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EXHIBIT 10.1
PET QUARTERS, INC.
MANAGEMENT INCENTIVE PLAN
I. NAME; PURPOSE
1.1 NAME. This instrument shall be known as the Pet Quarters, Inc.
Management Incentive Plan ("Plan").
1.2 PURPOSE. The Plan is designed to benefit certain key employees of
Pet Quarters, Inc. and any entity in which Pet Quarters, Inc. or any subsidiary
owns, directly or indirectly, a majority of the voting stock (collectively these
shall be the "Company").
The overall objectives of the Plan are to increase the long-term
financial success of the Company, and increase the value of the Company to its
stockholders by:
(a) attracting and retaining key personnel who are
instrumental in the continued success of the Company; and
(b) motivating key employees by providing them with the
opportunity to participate with the stockholders in the long-term growth and
financial success of the Company.
1.3 OVERVIEW OF THE PLAN BENEFITS. The benefits to be provided under
this Plan, although more specifically set out herein, are stock awards, stock
options, or any combination of the foregoing (collectively the "Plan Benefits"),
subject to the terms and conditions stated in this Plan.
II. ADMINISTRATION OF THE PLAN; PARTICIPANTS, ETC.
2.1 THE BOARD. The Plan shall be administered by the Board of Directors
of Pet Quarters, Inc. (the "Board"), unless a committee of the Board shall be
designated.
2.2 GRANT AND TERMS OF PLAN BENEFITS; ADMINISTRATION OF THE PLAN. The
Board, or the chief executive officer of the Company if delegated the authority
pursuant to this section, may grant Plan Benefits to Participants (hereafter
defined) on the terms and subject to the conditions stated in this Plan.
The Board, or its designated committee, shall, subject to the
limitations of this Plan, have full power and discretion to interpret and
administer the Plan; to establish selection guidelines; to select eligible
persons for participation; and to determine the form of grant, either in the
form of stock awards, stock options or stock appreciation rights, or
combinations thereof, the number of shares subject to the grant, the fair market
value of the Common Stock (hereinafter defined) when necessary, the restriction
and forfeiture provisions relating to Restricted Stock, the time and conditions
of vesting or exercise, the conditions, if any, under which time of vesting or
exercise may be accelerated, the conditions, form, time, manner and terms of
payment of any award, and all other terms and conditions of the grant, provided
that all stock options shall be granted in
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compliance with and subject to the terms of Section 6 of this Plan. The Board,
or its designated committee, may establish rules, regulations and guidelines for
the administration of the Plan, and impose, incidental to a grant of Plan
Benefits, conditions with respect to employment or other activities not
inconsistent with or conflicting with the Plan.
The Board may, in its discretion, delegate to the chief executive
officer of the Company, the power and authority with respect to the selection
of, and grants of Plan Benefits to, Participants subject to the rules,
regulations and guidelines of general application prescribed by the Board, or
its designated committee,. Any reference in this Plan to the Board shall be
deemed to include the chief executive officer if such person has been delegated
the power and authority pursuant to the preceding sentence. However, the chief
executive officer may not participate in the selection of, and grants of stock
options (or other awards under this Plan if such awards are performance based
and the Board desires such awards to qualify for the compensation deduction
exemption set forth in section 162(m) of the Internal Revenue Code of 1986, as
amended ("Section 162(m)")) to, a "Covered Employee" as defined by Section
162(m). "Covered Employee" shall mean any employee of the Company if: (a) as of
the close of the taxable year, such employee is the chief executive officer of
the Company or an individual acting in such a capacity, or (b) the total
compensation of such employee for the taxable year is required to be reported to
shareholders under the Securities Exchange Act of 1934 by reason of such
employee being among the four (4) highest compensated officers for the taxable
year (other than the chief executive officer).
The interpretation by the Board of the terms and provisions of the Plan
and the administration thereof and all action taken by the Committee, shall be
final, binding and conclusive on the Company, its stockholders, all Participants
and employees of the Company, and upon their respective beneficiaries,
successors and assigns, and upon all other persons claiming under or through any
of them. By accepting Plan Benefits, each Participant and each person claiming
under or through him, shall be conclusively deemed to have indicated his
acceptance and ratification of, and consent to, all provisions of the Plan and
any action or decision under the Plan by the Company, the Board or its
designated committee.
2.3 PLAN PARTICIPANTS. Unless denied the right to participate by
specific sections hereof, the following persons shall be eligible to be
Participants in the Plan and, subject to the discretion of the Board, receive
Plan Benefits:
(a) employees of the Company;
(b) officers of the Company;
(c) directors of the Company; and
(d) consultants engaged by the Company.
