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Exhibit 10.16
EXECUTION COPY
NEITHER THIS NOTE NOR THE EQUITY SECURITIES
FOR WHICH THIS NOTE IS CONVERTIBLE
HAVE BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED, OR
QUALIFIED UNDER THE SECURITIES LAWS OF ANY
OTHER JURISDICTION. NONE OF SUCH
SECURITIES MAY BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
CONVERTIBLE PROMISSORY NOTE
$5,000,000
Date: August 16, 2005
FOR VALUE RECEIVED, the undersigned Castle
Brands Inc., a Delaware corporation
(the "COMPANY"), promises to pay to the
order of Black River Global Credit Fund
Ltd. ("HOLDER") the principal amount of
Five Million US DOLLARS (US $5,000,000)
(the "PRINCIPAL AMOUNT"), together, with
interest on the unpaid balance of the
Principal Amount, on the Maturity Date, and
subject to the following provisions.
The following is a statement of the rights
of Holder and the conditions to which
this Note is subject, and to which Holder,
by the acceptance of this Note,
agrees:
1.
DEFINITIONS.
The
capitalized terms in this Note shall have the meanings ascribed
to
such terms in the Convertible Note Purchase
Agreement unless otherwise defined
herein:
"40%
CONVERSION" has the meaning set forth in Section 7.2(i) below;
"ADDITIONAL STOCK" means any Equity Securities of the Company
issued by
the Company after the applicable Closing
Date but prior to the second
anniversary of the applicable Closing Date
other than (i) the Notes (as defined
in the Convertible Note Purchase Agreement)
and the Conversion Shares; (ii)
Common Stock issued or issuable as a
dividend or distribution on or upon
conversion of the Preferred Stock of the
Company; (iii) Common Stock issued or
issuable by reason of a dividend, stock
split, split-up or other distribution on
Common Stock, (iv) any Common Stock issued
or issuable (including pursuant to
options or warrants) to financial
institutions in connection with commercial
credit arrangements approved by the Board
of Directors of the Company, (v) any
Common Stock issued or issuable to
employees, officers, or directors of the
Company or their respective immediate
family members pursuant to currently
outstanding or newly created options or
warrants that are approved by the Board
of Directors of the Company or a committee
thereof, (vi) Common Stock issued
upon conversion of the Company's 5%
Convertible Subordinated Notes due on or
about the third anniversary of the Series C
Closing Date as defined in the
Restated Charter in the aggregate principal
amount of E1,374,750, (vii) shares
or interests
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issued or issuable pursuant to any rights
or agreements, options, warrants or
convertible securities outstanding as of
the date of this Note or the issuance
of any of the warrants listed on Section
5.3(a) of the Schedule of Exceptions to
the Convertible Note Purchase Agreement or
the issuance of any shares of Common
Stock upon exercise thereof, (viii) any
Equity Securities issued for
consideration other than cash pursuant to a
merger, consolidation, strategic
alliance, acquisition or similar business
combination approved by the Board of
Directors of the Company, (ix) any Equity
Securities issued in connection with
any recapitalization or similar event by
the Company, (x) any Equity Securities
that are issued by the Company pursuant to
an IPO, and (xi) any Equity
Securities issued in connection with
strategic transactions involving the
Company and other entities, including joint
ventures, manufacturing, marketing
or distribution arrangements provided that
the issuance of shares therein has
been approved by the Board of Directors of
the Company;
"CERTIFICATE OF DESIGNATIONS" has the meaning set forth in Section
7.2
below;
"CONVERSION NOTICE" has the meaning set forth in Section 7.3
below;
"CONVERSION PRICE" means a price equal to, in the case of
conversion of
this Note into Conversion Shares, $8.00 per
share; provided, however, that (i)
in the event that the Company issues or is
deemed to issue Additional Stock at a
per share purchase price of less than the
then in effect Conversion Price, the
Conversion Price shall be subject to the
following adjustment upon the issuance
of any Additional Stock: the new Conversion
Price shall be determined by
multiplying the Conversion Price then in
effect by a fraction, (x) the numerator
of which shall be the number of shares of
Common Stock deemed outstanding
immediately prior to such issuance
("OUTSTANDING COMMON") plus the number of
shares of Common Stock that the aggregate
consideration received by the Company
for such issuance would purchase at the
Conversion Price then in effect; and (y)
