Document:

purchaseagreement.htm

    AURIGA
      LABORATORIES, INC.

     

    SENIOR
      SECURED NOTE AND WARRANT

     

    PURCHASE
      AGREEMENT

     

    This
      Senior Secured Note and Warrant Purchase Agreement (the “Agreement”) is
      made as of the 13th day of February, 2008, by and between Auriga Laboratories,
      Inc., a Delaware corporation (the
“Company”), and Prospector Capital Partners,
      LLC, a Delaware limited
      liability company (the “Purchaser”).

     

    RECITALS

     

    The
      Company desires to issue and sell, and the Purchaser desires to purchase (i)
      a
      senior secured promissory note in substantially the form
      attached as Exhibit A (the “Note”) and (ii) a warrant in
      substantially the form attached as Exhibit B (the “Warrant”) which
      shall be exercisable on the terms stated therein into securities of the
      Company.  The Note, the Warrant and any securities issuable upon
      exercise of the Warrant are collectively referred to herein as the
“Securities.”  Any capitalized term not defined herein shall
      have the meaning ascribed to it in the Note, the Warrant, the Security Agreement
      or the Royalty Participation Agreement (taken together, the “Ancillary
      Agreements”).  This Agreement and the Ancillary Agreements shall
      be referred to collectively as the “Transaction Documents”.

     

    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 Note and Warrant.

     

    (a)           Sale
      and Issuance of Note and
      Warrant.  Subject to the terms and
      conditions of this Agreement, the Purchaser agrees to purchase at the Closing
      (as defined below) and the Company agrees to sell and issue to the Purchaser
      the
      Note in the principal amount of $750,000 and the Warrant.

     

    (b)           Closing;
      Delivery.

     

    (i)           The purchase
      and sale of the Note and Warrant shall take place at the offices of Prospector
      Capital Partners, LLC, 3112 Windsor Road, Suite A-137, Austin, TX 78703, on
      February 13, 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 “Closing”).

     

    (ii)           At
      the Closing, the Company shall deliver to Purchaser the executed Note and
      Warrant along with signed copies of the Ancillary Agreements 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” shall equal the principal amount of the Note minus the
      Loan Origination Fee. The “Loan Arrangement Fee” shall equal 10% of the
      principal amount of the Note.  The parties hereto agree that the “Loan
      Arrangement Fee” has been fully earned by Purchaser and is
      non-refundable.  Purchaser, in its sole discretion, may off-set the
      Loan Arrangement Fee from any amounts provided under the Note.

     

    2.           Security
      Interest.  The indebtedness represented by the Note shall
      be secured by Collateral of the Company in accordance with the provisions of
      a
      Security Agreement between the Company and the Purchaser in the form attached
      to
      this Agreement as Exhibit C (the “Security
      Agreement”).

     

    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 Note and Warrant, 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 pursuant to the
      Warrant.

     

    (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 the Securities have not been, and will not be, registered under the
      Securities Act of 1933, as amended (the “Securities Act”), by reason of a
      specific exemption from the registration provisions of the Securities Act which
      depends upon, among other things, the bona fide nature of the investment intent
      and the accuracy of the Purchaser’s representations as expressed
      herein.  The Purchaser understands that the Securities are “restricted
      securities” under applicable U.S. federal and state securities laws and that,
      pursuant to these laws, the Purchaser must hold
      the Securities indefinitely unless
      they are registered with the Securities and Exchange Commission and qualified
      by
      state authorities, or an exemption from such registration and qualification
      requirements is available.  The Purchaser acknowledges that the
      Company has no obligation to register or qualify the Securities for
      resale.  The Purchaser further acknowledges that if an exemption from
      registration or qualification is available, it may be conditioned on various
      requirements including, but not limited to, the time and manner of sale, the
      holding period for the Securities, and on requirements relating to the Company
      which are outside of the Purchaser’s control, and which the Company is under no
      obligation and may not be able to satisfy.

     

    (e)           Legends.  The
      Purchaser understands that the Securities may bear one or all of the following
      legends:

     

    (i)           “THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
      INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
      DISTRIBUTION THEREOF.  NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED
      WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
      COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
      REQUIRED UNDER THE SECURITIES ACT OF 1933.”

