SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
March 6, 2000
Date of Report
(Date of Earliest Event Reported)
PET QUARTERS, INC.
(Exact Name of Registrant as Specified in its Charter)
720 East Front Street
Lonoke, Arkansas 72806
(Address of principal executive offices)
501/676-9222
(Registrant's telephone number)
WELLSTONE ACQUISITION CORPORATION
1504 R Street, N.W.
Washington, D.C. 20009
(Former name and former address)
Arkansas 0-28469 62-1698524
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to an Agreement and Plan of Reorganization
(the "Acquisition Agreement"), Pet Quarters, Inc. ("Pet Quarters" or
the "Company"), an Arkansas corporation, has acquired all the
outstanding shares of common stock of Wellstone Acquisition
Corporation ("Wellstone"), a Delaware corporation, from the
shareholders thereof in exchange for an aggregate of 130,208 shares
of common stock of Pet Quarters (the "Acquisition"). As a result,
Wellstone has become a wholly-owned subsidiary of Pet Quarters.
The Acquisition was approved by the unanimous consent of the
Board of Directors of Pet Quarters on March 6, 2000. The
Acquisition was effective March 6, 2000. The Acquisition is
intended to qualify as a reorganization within the meaning of
Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
Pet Quarters had 13,467,500 shares of common stock issued
and outstanding prior to the Acquisition and 13,597,708 shares
issued and outstanding following the Acquisition.
Upon effectiveness of the Acquisition, pursuant to Rule
12g-3(a) of the General Rules and Regulations of the Securities and
Exchange Commission, Pet Quarters elected to become the successor
issuer to Wellstone for reporting purposes under the Securities
Exchange Act of 1934 and elects to report under the Act.
A copy of the Acquisition Agreement is filed as an exhibit
to this Current Report and is incorporated in its entirety herein.
The foregoing description is modified by such reference.
(b) The following table contains information regarding the
shareholdings of Pet Quarters' current directors and executive
officers and those persons or entities who beneficially own more
than 5% of its common stock (giving effect to the exercise of any
warrants held by each such person or entity exercisable within 60
days of the date hereof):
Number of Shares of Percent of
Common Stock Beneficially Common Stock
Name Owned (1) Beneficially
Owned (2)
Steven B. Dempsey 910,156 6.7%
President and Chairman
103 Red River Drive
Sherwood, Arkansas 72120
Gregg Rollins (3) 243,983 1.8%
Chief Financial Officer
1700 Royal Drive
Conway, Arkansas 72032
Dino Moshova 517,328 3.8%
Vice President of Technology,
Director
56 Stuart Place
Munsey Park, New York 11030
Jack Rosenzweig 1,089,097 8.0%
Chief Executive Officer of
Humboldt Industries Incorporated
1 Maplewood Drive
Hazelton, Pennsylvania 18201
Helene Rosenzweig 1,089,097 8.0%
President of Maplewood
Industries, Inc.
1 Maplewood Drive
Hazelton, Pennsylvania 18201
Ammonia Hold, Inc. (4) 1,687,500 12.4%
10 Gunnebo Drive
Lonoke, Arkansas 72086
Michael Parnell (5) 1,785,337 13.1%
11320 South Ridge
Little Rock, Arkansas 72212
All officers and 1,671,467 12.3%
directors as a group (3 persons)
(1) Includes options and warrants which are exercisable within
60 days of the date hereof.
(2) Based upon 13,597,708 shares outstanding following the
Acquisition.
(3) Includes 5,500 shares held by Mr. Rollins' minor children
and options to purchase 150,000 shares of common stock.
(4) The Board of Directors of Ammonia Hold, Inc. are Michael D.
Parnell, Dan N. Thompson, Robert S. Ligon, Charles R.
Nickle, and William H. Ketchum.
(5) Includes 804,837 shares of common stock owned directly by
Mr. Parnell and 980,500 shares of common stock which he
controls as the Trustee of the Matthew J. Hoff Trust, dated
June 22, 1998. Mr. Parnell and the Hoff Trust paid the
interest on behalf of Pet Quarters on a Bridge Loan
Extension dated November 10, 1999. Pet Quarters issued to
each of Mr. Parnell and the Hoff Trust a convertible note in
the amount of $102,361.50. The notes were convertible at
$.50 per share and were exercised on January 27, 2000 by
both Mr. Parnell and the Hoff Trust.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The consideration exchanged pursuant to the Acquisition
Agreement was negotiated between Wellstone and Pet Quarters. In
evaluating the Acquisition, Wellstone used criteria such as the
value of assets of Pet Quarters, Pet Quarters' ability to compete in
the market place, Pet Quarters's current and anticipated business
operations, and Pet Quarters management's experience and business
plan. In evaluating Wellstone, Pet Quarters placed a primary
emphasis on Wellstone's status as a reporting company under Section
12(g) of the Securities Exchange Act of 1934, as amended and
Wellstone's facilitation of Pet Quarters compliance with the
Eligibility Rule of the NASD OTC Bulletin Board.
(b) The Company intends to continue the marketing and
selling of pet supplies via its Internet Web site and catalogue
sales, and intends to expand its pet-related E-commerce services.
BUSINESS
THE COMPANY
Pet Quarters was incorporated on May 22, 1997, under the
laws of the State of Arkansas. The Company's principal business is
selling pet supplies principally through its Internet Web site and
from conventional off-line catalogues. The Company offers over 7,500
items for pets through its Web site at www.petquarters.com.
The Company's Web site also contains editorial content and
discussion groups intended to increase traffic on its Web site,
thereby increasing sales, and also attracting advertising revenues.
However, there can be no assurance that the Web site will attract
visitors, or if increased Web site traffic will lead to sales or
advertisers, or if so, that such can be maintained.
The Web site offers a variety of features intended to
increase sales and foster customer loyalty. Customers can create a
profile that displays only applicable products (e.g., products for
dogs only), view past orders in order to replace an identical order,
or create a customer profile containing saved shipping or payment
information.
There can be no assurance that the Company will be able to
implement its business plan successfully and make a profit selling
its products. The Company has experienced significant losses and
there can be no assurance that it will be able to sell its products
economically or in sufficient quantities to enable the Company to
continue as a going concern.
MARKETING
The Company sells its products to its customers both on a
retail and wholesale basis.
For its retail customers, the Company attempts to combine
the convenience of online shopping with aa comparable selection of
products as those found at traditional retail outlets. Through its
wholly-owned subsidiary, Humboldt Industries Incorporated, which Pet
Quarters acquired on August 1, 1999, the Company now possesses the
capability of offering in-house fulfillment of orders that
management believes will improve profitability, customer
satisfaction and quality control.
Wholesale sales include those to pet professionals,
including kennels, managers and staff of animal shelters and humane
societies, veterinarians, groomers, breeders, show exhibitors, and
owners with multiple animals whose purchase requirements qualify
them for wholesale rates.
The online marketplace, including pet care related service
providers, has become highly intense and the number of competitors
continues to increase. The Company believes that it can capitalize
on the online sale of pet supplies and accessories due to its
extensive pet industry experience, having its own fulfillment and
customer service capacity, the ability to offer the customer
purchases either through the Internet or catalogue, and its
development of a Web site providing authoritative content for pet
owners and enthusiasts.