The foregoing classes of persons shall be referred to herein as
"Participants."
2.4 LIMITATION ON SHARES TO BE ISSUED; REVERSION OF UNEXERCISED SHARES.
The maximum number of shares of common stock of the Company, $0.001 par value
(the "Common Stock"), to be issued pursuant to all grants made under the Plan
shall be two million five hundred thousand shares. Shares awarded pursuant to
grants made under this Plan,
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which are not exercised for any reason (whether by reason of expiration,
surrender, cancellation, termination or forfeiture) shall again be available for
future grants.
2.5 SHARES OF COMMON STOCK. Shares of Common Stock to be issued may be
authorized and unissued shares of Common Stock, treasury stock, or a combination
thereof. It is contemplated that the Company, although under no legal obligation
to do so, may from time to time purchase shares of Common Stock for the purpose
of paying all or any portion of any award payable in or measured by the values
of shares of Common Stock, or for the purpose of replacing shares issued or
transferred in payment of all or part of an award. All shares so purchased
shall, unless and until transferred in payment of an award, be at all times the
property of the Company available for any corporate purposes, and no
Participants or employees or beneficiary, individual or as a group, shall have
any right, title or interest in any shares of Common Stock so purchased.
2.6 ADJUSTMENT PROVISIONS. In the event that any recapitalization, or
reclassification, split-up or consolidation of shares of Common Stock shall be
effective, or the outstanding shares of Common Stock are, in connection with a
merger or consolidation of the Company or a sale by the Company of all or a part
of its assets, exchanged for a different number or class of shares of stock or
other securities of the Company, or for shares of the stock or other securities
of any other corporation, or new, different or additional shares or other
securities of the Company or of another corporation are received by the holders
of Common Stock or any distribution is made to the holders of Common Stock other
than a cash dividend, (a) the maximum number and class of shares or other
securities that may be issued or transferred under the Plan, and (b) the number
of share units or the number and class of shares or other securities which are
the subject of any grant, shall in each case be equitably adjusted. If an
equitable adjustment cannot be made or the Board determines that further
adjustment is appropriate to accomplish fairly the purposes of the Plan, the
Board shall make such equitable adjustment under the Plan as it determines will
fairly preserve the Plan Benefits to the Participants and the Company.
2.7 EFFECTIVE DATE AND TERM OF PLAN. The Plan shall be effective
immediately upon its approval by the stockholders. Awards may be made and shares
may be issued pursuant to the Plan on or after its effective date pursuant to,
and in accordance with, agreements for the issuance thereof entered into prior
to the effective date. The Plan shall terminate ten (10) years after it becomes
effective unless terminated prior thereto by action of the Board. No further
grants shall be made under the Plan after its termination, but termination shall
not affect the rights of any Participants under any grants made prior to
termination.
2.8. PERFORMANCE BASED CRITERIA. If the Board, or its designated
committee, determines that grants of Stock Awards should be made to Participants
in order to qualify for the compensation deduction exemption established by
Section 162(m), the award shall be governed by this Section 2.8 of the Plan in
addition to other applicable sections of the Plan. The Board, or its designated
committee, shall base such compensation solely on account of the attainment of
one or more pre-established, objective performance goals. The performance goal
must be established in writing by the Board, or its designated committee, prior
to the commencement of the services to which the performance goal relates, but
no later than ninety (90) days after the commencement of the service period to
which it relates, and while the outcome is substantially uncertain (i.e., before
25% of the performance period has elapsed). Performance goals may be based on
one or more
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criteria: revenue, EPS, return on assets, return on capital, return on
investment, return on sales, productivity, market share, cash flow, generation
of free cash, Common Stock price, operating expense ratios, quality, delivery
performance or level of improvement in any of the foregoing.
The written performance goal for a Covered Employee must be based on an
objective formula or standard for performance-based compensation, such that a
third party having knowledge of the relevant performance results could calculate
the amount to be paid to the employees and must specify the individual employees
or class of employees to which it applies. Once established, the Board, or its
designated committee, shall not be entitled any discretion to increase the
amount of grants under the Plan that would otherwise be due upon attainment of
the performance goal. The Board, or its designated committee, shall obtain
stockholder approval of the performance goal prior to the payment of the
compensation.
The Board, or its designated committee, must certify in writing, prior
to the grant of Restricted Stock, that all of the performance goals and other
material terms of the arrangement for payment of the grants has been met. This
section of the Plan shall not apply to an award to a Participant unless the
Board has determined that such award should qualify for the compensation
deduction of Section 162(m).
