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EXHIBIT 9.1
LOAN AGREEMENT
BY AND BETWEEN
PET QUARTERS, INC.
("BORROWER")
AND
Z CAPITAL, INC.
("LENDER")
DATED AS OF MAY 15, 2001
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LOAN AGREEMENT
This Loan Agreement (the "Agreement") is dated as of May 15, 2001, and
is by and between Z Capital, Inc., a Nevada Corporation ("Lender"), and Pet
Quarters, Inc., an Arkansas corporation ("Borrower").
In consideration of the Loan described below and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby,
Lender and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS.
1.1 In addition to any other terms defined herein, the following terms
shall have the meaning set forth with respect thereto:
"Accredited Investor" means an Accredited Investor as defined in the
Regulation D of the Act.
"Act" means the Securities Act of 1933, as amended.
"Applicable Interest Rate" means eight and one half percent (8.5%) per
annum provided, however that such rate shall not exceed the maximum legal rate
of interest which may be changed under the laws of Arkansas on the date of this
Agreement.
"Bank" means First State Bank, Lonoke, an Arkansas banking association
"Borrower" means Pet Quarters, Inc., an Arkansas corporation.
"Borrower's Address" means ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇.
"Business Day" means any day that is not a Saturday, Sunday, or any day
on which banks in Arkansas are required or permitted to close.
"Closing Date" means the date specified as the Closing Date in each
Promissory Note issued by Borrower pursuant to this Agreement.
"Collateral" has the meaning given to such terms in Section 26 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Due Date" means that Payment Date on which all of the outstanding
principal balances under this Agreement and all accrued but unpaid interest
would be paid if Borrower makes all Payments in a timely manner.
"Event of Default" or "Default" has the meaning given to such term in
Section 7 hereof.
"Lender" means Z Capital, Inc., a Nevada Corporation.
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"Loan Amount" means One Million Dollars (1,000,000.00), Five Hundred
Thousand Dollars ($500,000) shall be loaned by Lender to Borrower on the first
Closing Date and Five Hundred Thousand Dollars ($500,000) shall be loaned by
Lender to Borrower on the second Closing Date which shall be determined by
Lender but in the second Closing Date must occur within ten (10) business days
after the first Closing Date.
"Loan Documents" means this Loan Agreement and any and all promissory
notes executed by Borrower in favor of Lender and all other documents,
instruments, certificates and agreements executed and/or delivered by Borrower,
or third party in connection with any loan made pursuant to the this Agreement.
"Note" means the notes described in Section 2 hereof.
"Obligations" means all loans, advances, liabilities, obligations,
covenants, duties, and debts owing by Borrower to Lender, arising under the Loan
Documents, whether or not evidenced by any note, or other instrument or
document, but including, without limitation all loans evidenced by the Notes or
otherwise, including, without limitation, all interest, charges, expenses, fees,
attorney's fees, filing fees and any other sums chargeable to Borrower
hereunder.
"Origination Fee" means 3,500,000 shares of common stock of Borrower to
be duly registered for resale pursuant to the Act after the authorized shares of
Borrower have been increased to permit issuance of the Origination Fee.
"Parity Debt" means those loans secured by the same Collateral pursuant
to that certain Collateral Pledge Agreement dated March 30, 2001, in favor of
various lenders, and that certain Collateral Pledge Agreement dated May 1_,
2001, in favor of various lenders
"Payment" means each weekly payment of $20,000 due to Lender by
Borrower pursuant to this Agreement, commencing the tenth Monday after delivery
of the Loan Amount to Borrower, and continuing each Monday thereafter until all
monetary obligations of Borrower due under the Note and this Agreement have been
paid in full to Lenders.
"Payment Date" means each Monday, commencing the tenth Monday after
delivery of the Loan Amount to Borrower, and continuing each Monday thereafter
until all monetary obligations of Borrower due under the Notes and this
Agreement have been paid in full.
"Promissory Note" means the Note.
