EXHIBIT 10.24
NOTE PURCHASE AND SECURITY AGREEMENT
This Note Purchase and Security Agreement (the "Agreement") is entered into
as of July 1, 2003, by and between PetCARE Television Network, Inc., a Florida
corporation (the "Company") and Pet Edge, LLC, a Connecticut limited liability
company ("Edge").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company is issuing that certain Senior Convertible Promissory
Note (the "Note") attached hereto as Exhibit A to Edge in the principal amount
of $275,000, payable to Edge in cash or convertible into equity of the Company
in the manner and under the terms set forth therein; and
WHEREAS, the Company and Edge wish to set forth the nature of the
consideration Edge is providing to the Company in exchange for the Note and to
acknowledge delivery and receipt thereof.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Edge hereby agree as follows:
1. Purchase and Sale of Note. Subject to all of the terms and conditions of this
Agreement and in reliance on the representations and warranties set forth
herein, the Company proposes to sell to Edge the Note in exchange for the
consideration described in Section 2 hereof.
2. Consideration for Note. Upon and in exchange for the Company's issuance of
the Note to Edge, Edge shall deliver to the Company, and by signing below, the
Company hereby accepts and acknowledges receipt of, immediately available funds
in the amount of $275,000.
3. Representations and Warranties.
(a) Company. The Company represents and warrants to Edge as follows:
(i) Organization. The Company and each of its Subsidiaries, if any,
are duly organized and validly existing corporations in good
standing under the laws of the jurisdiction of incorporation. The
Company and each of its Subsidiaries, if any, is duly qualified
to do business as a foreign corporation and is in good standing
in each jurisdiction in which it does business, except where the
failure to so qualify would not have a material adverse effect.
For the purposes of this Agreement, the term "Subsidiary" shall
mean with respect to any person, any corporation, limited
liability company, partnership, joint venture, trust or estate of
which, or in which, more than 50% of (i) the issued and
outstanding capital stock having ordinary voting power to elect a
majority of the Board of Directors of such corporation, (ii) the
interest in capital or profits of such limited liability company,
partnership or joint venture, or (iii) the beneficial interest in
1
such trust or estate, is at the time directly or indirectly owned
or controlled by such person, by such person and one or more of
its subsidiaries, or by one or more of such person's other
subsidiaries.
(ii) Corporate Power, Authorization. The Company has all necessary
corporate power and authority to enter into and perform this
Agreement and its obligations under the Note, and to carry on the
business now conducted or presently proposed to be conducted by
it. All corporate actions on the part of the Company necessary
for the due authorization, execution and delivery of this
Agreement and the consummation of the transactions contemplated
herein, and for the due authorization and issuance of the Note
have been taken. This Agreement and the Note are legally binding
on the Company, enforceable in accordance with their terms. The
execution, delivery and performance by the Company of this
Agreement and the issuance and sale of the Note will not result
in any violation of or be in conflict with, or result in a breach
of or constitute a default under, any term or provision of the
Company's certificate of incorporation, by-laws or any contract
to which the Company is a party or by which it is bound, except
where such violation, conflict, breach or default would not have
a material adverse effect on the Company.
(iii) No Insolvency. The Company is not insolvent. Insolvent means any
of the following:
A. the Company shall have (a) applied for or consented to the
appointment of a receiver, trustee, liquidator or custodian
of itself or of all or a substantial part of its property,
(b) made a general assignment for the benefit of its
creditors, (c) been dissolved or liquidated in full or in
part, or (d) commenced a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or
taking possession of its property by any official in an
involuntary case or other proceeding commenced against it;
B. proceedings for the appointment of a receiver, trustee,
liquidator or custodian of the Company or all or a
substantial part of the property thereof, or an involuntary
case or other proceedings seeking liquidation,
reorganization or other relief with respect to Company or
the debts thereof under any bankruptcy, insolvency or other
similar law now or hereafter in effect shall have been
commenced and such proceeding shall not have been dismissed,
discharged or stayed; or
C. the Company is unable to pay in full and in a timely manner
of its debts due and payable in the ordinary course of
business.
2
(iv) Capitalization. The Company has delivered to Edge a schedule (the
"Capitalization Schedule") detailing the capitalization of the
Company as of the date hereof. On the date hereof, the Company
has no outstanding capital stock except as listed on the
Capitalization Schedule. All of the outstanding shares of capital
stock have been offered and sold in compliance with applicable
federal and state securities laws. No Subsidiary has any
outstanding capital stock except for shares of capital stock
owned beneficially and of record by the Company, all of which are
duly authorized, validly issued, fully paid and non-assessable.
