**Exhibit10.11**

 

Execution Copy

 

THIS INSTRUMENT WAS ORIGINALLY ISSUED ONMARCH 4, 2004, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF1933, AS AMENDED.

 

THIS INSTRUMENT IS SUBJECT TO THE TERMS ANDCONDITIONS OF THAT CERTAIN SUBORDINATION AGREEMENT DATED MARCH 4, 2004,AMONG COMMERCE BANK, N.A., C3 CAPITAL PARTNERS, L.P., WALCO INTERNATIONAL,INC., CHEMDEX, INC. AND SPARHAWK LABORATORIES, INC. (THE ‘‘SUBORDINATIONAGREEMENT’’).

 

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**SPARHAWKLABORATORIES, INC.**

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**UNSECUREDSUBORDINATED NOTE**

** **
| March 4, 2004 |   | $350,000.00 |   |
|--------------------|--------|-------------|--------|

 

FOR VALUE RECEIVED, Sparhawk Laboratories,Inc. (the ‘‘Company’’) hereby promises to pay to Chemdex, Inc., a Kansascorporation (‘‘Chemdex’’), the principal amount of $350,000.00 together withinterest thereon calculated from the date hereof in accordance with theprovisions of this Note.

 

# 1.                                       Payment ofInterest.   Interest shall accrue atthe rate of 13% per annum (computed on the basis of a 365-day year and theactual number of days elapsed in any year) on the unpaid principal amount ofthis Note outstanding from time to time, or (if less) at the highest rate thenpermitted under applicable law.  TheCompany shall pay to Chemdex all interest accrued on the outstanding principalamount of this Note during the twelve (12) months immediately preceding theanniversary of the date of this Note on each of the first, second, third,fourth and fifth anniversaries of the date of this Note; provided, however, theCompany shall have the right on each of the first, second, third and fourthanniversaries of the date of this Note to add all or a portion of such accruedinterest to the outstanding principal amount of this Note on such anniversarydate.  Any portion of the accruedinterest that is not paid to Chemdex on the first, second, third or fourthanniversaries of the date of this Note shall automatically be added to theoutstanding principal amount of this Note and shall bear interest at the samerate at which interest is then accruing on the outstanding principal amount ofthis Note.  All unpaid interest that isadded to the outstanding principal amount of this Note shall become due andpayable in full on the fifth anniversary of the date of this Note, as providedin Section 2(a) below.  Interestshall accrue on the outstanding principal amount of this Note until such timeas payment therefore is actually remitted to Chemdex.

 

2.                                       Payment ofPrincipal on Note.

 

## (a)                                                          ScheduledPayment.  Subject to any voluntaryprepayment permitted pursuant to Section 2(b) below, all outstandingprincipal on this Note shall be due and payable in full upon the fifthanniversary of the date of this Note.

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## (b)                                                         Prepayments.  Subject to the terms of the SubordinationAgreement, the Company may make prepayments of principal of this Note (each a‘‘Prepayment’’) at any time and from time to time, in each case without premiumor penalty, provided that, in connection with the Prepayment of the entireunpaid principal balance of this Note, the Company shall also pay all accrued interestto, but not including, the date of such Prepayment.  The Company agrees, upon Chemdex’s request from time to time, tofurnish Chemdex with a written accounting of the outstanding principal amountof and accrued interest due on this Note.

 

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3.                                       Cancellation.  After all principal and accrued interest atany time owed on this Note have been paid in full, this Note shall besurrendered to the Company for cancellation and shall not be reissued.

 

4.                                       Payments.  All payments to be made to Chemdex shall bemade in the lawful money of the United States of America.

 

5.                                       Place ofPayment.  Payments of principal andinterest shall be remitted to Chemdex at the address specified below fornotices, or to such other address or to the attention of such other person asspecified by prior written notice to the Company.

 

6.                                       Business Days.  If any payment is due, or any time periodfor giving notice or taking action expires, on a day which is a Saturday,Sunday or legal holiday in the State of Kansas, the payment shall be due andpayable on, and the time period shall automatically be extended to, the nextbusiness day immediately following such Saturday, Sunday or legal holiday, andinterest shall continue to accrue at the required rate hereunder until any suchpayment is made.

