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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
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GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
PETQUARTERS, INC.
(Name of Small Business Issuer in its charter)
ARKANSAS 62-169-8524
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
720 EAST FRONT STREET, LONOKE, ARKANSAS 72086
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 501-676-9222
Securities to be Registered Pursuant to Section 12(b) of the Act:
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Name of Each Exchange on
Title of Each Class Which Registered
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NONE NONE
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Securities to be Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK ($.001 PAR VALUE)
(Title of Class)
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TABLE OF CONTENTS
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PART I............................................................................................................1
Item 1. Description of Business......................................................................1
Item 2. Management's Discussion and Analysis Or Plan of Operations...................................9
Item 3. Description of Properties...................................................................15
Item 4. Security Ownership of Certain Beneficial Owners and Management..............................16
Item 5. Directors, Executive Officers, Promoters and Control Persons................................17
Item 6. Executive Compensation......................................................................19
Item 7. Certain Relationships and Related Transactions..............................................20
Item 8. Description of Securities...................................................................20
PART II..........................................................................................................21
Item 1. Market Price and Dividends on the Registrant's Common Equity and
Other Shareholder Matters...................................................................21
Item 2. Legal Proceedings...........................................................................22
Item 3. Changes in and Disagreements with Accountants...............................................22
Item 4. Recent Sales of Unregistered Securities.....................................................22
Item 5. Indemnification of Directors and Officers...................................................23
PART F/S.........................................................................................................24
Financial Statements.....................................................................................24
PART III.........................................................................................................24
Item 1. Index to Exhibits and Description of Exhibits...............................................24
Signature Page...........................................................................................25
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) BUSINESS DEVELOPMENT
PETQUARTERS, INC. ("PetQuarters" or the "Company") was incorporated on
May 22, 1997, under the laws of the State of Arkansas. The Company's principal
business is to sell pet supplies through the Internet. The Company offers over
7,500 items or Stock Keeping Units (SKU's) for pets through its web site, which
is located at www.petquarters.com. The Company has three subsidiaries: PQ
Acquisition Company, Inc. ("Acquisition"), Humboldt Industries Incorporated
("Humboldt") and Maplewood Industries, Inc. ("Maplewood") (collectively,
Humboldt and Maplewood shall be referred. to herein as "Humboldt Industries").
Acquisition is an Arkansas corporation organized in 1999, for the sole
purpose of acting as an intermediate corporation to acquire Humboldt Industries.
Acquisition currently owns all of the issued and outstanding shares of stock of
Humboldt Industries.
As of August 1, 1999, the Company acquired Humboldt Industries for cash
($4.6 million) and stock of PetQuarters valued at $4.6 million. Humboldt
Industries is a fulfillment company (i.e., a company which fulfills the orders
and ships the products purchased on the Company's website and the subsidiaries
catalogues). Humboldt circulates two mail order pet catalogues: Home Pet Shop
and Dog's Outfitter, to its retail and wholesale customers both domestically and
internationally. Maplewood circulates the Maplewood Crafts catalog and the
Plastic Canvas catalog and distributes a wide variety of craft kits and craft
supplies, primarily focusing on the consumer marketplace. Maplewood shares the
Humboldt infrastructure, resources and associated costs.
In May of 1999, the Company reached an agreement to acquire
Chartendure, Ltd., of the United Kingdom, for stock of PetQuarters. Chartendure
provides information regarding pet care, feeding and health issues for pet
owners. This information is supplied by veterinary organizations and other
industry professionals and will be incorporated into the PetQuarters' website.
This will become a value-added feature of the website and will be available,
free of charge, to persons accessing the Company's website.
PetQuarters borrowed $4,600,000 from The Sun Valley Trust on July 30,
1999 (the "Trust"), to acquire Humboldt Industries. As an incentive for the
Trust to make the loan, PetQuarters issued 153,334 shares to the Trust that were
distributed by the Trust to its beneficiaries. The loan is secured by all of the
outstanding shares of stock of Humboldt and Maplewood. The original note was
payable in full on October 1, 1999. On November 10, 1999, PetQuarters paid all
interest to date and executed an extension of the payment terms and a lower
interest rate, and issued the Trust's beneficiaries an additional 275,000 shares
of PetQuarters stock. A 5% penalty of $230,000 was added to the outstanding
principal amount of the note,
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resulting in the current outstanding principal balance of $4,830,000. The rate
of interest on the note was lowered from 12.5% to 10% and one-half of the earned
interest is payable monthly. The remaining one-half of the earned interest
accumulates interest free until such time as PetQuarters has available cash to
make the payment. A partial principal payment of $1,000,000 is due February 10,
1999. The remaining principal balance plus accrued interest are due in full on
May 10, 1999.
(b) BUSINESS OF THE ISSUER
DOMESTIC PET PRODUCTS AND SERVICES INDUSTRY.
LARGE AND GROWING INDUSTRY. According to industry sources, Americans
spent approximately $23 billion on their pets in 1998, more than they did on
toys ($20.6 billion), on recorded music ($13.2 billion), and on books sold
through general retailers ($12 billion). Pets remain an integral part of family
life in the United States with 58 million, or 59%, of 98 million U.S. households
owning one or more pets. By 2001, the pet products and services industry is
expected to grow to $28.5 billion.
ESTIMATED U.S. MARKET FOR PET FOOD, SERVICE, AND NON-FOOD PRODUCTS
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MARKET SEGMENT
(BILLIONS) % OF TOTAL MARKET
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Premium Food $6 25%
Other Food 7 30
Total Food 13 55
Services 6 25
Non-Food Products 5 20
TOTAL $23 100%
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Source: Deutsche Banc Alex. Brown and Company estimates.
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PET OWNERSHIP BREAKOUT. The popularity of dogs and cats as pets in
America is unrivaled and continues to be the primary driver of the pet products
and services industry.
PET OWNERSHIP IN THE UNITED STATES
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TOTAL # OF U.S.
TOTAL # OF PETS % OF TOTAL HOUSEHOLDS % OF TOTAL
(MILLIONS) PETS (MILLIONS) HOUSEHOLDS
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Cats 59 30 32 33%
Dogs 53 27 36 37
Fish 56 28 6 6
Birds 14 7 5 5
Rabbits & Ferrets 6 3 2 2
Rodents 5 3 2 2
Reptiles 4 2 1 1
TOTAL 197 100%
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Source: American Veterinary Medical Association
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Although the number of cats (59 million) surpasses the number of dogs
(53 million), four million more U.S. households own dogs than cats. According to
the Pet Industry Joint Advisory Council, virtually all dog owners purchase their
pets 1-5 packages of treats per month, 66% give their pets gifts, more than 50%
give their pets Christmas presents, and 25% give their pets birthday presents.
FAVORABLE DEMOGRAPHIC TRENDS. Demographic trends suggest that the
recession-resistant pet products and services industry will continue to grow for
years to come.
o Continued Family Formation. Most pets are owned by families with
children between the ages of 5 and 15. Families with children under 18 years old
are projected to grow at a steady pace over the next several years.
o Pet Ownership Increasingly Linked to Affluence. Furthermore, the
income distribution among pet-owning households is increasingly skewed towards
higher income brackets that can afford to spend more on pet products. According
to the American Veterinarian Medical Association, 64.6% of households with
incomes of $60,000 or more own a pet.
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HOUSEHOLD INCOME HOUSEHOLDS OWNING A PET
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Less than $12,500 47.80%
$12,500 to $24,999 55.6
$25,000 to $39,000 60.7
$40,000 to $59,999 64.8
$60,000 or more 64.6
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Source: The American Veterinarian Medical Association
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INCREASED CONSUMER SPENDING ON PETS. The $13 billion pet food segment
of the pet products and services industry breaks down into non-premium
supermarket brands and premium brands. Historically, the segment has been
dominated by supermarket brands such as Alpo, Kal Kan and Purina, which
represent roughly 55% of all pet food supplies and are primarily sold through
grocery stores, convenience stores, and other mass merchant outlets. These
brands grow at a low single-digit annual rate, carry lower gross margins, and
are generally considered less nutritious than premium brands.
Through the 1980s, the supermarket brands had relatively little retail
competition. Over the past five years, however, supermarket brands have lost
market share. Premium brands such as Iams, Nutro, and Science Diet, which are
generally not available through supermarkets or mass merchants due to
manufacturers' restrictions, have increased in popularity as consumers have come
to understand the importance of diet in ensuring their pets' health. These
premium brands are sold primarily through superstores, specialty pet stores,
veterinarians, and farm and feed stores, due to manufacturers' insistence on
ensuring proper retail servicing and stable margins. Premium brand sales have
increased at a compound annual growth rate of approximately 18% over the past
five years and now account for an estimated 25% of the total pet food segment.
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The Company believes that premium purchases have increased due to the
demographics trends previously discussed, growing concern for animal welfare and
nutrition, recommendations by veterinarians and breeders, and the increasing
availability and variety of premium pet food products. The Company believes that
as consumers focus on pet health and care, they tend to purchase more and higher
quality pet products and services. This trend has had a positive effect on the
$5 billion non-food pet products segment and the $6 billion pet services
segment. The Company is not currently offering pet food products directly, but
is in discussion with third parties regarding fulfillment of pet food orders to
Company customers.
Typically, pet products are purchased on impulse during a customer's
regular visit to purchase pet food, cat litter, or flea control products. Demand
for non-bulk products is less price sensitive than for pet food and other bulk
products. Consequently, non-bulk, non-food pet products are less frequently
discounted, resulting in higher gross margins. For this reason, the pet supply
industry has attracted strong interest from supermarkets, although due to space
constraints, supermarkets tend to carry a limited assortment of basic items such
as collars, dog chews, leashes, flea collars, and toys. Pet supply stores carry
a wider variety of these basic items and an assortment of other products such as
grooming products, pet carriers, cat furniture, doghouses, vitamins, treats, and
veterinary products.
The pet services segment includes veterinary, boarding, grooming and
training services. Approximately 92% of all households with dogs and 78% of all
households with cats seek veterinary care at least once a year, and veterinary
expenditures in the United States have grown at a 9.5% compounded annual growth
rate since 1991. Although pet services vendors generally enjoy high margins,
execution and liability concerns generally restrict the ranks of such vendors to
larger and more experienced specialty retailers.
INTERNET AND RETAIL E-COMMERCE TRENDS.
SURGING INTERNET USAGE. International Data Corporation ("IDC")
estimates that there were 97 million Web users worldwide at the end of 1998 and
anticipates this number will grow to approximately 320 million users by the end
of 2002. In addition to the increase in the number of users, both the frequency
of use and the amount of time spent online have also grown significantly. In
1998, nearly 60% of all online households accessed their online service at least
once a day, increasing from only 35% the previous year. Industry observers
believe that this trend will continue in the future as more people use the
Internet as a source of information and news and as a convenient "virtual"
marketplace in which to conduct a wide variety of retail purchases.
The rapidly increasing popularity of Internet usage among a broad range
of age groups and demographic profiles is self-evident. From online news
services and government databases to online bookstores and brokerage firms, the
Internet is now a permanent fixture in the economic and social landscape of the
United States. Although the PC is expected to remain the core means of Internet
access, Intelliquest predicts that by 2000 alternative means of Internet access
will be the driving force of growth. Currently, an estimated 3.7 million people
use a handheld computer to go online, while 3.1 million access the Internet via
a TV-set-top box or WebTV.
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RETAIL E-COMMERCE. According to a study released by the University of
Texas Center for Research in Electronic Commerce on June 10, 1999, the Internet
economy in 1998 generated revenues of $301.4 billion in the United States. The
study, commissioned by Cisco Systems, estimates that of the overall figure,
approximately one third, or $101 billion, can be attributed to e-commerce, with
much of the balance attributed to infrastructure and applications. Between 1995
and 1998, the Internet economy grew by 174.5%, compared with a worldwide
economic growth rate of 3.8% during the same period. Finally, the study shows
that a large part of Internet growth can be attributed to the transfer of
existing economic activity to the Internet rather than the creation of totally
new Internet activities.
Although estimates vary, the Yankee Group projects the U.S. consumer
segment of e-commerce to grow to $10 billion by 2000 while IDC forecasts $26.8
billion -- there is a consensus that the Internet e-commerce channel will be a
substantial component of both consumer-to-business and business-to-business
transactions in the future. According to Forrester Research, the total value of
goods and services purchased over the Internet is expected to increase to $1.3
trillion in 2003.
The Company believes that growth in Internet usage and e-commerce is
being fueled by a number of factors including:
o A large and growing installed base of personal computers in the
workplace and home;
o Advances in the performance and speed of personal computers and modems;
o Improvements in network security, infrastructure and bandwidth
(including the development of high-speed connectivity options for
Internet users);
o Easier and cheaper access to the Internet; and
o The rapidly expanding availability of online content and commerce
sites.
An April 1999 study by Greenfield Online found that 39% of U.S.
Internet users spend less time shopping in offline stores and malls than on the
Internet. This finding is significant because Americans with Internet access
account for 60% of the total consumer buying power in the United States. An
April 1999 study by ActivMedia that showed the online premium specialty goods
market is flourishing, with the majority of premium specialty goods sites
already operating at a profit. The study found that the revenue generated by
sites specializing in items such as gourmet food, personal care and branded
consumer products is rising steadily. Sales in 1999 are expected to increase
tenfold over 1998, while sales in 2000 are expected to be four times greater
than in 1999.
The unique characteristics of the Internet provide a number of
advantages for online retailers. Online retailers are able to "display" a larger
number of products than traditional store-based or catalog retailers at a lower
cost. In addition, online retailers are able to frequently adjust their featured
selections, editorial content, shopping interfaces and pricing, providing
significant
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merchandising flexibility. The minimal cost to publish on the Internet, the
ability to reach and serve a large and global group of customers electronically
from a central location, and the potential for personalized low-cost customer
interaction provide additional economic benefits for online retailers. Unlike
traditional retail channels, online retailers do not have the burdensome costs
of managing and maintaining a retail store infrastructure or the significant
printing and mailing costs of catalogs. Online retailers can also easily obtain
demographic and behavioral data about customers, increasing opportunities for
direct marketing and personalized services.
BUSINESS STRATEGY.
PetQuarters' primary objective is to provide the consumer with an
efficient, low-cost, and value-added shopping experience. Key elements of the
Company's business strategy include the following:
The Company believes that consumers want both the convenience of online
shopping and at least the same breadth of products that they can find at
traditional retail outlets. The Company also believes that in-house fulfillment
is required to control not only costs, but also the customer's shopping
experience. The Company's business model is to build a fully integrated content
and commerce site with in-house product sourcing and fulfillment with
incomparable customer care. Uniquely, it is a model in which authoritative
content drives the commerce and builds the brand.
The rationale for this business model is:
o Content will drive commerce
o Content will attract advertising revenues
o Content will create "stickiness" and encourage more page views
o Content will build the brand and customer loyalty
The Company's recent acquisition of Humboldt Industries addresses the
need for a scalable in-house fulfillment solution. As a leader in the mail-order
pet product catalog business, currently distributing its two pet catalogs - Home
Pet Shop and the Dog's Outfitter - to retail and wholesale customers throughout
the United States and internationally, management believes that the fulfillment
and customer service platform provided by Humboldt will create tremendous
synergies that can be quickly translated to the Internet operation. The Company
believes that it is acquiring substantial direct marketing expertise through
this acquisition and intends to use Humboldt's catalog mailings as soon as
possible to expand awareness of PetQuarters.com. PetQuarters' senior management
team has over 100 years experience in the pet and animal healthcare industry
with expertise in retailing, services, product sourcing, fulfillment and
customer care, marketing and content development.
PetQuarters has global vision and appreciates the international
opportunity and with the experience Humboldt has in this area over the past five
years, has planned from the outset a global rollout to take advantage of selling
into these international markets over the Internet. The
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Chartendure acquisition and associated relationships within the pet industry
internationally will assist the Company as it pursues development of an
international brand on the Internet.
Additionally, the Humboldt acquisition immediately brings the Company a
significant wholesale base of revenue that is currently not being pursued by the
competition. It is the Company's intention to address the wholesale opportunity
by developing a robust website for the wholesale customer to make purchases as
well as to access industry information and content of interest to them as
participants within the pet industry. The grooming industry constitutes a
significant portion of the wholesale revenues and as such, the Company views
this as a significant opportunity to extend the PetQuarters brand through an
off-line affiliate program by offering an incentive based program compensating
the groomer for purchases made at the PetQuarters.com website based on their
referrals.
The business-to-business (wholesale) sales may be characterized as
those pet professionals, including for example proprietors of pet hotel and
boarding facilities, managers and staff of animal shelters and humane societies,
veterinarians, groomers, breeders, show exhibitors, as well as those pet owners
with multiple animals, whose purchase requirements qualify them for wholesale
rates.
Quite simply, the veterinarian is the ultimate arbiter and authority of
pet healthcare and welfare and therefore, an important aspect of the
business-to-business opportunity that the Company intends to pursue. The
profession is to animals, particularly companion animals, what the medical
profession is to human healthcare, yet more so. Its professional associations,
the American Veterinary Medical Association, American Animal Hospital
Association in the US, and its equivalents in other countries, are the bodies
through which the veterinarians are themselves governed and the conduit for
governmental and public policy relating to the treatment and welfare of animals.
Approximately 92% of all households with dogs and 78% of all households with
cats seek veterinary care at least once a year, and veterinary expenditures in
the United States have grown at a 9.5% compounded annual growth rate since 1991.
Accordingly, the veterinarian is the most highly respected point of
recommendation for pet owners, and PetQuarters' goal is to secure the imprimatur
of the veterinary community.
There are approximately 24,000 small animal veterinary practices in the
US. Working in partnership with the professional associations, PetQuarters seeks
to provide veterinarians with a trustworthy and credible additional client
information point, which, because fellow professionals have written it,
veterinarians will feel comfortable promoting to their own clients.
Likewise, other pet professionals such as breeders and groomers, are
important points of recommendation for pet owners and are being targeted by
PetQuarters. The Kennel Clubs are the authorities for the regulation of breeding
and breeders and the registrars of all pedigree dogs (the Cat Fancies similarly
control the breeding and registration of pedigree cats). It is difficult to
overstate the potential of these organizations. The United Kennel Club in the US
registers approximately 240,000 dogs each year and the American Kennel Club
registers approximately one million. The opportunity to promote PetQuarters
through strategic alliances with the Kennel Clubs before and after registration
of these pedigree puppies and kittens, taps a vast potential
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market of new pet owners who are actively seeking advice on the care and welfare
of their companion animal. Through the support of the Kennel Clubs, PetQuarters
seeks the active support of individual breeders, who are viewed as important
sources of knowledge and advice for the new and repeat pet owner.
Groomers handle many pets each day and in the course of grooming the
animal and handling it at close quarters, frequently notice health issues that
they communicate to the pet owner. Again, the groomer is a respected authority
on healthcare for the pet owner.
There are few published figures for this segment, though it is known
that more than 75% of US veterinary practices are computerized and an estimated
50% of practitioners are Internet enabled, though it is not known how many of
these are Web enabled in the home rather than in the practice. (This figure is
mirrored in the UK, Northern Europe and slightly less in the larger
English-speaking world). The Internet's potential for the development of
Business-to-Business transactions is universally acknowledged. However,
significant increase and uptake may be achieved by working with computer and
software companies to increase take-up and traffic with these closely defined
wholesale segments. A number of software companies now provide specialist
programs for veterinarians, are keen to increase their market share and are
looking at partnering with computer manufacturers for free provision.
Like most service-based professions, pet professionals - veterinarians,
pet hotel and kennel operators, breeders and groomers - cut across the age
demographic, with the older member more reluctant to embrace new technology.
However, the veterinary demographic is changing with more women than men
qualifying as veterinarians. This is particularly marked in the US. Breeders and
groomers have traditionally had a bias towards the female sex. A number of
reports have shown that use of the Internet has shifted to a much wider and
increasingly female demographic, accessing the Internet for information and
products. It should also be borne in mind that strong anecdotal evidence
suggests that women are more effective communicators with clients than their
male counterparts. This is particularly marked in vocation oriented
service-based professions or activities such as veterinary technical support
staff (more than 90% female), groomers, trainers and breeders.
The Web demographics of the wholesale segment means that the Company
will necessarily need to target individuals and businesses that are already
web-enabled, as well as "newbies." Communication of the benefits is
straightforward with the former, whereas the benefits and even the means of
enablement will need to be addressed with the latter.
It is the Company's objective to continue building an online
pet-oriented community that provides value-added content and services to enrich
each customer's shopping experience. It is management's belief that the
Company's ultimate success depends on its ability to enrich the customer's
shopping experience by giving the customer access to authoritative information
on pet care and health issues and providing value-added services that create the
customer loyalty that is needed in order to establish a loyal base of pet
owners. Building an online community
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focused on pet issues reinforces the Company's e-commerce efforts by giving
consumers a reason to visit the website even when there is no specific product
purchase in mind.
To address the need for value-added content services, the Company has
entered in to an agreement to acquire, for stock, Chartendure, Ltd., a U.K.
based company that will develop, with the assistance of some of the worlds
leading veterinary organizations, the authoritative guide to pet care and health
issues for the Company's new web site that is currently being developed. Led by
a group of pet industry professionals with backgrounds in pet healthcare and
nutrition, marketing, and public relations, PetQuarters.com is intended to be
the premier source for pet-related information, offering advice, services, and
entertainment for individuals interested in pets.
In order to establish the credibility of the content to be found on the
Company's website, PetQuarters is working closely with a number of national and
international associations and affiliated organizations for their endorsements
and is seeking similar coordination with national veterinary associations. The
pet healthcare and nutrition advice presented at PetQuarters.com will be written
by veterinary surgeons and is intended to be the most authoritative and useful
advice available anywhere on the Internet.
As part of the Chartendure acquisition, the Company has engaged
Interactive Bureau, one of the leading web site developers, to redesign the
Company's existing site to seamlessly incorporate the expanded product line and
content.
For various reasons, including the highly fragmented nature of the
non-food pet products and services industry segments and the large number of
professional organizations dedicated to pet breeding, grooming, shows, and
healthcare, boarding and animal rescue, the Company believes that a high level
of pet industry expertise is essential for ultimate success. The Humboldt and
Chartendure acquisitions provide the Company access to highly experienced
professionals that are expert in pet products sourcing and fulfillment and pet
healthcare and other pet issues. The extensive network of contacts and
relationships that these acquisitions offer should prove invaluable to the
Company as it pursues its business model.
Management recognizes the fact that online pet space has become very
crowded and the number of competitors continues to grow. However, PetQuarters is
favorably positioned to capitalize on the online sale of pet supplies and
accessories due to its extensive pet industry experience, having a
state-of-the-art fulfillment and customer service platform with a significant
existing customer base, the ability to offer the customer purchases either
through the Internet or catalog, and its development of a robust, content driven
web site of authoritative content for pet owners and enthusiasts alike.
Additionally, management believes that there will be a significant
amount of consolidation occurring with the online pet space and that PetQuarters
will be viewed as a valuable asset as it continues to develop strategic
relationships within the industry.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
RESULTS OF OPERATIONS: Three months ended 9/30/99 (first quarter) as
compared to three months ended 9/30/98.
SALES: Sales for the first quarter of 1999 as compared to same period
1998 were up dramatically primarily because of the acquisition of Humboldt
Industries on 7/31/99. The sales figures for the first quarter of 1999 include
two months of Humboldt Industries and three months of PetQuarters.
PetQuarters Consolidated Sales were $2,510,752 compared to $58,454 for
the same period in 1998. Humboldt Industries contributed $2,440,099 to the total
sales for the quarter. PetQuarters Internet sales compared to the same period in
1998 were $70,655, which was a 21% increase.
The Company believes a significant amount of revenues pertaining to
PetQuarters during the first quarter of 1999 were transferred to a catalog
division of Humboldt Industries. The "Home Pet Shop" catalog is displayed on
PetQuarters Internet home page allowing the consumer to request this catalog.
The Company receives hundreds of requests daily for this catalog. At the point
of sale, the revenues are credited as sales by Humboldt, rather than credited as
sales by Pet Quarters. The Company is taking steps to create a separate
PetQuarters catalog, whereby all sales will be more accurately reflected in the
future.
COST OF GOODS SOLD: Cost of Goods Sold for the quarter was $1,678,207
as compared to $33,514 for the same period in 1998. Humboldt Industries
contributed $1,625,436 to this total while the CGS for Internet sales were
$52,776. The percent of CGS to sales for the PetQuarters increased to 75% of
sales in 1999 as compared to 57% of sales for the quarter in 1998. This increase
was primarily due to discounted prices on products to encourage potential
customers to make a purchase. The consolidated percent of CGS to sales for the
Company is sixty-seven (67%) percent.
GROSS PROFIT: Gross Profit for the quarter was $832,545 as compared to
$29,940 for the same period in 1998. Humboldt Industries contributed $814,662 of
this figure. Gross Profit for PetQuarters sales were $17,879 as compared to
$29,940 for the first quarter of 1998. Gross profit as a percentage for the
PetQuarters declined to 25% as compared to 51% in the prior year. This decrease
was primarily due to lower prices on products to encourage potential customers
to make a purchase. Consolidated Gross Profit was thirty-three (33%) percent for
the quarter.
SELLING EXPENSES: Selling Expenses were $375,449 for the quarter as
compared to $151,500 in the prior year for the quarter. Humboldt Industries
contributed $268,034 to the total. Humboldt Industries' expenses were primarily
catalog creation, art supplies, postage and printing costs. PetQuarters expenses
were primarily advertising. These expenses utilized PetQuarters distribution
through American On-Line (AOL), Go-2-Net (GNET), and Web-TV. Consolidated
Selling Expenses were fifteen (15%) percent of Sales for the quarter.
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GENERAL AND ADMINISTRATION EXPENSES: G & A expenses were $775,090 for
the quarter as compared to $82,276 for the same period in 1998. Goodwill was
$91,344 for the quarter which is two (2) months amortization of Goodwill of the
Humboldt Industries acquisition. Goodwill amortization expense will be ongoing
for a fifteen (15) year term at a rate of $137,015 per quarter. This assumes a
beginning Goodwill balance from the acquisition of $8,220,906. G & A expense
increased as a percent of sales as compared to the prior period. This dramatic
increase is primarily the result of professional fees for attorneys, CPA's, and
salary expenses as several new employees were added. We do not believe this
increase will continue at its current rate.
INTEREST EXPENSE AND INCOME: The interest expense for the quarter was
$111,616. This is interest paid to lenders on promissory notes. Interest was
paid to three lenders, First State Bank, Lonoke, Arkansas, and Ammonia Hold,
Inc. The First State Bank loan was in the amount of $300,000 and was extended
until December 14, 1999. PetQuarters has $250,000 in loans outstanding to
Ammonia Hold, Inc. as of 9/30/99. The balance of the interest expense is an
accrual on the loan from the Trust which had an outstanding balance of $4.6
million as of 9/30/99. An amount of $3,354 was earned at Humboldt for the
quarter in checking and savings accounts. Consolidated Interest Expenses was
less than one (1%) of sales and not significant to operations.
INCOME TAX EXPENSE: There is no tax liability incurred for PetQuarters,
Inc. as the Company currently has $2,954,064 in net operating losses (NOL) from
inception through the 1st quarter of 1999 ending September 30, 1999. At this
time, no Income Tax Benefit has been utilized.
NET LOSS: The Company lost $1,075,620 in the first quarter of 1999 as
compared to a $205,885 loss in the same period in 1998. The majority of the loss
incurred are from non-cash items including goodwill amortization, stock grant
amortization, and a charge for origination fee paid to the Sun Valley Trust in
the form of 153,334 shares of PetQuarters common stock.
ASSETS: Total Current Assets include Cash and equivalents, Accounts
Receivable, Inventory, Prepaid Expenses, and other assets. The total current
assets for the Company were $2,822,538 ending 9/30/99. This compares to $80,384
in the same period in 1998.
Long-Term Assets include Land, Buildings, Equipment, and Furniture and
Fixtures. These items total $1,530,484 net of accumulated depreciation (70,197)
as of 9/30/99. This amount compares to $1,028,395 net of accumulated
depreciation (11,508) during the first fiscal quarter of 1998. The small
increase in Long-Term Assets from 9/30/98 to 9/30/99 is due to the acquisition
of Humboldt Industries. The PetQuarters acquisition included all businesses and
assets of Humboldt except the land and the building (approximately 63,500 square
feet). PetQuarters has an option to purchase the Humboldt Industries facility,
which consists of the building and ten (10) acres of land in the Humboldt
Industrial Park in Hazleton, PA, for two million five hundred thousand
($2,500,000) for a term of five (5) years expiring August 5, 2004. PetQuarters
intends to exercise this option prior to expiration. Asset values accounted for
at Humboldt Industries have been depreciated and the values on Humboldt
Industries' books were
11
<PAGE> 14
utilized for the Consolidated Statements. Under GAAP purchase price adjustments,
a purchaser (PetQuarters) may have up to one (1) year to reassess actual values
of the purchased company (Humboldt Industries); therefore, it is reasonable to
assume that some asset values will increase as fair market values are realized.
This would have a corresponding effect of reducing Goodwill and slightly
lowering the amortization on the Goodwill. Assets total $12,542,204 as compared
to $1,314,169. The dramatic increase is due to the Humboldt Industries
acquisition with the largest asset increase coming from Goodwill.
LIABILITIES: The Company currently has no long-term liabilities. The
current liabilities include accounts payable, accrued expenses, notes payable,
and note to related party. The short-term note payables include a bridge loan,
which was utilized to purchase Humboldt Industries. This amount was originally
in the amount of $4,600,000 and carries an interest rate of 10%. Also, included
are a $300,000 loan from First State Bank, Lonoke, Arkansas, a $90,000 loan from
Pinetree Management Corporation and FINCOM, Inc., both unrelated parties, for
payment of a brokerage fee due as a result of the Humboldt Industries purchase,
and a $91,600 loan to the Company by individuals including officers and
directors which was used to pay the first installment of the brokerage fee and
interest accrued. The amounts above detail the majority of indebtedness of
PetQuarters Inc. The total liabilities for the quarter ending 9/30/99 were
$7,490,304. This compares to $39,792 for the same period a year ago. In addition
to the detail above, accounts payable increased significantly with the Humboldt
acquisition. The inventory of Humboldt and Maplewood typically carries terms of
30, 60, or 90 days; therefore, a large accounts payable is normal. The payables
for the Company were $1,655,839 as of 9/30/99. In the same period in 1998,
payables were $39,366. Currently, the Company is involved in moving all
inventory and transactions from the Arkansas location to Pennsylvania and
further intends to discontinue all sales operations in Arkansas.
EQUITY: The stockholder's equity portion of the balance sheet totaled
$4,774,791 as of 9/30/99. This compares to $1,274,378 for the first quarter of
1998. The common stock account was $11,560 at the end of September 1998 as
compared to $11,199 in September 1999. The lower amount is largely because a
founder of the Company cancelled two million (2,000,000) shares of PetQuarters
stock to lower the number of shares outstanding. This was a voluntary
transaction enabling the Company to raise funds and purchase Humboldt Industries
with a lower dilution to shares outstanding. Additional Paid-In-Capital
increased to $8,144,589 from $2,272,973. The majority of the increase
($4,600,000) came from the purchase of Humboldt Industries as the transaction
was for a total of nine million two hundred thousand ($9,200,000) dollars with
half paid in common stock and the balance in cash. Accumulated Deficit decreased
from a loss of $1,010,341 (retained earning plus net income) as of the first
quarter ending 9/30/98, to a loss of -$2,199,801 as of the same period in 1999.
The difference between these two numbers reflects the losses incurred by the
Company the past four (4) quarters.
DEPRECIATION AND AMORTIZATION: PetQuarters currently accrues $9,553
quarterly in these two items. Some of the depreciated/amortized items include
furniture and fixtures, computers, and building. Humboldt Industries currently
accrues (Humboldt Dep/Amort schedule from E&Y and PA cpa's) in depreciation and
amortization quarterly.
12
<PAGE> 15
Results of Operations: Twelve months ended 6/30/99 compared to twelve
months ended 6/30/98.
The following discussion and analysis of the periods ending 6/30/99 and
6/30/98 have limited value in comparison. The period ending 6/30/98 contains all
the costs associated with a start up Internet Company for a full year; however,
PetQuarters was a fully operating entity for approximately the last two months
of the fiscal year. The primary reason is the PetQuarters web-site was not fully
operational until May 1998. It is the company's opinion that the comparison
value of 1998 to 1999 fiscal years has limited value.
SALES: Sales for the year ending 1999 were $ 262,470 compared to
$43,835 in fiscal 1998. The company's experience is that the Christmas season is
the busiest time of the year and will typically provide revenues that are
significantly higher in the December quarter than at other times of the year.
The Company experienced a large increase in order flow during the Christmas
season of 1998 in comparison to the other quarters during the year.
COST OF GOODS SOLD: CGS were $ 205,774 for 1999 and $ 21,908 for 1998.
The Company typically operated on a 30% margin in fiscal year 1999. This
compares to approximately 50% for 1998. Two reasons account for this disparity.
During the majority of 1999, PetQuarters primarily used the fulfillment
capabilities of Loveland Pet Products of Mason, Ohio. Loveland's charge as a
percent of sales effectively lowered the gross margin of the Company. Secondly,
PetQuarters during the 1998 fiscal year and a portion of the 1999 fiscal year
fulfilled its own orders in its facility in Lonoke, Arkansas.
SELLING EXPENSES: The selling expenses for fiscal 1998 were $ 196,497
and in fiscal year 1999 were $ 489,272. The expenses were primarily the same for
both periods with American-on-Line, Go-2-net, Yahoo, Fancy Magazine, and some
smaller publications, web-sites and advertisers making up the bulk of the
selling expenses. The increase for fiscal year 1999 from fiscal year 1998, was
due to 1998 being a partial year.
GENERAL AND ADMINISTRATIVE EXPENSES: G & A expenses for fiscal 1998
were $647,114 and $588,870 in 1999. The expenses included salaries, general
expenses, professional fees for legal and accounting, travel, web-site design
and maintenance and other miscellaneous expenses. The slightly higher amount
recorded in 1998 is primarily due to the one-time start-up cost of the business.
New employees were added in 1999 and it is reasonable to assume the G & A costs
going forward will increase. The Company believes these costs are being well
managed, contained and are reviewed to provide maximum value toward the Company.
DEPRECIATION AND AMORTIZATION: During fiscal year 1998, the Company
recorded depreciation and amortization on office equipment, computer and
telephone equipment, warehouse equipment and the facility. The expenses were
recorded as recommended by the auditors. Similar items were on a depreciation/
amortization schedule in 1999. The largest asset of PetQuarters during this time
is the facility in Lonoke, Arkansas. The building is being depreciated on a
forty-year schedule.
13
<PAGE> 16
OTHER INCOME: Interest expense for the periods did not occur in
significant amounts, as the recorded amounts are contra expense accounts. The
1999 fiscal year ($ 290) contained a decrease from the fiscal year in 1998
($4,384) as the capital balance with which to earn interest was lower due to the
cost associated with building the infrastructure of the firm. Interest income in
fiscal 1998 was $6,396 and $3,486 in 1999. The lower amount in 1999 is because
there were fewer investable funds to draw interest on in 1999. Other Income of
the Company in fiscal 1998 was $6,396 and $3,486 in 1999. These items include
rental and lease income of excess warehouse capacity at the Lonoke, Arkansas
facility.
NET LOSS: The loss in fiscal year 1998 of ($ 816,179) from the
increased costs discussed above. They include, but are not exclusive to
advertising, salary, and general and administrative costs. The loss in fiscal
year 1999 of ($ 1,052,265) occurred from advertising with Internet Portal sites,
such as American-on-Line, Go-2-Net, Yahoo and others, salary, and general and
administrative costs. Web Site design and the cost associated with an internet
site are significant. The web-site is the storefront to the customer and the
real estate with which they shop or browse. During fiscal year 1999, PetQuarters
launched its second-generation web-site.