Other than as set forth on the Capitalization Schedule, neither
the Company nor any Subsidiary has outstanding (a) any rights
(either preemptive or otherwise) or options to subscribe for or
purchase, or any warrants or other agreements providing for or
requiring the issuance of, any capital stock or any securities
convertible into or exchangeable for its capital stock, (b) any
obligation to repurchase or otherwise acquire or retire any of
its capital stock, any securities convertible into or
exchangeable for its capital stock or any rights, options or
warrants with respect thereto, (c) any rights that require it to
register the offering of any of its securities under the
Securities Act of 1933, as amended or (d) any restrictions on
voting any of its securities.
(v) Financial Statements and projections. Edge has been furnished
with complete and correct copies of (A) the most recent financial
statements of the Company and its Subsidiaries, if any, and (B) a
Business Plan for the Company dated March 2003 which includes a
five year budget with supporting schedules, with actual
expenditures for the first twelve months. Except where otherwise
noted therein, the Phase 1 column of actual expenditures accurate
report the expenditures of the Company during the applicable
period and the budgeted projections and supporting schedules are
based on and reflect reasonable assumptions made in good faith by
management of the company.
(vi) Disclosure. To the knowledge of the Company, neither this
Agreement, nor any other agreement, certificate, statement or
document furnished in writing by or on behalf of the Company to
Edge in connection herewith or therewith (including without
limitation the Business Plan for the Company and projections
referred to above), contains any untrue statement of material
fact or omits to state a material fact necessary in order to make
the statements herein or therein not misleading in any material
respect.
(vii) Legal Proceedings. There is no action, suit or proceeding
pending or to the Company's knowledge currently threatened
against the Company or any of subsidiaries. Neither the Company
nor any of its subsidiaries is a party or subject to the
provisions of any order, writ, injunction, judgment or decree of
any court or governmental agency or instrumentality. There is no
action suit or proceeding by the Company or any of its
subsidiaries currently pending or which the Company or its
subsidiaries intend to initiate.
3
(viii) Proprietary Rights. To its knowledge, the Company owns all
patents trademarks, service marks, trade names, copyrights trade
secrets, licenses, information and proprietary rights and
processes which it currently uses or is necessary for its
business without any conflict with, or infringement of the rights
of others. The Company has not received any communication
alleging that the Company has violated or, by conducting its
business, would violate any of the patents, trademarks, service
marks, trade names, copyrights, trade secrets, or other
proprietary rights or processes of any other person or entity.
(ix) Compliance with Other Instruments. (a) To the actual knowledge of
the President of the Company, the Company is not in any material
violation or default of any provisions of its Amended and
Restated Certificate of Incorporation or Bylaws or of any
instrument, judgment, order, writ, decree or contract to which it
is a party or by which it is bound or, to the actual knowledge of
the President of the Company, of any material provision of
federal or state statute, rule or regulation applicable to the
Company. The execution, delivery and performance of the
Agreements and the consummation of the transactions contemplated
hereby or thereby will not result in any such material violation
or materially conflict with or constitute, with or without the
passage of time and giving of notice, either a material default
under any such provision, instrument, judgment, order, writ,
decree or contract or an event which results in the creation of
any material lien, charge or encumbrance upon any assets of the
Company other than (i) carriers', warehousemen's, mechanics',
materialmen's and repairmen's liens, and other like Encumbrances
imposed by applicable law, arising in the ordinary course of
business in connection with activities properly undertaken in the
Company's business; (ii) easements, zoning restrictions,
rights-of-way, reservations, restrictions and other similar
encumbrances on real property imposed by law that do not secure
any monetary obligations and do not materially detract from the
value of the affected property or interfere with the ordinary
conduct of business, (iii) liens, charges or encumbrances for
taxes, assessments or governmental charges not yet due and
payable, (iv) inchoate statutory and common law liens, charges or
encumbrances for which payment is not delinquent, and (v) minor
defects, irregularities, liens, and clouds on title which do not
materially impair or materially adversely affect the value of the
assets, financial condition, operating results, or business of
the Company (collectively, "Permitted Encumbrances").
(b) To the actual knowledge of the Company's President, the
Company has not performed any act, the occurrence of which would
result in the Company's loss of any material right granted under
any license, distribution agreement or other agreement.
4
(x) No Conflict of Interest. Except as set forth on Schedule 3(a)(x),
the Company is not indebted, directly or indirectly, to any of
its officers or directors or to their respective spouses or
children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course
of business of the Company or relocation expenses of employees.
None of the Company's officers or directors, or any members of
their immediate families, are, directly or indirectly, indebted
to the Company (other than in connection with purchases of the
Company's capital stock) or have any direct or indirect ownership
interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship,
or any firm or corporation which competes with the Company except
that officers, directors and/or stockholders of the Company may
own stock in (but not exceeding five percent (5%) of the
outstanding capital stock of) any publicly traded companies that
is affiliated with the Company, with which the Company has a
business relationship, or which may compete with the Company. To
the actual knowledge of the President of the Company none of the
Company's officers or directors or any members of their immediate
families are, directly or indirectly, interested in any material
contract or proposed contract with the Company. The Company is
not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
(xi) Rights of Registration and Voting Rights. The Company has not
granted or agreed to grant any registration rights, including
piggyback rights, to any person or entity except set forth on
Schedule 3(a)(xi). To the actual knowledge of the Company's
President, no stockholder of the Company has entered into any
agreements with respect to the voting of capital shares of the
Company.
