ITEM 10.1
CONVERTIBLE SECURED LOAN AGREEMENT
THIS CONVERTIBLE SECURED LOAN AGREEMENT, dated as of May 12, 2006 (the
"Agreement"), is entered into by and among GENELINK, INC., a Pennsylvania
corporation, having an address at Newport Financial Center, 000 Xxxxxxx Xxxxxx,
Xx. 000, Xxxxxx Xxxx, Xxx Xxxxxx 00000 (GeneLink, Inc., together with its
subsidiaries, including but not limited to Dermagenetics, Inc., "Borrower"); the
LENDERS signatory hereto (each a "Lender" and collectively the "Lenders"); and
FIRST EQUITY CAPITAL SECURITIES, INC., a Delaware corporation, having an address
at 0000 Xxxxxxxx, Xxxxx 0000, Xxx Xxxx, X.X. 00000, as Administrative Agent for
the Lenders (the "Administrative Agent").
RECITALS
A. Borrower has requested that each Lender lend it a Convertible
Secured Loan (each a "Loan" and collectively the "Loans") as set forth in and
evidenced by the Convertible Secured Promissory Notes to be executed and
delivered by Borrower to each Lender concurrently with its execution and
delivery hereof by such Lender in form and substance substantially similar to
Exhibit A hereto (each a "Note" and collectively the "Notes"). Each Lender has
agreed to make such a loan to Borrower on the terms and conditions of this
Agreement and the Note issued to it.
B. In order to induce Lenders to make the Loans, Borrower has agreed
to grant to the Collateral Agent named therein (the "Collateral Agent") for the
benefit of the Lenders a security interest in all of its assets pursuant to the
Convertible Loan Security Agreement to be entered into among Borrower, the
Lenders and the Collateral Agent in form and substance substantially similar to
Exhibit B hereto (the "Security Agreement").
C. In order to further induce Lenders to make the Loans, Borrower has
agreed to issue to the Lenders five (5) shares of authorized, unregistered
Borrower's $.01 par value common stock ("GL Common Stock"), with 'piggyback'
registration rights, for every dollar ($1.00) of the Loan funded (all such stock
to be, or actually, so issued being the "Consideration Stock").
D. Borrower and the Lenders have agreed that the Loans are secured
debt, which are anticipated to be converted to voting stock of Borrower, in
accordance with the terms set forth hereinbelow (all such stock to be, or
actually, so issued being the "Conversion Stock").
NOW, THEREFORE, in consideration of the mutual covenants, conditions,
and agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
THE LOANS
SECTION 1. PRINCIPAL OF THE LOANS.
(a) Principal Amounts. The total principal amount of the Loans shall be an
amount not greater than One Million Dollars ($1,000,000.00), of which Two
Hundred Thousand Dollars ($200,000.00) plus accrued interest thereon
through the date of conversion is provided by the conversion of the bridge
loans (the "Bridge Loans") entered into in those certain Bridge Loan Letter
Agreements between Borrower and each of Xxxxx Xxxxxxx, Inc., Xxxxxx
Xxxxxxxx, Xxxxxxx X. Xxxxxx Xx., Xxxxx Xxxxxxxxx, Xxxxxxx X. Xxxxxx, and
Stranco Investments, Ltd., dated as of January 11, 2006 (together with the
respective associated notes and security agreements, the "Bridge
Documents"). The principal amount of the Loan each Lender is set forth
adjacent to its name on Schedule 1, attached hereto and as amended from
time to time. The percentage equal to the percentage that the principal
amount each Lender's Loan of the aggregate of all Loans then outstanding
(after giving effect to any conversion of any Loans to Conversion Stock) is
such Lender's "Sharing Percentage" at the time of determination.
(b) Repayment of the Loans. Unless (i) the maturity of the Loans is accelerated
pursuant to Article VIII Section 2(a) below, or (ii) the respective Loan,
or all the Loans, are converted into common stock of Borrower pursuant to
Article III Section 2 below, or (iii) the Loans have been prepaid in full
pursuant to subsection (c) below, the principal amount of the Loans shall
be repaid in full on May 12, 2011 the ("Maturity Date"); provided, however,
that if the Maturity Date occurs on a day that banks are required or
permitted to close in New York City (all other days being "Business Days"),
the Maturity Date shall occur on the next succeeding Business Day.
(c) Prepayment of the Loans; Opportunity to Convert. Borrower may prepay the
Loans in whole or in part (each portion of the Loans outstanding to be so
prepaid at any time being a "Prepayment Portion") at any time and from time
to time upon sixty (60) days written notice to the Lenders and the
Administrative Agent (which notice shall set forth the amount to be
prepaid, the date of prepayment and the date when the Conversion Notice (as
set forth below) must be received by the Borrower (each a "Prepayment
Notice")); provided, however, that Borrower must make such prepayment to
all the Lenders simultaneously according to the respective Sharing
Percentages; and provided further that upon any such prepayment, whether in
whole or in part, Borrower must also pay in full all accrued Interest (as
defined below) on the amount prepaid. If the Borrower so notifies the
Lenders of its intention to prepay in whole or in part the Loans, each
Lender will have the right to convert any amount of its Loan up to its
Conversion Portion, notwithstanding any limitations otherwise thereon to
such a conversion under Article III below, by providing Borrower with
notice of intent to convert all or specified portion of its Conversion
Portion within fifteen (15) days of the delivery of the Prepayment Notice
with respect thereto (each a "Conversion Notice").