ASSETS: The current assets comparing 1998 to 1999 consist of cash,
accounts receivable, inventory, deferred compensation, prepaid expenses, and
other. In 1998 cash was $375,843 and $37,726 in fiscal year 1999. The decrease
was attributable working capital needs of the Company. Accounts Receivable is
not significant as the vast majority of sales are completed with a credit card.
Inventory decreased from $73,229 in 1998 to $33,783 in 1999. PetQuarters need
for inventory on-hand was significantly decreased with the out-sourcing
arrangement with Loveland Pet Products. This relationship (now terminated
because of our purchase of Humboldt Industries) accounted for the decrease as
the Company had little need to keep Inventory on-site.
PROPERTY, PLAN, AND EQUIPMENT: The land and building was appraised at
$975,000 by an appraisal dated October 22, 1997. The values on the balance sheet
are reflected in accordance to accepted accounting principals and have been
reviewed by the auditors.
CURRENT LIABILITIES: Accounts Payable has increased from $13,679 in
1998 to $203,394 in 1999 attributable to an increase in sales for the Company. A
note payable to related party (Ammonia Hold, Inc.) in the amount of $325,000 was
made and the monies utilized for working capital.
STOCKHOLDER'S EQUITY:
LIQUIDITY AND CAPITAL RESOURCES: Since inception, the Company's
expenses have consistently exceeded its revenues. Operations have been
consistently funded with debt with the exception of small amounts of capital
PetQuarters has raised for equity and the equity issued for the purchase of
Humboldt Industries. PetQuarters is currently is discussions to fund the Company
in order to eliminate debt and execute the business plan. The Company does
believe
14
<PAGE> 17
that the acquisition of Humboldt Industries was purchased at any attractive
price and believes the asset is more valuable today than at its purchase date.
Humboldt Industries is a self-sustaining entity and does not require significant
monies from the Parent.
PENDING ACQUISITION: PetQuarters, Inc., has entered into an agreement
to acquire Chartendure Ltd., of the United Kingdom. Chartendure will receive
four (4) milestone payments of PetQuarters stock in increments of two hundred
twenty five thousand (225,000) shares. These milestones are as follows:
o Signing of design and development agreement with a
professional design firm.
o Progress billings from the professional design firm in the
amount of 1/3 of the project cost.
o Progress billings from the professional design firm in the
amount of 2/3 of the project cost.
o Launch of the new PetQuarters web-site will effect the final
milestone payment.
Chartendure, Ltd., intends to provide the majority of the "content" of
the PetQuarters web-site and will be the source and encyclopedia on everything
relating to pets, offering information, advice, services, virtual clubs,
products and entertainment for everyone interested in pets: prospective
purchasers, new owners, or, existing owners of pets. At every level,
PetQuarters, through its content and community, will promote sensible and
responsible pet ownership, reiterating the central role of proper and regular
veterinary care.
ITEM 3. DESCRIPTION OF PROPERTIES.
The Company is headquartered in Lonoke, Arkansas; however, the
headquarters are being transferred to the Hazleton, PA facility. The Lonoke
facility is located at 720 East Front Street and includes a single building of
approximately 50,000 square feet of warehouse and distribution space and 5,000
square feet of office space. This property has an appraised value of $975,000 as
of October 1997 and has an outstanding lien in the amount of $300,000.
Humboldt's Hazelton, Pennsylvania, distribution center is the primary
fulfillment center and includes a call center, order processing, a catalog
design department, and a warehouse operation which stocks more than 14,000
separate items. The Hazelton facility includes an office and warehouse facility
of approximately 63,500 square feet and is located on a 10-acre site. The July
31, 1999 acquisition of Humboldt Industries did not include acquisition of the
Hazelton facility or the ten acres of property associated with it. Rather,
PetQuarters currently leases these facilities and owns a five-year option to
purchase the building and the ten (10) acre site. At this facility the Company
employs approximately 80 persons including telemarketers, warehouse
15
<PAGE> 18
personnel, customer service representatives, accounting, purchasing, technology,
marketing and merchandising staff.
The properties described above are the only properties owned or leased
by the Company. The Company currently has no plans to purchase or lease
additional properties, and intends to expand the Hazelton, Pennsylvania facility
before investing in new properties. Management of the Company believes that all
properties are adequately insured against casualty and risk.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
<TABLE>
<CAPTION>
Number of Shares
Name Class of Security Beneficially Owned % Owned Position
---- ----------------- ------------------ ------- --------
<S> <C> <C> <C> <C>
Ammonia Hold, Inc. Common Stock 1,687,500 15.01 Shareholder
10 Gunnebo Drive
Lonoke, AR 72086
Matthews J. Hoff Trust Common Stock 1,002,500* 8.90 Shareholder
Michael Parnell Common Stock 1,906,167* 16.96 Shareholder
11320 South Ridge
Little Rock, AR 72212
Jack & Helene Rosenzweig Common Stock 1,089,097 9.69 Jack - CEO
1 Maplewood Drive Humboldt Ind.
C/O Humboldt Ind.
Hazleton, PA 18201 Helene - Pres.
Maplewood
Steven Dempsey Common Stock 907,167 8.07 President/Chairman
103 Red River Drive.
Sherwood, AR 72120
Dino Moshova Common Stock 515,833 4.59 Director
56 Stuart Place
Munsey Park, NY 11030
Gregg Rollins Common Stock 239,500** 2.10 Chief Financial Officer
1700 Royal Drive
Conway, AR 72032
Mike Kelly Common Stock 0 0.00 President - Humboldt
Ind.
All officers and directors as Common Stock 7,347,764 65.32***
a group
</TABLE>
The ownership table is based upon 11,242,000 shares outstanding as of November
30, 1999.
16
<PAGE> 19
* Michael Parnell is owner of 900,000 shares and controls 3,667 shares as
Trustee of Jemima S. Parnell Trust, and 1,002,500 shares as Trustee of
the Matthews J. Hoff Trust, dated June 22, 1998.
** This number includes 2,500 shares held by Mr. Rollins' minor children
and 150,000 shares subject to options.
*** Because beneficial ownership is broadly defined, some shares are
counted more than once.
At this time, the company is not involved in or aware of any arrangements
which will result in a change of control of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table gives certain information regarding directors,
executive officers, promoters and central persons of the Company as of November
30, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Steve Dempsey 43 Chairman, President and Director
Mike Kelly 37 President of Humboldt Industries
Gregg Rollins 42 Chief Financial Officer
Dino Moshova 37 Vice President of Technology and Director
Jack Rosenzweig 60 Chief Executive Officer of Humboldt
Helene Rosenzweig 60 President of Maplewood
Judith Patterson 57 Vice President of Humboldt
</TABLE>
The information set forth below identifies the principal occupation and
activities of the directors and executive officers during the past five years.
MR. STEVE DEMPSEY has served as the President of the Company since
1997. He was an account vice president at Paine-Webber, Inc., between 1989 and
1997. Mr. Dempsey is one of two directors of the Company. Mr. Dempsey was
appointed a director on 6/29/98. This term expires in May 2001.
MR. MIKE KELLY is currently President of Humboldt and has been employed
since 9-1-99. Mr. Kelly was a Vice President/General Manager with Sporting Dogs
Specialties (PetSmart Direct) between 1987 and 1998, and Vice President of Home
Trends from 1998 until 1999.
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<PAGE> 20
MR. GREGG ROLLINS has been employed as the Chief Financial Officer of
the Company since May, 1999. Mr. Rollins was a senior vice president with
Leiblong Associates from 1998 until April, 1999 and was an account vice
president, assistant manager and sales manager with Paine Webber between 1988
and 1998.
MR. DINO MOSHOVA is a Director of the Company and has been a director
since inception. His term as director will continue until May, 2000. Mr. Moshova
has operated Moonbark Web Designer since 1997. From 1984 until 1997, Mr. Moshova
owned and operated Leisure Video of New York.
MR. JACK ROSENZWEIG is the co-founder of Humboldt Industries and Chief
Executive Officer of Humboldt. Prior to this time, Mr. Rosenzweig was President
of Humboldt. Mr. Rosenzweig is the husband of Helene Rosenzweig. He has
thirty-seven years experience in the pet industry.
MS. HELENE ROSENZWEIG is the President of the Maplewood. She is the
co-founder of Humboldt Industries and served as the Executive Vice President of
Humboldt until July 31, 1999. Mrs. Rosenzweig is the wife of Jack Rosenzweig.
She has thirty-seven years experience in the pet industry.
MS. JUDITH PATTERSON is the Vice President of Operations for Humboldt
Industries, Inc., for thirteen years. Five years prior to that, Mrs. Patterson
was Operations and Distribution Manager for Doskocil Manufacturing Company, the
leading manufacturer of in-flight kennels in the world.
MICHAEL PARNELL, who may be considered a promoter of the Company, has
submitted a settlement offer in an action brought by the Securities and Exchange
Commission. If the submission is accepted, Mr. Parnell will pay a civil penalty
in the amount of $25,000 and will be permanently enjoined from selling
securities in violation of the registration provisions of the Securities Act of
1933 and from violating the fraud provisions of the Securities Act of 1933 and
the Securities Exchange Act of 1934. Mr. Parnell consented to the proposed
settlement without admitting or denying the allegations of the complaint filed
by the Securities and Exchange Commission.
18
<PAGE> 21
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Awards Payouts
Name and Principal Year Salary/ Other Annual Restricted Securities All other
Position Bonus ($) Compen- Stock Underlying Compensation
sation ($) Award(s) Options/ LTIP ($)(4)
($)(2) SARs(#)(3) Payouts
- --------------------------- -------- ---------- ------------- ---------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven B. Dempsey,
Chairman & President 1999 100,000 none none none none
1998 55,000 none none none none
Mike Kelly,
President-Humboldt Div. 1999 135,000 none 221,875* none none
Jack Rosenzweig,
CEO-Humboldt Div. 1999 100,000 14,400 (auto) none none
1998 31,200 10,860 (auto)
1997 31,200 9,000 (auto)
1996 31,200 9,000 (auto)
Helene Rosenzweig,
Pres-Maplewood Div. 1999 100,000 14,400 (auto) none none
1998 31,200 13,320 (auto)
1997 31,200 13,320 (auto)
1996 31,200 9,000 (auto)
Greg Rollins,
Chief Financial Officer 1999 85,000 none 84,375* 225,000 none
</TABLE>
* Shares are being held in PetQuarters lock-box to be given to employees
at the end of one year of employment. Mr. Kelly will receive 50,000
shares in September, 2000; Mr. Rollins will receive 75,000 shares in
April, 2000.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ---------------------------------- ------------------------ ---------------------- ----------------- -----------------
Name Number of Securities Percent of Total
Underlying Options Options/SARs Granted
Granted to Employees in Exercise or
(#) Fiscal Year Base Price Expiration Date
($/Sh)
- ---------------------------------- ------------------------ ---------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Greg Rollins 225,000 100%
- ---------------------------------- ------------------------ ---------------------- ----------------- -----------------
</TABLE>
EMPLOYMENT CONTRACTS
Jack Rosenzweig, Helene Rosenzweig, and Mike Kelly each entered into an
employment agreement with the Company, or a subsidiary thereof, effective as of
the consummation of the
19
<PAGE> 22
acquisition of Humboldt Industries, providing for a base annual compensation of
$100,000, $100,000, and $135,000, respectively. Each agreement is for a term of
two years, unless earlier terminated by the Company or the employee. The
employment agreements are substantially similar to each other, obligating the
employees to devote their full attention to the operations of Humboldt
Industries and restricting their rights to compete against PetQuarters upon
departure. Each employee is entitled to his or her salary, the same employee
benefits provided to all other of Humboldt Industries' employees, and a monthly
car allowance.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
BRIDGE LOAN
The following persons, who are directors or officers of the Company or
hold 5% or more of the Company's common stock, are beneficiaries of the Trust,
which loaned the Company $4,600,000 (the "Bridge Loan") to purchase Humboldt
Industries. The dollar value of the beneficial interest of each person in the
Bridge Loan and his or her relationship to the Company is set forth opposite his
or her name.
Dino Moshova $23,000 Director
Gregg Rollins $90,000 Chief Financial Officer
Steven Dempsey $50,000 President and Chief Executive Officer
Michael Parnell $750,000 Promoter
Jemima S. Parnell $110,000 Mother of Michael Parnell
OTHER TRANSACTIONS
Ammonia Hold, Inc. has made several advances to the Company in various
amounts totaling $265,000 as of the date hereof, which are each represented by a
promissory note from the Company. Each promissory note bears interest at a rate
of 8%.
STOCK GRANTS. On September 9, 1999, the Company made grants of common
stock totaling 95,000 shares to three Humboldt employees. The grants were made
to retain the services of these employees and included 5,000 shares to Judith
Patterson, 40,000 shares to Melanie Rosenzweig and 50,000 shares to Mike Kelly.
Melanie Rosenzweig is the daughter of Jack and Helene Rosenzweig. The stock
grants require these employees to remain with the Company for a period of one
year in order for the grant to fully vest.
ITEM 8. DESCRIPTION OF SECURITIES.
PetQuarters is authorized to issue forty million (40,000,000) shares of
common stock par value $0.001 per share and ten million (10,000,000) shares of
preferred stock par value $0.001 per share. The voting powers, designations, and
preferences of the preferred may be fixed by the board of directors.
20
<PAGE> 23
COMMON STOCK. Each share of Common Stock entitles the holder thereof to
one vote for each share on all matters submitted to the stockholders. The Common
Stock is not subject to redemption or to liability for further calls. Holders of
Common Stock will be entitled to receive such dividends as may be declared by
the Board of Directors of the Company out of funds legally available therefore
and to share pro rata in any distribution to stockholders. The stockholders have
no conversion, preemptive or other subscription rights. Shares of authorized and
unissued Common Stock are issuable by the Board of Directors without any further
stockholder approval.
PREFERRED STOCK. The Board of Directors is authorized, without further
action by the stockholders, to issue from time to time shares of Preferred Stock
in one or more classes or series and to fix the designations, voting rights,
liquidation preferences, dividend rights, conversion rights, rights and terms of
redemption (including sinking fund provisions) and certain other rights and
preferences of the Preferred Stock. The issuance of shares of Preferred Stock
under certain circumstances could adversely affect the voting power of the
holders of Common Stock and may have the effect of delaying, deferring or
preventing a change in control of the Company. As of the date of this
Prospectus, the Company has no plan or arrangement for the issuance of any
shares of Preferred Stock.
TRANSFER AGENT. The Company has appointed Atlas Stock Transfer
Corporation as the transfer agent and registrar of the Common Stock.
PART II
ITEM 1. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS.
PetQuarters has a single class of common stock. There are forty million
(40,000,000) shares of common stock authorized, of which approximately eleven
million, two hundred forty-two thousand (11,242,000) shares are outstanding. The
Company may issue up to ten million (10,000,000) preferred shares; however, at
this time there are no preferred shares issued or outstanding.
The Company has not issued dividends on its common stock in the past
and has no present intention of issuing dividends in the future. The Company
anticipates that for the foreseeable future its earnings will be retained for
the operation and expansion of its business.
The PetQuarters common stock is currently traded on the
over-the-counter bulletin board under the symbol PDEN.
PetQuarters had one hundred five (105) shareholders recorded at the
Transfer Agent and an undetermined number of shareholders which own the stock in
street name as of November 30, 1999.
21
<PAGE> 24
The Company's common stock began trading in May 1998. Below are the
quarterly high and low closing prices since inception as recorded by the
bulletin board. Bid prices were not available.
<TABLE>
<CAPTION>
Period Low High
------ --- ----
<S> <C> <C>
April - June 1998 15/16 1 11/16
July - September 1998 11/32 1 11/100
October - December 1998 6/25 2
January - March 1999 9/16 1 13/16
April - June 1999 7/8 4 19/32
July - September 1999 2 15/16 6 9/16
</TABLE>
ITEM 2. LEGAL PROCEEDINGS.
PetQuarters is not currently involved in any lawsuits as a plaintiff or
defendant and has no knowledge of any pending legal action.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
PetQuarters hired Crouch, Bierwolf, & Chisholm of 50 West Broadway,
Suite 1130, Salt Lake City, UT 84101, to perform the 1997 (2 months) and 1998
audits. PetQuarters terminated this relationship when Ernst & Young LLP was
hired in the summer of 1999. The prior audit contained a "going concern"
opinion; however, this was not a point of contention with either the audit firm
or PetQuarters. Crouch, Bierwolf & Chisholm were released and the Little Rock,
Arkansas branch of Ernst and Young LLP was retained. Ernst & Young has performed
the 1999 PetQuarters audit and reviewed the prior audits (1997 and 1998)
performed by Crouch, Bierwolf & Chisholm. The PetQuarters board approved Ernest
& Young as auditors on July 8, 1999.
In addition, Ernst & Young LLP performed the closing audit for the
Humboldt Industries transaction, which closed on July 31, 1999. The audit covers
the time frame of January 1, 1999, to July 31, 1999. Prior to the PetQuarters
acquisition of Humboldt Industries, Kronick Kalada Berdy & Co. had performed the
audits of Humboldt Industries for the past thirteen (13) years.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The Company was founded by Matthew Hoff and Michael Parnell in May of
1997. Mr. Hoff contributed $4,100 for 4,100,000 shares of the Company's $.001
par value common stock. Mr. Parnell contributed $2,000 for 2,000,000 shares of
common stock.
During June and July of 1997, the Company conducted a private offering
of securities pursuant to Rule 504 of Regulation D. In the course of this
offering, the Company raised $105,000 in proceeds from the sale of 1,050,000
shares of common stock at $.10 per share. The
22
<PAGE> 25
offering was made to twenty-one persons, including public investors not
affiliated with the Company. The Company offered its securities through its
officers and directors on a best efforts basis. Consequently, there were no
underwriting discounts or commissions.
In August of 1997, the Company conducted a second private offering of
securities pursuant to Rule 504 of Regulation D. In this offering, common stock
was sold at $.50 per share to fifty-two persons, many of whom were current
shareholders, raising an additional $824,750. This offering was extended to
persons who were affiliates with the Company or some private investors. The
Company offered its securities through its officers and directors on a best
efforts basis. Consequently, there were no underwriting discounts or
commissions.
Following these two offerings, the Company had a total of 7,150,000
shares of common stock outstanding. The Company filed appropriate documentation
to allow its stock to be traded on the Over-The-Counter-Bulletin-Board (OTCBB),
and in October of 1997, the Company's stock began to trade on the OTCBB.
In November of 1997, the Company issued 1,777,500 shares of its common
stock to acquire land and a building from Ammonia Hold, Inc ("Ammonia Hold").
The stock had a fair market value of $888,750 and Ammonia Hold has substantial
ownership interest in PetQuarters.
In April of 1999, the Company repurchased 2,000,000 shares of its stock
from Matthew Hoff and retired the shares. During the fiscal year ended on June
30, 1999, the Company issued 180,000 shares of its common stock pursuant to its
management incentive plan. These shares were issued to retain the service of top
management personnel. On September 9, 1999, 95,000 shares of common stock were
issued to Humboldt Industries employees to retain them in management. An
additional 1,145,417 shares were issued to acquire Humboldt Industries and
153,333 were issued as part of the financing for the Humboldt Industries
acquisition. A total of 60,195 shares were issued to three (3) vendors of the
Company in order to secure their service during fiscal year 1999. Each of the
above transactions were private transactions which did not involve a public
offering. The transactions were exempted pursuant to Section 4(2) and other
provisions of the Securities Act of 1933, as amended.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide that the Company, by
action of the Board of Directors, may indemnify its directors, officers, agents,
and employees to the fullest extent permitted by the Arkansas Business
Corporation Act, as amended. In addition, the Articles also provide that no
director shall be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director; provided, however,
that the foregoing clause shall not eliminate or limit the liability of a
director for the following: (i) any breach of such director's duty of loyalty to
the Corporation or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
the Arkansas Business Corporation Act; or (iv) any transaction from which such
director derived an improper personal benefit.
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<PAGE> 26
These provisions are permitted pursuant to the Arkansas Business Corporation
Act.
PART F/S
FINANCIAL STATEMENTS *
PART III
ITEM 1. INDEX TO EXHIBITS AND DESCRIPTION OF EXHIBITS.
Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 - Agreement of Purchase and Sale of Stock, dated as of August
5, 1999, by and among PetQuarters, Inc., Humboldt Industries,
Inc., and the other parties named therein.
2.2 - Agreement of Purchase and Sale of Stock, dated as of July 2,
1999, by and among PetQuarters, Inc., Chartendure Limited, and
the other parties named therein.
3.1 - Articles of Incorporation, as amended, of PetQuarters, Inc.
3.2 - Bylaws of PetQuarters, Inc.
10.1 - Collateral Pledge Agreement, dated as of August 1, 1999, by
and between PetQuarters, Inc., The Sun Valley Trust of July
30, 1999, and the other parties named therein.
10.2 - Modification of Note and Pledge Agreement, dated as of
November 10, 1999, by and among Pet Quarters, Inc., The Sun
Valley Trust of July 30, 1999, and the other parties named
therein.
11.1 - Statement re: Computation of Per Share Earnings. *
16.1 - Letter from Crouch, Bierwolf & Chisholm. *
21.1 - List of Subsidiaries.
27 - Financial Date Schedule*
</TABLE>
* To be filed by amendment.
SIGNATURE PAGE
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<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
PETQUARTERS, INC.
Date: December 10, 1999 By: /s/ STEVE DEMPSEY
----------------------- ---------------------------------
Steve Dempsey
---------------------------------
President
---------------------------------
(Title)
25
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 - Agreement of Purchase and Sale of Stock, dated as of August
5, 1999, by and among PetQuarters, Inc., Humboldt Industries,
Inc., and the other parties named therein.
2.2 - Agreement of Purchase and Sale of Stock, dated as of July 2,
1999, by and among PetQuarters, Inc., Chartendure Limited, and
the other parties named therein.
3.1 - Articles of Incorporation, as amended, of PetQuarters, Inc.
3.2 - Bylaws of PetQuarters, Inc.
10.1 - Collateral Pledge Agreement, dated as of August 1, 1999, by
and between PetQuarters, Inc., The Sun Valley Trust of July
30, 1999, and the other parties named therein.
10.2 - Modification of Note and Pledge Agreement, dated as of
November 10, 1999, by and among Pet Quarters, Inc., The Sun
Valley Trust of July 30, 1999, and the other parties named
therein.
11.1 - Statement re: Computation of Per Share Earnings. *
16.1 - Letter from Crouch, Bierwolf & Chisholm. *
21.1 - List of Subsidiaries.
27 - Financial Data Schedule*
</TABLE>
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT OF PURCHASE AND SALE OF STOCK
This AGREEMENT OF PURCHASE AND SALE OF STOCK ("Agreement") is made this
5th day of August, 1999, by and among PETQUARTERS, INC., an Arkansas corporation
("PetQuarters"), PQ Acquisition Company, Inc., an Arkansas corporation to be
formed by and as a wholly-owned subsidiary of PetQuarters (the "Purchaser"),
HUMBOLDT INDUSTRIES, INC., a Pennsylvania business corporation ("Humboldt"),
Maplewood Industries, Inc., a Pennsylvania business corporation ("Maplewood")
(collectively, Humboldt and Maplewood shall be referred to as the "Companies"),
and JACK ROSENZWEIG and HELENE ROSENZWEIG, each an individual resident of
Pennsylvania (collectively, the "Shareholders"). The Companies and the
Shareholders are collectively referred to as the "Selling Parties."
RECITALS
WHEREAS, the Shareholders have represented that they own all of the
outstanding stock of the Companies;
WHEREAS, PetQuarters desires to purchase from the Shareholders, and the
Shareholders desire to sell to PetQuarters, all of the outstanding stock of the
Companies (the "Shares");
WHEREAS, the Companies desire that the Transaction be consummated.;
WHEREAS, PetQuarters and the Shareholders have determined that the most
advantageous method for PetQuarters to acquire all of the Shares is by use of a
subsidiary wholly-owned by PetQuarters so that the Transaction is treated as a
statutory merger under Section 368 of the Code;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the terms identified below in this Article I
shall have the meanings indicated, unless a different and common meaning of the
term is clearly indicated by the context.
AFFILIATE. With respect to any person, Entity or Party, (i) any person,
Entity or Party controlling, controlled by or under common control with any such
person, Entity or Party or (ii) any director or executive officer of any such
person, Entity or Party or of any person, Entity or Party referred to in clause
(i) of this definition.
AGREEMENT. This Agreement of Purchase and Sale of Stock, including all
of its Schedules and Exhibits, and including all duly adopted amendments,
modifications, and supplements.
CERCLA. Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C.A. ss.ss. 9601 et seq.
CLOSING. The completion of the Transaction, to take place as described
in Article IX hereof.
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<PAGE> 2
CLOSING DATE. The date on which the Closing actually occurs, which
shall not be later than July 31, 1999, unless otherwise agreed by the parties,
but shall not in any event be prior to satisfaction or waiver of the conditions
to Closing set forth in Article VIII hereof.
CODE. The Internal Revenue Code of 1986, as amended and in effect at
the time of execution of the Agreement.
COMPANIES. Humboldt Industries, Inc., a Pennsylvania business
corporation, and Maplewood Industries, Inc, a Pennsylvania business corporation.
CONTROL. The possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a person, Entity or
Party, whether through the ownership of voting securities or voting interests,
by contract or otherwise.
COMPANY BALANCE SHEETS. The most recent balance sheets of Humboldt and
Maplewood included in the Financial Statements.
CONFIDENTIAL INFORMATION. As defined in Section 5.2.
CUSTOMER. Any person or Entity for whom the Companies provided services
on or within the two years immediately prior to the Closing Date or to whom the
Companies provided a product on or within the two years immediately prior to the
Closing Date.
DEFECT NOTICE. As defined in Section 4.14.
ENTITY. A corporation, partnership, sole proprietorship, trust, joint
venture, limited liability company or other form of organization formed for the
conduct of a business whether active or passive.
ENVIRONMENTAL CONDITION. As defined in Section 7.2.
ENVIRONMENTAL LAWS. All federal, state and local requirements,
including statutes, regulations, ordinances, orders, common law, and judicial
and regulatory interpretations thereof, relating to protection of the
environment and the public health, safety and welfare, including without
limitation those requirements relating to manufacture, generation, distribution,
transport, handling, use, processing, treatment, storage, disposal or other
management of Hazardous Materials, those relating to investigation or
remediation of the Release of Hazardous Materials, and those relating to
protection of animal and plant species, environmentally sensitive areas, and
natural resources, including without limitation CERCLA.
ENVIRONMENTAL PERMITS. All interim and final permits, licenses,
registrations, certificates, approvals, and other authorizations issued,
obtained or conferred pursuant to Environmental Laws.
EPA. As defined in Section 4.27.
ERISA. The Employee Retirement Income Security Act of 1974, as amended
and in effect at the time of execution of the Agreement.
EQUITY. The sum of account numbers 3000 through 3599 on the applicable
Company Balance Sheets.
FINANCIAL STATEMENTS. The Companies' balance sheets and income
statements, as of December 31, 1998, and for the year previously ended.
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<PAGE> 3
GAAP. Generally accepted accounting principles consistently applied, as
in effect on the date of any statement, report or determination that purports to
be, or is required to be, prepared or made in accordance with generally accepted
accounting principles.
HAZARDOUS MATERIAL. Any "hazardous substance" or "pollutant or
contaminant" as those terms are defined in Section 101 of CERCLA and all
implementing federal regulations; any natural gas, natural gas liquids,
liquefied natural gas, synthetic gas, or petroleum substance, including crude
oil or any fraction thereof; and any radioactive substance, asbestos,
polychlorinated biphenyls, urea formaldehyde, lead based paint, or other
substance subject to federal, state or local Environmental Laws.
IMPROVEMENTS. As defined in Section 4.14.
INDEMNIFIED PARTY. As defined in Section 7.4.
INDEMNIFYING PARTY. As defined in Section 7.4.
INTERIM FINANCIAL STATEMENTS. The unaudited balance sheets and income
statements of the Companies, as of March 31, 1999, and for the three months then
ended.
INVENTORIES. All inventories of raw materials and supplies,
manufactured and purchased parts, work in process and finished goods customarily
reflected as assets in balance sheets of Entities prepared in accordance with
GAAP.
LEASES. As defined in Section 4.14.
LIABILITIES. At any point in time (the "Determination Time"), the
obligations of the Companies, whether known or unknown, contingent or absolute,
recorded on its books or not, arising or resulting in any way from facts,
events, agreements, obligations or occurrences that existed or transpired at a
prior point in time, or resulted from the passage of time to the Determination
Time.
LOSSES. With respect to any person, Entity or Party, any payment, loss,
liability, obligation, damage (including, without limitation, consequential,
punitive, special or otherwise), deficiency, lien, judgment, cost or expense
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses and court costs) of any kind, nature or description.
OWNED REAL PROPERTY. As defined in Section 4.14.
PARTIES. The Purchaser, PetQuarters and the Selling Parties.
PAYABLES. Liabilities of the Companies arising from the borrowing of
money or the incurring of obligations for merchandise or goods purchased. All
amounts owed to Shareholders shall be contributed to Shareholders' equity prior
to Closing.
PENSION PLAN. A "pension plan" or "employee pension benefit plan" as
defined in Section 3(2) of ERISA.
POLICIES. As defined in Section 4.14.
PROPERTIES. The real properties owned by the Companies, as described in
Schedule 4.14A hereof.
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<PAGE> 4
PROPRIETARY RIGHTS. Trade secrets, copyrights, patents, trademarks,
service marks, and all similar types of intangible property developed, created,
or owned by the Companies, or used by the Companies in connection with its
business, whether or not the same are entitled to legal protection.
PURCHASE PRICE. As defined in Section 2.2.1.
PURCHASER. PQ Acquisition Company, Inc., an Arkansas corporation.
PURCHASER INDEMNITEE. The Purchaser, any affiliate of the Purchaser,
any person or Entity with whom the Purchaser is affiliated or with whom the
Purchaser has a partnership or joint venture relationship (a "Purchaser
Partner"), and any officer, director, shareholder, employee, agent, attorney,
joint venturer, partner (limited or general), servant, representative, trustee,
successor or assign of the Purchaser or of any Purchaser Partner or of any
affiliate of the Purchaser or any Purchaser Partner.
REAL PROPERTY. The real property described in Schedule 4.14B hereof,
which PetQuarters shall have the option to purchase in accordance with the terms
of this Agreement.
RECEIVABLES. Accounts receivable, notes receivable, and other
obligations appearing as assets on the books of the Companies, and customarily
reflected as assets in balance sheets of Entities prepared in accordance with
GAAP, indicating moneys owed to the Entity.
RELEASE OR RELEASED. Any past or present spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping, depositing, conducting, draining, throwing, running, seeping,
disposing, or otherwise releasing into a workplace or the environment (including
the abandonment or discarding of barrels, containers and other open or closed
receptacles), or causing, suffering, allowing any of these acts or omissions.
SHARES. The 1,000 shares of Humboldt's common stock, owned by the
Shareholders and representing all of the outstanding shares of Humboldt's common
stock and the 20 shares of Maplewood's common stock, owned by the Shareholders
and representing all of the outstanding shares of Maplewood's common stock.
SHAREHOLDERS. Jack Rosenzweig and Helene Rosenzweig.
SHAREHOLDER INDEMNIFIABLE CLAIMS. As defined in Section 7.2.
SELLING PARTIES. The Companies and the Shareholders.
TAX OR TAXES. (i) All federal, foreign, state, county or local net or
gross income, gross receipts, sales, use, ad valorem, value-added, franchise,
production, severance, windfall profit, withholding, payroll, employment, excise
or similar taxes, assessments, duties, fees, levies, penalties, financial
assurance or other governmental charges (together with any interest thereon, any
penalties, additions to tax or additional amounts with respect thereto, and any
interest in respect of such penalties, additions or additional amounts), and
(ii) liability for the payment of any consolidated tax (together with any
interest thereon, any penalties, additions to tax or additional amounts with
respect thereto, and any interest in respect of such penalties, additions or
additional amounts) of the type described in clause (i) of this paragraph.
THIRD PARTY. As defined in Section 6.8.
THIRD PARTY CLAIM. As defined in Section 7.5.
4
<PAGE> 5
THRESHOLD. As defined in Section 7.4.
TRANSACTION. The purchase and sale of the Shares as contemplated by
this Agreement and all incidental actions or related transactions contemplated
hereby.
UTILIZED REAL PROPERTY. As defined in Section 4.14.
VENDOR. Any third party selling or licensing a product or service to a
Customer or to the Company on or prior to the Closing Date.
WELFARE PLAN. A "welfare plan" or an "employee welfare benefit plan" as
defined in Section 3(1) of ERISA.
ARTICLE II
THE TRANSACTION
2.1 THE TRANSACTION. Upon the terms and subject to the conditions set
forth in this Agreement, on the Closing Date, the Shareholders shall sell,
grant, convey, assign, transfer and deliver to the Purchaser, and the Purchaser
shall purchase and acquire from the Shareholders all of the Shares. The exact
number of Shares to be sold by the Shareholders hereunder is 1,000 shares of
Humboldt common stock, $1.00 par value, and 20 shares of Maplewood common stock,
$1.00 par value.
2.2 PURCHASE PRICE.
2.2.1 PURCHASE PRICE. The purchase price for the Shares shall be
$9,200,000 (such price, as paid in accordance of Sections 2.2.2 and 2.2.3 below,
being herein referred to as the "Purchase Price").
2.2.2 CASH PAYMENT. At the Closing, the Purchaser shall deliver to
the Shareholders $4,600,000 to be paid by wire transfer of immediately available
funds prior to 2:00 p.m. EDST on the Closing Date.
2.2.3 STOCK PAYMENT. Subject to adjustment as provided in this
Section, the balance of the Purchase Price ($4,600,000) shall be paid by
2,044,444 shares of the common stock of PetQuarters (the "Purchase Shares"),
which closed, on the Quotron System, at $2.25 on May 6, 1999 (the "Initial
Closing Price").
If the average closing price (as disclosed on the Quotron System)
of the common stock of PetQuarters for the five trading days
immediately preceding the Closing of the Transaction is less than the
Initial Closing Price, then the number of Purchase Shares shall be
adjusted upward by multiplying the 2,044,444 Purchase Shares by a
fraction, the numerator of which is the Initial Closing Price and the
denominator of which is the 5-day average closing price. As an
alternative to such upward adjustment, Purchaser shall have the option
to make a cash payment to Shareholders that together with the Purchase
Shares at the 5-day average closing price equals the value of the
Purchase Shares at the Initial Closing Price value.
If the average closing price (as disclosed on the Quotron System)
of the common stock of PetQuarters for the five trading days
immediately preceding the Closing of the Transaction is more than the
Initial Closing Price, then the number of Purchase Shares shall be
adjusted
5
<PAGE> 6
downward by multiplying the 2.044,444 Purchase Shares by a fraction,
the numerator of which is the Initial Closing Price and the denominator
of which is the 5-day average closing price. In no event, however,
shall Shareholders collectively receive fewer than 1,000,000 Purchase
Shares.
2.2.4 ALLOCATION OF PURCHASE PRICE The Purchase Price shall be
allocated to each of the Shareholders in proportion to his, her or its pro rata
ownership of all Shares, except the Shareholders may, at their sole option and
discretion, allocate up to five percent (5%) of the Purchase Price to Judith
Patterson, employee of the pet care products division of Humboldt.
