EXHIBIT 10.27
Technology Investment Capital Corp.
8 Sound Shore Drive, Suite 255
Greenwich, Connecticut 06830
July 11, 2005
Advanced Aesthetics, Inc.
Anushka PBG Acquisition Sub, LLC
Anushka Boca Acquisition Sub, LLC
Wild Hare Acquisition Sub, LLC
DiSchino Corporation
Advanced K, LLC
501 Madison Avenue
New York, NY 10022
Attention: Andrew Lipman
Re: Note and
Warrant Purchase Agreement
Gentlemen:
Reference is hereby
made to that certain
Note and Warrant Purchase
Agreement dated as of March 31, 2004 (as heretofore amended, the "Purchase
Agreement"), by and among Technology Investment Capital Corp., as Collateral
Agent and Purchaser (the "Purchaser") and Advanced Aesthetics, Inc. (the
"Parent"), Anushka PBG Acquisition Sub, LLC,
Anushka Boca Acquisition Sub, LLC,
Wild Hare Acquisition Sub, LLC, DiSchino Corporation and Advanced K, LLC
(collectively, the "Co-Borrowers" and, together with the Parent, the
"Obligors"). Capitalized terms used in this
letter agreement without definition
shall have the respective meanings ascribed
to them in the Purchase Agreement.
On July 7, 2005, the
Parent issued and sold
to affiliates
of Pequot
Capital Management an aggregate of 5,000 of its shares of Series F
Preferred
Stock, par value $.01 per share, for an
aggregate purchase
price of $5,000,000,
in accordance with the terms set forth in the
summary of terms attached hereto
as Exhibit A (the "Series F
Investment").
We have been advised
by Parent that it is
contemplating
a financing
pursuant to which it will issue
shares of its Common
Stock in exchange for cash
in an aggregate amount of not less than
$5,000,000 and not more than $15,000,000
(the "Common Stock Investment").
We have also been
advised by the Parent that it is contemplated that
the Parent and its shareholders (including the investors in the Common Stock
Investment) will execute a share exchange agreement or merger agreement (the
"Public Transaction") with a to-be-named
public company ("Newco"). As a result,
the Parent will become a wholly-owned subsidiary of Newco and all
existing and
new shareholders of the Parent will receive shares of common stock of Newco
("Newco Common Stock") in exchange for
their equity in the Parent. In connection
with the Public Transaction it is also contemplated that the Purchaser will
exchange its Warrant for a warrant to
purchase shares of Newco Common Stock.
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The parties hereto hereby agree as follows:
1. Amendments
to Financial
Covenants.
The parties
hereto shall use
commercially reasonable efforts within sixty
(60) days after the date hereof to
amend, in a manner reasonably satisfactory to the parties
hereto, the financial
covenants set forth in Sections 7.1 through 7.5, inclusive, of the Purchase
Agreement based on the financial projections most recently prepared by the
Obligors in connection with the Series F
Investment, true and complete copies of
which have been delivered to the Purchaser;
provided, that (i) such amendments
shall become effective only upon the execution by the parties hereto of
definitive documentation setting forth such amendments, which documentation
shall be reasonably satisfactory in form and substance to the
parties hereto,
and (ii) until the execution and delivery by all parties hereto of such
definitive documentation, the provisions of
Sections 7.1 through 7.5, inclusive,
of the Purchase Agreement shall continue in
effect without change.
2. Prepayment of
Seller Notes.
Notwithstanding any
provisions of the
Transaction Documents to the contrary,
the Purchaser hereby
consents to the use
by the Parent of a portion of the net cash
proceeds of the Series
F Investment,
in an aggregate amount not to exceed $900,000, to prepay a portion of the
outstanding principal amount of the Seller
Notes and accrued but unpaid interest
on such prepaid principal amount.
3. Public Transaction;
Exchange of Warrant;
Notices.