(d) Bridge Loan Conversion. As provided in the Bridge Loan Conversion Letter
Agreement, dated as of May 12, 2006, between Borrower and, (the "Bridge
Conversion") each Bridge
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Loan is hereby converted into a Loan, and the Bridge Documents are hereby
cancelled and superceded in their entirety by the Loan Documents (as
defined in Section 3(d), below).
SECTION 2. INTEREST.
(a) Interest Rate. Interest shall accrue on the principal amount outstanding on
each Loan at the rate per annum of Twelve Percent (12%), based on a year of
365 days, for the actual days elapsed ("Interest") from the date of closing
of such loan (such date for each Loan, the "Loan Closing Date").
(b) Payment of Interest. Interest shall be paid on the outstanding principal
amount of the Loans in arrears on (i) the first anniversary of the date
hereof, (ii) each subsequent anniversary of the date hereof, so long as any
portion of any Loan is outstanding, and (iii) whenever a principal amount
of a Loan is repaid or prepaid (each such date being an "Interest Payment
Date"). If any Interest Payment Date occurs on a day that is not a Business
Day, it shall occur on the next succeeding Business Day.
SECTION 3. CLOSING CONDITIONS. The obligation of each Lender to make a Loan
shall be conditioned upon the following conditions being fulfilled in form and
substance reasonably satisfactory to the Administrative Agent:
(a) The representations of Borrower set forth in Article V below are true and
accurate in all material respects as if made on the Loan Closing Date;
(b) Borrower shall have available duly authorized, unreserved GL Common Stock
in the maximum amount sufficient to issue to the Lender all Consideration
and Conversion Stock that could be issued in consideration or in conversion
of the respective Loan then to be made;
(c) No Event of Default (as defined in Article VIII below) shall have occurred
and be continuing.
(d) Each of the Notes and the Security Agreement (together with this Agreement
and the Dealer Warrant (as defined in subparagraph (d)), each being a "Loan
Document" and collectively the "Loan Documents") shall have been duly
executed by Borrower and delivered to the Administrative Agent;
(e) Borrower shall have delivered to Administrative Agent a warrant to purchase
GL Common Stock, exercisable for a period of five (5) years from the date
of the issuance thereof at an exercise price of Five Cents ($.05) per
share, in substantially the form of Exhibit C hereto (the "Dealer
Warrant"), on a 'cashless' basis at the option of the holder of the Dealer
Warrant, to purchase two (2) shares of GL Common Stock for every dollar
($1.00) of Loans actually made to Borrower (including by conversion of the
Bridge Loans), with registration rights on terms equivalent to those of the
Consideration Stock;
(f) A Form UCC-1 reflecting the granting of the security interests provided for
in the Security Agreement shall have been delivered to the Administrative
Agent as of the date
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hereof and the Borrower represents that there have been no material
additional liens (other than the security interest granted by the Security
Agreement) as of the Loan Closing Date;
(g) An opinion of counsel in all material respects in the form of Exhibit D
hereto shall have been delivered to the Administrative Agent as of the date
hereof; and
(h) Borrower shall have delivered to Administrative Agent Fifty Thousand
(50,000) shares of GL Common Stock for every One Hundred Thousand Dollars
($100,000.00) of Loans, with registration rights pari passu with that of
the Consideration Stock; and
(i) Borrower shall have delivered to each Lender five (5) shares of
Consideration Stock for every dollar of Loans.
(j) Borrower shall have deliver to Administrative Agent a cash fee of 7% of the
gross proceeds.
ARTICLE II
REGISTRATION OF THE CONSIDERATION STOCK
SECTION 1. REGISTRATION RIGHTS. If at any time within three years after it
acquired the relevant shares Borrower takes the appropriate steps to cause any
GL Common Stock to be registered for sale by the Company under the federal and
state securities laws to qualify such stock for unrestricted trading (a "Public
Offering"), Borrower shall simultaneously provide for the equal and concurrent
registration of all Consideration Stock as part of the Public Offering. Borrower
shall notify the Administrative Agent and each Lender of any Public Offering as
soon as practical after it determines to cause such Public Offering to occur.
ARTICLE III
CONVERSION OF THE LOANS
SECTION 1. AMOUNT AND FEATURES OF CONVERSION STOCK. The Conversion Stock shall
be GL Common Stock. The initial amount of shares of GL Common Stock into which
each dollar ($1.00) of Loans may be converted in accordance with Section 2 below
(the "Conversion Ratio") is twenty (20). The Conversion Ratio shall be adjusted
automatically from time to time in the case of any stock split, dividend payable
in Common Stock, subdivision of the number of shares of the Common Stock or
similar event involving Common Stock (a "Split") or any reverse stock split,
combination or similar event involving the Common Stock (a "Combination"), and,
accordingly, the Conversion Ratio shall be proportionately increased in the case
of a Split or decreased in the case of a Combination, as of the close of
business on the date the Split or Combination becomes effective, computed to the
nearest cent.