2.3 PARTIES TO THE AGREEMENT AND TRANSACTION. To the extent that any
provision of this Agreement calls for agreement by the Companies as a party
hereto, such provision shall mean the Companies as they exist prior to
consummation of the Transaction. If, after such consummation, any provision
hereof requires amendment, modification, interpretation, etc., the same may be
accomplished by the Shareholders and the Purchaser, without the participation of
the Companies.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PETQUARTERS AND THE PURCHASER
PetQuarters and the Purchaser hereby represent and warrant to the
Selling Parties:
3.1 ORGANIZATION AND QUALIFICATION. PetQuarters is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arkansas. Prior to Closing, the Purchaser shall be a corporation duly organized,
validly existing and in good standing under the laws of the State of Arkansas.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution and delivery of
this Agreement and the consummation of the Transaction have been duly authorized
and approved by the Board of Directors of PetQuarters and no other corporate
proceedings on the part of PetQuarters are necessary to approve and adopt this
Agreement or to approve the consummation of the Transaction. This Agreement has
been duly and validly executed and delivered by PetQuarters and constitutes a
valid and binding Agreement of PetQuarters, enforceable against PetQuarters in
accordance with its terms.
3.3 BROKERS. PetQuarters acknowledges that Fincom, Inc., and/or Pine
Tree Management Corporation (collectively, the "Brokerage Companies") may be
entitled to a brokerage or finder's fee or commission and PetQuarters assumes
full responsibility to satisfy all claims of the Brokerage Companies to such
fees prior to the Closing, if possible, and to obtain releases from the
Brokerage Companies for any future claims against PetQuarters, the Purchasers,
the Companies or the Shareholders. No other agent, broker, finder, investment
banker, person, Entity or firm acting on behalf of the Purchaser or under its
authority is entitled to any brokerage, finder's or other fee or commission in
connection with this Agreement or the Transaction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SELLING PARTIES
Each of the Selling Parties, jointly and severally, represents and
warrants to PetQuarters and the Purchaser as follows:
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<PAGE> 7
4.1 ORGANIZATION AND QUALIFICATION. The Companies are business
corporations duly organized, validly existing and in good standing under the
laws of the State of Pennsylvania and have the requisite corporate power and
authority to own their properties and carry on their businesses as they are now
being conducted. The Companies are duly licensed or qualified to do business as
foreign corporations, and are in good standing, in each jurisdiction where the
character of the properties owned or leased by them, or the nature of their
activities, are such that qualification as a foreign corporation in that
jurisdiction is required by law, except in any such case where the failure to be
so qualified would not have a material adverse effect on the assets, business,
condition (financial or otherwise), operations or prospects of the Companies.
4.2 CAPITALIZATION; OWNERSHIP OF SHARES. The authorized capital stock
of the Humboldt consists of 100,000 shares of common stock, $1.00 par value, of
which 1,000 shares and no more are issued and outstanding. The authorized
capital stock of Maplewood consists of 10,000 shares of common stock, $1.00 par
value, of which 20 shares and no more are issued and outstanding. The Shares are
duly authorized, validly issued, fully paid and nonassessable, and have been
issued in compliance with federal and state securities laws. There are no
outstanding subscriptions, options, warrants, convertible instruments or other
rights, agreements or commitments obligating the Companies to sell or issue, or
to require the Shareholders to sell or otherwise transfer, any capital stock or
other securities of the Companies. All of the issued and outstanding Shares are
owned of record and beneficially by the Shareholders, free and clear of any
liens, encumbrances, security interests, options, pledges, agreements, claims,
charges or restrictions of any nature whatsoever. The Shareholders have full
power to transfer the Shares to the Purchaser without obtaining the consent or
approval of any other person, Entity or governmental authority.
4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. This Agreement has been duly
and validly executed and delivered by the Selling Parties and constitutes a
valid and binding Agreement of each of the Selling Parties enforceable in
accordance with its terms. The Companies have all requisite corporate power and
authority to enter into this Agreement and to carry out the Transaction, and
their doing so has been duly and sufficiently authorized by the Board of
Directors of the Companies and the Shareholders.
4.4 ABSENCE OF BREACH; NO CONSENTS. The execution, delivery, and
performance of this Agreement, and the performance by the Companies and the
Shareholders of their respective obligations hereunder will not (i) violate or
conflict with any of the provisions of the Articles of Incorporation or Bylaws
of the Companies as amended to the date hereof; (ii) contravene any law,
ordinance, rule, or regulation of any State or political subdivision thereof or
of the United States or of any applicable foreign jurisdiction, or contravene
any order, writ, judgment, injunction, decree, determination, or award of any
court or other authority having jurisdiction, or cause the suspension or
revocation of any authorization, consent, approval, or license, presently in
effect, which affects or binds the Companies or any of their material
properties; (iii) result in a breach of any term or provision of, or constitute
a default under, or result in the acceleration of or entitle any party to
accelerate (whether after the giving of notice or the lapse of time or both) any
obligation under, or result in the creation or imposition of any lien, charge,
pledge, security interest or other encumbrance of all or any part of the
property of the Companies pursuant to any provision of, any order, judgment,
arbitration award, injunction, decree, indenture, mortgage, lease, license, lien
or other agreement or instrument to which the Companies or the any of the
Shareholders are a party or by which any of them is bound; (iv) require the
authorization, consent, approval of, or license, declaration, filing or
registration with, any governmental or regulatory authority or any third party;
or (v) constitute grounds for the loss or suspension of any permits, licenses,
or other authorizations used in the business of the Companies.
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<PAGE> 8
4.5 BROKERS. Except as set forth in Section 3.3 hereof, no agent,
broker, finder, investment banker, person, Entity or firm acting on behalf of
the Selling Parties or under their authority is entitled to any brokerage,
finder's, or other fee or commission in connection with this Agreement or the
Transaction.
4.6 FINANCIAL STATEMENTS. Correct copies of the Financial Statements
and the Interim Financial Statements have been provided to PetQuarters, together
with financial statements for each of the four years in the period beginning
January 1, 1994 and ending December 31, 1997. The Financial Statements (i)
fairly and accurately present the financial position and condition of the
Companies as at the dates thereof and for the periods then ended, in accordance
with GAAP (except as otherwise stated therein), (ii) are complete, correct and
in accordance with the books of account and records of the Companies and (iii)
can be legitimately reconciled with the financial records maintained and the
accounting methods applied by it for federal income tax purposes. The Interim
Financial Statements were prepared in a manner consistent with the basis of
presentation used in the Financial Statements, and fairly and accurately present
the financial position and condition of the Companies as at and for the periods
indicated, in accordance with GAAP, subject to normal year-end adjustments. From
the date hereof through the Closing Date, the Company will continue to prepare
financial statements on the same basis that it has done so in the past, will
promptly deliver the same to PetQuarters, and each Selling Party agrees that
from and after such delivery the foregoing representations will be applicable to
each financial statement so prepared and delivered.
4.7 NO UNDISCLOSED LIABILITIES. To the knowledge of the Companies and
the Shareholders, the Companies do not have any Liabilities which are not
adequately reflected or reserved against on the face of the Company Balance
Sheets, except Liabilities reflected in the Interim Financial Statements or
incurred since the date of the Company Balance Sheet in the ordinary course of
business and consistent with past practice, in each case in normal amounts and
none of which is materially adverse, or except as otherwise disclosed herein.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS SINCE MAY 6, 1999. Since May
6, 1999, the Companies have not, except as set forth on Schedule 4.8 hereof:
(i) experienced any material adverse change in the assets,
business, condition (financial or otherwise), operations, or prospects
of the Companies;
(ii) suffered any damage, destruction, or loss, whether covered by
insurance or not, having a material adverse effect on the assets,
business, condition (financial or otherwise), operations, or prospects
of the Companies;
(iii) entered into, amended or terminated any material commitment,
contract, agreement, or transaction (including, without limitation, any
material borrowing or capital expenditure or sale or other disposition
of any material asset or assets) of or involving the Companies other
than this Agreement and agreements executed in the ordinary course of
business;
(iv) redeemed, repurchased or otherwise acquired for value its
capital stock, or issued any of its capital stock or securities
convertible into or rights to acquire any such capital stock, or
declared, set aside or paid any dividend or distribution on its capital
stock;
(v) transferred or granted any rights under any of its material
leases, licenses, agreements, patents, trademarks, trade names, or
copyrights;
8
<PAGE> 9
(vi) transferred, leased or otherwise disposed of any its assets or
properties other than in the ordinary course of business and consistent
with past practice or, except in the ordinary course of business and
consistent with past practice, acquired any assets or properties, or
entered into any agreement relating to the foregoing;
(vii) mortgaged, pledged, or subjected to any lien or other
encumbrance any of its assets or properties, other than in the ordinary
course of business, or entered into any agreement relating to the
foregoing;
(viii) made or granted any wage or salary increase applicable to
any group or classification of employees generally, entered into any
employment contract with, or made any loan to, or entered into any
material transaction with, any officer or employee, or changed the
nature of any supplemental benefits provided to any such executives or
other employees; or
(ix) modified inventory levels in relation to sales levels, other
than in the ordinary course of business and consistent with past
practice.
4.9 TAXES. The Companies have duly and timely filed or caused to be
filed all federal, state, local and foreign Tax returns (including, without
limitation, consolidated and/or combined Tax returns), reports, and declarations
that are required by applicable law to be filed by it, and has paid, or made
full and adequate provision for the payment of, all federal, state and local
income and other Taxes shown to be due for the periods covered by such returns,
reports, and declarations, except such taxes, if any, as are adequately reserved
against in the Company Balance Sheet. Except as set forth on Schedule 4.9
hereof, no deficiency in payment of Taxes for any period has been asserted by
any taxing body and remains unsettled at the date hereof. Copies of all federal
and state tax returns of the Companies for the last five years have been made
available for inspection by PetQuarters.
4.10 NO BREACH OR DEFAULT. The Companies are not in breach, violation
or default under any contract to which they are a party or by which they are
bound, nor has any event occurred which, after the giving of notice or the
passage of time or both, would constitute a breach, violation or default under
any such contract, and the Companies have not received notice of any claim or
assertion that they are or may be in any such breach, violation or default. The
Selling Parties have no reason to believe that the parties to such contracts
will not fulfill their obligations under such contracts in all material respects
or are threatened with insolvency.
4.11 LITIGATION.
4.11.1 Schedule 4.11 hereof sets forth a list and a summary
description of all pending or, to the knowledge of the Companies or any of the
Shareholders, threatened actions, suits, proceedings, disputes or investigations
by or against the any of the Shareholders, the Companies or any of their
respective officers, directors, employees, agents or affiliates involving,
affecting or relating to any assets, properties or operations of the Companies
or the transactions contemplated by this Agreement, setting forth, with respect
to each action, suit, proceeding, dispute or investigation, (i) any reserves
reflected in the Interim Financial Statements and (ii) the existence and extent
of insurance coverage.
4.11.2 Except as set forth on Schedule 4.11 hereof, there are no
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Companies or any of the Shareholders, threatened before any
federal, state or local court or governmental or regulatory authority, domestic
or foreign, or before any arbitrator of any nature, brought by or against any of
the Shareholders, the Companies or any of their respective officers, directors,
employees, agents or affiliates involving, affecting or relating to any assets,
properties or operations of the Companies or the transactions
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contemplated by this Agreement, nor does there exist any fact which might
reasonably be expected to give rise to any such suit, proceeding, dispute or
investigation.
4.11.3 Except as set forth on Schedule 4.11 hereof, neither the
Companies nor any of their assets or properties is subject to any order, writ,
judgment, award, injunction or decree of any federal, state or local court or
governmental or regulatory authority or arbitrator, which adversely affects or
might reasonably be expected to affect the assets, properties, business
operations, prospects, net income or financial condition of the Companies or
which would or might reasonably be expected to interfere with the transactions
contemplated hereby.
4.12 EMPLOYEES, ETC. Except as disclosed in Schedule 4.12 hereof, there
are no collective bargaining, bonus, profit sharing, compensation, or other
plans, agreements, trusts, funds, or arrangements maintained by the Companies
for the benefit of their directors, officers, or employees, and there are no
employment, consulting, severance, or indemnification arrangements, agreements
or understandings between the Companies, on the one hand, and any current or
former directors, officers, or other employees (or affiliates thereof) of the
Companies, on the other hand. Schedule 4.12 hereof identifies each person of the
eleven persons whose income from the Companies in the fiscal year ended on the
date of the Company Balance Sheets exceeded, or whose income from the Companies
in the fiscal year begun immediately thereafter is at a rate exceeding,
$25,000.00 per annum, and describes any contractual arrangement for the
employment or compensation of each such person. The Companies are not, and
following the Closing will not be, bound by any express or implied contract or
agreement to employ, directly or as a consultant or otherwise, any person for
any specific period of time or until any specific age except as specified in
agreements in writing identified on Schedule 4.12 hereof.
4.13 COMPLIANCE WITH LAWS. Except as set forth on Schedule 4.13 hereof,
the Companies are not in default with respect to any order of any court,
governmental authority or arbitration board or tribunal to which the Companies
are a party or are subject. Except as set forth on Schedule 4.13 hereof, to the
knowledge of the Companies and the Shareholders, the Companies are in compliance
with all, and have received no notice of any violation of any laws, ordinances,
governmental rules or regulations applicable to their operations, including
without limitation the use of premises occupied by them, or with respect to
which compliance is a condition of engaging in any aspect of the business of the
Companies and have all authority permits, licenses, zoning rights, and other
governmental authorizations necessary to conduct their businesses as presently
conducted.
4.14 REAL PROPERTY.
4.14.1 Schedule 4.14A hereof provides a legal description of all
real property owned, either in whole or in part, by the Companies (the "Owned
Real Property"). Schedule 4.14B hereof provides a legal description of the Real
Property owned by the Shareholders and currently leased to and used by the
Companies. Copies of all title insurance policies, surveys, title reports, deeds
or other documents relating to the Owned Real Property or vesting title to such
Owned Real Property in the Companies have been provided to PetQuarters or its
representatives. The Owned Real Property and the Real Property are herein
referred to collectively as the "Utilized Real Property". With respect to each
property included in the Utilized Real Property, except as set forth on Schedule
4.14C hereof:
(i) the Companies or the Shareholders, as the case may be,
currently have in place commercial general liability insurance with
respect to damage or injury to person, Entity or property occurring in
the Utilized Real Property and fire and extended coverage property
insurance policies (collectively "Policies") as represented to
PetQuarters by the presentation of certificates of insurance; the
Policies are in full force and effect and all premiums due thereunder
have been paid; and neither of the Companies nor any Shareholder has
received any notice from
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any insurance company or the insurance companies which issued the
Policies, stating (or indicating) that any of the Policies will not be
renewed or will be renewed at a substantially higher premium than is
presently payable therefor;
(ii) neither of the Companies nor any Shareholder has received any
notice from any insurance company which has issued a policy with
respect to the Utilized Real Property or from any board of fire
underwriters (or other body exercising similar functions) claiming any
defects or deficiencies in the Utilized Real Property or suggesting or
requesting the performance of any repairs, alterations, or other work
to the Utilized Real Property ("Defect Notice");
(iii) to the best knowledge of the Shareholders: all roads, parking
areas, curbs, sidewalks, sewers and other utilities and improvements
included within the Utilized Real Property (collectively, the
"Improvements"), have been completed, constructed, and installed
substantially in accordance with the plans and specifications therefor
approved by the governmental authorities having jurisdiction, and all
permanent certificates of occupancy and all other licenses, permits,
authorizations, consents, certificates and approvals required by all
governmental authorities having jurisdiction and the requisite
certificates of the local board of fire insurance underwriters (or
other body exercising similar functions) have been issued for the
Utilized Real Property (and all individual items constituting the
Utilized Real Property), have been paid for, and are in full force and
effect, and none of them will be invalidated, violated, or otherwise
adversely affected by the transfer of the Shares to the Purchaser;
(iv) to the best knowledge of the Shareholders: the Improvements
have been constructed in accordance with all applicable laws, rules,
regulations, ordinances and codes and are being maintained and operated
in compliance with all applicable laws, regulations, insurance
requirements, contracts, leases, permits, licenses, ordinances,
restrictions, and easements, and neither of the Companies nor any
Shareholder has received any notice, written or verbal, claiming any
violation of any of the same;
(v) to the best knowledge of the Shareholders: the construction and
current operation and use of the Improvements do not violate any
zoning, subdivision, building or similar law, ordinance, order or
regulation or any certificate of occupancy issued for, or any
restrictive covenant or other restriction, whether a real or personal
covenant or equitable servitude, which may be applicable to the
Utilized Real Property existing as of the making of this representation
and warranty;
(vi) to the best knowledge of the Shareholders: the location,
construction, occupancy, operation, and use of the Utilized Real
Property do not violate any applicable law, statute, ordinance, rule,
regulation, order, or determination of any governmental authority or
any board of fire underwriters (or other body exercising similar
functions), or any restrictive covenant or deed restriction (recorded
or otherwise) affecting the Utilized Real Property, including without
limitation all applicable zoning ordinances and building codes, flood
disaster laws, Americans with Disabilities Act, and health and
environmental laws and regulations;
(vii) to the best knowledge of the Shareholders: no portion of the
Utilized Real Property and no method of operation of the Utilized Real
Property (whether now used or contemplated) is now in violation or, to
the extent any such provisions are implemented as contemplated, will be
in violation of any law, ordinance, code, rule, order, regulation or
requirement of any governmental authority or of any local board of fire
underwriters (or other body exercising similar functions), or agreement
to which either of the Companies or any
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Shareholder is a party existing as of the making of this representation
and warranty, and there are no presently outstanding and uncured
notices of such violations;
(viii) to the best knowledge of the Shareholders: water, sanitary
sewer, storm sewer, drainage, electric, telephone, gas and other public
utility systems and lines serve the Utilized Real Property and are
directly connected to the lines and/or other facilities of the
respective public authorities or utility companies providing such
services or accepting such discharge, either adjacent to the Utilized
Real Property or through easements or rights of way appurtenant to and
forming a part of the Utilized Real Property; and any such easements or
rights-of-way have been fully granted, and all charges therefor have
been fully paid by the Companies, and all charges for the aforesaid
utility systems and the connection of the Utilized Real Property
thereto, including without limitation connection fees, "tie-in" charges
and other charges now or hereafter to become due and payable, have been
fully paid by the Companies;
(ix) to the best knowledge of the Shareholders: all contractors,
subcontractors, and other persons or Entities furnishing work, labor,
materials or supplies to the Companies, or their predecessors in
interest for the development and construction of the Utilized Real
Property have been paid in full for all work performed to date except
for retainage in customary amounts in accordance with the construction
contracts for the Utilized Real Property, and there are no claims
against the Companies, any Shareholder or any Utilized Real Property in
connection therewith;
(x) to the best knowledge of the Shareholders: no zoning variances,
special exceptions or other special relief from applicable governmental
requirements have been issued for construction on the Utilized Real
Property or for its present or intended use, except for certain signage
requirements for which a variance has been issued to permit a larger
sign than normally allowed;
(xi) to the actual knowledge of the Shareholders: the existing
Improvements located upon the Utilized Real Property do not encroach
upon existing utility company easements, and no existing restrictions
are or will be violated by the Improvements located on the Utilized
Real Property;
(xii) neither of the Companies nor any Shareholder has received any
notice of, nor to the best of Shareholders' knowledge, is there any
governmental regulation, order or requirement restricting the operation
of the Utilized Real Property in the manner in which the Utilized Real
Property is being operated on the date hereof;
(xiii) neither of the Companies nor any Shareholder has received
any written notice of, nor to the best of Shareholders' knowledge, is
there any proceeding pending for the increase or decrease of the
assessed valuation of all or any portion of the Utilized Real Property;
(xiv) neither the Company nor any Shareholder has received any
notice of, nor to the best of Shareholders' knowledge, is there any
condemnation proceeding or other proceedings in the nature of eminent
domain in connection with the Utilized Real Property;
(xv) to the best knowledge of the Shareholders: no portion of the
Utilized Real Property is located within an area designated as a flood
hazard area or an area which will require the purchase of flood
insurance for the obtaining of any federally insured or federally
related loan; and no portion of the Utilized Real Property is located
in any conservation or historic district;
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(xvi) to the best knowledge of the Shareholders: no assessments for
public improvements have been made against the Utilized Real Property
which remain unpaid and all such assessments which have been or could
be levied for public improvements ordered, commenced or completed prior
to the Closing Date have been paid for in full by the Companies;
(xvii) to the best knowledge of the Shareholders: there are no
special assessments respecting the Utilized Real Property which will
result from work, activities or improvements done to the Utilized Real
Property by the Companies, in the course of construction, alteration or
repair of the Utilized Real Property; and
(xviii) to the best knowledge of the Shareholders: there are no
unpaid bills or claims in connection with any repair of the
Improvements or other work performed or material purchased in
connection with the Utilized Real Property.
(xix) to the best knowledge of the Shareholders: the Companies are
not in default with respect to any lease or agreement between the
Companies and the Shareholders concerning the Real Property (the
"Shareholder Lease"). Specifically, the Companies have performed all
obligations required to be performed by them to date under, and are not
in default in respect of, the Shareholder Lease, and no event has
occurred which, with due notice or lapse of time or both, would
constitute such a default.
(xx) PetQuarters, the Purchaser and the Companies shall have the
right to lease the Real Property from the Shareholders for a period of
five (5) years from the 1st day of the month following the Closing
Date, pursuant to the terms and in accordance with the lease attached
hereto as Exhibit A, for $20,000 per month. Rental payments from the
Closing Date to the 1st date of the month following the Closing Date
shall be prorated on a daily basis utilizing the actual days of the
month and a $20,000 per month rental rate.
(xxi) PetQuarters, the Purchaser and the Companies shall have the
option to purchase the Real Property and all Improvements contained
thereon from the Shareholders for a period of five (5) years from the
Closing Date for a purchase price of $2,500,000, in accordance with the
terms set forth in the Option to Purchase Agreement attached hereto as
Exhibit B.
4.14.2 Schedule 4.14D hereof identifies the real property leased or
subleased by the Companies (the "Leases"). The Companies have not received any
written notification that they are in default with respect to any of the Leases
nor are there any disputes between any landlord and the Companies with respect
to the Leases that would affect the right of the Companies to remain in
possession or otherwise affect the current use of the property leased or the
rental amount then due. Except as set forth in Schedule 4.14D hereof, the
Companies have performed all obligations required to be performed by them to
date under, and are not in default in respect of, any Lease, and no event has
occurred which, with due notice or lapse of time or both, would constitute such
a default. To the best of the Companies' knowledge, no other party to any Lease
is in default in respect thereof, and no event has occurred which, with due
notice or lapse of time or both, would constitute such a default.
4.14.3 True and complete copies of all Leases including the Shareholder
Lease, have been made available to PetQuarters or its representatives.
4.14.4 The consummation of the Transaction will not affect in any way,
or result in the termination of, any of the Companies' Leases, particularly
those necessary to support activities licensed by federal, state or local
regulatory authorities.
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4.15 ASSETS. Schedule 4.15 hereof lists all of the Companies' fixed
assets including, but not limited to, all motor vehicles, machinery, equipment,
furniture, fixtures, inventory and other tangible personal property owned,
leased or used by the Companies.
4.16 TITLE TO PROPERTY; ENCUMBRANCES. The Companies have good, valid
and, in the case of real properties identified in Schedule 4.14A, indefeasible
title to all of their properties and assets (including those assets and
properties shown on the Interim Financial Statements or thereafter acquired)
(except for (i) inventory subsequently sold or otherwise disposed of for fair
value in the ordinary course of business consistent with past practice, (ii)
accounts receivable subsequently collected in the ordinary course of business
consistent with past practice, (iii) immaterial amounts of inventory, machinery
and equipment that have been determined to be obsolete or otherwise not
necessary and have been disposed of in the ordinary course of business
consistent with past practice, and (iv) those assets of the Companies that are
leased), in each case free and clear of all Encumbrances except for any
Encumbrance reflected on Schedule 4.16 hereof. The Companies do not know of any
potential action by any party, governmental or other, and no proceedings with
respect thereto have been instituted of which the Companies have notice, that
would materially affect the Companies' ability to use and to utilize each of
such assets in their businesses. The Companies have received no notices from any
mortgagee regarding any properties leased by the Companies.
4.17 PROPRIETARY RIGHTS. The Companies possess full ownership of, or
adequate and enforceable long-term licenses or other rights to use (without
payment), all Proprietary Rights owned by or registered in the name of the
Companies or used in the businesses of the Companies; the Companies have not
received any notice of conflict which asserts the rights of others with respect
thereto and are not aware of any infringing use of any of their Proprietary
Rights; and the Companies have in all material respects performed all of the
obligations required to be performed by them, and are not in default in any
material respect, under any agreement relating to any Proprietary Right.
4.18 SUBSIDIARIES; AFFILIATED ENTITIES. The Companies have no
subsidiaries. The Companies do not own, directly or indirectly, a majority or
controlling equity or related interest in any partnership, corporation, joint
venture, business association or other Entity. No part of the Companies'
businesses are conducted through Entities other than the Company.
4.19 TRADE NAMES. The Companies do use several fictitious business
names or trade names. The Companies are also known as: The Home Pet Shop,
Maplewood Crafts, Holiday Handicrafts, Humboldt Outlet Store, Master Animal
Care, Discount Master Animal Care and Dog Outfitters. All of the above listed
fictitious business names are trade names, and the business represented thereby
and conducted thereunder, shall be transferred to the Purchaser upon Closing.
The above listed fictitious business names or trade names are the only
fictitious business names or trade names under which either of the Companies
does business.
4.20 EMPLOYEE BENEFIT PLANS. Except as disclosed on Schedule 4.20
hereof, the Companies do not maintain or contribute to any Pension Plan or any
Welfare Plan, nor are the Companies presently, nor have they been within the
last six years, a participating employer in any "multiemployer plan" (as defined
in ERISA Section 3(37) or Section 414(f) of the Code). There has been no
termination of a Pension Plan, whether partial or complete, within the meaning
of Title IV of ERISA, that has occurred during the five-year period ending on
the date hereof. The Companies have no knowledge of any material liability being
incurred under Title IV of ERISA by the Company with respect to any Pension Plan
maintained by a trade or business (whether or not incorporated) which is under
common control with, or part of a controlled group of corporations with, the
Companies, within the meaning of Sections 414(b) or (c) of the Code.
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4.21 ACCOUNTS RECEIVABLE. All Receivables of the Companies, whether or
not reflected in the Company Balance Sheets, represent transactions in the
ordinary course of business, and are current and collectible net of any reserves
shown on such Balance Sheet (which reserves are adequate and were calculated
consistent with past practice). Schedule 4.21 hereof specifically identifies all
Receivables as of the date hereof (subject to posting of sales in accordance
with the Companies' customary practices) and the aging of such Receivables.
4.22 INVENTORIES. The Inventories of the Companies consist of items of
a quality and quantity usable and salable in the ordinary course of business by
the Companies, except for obsolete items and items below standard quality, all
of which have been written down on the books of the Companies to net realizable
market value or have been provided for by adequate reserves. All items included
in the Inventories are the property of the Companies, except for sales made in
the ordinary course of business; for each of those sales, either the purchaser
has made full payment or the purchaser's liability to make payment is reflected
in the Companies' books. No items included in the Inventories have been pledged
as collateral (except as disclosed on Schedule 4.22 hereof) or are held by the
Companies on consignment from others.
4.23 CONTRACTS. Except as identified on Schedule 4.23 hereof, the
Companies have no contracts, agreements, or understandings, whether express or
implied, written or oral; provided, however, that the Companies may have, and
Schedule 4.23 hereof does not identify, any such contracts, agreements, or
understandings that fall into one of the following categories: (a) those that
are terminable on notice of less than thirty-two (32) days and do not involve
payments or obligations of more than $2,000 in any period of thirty-one (31)
days or less (on termination or otherwise); or (b) those that involve aggregate
payments or obligations of less than $15,000. Schedule 4.23 hereof does,
however, identify each contract otherwise exempt from disclosure by (b) above if
the Companies' obligations, in the aggregate, under all such contracts,
agreements or understandings with persons or Entities similarly situated (e.g.,
all nonunion employees, all suppliers, all licensees, or all landlords) exceeds
$10,000 per annum. Schedule 4.23 hereof includes a brief summary of each such
contract, agreement or understanding identified therein, or of the type of such
contracts and the aggregate exposure or commitment under similar contracts in
the case of contracts included by reason of the preceding sentence.
4.24 ACCOUNTS PAYABLE. The accounts payable reflected on the Company
Balance Sheets do, and those reflected in the most recent balance sheet included
in the Interim Financial Statements do, and those reflected on the books of the
Companies at the time of the Closing will, reflect all amounts owed by the
Companies in respect of trade accounts due and other Payables, and the actual
Liability of the Companies in respect of such obligations was not, and will not
be, on any of such dates, in excess of the amounts so reflected on the balance
sheets or the books of the Companies, as the case may be. It is agreed, however,
that all amounts owed to Shareholders shall be contributed to Shareholders'
equity prior to Closing.
4.25 LABOR MATTERS. Except as set forth on Schedule 4.25 hereof, there
are no activities or controversies, including, without limitation, any labor
organizing activities, election petitions or proceedings, proceedings
preparatory thereto, unfair labor practice complaints, labor strikes, disputes,
slowdowns, or work stoppages, pending or, to the best of the knowledge of the
Companies, threatened, between the Companies and any of their employees.
4.26 INSURANCE. The Companies have provided copies of each of the
Companies' insurance policies to PetQuarters. The Companies have not within the
past three (3) years received any notice of cancellation of any insurance
agreement. The Companies do not have any material claims pending under any of
its insurance policies. The Companies will maintain all of the insurance
policies in full force and effect during the period of time between the
execution of this Agreement and the Closing.
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4.27 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 4.27
hereof:
(i) to the best knowledge of the Shareholders: the Companies and
their operations, including as applicable their personnel, equipment,
facilities and owned or leased premises (collectively "the Company
and/or its operations") have obtained and continue to hold all
Environmental Permits which are required under all applicable
Environmental Laws;
(ii) to the best knowledge of the Shareholders: the Companies and
their operations are in substantial compliance with all Environmental
Permits and Environmental Laws and have not received notice from a
federal, state or local authority that the Companies or their
operations have violated any of the foregoing; nor have the Companies
or their operations failed to provide any notification, certification,
report, response, payment or other filing required by a federal, state
or local regulatory agency, Environmental Law, or Environmental Permit;
(iii) to the best knowledge of the Shareholders: neither the
Companies nor their operations are subject to any judicial,
governmental, regulatory, or administrative proceeding alleging the
violation of any Environmental Permit or Environmental Law, or seeking
to suspend, revoke, involuntarily amend or modify, or not renew any
Environmental Permit or activity authorized thereunder;
(iv) to the best knowledge of the Shareholders: none of the
Companies' operations are on the "CERCLIS" list or the "National
Priorities List" of the U.S. Environmental Protection Agency ("EPA"),
or any similar state list, or the subject of any federal, state or
local investigation evaluating whether any remedial action is needed to
respond to a Release of any Hazardous Material;
(v) to the best knowledge of the Shareholders: the Companies and
their operations have not Released any Hazardous Material in quantities
that are reportable under Environmental Laws (other than a Release
authorized by an Environmental Permit); nor are the Companies or their
operations persons who own or operate, or who at the time of disposal
owned or operated, or who accepted Hazardous Material for transport and
selected, a facility at which Hazardous Material is or has been stored,
treated, or disposed of, and which did not or does not have all
necessary Environmental Permits; nor have the Companies or their
operations provided any notification of such a Release or facility to
required federal, state and local regulatory authorities;
(vi) to the best knowledge of the Shareholders: the Companies and
their operations have no contingent or actual liability in connection
with any Release of any Hazardous Material into the workplace or the
environment; nor does any parent, subsidiary, affiliated Entity, or
predecessor have any such liability for which the Companies and their
operations have been or may be held liable;
(vii) to the best knowledge of the Shareholders: the Companies and
their operations have not caused, suffered or allowed the performance
or omission of any act and know of no condition which could give rise
to liability now or in the future to any person or Entity under any
Environmental Laws, nor have the Companies or their operations received
notice of any such liability or any claim therefor, including without
limitation notice of a removal, remedial, or response action, or a
possible cost-recovery or contribution claim, by a federal, state or
local regulatory authority, or by a third person;
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(viii) to the best knowledge of the Shareholders: no Hazardous
Material is present or has been Released on, at, beneath or near any of
the Companies' or their operations' past or present facilities or
properties with the exception of such Hazardous Materials authorized
for receipt and actually managed at those facilities and properties in
accordance with all applicable Environmental Laws and Environmental
Permits; and no Hazardous Material is present or has been Released
beyond the authorized waste management areas, including to any surface
water or groundwater on, at, beneath or, to the Shareholders'
knowledge, near the facilities or properties;
(ix) to the best knowledge of the Shareholders: the Companies and
their operations do not own or operate, nor have they ever owned or
operated, an underground or aboveground storage tank, nor is any such
tank located on or under any of the real properties leased or owned by
the Companies or their operations; and
(x) to the best knowledge of the Shareholders: the Companies have
never sold or manufactured any product containing asbestos or
polychlorinated biphenyls.
4.28 YEAR 2000 COMPLIANCE. To the knowledge of the Shareholders: the
Companies' hardware, software, computer systems, chips and microprocessors have
been modified, or are in the process of being modified, as necessary to ensure
proper execution and accurate processing of all date-related data, whether from
years in the same century or in different centuries.
4.29 CUSTOMERS AND SUPPLIERS. Except as set forth on Schedule 4.29
hereof:
(i) neither the Shareholders nor the Companies has received notice
that, nor do any of them have any knowledge that, any Customer of
either of the Companies who accounted for more than 5% of either of the
Companies' sales in its most recently completed fiscal year has, will
or plans to discontinue doing business with the applicable Company;
(ii) the Companies do not have any outstanding purchase contracts
or commitments or unaccepted purchase orders which are in excess of the
normal, ordinary and usual requirements;
(iii) no supplier or subcontractor to the Companies has reduced
its shipments of orders issued by the Companies, or threatened to
discontinue, supplying such items or services to the Companies on
reasonable terms;
(iv) neither the Shareholders nor the Companies have received
notice that, nor do any of them have any knowledge that, any such
supplier or subcontractor has, will or plans to discontinue doing
business with the Companies on substantially the same terms as are
consistent with its past practices; and
(v) neither the Shareholders nor the Companies have received
notice that, nor do any of them have any knowledge that, any such
supplier or subcontractor has, will or plans to add any additional
distributors of such suppliers' or subcontractors' products or services
within the Companies' marketing areas.
4.30 ACCURACY OF INFORMATION. None of the Companies' or the
Shareholders' representations, warranties or statements contained in this
Agreement, in the Schedules and Exhibits hereto or in any other document
delivered to Purchaser in connection with the transactions contemplated by this
Agreement, contains or will contain any untrue statement of a material fact or
omits to state any
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material fact necessary in order to make any of such representations, warranties
or statements, in light of the circumstances under which they were made, not
misleading.
4.31 JURISDICTIONS. Schedule 4.31 contains a list of all jurisdictions
in which either Company is presently licensed or qualified to do business. The
Companies have complied in all material respects with all applicable laws of
each such jurisdiction and all applicable rules and regulations of each
regulatory agency therein. The Companies (i) have not been denied admission to
conduct any type of business in any jurisdiction in which they are not presently
admitted as set forth in such Schedule 4.31 hereof; (ii) have not had their
license or qualifications to conduct business in any jurisdiction revoked or
suspended; or (iii) have not been involved in any proceeding to revoke or
suspend a license or qualification.
4.32 RECORDS. The Companies and the Shareholders have delivered or made
available to PetQuarters and its counsel true and complete copies of their
articles of incorporation, bylaws, minutes of all meetings of directors and
shareholders and certificates reflecting all actions taken by the directors or
shareholders without a meeting, partnership agreements and certificates, and
other organizational documents of the Companies, and such documents are, except
as stated therein, in full force and effect on the date hereof. After
consummation of the transaction contemplated hereby, all such documents of the
Companies shall remain with the Companies or Purchaser, but the Shareholders may
have access to and make copies of all such documents as necessary for them to
complete any necessary Tax returns or for any other lawful purpose not in
violation of Article VI of this Agreement.