 

7.                                       Usury Laws.  It is the intention of the Company andChemdex to conform strictly to all applicable usury laws now or hereafter inforce, and any interest payable under this Note shall be subject to reductionto the amount not in excess of the maximum legal amount allowed under theapplicable usury laws as now or hereafter construed by the courts havingjurisdiction over such matters.  If thematurity of this Note is accelerated by reason of an election by Chemdexresulting from an Event of Default, or otherwise then earned interest may neverinclude more than the maximum amount permitted by law, statute, rule orregulation, computed from the date hereof until payment, and any interest inexcess of the maximum amount permitted by law, statute, rule or regulationshall be canceled automatically and, if theretofore paid, shall at the optionof Chemdex either be refunded to the Company or credited on the principalamount of this Note, or if this Note has been paid, then the excess shall berefunded to the Company.  The aggregateof all interest (whether designated as interest, fees, or otherwise) contractedfor, chargeable, or receivable under this Note shall under no circumstancesexceed the maximum legal rate upon the unpaid principal balance of this Noteremaining unpaid from time to time.  Ifsuch interest does exceed the maximum legal rate, it shall be deemed a mistakeand such excess shall be canceled automatically and, if theretofore paid,refunded to the Company or credited on the principal amount of this Note, or ifthis Note has been repaid, then such excess shall be refunded to the Company.

 

8.                                       FinancialStatements.  So long as thereremains unpaid principal and accrued interest outstanding under this Note, theCompany shall furnish to Chemdex:

 

### (i)                                     assoon as available but in any event within thirty (30) days after the end ofeach quarterly accounting period in each fiscal year, unaudited consolidatingand consolidated statements of income and cash flows of Company for suchquarterly period and for the period from the

 

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### beginning of the fiscal year to the end ofsuch quarterly period, and unaudited consolidating and consolidated balancesheets of Company as of the end of each quarterly period, setting forth in eachcase comparisons to Company’s corresponding period in the preceding fiscalyear, and all such statements shall be prepared in accordance with generallyaccepted accounting principles consistently applied (except for any financialperiods prior to the date hereof) subject to the absence of footnotedisclosures and to normal year-end adjustments for recurring accruals, andshall be certified by Company’s chief executive officer; and

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### (ii)                                  withinone hundred twenty (120) days after the end of each fiscal year, consolidatingand consolidated statements of income and cash flows of Company for such fiscalyear, and consolidating and consolidated balance sheets of Company as of theend of such fiscal year, setting forth in each case comparisons to Company’spreceding fiscal year, all prepared in accordance with generally acceptedaccounting principles consistently applied (except for any financial periodsprior to the date hereof) and certified by BKD, LLP or other independentaccounting firm acceptable to the Senior Lenders (as defined in theSubordination Agreement) or, if the Senior Liabilities (as defined in theSubordination Agreement) have been fully paid and satisfied, reasonablyacceptable to Chemdex.

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9.                                       Events ofDefault.  Time is of the essence inthe payment and performance of this Note. The occurrence of any of the following shall constitute an ‘‘Event ofDefault’’ for purposes of this Note:

 

### (i)                                     Subjectto Company’s right to defer the payment of accrued interest pursuant toSection 1 above, Company fails to make any payment of principal orinterest when due under this Note, and such failure continues for a period offive (5) business days thereafter;

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### (ii)                                  Companyfails to pay any amount due or perform any other material obligation under thatcertain Warrant and Repurchase Agreement, dated March 4, 2004, by Companyto Chemdex, and such failure continues for fifteen (15) or more business daysthereafter; or

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### (iii)                               Companycommences any proceeding with respect to its bankruptcy, reorganization,arrangement, insolvency, readjustment of debt, dissolution or liquidation, orany such proceeding is commenced against Company and either (a) Company by anyact indicates its approval thereof, consent thereto or acquiescence therein or(b) such proceeding is not dismissed within sixty (60) days thereafter.

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Upon the occurrence of any Event of Default,and at any time thereafter as long as such Event of Default is continuing,Chemdex may, at its option, declare the entire outstanding principal balanceand accrued interest hereunder immediately due and payable, and Chemdex shallhave all of the rights and remedies available under applicable law.  The

 

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Company agrees that if this Note is placed inthe hands of an attorney for collection, it shall, to the extent permitted byapplicable law, pay Chemdex its reasonable attorneys’ fees and all court costs.