Notwithstanding
any provisions of the Transaction Documents to the contrary, the Purchaser
hereby irrevocably consents to the consummation of
the Public
Transaction. In
connection therewith, Purchaser hereby irrevocably agrees (i) to exchange
its
Warrant for a warrant to purchase a number
of shares of Newco Common Stock equal
to its pro rata number of shares of the Newco Common Stock issued to the
securityholders of the Parent (the "Newco
Warrant") and (ii) that this letter
agreement satisfies any and all notice requirements under the Transaction
Documents with respect to the Public Transaction and all other transactions
described herein. The Newco Warrant shall be
identical in form and substance to
the Warrant other than the number of the
Warrant Shares, the
Exercise Price and
Trigger Price of the Warrant (and each as defined therein) which will be
adjusted in connection with the Public
Transaction.
4. Conversion
of KCO Note
into Common Stock. Notwithstanding any
provisions of the Transaction Documents to the contrary, in
connection with the
closing of the Public Transaction, the Purchaser hereby consents to the
conversion of the KCO Note (the "KCO Note
Conversion"),
including all
interest
accrued and unpaid thereon, into shares of Common Stock of Parent at a
conversion price equal to the price per
share of Common
Stock in the
Common
Stock Investment.
5. Conversion
of Series B Preferred Stock into Common Stock.
Notwithstanding any provisions of the
Transaction Documents
to the contrary, in
connection with the closing of the Public
Transaction,
the Purchaser hereby
consents to the conversion of all issued and outstanding shares of Series B
Preferred Stock of the Parent, into shares of Common Stock (the "Series B
Conversion") at a conversion price equal to the price per share
of Common Stock
in the Common Stock Investment.
6. Waiver of
Preemptive Rights.
Purchaser hereby waives its rights
under Section 4 of the Shareholders
Agreement to purchase shares of Common Stock
in connection with: (i) the Series F Investment, (ii) the Common Stock
Investment (as long as the price per share
of
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<PAGE>
Common Stock in the Common Stock Investment is equal to at least the
Trigger
Price (as defined in the Warrant)),
(iii) the Public
Transaction, (iv) the
KCO
Note Conversion and (v) the Series B
Conversion.
7. Termination of Shareholders Agreement. The parties agree that upon
consummation of the Public Transaction, without any further action by the
parties, the Shareholders Agreement will automatically
terminate and be of
no
further force and effect.
8. Registration Rights Agreement. Parent will cause Newco to assume
all
obligations of Parent under the
Registration
Rights Agreement with respect to
the Newco Common Stock issuable upon
exercise of the Newco Warrant.
9. Issuance of Additional Warrants.
(a) At the time
of the execution of the amendment of the
Purchase Agreement
pursuant to Section 1
hereof, Parent
shall cause
Newco to execute and issue to the Purchaser additional warrants (the
"Additional Warrants")
to purchase shares of Newco Common Stock,
subject to the
following:
(a) at the option of the Parent, such
warrants shall provide
either (i) that they are initially exercisable
to purchase a number of shares of Newco Common Stock into which 50,000
shares of Common Stock
will be exchangeable
in connection with the
Public Transaction,
at an initial
exercise price per share equal to
$.01 divided by the number of shares of Newco Common Stock that
will be
issued in exchange for each share of Common Stock of Parent in
connection with the Public Transaction, or (ii) that they are
initially
exercisable to purchase, at an initial exercise price of an
amount per
share
equal to $2.50
divided by the number
of shares of Newco
Common
Stock that will be issued in exchange for each share of Common
Stock of
Parent in connection with the Public Transaction, an aggregate number
of shares of Newco Common Stock equal to 0.978% of the aggregate
number
of shares of Newco Common Stock then outstanding on a fully diluted
basis (after giving effect to the issuance of the Additional
Warrants,
and assuming the exercise in full of all outstanding options,
warrants
and other rights to
subscribe for or purchase Common Stock or other
equity securities
of the Parent
and the conversion into shares of
Common Stock of all then outstanding shares of convertible preferred
stock and other convertible securities of the Parent (if any),
whether
or not then currently exercisable or convertible); and (b) in all
other
respects, the
Additional
Warrants shall be identical in form and
substance to the Warrant. Notwithstanding the foregoing, in lieu of
the
issuance of the Additional Warrants, Parent may, at its option, make
a
cash payment of $100,000 to the Purchaser.
(b) The Parent