"SEC" means Securities and Exchange Commission.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined or
specified herein shall have the meanings generally attributed to such terms
under generally accepted accounting principles ("GAAP"), as in effect from time
to time, consistently applied, with respect to the financial statements
referenced in Section 4.H. hereof.
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1.3 OTHER TERMS. All other undefined terms contained in this Loan
Agreement shall, unless the context indicates otherwise, have the meanings
provided for in the Promissory Notes. Wherever appropriate in the context, terms
used herein in the singular also include the plural, and vice versa, and each
masculine, feminine, or neuter pronoun shall also include the other genders.
1.4 EXHIBITS. All references in this Loan Agreement to Exhibits are,
unless otherwise specified, references to exhibits attached hereto, and all such
exhibits are hereby deemed incorporated herein by this reference.
2. LOANS.
2.1 LOANS. On May 15, 2001, Lender shall deliver to Borrower, subject
to the terms and conditions set forth in the Loan Documents, Five Hundred
Thousand Dollars ($500,000.00), and Borrower shall deliver to Lender duly
executed note as set forth on Exhibit A. hereto. Within ten (10) business days
of May 15, 2001, Lender shall deliver to Borrower an additional Five Hundred
Thousand Dollars ($500,000).
2.2 PAYMENTS. Borrower shall pay Lender Twenty Thousand Dollars
($20,000) on each Monday, commencing the tenth Monday after delivery of the
initial portion of the Loan Amount to Borrower, and continuing thereafter until
the full principal balance of the Note and all accrued but unpaid interest has
been paid in full. Upon receipt of each Payment, Lender shall apply the Payment
first to accrued but unpaid interest on the Note and then to principal, until
the Note is paid in full. Payment in full of the principal balance of the Note
and all accrued but unpaid interest shall be made on or before the Due Date. If
the shareholders authorize additional shares as set forth in Section 2.7(d), and
Borrower files a registration statement authorizing sale of those shares, Lender
may notify Borrower before noon on any Friday prior to a Payment Date of its
desire to receive Payment in stock of Borrower rather than cash. In such
instance, Lender shall credit payment of interest and principal on the Note as
if Borrower makes the next Payment in a timely manner. Borrower shall deliver
Lender shares equal in value to $20,000, computed at a share price of
seventy-five percent (75%) of the average of the three (3) lowest closing prices
of the previous twenty (20) days (the `"Price"). In no instance shall the Price
be less than Fifty Cents ($0.50) per share. In other words, the maximum number
of shares that may be received in exchange for any Payment is Forty Thousand
(40,000).
2.3 INTEREST AND OTHER CHARGES.
(a) INTEREST RATES. The Note shall bear interest on the unpaid
principal amount thereof from the applicable Closing Date until paid in full in
cash at the Applicable Interest Rate. All interest charges shall be computed on
the basis of a year of three hundred sixty-five or three hundred sixty-six
(365/366) days and actual days elapsed, and will be payable in arrears in
accordance with the Payment schedule set forth in Section 2.2. Payment in full
of the principal balance of the Note and all accrued but unpaid interest shall
be made on or before the Due Date.
(b) DEFAULT RATE. If any Event of Default occurs, then, while any such
Event of Default is continuing, the Note shall bear interest at an increased
rate of interest equal to the maximum rate of interest permitted by applicable
law.
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2.4 MAXIMUM INTEREST RATE.
(a) Notwithstanding the foregoing provisions of Section 2.3 regarding
the rates of interest applicable to the Loan, if at any time the amount of such
interest computed on the basis of the Applicable Interest Rate would exceed the
amount of such interest computed upon the basis of the maximum rate of interest
permitted by applicable state or federal law in effect from time to time
hereafter, after taking into account, to the extent required by applicable law,
any and all fees, payments, charges and calculations provided for in this
Agreement or in any other agreement between Borrower and Lender (the "Maximum
Legal Rate"), the interest payable under this Agreement shall be computed upon
the basis of the Maximum Legal Rate.