     

    (ii)           Any
      other legend required by the Blue Sky laws of any state to the extent such
      laws
      are applicable to the shares represented by the certificate so
      legended.

     

    (f)           Accredited
      Investor. The Purchaser is an accredited investor
      as defined in Rule 501(a) of Regulation D promulgated under the Securities
      Act.

     

    5.           Conditions
      of the Purchasers’ Obligations at
      Closing.  The obligations of each
      Purchaser to the Company under this Agreement are subject to the fulfillment,
      on
      or before the Closing, of each of the following conditions, unless otherwise
      waived:

     

    (a)           Representations
      and Warranties.  The representations and
      warranties of the Company contained in Section 3 shall be true on and as of
      the Closing with the same effect as though such representations and warranties
      had been made on and as of the date of the Closing.

     

    (b)           Qualifications.  All
      authorizations, approvals or permits, if any, of any governmental authority
      or
      regulatory body of the United States or of any state that are required in
      connection with the lawful issuance and sale of the Notes pursuant to this
      Agreement shall be obtained and effective as of the Closing.

     

    (c)           Security
      Agreement.  The Company and the Purchaser shall have
      executed the Security Agreement.

     

    (d)           Royalty
      Participation Agreement.  The Company and the Purchaser
      shall have executed the Royalty Participation Agreement attached hereto as
      Exhibit D.

     

    (e)           Good
      Standing Certificates. The Company shall have
      delivered a certified copy of its Certificate of Incorporation, a certified
      copy
      of any form qualifying it to do business issued by the jurisdictions in which
      the Company conducts or intends to conduct its business or operations within
      the
      period prior to the Initial Financing and, shall have ordered good standing
      certificates from such jurisdictions and its state of incorporation

     

    6.           Conditions
      of the Company’s Obligations at
      Closing.  The obligations of the Company
      to each Purchaser under this Agreement are subject to the fulfillment, on or
      before the Closing, of each of the following conditions, unless otherwise
      waived:

     

    (a)           Representations
      and Warranties.  The representations and
      warranties of the Purchaser contained in Section 4 shall be true on and as
      of the Closing with the same effect as though such representations and
      warranties had been made on and as of the Closing.

     

    (b)           Qualifications.  All
      authorizations, approvals or permits, if any, of any governmental authority
      or
      regulatory body of the United States or of any state that are required in
      connection with the lawful issuance and sale of the Note and Warrant pursuant
      to
      this Agreement shall be obtained and effective as of the Closing.

     

    (c)           Ancillary
      Agreements.  The Company and the Purchaser, and the other
      parties thereto, if any, shall have executed all of the Ancillary
      Agreements.

     

    7.           Additional
      Agreements

     

               (a)           Indemnification
      of Purchaser.  The Company hereby indemnifies and holds
      the Purchaser and its managers, members, affiliates and agents (each, a
“Purchaser Party”) harmless from any and all losses, liabilities,
      obligations, claims, contingencies, damages, costs and expenses, including
      all
      judgments, amounts paid in settlements, court costs and reasonable attorneys’
fees and costs of investigation (collectively, “Losses”) that any such
      Purchaser Party may suffer or incur as a result of or relating to (a) any
      misrepresentation, breach or inaccuracy, or any allegation by a third party
      that, if true, would constitute a breach or inaccuracy, of any of the
      representations, warranties, covenants or agreements made by the Company in
      this
      Agreement or in the other Transaction Documents; or (b) any cause of action,
      suit or claim brought or made against such Purchaser Party and solely arising
      out of or solely resulting from the execution, delivery, performance or
      enforcement of this Agreement or any of the other Transaction
      Documents.  Notwithstanding the above, the Company shall not be liable
      in any such case for any loss, liability, obligation, claim, contingency,
      damage, cost or expense to the extent that it arises out of or is based written
      information furnished, or any other act or omission, by any such Purchaser
      Party. The Company will reimburse such Purchaser for its reasonable legal and
      other expenses incurred in connection therewith, as such expenses are
      incurred.  The Purchaser Party may not, without the prior written
      consent of the Company, agree to any settlement of any claim or action with
      respect to which the Company is required to indemnify the Purchaser Party
      pursuant to this Section 7(a). The obligations of the Company under this Section
      7(a) shall survive the payment and performance of the Company’s obligations
      under the Transaction Documents.