 

10.                                 Construction.  The Company and Chemdex have participatedjointly in the negotiation and drafting of this Note.  In the event an ambiguity or question of intent or interpretationarises, this Note shall be construed as if drafted jointly by the Company andChemdex, and no presumption or burden of proof shall arise favoring ordisfavoring any party by virtue of the authorship of any of the provisions ofthis Note.

 

11.                                 Governing Law.  This .Note shall be governed andconstrued in accordance with the laws of the State of Kansas, without givingeffect to any choice of law or conflict of law provision or rule (whether ofthe State of Kansas or any other jurisdiction) that would cause the applicationof the laws of any jurisdiction other than the State of Kansas.

 

12.                                 Replacement.  Upon receipt of evidence reasonablysatisfactory to the Company (an affidavit of Chemdex shall be satisfactory) ofthe ownership and the loss, theft, destruction or mutilation of this Note, andin the case of any such loss, theft or destruction, upon receipt of indemnityreasonably satisfactory to the Company, or, in the case of any such mutilationupon surrender of this Note, the Company shall (at its expense) execute anddeliver, in lieu thereof, a new Note of like kind representing the same rightsrepresented by such lost, stolen, destroyed or mutilated Note and dated thedate of such lost, stolen, destroyed or mutilated Note.

 

13.                                 Notices.  All notices and other communicationsprovided for herein shall, unless otherwise stated herein, be in writing andshall be personally delivered or sent by certified mail, postage prepaid, byprepaid overnight nationally recognized courier, or by facsimile, to theintended party at the address or facsimile number of such party set forth asfollows:

 

If to Chemdex:

 

Chemdex, Inc.c/o Polydex Pharmaceuticals Limited421 Comstock RoadToronto Ontario Canada M1L 2H5Attn:  PresidentFacsimile No. 416-755-0334

 

If to the Company:

 

Sparhawk Laboratories, Inc.12340 Santa Fe Trail DriveLenexa, Kansas 66215

 

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Attention: Bert HughesFacsimile No. (913) 888-6741

 

or at such other address or facsimile numberas shall be designated by such party in a written notice to the other partieshereto.  All such notices andcommunications shall be effective (a) if personally delivered, when delivered,(b) if sent by certified mail, three (3) days after having been deposited inthe mail, postage prepaid, (c) if sent by overnight courier, one business dayafter having been given to such courier, or (d) if transmitted by facsimile,upon confirmation of transmission by sender’s facsimile equipment.

 

14.                                 Certain Waivers.  The Company hereby waives diligence,presentment, protest and demand and notice of protest and demand, dishonor andnonpayment of this Note, and expressly agrees that this Note, or any paymenthereunder, may be extended from time to time, all without in any way affectingthe liability of the undersigned for all obligations and liabilities under thisNote.

 

15.                                 No Assignment.  Neither this Note nor Chemdex’s rightshereunder may be assigned or transferred by Chemdex without the Company’s priorwritten consent thereto, which consent may be withheld or denied by Company inthe exercise of its sole discretion. Any purported assignment or transfer by Chemdex without such consentshall be invalid and without legal effect, in which event Company may continueto satisfy its payment and other obligations under this Note by directing itspayments and other performance to Chemdex. Notwithstanding the foregoing, Chemdex may assign and transfer this Noteand all of its rights hereunder to any entity which is controlled by, controls,or is under common control with, Chemdex if Chemdex furnishes Company priorwritten notice of the name and address of such assignee for purposes ofCompany’s performance hereunder.

 

16.                                 No Security.  This Note is an unsecured obligation of theCompany.

 

17.                                 No Right of Set-off.  Chemdex shall have no right to set-off anyobligation owed to the Company against amounts payable by the Company under thisNote.

 

18.                                 SubordinationAgreement.  The rights of Chemdexunder this Note are subject to the terms of a Subordination Agreement, datedMarch 4, 2004, by and among the Company, Chemdex, Commerce Bank, N.A., C3Capital Partners, L.P. and Walco International, Inc.

 

**[Remainderof page intentionally left blank; signature page follows.]**

 

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IN WITNESS WHEREOF, the undersigned hasexecuted and delivered this Note on March 4, 2004.

 
|                     | **SPARHAWK LABORATORIES, INC.** |
|--------------------------|---------------------------------|
|                     | a Missouri corporation          |
|                     |                            |
|                     |                            |
|                     | By:                             | /s/ E. Bert Hughes |
|                     |                            | Name: | E. Bert Hughes |
|      |                            | Title: | President |

 

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