(xii) Title to Property and Assets. The Company owns its property and
assets free and clear of all Encumbrances, except for (1)
Encumbrances that may appear in the Financial Statements, or (2)
any Permitted Encumbrances. With respect to the property and
assets it leases, the Company is in material compliance with such
leases and, to the actual knowledge of the Company's President,
such leases are valid and effective in accordance with their
respective terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, or
other laws and judicial decisions of general application relating
to or affecting enforcement of creditors' rights generally, by
laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies and with respect
to indemnification provisions contained therein, or principles of
public policy.
(xiii) Changes. Since December 31, 2002, there has not been:
5
(a) any material change in the assets, liabilities, financial
condition or operating results of the Company from that
reflected in the Financial Statements, except changes in the
ordinary course of business, that have not been material and
adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business,
properties, prospects, or financial condition of the
Company;
(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it that would have an adverse
affect;
(d) any satisfaction or discharge of any liens, claim, or
encumbrance of payment of any obligation by the Company,
except in the ordinary course of business and that is not
material and adverse to the business, properties, prospects
or financial condition of the Company;
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or
stockholder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets other
than in the ordinary course of business;
(h) any resignation or termination of employment of any officer
or key employee of the Company; and the President of the
Company has no actual knowledge of any impending resignation
or termination of employment of any such officer or key
employee;
(i) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its
material properties or assets, except liens for taxes not
yet due or payable;
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any
members of their immediate families, other than travel
advances and other advances made in the ordinary course of
its business;
(k) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital
stock; or any direct or indirect redemption, purchase, or
other acquisition of any such stock by the Company;
6
(l) to the actual knowledge of the officers and directors of the
Company, any other event or condition of any character that
might materially and adversely affect the business,
properties or financial condition of the Company; or
(m) any arrangement or commitment by the Company to do any of
the things described in this Section 3(a)(xiii).
(xiv) Employee Benefit Plans. Except as set forth on Schedule
3(a)(xiv), the Company does not have any Employee Benefit Plan as
defined in the Employee Retirement Income Security Act of 1974.
(xv) Tax Returns and Payments. The Company has filed all tax returns
and reports as required by applicable law. These returns and
reports are true and correct in all material respects. The
Company has paid all taxes and other assessments due except those
being contested in good faith.
(xvi) Insurance. The Company has in force a fire and casualty
insurance policy, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of
its properties material to its business that might be damaged or
destroyed.
(xvii) Labor Agreements and Actions. Except for a contract with the
screen actors guild/AFTRA, the Company is not bound by or subject
to (and none of its assets or properties is bound by or subject
to) any written or oral, express or implied, contract, commitment
or arrangement with any labor union, and no labor union has
requested or, to the actual knowledge of the President of the
Company, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or
other labor dispute involving the Company pending, or to the
actual knowledge of the Company's President threatened, which
could have a material adverse effect on the assets, properties,
financial condition, operating results, or business of the
Company, nor does the President of the Company have actual
knowledge of any labor organization activity involving its
employees. The employment of each officer and employee of the
Company is terminable at the will of the Company. To the actual
knowledge of the President of the Company, the Company has
complied in all material respects with all applicable state and
federal equal employment opportunity laws and with other laws
related to employment.
(xviii) Permits. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business,
the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the
Company. The Company is not in default in any material respect
7
under any of such franchises, permits, licenses or other similar
authority that would materially and adversely affect the
Company's business.
(b) Edge.
(i) Edge represents and warrants to the Company that Edge is
acquiring this Note and the underlying securities for Edge's
own account for investment only and not with a view to
distribution or resale of the Note or underlying securities.
Edge represents that it is an "accredited investor" as such
term is defined in Rule 501 under the Act. Edge understands
that the Note and the underlying securities are being issued
to Edge pursuant to an exemption from the registration
requirements of the Act and, accordingly, must be held
indefinitely by Edge unless later transferred in
transactions that are either registered under the Act or
exempt from registration.
(ii) Edge represents and warrants to the Company that Edge has
such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks
of an investment in the Note and the underlying securities
and that Edge is able to incur a complete loss of Edge's
investment and to bear the risk of such a loss for an
indefinite period of time. Edge understands that the Note
and any securities acquired upon conversion are a risky and
speculative investment.