SECTION 2. CONVERSION RIGHTS.
(a) At the Conversion Ratio.
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(i) VOLUNTARY CONVERSION. Each Lender shall have the right, at its sole
option without any obligation to do so, to tender its Note to Borrower for
conversion at the Conversion Ratio of the principal and accrued Interest
evidenced thereby in whole, but not in part, at any time, irrespective of
whether an Event of Default has occurred and is continuing.
(ii) MANDATORY CONVERSION. All of the Loans then outstanding shall be
converted into Conversion Stock at the then applicable Conversion Ratio
upon the delivery by Borrower to the Lenders and the Administrative Agent
of a notice of mandatory conversion, which notice shall include written
evidence (which shall be true in all material respects and in reasonable
detail) demonstrating that Borrower's aggregate contingent liabilities
arising out of circumstances existing as of the date of this agreement
and/or any contingent liabilities arising out of or related to this
financing ("Existing Contingent Liabilities") had been determined by
independent accountants acceptable to Borrower and the Administrative
Agent, which acceptance shall not be unreasonably withheld, to be no
greater than Seventy-five Thousand Dollars ($75,000.00); provided, however,
that no such mandatory conversion shall occur after the occurrence and
during the continuance of any Event of Default (as defined in Article VIII
below). After delivery of such notice to the Administrative Agent, the
Notes shall be deemed cancelled and shall be returned to Borrower by the
Lenders in exchange for the Conversion Stock to be issued to such Lender in
respect thereof, or if any such Notes shall be lost, the Lender shall
provide an affidavit of such lost Note in replacement of the original.
(iii) By Purchase of Non-Conversion Stock. If at any time when any portion
of the Loans are outstanding Borrower agrees or undertakes to issue shares
of any class of its common stock or any debt instruments convertible into
common stock of Borrower at a price per share or with conversion rights
more favorable to the purchasers or holders thereof than provided for in
this Agreement (a "Qualifying Offering"), Borrower shall notify the
Administrative Agent and each Lender thereof, which notice shall describe
in reasonable detail the material features of said Qualifying Offering.
Lenders will then have at least thirty (30) days to advise Borrower of
whether and to what it extent it will subscribe to the Qualifying Offering.
If a Qualifying Offering is to be made privately, it shall be offered on
identical terms to the Lenders hereunder. If such Qualifying Offering is to
be made to all shareholders of Borrower on a basis that allocates such
Offering among Borrower's shareholders (an "Allocated Qualifying
Offering"), it shall be made available to the Lenders in the same
proportion as the aggregate Conversion Stock is to the sum of all common
stock of Borrower then outstanding plus the aggregate Conversion Stock. If
it is an Allocated Qualifying Offering, such notice shall advise each
Lender what amount of the Qualifying Offering that it may elect to
purchase, and the issuance price thereof, using all or any portion of the
Loan made by it to Borrower then outstanding. If less than all of the
Allocated Qualifying Offering allocated to the Lenders is not subscribed to
by the Lenders, Borrower shall offer those Lenders who have fully
subscribed a second opportunity pari passu to subscribe to purchase the
unsubscribed portion to the extent that such Lenders have unutilized
portions remaining of their Loans with which to subscribe for such
Offering.
SECTION 3. REGISTRATION RIGHTS.
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(b) Piggyback Right. Subject to the mandatory reduction set forth in paragraph
(b) below, if at any time within three years after it acquired the relevant
shares Borrower takes the appropriate steps to cause a Public Offering,
Borrower shall simultaneously provide for the equal and concurrent
registration of all Conversion Stock as part of the Public Offering,
whether then held by any Lender or not yet issued. Borrower shall notify
the Administrative Agent and each Lender of any such Public Offering as
soon as practical after it determines to cause such Public Offering to
occur.
(c) Mandatory Reduction. The registration right provided by paragraph (a) shall
apply to all of the Conversion Stock unless Borrower notifies the
Administrative Agent and the Lenders that it was advised in writing by the
underwriters of the proposed Public Offering that in their opinion the
value to Borrower of the Public Offering would be materially impaired by
inclusion of some specified portion or all of the Conversion Stock in the
Public Offering (such portion or totality being the "Excess Offering"). If
Borrower notifies the Administrative Agent and the Lenders that it desires
to proceed with the Public Offering, Borrower will notify the
Administrative Agent and the Lenders of the percentage of the Conversion
Stock that will be included in the Public Offering, which percentage shall
be the maximum amount of Conversion Stock that results from reducing the
amount of GL Common Stock originally proposed to be included in the Public
Offering by Borrower by the same percentage as the Conversion Stock that
would otherwise be included in the Public Offering is to be so reduced.