SUBSIDIARIES
The Company has three subsidiaries: PQ Acquisition Company,
Inc. ("PQ Acquisition"), Humboldt Industries Incorporated
("Humboldt") and Maplewood Industries, Inc. ("Maplewood").
PQ Acquisition is an Arkansas corporation organized in 1999
for the sole purpose of acting as an intermediate corporation to
acquire Humboldt Industries. PQ Acquisition currently owns all of
the issued and outstanding shares of stock of Humboldt and
Maplewood. As of August 1, 1999, PQ Acquisition acquired all the
issued and outstanding shares of Humboldt and Maplewood for $4.6
million in cash and common stock of Pet Quarters valued at $4.6
million.
Humboldt and Maplewood sell pet supplies via catalogue order
and act as fulfillment companies (i.e., companies which fulfill the
orders and ship the products purchased on the Company's Web site and
through the subsidiaries' catalogues), and provide customer service
by phone and E-mail.
Humboldt circulates two mail order catalogues, Home Pet Shop
and Dog's Outfitter, to its retail and wholesale customers both
domestically and internationally. Maplewood circulates the
Maplewood Crafts catalogue and the Plastic Canvas catalogue 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.
COMPETITION
Pet Quarters faces both indirect and direct competition.
The market for pet supplies is highly competitive and divided among
(i) supermarkets and other mass merchants, (ii) single store and
conventional pet shops, (iii) specialty pet supply chains, (iv) pet
supply warehouse stores, (v) mail order catalog companies and (vi)
Internet merchants.
Pet Quarters currently or potentially competes with a
variety of other companies, including traditional store-based pet
toy and pet product retailers such as PetsMart and Petco; major
discount retailers such as Wal-Mart, Kmart and Target; online
efforts of these traditional retailers; catalog retailers of pet
products, such as www.petswarehouse.com; vendors of pet products
that currently sell certain of their products directly online;
Internet portals and online service providers that feature shopping
services, such as AOL, Yahoo!, Excite and Lycos; and various other
online retailers of pet products, such as www.pets.com and
www.petstore.com.
REGULATION
Pet Quarters's business is not subject to any
special regulatory regime, other than general laws and
regulations, such as employment and safety
regulations, that apply generally to any business.
There is no significant regulatory regime that applies
to businesses that engage in E-commerce.
EMPLOYEES
As of March 6, 2000, the Company had 83 full
time employees and 5 part-time employees.
PATENTS, TRADEMARKS AND LICENSES
The Company has filed for trademark protection
for the use of its Web site name Pet Quarters.com.
Humboldt Industries has applied for and been granted
trademark protection for many of its products and
tradenames.
OFFICES
The Company owns its headquarters at 720 East
Front Street, Lonoke, Arkansas. Its telephone number
is 501/676-9222 and its fax number is 501/676-9245.
The property includes approximately 50,000 square feet
of warehouse and distribution space and 5,000 square
feet of office space.
The Company leases Humboldt's Hazelton,
Pennsylvania, distribution center which includes an
office and warehouse facility of approximately 63,500
square feet and is located on a 10-acre site. Lease
payments are currently $20,000 per month. The Company
has a five-year option to purchase the property.
LEGAL PROCEEDINGS
Pet Quarters is not involved in any lawsuits
other than routine litigation incidental to ongoing
business.
DESCRIPTION OF SECURITIES
The authorized capitalization of the Company
consists of 40,000,000 shares of common stock, $.001
and 10,000,000 shares of preferred stock, $.001 par
value. Upon consummation of the Acquisition, the
Company had 13,597,708 shares of its common stock and
no shares of preferred stock issued and outstanding.
MARKET FOR THE COMPANY'S SECURITIES
The common stock of Pet Quarters is traded
over-the-counter on the NASD OTC Bulletin Board under
the symbol "PDEN." The market for the OTC common stock
is characterized generally by low volume and broad
price and volume volatility. Pet Quarters cannot give
any assurance that a stable trading market will
develop for its stock or that an active trading market
will be sustained. Moreover, the trading price of Pet
Quarters' common stock could be subject to wide
fluctuations due to such factors as quarterly
variations in operating results, competition,
announcements of new products by Pet Quarters or its
competitors, product enhancements by Pet Quarters or
its competitors, regulatory changes, differences in
actual results from those expected by investors and
analysts, changes in financial estimates by securities
analysts, and other events or factors.
The Company has been a non-reporting publicly
traded company with certain of its securities exempt
from registration under the Securities Act of 1933.
The Nasdaq Stock Market has implemented a change in
its rules requiring all companies trading securities
on the NASD OTC Bulletin Board to become reporting
companies under the Securities Exchange Act of 1934.
Pet Quarters acquired all the outstanding shares of
Wellstone to become successor issuer to it pursuant to
Rule 12g-3 of the Securities and Exchange Commission
in order to comply with the Eligibility Rule for the
NASD OTC Bulletin Board.
The following table represents the recent
trading history of the Company's common stock:
MONTH HIGH LOW VOLUME
March 1999 1.437 0.437 1,392,700
April 1999 1.531 0.812 1,351,000
May 1999 5.125 1.468 3,784,200
June 1999 4.406 2.812 1,457,100
July 1999 4.531 3.406 1,134,900
August 1999 6.718 3.875 8,106,400
September 1999 6.656 2.250 1,569,500
October 1999 3.468 1.875 555,200
November 1999 2.812 0.970 1,925,800
December 1999 3.125 1.437 3,858,500
January 2000 5.312 2.500 5,152,000
February 2000 5.593 2.812 3,323,600
The market price of the Company's common stock
over the last 52 weeks has ranged from a high of
$6.718 to a low of $0.437. On March 3, 2000, the high
was $3.875 and the low $2.750 with a volume of 206,300
shares.
SALES OF UNREGISTERED SECURITIES
The Company was founded by Matthew Hoff and
Michael Parnell in May, 1997. Mr. Hoff contributed
$4,100 for 4,100,000 shares of the Company's common
stock. Mr. Parnell contributed $2,000 for 2,000,000
shares of the Company's common stock. During June and
July, 1997, the Company conducted a private offering
of securities pursuant to Rule 504 of Regulation D and
raised $105,000 in proceeds from the sale of 1,050,000
shares of common stock at $.10 per share. The 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, 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 $860,000, less offering costs of $31,567.
This offering was extended to persons who were
affiliates with the Company and 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.
In November, 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 was valued at $888,750.
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. On
September 9, 1999, 95,000 additional shares of common
stock were issued to Humboldt Industries employees.
An additional 1,146,417 shares were issued to acquire
Humboldt Industries and 153,334 were issued as part of
the financing for the Humboldt Industries acquisition.
A total of 60,195 shares were issued to three vendors
of the Company in order to secure their services
during fiscal year 1999. Each of the above
transactions were private transactions which did not
involve a public offering. The transactions were
conducted pursuant to Section 4(2) and other
provisions of the Securities Act of 1933, as amended.