     

    (b)           Non-Public
      Information.  The Company covenants and agrees that
      neither it nor any other Person acting on its behalf will provide any Purchaser
      or its agents or counsel with any information that the Company believes
      constitutes material non-public information, unless prior thereto such Purchaser
      shall have executed a written agreement regarding the confidentiality and use
      of
      such information.  The Company understands and confirms that each
      Purchaser shall be relying on the foregoing representations in effecting
      transactions in securities of the Company.

     

    (c)           Release.  The
      Company, its subsidiaries, officers, directors, managers, employees,
      shareholders, creditors, agents, heirs, representatives and any permitted
      successors, and assigns (each a “Company Releasing Party”) hereby fully,
      finally, completely, and forever releases, discharges, acquits, and relinquishes
      the Purchaser, its managers, members and agents and the affiliates of each
      of
      the foregoing(the “Purchaser Released Parties”) from and against all
      loss, cost, damage, claim, liability, or expense, including reasonable
      attorneys’ fees and costs , in any way arising from or related to the sale and
      issuance of the Note and Warrant and the entering into by the parties of the
      remaining Ancillary Agreements.  The Company (for and on behalf of
      each Company Releasing Party) hereby agrees (a) not to file any lawsuit or
      pursue any other action with respect to any of the foregoing matters and (b)
      to
      indemnify and hold harmless, jointly and severally, any and all of the Company
      Released Parties from any and all injuries, harm, damages, costs, losses,
      expenses and/or liability, including reasonable attorneys’ fees and court costs,
      as incurred and when incurred as a result of the filing of any such lawsuit
      or
      the pursuit of any other action with respect to any of the foregoing matters.
      The agreement and obligations of the Company under this Section 7(c) shall
      survive the payment and performance of the Company’s obligations under the
      Transaction Documents.

     

    8.           Miscellaneous.

     

    (a)           Assignment;
      Successors and Assigns.  The terms and
      conditions of this Agreement shall inure to the benefit of and be binding upon
      the respective successors and assigns of the parties.  Nothing in this
      Agreement, express or implied, is intended to confer upon any party other than
      the parties hereto or their respective successors and assigns any rights,
      remedies, obligations, or liabilities under or by reason of this Agreement,
      except as expressly provided in this Agreement.

     

    (b)           Waiver
      of Conflicts.                                                      Each
      party to this Agreement acknowledges that each of Christopher Walton, the
      authorized signer of the Purchaser’s manager and Kiril Dobrovolsky, counsel for
      the Purchaser, have in the past performed and may continue to perform legal
      and/or consulting services for the Company in matters unrelated to the
      transactions described in this Agreement, including the representation of the
      Company in financings and other matters.  Accordingly, each party to
      this Agreement hereby (a) acknowledges that they have had an opportunity to
      ask
      for information relevant to this disclosure; and (b) gives its informed consent
      to Christopher Walton’s and Kiril Dobrovolsky’s representation of and/or
      performance of consulting services for the Company in such unrelated matters
      and
      to Kiril Dobrovolsky’s representation of the Purchaser in connection with this
      Agreement and the transactions contemplated hereby.

     

    (c)  Governing
      Law.  This Agreement and all acts and
      transactions pursuant hereto and the rights and obligations of the parties
      hereto shall be governed, construed and interpreted in accordance with the
      laws
      of the State of Texas, without giving effect to principles of conflicts of
      law.

     

    (d)  Counterparts.  This
      Agreement may be executed in two or more counterparts, each of which shall
      be
      deemed an original and all of which together shall constitute one
      instrument.

     

    (e)  Titles
      and Subtitles.  The titles and subtitles
      used in this Agreement are used for convenience only and are not to be
      considered in construing or interpreting this Agreement.

     

    (f)  Notices.  Any
      notice required or permitted by this Agreement shall be in writing and shall
      be
      deemed sufficient upon receipt, when delivered personally or by courier,
      overnight delivery service or confirmed facsimile, or 48 hours after being
      deposited in the U.S. mail as certified or registered mail with postage prepaid,
      if such notice is addressed to the party to be notified at such party’s address
      or facsimile number as set forth below or as subsequently
      modified by written notice.