III. STOCK AWARDS
3.1 FORM OF AWARD. Stock awards, whether performance awards or fixed
awards, may be made to selected Participants in the form of shares of Common
Stock, but which may be forfeitable and/or with restrictions on transfer in any
form as hereinafter provided.
3.2 PERFORMANCE AWARDS. Awards may be made in terms of a stated
potential maximum number of shares, with the actual number earned to be
determined by reference to the level of achievement of corporation, group,
division, individual or other specific objectives over a period or periods of
not less than one or more than ten years. No interests of any kind shall be
vested in an individual receiving a performance award until the conclusion of
the period or periods and the determination of the level of achievement
specified in the awards, and the time of vesting thereafter shall be specified
in the awards.
3.3 FIXED AWARDS. Awards may be made to Participants which are not
contingent on the performance objectives but which are contingent on the
Participant's continuing in the employ of the Company, rendering consulting
services or refraining from competitive activities for a period to be specified
in the awards, which period shall not be less than one year.
3.4 RIGHTS WITH RESPECT TO RESTRICTED STOCK. As used in the Plan, the
term "Restricted Stock" refers to all stock granted pursuant to this Plan. The
restriction on such stock may arise from specific restrictions included in the
stock grant by the Board or because the stock has not been registered pursuant
to the Securities Act of 1933, as amended. All shares of Restricted Stock issued
pursuant to this Plan shall bear a legend on the stock certificate identifying
the stock as restricted.
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3.5 TERMS AND CONDITIONS. Awards shall contain such terms and
conditions as the Board, or its designated committee, shall specify, including,
without limitation, restrictions on the sale or other disposition of the shares,
or the forfeiture of the awards upon termination of employment prior to the
expiration for a designated period of time or the occurrence of other events. In
addition, shares of Restricted Stock issued pursuant to an award shall be
released from the restrictions at the times determined by the Board, or its
designated committee,. The awards shall be paid to the Participant in shares of
Restricted Stock.
IV. STOCK OPTIONS
4.1 STOCK SUBJECT TO THE PLAN.
(a) Options may, from time to time on and after the effective date
of this Plan, be granted to employees of the Company or its
affiliates to purchase not more than the aggregate number of
shares of stock to be issued pursuant to grants made under the
Plan (subject to adjustment in accordance with paragraph
4.1(b) reserved in accordance with Section 2.4 of the Plan).
As the Board, or its designated committee, may determine from
time to time, the shares may consist either in whole or in
part, of shares of authorized but unissued Common Stock, or
shares of authorized and issued Common Stock reacquired by the
Company. If an option is surrendered or for any other reason
ceases to be exercisable in whole or in part, the shares which
were subject to such option but as to which the option has not
been exercised shall continue to be available under the Option
Plan.
(b) If there shall be any change in the stock subject to the Plan
or the stock subject to any option granted hereunder, through
merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, stock dividend (in excess of
2%), or other change in the corporate structure of the
Company, appropriate adjustment shall be made by the Board, or
its designated committee, to the aggregate number of shares
subject to the Plan and the number of shares and price per
share subject to outstanding options in order to preserve, but
not to increase, the benefits of the optionee; provided,
however, that subject to any required action by the
stockholders, if the Company shall not be the surviving
corporation in any merger, consolidation, or reorganization,
every option outstanding hereunder shall terminate, unless the
surviving corporation shall (subject to any applicable
provisions of the Internal Revenue Code) assume (with
appropriate changes) the outstanding options or replace them
with new options of comparable value (in accordance with
Section 424(a) of the Internal Revenue Code). Notwithstanding
the preceding provisions, if such surviving corporation does
not so assume or replace the outstanding portions hereunder,
each optionee shall have the right immediately prior to such
merger, consolidation, or reorganization to exercise all of
his outstanding option(s), whether or not the options have
matured.
4.2 ELIGIBILITY. Persons who shall be eligible to have granted to
them the options provide for by this Plan shall be those
persons set out in Section 2.3 of the Plan, as the Board in
its sole discretion shall determine.
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4.3(a) PLAN REQUIREMENTS. This Plan will be approved by shareholders
of the Company within twelve (12) months of this date and, as
required by Section 422 of the Internal Revenue Code, shares
of Company stock issued pursuant to this Plan will meet the
following requirements:
(1) The individual receiving an option must be an employee,
officer, director or consultant of the Company.
(2) The total number of options that may be granted pursuant to
this Plan is 2,500,000.