(b) No agreements, conditions, provisions or stipulations contained in
this Agreement or any other instrument, document or agreement between Borrower
and Lender or default of Borrower, or the exercise by Lender of the right to
accelerate the payment of the maturity of principal and interest, or the
exercise any option whatsoever contained in this Agreement, or the arising of
any contingency whatsoever, shall entitle Lender to collect, in any event,
interest exceeding the Maximum Legal Rate and in no event shall Borrower be
obligated to pay interest exceeding such Maximum Legal Rate and all agreements,
conditions or stipulations, if any, which may in any event or contingency
whatsoever operate to bind, obligate or compel Borrower to pay a rate of
interest exceeding the Maximum Legal Rate, shall be without binding force or
effect, at law or in equity, to the extent only of the excess of the Maximum
Legal Rate ("Excess"), Borrower acknowledges and stipulates that any such charge
shall be the result of an accidental and bona fide error, and such Excess shall
be, first, applied to reduce the principal then unpaid hereunder; second,
applied to reduce the Obligations; and third, returned to Borrower, it being the
intention of the parties hereto not to enter at any time into a usurious or
otherwise illegal relationship. Borrower recognizes that, with fluctuations in
the Applicable Interest Rate and the Maximum Legal Rate, such an unintentional
result could inadvertently occur. By the execution of this Agreement, Borrower
covenants that it shall not seek or pursue any other remedy, legal or equitable,
against Lender, based in whole or in part upon the charging or receiving of any
interest in excess of the maximum authorized by applicable law. For the purpose
of determining whether or not any Excess has been contracted for, charged or
received by Lender, all interest at any time contracted for, charged or received
by Lender in connection with this Agreement shall be amortized, prorated,
allocated and spread in equal parts during the entire term of this Agreement.
(c) The provisions of this Section 2.4 shall be deemed to be
incorporated into every document or communication relating to the Obligations
which set forth or prescribe any account, right or claim or alleged account,
right or claim of Lender with respect to Borrower (or any other obligor in
respect of Obligations), whether or not any provision of Section 2.4 is referred
to therein. All such documents and communications and all figures set forth
therein shall, for the sole purpose of computing the extent of the liabilities
and obligations of Borrower (or other obligor) asserted by Lender thereunder, be
automatically recomputed by Borrower or other obligor, and by any court
considering the same, to give effect to the adjustments or credits required by
Section 2.4.
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(d) If the applicable state or federal law is amended in the future to
allow a greater rate of interest to be charged under this Agreement or any other
Loan Documents than is presently allowed by applicable state or federal law,
then the limitation of interest under this Section 2.4 shall be increased to the
maximum rate of interest allowed by applicable state or federal law as amended,
which increase shall be effective hereunder on the effective date of such
amendment, and all interest charges owing to Lender by reason thereof shall be
payable upon demand.
2.5 PAYMENTS AND PREPAYMENTS.
(a) LOAN. Principal and Interest on the Loan shall be payable weekly
commencing the tenth Monday after delivery of the Loan Amount to Borrower, on
the outstanding principal balance of the Note from the date of such Note, which
shall be delivered by Borrower at Closing in substantially the form attached
hereto as Exhibit A. Borrower shall repay the outstanding principal balance of
the Note, plus all accrued but unpaid interest thereon, on the Due Date.
(b) PLACE AND FORM OF PAYMENTS; EXTENSION OF TIME. All payments of
principal, interest, and other sums due to Lender shall be made at wire transfer
of immediately available funds to Lender's account specified in Exhibit B to
this Agreement. If any payment of principal, interest, or other sum to be made
hereunder becomes due and payable on a day other than a Business Day, the due
date of such payment shall be extended to the next succeeding Business Day and
interest thereon shall be payable at the Applicable Interest Rate during such
extension.
(c) ALLOCATION OF PAYMENTS. On each payment date, including the Due
Date, each Payment shall be allocated to pay the interest accrued and unpaid,
and the remainder, if any, shall be allocated to the unpaid principal on the
Note .
