1
EXHIBIT 10.2
MODIFICATION OF NOTE AND PLEDGE AGREEMENT
THIS MODIFICATION AGREEMENT ("AGREEMENT") is made this 10th day of
November, 1999, by and among The Sun Valley Trust of July 30, 1999 (the "TRUST")
AND PetQuarters, Inc. and PQ Acquisition, Inc. ("BORROWER").
BACKGROUND:
A. On the 1st day of August, 1999, the Trust made a loan to the
Borrower in the principal sum of Four Million Six Hundred Thousand
($4,600,000.00) Dollars, pursuant to the provisions of a SECURED PROMISSORY NOTE
(the "NOTE") and a COLLATERAL PLEDGE AGREEMENT (the "PLEDGE"), both dated the
1st day of August, 1999. Words herein which are capitalized but are not
specifically defined herein shall have the meanings ascribed to them in the Note
and Pledge.
B. The Borrower has requested that the Trust modify the Note and Pledge
by changing various provisions of the Note and Pledge as further described
below. The Trust is willing to make such modifications but only under the
provisions of this Agreement.
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars and other good
and valuable consideration as set forth herein, the receipt of which is hereby
acknowledged, the Trust hereby modifies the Note and Pledge as requested by the
Borrower under the following terms and conditions:
1. As a condition to and in consideration of the Trust consenting to
the modifications set forth herein, PetQuarters shall pay Two Hundred Four
Thousand Seven Hundred Twenty-three Dollars and Thirty-three ($204,723.33) Cents
to the Trust on November 10, 1999, said amount consisting of all accrued
interest, interest penalties and fees due and owing under the Trust, from August
1, 1999 to and including November 9, 1999.
2. The parties mutually agree that there is due and owing a default
penalty in the amount of Two Hundred Thirty Thousand ($230,000.00) Dollars as of
November 9, 1999. The parties further agree that this amount shall be added to
the principal amount due thereby modifying the principal amount due to Four
Million Eight Hundred Thirty Thousand ($4,830,000.00) Dollars.
2
3. The parties agree that the annual interest rate on the Note shall
be reduced from twelve and one-half (12.5%) percent per annum to ten (10%)
percent per annum beginning November 10, 1999.
4. As a result of the reduction in the interest rate set forth in
paragraph 3 above, the monthly interest payment shall be Forty Thousand Two
Hundred Fifty ($40,250.00) Dollars per month. The Trust hereby agrees that it
will accept from the Borrower a monthly interest payment equal to Twenty
Thousand ($20,000.00) Dollars per month on or before the 10th day of each month
commencing December 10, 1999. The balance of the monthly interest payment due
shall be paid as follows:
A. All unpaid interest shall accrue, but not be added to the
principal balance of the Note; and
B. In the event the Borrower receives capital investment funds
during the "Extension Period" (as hereinafter defined), all interest accrued but
unpaid prior to the date of the receipt of such funds shall be paid from such
capital funds within five (5) days of receipt.
5. On or before December 10, 1999, PetQuarters, Inc. shall have filed
with the Securities and Exchange Commission a Form 10-SB. In the event the
Securities and Exchange Commission provides comments to PetQuarters, the
Borrower acknowledges that it will promptly respond to said comments in order to
facilitate the receipt from the Commission of a "no comment" letter.
6. The Trust agrees that, in the event of a default and sale of the
collateral as set forth in the Pledge to any party other than the Trust, the
proceeds of said sale shall not be less than the principal amount due plus
accrued interest, penalties, costs and attorney's fees.
7. The terms and conditions of the Note shall be amended to reflect
that the principal balance, plus accrued interest, shall be due and payable on
or before May 10, 2000 (the "EXTENSION PERIOD").
8. On or before February 10, 2000, the Borrower shall cause a principal
reduction payment in the amount of One Million ($1,000,000.00) Dollars to be
delivered to the Trust.
9. Paragraph 10 of the Pledge shall be amended to include the
following:
3
"(n) In the event Xxxx Xxxxxxxxxx ceases to be employed by
Humboldt Industries Incorporated ("HUMBOLDT"), other than as a result
of his death, disability or incapacity."
"(o) A default in any of the terms and conditions of this
Modification Agreement."
10. Paragraph 20 of the Pledge shall be amended to add the following:
"Xxxx Xxxxxxxxxx shall, in his sole and absolute discretion,
have the authority to authorize the expenditure of funds directly from
Humboldt and/or Maplewood Industries, Inc. ("MAPLEWOOD") to and for the
benefit of the Borrower as are necessary and prudent. The foregoing
shall not impose any liability on Xxxx Xxxxxxxxxx with respect to any
exercise or failure to exercise his authority to expend funds from
Humboldt and/or Maplewood absent fraud or willful and intentional
misconduct."
In all other respects, paragraph 20 shall remain in full force
and effect.
11. All future notices of default as required in the Note and Pledge
are hereby waived by the Borrower, except that the notice of sale shall include
the date, time and location of said sale and shall be delivered to Borrower in
accordance with the terms of the Note and Pledge not less than five (5) business
days prior to the date of sale.
12. Upon giving reasonable advance notice, the Trust, or its
representative, shall, at any time, be provided access to all of the books and
records of PetQuarters, PQ Acquisition, Maplewood and Humboldt. Any inspection
of the books and records as set forth above shall be conducted in a manner so as
not to interfere with the day-to-day business operations of the companies. All
costs for such examinations shall be borne by the Trust.
13. The Trust hereby waives all defaults, whether known or unknown,
occurring prior to the date hereof with respect to or under the Note and/or the
Pledge, and any other document or instrument related thereto.
14. The Borrowers shall supply the necessary opinions of counsel and
corporate resolutions to effect this transaction.
4
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
on the day and year first above written.
ATTEST: THE SUN VALLEY TRUST OF JULY 30,1999
By: /s/ X. Xxx Xxxxxxxx
----------------------------- ---------------------------------------
Title: Trustee
------------------------------------
ATTEST: PETQUARTERS, INC.
/s/ Xxxxx Xxxxxxx By: /s/ Xxxxx Xxxxxxx
----------------------------- ---------------------------------------
Title: President
------------------------------------
ATTEST: PQACQUISITION COMPANY, INC.
/s/ Xxxxx Xxxxxxx By: /s/ Xxxxx Xxxxxxx
----------------------------- ---------------------------------------
Title: President
-----------------------------------
