LOAN AND SECURITY AGREEMENT
THIS
LOAN AND SECURITY AGREEMENT
dated
July 25, 2008 by and among PET
EXPRESS SUPPLY, INC.,
a
corporation organized and in good standing in the State of Nevada (the
“Corporation”),
whose
address is 00
Xxxx
00xx
Xxxxxx,
0xx
Xxxxx,
Xxx
Xxxx,
XX 00000; MKM
OPPORTUNITY MASTER FUND, LTD.
(“MKM”);
and
those Persons who have executed or shall subsequently execute this Agreement
under the heading “Additional
Lenders”.
MKM
and
the
Additional Lenders are
sometimes collectively referred to herein as “Lender”
or
the
“Lenders”.
WHEREAS,
Lender wishes to lend to the Corporation, and the Corporation wishes to borrow
from Lender and repay Lender on the terms set forth herein.
Now,
therefore, the parties agree as follows:
1. LOAN
AND TERMS OF PAYMENT.
(a) The
Corporation shall borrow from Lenders hereunder an aggregate principal amount
which does not exceed Five Million U.S. Dollars (U.S. $5,000,000). All loans
made by Lenders hereunder shall be evidenced by Notes (as hereinafter defined),
to be executed and delivered by the Corporation to the applicable Lender on
the
closing date of such loan. Such loan shall be repaid in accordance with the
terms of the Note, and will be convertible as provided in the Note.
(b) The
Corporation promises to pay Lender the unpaid principal amount of all loans
made
by any of the Lenders hereunder and interest on the unpaid principal amount
thereof in accordance with the terms of the Notes.
(c)
Loans
made hereunder accrue interest on the outstanding principal balance thereof
in
accordance with the applicable Note at a per annum rate of six percent (6%).
Interest on the unpaid and unconverted principal balance of each of the Notes
shall accrue at the rate of 6% per annum from the date of original issuance
thereof (the “Issuance
Date”)
until
the same becomes due and payable on the Maturity Date, or such earlier date
upon
acceleration or by conversion, redemption or repayment in accordance with the
terms hereof or of the other Agreements. Interest on each of the Notes shall
accrue daily commencing on the Issuance Date and shall be computed on the basis
of a 360-day year, 30-day months and actual days elapsed and shall be payable
in
accordance with the terms of the applicable Note.
2. WARRANTS.
The
Corporation hereby grants to each of the Lenders warrants pursuant to which
each
Lender may purchase Common Stock, $0.001 par value per share, of PETX (“Shares”)
up to a maximum amount of Shares equal to seventy-five (75%) percent of the
number of Shares into which such Lender’s Note may be converted, at an exercise
price of $4.50 per Share. The warrants will be in the form attached hereto
as
Exhibit B.
1
3. PREPAYMENT.
The
Corporation
shall prepay (such payment a “Mandatory
Prepayment”)
all or
part of the Notes then outstanding in the event that Corporation shall complete,
subsequent to the consummation of the transactions contemplated in this
Agreement, an offering or offerings of new equity or an instrument convertible
into equity, and the proceeds of such financing(s) shall exceed $4,000,000,
in
which case all of the proceeds of such financing(s) in excess of $4,000,000
shall be used to prepay the Notes, with
all
holders of Notes prepaid proportionately with respect to the Mandatory
Prepayment pursuant to this provision.
The
Corporation shall deliver to each of the Lenders a written notice (a
“Prepayment
Notice”),
specifying the principal amount of Notes to be prepaid, and each of the holders
of Notes shall have the right to voluntarily convert. Such notice must be given
no less than ten (10) Business Days prior to the effective date of such
Mandatory Prepayment (the “Prepayment Date”), and each holder of a Note shall
have the right to voluntarily convert such Note prior to the Prepayment Date.
4.
GRANT OF SECURITY INTEREST
4.1 GRANT
OF SECURITY INTEREST. The
Corporation grants Lender a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of the Corporation’s duties under the Loan Documents. Except for
Permitted Liens, such security interest will be a first priority security
interest in the Collateral. If this Agreement is terminated, Lender’s lien and
Lender’s security interest in the Collateral will continue until the Corporation
fully satisfies its Obligations.