ARTICLE IV
SECURITY FOR THE LOANS
SECTION 1. ASSETS ENCUMBERED. To secure the repayment of the Loans, all Interest
accruing thereon, and all other fees, costs and other monetary obligations of
Borrower arising from the making of the Loans and the execution and performance
of this Agreement, the Notes and the other Loan Documents (collectively the
"Indebtedness"), Borrower shall grant Collateral Agent a first priority security
interest in and lien on (which security interest and lien shall be continuing),
and shall pledge and assign as security to Collateral Agent, all of Borrower's
right, title and interest in and to all of Borrower's real and personal assets,
whether tangible or intangible, now owned or hereafter acquired, and all
proceeds, products, royalties and rentals therefrom (collectively, the
"Collateral") in accordance with the Security Agreement.
SECTION 2. PRIORITY OF SECURITY INTERESTS. The security interests created by the
Security Agreement shall at all times be a first priority security interest in
all of Borrower's (or to the extent relevant, any subsidiary of Borrower's)
assets; provided, however, that there shall be permitted (collectively, the
"Permitted Encumbrances"):
(a) the security interests existing on the date hereof listed on Schedule 1 to
the Security Agreement;
(b) security interests resulting from the discounting of State or federal tax
refunds or rebates or grants;
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(c) acquisition finance security interests securing only the actual purchase
price of goods or equipment of the Borrower or any wholly owned subsidiary
of Borrower;
(d) tax liens imposed prospectively or within such periods as they may be
contested in good faith; and
(e) mechanics' and warehousemen's and similar statutory and possessory liens
imposed in the ordinary course of business and in respect of obligations
that either have not been declared in default or is being contested in good
faith.
ARTICLE V
REPRESENTATIONS OF BORROWER
SECTION 1. Borrower represents to the Administrative Agent and each Lender that:
(a) Validity and Enforceability. This Agreement, the Notes, the Security
Agreement and each other document and instrument to be delivered by it
hereunder or in respect hereof have been duly authorized by all necessary
corporate action on the part of Borrower; and when delivered by it
hereunder, each thereof will have been duly executed by it and will
constitute the valid and legally binding obligation of Borrower,
enforceable against it in accordance with its terms except as such
enforceability may be limited by insolvency or similar laws or principles
of equity.
(b) No Conflicts with Contracts or Law. This Agreement, the Notes, the Security
Agreement and each other document and instrument delivered by it hereunder
or in respect hereof are not inconsistent with the terms of Borrower's
articles of incorporation or by-laws, and that the execution, delivery and
performance hereof and thereof do not and will not violate law or breach or
result in a material default under any material agreement to which Borrower
(or any subsidiary of Borrower) is a party or by which any of its (or
their) assets are bound.
(c) No Material Adverse Change. There have been no material adverse changes in
Borrower's (or any subsidiary of Borrower's) business or financial
condition since the filing of the 2005 Form 10-KSB by Borrower for the
fiscal year ending December 31, 2005, on April 7, 2006 (the "2005 10-K"),
except as may be set forth in Schedule 2 hereto.
(d) No Insolvency or Receivership Proceedings. Neither Borrower nor any of its
(or any subsidiary of Borrower's) material assets is the subject of any
insolvency, receivership or similar proceeding. No material asset of
Borrower (or any subsidiary of Borrower) is the subject of any attachment,
judicial or statutory lien, garnishment or similar legal process.
(e) Absence of Litigation. Except as set forth in Schedule 3 hereto or as
described in the 2005 10-K, there are no material legal actions or
proceedings pending, or to the best of Borrower's knowledge after due
inquiry, threatened against Borrower (or any subsidiary of Borrower) as of
the date hereof.
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(f) Stock Authorized and Non-assessable. Once issued to any Lender, all
Consideration Stock and all Conversion Stock will be duly authorized, fully
paid, non-assessable voting stock of Borrower with the valid voting and
registration rights set forth hereinabove.
ARTICLE VI
REPRESENTATIONS OF EACH LENDER
SECTION 1. DUE AUTHORITY. By its execution of a counterpart hereof, each Lender
represents to Borrower that this Agreement and the Security Agreement have been
duly executed by it, and such documents and the transactions contemplated
thereby have been duly authorized by all necessary corporate or other relevant
equivalent action on its part.
SECTION 2. ACCREDITED INVESTOR REPRESENTATIONS. By its execution of a
counterpart hereof, each Lender represents to Borrower and each other Lender in
connection with its undertakings herein and the making of its Loan and the
issuance to it of the shares of stock contemplated hereby and upon any
conversion of the indebtedness evidenced by the Note issued to it, that:
(a) IT IS AN "ACCREDITED INVESTOR" AS DEFINED UNDER REGULATION D UNDER THE
SECURITIES ACT OF 1933, AS AMENDED;
(b) IT HAS SUCH KNOWLEDGE AND EXPERTISE IN FINANCIAL, TAX AND BUSINESS MATTERS
THAT IT IS CAPABLE OF EVALUATING THE MERITS AND RISKS OF AN INVESTMENT IN
BORROWER AND TO MAKE AN INFORMED DECISION WITH RESPECT THERETO; AND
(c) IT HAS HAD A REASONABLE OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE ANSWERS
FROM OFFICERS AND REPRESENTATIVES OF BORROWER CONCERNING THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AND THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS, AND ANY SUCH QUESTIONS HAVE BEEN ANSWERED TO ITS SATISFACTION.
