PetCARE Television Network, Inc. Series A Convertible Debenture and Warrant Financing Term Sheet (March 2005)

Summary

PetCARE Television Network, Inc. is entering into a $250,000 financing agreement with select institutional and accredited investors. The investors will receive Series A Convertible Debentures and warrants to purchase common stock. The debentures have a 24-month term, 15% annual interest, and are convertible into common stock at a set discount. The agreement includes registration rights, price protection, subordination to existing debt, and rights of offer for future financings. Proceeds are for general corporate purposes, and the agreement is governed by Florida law.

EX-10.1 2 v14552_ex10-1.txt [PETCARE TELEVISION NETWORK LOGO] The Veterinarian's Programming Choice to Educate, Entertain and Encourage - -------------------------------------------------------------------------------- CONFIDENTIAL DEFINITIVE TERM SHEET Issuer: PetCARE Television Network, Inc. ("PetCARE TV" and/or "the Company") OTCBB: PTNW Amount: $250,000 (the "Financing") Investor(s): Select Institutional and Accredited Investor(s) (the "Investor(s)") Security: Series A Convertible Debentures (the "Debentures") and Common Stock Purchase Warrants Closing Date: On or before March 16, 2005 (the "Closing") Stated Value: $50,000 per Debenture ("Stated Value" or "Face Value") Term: 24 months ("Maturity Date") Interest: 15% per annum. At the option of the Company, interest shall be payable semi-annually in cash or registered Common Stock at a ten percent (10%) discount to the Market Price; or in kind, but only if the stock price is above ten cents ($0.10) on the five trading days immediately prior to the 20th day preceding the payment date. The Market Price shall be set at the average five-day Volume Weighted Average Closing Price ("VWAP") of the Company's Common Stock for the five (5) trading days prior to the payment date. Conversion Price: The Debentures shall be convertible into Common Stock of the Company at the Conversion Price. The Conversion Price shall be set at twenty-five percent (25%) discount to the five-day VWAP prior to the Closing Date or ten cents ($.10), whichever is greater. Right of Conversion: Conversion of the principal amount of the Debentures and accrued interest will be automatic on the Maturity Date. Conversion may occur prior to the Maturity Date, at the option of the Investor, any time after the Securities and Exchange Commission ("SEC") declares the Company's Registration Statement effective (the "Conversion Date"), but shall be limited so that any Investor shall not own more than 4.99% of Common Stock at any time. Common Stock Purchase Warrants: Series A Warrants: The Investors shall be issued Series A Common Stock Purchase Warrants (the "Series A Warrants") in an amount equal to 100% of the number of Common Shares underlying the Debentures based on the Conversion Price. The Series A Warrants shall have a term of ten (10) years from the effective date and shall have an exercise price equal to one hundred percent (100%) of the Conversion Price. Series B Warrants: The Investors shall be issued Series B Common Stock Purchase Warrants (the "Series B Warrants") in an amount equal to 100% of the number of Common Shares underlying the Debentures based on the Conversion Price. The Series B Warrants shall have a term of five (5) years from the effective date and shall have an exercise price equal to one hundred and twenty-five percent (125%) of the Conversion Price. Series C Warrants: The Investors shall be issued Series C Common Stock Purchase Warrants (the "Series C Warrants") in an amount equal to 50% of the number of Common Shares underlying the Debentures based on the Conversion Price. The Series C Warrants shall have a term of one (1) year from the effective date and shall have an exercise price equal to one hundred percent (100%) of the Conversion Price. Registration: The Company shall file a Registration Statement on Form SB-2 (or an alternative available form if the Company is not eligible to file a Form SB-2) covering the Common Shares underlying the Debentures and the Series A, B, and C Warrant Shares no later than thirty (30) days after the Closing, and will use its best efforts to have the Registration Statement declared effective within ninety (90) days after the Closing. Liquidated Damages: In the event the Registration Statement has not been declared effective within one hundred and twenty (120) days of the Closing, for the thirty (30) day period beginning ninety (90) days after the Closing, the Company shall pay to the Investors liquidated damages equal to two percent (2%) of the amount invested and shall pay to the Investors liquidated damages equal to one percent (1%) of the amount invested for each subsequent 30-day period. If the Registration Statement has not been declared effective within two hundred and seventy (270) days, the Series C Warrants will become cashless. Right of Offer: Subject to the right of first offer held by Pet Edge, LLC, for any equity or equity-linked private financing consummated within 12 months after the Closing, the Investors shall have the right of offer to purchase all or part of the private financing. The Investors shall have ten (10) trading days to respond. A carve out of this provision will be granted to the Issuer for the issuance of stock for situations involving strategic partnerships, acquisition candidates and public offerings. 2 Subordination: This Debenture shall be subordinated and made junior, in all respects to the payment in full of all principal, all interest accrued thereon and all other amounts due on the indebtedness outstanding under the Senior Convertible Promissory Notes issued by the Company on March 10, 2003, May 28, 2003, June 6, 2003 and July 1, 2003 to Pet Edge, LLC ("Pet Edge") in the aggregate principal amount of $1,375,000 (the "Pet Edge Indebtedness"). Until the Pet Edge Indebtedness shall have been paid in full, the Company shall not make, and the Payee shall not receive or retain, any payment in respect of principal on this Debenture prior to the Maturity Date, and any such payment by the Company to Payee shall be turned over by Payee to Pet Edge, regardless of whether the Pet Edge Indebtedness is then due, except that the Company may make interest payments in cash to the Payee and issue equity securities of the Company in accordance with Section 2 below. The Company shall not make any cash payments to the Payee under this Debenture prior to the Maturity Date, other than the interest payments hereunder, nor grant any security for the payment thereof without the prior written consent of Pet Edge. This provision as to subordination is written and is intended for the benefit of Pet Edge. This Debenture shall be senior to all other indebtedness of the Company other than the Pet Edge Indebtedness. Most Favored Nations Exchange: For the twenty-four (24) month period after the Closing, if the Company consummates a private equity or equity-linked financing (the "New Financing"), the Investors may exchange their Debentures at their Stated Value for the securities in the New Financing. Price Protection: The Conversion Price of the Debentures and the Exercise Price of the Common Stock Purchase Warrants shall be subject to adjustment for issuances of Common Stock at a purchase price of less than the Conversion Price or Exercise Price, such that the Conversion Price or Exercise Price shall be adjusted using a full ratchet based price protection based on such new issuances subject to customary carve outs. Change of Control: In the event of a change of control transaction (third party acquiring greater than 50% in voting rights in one or a series of related transactions) the Investors may elect to have the Debentures redeemed by the Company at its Face Value plus all accrued interest. The Company shall satisfy the redemption request in cash or Common Shares at the Company's option. Confidentiality: This term sheet is confidential, and none of its provisions or terms shall be disclosed to anyone who is not a prospective purchaser of the securities contemplated herein, an officer or director of the Company or their agent, adviser or legal counsel, unless required by law. 3 Use of Proceeds: General corporate purposes including growth and capital initiatives. No proceeds shall be used to pay accrued compensation and all accrued compensation shall be converted into stock at the Conversion Price. Executives will be entitled to receive 50% of compensation on a go-forward basis until revenue is greater than $60,000 per month. Governing Law: State of Florida Investment Bank: Midtown Partners & Co, LLC Investment Banking Fee: $2,500 cash and the issuance of 50,000 Common Stock Purchase Warrants. The Warrants shall have a term of five (5) years from the effective date and shall have an exercise price of $0.10. THE PARTIES UNDERSTAND AND AGREE THAT THIS TERM SHEET PROVIDES A GENERAL DESCRIPTION OF THE INTENDED TERMS OF THE OFFERING ONLY AND THAT THE PARTIES RESERVE THE RIGHT TO APPROVE ALL THE TERMS OF THE DOCUMENTS DESCRIBED IN THIS TERM SHEET. Accepted and Agreed to: "ISSUER" PetCARE Television Network, Inc. By: /s/ Philip M. Cohen --------------------------------------- Philip M. Cohen President Date: March 17, 2005 ------------------ "INVESTORS" By: /s/ Shad Stastney --------------------------------------- Shad Stastney Managing Director of Vicis Capital, LLC Date: March 17, 2005 ------------------ 4