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EXHIBIT 9.2
PARTICIPATING LOAN AGREEMENT
BY AND BETWEEN
PET QUARTERS, INC.
("BORROWER")
AND
VARIOUS INDIVIDUALS
("LENDERS")
AND
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ATTORNEY AT LAW, PC
("COLLATERAL AGENT")
DATED AS OF MAY 14, 2001
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PARTICIPATING LOAN AGREEMENT
This Participating Loan Agreement (the "Agreement") is dated as of May,
14, 2001, and is by and between various Persons, as defined below, who
subsequently execute Series Loan Agreements ("Lenders"), Pet Quarters, Inc., an
Arkansas corporation, ("Borrower"), and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, attorney at law, PC,
a Utah professional corporation ("Collateral Agent"), by its execution of the
Security Agreement, as defined below.
In consideration of the Loan described below and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby,
Lenders, Borrower and Collateral Agent 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:
"Act" means the Securities Act of 1933.
"Applicable Interest Rate" means nine percent (9.0%) 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 May 14, 2001.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning given to such term in Section 2.6 hereof.
"Collateral Agent" means ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, attorney at law, PC, a
Utah professional corporation.
"Companies" means Borrower and PQ Acquisition collectively,
"Event of Default" or "Default" has the meaning given to such term in
Section 7 hereof.
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"Lenders" means any Person who executes a Series Loan Agreement and
loans money to Borrower pursuant to the Loan Agreements.
"Loan Agreements" means this Participating Loan Agreement and any and
all Series Loan Agreements executed by Borrower and Lender.
"Loan Documents" means the Loan Agreements and any and all promissory
notes executed by Borrower in favor of Lenders 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 Loan Agreements.
"Maximum Loan Amount" means One Million and No/100 Dollars
($1,000,000.00).
"Note" or "Notes" means any note described in Section 2 hereof.
"Obligations" means all loans, advances, liabilities, obligations,
covenants, duties, and debts owing by Borrower to Lenders, whether or not
arising under the Loan Agreements, 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 2,500,000 shares of common stock of Borrower.
In the event the Maximum Loan Amount is not delivered to Borrower pursuant to
this Agreement on the Closing date, the Origination Fee shall be reduced
proportionately. The Origination Fee has not been duly registered for sale or
resale with the Securities and Exchange Commission. Borrower shall register the
Origination Fee for resale pursuant to the Act as soon as practical after the
funding of the Total Loan Amount. Borrower shall deliver the Origination Fee to
Lenders upon approval of the registration by the Securities and Exchange
Commission.
"Parity Debt" means those loans secured by the 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 ___,
2001, in favor of Z Capital, Inc.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, limited liability company,
association, corporation, public authority, or any other entity, who is an
Accredited Investor, as defined in the Regulation D of the Securities Act of
1938.
"PQ Acquisition" means PQ Acquisition Company, Inc., a wholly-owned
subsidiary of Borrower.
"Promissory Notes" or "Promissory Notes" means any Note or Notes.
"Security Agreement" means that certain Collateral Pledge Agreement, of
even date herewith, by and between Lenders, Borrower and Collateral Agent, and
substantially in the form attached hereto as Exhibit C.
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"Security Interest" means collectively the liens granted to Lender in
the Collateral pursuant to this Agreement, the other Loan Documents, or any
other agreement.
"Series Loan Agreement" means those certain Series Loan Agreements by
and between Lenders, Borrower and Collateral Agent, substantially in the form
attached hereby as Exhibit B, pursuant to which each Note is executed and the
individual Lenders are identified.
"Termination Date" means December 1, 2002.
"Total Loan Amount" means the aggregate amount of all Loans made to
Borrower by Lenders pursuant to and in accordance with the Loan Documents.
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.B. hereof.
1.3 OTHER TERMS. All other undefined terms contained in this
Participating Loan Agreement shall, unless the context indicates otherwise, have
the meanings provided for in the Series Loan Agreement, the Promissory Note or
the Security Agreement. 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 Participating 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. MAXIMUM LOAN.
