Annual report pursuant to Section 13 and 15(d)

Consulting Agreement and Secured Promissory Note Receivable

v3.21.1
Consulting Agreement and Secured Promissory Note Receivable
12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Consulting Agreement and Secured Promissory Note Receivable

Note 12 – Consulting Agreement and Secured Promissory Note Receivable

 

Consulting Agreement

 

On September 25, 2020 (the “Effective Date”), we entered into a Consulting Agreement with a consultant (the “Consulting Agreement”). The Consulting Agreement will be effective for a period commencing on the Effective Date and expiring on September 1, 2022; provided, however, that we may terminate this agreement at any time on five days’ prior written notice.

 

During the term of the Consulting Agreement, the consultant will provide us with such regular and customary consulting advice as is reasonably requested by us. The consultant’s duties will also include, among other things, (i) identifying and introducing us to new opportunities in the medical technology and testing fields, (ii) assisting and advising us in acquiring one or more CLIA certified labs suitable for COVID-19 and other testing (“Test Labs”), (see Notes 3 and 10); (iii) assisting us in equipping and staffing any Test Labs acquired by us; (iv) advising and assisting in the operation of such Test Labs; (v) validating and obtaining certification of such Test Labs; and (vi) assisting us in obtaining a flow of business, orders and revenues from multiple sources in the industry, including but not limited to at least one significant, nation-wide manufacturer and distributor of COVID-19 saliva sample collection test kits (“COVID-19 Test Kits”).

 

The compensation to be paid to the consultant under the Consulting Agreement will be based on the following milestones:

 

  At such time as we complete the acquisition of our first Test Lab that has been validated and certified to process COVID-19 Test Kits collection test kits manufactured by a substantial, nation-wide manufacturer and distributor of COVID-19 Test Kits, the consultant will receive a consulting fee of $250,000;
  At such time as we have processed 50,000 COVID-19 Test Kits from a source introduced to us by the consultant, they will receive a consulting fee of $500,000;
  At such time as we have processed 50,000 COVID-19 Test Kits from a second source introduced by the consultant (i.e., a source other than the source contemplated by the bullet immediately above) the consultant will receive a consulting fee of $250,000; and
  The consultant will receive consulting fees equal to 5% of the net revenues that we generate from processing COVID-19 Test Kits in the Test Labs where such revenues are from sources introduced to us by the consultant (excluding the revenues from the COVID-19 Test Kits set forth in the second and third bullets above).

 

All compensation earned by the consultant will first be applied to the acceleration and prepayment of all sums due to us, including but not limited to sums due pursuant to the Amended and Restated Secured Promissory Note (“Secured Note”) described below. Under the terms of the Consulting Agreement, the consultant will not be entitled to receive any payments pursuant to the Consulting Agreement unless and until the Secured Note has been paid in full. The total compensation that the consultant will be entitled to earn or to receive under the Consulting Agreement (inclusive of amounts credited against the Secured Note) will be capped at $4.0 million. See Note 16 for amendment subsequent to year end.

 

Promissory Note and Security Agreement

 

On September 25, 2020 (the “Restatement Effective Date”), we also entered into an Amended and Restated Promissory Note and Security Agreement with the consultant, pursuant to which we loaned $3.0 million to the consultant (inclusive of $1.0 million in the aggregate previously loaned to the consultant, as described below).

 

The Secured Note amended and restated in its entirety (i) that certain Promissory Note and Security Agreement, dated July 21, 2020 (the “Original July 21 Note”), pursuant to which we loaned $750,000 to the consultant and (ii) that certain Promissory Note and Security Agreement, dated July 29, 2020 (the “Original July 29 Note”, and, together with the Original July 21 Note, the “Original Notes”), pursuant to which we loaned $250,000 to the consultant.

 

The Secured Note bears interest at a rate of 15% per annum from and including the Restatement Effective Date until the principal amount is repaid in full plus any Principal Increases (as defined below) together with any accrued interest that has not been capitalized; provided, however, that upon the occurrence and during an Event of Default (as defined in the Secured Note), the interest rate payable under the Secured Note will automatically increase to 9% above the rate of interest then applicable to the Secured Note.