In January and February, 2000, the Company
sold 700,525 shares of its common stock to eighteen
unaffiliated accredited investors at a price of $2.10
per share.
In February, 2000, the Company sold 714,285
shares of its common stock to two unaffiliated
accredited investors at a price of $2.10 per share.
In addition, these purchasers received warrants for
700,525 shares of Pet Quarters' common stock
exercisable over three years at $4.6576 per share.
The sales which occurred in January and February were
made pursuant to the exemptions found in Section 4(2)
of the Securities Act of 1933, as amended.
TRANSFER AGENT
The Company's transfer agent is Atlas Stock
Transfer Company, Salt Lake City, Utah.
MANAGEMENT
The current executive officers and directors of
the Company are as follows:
Name Age Position
Steven B. Dempsey 44 Chairman, President and Director
Gregg Rollins 42 Chief Financial Officer
Dino Moshova 37 Vice President of Technology
and Director
The current executive officers and directors of
the Company's subsidiaries are as follows:
Mike Kelly 37 President of Humboldt
Jack Rosenzweig 60 Chief Executive Officer of
Humboldt
Helene Rosenzweig 60 President of Maplewood
STEVEN B. DEMPSEY, President and Director. Mr.
Dempsey joined the Company in November, 1997 and has
served as the President of the Company since May 1998
and as a director since June, 1998. From February,
1989 to November, 1997, Mr. Dempsey was a vice
president of sales and marketing at Paine Webber,
Inc., Little Rock, Arkansas. Mr. Dempsey graduated
from Hendrix College, Conway, Arkansas in 1978.
GREGG ROLLINS, Chief Financial Officer. Mr.
Rollins has been employed by the Company since April,
1999. Mr. Rollins was a senior vice president with
Lieblong Associates, Little Rock, Arkansas, from June,
1998 until April, 1999 and was an account vice
president, assistant manager and sales manager with
Paine Webber, Inc., Little Rock, Arkansas from August,
1988 to June, 1998. Mr. Rollins graduated from
Oklahoma Baptist University in 1980.
DINO MOSHOVA, Director. Mr. Moshova has been a
director since the Company's inception in 1997. Mr.
Moshova has operated Moonbark Web Designer, Munsey
Park, New York, since September, 1997. From
September, 1984 until September, 1997, Mr. Moshova
owned and operated Leisure Video of New York. Mr.
Moshova graduated from Fordham University in 1983.
MICHAEL KELLY, President of Humboldt. Mr. Kelly
has been President of Humboldt since September, 1999.
Mr. Kelly was a vice president/general manager with
Sporting Dogs Specialties (PetSmart Direct) between
April, 1987 and April, 1998, and vice president of
Home Trends from April, 1998 until August, 1999. Mr.
Kelly graduated from Rochester Institute of Technology
in 1986.
JACK ROSENZWEIG, Chief Executive Officer of
Humboldt. Mr. Rosenzweig co-founded Humboldt in
January, 1982 and has served as the Chief Executive
Officer of Humboldt since that time. He has
thirty-seven years experience in the pet industry.
Mr. Rosenzweig graduated from Kansas State University
in 1961.
HELENE ROSENZWEIG, President of Maplewood. Ms.
Rosenzweig was a co-founder of Humboldt and serves as
President of Maplewood which was purchased in January,
1989. Ms. Rosenzweig graduated from Courtland State
University in 1961.
The Company has no audit, compensation or
executive committees. Currently, the Company does not
maintain key man life insurance policies on any of
the Company's executive officers.
RELATED TRANSACTIONS
Michael Parnell, a founder of the Company,
submitted a settlement offer in an action brought by
the Securities and Exchange Commission in regard to
Ammonia Hold, Inc. The settlement offer was accepted
on December 28, 1999. Mr. Parnell has paid a civil
penalty in the amount of $25,000 and is 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 settlement
without admitting or denying the allegations of the
complaint filed by the Securities and Exchange
Commission.
EXECUTIVE COMPENSATION
Steven B. Dempsey earns an annual salary of
$100,000.
Jack Rosenzweig, Helene Rosenzweig, and Michael
Kelly each entered into an employment agreement with
subsidiaries of the Company, effective as of the
consummation of the acquisition of Humboldt
Industries, providing for a base annual compensation
of $100,000, $100,000, and $135,000, respectively,
plus $14,400 automobile allowance for each of Mr. and
Mrs. Rosenzweig.
SUMMARY OF FINANCIAL INFORMATION
Pet Quarters incurred net losses for the year
ended June 30, 1999 of ($1,052,265) on sales of
$262,470. During the six months ended December 31,
1999 the Company incurred a net loss of ($4,002,683)
on sales of $6,198,900. As of December 31, 1999, the
Company had current assets of $2,454,215 and current
liabilities of $7,978,333.
If losses continue, the Company may need to
raise additional capital through the placement of its
securities or from debt or equity financing. If the
Company is not able to raise such financing or obtain
alternative sources of funding, management may be
required to curtail operations.
BRIDGE LOAN
Pet Quarters borrowed $4,600,000 from Sun
Valley Trust on July 30, 1999 (the "Trust") to acquire
Humboldt Industries (the "Bridge Loan"). Both
unaffiliated individuals and entities and affiliated
individuals contributed money to the Trust to enable
the Trust to make the Bridge Loan. Individuals
affiliated with Pet Quarters accounted for $1,023,000
of the $4,600,000. An unaffiliated entity, Olympus
Capital ("Olympus"), accounted for $2,000,000 of the
$4,600,000, appointed the trustee, hired counsel for
the Trust and negotiated the terms of the Bridge Loan
on behalf of the Trust. Without the contribution from
Olympus to the Trust, the Trust would not have had the
funds available to make the loan to Pet Quarters.
As an incentive for the Trust to make the
Bridge Loan, Pet Quarters issued 153,334 of its
restricted shares to the Trust that were distributed
by the Trust to its beneficiaries.
The Bridge 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. The Company failed to make the required
payment, and shortly thereafter, the trustee attempted
to foreclose on the collateral (Humboldt and
Maplewood). On November 10, 1999, Pet Quarters
executed an extension of the Bridge Loan. As an
inducement for Olympus to agree to the extension and
leave its capital in the Trust and not foreclose on
the collateral, the beneficiaries of the Trust granted
Olympus the power and authority to direct the actions
of the trustee of the Trust. In addition, a five
percent (5%) penalty of $230,000 was added to the
outstanding principal amount of the note, resulting in
an outstanding principal balance of $4,830,000.
The Company issued an additional 275,000
restricted shares of Pet Quarters stock to the Trust
for the extension which shares were distributed to its
beneficiaries. The interest rate was reduced from
12.5% per annum to 10% per annum and the maturity date
was extended to May 10, 2000. In exchange, Pet
Quarters agreed to make monthly partial interest
payments of $20,000 by the 10th day of each month
commencing December 10, 1999.
The earned but unpaid interest accumulates
interest free until Pet Quarters raises additional
capital, then, to the extent Pet Quarters has raised
additional capital, Pet Quarters is required to pay
all accrued but unpaid interest to the Trust. The
terms of the extension also required a partial
principal payment of $1,000,000 by February 10, 2000.