(d) INDEMNITY FOR RETURNED PAYMENTS. IF AFTER RECEIPT OF ANY PAYMENT
OF, OR PROCEEDS APPLIED TO THE PAYMENT OF, ALL OR ANY PART OF THE OBLIGATIONS,
LENDER ARE FOR ANY REASON REQUIRED TO SURRENDER SUCH PAYMENT OR PROCEEDS TO ANY
PERSON BECAUSE SUCH PAYMENT OR PROCEEDS IS INVALIDATED, DECLARED FRAUDULENT, SET
ASIDE, DETERMINED TO BE VOID OR VOIDABLE AS A PREFERENCE, OR A DIVERSION OF
TRUST FUNDS, OR FOR ANY OTHER REASON, OTHER THAN AS A RESULT OF LENDER'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, THEN THE OBLIGATIONS OR PART THEREOF INTENDED
TO BE SATISFIED SHALL BE REVIVED AND CONTINUE, AND THIS AGREEMENT SHALL CONTINUE
IN FULL FORCE AS IF SUCH PAYMENT OR PROCEEDS HAD NOT BEEN RECEIVED BY LENDER,
AND BORROWER SHALL BE LIABLE TO PAY TO LENDER, AND HEREBY DOES INDEMNIFY LENDER
AND HOLDS LENDER HARMLESS FOR, THE AMOUNT OF SUCH PAYMENT OR PROCEEDS
SURRENDERED. The provisions of this Section 2.5(d) shall be and remain effective
notwithstanding any contrary action which may have been taken by Lender in
reliance upon such payment or Proceeds, and any such contrary action so taken
shall be without prejudice to Lender's rights under this Agreement and shall be
deemed to have been conditioned upon such payment or Proceeds having become
final and irrevocable. The provisions of this Section 2.5(d) shall survive the
termination of this Agreement.
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2.6 COLLATERAL.
(a) GRANT OF SECURITY INTEREST. As security for the Obligations,
Borrower hereby grants to Lender a continuing security interest in, lien on, and
assignment of all of the issued and outstanding shares of PQ Acquisition
Company, Inc., an Arkansas corporation (the "Collateral"), which is the
surviving entity from Borrower's acquisition and merger of Humboldt Industries,
Inc. and Maplewood Industries, Inc.. Lender's lien on the Collateral shall be a
second lien behind the first lien of the Bank, and on par with the lien of the
Parity Debt.
(b) The aggregate of all Obligations and the Parity Debt shall
constitute a single loan secured by the Collateral.
(c) PERFECTION AND PROTECTION OF SECURITY INTERESTS. Borrower shall
execute the Security Agreement, in substantially the same form as Exhibit C
hereto, upon execution of this Loan Agreement. The Collateral is held by Bank
and shall be transferred to Collateral Agent by Bank upon Bank's release of its
first lien on the Collateral. From time to time, Borrower shall, upon Collateral
Agent's reasonable request, execute and deliver confirmatory written instruments
pledging to Lenders the Collateral, but Borrower's failure to do so shall not
affect or limit the Security Interest. So long as this Loan Agreement is in
effect and until all Obligations have been fully satisfied, the Security
Interest shall continue in full force and effect in all of the Collateral.
(d) RESERVED.
(e) TITLE TO, LIENS ON, AND SALE AND USE OF COLLATERAL. Borrower
represents and warrants to Lender that: (a) other than the prior lien of Bank on
the Collateral, the lien of the Parity Debt and the lien created by the Security
Agreement, the Collateral is owned by Borrower free and clear of all Liens
whatsoever; and (b) Borrower will not, without Lender's prior written approval,
sell, or dispose of or permit the sale or disposition of the Collateral.
(f) ACCESS AND EXAMINATION. Collateral Agent may at all reasonable
times have access to, examine, audit, make extracts from and inspect Borrower's
records, files, books of account and the Collateral and may discuss Borrower's
affairs with Borrower's officers and management and Lenders. Borrower will
deliver to Collateral Agent any instrument necessary for Collateral Agent to
obtain records from any service bureau maintaining records for Borrower.