4. Financial Information. For so long as the obligations under the Note are
outstanding and for so long as Edge holds an equity interest in the Company, the
Company shall deliver to Edge within fifty (50) days of the end of each of the
Company's fiscal quarters and one hundred and five (105) days from the end of
the Company's fiscal year, the Company's balance sheet and income statement
("Financial Statements") for the most recent quarter or year as the case may be,
together with the related statements of income and cash flow, and an updated
Capitalization Schedule, which Financial Statements shall be prepared in
accordance with United States Generally Accepted Accounting Principles
consistently applied.
5. Security Interest.
(a) Grant. The Company hereby grants to Edge a security interest in the
Collateral (as such term is defined below). The security interest
shall constitute a first lien on the Collateral and shall secure the
Company's obligations (the "Secured Obligations") under the Note and
this Agreement and any other and/or future obligations of the Company
to Edge. Edge may sign and file financing statements in the name of
the Company, and, if Edge requests, the Company agrees to sign
financing statements from time to time and to take all other steps
reasonably necessary to enable Edge and its successors in interest to
perfect, or maintain perfection of, its security interest in the
Collateral. The Company shall pay all filing fees and tax stamps due
in connection with filing the financing statements. This Agreement or
a copy of this Agreement shall be sufficient as a financing statement
and may be filed as such. The "Collateral" shall mean the property
8
(but none of the Company's obligations or liabilities with respect
thereto) of the Company described in Exhibit A attached hereto and
made a part hereof:
(b) Termination. Upon payment by the Company of all principal and interest
on the Note or conversion of the Note in accordance with its terms,
Edge, on behalf of itself and each successor holder of the Note, shall
execute and deliver such instruments and do and perform such acts as
may be reasonably necessary to terminate its security interest in the
Collateral.
(c) Right to Realize Upon Collateral. Except to the extent prohibited by
applicable law that cannot be waived, this Section shall govern Edge's
(as defined in the Note) rights to realize upon the Collateral. The
provisions of this Section are in addition to any rights and remedies
available in law or equity. Upon any breach of the terms of the Note
by the Company, it is agreed that Edge shall have the right to take
any or all of the actions included in this Section at the same or
different times.
(i) Assembly of Collateral; Receiver. Edge may request that the
Company assemble the Collateral and otherwise make it available
to Edge and the Company and its officers and directors shall
comply with such request. Edge may have a receiver appointed for
all or any portion of the Company's assets or business which
constitutes the Collateral in order to manage, protect, preserve,
sell and otherwise dispose of all or any portion of the
Collateral.
(ii) Foreclosure Sale. All or any part of the Collateral may be sold
for cash or other value in any number of lots in any commercially
reasonable manner; provided, however that unless the Collateral
to be sold threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Edge shall give the
Company 10 days prior written notice of the time and place of any
public sale, or the time after which a private sale may be made,
which notice each of the Company and Edge agrees to be
reasonable. At any sale or sales of Collateral, Edge or any of
its assigns may bid for and purchase all or any part of the
property and rights so sold and may use all or any portion of the
Secured Obligations owed to Edge as payment for the property or
rights so purchased, all without further accountability to the
Company, except for the proceeds of such sale or sales pursuant
to Section 4(c)(iii).
(iii) Application Proceeds. The proceeds of all sales and collections
in respect of any Collateral or other assets of the Company, all
funds collected from the Company and any cash contained in the
Collateral, the application of which is not otherwise
specifically provided for herein, shall be applied as follows:
A. First, to the payment of the costs and expenses of such
sales and collections, the reasonable expenses of Edge and
the reasonable fees and expenses of its counsel;
9
B. Second, any surplus then remaining to the payment of the
Secured Obligations in such order and manner as Edge may in
its reasonable discretion determine, subject, however, to
the rights of the holder of any then existing lien for which
Edge has received a proper demand for proceeds prior to
making such payment; and
C. Third, any surplus then remaining shall be paid to the
Company, subject, however, to the rights of the holder of
any then existing lien for which Edge has received a proper
demand for proceeds prior to making such payment to the
Company.
(d) Custody of Collateral. Except as provided by applicable law that
cannot be waived, Edge will have no duty as to the custody and
protection of the Collateral, the collection of any part thereof or of
any income thereon or the preservation or exercise of any rights
pertaining thereto, including rights against prior parties, except for
the use of reasonable care in the custody and physical preservation of
any Collateral in its possession.
6. Covenants of the Company. The Company covenants that from and after the date
hereof and for so long as any of the Notes are outstanding:
(a) Limitation of Indebtedness. The Company will not incur any
indebtedness, other than trade debt incurred in the ordinary course of
business, without the approval of Edge.