To induce Olympus to agree to the extension of the
Bridge Loan, all of the beneficiaries of the Trust
agreed that Olympus would be entitled to preferential
treatment and all of the $1,000,000 due on February
10, 2000 was to be paid to Olympus through the Trust
rather than allocated among all of the beneficiaries.
On February 3, 2000, Pet Quarters paid the
$1,000,000 principal payment to the Trust. The
remaining principal balance plus accrued interest is
due in full on May 10, 2000. As of February 22, 2000,
Pet Quarters is current on all obligations with the
Trust.
In connection with the extension of the
Bridge Loan on November 10, 1999, the Company was
required to pay interest, attorney fees, and
associated expenses of the trustee in the amount of
$204,723 (the "Outstanding Expenses"). These funds
were borrowed from the Matthew J. Hoff Trust ("Hoff
Trust") and Michael Parnell. Mr. Parnell, as trustee
for the Hoff Trust, and on his own behalf, received
two convertible notes for the Company for $102,361.50
each (the "Expense Notes"). The Expense Notes were
convertible, wholly or partially, into common stock of
the Company at a rate of $.50 of debt for each share
of common stock. On January 27, 2000, the Expense
Notes were converted into 409,446 shares of restricted
common stock of the Company for both the Hoff Trust
and for Michael Parnell.
RISK FACTORS
HISTORY OF LOSSES. The Company has experienced
substantial losses and there can be no assurance that
future operations will be profitable. Revenues and
profits, if any, will depend upon various factors,
including market acceptance of its concepts, market
awareness, its ability to expand its customer base,
dependability of its advertising and recruiting
network, and general economic conditions. There is no
assurance that the Company will achieve its goals and
the failure to achieve such goals would have an
adverse impact on it.
THE COMPANY MAY NEED ADDITIONAL FINANCING.
Future events, including the problems, delays,
expenses and difficulties frequently encountered by
companies, may lead to cost increases that could make
the Company's funds insufficient to support the
Company's operations. The Company may seek additional
capital, including an offering of its equity
securities, an offering of debt securities or
obtaining financing through a bank or other entity.
The Company has not established a limit as to the
amount of debt it may incur nor has it adopted a ratio
of its equity to a debt allowance. If the Company
needs to obtain additional financing, there is no
assurance that financing will be available from any
source, that it will be available on terms acceptable
to the Company, or that any future offering of
securities will be successful. The Company could
suffer adverse consequences if it is unable to obtain
additional capital when needed.
INTERNET COMMERCE RISKS. Concerns over the
security of transactions conducted on the Internet and
other on-line services as well as users' desires for
privacy may also inhibit the growth of sales on the
Internet. The activities of the Company are expected
to involve the storage and transmission of proprietary
information, such as credit card numbers and other
confidential information. Any security breaches could
damage the Company's reputation and expose it to a
risk of loss, litigation, and possible liability.
There can be no assurance that the Company's security
measures will prevent security breaches or that
failure to prevent such security breaches will not
have a material adverse effect on its business,
financial condition and results of operations. The
Company will be dependent on others for its software
and the hosting of its Web site. Businesses on the
Internet are subject to the risk of credit card fraud
and other types of theft and fraud perpetrated by
hackers and on-line thieves. Credit card companies
may hold merchants fully responsible for any
fraudulent purchases made when the signature cannot be
verified. Although credit card companies and others
are in the process of developing anti-theft and
anti-fraud protections, and while the Company itself
will continually monitor this problem, at the present
time the risk from such activities could have a
material adverse effect on the Company. A party who
is able to circumvent the Company's security measures
could misappropriate confidential information or cause
interruptions in the Company's operations. The
Company may be required to expend significant capital
and other resources to protect against such security
breaches or to alleviate problems caused by such
breaches. If a compromise of the Company's security
were to occur, or if its software or Web site hosting
fails, there could be a material adverse effect to the
Company's business, financial condition, and results
of operations.
LACK OF CONTINUED DEVELOPMENT OF E-COMMERCE
MARKET. The use of the Internet and the World Wide
Web for commercial purposes is expanding dramatically.
There is no assurance, however, that as increased
commerce takes place on the Internet that unforeseen
overloads, lack of sufficient hardware, telephone
availability or other problems may develop. In
addition, consumer use of the Internet for purchases,
banking, and other commercial uses may decline for any
number of reasons such as security problems, overload
difficulties, shopping trends, or slow Internet
access. These difficulties may undermine Company's
expansion and promotional efforts. There is no
assurance that the Company will be able to
successfully overcome these difficulties and maintain
its competitive pricing and services.
LOSS OF THE COMPANY KEY EMPLOYEES MAY ADVERSELY
AFFECT GROWTH OBJECTIVES. The Company's success in
achieving its growth objectives depends upon the
efforts of Steven B. Dempsey, President of the
Company, and other Company management members,
including the management of the Company's
subsidiaries. The loss of the services of any of these
individuals may have a material adverse effect on the
Company business, financial condition and results of
operations. There is no assurance that the Company
will be able to maintain and achieve its growth
objectives should it lose any or all of these
individuals' services.
THE COMPANY IS DEPENDENT ON ITS SUPPLIERS. The
Company is dependant on a steady supply of products.
There are only a limited number of suppliers of
certain products, and there can be no assurance that
supplies will timely meet the Company's requirements.
Furthermore, there can be no assurance that the
Company's suppliers will remain in the business of
manufacturing these products, or maintain their
relationship with the Company.
ADVERSE ECONOMIC CONDITIONS OR A CHANGE IN
GENERAL MARKET PATTERNS. A weak economic environment
could adversely affect the Company sales efforts. Many
factors beyond the Company's control may decrease
overall demand for the Company's products including,
among other things, decrease in the entry costs by
other similarly situated companies, increase in the
overall unemployment rate, additional government
regulation or a downturn in engineering projects by
civilian, governmental or military entities. There can
be no assurance that the general market demand for
long-term storage and related fields will remain the
same or will not decrease in the future.
ISSUANCE OF FUTURE SHARES MAY DILUTE INVESTORS
SHARE VALUE. The Company is authorized to issue
40,000,000 shares of common stock and 10,000,000
shares of preferred stock. The future issuance of all
or part of the remaining authorized common stock may
result in substantial dilution in the percentage of
the Company's common stock held by the its then
existing shareholders. Moreover, any common or
preferred stock issued in the future may be valued on
an arbitrary basis by the Company. The issuance of
the Company's shares for future services or
acquisitions or other corporate actions may have the
effect of diluting the value of the shares held by
investors, and might have an adverse effect on a
trading market for the Company's common stock.
SHARES AVAILABLE FOR FUTURE SALE. The market
price of the Company's common stock could drop if
substantial amounts of shares are sold in the public
market or if the market perceives that such sales
could occur. A drop in the market price could
adversely affect holders of the stock and could also
harm the Company's ability to raise additional capital
by selling equity securities. The Company has
outstanding options and warrants, including
convertible warrants exercisable at a price below that
of the recent market price. The exercise of these
warrants and options at a price less than the market
price could dilute the value of outstanding shares and
depress the market price. In addition, the perception
that these instruments may be exercised for or
converted into common stock that could be sold into
the public market could adversely affect the market
price of the Company's common stock. In addition,
shares issued by the Company in private transactions
over the past two years will become eligible for sale
into the public market under SEC Rule 144.
