Exhibit 10.3
PARTICIPATION AGREEMENT
THIS AGREEMENT is made and entered into as of this 15th day of August,
2003, by and between Pacific Charter Financial Services Corporation, a Nevada
corporation ("Manager"), and Millenium Holding Group, Inc., 00 Xxxx Xxx Xxxxx,
Xxxxxxxxx, Xxxxxx 00000, a Nevada corporation ("Participant").
A. Manager intends to organize the Pargro Performance(TM) Fund ("Fund") for
the purpose of conducting a private placement ("Offering") on a best effort
basis of up to $25 million of its securities and then applying the net
proceeds towards the purchase of revenue participation certificates from
five (5) participating private or public companies.
B. Participant is in need of funds to grow its business and desires to sell
a revenue participation certificate to the Fund in the amount and under the
terms and conditions as set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the above parties agree as
follows.
Section 1
RESERVATION AND DUE DILIGENCE
1. Participant desires to sell and the Fund desires to purchase a Revenue
Participation Certificate, as defined in Schedule 1, in the gross amount of Five
Million Dollars (U.S.) ($5,000,000). After deduction of marketing and management
costs Participant to receive approximately Four Million Dollars (U.S.)
($4,000,000).
a. With signature to this Agreement, Participant shall wire transfer Fifty
Thousand ($50,000) (U.S.), as a Reservation Fee, made payable to Pacific
Charter Financial Services Corporation, which reserves the above amount of
proceeds in the Offering.
2. Due Diligence. Participant agrees to provide Manager the documentation and
information requested for its due diligence, as well as any additional
requirements to produce the Offering documents on a timely basis, defined as
within five (5) working days from date of request (See Due Diligence
Questionnaire).
1 ________
Initial
Section II
REVENUE PARTICIPATION AND OTHER OBLIGATIONS
1. Participant hereby agrees to pay a Royalty Interest payment of Eight Million
Seven Hundred Fifty Thousand Dollars ($8,750,000) (U.S.), as defined in Schedule
1, representing One Hundred and Seventy-five Percent (175%) of Five Million
Dollars ($5,000,000), in accordance to the purchased Revenue Participation
Certificate, as defined in Schedule 1, which shall be adjusted according to
actual disbursement from the Fund. The Royalty Interest payment is based upon
the following schedule in United States currency:
a. Payment to begin the third quarter from receipt of funds, pro rata to
the funds received. b. The projected Royalty Revenue Interest below is
based upon the Participant's projected Gross Revenue:
Year 1 Year 2 Year 3 Year 4 Accum
------ ------ ------ ------ -----
1st quarter $ 662,500 $ 662,500 $ 662,500
2nd quarter 662,500 662,500 662,500
3rd quarter $400,000 662,500 662,500 662,500
4th quarter 400,000 662,500 662,500 662,500
Total $800,000 $2,650,000 $2,650,000 $2,650,000 $8,750,000
2. Should shortfall exist in the payment of the Royalty Revenue Interest
required to pay the obligation stated herein, Participant agrees to adjust
payments to the Fund to meet the accumulated payments within the term of four
years.
3. Upon completion of the payments in a and b above, Participant's obligations
shall be considered paid in full.
4. Late Fees:
a. Payments shall be made within ten days of each quarter. A Late charge of
Five (5%) Percent shall be added to the quarterly payment that is paid
after the tenth (10th) day.
5. Default:
a. Should Participant default on payment of the Royalty Revenue Interest,
as agreed to herein, Manager may attach or sell collateral and security
without notice.
2 ________
Initial
Section III
COLLATERAL AND SECURITIZATION
Participant shall agree to provide collateral to secure the Royalty Revenue
Interest as shown below. Requested Documentation to be delivered within Ten (10)
days from signature to the Collateral Securitization Agreement .
1. The collateral shall be $15 million or three times the proceeds received from
the fund.
a. Preferred Shared: Based upon Participant's current market price of $2.25
per share, the collateral for this transaction shall be One Million
(1,000,000 ) Preferred shares Authorized, there being only one class of
Preferred stock. Each Preferred share shall be convertible to Seven and
one-half (7.5) shares of common stock.
