AURIGA LABORATORIES, INC.
SENIOR
SECURED CONVERTIBLE PROMISSORY NOTE
PURCHASE
AGREEMENT
This
Senior Secured Convertible Promissory Note Purchase Agreement
(the “ Agreement
”) is made as of the 9th day of June, 2008, by and
between Auriga Laboratories, Inc., a Delaware
corporation (the “ Company
”), and Prospector Capital Partners II, LLC, a Delaware
limited liability company (the “ Purchaser
”).
RECITALS
The
Company desires to issue and sell, and the Purchaser desires
to purchase a senior secured convertible
promissory note in substantially the form attached hereto as
Exhibit B
(the “ First
Note ”). The Purchaser shall also have the right
to purchase from the Company two additional senior secured
convertible promissory notes in substantially the form of the
First Note (the “ Second
Note ” and “ Third
Note ”, respectively, and collectively with the
First Note, the “ Notes
”) in the principal amount set forth opposite
Purchaser’s name on Exhibit A
. The Notes and any securities issuable upon conversion of the
Notes are collectively referred to herein as the “
Securities
.” Any capitalized term not defined herein
shall have the meaning ascribed to it in the Notes, the
Security Agreement, dated February 13, 2008, by and between
the Company and Purchaser and amended pursuant to Amendment
No. 1 to the Security Agreement (the “ Security
Agreement Amendment ”) the Royalty Participation
Agreement, dated as the date hereof, by and between the
Company and Purchaser (the “ Royalty
Agreement ” and together with the Security
Agreement Amendment, the “ Ancillary
Agreements ”). This Agreement and the
Ancillary Agreements shall be referred to collectively as the
“ Transaction
Documents ”. In connection with
entering into this Agreement, the parties also wish to cancel
the Senior Secured Promissory Note, dated February 13, 2008,
held by Prospector Capital Partners, LLC (the “Prior
Note”) and replace it with the Amended and Restated
Senior Secured Promissory Note, dated as of the date hereof
(the “ Amended Prior
Note ”).
AGREEMENT
In
consideration of the mutual promises contained herein and
other good and valuable consideration, receipt of which is
hereby acknowledged, the parties to this Agreement agree as
follows:
1.
Purchase
and Sale of First Note .
(a)
Sale
and Issuance of First Note .
Subject to the terms and conditions of this
Agreement, the Purchaser agrees to purchase at the First
Closing (as defined below) and the Company agrees to sell and
issue to the Purchaser the First Note in the principal amount
of $287,500.
(b)
Closing;
Delivery .
(i) The
purchase
and sale of the First Note shall take place at the offices of
Prospector Capital Partners, LLC, 3112 Windsor Road, Suite
A-137, Austin, TX 78703, on June 9, 2008, or at such other
time and place as the Company and the Purchaser mutually
agree upon, orally or in writing (which time and place are
designated as the “ First
Closing ”). In the event there are more closings
than the Initial Closing, the term “ Closing
” shall apply to the Initial Closing and each such
closing unless otherwise specified herein.
(ii) At
the First Closing, the Company shall deliver to Purchaser the
executed First Note along with signed copies of the Ancillary
Agreements and the Amended Prior Note against (1) payment of
the Purchase Price (as defined below) therefor by check
payable to the Company or by wire transfer to a bank
designated by the Company, and (2) delivery of counterpart
signature pages to this Agreement and the Ancillary
Agreements.
(iii) The
“ Purchase
Price ” of each of the Notes shall equal the
principal amount of the Note minus the Loan Origination Fee.
The “ Loan
Origination Fee ” shall equal 15% of the
principal amount of the Note, payable or deducted from each
Purchase Price as agreed to between the
parties. The parties hereto agree that the
“Loan Origination Fee” has been fully earned by
Purchaser and is non-refundable. Purchaser, in its
sole discretion, may off-set the Loan Origination Fee from
any amounts provided under such Note.
(c)
Additional
Closings .