PENNY STOCK REGULATION. Penny stocks generally
are equity securities with a price of less than $5.00
per share other than securities registered on certain
national securities exchanges or quoted on the Nasdaq
Stock Market, provided that current price and volume
information with respect to transactions in such
securities is provided by the exchange or system. The
Company's securities may be subject to "penny stock
rules" that impose additional sales practice
requirements on broker-dealers who sell such
securities to persons other than established customers
and accredited investors (generally those with assets
in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer
must make a special suitability determination for the
purchase of such securities and have received the
purchaser's written consent to the transaction prior
to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the "penny
stock rules" require the delivery, prior to the
transaction, of a disclosure schedule prescribed by
the Commission relating to the penny stock market.
The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered
representative and current quotations for the
securities. Finally, monthly statements must be sent
disclosing recent price information on the limited
market in penny stocks. Consequently, the "penny
stock rules" may restrict the ability of
broker-dealers to sell the Company's securities. The
foregoing required penny stock restrictions will not
apply to the Company's securities if such securities
maintain a market price of $5.00 or greater. There can
be no assurance that the price of the Company's
securities will reach or maintain such a level.
THIRD-PARTY MARKET PRICE MANIPULATIONS. The
shares of the Company's common stock are traded on the
NASD OTC Bulletin Board. Share price quotations for
the Company's stock may reflect inter-dealer prices,
without retail mark-up, without retail mark-up,
mark-down or commissions, and may not represent actual
transactions. In addition, from time to time, persons
not affiliated with the Company may seek to manipulate
the market price of the Company's common stock in a
manner unknown to the Company, which may cause a
drastic change in the price of the Company's common
stock unrelated to any activity by the Company. Any
rapid change in the Company's stock price should be
viewed with caution.
THE COMPANY MAY NOT BE ABLE TO PROTECT ITS TRADE
OR SERVICE MARKS. The Company cannot be certain that
it will be able to prevent the misappropriation of its
trade or service marks.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Successor Issuer Election.
Pursuant to Rule 12g-3(a) of the General Rules
and Regulations of the Securities and Exchange
Commission, the Company elected to become the
successor issuer to Wellstone for reporting purposes
under the Securities Exchange Act of 1934 and elects
to report under the Act.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE
OFFICERS
The sole officer and director of Wellstone
resigned effective upon completion of the Acquisition.
ITEM 7. FINANCIAL STATEMENTS
No financial statements are filed herewith. The
Registrant is required to file audited financial
statements no later than 60 days after the date that
this Current Report must be filed.
ITEM 8. CHANGE IN FISCAL YEAR
Wellstone's fiscal year ends December 31. The
Company intends to keep its fiscal year which ends
June 30.
EXHIBITS
2.1. Agreement and Plan of
Reorganization between Pet
Quarters, Inc. and Wellstone
Acquisition Corporation.
*27.1. Financial Data schedule.
_______
*To be filed by amendment
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused
this Current Report to be signed on its behalf by the
undersigned hereunto duly authorized.
PET QUARTERS, INC.
By /s/ Steven B. Dempsey
President
Date: March 6, 2000
AGREEMENT AND PLAN OF REORGANIZATION among PET QUARTERS,
INC., an Arkansas corporation ("Pet Quarters"), WELLSTONE
ACQUISITION CORPORATION, a Delaware corporation ("Wellstone") and
the persons listed in Exhibit A hereof (collectively the
"Shareholders"), being the owners of record of all the issued and
outstanding stock of Wellstone.
Whereas, Pet Quarters wishes to acquire and the Shareholders
wish to transfer all of the issued and outstanding securities of
Wellstone in a transaction intended to qualify as a reorganization
within the meaning of Section368(a)(1)(B) of the Internal Revenue
Code of 1986, as amended (the "Exchange").
Now, therefore, Pet Quarters, Wellstone, and the Shareholders
adopt this plan of reorganization and agree as follows:
1. EXCHANGE OF STOCK
1.1. NUMBER OF SHARES. The Shareholders agree to transfer
to Pet Quarters at the Closing (defined below) the number of shares
of common stock of Wellstone, $0.0001 par value per share, shown
opposite their names in Exhibit A, in exchange for an aggregate of
130,208 shares of voting common stock of Pet Quarters, $.001 par
value per share.
1.2. EXCHANGE OF CERTIFICATES. Each holder of an
outstanding certificate or certificates theretofore representing
shares of Wellstone common stock shall surrender such certificate(s)
for cancellation to Pet Quarters, and shall receive in exchange a
certificate or certificates representing the number of full shares
of Pet Quarters common stock into which the shares of Wellstone
common stock represented by the certificate or certificates so
surrendered shall have been converted. The transfer of Wellstone
shares by the Shareholders shall be effected by the delivery to Pet
Quarters at the Closing of certificates representing the transferred
shares endorsed in blank or accompanied by stock powers executed in
blank.
1.3. FURTHER ASSURANCES. At the Closing and from time to
time thereafter, the Shareholders shall execute such additional
instruments and take such other action as Pet Quarters may request
in order more effectively to sell, transfer, and assign the
transferred stock of Wellstone to Pet Quarters and to confirm Pet
Quarters' title thereto.
2. CLOSING
2.1. DATE AND PLACE. The Closing contemplated herein
shall be held at the offices of the Exchange Agent provided for
herein without requiring the meeting of the parties hereof. All
proceedings to be taken and all documents to be executed at the
Closing shall be deemed to have been taken, delivered and executed
simultaneously, and no proceeding shall be deemed taken nor
documents deemed executed or delivered until all have been taken,
delivered and executed. The date of Closing may be accelerated or
extended by agreement of the parties.
2.2. EXECUTION OF DOCUMENTS. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or
transmission required by this agreement or any signature required
thereon may be used in lieu of an original writing or transmission
or signature for any and all purposes for which the original could
be used, provided that such copy, facsimile telecommunication or
other reproduction shall be a complete reproduction of the entire
original writing or transmission or original signature.
3. UNEXCHANGED CERTIFICATES. Until surrendered, each
outstanding certificate that prior to the Closing represented
Wellstone common stock shall be deemed for all purposes, other than
the payment of dividends or other distributions, to evidence
ownership of the number of shares of Pet Quarters common stock into
which it was converted. No dividend or other distribution shall be
paid to the holders of certificates of Wellstone common stock until
presented for exchange at which time any outstanding dividends or
other distributions shall be paid.
4. REPRESENTATIONS AND WARRANTIES OF WELLSTONE
Wellstone represents and warrants as follows:
4.1. CORPORATE ORGANIZATION AND GOOD STANDING. Wellstone
is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, and is qualified
to do business as a foreign corporation in each jurisdiction, if
any, in which its property or business requires such qualification.