(d) IT HAS REVIEWED ALL FILINGS MADE BY BORROWER WITH THE SECURITIES AND
EXCHANGE COMMISSION, INCLUDING THE 2005 10-K, AND ANY AND ALL FORM 10-QSBS
AND FORM 8-KS FILED THEREAFTER.
SECTION 2. ACKNOWLEDGEMENT OF RISKS. By its execution of a counterpart hereof,
each Lender acknowledges its recognition of and accepts the risks inherent in
the Loans, including but not limited to the following:
(a) The Borrower intends to use the proceeds of the Loans exclusively to pursue
the Dermagenetics product line (the "Product Line") and to pay existing and
contingent obligations of the Borrower, and material revenue is not
anticipated from any of the other business lines described in the 2005 10-K
or other public filings;
(b) The market for the Product Line is unproven, there may be concerns raised
regarding the genetic information required for commercialization of the
Product Line, and the Borrower does not have a record of successful
commercialization;
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(c) The commercialization efforts of the Product Line to date have primarily
been focused on distribution through medical spas and many of these medical
spas have reported difficulty in explaining the value of the Product Line
to end customers;
(d) The Borrower intends to expand commercialization efforts to include
direct-to-consumer sales via the Internet and the Borrower has no
experience in this selling method;
(e) The Internet sales efforts require the development of a customer website
system for marketing and selling via the internet and this development may
experience implementation delays which would negatively impact revenues and
expenses;
(f) The Borrower currently has released one product and intends to develop and
introduce additional products as part of the Product Line; there is a risk
that product development may be delayed or that the newly developed
products may not be successful with customers, either of which could
negatively impact revenues and profits;
(g) The Borrower depends on third-party products and services and sole- or
limited-source suppliers to develop and manufacture components of the
Product Line;
(h) There are many businesses which supply products and services which may be
competitive with the Product Line, and the Borrower may not have the
resources required to successfully compete;
(i) The value of the Product Line is highly dependent on approval and
registration of patent applications made by the Borrower which may fail to
be approved and registered;
(j) The Borrower may not have sufficient resources to defend the proprietary
technology against use by or infringement claims by third-parties;
(k) The Borrower may not be able to attract and retain professional staff and
currently has a very small set of personnel, on which it is dependent.
(l) The Borrower has a history of losses and will require significant
additional capital to successfully commercialize the Product Line;
(m) The Borrower may find itself unable to raise additional capital on
commercially reasonable terms;
(n) There is no market for the Notes and only a limited market exists for the
GL Common Stock to be issued upon conversion of the Notes;
(o) The current litigation by the former Chief Executive Officer, as described
in the 2005 10-K or in Schedule 3, if successful could result in the
bankruptcy of the Borrower; and
(p) The value of GL Common Stock has been highly volatile and therefore the
value of the Consideration Stock and the Conversion Stock may decline in
value.
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ARTICLE VII
COVENANTS OF BORROWER
SECTION 1. COMPLIANCE WITH LAW. Borrower shall operate its business in
compliance in all material respects with all applicable laws, rules and
regulations.
SECTION 2. NO DEFAULT. Borrower shall not perform any act, or omit to perform
any act, nor permit any act or omission to occur, the effect of which would be
to cause a material breach of any material contract, commitment or obligation in
any respect that would have a material adverse effect on the assets or
operations of Borrower or any subsidiary of Borrower.
SECTION 3. SECURITIES LAWS FILINGS. Borrower shall comply with all reporting
requirements imposed by any applicable Federal or State securities laws within
the time limits provided by such laws and any applicable grace periods.
SECTION 4. PROTECTION OF INTELLECTUAL PROPERTY. Borrower shall use its best
efforts to protect all of its trade secrets, proprietary and confidential
information (including, without limitation, customer and client compositions,
marketing techniques, marketing initiatives, pricing and cost information and
business and marketing plans and proposals), know-how, patents and applications
for patents, including without limitation the right to xxx for past infringement
and damages therefor, and licenses thereunder, and any divisions continuations,
continuations-in-part, reissues or corresponding foreign patents and patent
applications, processes, trademarks, copyrights, designs, manuals and handbooks,
blueprints, specifications, software, service marks, trade names, trade dress,
logos, corporate symbols and any other intellectual property rights; and all
rights to any and all customer lists and relationships, supplier lists and
relationships, and territorial rights and franchise licenses (collectively,
"Intellectual Property") from infringement and to defend itself from claims that
it infringes intellectual property of third parties, in all cases in the most
expeditious procedures commercially available. Borrower shall also use
commercially reasonable efforts to obtain registrations and approvals from the
relevant governmental regulatory authorities with regard to all applications for
its Intellectual Property for which such registrations and approvals are
necessary or desirable.
SECTION 5. PRESERVATION OF CORPORATE EXISTENCE; MAINTENANCE OF 100% OWNERSHIP OF
DERMAGENETICS, INC. Borrower shall not enter into, or permit to occur, any
transaction the effect of which could be a merger or consolidation or other
change of control or corporate form unless Borrower is the surviving entity.
