FUNDING AGREEMENT

FUNDING AGREEMENT

FUNDING AGREEMENT (the “Agreement”), dated as of July 14, 2011, by and among Inergetics, Inc., a Delaware corporation (the “Company”), Millennium Biotechnologies, Inc., a Delaware Corporation and wholly-owned subsidiary of the Company (the “Subsidiary”, and together with the Company, the “Companies”) and SEAHORSE ENTERPRISES LLC, a Delaware limited liability company (“Seahorse”).

 

WITNESSETH:

 

WHEREAS, Seahorse is a significant equity and debt holder of the Companies;

 

WHEREAS, the Companies need funding in order to continue their operations; and

 

WHEREAS, Seahorse desires to protect its investment in the Companies by committing to provide funding to the Companies upon the terms and conditions set forth in this Agreement as described in the Summary Of Debt Reorganization and Financing dated May 4, 2011, as revised in a version dated July 14, 2011, (the “Summary”), a copy of which is attached hereto as Exhibit A and by this reference, incorporated herein.  All terms not otherwise defined herein have the meaning set forth in the Summary.

 

NOW THEREFORE, in consideration of the mutual benefits accruing to Seahorse and the Companies (collectively, the “Parties”) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:

 

1.           Funding.  Seahorse hereby agrees to provide the Companies with up to $2,000,000 in Funding (the “Funding Commitment”), provided that all of the conditions (the “First Equity Offering Conditions”) set forth in the “First Equity Offering” section of the Summary are either met or waived by Seahorse, as follows:

(a)

Within three Business Days after the First Equity Offering Conditions have been met or waived, Seahorse shall deliver to the Company $700,000 (the “First Payment”).  A “Business Day” means any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the City of New York. The First Payment shall be applied towards the purchase of G Preferred in the Company’s First Equity Offering as described in the Summary, pursuant to a Subscription Booklet (the “First Offering Subscription Booklet”) substantially in the form attached hereto as Exhibit B.

(b)

Within three Business Days after the later of the commencement of the Second Equity Offering (which will commence on the next business day after the final closing of the First Equity Offering) and the occurrence of one of the three conditions set forth in subsection “d” below (each, a “Second Equity Offering Condition”), Seahorse shall deliver to the Company an additional $650,000 (the “Second Payment”). The Second Payment shall be applied towards the purchase of G Preferred in the Company’s Second Equity Offering as described in the Summary pursuant to a Subscription Booklet similar to the First Offering Subscription Booklet that incorporates the terms of the Second Equity Offering.  At such time as Seahorse delivers the Second Payment to the Company, it also will deliver a check in the amount of $650,000 to Silverman Sclar Shin & Byrne PLLC, counsel to the Company (“Silverman”).  Pursuant to the escrow agreement (the “Escrow Agreement”) with Silverman, a copy of which is attached hereto as Exhibit C, Silverman is to deliver that check to the Company if the Third Payment (as defined below) is due on or before October 31, 2011 (such check representing the Third Payment).  Otherwise, Silverman is to return the check to Seahorse.

(c)

Within three Business Days after the occurrence of an additional Second Equity Offering Condition or the waiver of such by Seahorse, Silverman will deliver to the Company the $650,000 check it received pursuant to the Escrow Agreement (the “Third Payment” and, with the First Payment and the Second Payment, the “Payments”). The Third Payment shall be applied towards the purchase of G Preferred in the Company’s Second Equity Offering as described in the Summary.

(d)

The Second Equity Offering Conditions are as follows: (i) the Company entering into new contracts for the Surgex and Resurgex products that are projected to generate revenues of at least $2,000,000 in a consecutive twenty-four month period, $750,000 of which is projected to be generated in the first twelve months, (ii) the Company completing the development of the RTD (ready to drink), bars and pouches for Surgex for commercial sale, or (iii) the Company completing the development of the RTD for Surgex Active (low calorie version).  For purposes of this subsection, reference to the Company means the Company and/or the Subsidiary.