(b) Dividends and Distributions. The Company shall not, and shall cause
each of its Subsidiaries not to, directly or indirectly, (i) declare
or pay any dividend or make any distribution in cash or property to
holders of Capital Stock of the Company or any Subsidiary of the
Company or (ii) purchase, redeem or otherwise acquire or retire for
value (other than through the issuance solely of Capital Stock of the
Company) any Capital Stock or warrants, rights or options to acquire
Capital Stock of the Company or any securities exchangeable for or
convertible into any such shares or permit any Subsidiary to purchase,
redeem or otherwise acquire or retire for value any Capital Stock of
the Company or any Subsidiary or any such warrant, rights or options
on convertible securities.
(c) Compliance with Laws. The Company will, and will cause each of its
Subsidiaries to, comply with all applicable Laws with respect to the
conduct of its business and the ownership of its properties, including
without limitation, compliance with the reporting requirements of all
applicable securities Laws; provided that the Company shall not be
deemed to be in violation of this Section 6(c) as a result of any
failure to comply with any provisions of any such Laws, the
noncompliance with which would not, individually or in the aggregate,
have or reasonably be expected to have a Material Adverse Effect or
have a materially adverse effect on the ability of the holder of any
Securities to sell such Securities.
10
(d) Limitation of Agreements. The Company will not, and will not permit
any Subsidiary to, enter into any Contract, or any amendment,
modification, extension or supplement to any existing Contract, which
contractually prohibits the Company from paying interest on, or
principal of, the Notes or effecting the conversion of the Notes.
(e) Preservation of Franchises and Existence. The Company will maintain
and cause each Subsidiary to maintain its corporate existence, rights
and franchises in full force and effect, provided that nothing in this
Section 6(e) shall prevent the Company or any Subsidiary from
discontinuing its operations in any particular state or at any
particular location or locations within the state, or prevent the
corporate existence, rights and franchises of any Subsidiary from
being terminated if, in the opinion of the Board of Directors of the
Company, the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Subsidiaries taken as a
whole.
(f) Payment of Taxes and Other Charges. The Company will pay or discharge,
and will cause each Subsidiary to pay or discharge, before the same
shall become delinquent, (i) all Taxes imposed upon it or any of its
properties or income, and (ii) all claims of material men, mechanics,
landlords and other like Persons which, in the case of either clause
(i) or clause (ii), if unpaid, might result in the creation of a
material lien upon any of its properties, provided, however, that the
Company shall not be required to pay or discharge or cause to be paid
or discharged any such Tax or claim whose amount, applicability or
validity is being contested in good faith pursuant to appropriate
proceedings.
(g) Lost, Stolen, Damaged and Destroyed Securities. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any certificate representing shares of
Common Stock or a Note and in the case of loss, theft or destruction,
upon delivery of an indemnity satisfactory to the Company (which, in
the case of Edge, may be an undertaking by Edge to so indemnify the
Company and which, in the case of any Person other than Edge, shall be
delivery of an indemnity bond), or, in the case of mutilation, upon
surrender and cancellation thereof, the Company will issue a new share
certificate of like tenor for a number of shares of Common Stock equal
to the number of shares of such stock represented by the certificate
lost, stolen, destroyed or mutilated, or a new Note of like tenor in
an amount equal to the amount of such Note lost, stolen, destroyed or
mutilated.
(h) Information; Access. The Company will permit Edge and its
representatives to visit and inspect, at Edge's expense, any of the
properties of the Company and its Subsidiaries, to examine the
corporate books and make copies or extract therefrom and to discuss
the affairs, finances and accounts of the Company and its Subsidiaries
with the principal officers of the Company as well as the accountants
11
of the Company; provided, that, so long as no default or Event of
Default shall have occurred under any of the documents that are part
of this transaction, Edge shall not without the Company's consent,
which shall not be unreasonably withheld, visit and inspect the
Company's properties more than four times a year.
(i) Transactions with Affiliates. The Company will not, and will not
permit any Subsidiary to, engage in any transaction or group of
related transactions (including, without limitation, the purchase,
lease, sale or exchange of properties of any kind or the rendering of
any service) with any of its Affiliates (other than the Company) or
Associates, except in the ordinary course and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business
and upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than would be obtainable in a comparable arm's-length
transaction with a person not an Affiliate or Associate and except
that the Company may issue stock options pursuant to its employee
benefit plans, provided that award must be approved by a compensation
committee made up of non-executive board members, one of which shall
be ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and the exercise price on any option granted cannot
be less than Edge's then effective conversion price as defined in the
Note.
(j) Notice of Breach. As promptly as practicable, and in any event not
later than five Business Days after senior management of the Company
becomes aware thereof, the Company shall provide Edge with written
notice of any breach by the Company of any provision of this
Agreement, including, without limitation, this Article 6, specifying
the nature of such breach and any actions proposed to be taken by the
Company to cure such breach.