4.2. REPORTING COMPANY STATUS. Wellstone has filed with
the Securities and Exchange Commission a registration statement on
Form 10-SB which became effective without condition on January 10,
2000 pursuant to the Securities Exchange Act of 1934 and is, and
will be at Closing, a reporting company pursuant to Section12(g)
thereunder.
4.3. REPORTING COMPANY FILINGS. Wellstone has timely
filed and is current on all reports required to be filed by it
pursuant to Section13 of the Securities Exchange Act of 1934.
4.4. CAPITALIZATION. Wellstone's authorized capital stock
consists of 100,000,000 shares of common stock, $.0001 par value, of
which 5,000,000 shares are issued and outstanding, and 20,000,000
shares of non-designated preferred stock of which no shares are
designated or issued.
4.5. ISSUED STOCK. All the outstanding shares of its
common stock are owned by the Shareholders and duly authorized and
validly issued, fully paid and non-assessable.
4.6. STOCK RIGHTS. Except as may be set out by attached
schedule, there are no stock grants, options, rights, warrants or
other rights to purchase or obtain Wellstone common or preferred
Stock issued or committed to be issued.
4.7. CORPORATE AUTHORITY. Wellstone has all requisite
corporate power and authority to own, operate and lease its
properties, to carry on its business as it is now being conducted
and to execute, deliver, perform and conclude the transactions
contemplated by this agreement and all other agreements and
instruments related to this agreement.
4.8. AUTHORIZATION. Execution of this agreement has been
duly authorized and approved by Wellstone's board of directors.
4.9. SUBSIDIARIES. Except as may be set out by attached
schedule, Wellstone has no subsidiaries.
4.10. FINANCIAL STATEMENTS. Wellstone's financial
statements dated October 31, 1999, copies of which will have been
delivered by Wellstone to Pet Quarters prior to the Closing (the
"Wellstone Financial Statements"), fairly present the financial
condition of Wellstone as of the date therein and the results of its
operations for the periods then ended in conformity with generally
accepted accounting principles consistently applied.
4.11. ABSENCE OF UNDISCLOSED LIABILITIES. Except to the
extent reflected or reserved against in the Wellstone Financial
Statements, Wellstone did not have at that date any liabilities or
obligations (secured, unsecured, contingent, or otherwise) of a
nature customarily reflected in a corporate balance sheet prepared
in accordance with generally accepted accounting principles.
4.12. NO MATERIAL CHANGES. Except as may be set out by
attached schedule, there has been no material adverse change in the
business, properties, liabilities, or financial condition of
Wellstone since the date of the Wellstone Financial Statements.
4.13. LITIGATION. Except as may be set out by attached
schedule, there is not, to the knowledge of Wellstone, any pending,
threatened, or existing litigation, bankruptcy, criminal, civil, or
regulatory proceeding or investigation, threatened or contemplated
against Wellstone or against any of its officers.
4.14. CONTRACTS. Except as may be set out by attached
schedule, Wellstone is not a party to any material contract not in
the ordinary course of business that is to be performed in whole or
in part at or after the date of this agreement.
4.15. TITLE. Except as may be set out by attached
schedule, Wellstone has good and marketable title to all the real
property and good and valid title to all other property included in
the Wellstone Financial Statements. Except as set out in the
balance sheet thereof, the properties of Wellstone are not subject
to any mortgage, encumbrance, or lien of any kind except minor
encumbrances that do not materially interfere with the use of the
property in the conduct of the business of Wellstone.
4.16. TAX RETURNS. Except as may be set out by attached
schedule, all required tax returns for federal, state, county,
municipal, local, foreign and other taxes and assessments have been
properly prepared and filed by Wellstone for all years for which
such returns are due unless an extension for filing any such return
has been filed. Any and all federal, state, county, municipal,
local, foreign and other taxes and assessments, including any and
all interest, penalties and additions imposed with respect to such
amounts have been paid or provided for. The provisions for federal
and state taxes reflected in the Wellstone Financial Statements are
adequate to cover any such taxes that may be assessed against
Wellstone in respect of its business and its operations during the
periods covered by the Wellstone Financial Statements and all prior
periods, and for all periods to the date hereof.
4.17. NO VIOLATION. Consummation of the Exchange will not
constitute or result in a breach or default under any provision of
any charter, bylaw, indenture, mortgage, lease, or agreement, or any
order, judgment, decree, law, or regulation to which any property of
Wellstone is subject or by which Wellstone is bound.
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders, individually and separately, represent and
warrant as follows:
5.1. TITLE TO SHARES. The Shareholders, and each of them,
are the owners, free and clear of any liens and encumbrances, of the
number of Wellstone shares which are listed in the attached Exhibit
A and which they have contracted to exchange. The Wellstone shares
owned by the Shareholders constitute 100% of the issued and
outstanding common shares of Wellstone.
5.2. LITIGATION. There is no litigation or proceeding
pending, or to each Shareholder's knowledge threatened, against or
relating to shares of Wellstone held by the Shareholders.
5.3 DISCLOSURE. The Shareholders acknowledge that they
have been provided with a copy of the Form 10-SB as filed by Pet
Quarters with the Securities and Exchange Commission ("Form 10-SB").
6. REPRESENTATIONS AND WARRANTIES OF PET QUARTERS
Pet Quarters represents and warrants as follows:
6.1. CORPORATE ORGANIZATION AND GOOD STANDING. Pet
Quarters is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Arkansas and is
qualified to do business as a foreign corporation in each
jurisdiction, if any, in which its property or business requires
such qualification.
6.2. CAPITALIZATION. Pet Quarters' authorized capital
stock consists of 40,000,000 shares of common stock, $.001 par
value, of which 11,653,244 shares were issued and outstanding as of
December 31, 1999, and 10,000,000 shares of preferred stock, $.001
par value, of which no shares are issued and outstanding.
6.3. ISSUED STOCK. All the outstanding shares of its
common stock are duly authorized and validly issued, fully paid and
non-assessable.
6.4. STOCK RIGHTS. Except as may be set out by attached
schedule or in the Form 10-SB, there are no stock grants, options,
rights, warrants or other rights to purchase or obtain Pet Quarters
common or preferred Stock issued or committed to be issued.
6.5. CORPORATE AUTHORITY. Pet Quarters has all requisite
corporate power and authority to own, operate and lease its
properties, to carry on its business as it is now being conducted
and to execute, deliver, perform and conclude the transactions
contemplated by this agreement and all other agreements and
instruments related to this agreement.
6.6. AUTHORIZATION. Execution of this agreement has been
duly authorized and approved by Pet Quarters' board of directors.
6.7. SUBSIDIARIES. Except as may be set out by attached
schedule or in the Form 10-SB, Pet Quarters has no subsidiaries.
6.8. FINANCIAL STATEMENTS. Pet Quarters' audited
financial statements dated as of June 30, 1999 and unaudited
financial statements dated as of December 31, 1999, copies of which
will have been delivered by Pet Quarters to Wellstone prior to the
Exchange Date (the "Pet Quarters Financial Statements"), fairly
present the financial condition of Pet Quarters as of the dates
therein and the results of its operations for the periods then ended
in conformity with generally accepted accounting principles
consistently applied.
