Vertical Branding amends notes sold to Gottbetter, curing default

By Devika Patel

Knoxville, Tenn., May 11 - Vertical Branding, Inc. has amended its $2.23 million in senior subordinated convertible notes, according to an 8-K filed Monday with the Securities and Exchange Commission.

As previously reported, the company was in default on the notes for failing to make principal payments.

Gottbetter Capital Master Ltd., the holder of the notes, has agreed to waive all existing defaults. In exchange for this, the company will pay the investor 50% of the amount, if any, by which the earn-out under its new licensing agreement with P2F Holdings exceeds $450,000 and 100% of any such amounts above $800,000. Gottbetter also will receive any collections subsidiary Adsouth Marketing LLC takes in that exceeds the amount owed under a credit facility and 50% of any proceeds from future company financings.

There are also limitations on executive salaries and bonuses within the agreement.

Also, if there are any defaults that last longer than 90 days on the amended notes, all of Gottbetter's warrants will have their strike prices reduced to $0.025.

The amended notes will have a 13% interest rate, raised from 10%. They will not be convertible and may be prepaid without penalty.

Their maturity has been extended to Dec. 31, 2010 from Aug. 1, 2009.

The amended notes will also have a new payment structure requiring monthly payments starting on Sept. 1.

Vertical Branding is a consumer products company based in Encino, Calif.

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