(3) The option must be within ten (10) years of the date the Plan
is adopted or approved by shareholders whichever is earlier.
(4) Options granted pursuant to this Plan must be exercised no
later than ten (10) years from the date of grant.
(5) The option price will be no less than the fair market value of
the stock at the time the option is granted.
(6) The option is non-transferable by the grantee except by will
or the laws of descent and distribution and is exercisable,
during the lifetime of the grantee, only by the grantee.
(7) The grantee, at the time of the grant, does not own stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of the Company.
4.3(b) ADMINISTRATION OF THE PLAN. The Plan shall be administered as
set forth in Section 2 of the Plan.
4.4(a) PURCHASE PRICE; TERMS; EXERCISE OF OPTIONS.
(1) Calculation of Purchase Price. The purchase price of the
Common Stock under each stock option shall be 100% of the fair
market value of the Common Stock on the date of grant (the
"Purchase Price"). The fair market value of the Common Stock
on any day shall be (i) if the principal market for the Common
Stock is a national securities exchange or the National Market
System of the National Association of Securities Dealers
Automated Quotations, the highest closing price of the Common
Stock on such exchange or system on the date the option is
granted or if no sale of the Company's Common Stock shall have
been made on any stock exchange on that day, on the next
preceding day on which there was a sale of such stock, or,
(ii) if the principal market for the Common Stock is not one
of the markets noted in 4.4(a)(1)(i) and the Common Stock is
quoted on the National Association of Securities Dealers
Automated Quotations System, the mean between the closing bid
and the closing asked prices for the Common Stock on such day
on such System, or (iii) if the principal market for the
Common Stock is not a national
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securities exchange and the Common Stock is not quoted on the
National Association of Securities Dealers Automated
Quotations System, the mean between the highest bid and lowest
asked price for the Common Stock on such day as reported by
the National Quotation Bureau, Inc.; provided that if clauses
(i), (ii), and (iii) of this paragraph are all inapplicable,
or if no trades have been made or no quotes are available for
such day, the fair market value of the Common stock shall be
determined by the Board by any method consistent with
applicable regulations adopted by the Commissioner of Internal
Revenue relating to the stock options. The Purchase Price
shall be subject to adjustment as provided in paragraph 2(b)
hereof.
(2) (a) Payment of Purchase Price. The Purchase Price shall become
due immediately upon exercise of the option and shall be
payable in full in cash. For purposes of this paragraph
4.4(a)(2), the exercise date shall be the date on which the
Company receives written notice of the exercise of the option,
together with payment of the Purchase Price in the form
authorized by the Board.
(b) Terms and Conditions of Options. Each option granted
pursuant to this Plan shall be evidenced by a written Stock
Option Agreement (the "Agreement") executed by the Company and
the person to whom such option is granted (the "Optionee").
The term of each option shall be for such a period of time,
not more than ten (10) years from the date it is granted, as
the Board may determine. All options granted under the Plan
shall expire on the earlier of (i) the term set by the Board
or (ii) 90 days after the Optionee's death, disability or
retirement, or (iii) termination (for any reason) of the
Optionee's employment with the Company. During the lifetime of
the Optionee, the option shall be exercisable only by the
Optionee and shall not be assignable or transferable other
than by will or the laws of descent and distribution. In
addition, the Agreement may contain such other terms,
provisions and conditions as may be determined by the Board
(and not inconsistent with this Plan) including, without
limitation, provisions relating to the effect upon
exercisability of the death or termination of employment of
the Optionee, the extension of credit to optionees by the
Company or the guarantee by the Company of loans to optionees
from third parties to finance the exercise of options granted
hereunder, and relating to the exercise of stock appreciation
rights with respect to options granted hereunder.
(c) Exercise of Option. The option shall be exercisable at any
time and from time to time pursuant to the exercise schedule
and in accordance with the terms of the Agreement as follows:
(1) Exercise Schedule. The option shall be exercisable in
not more than ten (10) equal annual installments of
10% each of the total number of shares for which this
option is granted beginning on June 1 of each year,
and each June 1 of succeeding years thereafter.
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(2) Method of Exercise. The option shall be exercisable
by a written notice delivered by the Optionee (or
other person exercising the option) to the Board.