(i) The Preferred shares shall be convertible at the option of the
holder upon default.
(ii) The Fund shall be placed in the First preferential position ahead
of any and all debt and maintained in such position until paid in
full.
(iii)Participant hereby agrees to maintain the level of collateral of
three (3) times the proceeds received, which shall be revised
annually from the date funds are received.
Section IV
DISBURSEMENTS, ORDINARY AND EXTRAORDINARY
Manager in order to properly conduct its fiduciary responsibilities to
Participant and Fund investors has established the following:
1. Participant shall augment its business plan and budget disbursement plan on a
schedule with the funds requested herein, as accepted by Manager. When funds are
disbursed Manager will use its best efforts to meet the schedule of Ordinary
Expenditures.
a. Should an Extraordinary Expenditure occur, Participant may apprise
Manager with 30 days notice and appropriate backup documentation.
Extraordinary expenditures will be processed in accordance to fund
availability.
2. Participant shall be required to provide financial statements, receivable and
payable aging, detailed sales and marketing reports, as follows:
a. Private Companies: Participant shall provide Monthly "unaudited"
financial statements (by the 10th of each Month from signature hereto), and
Quarterly and Annual "audited financial statements (within 30 days of each
Quarter).
b. Public Companies: If publicly traded and reporting, Participant shall
provide Monthly "unaudited" financial statements (by the 10th of each Month
from signature hereto), and audited annual financial statements within 90
days of fiscal year end. Further, Participant to deliver to Manager copies
of any and all audits prepared by its own auditors, or any and all
regulatory authorities reported to in the course of its business, within
the time frame specified thereby.
3 ________
Initial
i. If the Public Company is non-reporting with regard to regulatory
authorities, Participant, in addition to providing Monthly
"unaudited" financial statements (by the 10th of each Month from
signature hereto), agrees to provide Quarterly and Annual
"audited financial statements (within 30 days of each Quarter or
time agreed upon with Manager) .
c. Detailed sales and marketing results, and receivable and payable aging,
will be required to be received no later than the 10th of month.
d. In the event Participant is late in payment (defined as two consecutive
quarters) or reporting (defined as 30 days late), Manager may request
Participant provide daily or weekly reports of receivables and other
financial information together with sales and marketing activity.
e. Manager shall have the right to audit with reasonable notice to
Participant, at Manager's cost.
Section V
DUTIES AND RESPONSIBILITIES
1. Manager.
Pre Funding.
a. Complete the due diligence of Participant and information required for
Private Placement.
b. Prepare documentation, including but not limited to the Private
Placement Offering, Collateral Securitization Agreement and Disbursement
Agreement with each Participant.
c. Obtain a Selling Agreement with one or more NASD Broker Dealers.
d. Set up presentations, as needed, to NASD broker dealers and market
makers.
e. Establish accounting and audit overview of Participants not inconsistent
with the rules and regulations of the Securities and Exchange Commission
and other regulatory agencies.
Post Funding
a. As Manager of Funds to receive and disburse proceeds of the Offering
according to Participant's budget disbursement plan agreed upon.
(i) Establish with Participant its disbursements, in accordance with
budget, and
(ii) Adjustments made in accordance to actual disbursement by Fund.
b. Establish with Participant and audit its payback according to this
Agreement, adjusted to actual proceeds of the Offering received.
c. Act as Paymaster to fund Investors.
d. Monthly newsletter to Participants and Royalty Interest Holders.
4 ________
Initial
2. Participant.
Pre Funding.
a. Provide information and documentation for due diligence, as noted in the
Due Diligence Questionnaire, provided separately, and such additional
information that may be requested for preparation of Offering, including
projections, and current Financial Statements.
b. Provide 3-5 year business plan adjusted for Fund proceeds and
Participating Participation Certificate.
c. Review current accounting procedures. Establish changes required by
Manager and Participant's own auditor for internal accounting procedures
not inconsistent with the rules and regulations of the Securities and
Exchange Commission and other regulatory agencies.
d. Review banking signatures to have two signatories.
e. Participate with Fund in presentation, as needed, to NASD broker(s) and
market makers.