Collateral Agent may, at any reasonable time when an Event of Default exists and
at Borrower's expense, make copies of all of Borrower's books and records or
require Borrower to deliver such copies to Collateral Agent. Collateral Agent
may, without expense to Collateral Agent, use such of Borrower's personnel,
supplies, and premises as may be reasonably necessary for maintaining or
enforcing the Security Agreement. Collateral Agent shall have the right, at any
time, in Collateral Agent's name or in the name of a nominee of Collateral Agent
or Lender, to verify the validity of the Collateral by mail, telephone, or
otherwise.
(g) DOCUMENTS, INSTRUMENTS, AND CHATTEL PAPER. The Borrower represents
and warrants to the Lender that: (a) all documents and instruments describing,
evidencing, or constituting Collateral, and all signatures and endorsements
thereon, are and will be complete, valid, and genuine, and (b) all ownership
interests evidenced by such documents and instruments
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are owned by Borrower free and clear of all liens, except the lien of Bank and
the lien of the Parity Debt.
(h) POWER OF ATTORNEY. Upon the occurrence of an Event of Default which
remains uncured beyond the cure periods set forth in Section 7 hereof, Borrower
hereby appoints Collateral Agent and Collateral Agent's designees as Borrower's
attorney, with power: (a) to endorse Borrower's name on any checks, notes,
acceptances, money orders, or other forms of payment or security that come into
Collateral Agent's possession; (b) to sign Borrower's name on any invoice, ▇▇▇▇
of lading, or other document of title relating to any Collateral, on drafts
against customers, and on notices of assignment, financing statements and other
public records; and (c) to do all things necessary to carry out the purpose of
the Loan Documents. This is not a general power of attorney and is granted only
upon the conditions and for the purposes set forth herein. Collateral Agent,
Lenders and Borrower mutually agree that such power may be exercised only upon
the occurrence of an uncured Event of Default and only then after Collateral
Agent has requested that Borrower perform any of the actions set forth
hereinabove and Borrower shall have failed, refused or otherwise have been
prevented from taking the requested action. Neither Collateral Agent nor the
attorney will be liable for any acts or omissions unless resulting from such
party's gross negligence or willful misconduct, or for any error of judgment or
mistake of fact or law. This power is irrevocable until this Master Loan
Agreement has been terminated and the Obligations have been fully satisfied.
2.7 ORIGINATION FEES/LATE FEES.
(a) ORIGINATION FEES. Upon Lender's delivery of the full Loam Amount
($1,000,000) to Borrower, Lender shall have earned and be entitled to the
Origination Fee. If Lender fails to deliver the full Loan Amount to Borrower as
required by this Agreement, Lender will not be entitled to any Origination Fee.
Borrower shall use its best efforts to have the shareholders authorize
sufficient additional shares of common stock of Borrower so that Borrower may
register and issue the Origination Fee to Lender. In the event the shareholders
fail to authorize the issuance of a sufficient number of additional shares of
common stock of Borrower at the next shareholders' meeting, Borrower shall
obtain a sufficient number of shares from other shareholders or option holders
or benefit plans to pay the Origination Fee. In no event shall Borrower be
obligated to issue the Origination Fee to Lender if the SEC prohibits the
issuance of such shares. Notwithstanding the foregoing, in the event the
shareholders fail to authorize the required number of additional shares and
Borrower is unable to obtain and sufficient number of shares from other sources
or the SEC prohibits the issuance of such shares, the Note shall become due and
payable in full, with interest earned to date of payment, Five (5) days after
such event (the "Repayment Date"). Moreover, Borrower shall pay as a penalty to
Lender, a sum equal to 3,500,000 multiplied by the average closing share price
of the stock for the Seven (7) trading days prior to the Repayment Date.
(b) LATE FEES. In the event Borrower is more than seven (7) days late
in the making of any Payment, Borrower shall deliver Lender Fifty Thousand
(50,000) shares of common stock of Borrower for each Payment that is late
subject to the same shareholder and SEC approval set forth in Section 2.7(a).