2.1 LOAN. On May 14, 2001, Borrower may, subject to the terms and
conditions set forth in the Loan Documents, borrow up to the Maximum Loan Amount
from Lenders.
2.2 LENDER'S CONTRIBUTION. Upon execution of a Series Loan Agreement,
each Lender shall be bound by the terms of the Loan Documents and shall loan
Borrower the amount set forth on Exhibit A to the Series Loan Agreement (the
"Loan Amount") pursuant to the Loan Documents. Upon execution of a Series Loan
Agreement, Lender shall deliver the Loan Amount to Borrower pursuant to and in
accordance with the Series Loan Agreement.
2.3 INTEREST AND OTHER CHARGES.
(a) INTEREST RATES. Each Loan Amount shall bear interest on the unpaid
principal amount thereof from the 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 on the first day of each
calendar quarter, commencing September 1, 2001 until the principal balance and
all accrued but unpaid interest is paid in full or the Termination Date,
whichever occurs first.
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(b) DEFAULT RATE. If any Event of Default occurs, then, while any such
Event of Default is continuing, all Loans shall bear interest at an increased
rate of interest equal to the maximum rate of interest permitted by applicable
law.
2.4 MAXIMUM INTEREST RATE.
(a) Notwithstanding the foregoing provisions of Section 2.3 regarding
the rates of interest applicable to the Loans, 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 Participating Loan Agreement shall
be computed upon the basis of the Maximum Legal Rate.
(b) No agreements, conditions, provisions or stipulations contained in
this Participating Loan 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 to exercise any option whatsoever contained in this Participating Loan
Agreement or any other agreement between Borrower and Lender, 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 Participating Loan
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
Participating Loan Agreement shall be amortized, prorated, allocated and spread
in equal parts during the entire term of this Participating Loan 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
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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.
(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. Interest on the Loan shall be payable quarterly commencing
September 1, 2001, on the outstanding principal balance of each Note from the
date of each such Note as evidenced by the 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 Termination 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 Lender's
address set forth on Exhibit A to the Series Loan Agreement executed by Lender.
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 all
quarterly interest payment dates and the Termination Date, all Lenders shall be
paid pro rata and no Lender shall be entitled to any preference regarding
payment over any other Lender. This provision shall apply equally to all
payments by Borrower as well as to all payments by Collateral Agent in the event
Lenders are forced to foreclose on the Collateral in accordance with the
Security Agreement.
(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 IS 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
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HOLD 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 Participating Loan
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 Participating Loan Agreement.
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 equal to the Parity Debt.
(b) The aggregate of all Obligations 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 Participating 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
Participating 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 Party 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
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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 Lenders, 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 are owned by Borrower free
and clear of all liens, except the lien of Bank and 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 Participating Loan
Agreement has been terminated and the Obligations have been fully satisfied.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to
Lenders as follows:
A. GOOD STANDING. Borrower and PQ Acquisition are Arkansas
corporations, duly organized, validly existing and in good standing under the
laws of Arkansas and they have the power and authority to own their property and
to carry on their businesses in each jurisdiction in which they do business.
B. AUTHORITY AND COMPLIANCE. 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 Participating Loan Agreement and the other
Loan Documents executed by Borrower constitute valid and legally binding
obligations of Borrower, enforceable in accordance with their terms.
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D. LITIGATION. There is no proceeding material to the Companies'
operations or, to the knowledge of the Companies, threatened before any court or
governmental authority, agency or arbitration authority, except as disclosed to
Lender in writing.
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 Participating Loan Agreement and
the other Loan Documents.
F. OWNERSHIP OF ASSETS. Borrower has good title to its assets.
G. TAXES. All taxes and assessments due and payable by the Companies
have been paid or are being contested in good faith by appropriate proceedings,
and the Companies have filed all tax returns which they are 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 Participating Loan 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. Capitalization. All of the issued and outstanding shares of common
stock of the Companies are duly authorized, validly issued, fully paid and
nonassessable, and have been issued in compliance with federal and state
securities laws.