(i)
Conditions of Additional Closings . On or around
the dates set forth on Exhibit A ,
Purchaser shall have the option, in its sole discretion, to
purchase from the Company the Second Note and the Third Note in the
principal amounts set forth opposite Purchaser’s name on
Exhibit A
. At each Closing, the Company shall deliver to Purchaser the
executed Note against payment of the Purchase Price therefor by
check payable to the Company or by wire transfer to a bank
designated by the Company.
2.
Security
Interest . The indebtedness represented by
the Notes shall be secured by Collateral of the Company in
accordance with the provisions of the existing Security
Agreement, dated February 13, 2008, by and between the
Company and the Purchaser pursuant to the Security Agreement
Amendment.
3.
Representations
and Warranties of the Company . The Company
hereby represents and warrants to each Purchaser
that:
(a)
Organization,
Good Standing and Qualification . The
Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and
has all requisite corporate power and authority to carry on
its business as now conducted and as proposed to be conducted
(the “ Business
”). The Company is duly qualified to
transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a
material adverse effect on its Business or
properties.
(b)
Authorization
.
All corporate action required on the part of the
Company, its officers, directors and stockholders necessary
for the authorization, execution and delivery of this
Agreement and the Ancillary Agreements and the authorization,
sale, issuance and delivery of the Notes, and the performance
of all obligations of the Company hereunder and under the
Ancillary Agreements has been taken or will be taken prior to
the Closing. All
corporate action required to authorize the issuance of the
Securities will be taken prior to the issuance
thereof. The Agreement, and each of the Ancillary
Agreements, when executed and delivered by the Company, shall
constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with
their respective terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other laws of general application
affecting enforcement of creditors’ rights generally,
and as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable
remedies.
(c)
Issuance
of the Securities . The Securities are duly
authorized and, when issued and paid for in accordance with
the Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all
liens. The Company has reserved from its duly
authorized capital stock the maximum number of shares of
Common Stock issuable upon the conversion of the
Notes.
(d)
Litigation
.
Except as set forth on Schedule 3.(d), attached
hereto, there is no claim, action, suit, proceeding,
arbitration, complaint, charge or investigation pending with
respect to which the Company has been notified or is aware,
to the Company’s knowledge, currently threatened
against the Company that, if successful, would reasonably be
expected to have, either individually or in the aggregate, a
material adverse effect on its Business or properties, or any
change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the
foregoing.
(e)
SEC
Reports; Financial Statements . To the best
of its knowledge, the Company has filed all material reports
required to be filed by it under the Securities Act and the
Exchange Actfor the two years preceding (collectively, the
“ SEC
Reports ”) on a timely basis. As of their
respective dates, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading.
4.
Representations
and Warranties of the Purchaser . The
Purchaser hereby represents and warrants to the Company
that:
(a)
Authorization
. The
Purchaser has full power and authority to enter into this
Agreement. This Agreement, when executed and
delivered by the Purchaser, will constitute a valid and
legally binding obligation of the Purchaser, enforceable in
accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and any other laws of general
application affecting enforcement of creditors’ rights
generally, and as limited by laws relating to the
availability of a specific performance, injunctive relief, or
other equitable remedies.
(b)
Purchase
Entirely for Own Account .
This Agreement is made with the Purchaser in
reliance upon the Purchaser’s representation to the
Company, which by the Purchaser’s execution of this
Agreement, the Purchaser hereby confirms, that the Securities
to be acquired by the Purchaser will be acquired for
investment for the Purchaser’s own account, not as a
nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Purchaser has
no present intention of selling, granting any participation
in, or otherwise distributing the same. By
executing this Agreement, the Purchaser further represents
that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to
any third person, with respect to any of the
Securities.
(c)
Knowledge
.
The Purchaser is aware of the Company’s
business affairs and financial condition and has acquired
sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the
Securities.
(d)
Restricted
Securities . The
Purchaser understands that
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