The Late Fee shall be due each week the required Payment is not made and a new
Late Fee shall be payable with respect to each Payment not made each week. In
other words, if Borrower fails to make a Payment in a timely manner, Borrower
shall owe Lender a
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Late Fee of Fifty Thousand (50,000) shares, and Forty Thousand Dollars ($40,000)
the following Monday. If Borrower fails to make the Forty Thousand Dollar
($40,000) payment the following Monday, Borrower shall owe Lender an additional
One Hundred Thousand (100,000) shares.
(c) REGISTRATION OF SHARES. All shares of common stock of Borrower
delivered by Borrower to Lender shall be fully registered for resale under the
Act. In the event Borrower is unable to deliver fully registered as required
under this Agreement, Borrower shall deliver fully registered shares when first
available.
(d) LACK OF AUTHORIZED SHARES. Lender, who is an Accredited Investor,
acknowledges that it has been fully informed that Borrower does not currently
have enough shares of common stock currently authorized by its shareholders to
deliver any of the shares discussed in this Section. Lender also acknowledges
that Borrower will have to obtain shareholders approval for the authorization of
additional shares to enable Borrower to deliver any shares under this Section.
Nevertheless, Borrower shall use it best efforts to obtain shareholder approval
of an increased number of shares sufficient to provide for Borrower's
obligations under this Section at Borrower's first available shareholders'
meeting. If necessary, Borrower shall call a special shareholders' meeting to
bring this issue to a vote before the shareholders. Moreover, once the
additional shares have been authorized by the shareholders, Borrower shall be
obligated to pursue filing a Form S-1, or other suitable registration statement,
for the shares due Lender as soon as practical. Regardless, once the shares due
Lender have been authorized, Borrower shall register Lender's shares in the
first new registration statement filed by Borrower after the date of such
authorization.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants
to Lender as follows:
A. GOOD STANDING. Borrower is an Arkansas corporation, duly organized,
validly existing and in good standing under the laws of Arkansas and it has the
power and authority to own its property and to carry on its business in each
jurisdiction in which it does business.
B. AUTHORITY AND COMPLIANCE. Except as otherwise provided and disclosed
herein, Borrower has full power and authority to execute and deliver the Loan
Documents and to incur and perform the obligations provided for therein, all of
which have been duly authorized by all proper and necessary action of the
appropriate governing body of Borrower. No consent or approval of any public
authority or other third party is required as a condition to the validity of any
Loan Document, and Borrower is in compliance with all laws and regulatory
requirements to which it is subject.
C. BINDING AGREEMENT. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms.
D. LITIGATION. There is no proceeding material to Borrower's operations
or, to the knowledge of Borrower, threatened before any court or governmental
authority, agency or arbitration authority, except as disclosed to Lender in
writing.
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E. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any existing
agreement, mortgage, indenture or contract binding on Borrower or affecting its
property, which would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement and the other Loan
Documents, except as otherwise disclosed in this Agreement.
F. OWNERSHIP OF ASSETS. Borrower has good title to its assets, and its
assets are free and clear of liens, except as otherwise disclosed to Lender.
G. TAXES. All taxes and assessments due and payable by Borrower have
been paid or are being contested in good faith by appropriate proceedings, and
Borrower has filed all tax returns which it is required to file.
H. FINANCIAL STATEMENTS. The financial statements of Borrower
heretofore delivered to Lenders have been prepared in accordance with GAAP
applied on a consistent basis throughout the period involved and fairly present
Borrower's financial condition as of the date or dates thereof, and there has
been no material adverse change in Borrower's financial condition or operations
since December 31, 2000. All factual information furnished by Borrower to Lender
in connection with this Agreement and the other Loan Documents is and will be
complete on the date as of which such information is delivered to Lender and is
not and will not be incomplete by the omission of any material fact necessary to
make such information not misleading.