4.2
AUTHORIZATION TO FILE. The Corporation
authorizes Lender to file financing statements without notice to Corporation,
with all appropriate jurisdictions within the United States, as Lender deems
appropriate, in order to perfect or protect Lender’s interest in the Collateral.
Lender agrees that it shall, upon the request of the Corporation, following
the
termination of the Term Loan and the payment in full of the Obligations (a)
terminate all such financing statements and (b) take such other action to
evidence termination of the Lender’s Security Interest as Corporation may
reasonably request.
5.
REPRESENTATIONS
AND WARRANTIES . The
Corporation represents and warrants as follows:
5.1
DUE
ORGANIZATION AND AUTHORIZATION. The
Corporation and each Subsidiary is duly existing and in good standing in its
state of incorporation and qualified and licensed to do business in, and in
good
standing in, any state in which the conduct of its business or its ownership
of
property requires that it be qualified, except where the failure to do so would
not reasonably be expected to cause a Material Adverse Change. The Corporation
and each Subsidiary’s exact legal name are as set forth on the first page of
this Agreement. The execution, delivery and performance of the Loan Documents
have been duly authorized, and do not conflict with the Corporation’s formation
documents, nor constitute an event of default under any material agreement
by
which Corporation is bound. The Corporation is not in default under any
agreement to which, or by which it is bound, in which the default would
reasonably be expected to cause a Material Adverse Change.
2
5.2
COLLATERAL.
The
Corporation has good title to the Collateral, free of Liens except Permitted
Liens. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent
for
immediate shipment to and unconditional acceptance by the account debtor.
Corporation has no notice of any actual or imminent Insolvency Proceeding of
any
account debtor. All Inventory is in all material respects of good and marketable
quality, free from material defects
5.3
LITIGATION.
Except
as
shown in the Schedule, there are no actions or proceedings pending or, to the
knowledge of the Corporation’s Responsible Officers, threatened by or against
the Corporation or any Subsidiary in which a likely adverse decision would
reasonably be expected to cause a Material Adverse Change.
5.4
FINANCIAL
STATEMENTS. All
consolidated financial statements for the Corporation, and any Subsidiary,
delivered to Lender fairly present in all material respects the Corporation’s
consolidated financial condition and Corporation’s consolidated results of
operations as of the date and for the period then ended. There has not been
any
Material Adverse Change in the Corporation’s consolidated financial condition
since the date of the most recent consolidated financial statements submitted
to
Lender.
5.5
REGULATORY
COMPLIANCE. The
Corporation is not an “investment
company”
or a
company “controlled”
by an
“investment
company”
under
the Investment Company Act. Corporation is not engaged as one of its important
activities in extending credit for margin stock (under Regulations T and U
of
the Federal Reserve Board of Governors). To its knowledge, the Corporation
has
complied in all material respects with the Federal Fair Labor Standards Act.
The
Corporation has not violated any laws, ordinances or rules, the violation of
which would reasonably be expected to cause a Material Adverse Change. None
of
the Corporation’s or any Subsidiary’s properties or assets has been used by
Corporation or any Subsidiary, in disposing, producing, storing, treating,
or
transporting any hazardous substance other than legally. The Corporation and
each Subsidiary has timely filed all required tax returns and paid, or made
adequate provision to pay, all material taxes, except those being contested
in
good faith with adequate reserves under GAAP. The Corporation and each
Subsidiary has obtained all consents, approvals and authorizations of, made
all
declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted,
except where the failure to do so would not reasonably be expected to cause
a
Material Adverse Change.
5.6
SUBSIDIARIES.
The
Corporation does not own any stock, partnership interest or other equity
securities except for its investment in its sole subsidiary, X X Vision
Enterprises, Inc.