4.33 ACTIONS SINCE BALANCE SHEET DATE. Except as set forth on Schedule
4.33 hereof, since the date of the Company Balance Sheets, the Companies have
taken no actions that would be prohibited under the provisions of this Agreement
(without the prior consent of the Purchaser) after the date of this Agreement.
ARTICLE V
COVENANTS OF THE PURCHASER AND PETQUARTERS
5.1 AFFIRMATIVE COVENANTS. From the date hereof through the Closing
Date, PetQuarters and the Purchaser will take every action reasonably required
of it in order to satisfy the conditions to Closing set forth in this Agreement
and otherwise to ensure the prompt and expedient consummation of the Transaction
substantially as contemplated hereby, and will exert all reasonable efforts to
cause the Transaction to be consummated, provided in all instances that the
representations and warranties of the Selling Parties in this Agreement are and
remain true and accurate and that the covenants and agreements of the Selling
Parties in this Agreement are honored and that the conditions to the obligations
of the Purchaser set forth in this Agreement are not incapable of satisfaction.
5.2 CONFIDENTIALITY OF INFORMATION. Except as and to the extent
required by law, PetQuarters and the Purchaser will not disclose or use, and
will direct their representatives not to disclose or use to the detriment of the
Selling Parties, any Confidential Information (as defined below) with respect to
the Company furnished, or to be furnished, by either the Selling Parties or
their respective representatives to PetQuarters, the Purchaser or their
representatives at any time or in any manner other than in connection with its
evaluation of the Transaction; provided, however, that any disclosure or use
that is deemed necessary by PetQuarters or the Purchaser in their reasonable
discretion to determine the transferability of any and all operating permits
shall not be deemed to be a violation of this Section 5.2. "Confidential
Information" means any information about the Company stamped "confidential" or
identified in writing as such to PetQuarters or the Purchaser by any of the
Selling Parties promptly following its disclosure (and specifically includes any
Company Disclosure Statements delivered to
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PetQuarters or the Purchaser), unless (a) such information is already known to
PetQuarters or the Purchaser or their representatives or to others not bound by
a duty of confidentiality or such information becomes publicly available through
no fault of PetQuarters or the Purchaser or their representatives, (b) the use
of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
Transaction, or (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings. Upon the written
request of the Company in the event this Agreement is terminated for any reason
prior to Closing, PetQuarters and the Purchaser will promptly return to the
Company or destroy any Confidential Information in their possession and certify
in writing to the Company that they have done so.
5.3 EXPENSES. Whether or not the Transaction is consummated, all costs
and expenses incurred by PetQuarters and the Purchaser in connection with this
Agreement and the Transaction shall be paid by the Purchaser.
5.4 UNREGISTERED SECURITIES. The Purchaser acknowledges that the Shares
are not registered under the Securities Act of 1933 nor under the Arkansas
Securities Act nor under the Pennsylvania Securities Act and represents and
warrants as follows:
(i) The Purchaser is acquiring the Shares for its own account
solely for the investment purposes and not with a view to resell said
Shares.
(ii) The Purchaser has such knowledge and experience in business
and financial matters as to enable it to be capable of evaluating the
risks and merits of this investment.
(iii) The Purchaser is able to bear the economic risks of an
investment in the Shares.
(iv) The Shares will not be resold or otherwise transferred or
assigned without appropriate compliance with the registration
provisions of the Securities Act of 1933 and the applicable state Blue
Sky laws or exemption therefrom.
(v) The Purchaser has been provided with or permitted access to
all information which it deems material to formulating an investment
decision and that such information has been sufficient to make an
informed investment decision.
5.5 PIGGYBACK REGISTRATION. If PetQuarters at any time registers its
shares of common stock for sale or resale under the Securities Act of 1933 or
the Arkansas Securities Act (collectively or individually the "Securities
Act(s)") in connection with an underwritten public offering, PetQuarters will
give prompt written notice thereof to the Shareholders. Upon the written request
of the Shareholders made within thirty (30) days after the receipt of such
notice, PetQuarters shall cause the Purchase Shares to be registered under the
applicable Securities Act as part of such underwritten public offering.
PetQuarters shall be solely responsible for all costs, fees and expenses of such
registration, including, but not limited to, all attorney's fees, accountant's
and financial advisor's fees, fees and commissions of investments bankers,
filing fees and expenses, and printing and engraving costs and expenses.
PetQuarters, at its expenses, will furnish the Shareholders with such number of
prospectuses, offering circulars and documents incident to the registration, as
the Shareholders from time to time may reasonably request. If the managing
underwriter shall advise PetQuarters and the Shareholders in writing that the
inclusion in any registration pursuant hereto of some or all of the shares
sought to be registered creates a substantial risk that the proceeds or price
per unit, which the sellers of securities covered by such registration will
derive from the sale of such securities pursuant to such registration, will be
reduced or that the number of securities to be registered (including those
sought to be registered by PetQuarters and those sought to be registered by the
Shareholders) is too large a number to be reasonably sold, then the
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number of Purchase Shares sought to be registered by the Shareholders and the
number of shares of common stock of PetQuarters sought to be registered by any
other shareholders shall be reduced pro rata to the extent necessary to reduce
the number of securities to be registered to the number recommended by the
managing underwriter. In no instance shall PetQuarters be required to reduce the
number of shares of common stock it seeks to register to enable Purchase Shares
or shares owned by other stockholders to be registered. If the number of
Purchase Shares offered for sale pursuant to the public offering is limited by
the managing underwriter, and if the managing underwriter agrees to purchase its
overallotment from shareholders, rather than PetQuarters, the Shareholders shall
have first right to sell to the underwriters to the extent permitted by law
before any other shareholder. PetQuarters shall indemnify the Shareholders and
their personal representatives, heirs and assigns, against all claims, losses,
damages and liabilities (and actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained or made in or as part of the registration (or in any related
registration statement, notification or the like) or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising out or based
on any violation by PetQuarters or any rule or regulation promulgated under the
Securities Acts (or under any state Blue Sky law) applicable to PetQuarters and
relating to any action or inaction required of PetQuarters in connection with
any such registration, and will reimburse the Shareholders and their personal
representatives, heirs and assigns, for any attorney's fees and other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action.
ARTICLE VI
COVENANTS OF THE SELLING PARTIES
6.1 RESTRICTIVE COVENANTS.
(a) CUSTOMER RESTRICTION. Each Shareholder covenants and agrees
that he or she shall not, for a period of two (2) years from and after
the Closing Date, working alone or in conjunction with one or more
other persons or Entities, for compensation or not, (i) provide or
offer to provide to any Customer any product or service similar to that
offered by the Companies immediately prior to the Closing, or (ii)
induce or attempt to induce any Customer to withdraw, curtail or cancel
its business with the Companies, PetQuarters, or the Purchaser or in
any manner modify or fail to enter into any actual or potential
business relationship with PetQuarters, the Purchaser or the Companies.
This restriction shall in no way prohibit the Shareholders from
continuing to provide Customers with those services they currently
provide by or through Pet Enterprises Total Services, Inc., d/b/a
Willow Pet Hotel, Animal Travel Agency or All Dog Grooming
(collectively "Pet Enterprises"), but the Shareholders and Pet
Enterprises may not offer services or products through catalog or
internet sales.
(b) NON-RAID. Each Shareholder covenants and agrees that he or she
shall not, for a period of two (2) years from and after the Closing
Date, working alone or in conjunction with one or more other persons or
Entities, for compensation or not, (i) recruit or otherwise solicit or
induce any person or Entity who is, on the Closing Date or thereafter,
an employee or Vendor of the Companies to terminate their employment
with, or otherwise cease their relationship with, the Companies,
PetQuarters or the Purchaser or any of their respective subsidiaries or
affiliates, or (ii) hire, recruit or otherwise solicit any person or
Entity who, within the six months immediately preceding the Closing
Date, had been an employee or Vendor of the Companies; provided,
however, that clause (ii) shall not prohibit any Shareholder from
hiring, recruiting or soliciting any person or Entity (A) on a
part-time basis or (B) with which the Companies have terminated their
relationship after the Closing Date.
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(c) NONCOMPETITION. Each Shareholder covenants and agrees that
such Shareholder shall not, for a period of two (2) years from and
after the Closing Date, working alone or in conjunction with one or
more other persons or Entities, for compensation or not, permit such
Shareholder's name to be used by or engage in or carry on, directly or
indirectly, either for himself or as a member, stockholder, partner,
investor (other than as an owner of less than 5% of any public traded
Entity), officer or director of an Entity (other than PetQuarters or
the Purchaser or a subsidiary or affiliate of PetQuarters or the
Purchaser) or as an employee, agent, associate or contractor of any
person or Entity (other than PetQuarters or the Purchaser and/or any of
its subsidiaries or affiliates), any business in competition with the
business of the Companies as carried on by the Companies immediately
prior to the Closing, but only for as long as such business is carried
on by (i) the Purchaser and/or any of its subsidiaries or affiliates or
(ii) any person or Entity deriving title from the Purchaser or any of
its subsidiaries or affiliates to the assets and goodwill of the
business being carried on by the Companies immediately prior to the
Closing. The Parties intend that the covenants contained in this
Section 6.1(c) shall be deemed to be a series of separate covenants,
one for each State or country in which the Companies do business
immediately prior to the Closing and, except for geographic coverage,
each such separate covenant shall be identical in terms to the covenant
contained in this Section 6.1(c). This restriction shall in no way
prohibit the Shareholders from continuing to provide Customers with
those services they currently provide by or through Pet Enterprises,
but the Shareholders and Pet Enterprises may not offer services or
products through catalog or internet sales.
(d) REFORMATION. If, in any judicial proceeding, the court shall
refuse to enforce all of the separate covenants contained in Section
6.1(a),6.1(b) or 6.1(c) hereof because the time limit is too long, it
is expressly understood and agreed between the Parties that for
purposes of such proceeding such time limitation shall be deemed
reduced to the extent necessary to permit enforcement of such
covenants. If, in any judicial proceeding, the court shall refuse to
enforce all of the separate covenants contained in Section 6.1(a),
6.1(b) or 6.1(c) hereof because they are more extensive (whether as to
geographic area, scope of business or otherwise) than necessary to
protect the business and goodwill of the Purchaser or any of its
subsidiaries or affiliates, it is expressly understood and agreed
between the Parties that for purposes of such proceeding the geographic
area, scope of business or other aspect shall be deemed reduced to the
extent necessary to permit enforcement of such covenants.
(e) INJUNCTIVE RELIEF. Each Shareholder acknowledges that a breach
of Section 6.1 hereof would cause irreparable damage to PetQuarters and
the Purchaser, and in the event of such Shareholder's actual or
threatened breach of the provisions of Section 6.1 hereof, PetQuarters
and the Purchaser shall be entitled to a temporary restraining order
and an injunction restraining such Shareholder from breaching such
covenants without the necessity of posting bond or proving irreparable
harm, such being conclusively admitted by such Shareholder. Nothing
shall be construed as prohibiting PetQuarters or the Purchaser from
pursuing any other available remedies for such breach or threatened
breach, including the recovery of damages from such Shareholder. Each
Shareholder acknowledges that the restrictions set forth in Section 6.1
hereof are reasonable in scope and duration, given the nature of the
business of PetQuarters and the Purchaser. Each Shareholder agrees that
issuance of an injunction will not pose an unreasonable restriction on
such Shareholder's ability to obtain employment or other work following
the Closing Date.
(f) OTHER AGREEMENTS. The provisions of this Section 6.1 shall be
independent of and in addition to any other agreement between
PetQuarters, the Purchaser or the Companies and any Shareholder
regarding the subject matter of this Section 6.1.
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6.2 AFFIRMATIVE COVENANTS. From the date hereof through the Closing
Date, the Selling Parties will take every action reasonably required of either
of them to satisfy the conditions to Closing set forth in this Agreement and
otherwise to ensure the prompt and expedient consummation of the Transaction
substantially as contemplated hereby, and will exert all reasonable efforts to
cause the Transaction to be consummated, provided in all instances that the
representations and warranties of the Purchaser in this Agreement are and remain
true and accurate and that the covenants and agreements of the Purchaser in this
Agreement are honored and that the conditions to the obligations of the
Companies set forth in this Agreement are not incapable of satisfaction.
6.3 ACCESS AND INFORMATION. The Selling Parties shall afford to
PetQuarters, the Purchaser and to the Purchaser's accountants, counsel and other
representatives reasonable access during normal business hours throughout the
period prior to the Closing to all of the Companies' properties, books,
contracts, commitments, records and personnel, and, during such period, the
Companies shall furnish promptly to the Purchaser (1) all written communications
from the Companies to its directors or to its Shareholders generally, (2) the
Companies' internal monthly financial statements when and as available, and (3)
all other information concerning its business, properties, and personnel as the
Purchaser may reasonably request, but no investigation pursuant to this Section
6.3 shall affect any representations or warranties of the Selling Parties, or
the conditions to the obligations of the Purchaser to consummate the Transaction
contemplated by this Agreement. The Purchaser and its representatives shall
assert their rights hereunder in such manner as to minimize interference with
the business of the Companies.
6.4 NO SOLICITATION. The Selling Parties and those acting on their
behalf will not, and the Companies will use their best efforts to cause their
officers, employees, agents, and representatives (including any investment
banker) not, directly or indirectly, to solicit, encourage, or initiate any
discussions with, or negotiate or otherwise deal with, or provide any
information to, any person or Entity other than the Purchaser and its officers,
employees, and agents, concerning any merger, sale of substantial assets, or
similar transaction involving the Companies or division of the Companies or any
sale of any of their capital stock or of any division. The Companies will notify
the Purchaser immediately upon receipt of any inquiry, offer or proposal
relating to any of the foregoing. None of the foregoing shall prohibit providing
information to others in a manner in keeping with the ordinary conduct of the
Companies' business, or providing information to government authorities.
6.5 CONDUCT OF BUSINESS.
6.5.1 AFFIRMATIVE COVENANTS. The Selling Parties covenant and
agree with the Purchaser that, on and after the date hereof and prior to the
consummation of the Transaction or the termination of this Agreement pursuant to
its terms, the Companies shall, and the Shareholders shall cause the Companies
to:
(i) conduct their business according to the ordinary and
usual course of business consistent with past practice;
(ii) use commercially reasonable efforts to preserve intact
their business organization and goodwill, to keep available the
services of their officers, directors and employees, and maintain
good relationships with suppliers, lenders, creditors,
distributors, employees, customers, licensors, licensees and others
having business or financial relationships with them, and they
shall immediately notify the Purchaser of any event or occurrence
or emergency material to, and not in the ordinary and usual course
of, their business;
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(iii) continue properly and promptly to file when due all
federal, state, local, foreign, and other tax returns, reports, and
declarations required to be filed by them, and will pay, or make
full and adequate provision for the payment of, all taxes and
governmental charges due from or payable by them;
(iv) comply in all material respects with all laws and
regulations applicable to them and their operations;
(v) maintain in full force and effect insurance coverage of a
type and amount customary in their business, but not less than that
presently in effect; and
(vi) maintain their assets and properties in good repair and
in the same condition, reasonable wear and tear excepted, as they
were on the date of this Agreement.
6.5.2 NEGATIVE COVENANTS. Without limiting the generality of the
foregoing, and except for actions listed on Schedule 6.5.2 hereof, without the
Purchaser's prior written consent, the Companies shall not, and the Shareholders
shall cause the Companies not to, on or after the date hereof and prior to the
consummation of the Transaction or the termination of this Agreement pursuant to
its terms:
(i) amend their Articles of Incorporation or Bylaws;
(ii) split, combine, or reclassify any of their outstanding
securities or declare, set aside, or pay any dividend or other
distribution on or make or agree or commit to make any exchange for
or redemption of any such securities payable in cash, stock, or
property;
(iii) issue or agree to issue any additional shares of, or
rights of any kind to acquire any shares of, their capital stock of
any class, enter into any contract, agreement, commitment, or
arrangement with respect to any of the foregoing or otherwise
change their capitalization as it exists on the date hereof;
(iv) create, incur, or assume any long-term or short-term
indebtedness for money borrowed, guarantee the payment of any such
indebtedness, or make any capital expenditures or commitment for
capital expenditures, except in the ordinary course of business and
consistent with past practice;
(v) adopt, enter into, or amend any bonus, profit-sharing,
compensation, stock option, warrant, pension, retirement, deferred
compensation, employment, severance, termination, or other employee
benefit plan, agreement, trust fund, or arrangement for the benefit
or welfare of any officer, director or employee;
(vi) agree to any material (in relation to historical
compensation) increase in the compensation payable or to become
payable to, or any increase in the contractual term of employment
of, any officer, director, or employee except, with respect to
employees who are not officers or directors, in the ordinary course
of business in accordance with past practice.
(vii) sell, lease, mortgage, encumber, or otherwise dispose
of or grant any interest in any of their assets or properties
except for sales, encumbrances, and other dispositions or grants in
the ordinary course of business and consistent with past practice
and except for liens for taxes
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not yet due or liens or encumbrances that are not material in
amount or effect and do not impair the use of the property, or as
specifically provided for or permitted in this Agreement;
(viii) enter into, amend or terminate any material contract,
agreement, commitment, or understanding;
(ix) enter into any agreement, commitment, or understanding,
whether in writing or otherwise, with respect to any of the
foregoing; or
(x) hold any meetings of its board of directors, or any
committee thereof, or of their Shareholders, without inviting a
representative selected by the Purchaser to attend the same
(although the Companies may request that such representative absent
himself or herself during that portion of any such meeting that
pertains to issues arising under this Agreement).
6.6 COOPERATION. The Selling Parties will cooperate with PetQuarters,
the Purchaser and their counsel, accountants and agents in every way in carrying
out the transactions contemplated by this Agreement and in delivering all
documents and instruments deemed reasonably necessary or useful by PetQuarters
and the Purchaser.
6.7 EXPENSES. Whether or not the Transaction is consummated, all costs
and expenses incurred by the Selling Parties in connection with this Agreement
and the Transaction which are ordinarily and customarily incurred and paid by
the Companies in their business operations may be paid by the Companies, but all
costs and expenses incurred by the Selling Parties in connection with this
Agreement and the Transaction which are not ordinarily and customarily incurred
by the Companies in their business operations, specifically including those
expenses which would have to be capitalized by the Purchaser as an expense of
acquiring the Shares or by the Shareholders as an expense of selling the Shares,
shall be paid by the Shareholders from the Purchase Price. In the event the
Transaction is consummated, all additional expenses incurred by PetQuarters for
the creation of the Purchaser and for the estimated costs of the dissolution of
the Purchaser, not to exceed $2,500, shall be paid by the Shareholders at
Closing. Other than the usual and customary quarterly Tax deposit paid by the
Companies for the benefit of the Shareholders, all Tax obligations of the
Shareholders incurred on or after the Closing Date, arising from the operation
of the Companies prior to the Closing Date or the Transaction, including the
filing of a "short-year return" ending on the Closing Date for the Companies,
shall be paid by the Shareholders and not the Companies.
6.8 PUBLICITY. Prior to the Closing, no Party will issue or make any
reports, statements or releases to the public with respect to this Agreement or
the Transaction contemplated hereby without consulting the other as to the
content and wording of such disclosure or release; provided, however, that the
foregoing shall not be deemed to prohibit any disclosure required by applicable
law or by any governmental authority having jurisdiction over such matters, or
by the disclosure obligations of PetQuarters as a public company.
6.9 ENVIRONMENTAL MATTERS. The Selling Parties shall, during the period
between the date of this Agreement and Closing, promptly provide to the
Purchaser any notices or claims received by the Selling Parties that arise under
any Environmental Laws. The Selling Parties shall permit the Purchaser and its
representatives to conduct, at the Purchaser's expense, such other environmental
inspections of the Owned Real Properties as the Purchaser desires to conduct
prior to Closing.
6.10 UPDATING OF EXHIBITS AND DISCLOSURE DOCUMENTS. The Selling Parties
shall notify the Purchaser of any changes, additions, or events which may cause
any change in or addition to any Schedules and Exhibits hereto or any other
schedules or exhibits delivered by the Selling Parties under
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this Agreement promptly after the occurrence of the same and again at the
Closing by delivery of appropriate updates to all such schedules and exhibits.
No such notification made pursuant to this Section shall be deemed to cure any
breach of any representation or warranty made in this Agreement unless the
Purchaser specifically agrees thereto in writing nor shall any such notification
be considered to constitute or give rise to a waiver by the Purchaser of any
condition set forth in this Agreement.
6.11 EXECUTION OF ADDITIONAL DOCUMENTS. Each Party will at any time,
and from time to time after the Closing Date, upon request of any other Party,
execute, acknowledge and deliver all such further deeds, assignments, transfers,
conveyances, powers of attorney and assurance, and take all such further action,
as may be reasonably required to carry out the intent of this Agreement, and to
transfer and vest title to any Shares being transferred hereunder, and to
protect the right, title and interest in and enjoyment of all of the Shares
sold, granted, assigned, transferred, delivered and conveyed pursuant hereto;
provided, however, that this Agreement shall be effective regardless of whether
any such additional documents are executed.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES/INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties by the Parties in Articles III and IV hereof or in any other Article
or Section hereof, or in any certificate or other document furnished or to be
furnished by the Parties pursuant hereto, shall survive delivery by the Parties
of the consideration to be given by them hereunder, and shall survive the
execution hereof, the Closing hereunder and the Closing Date, all such
representations and warranties to expire on the first anniversary of the Closing
Date.
7.2 INDEMNIFICATION BY SHAREHOLDERS. Upon the terms and subject to the
conditions set forth in Sections 7.4 and 7.5 hereof and this Section 7.2, each
of the Shareholders agrees, severally based upon the pro rata share of the
Purchase Price received by such Shareholder, to indemnify, defend, protect, save
and hold harmless the Purchaser and PetQuarters against, and will reimburse the
Purchaser or PetQuarters on demand for, any and all Losses made or incurred by
or asserted against the Purchaser or PetQuarters, at any time after the Closing
Date, directly or indirectly, arising out of, related to, caused by, or
resulting from any of the following ("Shareholder Indemnifiable Claims"):
(a) any inaccuracy or misrepresentation in, omission from, or
breach or nonfulfillment of representation, warranty, term, provision,
covenant or agreement on the part of any Shareholder contained in this
Agreement or in any certificate or other instrument furnished or to be
furnished by the Company or any Shareholder to the Purchaser pursuant
hereto; provided, however, that no Shareholder shall have any liability
to the Purchaser or PetQuarters for breach of any covenant set forth in
Section 6.1 hereof except for liability arising from such Shareholder's
own conduct; or
(b) any liability or obligation of the Company or any
Shareholder, whether imposed by any law or pursuant to any agreement,
for any Taxes with respect to periods or events or transactions
(including, without limitation, the events or transactions described or
permitted to be taken hereunder) prior to or ending on the Closing
Date, but only to the extent that such Taxes, in the aggregate, exceed
the amount of the aggregate reserves for such Taxes, if any, shown as
liabilities on the Interim Financial Statements.
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The obligation of the Shareholders to indemnify the Purchaser and PetQuarters
with respect to any Shareholder Indemnifiable Claims shall not be affected by
the fact that the Purchaser, PetQuarters or their representatives conducted any
due diligence investigation.
7.3 INDEMNIFICATION BY THE PURCHASER. Upon the terms and subject to the
conditions set forth in Sections 7.4 and 7.5 hereof and this Section 7.3 and in
addition that indemnification contained in Section 5.5, the Purchaser and
PetQuarters, jointly and severally, agree to indemnify, defend, protect, save
and hold harmless each Shareholder against, and will reimburse each Shareholder
on demand for, any and all Losses made or incurred by or asserted against any
Shareholder, at any time after the Closing Date, directly or indirectly, arising
out of, related to, caused by, or resulting from any of the following
("Purchaser Indemnifiable Claims").
(a) Any inaccuracy or misrepresentation in, omission from, or
breach or nonfulfillment of any representation, warranty, term,
provision, covenant or agreement on the part of the Purchaser and/or
PetQuarters contained in this Agreement or in any certificate or other
instrument furnished or to be furnished by the Purchaser and/or
PetQuarters to any Shareholder pursuant hereto; and
(b) Any and all Liabilities, including, but not limited to,
any lawsuit (at law or in equity), administrative or other proceeding
initiated by any person or Entity against any Shareholder to enforce
the payment or performance of any such Liabilities, to the extent not
specifically subject to an indemnity by the Shareholders under the
terms of this Agreement; and
(c) The obligations of PetQuarters and/or the Purchaser
arising at any time (the "Determination Time") from the business
operations of PetQuarters and/or the Purchaser or resulting from
ownership of the Shares, whether known or unknown, contingent or
absolute, recorded on its/their books or not, and arising or resulting
in any way from facts, events, agreements, obligations or occurrences
that existed or transpired at a prior time or resulted from the passage
of time to the Determination Time, including, but not limited to, any
lawsuit (at law or in equity), administrative or other proceeding
initiated by any person or Entity against any Shareholder to enforce
the payment or performance of any such obligation, to the extent not
specifically subject to an indemnity by the Shareholders under the
terms of this Agreement.
7.4 LIMITATIONS ON INDEMNIFICATION. Rights to indemnification under
Section 7.2 or 7.3 hereof are subject to the following limitations:
(a) With respect to any Losses incurred by the Purchaser or
PetQuarters with respect to any Shareholder Indemnifiable Claim
relating to any representation or warranty of Shareholder set forth in
Section 4.2 or 4.9 hereof or any matter referred to in Section 7.2(b)
hereof, the Purchaser and PetQuarters shall be entitled to
indemnification under Section 7.2 hereof for all such Losses incurred
by them with respect to such Shareholder Indemnifiable Claim up to the
amount of the Purchase Price.
(b) Subject to Section 7.4(g) hereof, the obligations of the
Shareholders under Section 7.2 hereof with respect to any Losses
incurred by any Purchaser Indemnitee with respect to any Shareholder
Indemnifiable Claim relating to any representation or warranty of
Shareholder set forth in Section 4.9 hereof or any matters referred to
in Section 7.2(b) hereof shall terminate on the expiration of the
respective statute of limitations applicable to assessment and
collection of Taxes under the laws then applicable to such Taxes.
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(c) The obligations of the Shareholders under Section 7.2
hereof with respect to any Losses incurred by either the Purchaser or
PetQuarters with respect to Shareholder Indemnifiable Claims relating
to any representation or warranty of Shareholder set forth in Section
4.2 hereof shall not expire.
(d) Subject to Section 7.4(g) hereof, the obligations of the
Shareholders under Section 7.2 hereof with respect to any Losses
incurred by either the Purchaser or PetQuarters with respect to any
Shareholder Indemnifiable Claim relating to any representation or
warranty hereunder (other than any representation or warranty of the
Shareholders set forth in Section 4.2 or 4.9 hereof) shall terminate on
the first anniversary of the Closing Date.
(e) Subject to Section 7.4(g) hereof, the obligations of the
Shareholders under Section 7.2 hereof with respect to any Losses
incurred by either the Purchaser or PetQuarters with respect to any
Shareholder Indemnifiable Claim arising out of or relating to any
covenant or agreement of the Shareholders set forth in this Agreement
shall terminate upon expiration, if any, of such covenant or agreement
as provided herein.
(f) Subject to Section 7.4(g) hereof and not including any
indemnity provided by Sections 5.5, 7.3(b) and 7.3(c) hereof, the
obligations of the Purchaser under Section 7.3 hereof with respect to
any Losses incurred by any Shareholder with respect to any Purchaser
Indemnifiable Claim relating to any matter referred to in Section
7.3(a) hereof shall terminate on the first anniversary of the Closing
Date.
(g) The foregoing provisions of this section 7.4
notwithstanding, if, prior to the termination of any obligation to
indemnify, written notice of a Shareholder Indemnifiable Claim or a
Purchaser Indemnifiable Claim, as the case may be, is given by the
Party seeking indemnification (the "Indemnified Party") to the Party
from whom indemnification is sought (the "Indemnifying Party"), or a
suit or action based upon a Shareholder Indemnifiable Claim or a
Purchaser Indemnifiable Claim, as the case may be, is commenced against
the Indemnifying Party, the Indemnified Party shall not be precluded
from pursuing such claim, breach, occurrence, other matter, or suit or
action, or from recovering from the Indemnifying Party (whether through
the courts or otherwise) on the Shareholder Indemnifiable Claim or the
Purchaser Indemnifiable Claim, as the case may be, by any reason of the
termination otherwise provided for above in this Section 7.4, if any.
7.5 CONDITIONS OF INDEMNIFICATION. With respect to any actual or
potential claim, any written demand, the commencement of any action, or the
occurrence of any other event which involves any Shareholder Indemnifiable Claim
or Purchaser Indemnifiable Claim:
(a) Promptly after the Indemnified Party first receives
written documents pertaining to the Claim, or if such Claim does not
involve a third party Claim (a "Third Party Claim"), promptly after the
Indemnified Party first has actual knowledge of such Claim, the
Indemnified Party shall give notice to the Indemnifying Party of such
Claim in reasonable detail and stating the amount involved, if known,
together with copies of any written documents.
(b) The obligation of the Indemnifying Party to indemnify the
Indemnified Party with respect to any Claim shall not be affected by
the failure of the Indemnified Party to give the notice with respect
thereto in accordance with Section 7.5(a) hereof unless the
Indemnifying Party has been materially prejudiced thereby.
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(c) If the Claim involves a Third Party Claim, then the
Indemnifying Party shall have the right, at its sole cost, expense and
ultimate liability regardless of the outcome, and through counsel of
its choice (which counsel shall be reasonably satisfactory to the
Indemnified Party), to litigate, defend, settle or otherwise attempt to
resolve such Third Party Claim; provided, however, that if in the
Indemnified Party's reasonable judgment a conflict of interest may
exist between the Indemnified Party and the Indemnifying Party with
respect to such Third Party Claim, then the Indemnified Party shall be
entitled to select counsel of its own choosing, reasonably satisfactory
to the Indemnifying Party, in which event the Indemnifying Party shall
be obligated to pay the fees and expenses of such counsel.
Notwithstanding the preceding sentence, the Indemnified Party may
elect, at any time and at the Indemnified Party's sole cost, expense
and ultimate liability, regardless of the outcome, and through counsel
of its choice, to litigate, defend, settle or otherwise attempt to
resolve such Third Party Claim. If the Indemnified Party so elects (for
reasons other than the Indemnifying Party's failure or refusal to
provide a defense to such Third Party Claim), then the Indemnifying
Party shall have no obligation to indemnify the Indemnified Party with
respect to such Third Party Claim, but such disposition will be without
prejudice to any other right the Indemnified Party may have to
indemnification under Section 7.2 or 7.3 hereof, regardless of the
outcome of such Third Party Claim. If the Indemnifying Party fails or
refuses to provide a defense to any Third Party Claim, then the
Indemnified Party shall have the right to undertake the defense,
compromise or settlement of such Third Party Claim, through counsel of
its choice, on behalf of and for the account and at the risk of the
Indemnifying Party, and the Indemnifying Party shall be obligated to
pay the costs, expenses and attorney's fees incurred by the Indemnified
Party in connection with such Third Party Claim. In any event, the
Purchaser Indemnitees, the Company and the Shareholders shall fully
cooperate with each other and their respective counsel in connection
with any such litigation, defense, settlement or other attempted
resolution.
7.6 PURCHASER'S RIGHT OF WITHHOLDING AND OFFSET.
7.6.1 In addition to any other rights of the Purchaser and
PetQuarters, if any Shareholder Indemnifiable Claim remains unresolved as
between the Purchaser and any Shareholder on any date on which any payment of
any amount is otherwise due and payable hereunder, then the Purchaser shall be
entitled to withhold payment of any such amount that is otherwise due and
payable hereunder up to an aggregate amount equal to the estimated Losses (less
the Threshold, if applicable, and subject to the Indemnification Cap, if
applicable) with respect to all such unresolved Shareholder Indemnifiable Claims
until the earlier of (i) such time as such Shareholder has paid all such
Shareholder Indemnifiable Claims in full or otherwise corrected or remedied all
such Shareholder Indemnifiable Claims to the reasonable satisfaction of the
Purchaser or (ii) final adjudication (including appeals) by a court of competent
jurisdiction.
7.6.2 Upon a final determination (by a court of competent
jurisdiction or otherwise by agreement of the Purchaser and such Shareholder) of
the value of any Shareholder Indemnifiable Claim, then the Purchaser shall be
entitled to an offset and credit against the unpaid payments hereunder in an
aggregate amount equal to the value of such Shareholder Indemnifiable Claim. Any
such offset and credit shall be retroactive to and effective as of the Closing
Date.
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ARTICLE VIII
CONDITIONS TO CLOSING
8.1 CONDITIONS TO OBLIGATION OF THE PURCHASER. The obligation of the
Purchaser to effect the Transaction shall be subject to the fulfillment at or
prior to the Closing of the following conditions, unless the Purchaser shall
waive such fulfillment:
(i) No injunction, restraining order or other order issued by a
court of competent jurisdiction that prohibits the consummation of the
Transaction shall be in effect and no action, suit or proceeding before
any court or any governmental body or authority pertaining to the
Transaction contemplated by this Agreement or to its consummation shall
have been instituted on or before the Closing Date;
(ii) There shall not have been taken or proposed any action, and no
statute, rule or regulation shall have been promulgated or enacted, by
any local, state, federal or foreign government or governmental agency,
that would render the consummation of the Transaction illegal;
(iii) This Agreement and the transactions contemplated hereby shall
have received all approvals, consents, authorizations, and waivers from
governmental and other regulatory agencies and other third parties
(including lenders, holders of debt securities, and lessors) required
to consummate the Transaction and, if applicable to the Transaction,
the waiting period prescribed by the Hart-Scott-Rodino Antitrust
Improvements Act shall have expired or been terminated;
(iv) Each of the Selling Parties shall have performed all
agreements and covenants and satisfied all conditions on their part to
be performed or satisfied on or prior to the Closing, including,
without limitation, the execution of the real estate agreement
described in Section 6.5.2(vii);
(v) No material adverse change shall, in the reasonable judgment of
the Purchaser, have taken place in the assets (including, without
limitation, the Utilized Real Property), business, condition (financial
or otherwise), operations, or prospects of the Companies since the date
of the Company Balance Sheet other than those, if any, that result from
the changes permitted by, and transactions contemplated by, this
Agreement and the Companies shall not have suffered any material loss
(whether or not insured) by reason of physical damage caused by fire,
earthquake, accident or other calamity which substantially affects the
value of its assets, properties or business;
(vi) The representations and warranties of each of the Selling
Parties set forth in this Agreement, the Schedules or Exhibits hereto
or in any written statement that shall be delivered to the Purchaser
shall be true and correct in all material respects on and as of the
Closing Date as if made on and as of such date;
(vii) The Purchaser shall have received from each of the Selling
Parties a certificate, executed by such Selling Party or its authorized
representative, dated as of the Closing Date, as to the satisfaction of
the conditions in paragraphs (iv), (v) and (vi) above;
(viii) The Purchaser shall have received, on and as of the Closing
Date, an opinion of counsel to the Selling Parties in the form attached
hereto as Exhibit B;
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(ix) The Purchaser shall have received, on and as of the Closing
Date, such other closing documents and instruments as the Purchaser
shall reasonably request, in each case reasonably satisfactory in form
and substance to the Purchaser and its counsel; and
(x) The Selling Parties shall have delivered to the Purchaser,
except as otherwise requested by the Purchaser, the written
resignations of all of the officers and directors of the Companies, and
will cause any other action to be taken with respect to those
resignations that the Purchaser may reasonably request.
For purposes of paragraph (v) above but without limiting the scope of such
paragraph, "material adverse change" shall include any reduction of $100,000 or
more in the Equity of the Company as of the Closing Date as compared to the
Equity of the Company shown in the balance sheet included in the Interim
Financial Statements prepared in accordance with generally accepted accounting
principals, it being agreed and understood that it is the intent of the Parties
that the Companies shall continue to operate as they have done in the past until
Closing and that the Selling Parties will continue to operate as they have done
until Closing, and that no extraordinary distributions shall be made to the
Shareholders.