Borrower shall not sell or otherwise dispose of (a) all or substantially all of
its assets or those of any material subsidiary or (b) any interest in its wholly
owned subsidiary Dermagenetics, Inc.
SECTION 6. NO SALE OR LICENSING OF INTELLECTUAL PROPERTY. Except to a third
party on commercially reasonable terms, Borrower will not, and will not permit
any subsidiary to, directly or indirectly sell, assign or license to, or
otherwise permit the use by, any third party of any of its Intellectual
Property, except as required by binding agreements to which Borrower is
obligated as of the date hereof, without the prior written consent of Lenders
with Sharing Percentages aggregating at least fifty percent (50%) of the total.
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SECTION 7. PRIORITY OF SECURITY INTERESTS. Without the prior written consent of
Lenders with Sharing Percentages aggregating at least fifty percent (50%) of the
total, which consent may be satisfactorily evidenced for all purposes hereof by
a writing signed exclusively by the Administrative Agent, Borrower shall take no
action, nor permit to occur any circumstance, that results in the security
interests created by the Security Agreement to cease to have the priority
required by Article IV, Section 2 above with respect to any material asset of
Borrower or any subsidiary of Borrower, except as otherwise permitted by the
Security Agreement.
SECTION 8. LIMITATION ON EXECUTIVE COMPENSATION. Without the prior written
consent of Lenders with Sharing Percentages aggregating at least fifty percent
(50%) of the total, which consent may be satisfactorily evidenced for all
purposes hereof by a writing signed exclusively by the Administrative Agent,
Borrower will not, and will not permit any subsidiary to, incur any obligation
for cash compensation in the form of salary or bonuses in the aggregate for any
rolling twelve (12) month period to any officer or other person in an amount
greater than One Hundred Fifty Thousand Dollars ($150.000.00).
SECTION 9. NOTICE OF DEFAULT. Borrower shall notify the Administrative Agent as
soon as practical upon the occurrence of any event or circumstance which could
constitute an Event of Default hereunder with the passage of time or giving of
notice or both.
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
SECTION 1. EVENTS OF DEFAULT. Each of the following shall constitute an "Event
of Default" hereunder:
(a) Payment Default. Borrower shall fail to pay any amount of principal of, or
Interest accrued on, any Loan when due; or
(b) Change in Control. Xxxxx Xxxxxx, Xx. and Xxxxxx X. Xxxxxxxxx, together with
such other Directors of Borrower as may have been elected or appointed to
the Board of Directors of Borrower after the date hereof and which the
Administrative Agent has notified Borrower are to be included within the
ambit of this provision, shall cease to constitute a majority of the
Directors of Borrower; or
(c) Material Adverse Change in Net Assets. Except with the prior written
consent of Lenders with Sharing Percentages aggregating at least fifty
percent (50%) of the total, Sharing Percentages, any single or related
series of events, outside the ordinary course of business, which result for
the Borrower in a reduction of its assets or an increase in its liabilities
of an amount in excess of One Hundred Thousand Dollars ($100,000.00); or
(d) Accuracy of Representations. Any material representation of Borrower made
in Article V above shall prove to have been untrue in any material respect
when made; or
(e) Breach of Covenants. Borrower shall fail to perform any obligation on its
part to be performed set forth in Sections 5, 6, 7, 8, or 9 of Article VII
above; or Borrower shall fail to perform any obligation on its part to be
performed set forth in Sections 1, 2, 3 or 4 of Article
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VII above and Borrower shall have failed to correct such failure within
thirty (30) days after receiving notice of such failure by the
Administrative Agent; or
(f) Involuntary Bankruptcy or Receivership. Borrower shall file a voluntary
petition in bankruptcy or an order for relief shall be entered in any case
under Title 11 of the U.S. Bankruptcy Code involving Borrower, or Borrower
shall be adjudicated a bankrupt or insolvent, or shall file a petition or
answer seeking any reorganization, arrangement, composition, readjustment,
liquidation or similar relief under any present or future statute, law or
regulation, or shall file any answer admitting (or shall fail to contest)
the material allegations of a petition filed against Borrower in any such
proceeding; or within sixty (60) days after the commencement of an action
against Borrower seeking any bankruptcy, reorganization, arrangement,
composition, readjustment, liquidation or similar relief under any present
or future statute, law or regulation, such action shall not have been
dismissed or all orders or proceedings thereunder affecting the assets or
the business of Borrower stayed, or if the stay of any such order or
proceeding thereafter shall be set aside.
SECTION 2. REMEDIES. Upon the occurrence and during the continuance of an Event
of Default hereunder:
(a) Acceleration. Either promptly upon its becoming aware of the facts thereof
or upon receipt of notice thereof from Borrower or any Lender,
Administrative Agent shall notify the Lenders of the existence of such
Event of Default and solicit their instruction with respect thereto. If
Lenders with aggregate Sharing Percentages of at least fifty percent (50%)
instruct the Administrative Agent to accelerate the Loans, the
Administrative Agent shall accelerate payment of all the Loans by notice
thereof to Borrower and the Collateral Agent (with a copy of such notice to
each Lender).
