CONVERTIBLE NOTE B

 

 

 

 

 

THIS NOTE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR APPLICABLE EXEMPTION OR SAFE HARBOR PROVISION.

 

 

 

FOR VALUE RECEIVED, on the Effective Date, as defined below, Auriga Laboratories Inc. as Obligor ("Borrower,” or “Obligor”), hereby promises to pay to the Lender (“Lender” or “ Holder”), as defined below, the Principal Sum, as defined below, along with the Interest Rate, as defined below, according to the terms herein.

 

 

 

 

 

The "Effective Date" shall be:	January 15, 2008
The "Lender" shall be:	JMJ Financial / Its Principal, or Its Assignees
The "Principal Sum" shall be:	$1,800,000 (one million eight hundred thousand) US Dollars; Subject to the following: accrued, unpaid interest shall be added to the Principal Sum.
The “Consideration” shall be:	$1,800,000 (one million eight hundred thousand) dollars in the form of the Secured & Collateralized Promissory Note Document C-01152008 (including Security & Collateral Agreement).
The "Interest Rate" shall be:	12% one-time interest charge on the Principal Sum.   No interest or principal payments are required until the Maturity Date, but both principal and interest may be included in conversion prior to maturity date.
The "Conversion Price" shall be the following price:	As applied to the Conversion Formula set forth in 2.2, sixty-five percent of the average of the 3 (three) lowest closing bid prices in the 20 trading days previous to the conversion; as applies to Auriga Laboratories Inc. voting common stock.
The "Maturity Date" is the date upon which the Principal Sum of this Note, as well as any unpaid interest shall be due and payable, and that date shall be:	January 15, 2011
The “Prepayment Terms” shall be:	Prepayment is permitted at any time in the amount of 130% of the outstanding principal and interest note balance at the time of the prepayment.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

            1.1 Interest Rate. Subject to the Holder's right to convert, interest payable on this Note will accrue interest at the Interest Rate and shall be applied to the Principal Sum.

 

 

 

 

 

 

 

 

 

 

            The Holder will have the right to convert the Principal Sum and accrued interest under this Note into Shares of the Borrower's Common Stock as set forth below.

 

 

 

            2.1 Conversion Rights and Cashless Exercise. Subject to the terms set forth in Section 2.7, the Holder will have the right at its election from and after the Effective Date, and then at any time, to convert all or part of the outstanding and unpaid Principal Sum and accrued interest into shares of fully paid and nonassessable shares of common stock of Auriga Laboratories Inc. (as such stock exists on the date of issuance of this Note, or any shares of capital stock of Auriga Laboratories Inc. into which such stock is hereafter changed or reclassified, the "Common Stock") as per the Conversion Formula set forth in Section 2.2. Any such conversion shall be cashless, and shall not require further payment from Holder.  Unless otherwise agreed in writing by both the Borrower and the Holder, at no time will the Holder convert any amount of the Note into common stock that would result in the Holder owning more than 4.99% of the common stock outstanding of Auriga Laboratories Inc.   Shares from any such conversion will be delivered to Holder within 2 (two) business days of conversion notice delivery (see 3.1) via 10:30am priority overnight delivery service (see Section 2.6).

 

 

 

 

 

2.2. Conversion Formula. The number of shares issued through conversion is the conversion amount divided by the conversion price.

 

 

 

# Shares = Conversion Amount

 

                 Conversion Price

 

 

 

 

 

 

 

2.3 Conversion Formula Adjustments. The Conversion Formula described in Sections 2.2 and the number and kind of shares or other securities to be issued upon conversion is subject to adjustment upon any of the events as described in 2.3.1 to 2.3.3, or any other event as mutually agreed in writing by both the Holder and Borrower.  The adjustment due to any of the described events shall be: The result of the Conversion Formula described in 2.2 above shall be multiplied by (2) two, such that the number of shares calculated in the Conversion Formula would be doubled.

 

 

 

2.3.1. Merger, Consolidation or Sale of Assets. If the Borrower at any time consolidates with or merges into, or sells or conveys all or substantially all of its assets to, any other entity, the unpaid Principal Sum of this Note and accrued interest thereon will thereafter be deemed to evidence the right to purchase such number and kind of shares or other securities and property as would have been issuable or distributable, on account of such consolidation, merger, sale or conveyance, upon or with respect to the securities subject to the conversion or purchase right immediately prior to such consolidation, merger, sale or conveyance. The foregoing provision will similarly apply to successive transactions of a similar nature by any such successor or purchaser. Without limiting the generality of the foregoing, the anti-dilution provisions of this Note will apply to such securities of such successor or purchaser after any such consolidation, merger, sale or conveyance.

 

 

 

            2.3.2. Reclassification. If the Borrower at any time,