8.2 CONDITIONS TO OBLIGATION OF THE SELLING PARTIES. The obligation of
the Selling Parties to effect the Transaction shall be subject to the
fulfillment at or prior to the Closing of the following conditions, unless the
Selling Parties shall waive such fulfillment:
(i) No injunction, restraining order or other order issued by a
court of competent jurisdiction that prohibits the consummation of the
Transaction shall be in effect and no action, suit or proceeding before
any court or any governmental body or authority pertaining to the
Transaction contemplated by this Agreement or to its consummation shall
have been instituted on or before the Closing Date;
(ii) There shall not have been taken any action, and no statute,
rule or regulation shall have been promulgated or enacted, by any
state, federal or foreign government or governmental agency, that would
render the consummation of the Transaction illegal;
(iii) This Agreement and the transactions contemplated hereby shall
have received all approvals, consents, authorizations, and waivers from
governmental and other regulatory agencies and other third parties
(including lenders, holders of debt securities, and lessors) required
to consummate the Transaction and, if applicable to the Transaction,
the waiting period prescribed by the Hart-Scott-Rodino Antitrust
Improvements Act shall have expired or been terminated;
(iv) The Purchaser shall have performed all agreements and
covenants and satisfied all conditions on its part to be satisfied on
or prior to the Closing;
(v) The representations and warranties of the Purchaser set forth
in this Agreement shall be true and correct in all material respects on
and as of the Closing Date as if made on and as of such date; and
(vi) The Shareholders shall have received, on and as of the Closing
Date, an opinion of counsel to the Purchaser in the form attached
hereto as Exhibit C.
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ARTICLE IX
THE CLOSING
9.1 CLOSING. The Closing hereunder shall take place at the offices of
the Companies in Hazleton, Pennsylvania, or at such other place as the Purchaser
and the Selling Parties may agree upon, on the Closing Date.
9.2 DELIVERY BY THE SELLING PARTIES. At the Closing, the Selling
Parties shall deliver to the Purchaser the following instruments, in form and
substance satisfactory to the Purchaser and its counsel, against delivery of the
items specified in Section 9.3:
(i) Certificates representing all of the Shares, registered in the
names of the Shareholders, duly endorsed by the Shareholders for
transfer and upon which are affixed any documentary stock transfer
stamps required by law (executed in blank or in favor of the
Purchaser), together with all other documents necessary or appropriate
to validly transfer the Shares to the Purchaser free and clear of any
and all encumbrances. On submission of the certificates to the
Companies for transfer, the Companies shall issue to the Purchaser
certificates representing the Shares, registered in the Purchaser's
name;
(ii) The stock books, stock ledgers, minute books and corporate
seals of the Companies;
(iii) The certificates as provided in Section 8.1(vii);
(iv) The opinion of counsel to the Selling Parties as provided in
Section 8.1(viii); and
(v) The written resignations of the Companies' officers and
directors as provided in Section 8.1(x).
9.3 DELIVERY BY THE PURCHASER. At the Closing, the Purchaser shall
deliver to the Shareholders the following instruments, in form and substance
satisfactory to the Shareholders and their counsel, against delivery of the
items specified in Section 9.2:
(i) The Cash Payment as provided in Section 2.2.2;
(ii) The stock certificates for the Purchase Shares as provided in
Section 2.2.3; and
(iii) The opinion of counsel to the Purchaser as provided in
Section 8.2(vi).
ARTICLE X
TERMINATION, AMENDMENT, WAIVER
10.1 TERMINATION. This Agreement and the Transaction may be terminated
at any time prior to the Closing:
10.1.1 By mutual consent of the Purchaser and the Selling Parties;
or
10.1.2 By either the Purchaser or the Selling Parties, upon
written notice to the other, if the conditions to such Party's obligations to
consummate the Transaction, in the case of the Purchaser, as provided in Section
8.1, or, in the case of the Selling Parties, as provided in Section 8.2, were
not, or
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cannot reasonably be, satisfied on or before July 31, 1999, unless the failure
of condition is the result of the material breach of this Agreement by the Party
seeking to terminate; or
10.1.3 By Purchaser upon the payment of a termination fee of
$150,000 (the "Termination Fee") to the Shareholders. Notwithstanding the
preceding sentence, Purchaser shall not be required to pay the Termination Fee
if this Agreement is terminated pursuant to section 10.1.1, the Selling Parties
cannot consummate the Transaction as contemplated herein by the closing Date, or
Purchaser discovers a material negative issue which cannot be resolved by the
Selling Parties prior to the Closing Date.
Sections 5.2, 5.3, and 6.7 of this Agreement shall survive any termination of
this Agreement.
10.2 AMENDMENT. This Agreement may be amended by the Selling Parties
and the Purchaser by action taken at any time prior to the Closing, and by the
Shareholders and the Purchaser at any time subsequent to the Closing. This
Agreement may not be amended except by an instrument in writing signed on behalf
of the parties required by the preceding sentence.
10.3 WAIVER. At any time prior to the Closing Date, the Purchaser or
the Selling Parties may (1) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (2) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, or (3) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a Party
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such Party.
ARTICLE XI
GENERAL PROVISIONS
11.1 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) or delivered by an
overnight mail service such as UPS or Federal Express to the parties at the
following addresses (or at such other address for a Party as shall be specified
by like notice given at least five (5) business days prior thereto):
If to the Purchaser:
PetQuarters, Inc.
P.O. Box 410
Lonoke, Arkansas 72086
Attention: Steve Dempsey
with a copy to:
Wright, Lindsey & Jennings LLP
200 West Capitol
Suite 2200
Little Rock, Arkansas 72201-3699
Attention: C. Tad Bohannon
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If to the Selling Parties or any of them:
Humboldt Industries, Inc.
Humboldt Industrial Park
1 Maplewood Drive
Hazleton, Pennsylvania 18201-9798
Attention: Jack Rosenzweig
with a copy to:
Laputka, Bayless, Ecker & Cohn, PC
2 East Broad Street, Sixth Floor
Hazleton, Pennsylvania 18201-6592
Attention: Martin D. Cohn or Robert S. Sensky
11.2 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.3 MISCELLANEOUS. This Agreement (1) constitutes the entire agreement
and supersedes all other prior agreements and understandings, both written and
oral, between the parties, with respect to the subject matter hereof, except as
specifically provided otherwise or referred to herein, so that no such external
or separate agreements relating to the subject matter of this Agreement shall
have any effect or be binding, unless the same is referred to specifically in
this Agreement or is executed by the parties after the date hereof; (2) is not
intended to confer upon any other person or Entity any rights or remedies
hereunder; (3) shall not be assigned by operation of law or otherwise except for
assignment of all or any part of the rights of the Purchaser hereunder, which
may be freely assigned by the Purchaser; and (4) shall be governed in all
respects, including validity, interpretation and effect, by the internal laws of
the State of Pennsylvania, without regard to the principles of conflict of laws
thereof. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
on the date first written above by their respective officers thereunto duly
authorized.
THE PURCHASER:
PETQUARTERS, INC.
By: /s/ Steve Dempsey
----------------------------------
Steve Dempsey, President
THE COMPANIES:
HUMBOLDT INDUSTRIES, INC.
By: /s/ Jack Rosenzweig
----------------------------------
Jack Rosenzweig, President
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THE SHAREHOLDERS: MAPLEWOOD INDUSTRIES, INC.
/s/ Jack Rosenzweig By: /s/ Helene Rosenzweig
- ---------------------------------- ----------------------------------
Jack Rosenzweig, an individual Helene Rosenzweig, President
/s/ Helene Rosenzweig
- ----------------------------------
Helene Rosenzweig, an individual
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EXHIBIT 2.2
AGREEMENT OF PURCHASE AND SALE OF STOCK
This AGREEMENT OF PURCHASE AND SALE OF STOCK ("Agreement") is made this
2nd day of July, 1999, by and among PETQUARTERS, INC., an Arkansas corporation
("PetQuarters"), PQ Acquisition Company II, Inc., an Arkansas corporation to be
formed by and as a wholly-owned subsidiary of PetQuarters (the "Purchaser"),
CHARTENDURE LIMITED, a United Kingdom private company limited by shares
("Chartendure"), and PATRIC JUDGE, HUGH O'NEILL and TOM McMEEKIN, each an
individual resident of the United Kingdom ("U.K.") (collectively, the
"Shareholders"). Chartendure and the Shareholders are collectively referred to
as the "Selling Parties."
RECITALS
WHEREAS, the Shareholders have represented that they own all of the
outstanding stock of Chartendure;
WHEREAS, PetQuarters desires to purchase from the Shareholders, and the
Shareholders desire to sell to PetQuarters, all of the outstanding stock of
Chartendure (the "Shares");
WHEREAS, Chartendure desires that the Transaction be consummated.;
WHEREAS, PetQuarters and the Shareholders have determined that the most
advantageous method for PetQuarters to acquire all of the Shares is by use of a
subsidiary wholly-owned by PetQuarters;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the terms identified below in this Article I
shall have the meanings indicated, unless a different and common meaning of the
term is clearly indicated by the context.
AFFILIATE. With respect to any person, Entity or Party, (i) any person,
Entity or Party controlling, controlled by or under common control with any such
person, Entity or Party or (ii) any director or executive officer of any such
person, Entity or Party or of any person, Entity or Party referred to in clause
(i) of this definition.
AGREEMENT. This Agreement of Purchase and Sale of Stock, including all
of its Schedules and Exhibits, and including all duly adopted amendments,
modifications, and supplements.
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CLOSINGS. The completion of each of the four stages of the Transaction
(herein referred to as the "First Closing," "Second Closing," "Third Closing,"
and "Final Closing,"), to take place as described in Article IX hereof.
CLOSING DATE. The date on which each of the Closings actually occur,
but each of the Closings shall not in any event be prior to satisfaction or
waiver of the conditions to Closing set forth in Article VIII hereof.
CODE. The Internal Revenue Code of 1986, as amended and in effect at
the time of execution of the Agreement.
COMPANY FINANCIAL STATEMENTS. Chartendure's statement of account dated
June 21, 1999.
CONTROL. The possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a person, Entity or
Party, whether through the ownership of voting securities or voting interests,
by contract or otherwise.
CONFIDENTIAL INFORMATION. As defined in Section 5.2.
CUSTOMER. Any person or Entity for whom the applicable Company provided
or sold products or services within the two years immediately prior to the
Closing Date.
DEFECT NOTICE. As defined in Section 4.14.
ENTITY. A corporation, partnership, sole proprietorship, trust, joint
venture, limited liability company or other form of organization formed for the
conduct of a business whether active or passive.
EQUITY. The shareholders' equity as reflected on the applicable Company
Financial Statements.
GAAP. Generally accepted accounting principles consistently applied, as
in effect on the date of any statement, report or determination that purports to
be, or is required to be, prepared or made in accordance with generally accepted
accounting principles.
INDEMNIFIED PARTY. As defined in Section 7.4.
INDEMNIFYING PARTY. As defined in Section 7.4.
INVENTORIES. All inventories of raw materials and supplies,
manufactured and purchased parts, work in process and finished goods customarily
reflected as assets in balance sheets of Entities prepared in accordance with
GAAP.
(POUND) OR POund. The pound sterling as valid currency of the U.K.
LIABILITIES. At any point in time (the "Determination Time"), the
obligations of Chartendure, whether known or unknown, contingent or absolute,
recorded on its books or not, arising or resulting in any way from facts,
events, agreements, obligations or occurrences that existed or transpired at a
prior point in time, or resulted from the passage of time to the Determination
Time.
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LOSSES. With respect to any person, Entity or Party, any payment, loss,
liability, obligation, damage (including, without limitation, consequential,
punitive, special or otherwise), deficiency, lien, judgment, cost or expense
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses and court costs) of any kind, nature or description.
OFFERING MEMORANDUM. PetQuarters' Confidential Private Offering
Memorandum dated June, 1999.
PARTIES. The Purchaser, PetQuarters and the Selling Parties.
PAYABLES. Liabilities of Chartendure arising from the borrowing of
money or the incurring of obligations for merchandise or goods purchased.
PENSION PLAN. A "pension plan" or "employee pension benefit plan".
PETQUARTERS' FINANCIAL STATEMENTS. PetQuarters' audited statement of
accounts dated June 30, 1998.
PROPRIETARY RIGHTS. Trade secrets, copyrights, patents, trademarks,
service marks, and all similar types of intangible property developed, created,
or owned by Chartendure, or used by Chartendure in connection with its business,
whether or not the same are entitled to legal protection, specifically including
but not limited to the website listings petpage.co.us, petspages.co.uk,
petpages.com and petspages.com.
PURCHASE PRICE. As defined in Section 2.2.1.
PURCHASER. PQ Acquisition Company II, Inc., an Arkansas corporation.
PURCHASER INDEMNITEE. The Purchaser, any affiliate of the Purchaser,
any person or Entity with whom the Purchaser is affiliated or with whom the
Purchaser has a partnership or joint venture relationship (a "Purchaser
Partner"), and any officer, director, shareholder, employee, agent, attorney,
joint venturer, partner (limited or general), servant, representative, trustee,
successor or assign of the Purchaser or of any Purchaser Partner or of any
affiliate of the Purchaser or any Purchaser Partner.
PURCHASE SHARES. A number of shares of common stock of PetQuarters, not
to exceed 900,000.
REAL PROPERTY. Land plus all buildings, improvements and fixtures
located thereon.
RECEIVABLES. Accounts receivable, notes receivable, and other
obligations appearing as assets on the books of Chartendure, and customarily
reflected as assets in balance sheets of Entities prepared in accordance with
GAAP, indicating moneys owed to the Entity.
SELLING PARTY INDEMNITEE. The Selling Parties, any affiliate of any
Selling Party, any person or Entity with whom any Selling Party is affiliated or
with whom a Selling Party has a partnership or joint venture relationship (a
"Selling Party Partner"), and any officer, director, shareholder, employee,
agent, attorney, joint venturer, partner (limited or general), servant,
representative, trustee, successor or assign of
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any Selling Party or of any Selling Party Partner or of any affiliate of the
Selling Party or any Selling Party Partner.
SHARES. The 100 shares of Chartendure's voting stock, owned by the
Shareholders and representing all of the outstanding shares of Chartendure's
voting stock.
SHAREHOLDERS. Patric Judge, Hugh O'Neill and Tom McMeekin.
SHAREHOLDER INDEMNIFIABLE CLAIMS. As defined in Section 7.2.
SELLING PARTIES. Chartendure and the Shareholders.
TAX OR TAXES. (i) All U.K. and U.S. federal, foreign, state, county or
local net or gross income, gross receipts, sales, use, ad valorem, value-added,
franchise, production, severance, windfall profit, withholding, payroll,
employment, excise or similar taxes, assessments, duties, fees, levies,
penalties, financial assurance or other governmental charges (together with any
interest thereon, any penalties, additions to tax or additional amounts with
respect thereto, and any interest in respect of such penalties, additions or
additional amounts), and (ii) liability for the payment of any consolidated tax
(together with any interest thereon, any penalties, additions to tax or
additional amounts with respect thereto, and any interest in respect of such
penalties, additions or additional amounts) of the type described in clause (i)
of this paragraph.
THIRD PARTY. As defined in Section 6.8.
THIRD PARTY CLAIM. As defined in Section 7.5.
TRANSACTION. The purchase and sale of the Shares as contemplated by
this Agreement and all incidental actions or related transactions contemplated
hereby.
U.K. The United Kingdom.
U.S. The United States.
VENDOR. Any third party selling or licensing a product or service to
Chartendure on or prior to a Closing Date.
WELFARE PLAN. A "welfare plan" or an "employee welfare benefit plan" or
similar employee benefit program for which either the U.S. or U.K. government
has established legal requirements or obligations for creating, funding,
termination, qualification, or discrimination between various classes of
employees.
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ARTICLE II
THE TRANSACTION
2.1 THE TRANSACTION. Upon execution of this Agreement by PetQuarters,
the Shareholders, and Chartendure, PetQuarters shall form the Purchaser and
transfer 900,000 shares of stock of PetQuarters ("Purchase Shares") to the
Purchaser in exchange for all of the stock of the Purchaser. Thereafter, upon
the terms and subject to the conditions set forth in this Agreement, on each of
the Closing Dates, the Shareholders shall sell, grant, convey, assign, transfer
and deliver to the Purchaser, and the Purchaser shall purchase and acquire from
the Shareholders Shares as set forth herein. At the completion of the final
Closing Date, the Shareholders shall have transferred all of the Shares to
Purchaser. The exact number of Shares to be sold by the Shareholders hereunder
is 100 shares of Chartendure common stock, (pound)1 par value.
2.2 PURCHASE PRICE.
2.2.1 PURCHASE PRICE. The purchase price for the Shares shall be
900,000 shares of PetQuarters (as paid in accordance of Sections 2.2.2, 2.2.3,
2.2.4 and 2.2.5 below, being herein referred to as the "Purchase Price").
2.2.2 FIRST CLOSING DATE. At the First Closing Date, as set forth
herein, the Purchaser shall deliver to the Shareholders in accordance with the
allocation schedule set forth in Section 2.2.6, 225,000 Purchase Shares in
exchange for 26 Shares (26% of the Shares). The First Closing Date shall occur
upon the following events:
o Signing by PetQuarters of a design and development agreement
(the "Design Agreement") for the design of a new
PetPages/PetQuarters ("PP/PQ") Web Site with a professional
design firm (the "PDF") on terms satisfactory to PetQuarters
and Chartendure.
o Agreement by PetQuarters and Chartendure on the definition
of a new PP/PQ site map and acceptance of the site map by
the PDF as sufficient to begin design work.
o Agreement by PetQuarters and Chartendure on the definition
of the requirements for, and identification of a suitable
Content Management System ("CMS"), and approval of the CMS
by the PDF as sufficient to begin design work.
2.2.3 SECOND CLOSING DATE. At the Second Closing Date, as set forth
herein, the Purchaser shall deliver to the Shareholders in accordance with the
allocation schedule set forth in Section 2.2.6, 225,000 Purchase Shares in
exchange for 23 Shares (23% of the Shares). The Second Closing Date shall occur
upon the following events:
o Progress billings from the PDF in the amount of One-Third
(1/3) of the project cost estimates set out in the Design
Agreement. The parties anticipate that this stage of the
design project will include:
o Interface of key elements of the PP/PQ site.
o Production of initial sample pages.
o Approval of sample pages by PetQuarters and
Chartendure.
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o Usability review.
2.2.4 THIRD CLOSING DATE. At the Third Closing Date, as set forth
herein, the Purchaser shall deliver to the Shareholders in accordance with the
allocation schedule set forth in Section 2.2.6, 225,000 Purchase Shares in
exchange for 26 Shares (26% of the Shares). The Third Closing Date shall occur
upon the following events:
o Progress billings from the PDF in the amount of Two-Thirds
(2/3) of the project cost estimates set out in the Design
Agreement. The parties anticipate that this stage of the
design project will include:
o Final design modifications.
o Technical Implementation.
o Navigation feasibility and scalability evaluation.
2.2.5 FINAL CLOSING DATE. At the Final Closing Date, as set forth
herein, the Purchaser shall deliver to the Shareholders in accordance with the
allocation schedule set forth in Section 2.2.6, 225,000 Purchase Shares in
exchange for 25 Shares (25% of the Shares). The Final Closing Date shall occur
upon the following events:
o Launch of PP/PQ Web Site.
2.2.6 ALLOCATION OF PURCHASE SHARES. Each payment and transfer of
the Purchase Shares shall be allocated to each of the Shareholders in proportion
to his pro rata ownership of all Shares as set forth below:
Patric Judge 90 shares
Hugh O'Neill 5 shares
Tom McMeekin 5 shares
2.3 PARTIES TO THE AGREEMENT AND TRANSACTION. To the extent that any
provision of this Agreement calls for agreement by Chartendure as a party
hereto, such provision shall mean Chartendure as it exists prior to consummation
of the Transaction. If, after such consummation, any provision hereof requires
amendment, modification, interpretation, etc., the same may be accomplished by
the Shareholders and the Purchaser, without the participation of Chartendure.
2.4 FUNDING FOR DEVELOPMENT OF CLOSING ACHIEVEMENTS. PetQuarters shall
fund all costs of developing the PP/PQ Web Site, including charges by the PDF
under the Design Agreement, and direct costs incurred by Chartendure, pursuant
to a budget approved by PetQuarters, with respect to the design project.
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2.5 SEVERANCE. PetQuarters and Chartendure shall establish a reasonable
time line for the development stages of the PP/PQ Web Site upon the signing of
this Agreement. In the event that any of the critical project milestones set out
in the time line are not achieved within a reasonable period of time not to
exceed two (2) months after they are scheduled to occur, then either Purchaser
or the Shareholders as a group, shall have the right to terminate this Agreement
with respect to the purchase of any shares of Chartendure for which a Closing
Date has not occurred. Such termination shall not limit any other rights that
the parties may have under this Agreement. In such event, Shareholders shall
have the right to reacquire all or a portion of any Shares previously
transferred to PetQuarters in exchange for the corresponding proportion of
Purchase Shares received by them, and reimbursement to PetQuarters of a pro rata
portion of any funds expended by PetQuarters in development costs under this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PETQUARTERS AND THE PURCHASER
PetQuarters and the Purchaser hereby jointly and severally represent
and warrant to the Selling Parties:
3.1 ORGANIZATION AND QUALIFICATION. PetQuarters is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arkansas. Prior to the First Closing Date, the Purchaser shall be a corporation
duly organized, validly existing and in good standing under the laws of the
State of Arkansas.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution and delivery of
this Agreement and the consummation of the Transaction have been duly authorized
and approved by the Board of Directors of PetQuarters and no other corporate
proceedings on the part of PetQuarters are necessary to approve and adopt this
Agreement or to approve the consummation of the Transaction. This Agreement has
been duly and validly executed and delivered by PetQuarters and constitutes a
valid and binding Agreement of PetQuarters, enforceable against PetQuarters in
accordance with its terms.
3.3 BROKERS. No agent, broker, finder, investment banker, person,
Entity or firm acting on behalf of the PetQuarters or under its authority is
entitled to any brokerage, finder's or other fee or commission in connection
with this Agreement or the Transaction.
3.4 PURCHASE SHARES. As of each Closing Date, the Purchase Shares to be
delivered on such Closing Date shall be duly authorized, validly issued and
fully paid and non-assessable.
3.5 PETQUARTERS' FINANCIAL STATEMENTS. Correct copies of PetQuarters
most recent audited financial statements have been provided to the Selling
Parties. The PetQuarters' Financial Statements (i) fairly and accurately present
the financial position and condition of the company as at the date thereof and
for the periods then ended, (ii) are complete, correct and in accordance with
the books of account and records of company and (iii) can be legitimately
reconciled with the financial records maintained and the accounting methods
applied by it for tax purposes.
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3.6 OFFERING MEMORANDUM. The Offering Memorandum is a full and fair
summary of the business and affairs of PetQuarters as it currently is carried on
and is contemplated in the future, and all material risk and loss contingencies.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of Pet
Quarters' Financial Statements, PetQuarters has not, except as set forth in the
Offering Memorandum, experienced any material adverse change in the assets,
business condition (financial or otherwise), operations, or prospects of
PetQuarters.
3.8 TAXES. PetQuarters has duly and timely filed or caused to be filed
all Tax returns (including, without limitation, consolidated and/or combined tax
returns), reports, and declarations that are required by applicable law to be
filed by it, and has paid, or made full and adequate provision for the payment
of, all Taxes shown to be due for the periods covered by such returns, reports,
and declarations, except such taxes, if any, as are adequately reserved against
in the PetQuarters' Financial Statements.
3.9 ACCURACY OF INFORMATION. None of PetQuarters representations,
warranties or statements contained in this Agreement or in any other document
delivered to Selling Parties in connection with the transactions contemplated by
this Agreement, contains or will contain any untrue statement of a material fact
or omits to state any material fact necessary in order to make any of such
representations, warranties or statements, in light of the circumstances under
which they were made, not misleading. The statements, data and information in
the Offering Memorandum relating to future actions do not constitute
representations or warranties of PetQuarters.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SELLING PARTIES
Each of the Selling Parties, jointly and severally, represents and
warrants to PetQuarters and the Purchaser as follows:
4.1 ORGANIZATION AND QUALIFICATION. Chartendure is a U.K. private
company limited by shares duly organized, validly existing and in good standing
under the laws of the U.K. and has the requisite corporate power and authority
to own its properties and carry on its business as it is now being conducted.
Chartendure is duly licensed or qualified to do business, and is in good
standing, in each jurisdiction where the character of the properties owned or
leased by it, or the nature of its activities, are such that qualification as a
foreign corporation or business entity in that jurisdiction is required by law,
except in any such case where the failure to be so qualified would not have a
material adverse effect on the assets, business, condition (financial or
otherwise), operations or prospects of Chartendure.
4.2 CAPITALIZATION; OWNERSHIP OF SHARES. The authorized capital of
Chartendure is (pound)1,000 consisting of 1,000 ordinary shares of (pound)1
each, of which only 100 shares are issued and outstanding. The Shares are duly
authorized, validly issued and fully paid, and have been issued in compliance
with U.K. laws. There are no outstanding subscriptions, options, warrants,
convertible instruments or other rights, agreements or commitments obligating
Chartendure to sell or issue, or to require the Shareholders to sell or
otherwise transfer, any capital stock or other securities of Chartendure. All of
the issued and outstanding Shares are owned of record and beneficially by the
Shareholders, free and clear of any liens, encumbrances,
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security interests, options, pledges, agreements, claims, charges or
restrictions of any nature whatsoever. The Shareholders have full power to
transfer the Shares to the Purchaser without obtaining the further consent or
approval of any other person, Entity or governmental authority.
4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. This Agreement has been duly
and validly executed and delivered by the Selling Parties and constitutes a
valid and binding Agreement of each of the Selling Parties enforceable in
accordance with its terms. Chartendure has all requisite corporate power and
authority to enter into this Agreement and to carry out the Transaction, and its
doing so has been duly and sufficiently authorized by the Board of Directors of
Chartendure and the Shareholders.
4.4 ABSENCE OF BREACH; NO CONSENTS. The execution, delivery, and
performance of this Agreement, and the performance by Chartendure and the
Shareholders of their respective obligations hereunder will not (i) violate or
conflict with any of the provisions of the Articles of Association or Bylaws of
Chartendure as amended to the date hereof; (ii) contravene any law, ordinance,
rule, or regulation of the U.K. or of any applicable foreign jurisdiction, or
contravene any order, writ, judgment, injunction, decree, determination, or
award of any court or other authority having jurisdiction, or cause the
suspension or revocation of any authorization, consent, approval, or license,
presently in effect, which affects or binds Chartendure or any of its material
properties; (iii) result in a breach of any term or provision of, or constitute
a default under, or result in the acceleration of or entitle any party to
accelerate (whether after the giving of notice or the lapse of time or both) any
obligation under, or result in the creation or imposition of any lien, charge,
pledge, security interest or other encumbrance of all or any part of the
property of Chartendure pursuant to any provision of, any order, judgment,
arbitration award, injunction, decree, indenture, mortgage, lease, license, lien
or other agreement or instrument to which Chartendure or the any of the
Shareholders are a party or by which any of them is bound; (iv) require the
authorization, consent, approval of, or license, declaration, filing or
registration with, any governmental or regulatory authority or any third party;
or (v) constitute grounds for the loss or suspension of any permits, licenses,
or other authorizations used in the business of Chartendure.
4.5 BROKERS. No agent, broker, finder, investment banker, person,
Entity or firm acting on behalf of the Selling Parties or under their authority
is entitled to any brokerage, finder's, or other fee or commission in connection
with this Agreement or the Transaction.
4.6 COMPANY FINANCIAL STATEMENTS. Correct copies of the Company
Financial Statements have been provided to PetQuarters. The Company Financial
Statements (i) fairly and accurately present the financial position and
condition of Chartendure as at the date thereof and for the periods then ended,
(ii) are complete, correct and in accordance with the books of account and
records of Chartendure and (iii) can be legitimately reconciled with the
financial records maintained and the accounting methods applied by it for U.K.
tax purposes. From the date hereof through the Closing Date, Chartendure will
continue to prepare financial statements on the same basis that it has done so
in the past, will promptly deliver the same to PetQuarters, and each Selling
Party agrees that from and after such delivery the foregoing representations
will be applicable to each financial statement so prepared and delivered.
4.7 NO UNDISCLOSED LIABILITIES. To the knowledge of Chartendure and the
Shareholders, Chartendure does not have any Liabilities which are not adequately
reflected or reserved against on the face of the Company Financial Statements,
except Liabilities incurred since the date of the Company Financial Statements
in the ordinary course of business and consistent with past practice, in each
case in normal amounts and none of which is materially adverse, or except as
otherwise disclosed herein.
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4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS SINCE MAY 4, 1999. Since May
4, 1999, Chartendure has not, except as set forth on Schedule 4.8 hereof:
(i) experienced any material adverse change in the assets,
business, condition (financial or otherwise), operations, or prospects
of Chartendure;
(ii) suffered any damage, destruction, or loss, whether covered by
insurance or not, having a material adverse effect on the assets,
business, condition (financial or otherwise), operations, or prospects
of Chartendure;
(iii) entered into, amended or terminated any material commitment,
contract, agreement, or transaction (including, without limitation, any
material borrowing or capital expenditure or sale or other disposition
of any material asset or assets) of or involving Chartendure other than
this Agreement and agreements executed in the ordinary course of
business;
(iv) redeemed, repurchased or otherwise acquired for value its
capital stock, or issued any of its capital stock or securities
convertible into or rights to acquire any such capital stock, or
declared, set aside or paid any dividend or distribution on its capital
stock;
(v) transferred or granted any rights under any of its material
leases, licenses, agreements, patents, trademarks, trade names, or
copyrights;
(vi) transferred, leased or otherwise disposed of any its assets or
properties other than in the ordinary course of business and consistent
with past practice or, except in the ordinary course of business and
consistent with past practice, acquired any assets or properties, or
entered into any agreement relating to the foregoing;
(vii) mortgaged, pledged, or subjected to any lien or other
encumbrance any of its assets or properties, other than in the ordinary
course of business, or entered into any agreement relating to the
foregoing; or
(viii) made or granted any wage or salary increase applicable to
any group or classification of employees generally, entered into any
employment contract with, or made any loan to, or entered into any
material transaction with, any officer or employee, or changed the
nature of any supplemental benefits provided to any such executives or
other employees.
4.9 TAXES. Chartendure has duly and timely filed or caused to be filed
all U.K. and foreign Tax returns (including, without limitation, consolidated
and/or combined tax returns), reports, and declarations that are required by
applicable law to be filed by it, and has paid, or made full and adequate
provision for the payment of, all U.K. and other Taxes shown to be due for the
periods covered by such returns, reports, and declarations, except such taxes,
if any, as are adequately reserved against in the Financial Statements. Except
as set forth on Schedule 4.9 hereof, no deficiency in payment of Taxes for any
period has been asserted by any taxing body and remains unsettled at the date
hereof.
4.10 NO BREACH OR DEFAULT. Chartendure is not in breach, violation or
default under any contract to which it is a party or by which it is bound, nor
has any event occurred which, after the giving of
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notice or the passage of time or both, would constitute a breach, violation or
default under any such contract, and Chartendure has not received notice of any
claim or assertion that it is or may be in any such breach, violation or
default. The Selling Parties have no reason to believe that the parties to such
contracts will not fulfill their obligations under such contracts in all
material respects or are threatened with insolvency.
4.11 LITIGATION.
4.11.1 Schedule 4.11 hereof sets forth a list and a summary
description of all pending or, to the knowledge of Chartendure or any of the
Shareholders, threatened actions, suits, proceedings, disputes or investigations
by or against the any of the Shareholders, Chartendure or any of its respective
officers, directors, employees, agents or affiliates involving, affecting or
relating to any assets, properties or operations of Chartendure or the
transactions contemplated by this Agreement, setting forth, with respect to each
action, suit, proceeding, dispute or investigation, (i) any reserves reflected
in the Financial Statements and (ii) the existence and extent of insurance
coverage.
4.11.2 Except as set forth on Schedule 4.11 hereof, there are no
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of Chartendure or any of the Shareholders, threatened before any U.K.
or U.S. federal, state or local court or governmental or regulatory authority,
domestic or foreign, or before any arbitrator of any nature, brought by or
against any of the Shareholders, Chartendure or any of its respective officers,
directors, employees, agents or affiliates involving, affecting or relating to
any assets, properties or operations of Chartendure or the transactions
contemplated by this Agreement, nor does there exist any fact which might
reasonably be expected to give rise to any such suit, proceeding, dispute or
investigation.
4.11.3 Except as set forth on Schedule 4.11 hereof, neither
Chartendure nor any of its assets or properties is subject to any order, writ,
judgment, award, injunction or decree of any U.K. or U.S. federal, state or
local court or governmental or regulatory authority or arbitrator, which
adversely affects or might reasonably be expected to affect the assets,
properties, business operations, prospects, net income or financial condition of
Chartendure or which would or might reasonably be expected to interfere with the
transactions contemplated hereby.
4.12 EMPLOYEES, ETC. Except as disclosed in Schedule 4.12 hereof,
Chartendure does not have any employees or any collective bargaining, bonus,
profit sharing, compensation, or other plans, agreements, trusts, funds, or
arrangements maintained by Chartendure for the benefit of its directors, and
there are no employment, consulting, severance, or indemnification arrangements,
agreements or understandings between Chartendure, on the one hand, and any
current or former directors, officers, or other employees (or affiliates
thereof) of Chartendure, on the other hand. Chartendure is not, and following
the Closing will not be, bound by any express or implied contract or agreement
to employ, directly or as a consultant or otherwise, any person for any specific
period of time or until any specific age except as specified in agreements in
writing identified on Schedule 4.12 hereof.
4.13 COMPLIANCE WITH LAWS. Except as set forth on Schedule 4.13 hereof,
Chartendure is not in default with respect to any order of any court,
governmental authority or arbitration board or tribunal to which Chartendure is
a party or are subject.
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4.14 REAL PROPERTY. Chartendure does not own, rent or lease any real
property.
4.15 ASSETS. Schedule 4.15 hereof lists all of Chartendure's fixed
assets, and other tangible personal property owned, leased or used by
Chartendure in its business.
4.16 TITLE TO PROPERTY; ENCUMBRANCES. Chartendure has good and valid,
to all of its properties and assets. Chartendure does not know of any potential
action by any party, governmental or other, and no proceedings with respect
thereto have been instituted of which Chartendure has notice, that would
materially affect Chartendure's ability to use and to utilize each of such
assets in its businesses.
4.17 PROPRIETARY RIGHTS. Chartendure possesses full ownership of, or
adequate and enforceable long-term licenses or other rights to use (without
payment), all Proprietary Rights owned by or registered in the name of
Chartendure or used in the businesses of Chartendure; Chartendure has not
received any notice of conflict which asserts the rights of others with respect
thereto and are not aware of any infringing use of any of its Proprietary
Rights; and Chartendure had in all material respects performed all of the
obligations required to be performed by it, and is not in default in any
material respect, under any agreement relating to any Proprietary Right.
4.18 SUBSIDIARIES; AFFILIATED ENTITIES. Chartendure has no
subsidiaries. Chartendure does not own, directly or indirectly, a majority or
controlling equity or related interest in any partnership, corporation, joint
venture, business association or other Entity. No part of Chartendure's
businesses are conducted through Entities other than the Company.
4.19 TRADE NAMES. Chartendure does not use any fictitious business
names or trade names, except the names included as Proprietary Rights.
4.20 EMPLOYEE BENEFIT PLANS. Chartendure does not maintain or
contribute to any Pension Plan or any Welfare Plan, nor is Chartendure
presently, nor has it been within the last six years, a participating employer
in any "multiemployer plan" (as defined in ERISA Section 3(37) or Section 414(f)
of the Code).