5.7
FULL
DISCLOSURE. No
written representation, warranty or other statement of the Corporation in any
certificate or written statement given to Lender (taken together with all such
written certificates and written statements to Lender) contains any untrue
statement of a material fact or omits to state a material fact necessary to
make
the statements contained in the certificates or statements not misleading (it
being recognized by Lender that the projections and forecasts provided by the
Corporation in good faith and based upon reasonable assumptions are not viewed
as facts and that actual results during the period or periods covered by such
projections and forecasts may differ from the projected and forecasted results).
3
6. CONDITION
OF CLOSING; AFFIRMATIVE COVENANTS.
The
Corporation will do all of the following for so long as Lender has an obligation
to make any Advance, or there are outstanding Obligations:
6.1 CONDITION
OF CLOSING.
The
obligation of Lenders to enter into this Agreement and to consummate the
transactions contemplated herein shall be conditioned on (i) the prior
consummation of the Exchange
Agreement dated July 25, 2008 by and among the Corporation, X
X
Vision Enterprises, Inc.,
a
Delaware corporation, and the other parties thereto;
and
(ii) the loan of an aggregate principal amount of no less than $800,000 by
the
Lenders hereunder.
6.2
LENDER’S RIGHT TO PARTICIPATE IN FUTURE FINANCING. For
a
period commencing on the date hereof and continuing until the second anniversary
of this Agreement, each of the Lenders shall have the right to participate
in
any financing transaction by the Corporation, to the extent required to maintain
such Lender’s proportionate stake on a fully diluted basis.
6.3 GOVERNMENT
COMPLIANCE. The
Corporation will maintain its and all Subsidiaries legal existence and good
standing as a Registered Organization in their respective states of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify would reasonably be expected to cause a material adverse
effect on the Corporation’s business or operations. The Corporation will comply,
and have each Subsidiary comply, with all laws, ordinances and regulations
to
which it is subject, noncompliance with which would reasonably be expected
to
cause a Material Adverse Change.
6.4
TAXES. The
Corporation will make, and cause each Subsidiary to make, timely payment of
all
material federal, state, and local taxes or assessments (other than taxes and
assessments which the Corporation is contesting in good faith, with adequate
reserves maintained in accordance with GAAP).
6.5
INSURANCE. The
Corporation will keep its business and the Collateral insured for risks and
in
amounts as the Board of Directors shall reasonably determine in good faith;
provided, however, that the risks covered and the amount of coverage shall
not
be less than in effect on the date hereof. Insurance policies will be in a
form
and with companies as the Board of Directors of the Corporation shall determine
in good faith consistent with past practice.
6.6
FURTHER ASSURANCES. The
Corporation will execute any further instruments and take further action as
Lender reasonably requests to perfect or continue Lender’s security interest in
the Collateral or to effect the purposes of this Agreement.
4
7. NEGATIVE
COVENANTS. The
Corporation will not do any of the following without Lender’s prior written
consent, for so long as there are any outstanding Obligations:
7.1
DISPOSITIONS. Convey,
sell, lease, transfer or otherwise dispose of (collectively “Transfer”),
or
permit any of its Subsidiaries to Transfer, all or any part of the Collateral,
except for Transfers (a) of Inventory in the ordinary course of business; (b)
of
licenses and similar arrangements for the use of the property of the Corporation
or its Subsidiaries in the ordinary course of business; or (b) of worn-out,
obsolete or fully depreciated Equipment.
7.2
SUBSEQUENT
DEBT. So
long
as any Principal Amount of Notes is outstanding, the Corporation and its
subsidiaries shall not directly or indirectly, without the affirmative vote
of
the holders of at least 75% of the outstanding Principal Amount of the Notes
then outstanding, incur or permit to exist additional indebtedness which is
senior to the Notes, or incur, assume or permit to exist any lien, mortgage,
security interest or encumbrance (other than statutory liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being
contested in good faith, if such reserve or other appropriate provision, if
any,
as shall be required by GAAP shall have been made in respect thereof) on any
of
its assets, except for Permitted Liens.
8.
EVENTS OF DEFAULT. Any
one
of the following is an Event of Default:
8.1
PAYMENT DEFAULT. If
the
Corporation fails to pay any of the Obligations within five (5) days after
their
due date.