 

Interest under the Secured Note will be payable monthly in arrears on the first day of each month for the prior monthly period, as well as at maturity (whether upon demand, by acceleration or otherwise) (each such date, a “Payment Date”); provided, however, that prior to September 1, 2021, interest will be paid and capitalized in kind by increasing the principal amount of the Secured Note (any such increase, a “Principal Increase”) by an amount equal to the interest accrued on the principal amount (as increased by the Principal Increases) during the prior month. On each Payment Date commencing after September 1, 2021, in addition to payments of interest described in the preceding sentence, the consultant will also make payments on the principal amount of the loan equal to 1/36 of the then outstanding principal amount. The amount of the monthly payments will be equal to the amount required to amortize fully the outstanding principal amount of the loan, together with interest, over a period of 36 months.

 

The entire remaining unpaid principal amount of the Secured Note, together with all accrued and unpaid interest thereon and all other amounts payable under the Secured Note, will be due and payable, if not sooner paid, on September 30, 2022. The Secured Note may be prepaid in full or in part at any time without penalty or premium.

 

The Secured Note contains customary events of default. If a default occurs and is not cured within the applicable cure period or is not waived, any outstanding obligations under the Secured Note may be accelerated.

 

The Secured Note contain customary representation and warranties and certain restrictive covenants which, among other things, restrict the consultant’s ability to (i) sell, transfer, finance, lease, license, or dispose of all or substantially all of its property or assets, liquidate, windup, or dissolve, (ii) acquire all or substantially all of the property or assets of, or the equity interests in, any other person, (iii) participate in any merger, consolidation, share exchange, division, conversion, reclassification, or other absorption or reorganization, (iv) except for those existing as of the Restatement Effective Date, create, incur, assume, permit, or suffer to exist any pledges, liens, security interests, and other encumbrances of its property or assets, whether now owned or hereafter owned or acquired, and (v) create, incur or permit to exist any debt that is senior to, or pari passu with the Secured Note.

 

In order to secure the consultant’s obligations under the Secured Note, the consultant granted to the Company a continuing security interest in certain property and assets.

 

On January 14, 2021, we entered into an Amendment and Termination Agreement (the “Agreement”) with a consultant pursuant to which the parties amended that certain Amended and Restated Promissory Note and Security Agreement by and between the parties, dated September 25, 2020. Pursuant to the terms of the Agreement, the Company has loaned an additional $1 million to the consultant in consideration for consultant’s agreement to cancel its existing consulting agreement with the Company, dated September 25, 2020 (the “Consulting Agreement”), and terminate the Company’s obligation to pay the consultant additional consulting fees beyond the $250,000 already earned by the consultant under the Consulting Agreement. As a result, the initial principal amount due under the Note was increased from $2.75 million to $3.75 million plus all accrued and unpaid interest arising under the Note through and including January 14, 2021.

 

The consultant will sell and process its viral test by RT-PCR (together with other viral and other types of tests). Until the Secured Note is paid in full, for each COVID-19 Test Kit sold or processed from and after January 14, 2021, and for which payment of at least the specified amount, as defined for the Test is received by the consultant, the consultant will pay the Company a specified amount, as defined (the “Test Fee”). The total payments shall not exceed the aggregate amounts due under the Note and shall be applied first to Interest and other amounts due under the Note and then to the then-current outstanding principal. Test Fees will be due and payable on the tenth (10th) business day after the end of each month commencing in February, 2021, and until the Note is paid in full. We received the first payment in the amount of $95,000 with respect to the Test Fees from January 15 through February 2021.

 

On each Payment Date commencing on or after September 1, 2021, in addition to payments of Test Fees described above, the consultant shall also make payments in an amount equal to the greater of (x) the Test Fee, or (y) 1/36th of the then outstanding Principal Amount together with interest thereon and interest accruing on the Note, in accordance with the Note. Accordingly, commencing on September 1, 2021, the minimum number of monthly payments due and payable will be equal to the amount required to amortize fully the outstanding Principal Amount of the Loan, together with interest over a period of thirty six (36) months with level monthly payments.

 

October 2020 Promissory Note

 

On October 22, 2020, we entered into a promissory note with an unrelated third party pursuant to which we loaned $300,000 to such entity. The promissory note bears interest at a rate of 10% per annum and is due December 31, 2020 and was repaid in the first quarter of Fiscal 2021.