L. 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. AFFIRMATIVE COVENANTS. Until full payment and performance of all obligations
of Borrower under the Loan Documents, Borrower will, and will take all actions
to assure that PQ Acquisition will, unless Lenders consent otherwise in writing
(and without limiting any requirement of any other Loan Document):
A. INSURANCE. Insure its business assets against loss or damage by fire
with extended coverage, theft, burglary, pilferage, loss in transit, and such
other hazards as Collateral Agent shall specify, in amounts, under policies and
by insurers acceptable to Collateral Agent. The Companies shall also maintain
flood insurance for any inventory located on the Companies' real property in the
event of a designation of the area in which real estate is located as a "flood
prone" or a "flood risk area" (hereinafter "SFHA"), as defined by the Flood
Disaster Protection Act of 1973, in an amount to be reasonably determined by the
Collateral Agent, and shall comply with the additional requirements of the
National Flood Insurance Program as set forth therein. Borrower shall pay, upon
Collateral Agent's request, all reasonable fees incurred by Collateral Agent to
determine whether any of the real property is located in an SFHA. Each policy of
insurance shall contain a clause or endorsement requiring the insurer to give
not less than thirty (30) days prior written notice to Collateral Agent in the
event of cancellation of the policy for any reason whatsoever. Borrower shall
also pay all premiums for such insurance when due, and shall deliver to
Collateral Agent certificates of insurance and, if requested, photocopies of the
policies. If Borrower fails to pay such fees or to procure such insurance or to
pay the premiums therefor when due, Collateral Agent may (but shall not be
required to) do so and ▇▇▇▇ Borrower for the costs thereof. Borrower shall
promptly notify Collateral Agent of any loss, damage, or destruction to the
Companies' assets in an amount exceeding Fifty Thousand Dollars ($50,000),
whether or not covered by insurance.
B. EXISTENCE AND COMPLIANCE. Maintain the Companies' existence, good
standing and qualification to do business where required and comply with all
laws, regulations and governmental requirements including, without limitation,
environmental laws applicable to them or to any of their Property, business
operations and transactions.
C. ADVERSE CONDITIONS OR EVENTS. Promptly advise Collateral Agent in
writing of (i) any condition, event or act which comes to its attention that
would or might materially adversely affect the Companies' financial condition or
operations or Lender's rights under the Loan Documents, (ii) any material
litigation filed by or against the Companies, (iii) any event that has occurred
that would constitute an Event of Default under any Loan Document, and (iv) any
uninsured or partially uninsured loss through fire, theft, liability or property
damage in excess of an aggregate of Fifty Thousand Dollars ($50,000.00).
D. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes, assessments and
other obligations, including, but not limited to taxes, costs or other expenses
arising out of this transaction, as the same become due and payable, except to
the extent the same are being contested in good faith by appropriate proceedings
in a diligent manner.
E. MAINTENANCE. Maintain all of its tangible property in good condition
and repair and make all necessary replacements thereof, and preserve and
maintain all licenses, trademarks, privileges, permits, franchises, certificates
and the like necessary for the operation of its business.
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F. ENVIRONMENTAL. Immediately advise Collateral Agent in writing of (i)
any and all enforcement, cleanup, remedial, removal, or other governmental or
regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations relating to
any Hazardous Materials affecting the Companies' business operations and (ii)
all claims made or threatened by any third party against Borrower or PQ
Acquisition relating to damages, contribution, cost recovery, compensation, loss
or injury resulting from any Hazardous Materials. Borrower shall immediately
notify Collateral Agent of any remedial action taken by the Companies with
respect to the Companies' business operations. The Companies will not use or
permit any other party to use any Hazardous Materials at any of the Companies'
places of business or at any other property owned or leased by the Companies
except such materials as are incidental to the Companies' normal course of
business, maintenance and repairs and which are handled in compliance with all
applicable environmental laws. Borrower agrees to permit Collateral Agent, its
agents, contractors and employees to enter and inspect any of the Companies'
places of business or any other property of Borrower at any reasonable time upon
three (3) days prior notice for the purposes of conducting an environmental
investigation and audit (including taking physical samples) to insure that
Borrower is complying with this covenant, and Borrower shall reimburse
Collateral Agent on demand for the costs of any such environmental investigation
and for one audit per year. Borrower shall provide Collateral Agent, its agents,
contractors, employees and representatives with access to and copies of any and
all data and documents relating to or dealing with any Hazardous Materials used,
generated, manufactured, stored or disposed of by the Companies' business
operations within ten (10) days of the request therefore.