(b) In such event (i) the outstanding principal amount of each Loan so
accelerated, (ii) all accrued and unpaid Interest thereon, and (iii) any
other Indebtedness due and payable under the Loan Documents with respect
thereto (including, without limitation, the costs specified in Section 3
below) shall be due and payable (x) immediately for any Event of Default
under Section 1(a), (d), (e) or (f); or (y) within ninety (90) days of the
receipt of notice as provided in Section 2(a) for any Event of Default
under Section 1(b) or (c).
(c) The Administrative Agent and the Collateral Agent may proceed to exercise
any rights or remedies that it may have under this Agreement and/or (to the
extent provided thereunder) any other Loan Document and/or such other
rights and remedies which it may have at law, equity or otherwise. This
Section 2 shall not be deemed to expand, limit or otherwise modify any
remedial provisions set forth in any other Loan Document which establish
remedies under such Loan Document.
SECTION 3. INDEMNITY. The Borrower shall indemnify, defend and hold harmless
each Lender, the Administrative Agent, and the Collateral Agent from and against
any and all claims, losses and liabilities arising directly or indirectly from
or connected to this Agreement, the Note, the Loan it makes, or any other Loan
Document or any transaction contemplated hereby or thereby, including, without
limitation, for reasonable expenses, including attorneys' fees, incurred in
enforcement of any right under this Agreement, the Note or any other Loan
-12-
Document, provided that the Lender, Administrative Agent, or Collateral Agent
prevails in such enforcement action.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 1. NOTICES. Except as otherwise expressly provided herein, any
communications, requests or notices required or appropriate to be given under
this Agreement, whether or not stated herein to be "in writing" or "written",
shall be in writing and either personally delivered, delivered by overnight
courier, or mailed by certified, registered, or express mail, return receipt
requested, deposited in the United States mail postage prepaid, addressed to the
party for whom the notice is intended as follows:
TO BORROWER:
GENELINK, INC.
Newport Financial Center
000 Xxxxxxx Xxxxxx, Xx. 000
Xxxxxx Xxxx, Xxx Xxxxxx 00000
Attn: Xxxxx Xxxxxx, Xx., President
Telephone: 000-000-0000
E-mail: xxxxxxx@xxxxxxxx.xxxx
TO ADMINISTRATIVE AGENT:
FIRST EQUITY CAPITAL SECURITIES, INC.
0000 Xxxxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
E-mail: XXXXXX00@xx.xxx
TO COLLATERAL AGENT:
XXXXX XXXXXX
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
E-mail: XxxxxXxxxxx0000@xxx.xxx
TO EACH LENDER: To their respective address set forth above or as otherwise
notified to Borrower, the Administrative Agent and the Collateral Agent.
These addresses may be changed by notice as provided herein. All notices shall
be deemed to have been received on the earlier of actual receipt (as evidenced
in the case of electronic mail by an electronic receipt message), or, if given
by mail, four (4) business days following the
-13-
postmark date thereof unless sent by overnight mail in which event they shall be
deemed to have been received one (1) business day following the date of sending
thereof.
SECTION 2. NO WAIVERS; APPROVALS. Any failure by Borrower or the Administrative
Agent or Collateral Agent or any Lender to insist, or election by any party not
to insist, upon the strict performance of any of the terms and provisions of
this Agreement or any other Loan Document, shall not be deemed to be a waiver of
any of the terms and provisions hereof or thereof by such party, and such party,
notwithstanding any such failure(s), shall have the right thereafter to insist
upon the strict performance by the other party of any and all of the terms and
provisions of this Agreement or such Loan Document to be performed by the other
party.
SECTION 3. COSTS AND EXPENSES OF AGENTS. Borrower shall be responsible for, and
shall timely pay upon demand, all reasonable fees, costs and expenses of the
Administrative Agent and the Collateral Agent.
SECTION 4. FURTHER ASSURANCES. Each party hereto agrees that at any time and
from time to time, at its expense, it will promptly execute and deliver all
further instruments and documents and take all further actions as any other
party hereto may reasonably request in order to give effect to the terms of this
Agreement.
SECTION 5. GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with, the law of the State of New York without giving
effect to the choice of law principles of the State of New York.
SECTION 6. CONSENT TO EXCLUSIVE JURISDICTION. Borrower irrevocably consents that
any legal action or proceeding against it under, arising out of or in any manner
relating to this Agreement may be brought in any court of the State of New York,
County of New York, or in the United States District Court for the Southern
District of New York. Borrower, by the execution and delivery of this Agreement,
expressly and irrevocably assents and submits to the personal jurisdiction of
any of such Court in any such action or proceeding. Each of Borrower, the
Administrative Agent and each Lender hereby agrees that any and all legal action
relating to this agreement shall be brought and maintained only in such Courts.