(e)

Seahorse agrees to promptly execute the relevant Subscription Booklet for the applicable Equity Offering in conjunction with its delivery of each of the three Payments.

(f)

To the extent that the Company raises funds from sources other than Seahorse (“Other Funds”) in the Second Equity Offering, such Other Funds shall reduce the balance of the remaining $1,300,000 of the Funding Commitment on a dollar–for-dollar basis.  Upon the termination of the Second Equity Offering, to the extent that Seahorse has made the Second and Third Payments, the Company shall promptly pay to Seahorse from the proceeds thereof an amount equal to the Other Funds up to a maximum of $1,300,000.  Notwithstanding the foregoing, such payment by the Company shall not exceed the amount of the Second and Third Payments received by it from Seahorse.

2.           Default in and Acceleration of  Payment.  If Seahorse fails to pay to the Company within the required timeframe set forth above any of the Payments, Seahorse shall be required to promptly pay all remaining Payments.

3.           Advances and Overages.  As of the date hereof, Seahorse has advanced to the Company $700,000 representing an advance of the First Payment for which the Company has issued First Position Bridge Notes (as described in the Summary) and substantially in the form attached hereto as Exhibit D (the “Bridge Notes”).  Seahorse may advance additional funds to the Company (“Advances”).  For each Advance, the Company will issue to Seahorse one or more Bridge Notes.   Seahorse further agrees to apply these Advances to the Payments provided that the Company receives at least $1,300,000 in the Second Equity Offering (inclusive of Advances) by October 31, 2011.

4.           Seahorse Representations.  Seahorse makes the following representations and warranties to the Company:

(a) It is an “Accredited Investor” as that term is defined in Regulation D under the Securities Act of 1933 (the “Act”), a copy of which is attached hereto as Exhibit E, as such definition has been amended by Section 413 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, a copy of which is attached hereto as Exhibit F.

(b) The shares of G Preferred that it will receive (and the shares of Common Stock into which the shares of G Preferred may be converted) have not been and are not being registered under the Act and the certificates received by it will bear a legend indicating that transfer of these shares is restricted by reason of the fact that the said shares have not been so registered.

(c) It is acquiring the shares of G Preferred (and, if it converts the G Preferred, it will acquire the shares of Common Stock issuable pursuant thereto) for its own account, for investment purposes only and not with a view to resale or other distribution thereof.

(d) It has reviewed the Summary, the Certificate of Designations for the G Preferred and the Company’s reports as filed with the Securities and Exchange Commission.

(e) It has not construed the contents of this Agreement as legal, investment, tax or other advice and it has relied upon its own representatives, including its own legal counsel and accountants, as to legal, economic, tax and related aspects of the terms of this Agreement, including, but not limited to provided funding to the Company, purchasing G Preferred and Bridge Notes, all as described herein and as to its suitability for it

(f) It has been afforded the opportunity to ask questions of and receive answers from the Company concerning the terms and conditions of this offering and the business of the Company and to obtain any additional information which the Company possesses or could acquire without unreasonable effort or expense that is necessary to verify the accuracy of information contained herein and it desires no more information.

(g)  The execution and delivery by  it of the Agreement, and the consummation of the transactions described herein by it have been duly authorized by all requisite action on the part of Seahorse.  Upon execution by the Company, the Agreement will be the legal, valid and binding obligation of Seahorse, enforceable in accordance with its terms, except that such enforcement (i) may be limited by bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights generally and (ii) is subject to the availability of equitable remedies, as determined in the discretion of the court before which such a proceeding may be brought.

(h)  John Israelian is the duly appointed Managing Member of Seahorse and is authorized to execute the Agreement on behalf of Seahorse.