5. NEGATIVE COVENANTS. Until full payment and performance of all obligations of
Borrower under the Loan Documents, Borrower will not, without the prior written
consent of Lender (and without limiting any requirement of any other Loan
Document):
A. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign or otherwise
dispose of or transfer the Collateral, or enter into any merger or
consolidation, or transfer control or ownership of the Collateral.
B. LIENS. Grant, suffer or permit any lien on or security interest in
the Collateral above that lien in favor of Lender, except to Bank and the Parity
Debt, as previously disclosed to Lender.
C. CHARACTER OF BUSINESS. Change the general character of its business
as conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
6. CLOSING; CONDITIONS TO CLOSING. Lender will not be obligated to make any
Loans unless the following conditions precedent have been satisfied as
determined by Lender:
A. REPRESENTATIONS AND WARRANTIES; COVENANTS; EVENTS. Borrower's
representations and warranties contained in this Participating Loan Agreement
and the other Loan Documents shall be correct and complete as of the Closing
Date; Borrower shall have performed and complied with all covenants, agreements,
and conditions contained herein and in the other Loan
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Documents which are required to have been performed or complied with on or
before the Closing Date; and there shall exist no Event or Events of Default on
the Closing Date.
B. PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Participating Loan Agreement, and all
documents contemplated in connection herewith, shall be satisfactory in form and
substance to the Lender.
C. CLOSING. On the Closing Date, Borrower shall comply with closing
instructions set forth in the Series Loan Agreement.
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 45 days after notice by
Lender to Borrower.
(b) Any breach or failure of Borrower to perform any term or condition
of this Participating Loan Agreement or any other Loan Document which is not
cured within 45 days of receiving notice of the default from Lender.
(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.
(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 Participating Loan 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
the Negative Covenants portion of this Participating Loan Agreement, or the
other Loan Documents.
Notwithstanding anything contained hereto to the contrary, Lender's right to
execute on the Collateral shall be limited by the terms and conditions contained
in the Promissory Notes regarding notice and opportunity to cure.
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8. REMEDIES UPON DEFAULT. If an Event of Default shall occur, Lender shall have
all rights, powers and remedies available under each of the Loan Documents as
well as all rights and remedies available at law or in equity and the Security
Agreement.
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 or Escrow Agent:
Pet Quarters, Inc.
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
If to Lender:
At the address set forth on Exhibit A to the Series Loan Agreement
If to Collateral Agent:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, attorney at law, PC
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
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
Termination Date. Prior to the Termination Date, the Termination Date of each
Promissory Note, may be extended beyond the Termination Date individually with
the written agreement of each Lender and
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Borrower. In no event shall the Termination Date of an individual Promissory
Note be accelerated without the written consent of all non-accelerated Lenders.
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 Participating Loan 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 Participating Loan Agreement, nor consent to any departure by
Borrower therefrom, shall be effective unless the same shall be in writing and
signed by all Lenders, and then shall be effective only in the specified
instance and for the purpose for which given. This Participating Loan Agreement
and all of the Loan Documents are binding upon Borrower, its successors and
assigns, and inures to the benefit of Lenders, their successors and assigns;
however, no assignment or other transfer of Borrower's rights or obligations
hereunder shall be made or be effective without Lenders' prior written consent,
nor shall it relieve Borrower of any obligations hereunder. There is no third
party beneficiary of this Participating Loan Agreement.
D. DOCUMENTS. All documents, certificates and other items required
under this Participating Loan 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 Participating Loan 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.
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.
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IN WITNESS WHEREOF, Borrower has caused this Participating Loan
Agreement to be duly executed by its duly authorized representative as of the
date first above written.
BORROWER:
Pet Quarters, Inc..
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇, Chief Executive Officer
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