     

    (g)  Finder’s
      Fee.  Each party represents that it
      neither is nor will be obligated for any finder’s fee or commission in
      connection with this transaction.  Each Purchaser agrees to indemnify
      and to hold harmless the Company from any liability for any commission or
      compensation in the nature of a finder’s fee (and the costs and expenses of
      defending against such liability or asserted liability) for which each
      Purchaser or any of its officers, employees, or representatives is
      responsible.  The Company agrees to indemnify and hold harmless each
      Purchaser from any liability for any commission or compensation in the
      nature of a finder’s fee (and the costs and expenses of defending against such
      liability or asserted liability) for which the Company or any of its officers,
      employees or representatives is responsible.

     

    (h)  Amendments
      and Waivers.  Any term of this Agreement
      may only be amended or waived with the written consent of the Company and the
      holders of at least a majority in interest of the Notes.  Any
      amendment or waiver effected in accordance with this Section 8(h) shall be
      binding upon each Purchaser and each transferee of the Securities, each future
      holder of all such Securities, and the Company.

     

    (i)  Severability.  If
      one or more provisions of this Agreement are held to
      be unenforceable under applicable law, the parties agree to
      renegotiate such provision in good faith, in order to maintain the economic
      position enjoyed by each party as close as possible to that under the provision
      rendered unenforceable.  In the event that the parties cannot reach a
      mutually agreeable and enforceable replacement for such provision, then
      (i) such provision shall be excluded from this Agreement, (ii) the
      balance of the Agreement shall be interpreted as if such provision were so
      excluded and (iii) the balance of the Agreement shall be enforceable in
      accordance with its terms.

     

    (j)  Entire
      Agreement.  This Agreement, and the
      documents and agreements referred to herein constitute the entire agreement
      between the parties hereto pertaining to the subject matter hereof, and any
      and
      all other written or oral agreements existing between the parties hereto are
      expressly canceled.

     

    

    [Signature
      Pages Follow]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    The
      parties have executed this Senior Secured Note and
      Warrant Purchase Agreement as of the date first written
      above.

     

    COMPANY

     

    AURIGA
      LABORATORIES, INC.

     

    

    
      	
              By:

            	 

    

     

    
      	
               

            	
              Name:

            

    

     

    
      	
               

            	
              Title:

            

    

     

    Address:
      5284 Adolfo Road

    Camarillo,
      CA 93012

    

     

    

    PURCHASER:

     

    PROSPECTOR
      CAPITAL PARTNERS,
      LLC

     

    By:  Hudson
&
Co.,
      LLC,
      its manager

     

    By:  ____________________________

    Name:
      Christopher S.
      Walton

    Title:
      Authorized Person

    

    Address: 3112
      Windsor Road

    Suite
      A-137

    Austin,
      TX 78703

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBITS

     

    Exhibit A-                                Form
      of Senior Secured Promissory Note

     

    Exhibit B-                                Form
      of Warrant

     

    Exhibit
      C-                                Form
      of Security Agreement

     

    Exhibit
      D-                                Form
      of Royalty Participation Agreement

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      A

     

    FORM
      OF SENIOR SECURED PROMISSORY NOTE

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      B

     

    FORM
      OF WARRANT

     

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      C

     

    FORM
      OF SECURITY AGREEMENT

     

    

    

    
      
              

                             
                      Schedule II              
      

                  
      
    

         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      D

     

    FORM
      OF ROYALTY PARTICIPATION AGREEMENT

    
      
              

                             
                      Schedule II              
      

                  
      
    

         

      

      
         

        
          

        

      

      
         

      

    

    Schedule
      3(d)

    

    Gardena
      Hospital, L.P., et. al. v. Auriga Laboratories, Inc., Los Angeles County
      Superior Court Case No. SC097013

    

    Laboratories
      Carilene S.A.S. v. Auriga Laboratories, United States District Court,
      Southern District of New York Case No. ’07 CIV 9616

    

    Threatened
      employment litigation by former employee, Monika Williams, against Auriga
      Laboratories

    
      
              

                             
                      Schedule IIroyaltyagreement.htm

    ROYALTY  PARTICIPATION
      AGREEMENT

    

    This
      Royalty Participation Agreement (the “Royalty Agreement”) is entered into by and
      between Auriga Laboratories, Inc., a Delaware corporation, located at 5284
      Adolfo Road Camarillo, California 93012, and each of its subsidiaries
      (collectively, the “Company”) and Prospector Capital Partners, LLC, a Delaware
      limited liability company, located at 3112 Windsor Road, Suite A-137, Austin,
      Texas 78703 (the “Investor”).