4.21 ACCOUNTS RECEIVABLE. All Receivables of Chartendure, whether or
not reflected in the Financial Statements, represent transactions in the
ordinary course of business.
4.22 INVENTORIES. Chartendure has no inventories of products or
supplies.
4.23 CONTRACTS. Except as identified on Schedule 4.23 hereof,
Chartendure has no contracts, agreements, or understandings, whether express or
implied, written or oral.
4.24 ACCOUNTS PAYABLE. The accounts payable reflected on the Company
Financial Statements do, and those reflected on the books of Chartendure at the
time of each Closing will, reflect all amounts owed by Chartendure in respect of
trade accounts due and other Payables, and the actual Liability of Chartendure
in respect of such obligations was not, and will not be, on any of such dates,
in excess of the amounts so reflected on the books of Chartendure.
4.25 LABOR MATTERS. Except as set forth on Schedule 4.25 hereof, there
are no activities or controversies, including, without limitation, any labor
organizing activities, election petitions or
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proceedings, proceedings preparatory thereto, unfair labor practice complaints,
labor strikes, disputes, slowdowns, or work stoppages, pending or, to the best
of the knowledge of Chartendure, threatened, between Chartendure and any of its
employees.
4.26 INSURANCE. Chartendure has provided copies of each of
Chartendure's insurance policies to PetQuarters. Chartendure has not within the
past three (3) years received any notice of cancellation of any insurance
agreement. Chartendure does not have any material claims pending under any of
its insurance policies. Chartendure will maintain all of the insurance policies
in full force and effect during the period of time between the execution of this
Agreement and each Closing.
4.27 YEAR 2000 COMPLIANCE. To the knowledge of the Shareholders,
Chartendure's hardware, software, computer systems, chips and microprocessors
have been modified, or are in the process of being modified, as necessary to
ensure proper execution and accurate processing of all date-related data,
whether from years in the same century or in different centuries.
4.28 CUSTOMERS AND SUPPLIERS. Chartendure has no customers or
suppliers.
4.29 ACCURACY OF INFORMATION. None of Chartendure's or the
Shareholders' representations, warranties or statements contained in this
Agreement, in the Schedules and Exhibits hereto or in any other document
delivered to Purchaser in connection with the transactions contemplated by this
Agreement, contains or will contain any untrue statement of a material fact or
omits to state any material fact necessary in order to make any of such
representations, warranties or statements, in light of the circumstances under
which they were made, not misleading.
4.30 JURISDICTIONS. Chartendure is presently qualified to do business
in the United Kingdom of Great Britain and Northern Ireland. Chartendure has
complied in all material respects with all applicable rules and regulations of
each regulatory agency therein.
4.31 RECORDS. Chartendure and the Shareholders have delivered or made
available to PetQuarters and its counsel true and complete copies of its
articles of association, bylaws, minutes of all meetings of directors and
shareholders and certificates reflecting all actions taken by the directors or
shareholders without a meeting, partnership agreements and certificates, and
other organizational documents of Chartendure, and such documents are, except as
stated therein, in full force and effect on the date hereof. After consummation
of the transaction contemplated hereby, all such documents of Chartendure shall
remain with Chartendure or Purchaser.
ARTICLE V
COVENANTS OF THE PURCHASER AND PETQUARTERS
5.1 AFFIRMATIVE COVENANTS. From the date hereof through each Closing
Date, PetQuarters and the Purchaser will take every action reasonably required
of it in order to satisfy the conditions to each Closing set forth in this
Agreement and otherwise to ensure the prompt and expedient consummation of the
Transaction substantially as contemplated hereby, and will exert all reasonable
efforts to cause the Transaction to be consummated, provided in all instances
that the representations and warranties of the Selling Parties in this Agreement
are and remain true and accurate and that the covenants and agreements
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of the Selling Parties in this Agreement are honored and that the conditions to
the obligations of the Purchaser set forth in this Agreement are not incapable
of satisfaction.
5.2 CONFIDENTIALITY OF INFORMATION. Except as and to the extent
required by law, PetQuarters and the Purchaser will not disclose or use, and
will direct its representatives not to disclose or use to the detriment of the
Selling Parties, any Confidential Information (as defined below) with respect to
the information furnished, or to be furnished, by either the Selling Parties or
its respective representatives to PetQuarters, the Purchaser or its
representatives at any time or in any manner other than in connection with its
evaluation of the Transaction; provided, however, that any disclosure or use
that is required by, or good practice dictates the disclosure of, under, any
U.S. or State's securities laws for lawful distribution of the Offering
Memorandum or any subsequent securities filing or offering document shall not be
deemed to be a violation of this Section 5.2. "Confidential Information" means
any information about Chartendure stamped "confidential" or identified in
writing as such to PetQuarters or the Purchaser by any of the Selling Parties
promptly following its disclosure, unless (a) such information is already known
to PetQuarters or the Purchaser or its representatives or to others not bound by
a duty of confidentiality or such information becomes publicly available through
no fault of PetQuarters or the Purchaser or its representatives, (b) the use of
such information is necessary or appropriate in making any filing or obtaining
any consent or approval required for the consummation of the Transaction, or (c)
the furnishing or use of such information is required by or necessary or
appropriate in connection with legal proceedings. Upon the written request of
Chartendure in the event this Agreement is terminated for any reason prior to
Closing, PetQuarters and the Purchaser will promptly return to Chartendure or
destroy any Confidential Information in its possession and certify in writing to
Chartendure that they have done so.
5.3 EXPENSES. Whether or not the Transaction is consummated, all costs
and expenses incurred by PetQuarters and the Purchaser in connection with this
Agreement and the Transaction shall be paid by the Purchaser.
5.4 UNREGISTERED SECURITIES. The Purchaser acknowledges that the Shares
are not registered under the Securities Act of 1933 nor under the Arkansas
Securities Act nor under the U.K. securities laws and represents and warrants as
follows:
(i) The Purchaser is acquiring the Shares for its own account
solely for the investment purposes and not with a view to resell said
Shares.
(ii) The Purchaser has such knowledge and experience in business
and financial matters as to enable it to be capable of evaluating the
risks and merits of this investment.
(iii) The Purchaser is able to bear the economic risks of an
investment in the Shares.
(iv) The Shares will not be resold or otherwise transferred or
assigned without appropriate compliance with the registration
provisions of the Securities Act of 1933 and the applicable state Blue
Sky laws and applicable U.K. securities laws or exemption therefrom.
(v) The Purchaser has been provided with or permitted access to all
information which it deems material to formulating an investment
decision and that such information has been sufficient to make an
informed investment decision.
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5.5 COOPERATION. PetQuarters will cooperate with the Selling Parties
and their counsel, accountants and agents in every way in carrying out the
transactions contemplated by this Agreement and in delivering all documents and
instruments deemed reasonably necessary or useful by the Selling Parties.
5.6 ACCESS AND INFORMATION. PetQuarters shall afford to the Selling
Parties and their counsel, accountants and agents reasonable access during
normal business hours throughout the period prior to the First Closing to all
information concerning PetQuarters' business, properties, and personnel as the
Selling Parties may reasonably request.
5.7 EMPLOYMENT AND BENEFITS. Pursuant to an agreement which will be
subject to review and approval by the Board of Directors of PetQuarters,
PetQuarters shall employ Patric Judge to represent PetQuarters at the public
level with involved authoritative associations, the PetQuarters advisory board,
and charitable trustees. Mr. Judge will also be responsible for managing and
developing site content, brand equity and global expansion and any duties
assigned to him by the Board of Directors. Subject to the approval of the Board,
Mr. Judge shall initially receive the same compensation and benefits as Steve
Dempsey in U.S. dollars. Mr. Dempsey shall use his best efforts to cause Mr.
Judge to be elected to serve on the Board of Directors of PetQuarters. The terms
and conditions of Mr. Judge's employment shall be embodied in a written contract
to be negotiated in good faith as set out in the Letter of Intent between the
Shareholders and PetQuarters dated May 4, 1999.
ARTICLE VI
COVENANTS OF THE SELLING PARTIES
6.1 RESTRICTIVE COVENANTS.
(a) CUSTOMER RESTRICTION. Each Shareholder covenants and
agrees that he shall not, beginning on the First Closing Date and
extending for a period of two (2) years after the Final Closing Date,
working alone or in conjunction with one or more other persons or
Entities, for compensation or not, (i) provide or offer to provide to
any Customer any product or service similar to that offered or
contemplated to be offered by Chartendure, PetQuarters or Purchaser
immediately prior to any Closing, or (ii) induce or attempt to induce
any Customer to withdraw, curtail or cancel its business with
Chartendure, PetQuarters, or the Purchaser or in any manner modify or
fail to enter into any actual or potential business relationship with
PetQuarters, the Purchaser or Chartendure.
(b) NON-RAID. Each Shareholder covenants and agrees that he
shall not, beginning on the First Closing Date and extending for a
period of two (2) years after the Final Closing Date, working alone or
in conjunction with one or more other persons or Entities, for
compensation or not, (i) recruit or otherwise solicit or induce any
person or Entity who is, on any Closing Date, an employee or Vendor of
Chartendure to terminate its employment with, or otherwise cease its
relationship with, Chartendure, PetQuarters or the Purchaser or any of
its respective subsidiaries or affiliates, or (ii) hire, recruit or
otherwise solicit any person or Entity who, within the six months
immediately preceding any Closing Date, had been an employee or Vendor
of Chartendure; provided, however, that clause (ii) shall not prohibit
any Shareholder from
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hiring, recruiting or soliciting any person or Entity (A) on a
part-time basis or (B) with which Chartendure have terminated its
relationship after the Final Closing Date.
(c) NONCOMPETITION. Each Shareholder covenants and agrees
that such Shareholder shall not, beginning on the First Closing Date
and extending for a period of two (2) years after the Final Closing
Date, working alone or in conjunction with one or more other persons or
Entities, for compensation or not, permit such Shareholder's name to be
used by or engage in or carry on, directly or indirectly, either for
himself or as a member, stockholder, partner, investor (other than as
an owner of less than 5% of any public traded Entity), officer or
director of an Entity (other than PetQuarters or the Purchaser or a
subsidiary or affiliate of PetQuarters or the Purchaser) or as an
employee, agent, associate or contractor of any person or Entity (other
than PetQuarters or the Purchaser and/or any of its subsidiaries or
affiliates), any business in competition with the business of
Chartendure as carried on by Chartendure immediately prior to the
Closing, but only for as long as such business is carried on by (i) the
Purchaser and/or any of its subsidiaries or affiliates or (ii) any
person or Entity deriving title from the Purchaser or any of its
subsidiaries or affiliates to the assets and goodwill of the business
being carried on by Chartendure immediately prior to the Closing. The
Parties intend that the covenants contained in this Section 6.1(c)
shall be deemed to be a series of separate covenants, one for each
State or country in which Chartendure does business immediately prior
to the Closing and, except for geographic coverage, each such separate
covenant shall be identical in terms to the covenant contained in this
Section 6.1(c).
(d) REFORMATION. If, in any judicial proceeding, the court
shall refuse to enforce all of the separate covenants contained in
Section 6.1(a),6.1(b) or 6.1(c) hereof because the time limit is too
long, it is expressly understood and agreed between the Parties that
for purposes of such proceeding such time limitation shall be deemed
reduced to the extent necessary to permit enforcement of such
covenants. If, in any judicial proceeding, the court shall refuse to
enforce all of the separate covenants contained in Section 6.1(a),
6.1(b) or 6.1(c) hereof because they are more extensive (whether as to
geographic area, scope of business or otherwise) than necessary to
protect the business and goodwill of the Purchaser or any of its
subsidiaries or affiliates, it is expressly understood and agreed
between the Parties that for purposes of such proceeding the geographic
area, scope of business or other aspect shall be deemed reduced to the
extent necessary to permit enforcement of such covenants.
(e) INJUNCTIVE RELIEF. Each Shareholder acknowledges that a
breach of Section 6.1 hereof would cause irreparable damage to
PetQuarters and the Purchaser, and in the event of such Shareholder's
actual or threatened breach of the provisions of Section 6.1 hereof,
PetQuarters and the Purchaser shall be entitled to a temporary
restraining order and an injunction restraining such Shareholder from
breaching such covenants without the necessity of posting bond or
proving irreparable harm, such being conclusively admitted by such
Shareholder. Nothing shall be construed as prohibiting PetQuarters or
the Purchaser from pursuing any other available remedies for such
breach or threatened breach, including the recovery of damages from
such Shareholder. Each Shareholder acknowledges that the restrictions
set forth in Section 6.1 hereof are reasonable in scope and duration,
given the nature of the business of PetQuarters and the Purchaser. Each
Shareholder agrees that issuance of an injunction will not pose an
unreasonable restriction on such Shareholder's ability to obtain
employment or other work following the Closing Date.
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(f) OTHER AGREEMENTS. The provisions of this Section 6.1
shall be independent of and in addition to any other agreement between
PetQuarters, the Purchaser or Chartendure and any Shareholder regarding
the subject matter of this Section 6.1.
(g) TERMINATION. Provided that the provisions of this
Section shall not apply in the event this Agreement is terminated with
respect to the purchase of any shares of Chartendure for which a
Closing Date has not occurred in accordance with the terms of Section
2.5.
6.2 AFFIRMATIVE COVENANTS. From the date hereof through the Final
Closing Date, the Selling Parties will take every action reasonably required of
any of them to satisfy the conditions to Closing set forth in this Agreement and
otherwise to ensure the prompt and expedient consummation of the Transaction
substantially as contemplated hereby, and will exert all reasonable efforts to
cause the Transaction to be consummated, provided in all instances that the
representations and warranties of PetQuarters and the Purchaser in this
Agreement are and remain true and accurate and that the covenants and agreements
of PetQuarters and the Purchaser in this Agreement are honored and that the
conditions to the obligations of Chartendure set forth in this Agreement are not
incapable of satisfaction.
6.3 ACCESS AND INFORMATION. The Selling Parties shall afford to
PetQuarters, the Purchaser and to the Purchaser's accountants, counsel and other
representatives reasonable access during normal business hours throughout the
period prior to the Closing to all of Chartendure's properties, books,
contracts, commitments, records and personnel, and, during such period,
Chartendure shall furnish promptly to the Purchaser (1) all written
communications from Chartendure to its directors or to its Shareholders
generally, (2) Chartendure's internal monthly financial statements when and as
available, and (3) all other information concerning its business, properties,
and personnel as the Purchaser may reasonably request, but no investigation
pursuant to this Section 6.3 shall affect any representations or warranties of
the Selling Parties, or the conditions to the obligations of the Purchaser to
consummate the Transaction contemplated by this Agreement. The Purchaser and its
representatives shall assert its rights hereunder in such manner as to minimize
interference with the business of Chartendure.
6.4 NO SOLICITATION. The Selling Parties and those acting on its behalf
will not, and Chartendure will use its best efforts to cause its officers,
employees, agents, and representatives (including any investment banker) not,
directly or indirectly, to solicit, encourage, or initiate any discussions with,
or negotiate or otherwise deal with, or provide any information to, any person
or Entity other than the Purchaser and its officers, employees, and agents,
concerning any merger, sale of substantial assets, or similar transaction
involving Chartendure or division of Chartendure or any sale of any of its
capital stock or of any division. Chartendure will notify the Purchaser
immediately upon receipt of any inquiry, offer or proposal relating to any of
the foregoing. None of the foregoing shall prohibit providing information to
others in a manner in keeping with the ordinary conduct of Chartendure's
business, or providing information to government authorities.
6.5 CONDUCT OF BUSINESS.
6.5.1 AFFIRMATIVE COVENANTS. The Selling Parties covenant and agree
with the Purchaser that, on and after the date hereof and prior to the
Final Closing Date or the termination
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of this Agreement pursuant to its terms, Chartendure shall, and the
Shareholders shall cause Chartendure to:
(i) conduct its business according to the ordinary and
usual course of business consistent with past practice;
(ii) use commercially reasonable efforts to preserve
intact its business organization and goodwill, to keep available
the services of its officers, directors and employees, and maintain
good relationships with suppliers, lenders, creditors,
distributors, employees, customers, licensors, licensees and others
having business or financial relationships with it, and it shall
immediately notify the Purchaser of any event or occurrence or
emergency material to, and not in the ordinary and usual course of,
its business;
(iii) continue properly and promptly to file when due
all U.K. and U.S. federal, state, local, foreign, and other tax
returns, reports, and declarations required to be filed by it, and
will pay, or make full and adequate provision for the payment of,
all taxes and governmental charges due from or payable by it;
(iv) comply in all material respects with all laws and
regulations applicable to it and its operations;
(v) maintain in full force and effect insurance
coverage of a type and amount customary in its business, but not
less than that presently in effect; and
(vi) maintain its assets and properties in good repair
and in the same condition, reasonable wear and tear excepted, as
they were on the date of this Agreement.
6.5.2 NEGATIVE COVENANTS. Without limiting the generality of the
foregoing, and except for actions listed on Schedule 6.5.2 hereof, without the
Purchaser's prior written consent, Chartendure shall not, and the Shareholders
shall cause Chartendure not to, on or after the date hereof and prior to the
consummation of the Transaction or the termination of this Agreement pursuant to
its terms:
(i) amend its Articles of Incorporation or Bylaws;
(ii) split, combine, or reclassify any of its outstanding
securities or declare, set aside, or pay any dividend or other
distribution on or make or agree or commit to make any exchange for or
redemption of any such securities payable in cash, stock, or property;
(iii) issue or agree to issue any additional shares of, or rights
of any kind to acquire any shares of, its capital stock of any class,
enter into any contract, agreement, commitment, or arrangement with
respect to any of the foregoing or otherwise change its capitalization
as it exists on the date hereof;
(iv) create, incur, or assume any long-term or short-term
indebtedness for money borrowed, guarantee the payment of any such
indebtedness, or make any capital
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expenditures or commitment for capital expenditures, except in the
ordinary course of business and consistent with past practice;
(v) adopt, enter into, or amend any bonus, profit-sharing,
compensation, stock option, warrant, pension, retirement, deferred
compensation, employment, severance, termination, or other employee
benefit plan, agreement, trust fund, or arrangement for the benefit or
welfare of any officer, director or employee;
(vi) agree to any material (in relation to historical compensation)
increase in the compensation payable or to become payable to, or any
increase in the contractual term of employment of, any officer,
director, or employee except, with respect to employees who are not
officers or directors, in the ordinary course of business in accordance
with past practice.
(vii) sell, lease, mortgage, encumber, or otherwise dispose of or
grant any interest in any of its assets or properties except for sales,
encumbrances, and other dispositions or grants in the ordinary course
of business and consistent with past practice and except for liens for
taxes not yet due or liens or encumbrances that are not material in
amount or effect and do not impair the use of the property, or as
specifically provided for or permitted in this Agreement;
(viii) enter into, amend or terminate any material contract,
agreement, commitment, or understanding;
(ix) enter into any agreement, commitment, or understanding,
whether in writing or otherwise, with respect to any of the foregoing;
or
(x) hold any meetings of its board of directors, or any committee
thereof, or of its Shareholders, without inviting a representative
selected by the Purchaser to attend the same (although Chartendure may
request that such representative absent himself or herself during that
portion of any such meeting that pertains to issues arising under this
Agreement).
6.6 COOPERATION. The Selling Parties will cooperate with PetQuarters,
the Purchaser and its counsel, accountants and agents in every way in carrying
out the transactions contemplated by this Agreement and in delivering all
documents and instruments deemed reasonably necessary or useful by PetQuarters
and the Purchaser.
6.7 EXPENSES. Whether or not the Transaction is consummated, all costs
and expenses incurred by the Selling Parties in connection with this Agreement
and the Transaction shall be paid by the Shareholders.
ARTICLE VII
MUTUAL COVENANTS
7.1 PUBLICITY. Prior to the First Closing, no Party will issue or make
any reports, statements or releases to the public with respect to this Agreement
or the Transaction contemplated hereby without consulting the other as to the
content and wording of such disclosure or release; provided, however, that the
foregoing shall not be deemed to prohibit any disclosure required by applicable
law or by any governmental authority having jurisdiction over such matters, or
by the disclosure obligations of PetQuarters.
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7.2 EXECUTION OF ADDITIONAL DOCUMENTS. Each Party will at any time, and
from time to time after the First Closing Date and any subsequent Closing Date,
upon request of any other Party, execute, acknowledge and deliver all such
further deeds, assignments, transfers, conveyances, powers of attorney and
assurance, and take all such further action, as may be reasonably required to
carry out the intent of this Agreement, and to transfer and vest title to any
Shares and Purchase Shares being transferred hereunder, and to protect the
right, title and interest in and enjoyment of all of the Shares and Purchase
Shares sold, granted, assigned, transferred, delivered and conveyed pursuant
hereto; provided, however, that this Agreement shall be effective regardless of
whether any such additional documents are executed.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES/INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties by the Parties in Articles III and IV hereof or in any other Article
or Section hereof, or in any certificate or other document furnished or to be
furnished by the Parties pursuant hereto, shall survive delivery by the Parties
of the consideration to be given by them hereunder, and shall survive the
execution hereof, the Closing hereunder and the Final Closing Date, all such
representations and warranties to expire on the first anniversary of the Final
Closing Date.
8.2 INDEMNIFICATION BY SHAREHOLDERS. Upon the terms and subject to the
conditions set forth in Sections 8.4 and 8.5 hereof and this Section 8.2, each
of the Shareholders agrees, severally based upon the pro rata share of the
Purchase Price received by such Shareholder, to indemnify, defend, protect, save
and hold harmless the Purchaser and PetQuarters against, and will reimburse the
Purchaser or PetQuarters on demand for, any and all Losses made or incurred by
or asserted against the Purchaser or PetQuarters, at any time after the Closing
Date, directly or indirectly, arising out of, related to, caused by, or
resulting from any of the following ("Shareholder Indemnifiable Claims"):
(a) any inaccuracy or misrepresentation in, omission from,
or breach or nonfulfillment of representation, warranty, term,
provision, covenant or agreement on the part of any Shareholder
contained in this Agreement or in any certificate or other
instrument furnished or to be furnished by the Company or any
Shareholder to the Purchaser pursuant hereto; provided, however,
that no Shareholder shall have any liability to the Purchaser or
PetQuarters for breach of any covenant set forth in Section 6.1
hereof except for liability arising from such Shareholder's own
conduct; or
(b) any liability or obligation of the Company or any
Shareholder, whether imposed by any law or pursuant to any
agreement, for any Taxes with respect to periods or events or
transactions (including, without limitation, the events or
transactions described or permitted to be taken hereunder) prior to
or ending on the Closing Date, but only to the extent that such
Taxes, in the aggregate, exceed the amount of the aggregate
reserves for such Taxes, if any, shown as liabilities on the
Company Financial Statements.
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The obligation of the Shareholders to indemnify the Purchaser and PetQuarters
with respect to any Shareholder Indemnifiable Claims shall not be affected by
the fact that the Purchaser, PetQuarters or its representatives conducted any
due diligence investigation.
8.3 INDEMNIFICATION BY PETQUARTERS AND THE PURCHASER. Upon the terms
and subject to the conditions set forth in Sections 8.4 and 8.5 hereof and this
Section 8.3, the Purchaser and PetQuarters, jointly and severally, agree to
indemnify, defend, protect, save and hold harmless each Shareholder and
Chartendure against, and will reimburse each Shareholder and Chartendure on
demand for, any and all Losses made or incurred by or asserted against any
Shareholder, at any time after the Closing Date, directly or indirectly, arising
out of, related to, caused by, or resulting from any of the following
("Purchaser Indemnifiable Claims").
(a) Any inaccuracy or misrepresentation in, omission from,
or breach or nonfulfillment of any representation, warranty, term,
provision, covenant or agreement on the part of the Purchaser
and/or PetQuarters contained in this Agreement or in any
certificate or other instrument furnished or to be furnished by the
Purchaser and/or PetQuarters to any Shareholder or Chartendure
pursuant hereto; and
(b) The obligations of PetQuarters and/or the Purchaser
arising at any time (the "Determination Time") from the business
operations of PetQuarters and/or the Purchaser or resulting from
ownership of the Purchase Shares, whether known or unknown,
contingent or absolute, recorded on its/their books or not, and
arising or resulting in any way from facts, events, agreements,
obligations or occurrences that existed or transpired at a prior
time or resulted from the passage of time to the Determination
Time, including, but not limited to, any lawsuit (at law or in
equity), administrative or other proceeding initiated by any person
or Entity against any Shareholder to enforce the payment or
performance of any such obligation, to the extent not specifically
subject to an indemnity by the Shareholders under the terms of this
Agreement.
The obligation of the Purchaser and PetQuarters to indemnify the Shareholders
and Chartendure with respect to any Purchaser Indemnifiable Claim shall not be
affected by the fact that the Shareholders or Chartendure or their
representatives conducted any due diligence investigation.
8.4 LIMITATIONS ON INDEMNIFICATION. Rights to indemnification under
Section 8.2 or 8.3 hereof are subject to the following limitations:
(a) With respect to any Losses incurred by the Purchaser or
PetQuarters with respect to any Shareholder Indemnifiable Claim
relating to any representation or warranty of Shareholder set forth
in Section 4.2 or 4.9 hereof or any matter referred to in Section
8.2(b) hereof, the Purchaser and PetQuarters shall be entitled to
indemnification under Section 8.2 hereof for all such Losses
incurred by them with respect to such Shareholder Indemnifiable
Claim
(b) Subject to Section 8.4(h) hereof, the obligations of
the Shareholders under Section 8.2 hereof with respect to any
Losses incurred by any Purchaser Indemnitee with respect to any
Shareholder Indemnifiable Claim relating to any representation or
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warranty of Shareholder set forth in Section 4.9 hereof or any
matters referred to in Section 8.2(b) hereof shall terminate on the
expiration of the respective statute of limitations applicable to
assessment and collection of Taxes under the laws then applicable
to such Taxes.
(c) The obligations of the Shareholders under Section 8.2
hereof with respect to any Losses incurred by either the Purchaser
or PetQuarters with respect to Shareholder Indemnifiable Claims
relating to any representation or warranty of Shareholder set forth
in Section 4.2 or 4.9 hereof shall not expire.
(d) Subject to Section 8.4(h) hereof, the obligations of
the Shareholders under Section 8.2 hereof with respect to any
Losses incurred by either the Purchaser or PetQuarters with respect
to any Shareholder Indemnifiable Claim relating to any
representation or warranty hereunder (other than any representation
or warranty of the Shareholders set forth in Section 4.2 or 4.9
hereof) shall terminate on the first anniversary of the Closing
Date.
(e) Subject to Section 8.4(h) hereof, the obligations of
the Shareholders under Section 8.2 hereof with respect to any
Losses incurred by either the Purchaser or PetQuarters with respect
to any Shareholder Indemnifiable Claim arising out of or relating
to any covenant or agreement of the Shareholders set forth in this
Agreement shall terminate upon expiration, if any, of such covenant
or agreement as provided herein.
(f) The obligations of PetQuarters and the Purchaser under
Section 8.3 hereof with respect to any Losses incurred by any
Shareholder with respect to any Purchaser Indemnifiable Claims
relating to any representation or warranty or PetQuarters or
Purchaser set forth in Section 3.2, 3.4, and 3.6 hereof shall not
expire.
(g) Subject to Section 8.4(h) hereof and not including any
indemnity provided by Section 8.3(b) hereof, the obligations of
PetQuarters and the Purchaser under Section 8.3 hereof with respect
to any Losses incurred by any Shareholder with respect to any
Purchaser Indemnifiable Claim relating to any matter referred to in
Section 8.3(a) hereof shall terminate on the first anniversary of
the Closing Date.
(h) The foregoing provisions of this section 8.4
notwithstanding, if, prior to the termination of any obligation to
indemnify, written notice of a Shareholder Indemnifiable Claim or a
Purchaser Indemnifiable Claim, as the case may be, is given by the
Party seeking indemnification (the "Indemnified Party") to the
Party from whom indemnification is sought (the "Indemnifying
Party"), or a suit or action based upon a Shareholder Indemnifiable
Claim or a Purchaser Indemnifiable Claim, as the case may be, is
commenced against the Indemnifying Party, the Indemnified Party
shall not be precluded from pursuing such claim, breach,
occurrence, other matter, or suit or action, or from recovering
from the Indemnifying Party (whether through the courts or
otherwise) on the Shareholder Indemnifiable Claim or the Purchaser
Indemnifiable Claim, as the case may be, by any reason of the
termination otherwise provided for above in this Section 8.4, if
any.
8.5 CONDITIONS OF INDEMNIFICATION. With respect to any actual or
potential claim, any written demand, the commencement of any action, or the
occurrence of any other event which involves any Shareholder Indemnifiable Claim
or Purchaser Indemnifiable Claim:
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(a) Promptly after the Indemnified Party first receives
written documents pertaining to the Claim, or if such Claim does
not involve a third party Claim (a "Third Party Claim"), promptly
after the Indemnified Party first has actual knowledge of such
Claim, the Indemnified Party shall give notice to the Indemnifying
Party of such Claim in reasonable detail and stating the amount
involved, if known, together with copies of any written documents.
(b) The obligation of the Indemnifying Party to indemnify
the Indemnified Party with respect to any Claim shall not be
affected by the failure of the Indemnified Party to give the notice
with respect thereto in accordance with Section 8.5(a) hereof
unless the Indemnifying Party has been materially prejudiced
thereby.
(c) If the Claim involves a Third Party Claim, then the
Indemnifying Party shall have the right, at its sole cost, expense
and ultimate liability regardless of the outcome, and through
counsel of its choice (which counsel shall be reasonably
satisfactory to the Indemnified Party), to litigate, defend, settle
or otherwise attempt to resolve such Third Party Claim; provided,
however, that if in the Indemnified Party's reasonable judgment a
conflict of interest may exist between the Indemnified Party and
the Indemnifying Party with respect to such Third Party Claim, then
the Indemnified Party shall be entitled to select counsel of its
own choosing, reasonably satisfactory to the Indemnifying Party, in
which event the Indemnifying Party shall be obligated to pay the
fees and expenses of such counsel. Notwithstanding the preceding
sentence, the Indemnified Party may elect, at any time and at the
Indemnified Party's sole cost, expense and ultimate liability,
regardless of the outcome, and through counsel of its choice, to
litigate, defend, settle or otherwise attempt to resolve such Third
Party Claim. If the Indemnified Party so elects (for reasons other
than the Indemnifying Party's failure or refusal to provide a
defense to such Third Party Claim), then the Indemnifying Party
shall have no obligation to indemnify the Indemnified Party with
respect to such Third Party Claim, but such disposition will be
without prejudice to any other right the Indemnified Party may have
to indemnification under Section 8.2 or 8.3 hereof, regardless of
the outcome of such Third Party Claim. If the Indemnifying Party
fails or refuses to provide a defense to any Third Party Claim,
then the Indemnified Party shall have the right to undertake the
defense, compromise or settlement of such Third Party Claim,
through counsel of its choice, on behalf of and for the account and
at the risk of the Indemnifying Party, and the Indemnifying Party
shall be obligated to pay the costs, expenses and attorney's fees
incurred by the Indemnified Party in connection with such Third
Party Claim. In any event, the Purchaser Indemnitees, the Company
and the Shareholders shall fully cooperate with each other and
their respective counsel in connection with any such litigation,
defense, settlement or other attempted resolution.
ARTICLE IX
CONDITIONS TO CLOSING
9.1 CONDITIONS TO OBLIGATION OF THE PURCHASER. The obligation of the
Purchaser to effect the Transaction shall be subject to the fulfillment at or
prior to the Closing of the following conditions, unless the Purchaser shall
waive such fulfillment:
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(i) No injunction, restraining order or other order issued by a
court of competent jurisdiction that prohibits the consummation of the
Transaction shall be in effect and no action, suit or proceeding before
any court or any governmental body or authority pertaining to the
Transaction contemplated by this Agreement or to its consummation shall
have been instituted on or before any Closing Date;
(ii) There shall not have been taken or proposed any action, and no
statute, rule or regulation shall have been promulgated or enacted, by
any local, state, federal or foreign government or governmental agency,
that would render the consummation of the Transaction illegal;
(iii) This Agreement and the transactions contemplated hereby shall
have received all approvals, consents, authorizations, and waivers from
governmental and other regulatory agencies and other third parties
(including lenders, holders of debt securities, and lessors) required
to consummate the Transaction;
(iv) Each of the Selling Parties shall have performed all
agreements and covenants and satisfied all conditions on their part to
be performed or satisfied on or prior to the Closing;
(v) No material adverse change shall, in the reasonable judgment of
the Purchaser, have taken place in the assets, business, condition
(financial or otherwise), operations, or prospects of Chartendure since
the date of the Financial Statements other than those, if any, that
result from the changes permitted by, and transactions contemplated by,
this Agreement and Chartendure shall not have suffered any material
loss (whether or not insured) by reason of physical damage caused by
fire, earthquake, accident or other calamity which substantially
affects the value of its assets, properties or business;
(vi) The representations and warranties of each of the Selling
Parties set forth in this Agreement, the Schedules or Exhibits hereto
or in any written statement that shall be delivered to the Purchaser
shall be true and correct in all material respects on and as of each
Closing Date as if made on and as of such date;
(vii) The Purchaser shall have received from each of the Selling
Parties a certificate, executed by such Selling Party or its authorized
representative, dated as of the Closing Date, as to the satisfaction of
the conditions in paragraphs (iv), (v) and (vi) above;
(viii) The Purchaser shall have received, on and as of the Closing
Date, such other closing documents and instruments as the Purchaser
shall reasonably request, in each case reasonably satisfactory in form
and substance to the Purchaser and its counsel; and
(ix) The Selling Parties shall have delivered to Purchaser, on or
prior to the Third Closing, except as otherwise requested by the
Purchaser, the written resignations of all of the officers and
directors of Chartendure, and will cause any other action to be taken
with respect to those resignations that the Purchaser may reasonably
request
(x) The Purchaser shall have adopted, ratified and agreed to be
bound by this Agreement prior to the First Closing Date.
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9.2 CONDITIONS TO OBLIGATION OF THE SELLING PARTIES. The obligation of
the Selling Parties to effect the Transaction shall be subject to the
fulfillment at or prior to each Closing of the following conditions, unless the
Selling Parties shall waive such fulfillment:
(i) No injunction, restraining order or other order issued by a
court of competent jurisdiction that prohibits the consummation of the
Transaction shall be in effect and no action, suit or proceeding before
any court or any governmental body or authority pertaining to the
Transaction contemplated by this Agreement or to its consummation shall
have been instituted on or before any Closing Date;
(ii) There shall not have been taken any action, and no statute,
rule or regulation shall have been promulgated or enacted, by any
state, federal or foreign government or governmental agency, that would
render the consummation of the Transaction illegal;
(iii) This Agreement and the transactions contemplated hereby shall
have received all approvals, consents, authorizations, and waivers from
governmental and other regulatory agencies and other third parties
required to consummate the Transaction;
(iv) The Purchaser and PetQuarters shall have performed all
agreements and covenants and satisfied all conditions on its part to be
satisfied on or prior to the Closing;
(v) The representations and warranties of the Purchaser and
PetQuarters set forth in this Agreement shall be true and correct in
all material respects on and as of the Closing Date as if made on and
as of such date;
(vi) The Selling Parties shall have received from PetQuarters a
certificate, executed by PetQuarters or its authorized representative,
dated as of the Closing Date, as to the satisfaction of the conditions
in paragraphs (iv) and (v) above;
(vii) The Selling Parties shall have received, on and as of the
Closing Date, such other closing documents and instruments as the
Selling Parties shall reasonably request, in each case reasonably
satisfactory in form and substance to the Selling Parties and their
respective counsel.
ARTICLE X
THE CLOSING
10.1 CLOSING. Each Closing hereunder shall take place at the offices of
PetQuarters in Lonoke, Arkansas, or at such other place as the Purchaser and the
Selling Parties may agree upon, on the Closing Date.