8.2
COVENANT DEFAULT. If
the
Corporation does not perform any obligation in Section 6 or violates any
covenant in Section 7 or if the Corporation does not perform or observe any
other material term, condition or covenant in this Agreement, any Loan
Documents, or in any agreement between the Corporation and Lender and as to
any
failure to perform or observe, violation or default under a term, condition
or
covenant that can be cured, has not cured the default within ten (10) days
after
it comes to the attention of an officer of the Corporation, or if the failure
to
perform or observe, violation or default under a term, condition or covenant
cannot be cured within ten (10) days or cannot be cured after the Corporation’s
attempts within such ten (10) day period, and the default may be cured within
a
reasonable time, then the Corporation has an additional period (of not more
than
thirty (30) days) to attempt to cure the default. During the additional time,
the failure to cure the default is not an Event of Default.
8.3
MATERIAL ADVERSE CHANGE. If
there
(i) occurs a material adverse change in the business, operations, or condition
(financial or otherwise) of the Corporation and its Subsidiaries taken as a
whole, or (ii) is a material impairment of Corporation’s ability to repay the
outstanding Obligations in their entirety or (iii) is a material impairment
of
the value or priority of Lender’s security interests in the Collateral;
8.4
ATTACHMENT. If
any
material portion of the Corporation’s assets is attached, seized, levied on, or
comes into possession of a trustee or receiver and the attachment, seizure
or
levy is not removed in thirty (30) days, or if the Corporation is enjoined,
restrained, or prevented by court order from conducting a material part of
its
business or if a judgment or other claim becomes a Lien on a material portion
of
the Corporation’s assets, or if a notice of lien, levy, or assessment is filed
against any of Corporation’s assets by any government agency and not paid within
thirty (30) days after the Corporation receives notice. These are not Events
of
Default if stayed or if a bond is posted pending contest by the Corporation;
5
8.5
INSOLVENCY. If
the
Corporation becomes insolvent or if the Corporation begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against the Corporation and
not
dismissed or stayed within sixty (60) days;
8.6
OTHER AGREEMENTS. If
there
is a default in any agreement between the Corporation and a third party that
gives the third party the right to accelerate any Indebtedness
exceeding
$250,000 or that would cause a Material Adverse Change;
8.7
JUDGMENTS. If
a
money judgment(s) in the aggregate of at least $250,000 is rendered against
the
Corporation and is unsatisfied and unstayed for thirty (30) days;
8.8
MISREPRESENTATIONS. If
the
Corporation or a Responsible Officer makes any material misrepresentation or
material misstatement now or later in any warranty or representation in this
Agreement or in any writing delivered to Lender or to induce Lender to enter
this Agreement or any Loan Document;
8.9
SUBSIDIARIES.
If
any
circumstance described in Sections 8.3, 8.4, 8.5 or 8.7 occurs to any Subsidiary
of the Corporation which results in a Material Adverse Change to the Corporation
and its Subsidiaries taken as a whole;
9.
LENDER’S RIGHTS AND REMEDIES
9.1
RIGHTS AND REMEDIES. When
an
Event of Default occurs and continues Lender may, without notice or demand,
do
any or all of the following:
(a)
Declare all Obligations immediately due and payable (but if an Event of Default
described in Section 8.5 occurs all Obligations are immediately due and payable
without any action by Lender);
(b)
Settle or adjust disputes and claims directly with account debtors for amounts,
on terms and in any order that Lender considers advisable;
(c)
Make
any payments and do any acts it considers necessary or reasonable to protect
its
security interest in the Collateral. The Corporation will assemble the
Collateral if Lender requires and make it available as Lender designates. Lender
may enter premises where the Collateral is located, take and maintain possession
of any part of the Collateral, and pay, purchase, contest, or compromise any
Lien which appears to be prior or superior to its security interest and pay
all
expenses incurred. The Corporation grants Lender a license to enter and occupy
any of its premises, without charge, to exercise any of Lender’s rights or
remedies;
(d)
Apply
to the Obligations any amount held by Lender owing to or for the credit or
the
account of the Corporation;
6
(e)
Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell the Collateral. Lender is granted a non-exclusive,
royalty-free license or other right to use, without charge, the Corporation’s
rights in its labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or
any
similar property as it pertains to the Collateral, in completing production
of,
advertising for sale, and selling any Collateral and, in connection with
Lender’s exercise of its rights under this Section, the Corporation’s rights
under all licenses and all franchise agreements inure to Lender’s benefit;
provided, however, that (i) Lender shall act in good faith to preserve the
value
of any property it shall use pursuant to such license or right in the exercise
of its remedies hereunder, and (ii) upon the completion of the sale of all
collateral by Lender and the completion by Lender of its exercise of its
remedies hereunder, such license shall terminate);
(f)
Dispose of the Collateral according to the Code.