Post Funding.
a. Begin immediately implementation of business plan.
b. Begin execution of next phase funding requirements, if required.
c. Provide Fund reporting as required
d. Pay Royalty Revenue Interest to payback funds as agreed upon herein.
e. Provide financial statements (see Section IV2(a)(b)(c)(d)(e).
Section VI
General
1. Right of Rejection. Manager shall have the right to reject any company
seeking participation in the offering at its sole discretion.
2. This Agreement is deemed in full force and effect when countersigned by
Manager and payment for the reserved units accepted. Once accepted, the
Reservation Fee is non refundable.
3. Insurance. Participant shall obtain and maintain, at its own costs, from a
Best rated insurance company, such standard industry insurance required in the
operation of its business. Participant agrees to obtain Key Man insurance within
6 months and upon becoming a public corporation obtain and maintain Directors'
Errors and Omission insurance.
4. Proprietary Information. The Parties to this Agreement agree that any
proprietary information, whether patented, copyrighted or not, in existence now
or developed during the course of this relationship shall remain proprietary and
not disclosed to third parties without the other parties express approval. All
matter of published information and the information provided for the Private
Placement Offering shall not be deemed proprietary.
5 ________
Initial
5. Change of Control. Any management and/or majority shareholder change of
control of Participating Company must be with the written approval of Manager,
which shall not be unreasonably withheld. Said approval shall be required until
full satisfaction of repayment as stated herein.
6 Actions and Termination by Manager and Fund.
a. Pre Offering. After consummation of this Agreement, in the event
Participant is deficient in providing information or documentation for due
diligence, or required for the Offering (defined as 10 days from the date
of each request), Manager shall notice Participant in writing of five (5)
additional days to provide each request or be removed from the Offering.
Upon later receipt of information or cure by Manager, at its sole
discretion, Participant may be placed into a subsequent Offering.
(i) In the event Manager obtains information that Participant has
misled, made falsehoods or omitted facts that if provided Manager
would not have accepted Company, Manager has the right to terminate
and remove Participant from said Offering. Notice of such deficiency,
falsehood or omission of fact shall be in writing. If the Participant
is unable to provide satisfactory documentation to comply or cure
within five (5) business days, Manager shall remove Participant from
the Offering, and terminate this Agreement, in which case no refund
will be made of Reservation fee or Printing cost paid.
(b) Post Funding. The Fund will take the following action(s):
(i) In the event that a Royalty Revenue Interest payment cannot be
paid Participant shall notice Manager of its plan to pay said payment
and interest. A Late charge penalty of Five (5%) Percent shall be
included in the payment, if the Royalty Interest payment is not
received within Ten days of the due date. An additional Two Percent
(2%) shall be charged for each 10 day penalty thereafter or as agreed
to.
(ii) Should Manager obtain information that Participant has misled,
made falsehoods or omitted facts that if provided to the Manager, the
Company would not have been accepted, and if partial or full funding
has been made, payback of proceeds will be immediately required. If
payback is not made within 30 days, the collateral securing the
Revenue Participation Certificate shall be forfeited.
(iii) In the event Participant is unable or refuses to cure or pay the
Royalty Revenue Payments, then Manager shall take appropriate legal
action with regard to protecting its Royalty Interest Holders as
stated herein and in the Securitization Agreement.
(iv) In the event of the establishment of misappropriation, conversion
or falsified records by Participant, Manager shall take action without
notice.
7. Books and Records. Participant agrees to maintain complete and accurate books
and records for their own account and those of its stockholders.
a. Participant agrees to provide to Manager audited financial statements as
required herein.
b. Manager shall have the right of audit at its own costs with reasonable
notice.
6 ________
Initial
8. Assignability: Neither Party may transfer or assign any of its rights or
obligations under this Agreement without the written consent of the other, which
consent shall not be unreasonably withheld.