(k) Reporting Company. The Company has taken all necessary steps,
including filing a Registration Statement on SB-2, to become a
reporting company pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended.
(l) Impairment. The Company shall not take any action which would impair
or jeopardize the first lien status of the Security Interest created
hereby and shall take such action as may be requested to maintain the
first lien status of such Security Interest.
(n) Directors' Indemnification; Insurance.
(i) The Company does not have directors' and officers' liability
insurance, however, the Company intends on obtaining and
maintaining directors' and officers' liability insurance in the
near future, and the Edge Designees shall be covered under such
insurance.
(ii) The Certificate of Incorporation, By-laws and other
organizational documents of the Company shall at all times, to
the fullest extent permitted by law, provide for indemnification
12
of, advancement of expenses to, and limitation of the personal
liability of, the members of the Board of Directors of the
Company. Such provisions may not be amended, repealed or
otherwise modified in any manner adverse to any member of the
Board of Directors of the Company until at least six years
following the date that the Edge Designees are no longer members
of the Board of Directors of the Company.
(iii) The Edge Designees are intended to be third-party beneficiaries
of the obligations of the Company pursuant to this Section 6(n),
and the obligations of the Company pursuant to this Section 6(n)
shall be enforceable by the Edger Designees.
(o) Merger, Etc. The Company will not merge with or into or consolidate
with, or sell all or substantially all of its assets to, any other
Person unless (i) the surviving entity shall have assumed in writing
all of the obligations of the Company under each of the documents that
are part of this transaction, and (ii) immediately after the
consummation of such merger or consolidation the surviving entity
would not be in violation of any of the provisions applicable to the
Company contained in any of the Transaction Documents.
(p) Life Insurance. The Company shall immediately obtain and maintain a
key man life insurance policy on ▇▇▇▇▇▇ ▇▇▇▇▇. The face amount of the
policy will be at least $1,100,000.
7. Pre-emptive Rights. So long as the Notes are outstanding, the Company shall
not issue, sell or exchange or agree to issued, sell or exchange (collectively
"Issue," and any issuance, sale or exchange resulting therefrom, an "Issuance")
any share of Capital Stock or any securities convertible into the company's
Capital Stock (collectively "Securities") (other than securities issued by the
Company in an underwritten Initial Public Offering), except as authorized by the
Board of Directors and in accordance with the following procedures:
(a) The Company shall deliver to Edge a written notice (a "Pre-emptive
Notice"), which shall (i) state the Company's intention to Issue
Securities to one or more Persons, the amount and type of Securities
to be Issued (the "Securities Issuance"), the purchase price
("Purchase Price") therefor and a summary of the other material terms
of the proposed Issuance and (ii) offer Edge the option to acquire all
or any part of the Securities Issuance (the "Pre-emptive Offer"). The
Pre-emptive Offer shall remain open and irrevocable for the periods
set forth below (and, to the extent the Pre-emptive Offer is accepted
during such periods, until the consummation of the Issuance
contemplated by the Pre-emptive Offer). Edge shall have the right and
option, for a period of 15 business days after delivery of the
Pre-emptive Notice (the "Pre-emptive Acceptance Period"), to accept
all or any part of the Securities Issuance at the purchase price and
on the terms stated in the Pre-emptive Notice. Such acceptance shall
13
be made by delivering a written notice to the Company by Edge within
the Pre-emptive Acceptance Period specifying the maximum number of
shares of the Securities Issuance Edge will purchase (the "Accepted
Securities").
(b) If effective acceptance shall not be received pursuant to Section 7(a)
above with respect to all of the Securities Issuance offered for sale
pursuant to the Pre-emptive Notice, then the Company may Issue all or
any portion of such Securities so offered for sale and not so
accepted, at a price not less than the Purchase Price, and on terms
not more favorable to the purchaser thereof than the terms, stated in
the Pre-emptive Notice at any time within 90 days after the expiration
of the Pre-emptive Acceptance Period (the "Issuance Period"). In the
event that all of the Securities Issuance is not Issued by the Company
during the Issuance Period, the right of the Company to Issue such
unsold Securities Issuance shall expire and the obligations of this
Section 7 shall be reinstated.
(c) All sales of Securities Issuance to Edge subject to any Pre-emptive
Notice shall be consummated contemporaneously at the offices of the
Company on a mutually satisfactory business day within 5 days after
the expiration of the Pre-emptive Acceptance Period. The delivery of
certificates or other instruments evidencing such Securities Issuance
shall be made by the Company on such date against payment of the
Purchase Price for such Securities Issuance.
(d) The provision of this Section 7 shall terminate at such time Edge is
no longer the owner of the Notes or three years after the date hereof,
whichever is earlier.