9.2
ACCOUNTS COLLECTION. When
an
Event of Default occurs and continues, Lender may notify any Person owing the
Corporation money of Lender’s security interest in the funds and verify the
amount of the Account. Corporation must collect all payments in trust for Lender
and, if requested by Lender, immediately deliver the payments to Lender in
the
form received from the account debtor, with proper endorsements for deposit.
9.3
LENDER’S LIABILITY FOR COLLATERAL. If
Lender
complies with reasonable lending practices and the Code, it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default
of
any carrier, warehouseman, bailee, or other person. The Corporation bears all
risk of loss, damage or destruction of the Collateral.
9.4
REMEDIES CUMULATIVE. Lender’s
rights and remedies under this Agreement, the Loan Documents, and all other
agreements are cumulative. Lender has all rights and remedies provided under
the
Code, by law, or in equity. Lender’s exercise of one right or remedy is not an
election, and Lender’s waiver of any Event of Default is not a continuing
waiver. Lender’s delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Lender and then is only effective for the specific
instance and purpose for which it was given.
9.5
DEMAND WAIVER. The
Corporation waives demand, notice of default or dishonor, notice of payment
and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees held by Lender on which the Corporation is liable.
10.
NOTICES. All
notices or demands by any party about this Agreement or any other related
agreement must be in writing and be sent by personal delivery, by a nationally
recognized overnight delivery service, or by certified mail, postage prepaid,
return receipt requested, to the address, in the case of the Corporation, set
forth at the beginning of this Agreement, and in the case of Lenders, to each
Lender’s addresses on the books of the Corporation, and shall be deemed to have
been given: (a) if delivered in person, when delivered; (b) if delivered by
recognized national overnight delivery service, one Business Day after delivery
to such courier properly addressed; or (c) if by certified U.S. Mail, four
Business Days after depositing in the United States mail, with postage prepaid
and properly addressed. A party may change its notice address by giving the
other party written notice.
7
11.
CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER.
New York
law governs the Loan Documents without regard to principles of conflicts of
law.
The Corporation and each of the Lenders each submit to the exclusive
jurisdiction of the State and Federal courts in the State of New York provided,
however, that if for any reason the Lender can not avail itself of the courts
of
the State of New York, Corporation and Lender each submit to the jurisdiction
of
the State and Federal Courts in New York County, New York.
12.
GENERAL PROVISIONS
12.1
SUCCESSORS AND ASSIGNS. This
Agreement binds and is for the benefit of the successors and permitted assigns
of each party. The Corporation may not assign this Agreement or any rights
under
it without Lender’s prior written consent which may be granted or withheld in
Lender’s discretion. Lender has the right, without the consent of or notice to
the Corporation, to sell, transfer, negotiate, or grant participation in all
or
any part of, or any interest in, Lender’s obligations, rights and benefits under
this Agreement.
12.2
INDEMNIFICATION. The
Corporation will indemnify, defend and hold harmless Lender and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Lender Expenses
incurred, or paid by Lender from, following, or consequential to transactions
between Lender and the Corporation (including reasonable attorneys fees and
expenses), except for losses or Lender Expenses caused by Lender’s gross
negligence or willful misconduct.