Borrower further irrevocably consents to the service of any complaint, summons,
notice or other process relating to any such action or proceeding by delivery
thereof to it at the address set forth above or such other address as Borrower
shall have theretofore notified the Administrative Agent in writing or in any
other manner permitted by law. In the event service on Borrower is effected as
set forth in the preceding sentence, Borrower hereby expressly and irrevocably
waives any claim or defense in any such action or proceeding based on any
alleged lack of personal jurisdiction, improper venue, forum non conveniens, or
any similar basis. Borrower shall not be entitled in any action or proceeding to
assert any defense given or allowed under the law of any State other than the
State of New York unless such defense is also given or allowed by the law of the
State of New York.
SECTION 7. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. Where provisions of any law or
-14-
regulation resulting in any such prohibition or unenforceability may be waived
they are hereby waived by the parties hereto to the full extent permitted by law
so that this Agreement shall be deemed a valid, binding agreement, enforceable
in accordance with its terms.
SECTION 8. SURVIVAL. All of the representations, warranties, terms, covenants,
agreements and conditions contained in this Agreement shall specifically survive
the execution and delivery of this Agreement and the other Loan Documents and
shall, unless otherwise expressly provided, continue in full force and effect
until the Loans, together with Interest thereon, and all other costs, charges
and other sums payable hereunder or thereunder, are paid in full (by repayment,
prepayment or conversion).
SECTION 9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be deemed an original but all of which together
shall constitute but one and the same instrument. For the purpose of this
Agreement, a signature executed by facsimile shall be deemed an original.
SECTION 10. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the documents
referred to herein constitute the entire agreement between the parties hereto as
to the matters contemplated herein and therein. This Agreement may not be
modified or amended in any manner except in a writing executed by the parties
against whom enforcement of such modification or amendment shall be sought. For
purpose of this section, no such amendment or modification shall be effective
against any Lender until Lenders with Sharing Percentages of at least fifty
percent (50%) have effectively consented thereto.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be executed as
of the day and year first above written.
GENELINK, INC.
By: /s/ Xxxxx X. Xxxxxx, Xx.
------------------------------------
Its: Acting Chief Executive Officer
XXXXX XXXXXXX, INC.
By: /s/ Xxxxx Xxxxx
---------------------------------
Its: President
XXXXXX XXXXXXXX
/s/ Xxxxxx Xxxxxxxx
-------------------------------------
XXXXXXX X. XXXXXX XX.
/s/ Xxxxxxx X. Xxxxxx, Xx.
-------------------------------------
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XXXXX XXXXXXXXX
/s/ Xxxxx Xxxxxxxxx
-------------------------------------
STRANCO INVESTMENTS, LTD.
By: /s/ Gazwa Xxxxxx
---------------------------------
Its: Director
XXXXXXX X. XXXXXX
/s/ Xxxxxxx X. Xxxxxx
-------------------------------------
XXXXXXX CAPITAL MANAGEMENT, INC.
By: /s/ Xxxxx Xxxxxxx
---------------------------------
XXXXXX XXXXXX
/s/ Xxxxxx Xxxxxx
-------------------------------------
WABA VENTURES LTD
/s/ Xxxxxxxx Xxxxxxx
-------------------------------------
COLLATERAL AGENCY ACCEPTED AND AGREED
TO:
/s/ Xxxxx Xxxxxx
-------------------------------------
XXXXX XXXXXX
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SCHEDULE 1
LENDER PRINCIPAL AMOUNT SHARING PERCENTAGE
------ ---------------- ------------------
Xxxxx Xxxxxxx, Inc. $ 61,578.08 12.37%
00000 Xxxxxxxx Xxxx., Xxx 0000
Xxx Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxx
Xxxxxxx Capital Management, Inc $ 50,000.00 10.04%
0000 Xxxxxx Xxxx Xxxxx
Xxxxxxxx Xxxxxxx, XX 00000
Xxxxxx Xxxxxxxx $ 50,789.04 10.20%
000 Xxxxxx Xxxx. #000
Xxxxxx Xxxxxxx, XX 00000
Xxxxxxx X. Xxxxxx, Xx. $101,578.08 20.40%
0000 00xx Xxxxx XX, Xxx 000
Xxxxxx, XX 00000
Xxxxx Xxxxxxxxx $ 50,789.04 10.20%
0000 Xxxxx Xxxxxx, Xxx 000
Xxx Xxxxxxxxx, XX 00000
Xxxxxxx X. Xxxxxx $ 41,578.08 8.35%
0000 Xxxxxxxx, Xxx 0000
Xxx Xxxx, XX 00000
Xxxxxx Xxxxxx $ 50,000.00 10.04%
000 Xxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Stranco Investments, Ltd $ 41,578.08 8.35%
Xxxxxx Xxxxxxxx, 0xx Xxxxx
Xxxxxx Xxxxxx Xxxxxx
Verdun
Beirut, Lebanon
WABA Ventures Ltd $ 50,000.00 10.40%
c/0 Corpag Services USA, Inc.
000 Xxxxxxxx Xxx.
Xxxxx 000
Xxxxx, XX 00000
------------ ------
$ 497,890.40 100.00%
SCHEDULE 2
Material Adverse Changes Since 2005 10-KSB: None
-2-
SCHEDULE 3
Litigation other than that reported in the 2005 10-KSB: None
-3-