I. PLACE OF BUSINESS. Borrower's chief executive office is located at:
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
J. ENVIRONMENTAL COMPLIANCE. The conduct of Borrower's business
operations and the condition of Borrower's Property does not and will not
violate, in any material respect, any federal laws, rules or ordinances for
environmental protection, regulations of the Environmental Protection Agency,
any applicable local or state law, rule, regulation or rule of common law, or
any judicial interpretation thereof relating primarily to the environment or
Hazardous Materials.
K. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made under this Agreement shall be deemed to be made at and as of
the date hereof and at and as of the date any Note.
L. CAPITALIZATION. All of the issued and outstanding shares of common
stock of Borrower are duly authorized, validly issued, fully paid and
nonassessable, and have been issued in compliance with federal and state
securities laws.
M. REGULATORY COMPLIANCE. Borrower shall remain in compliance with all
applicable federal and state regulatory requirements, including but not limited
to the regulations or rules of OSHA, the Pension Guaranty Board and ERISA.
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4. RESERVED.
5. RESERVED.
6. CLOSING. Upon execution of this Agreement by both parties, Lender shall
deliver the initial Loan Amount of Five Hundred Thousand Dollars ($500,000) to
the Borrower in accordance with the wiring instructions on Exhibit B hereto.
Upon receipt of the initial Loan Amount, Borrower shall deliver an executed Note
for the initial Loan Amount to Lender. Borrower shall deliver the Note by fax,
if requested, and otherwise by overnight delivery. Within Ten (10) business days
of the date of this Agreement, Lender shall deliver to Borrower an additional
Five Hundred Thousand Dollars ($500,000) and the initial Note. Upon receipt of
the additional Five Hundred Thousand Dollars ($500,000) and the initial Note,
Borrower shall issue and deliver to Lender a Note for the full Loan Amount of
One Million Dollars ($1,000,000), and payment in full for the interest due on
the initial Note from the date of this Agreement to the date of the second Note
for One Million Dollars ($1,000,000).
7. DEFAULT. If any of the following Events of Default, any one of which shall be
a default, occur, all obligations hereunder, and all other indebtedness then
owing by Borrower to Lender, shall become forthwith due and payable on Lender's
demand without presentation, demand for payment, notice of dishonor, protest, or
notice of protest of any kind, all of which Borrower hereby expressly waives.
(a) Any default by Borrower in the payment, when due, of any part of
the interest on the Loan, if the same remains unpaid for 7 days after notice by
Lender to Borrower. However, upon delivery of the 50,000 shares of stock
referred to in Section 2.7(b) for each $20,000 payment not made in a timely
manner, Borrower shall not be in default unless it fails to make both the late
Payment and the next required Payment. In other words, delivery of the late fee
shares of stock excuses any default in payment until the next Payment Date.
Notwithstanding the foregoing, if at anytime Payments on the Note are delinquent
for more than more than Ninety (90) days, delivery of the shares of stock
referred to in Section 2.7(b) shall not longer cure default and the loan shall
be in default. Once any Payment has been missed, all Payments must be brought
current before the Ninety (90) day window of consideration referred to herein
restarts. Partial payment of past due Payments does not restart the Ninety (90)
day window of consideration applicable to this Section; payment in full of all
past due Payments, or payment in part and conversion in part (in accordance with
Section 2.2, at Lenders option), such that payment is full is credited to
Borrower shall restart the Ninety (90) Day window of consideration applicable to
this Section.
(b) Any breach or failure of Borrower to perform any term or condition
of this Agreement or any other Loan Document, other than the making of timely
Payments, which is not cured within 10 days of receiving notice of the default
from Lender. Lender is not required to provide notice upon Borrower's failure to
make each Payment in a timely manner.
(c) Borrower's insolvency or bankruptcy, the making by Borrower of an
assignment for the benefit of creditors, or Borrower's consent to the
appointment of a trustee or a receiver or other officer of a court or other
tribunal.