9. Notices. All notices or other communications required or desired to be sent
to either party shall be in writing and sent by registered or certified mail,
postage prepaid, return receipt requested, or by telex or telegram, charges
prepaid to the following addresses:
If to the Fund:
Address 30025 Xxxxxx Parkway, PMB 000
Xxxx/Xxxxx/Xxx Xxxx Xxxxxx Xxxxxx, XX, X.X., 00000
Tel. 000-000-0000
Fax. 000-000-0000
Attn: Xxxxx Xxxxxx Painter, President
If to Participant:
Address 11 Knob Oak Drive
City/State/Zip Code Xxxxxxxxx, Xxxxxx 00000
Tel. 000 000-0000 Fax. 000 000-0000
Attn: Xxxxxxx Xxx, President
Either party may change its address and/or the address of its attorney by
notice in writing to the other party.
10. Applicable Law and Dispute Resolution.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California. In the event that it becomes necessary to
enforce or interpret the terms of this Agreement, the parties agree to resolve
such a dispute by arbitration in accordance with the rules of the American
Arbitration Association, County of Orange, State of California, United States of
America.
11. Further Documents.
Each party hereto agrees to promptly execute any and all further documents
and to undertake such further acts as may be necessary or appropriate to
effectuate the terms of this Agreement and agrees that it will cooperate with
the other party to effectuate the intention of this Agreement.
12. Counterparts/Facsimile.
This Agreement may be executed in counterparts and all parties shall deem
each such Counterpart the equivalent of any original thereof upon the execution
of this Agreement. Facsimile signatures shall be considered as original.
7 ________
Initial
13. Binding Effect.
This Agreement is and shall be binding upon the parties, their successors
and assigns. The undersigned warrant that they are authorized to execute this
Agreement on behalf of their respective parties.
14. Severability.
In the event that any term or provision of this Agreement shall for any
reason be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other term or
provision and this Agreement shall be interpreted and construed as if such term
or provision, to the extent the same shall have been held to be invalid,
illegal, or unenforceable, had never been contained herein.
15. Integration
This Agreement represents the entire understanding between the parties
hereto with respect to the subject matter hereof and this Agreement supersedes
all previous representations, understandings, or agreements, oral or written,
between the parties with respect to the subject matter hereof and may not be
amended except in writing.
IN WITNESS WHEREOF, the parties hereto enter into this agreement as of the
date and year first written above.
"Participant"
Millenium Holding Group, Inc.
By:___________________________________ Dated:____________
Xxxxxxx Xxx, President
Signature below by an authorized officer of Manager, together with the
appropriate Reservation Fee being paid, indicate the Units stated herein are
deemed reserved.
Pacific Charter Financial Services Pargro Performance TM Fund
Corporation (In formation)
By:______________________________________ By:_____________________________
Xxxx Xxxxxxx, Chairman & CEO Xxxxx Xxxxxx Xxxxxxx, President
of Pacific Charter Financial
Services Corporation, as Manager
8
SCHEDULE 1
Definitions
REVENUE PARTICIPATION CERTIFICATE A debt instrument requiring the repayment of
principal and interest.
ROYALTY INTEREST That portion of a Revenue Participation Certificate designated
as the interest payment.
SCHEDULE 2
COLLATERAL AND SECURITIZATION
(See Section III)
Participant shall agree to provide the following as collateral to secure
the Royalty Revenue Interest as shown below. Documentation to be delivered
within Ten (10) days from signature to the Collateral Securitization Agreement.
2. The collateral shall be $15 million or three times the proceeds received
from the Fund.
a. Preferred Shared: Based upon Participant's current market price of
$2.25 per share, the collateral for this transaction shall be One
Million (1,000,000 ) Preferred shares Authorized, there being only one
class of Preferred stock. Each Preferred share shall be convertible to
Seven and one-half (7.5) shares of common stock.
(i) The Preferred shares shall be convertible at the option of
the holder upon default.
(iii)The Fund shall be placed in the First preferential position
ahead of any and all debt and maintained in such position
until paid in full.
(iii)Participant hereby agrees to maintain the level of
collateral of three (3) times the proceeds received, which
shall be revised annually from the date funds are received..