12.3
SEVERABILITY OF PROVISION. Each
provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.
12.4
AMENDMENTS IN WRITING, INTEGRATION. All
amendments to this Agreement must be in writing and signed by the Corporation
and Lender. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement
and
the Loan Documents.
12.5
COUNTERPARTS. This
Agreement may be executed in any number of counterparts and by different parties
on separate counterparts, each of which, when executed and delivered, are an
original, and all taken together, constitute one Agreement.
12.6
SURVIVAL. All
covenants, representations and warranties made in this Agreement continue in
full force while any Obligations remain outstanding. The obligations
of
the
Corporation in Section 12.2 to indemnify Lender will survive until all statutes
of limitations for actions that may be brought against Lender have run.
8
12.7
CONFIDENTIALITY. In
handling any confidential information, Lender will exercise the same degree
of
care that it exercises for its own proprietary information, but disclosure
of information may be made (i) to Lender’s subsidiaries or affiliates in
connection with their business with the Corporation, (ii) to prospective
transferees or purchasers of any interest in the loans (provided, however,
Lender shall use commercially reasonable efforts in obtaining such prospective
transferee or purchasers agreement of the terms of this provision), (iii) as
required by law, regulation, subpoena, or other order after notice to the
Corporation and provided that such disclosure is subject to a protective order,
if one is available, (iv) as required in connection with Lender’s examination or
audit and (v) as Lender reasonably considers appropriate exercising remedies
under this Agreement. Confidential information does not include information
that
either: (a) is publicly available or in Lender’s possession when disclosed to
Lender, or becomes part of the public domain after disclosure to Lender; or
(b)
is disclosed to Lender by a third party, unless that third party is permitted
to
disclose the information.
DEFINITIONS
In
this
Agreement:
“ACCOUNTS”
has the
meaning set forth in the Code and includes all existing and later arising
accounts, contract rights, and other obligations owed Corporation in connection
with its sale or lease of goods (including licensing intellectual property
or
software and other technology) or provision of services, all credit insurance,
guaranties, other security and all merchandise returned or reclaimed by the
Corporation and the Corporation’s Books relating to any of the foregoing.
“AFFILIATE”
of a
Person is a Person that owns or controls directly or indirectly the Person,
any
Person that controls or is controlled by or is under common control with the
Person, and each of that Person’s senior executive officers, directors, partners
and, for any Person that is a limited liability company, that Person’s managers
and members.
“LENDER
EXPENSES”
are all
audit fees and expenses and reasonable costs and expenses (including reasonable
attorneys’ fees and expenses) for enforcing the Loan Documents (including
appeals or Insolvency Proceedings); for the avoidance of doubt, attorneys’ fees
and expenses incurred in connection with the preparation and negotiation of
the
Loan Documents shall be deemed not to be Lender Expenses.
“CORPORATION’S
BOOKS”
are all
the Corporation’s books and records including ledgers, records regarding the
Corporation’s assets or liabilities, the Collateral, business operations or
financial condition and all computer programs or discs or any equipment
containing the information.
“BUSINESS
DAY”
is any
day that is not a Saturday, Sunday or a day on which the national banks are
generally closed.
“CLOSING
DATE”
is the
date of this Agreement.
9
“CODE”
is the
Uniform Commercial Code, in effect in the State of New York as in effect from
time to time.
“COLLATERAL”
is
all
of
the Corporation’s assets, whether now owned or existing or hereafter acquired or
arising and wherever located.
“CONTINGENT
OBLIGATION”
is, for
any Person, any direct or indirect liability, contingent or not, of that Person
for (i) any indebtedness, lease, dividend, letter of credit or other obligation
of another such as an obligation directly or indirectly guaranteed, endorsed,
co-made, discounted or sold with recourse by that Person, or for which that
Person is directly or indirectly liable; (ii) any obligations for undrawn
letters of credit for the account of that Person; and (iii) all obligations
from
any interest rate, currency or commodity swap agreement, interest rate cap
or
collar agreement, or other agreement or arrangement designated to protect a
Person against fluctuation in interest rates, currency exchange rates or
commodity prices; but “Contingent
Obligation”
does not
include endorsements in the ordinary course of business. The amount of a
Contingent Obligation is the stated or determined amount of the primary
obligation for which the Contingent Obligation is made or, if not determinable,
the maximum reasonably anticipated liability for it determined by the Person
in
good faith; but the amount may not exceed the maximum of the obligations under
the guarantee or other support arrangement.