The notice shall be addressed to the Board c/o Steve
Dempsey, President, Pet Quarters, Inc., P.O. Box 410,
Lonoke, Arkansas 72086. The notice shall:
(i) state the election to exercise the
option, the number of shares in respect of which it
is being exercised, the person in whose name the
stock certificate or certificates for such shares of
Common Stock is to be registered, his address and
social security number (or if more than one, the
names, addresses and social security numbers of such
persons);
(ii) contain such representations and
agreements as to the investment intent of the person
exercising the option with respect to such shares of
Common Stock as may be satisfactory to the Company's
counsel;
(iii) be signed by the person or persons
entitled to exercise the option and, if the option is
being exercised by any person or persons other than
the Optionee, be accompanied by proof, satisfactory
to counsel for the Company, of the right of such
person or persons to exercise the Option; and
(iv) be accompanied by payment to the
Company of the full Purchase Price of the shares with
respect to which the option is exercised. The
Purchase Price shall be paid in cash.
(3) Conditions to be Satisfied Prior to Issuance of
Common Stock. The Company shall not be required to
issue or deliver any certificate for shares of Common
Stock purchased upon the exercise of an option (i)
prior to the completion of any registration or other
qualification of such shares under any state or
federal laws or rulings or regulations of any
government regulatory body, which the Company shall
determine to be necessary or advisable, or (ii) prior
to receiving an opinion of counsel, satisfactory to
the Company, that the sale or issuance of such shares
is exempt from these registration or qualification
requirements.
(4) Restrictions on Exercise. As a condition to his
exercise of this option, the Company may require the
person exercising the option to make any
representation and warranty to the Company as may be
required by any applicable law or regulation.
4.5 LOANS OR GUARANTEE OF LOANS. The Board may authorize the extension
of a loan to an optionee by the Company (or the guarantee by the Company of a
loan obtained by an Optionee from a third party) in order to assist an Optionee
to exercise an option granted under the Plan. The terms of any loans or
guarantees, including the interest rate and terms of repayment, will be subject
to the discretion of the Board. Loans and guarantees may be granted without
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security, the maximum credit available being the exercise price of the option
sought to be executed plus any federal and state income tax liability incurred
upon exercise of the option.
4.6 TERMINATION AND NEW GRANT OF OPTIONS. The Board shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Optionees, the termination of any or all outstanding options under the
Plan to grant in substitution therefor new options under the Plan covering the
same or different numbers of shares of Common Stock but having a Purchase Price
per share not less than fair market value on the net grant date.
4.7 USE OF PROCEEDS. Proceeds realized from the sale of Common Stock
pursuant to options granted under the Plan shall constitute general funds of the
Company.
4.8 AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN.
(a) The Board may at any time suspend or terminate the Plan, and
may amend it from time to time in such respects as the Board
may deem advisable; provided, however, except as provided in
paragraph 4.1(b)hereof, the Board shall not amend the Plan in
the following respects without the consent of shareholders
then sufficient to approve the Plan in the first instance:
(i) to increase the maximum number of shares subject
to the Plan; or
(ii) to change the designation or class of persons
eligible to receive options under the Plan.
(b) Unless the Plan theretofore shall have been terminated, the
Plan shall terminate ten (10) years after the effective date
as set forth in Section 2.7 of the Plan. No option may be
granted when the Plan has been suspended, or after the
termination of the Plan, and no amendment, suspension or
termination of the Plan shall, without the Optionee's consent,
alter or impair any rights or obligations under any option
therefore granted to him under the Plan.
V. INDEMNIFICATION OF BOARD
5.1 GRANTS. In addition to such other rights of indemnification as they
may have as directors or as members of the Board, the members of the Board shall
be indemnified by the Company against the reasonable expenses, including
attorney's fees actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any option granted
thereunder, and against all amounts paid by them in settlement thereof provided
such settlement is approved by independent legal counsel selected by the Company
or paid by them in satisfaction of a judgment in any such action, suit or
proceeding that such Board member is liable for negligence or misconduct in the
performance of his duties.
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VI. AMENDMENTS
6.1 AMENDMENTS. The Plan may be amended or terminated by the Board at
any time and in any respect, except that no amendment may be made without the
approval of the stockholders of the Company if such amendment would:
(a) increase the maximum number of shares of Common Stock
available for issuance under the Plan;
(b) modify the class of eligible employees who are Participants in
the Plan; or
(c) materially increase Plan Benefits accruing to Participants
under the Plan.
Similarly, subject to obtaining the consent of the parties where
required by contract law, the Board may alter, amend or modify any award or
grant made pursuant to this Plan in any respect not in conflict with the
provisions of the Plan, if the Board deems such alteration, amendment or
modification to be in the best interest of the Participants or the Company by
reason of changes or interpretation in tax, securities or other applicable laws.
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