6.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except to the
extent reflected or reserved against in the Pet Quarters Financial
Statements, Pet Quarters did not have at that date any liabilities
or obligations (secured, unsecured, contingent, or otherwise) of a
nature customarily reflected in a corporate balance sheet prepared
in accordance with generally accepted accounting principles.
6.10. NO MATERIAL CHANGES. Except as may be set out by
attached schedule, there has been no material adverse change in the
business, properties, or financial condition of Pet Quarters since
the date of the most recent Pet Quarters Financial Statements.
6.11. LITIGATION. Except as may be set out by attached
schedule, there is not, to the knowledge of Pet Quarters, any
pending, threatened, or existing litigation, bankruptcy, criminal,
civil, or regulatory proceeding or investigation, threatened or
contemplated against Pet Quarters or against any of its officers.
6.12. CONTRACTS. Except as may be set out by attached
schedule or in the Form 10-SB, Pet Quarters is not a party to any
material contract not in the ordinary course of business that is to
be performed in whole or in part at or after the date of this
agreement.
6.13. TITLE. Except as may be set out by attached
schedule, Pet Quarters has good and marketable title to all the real
property and good and valid title to all other property included as
owned property in the Pet Quarters Financial Statements. Except as
set out in the balance sheet thereof, the properties of Pet Quarters
are not subject to any mortgage, encumbrance, or lien of any kind
except minor encumbrances that do not materially interfere with the
use of the property in the conduct of the business of Pet Quarters.
6.14. TAX RETURNS. Except as may be set out by attached
schedule, all required tax returns for federal, state, county,
municipal, local, foreign and other taxes and assessments have been
properly prepared and filed by Pet Quarters for all years for which
such returns are due unless an extension for filing any such return
has been filed. Any and all federal, state, county, municipal,
local, foreign and other taxes and assessments, including any and
all interest, penalties and additions imposed with respect to such
amounts have been paid or provided for. The provisions for federal
and state taxes reflected in the Pet Quarters Financial Statements
are adequate to cover any such taxes that may be assessed against
Pet Quarters in respect of its business and its operations during
the periods covered by the Pet Quarters Financial Statements and all
prior periods.
6.15. NO VIOLATION. Consummation of the Exchange will not
constitute or result in a breach or default under any provision of
any charter, bylaw, indenture, mortgage, lease, or agreement, or any
order, judgment, decree, law, or regulation to which any property of
Pet Quarters is subject or by which Pet Quarters is bound.
7. CONDUCT OF WELLSTONE PENDING THE CLOSING. Wellstone
covenants that between the date of this agreement and the Closing:
7.1. No change will be made in Wellstone's certificate of
incorporation or bylaws.
7.2. Wellstone will not make any change in its authorized
or issued capital stock, declare or pay any dividend or other
distribution or issue, encumber, purchase, or otherwise acquire any
of its capital stock other than as provided herein.
7.3. Wellstone will use its best efforts to maintain and
preserve its business organization, employee relationships, and
goodwill intact, and will not enter into any material commitment
except in the ordinary course of business.
8. CONDUCT PENDING THE CLOSING
Pet Quarters, Wellstone and the Shareholders covenant that
between the date of this agreement and the Closing as to each of them:
8.1. No change will be made in the charter documents or
by-laws of Pet Quarters or Wellstone.
8.2. Wellstone and Pet Quarters will use their best
efforts to maintain and preserve their business organization,
employee relationships, and goodwill intact, and will not enter into
any material commitment except in the ordinary course of business.
8.3. None of the Shareholders will sell, transfer, assign,
hypothecate, lien, or otherwise dispose or encumber the Wellstone
shares of common stock owned by them.
9. CONDITIONS PRECEDENT TO OBLIGATION OF WELLSTONE AND
THE SHAREHOLDERS
Wellstone's and the Shareholders' obligation to consummate
the Exchange shall be subject to fulfillment on or before the
Closing of each of the following conditions, unless waived in
writing or by acceptance of Pet Quarters' shares by the Shareholders:
9.1. PET QUARTERS' REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Pet Quarters set forth herein
shall be true and correct at the Closing as though made at and as of
that date, except as affected by transactions contemplated hereby.
9.2. PET QUARTERS' COVENANTS. Pet Quarters shall have
performed all covenants required by this agreement to be performed
by it on or before the Closing.
9.3. BOARD OF DIRECTOR APPROVAL. This Agreement shall
have been approved by the Board of Directors of Pet Quarters.
9.4. SUPPORTING DOCUMENTS OF PET QUARTERS. Pet Quarters
shall have delivered to Wellstone and the Shareholders supporting
documents in form and substance reasonably satisfactory to Wellstone
and the Shareholders, to the effect that:
(a) Pet Quarters is a corporation duly organized, validly
existing, and in good standing;
(b) Pet Quarters' authorized capital stock is as set forth
herein;
(c) Certified copies of the resolutions of the board of
directors of Pet Quarters authorizing the execution of this
agreement and the consummation hereof;
(d) Secretary's certificate of incumbency of the officers
and directors of Pet Quarters;
(e) Pet Quarters' Financial Statements and unaudited
financial statement from the date of Pet Quarters' Financial
Statements to close of most recent fiscal quarter; and
(f) Any document as may be specified herein or required to
satisfy the conditions, representations and warranties enumerated
elsewhere herein.
10. CONDITIONS PRECEDENT TO OBLIGATION OF PET QUARTERS
Pet Quarters' obligation to consummate the Exchange shall be
subject to fulfillment on or before the Closing of each of the
following conditions, unless waived in writing or by acceptance of
Wellstone's shares by Pet Quarters:
10.1. WELLSTONE'S AND THE SHAREHOLDERS' REPRESENTATIONS AND
WARRANTIES. The representations and warranties of Wellstone and the
Shareholders set forth herein shall be true and correct at the
Closing as though made at and as of that date, except as affected by
transactions contemplated hereby.
10.2. WELLSTONE'S AND THE SHAREHOLDERS' COVENANTS.
Wellstone and the Shareholders shall have performed all covenants
required by this agreement to be performed by them on or before the
Closing.
10.3. BOARD OF DIRECTOR APPROVAL. This Agreement shall
have been approved by the Board of Directors of Wellstone.
10.4. SHAREHOLDER EXECUTION. This Agreement shall have
been executed by all of the Shareholders of Wellstone.
10.5. SUPPORTING DOCUMENTS OF WELLSTONE. Wellstone shall
have delivered to Pet Quarters supporting documents in form and
substance reasonably satisfactory to Pet Quarters to the effect that:
(a) Wellstone is a corporation duly organized, validly
existing, and in good standing;
(b) Wellstone's capital stock is as set forth herein;
(c) Certified copies of the resolutions of the board of
directors of Wellstone authorizing the execution of this agreement
and the consummation hereof;
(d) Secretary's certificate of incumbency of the officers
and directors of Wellstone;
(e) Wellstone's Financial Statements and unaudited financial
statements for the period from the date of the Wellstone's Financial
Statements to the close of the most recent fiscal quarter; and
(f) Any document as may be specified herein or required to
satisfy the conditions, representations and warranties enumerated
elsewhere herein.