    

    RECITALS

    

    WHEREAS,
      the Company is in the business of developing, manufacturing and distributing
      pharmaceutical products for personal and professional use utilizing (i)
      dextroamphetamine or (ii) codeine or acetaminophen (the “Products”);
      and

    

    WHEREAS,
      Company desires to issue and sell to the Investor, and the Investor has agreed
      to purchase from the Company a Senior Secured Promissory Note in a principal
      aggregate amount of $750,000 (the “Principal Financing Amount”), pursuant to
      that certain Senior Secured Note and Warrant Purchase Agreement and Senior
      Secured Promissory Note between the parties hereto and of even date herewith
      (the “Senior Secured Loan Agreements”); and

    

    WHEREAS,
      in consideration of the provision of the Principal Financing Amount, the Company
      desires to pay a percentage of sales of the Products to the Investor (the
“Royalty Payments”); and

    

    WHEREAS,
      the Investor and the Company wish to define with precision the terms and
      conditions of the Royalty Payments;

    

    THEREFORE,
      in consideration of the mutual considerations herein, the receipt of which
      is
      mutually acknowledged, the parties hereto agree as follows:

    

    1.           FINANCING.  Investor
      shall loan the gross amount of $750,000, subject to reduction of fees payable
      to
      any third party, to the Company pursuant to the Senior Secured Loan Agreements
      upon execution hereof.

    

    2.           SOURCE,
      AMOUNT AND TIMING OF ROYALTY PAYMENTS.

    

    (a).           Commencing
      upon distribution by Investor and receipt by Company of the Principal Financing
      Amount, the Company shall pay to Investor non-refundable Royalty Payments
      consisting of seven and one-half percent (7.50%) of all “Net Sales” of the
      Products received by the Company until such time as the “Royalty Cap Amount” has
      been met.  The Royalty Payments shall be paid to the Investor within
      15 days of the end of the month in which the Company receives payment for any
      Net Sales of the Products.

    

    (b).           For
      the purposes of this Agreement, “Products” shall mean:  (i)
      detroamphetamine suflate oral solution subject of that certain License Agreement
      between Outlook Pharmaceuticals, Inc and the Company, dated November 28, 2007
      (the “Outlook Agreement”) or any successor or replacement agreement to the
      Outlook Agreement; and (ii) Codeine APAP subject of that certain license
      Agreement between Mikart Pharmaceuticals, Inc and the Company, dated October
      29,
      2007 (the “Mikart Agreement”) or any successor or replacement agreement to the
      Mikart Agreement, and any and all successors,  derivative works, line
      extensions, upgrades, new formulations, generic versions and the like of the
      foregoing products.

    

    (c).           For
      the purposes of this Agreement, “Royalty Cap Amount” shall mean SIX MILLION U.S.
      DOLLARS (U.S. $6,000,000).

    

    (d).           For
      the purposes of this Agreement, “Net Sales” shall mean the total gross receipts
      from sale or  license of Products less the following amounts: (i)
      amounts reimbursed by customers, such as for insurance and shipping; (ii)
      promotional amounts, such as credits, cash discounts, freight discounts, rebates
      or promotional allowances; and; (iii) reasonable reserves taken for sales
      returns in accordance with Generally Accepted Accounting Principles (“GAAP”);
      and (iv) taxes on sale, such as sales, use, excise and other taxes. For
      avoidance of doubt, Net Sales shall be calculated in accordance with GAAP,
      consistent with revenue recognized in reporting the financial results of the
      Company.  The Company hereby agrees to use its commercially reasonable
      efforts to maximize its Net Sales during the term of this
      Agreement.  “Net Sales” shall also include all settlement amounts,
      payments and damages received by Company which result from litigation or
      disputes related to or arising from the sale of the Products.

    

    3.           INFORMATION
      REQUIRED TO BE SUPPLIED WITH EACH PAYMENT.  With each Royalty Payment,
      the Company shall supply to the Investor a detailed and reasonably satisfactory
      accounting and reconciliation of how the Royalty Payment was
      calculated.  The Company agrees to have an officer certify each
      reconciliation and provide a reconciliation each calendar month during the
      term
      of this Agreement regardless of whether any Royalty Payment is due

    

    4.           TERMINATION.  This
      Agreement shall terminate upon the payment in full of the Royalty Cap
      Amount.