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(d) The appointment of a trustee or receiver or other officer of a
court for Borrower, or for a substantial part of its properties, without its
consent, where no discharge is effected within 45 days.
(e) The entry of any judgment against Borrower, or the issuance or
entry of any attachment or other lien against its property for an amount in
excess of Fifty Thousand Dollars ($50,000) if undischarged, unbonded, or
undismissed for 45 days.
(f) The giving of any statement, certificate, or representation in or
pursuant to this Agreement or the Loan Documents proving to be untrue in any
respect which is not cured within 45 days.
(g) The Borrower defaults in the performance or observance of any
covenant, agreement or undertaking on its part to be performed or observed in
this Agreement, or the other Loan Documents.
8. REMEDIES UPON DEFAULT. If an Event of Default shall occur, Lender shall have
all rights, powers and remedies available at law or in equity.
9. NOTICES. All notices, requests or demands which any party is required or may
desire to give to any other party under any provision of this Loan Agreement
must be in writing delivered to the other party at the following address:
If to Borrower :
Pet Quarters, Inc.
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
If to Lender:
Z Capital, Inc.
Attn: ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows:
A. If sent by mail, upon the earlier of the date of receipt or three
(3) days after deposit in the U.S. Mail, first class postage prepaid; or
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B. If sent by any other means, upon delivery.
10. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall not be responsible for
any costs and expenses of Lender, including attorneys' fees, in connection with
Lender's review, due diligence and closing of the transaction contemplated
hereby.
11. TERM AND TERMINATION. The initial term of this Loan Agreement shall be, with
respect to the Loan, the dated date of the Promissory Note through the Due Date.
12. MISCELLANEOUS. Borrower and Lender further covenant and agree as follows,
without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to
Lender under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and all other
rights of Lender, and no delay in exercising any right shall operate as a waiver
thereof, nor shall any single or partial exercise by Lender of any right
preclude any other or future exercise thereof or the exercise of any other
right. Except as expressly provided in the Promissory Notes, Borrower does not
waive any presentment, demand, protest or other notice of any kind.
B. APPLICABLE LAW. This Agreement and the rights and obligations of the
parties hereunder shall be deemed to have been made in the State of Arkansas and
shall be governed by, and construed in accordance with, the laws of the State of
Arkansas.
C. AMENDMENT. No modification, consent, amendment or waiver of any
provision of this Agreement, nor consent to any departure by Borrower therefrom,
shall be effective unless the same shall be in writing and signed by all Lender,
and then shall be effective only in the specified instance and for the purpose
for which given. This Agreement and all of the Loan Documents are binding upon
Borrower, its successors and assigns, and inures to the benefit of Lender, its
successors and assigns; however, no assignment or other transfer of Borrower's
rights or obligations hereunder shall be made or be effective without Lender's
prior written consent, nor shall it relieve Borrower of any obligations
hereunder. There is no third party beneficiary of this Agreement.
D. DOCUMENTS. All documents, certificates and other items required
under this Agreement to be executed and/or delivered to Lender shall be in form
and content satisfactory to Lender.
E. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Agreement or any of the Loan Documents shall not affect the
enforceability or validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
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F. SURVIVABILITY. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the Loans and shall continue in full force and effect so long as the Loans
are outstanding.
G. Adjustment of Origination Fee. This Loan is being made to Borrower
with the understanding that Borrower shall also obtain loans in the aggregate
amount of One Million Dollars ($1,000,000) from other sources (the "Additional
Loans"). In the event Borrower fails to receive the Additional Loans, the
Origination Fee shall be increased by Two Point Forty (2.4) shares of common
stock of Borrower for every One Dollars ($1) not received by Borrower in
Additional Loans. No partial shares shall be issued pursuant to this provisions
and the number of shares shall be rounded to the nearest whole number.
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to
be duly executed by their duly authorized representatives as of the date first
above written.
BORROWER:
Pet Quarters, Inc..
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇, Chief Executive Officer
LENDER:
Z Capital, Inc.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇▇▇▇▇▇
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