11. SHAREHOLDERS' REPRESENTATIVE. The Shareholders
hereby irrevocably designate and appoint Cassidy & Associates,
Washington, D.C. as their agent and attorney in fact ("Shareholders'
Representative") with full power and authority until the Closing to
execute, deliver, and receive on their behalf all notices, requests,
and other communications hereunder; to fix and alter on their behalf
the date, time, and place of the Closing; to waive, amend, or modify
any provisions of this agreement, and to take such other action on
their behalf in connection with this agreement, the Closing, and the
transactions contemplated hereby as such agent or agents deem
appropriate; provided, however, that no such waiver, amendment, or
modification may be made if it would decrease the number of shares
to be issued to the Shareholders hereunder or increase the extent of
their obligation to indemnify Pet Quarters hereunder.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties
of Wellstone, the Shareholders and Pet Quarters set out herein shall
survive the Closing.
13. ARBITRATION
13.1. SCOPE. The parties hereby agree that any and all
claims (except only for requests for injunctive or other equitable
relief) whether existing now, in the past or in the future as to
which the parties or any affiliates may be adverse parties, arising
out of or in any way based upon this agreement or the transactions
to which it relates (regardless of the cause of action), will be
resolved by arbitration before the American Arbitration Association
within the District of Columbia.
13.2. CONSENT TO JURISDICTION, SITUS AND JUDGEMENT. The
parties hereby irrevocably consent to the jurisdiction of the
American Arbitration Association and the situs of the arbitration
(and any requests for injunctive or other equitable relief) within
the District of Columbia. Any award in arbitration may be entered
in any domestic or foreign court having jurisdiction over the
enforcement of such awards.
13.3. APPLICABLE LAW. The law applicable to the
arbitration and this agreement shall be that of the State of
Delaware, determined without regard to its provisions which would
otherwise apply to a question of conflict of laws.
13.4. DISCLOSURE AND DISCOVERY. The arbitrator may, in its
discretion, allow the parties to make reasonable disclosure and
discovery in regard to any matters which are the subject of the
arbitration and to compel compliance with such disclosure and
discovery order. The arbitrator may order the parties to comply
with all or any of the disclosure and discovery provisions of the
Federal Rules of Civil Procedure, as they then exist, as may be
modified by the arbitrator consistent with the desire to simplify
the conduct and minimize the expense of the arbitration.
13.5. RULES OF LAW. Regardless of any practices of
arbitration to the contrary, the arbitrator will apply the rules of
contract and other law of the jurisdiction whose law applies to the
arbitration so that the decision of the arbitrator will be, as much
as possible, the same as if the dispute had been determined by a
court of competent jurisdiction.
13.6. FINALITY AND FEES. Any award or decision by the
American Arbitration Association shall be final, binding and
non-appealable except as to errors of law or the failure of the
arbitrator to adhere to the arbitration provisions contained in this
agreement. Each party to the arbitration shall pay its own costs
and counsel fees except as specifically provided otherwise in this
agreement.
13.7. MEASURE OF DAMAGES. In any adverse action, the
parties shall restrict themselves to claims for compensatory damages
and/or securities issued or to be issued and no claims shall be made
by any party or affiliate for lost profits, punitive or multiple
damages.
13.8. COVENANT NOT TO SUE. The parties covenant that under
no conditions will any party or any affiliate file any action
against the other (except only requests for injunctive or other
equitable relief) in any forum other than before the American
Arbitration Association, and the parties agree that any such action,
if filed, shall be dismissed upon application and shall be referred
for arbitration hereunder with costs and attorney's fees to the
prevailing party.
13.9. INTENTION. It is the intention of the parties and
their affiliates that all disputes of any nature between them,
arising out of or in any way based upon this agreement or the
transactions to which it relates (regardless of the cause of
action), be decided by arbitration as provided herein and that no
party or affiliate be required to litigate in any other forum any
disputes or other matters except for requests for injunctive or
equitable relief. This agreement shall be interpreted in
conformance with this stated intent of the parties and their
affiliates.
13.10. SURVIVAL. The provisions for arbitration contained
herein shall survive the termination of this agreement for any reason.
14. GENERAL PROVISIONS.
14.1. FURTHER ASSURANCES. From time to time, each party
will execute such additional instruments and take such actions as
may be reasonably required to carry out the intent and purposes of
this agreement.
14.2. WAIVER. Any failure on the part of either party
hereto to comply with any of its obligations, agreements, or
conditions hereunder may be waived in writing by the party to whom
such compliance is owed.
14.3. BROKERS. Each party agrees to indemnify and hold
harmless the other party against any fee, loss, or expense arising
out of claims by brokers or finders employed or alleged to have been
employed by the indemnifying party.
14.4. NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been given
if delivered in person or sent by prepaid first-class certified
mail, return receipt requested, or recognized commercial courier
service, as follows:
If to Pet Quarters, to:
Pet Quarters, Inc.
720 East Front Street
Lonoke, Arkansas 72086
If to Wellstone, to:
Wellstone Acquisition Corporation
1504 R Street, N.W.
Washington, D.C. 20009
If to the Shareholders, to:
Cassidy & Associates
1504 R Street N.W.
Washington, D.C. 20009
14.5. GOVERNING LAW. This agreement shall be governed by
and construed and enforced in accordance with the laws of the State
of Delaware.
14.6. ASSIGNMENT. This agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their
successors and assigns; provided, however, that any assignment by
either party of its rights under this agreement without the written
consent of the other party shall be void.
14.7. COUNTERPARTS. This agreement may be executed
simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one
and the same instrument. Signatures sent by facsimile transmission
shall be deemed to be evidence of the original execution thereof.
14.8. EXCHANGE AGENT AND CLOSING DATE. The Exchange Agent
shall be Cassidy & Associates, Washington, D.C. The Closing shall
take place on March 6, 2000 unless extended by mutual consent of the
parties.
14.9. REVIEW OF AGREEMENT. Each party acknowledges that it
has had time to review this agreement and, as desired, consult with
counsel. In the interpretation of this agreement, no adverse
presumption shall be made against any party on the basis that it has
prepared, or participated in the preparation of, this agreement.
14.10. SCHEDULES. All schedules attached hereto, if any,
shall be acknowledged by each party by signature or initials thereon.
14.11. EFFECTIVE DATE. This effective date of this
agreement shall be March 6, 2000.
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
AMONG PET QUARTERS, WELLSTONE AND THE SHAREHOLDERS OF WELLSTONE
IN WITNESS WHEREOF, the parties have executed this agreement.
PET QUARTERS, INC.
By___________________________________
WELLSTONE ACQUISITION CORPORATION
By___________________________________
SHAREHOLDERS:
TPG CAPITAL CORPORATION
By___________________________________
Exhibit A
Number of Number of
Wellstone Shares Pet Quarters Name of
To Be Shares To Be Shareholder Address
Transferred Received
5,000,000 130,208 TPG Capital Corporation,
1504 R Street, N.W.
Washington, D.C. 20009