    

    5.           NO
      SALE OR ASSIGMENT BY COMPANY.  During the term of this Agreement, the
      Company may not (i) sell (other than ordinary course sales to customers), assign
      or otherwise transfer or encumber the Products, (ii) assign or otherwise
      transfer or encumber this Agreement, or (iii) create an obligation whereby
      the
      Company is required to pay all or a portion of Net Sales of the Products to
      any
      party in priority to the Investor, without either first (A) obtaining the prior
      written consent of the Investor to such sale, assignment, transfer or
      encumbrance, or (B) making the full payment of the Royalty Cap Amount provided
      for in Paragraph 2(c) above.  Notwithstanding the above, during the
      term of this Agreement, the Company may, with a reputable commercial bank,
      enter
      into (i) a receivables line of credit of up to $1.5 million; or (ii) a term
      loan
      of up to $1.0 million without the prior written consent of the Investor, and
      security interests in the name of such commercial banks shall not be deemed
      a
      violation or breach of this section.

    

    6.           NOTICES:

    

    If
      to the
      Company, to:

    

    Attn:
      CEO
      and Corporate Counsel

    Auriga
      Laboratories, Inc.

    5284
      Adolfo Road

    Camarillo,
      California  93012

    Facsimile:
      (805) 299-4932

    

    If
      to
      Investor, to:

    

    Attn:
      Manager

    Prospector
      Capital Partners, LLC

    3112
      Windsor Road, Suite A-137

    Austin,
      TX 78703

    Facsimile:
      (866) 477-2971

    

    

    7.           ASSIGNMENT
      BY INVESTOR.  Investor may assign a portion or all of its interest in
      this Agreement to an assignee.

    

    8.           EXTRAORDINARY
      EVENT.  The Company agrees not to enter into a merger, sale or change
      of control of the Company or sale transaction involving substantially all of
      the
      Company’s assets unless the acquiring or successor entity agrees in writing to
      recognize the Investor’s rights under this Agreement.

    

    9.           APPLICABLE
      LAW, VENUE, JURISDICTION.  All questions concerning the construction,
      validity, enforcement and interpretation of the Agreement shall be governed
      by
      and construed and enforced in accordance with the internal laws of the State
      of
      Texas, without regard to the principles of conflicts of law
      thereof.  Each party agrees that all legal proceedings concerning the
      interpretations, enforcement and defense of the transactions contemplated by
      this Agreement (whether brought against a party hereto or its respective
      affiliates, directors, officers, shareholders, employees or agents) shall be
      commenced exclusively in the state and federal courts sitting in the City of
      Austin.  Each party hereby irrevocably submits to the exclusive
      jurisdiction of the state and federal courts sitting in the City of Austin,
      Texas, county of Travis for the adjudication of any dispute hereunder or in
      connection herewith or with any transaction contemplated hereby or discussed
      herein, and hereby irrevocably waives, and agrees not to assert in any suit,
      action or proceeding, any claim that it is not personally subject to the
      jurisdiction of any such court, that such suit, action or proceeding is improper
      or inconvenient venue for such proceeding.  The parties hereby waive
      all rights to a trial by jury.

    

    [Signature
      Pages Follow]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the Company and the Investor have caused this Royalty
      Participation Agreement to be duly executed and delivered as of the date first
      above written.

     

    
      	 	
              AURIGA
                LABORATORIES, INC.

               

               

              By:
                __________________________________

              Name:
                ________________________________

              Title:
                _________________________________

               

              Address:

              5284
                Adolfo Road

              Camarillo,
                CA 93012

              Fax:
                (805) 299-4932

               

            
	 	
              PROSPECTOR
                CAPITAL PARTNERS, LLC

               

               

              ________________________________________

              By:
                Hudson & Co., LLC

              Its:
                Manager

              Title:
                Authorized Person

               

              Address:

              3112
                Windsor Road, Suite A-137

              Austin,
                TX 78703

              Fax:
                866-477-2971

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00136-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00136-of-00352.parquet"}]]