8. Notices. Any notice, request or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
sent via facsimile or overnight or second day delivery service, to the
respective addresses and/or facsimile numbers of the parties as set forth below:
If to the Company: PetCARE Television Network, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇, President and CEO
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
14
With a copy to: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Edge: Pet Edge, LLC
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Manager
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
Any party hereto may by notice so given change its address for future notice
hereunder. Notice shall conclusively be deemed to have been given upon confirmed
receipt of delivery.
9. Successors and Assigns; Assignment. The terms and conditions of the Note and
this Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors and permitted assigns of the
parties. Neither party hereto may assign any of its rights or obligations
hereunder without the prior written consent of the other party; provided,
however, Edge may assign its rights and obligations hereunder to any Permitted
Transferee (as defined in the Note).
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without reference to conflict
of laws principles.
11. Headings. The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
12. Further Assurances. The Company will take such further action, and will
execute and deliver to Edge all such further financing statements, certificates,
and other documents as Edge may reasonably request from time to time in order to
give full effect to this Agreement and to secure the rights of Edge hereunder.
13. Entire Agreement. This Agreement and the Note of even date herewith, from
Edge and acknowledged by the Company constitute the entire agreement of the
parties with respect to the subject matter hereof and thereof and supersede all
prior and contemporaneous understandings, whether written or oral.
14. Media Releases. All media releases and public announcements or disclosures
by either party relating to this Agreement and the Note or the business
15
relationship between the parties contemplated by those documents shall be
coordinated with and approved by the other party in writing prior to the release
thereof.
15. Jurisdiction. The Company consents to and agrees that it is subject to the
jurisdiction of the Courts in the State of Connecticut, Florida, or New York
with respect to any litigation in connection with this Agreement. The Company
will also reimburse Edge for any legal fees it incurred in enforcing Edge's
rights under this Agreement.
IN WITNESS WHEREOF, the Company and Edge have caused this Agreement to be
executed as of the date first set forth above.
PETCARE TELEVISION NETWORK, INC.
By:
-------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇, President and CEO
PET EDGE, LLC
By:
-------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Manager
16
Exhibit A to Note Purchase and Security Agreement
The Collateral covered by this financing statement includes all of the
Debtor's right, title, interest and privilege in and to all the following
property of the Debtor, whether now owned or existing or hereafter acquired or
arising:
1. All accounts, accounts receivable, general intangibles, contracts,
chattel paper, instruments, documents, warehouse receipts, documents of title,
or any document which evidences that a person in possession of it is entitled to
receive, hold and dispose of the document or the goods it covers, including but
not limited to all rights and claims of the Debtor for payment or monies due and
to become due from customers in connection with the sale of goods or the
rendering of services by the Debtor or purchased, assigned or transferred to the
Debtor, together with all checks, drafts, security agreements and other
instruments or documents securing, evidencing or otherwise relating to any and
all accounts and all rights and remedies of the Debtor under or with respect to
any and all Receivables and any and all of the foregoing (collectively referred
to hereinafter as "Accounts");
2. All intangible personal property of every kind and nature including,
without limitation, General Intangibles and Payment Intangibles, choses in
action, causes of action, contracts with persons to sell goods, inventory or
other property from such persons or to buy goods, inventory or other property
from such person, rights to payment for goods sold or services rendered which
have not yet been billed or invoiced to any customer, corporate or other
business records, intellectual property, license rights, inventions, drawings,
specifications, designs, patents, patent applications, trademarks, trade names,
trade secrets, know how, goodwill, notes with respect to research and
development, copyrights, registrations, licenses, franchises, tax refund claims,
computer programs, know how and any guarantee claims, security interests or
other security held by Debtor;
3. Any and all inventory, merchandise and other personal property,
including, without limitation, goods in transit, wheresoever located, owned or
acquired by the Debtor which are or may at any time be held for sale or lease,
furnished under any contract of service or held as raw materials, work in
process, or supplies or materials used or consumed in Debtor's business,
packaging material, returned goods, proceeds and products of the foregoing
including, without limitation, personal property owned by Debtor and wheresoever
located which is evidenced by any document of title, warehouse receipt, receipt,
or other document which evidences that a person in possession of it is entitled
to receive hold and dispose of the documents or the goods it covers;
4. All goods, including without limitation, all machinery, equipment,
computers, supplies, appliances, tools, patterns, molds, dies, blueprints,
fittings, furniture, furnishings, fixtures and articles of tangible personal
property of every description now or hereafter owned by Debtor or in which
Debtor may have or may hereafter acquire any interest, at any location;
17
5. All cash and monies, bank accounts, deposit accounts, residues and
property of any kind, now or at any time or times hereafter owned by debtor or
in which Debtor has an interest;
6. All of the right, title and the interest of Debtor in and to any and all
leases (including equipment leases), rental agreements, management contracts,
franchise agreements, technical services agreements, licenses and permits now or
hereafter affecting any personal or real property now or hereafter leased by
Debtor or any part thereof;
7. All accessories to, substitutions for and all replacements, products and
proceeds of the foregoing including, without limitation, proceeds of insurance
policies insuring the collateral;
8. All books and records (including without limitation, customer data,
credit files, computer programs, printouts, and other computer materials and
records(s) of Debtor pertaining to any of the foregoing;
9. Investment property;
10. Proceeds, including Cash Proceeds and Non Cash Proceeds;
11. Letter of credit rights;
12. Fixtures;
13. Software;
14. Chattel paper, including without limitation, Tangible Chattel Paper and
Electronic Chattel Paper;
15. Real Estate;
16. Farm Products;
17. Consumer Goods;
18. Equipment;
19. Instruments and any and all other real or personal property owned by
Debtor or in which the Debtor has an interest.