10.2 DELIVERY BY THE SELLING PARTIES. At each Closing, the Selling
Parties shall deliver to the Purchaser the following instruments, in form and
substance satisfactory to the Purchaser and its counsel, against delivery of the
items specified in Section 10.4:
25
<PAGE> 26
(i) Certificates representing the requisite number of the Shares,
registered in the names of the Shareholders, duly endorsed by the
Shareholders for transfer and upon which are affixed any documentary
stock transfer stamps required by law (executed in blank or in favor of
the Purchaser), together with all other documents necessary or
appropriate to validly transfer the Shares to the Purchaser free and
clear of any and all encumbrances. On submission of the certificates to
Chartendure for transfer, Chartendure shall issue to the Purchaser
certificates representing the Shares, registered in the Purchaser's
name; and
(ii) The certificates as provided in Section 8.1(vii).
10.3 DELIVERY BY THE SELLING PARTIES ON THE FINAL CLOSING DATE. At the
Final Closing Date, in addition to those items required by (i) and (ii) of
Section 10.2, the Selling Parties shall deliver the following:
(i) The stock books, stock ledgers, minute books and corporate
seals of Chartendure; and
(ii) The written resignations of Chartendure's officers and
directors as provided in Section 9.1(x).
10.4 DELIVERY BY THE PURCHASER. At each Closing, the Purchaser shall
deliver to the Shareholders the following instruments, in form and substance
satisfactory to the Shareholders and their counsel, against delivery of the
items specified in Sections 10.2 and 10.3:
(i) The stock certificates for the Purchase Shares as provided in
Sections 2.2.3 through 2.2.5; and
(ii) The certificate as provided in Section 9.2(vi).
ARTICLE XI
TERMINATION, AMENDMENT, WAIVER
11.1 TERMINATION. This Agreement and the Transaction may be terminated
at any time prior to the Closing:
11.1.1 By mutual consent of the Purchaser and the Selling Parties;
or
11.1.2 By either the Purchaser or the Selling Parties, upon
written notice to the other, if the conditions to such Party's obligations to
consummate the Transaction, in the case of the Purchaser, as provided in Section
9.1, or, in the case of the Selling Parties, as provided in Section 9.2, were
not, or cannot reasonably be, satisfied within 60 days of the applicable Closing
Date, unless the failure of condition is the result of the material breach of
this Agreement by the Party seeking to terminate.
Sections 5.2, 5.3, and 6.7 of this Agreement shall survive any termination of
this Agreement.
26
<PAGE> 27
11.2 AMENDMENT. This Agreement may be amended by the Selling Parties
and the Purchaser by action taken at any time prior to the Closing, and by the
Shareholders and the Purchaser at any time subsequent to the Closing. This
Agreement may not be amended except by an instrument in writing signed on behalf
of the parties required by the preceding sentence.
11.3 WAIVER. At any time prior to the Closing Date, the Purchaser or
the Selling Parties may (1) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (2) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, or (3) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a Party
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such Party.
ARTICLE XII
GENERAL PROVISIONS
12.1 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) or delivered by an
overnight mail service such as UPS or Federal Express to the parties at the
following addresses (or at such other address for a Party as shall be specified
by like notice given at least five (5) business days prior thereto):
If to the Purchaser:
PetQuarters, Inc.
P.O. Box 410
Lonoke, Arkansas 72086
Attention: Steve Dempsey
with a copy to:
Wright, Lindsey & Jennings LLP
200 West Capitol
Suite 2200
Little Rock, Arkansas 72201-3699
Attention: C. Tad Bohannon
If to the Selling Parties or any of them:
Chartendure Limited
23 High Street
Tring, Hertfordshire
HP235AH, UK
Attention: Patric Judge, Managing Director
27
<PAGE> 28
with copies to Chartendure's counsel:
Horne, Hollingsworth & Parker, P.A.
Suite 501
401 West Capitol Ave.
Little Rock, Arkansas 72201
Attention: Michael O. Parker
And
Clintons Solicitors
55 Drury Lane
Covent Garden
London, WC2B 5SQ
Attention: David Landsman, Partner
Provided that Chartendure's counsel identified above are also
representing Patric Judge, but are not representing
Shareholders Hugh O'Neill or Tom McMeekin in this Transaction.
12.2 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.3 MISCELLANEOUS. This Agreement (1) constitutes the entire agreement
and supersedes all other prior agreements and understandings, both written and
oral, between the parties, with respect to the subject matter hereof, except as
specifically provided otherwise or referred to herein, so that no such external
or separate agreements relating to the subject matter of this Agreement shall
have any effect or be binding, unless the same is referred to specifically in
this Agreement or is executed by the parties after the date hereof; (2) is not
intended to confer upon any other person or Entity any rights or remedies
hereunder; (3) shall not be assigned by operation of law or otherwise except for
assignment of all or any part of the rights of the Purchaser hereunder, which
may be freely assigned by the Purchaser; and (4) shall be governed in all
respects, including validity, interpretation and effect, by the internal laws of
the State of Arkansas, without regard to the principles of conflict of laws
thereof. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
on the date first written above by their respective officers thereunto duly
authorized.
THE PURCHASER: CHARTENDURE:
PETQUARTERS, INC. CHARTENDURE LIMITED
By: /s/ Steve Dempsey By: /s/ Patric Judge
- ---------------------------------- ----------------------------------
Steve Dempsey, President Patric Judge, Director
28
<PAGE> 29
THE SHAREHOLDERS:
/s/ Patric Judge
- ----------------------------------------
Patric Judge, an individual
/s/ Hugh O'Neill
- ----------------------------------------
Hugh O'Neill, an individual
/s/ Tom McMeekin
- ----------------------------------------
Tom McMeekin, an individual
RATIFICATION BY THE PURCHASER
On this 2nd day of July , 1999, by the signature of its authorized
representative below, the Purchaser hereby ratifies this Agreement and hereby
agrees to be bound by its terms and obligations.
PETQUARTERS ACQUISITION COMPANY II, INC.
/s/
--------------------------------------------
By:
--------------------------------------------
29
<PAGE> 1
EXHIBIT 3.1
- -------------------------------------------------------------------------------
STATE OF ARKANSAS - OFFICE OF SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
- -------------------------------------------------------------------------------
The undersigned, acting as incorporators of a corporation under the
Arkansas Business Corporation Act (Act 958 of 1987), adopt the following
articles of incorporation of such Corporation:
First: The Name of the Corporation is:
PET QUARTERS, INC.
----------------------------------------------------------------------
Must contain the word "Corporation", "Incorporated", "Company",
"Limited", or the abbreviation "Corp.", "Inc.", "Co.", or "Ltd." or
words or abbreviations or like import in another language.
Second: the aggregate number of shares which the corporation shall have the
authority to issue is 100,000 share.
The designation of each class, the number of shares of each class, or
a statement that the shares of any class are without par value, are as
follows:
<TABLE>
<CAPTION>
Per Value Per Share Or
Number of Statement That Shares
Shares Class Series (If Any) Are Without Par Value
----------- -------- --------------- -----------------------
<S> <C> <C> <C>
100,000 common .01
</TABLE>
Third: The initial registered office of this corporation shall be located at
P.O. Box 410, Lonoke, Arkansas 72086 #10 Gunnebo Dr., Lonoke, Arkansas 72086
and the name of the initial registered agent of this corporation at that
address is Matthew J. Hoff.
Filing Fee: $50.00
Fourth: The name and address of each Incorporator is as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
<S> <C>
Matthew J. Hoff 864 Brookshire Dr., Merritt Island, Florida 32952
- --------------------------- -----------------------------------------------------
- --------------------------- -----------------------------------------------------
</TABLE>
<PAGE> 2
EXHIBIT 3.1
Fifth: The nature of the business of the corporation and the object or
purposes proposed to be transacted, promoted or carried on by it, are
as follows:
(a) The primary purpose of the corporation shall be for
profit/sell pet supplies.
(b) To conduct any other business enterprise not contrary to law.
(c) To exercise all of the powers enumerated in Section 4-27-302
of the Arkansas Business Corporation Act.
Sixth: EXECUTED this 22nd day of May, 1997.
/s/ Matthew J. Hoff
------------------------------------------
Signature
Incorporator pending election of corporate
officers
------------------------------------------
<PAGE> 3
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
PET QUARTERS, INC.
Article II of the Articles of Incorporation of PET QUARTERS, INC. was
amended by the corporation's board of directors on June 11, 1997. The
corporation Is filling these articles of amendment to the articles of
Incorporation pursuant to Arkansas Business Corporation Act (Act 958 of 1987).
1. The name of the corporation Is PET QUARTERS, INC.
2. Article 11 of the articles of Incorporation of PET QUARTERS, INC.,
was amended as follows:
ARTICLE II. CAPITALIZATION
ARTICLE III: Capitalization. The total number of shares of capital
stock which the Corporation has the authority to Issue is fifty million
(50,000.000). The total number of shares of common stock which the Corporation
is authorized to issue is forty million (40,000.000) and the par value of each
share of such common stock is one-tenth of one cent ($.001) for an aggregate
par value of forty thousand dollars ($40,000). The total number of shares of
preferred stock which the Corporation is authorized to issue in ten million
(10.000.000) and the par value of each share of such preferred stock is
one-tenth of one cent ($.001 ) for an aggregate par value of ten thousand
dollars ($10,000). The voting powers, designations, preferences and relative,
participating. option or other rights, if any, and the qualifications.
limitations or restrictions, if any, of the preferred stock, in one or more
series. shall be fixed by one or more resolutions providing for the issuance of
such stock adopted by the Corporation's board of directors (the "Board of
Directors"), in accordance with the provisions of the Arkansas Business
Corporation Act and the Board of Directors is expressly vested with authority
to adopt one or more such resolutions.
3. The following were adopted and added as additional articles to the
Articles of Incorporation of PET QUARTERS, INC.:
ARTICLE VI. DIRECTORS
ARTICLE VI: Directors. (a) The number of directors of the Corporation
shall be subject to the Corporation's bylaws (the "Bylaws"), provided however.
the number of directors of the Corporation may not be fewer than two unless the
Corporation has fewer than two stockholders, In which case the number of
directors may not be fewer than the number of stockholders. The Board of
Directors is authorized to make, alter or repeal the Bylaws or any provision
thereof, provided, however, that any such alteration or repeal shall be adopted
by the affirmative vote of at least two-thirds (2/3) of the directors then in
office at a meeting of the Board of Directors for that purpose or by written
resolution setting forth and declaring advisable such alteration or repeal.
(b) If there shall be more than one director. the directors
shall be classified, in respect solely to the time for which they shall
severally hold office, by dividing them into three classes (two classes if
there are only two directors), each such class to be as nearly as possible
equal in number of directors to each other class. IF there are three or more
directors: (I) the first term of office of directors of the first class shall
expire at the first annual meeting after their election, and thereafter such
terms shall expire on each three year anniversary of such date; (II) the term
of office of the directors of the second class shall expire on the one year
anniversary of the first annual meeting after their election. and thereafter
such terms shall expire on each three year anniversary of such one year
anniversary; and (III) the term of office of the directors of the third class
shall expire on the two year anniversary of the first annual meeting after
their election, and thereafter such terms shall expire
<PAGE> 4
EXHIBIT 3.1
on each three year anniversary of such two year anniversary. If there are two
directors: (I) the first term of office of directors of the first class shall
expire at the first annual meeting after their election, and thereafter such
terms shall expire on each two year anniversary or such date; and (II) the term
of office of the directors of the second class shall expire on the one year
anniversary of the first annual meeting after their election, and thereafter
such terms shall expire on each two year anniversary of such one year
anniversary. If there is one director, the term of office such director shall
expire at the first annual meeting after his election. At each succeeding
annual meeting, the stockholders of the Corporation shall elect directors for a
full term or the remainder thereof, as the case may be, to succeed those whose
terms have expired. Each director shall hold office for the term for which
elected and until his or her successor shall be elected and shall qualify, or
until he or she shall resign or be removed as set forth below.
(c) Any directors, any class of directors or the entire Board
of Directors may be removed from office by stockholder vote at any time,
without assigning any cause, but only if the holders of not less than
two-thirds (2/3) of the outstanding shares of capital stock of the Corporation
entitled to vote upon election of directors, voting together s a single class,
shall vote in favor of such removal.
ARTICLE VII. LIABILITY OF DIRECTORS
ARTICLE VII: Liability of Directors. No director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director; provided however, that the
foregoing clause shall not eliminate or limit the liability of a director for
the following: (I) any breach of such director's duty of loyalty to the
Corporation or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
the Arkansas Business Corporation Act; or (iv) any transaction from which such
director derived an improper personal benefit.
ARTICLE VIll. PROHIBITION AGAINST STOCKHOLDER ACTION BY CONSENT
ARTICLE VIll: Prohibition Against Stockholder Action by Consent.
Effective July 1, 1998, the stockholders of the Corporation may only take
action by vote at an annual or special meeting of the stockholders. The
stockholders of the Corporation may not take any action by consent (written or
otherwise) in lieu of taking action at an annual or special meeting of
stockholders.
ARTICLE IX. INDEMNIFICATION
ARTICLE IX: Indemnification. The Corporation, by action of the Board
of Directors, may indemnify its directors, officers, agents and/or employees
tot he fullest extent permitted by the Arkansas Business Corporation Act, as
such law is amended from time to time.
ARTICLE X. AMENDMENTS
ARTICLE X: Amendments. Any amendment hereof shall be made and effected
only as follows: (a) the Board of Directors shall adopt such amendment by the
affirmative vote of at least two-thirds (2/3) of the directors then in office
at a meeting of the Board of Directors called for that purpose or by written
resolution which sets forth and declares advisable the proposed amendment, and
the Board of Directors shall either call a special meeting of the stockholders
entitled to vote in respect thereof for consideration of such amendment or
direct that the proposed amendment be considered at the next annual meeting of
stockholders; (b) such amendment shall thereafter be
<PAGE> 5
EXHIBIT 3.1
submitted for consideration by the stockholders at such special or annual
meeting; and (c) each such proposed amendment shall be approved by the
affirmative vote of two-thirds (2/3) of the outstanding shares of each class
and series, if any, of capital stock of the Corporation entitled to vote
thereon.
4. The foregoing amendment to articles of Incorporation was duly
adopted by the board of directors on June 11, 1997.
In witness whereof, the undersigned Director of this corporation has
executed these articles of amendment on June 11, 1997.
/s/ Matthew J. Hoff
-----------------------------------
, Chairman
-----------------
<PAGE> 1
EXHIBIT 3.2
PET QUARTERS, INC.
Bylaws
Article 1: Stockholders
SECTION 1.1. ANNUAL MEETING. There shall be an annual meeting of the
stockholders of PET QUARTERS, INC. (the "Corporation") on the second Tuesday in
May of each year at 10:00 a.m. local time, or at such other date or time as
shall be designated from time to time by the board of directors of the
Corporation (the "Board of Directors") and stated in the notice of the meeting,
for the election of directors and for the transaction of such other business as
may come before the meeting.
SECTION 1.2. SPECIAL MEETINGS. A special meeting of the stockholders
of the Corporation may be called at anytime by the written resolution or other
request of a majority of the members of the Board of Directors. Such written
resolution or request shall specify the purpose or purposes for which such
meeting shall be called.
SECTION 1.3. NOTICE OF MEETINGS. Written notice of each meeting of
stockholders, whether annual or special, stating the date, hour and place
thereof, shall be served either personally or by mail, not less than ten nor
more than sixty days before the meeting, upon each stockholder of record
entitled to vote at such meeting and upon any other stockholder to whom the
giving of notice of such a meeting may be required by law. Notice of a special
meeting shall also state the purpose or purposes for which the meeting is
called and shall indicate that such notice is being issued by or at the
direction of the Board of Directors. If, at any meeting, action is proposed to
be taken that would, if taken, entitle stockholders to receive payment for
their stock pursuant to the General Corporation Law of the State of Arkansas,
the notice of such meeting shall include a statement of that purpose and to
that effect. If mailed, notice shall be deemed to be delivered when deposited
in the United States mail or with any private express mail service, postage or
delivery fee prepaid, and shall be directed to each such stockholder at its
address as it appears on the records of the Corporation, unless such
stockholder shall have previously filed with the secretary of the Corporation a
written request that notices intended for such stockholder be mailed to some
other address, in which case, it shall be mailed to the address designated in
such request.
SECTION 1.4. PLACE OF MEETING. The Board of Directors may designate
any place, either in the State of Arkansas or outside the State of Arkansas, as
the place a stockholder meeting shall be held for any annual meeting or any
special meeting called by the Board of Directors. If no designation is made,
the place of such meeting shall be the principal office of the Corporation.
SECTION 1.5. FIXING DATE OF RECORD. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a
record date which: (a) shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and (b) shall not
be less than ten nor more than sixty days before the date of such meeting. If
no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of such meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action,
<PAGE> 2
BY-LAWS OF PET QUARTERS, INC.
ADOPTED JUNE 16, 1997
the Board of Directors may fix a record date which: (a) shall not precede the
date upon which the resolution fixing the record date is adopted, and (b) shall
be not more than sixty days prior to such action. If no record date is fixed by
the Board of Directors, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
SECTION 1.6. INSPECTORS. At each meeting of the stockholders, the
polls shall be opened and closed, the proxies and ballots shall be received and
be taken in charge, and all questions touching the qualification of voters, the
validity of proxies and the acceptance or rejection of votes shall be decided
by one or more inspectors. Such inspectors shall be appointed by the Board of
Directors before or at such meeting or, if no such appointment shall have been
made, then by the presiding corporate officer at the meeting. IF, for any
reason, any of the inspectors previously appointed shall fail to attend the
meeting or shall refuse or be unable to serve, inspectors in place of any
inspectors so failing to attend or refusing or being unable to serve shall be
appointed in like manner.
SECTION 1.7. QUORUM. At any meeting of the stockholders, the holders
of one-third of the outstanding shares of each class and series, if any, of the
capital stock of the Corporation present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number shall be required by law, in which case, the
representation of the number so required shall constitute a quorum.
If the holders of the amount of stock necessary to constitute a quorum
shall fail to attend in person or by proxy at the time and place fixed in
accordance with these Bylaws for an annual or special meeting, a majority in
interest of the stockholders present in person or by proxy may adjourn, from
time to time, without notice other than by announcement at the meeting, until
the requisite holders of the amount of stock necessary to constitute a quorum
shall attend. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally notified.
SECTION 1.8. BUSINESS. The chairman, if any, of the Board of
Directors, the president of the Corporation or, in his absence the
vice-chairman, if any, of the Board of Directors or an executive vice-president
of the Corporation, inn the order named, shall call meetings of the
stockholders to order and shall act as the chairman of such meeting; provided,
however, that the Board of Directors or the executive committee, if any, may
appoint any stockholder to act as the chairman of any meeting in the absence of
the chairman of the Board of Directors. The secretary of the Corporation shall
act as secretary at all meetings of the stockholders, but in the absence of the
secretary at any meeting of the stockholders, the presiding corporate officer
may appoint any person to act as the secretary of the meeting.
SECTION 1.9. STOCKHOLDER PROPOSALS. No proposal by a stockholder shall
be presented for vote at an annual meeting of stockholders unless such
stockholder shall, not later than the close of business on the last business
day of the month of January, provide the Board of Directors or the secretary of
the Corporation with written notice of its intention to present a proposal for
action at the forthcoming meeting of stockholders. No proposal by a stockholder
shall be presented for vote at a special meeting of stockholders unless such
stockholder shall, not later than the close of business on the tenth calendar
day following the date on which notice of such meeting is first given to
stockholders, provide the Board of Directors or the secretary of the
Corporation with written notice of its intention to present a proposal for
action at the forthcoming special meeting of stockholders. Any such notice
shall be given by personal delivery or shall be sent via first class certified
mail, return receipt requested, postage prepaid and shall include the name and
address of such stockholder, the number of voting securities that such
stockholder holds of record and a statement that such stockholder holds
beneficially (or if such stockholder of record does not own such shares
beneficially, including the executed consent and authorization of the
beneficial
2
<PAGE> 3
BY-LAWS OF PET QUARTERS, INC.
ADOPTED JUNE 16, 1997
stockholder), the text of the proposal to be presented for vote at the meeting
and a statement in support of the proposal.
Any stockholder who was a stockholder of record on the applicable
record date may make any other proposal at an annual or special meeting of
stockholders and the same may be discussed and considered; provided however,
that unless stated in writing and filed with the Board of Directors or the
secretary prior to the date set forth hereinabove, such proposal shall be laid
over for action at an adjourned, special, or annual meeting of the stockholders
taking place sixty days or more thereafter, at a time, place and date to be
determined by the Board of Directors. This provision shall not prevent the
consideration and approval or disapproval at an annual meeting of reports of
officers, directors, and committees, but in connection with such reports, no
new business proposed by a stockholder, qua stockholder, shall be acted upon at
such annual meeting unless stated and filed as herein provided.
Notwithstanding any other provision of these Bylaws, the Corporation
shall be under no obligation to include any stockholder proposal in its proxy
statement materials or otherwise present any such proposal to stockholders at a
special or annual meeting of stockholders if the Board of Directors reasonably
believes the proponents thereof have not complied with Sections 13 and 14 of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, nor shall the Corporation be required to include any stockholder
proposal not required to be included in its proxy materials to stockholders in
accordance with any such section, rule or regulation.
SECTION 1.10. VOTING; PROXIES. Al att meetings of stockholders, a
stockholder entitled to vote may vote either in person or by proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Such
proxy shall be filed with the secretary of the Corporation at or before the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 1.11. VOTING BY BALLOT. The votes for directors, and upon the
demand of any stockholder or when required by law, the votes upon any question
before the meeting, shall be by ballot.
SECTION 1. 12. VOTING LISTS. The corporate officer who has charged of
the stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares of stock registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to such meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city in which such meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where such meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
SECTION 1.13. VOTING OF STOCK OF CERTAIN HOLDERS. Shares of capital
stock of the Corporation standing in the name of another corporation, domestic
or foreign, may be voted by such officer, agent or proxy as the bylaws of such
corporation may prescribe, or in the absence of such provision, as the board of
directors of such corporation may determine.
Shares of capital stock of the Corporation standing in the name of a
deceased person, a minor ward or an incompetent person may be voted by such
person's administrator, executor, court-appointed guardian or conservator,
either in person or by proxy, without a transfer of such stock into the name of
such administrator, executor, court-appointed guardian or conservator. Shares
of capital stock of the Corporation standing in the name of a trustee may be
voted by such trustee, either in person or by proxy.
3
<PAGE> 4
BY-LAWS OF PET QUARTERS, INC.
ADOPTED JUNE 16, 1997
Shares of capital stock of the Corporation standing in the name of a
receiver may be voted by such receiver, either in person or by proxy, and stock
held by or under the control of a receiver may be voted by such receiver
without the transfer thereof into his name if authority to do so is contained
in any appropriate order of the court by which such receiver was appointed. A
stockholder whose stock is pledged shall be entitled to vote such stock, either
in person or by proxy, until the stock has been transferred into the name of
the pledgee; thereafter, the pledgee shall be entitled to vote, either in
person or by proxy, the stock so transferred.
Shares of its own capital stock belonging to the Corporation shall not
be voted, directly or indirectly at any meeting and shall not be counted in
determining the total number of outstanding shares of capital stock at any
given time; however, shares of the Corporation's own capital stock held by it
in a fiduciary capacity may be voted and shall be counted in determining the
total number of shares of outstanding capital stock at any given time.
SECTION 1.14. PROHIBITION AGAINST STOCKHOLDER ACTION BY CONSENT.
Effective July 1, 1997, the stockholders of the Corporation may only take
action by vote at an annual or special meeting of the stockholders. The
stockholders of the Corporation may not take any action by consent (written or
otherwise) in lieu of taking action at an annual or special meeting of
stockholders.
ARTICLE III: BOARD OF DIRECTORS
SECTION 2.1. NUMBER AND TERM OF OFFICE. The business and the property
of the Corporation shall be managed and controlled by the Board of Directors.
The Board of Directors shall consist of no fewer than two directors (one if
there is one stockholder) and no more than twelve directors. Within the limits
above specified, the number of directors shall be determined by the Board of
Directors pursuant to a resolution adopted by a majority of the directors then
in office. Each director shall hold office for the term for which elected and
until his or her successor shall be elected and shall qualify. Directors need
not be stockholders.
SECTION 2.2. CLASSIFICATION. If there shall be more than one director,
the directors shall be classified, in respect solely to the time for which they
shall severally hold office, by dividing them into three classes (two classes
if there are only two directors), each such class to be as nearly as possible
equal in number of directors to each other class. If there are three or more
directors: (i) the first term of office of directors of the first class shall
expire at the first annual meeting after their election, and thereafter such
terms shall expire on each three year anniversary of such date, (ii) the term
of office of the directors of the second class shall expire on the one year
anniversary of the first annual meeting after their election, and thereafter
such terms shall expire on each three year anniversary of such one year
anniversary; and (iii) the term of office of the directors of the third class
shall expire on the two year anniversary of the first annual meeting after
their election, and thereafter such terms shall expire on each three year
anniversary of such two year anniversary. If there are two directors: (i) the
first term of office of directors of the first class shall expire at the first
annual meeting after their election, and thereafter such terms shall expire on
each two year anniversary of such date; and (ii) the term of office of the
directors of the second class shall expire on the one year anniversary of the
first annual meeting after their election, and thereafter such terms shall
expire on each two year anniversary of such one year anniversary. If there is
one director, the term of office such director shall expire at the first annual
meeting after his election. At each succeeding annual meeting, the stockholders
of the Corporation shall elect directors for a full term or the remainder
thereof, as the case may be, to succeed those whose terms have expired. Each
director shall hold office for the term for which elected and until his or her
successor shall be elected and shall qualify, or until he or she shall resign
or be removed as set forth below.
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SECTION 2.3. REMOVAL. Any director, any class of directors or the
entire Board of Directors may be removed at any time, with or without cause,
but only by the affirmative vote of the holders of two-thirds (2/3) or more of
the outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors cast at a meeting of the stockholders
called for that purpose.
SECTION 2.4. VACANCIES. Vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of directors, shall be
filled only by the affirmative vote a majority of the remaining directors then
in Ace, although the same may represent less than a quorum; except that
vacancies resulting from removal from office by a vote of the stockholders may
be filled by the stockholders at the same meeting at which such removal occurs;
provided, however, that the holders of not less than two-thirds (2/3) of the
outstanding shares of each class and series, if any, of the capital stock of
the Corporation entitled to vote upon the election of directors shall vote for
each replacement director. All directors elected to fill vacancies shall hold
office for a term expiring at the time at which the term of the class to which
they have been elected expires. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of an incumbent
director. If there are no directors in office, then an election of directors
may be held in the manner provided by statute. If, at any time of filling any
vacancy or any newly created directorship, the directors then in office shall
constitute less than a majority of the Board of Directors (as constituted
immediately prior to any applicable increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares of capital stock at the time outstanding, taken
together as a class, having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
SECTION 2.5. PLACE OF MEETINGS, ETC. The Board of Directors may hold
its meetings, and may have an office and keep the books of the Corporation
(except as otherwise may be provided by law), in such place or places in the
State of Arkansas or outside of the State of Arkansas, as the Board of
Directors may determine from time to time. Any director may participate
telephonically in any meeting of the Board of Directors and such participation
shall be considered to be the same as his physical presence thereat.
SECTION 2.6. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held on the day of the annual meeting of stockholders after
the adjournment thereof and at such other times and places as the Board of
Directors may fix. No notice shall be required for any such regular meeting of
the Board of Directors.
SECTION 2.7. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by direction of the chairman of the
Board of Directors, the president of the Corporation, an executive
vice-president of the Corporation or two-thirds (2/3) of the directors then in
office. The secretary of the Corporation shall give notice of each special
meeting, stating the date, hour and place thereof, by delivering the same
personally or by mail, at least five days before such meeting, to each
director, however, such notice may be waived by any director. If mailed, notice
shall be deemed to be delivered when deposited in the Unites States mail or
with any private express document delivery service, postage or delivery fee
prepaid. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting. At any meeting at which every director
shall be present, even though without any notice, any business may be
transacted.
SECTION 2.8. QUORUM; ACTIONS BY BOARD. A majority of the total number
of directors then in office shall constitute a quorum for the transaction of
business; however, if at any meeting of the Board of Directors there be less
than a quorum present a majority of those present may adjourn the meeting from
time to time. At any meeting of the Board of Directors at which a quorum is
present, action may be taken
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by the affirmative vote of at least a majority of the members of the Board of
Directors in attendance at such meeting, unless otherwise set forth herein.
SECTION 2.9. BUSINESS. Business shall be transacted at meetings of the
Board of Directors in such order as the Board of Directors may determine. At
all meetings of the Board of Directors, the chairman, if any, of the Board of
Directors, the president of the Corporation, or in his absence the
vice-chairman, if any, of the Board of Directors, or an executive
vice-president of the Corporation, in the order named, shall preside.
SECTION 2.10. CONTRACTS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of the Corporation's directors or officers
have a financial interest or are directors or officers, shall be void or
voidable solely for this reason or solely because such director or officer is
present at or participates in the meeting of the Board of Directors or
committee thereof which authorizes such contract or transaction or solely
because his or their votes are counted for such purpose, if:
(A) The material facts relating to such officer's or directors
relationship or interest and relating to the contract or transaction are
disclosed or are known to the Board of Directors or committee thereof, and the
Board of Directors or committee thereof in good faith authorizes the contract
or transaction by the affirmative vote of a majority of the disinterested
directors, although the disinterested directors may represent less than a
quorum; or
(B) The material facts relating to such officers or directors
relationship or interest and relating to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or
(C) The contract or transaction is fair with respect to the
Corporation as of the time It is authorized, approved or ratified by the Board
of Directors, a committee thereof or the stockholders.
For purposes of the foregoing provisions, interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee thereof which authorizes such a contract or
transaction.
SECTION 2.11. COMPENSATION OF DIRECTORS. Each director of the
Corporation who is not a salaried officer or employee of the Corporation or of
a subsidiary of the Corporation shall receive such allowances for serving as a
director and such fees for attendance at meetings of the Board of Directors,
the executive committee or any other committee appointed by the Board of
Directors as the Board of Directors may from time to time determine.
SECTION 2.12. ELECTION OF OFFICERS AND COMMITTEES. At the first
regular meeting of the Board of Directors in each year (at which a quorum shall
be present) held next after the annual meeting of stockholders, the Board of
Directors shall elect the principal officers of the Corporation and members of
the executive committee, if any, to be elected by the Board of Directors under
the provisions of Article III and Article IV of these Bylaws. The Board of
Directors may designate such other committees with such power and authority (to
the extent permitted by law, the Corporation's Certificate of Incorporation, as
in effect, and these Bylaws), as may be provided by resolution of the Board of
Directors.
SECTION 2.13. NOMINATION. Subject to the rights of holders of any
class or series of stock having a preference over the common stock of the
Corporation as to dividends or upon liquidation,
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nominations for the election of directors may be made by the Board of Directors
or by any stockholder entitled to vote in the election of directors generally.
However, any stockholder entitled to vote in the election of directors
generally may nominate one or more persons for election as directors at a
meeting only if written notice of such stockholder's intention to make such
nomination or nominations has been given, either by personal delivery or by
United States first class certified mail, postage prepaid, return receipt
requested and to the secretary of the Corporation not later than: (a) with
respect to an election to be held at an annual meeting of stockholders, the
close of business on the last day of the month of January, and (b) with respect
to an election to beheld at a special meeting of stockholders for the election
of directors, the close of business on the tenth day following the date on
which notice of such meeting is first given to stockholders. Each such notice
shall set forth: (i) the name and address of the stockholder who intends to
make the nomination and of the person or persons to be nominated; (ii) a
representation that the stockholder is a holder of record of capital stock of
the Corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified
in the notice; (iii) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by the stockholder; (iv) such other information regarding each
such nominee as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated by the Board of Directors;
and (v) the consent of each such nominee to serve as a director of the
Corporation if so elected. The presiding corporate officer at the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure.
SECTION 2.14. ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board
of Directors or such committee, as the case may be, consent thereto in writing
and such writing is filed with the minutes of the proceedings of the Board of
Directors or the committee.
SECTION 2.15. PARTICIPATION BY CONFERENCE TELEPHONE.Members of the
Board of Directors or any committee thereof may participate in a regular or
special meeting of the Board of Directors or committee thereof by means of
conference telephone or similar communications equipment by means of which all
persons participating in such meeting can hear one another and such
participation shall constitute presence in person at such meeting.
ARTICLE III: EXECUTIVE COMMITTEE
SECTION 3.1. NUMBER AND TERM OF OFFICE. The Board of Directors, by
resolution adopted by the affirmative vote of a majority of the members of the
Board of Directors, create an executive committee and elect the members thereof
from among the directors then in office. The executive committee shall consist
of such number of members as may be fixed from time to time by resolution of
the Board of Directors in accordance with and as permitted by applicable law.
Those directors who serve as officers of the Corporation, by virtue of their
offices, shall be members of the executive committee. Unless otherwise ordered
by the Board of Directors, each elected member of the executive committee shall
continue to be a member thereof until the expiration of his term of service as
a director.
SECTION 3.2. POWERS. The executive committee may, while the Board of
Directors is not in session, exercise all or any of the powers of the Board of
Directors in all cases in which specific directions shall not have been given
by the Board of Directors; provided, however, that the executive committee
shall not have the power or authority of the Board of Directors with respect to
amending the Corporation's Certificate of Incorporation, adopting an agreement
of merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
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revocation of a dissolution, amending the Bylaws, declaring a dividend,
authorizing the issuance of stock or adopting a certificate of ownership and
merger.
SECTION 3.3. MEETINGS. Regular meetings of the executive committee may
be held without notice at such times and places as the executive committee may
fix from time to time by resolution. Special meetings of the executive
committee may be called by any member thereof upon delivery of not less than
five days notice, given in person, by mail, by telegraph or by facsimile (if
allowed by law), stating the place, date and hour of the meeting, but such
notice may be waived by any member of the executive committee. If mailed,
notice shall be deemed to be delivered when deposited in the United States mail
or with any private express mail service, postage or delivery fee prepaid.
Unless otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting. At any meeting at which every member of the
executive committee shall be present, in person or by telephone, even though
without any notice, any business may be transacted.
SECTION 3.4. PRESIDING OFFICER. At all meetings of the executive
committee the chairman of the executive committee, who shall be designated by
the Board of Directors from among the members of the committee, shall preside,
and the Board of Directors shall designate a member of such committee to
preside in the absence of the chairman thereof. The Board of Directors may also
similarly elect from its members one or more alternate members of the executive
committee to serve at the meetings of such committee in the absence or
disqualification of any regular member or members, and, in case more than one
alternate is elected, shall designate at the time of election the priorities as
between them.
SECTION 3.5. VACANCIES. The Board of Directors, by the affirmative
vote of a majority of the members of the Board of Directors then in office,
shall fill vacancies in the executive committee by election from the directors.
SECTION 3.6. RULES OF PROCEDURE; QUORUM. All action by the executive
committee shall be reported to the Board of Directors at the next succeeding
meeting of the Board of Directors after such action has been taken and shall be
subject to revision or alteration by the Board of Directors; provided, however,
that no rights or acts of third parties shall be affected by any such revision
or alteration. The executive committee shall fix its own rules of procedure,
and shall meet where and as provided by such rules or by resolution of the
Board of Directors, but in every case the presence of a majority of the total
number of members of the executive committee shall be necessary to constitute a
quorum. In every case, the affirmative vote of a majority of all of the members
of the executive committee present at the meeting shall be necessary for the
adoption of any resolution.