the denominator of which shall be the
number of shares of Outstanding Common
plus the number of shares of such
Additional Stock, and (ii) the Conversion
Price shall be proportionately adjusted in
the case of any stock dividend, stock
split, split-up or other distribution on
Common Stock; for purposes of clarity,
"Outstanding Common" shall include all
outstanding shares of Common Stock and
all shares of Common Stock issuable upon
conversion of outstanding shares of
Preferred Stock or other convertible
instruments of the Company or issuable upon
exercise of options, warrants or other
rights to acquire Common Stock;
"CONVERSION SHARES" means Common Stock to which Holder shall be
entitled
under the terms of this Note;
"CONVERTIBLE NOTE PURCHASE AGREEMENT" means that certain Amended
and
Restated Convertible Note Purchase
Agreement dated as of August 16, 2005, by and
among the Company and the Purchasers,
and/or their affiliates and assigns, set
forth on Exhibit A thereto;
"DEFAULT
RATE" shall have the meaning set forth in Section 6.1 below;
2
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"DISCOUNTED CONVERSION PRICE" has
the meaning set forth in Section 7.2(i)
below;
"EQUITY
SECURITIES" means (i) any share or interest in the Company,
(ii)
any security convertible into or
exercisable or exchangeable for, with or
without consideration, any share or
interest (including any option to purchase
such convertible security) in the Company,
(iii) any security carrying any
warrant or right to subscribe to purchase
any share, interest or other security
in the Company or (iv) any such warrant or
right;
"FINAL
CONVERSION" has the meaning set forth in Section 7.2 below;
"HOLDER"
has the meaning set forth in the introductory paragraph to this
Note;
"INTEREST
RATE" means the rate of 6% calculated on the basis of a 360 day
year based on the number of days elapsed
including the first day, but excluding
the day on which such calculation is being
made; provided that in the absence of
an Event of Default and in the event the
Company does not complete an IPO by
September 30, 2006, the Interest Rate
applicable to this Note will increase by
100 basis points as of September 30, 2006;
provided further that upon the
occurrence of an Event of Default, the
Interest Rate will increase to the
Default Rate;
"INTEREST
NOTE RATE" means the rate of 7.5% calculated on the basis of a
360 day year based on the number of days
actually elapsed including the first
day but excluding the day on which such
calculation is being made; provided that
in the absence of an Event of Default and
in the event the Company does not
complete an IPO by September 30, 2006, the
Interest Note Rate will increase by
100 basis points as of September 30, 2006;
provided further that upon the
occurrence of an Event of Default, the
Interest Note Rate will increase to the
Default Rate;
"MATURITY
DATE" means March 1, 2010 or such earlier date as this Note
shall become due and payable in accordance
with Section 2.4 or Section 6 below;
"NOTE"
means this Convertible Promissory Note due March 1, 2010;
"PRINCIPAL
AMOUNT" has the meaning set forth in the introductory paragraph
to this Note; and
"SERIES C
PREFERRED CONVERSION" has the meaning set forth in Section 7.2
below.
2.
TIME OF
PAYMENT.
2.1 PAYMENT AT
MATURITY DATE.
The Principal Amount
together with all accrued but unpaid interest
shall be due and payable on the Maturity
Date, in accordance with the terms of
this Note. If the payment of the Principal
Amount and interest on this Note
becomes due on a day
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which is not a Business Day, such payment
shall be made on the next succeeding
Business Day, and any such extension of
time shall be included in computing
interest in connection with such
payment.
2.2 INTEREST
PAYMENT.
Interest shall accrue on the Principal Amount at the Interest
Rate.
Interest accrued but unpaid on the
Principal Amount as of the end of each
quarter of each calendar year that this
Note remains outstanding shall be
payable within 30 days after the end of
each calendar quarter in accordance with
the terms of this Note; provided that for
the period beginning on the date of
this Note and terminating two years from
the date of this Note, at the Company's
election, the Company may pay interest on
this Note by issuing Interest Notes on
the same terms as the Initial Note except
that interest payable on any Interest
Note (i) shall accrue at the Interest Note
Rate and (ii) may not be paid in
kind.
2.3 NO
PREPAYMENT.
Except as set forth in this Note, the Company may not prepay
the
Principal Amount and/or the accrued but
unpaid interest or any part thereof
withou