The Collateral covers all of the present and future property of the Debtor.
18
SCHEDULE 3(a)(iv)
CAPITALIZATION SCHEDULE,
SECURITIES SUBJECT TO REGISTRATION, AND
RESTRICTIONS ON VOTING OF SECURITIES
------------------------------------
Capital Stock Structure:
------------------------
Common Stock: 50,000,000 shares authorized
11,836,000 shares issued and outstanding
Preferred Stock: 10,000,000 shares authorized
Series A: 1,500,000 shares authorized
Series A: 101,250 shares issued and outstanding (1)(2)
(1) These shares are automatically convertible into the Company's Common
Stock ten (10) days after the Company's Common Stock begins to be
quoted. To determine the number of shares of Common Stock which will
be issued in exchanged for the Series A Preferred Stock upon
conversion, take the price per share of the Series A Preferred ($2.00)
and divide it by 50% of the average closing price as reported for the
five trading days preceding the date of conversion, or $2.00,
whichever is less. Prior to the Company's Common Stock being traded,
the holders of the Series A Preferred Stock will not be able to
convert into shares of Common Stock.
(2) The Reserved Shares issuable upon conversion of the Series A Preferred
Stock are covered under a Registration Rights Agreement.
Securities Subject to Registration Rights:
------------------------------------------
a) See (1) and (2) above.
b) Promissory Note dated May 16, 2002 for $100,000 to ▇▇▇▇▇ ▇▇▇▇▇▇▇ with
accompanying Registration Rights Agreement for 2,355,158 shares. Of
these shares, ▇▇. ▇▇▇▇▇▇▇ retains ownership of 2,300,000 as the others
were gifted and transferred.
c) Promissory Note dated June 5, 2002 for $5,000 to ▇▇▇▇▇▇ and ▇▇▇▇▇
▇▇▇▇▇▇ with accompanying Registration Rights Agreement for 5,000
shares of Common Stock.
d) Promissory Note dated June 7, 2002 for $25,000 to ▇▇▇▇▇▇ ▇. ▇▇▇▇ with
accompanying Registration Rights Agreement for 573,395 shares of
Common Stock.
e) Convertible Promissory Note dated June 10, 2003 for $50,000 to ▇▇▇▇
▇▇▇▇▇▇▇ with accompanying Registration Rights Agreement for underlying
shares received upon conversion of principal and interest at $.246 per
share.
Restrictions on Voting of Securities:
-------------------------------------
Series A Preferred Shares: Until or unless the Series A Preferred Stock is
converted into Common Stock as set forth above, no holder of the Series A
Preferred Stock shall have any voting rights except as may be required under
19
Florida law in certain instances or as set forth in the Certificate of
Designation, Preferences, Rights and Limitations of Series A Convertible
Preferred Stock No Par Value of PetCARE Television Network, Inc.
(Remainder of page left intentionally blank.)
20
SCHEDULE 3(a)(x)
CONFLICTS OF INTEREST
---------------------
Company's Indebtedness to Officers and Directors:
-------------------------------------------------
1) ▇▇▇▇▇ ▇▇▇▇▇▇▇ - $207,400 as of February 28, 2003, plus interest (under
promissory notes)
2) ▇▇▇▇▇▇ ▇▇▇▇ - $25,000 as of February 28, 2003, plus interest (under
promissory note)
3) ▇▇▇▇ ▇▇▇▇▇▇▇ - $50,000 as of June 10, 2003, plus interest (under
Convertible Promissory Note)
Indebtedness to the Company by Officers and Directors:
------------------------------------------------------
None.
21
SCHEDULE 3(a)(xi)
RIGHTS OF REGISTRATION AND VOTING RIGHTS
----------------------------------------
See Capitalization Schedule for shares subject to Registration Rights.
22
SCHEDULE 3(a)(xiv)
EMPLOYEE BENEFITS PLAN
----------------------
SAVAGE MOJO, INC. 2002 EQUITY INCENTIVE PLAN -
Stock option plan for key employees covering 2,000,000 shares.
23