ARTICLE IV: OFFICERS
SECTION 4.1. NUMBER AND TERM OF OFFICE. The officers of the
Corporation shall be a president, a chief executive officer, one or more
executive vice-presidents, a secretary, a treasurer, and such other officers as
may be elected or appointed from time to time by the Board of Directors,
including such additional vice-presidents with such designations, if any, as
may be determined by the Board of Directors and such assistant secretaries and
assistant treasurers as may be determined by the Board of Directors. In
addition, the Board of Directors may elect a chairman thereof and may also
elect a vice-chairman as officers of the Corporation (each of whom shall be a
director). Any two or more offices may be held by the same person, except that
the offices of president and secretary may not be held by the same person. In
its discretion, the Board of Directors may leave unfilled any office except
those of president, treasurer and secretary.
The officers of the Corporation shall be elected or appointed annually
by the Board of Directors at the first meeting of the Board of Directors held
after each annual meeting of stockholders. Each officer
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shall hold office until his or her successor shall have been duly elected or
appointed, until his or her death or until he or she shall resign or shall have
been removed by the Board of Directors.
SECTION 4.2. VACANCIES. Vacancies or new offices may be filled at any
time by the affirmative vote of a majority of the members of the Board of
Directors.
Each of the salaried officers of the Corporation shall devote his
entire time, skill and energy to the business of the Corporation, unless the
contrary is expressly consented to by the Board of Directors or the executive
committee, if any.
SECTION 4.3. REMOVAL. Any officer may be removed by the Board of
Directors whenever, in its judgment, the best interests of the Corporation
would be served thereby.
SECTION 4.4. THE CHAIRMAN OF THE BOARD OF DIRECTORS. The chairman, if
any, of the Board of Directors shall preside at all meetings of stockholders
and of the Board of Directors and shall have such other authority and perform
such other duties as are prescribed by law, by these Bylaws and by the Board of
Directors. The Board of Directors may designate the chairman thereof as chief
executive officer, in which case he shall have such authority and perform such
duties as are prescribed by these Bylaws and the Board of Directors for the
chief executive officer.
SECTION 4.5. THE VICE-CHAIRMAN OF THE BOARD OF DIRECTORS. The
vice-chairman, if any, of the Board of Directors shall have such authority and
perform such other duties as are prescribed by these Bylaws and by the Board of
Directors. In the absence or inability to act of the chairman of the Board of
Directors and of the president of the Corporation, the vice-chairman shall
preside at the meetings of the stockholders and of the Board of Directors and
shall have and exercise all of the powers and duties of the chairman of the
Board of Directors. The Board of Directors may designate the vice-chairman as
chief executive officer, in which case he shall have such authority and perform
such duties as are prescribed by these Bylaws and the Board of Directors for
the chief executive officer.
SECTION 4.6. THE PRESIDENT. The president of the Corporation shall
have such authority and perform such duties as are prescribed by law, by these
Bylaws, by the Board of Directors and by the chief executive officer (if the
president is not the chief executive officer). If there is no chairman of the
Board of Directors, or in the chairman's absence or the chairman's inability to
act as the chairman of the Board of Directors, the president shall preside at
all meetings of stockholders and of the Board of Directors. Unless the Board of
Directors designates the chairman of the Board of Directors or the
vice-chairman as chief executive officer, the president shall be the chief
executive officer, in which case he shall have such authority and perform such
duties as are prescribed by these Bylaws and the Board of Directors for the
chief executive officer.
SECTION 4.7. THE CHIEF EXECUTIVE OFFICER. Unless the Board of
Directors designates the chairman of the Board of Directors or the
vice-chairman as chief executive officer, the president shall be the chief
executive officer of the Corporation. Subject to the supervision and direction
of the Board of Directors, the chief executive officer of the Corporation shall
have general supervision of the business, property and affairs of the
Corporation, including the power to appoint and discharge agents and employees,
and the powers vested in him or her by the Board of Directors, by law or by
these Bylaws or which usually attach or pertain to such office.
SECTION 4.8. THE EXECUTIVE VICE-PRESIDENTS. In the absence of the
chairman of the Board of Directors, if any, the president of the Corporation,
and in the event of the inability or refusal of the president of the
Corporation to act, the vice-chairman, if any, of the Board of Directors, or in
the event of the inability or refusal of either of them to act, the executive
vice-president of the Corporation (or in the
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ADOPTED JUNE 16, 1997
even there is more than one executive vice-president of the Corporation, the
executive vice-presidents thereof in the order designated, or in the absence of
any designation, then in the order of their election) shall perform the duties
of the chairman of the Board of Directors, of the president of the Corporation
and of the vice-chairman of the Board of Directors, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the chairman
of the Board of Directors, the president of the Corporation and the
vice-chairman of the Corporation. Any executive vice-president of the
Corporation may sign, with the secretary of the Corporation or an authorized
assistant secretary, certificates for stock of the Corporation and shall
perform such other duties as from time to time may be assigned to him or her by
the chairman of the Board of Directors, the president of the Corporation, the
vice-chairman of the Board of Directors, the Board of Directors or these
Bylaws.
SECTION 4.9. THE VICE-PRESIDENTS. The vice-presidents of the
Corporation, if any, shall perform such duties as may be assigned to them from
time to time by the chairman of the Board of Directors, the president, the
vice-chairman, the Board of Directors, or these Bylaws.
SECTION 4.10. THE TREASURER. Subject to the direction of the chief
executive officer of the Corporation and the Board of Directors, the treasurer
of the Corporation shall: (a) have charge and custody of all the funds and
securities of the Corporation; (b) when necessary or proper, endorse for
collection or cause to be endorsed on behalf of the Corporation, checks, notes
and other obligations, and cause the deposit of the same to the credit of the
Corporation in such bank or banks or depositary as the Board of Directors may
designate or as the Board of Directors by resolution may authorize; (c) sign
all receipts and vouchers for payments made to the Corporation other than
routine receipts and vouchers, the signing of which he or she may delegate; (d)
sign all checks made by the Corporation (provided, however, that the Board of
Directors may authorize and prescribe by resolution the manner in which checks
drawn on banks or depositaries shall be signed, including the use of facsimile
signatures, and the manner in which officers, agents or employees shall be
authorized to sign); (e) unless otherwise provided by resolution of the Board
of Directors, sign with an officer-director all bills of exchange and
promissory notes of the Corporation; (f) sign with the president or an
executive vice-president all certificates representing shares of the capital
stock; (g) whenever required by the Board of Directors, render a statement of
his or her cash account; (h) enter regularly full and accurate account of the
Corporation in books of the Corporation to be kept by the treasurer for that
purpose; (i) exhibit, at all reasonable times, his or her books and accounts to
any director of the Corporation upon application at the treasurer's office
during regular business hours; and (j) perform all acts incident to the
position of treasurer. If required by the Board of Directors, the treasurer of
the Corporation shall give a bond for the faithful discharge of his or her
duties in such sum as the Board of Directors may require.
SECTION 4.11. THE SECRETARY. The secretary of the Corporation shall:
(a) keep the minutes of all meetings of the Board of Directors, the minutes of
all meetings of the stockholders and (unless otherwise directed by the Board of
Directors) the minutes of all committees, in books provided for that purpose;
(b) attend to the giving and serving of all notices of the Corporation; (c)
sign with an officer-director or any other duly authorized person, in the name
of the Corporation, all contracts authorized by the Board of Directors or by
the executive committee, and, when so ordered by the Board of Directors or the
executive committee, affix the seal of the Corporation thereto; (d) have charge
of the certificate books, transfer books and stock ledgers, and such other
books and papers as the Board of Directors or the executive committee may
direct, all of which shall, at all reasonable times, be open to the examination
of any director, upon application at the secretary's office during regular
business hours; and (e) in general, perform all of the duties incident to the
office of the secretary, subject to the control of the chief executive officer
and the Board of Directors.
SECTION 4.12. THE ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
assistant treasurers of the Corporation shall respectively, if required by the
Board of Directors, give bonds for the faithful
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ADOPTED JUNE 16, 1997
discharge of their duties in such sums and with such sureties as the Board of
Directors may determine. The assistant secretaries of the Corporation as
thereunto authorized by the Board of Directors may sign with the chairman of
the Board of Directors, the president of the Corporation, the vice-chairman of
the Board of Directors or an executive vice-president of the Corporation,
certificates for stock of the Corporation, the issue of which shall have been
authorized by a resolution of the Board of Directors. The assistant treasurers
and assistant secretaries, in general, shall perform such duties as shall be
assigned to them by the treasurer or the secretary, respectively, or chief
executive officer, the Board of Directors, or these Bylaws.
SECTION 4.13. SALARIES. The salaries of the officers shall be fixed
from time to time by the Board of Directors and no officer shall be prevented
from receiving such salary by reason of the fact that he or she is also a
director of the Corporation.
SECTION 4.14. VOTING UPON STOCKS. Unless otherwise ordered by the
Board of Directors or by the executive committee, any officer-director or any
person or persons appointed in writing by any of them, shall have full power
and authority or behalf of the Corporation to attend, to act and to vote at any
meetings of stockholders of any Corporation in which the Corporation may hold
stock, and at any such meeting shall possess and may exercise any and all the
rights and powers incident to the ownership of such stock, and which, as the
owner thereof, the Corporation might have possessed and exercised if present.
The Board of Directors may confer like powers upon any other person or persons.
ARTICLE V: CONTRACTS AND LOANS
SECTION 5.1. CONTRACTS. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and
such authority may be general or confined to specific instances.
SECTION 5.2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its, name
unless authorized by a resolution of the Board of Directors. Such authority may
be general or confined to specific instances.
ARTICLE VI: CERTIFICATES FOR STOCK AND THEIR TRANSFER
SECTION 6.1. CERTIFICATES FOR STOCK. Certificates representing shares
of capital stock of the Corporation shall be in such form as may be determined
by the Board of Directors. Such certificates shall be signed by the chairman of
the Board of Directors, the president of the Corporation, the vice-chairman of
the Board of Directors or an executive vice-president of the Corporation and by
the secretary or an authorized assistant secretary and shall be sealed with the
seal of the Corporation. The seal may be a facsimile. If a stock certificate is
countersigned: (i) by a transfer agent other than the Corporation or its
employee, or (ii) by a registrar other than the Corporation or its employee,
any other signature on the certificate may be a facsimile. In the event that
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue. All certificates for capital
stock shall be consecutively numbered or otherwise identified. The name of the
person to whom the shares of capital stock represented thereby are issued, with
the number of shares of capital stock and date of issue, shall be entered on
the books of the Corporation. All certificates surrendered to the Corporation
for transfer shall be canceled and no new certificates shall be issued until
the former certificate for a like number of shares of capital stock shall have
been surrendered and canceled, except that in the event of a lost, destroyed or
mutilated certificate, a new one may be issued therefor upon such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
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SECTION 6.2. TRANSFERS OF STOCK. Transfers of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder of
record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the secretary of the
Corporation, and on surrender for cancellation of the certificate for such
capital stock. The person in whose name capital stock stands on the books of
the Corporation shall be deemed to be the owner thereof for all purposes as
regards the Corporation.
ARTICLE VII: FISCAL YEAR
SECTION 7.1. FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of January in each year and end on the last day of
December in each year.
ARTICLE VIII: SEAL
SECTION 8.1 SEAL. The Board of Directors shall approve a corporate seal
which shall be in the form of a circle and shall have inscribed thereon the
name of the Corporation.
ARTICLE 1X: WAIVER OF NOTICE
SECTION 9.1. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of these Bylaws or under the provisions of the
Certificate of Incorporation or under the provisions of the General Corporation
Law of the State of Arkansas, waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Attendance of
any person at a meeting for which any notice is required to be given under the
provisions of these Bylaws, the Certificate of Incorporation or the General
Corporation Law of the State of Arkansas shall constitute a waiver of notice of
such meeting except when the person attends for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
businesses because the meeting is not lawfully called or convened.
ARTICLE X: AMENDMENTS
SECTION 10.1. AMENDMENTS. These Bylaws may be altered, amended or
repealed and new Bylaws may be adopted at any meeting of the Board of Directors
by the affirmative vote of at least two-thirds (2/3) of the members of the
Board of Directors or by the affirmative vote of the holders of two-thirds
(2/3) of the outstanding shares of each class and series, if any, of capital
stock of the Corporation entitled to vote in the election of directors cast at
a meeting of the stockholders called for that purpose.
ARTICLE XI: INDEMNIFICATION AND ADVANCEMENT OF COSTS
SECTION 11.1 INDEMNIFICATION AND ADVANCEMENT OF COSTS. The
Corporation shall indemnify its officers, directors, employees and agents to
the fullest extent permitted by the Certificate of Incorporation consistent
with General Corporation Law of the State of Arkansas, as amended from time to
time; and the Corporation may advance costs incurred by officers, directors,
employees and agents of the Corporation or another corporation, partnership,
joint venture, trust or other enterprise, in their defenses of any civil,
criminal, administrative or investigative action or proceeding asserted against
one or more of them by reason of the fact of his, her, or their serving or
having served in such capacity or capacities at the request of the Corporation
and in advance of a final disposition of such action, suit or proceeding to the
fullest extent permitted by the Certificate of Incorporation consistent with
the General Corporation Law of the State of Arkansas, as amended from time to
time, provided that the terms and conditions of
12
<PAGE> 13
BY-LAWS OF PET QUARTERS, INC.
ADOPTED JUNE 16, 1997
such advancement of costs is approved by the Board of Directors. Nothing herein
is intended to limit the Corporation's authority to indemnify its officers,
directors, employees and agents or to advance funds in connection therewith,
under the General Corporation Law of the State of Arkansas, as amended from
time to time.
13
<PAGE> 1
EXHIBIT 10.1
COLLATERAL PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of August 1, 1999 made between PETQUARTERS,
INC. an Arkansas corporation and its wholly owned subsidiary, PQ ACQUISITION
COMPANY, INC. an Arkansas corporation, acting in the manner and to the extent
described in the SECURED PROMISSORY NOTE executed of even date, described below
(the two parties collectively referred to as "Pledgor"), and THE SUN VALLEY
TRUST OF JULY 30, 1999, a trust organized pursuant to the laws of the state of
Idaho, referred to as "Pledgee", being the holder the SECURED PROMISSORY NOTE.
WHEREAS, the Pledgor has executed a SECURED PROMISSORY NOTE to the
Pledgee in the principal sum of Four Million Six Hundred Thousand
($4,600,000.00) Dollars which Pledgee now holds, which is Exhibit 1; and
WHEREAS, it is a condition precedent to the SECURED PROMISSORY NOTE to
the Pledgee in the principal sum of Four Million Six Hundred Thousand
($4,600,000.00) Dollars that Pledgor shall have executed and delivered to the
Pledgee this Agreement; and
WHEREAS, the Pledgor desires to execute this Agreement to satisfy the
condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to the Pledgor, the
receipt and sufficiency of which are hereby acknowledged, the Pledgor hereby
makes the following representations and warranties to the Pledgee and hereby
covenants and agrees with Pledgee as follows:
1. Security for Pledgor's Obligations
This Agreement is for the benefit of the Pledgee, the Holder of the
Note and to secure the payment of all other obligations and liabilities
(including, without limitation, indemnities, fees and interest thereon) of the
Pledgor, now existing or hereafter incurred under, arising out of or in
connection with the issuance of SECURED PROMISSORY NOTE to the Pledgee in the
principal sum of Four Million Six Hundred Thousand ($4,600,000.00) Dollars and
the due performance and compliance with the terms of all agreements by the
Pledgor (all such monies, dividends, shares, obligations and liabilities,
collectively, the "Secured Obligations").
2. Definition of Stock
As used herein, the term "Stock" shall mean all of the issued and
outstanding shares of capital stock, at any time owned by the Pledgor of
HUMBOLDT INDUSTRIES, INC., a Pennsylvania corporation and all of the issued and
outstanding shares of capital stock, at any time owned by the Pledgor of
MAPLEWOOD INDUSTRIES, INC., a Pennsylvania corporation, (hereinafter
collectively referred to as "HUMBOLDT'). At no time shall the shares of
Humboldt, owned by Pledgor, be less than one hundred (100%) percent of the
issued and outstanding shares of HUMBOLDT. The Pledgor represents and warrants
that on the date hereof (i) the Stock consists of 1000 shares of the capital
stock of HUMBOLDT and 20 shares of the capital stock of MAPLEWOOD (ii) such
Stock constitutes one hundred (100%) percent of the issued and outstanding
capital stock of HUMBOLDT and MAPLEWOOD.
<PAGE> 2
3. Pledge of Collateral
3.1 Pledge
To secure the Secured Obligations and for the purposes set forth in
Section 1, the Pledgor (i) hereby grants to the Pledgee a security interest in
all of the Collateral (as defined in Section 3.4); (ii) hereby pledges and
deposits as security with the Pledgee (except as otherwise permitted below) the
Stock owned by the Pledgor on the date hereof and delivers to the Pledgee
certificates therefor accompanied by stock powers duly executed in blank by the
Pledgor or such other instruments of transfer as are acceptable to the Pledgee
and (iii) hereby assigns, transfers, hypothecates, mortgages, charges and sets
over to the Pledgee all of the Pledgor's right, title and interest in and to
such Stock (and in and to the certificates or instruments evidencing such
Stock), to be held by the Pledgee upon the terms and conditions set forth in
this Agreement.
3.2 Subsequently Acquired Stock
If the Pledgor shall acquire (by purchase, stock dividend or otherwise)
any additional Stock at any time or from time to time after the date hereof of
HUMBOLDT or MAPLEWOOD, the Pledgor will forthwith pledge and deposit such Stock
as security with the Pledgee and deliver to the Pledgee certificates therefor
accompanied by stock powers duly executed in blank by the Pledgor or such other
instruments of transfer as are acceptable to the Pledgee, and will promptly
thereafter deliver to the Pledgee a certificate executed by any of the
President, any Vice President, or the Treasurer of the Pledgor describing such
Stock and certifying that the same has been duly pledged with the Pledgee
hereunder.
3.3 Uncertificated Stock
Notwithstanding anything to the contrary contained in Sections 3.1 and
3.2, if any Stock (whether now owned or hereafter acquired) is evidenced by an
uncertificated security, the Pledgor shall promptly notify the Pledgee thereof
and shall promptly take all actions required to perfect the security interest of
the Pledgee under applicable law (including, in any event, the Uniform
Commercial Code). The Pledgor further agrees to take such actions as the Pledgee
deems necessary or desirable to effect the foregoing and to permit the Pledgee
to exercise any of its rights and remedies hereunder, and agrees to provide an
opinion of counsel satisfactory to the Pledgee with respect to any such pledge
of uncertificated Stock promptly upon request of the Pledgee.
3.4 Definitions of Pledged Stock and Collateral
All Stock pledged hereunder is hereinafter called the "Pledged Stock,"
and the Pledged Stock, together with all proceeds thereof, including any
securities and moneys received and at the time held by the Pledgee hereunder, is
hereinafter called the "Collateral."
4. Appointment of Sub-Agents; Endorsements
The Pledgee hereby appoints The Delaware Escrow Company, 1177 George
Bush Blvd., Suite 308, Delray Beach, Florida 33483 for retaining physical
possession of the Pledged Stock, which may be held (in the discretion of the
Pledgee) in the name of the Pledgor, endorsed or assigned in blank or in favor
of the Pledgee or any nominee or nominees of the Pledgee or a sub-agent
appointed by the Pledgee.
<PAGE> 3
5. Voting
Unless and until an Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled to vote any and all Pledged Stock and
to give consents, waivers or ratifications in respect thereof, provided that no
vote shall be cast or any consent, waiver or ratification given or any action
taken which would violate or be inconsistent with any of the terms of this
Agreement, any other instrument or agreement referred to herein or therein, or
which would have the effect of impairing the position or interests of the
Pledgee. All such rights of the Pledgor to vote and to give consents, waivers
and ratifications shall cease in case an Event of Default shall occur and be
continuing, and Section 7 shall become applicable.
6. Dividends and Other Distributions
Unless and until an Event of Default shall have occurred and be
continuing, all cash dividends payable in respect of the Pledged Stock shall be
paid to the Pledgor, provided that all cash dividends payable in respect of the
Pledged Stock which are determined by the Pledgee, in its absolute discretion,
to represent in whole or in part an extraordinary, liquidating or other
distribution in return of capital shall be paid to the Pledgee and retained by
it as part of the Collateral. The Pledgee shall also be entitled to receive
directly and to retain as part of the Collateral:
(a) All other or additional stock or securities or property (other than cash)
paid or distributed by way of dividend in respect of the Pledged Stock;
(b) All other or additional stock or other securities or property (including
cash) paid or distributed in respect of the Pledged Stock by way of stock-split,
spin-off, split-up, reclassification, combination of shares or similar
rearrangement; and
(c) All other or additional stock or other securities or property which may be
paid in respect of the Collateral by reason of any consolidation, merger,
exchange of stock, conveyance of assets, liquidation or similar corporate
reorganization.
7. Remedies in Case of Event of Default
In case an Event of Default as defined in Section 10, below, the
Pledgee shall be entitled to exercise all of the rights, powers and remedies
(whether vested in it by this Agreement or agreement between the parties or by
law) for the protection and enforcement of its rights in respect of the
Collateral, and the Pledgee shall be entitled, without limitation, to exercise
the following rights, which the Pledgor hereby agrees to be commercially
reasonable:
(a) To receive all amounts payable in respect of the Collateral otherwise
payable under Section 6 to the Pledgor;
(b) To transfer all or any part of the Pledged Stock into the Pledgee's name or
the name of its nominee or nominees;
(c) To vote all or any part of the Pledged Stock (whether or not transferred
into the name of the Pledgee) and give all consents, waivers and ratifications
in respect of the Collateral and otherwise act with respect thereto as though it
were the outright owner thereof (the Pledgor hereby irrevocably constituting and
appointing the Pledgee the proxy and attorney-in-fact of the Pledgor, with full
power of substitution, to do so); and
(d) At any time or from time to time to sell, assign and deliver, or grant
options to purchase, all or any part of the Collateral, or any interest therein,
at any public or private sale, without demand of performance, advertisement or
notice of intention to sell or of the time or place of sale or adjournment
thereof or to redeem or otherwise (all of which are hereby waived by the
Pledgor), for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or prices and
on such terms as the Pledgee in its absolute discretion may determine, provided
that at least 10 days' notice of the time and place of any such sale shall be
given to the Pledgor. The Pledgor
<PAGE> 4
shall have the right to redeem the obligation, if, not more than thirty (30)
days after receipt of a notice of default from the Pledgee, Pledgor delivers to
Pledgee good funds in an amount sufficient to pay all principal, accrued
interest, costs and attorney's fees. However, if within the thirty (30) day
redemption period, the Pledgee delivers the ten (10) day notice of sale, the
Pledgor's redemption rights will terminate at 5:00 PM, Mountain Time, on the day
prior to the sale date, whether that data shall be less than thirty (30) days.
In no event shall the Pledgor's redemption extend more than thirty (30) days
after notice of default is received. If the Pledgor fails to exercise its right
of redemption, as set forth herein, the redemption right granted herein is
waived and released to the fullest extent permitted by law with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshaling the Collateral and any other security for the Secured Obligations or
otherwise. At any such sale, unless prohibited by applicable law, the Pledgee
may bid for and purchase all or any part of the Collateral so sold free from any
such right or equity of redemption. None or the Pledgees shall be liable for
failure to collect or realize upon any or all of the Collateral or for any delay
in so doing nor shall any of them be under any obligation to take any action
whatsoever with regard thereto.
8. Application of Proceeds
All moneys collected by the Pledgee upon any sale or other disposition
of the Collateral, together with all other moneys received by the Pledgee
hereunder, shall be applied to the payment of all costs and expenses incurred by
the Pledgee in connection with such sale, the delivery of the Collateral or the
collection of any such moneys (including, without limitation, attorneys' fees
and expenses), and the balance of such moneys shall be held by the Pledgee and
applied by it to satisfy the obligations as provided in the SECURED PROMISSORY
NOTE issued by the Pledgor. After the satisfaction of all amounts due, any
excess funds shall be paid to the Pledgor.
9. Purchasers of Collateral
Upon any sale of the Collateral by the Pledgee hereunder (whether by
virtue of the power of sale herein granted, pursuant to judicial process or
otherwise), the receipt of the Pledgee or the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold,
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Pledgee or such
officer or be answerable in any way for the misapplication or nonapplication
thereof.
10. Default
The following events shall constitute evidence of a Default by the
Pledgee, said default or defaults constituting the Pledgee's absolute right to
the election of remedies provided for in Section 7 of this Agreement, or any
other remedies available to the Pledgee whether in Law or Equity:
(a) Failure by the Pledgor to observe or perform any covenant contained
in:
(i) SECURED PROMISSORY NOTE; and
(ii) This Collateral Pledge Agreement; or
(b) The failure of the Pledgor to repay the entire amount of the
SECURED PROMISSORY NOTE on the due date;
(c) Any representation or warranty made by the Pledgee or any
statement, certificate or other data furnished by any of them in connection
herewith or with any other Document proves at any time to be incorrect in any
material respect; or
<PAGE> 5
(d) A judgment or judgments for the payment of money shall be rendered
against the Pledgor which shall remain unsatisfied and in effect for a period of
30 days without a stay of execution; or
(e) Any levy, seizure, attachment execution or similar process shall be
issued or levied on any of the Pledgor's property, which such process could have
a material adverse effect on the business of the Plegdor in the Pledgees'
reasonable judgment; or
(f) The Pledgor shall (i) apply for or consent to the appointment of a
receiver, conservator, trustee or liquidator of all or a substantial part of any
of its assets; (ii) be unable, or admit in writing its inability, to pay its
debts as they mature; (iii) file or permit the filing of any petition, case,
arrangement, reorganization, or the like under any insolvency or bankruptcy law,
or the adjudication of it as a bankrupt, or the making of an assignment for the
benefit of creditors or the consenting to any form of arrangement for the
satisfaction, settlement or delay of debt or the appointment of a receiver for
all or any part of its properties; or (iv) take any action for the purpose of
effecting any of the foregoing; or
(g) An order, judgment or decree shall be entered, or a case shall be
commenced, against the Pledgor, without the application, approval or consent of
the Pledgor by or in any court of competent jurisdiction, approving a petition
or permitting the commencement of a case seeking reorganization or liquidation
of the Pledgor or appointing a receiver, trustee, conservator or liquidator of
the Pledgor, or of all or a substantial part of its assets and the Pledgor, by
any act indicates its approval thereof, consent thereto, or acquiescence
therein, or, in any event, such order, judgment, decree or case shall continue
unstayed, or undismissed and in effect for any period of ninety (30) consecutive
days; or
(h) The Pledgor shall dissolve or liquidate, or be dissolved or
liquidated, or cease to exist legally, or merge or consolidate with, or be
merged or consolidated with or into any other entity other than HUMBOLDT OR
MAPLEWOOD; or
(j) Failure by the Pledgor to pay or perform any other Obligation
whether contingent or otherwise, or if any such other Obligation shall be
accelerated, or if there exists any event of default under any instrument,
document or agreement governing, evidencing or securing such other Obligation;
or
(k) The Pledgee reasonably believes that any material adverse change in
the assets, liabilities, financial condition or business of Pledgor has occurred
since the date of this Agreement, excepting the obligations incurred pursuant to
this transaction, including the purchase of the shares of HUMBOLDT AND MAPLEWOOD
;or
(l) The Pledgor sells, liquidates, transfers or otherwise disposes of
an asset not in strict accordance with the terms of this Agreement other than a
merger or reorganization between Pledgor and either HUMBOLDT OR MAPLEWOOD; or
(m) If at any time the Pledgor reasonably believes in good faith that
the prospect of payment of any Obligation or the performance of any agreement of
the Pledgor or any is materially impaired, or that there is such a change in the
assets, liabilities, financial condition or business of the Pledgor as the
Pledgee believes in good faith materially impairs the Pledgor's security or
increases its risk of performance by the Pledgor.
11. Further Assurances
The Pledgor agrees that it will join with the Pledgee in executing and,
at its own expense, file and refile under the UCC such financing statements,
continuation statements and other documents in such
<PAGE> 6
offices as the Pledgee may deem necessary or desirable and wherever required or
permitted by law in order to perfect and preserve the Pledgee's security
interest in the Collateral and hereby authorizes the Pledgee to file financing
statements and amendments thereto relative to all or any part of the Collateral
without the signature of the Pledgor where permitted by law, and agrees to do
such further acts and things and to execute and deliver to the Pledgee such
additional conveyances. assignments, agreements and instruments as the Pledgee
may reasonably require or deem advisable to carry into effect the purposes of
this Agreement or to further assure and confirm unto the Pledgee its rights,
powers and remedies hereunder.
12. Pledgee as Agent
The Pledgee will hold in accordance with this all items of the
Collateral at any time received under this Agreement. It is expressly understood
and agreed that the obligations of the Pledgee as holder of the Collateral and
interests therein and with respect to the disposition thereof, and otherwise
under this Agreement, are only those expressly set forth in this Agreement.
13. Transfer by Pledgor
The Pledgor will not sell or otherwise dispose of, grant any option
with respect to, or create, incur, assume or suffer to exist any Lien or any
portion of the Collateral (except the Lien created by this Agreement).
14. Representations, Warranties and Covenants of Pledgor
The Pledgor represents and warrants that: (i) it is the legal, record
and beneficial owner of, and has good and marketable title to, the Stock
described in Section 2, subject to no Lien (except the Lien created by this
Agreement); (ii) it has full power, authority and legal right to pledge all such
Stock pursuant to this Agreement; (iii) all the shares of such Stock have been
duly and validly issued, are fully paid and nonassessable; (iv) this Agreement
creates, as security for the Secured Obligations, a valid and enforceable
perfected Lien on all of the Collateral, in favor of the Pledgee for the benefit
of the Pledgee, subject to no Lien in favor of any other Person. The Pledgor
covenants and agrees that it will defend the Pledgee's right, title and Lien in
and to the Collateral against the claims and demands of all Persons; and the
Pledgor covenants and agrees that it will have like title to and right to pledge
any other property at any time hereafter pledged to the Pledgee as Collateral
hereunder.
15. Pledgor's Obligations Absolute, Etc.
The obligations of the Pledgor under this Agreement shall be absolute
and unconditional and shall remain in full force and effect without regard to,
and shall not be released, suspended, discharged, terminated or otherwise
affected by, any circumstance or occurrence whatsoever, including, without
limitation: (i) any renewal, extension, amendment or modification of, or
addition or supplement to or deletion from, any of the above mentioned
documents or any other instrument or agreement referred to therein, or any
assignment or transfer of any thereof; (ii) any waiver, consent, extension,
indulgence or other action or inaction under or in respect of any such
instrument or agreement or this Agreement or any exercise or non-exercise of
any right remedy, power or privilege under or in respect of this Agreement
(iii) any furnishing of any additional security to the Pledgee or any
acceptance thereof or any sale, exchange, release, surrender or realization of
or upon any security by the Pledgee; or (iv) any invalidity, irregularity or
unenforceability of all or part of the obligations or of any security
therefor.
<PAGE> 7
16. Registration, Etc.
If at any time when the Pledgee shall determine to exercise
its right to sell all or any part of the Pledged Stock pursuant to Section 7,
such Pledged Stock or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Securities Act of 1933, as then
in effect the Pledgee may, in its sole and absolute discretion, sell such
Pledged Stock or part thereof by private sale in such manner and under such
circumstances as Pledgee may deem necessary or advisable in order that such sale
may legally be effected without such registration, provided that at least 10
days' notice of the time and place of any such sale shall be given to the
Pledgor. Without limiting the generality of the foregoing, in any such event the
Pledgee, in Its sole and absolute discretion (i) may proceed to make such
private sale notwithstanding that a registration statement for the purpose of
registering such Pledged Stock or part thereof shall have been filed under such
Securities Act, (ii) may approach and negotiate with a single possible purchaser
to effect such sale and (iii) may restrict such sale to a purchaser who will
represent and agree that such purchaser is purchasing for its own account, for
investment, and not with a view to the distribution or sale of such Pledged
Stock or part thereof. In the event of any such sale, the Pledgee shall incur no
responsibility or liability for selling all or any part of the Pledged Stock at
a price which the Pledgee, in its sole and absolute discretion, may in good
faith deem reasonable under the circumstances, notwithstanding the possibility
that a substantially higher price might be realized if the sale were deferred
until after registration as aforesaid.
17. Termination; Release
After the termination of the this Agreement, and when all Obligations
have been met by the Pledgor to the Pledgee, this Agreement shall terminate, and
the Pledgee, at the request and expense of the Pledgor, will execute and deliver
to the Pledgor a proper instrument or instruments acknowledging the satisfaction
and termination of this Agreement, and will duly assign, transfer and deliver to
the Pledgor (without recourse and without any representation or warranty) such
of the Collateral as may be in the possession of the Pledges and has not
theretofore been sold or otherwise applied or released pursuant to this
Agreement, together with any moneys at the time held by the Pledgee hereunder.
18. Notices
All notices and other communications hereunder shall be made as
follows:
Pledgor: PetQuarters, Inc.
720 E. Front Street
Lonoke, Arkansas 72086
with a copy to: John R. Tisdale
200 West Capitol, Suite 2200
Little Rock, Arkansas 72201
Plegdee: The Sun Valley Trust
P.O. Box 2781
Sun Valley, Idaho 83340
With a copy to:
<PAGE> 8
Law Office of L. Van Stillman, P.A.
1177 George Bush Blvd., Suite 308
Delray Beach, Florida 33483
(561) 330-9903
(561) 330-9116 (FAX)
19. Miscellaneous
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto;
provided, however, that the Pledgor may not assign or transfer any of its rights
or obligations hereunder without the prior written consent of the Pledgee. This
Agreement may be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of such change, waiver,
discharge or termination is sought . Without limiting the generality of the
preceding sentence, this Agreement may not be modified by oral agreement even if
such modification is supported by new consideration. This Agreement shall be
construed in accordance with and governed by the law of the State of Idaho. The
headings of the several Sections and subsections in this Agreement are inserted
for convenience only and shall not in any way affect the meaning or construction
of any provision of this Agreement. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which together shall constitute one and the same instrument.
20. No Wasting of Assets of HUMBOLDT Industries, Inc. or MAPLEWOOD
Industries, Inc.
During the term of this Agreement, Pledgor agrees and warrants that it
will not cause any assets of HUMBOLDT or MAPLEWOOD, whether they be cash,
securities, real or personal property, inventory, personnel, trade names,
trademarks, or any other property owned or controlled by HUMBOLDT or MAPLEWOOD
to be transferred, pledged, moved, or in any manner used other than in the
normal course of HUMBOLDT's or MAPLEWOOD's business. Pledgor agrees, that,
although HUMBOLDT will be a wholly owned subsidiary of the Pledgor, Pledgor will
not, either physically or by any accounting method, convert HUMBOLDT's or
MAPLEWOOD's assets for the use of Pledgor. Pledgor specifically affirms that
such an action would cause a wasting of HUMBOLDT's or MAPLEWOOD's assets
severely impair the Pledgee's security, and constitute a Default under all of
the terms of this Agreement.
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected officers, duly authorized, as of
the date first above written.
Pledgor
PetQuarters, Inc.
BY /s/ Steve Dempsey
------------------------------------------
Title: President
Pledgor
PQ Acquisition Company, Inc.
BY /s/ Steve Dempsey
------------------------------------------
Title: President
The Sun Valley Trust, Pledgee
BY /s/
------------------------------------------
Trustee
<PAGE> 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.
<PAGE> 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:
<PAGE> 3
"(n) In the event Jack Rosenzweig 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:
"Jack Rosenzweig 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 Jack Rosenzweig 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.
<PAGE> 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/ L. Van Stillman
- ----------------------------- ---------------------------------------
Title: Trustee
------------------------------------
ATTEST: PETQUARTERS, INC.
/s/ Gregg Rollins By: /s/ Steve Dempsey
- ----------------------------- ---------------------------------------
Title: President
------------------------------------
ATTEST: PQACQUISITION COMPANY, INC.
/s/ Gregg Rollins By: /s/ Steve Dempsey
- ----------------------------- ---------------------------------------
Title: President
-----------------------------------
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
PQ Acquisition Company, Inc.
Humbolt Industries Incorporated
Maplewood Industries, Inc.
