insurance and shipping; (ii)
promotional amounts, such as credits, cash discounts, freight discounts, rebates
or promotional allowances; and; (iii) reasonable reserves taken for sales
returns in accordance with Generally Accepted Accounting Principles (“GAAP”);
and (iv) taxes on sale, such as sales, use, excise and other taxes. For
avoidance of doubt, Net Sales 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 commercially reasonable
efforts to maximize its Net Sales during the term of this
Agreement. “Net Sales” 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 of the 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 Net Sales 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. Notwithstanding the above, during the
term of this Agreement, the Company may, with a reputable commercial bank,
enter
into (i) a receivables line of credit of up to $1.5 million; or (ii) a term
loan
of up to $1.0 million without the prior written consent of the Investor, and
security interests in the name of such commercial banks shall not be deemed
a
violation or breach of this section.
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, 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, sale or change
of control of the Company or sale transaction involving substantially all of
the
Company’s 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 the date first
above written.
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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, 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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