“COPYRIGHTS”
are all
copyright rights, applications or registrations and like protections in each
work or authorship or derivative work, whether published or not (whether or
not
it is a trade secret) now or later existing, created, acquired or held.
“CREDIT
EXTENSION”
is each
Advance, the Term Loan, or any other extension of credit by Lender for the
Corporation’s benefit pursuant hereto.
“EQUIPMENT”
has the
meaning set forth in the Code and includes is all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts
and
attachments in which the Corporation has any interest.
“ERISA”
is the
Employment Retirement Income Security Act of 1974, and its regulations.
“EVENT
OF DEFAULT”
has the
meaning set forth in Section 7.
“GAAP”
is
United States generally accepted accounting principles.
“INDEBTEDNESS”
is (a)
indebtedness for borrowed money or the deferred price of property or services,
such as reimbursement and other obligations for surety bonds and letters of
credit, (b) obligations evidenced by notes, bonds, debentures or similar
instruments, (c) capital lease obligations and (d) Contingent Obligations.
“INSOLVENCY
PROCEEDING”
are
proceedings by or against any Person under the United States Bankruptcy Code,
or
any other bankruptcy or insolvency law, including assignments for the benefit
of
creditors, compositions, extensions generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
10
“INVENTORY”
has the
meaning set forth in the Code and includes is present and future inventory
in
which the Corporation has any interest, including merchandise, raw materials,
parts, supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or later owned by or in the custody
or possession, actual or constructive, of the Corporation, including inventory
temporarily out of its custody or possession or in transit and including returns
on any accounts or other Proceeds from the sale or disposition of any of the
foregoing and any documents of title.
“INVESTMENT”
is any
beneficial ownership of (including stock, partnership interest or other
securities) any Person, or any loan, advance or capital contribution to any
Person.
“LIEN”
is a
mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.
“LOAN
DOCUMENTS”
are,
collectively, this Agreement, the Notes, any note, or notes or guaranties
executed by the Corporation, and any other present or future agreement between
the Corporation and/or for the benefit of Lender in connection with this
Agreement, all as amended, extended or restated.
“MATERIAL
ADVERSE CHANGE”
has the
meaning set forth in Section 6.3.
“NOTE”
means
each of the 6% Convertible Notes executed by the Corporation in favor of each
of
the Lenders hereunder, in the form attached hereto as Exhibit A, together with
all renewals, amendments, modifications and substitutions therefor.
“OBLIGATIONS”
are
loans made hereunder, interest, Lender Expenses and other amounts Corporation
owes Lender, including cash management services, letters of credit and foreign
exchange contracts, if any and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of the Corporation
assigned to Lender.
“PATENTS”
are
patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
“PERMITTED
INDEBTEDNESS” is:
(a)
The
Corporation’s indebtedness to Lender under this Agreement or any other Loan
Document;
(b)
Indebtedness existing on the Closing Date and shown on the Schedule 1;
(c)
Subordinated Debt;
(d)
Indebtedness to trade creditors incurred in the ordinary course of business;
and
(e)
Indebtedness secured by Permitted Liens.
11
“PERMITTED
LIENS”
are:
(a) The
security interest granted to the holders of the notes
listed on Schedule 1 attached to this Agreement, issued by the Corporation
to
the holders thereof;
(b) Indebtedness
and liens currently outstanding pursuant to agreements as currently in effect
on
the date of this Agreement;
(c) Indebtedness
and liens pursuant to agreements for financing in which the proceeds shall
be
principally used for acquisitions by the Corporation of other
businesses;
(d)
Capital
leases, financing for equipment and purchase money security
interests;
(e) Liens
for
taxes, fees, assessments or other government charges or levies, either not
delinquent or being contested in good faith and for which the Corporation
maintains adequate reserves on its Books, if they have no priority over any
of
Lender’s security interests;
(f) Liens
incurred in the extension, renewal or refinancing of the indebtedness secured
by
Permitted Liens described above, but any extension, renewal or replacement
Lien
must be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness may not increase.