5.	Miscellaneous.

 

To Seahorse:	Seahorse Enterprises, LLC
	One Powder Hill Way
	Westboro, MA 01581
	Attention:  John Israelian
	Telephone: (508) 527-3289
	Facsimile:    ###-###-####
To the Companies:	Inergetics, Inc.
	205 Robin Road, Suite 222
	Paramus, NJ 07652
	Attention:  Mark C. Mirken
	Telephone:   ###-###-####
	Facsimile:    ###-###-####

 

Any of the above Parties may change the address(es) to which all notices, requests and other communications are to be sent by giving written notice of such address change to the other Parties, but such change shall not be effective until notice of such change has been received by the other Parties.

 

(d)           Counterparts;  Effective Date.  This Agreement may be executed in any number of counterparts, each of which shall be an original with the same force and effect as if the signatures thereto and hereto were upon the same instrument.  Delivery of an executed counterpart of a signature page to this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement.  This Agreement shall become effective (the “Effective Date”) when counterparts of this Agreement has been duly executed and delivered on behalf of each Party hereto.

 

(e)           Governing Law.  The validity, interpretation and enforcement of this Agreement and any dispute arising out of the relationship between the Parties hereto whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York but excluding any principles of conflicts of law or other rule of law that would cause the application of the law of any jurisdiction other than the laws of the State of New York.

 

(f)           Severability.  If any part of this Agreement is found invalid or unenforceable, the Agreement will be enforced to the maximum extent permitted by law, and all other portions of this Agreement will remain in full force and effect.

 

(g)           Consent to Jurisdiction; Waiver of Jury Trial.  Each of the Parties hereto hereby irrevocably consents to the exclusive jurisdiction of any state or Federal court sitting in New York County, New York and waives trial by jury in any action or proceeding with respect to this Agreement.

 

(h)           Complete Agreement.  This Agreement and the Exhibits attached hereto, constitute the entire agreement and understanding among the Parties hereto in respect of the transactions contemplated hereby, and supersede all prior agreements, arrangements and understandings relating to the subject matter hereof.

 

[signature pages follow]

[Signature Page to Seahorse Funding Agreement]

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.

INERGETICS, INC.
By	/s/
	Mark C. Mirken, CEO
MILLENNIUM BIOTECHNOLOGIES, INC.
By	/s/
	Mark C. Mirken, CEO
SEAHORSE ENTERPRISES LLC
By:	/s/
	John Israelian, Managing Member

 

[See Summary of Debt Reorganization Financing attached hereto]

[See Form of Subscription Booklet attached hereto]

[See Silverman Escrow Agreement attached hereto]

[See Form of First Position Bridge Note attached hereto]

Sec. 230.501         Definitions and terms used in Regulation D.

As used in Regulation D, the following terms shall have the meaning indicated:

(a)           Accredited Investor.  "Accredited Investor" shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

(1)           Any bank as defined in Section 3(a(2) of the Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; insurance company as defined in Section 2(13) of the Act; investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if investment decisions are made by a plan fiduciary which is a bank, savings and loan association, insurance company, or registered investment adviser and the plan establishes fiduciary principles the same or similar to those contained in sections 404-407 of Title I of the Employee Retirement Income Security Act of 1974, employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

(2)           Any private business development company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940;

(3)           Any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

(4)           Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issue;

(5)           Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase, exceeds $1,000,000;

(6)           Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

(7)           Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in '230.506(b)(2)(ii); and

(8)           Any entity in which all of the equity owners are accredited investors.

SEC. 413. ADJUSTING THE ACCREDITED INVESTOR STANDARD.

(a) IN GENERAL.—The Commission shall adjust any net worth standard for an accredited investor, as set forth in the rules of the Commission under the Securities Act of 1933, so that the individual net worth of any natural person, or joint net worth with the spouse of that person, at the time of purchase, is more than $1,000,000 (as such amount is adjusted periodically by rule of the Commission), excluding the value of the primary residence of such natural person, except that during the 4–year period that begins on the date of enactment of this Act, any net worth standard shall be $1,000,000, excluding the value of the primary residence of such natural person.