“PERSON”
is any
individual, sole proprietorship, partnership, limited liability company, joint
venture, company association, trust, unincorporated organization, association,
corporation, institution, public benefit corporation, firm, joint stock company,
estate, entity or government agency.
“PROCEEDS”
has the
meaning described in the Code as in effect from time to time.
“REGISTERED
ORGANIZATION”
means an
organization organized solely under the law of a single state or the United
States and as to which the state or the United States must maintain a public
record showing the organization to have been organized.
“RESPONSIBLE
OFFICER”
is each
of the Chief Executive Officer, the President, and the Chief Financial Officer
of the Corporation.
“SCHEDULE”
is any
attached schedule of exceptions.
“SUBORDINATED
DEBT”
is debt
incurred by the Corporation that is subordinated to the Corporation’s
indebtedness owed to Lender and which is reflected in a written agreement in
a
manner and form acceptable to Lender and approved by Lender in writing.
“SUBSIDIARY”
is for
any Person, or any other business entity of which more than 50% of the voting
stock or other equity interests is owned or controlled, directly or indirectly,
by the Person or one or more Affiliates of the Person.
12
“SUPPORTING
OBLIGATION”
means a
Letter-of-credit right, secondary obligation or obligation of a secondary
obligor or that supports the payment or performance of an account, chattel
paper, a document, a general intangible, an instrument or investment property.
“TOTAL
LIABILITIES”
is on
any day, obligations that should, under GAAP, be classified as liabilities
on
the Corporation’s consolidated balance sheet, including all Indebtedness, and
current portion Subordinated Debt allowed to be paid, but excluding all other
Subordinated Debt.
“TRADEMARKS”
are
trademark and service xxxx rights, registered or not, applications to register
and registrations and like protections, and the entire goodwill of the business
of the Corporation connected with the trademarks.
[Signatures
appear on the following page]
13
IN
WITNESS WHEREOF, the
Parties have executed this Agreement on the date first above
written.
| CORPORATION: | |||
| PET EXPRESS SUPPLY, INC. | |||
| By: | |||
|
Xxxxxxxx
Xxxxxx
Chief
Executive Officer
|
|||
| LENDERS: | |||
| MKM OPPORTUNITY MASTER FUND, LTD. | |||
| By: | |||
|
Name:
Title: |
|||
| ADDITIONAL LENDERS | |||
|
|
|||
| By: | |||
|
Name:
Title: |
|||
|
|
|||
| By: | |||
|
Name:
Title: |
14
Attached
to the LOAN
AND
SECURITY AGREEMENT
dated
July 25, 2008
by
and
among PET EXPRESS SUPPLY, INC.and the other parties thereto
Permitted
Liens
The
security interest granted by Corporation to the holders of each of the following
notes prior to the closing of this Agreement is a Permitted Lien.
Promissory
Note in favor of Xxxxx Xxxxxx, principal amount of $297,504.00. Not
convertible.
Convertible
Promissory Note in favor of CORPORATE
COMMUNICATIONS NETWORK, INC., principal
amount of $75,000.00.
Convertible
Promissory Note in favor of XXXX
XXXX
CAPITAL CORP., principal
amount of $75,000.00.
Convertible
Promissory Note in favor of CORPORATE
COMMUNICATIONS NETWORK, INC., principal
amount of $25,000.00.
Convertible
Promissory Note in favor of XXXX
XXXX
CAPITAL CORP., principal
amount of $25,000.00.
Convertible
Promissory Note in favor of MKM
OPPORTUNITY MASTER FUND, LTD.,
principal
amount of $150,000.00
15
